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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 56-0950247
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(Address of Principal Executive Offices) (Zip Code)
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If this form relates to the registration of a class of If this form relates to the registration of a class of
securities pursuant to Section 12(b) of the securities pursuant to Section 12(g) of the
Exchange Act and is effective pursuant to General Exchange Act and is effective pursuant to General
Instruction A.(c), please check the following box. /x/ Instruction A.(d), please check the following box. / /
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Common Stock, $0.01 par value per share New York Stock Exchange
(regular way and when-issued)
Series A Junior Participating Preferred Stock New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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ITEM 1: DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The title of the classes of securities to be registered hereunder are
Common Stock, $0.01 par value per share (the "Common Stock"), and Series A
Junior Participating Preferred Stock.
A description of the Common Stock is set forth under the heading
"Description of Capital Stock" in the Information Statement which is attached to
this document as Exhibit 99.1, which description is incorporated into this
document by reference.
A description of the Series A Junior Participating Preferred Stock is
set forth as follows. On May 17, 1999, the Board of Directors of R.J.
Reynolds Tobacco Holdings, Inc. (the "Company") declared a dividend, payable
on May 27, 1999 (the "Record Date"), of preferred stock purchase rights (the
"Rights") in an amount such that one Right is payable with respect to each
share of Common Stock of the Company outstanding as of the close of business
on June 14, 1999.
Before the Distribution Date, as defined below, the Rights will be
evidenced (1) with respect to any of the shares of Common Stock held in
uncertificated book-entry form (a "Book-Entry") outstanding as of the Record
Date, by that Book-Entry and (2) with respect to the shares of Common Stock
evidenced by Common Stock certificates outstanding as of the Record Date, by
that Common Stock certificate, and the registered holders of the Common Stock
will be deemed to be the registered holders of the Rights. Before the
Distribution Date, transfer on the Company's direct registration system of any
Common Stock represented by a Book-Entry, or by a Common Stock certificate, will
also constitute the transfer of the Rights associated with the Common Stock
represented by that Book-Entry or certificate. After the Distribution Date, the
Rights Agent will mail separate certificates evidencing the Rights to each
record holder of the Common Stock as of the close of business on the
Distribution Date, and thereafter the Rights will be transferable separately
from the Common Stock. The "Distribution Date" generally means the earlier of
(1) the close of business on the 10th day (or such later day as may be
designated by action of a majority of the Board of Directors of the Company)
after the date (the "Stock Acquisition Date") of the first public announcement
that is after June 14, 1999 that a person (other than the Company or any of
its subsidiaries or any employee benefit plan of the Company or any such
subsidiary) has acquired beneficial ownership of 15% or more of the
outstanding shares of Common Stock (an "Acquiring Person") and (2) the close
of business on the 10th business day (or such later day as may be designated
before any person has become an Acquiring Person by the Board of Directors)
after the date of the commencement of a tender or exchange offer by any
person which would, if consummated, result in that person becoming an
Acquiring Person.
Before the Distribution Date, the Rights will not be exercisable. After the
Distribution Date, each Right will be exercisable to purchase, for $150 (the
"Purchase Price"), one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock, par value $0.01 per share (the "Preferred Stock").
The terms and conditions of the Rights are set forth in a Rights Agreement dated
as of May 17, 1999, between the Company and its rights agent (the "Rights
Agreement").
At any time after any person has become an Acquiring Person (but before the
occurrence of any of the events described in the second succeeding paragraph),
each Right (other than Rights beneficially owned by the Acquiring Person and
certain affiliated persons) will entitle the holder to purchase, for the
Purchase Price, a number of shares of Common Stock having a market value of
twice the Purchase Price.
At any time after any person has become an Acquiring Person (but before any
person becomes the beneficial owner of 50% or more of the outstanding shares of
Common Stock or the occurrence of any of the events described in the next
paragraph), the Board of Directors may exchange all or part of the Rights (other
than Rights beneficially owned by an Acquiring Person and certain affiliated
persons) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right.
If, after any person has become an Acquiring Person, (1) the Company is
involved in a merger or other business combination in which the Company is not
the surviving corporation or its Common Stock is exchanged for other
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securities or assets or (2) the Company and/or one or more of its subsidiaries
sell or otherwise transfer assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its subsidiaries, taken as a
whole, then each Right (other than Rights beneficially owned by the Acquiring
Person and certain affiliated persons) will entitle the holder, after the
Distribution Date, to purchase, for the Purchase Price, a number of shares of
common stock of the other party to that business combination or sale (or in
certain circumstances, an affiliate) having a market value of twice the Purchase
Price.
The Board of Directors may redeem all of the Rights at a price of $0.01 per
Right at any time prior to the close of business on the tenth day after public
announcement that any person has become an Acquiring Person (subject to
extension by a majority of the Board of Directors of the Company). After any
person has become an Acquiring Person, Rights may be redeemed only with the
approval of a majority of the Board of Directors of the Company.
The Rights will expire on May 27, 2009, unless earlier exchanged or
redeemed.
For so long as the Rights are redeemable, the Rights Agreement may be
amended in any respect. At any time when the Rights are no longer redeemable,
the Rights Agreement may be amended in any respect that does not adversely
affect Rights holders (other than any Acquiring Person and certain affiliated
persons), cause the Rights Agreement to become amendable other than in
accordance with this sentence or cause the Rights again to become redeemable.
Rights holders have no rights as a stockholder of the Company, including
no right to vote and no right to receive dividends.
The Rights Agreement includes antidilution provisions designed to prevent
efforts to diminish the effectiveness of the Rights.
As of May 12, 1999, assuming completion of the distribution of the
Company's common stock to Holdings stockholders based on a one-for-three
distribution ratio, there were 108,570,573 shares of Common Stock outstanding
and 8,000,000 shares reserved for issuance under the Company's stock option
plans. Each outstanding share of Common Stock on the Record Date will receive
one Right. Shares of Common Stock issued after the Record Date and before the
Distribution Date will be issued with a Right attached so that all shares of
Common Stock outstanding before the Distribution Date will have Rights attached.
1,500,000 shares of Preferred Stock have been reserved for issuance upon
exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person that attempts to acquire the Company without a
condition to such an offer that a substantial number of the Rights be acquired
or that the Rights be redeemed or declared invalid. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors since the Rights may be redeemed by the Company as described above.
While the dividend of the Rights will not be taxable to stockholders or to
the Company, stockholders or the Company may, depending upon the circumstances,
recognize taxable income in the event that the Rights become exercisable as set
forth above.
The foregoing description of the Rights Agreement is qualified in its
entirety by reference to the full text of the Rights Agreement, which is
attached to this document as Exhibit 4.1 and incorporated in this document by
reference.
ITEM 2: EXHIBITS
The following documents are filed as exhibits hereto:
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EXHIBIT
NUMBER DESCRIPTION
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2.1 Distribution Agreement dated as of May 12, 1999 among RJR
Nabisco Holdings Corp., RJR Nabisco, Inc. and R.J. Reynolds
Tobacco Company.
2.2 Form of Certificate of Merger and Agreement and Plan of Merger
among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and R.J.
Reynolds Tobacco Holdings, Inc.
3.1 Form of Restated Certificate of Incorporation of R.J. Reynolds
Tobacco Holdings, Inc., to be in effect upon the effectiveness
of the distribution.
3.2 Form of By-Laws of R.J. Reynolds Tobacco Holdings, Inc., to be
in effect upon the effectiveness of the distribution.
4.1 Form of Rights Agreement between R.J. Reynolds Tobacco Holdings,
Inc. and its rights agent.
10.1 Form of Tax Sharing Agreement among RJR Nabisco Holdings Corp.,
RJR Nabisco, Inc., R.J. Reynolds Tobacco Company and Nabisco
Holdings Corp.
10.2 Indenture dated as of May 15, 1999 among RJR Nabisco, Inc., R.J.
Reynolds Tobacco Company and The Bank of New York as trustee.
10.3 First Supplemental Indenture and Waiver dated as of April 27,
1999 between RJR Nabisco, Inc. and The Bank of New York, to the
Amended and Restated Indenture dated as of July 24, 1995 between
RJR Nabisco, Inc. and The Bank of New York as successor trustee.
10.4 Second Supplemental Indenture and Waiver dated as of April 27,
1999 between RJR Nabisco, Inc. and The Bank of New York, to the
Amended and Restated Indenture dated as of May 18, 1992 between
RJR Nabisco, Inc. and The Bank of New York as successor trustee,
as amended by the Form of First Supplemental Indenture and
Waiver thereto dated as of June 2, 1995.
10.5 Credit Agreement dated as of May 7, 1999, among RJR Nabisco,
Inc., RJR Nabisco Holdings Corp. .5 and the lending institutions
listed and to be listed from time to time on Annex 1.
10.6 Guarantee dated as of May 18, 1999 by R.J. Reynolds Tobacco
Company to the holders and to The Bank of New York, as trustee,
in connection with the Indenture dated as of May 15, 1999 among
RJR Nabisco, Inc., R.J. Reynolds Tobacco Company and The Bank of
New York as trustee.
10.7 Form of Subsidiary Guaranty by R.J. Reynolds Tobacco Company to
the creditors defined therein, in connection with the Credit
Agreement dated as of May 7, 1999, among RJR Nabisco, Inc., RJR
Nabisco Holdings Corp. and the lending institutions listed and
to be listed from time to time on Annex 1.
10.8 RJR Nabisco, Inc. 1999 Long Term Incentive Plan.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule for the year ended December 31, 1998.
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EXHIBIT
NUMBER DESCRIPTION
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27.2 Financial Data Schedule for the year ended December 31, 1997.
27.3 Financial Data Schedule for the year ended December 31, 1996.
27.4 Financial Data Schedule for the three months ended March 31,
1999.
27.5 Financial Data Schedule for the three months ended March 31,
1998.
99.1 Information Statement of R.J. Reynolds Tobacco Holdings, Inc.
dated as of May 19, 1999.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By: /s/ Colin McBride
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Name: Colin McBride
Title: Senior Vice President,
Associate General Counsel and
Corporate Secretary
Date: May 19, 1999
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Exhibit 2.1
DISTRIBUTION AGREEMENT
dated as of May 12, 1999
among
RJR NABISCO HOLDINGS CORP.
(to be renamed "Nabisco Group Holdings Corp.")
RJR NABISCO, INC.
(to be renamed "R.J. Reynolds Tobacco Holdings, Inc..")
and
R. J. REYNOLDS TOBACCO COMPANY
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TABLE OF CONTENTS
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PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................................1
ARTICLE 2
RESTRUCTURING
SECTION 2.01. The Restructuring..............................................9
ARTICLE 3
THE DISTRIBUTION
SECTION 3.01. Cooperation Before the Distribution...........................10
SECTION 3.02. Holdings Board Action; Conditions Precedent to
the Distribution...........................................11
SECTION 3.03. The Distribution..............................................11
SECTION 3.04. Stock Dividends...............................................12
SECTION 3.05. Fractional Shares.............................................12
ARTICLE 4
EMPLOYEE BENEFITS
SECTION 4.01. Definitions...................................................12
SECTION 4.02. Employees.....................................................14
SECTION 4.03. Qualified Defined Contribution Plans..........................14
SECTION 4.04. Qualified Defined Benefit Plans...............................15
SECTION 4.05. Supplemental Benefit Plans....................................17
SECTION 4.06. Welfare Benefit Plans.........................................18
SECTION 4.07. Employee Stock Options and Restricted Stock...................18
SECTION 4.08. Outside Director Benefits.....................................19
SECTION 4.09. Deferred Compensation.........................................20
SECTION 4.10. Employee Benefit Transition Services..........................20
SECTION 4.11. COBRA.........................................................21
SECTION 4.12. Third Party Beneficiaries.....................................21
SECTION 4.13. WARN Act......................................................21
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PAGE
ARTICLE 5
CERTAIN RJRN COVENANTS
SECTION 5.01. Certain Definitions...........................................21
SECTION 5.02. Restricted Payments...........................................24
SECTION 5.03. Prohibition on Certain Leveraged Transactions
and Other Mergers..........................................25
SECTION 5.04. Termination...................................................26
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01. Provision of Corporate Records................................26
SECTION 6.02. Access to Information.........................................26
SECTION 6.03. Future Litigation and Other Proceedings.......................27
SECTION 6.04. Reimbursement.................................................27
SECTION 6.05. Retention of Records..........................................27
SECTION 6.06. Confidentiality...............................................28
SECTION 6.07. Delivery of Officer's Certificates............................28
SECTION 6.08. Inapplicability of Article to Tax Matters.....................29
ARTICLE 7
INDEMNIFICATION FOR NON-TOBACCO LIABILITIES
SECTION 7.01. RJRN Indemnification of the Nabisco Group for
Certain Liabilities........................................29
SECTION 7.02. Holdings Indemnification of RJRN Group........................30
SECTION 7.03. Third-Party Rights; Tax Benefits..............................30
SECTION 7.04. Notice and Payment of Claims..................................30
SECTION 7.05. Notice and Defense of Third-Party Claims (Other
than Tobacco Claims).......................................31
SECTION 7.06. Contribution..................................................32
ARTICLE 8
INDEMNIFICATION FOR TOBACCO LIABILITIES
SECTION 8.01. Notice and Defense of Tobacco Claims Against
RJRN; Tobacco Claims Against Holdings or Other
Members of the Nabisco Group...............................32
SECTION 8.02. Indemnification of Nabisco Indemnitees for
Tobacco Liabilities........................................34
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PAGE
SECTION 8.03. Preservation of Historical Privileges.........................35
SECTION 8.04. Third Party Rights; Tax Benefits..............................36
ARTICLE 9
CERTAIN OTHER AGREEMENTS
SECTION 9.01. Intercompany Accounts.........................................36
SECTION 9.02. Intellectual Property Rights and Licenses.....................36
SECTION 9.03. Further Assurances and Consents...............................37
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices......................................................37
SECTION 10.02. Amendments; No Waivers.......................................38
SECTION 10.03. Expenses.....................................................38
SECTION 10.04. Successor and Assigns........................................39
SECTION 10.05. Governing Law................................................39
SECTION 10.06. Counterparts; Effectiveness; No Third Party
Beneficiaries..............................................39
SECTION 10.07. Entire Agreement.............................................39
SECTION 10.08. Tax Sharing Agreement; Certain Transfer Taxes................39
SECTION 10.09. Jurisdiction.................................................40
SECTION 10.10. Existing Arrangements........................................40
SECTION 10.11. Termination Before the Distribution..........................41
SECTION 10.12. Severability.................................................41
SECTION 10.13. Specific Performance.........................................41
EXHIBITS
Exhibit A -- Form of Corporate Agreement
Exhibit B -- Certain RJRN and Holdings Indebtedness
Exhibit C -- Form of Intercompany Services Agreement
Exhibit D -- Form of Tax Sharing Agreement
Exhibit E -- Form of Reorganization Merger Certificate
Exhibit F -- Form of Name Change Merger Certificate
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PAGE
SCHEDULES
Schedule 4.01(a) -- Holdings Employees and Retirees
Schedule 4.01(b) -- RJRN Employees and Retirees
Schedule 4.10 -- Terms and Conditions of Certain Benefits Services
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DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT dated as of May 12, 1999 among RJR Nabisco
Holdings Corp. (to be renamed "Nabisco Group Holdings Corp."), a Delaware
corporation (together with its successors, "Holdings"), RJR Nabisco, Inc. (to be
renamed "R.J. Reynolds Tobacco Holdings, Inc."), a Delaware corporation
(together with its successors, "RJRN"), and R. J. Reynolds Tobacco Company, a
New Jersey corporation (together with its successors, "RJRT").
RECITALS
WHEREAS, RJRN is currently a wholly owned Subsidiary of Holdings;
WHEREAS, the Holdings Board has determined that it is in the best
interests of Holdings and its stockholders (i) to cause the Nabisco Shares to be
held directly by Holdings and (ii) to distribute in a tax-free transaction all
of the outstanding shares of RJRN Common Stock to Holdings Stockholders as of
the Record Date, in each case on the terms and conditions set forth herein;
WHEREAS, in this Agreement, the parties have set forth the principal
corporate transactions to be effected in connection with the Distribution and
the terms of the relationship between, and the respective rights and obligations
of, the parties following the Distribution; and
WHEREAS, the parties are entering into this Agreement for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and agreed, in order to obtain the benefits that each party
reasonably believes will accrue to it as a result of the transactions
contemplated hereby, by the other Distribution Documents and by the Purchase
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used herein, the following terms have
the following meanings:
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"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding of any nature (whether criminal, civil,
legislative, administrative, regulatory, prosecutorial or otherwise) by or
before any arbitrator or Governmental Entity.
"Affiliate" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, the term "control"
(including the correlative terms "controlling", "controlled by" and "under
common control with") means the direct or indirect possession of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
For purposes of this Agreement, no member of one Group shall be treated as an
Affiliate of any member of the other Group.
"Business Day" means any day other than a Saturday, Sunday or one on
which banks are authorized or required by law to close in New York, New York.
"Business" means the Tobacco Business or the Food Business, as the
context may indicate.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Corporate Agreement" means the Corporate Agreement to be dated as of
the Distribution Date among Holdings, RJRN and Nabisco, substantially in the
form of Exhibit A hereto.
"Debt Tender Offers/Consent Solicitations" means, in respect of all of
the Indebtedness set forth on Exhibit B hereto, tender offers for that
Indebtedness by RJRN and Holdings as issuers thereof, together with
solicitations by those issuers of the holders of that Indebtedness which result
in the receipt of all of the consents of those holders that are necessary to
amend the indentures and other agreements relating to that Indebtedness so as to
permit the consummation of all of the transactions contemplated by the Purchase
Agreement and the Distribution Documents under each such indenture and
agreement.
"Defense Materials" means, with respect to any Group, any and all
written or oral information (including, without limitation, any and all (A)
written communications, (B) documents, (C) factual and legal analyses and
memoranda, (D) interview reports and reports of experts, consultants or
investigators, (E) meetings in person or by telephone and e-mail or other forms
of electronic communication, and (F) records, reports or testimony regarding
those
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communications, documents, memoranda or meetings) (i) within the custody or
control, within the meaning of Rule 34 of the Federal Rules of Civil Procedure,
or reasonably accessible by that Group or its Representatives (as defined below)
and (ii) directly or indirectly arising out of or relating to, the preparation
or litigation of any Tobacco Claim or other Action in which Holdings, RJRN
and/or RJRT have a common interest.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"Disclosure Documents" means the Form 8-A, the Information Statement,
the offering memorandum relating to the sale of senior unsecured debt securities
of RJRN before the Effective Time, the offers to purchase and consent
solicitation statements relating to the Debt Tender Offers/Consent Solicitations
and related documents, each Report on Form 8-K filed by either RJRN or Holdings
in connection with the matters contemplated by any of the Distribution Documents
and each other report or filing made by RJRN, Holdings or Nabisco under the 1933
Act or the 1934 Act in connection with the matters contemplated by any of the
Distribution Documents, in each case as amended or supplemented.
"Distribution" means the distribution by Holdings, pursuant to the
terms and subject to the conditions hereof, of all of the outstanding shares of
RJRN Common Stock to the Holdings Stockholders of record as of the Record Date.
"Distribution Agent" means First Chicago Trust Company of New York.
"Distribution Date" means the Business Day on which the Distribution is
effected.
"Distribution Documents" means this Agreement, the Tax Sharing
Agreement, the Intercompany Services Agreement, the Corporate Agreement, the
Name Change Plan of Merger, the Reorganization Merger Agreement, and the
exhibits and schedules to those agreements.
"Effective Time" means the time immediately before the close of
business on the Distribution Date.
"Finally Determined" means, with respect to any Action, threatened
Action or other matter, that the outcome or resolution of that Action,
threatened Action or matter has either (i) been decided by an arbitrator or
Governmental Entity of competent jurisdiction by judgment, order, award, or
other ruling or (ii) has been settled or voluntarily dismissed and, in the case
of each of clauses (i) and (ii), the claimants' rights to maintain that Action,
threatened Action or other
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matter have been finally adjudicated, waived, discharged or extinguished, and
that judgment, order, ruling, award, settlement or dismissal (whether mandatory
or voluntary, but if voluntary that dismissal must be final, binding and with
prejudice as to all claims specifically pleaded in that Action) is subject to no
further appeal, vacatur proceeding or discretionary review.
"Food Business" means the businesses and operations of the Nabisco
Group, whether conducted prior to, at or after the Effective Time, which include
the production, manufacturing, marketing, distribution and sale of cookies,
crackers and other food, sauce and snack products.
"Form 8-A" means the registration statement on Form 8-A that RJRN will
file with the SEC to register the RJRN Common Stock under the 1934 Act in
connection with the Distribution, as that registration statement may be amended
from time to time.
"Governmental Entity" means any government or any state, department or
other political subdivision thereof, or any governmental body, agency, authority
(including, but not limited to, any central bank or taxing authority) or
instrumentality (including, but not limited to, any court, tribunal or grand
jury) exercising executive, prosecutorial, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Group" means, as the context requires, the RJRN Group or the Nabisco
Group.
"Holdings Board" means the Board of Directors of Holdings.
"Holdings Common Shares" means shares of common stock, par value $0.01
per share, of Holdings.
"Holdings Stockholders" means the holders of the Holdings Common
Shares.
"Information Statement" means the information statement, substantially
complying with the disclosure items of Schedule 14C of the 1934 Act, that RJRN
will file as an exhibit to the Form 8-A and send to each Holdings Stockholder of
record as of the Record Date in connection with the Distribution.
"Intercompany Services Agreement" means the Intercompany Services
Agreement to be dated as of the Distribution Date among Holdings, Nabisco and
RJRN, substantially in the form of Exhibit C hereto.
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"Joint Defense Agreements" means the continuing and prospective
agreements, arrangements and understandings, written or unwritten, to which
Holdings, RJRN, RJRT and/or any of their respective counsel are now or hereafter
a party, which are designed to facilitate the parties' continued cooperation and
joint protection through the lawful sharing of communications, strategies,
information, documents, reports, interviews and other data, including privileged
or attorney-work product documents and information for use for the purpose of
preparing for and litigating Tobacco Claims and other Actions or threatened
Actions in which the parties have a common interest.
"Liabilities" means any and all claims, debts, liabilities,
assessments, fines, penalties, damages, losses, disgorgements and obligations,
of any kind, character or description (whether absolute, contingent, matured,
not matured, liquidated, unliquidated, accrued, known, unknown, direct,
indirect, derivative or otherwise) whenever arising, including, but not limited
to, all costs and expenses relating thereto (including, but not limited to, all
expenses of investigation, all attorneys' fees and all out-of-pocket expenses in
connection with any Action, threatened Action or Tobacco Claim).
"Nabisco" means Nabisco Holdings Corp., a Delaware corporation, and its
successors.
"Nabisco Group" means Nabisco, the Subsidiaries of Nabisco and, on and
after the Effective Time, Holdings, including all predecessors and successors to
each of those Persons.
"Nabisco Group Liabilities" means, except as otherwise specifically
provided in any Distribution Document, all Liabilities, whether arising before,
at or after the Effective Time, of or in any way relating, in whole or in part,
to any member of the Nabisco Group (other than any Tobacco Liabilities of
Holdings) or arising from the conduct of, in connection with or in any way
relating to, in whole or in part, the Food Business, or the ownership or use of
assets or property in connection with that Business. Notwithstanding the
foregoing, "Nabisco Group Liabilities" shall exclude (i) all Liabilities for
Taxes of Holdings or any member of the Nabisco Group (because the Tax Sharing
Agreement will govern those Liabilities) and (ii) all Liabilities for the fees,
costs, expenses and transfer taxes (and other similar fees and expenses) that
Sections 10.03 and 10.08 impose on RJRN.
"Nabisco Shares" means shares of the Class B common stock, par value
$0.01 per share, of Nabisco.
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"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"NYSE" means The New York Stock Exchange.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
Governmental Entity.
"Purchase Agreement" means the Purchase Agreement dated as of March 9,
1999 among RJRN, RJRT and Japan Tobacco Inc., as amended, together with the
exhibits and schedules thereto.
"Record Date" means the date determined by the Holdings Board (or by a
committee of that board or any other Person acting under authority duly
delegated to that committee or Person by the Holdings Board or a committee of
that board) as the record date for determining the Holdings Stockholders of
record entitled to receive the Distribution.
"RJRI Sale Closing" means the Closing as the Purchase Agreement defines
that term.
"RJRN Board" means the Board of Directors of RJRN.
"RJRN Common Stock" means the common stock of RJRN, par value $0.01 per
share.
"RJRN Group" means RJRN, the Subsidiaries of RJRN (other than Nabisco
and the Subsidiaries of Nabisco) and Holdings (but only with respect to all
matters and conduct occurring or arising at any time before the Effective Time,
and in no event as to any matter or conduct occurring on or after the Effective
Time), including all predecessors and successors to each of those Persons.
"RJRN Group Liabilities" means, except as otherwise specifically
provided in any Distribution Document, (i) all Liabilities (other than any
Tobacco Liabilities), whether arising before, at or after the Effective Time, of
or in any way relating, in whole or in part, to any member of the RJRN Group or
arising from the conduct of, in connection with or in any way relating to, in
whole or in part, the Tobacco Business, or the ownership or use of assets or
property in connection with that Business, before, at or after the Effective
Time and (ii) all Liabilities for
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the fees, costs, expenses and transfer taxes (and other similar fees and
expenses) that Sections 10.03 and 10.08 impose on RJRN. Notwithstanding the
foregoing, "RJRN Group Liabilities" shall exclude (x) all Liabilities for Taxes
of Holdings or any member of the RJRN Group (because the Tax Sharing Agreement
will govern those Liabilities), and (y) all Liabilities in respect of any 9 1/2%
Trust Originated Preferred Securities of RJR Nabisco Holdings Capital Trust II
that remain outstanding after the Effective Time.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
that Person.
"Tax" has the meaning assigned to that term in the Tax Sharing
Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement to be dated as
of the Distribution Date among Holdings, RJRN and Nabisco, substantially in the
form of Exhibit D hereto.
"Tobacco Business" means the production, manufacturing, marketing,
distribution and sale of tobacco products of any description and any other
businesses and operations of RJRT and the other Subsidiaries of RJRN (other than
Nabisco and the Subsidiaries of Nabisco), in each case whether conducted prior
to, at or after the Effective Time.
"Tobacco Claim" means any demand, assertion, inquiry or claim that, in
whole or in part, is the basis for, could result in or give rise to, an Action
or threatened Action that:
(i) directly, indirectly or derivatively is based on, arises out of
or in any way relates to, in whole or in part, the use, sale,
distribution, manufacture, development, advertising, marketing or
health effects of, exposure to, or to research, statements or warnings
regarding, tobacco products of any description; or
(ii) seeks to impose any Liability on RJRN or Holdings on the
grounds that any Liability of RJRT or any of its Subsidiaries or
Affiliates that is based, in whole or in part, on an Action described
in clause (i) of this definition is enforceable against or recoverable
from RJRN or Holdings, as the case may be.
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"Tobacco Liabilities" means all Liabilities that arise, in whole or in
part, out of any Tobacco Claim which may at any time (whether past, present or
future) be made, commenced, asserted or pursued. Notwithstanding the foregoing,
"Tobacco Liabilities" shall exclude any Liabilities for Taxes of Holdings or any
member of the RJRN Group (because the Tax Sharing Agreement will govern those
Liabilities).
(b) Each of the following terms is defined in the Section set forth
opposite that term:
Term Section
---- -------
414(1) Amount 4.04
COBRA Coverage 4.11
Employee Welfare Benefit Plan 4.06
414 (1) Amount 4.04
Holdings Preamble
Holdings 401(k) Plan 4.03
Holdings Actuary 4.04
Holdings Deferred Compensation 4.09
Assets and Liabilities
Holdings Retirement Plan 4.04
Holdings Supplemental Assets and 4.05
Liabilities
Indemnified Party 7.04
Indemnifying Party 7.04
IRS 4.03
Nabisco Indemnitee 7.01(a)
Name Change Effective Time 2.01(c)
Name Change Merger 2.01(c)
Name Change Plan of Merger 2.01(c)
NameSub 2.01(a)
PBGC 4.04
Reorganization Effective Time 2.01(b)
Reorganization Merger 2.01(b)
Reorganization Merger Agreement 2.01(b)
ReorgSub 2.01(a)
Representatives 6.06
Restricted Stock 4.07
Retained Deferred Compensation 4.09
Assets and Liabilities
Retained Supplemental Assets and 4.05
Liabilities
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Term Section
----
RJRN Preamble
RJRN's Actuary 4.04
RJRN 401(k) Plan 4.03
RJRN Indemnitee 7.02(a)
RJRN Restricted Shares 4.07
RJRN Retirement Plan 4.04
RJRN Tobacco Claim 8.01
RJRT Preamble
Third Party Claim 7.05
Transferred Participants 4.04
WARN Act 4.13
ARTICLE 2
RESTRUCTURING
SECTION 2.01. The Restructuring. Upon the terms and subject to the
conditions set forth in the Distribution Documents, the parties agree that the
following transactions will occur and become effective before or as of the
Distribution Date (but, in each case before the Effective Time) on or after the
consummation of the Debt Tender Offers/Consent Solicitations in the following
sequence:
(a) Holdings will form two wholly-owned Subsidiaries, one of which
this Agreement refers to as "ReorgSub" and the other of which this Agreement
refers to as "NameSub". ReorgSub and NameSub will be Delaware corporations and
Holdings will form them in accordance with the DGCL.
(b) Holdings will cause ReorgSub to merge with and into RJRN in the
manner set forth in this Section 2.01(b) (the "Reorganization Merger"), at which
time the separate existence of ReorgSub shall cease, and RJRN shall be the
surviving corporation. The Reorganization Merger shall be effected in accordance
with the DGCL pursuant to an agreement and plan of merger between RJRN and
ReorgSub substantially in the form of Annex A to Exhibit E hereto (the
"Reorganization Merger Agreement"). RJRN and ReorgSub will file a certificate of
merger (with the Reorganization Merger Agreement attached as an exhibit)
substantially in the form of Exhibit E hereto with the Secretary of State of the
State of Delaware and make all other filings or recordings required by the DGCL
in connection with the Reorganization Merger. The Reorganization Merger shall
become effective at the time (the "Reorganization Effective Time") that the
certificate of merger is duly filed with the Secretary of State of the State of
Delaware or at any later time as is specified in that certificate. As a result
of
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the Reorganization Merger, (i) Holdings will retain all of the outstanding RJRN
Common Stock and will receive (A) all of the outstanding Nabisco Shares and (B)
the amount of cash that may be set forth in the Reorganization Merger Agreement
and (ii) RJRN will be renamed "R.J. Reynolds Tobacco Holdings, Inc.".
(c) Holdings will cause NameSub to merge with and into Holdings in
the manner set forth in this Section 2.01(c) (the "Name Change Merger"), at
which time the separate existence of NameSub shall cease, and Holdings shall be
the surviving corporation. The Name Change Merger shall be effected in
accordance with the DGCL pursuant to a plan of merger between Holdings and
NameSub substantially in the form of Annex A to Exhibit F hereto (the "Name
Change Plan of Merger"). Holdings and NameSub will file a certificate of merger
(with the Name Change Plan of Merger attached as an exhibit) substantially in
the form of Exhibit F hereto with the Secretary of State of the State of
Delaware and make all other filings or recordings required by the DGCL in
connection with the Name Change Merger. The Name Change Merger shall become
effective at the time that the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or at any later time as is specified
in that certificate. As a result of the Name Change Merger, Holdings will be
renamed "Nabisco Group Holdings Corp.", all as provided in the Name Change Plan
of Merger.
ARTICLE 3
THE DISTRIBUTION
SECTION 3.01. Cooperation Before the Distribution. (a) As promptly as
practicable after the date of this Agreement, Holdings and RJRN shall prepare,
and Holdings shall file with the SEC and the NYSE, the Form 8-A, which will
include as an exhibit the Information Statement. The Information Statement will
set forth appropriate disclosure concerning RJRN and the Distribution. Holdings
and RJRN shall use all commercially reasonable efforts to cause the Form 8-A
(together with the Information Statement attached as an exhibit) to become
effective under the 1934 Act as soon as practicable. After the Form 8-A
(together with the Information Statement attached as an exhibit) has become
effective, Holdings shall mail the Information Statement as promptly as
practicable to the Holdings Stockholders of record as of the Record Date.
(b) Holdings and RJRN shall cooperate in preparing and filing with the
SEC and causing to become effective any registration statements or amendments
thereto that are necessary or appropriate to reflect the establishment of or
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amendments to any employee benefit and other plans contemplated by the
Distribution Documents.
(c) Holdings and RJRN shall take all actions as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by the Distribution Documents.
(d) As promptly as practicable, RJRN shall prepare, file and pursue an
application to permit (i) the listing of shares of the RJRN Common Stock on the
New York Stock Exchange and (ii) the name change of Holdings to "Nabisco Group
Holdings Corp." pursuant to the Name Change Merger.
SECTION 3.02. Holdings Board Action; Conditions Precedent to the
Distribution. The Holdings Board shall, in its discretion, establish (or
delegate authority to establish) the Record Date and the Distribution Date and
any appropriate procedures in connection with the Distribution. The parties
agree that in no event shall the Distribution occur before (x) the consummation
of the Debt Tender Offers/Consent Solicitations, the Reorganization Merger and
the Name Change Merger and (y) each of the Holdings Board and the Board of
Directors of RJRN have received an opinion, addressed and satisfactory to them,
in their sole discretion, from American Appraisal Associates, Inc. (or another
independent solvency firm selected by those boards of directors), and are
otherwise satisfied in their sole discretion, as to matters relating to the
solvency and adequacy of capital of Holdings, RJRN and RJRT both before and
after giving effect to the RJRI Sale Closing and the consummation of the Debt
Tender Offers/Consent Solicitations and the transactions contemplated by the
Distribution Documents. In addition, the Distribution shall be subject to the
satisfaction or waiver of those conditions that Holdings and RJRN shall deem
necessary or advisable in connection with the Distribution.
SECTION 3.03. The Distribution. Subject to the terms and conditions set
forth or described in this Agreement, (i) on or before the Distribution Date,
Holdings shall deliver to the Distribution Agent for the benefit of the Holdings
Stockholders of record on the Record Date, a stock certificate or certificates,
endorsed by Holdings in blank, representing all of the then outstanding shares
of RJRN Common Stock owned by Holdings, (ii) the Distribution shall be effective
as of the Effective Time and (iii) Holdings and RJRN shall instruct the
Distribution Agent to distribute to, or make book-entry credits for, on or as
soon as practicable after the Distribution Date, each Holdings Stockholder of
record as of the Record Date one share of RJRN Common Stock for every three
Holdings Common Shares so held. RJRN agrees to (x) provide all certificates for
shares of RJRN Common Stock that Holdings shall require (after giving effect to
Sections
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3.04 and 3.05) in order to effect the Distribution and (y) take all necessary
actions to adopt a book-entry stock transfer and registration system for RJRN
effective as of the Distribution Date.
SECTION 3.04. Stock Dividends. On or before the Distribution Date, RJRN
shall issue to Holdings as a stock dividend the number of shares of RJRN Common
Stock that are required to effect the Distribution, as certified by the
Distribution Agent. In connection with the Distribution, Holdings shall deliver
to RJRN for cancellation all of the share certificates currently held by it
representing RJRN Common Stock.
SECTION 3.05. Fractional Shares. All Holdings Stockholders of record as
of the Record Date will receive fractional shares of RJRN Common Stock in the
Distribution, except for those holders who (x) are entitled to receive a number
of shares of RJRN Common Stock in the Distribution that is an integer, (y) will
own less than one whole share of RJRN Common Stock in total at the Effective
Time or (z) request a physical stock certificate for the RJRN Common Stock which
those holders receive in the Distribution. No certificates or scrip representing
fractional shares of RJRN Common Stock will be received by Holdings Stockholders
in the Distribution. Holdings and RJRN will instruct the Distribution Agent to
do the following, as soon as practicable after the Distribution Date: (a) to
determine the number of whole shares and fractional shares of RJRN Common Stock
allocable to each Holdings Stockholder of record as of the Record Date who (i)
has requested a physical stock certificate or (ii) owns less than one whole
share of RJRN Common Stock, (b) to aggregate all fractional shares held by those
holders, and (c) to sell the whole shares attributable to the aggregate of those
fractional shares, in open market transactions, in each case at the then
prevailing market prices, and to cause to be distributed to each such holder, in
lieu of any fractional share, without interest, that holder's ratable share of
the proceeds of that sale, after making appropriate deductions of the amount
required, if any, to be withheld for United States federal income Tax purposes.
ARTICLE 4
EMPLOYEE BENEFITS
SECTION 4.01. Definitions. As used in this Article 4, the following
terms have the following meanings:
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations under that Act.
"Holdings CGP" means the Charitable Giving Plan for RJR Directors.
"Holdings Director Stock Plan" means the Equity Incentive Award Plan
for Directors and Key Employees of RJR Nabisco Holdings Corp. and
Subsidiaries, effective September 1, 1996, as amended and restated.
"Holdings D.C. Plan" means the Deferred Compensation Plan for RJR
Directors, effective November 16, 1998, as amended and restated.
"Holdings Employees" means those individuals listed on the payroll
records of any member of the Nabisco Group after the Distribution Date, or who
are identified as a Holdings Employee on Schedule 4.01(a), and shall not include
individuals who are RJRN Employees.
"Holdings Employee Group" means all Holdings Employees and Holdings
Retirees and their respective beneficiaries.
"Holdings LTIP" means the RJR Nabisco Holdings Corp. 1990 Long
Term Incentive Plan, effective April 16, 1997, as amended and restated.
"Holdings Retirees" means those individuals who were employed by
Holdings or any member of the Nabisco Group immediately before those
individuals' retirement or other termination of employment from all members of
the Nabisco Group and of the RJRN Group and Holdings or who are identified as
Holdings Retirees on Schedule 4.01(a).
"RJRN Employees" means those individuals listed on the payroll records
of any member of the RJRN Group on the Distribution Date, who are identified as
RJRN Employees on Schedule 4.01(b), or who after the Distribution Date become
employed by any member of the RJRN Group, and shall not include individuals who
are Holdings Employees.
"RJRN Employee Group" means all RJRN Employees and RJRN Retirees and
their respective beneficiaries.
"RJRN Retirees" means those individuals who were employed by any member
of the RJRN Group immediately before those individuals' retirement or other
termination of employment from all members of the RJRN Group and of the Nabisco
Group and Holdings or who are identified as RJRN Retirees on Schedule 4.01(b).
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"Supplemental Plans" means the RJRN Supplemental Benefits Plan, the
RJRN Supplemental Executive Retirement Plan and the RJRN Additional Benefits
Plan.
"Welfare Benefits" means medical, surgical or hospital care or
benefits, or benefits in the event of sickness, accident, disability, death or
unemployment, or vacation benefits, apprenticeship or other training programs,
or day care centers, scholarship funds or prepaid legal services; provided that
Welfare Benefits do not include pensions on retirement or death or insurance to
provide those pensions.
SECTION 4.02. Employees. (a) RJRN shall, or shall cause a member of the
RJRN Group to, assume, honor and be bound by the employment and/or severance
agreements between or among any RJRN Employee and any member of the Nabisco
Group and/or the RJRN Group.
(b) Holdings shall, or shall cause a member of the Nabisco Group to,
assume, honor and be bound by the employment and/or severance agreements between
or among any Holdings Employee and any member of the Nabisco Group and/or the
RJRN Group.
SECTION 4.03. Qualified Defined Contribution Plans. (a) No member of
the Nabisco Group shall have any obligation to make contributions to RJRN's
Capital Investment Plan (the "RJRN 401(k) Plan") in respect of any member of the
Holdings Employee Group or otherwise after the Distribution Date, except for
accrued but unpaid employee and employer contributions, if any, relating to that
employee's compensation earned before the Distribution Date.
(b) Effective not later than the Distribution Date, Holdings shall, or
shall cause a member of the Nabisco Group to, adopt or designate a defined
contribution plan intended to qualify under Section 401(a) and Section 401(k) of
the Code (the "Holdings 401(k) Plan") in which members of the Holdings Employee
Group shall be eligible to participate on and after the Distribution Date to the
same extent that those members were eligible to participate in the RJRN 401(k)
Plan immediately before the Distribution Date.
(c) Within 30 days after the adoption or designation of the Holdings
401(k) Plan or as soon as practicable thereafter, RJRN shall cause to be
transferred to the Holdings 401(k) Plan cash or, to the extent provided below,
other assets as the parties may agree, having a fair market value equal to the
aggregate value of the account balances in the RJRN 401(k) Plan, and any
allocable portion of any suspense account, as of the date of the plan asset
transfer for each member of the Holdings Employee Group. The plan asset transfer
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contemplated by this Section 4.03 shall include any notes evidencing loans to
members of the Holdings Employee Group from their account balances, securities
acceptable to Holdings, RJRN Common Stock, if any, Holdings Common Shares, if
any, and shares of the Class A Common Stock of Nabisco, if any, held in any such
member's account and the balance in cash, and shall also include all qualified
domestic relations orders, within the meaning of Section 414(p) of the Code,
applicable to members of the Holdings Employee Group. The transfer of assets
contemplated by this Section 4.03 shall be made only after Holdings has supplied
to RJRN a written representation from Holdings (with appropriate indemnities) to
the effect that the Holdings 401(k) Plan has been established in accordance with
the Code and ERISA, and an agreement that Holdings will request a determination
letter from the Internal Revenue Service ("IRS") and make any and all changes to
the Holdings 401(k) Plan necessary to receive a favorable determination letter.
(d) Holdings and RJRN shall cooperate with each other during the
period beginning on the date hereof and ending on the date that the assets are
transferred to the trust maintained under the Holdings 401(k) Plan to ensure the
ongoing operation and administration of the RJRN 401(k) Plan and the Holdings
401(k) Plan with respect to the members of the Holdings Employee Group and the
RJRN Employee Group. After that transfer of assets, Holdings shall assume all of
the RJRN Group's liabilities under the RJRN 401(k) Plan with respect to each
member of the Holdings Employee Group and the RJRN Group shall have no further
liability, under this Agreement or otherwise, to any member of the Nabisco Group
or any member of the Holdings Employee Group under the RJRN 401(k) Plan other
than liability arising out of any breach of fiduciary duties or any non-exempt
prohibited transaction occurring before that transfer of assets and liabilities.
SECTION 4.04. Qualified Defined Benefit Plans. (a) As soon as
practicable after and effective as of the Distribution Date, Holdings shall, or
shall cause a member of the Nabisco Group to, adopt or designate a defined
benefit plan ("Holdings Retirement Plan") that covers the members of the
Holdings Employee Group that participate in the Retirement Plan for Employees of
RJR Nabisco, Inc. ("RJRN Retirement Plan") immediately before the Distribution
Date ("Transferred Participants") and meets the requirements of Section 401(a)
of the Code. Holdings agrees that all service credited under the RJRN Retirement
Plan as of the Distribution Date with respect to the Transferred Participants
shall be credited under the Holdings Retirement Plan for all plan purposes,
including eligibility, vesting and benefit accrual. Effective as of the
Distribution Date, RJRN shall cause the Transferred Participants to cease
further accrual of benefits under the RJRN Retirement Plan.
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(b) (i) As soon as practicable after the Distribution Date, RJRN shall
cause to be transferred from the RJRN Retirement Plan to the Holdings Retirement
Plan assets, in cash, equal to the amount of assets required by Section 414(l)
of the Code in respect of Transferred Participants, based on allocating assets
by priority categories described in Section 4044(a) of ERISA, as determined
under (ii) below (the "414(l) Amount"), reduced by distributions, if any, from,
and reasonable expenses of administration (consistent with past practice) under,
the RJRN Retirement Plan for benefits or other purposes made with respect to the
Transferred Participants from the Distribution Date through the date that the
assets are transferred to the trust maintained under the Holdings Retirement
Plan, plus or minus interest on the 414(l) Amount based on the actual rate of
return on assets held in the Master Trust for the RJRN Retirement Plan net of
that trust's fees and expenses from and including the Distribution Date through
but excluding the transfer date. The 414(l) Amount shall be adjusted as may be
required by the Pension Benefit Guaranty Corporation ("PBGC") or the IRS to
maintain the status of the Holdings Retirement Plan or the RJRN Retirement Plan
as an employee pension plan meeting the requirements of Section 401(a) of the
Code. Within 30 days before the Distribution Date or as soon as practicable
thereafter, Holdings and RJRN shall make any required governmental filings
necessary to effect the asset transfers described in this Section, including the
filing of IRS Form 5310-A.
(ii) Watson Wyatt Worldwide ("RJRN's Actuary") shall be
responsible for determining the 414(l) Amount. RJRN's Actuary shall
make this determination as of the Distribution Date on the basis of the
PBGC's safe harbor assumptions set forth in Treasury Regulation Section
1.414(l)-1(b)(5)(ii). In connection therewith, RJRN shall cause RJRN's
Actuary to determine the amounts of charges and credits to the funding
standard account under Section 412 of the Code, the funding standard
account credit balance and the annual amortization charges and credits
(those amounts determined under the provisions of IRS Revenue Ruling
81-212 and other applicable guidance) to be allocated between the RJRN
Retirement Plan and the Holdings Retirement Plan as a result of the
transfer of assets and liabilities anticipated under this Section 4.04.
Those amounts shall be determined without regard to use of the de
minimis option contained in that revenue ruling and the regulations
promulgated under Section 414(l) of the Code. The actuarial
calculations of RJRN's Actuary in determining the 414(l) Amount shall
be reviewed by an actuarial firm designated by Holdings ("Holdings
Actuary"). If there is a dispute between RJRN's Actuary and Holdings
Actuary, those actuaries shall agree on the appointment of an
independent enrolled actuary associated with a nationally-recognized
actuarial firm to review the calculations of each of those actuaries.
The decisions of this third party
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actuary shall be final, unappealable and binding on all parties. RJRN
and Holdings shall bear the fees and expenses of that third party
actuary equally
(iii) The transfer of assets contemplated by this Section 4.04
shall be made only after Holdings has supplied to RJRN (x) a written
representation from Holdings (with appropriate indemnities) to the
effect that the Holdings Retirement Plan has been established in
accordance with the Code and ERISA, and an agreement that Holdings will
request a determination letter from the IRS and make any and all
changes to the Holdings Retirement Plan necessary to receive a
favorable determination letter and (y) information enabling RJRN's
Actuary to issue the certification required by Section 414(l) of the
Code (Form 5310-A). Holdings and RJRN shall cooperate with each other
during the period beginning on the date hereof and ending on the last
day that those assets are transferred to the trust maintained under the
Holdings Retirement Plan to ensure the ongoing operation and
administration of the RJRN Retirement Plan and the Holdings Retirement
Plan with respect to the Transferred Participants.
(iv) The assets to be transferred to the trust maintained under
the Holdings Retirement Plan shall be held, invested and distributed as
required under the RJRN Retirement Plan and the related trust
thereunder for the benefit of Holdings Plan Participants after the
Distribution Date, pending the transfer to the trust maintained under
the Holdings Retirement Plan pursuant to this Section 4.04. Holdings
and RJRN shall use their best efforts to effectuate the above transfer
as promptly as possible after the Distribution Date.
(v) After the transfer of assets and liabilities from the RJRN
Retirement Plan to the Holdings Retirement Plan has occurred as
provided in this Section, RJRN and the members of the RJRN Group shall
have no further liability whatsoever (either under this Agreement or
otherwise) with respect to the Transferred Participants under the RJRN
Retirement Plan other than liability arising out of any breach of
fiduciary duties or any nonexempt prohibited transaction occurring
before that transfer of assets and liabilities.
SECTION 4.05. Supplemental Benefit Plans. (a) All liabilities under the
Supplemental Plans to the extent applicable to any member of the Holdings
Employee Group and any assets allocable to those liabilities shall be
transferred to and assumed by Holdings as of the Distribution Date ("Holdings
Supplemental Assets and Liabilities").
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(b) RJRN shall retain all liabilities, and any assets allocable to
those liabilities, to the extent applicable to any member of the RJRN Employee
Group under the Supplemental Plans ("Retained Supplemental Assets and
Liabilities").
SECTION 4.06. Welfare Benefit Plans. (a) (i) Effective as of the
Distribution Date, no member of the Holdings Employee Group shall be eligible to
participate in any "Employee Welfare Benefit Plan" (within the meaning of
Section 3(1) of ERISA) sponsored by RJRN or any member of the RJRN Group and,
except as set forth in Section 4.06(c) and except for life insurance claims in
respect of any member of the Holdings Employee Group who dies on or before the
Distribution Date, neither RJRN nor any member of the RJRN Group shall have any
liability after the Distribution Date for Welfare Benefits of any member of the
Holdings Employee Group.
(ii) RJRN shall be responsible for all Welfare Benefits payable to
or in respect of each member of the RJRN Employee Group regardless of
whether the event(s) giving rise to payment of those benefits occurred
before, on or after the Distribution Date.
(b) (i) Effective as of the Distribution Date, Holdings shall
establish or designate one or more Employee Welfare Benefit Plans as Holdings,
in its sole discretion shall determine, covering members of the Holdings
Employee Group.
(ii) Except as set forth in Section 4.06(c), Holdings shall be
responsible for all Welfare Benefits payable after the Distribution
Date to or in respect of each member of the Holdings Employee Group
including, without limitation, post-employment medical, dental and life
insurance benefits, if any.
(c) Expenses incurred by each member of the Holdings Employees Group
under RJRN's medical and dental plans during the year that includes the
Distribution Date shall be taken into account for purposes of satisfying
deductible and coinsurance requirements and satisfaction of out-of-pocket
provisions of Holdings' medical and dental plans for that year. RJRN shall
retain liability for all medical or dental claims incurred before the
Distribution Date by any member of the Holdings Employee Group. For purposes of
this Section 4.06, a medical or dental claim shall be deemed "incurred" when the
relevant service is provided or item is purchased.
SECTION 4.07. Employee Stock Options and Restricted Stock. (a) All
options outstanding under the Holdings LTIP on the Distribution Date and held by
members of the Holdings Employee Group shall be equitably adjusted pursuant to
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the terms of that LTIP to reflect the Distribution. After that equitable
adjustment, all of those options shall continue to relate to Holdings Common
Shares.
(b) Each option outstanding under the Holdings LTIP on the
Distribution Date and held by a member of the RJRN Employee Group shall be
equitably adjusted pursuant to the terms of that LTIP to reflect the
Distribution. Following that equitable adjustment, 50% in value (as may be
equitably determined pursuant to the Holdings LTIP) of each of those adjusted
options shall continue to relate to Holdings Common Shares and 50%, in value, as
so determined, shall relate to shares of RJRN Common Stock.
(c)(i) Before the Distribution, Holdings shall take the action under
the Holdings LTIP that it deems necessary to ensure that each holder of shares
of "Restricted Stock" (as defined in the Holdings LTIP) shall receive pursuant
to the Distribution that number of shares of RJRN Common Stock that that holder
would have received pursuant to the Distribution if that Restricted Stock had
been 100% vested immediately before the Distribution Date; provided, however,
that the shares of RJRN Common Stock so distributed shall be forfeitable and
subject to the same restrictions on transfer as the shares of Restricted Stock
in respect of which those shares of RJRN Common Stock were distributed, as
modified to effectuate clause (ii) of this Section 4.07(c) ("RJRN Restricted
Shares").
(ii) If any RJRN Restricted Shares or shares of Restricted Stock are
forfeited, those shares shall be forfeited only to RJRN or Holdings,
respectively. It is understood and agreed that, without in any way affecting the
rights of any holder of any Restricted Shares or any shares of Restricted Stock,
on and after the Distribution Date, (x) none of the member companies or other
business entities of the Nabisco Group shall have any interest in or rights to
RJRN Restricted Shares and (y) none of the member companies or other business
entities of the RJRN Group shall have any interest in or rights to Restricted
Stock.
SECTION 4.08. Outside Director Benefits. (a) All options or other
stock-based awards outstanding under the Holdings Director Stock Plan on the
Distribution Date and held by any current or former non-employee director shall
be equitably adjusted pursuant to the terms of that Plan to reflect the
Distribution. Following that equitable adjustment, all of those options or other
stock-based awards shall continue to relate to Holdings Common Shares. Holdings
shall retain all liabilities and related assets, if any, under the Holdings
Director Stock Plan.
(b) Effective as of the Distribution Date, the number of stock credits
in each participant's account in the Holdings D.C. Plan shall be equitably
adjusted pursuant to the terms of that D.C. Plan to reflect the Distribution.
Following that
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equitable adjustment, all of those stock credits shall continue to relate to
Holdings Common Shares. Holdings shall retain all liabilities and related
assets, if any, under the Holdings D.C. Plan.
(c) Holdings shall retain all liabilities, and any assets allocable to
those liabilities, under the Holdings CGP.
(d) Holdings shall retain all liabilities and related assets, if any,
relating to life insurance, automobile insurance, excess liability insurance,
business travel accident insurance and matching grants, in each case relating to
all current and former directors of Holdings.
SECTION 4.09. Deferred Compensation.
(a) (i) All deferred compensation liabilities to the extent applicable
to any member of the Holdings Employee Group, and any assets allocable to those
liabilities, shall be transferred to and assumed by Holdings as of the
Distribution Date ("Holdings Deferred Compensation Assets and Liabilities").
(ii) Effective as of the Distribution Date, any Holdings Employee's
deferred compensation denominated in stock credits shall be equitably adjusted
to reflect the Distribution. After that equitable adjustment, that stock credit
shall relate to Holdings Common Shares.
(b) (i) RJRN shall retain all deferred compensation liabilities, and
any assets allocable to those liabilities, to the extent applicable to any
member of the RJRN Employee Group under the Deferred Compensation Plans
("Retained Deferred Compensation Assets and Liabilities").
(ii) Effective as of the Distribution Date, any RJRN Employee's
deferred compensation denominated in stock credits shall be equitably adjusted
to reflect the Distribution.
SECTION 4.10. Employee Benefit Transition Services. Pursuant to and on
the terms and conditions set forth in Schedule 4.10 hereto, each party agrees
(i) to provide certain administrative services to the other parties in respect
of the members of the RJRN Employee Group and the Holdings Employee Group,
including but not limited to payroll services, record keeping services and
claims processing services and (ii) to cover those members under the employee
plans and benefit arrangements set forth in Schedule 4.10 and to provide claims
processing services in respect of those employees, in both cases for the period
set forth in that Schedule. The continuation of coverage and administrative
services contemplated
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by this Section 4.10 shall not affect the allocation of liabilities and
obligations as set forth in this Article 4.
SECTION 4.11. COBRA. (a) As of the Distribution Date, Holdings shall,
or shall cause a member of the Holdings Group to, assume RJRN's obligations and
responsibilities with respect to health care benefits provided, and to be
provided, under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA Coverage") to each member of the Holdings Employee Group.
(b) RJRN shall, or shall cause a member of the RJRN Group to, retain
the obligation and responsibility to provide COBRA Coverage to each member of
the RJRN Employee Group.
SECTION 4.12. Third Party Beneficiaries. No provision of this Article 4
shall (a) create any third party beneficiary rights in any person (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment with Holdings, the RJRN Group or the Nabisco Group, (b) create any
rights in any persons in respect of any benefits that may be provided, directly
or indirectly, under any employee benefit plan or benefit arrangement sponsored
or to be sponsored by Holdings or any member of the RJRN Group or the Nabisco
Group, or (c) otherwise establish or create any rights on the part of any third
party.
SECTION 4.13. WARN Act. (a) RJRN will be responsible for providing any
notification that may be required under the Workers Adjustment and Retraining
Notification Act ("WARN Act") with respect to any RJRN Employees on or after the
Distribution Date.
(b) Holdings will be responsible for providing any notification that
may be required under the WARN Act with respect to any Holdings Employees on or
after the Distribution Date.
ARTICLE 5
CERTAIN RJRN COVENANTS
SECTION 5.01. Certain Definitions. As used herein, the following terms
have the following meanings:
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"Capital Stock" means (i) in the case of a corporation, corporate stock;
(ii) in the case of an association, limited liability company or business
entity, shares, participations, rights, membership or other interests or other
equivalents of corporate stock; (iii) in the case of a partnership, limited or
general partnership interests; and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Net Income" means, for any period, the consolidated net income
(loss) of RJRN and its consolidated subsidiaries for that period, excluding (i)
all amortization and depreciation of trademarks and goodwill for that period;
(ii) all extraordinary or restructuring non-cash losses, charges and expenses
incurred in that period; (iii) all extraordinary non-cash gains realized in that
period; (iv) all earnings in that period attributable to Equity Interests in
Persons that are not Subsidiaries of RJRN, except and only to the extent that
RJRN or its Subsidiaries actually receive cash dividends or distributions with
respect to those Equity Interests; and (v) the cumulative effect on consolidated
net income of any change in GAAP and/or any change in the method of accounting
of RJRN or its consolidated subsidiaries. All of these adjustments will be made
only to the extent that they are reflected in consolidated net income (loss) for
the period in question and only after giving effect to any related net tax
benefit or expense. Except as set forth above, the determination of Cash Net
Income shall be made in accordance with GAAP; provided that (x) all cash
restructuring charges and (y) all losses, charges and expenses incurred in
connection with the settlement(s) of any Tobacco Claim(s) that are otherwise
required to be accrued under GAAP on or before the date of the agreement to
settle those Tobacco Claim(s) shall, in each case, be amortized on a
straight-line basis using a six-year amortization schedule.
"Equity Interest" means any Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles in the United
States as in effect at any time, applied on a basis consistent with RJRN's most
recent audited financial statements.
"Guarantee" means any direct or indirect guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) of another Person's Indebtedness if the primary purpose of that
guarantee is to protect the holder of that Indebtedness against loss, including,
but not limited to, the grant of any security or similar interest for that
purpose (whether or not liability for that Indebtedness is assumed).
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"Indebtedness" means, without duplication, (i) all obligations for
borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or
other similar instruments; (iii) all obligations to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business; (iv) all obligations under any lease or similar
arrangement that would be required to be accounted for by the lessee as a
capital lease in accordance with GAAP; (v) all obligations to purchase
securities or other property that arise out of the sale of the same or
substantially similar securities or other property; (vi) all obligations to
reimburse any bank or other Person for amounts paid under a letter of credit or
similar instrument; and (vii) all Guarantees (but only to the extent of those
Guarantees).
"Investment" means an investment (whether acquired directly, indirectly
or by assumption, operation of law or otherwise) in another Person (including an
Affiliate) in the form of a direct or indirect advance, a loan or other
extension of credit (including, but not limited to, by way of Guarantees, but
excluding advances to customers or suppliers in the ordinary course of business
that would be recorded as accounts receivable on a consolidated balance sheet
prepared in accordance with GAAP), a capital contribution or a purchase or other
acquisition of Indebtedness, Equity Interests, derivative instruments or other
securities issued by that Person (other than any bona fide hedging transaction
entered into with a financial institution), as well as any other item that would
be classified as an investment on a consolidated balance sheet prepared in
accordance with GAAP.
"Invest" has the correlative meaning.
"Investment Grade" means that the RJRN Debt is rated at least BBB- by
Standard & Poor's Ratings Services and at least Baa3 by Moody's Investors
Service, Inc.; provided that, if no RJRN Debt is outstanding at that time, then
the RJRN Debt shall be deemed to be rated at those ratings that the Rating
Agencies assign to Indebtedness of RJRN having the hypothetical characteristics
of the RJRN Debt on a "shadow rating" or "indicative rating" basis.
"Measurement Period" means the period from the beginning of the first
full fiscal quarter of RJRN ending after the Distribution Date to the end of the
last fiscal quarter of RJRN for which consolidated financial statements have
been provided to Holdings pursuant to Section 6.07.
"Net Cash Proceeds" means an amount equal to the cash proceeds actually
received by RJRN from the issuance of its Equity Interests, other than
Redeemable Equity Interests, from Persons other than its Affiliates, less all
expenses (including fees or commissions of attorneys, accountants, underwriters,
financial advisors and other agents or consultants) incurred by RJRN or any of
its Subsidiaries in respect of that transaction.
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"Officer's Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Chief Executive Officer, the President, the Chief
Financial Officer or the Comptroller of RJRN.
"Qualified Opinion" means a written opinion of a nationally recognized
investment banking firm, which opinion and firm shall be reasonably satisfactory
to Holdings.
"Rating Agencies" means Standard & Poor's Ratings Services and Moody's
Investors Service, Inc., and their respective successors.
"Redeemable Equity Interest" means any Equity Interest that is (i)
subject to any mandatory redemption (whether scheduled, upon the occurrence of
specified events or otherwise); (ii) redeemable at the option of its holder; or
(iii) convertible into or exchangeable for Equity Interests described in clause
(i) or (ii).
"Restricted Payment" means (i) any dividend or distribution on account of
any Equity Interests of RJRN or any of its Subsidiaries and (ii) the purchase,
redemption or other acquisition or retirement for value of the Equity Interests
of RJRN or any of its Subsidiaries (including, but not limited to, any purchase,
redemption or other acquisition or retirement for value of those Equity
Interests by way of a merger, consolidation, business combination, restructuring
or recapitalization); provided that the following are not Restricted Payments:
(1) dividends or distributions payable solely in the Capital Stock (other than
Redeemable Equity Interests) of RJRN; (2) dividends or distributions payable
solely to RJRN or any of its wholly owned Subsidiaries; (3) pro rata dividends
or distributions on the Capital Stock of any Subsidiary of RJRN that is not
wholly owned by RJRN or its Subsidiaries; (4) acquisitions of Equity Interests
from RJRN or its Subsidiaries (including, but not limited to, acquisitions
upon original issuance); and (5) redemptions, repurchases or other retirements
or acquisitions for value from employees, officers and directors of RJRN and
its Subsidiaries of Equity Interests of RJRN or its Subsidiaries issued
pursuant to the terms of board-approved benefit plans, so long as the
aggregate purchase price paid for all of those redeemed, repurchased, retired
or acquired Equity Interests shall not exceed $15 million in any fiscal year.
"RJRN Debt" means the long-term senior unsecured public debt of RJRN
that is guaranteed on an unsecured basis by RJRT.
SECTION 5.02. Restricted Payments. (a) Subject to Section 5.04, RJRN
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, declare, make or pay any Restricted Payment unless:
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(i) the Restricted Payment is RJRN's regularly scheduled quarterly
cash dividend and the amount per share of that Restricted Payment does
not exceed the amount per share of its last regularly scheduled
quarterly cash dividend (appropriately adjusted to reflect any stock
split, reverse stock split, stock dividend, spin-off or other
recapitalization); or
(ii) the sum of the aggregate amount of that Restricted Payment,
together with the amounts of all other Restricted Payments paid or made
by RJRN or any of its Subsidiaries after the date of this Agreement,
does not exceed the sum of (x) $300 million, plus (y) 60% of the Cash
Net Income (or, if Cash Net Income is negative, less 100% of the
deficit) during the Measurement Period, plus (z) 100% of the Net Cash
Proceeds from the issuance of Equity Interests of RJRN during the
Measurement Period; or
(iii) the RJRN Debt is Investment Grade and RJRN delivers to
Holdings, at least 30 days before the declaration or other RJRN Board
approval of that Restricted Payment, a Qualified Opinion, dated no
earlier than 45 days before its delivery to Holdings, that the RJRN Debt
is reasonably likely to remain Investment Grade after giving effect to
that Restricted Payment; or
(iv) the Restricted Payment is the payment of a dividend within 60
days of its declaration if the dividend was permitted at the time of
declaration.
(b) The amount of any non-cash Restricted Payment shall equal its fair
market value as determined in good faith by a resolution of the RJRN Board and
set forth in an Officer's Certificate delivered to Holdings at least 30 days
before the date of its declaration, in the case of a dividend, or payment, in
the case of any other Restricted Payment.
SECTION 5.03. Prohibition on Certain Leveraged Transactions and Other
Mergers. (a) Subject to Section 5.04 , RJRN will not, and will not permit any of
its Subsidiaries to, (i) directly or indirectly, assume or Guarantee the
Indebtedness of, or Invest in, any Person, (ii) enter into any transaction in
connection with which RJRN or any Subsidiary will, directly or indirectly,
assume or Guarantee the Indebtedness of, or Invest in, any Person or (iii) enter
into a merger, consolidation or other business combination with any Person that
has Indebtedness or Investments in another Person, if the Guarantee or the
proceeds of the Indebtedness or Investments have been or will be used, directly
or indirectly,
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to acquire or finance the acquisition of any Equity Interests of RJRN or any of
its Subsidiaries.
(b) Section 5.03(a) shall not apply (i) to the use by RJRN or any of its
Subsidiaries of the proceeds of any Guarantee, Indebtedness or Investment to
finance the purchase, redemption or other acquisition or retirement for value of
Equity Interests of RJRN or any of its Subsidiaries by RJRN or any of those
Subsidiaries (including, but not limited to, any purchase or other acquisition
upon original issuance of any such Equity Interests), so long as that purchase,
redemption or other acquisition or retirement for value is not prohibited by
Section 5.02 or (ii) if RJRN delivers to Holdings a Qualified Opinion that
neither Rating Agency has reduced, or is reasonably likely to reduce, the
rating of RJRN Debt below Investment Grade or, if before the announcement of
that transaction the rating of the RJRN Debt is already below Investment
Grade, further below Investment Grade, as a result of the proposed or any
related transaction(s) and any announcement relating thereto.
(c) Neither RJRN nor RJRT shall merge, combine, consolidate or enter into
a business combination with, or sell all or substantially all of that party's
assets to, the other party.
SECTION 5.04. Termination. All of the obligations of RJRN and its
Subsidiaries under this Article 5, except those set forth in Section 5.03(c)
which shall survive, and under Section 6.07(a) shall terminate on the twelfth
anniversary of the date of this Agreement.
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01. Provision of Corporate Records. Immediately before or as
soon as practicable after the Distribution Date, each Group shall provide to the
other Group all documents, contracts, books, records and data (including, but
not limited to, minute books, stock registers, stock certificates and documents
of title) in its possession relating primarily to the other Group or its
business and affairs; provided that if any of those documents, contracts, books,
records or data relate to both Groups or both of their businesses and
operations, each Group shall provide to the other Group when and if requested
true and complete copies of those documents, contracts, books, records or data.
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SECTION 6.02. Access to Information. After the Distribution Date, each
Group shall promptly provide reasonable access during normal business hours to
the other Group and its directors, officers, employees, accountants, counsel and
other designated representatives to all documents, contracts, books, records,
Defense Materials, computer data and other data in that Group's possession
relating to the other Group or its business and affairs (other than data and
information subject to an attorney/client or other privilege that is not subject
to the provisions of the Joint Defense Agreements or any other joint defense
arrangements between a member or members of one Group and a member or members of
another Group), to the extent that that access is reasonably requested by the
other Group, including, but not limited to, for audit, accounting, litigation
and disclosure and reporting purposes.
SECTION 6.03. Future Litigation and Other Proceedings. Each Group shall
use all commercially reasonable efforts to make its directors, officers,
employees and representatives available as witnesses to the other Group and its
accountants, counsel and other designated representatives, upon written request.
Additionally, each Group shall otherwise cooperate with the other Group, to the
extent reasonably required in connection with any Action arising out of either
Group's business and operations in which the requesting party may periodically
be involved.
SECTION 6.04. Reimbursement. Except and to the extent that any member of
one Group is obligated to indemnify any member of the other Group under either
Article 7 or Article 8 for that cost or expense, each Group providing
information or witnesses to the other Group, or otherwise incurring any expense
in connection with cooperating, under Sections 6.01, 6.02 and 6.03 shall be
entitled to receive from the recipient thereof, upon the presentation of
invoices therefor, payment for all out-of-pocket costs and expenses as may
reasonably be incurred in providing such information, witnesses or cooperation.
SECTION 6.05. Retention of Records. Except as otherwise required by law
or agreed to in writing, each party shall retain, and shall cause the members of
its Group to retain, all information relating to the other Group's business and
operations in accordance with the past practice of that party. Notwithstanding
the foregoing, any party may destroy or otherwise dispose of any of that
information at any time, provided that, for a period of five years after the
Effective Time, before destruction or disposal, (i) that party shall provide not
less than 90 days' prior written notice to the other party, specifying the
information proposed to be destroyed or disposed of, and (ii) if the recipient
of that notice shall request in writing before the scheduled date for
destruction or disposal that any of the information proposed to be destroyed or
disposed of be delivered to that requesting party, the party proposing the
destruction or disposal shall promptly
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deliver to that requesting party the information that was requested at the
expense of the requesting party.
SECTION 6.06. Confidentiality. Each party shall hold and shall cause its
directors, officers, employees, agents, consultants, attorneys and advisors
("Representatives") to hold in strict confidence all information (other than any
information relating primarily to the business or affairs of that party)
concerning the other party unless and to the extent that (i) that party is
compelled to disclose that information by judicial or administrative process or,
in the opinion of its counsel, by other requirements of law or (ii) that
information can be shown to have been (A) in the public domain through no fault
of that party, (B) lawfully acquired after the Distribution Date on a
non-confidential basis from other sources or (C) acquired or developed
independently by that party without violating this Section or any other
confidentiality agreement with the other party. Notwithstanding the foregoing, a
party may disclose that information to its Representatives so long as those
Representatives are informed by that party of the confidential nature of that
information and are directed by that party to treat that information
confidentially. Each party shall be responsible for any breach of this Section
by its Representatives. If a party or any of its Representatives becomes legally
compelled to disclose any documents or information subject to this Section, that
party will promptly notify the other party so that the other party may seek a
protective order or other remedy or waive that party's compliance with this
Section. If no such protective order or other remedy is obtained or waiver
granted, that party will furnish only the portion of the information that it is
advised by counsel is legally required and will exercise all commercially
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded that information. Each party agrees to be liable for any breach of
this Section by it and its Representatives. Without prejudice to the rights and
remedies of either party to this Agreement, if either party breaches or
threatens to breach any provision of this Section, the other party shall be
entitled to equitable relief by way of an injunction.
SECTION 6.07. Delivery of Officer's Certificates. RJRN will deliver to
Holdings:
(a) subject to Section 5.04, not later than 5 Business Days before RJRN
or any of its Subsidiaries declares or otherwise agrees to make any Restricted
Payment, other than any Restricted Payment made pursuant to Section 5.02(a)(i),
an Officer's Certificate stating that that Restricted Payment, is permitted and
setting forth the basis upon which the calculations or determinations required
by Section 5.02 or Section 5.04, as applicable, were computed; and
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(b) within 5 Business Days of receipt thereof, any letters prepared by
any in-house counsel or outside counsel of RJRN or RJRT that (i) are delivered
to RJRN's independent auditor and (ii) relate to any Tobacco Claims or any other
litigation-related letters delivered to RJRN's auditors.
SECTION 6.08. Inapplicability of Article to Tax Matters. Notwithstanding
anything to the contrary in this Article 6, Article 6 shall not apply to
information, records and other matters relating to Taxes, all of which shall be
governed by the Tax Sharing Agreement.
ARTICLE 7
INDEMNIFICATION FOR NON-TOBACCO LIABILITIES
SECTION 7.01. RJRN Indemnification of the Nabisco Group for Certain
Liabilities. (a) Subject to Section 7.03, on and after the Distribution Date,
RJRN and RJRT shall indemnify and hold harmless each member of the Nabisco Group
and their respective directors, officers and employees (each, a "Nabisco
Indemnitee") from and against any and all Liabilities incurred or suffered by
any Nabisco Indemnitee arising out of (i) any and all RJRN Group Liabilities and
(ii) the breach by any member of the RJRN Group of any obligation under (x) this
Agreement or (y) any of the other Distribution Documents, other than the Tax
Sharing Agreement and the Intercompany Services Agreement.
(b) Subject to Section 7.03, RJRN and RJRT shall indemnify and hold
harmless each Nabisco Indemnitee from and against any and all Liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in any Disclosure Document, or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as those Liabilities are caused by any such untrue statement or omission
or alleged untrue statement or omission based upon information furnished to RJRN
in writing by Holdings or any member of the Nabisco Group expressly for use
therein.
(c) Subject to Section 7.03, RJRN and RJRT shall indemnify and hold
harmless each Nabisco Indemnitee from and against any and all Liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in any document filed with the SEC by any member of the Nabisco Group pursuant
to the 1933 Act or the 1934 Act, or caused by any omission or alleged omission
to state therein a material fact necessary to make the statements therein, in
the light
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of the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that those Liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission (i)
relating primarily to the Tobacco Business, if that statement or omission was
made or occurred before or at the Effective Time or (ii) based upon information
that is either furnished to Holdings by any member of the RJRN Group or
incorporated by reference by Holdings from any filings made by any member of the
RJRN Group with the SEC under the 1933 Act or the 1934 Act, if that statement or
omission was made or occurred after the Effective Time.
SECTION 7.02. Holdings Indemnification of RJRN Group. (a) Subject to
Section 7.03, on and after the Distribution Date, Holdings shall indemnify and
hold harmless each member of the RJRN Group and their respective directors,
officers and employees (each, an "RJRN Indemnitee") from and against any and all
Liabilities incurred or suffered by any RJRN Indemnitee arising out of (i) any
Nabisco Group Liabilities or (ii) the breach by any member of the Nabisco Group
of any obligation under (x) this Agreement or (y) any of the other Distribution
Documents, other than the Tax Sharing Agreement and the Intercompany Services
Agreement.
(b) Subject to Section 7.03, Holdings shall indemnify and hold harmless
each RJRN Indemnitee from and against any and all Liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Disclosure Document, or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that those Liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information (i) relating primarily to the Food Business, if that statement
or omission was made or occurred before or at the Effective Time or (ii) that is
either furnished to RJRN by any member of the Nabisco Group or incorporated by
reference by RJRN from any filings made by any member of the Nabisco Group with
the SEC under the 1933 Act or the 1934 Act, if that statement or omission was
made or occurred after the Effective Time.
SECTION 7.03. Third-Party Rights; Tax Benefits. Any indemnification
pursuant to Section 7.01 or Section 7.02 shall be paid net of any tax benefit to
the Indemnified Party attributable to the relevant payment. It is expressly
agreed that no insurer or any other third party shall be (i) entitled to a
benefit (as a third-party beneficiary or otherwise) that it would not be
entitled to receive in the absence of Section 7.01 or Section 7.02, (ii)
relieved of the responsibility to pay any claims to which it is obligated or
(iii) entitled to any subrogation rights with respect to any obligation under
Section 7.01 or Section 7.02.
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SECTION 7.04. Notice and Payment of Claims. If any Nabisco Indemnitee or
RJRN Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification by any party (the "Indemnifying Party") under
Article 7 of this Agreement (other than in connection with any Action subject to
Sections 7.05), the Indemnified Party shall deliver to the Indemnifying Party a
written notice specifying, to the extent reasonably practicable, the basis for
its claim for indemnification and the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified. Within 30 days after
receipt of that notice, the Indemnifying Party shall pay the Indemnified Party
that amount in cash or other immediately available funds unless the Indemnifying
Party objects to the claim for indemnification or the amount of the claim. If
the Indemnifying Party does not give the Indemnified Party written notice
objecting to that indemnity claim and setting forth the grounds for the
objection(s) within that 30-day period, the Indemnifying Party shall be deemed
to have acknowledged its liability for that claim and the Indemnified Party may
exercise any and all of its rights under applicable law to collect that amount.
If there is a timely objection by the Indemnifying Party, the Indemnifying Party
shall pay to the Indemnified Party in cash the amount, if any, that is Finally
Determined to be required to be paid by the Indemnifying Party in respect of
that indemnity claim within 15 days after that indemnity claim has been so
Finally Determined.
SECTION 7.05. Notice and Defense of Third-Party Claims (Other than
Tobacco Claims). Promptly after the earlier of receipt of (i) notice that a
third party has commenced an Action (other than a Tobacco Claim) against or
otherwise involving any Indemnified Party or (ii) information from a third party
alleging the existence of a claim (other than a Tobacco Claim) against an
Indemnified Party, in either case, with respect to which indemnification may be
sought under Article 7 of this Agreement (a "Third-Party Claim"), the
Indemnified Party shall give the Indemnifying Party written notice of the
Third-Party Claim. The failure of the Indemnified Party to give notice as
provided in this Section 7.05 shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent that the Indemnifying
Party is prejudiced by the failure to give notice. Within 30 days after receipt
of that notice, the Indemnifying Party may (i) at its option, elect to assume
and control the defense of that Third-Party Claim at its sole cost and expense
by giving written notice to that effect to the Indemnified Party, or (ii) object
to the claim for indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 7.05; provided
that if the Indemnifying Party does not within that 30-day period give the
Indemnified Party written notice objecting to that indemnification claim and
setting forth the grounds for the objection(s), the Indemnifying Party shall be
deemed to have acknowledged its liability for that indemnification claim. If the
Indemnifying Party has acknowledged liability and elected to assume the defense
of a Third-Party Claim, (x) the defense shall be
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conducted by counsel retained by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party, provided that the Indemnified Party shall
have the right to participate in those proceedings and to be represented by
counsel of its own choosing at the Indemnified Party's sole cost and expense;
and (y) the Indemnifying Party may settle or compromise the Third-Party Claim
without the prior written consent of the Indemnified Party so long as any
settlement or compromise of the Third-Party Claim includes an unconditional
release of the Indemnified Party from all claims that are the subject of that
Third-Party Claim, provided that the Indemnifying Party may not agree to any
such settlement or compromise pursuant to which any remedy or relief, other than
monetary damages for which the Indemnifying Party shall be responsible under
this Agreement, shall be applied to or against the Indemnified Party, without
the prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not assume the defense of
a Third-Party Claim for which it has acknowledged liability for indemnification
hereunder, the Indemnified Party will act in good faith with respect to that
Third-Party Claim and may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in investigating
and defending against that Third-Party Claim and the Indemnifying Party shall be
bound by the result obtained with respect to that claim by the Indemnified
Party; provided that the Indemnifying Party shall not be liable for any
settlement or compromise of any Third-Party Claim effected without its consent,
which consent shall not be unreasonably withheld. The Indemnifying Party shall
pay to the Indemnified Party in cash the amount, if any, for which the
Indemnified Party is entitled to be indemnified under this Agreement within 15
days after that Third-Party Claim has been Finally Determined.
SECTION 7.06. Contribution. If for any reason the indemnification
provided for in Section 7.01 or 7.02 is unavailable to any Indemnified Party, or
insufficient to hold it harmless, then the Indemnifying Party shall contribute
to the amount paid or payable by that Indemnified Party as a result of those
Liabilities in that proportion as is appropriate to reflect the relative fault
of the Indemnifying Party, on the one hand, and the Indemnified Party, on the
other hand, in connection with those statements or omissions, which relative
fault shall be determined by reference to the Business and Group to which those
actions, conduct, statements or omissions are primarily related, as well as any
other relevant equitable considerations.
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ARTICLE 8
INDEMNIFICATION FOR TOBACCO LIABILITIES
SECTION 8.01. Notice and Defense of Tobacco Claims Against RJRN; Tobacco
Claims Against Holdings or Other Members of the Nabisco Group. (a) As promptly
as reasonably practicable after the earlier of receipt of notice that an Action
has been commenced in respect of any Tobacco Claim against RJRN, or receipt of
information alleging the existence of a Tobacco Claim against RJRN (an "RJRN
Tobacco Claim"), RJRN shall give Holdings written notice thereof. Holdings shall
(x) have the right to assume and control the defense of that RJRN Tobacco Claim
on behalf of RJRN if, in the reasonable judgment of Holdings, that RJRN Tobacco
Claim is in any way based upon allegations of conduct, acts, omissions,
research, statements, warnings, health effects or exposure, occurring, arising
or suffered on or before the date of this Agreement and (y) be deemed to have
assumed, and be in control of, that defense, unless Holdings provides written
notice to RJRN to the contrary within 15 days of Holdings' receipt of notice of
that RJRN Tobacco Claim from RJRN. RJRN agrees that, on and as of the date of
this Agreement, Holdings has assumed and is in control of all RJRN Tobacco
Claims in respect of which an Action has been commenced on or before the date of
this Agreement.
(b) If Holdings has assumed, or is deemed to have assumed, the defense
of an RJRN Tobacco Claim, Holdings shall (i) conduct the defense of that RJRN
Tobacco Claim in good faith, in consultation with RJRN and (ii) have the right,
after good faith consultation with RJRN, to appoint and retain lead counsel and
such other counsel as Holdings may deem necessary or appropriate to defend that
RJRN Tobacco Claim; provided that RJRN shall have the right to participate with
its own counsel in the defense of any and all RJRN Tobacco Claims; provided,
further that it is understood and agreed that any counsel appointed and retained
on or before the date of this Agreement to defend any RJRN Tobacco Claim in
respect of which an Action has been commenced on or before the date of this
Agreement shall be deemed to have been appointed and retained by Holdings for
all purposes and RJRN shall be deemed to have consented to that appointment and
retention. Holdings may not settle or compromise any RJRN Tobacco Claim without
the prior written consent of RJRN, which consent shall not be unreasonably
withheld.
(c) Each party shall cooperate, and cause their respective Affiliates to
cooperate, in the defense of any Tobacco Claim and shall furnish or cause to be
furnished such records, information and testimony, and attend such conferences,
discovery proceedings, hearings, trials or appeals, as may be reasonably
requested or otherwise material in connection with that defense. RJRN and RJRT
shall bear
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the out-of-pocket fees and expenses of that cooperation, as contemplated by
Section 8.02.
(d) Holdings shall conduct and control the defense of any Tobacco Claim
against any Nabisco Indemnitee and have the right to appoint and retain lead
counsel and such other counsel as Holdings may deem necessary or appropriate to
defend that Tobacco Claim. Holdings may not settle or compromise any Tobacco
Claim against any Nabisco Indemnitee for which indemnification is sought under
this Agreement, without the prior written consent of RJRN.
SECTION 8.02. Indemnification of Nabisco Indemnitees for Tobacco
Liabilities. (a) Tobacco Liability Indemnity. On and after the Distribution
Date, each of RJRN and RJRT shall, jointly and severally, indemnify and hold
harmless each Nabisco Indemnitee from and against any and all Liabilities
incurred or suffered by that Nabisco Indemnitee arising out of, based upon or
relating in any way, in whole or in part, to Tobacco Liabilities.
(b) Procedures for Indemnification of Tobacco Liabilities. The
procedures for payment and satisfaction of the indemnification obligations of
RJRN and RJRT set forth in Section 8.02(a) shall be the following:
(i) Payment of Fees and Expenses. RJRN and/or RJRT shall pay all
expenses of investigation, all attorneys' fees and all out-of-pocket
expenses incurred by or on behalf of RJRN, RJRT and any Nabisco
Indemnitee in investigating or defending against any and all RJRN
Tobacco Claims and all Tobacco Claims against any Nabisco Indemnitee, on
a current basis, but in any event within 15 Business Days of any written
demand by Holdings for either party to make that payment or payments.
Each written demand by Holdings for indemnification under this Section
8.02(b)(i) shall include documentation for the fees and expenses for
which Holdings demands indemnification under this Section 8.02(b)(i).
Any cash disbursements made by any Nabisco Indemnitee with respect to
those fees and expenses shall be deemed advances made on behalf of and
for the benefit of RJRN and/or RJRT, and shall be amounts from and
against which that Nabisco Indemnitee is indemnified pursuant to this
Section 8.02(b)(i).
(ii) Payment in Respect of Certain Other Tobacco Liabilities. RJRN
and/or RJRT shall pay to the relevant Nabisco Indemnitee (whether or not
the obligation to pay, or the amount of the obligation, is in dispute),
within 15 Business Days of any written demand by Holdings to RJRN and
RJRT that RJRN and/or RJRT make that payment or payments, the
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amount in cash specified in that demand that Holdings reasonably
believes is necessary to do any or all of the following: (x) to satisfy
and discharge any and all obligations under any judgment, assessment,
arbitral award, fine, penalty or other order or ruling, (y) to appeal,
seek a stay, judicial review, injunction, mandamus or other relief to
prevent the enforcement of any judgment, arbitral award, fine, penalty
or other order or ruling against it (including, without limitation, the
posting of any bond with respect to any such relief) or (z) subject to
the last sentence of Section 8.01(b), to settle or resolve, in each case
any Tobacco Claims against any Nabisco Indemnitee or any RJRN Tobacco
Claim. Each written demand by Holdings for indemnification under this
Section 8.02(b)(ii) shall include a calculation of the amount of the
indemnification claim and any related documentation of the amount for
which Holdings demands indemnification under this Section 8.02(b)(ii).
Neither RJRN nor RJRT may object to its liability for, or the amount of
any payment to be made pursuant to, this Section 8.02(b)(ii) before
making that payment and neither RJRN nor RJRT shall be entitled to any
right of set-off with respect thereto.
(c) Responsibility For Expenses Incurred in Enforcing this Article 8.
Each of RJRN and RJRT shall, jointly and severally, indemnify and hold harmless
each Nabisco Indemnity from and against all expenses of investigation, all
attorney's fees, all out-of-pocket expenses and all other Liabilities incurred
by or on behalf of any Nabisco Indemnitee in any and all Actions seeking to
enforce the obligations of RJRN and/or RJRT under this Article 8. Holdings shall
provide documentation to RJRN and RJRT of the fees, expenses and Liabilities for
which it seeks indemnification under this Section 8.02(c).
SECTION 8.03. Preservation of Historical Privileges. Each of RJRN, RJRT
and Holdings acknowledges and agrees that those parties have prepared and
litigated the Tobacco Claims and other Actions or threatened Actions in which
the parties have a common interest on and before the Effective Time pursuant to
the Joint Defense Agreements and hereby reaffirms that party's intent to
continue, to the maximum extent permitted by law, to prepare and litigate all
Tobacco Claims and other Actions or threatened Actions in which the parties have
a common interest after the Effective Time pursuant to the terms of those Joint
Defense Agreements. Each of RJRN, RJRT and Holdings further agrees, to the
maximum extent permitted by law, not to make any statement, take any action or
fail to make any statement or take any action, in each case, of any kind
whatsoever that foreseeably could have the effect of compromising the existence
and protections of the attorney-client privilege, the work product doctrine and
other applicable privileges or protections that existed for Defense Materials
exchanged on or before the Effective Time between or among Holdings, RJRN or
RJRT (whether
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at law or equity or pursuant to any of the Joint Defense Agreements) in respect
of all Defense Materials prepared before the Effective Time. Without limiting
the generality of the foregoing, and to the maximum extent permitted by law,
none of Holdings, RJRN or RJRT may waive, undermine or fail to defend, any such
privilege or protection, or take any action, or fail to take any action, that
could result in the disclosure of any of those Defense Materials to any third
party that would have the effect of waiving or undermining that privilege or
protection, in either case without the prior written consent of the affected or
nondisclosing party or parties.
SECTION 8.04. Third Party Rights; Tax Benefits. Any indemnification
pursuant to Section 8.02 shall be paid net of any tax benefit to the Nabisco
Indemnitee attributable to the relevant payment. The determination of any such
tax benefit shall take into account all tax consequences to the Nabisco
Indemnitee in connection with the relevant payment and with any transactions
resulting in that payment. It is expressly agreed that no insurer or any other
third party shall be (i) entitled to a benefit (as a third party beneficiary or
otherwise) that would not be entitled to receive in the absence of the foregoing
indemnification provisions, (ii) relieved of the responsibility to pay any
claims to which it is obligated or (iii) entitled to any subrogation rights with
respect to any obligation under Section 8.02.
ARTICLE 9
CERTAIN OTHER AGREEMENTS
SECTION 9.01. Intercompany Accounts. Except for any amounts owed by
Nabisco to RJRN or by RJRN to Nabisco, which amounts shall be paid in the
ordinary course of business, and except as otherwise provided in any of the
other Distribution Documents, all intercompany receivable, payable and loan
balances existing as of the Distribution Date between any member of the Nabisco
Group and any member of RJRN Group will be deemed to have been paid in full by
the party or parties owing any such obligation on and as of (i) the
Reorganization Effective Time, in the case of any such account between Nabisco
and its Subsidiaries, on the one hand, and RJRN and its Subsidiaries (other than
Nabisco and the Subsidiaries of Nabisco), on the other hand, and (ii) the
Effective Time, in the case of any such account between Holdings, on the one
hand, and any member of the RJRN Group (other than Holdings), on the other hand.
SECTION 9.02. Intellectual Property Rights and Licenses. Except as
otherwise provided in any of the other Distribution Documents, neither Group
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shall have any right or license in or to any technology, software, intellectual
property (including any trademark, service mark, patent or copyright), know-how
or other proprietary right owned, licensed or held for use by the other Group.
SECTION 9.03. Further Assurances and Consents. In addition to the
actions specifically provided for elsewhere in this Agreement and the other
Distribution Documents, each of the parties to this Agreement shall use all
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement
and the other Distribution Documents, including, but not limited to, using all
commercially reasonable efforts to obtain any consents and approvals and to make
any filings and applications necessary or desirable in order to consummate the
transactions contemplated by this Agreement and the other Distribution
Documents; provided that no party to this Agreement shall be obligated to pay
any consideration for any consent or approval (except for filing fees and other
similar charges) to any third party from whom a consent or approval is requested
or to take any action or omit to take any action if the taking of or the
omission to take that action would be unreasonably burdensome to that party, its
Group or its Group's business.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given,
if to Holdings, to:
Nabisco Group Holdings Corp.
f/k/a RJR Nabisco Holdings Corp.
1301 Avenue of the Americas
New York, NY 10019-6013
Attention: General Counsel
Facsimile: 212-969-9917
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if to RJRN, to:
R.J. Reynolds Tobacco Holdings, Inc.
f/k/a RJR Nabisco Inc.
401 North Main Street
Winston-Salem, NC 27102
Attention: General Counsel
Facsimile: 336-741-2998
if to RJRT, to:
R. J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Attention: General Counsel
Fax: 336-741-2998
or any other address or facsimile number and to any other individual's attention
as that party may hereafter specify in writing for this purpose by notice to the
other parties to this Agreement. Each notice, request or other communication
under this Section 10.01 shall be effective (a) if given by facsimile, when that
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 10.02. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, that amendment or waiver is
in writing and signed, in the case of an amendment, by Holdings, RJRN and RJRT,
or in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 10.03. Expenses. (a) Except as specifically provided otherwise
in any of the Distribution Documents, all costs and expenses incurred in
connection with the preparation, execution and delivery of the Distribution
Documents and the consummation of the Distribution and the other transactions
contemplated hereby and thereby (including (x) the fees and expenses of all
counsel,
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accountants and financial and other advisors of both Groups in connection
therewith, and all expenses in connection with preparing, filing and printing
the Disclosure Documents and (y) any fees and expenses incurred to redeem and/or
refinance RJRN's long-term debt) shall be paid by RJRN; provided that (i)
Holdings shall pay any fees and expenses incurred to redeem and/or refinance its
junior subordinated debentures that are held by RJR Nabisco Holdings Capital
Trust I and RJR Nabisco Holdings Capital Trust II and (ii) the Holdings
Stockholders shall pay their own expenses, if any, incurred in connection with
the Distribution.
(b) RJRN shall be responsible for all Liabilities arising out of (i)
the closing of the corporate headquarters of RJRN and Holdings, (ii) all
severance and benefit payment obligations to Holdings Employees arising as a
result of the completion of the Distribution, and (iii) miscellaneous expenses
identified by Holdings that are otherwise related to the transactions
contemplated by the Distribution Documents or represent certain ongoing
administrative expenses or financing needs. In full satisfaction of RJRN's
responsibilities under this Section 10.03(b) only, RJRN shall pay to Holdings
before the Effective Time the amount of cash that Holdings calculates as the
amount of those Liabilities no later than 3 Business Days before the
Effective Time. Holdings' notice shall be accompanied by a schedule setting
forth its calculation of the amount of these expenses.
SECTION 10.04. Successor and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties to this Agreement
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other parties to this
Agreement.
SECTION 10.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York.
SECTION 10.06. Counterparts; Effectiveness; No Third Party
Beneficiaries. This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when each party to this Agreement shall have received a counterpart of this
Agreement signed by the other parties. Except as specifically set forth in
Article 7 or Article 8 in respect of any Nabisco Indemnitee or RJRN Indemnitee,
the parties to this Agreement do not intend that any of its provisions will or
do confer any rights, benefits, remedies, obligations or liabilities under this
Agreement upon any Person other than the parties to this Agreement and their
respective successors and assigns.
SECTION 10.07. Entire Agreement. The Distribution Documents constitute
the entire understanding of the parties with respect to the subject matter of
those documents and supersede all prior agreements and understandings, both oral
and written, among the parties with respect to the subject matter of the
Distribution Documents. No representation, inducement, promise, understanding,
condition or warranty not set forth in the Distribution Documents has been made
or relied upon by any party to this Agreement. To the extent that the provisions
of this Agreement are inconsistent with the provisions of any other Distribution
Document, the provisions of the other Distribution Document shall prevail.
SECTION 10.08. Tax Sharing Agreement; Certain Transfer Taxes. (a)
Except to the extent that this Section 10.08 or another provision of this
Agreement
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expressly indicates and that the application of that provision is not
inconsistent with the Tax Sharing Agreement, this Agreement shall not govern any
Tax matters, and any and all Liabilities relating to Taxes shall be governed
exclusively by the Tax Sharing Agreement.
(b) All transfer, documentary, sales, use, stamp and registration taxes
and fees (including any penalties and interest) incurred in connection with any
of the transactions described in Sections 2.01 of this Agreement shall be borne
and paid by the Person that is transferring the relevant property. The party or
parties that is or are required by applicable law to file any Return (as defined
in the Tax Sharing Agreement) or make any payment with respect to any of those
taxes shall do so, and the other party or parties shall cooperate with respect
to that filing or payment as necessary. The non-paying party or parties shall
reimburse the paying party in accordance with this Section 10.08, as
appropriate, within 5 Business Days after it or they receive(s) notice of the
payment of those taxes. The Tax Sharing Agreement shall exclusively govern all
Taxes, other than transfer, documentary, sales, use, stamp and registration
taxes, incurred in connection with any of the transactions described in Section
2.01 of this Agreement.
SECTION 10.09. Jurisdiction. Any Action seeking to enforce any provision
of, or based on any matter arising out of or in connection with, any of the
Distribution Documents or any of the transactions contemplated by any of the
Distribution Documents shall be brought exclusively in the United States
District Court for the Southern District of New York or any other New York State
court sitting in New York County, and each of the parties hereby consents to the
exclusive jurisdiction of those courts (and of the appropriate appellate courts
therefrom) in any such Action and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such Action in any of those courts or that any such Action
which is brought in any of those courts has been brought in an inconvenient
forum. Process in any such Action may be served on any party anywhere in the
world, whether within or without of the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on that party
as provided in Section 10.01 shall be deemed effective service of process on
that party.
SECTION 10.10. Existing Arrangements. Except for the Distribution
Documents and except as otherwise contemplated by any Distribution Document, all
prior agreements and arrangements, including those relating to goods, rights or
services provided or licensed, between any member(s) of the RJRN Group and any
member(s) of the Nabisco Group shall be terminated effective as of the
Distribution Date, if not previously terminated. No such agreements or
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arrangements shall be in effect after the Distribution Date unless embodied in
the Distribution Documents.
SECTION 10.11. Termination Before the Distribution. The Holdings Board
may at any time before the Distribution abandon the Distribution and, by notice
to RJRN, terminate this Agreement (whether or not the Holdings Board has
previously approved this Agreement and/or the Distribution).
SECTION 10.12. Severability. If any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired by that holding. The parties shall endeavor in good faith negotiations
to replace the invalid, illegal or unenforceable provisions so that the
replacement provisions will be valid, legal and enforceable and will have an
economic effect which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 10.13. Specific Performance. Each of the parties to this
Agreement acknowledges and agrees that damages for a breach or threatened breach
of any of the provisions of this Agreement would be inadequate and irreparable
harm would occur. In recognition of this fact, each party agrees that, if there
is a breach or threatened breach, in addition to any damages, any of the other
nonbreaching parties to this Agreement, without posting any bond, shall be
entitled to seek and obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction,
attachment, or any other equitable remedy which may then be available to
obligate the breaching party (i) to perform its obligations under this Agreement
or (ii) if the breaching party is unable, for whatever reason, to perform those
obligations, to take any other actions as are necessary, advisable or
appropriate to give the other parties to this Agreement the economic effect
which comes as close as possible to the performance of those obligations
(including, but not limited to, transferring, or granting Liens on, the assets
of the breaching party to secure the performance by the breaching party of those
obligations).
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IN WITNESS WHEREOF, the parties to this Agreement have caused this
Distribution Agreement to be duly executed by their respective authorized
officers as of the date first above written.
RJR NABISCO HOLDINGS CORP.
By:
------------------------------------------
Name:
Title:
RJR NABISCO, INC.
By:
------------------------------------------
Name:
Title:
R. J. REYNOLDS TOBACCO COMPANY
By:
------------------------------------------
Name:
Title:
42
<PAGE>
Exhibit 2.2
[FORM OF
CERTIFICATE OF MERGER
OF
R.J. REYNOLDS TOBACCO HOLDINGS INC.
INTO
RJR NABISCO, INC.]
Pursuant to Section 251 of the
Delaware General Corporation Law
RJR Nabisco, Inc., a Delaware corporation ("RJRN"), which desires to
merge with R.J. Reynolds Tobacco Holdings Inc., a Delaware corporation
("ReorgSub"), hereby certifies as follows:
FIRST: The name and state of incorporation of each of the constituent
corporations of the merger are as follows:
- ------------------------------------------------ -------------------------------
R.J. Reynolds Tobacco Holdings Inc. Delaware
RJR Nabisco, Inc. Delaware
SECOND: The Agreement and Plan of Merger dated as of May __, 1999
(the "Merger Agreement") among RJR Nabisco Holdings Corp., RJRN and ReorgSub
and attached as Annex A has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 251 of the Delaware General Corporation Law.
THIRD: RJR Nabisco, Inc. is the surviving corporation of the merger.
FOURTH: The merger shall be effective as of the time of the filing of
this Certificate.
FIFTH: The Certificate of Incorporation of RJR Nabisco, Inc. shall be
amended and restated in its entirety as set forth as Annex B hereto.
SIXTH: The current By-Laws of RJR Nabisco, Inc. shall be the By-Laws
of the corporation surviving the merger.
SEVENTH: The Agreement and Plan of Merger is on file at the office of
the surviving corporation located at 1301 Avenue of the Americas, New York, NY
10019.
EIGHTH: A copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost, to any stockholder of
any constituent corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Merger to be duly executed by its duly authorized officer.
Dated: May __, 1999
R.J. REYNOLDS TOBACCO
HOLDINGS, INC.
By:________________________________
Name:
Title:
<PAGE>
ANNEX A
[FORM OF AGREEMENT AND PLAN OF MERGER
dated as of
____________ __, 1999
among
RJR NABISCO, INC.
RJR NABISCO HOLDINGS CORP.
and
R.J. REYNOLDS TOBACCO HOLDINGS INC.]
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................................1
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger.....................................................2
SECTION 2.02. Conversion of Shares...........................................2
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Certificate of Incorporation...................................3
SECTION 3.02. By-Laws........................................................3
SECTION 3.03. Directors and Officers.........................................3
ARTICLE 4
COVENANTS OF HOLDINGS AND RJRN
SECTION 4.01. Further Assurances.............................................3
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Amendments; No Waivers.........................................3
SECTION 5.02. Expenses.......................................................4
SECTION 5.03. Successors and Assigns.........................................4
SECTION 5.04. Governing Law..................................................4
SECTION 5.05. Counterparts; Effectiveness....................................4
SECTION 5.06. Entire Agreement...............................................4
SECTION 5.07. Severability...................................................4
i
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May __, 1999 among RJR
NABISCO, INC., a Delaware corporation (to be renamed "R. J. Reynolds Tobacco
Holdings, Inc.") ("RJRN"), RJR NABISCO HOLDINGS CORP., a Delaware corporation
(to be renamed "Nabisco Group Holdings Corp.") ("Holdings"), and R.J. REYNOLDS
TOBACCO HOLDINGS, INC., a Delaware corporation and a wholly-owned subsidiary
of Holdings ("ReorgSub").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Delaware Law" means the General Corporation Law of the State of
Delaware.
"Nabisco Stock" means the Class B Common Stock, par value $0.01 per
share, of Nabisco Holdings Corp., a Delaware corporation.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"ReorgSub Stock" means the common stock, par value $0.01 per share,
of ReorgSub.
"RJRN Stock" means the common stock, par value $0.01 per share, of
RJRN.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at any time directly or indirectly owned by
such Person.
<PAGE>
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) At the Effective Time, ReorgSub shall
be merged (the "Merger") with and into RJRN in accordance with Delaware Law,
whereupon the separate existence of ReorgSub shall cease, and RJRN shall be
the surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after the execution of this Agreement,
RJRN and ReorgSub will file a certificate of merger with the Secretary of
State of the State of Delaware and make all other filings or recordings
required by Delaware Law in connection with the Merger. The Merger shall
become effective at such time (the "Effective Time") as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware (or
at such later time as may be specified in the certificate of merger).
(c) From and after the Effective Time, the Surviving Corporation
shall possess all the rights, powers, privileges and franchises and be subject
to all of the obligations, liabilities, restrictions and disabilities of RJRN
and ReorgSub, all as provided under Delaware Law.
SECTION 2.02. Conversion of Shares. At the Effective Time,
(a) each share of ReorgSub Stock outstanding immediately prior to
the Effective Time shall be converted into the right to receive:
(i) _____ shares of Nabisco Stock; and
(ii) $__________ in cash.
(b) each share of RJRN Stock outstanding immediately prior to the
Effective Time shall be converted into the right to receive one share of
common stock, par value $0.01 per share, of the Surviving Corporation, with
the same rights, powers and privileges as the shares so converted.
2
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ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Certificate of Incorporation. The certificate of
incorporation of the Surviving Corporation shall be as set forth on Exhibit A
until amended in accordance with applicable law.
SECTION 3.02. By-Laws. The By-Laws of RJRN in effect at the Effective
Time shall be the By-Laws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 3.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, (i) the directors of RJRN at the Effective
Time shall be the directors of the Surviving Corporation and (ii) the officers
of RJRN at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 4
COVENANTS OF HOLDINGS AND RJRN
The parties hereto agree that:
SECTION 4.01. Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of RJRN or ReorgSub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and
on behalf of RJRN or ReorgSub, any other actions and things to vest, perfect
or confirm of record or otherwise in the Surviving Corporation any and all
right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, but only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by
each party against whom the waiver is to be effective, provided that, after
the adoption of this Agreement by Holdings, as sole stockholder of both RJRN
and ReorgSub, and without its further approval, no such amendment or waiver
shall reduce the
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amount or change the kind of consideration to be received in exchange for any
shares of capital stock of RJRN or ReorgSub.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 5.02. Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid in the manner set forth in the Distribution
Agreement dated as of May 12, 1999 among Holdings, RJRN and R. J. Reynolds
Tobacco Company, a New Jersey corporation.
SECTION 5.03. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the prior written consent of the other parties hereto.
SECTION 5.04. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.
SECTION 5.05. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
No provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations or liabilities hereunder upon any Person other than the
parties hereto and their respective successors and assigns.
SECTION 5.06. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral
and written, among the parties with respect to the subject matter of this
Agreement.
SECTION 5.07. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. Upon such a determination, the parties shall negotiate in good
faith to modify this Agreement
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so as to effect the original intent of the parties as closely as possible in
an acceptable manner so that the transactions contemplated hereby shall be
consummated as originally contemplated to the fullest extent possible.
5
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
RJR NABISCO, INC.
By:_______________________________
Name:
Title:
RJR NABISCO HOLDINGS CORP.
By:_______________________________
Name:
Title:
R.J. REYNOLDS TOBACCO HOLDINGS,
INC.
By:________________________________
Name:
Title:
<PAGE>
Exhibit 3.1
[FORM OF RESTATED
CERTIFICATE OF INCORPORATION
OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.]
*****
Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware
The undersigned William L. Rosoff, General Counsel of R.J. Reynolds
Tobacco Holdings, Inc., (the "Corporation") certifies as follows:
1. (a). The name of the Corporation is currently R.J. Reynolds Tobacco
Holdings, Inc.
(b) The Corporation was originally incorporated under the name R.J.
Reynolds Industries, Inc. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
March 4, 1970.
2. The Certificate of Incorporation is hereby amended by striking out
Articles I through VI thereof and by substituting new Articles First through
Ninth which are set forth in the Restated Certificate of Incorporation below.
3. The provisions of the Certificate of Incorporation of the
Corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument entitled "Restated
Certificate of Incorporation of R.J. Reynolds Tobacco Holdings, Inc." set forth
below.
4. The amendments and the restatement of the Restated Certificate of
Incorporation certified herein have been duly adopted by the sole stockholder of
the Corporation in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware.
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
ARTICLE FIRST
The name of the Corporation is R.J. Reynolds Tobacco Holdings, Inc.
ARTICLE SECOND
The address of its registered office in the State of Delaware is 1013
Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(the "DGCL").
ARTICLE FOURTH
The total number of shares of capital stock that the Corporation is
authorized to issue is 340,000,000 shares of which 290,000,000 shares are Common
Stock, par value $.01 each, and 50,000,000 shares are Preferred Stock, par value
$.01 each (hereinafter referred to as "Preferred Stock"). The Corporation may
issue the Preferred Stock from time to time in one or more series with such
distinctive designations as may be stated in the resolution or resolutions
providing for the issue of such stock from time to time adopted by the Board of
Directors or a duly authorized committee thereof. The resolution or resolutions
providing for the issue of shares of a particular series shall fix, subject to
applicable laws and the provisions of this ARTICLE FOURTH, for each such series
the number of shares constituting such series and the designations and powers,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors or a duly authorized
committee thereof under
2
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the DGCL. The number of authorized shares of any class or classes of stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock of the Corporation irrespective of the provisions of Section 242(b)(2) of
the DGCL or any corresponding provision hereafter enacted.
ARTICLE FIFTH
The Board of Directors of the Corporation, acting by majority vote, may
alter, amend or repeal the By-Laws of the Corporation. The stockholders may
adopt, amend or repeal the By-Laws only with the affirmative vote of the holders
of not less than 80% of the outstanding securities of the Corporation then
entitled to vote thereon, voting together as a single class.
ARTICLE SIXTH
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. Officers of the Corporation shall
be elected by, or in the manner approved by, the Board of Directors.
(2) The Board of Directors shall consist of not less than five nor more
than twelve directors, with the exact number of directors to be determined from
time to time by resolution adopted by the Board of Directors.
(3) The members of the Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may reasonably be possible, of one-third of the total number of
directors constituting the Board of Directors. Each director shall serve for a
term ending on the date of the third annual meeting of stockholders next
following the annual meeting at which such director was elected, provided that
directors initially designated as Class I directors shall serve for a term
ending on the date of the year 2000 annual meeting, directors initially
designated as Class II directors shall serve for a term ending on the date of
the year 2001 annual meeting, and directors initially designated as Class III
directors shall serve for a term ending on the date of the year 2002 annual
meeting. Notwithstanding the foregoing, each director shall hold office until
such director's successor shall have been duly elected and qualified or until
such director's earlier death, resignation or removal. In the event of any
change in the number of directors, the Board of Directors shall apportion any
newly-created directorships among, or reduce the number of directorships in,
such class or classes as shall equalize, as nearly as may reasonably be
possible, the number of directors in each class. In no event will a decrease in
the number of directors shorten the term of any incumbent director.
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<PAGE>
(4) Initial Directors. The names and mailing addresses of the persons
who are to serve initially as directors in each Class are:
- --------------------------------------------------------------------------------
Name Mailing Address
- --------------------------------------------------------------------------------
Class I
- --------------------------------------------------------------------------------
Class II
- --------------------------------------------------------------------------------
Class III
- --------------------------------------------------------------------------------
(5) There shall be no cumulative voting in the election of directors.
Election of directors need not be by written ballot unless the By-Laws of the
Corporation so provide. Directors need not be stockholders.
(6) Except as otherwise provided by law, vacancies on the Board of
Directors resulting from death, resignation, removal or otherwise and
newly-created directorships resulting from any increase in the number of
directors shall be filled only by a majority of the directors then in office
(although less than a quorum) or by the sole remaining director and not by the
stockholders, and each director so elected shall hold office for a term that
shall coincide with the term of the Class to which such director shall have been
elected.
(7) Each member of the Board of Directors shall have one vote on all
matters presented to the Board of Directors, and a majority of the total number
of directors at any time shall constitute a quorum for the transaction of
business at that time. The Board of Directors may act by the unanimous written
consent of the directors.
(8) Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately as
a class or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of
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the resolution or resolutions adopted by the Board of Directors pursuant to
ARTICLE FOURTH applicable thereto, and such directors so elected shall not be
subject to the provisions of this ARTICLE SIXTH unless otherwise provided in
such resolution or resolutions.
ARTICLE SEVENTH
(1) To the fullest extent permitted by the DGCL as now in effect or as
hereafter amended, no director or Continuing Director of the Corporation shall
be liable for monetary damages for breach of fiduciary duty.
(2) Each person who is or was a director or officer of the Corporation
(and the heirs, executors or administrators of such person) who was or is a
party or is threatened to be made a party to, or is involved in any threatened,
pending or completed action, suit or proceeding (including an action, suit or
proceeding by or in right of the Corporation), whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer, of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent permitted by the DGCL.
The right to indemnification conferred in this ARTICLE SEVENTH shall also
include the right to be paid by the Corporation the expenses incurred in
connection with any such proceeding in advance of its final disposition to the
fullest extent authorized by the DGCL. The right to indemnification conferred in
this ARTICLE SEVENTH shall be a contract right.
(3) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by the DGCL.
(4) The Corporation shall have power to purchase and maintain insurance,
at its expense, on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss incurred by such person in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify such person in any such capacity and whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
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(5) The rights and authority conferred in this ARTICLE SEVENTH shall not
be exclusive of any other right which any person may otherwise have or hereafter
acquire under any statute, provision of the Certificate of Incorporation or
By-laws of the Corporation, agreement, vote of stockholders or disinterested
directors or otherwise.
(6) Neither the amendment nor repeal of this ARTICLE SEVENTH, nor the
adoption of any provision of this Certificate of Incorporation or the By-laws of
the Corporation, nor, to the fullest extent permitted by the DGCL, any
modification of law, shall eliminate or reduce the effect of this ARTICLE
SEVENTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
ARTICLE EIGHTH
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of stockholders at an
annual or special meeting duly noticed and called in accordance with the DGCL
and may not be taken by written consent of stockholders without a meeting.
ARTICLE NINTH
Special meetings of the stockholders may be called by the Board of
Directors, the Chairman of the Board of Directors, the President or the
Secretary of the Corporation and may not be called by any other person.
Notwithstanding the foregoing, whenever holders of one or more classes or series
of Preferred Stock shall have the right, voting separately as a class or series,
to elect directors, such holders may call, pursuant to the terms of the
resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE
FOURTH hereof, special meetings of holders of such Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Restated
Certificate of Incorporation as of June __, 1999.
R.J. REYNOLDS TOBACCO HOLDINGS,
INC.
By:
--------------------------------------
Name: William L. Rosoff
Title: General Counsel
7
<PAGE>
Exhibit 3.2
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
[FORM OF BY-LAWS]
As Amended Effective June __, 1999
* * * * *
ARTICLE 1
MEETINGS OF STOCKHOLDERS
SECTION 1.01. Place of Meetings. Meetings of stockholders of the
Corporation shall be held at such place either within or without the State of
Delaware as the Corporation's Board of Directors (the "Board") may determine.
SECTION 1.02. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board and
stated in the notice of meeting, to elect a Board and to transact such other
business as may properly come before the meeting. Special meetings of
stockholders may be called by the persons identified in the Corporation's
Certificate of Incorporation.
SECTION 1.03. Notice. Except as otherwise provided by law or by the
Certificate of Incorporation, written notice shall be given to each stockholder
entitled to vote at least 10 and not more than 60 days before each meeting of
stockholders, such notice to include the time, date and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
SECTION 1.04. Quorum. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's stock
issued and outstanding and entitled to vote shall constitute a quorum for the
transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
SECTION 1.05. Conduct of Meeting and Order of Business. The Chairman
or, at the Chairman's request, the Chief Executive Officer, shall act as
chairman at all meetings of stockholders. The Secretary of the Corporation or,
in his or her absence, an Assistant Secretary shall act as secretary at all
meetings of stockholders. The chairman of the meeting shall have the right and
authority to determine and maintain the rules, regulations and procedures for
the proper
<PAGE>
conduct of the meeting, including but not limited to restricting entry to the
meeting after it has commenced, maintaining order and the safety of those in
attendance, opening and closing the polls for voting, dismissing business not
properly submitted, and limiting time allowed for discussion of the business of
the meeting.
Business to be conducted at annual meetings of stockholders shall be
limited to that properly submitted to the meeting either by or at the direction
of the Board or by any stockholder of the Corporation who shall be entitled to
vote at such meeting and who complies with the notice requirements set forth in
Section 1.06. If the chairman of the meeting shall determine that any business
was not properly submitted in accordance with the terms of Section 1.06, he or
she shall declare to the meeting that such business was not properly submitted
and would not be transacted at that meeting.
SECTION 1.06. Advance Notice of Stockholder Proposals. In order to
properly submit any business to an annual meeting of stockholders, a stockholder
must give timely notice in writing to the Secretary of the Corporation. To be
considered timely, a stockholder's notice must be delivered either in person or
by United States certified mail, postage prepaid, and received prior to the
close of business at the principal executive offices of the Corporation (a) not
less than 120 days nor more than 150 days (unless, in either case, such day is
not a business day in which case the immediately preceding business day) before
the first anniversary of the Corporation's last annual meeting of stockholders
or (b) if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days from such
anniversary date, not less than a reasonable time, as determined by the Board,
prior to the date of the applicable annual meeting. In no event shall the public
announcement of a postponement or adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Nomination of persons for election to the Board may be made by the
Board or any committee designated by the Board or by any stockholder entitled to
vote for the election of directors at the applicable meeting of stockholders.
However, nominations other than those made by the Board or its designated
committee must comply with the procedures set forth in this Section 1.06, and no
person shall be eligible for election as a director unless nominated in
accordance with the terms of this Section 1.06.
A stockholder may nominate a person or persons for election to the
Board by giving written notice to the Secretary of the Corporation in accordance
with the procedures set forth above. In addition to the timeliness requirements
set forth above for notice to the Corporation by a stockholder of business to be
submitted
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<PAGE>
at an annual meeting of stockholders, with respect to any special meeting of
stockholders called for the election of directors, written notice must be
delivered in the manner specified above and not later than the close of business
on the seventh day following the date on which notice of such meeting is first
given to stockholders.
The Secretary of the Corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board or
a committee designated by the Board.
A stockholder's notice to submit business to an annual meeting of
stockholders shall set forth (i) the name and address of the stockholder, (ii)
the class and number of shares of stock beneficially owned by such stockholder,
(iii) the name in which such shares are registered on the stock transfer books
of the Corporation, (iv) a representation that the stockholder intends to appear
at the meeting in person or by proxy to submit the business specified in such
notice, (v) any material interest of the stockholder in the business to be
submitted and (vi) a brief description of the business desired to be submitted
to the annual meeting, including the complete text of any resolutions to be
presented at the annual meeting, and the reasons for conducting such business at
the annual meeting. In addition, the stockholder making such proposal shall
promptly provide any other information reasonably requested by the Corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board then such stockholder's notice must also set forth, as to each
person whom the stockholder proposes to nominate for election as a director, (a)
the name, age, business address and, if known, residence address of such person,
(b) the principal occupation or employment of such person, (c) the class and
number of shares of stock of the Corporation which are beneficially owned by
such person, (d) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors or is
otherwise required by the rules and regulations of the Securities and Exchange
Commission promulgated under the Securities Exchange Act of 1934, as amended,
(e) the written consent of such person to be named in the proxy statement as a
nominee and to serve as a director if elected and (f) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such stockholder.
Any person nominated for election as a director by the Board or any
committee designated by the Board shall, upon the request of the Board or such
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<PAGE>
committee, furnish to the Secretary of the Corporation all such information
pertaining to such person that is required to be set forth in a stockholder's
notice of nomination.
In addition to the foregoing provisions of this Section 1.06, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
SECTION 1.07. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, all matters submitted to a meeting of stockholders
shall be decided by vote of the holders of record, present in person or by
proxy, of a majority of the Corporation's stock issued and outstanding and
entitled to vote.
A proxy shall be executed in writing by the stockholder or by his or
her duly authorized attorney-in-fact and shall be delivered to the secretary of
the meeting at or prior to the time designated by the chairman of the meeting.
No stockholder may designate more than four persons to act on his or her behalf
at a meeting of stockholders.
SECTION 1.08. Inspectors of Election. Prior to any meeting of
stockholders, the Board shall appoint one or more inspectors to act at the
meeting and make a written report thereof in accordance with the Delaware
General Corporation Law. The Board may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an
oath to execute faithfully the duties of inspector with strict impartiality and
according to the best of his or her ability.
ARTICLE 2
DIRECTORS
SECTION 2.01. Meetings. Regular meetings of the Board shall be held at
such times and places as may from time to time be fixed by the Board or as may
be specified in a notice of meeting. Special meetings of the Board may be held
at any time upon the call of the Chairman or the Chief Executive Officer and
shall be called by the Chairman, the Chief Executive Officer or the Secretary if
directed by the Board. A meeting of the Board may be held without notice
immediately after the annual meeting of stockholders. No notice shall be
required for any regular meeting of the Board. Notice of the day, hour and place
of holding of each special meeting shall be given by delivering the same at
least two days
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before the date of the meeting or by causing the same to be transmitted by
telecopy or telegraph at least one day before the meeting to each director.
SECTION 2.02. Quorum. Except as otherwise provided in the Certificate
of Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at any
meeting of the Board, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until such a quorum
is present.
SECTION 2.03. Executive Committee. The Board, by resolution adopted by
a majority of the entire Board, may appoint from among its members an Executive
Committee consisting of the Chief Executive Officer, if such officer is a member
of the Board, or the Chairman, if the Chief Executive Officer is not a member of
the Board, and at least two other directors. Meetings of the Executive Committee
shall be held without notice at such dates, times and places as shall be
determined by the Executive Committee. The Executive Committee shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation that are permitted by law to be
exercised by a committee of the Board, including the power to declare dividends,
to authorize the issuance of stock and to adopt a certificate of ownership and
merger of parent corporation and subsidiary or subsidiaries; provided, however,
that the Executive Committee shall not have the power or authority of the Board
in reference to amending the Certificate of Incorporation or any preferred stock
rights plan, adopting an agreement of merger or consolidation with respect to
the Corporation, recommending to the stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution, amending the By-Laws of the Corporation or adopting a certificate
of ownership and merger of the Corporation (other than a certificate of
ownership and merger of parent corporation and subsidiary or subsidiaries). The
majority of the members of the Executive Committee shall constitute a quorum.
Minutes shall be kept of the proceedings of the Executive Committee, which shall
be reported at meetings of the Board. The Executive Committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of the Corporation, fix any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series.
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SECTION 2.04. Other Committees of Directors. The Board may, by
resolution adopted by a majority of the Board, designate one or more other
committees to have and exercise such power and authority as the Board shall
specify. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another director to act at the meeting in place of any such absent or
disqualified member.
ARTICLE 3
OFFICERS
SECTION 3.01. Description and Terms. The officers of the Corporation
shall be the Chairman, the Chief Executive Officer, a President, a Treasurer, a
Secretary, who shall have the duty, among other things, to record the
proceedings of the meetings of stockholders and directors in a book kept for
that purpose, and such other additional officers with such titles as the Board
shall determine, all of whom shall be chosen by and serve at the pleasure of the
Board; provided that the Chief Executive Officer may appoint Senior Vice
Presidents, Vice Presidents or Assistant Officers at his or her discretion.
Subject to such limitations as may be imposed by the Board, the Chief Executive
Officer shall have full executive power and authority with respect to the
Corporation. The President, if separate from the Chief Executive Officer, shall
have such powers and authority as the Chief Executive Officer may determine. If
the Chief Executive Officer is absent or incapacitated, the Executive Committee
shall determine the person who shall have all the power and authority of the
Chief Executive Officer. Other officers shall have the usual powers and shall
perform all the usual duties incident to their respective offices. All officers
shall be subject to the supervision and direction of the Board. The authority,
duties or responsibilities of any officer of the Corporation may be suspended by
the Chief Executive Officer with or without cause. Any officer may be removed by
the Board with or without cause. Subject to such limitations as the Board may
provide, each officer may further delegate to any other officer or any employee
or agent of the Corporation such portions of his or her authority as the officer
shall deem appropriate, subject to such limitations as the officer shall
specify, and may revoke such authority at any time.
SECTION 3.02. Stockholder Consents and Proxies. The Chairman, the Chief
Executive Officer, each Vice Chairman, the President, the Secretary and the
Treasurer, or any one of them, shall have the power and authority on behalf of
the Corporation to execute any stockholders' consents or proxies and to attend
and act and vote in person or by proxy at any meetings of stockholders of any
corporation in which the Corporation may own stock, and at any such meetings
shall possess
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and may exercise any and all of the rights and powers incident to the ownership
of such stock which as the owner thereof the Corporation might have possessed
and executed if present. The Board by resolution from time to time may confer
like powers upon any other officer.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.01. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any director or
stockholder, such notice is to be given in writing by mail, addressed to such
director or stockholder at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid. Such notice shall be deemed to
have been given when it is deposited in the United States mail. Notice to
directors may also be given by telegram or facsimile transmission or be
delivered personally or by telephone.
SECTION 4.02. Fiscal Year. The fiscal year of the Corporation shall
be fixed by the Board.
SECTION 4.03. Certificates of Stock. Any certificates which represent
shares of the Corporation shall be signed by the Chairman or the Chief Executive
Officer and by the Secretary or an Assistant Secretary. Any and all signatures
on any such certificates, including signatures of officers, transfer agents and
registrars, may be facsimile.
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<PAGE>
[FORM OF RIGHTS AGREEMENT
dated as of
MAY ___, 1999
between
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
and
THE BANK OF NEW YORK
as Rights Agent]
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1. Definitions.......................................................1
SECTION 2. Appointment of Rights Agent.......................................5
SECTION 3. Issue of Right Certificates.......................................6
SECTION 4. Form of Right Certificates........................................7
SECTION 5. Countersignature and Registration.................................7
SECTION 6. Transfer and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates................8
SECTION 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.....9
SECTION 8. Cancellation and Destruction of Right Certificates...............11
SECTION 9. Reservation and Availability of Capital Stock....................11
SECTION 10. Preferred Stock Record Date......................................12
SECTION 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights.........................................13
SECTION 12. Certificate of Adjusted Purchase Price or Number of Shares.......21
SECTION 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power...............................................22
SECTION 14. Fractional Rights and Fractional Shares..........................24
SECTION 15. Rights of Action.................................................26
SECTION 16. Agreement of Right Holders.......................................26
SECTION 17. Right Certificate Holder Not Deemed a Stockholder................27
SECTION 18. Concerning the Rights Agent......................................27
SECTION 19. Merger or Consolidation or Change of Name of Rights
Agents......................................................28
SECTION 20. Duties of Rights Agent...........................................28
SECTION 21. Change of Rights Agent...........................................31
SECTION 22. Issuance of New Right Certificates...............................32
SECTION 23. Redemption.......................................................32
SECTION 24. Exchange.........................................................33
SECTION 25. Notice of Proposed Actions.......................................34
SECTION 26. Notices..........................................................35
SECTION 27. Supplements and Amendments.......................................35
SECTION 28. Successors.......................................................35
SECTION 29. Determinations and Actions by the Board, etc.....................36
SECTION 30. Benefits of this Agreement.......................................36
SECTION 31. Severability.....................................................36
SECTION 32. Governing Law....................................................36
SECTION 33. Counterparts.....................................................36
SECTION 34. Descriptive Headings.............................................37
<PAGE>
Exhibit A - Form of Certificate of Designation of Preferred Stock
Exhibit B - Form of Right Certificate
<PAGE>
RIGHTS AGREEMENT
AGREEMENT dated as of May ____, 1999 between R.J. Reynolds Tobacco
Holdings, Inc., a Delaware corporation (the "COMPANY), and The Bank of New
York as Rights Agent (the "RIGHTS AGENT"),
W I T N E S S E T H
WHEREAS, on May 17, 1999 the Board of Directors of the Company
authorized and declared a dividend, payable on May 27, 1999 (the "Record
Date"), of preferred stock purchase rights (the "RIGHTS") in an amount such
that one Right is payable with respect to each share of Common Stock (as
hereinafter defined) outstanding at the close of business on June 14, 1999
and has authorized the issuance, upon the terms and subject to the conditions
hereinafter set forth, of one Right (subject to adjustment) in respect of
each share of Common Stock issued after June 14 each Right representing the
right to purchase, upon the terms and subject to the conditions hereinafter
set forth, one one-hundredth (subject to adjustment) of a share of Preferred
Stock (as hereinafter defined);
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. The following terms, as used herein, have the
following meanings:
"ACQUIRING PERSON" means any Person who, together with all
Affiliates and Associates of such Person, shall at any time after June 14,
1999 be the Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding, but shall not include an Exempt Person; provided, however,
that (a) if the Board determines in good faith that a Person who would
otherwise be an "Acquiring Person" became the Beneficial Owner of a number of
shares of Common Stock such that the Person would otherwise qualify as an
"Acquiring Person" inadvertently (including, without limitation, because (i)
such Person was unaware that it beneficially owned a percentage of Common
Stock that would otherwise cause such Person to be an "Acquiring Person" or
(ii) such Person was aware of the extent of its Beneficial Ownership of
Common Stock but had no actual knowledge of the consequences of such
Beneficial Ownership under this Agreement) and without any intention of
changing or influencing control of the Company, then such Person shall not be
deemed to be or to have become an "Acquiring Person" for any purposes of this
Agreement unless and until such Person shall have failed to divest itself, as
soon as practicable (as determined, in good faith, by the Board of Directors
of the Company), of Beneficial Ownership of a sufficient number of shares of
Common Stock so that such Person would no longer otherwise qualify as an
"Acquiring
<PAGE>
Person"; and (b) no Person shall become an "Acquiring Person" as the result of
any acquisition of shares of Common Stock by the Company which, by reducing the
number of shares of Common Stock outstanding, increases the proportionate number
of shares of Common Stock beneficially owned by such Person to 15% or more of
the shares of Common Stock then outstanding; provided, however, that if a Person
shall become the Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding by reason of such share acquisition by the Company and shall
thereafter become the Beneficial Owner of any additional shares of Common Stock
(other than pursuant to a dividend or distribution paid or made by the Company
on the outstanding Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), then such Person shall be deemed to be an "Acquiring
Person" unless upon becoming the Beneficial Owner of such additional shares of
Common Stock such Person does not beneficially own 15% or more of the shares of
Common Stock then outstanding.
"AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act as in effect on the date hereof.
A Person shall be deemed the "BENEFICIAL OWNER" of, and shall be deemed
to have "Beneficial Ownership" of and to "beneficially own", any securities:
(a) which such Person or any of its Affiliates or Associates,
directly or indirectly, beneficially owns (as determined pursuant to
Rule 13d-3 under the Exchange Act as in effect on the date hereof);
(b) which such Person or any of its Affiliates or Associates,
directly or indirectly, has
(i) the right to acquire (whether such right is
exercisable immediately or only upon the occurrence of certain
events or the passage of time or both) pursuant to any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group
members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", (A)
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase, (B) securities which such Person has a
right to acquire upon the exercise of Rights at any time prior
to the time that any Person
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<PAGE>
becomes an Acquiring Person or (C) securities issuable upon
the exercise of Rights from and after the time that any Person
becomes an Acquiring Person if such Rights were acquired by
such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof ("ORIGINAL RIGHTS") or pursuant to Section
11(i) or Section 11(p) with respect to an adjustment to
Original Rights; or
(ii) the right to vote (whether such right is exercisable
immediately or only upon the occurrence of certain events or
the passage of time or both) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or
otherwise; provided that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", any security
under this clause (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding (A) arises solely from
a revocable proxy or consent given in response to a public
proxy or consent solicitation made pursuant to the applicable
rules and regulations under the Exchange Act and (B) is not
also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(c) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) and with
respect to which such Person or any of its Affiliates or Associates has
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in subparagraph (b)(ii) immediately above) or
disposing of any such securities;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned", including, without limitation, in a fiduciary capacity, by an Exempt
Person or by any other such officer, director or employee of an Exempt Person.
"BOARD" means the Board of Directors of the Company.
3
<PAGE>
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"CLOSE OF BUSINESS" on any given date means 5:00 P.M., New York City
time, on such date; provided that if such date is not a Business Day "close of
business" means 5:00 P.M., New York City time, on the next succeeding Business
Day.
"COMMON STOCK" means the Common Stock, par value $0.01 per share, of
the Company, except that, when used with reference to any Person other than the
Company, "Common Stock" means the capital stock of such Person with the greatest
voting power, or the equity securities or other equity interest having power to
control or direct the management, of such Person.
"DISTRIBUTION DATE" means the earlier of (a) the close of business on
the tenth day (or such later day as may be designated by action of a majority of
the Board) after the Stock Acquisition Date and (b) the close of business on the
tenth Business Day (or such later day as may be designated prior to the
occurrence of a Section 11(a)(ii) Event by action of the Board) after the date
of the commencement of a tender or exchange offer by any Person if, upon
consummation thereof, such Person would be an Acquiring Person; provided,
however, that if either of such dates occurs after the date of this Agreement
and on or prior to the Record Date, then the Distribution Date shall be the
Record Date.
"EXEMPT PERSON" shall mean the Company or any Subsidiary of the
Company, in each case including, without limitation, in its fiduciary capacity,
or any employee benefit plan of the Company or of any Subsidiary of the Company,
or any entity or trustee holding Common Stock for or pursuant to the terms of
any such plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or of any Subsidiary of the
Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPIRATION DATE" means the earlier of (a) the Final Expiration Date
and (b) the time at which all Rights are redeemed as provided in Section 23 or
exchanged as provided in Section 24.
"FINAL EXPIRATION DATE" means the close of business on May 27,
2009.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization.
4
<PAGE>
"PREFERRED STOCK" means the Series A Junior Participating Preferred
Stock, par value $0.01 per share, of the Company, having the terms set forth in
the form of certificate of designation attached hereto as Exhibit A.
"PURCHASE PRICE" means the price (subject to adjustment as provided
herein) at which a holder of a Right may purchase one one-hundredth of a share
of Preferred Stock (subject to adjustment as provided herein) upon exercise of a
Right, which price shall initially be $150.
"SECTION 11(A)(II) EVENT" means any event described in the first clause
of Section 11(a)(ii).
"SECTION 13 EVENT" means any event described in clauses (x), (y) or (z)
of Section 13(a).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK ACQUISITION DATE" means the date of the first public
announcement (including the filing of a report on Schedule 13D under the
Exchange Act (or any comparable or successor report)) by the Company or an
Acquiring Person indicating that an Acquiring Person has become such.
"SUBSIDIARY" of any Person means any other Person of which securities
or other ownership interests having ordinary voting power, in the absence of
contingencies, to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such first Person.
"TRADING DAY" means a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a
Business Day.
"TRIGGERING EVENT" means any Section 11(a)(ii) Event or any Section 13
Event.
SECTION 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. If the Company appoints
one or more Co-Rights Agents, the respective duties of the Rights Agent and any
Co-Rights Agents shall be as the Company shall determine.
5
<PAGE>
SECTION 3. Issue of Right Certificates. (a) Prior to the Distribution
Date, (i) the Rights will be evidenced (subject to the penultimate sentence of
this Section 3(a)) by the certificates for the Common Stock and not by separate
Right Certificates (as hereinafter defined) and the registered holders of the
Common Stock shall be deemed to be the registered holders of the associated
Rights, and (ii) the Rights will be transferable only in connection with the
transfer of the underlying shares of Common Stock. With respect to
certificates for Common Stock outstanding as of the Record Date, prior to the
Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights. Prior to the Distribution Date (or, if earlier, the
Expiration Date), the surrender for transfer of any certificate for Common
Stock outstanding on the Record Date, with or without a copy of the Summary
of Rights, shall also constitute the transfer of the Rights associated with
the Common Stock represented thereby.
(b) As soon as practicable after the Company has notified the Rights
Agent of the occurrence of the Distribution Date, the Rights Agent will send, by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Affiliate or Associate thereof), at the address of such
holder shown on the records of the Company, one or more Right Certificates
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. If an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11 the Company shall, at the time
of distribution of the Right Certificates, make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a)) so that Right
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. From and after the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(c) Rights shall be issued in respect of all shares of Common Stock
outstanding as of the Record Date or issued (on original issuance or out of
treasury) after the Record Date but prior to the earlier of the Distribution
Date and the Expiration Date. In addition, in connection with the issuance or
sale of shares of Common Stock following the Distribution Date and prior to the
Expiration Date, the Company (i) shall, with respect to shares of Common Stock
so issued or sold (x) pursuant to the exercise of stock options or under any
employee plan or arrangement or (y) upon the exercise, conversion or exchange of
other securities issued by the Company prior to the Distribution Date and (ii)
may, in any other
6
<PAGE>
case, if deemed necessary or appropriate by the Board, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided that no such Right Certificate shall be issued if, and to the
extent that, (i) the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Right Certificate would be issued or (ii)
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
(d) Certificates issued for Common Stock after the Record Date but
prior to the earlier of the Distribution Date and the Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences certain Rights as set forth in a Rights
Agreement between R.J. Reynolds Tobacco Holdings, Inc. and The Bank of
New York, as Rights Agent, dated as of May____, 1999 and as amended
from time to time (the "RIGHTS AGREEMENT"), the terms of which are
hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of the Company. The Company
will mail to the holder of this certificate a copy of the Rights
Agreement without charge promptly after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be evidenced by separate certificates and no
longer be evidenced by this certificate, may be redeemed or exchanged
or may expire. AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO,
OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY
ANY SUBSEQUENT HOLDER, MAY BE NULL AND VOID.
SECTION 4. Form of Right Certificates. The certificates evidencing the
Rights (and the forms of assignment, election to purchase and certificates to be
printed on the reverse thereof) (the "RIGHT CERTIFICATES") shall be
substantially in the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law, rule or regulation or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. The Right Certificates, whenever distributed, shall be dated as of the
Record Date.
SECTION 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
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<PAGE>
Board, its President or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature. The Right Certificates
shall be manually countersigned by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company whose
manual or facsimile signature is affixed to the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates may,
nevertheless, be countersigned by the Rights Agent and issued and delivered with
the same force and effect as though the Person who signed such Right
Certificates had not ceased to be such officer of the Company. Any Right
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the place for
surrender of Right Certificates upon exercise, transfer or exchange, books for
registration and transfer of the Right Certificates. Such books shall show with
respect to each Right Certificate the name and address of the registered holder
thereof, the number of Rights indicated on the certificate and the certificate
number.
SECTION 6. Transfer and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates. (a) At any time after the
Distribution Date and prior to the Expiration Date, any Right Certificate or
Certificates may, upon the terms and subject to the conditions set forth in this
Agreement, be transferred or exchanged for another Right Certificate or
Certificates evidencing a like number of Rights as the Right Certificate or
Certificates surrendered. Any registered holder desiring to transfer or exchange
any Right Certificate or Certificates shall surrender such Right Certificate or
Certificates (with, in the case of a transfer, the form of assignment and
certificate on the reverse side thereof duly executed) to the Rights Agent at
the principal office or offices of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right
Certificate or Certificates until the registered holder of the Rights has
complied with the requirements of Section 7(e). Upon satisfaction of the
foregoing requirements, the Rights Agent shall, subject to Sections 7(d), 14 and
24, countersign and deliver to the Person entitled thereto a Right Certificate
or Certificates as so requested. The Company may require payment of a sum
sufficient to cover any
8
<PAGE>
transfer tax or other governmental charge that may be imposed in connection with
any transfer or exchange of any Right Certificate or Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein, including
Sections 7(d), 7(e), 9(c), 11(a), 23 and 24) in whole or in part at any time
after the Distribution Date and prior to the Expiration Date upon surrender of
the Right Certificate, with the form of election to purchase and the certificate
on the reverse side thereof duly executed, to the Rights Agent at the principal
office or offices of the Rights Agent designated for such purpose, together with
payment (in lawful money of the United States of America by certified check or
bank draft payable to the order of the Company) of the aggregate Purchase Price
with respect to the Rights then to be exercised and an amount equal to any
applicable transfer tax or other governmental charge.
(b) Upon satisfaction of the requirements of Section 7(a) and subject
to Section 20(k), the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock (or make available, if the Rights
Agent is the transfer agent therefor) certificates for the total number of one
one-hundredths of a share of Preferred Stock to be purchased (and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests) or (B) if the Company shall have elected to deposit the shares of
Preferred Stock issuable upon exercise of the Rights with a depositary agent,
requisition from the depositary agent depositary receipts representing interests
in such number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company will direct the depositary agent to comply
with such request, (ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of issuance of fractional shares in accordance with Section
14 and (iii) after receipt of such certificates or depositary receipts and cash,
if any, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate (with such certificates or
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<PAGE>
receipts registered in such name or names as may be designated by such holder).
If the Company is obligated to deliver Common Stock, other securities or assets
pursuant to this Agreement, the Company will make all arrangements necessary so
that such other securities and assets are available for delivery by the Rights
Agent, if and when appropriate.
(c) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing the number of Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14.
(d) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person (or
any such Associate or Affiliate) to holders of equity interests in such
Acquiring Person (or in any such Associate or Affiliate) or to any Person with
whom the Acquiring Person (or any such Associate or Affiliate) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(d)
shall become null and void without any further action, and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(d) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates and Associates or any
transferee of any of them hereunder.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer pursuant to Section 6 or exercise pursuant to this Section 7
unless such registered holder (i) shall have completed and signed the
certificate contained in the form of assignment or election to purchase, as the
case may be, set forth on the reverse side of the Right Certificate surrendered
for such transfer or exercise, as
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the case may be, (ii) shall not have indicated an affirmative response to clause
1 or 2 thereof and (iii) shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
SECTION 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for exercise, transfer or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in canceled form, or, if surrendered to the Rights
Agent, shall be canceled by it, and no Right Certificates shall be issued in
lieu thereof except as expressly permitted by this Agreement. The Company shall
deliver to the Rights Agent for cancellation, and the Rights Agent shall cancel,
any other Right Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available a number of shares of Preferred Stock which are authorized but not
outstanding or otherwise reserved for issuance sufficient to permit the exercise
in full of all outstanding Rights as provided in this Agreement.
(b) So long as the Preferred Stock issuable upon the exercise of
Rights may be listed on any national securities exchange, the Company shall use
its best efforts to cause, from and after such time as the Rights become
exercisable, all securities reserved for such issuance to be listed on any such
exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts (i) to file, as soon as
practicable following the earliest date after the occurrence of a Section
11(a)(ii) Event as of which the consideration to be delivered by the Company
upon exercise of the Rights has been determined in accordance with Section
11(a)(iii), or as soon as is required by law following the Distribution Date, as
the case may be, a registration statement under the Securities Act with respect
to the securities issuable upon exercise of the Rights, (ii) to cause such
registration statement to become effective as soon as practicable after such
filing and (iii) to cause such registration statement to remain effective (with
a prospectus at all times meeting the requirements of the Securities Act) until
the earlier of (A) the date as of which the Rights are no longer exercisable for
such securities and (B) the Expiration Date. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or blue sky laws of the various states in
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connection with the exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed 90 days after the date set forth in
clause 9(c)(i), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any such provision of this Agreement to the contrary, the Rights
shall not be exercisable for securities in any jurisdiction if the requisite
qualification in such jurisdiction shall not have been obtained, such exercise
therefor shall not be permitted under applicable law or a registration statement
in respect of such securities shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to insure that all one one-hundredths of a share of
Preferred Stock issuable upon exercise of Rights shall, at the time of delivery
of the certificates for such securities (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and other governmental
charges which may be payable in respect of the issuance or delivery of the Right
Certificates and of any certificates for Preferred Stock upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax or
other governmental charge which may be payable in respect of any transfer
involved in the issuance or delivery of any Right Certificates or of any
certificates for Preferred Stock to a Person other than the registered holder of
the applicable Right Certificate, and prior to any such transfer, issuance or
delivery any such tax or other governmental charge shall have been paid by the
holder of such Right Certificate or it shall have been established to the
Company's satisfaction that no such tax or other governmental charge is due.
SECTION 10. Preferred Stock Record Date. Each Person (other than the
Company) in whose name any certificate for Preferred Stock is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such Preferred Stock represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and any transfer taxes
or other governmental charges) was made; provided that if the date of such
surrender and payment is a date upon which the transfer books of the Company
relating to the Preferred Stock are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the applicable transfer books of the
Company
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are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company except as provided herein.
SECTION 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. (a) (i) If the Company shall at any time after the date of
this Agreement (A) pay a dividend on the Preferred Stock payable in shares of
Preferred Stock, (B) subdivide the outstanding Preferred Stock into a greater
number of shares, (C) combine the outstanding Preferred Stock into a smaller
number of shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger involving the Company), the Purchase
Price in effect immediately prior to the record date for such dividend or the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or other capital stock issuable on
such date shall be proportionately adjusted so that each holder of a Right shall
(except as otherwise provided herein, including Section 7(d)) thereafter be
entitled to receive, upon exercise thereof at the Purchase Price in effect
immediately prior to such date, the aggregate number and kind of shares of
Preferred Stock or other capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date and at a time when the
applicable transfer books of the Company were open, such holder would have been
entitled to receive upon such exercise and by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which requires
an adjustment under both this Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii) If any Person, alone or together with its Affiliates and
Associates, shall, at any time after the date of this Agreement, become
an Acquiring Person, then each holder of a Right shall (except as
otherwise provided herein, including Section 7(d)) thereafter be
entitled to receive, upon exercise thereof at the Purchase Price in
effect immediately prior to the first occurrence of a Section 11(a)(ii)
Event, in lieu of Preferred Stock, such number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock of
the Company (such shares being referred to herein as the "ADJUSTMENT
SHARES") as shall be equal to the result obtained by dividing
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<PAGE>
(x) the product obtained by multiplying the Purchase
Price in effect immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the number of one one-hundredths of
a share of Preferred Stock for which a Right was exercisable
immediately prior to such first occurrence (such product being
thereafter referred to as the "PURCHASE PRICE" for each Right)
by
(y) 50% of the current market price (determined pursuant
to Section 11(d)(i)) per share of Common Stock on the date of
such first occurrence;
provided, however, that the Purchase Price (as so adjusted pursuant to
the foregoing clause (ii)(x)) and the number of Adjustment Shares so
receivable upon exercise of a Right shall, following the occurrence of
such Section 11(a)(ii) Event, be subject to further adjustment as
appropriate in accordance with Section 11(f). From and after the
occurrence of a Section 13 Event, any Rights that theretofore have not
been exercised pursuant to this Section 11(a)(ii) shall thereafter be
exercisable only in accordance with Section 13 and not pursuant to this
Section 11(a)(ii).
(iii) If the number of shares of Common Stock which are authorized
by the Company's certificate of incorporation but not outstanding or
reserved for issuance other than upon exercise of the Rights is not
sufficient to permit the exercise in full of the Rights in accordance
with Section 11(a)(ii), the Company shall, with respect to each Right,
make adequate provision to substitute for the Adjustment Shares, upon
payment of the Purchase Price then in effect, (A) (to the extent
available) Common Stock and then, (B) (to the extent available) such
number of one one-hundredths of a share of Preferred Stock as are then
equivalent in value to the value of the Adjustment Shares, and then, if
necessary, (C) other equity or debt securities of the Company, cash or
other assets, a reduction in the Purchase Price or any combination of
the foregoing, having an aggregate value based upon the advice of a
nationally recognized investment banking firm) equal to the value of
the Adjustment Shares; provided that (x) the Company may, and (y) if
the Company shall not have made adequate provision as required above to
deliver value within 30 days following the first occurrence of a
Section 11(a)(ii) Event (the "SUBSTITUTION PERIOD"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, (1) (to the
extent available) Common Stock and then (2) (to the extent available)
one-hundredths of a share of Preferred Stock and then, if necessary,
(3) other equity or debt securities of the Company, cash or other
assets or any combination of the foregoing,
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<PAGE>
having an aggregate value (based upon the advice of a nationally
recognized investment banking firm) equal to the excess of the value of
the Adjustment Shares over the Purchase Price. To the extent that the
Company determines that some action is to be taken pursuant to the
preceding sentence, the Company (X) shall provide, subject to Section
7(d), that such action shall apply uniformly to all outstanding Rights
and (Y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to decide the
appropriate form and value of any consideration to be delivered as
referred to in the preceding sentence. If any such suspension occurs,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of the
Common Stock shall be the current market price per share of Common
Stock (as determined pursuant to Section 11(d)) on the date of the
first occurrence of a Section 11(a)(ii) Event; any common stock
equivalent shall be deemed to have the same value as the Common Stock
on such date; and the value of other securities or assets shall be
determined pursuant to Section 11(d)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or securities having the same rights,
privileges and preferences as the shares of Preferred Stock ("EQUIVALENT
PREFERRED STOCK")) or securities convertible into or exercisable for Preferred
Stock (or equivalent preferred stock) at a price per share of Preferred Stock
(or equivalent preferred stock) (in each case, taking account of any conversion
or exercise price) less than the current market price (as determined pursuant to
Section 11(d)) per share of Preferred Stock on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate price (taking account of any conversion or exercise price) of the
total number of shares of Preferred Stock (and/or equivalent preferred stock) so
to be offered would purchase at such current market price and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date plus the number of additional shares of Preferred Stock (and/or
equivalent preferred stock) so to be offered. In case such subscription price
may be paid by delivery of consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes.
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Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
if such rights, options or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger involving the Company) of
evidences of indebtedness, equity securities other than Preferred Stock, assets
(other than a regular periodic cash dividend out of the earnings or retained
earnings of the Company) or rights, options or warrants (excluding those
referred to in Section 11(b)), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)) per
share of Preferred Stock on such record date, less the value (as determined
pursuant to Section 11(d)(iii)) of such evidences of indebtedness, equity
securities, assets, rights, options or warrants so to be distributed with
respect to one share of Preferred Stock and the denominator of which shall be
such current market price per share of Preferred Stock. Such adjustment shall be
made successively whenever such a record date is fixed, and if such distribution
is not so made, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder other than
computations made pursuant to Section 11(a)(iii) or 14, the "current market
price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the 30
consecutive Trading Days immediately prior to such date; for purposes of
computations made pursuant to Section 11(a)(iii), the "current market price" per
share of Common Stock on any date shall be deemed to be the average of the daily
closing prices per share of such Common Stock for the 10 consecutive Trading
Days immediately following such date; and for purposes of computations made
pursuant to Section 14, the "current market price" per share of Common Stock for
any Trading Day shall be deemed to be the closing price per share of Common
Stock for such Trading Day; provided that if the current market price per share
of the Common Stock is determined during a period following the announcement by
the issuer of such Common Stock of (A) a dividend or distribution on such Common
Stock payable in shares of such Common Stock or securities exercisable for or
convertible into shares of such Common Stock (other than the Rights), or (B) any
subdivision, combination or reclassification of such Common Stock, and prior to
17
<PAGE>
the expiration of the requisite 30 Trading Day or 10 Trading Day period, as set
forth above, after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then, and
in each such case, the "current market price" shall be properly adjusted to take
into account ex-dividend trading. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Common Stock are not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use or, if on any such date the shares
of Common Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board. If on any such date no
market maker is making a market in the Common Stock, the fair value of such
shares on such date as determined in good faith by the Board (or, if at the time
of such determination there is an Acquiring Person, by a nationally recognized
investment banking firm) shall be used. If the Common Stock is not publicly held
or not so listed or traded, the "CURRENT MARKET PRICE" per share means the fair
value per share as determined in good faith by the Board, or, if at the time of
such determination there is an Acquiring Person, by a nationally recognized
investment banking firm, which determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in Section 11(d)(i)
(other than the last sentence thereof). If the current market price per
share of Preferred Stock cannot be determined in such manner, the
"current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 100 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock occurring after
the date of this Agreement) multiplied by the current market price per
share of Common Stock (as determined pursuant to Section 11(d)(i)
(other than the last sentence thereof)). If neither the Common Stock
nor the Preferred Stock is publicly held or so listed or traded, the
"current market price" per share of the
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<PAGE>
Preferred Stock shall be determined in the same manner as set forth in
the last sentence of Section 11(d)(i). For all purposes of this
Agreement, the "current market price" of one one-hundredth of a share
of Preferred Stock shall be equal to the "current market price" of one
share of Preferred Stock divided by 100.
(iii) For the purpose of any computation hereunder, the value of
any securities or assets other than Common Stock or Preferred Stock
shall be the fair value as determined in good faith by the Board, or,
if at the time of such determination there is an Acquiring Person, by a
nationally recognized investment banking firm which determination shall
be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest ten-thousandth of a share of Common Stock or other share or
one-millionth of a share of Preferred Stock, as the case may be.
(f) If at any time, as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a), the holder of any Right shall be entitled to
receive upon exercise of such Right any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Section 11(a), 11(b), 11(c), 11(e), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(m),
and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder shall evidence the right to purchase, at the Purchase
Price then in effect, the then applicable number of one one-hundredths of a
share of Preferred Stock and other capital stock of the Company issuable from
time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
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<PAGE>
calculations made in Section 11(b) and 11(c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share for which a
Right was exercisable immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-hundredths of a
share of Preferred Stock for which such Right was exercisable immediately prior
to such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
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<PAGE>
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price per one one-hundredth of a share and
the number of shares which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the par value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-hundredths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock or other capital
stock of the Company, if any, issuable upon such exercise over and above the
number of one one-hundredths of a share of Preferred Stock or other capital
stock of the Company, if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any Preferred Stock at less than the current market price,
issuance wholly for cash of Preferred Stock or securities which by their terms
are convertible into or exercisable for Preferred Stock, stock dividends or
issuance of rights, options or warrants referred to in this Section 11,
hereafter made by the Company to the holders of its Preferred Stock, shall not
be taxable to such stockholders.
(n) The Company covenants and agrees that it will not at any time
after the Distribution Date (i) consolidate, merge or otherwise combine with or
(ii) sell or otherwise transfer (and/or permit any of its Subsidiaries to sell
or otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries, taken as a whole, to any other Person or
Persons if (x) at the
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time of or immediately after such consolidation, merger, combination or sale
there are any rights, warrants or other instruments or securities outstanding or
any agreements or arrangements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger,
combination or sale, the stockholders of a Person who constitutes, or would
constitute, the "Principal Party" for the purposes of Section 13 shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.
(o) The Company covenants and agrees that after the Distribution Date,
it will not, except as permitted by Sections 23, 24 and 27, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(p) Notwithstanding anything in this Agreement to the contrary, if at
any time after the date hereof and prior to the Distribution Date the Company
shall (i) pay a dividend on the outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock into a
larger number of shares or (iii) combine the outstanding Common Stock into a
smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter as contemplated
by Section 3(c), shall be proportionately adjusted so that the number of Rights
thereafter associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such event by a fraction
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
SECTION 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent and with each transfer agent for the Preferred Stock and
the Common Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate (or, if prior to the Distribution Date, to
each holder of a certificate representing shares of Common Stock) in the manner
set forth in Section 26. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment therein contained.
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SECTION 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) If, following the occurrence of a Section 11(a)(ii) Event,
directly or indirectly,
(x) the Company shall consolidate with, merge into, or otherwise
combine with, any other Person, and the Company shall not be the
continuing or surviving corporation of such consolidation, merger or
combination,
(y) any Person shall merge into, or otherwise combine with, the
Company, and the Company shall be the continuing or surviving
corporation of such merger or combination and, in connection with such
merger or combination, all or part of the outstanding shares of Common
Stock shall be changed into or exchanged for other stock or securities
of the Company or any other Person, cash or any other property, or
(z) the Company and/or one or more of its Subsidiaries shall sell
or otherwise transfer, in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries, taken as a
whole, to any other Person or Persons,
then, and in each such case, proper provision shall promptly be made so that
(i) each holder of a Right shall thereafter be entitled to
receive, upon exercise thereof at the Purchase Price in effect
immediately prior to the first occurrence of a Section 11(a)(ii) Event,
such number of duly authorized, validly issued, fully paid and
nonassessable shares of freely tradeable Common Stock of the Principal
Party (as hereinafter defined), not subject to any rights of call or
first refusal, liens, encumbrances or other claims, as shall be equal
to the result obtained by dividing
(A) the product obtained by multiplying the Purchase
Price in effect immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the number of one one-hundredths of
a share of Preferred Stock for which a Right was exercisable
immediately prior to such first occurrence (such product being
thereafter referred to as the "PURCHASE PRICE" for each Right
and for all purposes of this Agreement) by
(B) 50% of the current market price (determined pursuant
to Section 11(d)(i)) per share of the Common Stock of such
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Principal Party on the date of consummation of such
consolidation, merger, combination, sale or transfer;
provided, however, that the Purchase Price (as so adjusted pursuant to
the foregoing clause (i)(A)) and the number of shares of Common Stock
of such Principal Party so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with Section
11(f) to reflect any events occurring in respect of the Common Stock of
such Principal Party after the occurrence of such consolidation,
merger, sale or transfer;
(ii) the Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, combination, sale or
transfer, all the obligations and duties of the Company pursuant to
this Agreement;
(iii) the term "COMPANY" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the
provisions of Section 11 shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; and
(iv) such Principal Party shall take such steps (including the
authorization and reservation of a sufficient number of shares of its
Common Stock to permit exercise of all outstanding Rights in accordance
with this Section 13(a)) in connection with the consummation of any
such transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably may be,
in relation to the shares of its Common Stock thereafter deliverable
upon the exercise of the Rights.
(b) "PRINCIPAL PARTY" means
(i) in the case of any transaction described in Section 13(a)(x)
or (y), the Person that is the issuer of any securities into which
shares of Common Stock of the Company are converted in such merger,
consolidation or combination, and if no securities are so issued, the
Person that survives or results from such merger, consolidation or
combination; and
(ii) in the case of any transaction described in Section 13(a)(z),
the Person that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such transaction or
transactions;
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provided that in any such case, (A) if the Common Stock of such Person is not at
such time and has not been continuously over the preceding 12-month period
registered under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Stock of which is and has been
so registered, "Principal Party" shall refer to such other Person; and (B) in
case such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
combination, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which are not outstanding or
otherwise reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in Section 13(a) and
13(b) and providing that, as soon as practicable after the date of any
consolidation, merger, combination, sale or transfer mentioned in Section 13(a),
the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the securities issuable upon exercise of
the Rights, and will use its best efforts to cause such registration
statement (A) to become effective as soon as practicable after such
filing and (B) to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration
Date; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
SECTION 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p), or to distribute Right
Certificates which evidence fractional Rights. In lieu of any such fractional
Rights, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
price of a whole Right. For purposes of this Section 14(a), the current market
price of a whole Right shall be the closing price of a Right for the Trading Day
immediately prior to the date on which such fractional Rights would otherwise
have been issuable. The closing price of a
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Right for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price, or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board. If on any such date no such market maker is making a
market in the Rights, the current market price of the Rights on such date shall
be as determined in good faith by the Board, or, if at the time of such
determination there is an Acquiring Person, by a nationally recognized
investment banking firm.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are multiples of one one-hundredth
of a share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than
fractions which are multiples of one one-hundredth of a share of Preferred
Stock). In lieu of any such fractional shares of Preferred Stock, the Company
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market price of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market price of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of any Triggering Event or upon any
exchange pursuant to Section 24, the Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised or exchanged
as herein provided an amount in cash equal to the same fraction of the current
market price of a share of Common Stock. For purposes of this Section 14(c), the
current market price of a share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to Section 11(d)(i)) for the
Trading Day immediately prior to the date of such exercise or exchange.
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(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as permitted by this Section 14.
SECTION 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
certificates representing Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of any certificate representing
Common Stock), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of any certificate
representing Common Stock), may, in his own behalf and for his own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
SECTION 16. Agreement of Right Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to Sections 6 and 7, the Company and the Rights Agent
may deem and treat the Person in whose name a Right Certificate (or,
prior to the Distribution Date, a certificate representing shares of
Common Stock) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the certificate representing shares
of Common Stock made by anyone other than the Company or the Rights
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Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent, subject to the last sentence of Section 7(d), shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any
governmental authority prohibiting or otherwise restraining performance
of such obligation; provided that the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
SECTION 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital stock
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 25), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
SECTION 18. Concerning the Rights Agent. (a) The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in
the execution or administration of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the administration of this Agreement or the exercise or
performance of its duties hereunder, including the costs and expenses of
defending against any claim of liability.
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(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with the administration of this Agreement or the exercise or performance of its
duties hereunder in reliance upon any Right Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice,
instruction, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 19. Merger or Consolidation or Change of Name of Rights Agents.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or stock transfer business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21. In
case at the time such successor Rights Agent shall succeed to the agency created
by this Agreement, any of the Right Certificates shall have been countersigned
but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
SECTION 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
"Acquiring Person" and the determination of "current market price") be
proved or established by the Company prior to taking, suffering or
omitting to take any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President or any
Vice President and by the Treasurer or any Assistant Treasurer or the
Secretary or any Assistant Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full authorization to
the Rights Agent for any action taken, suffered or omitted in good
faith by it under the provisions of this Agreement in reliance upon
such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in
the Right Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights
becoming void pursuant to Section 7(d)) or any adjustment in the terms
of the Rights (including the manner, method or amount thereof) provided
for in Sections 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after
actual notice of any such adjustment); nor shall
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it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common
Stock or Preferred Stock to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of Common Stock or
Preferred Stock will, when issued, be duly authorized, validly issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances
as may reasonably be required by the Rights Agent for the carrying out
or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President or any Vice President or
the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not
be liable for any action taken, suffered or omitted to be taken by it
in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights
or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract
with or lend money to the Company or otherwise act as fully and freely
as though it were not the Rights Agent under this Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the
Company or to any holders of Rights resulting from any such act,
default, neglect or misconduct, provided that reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial
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liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the
form of assignment or form of election to purchase, as the cases may
be, has either not been completed or indicates an affirmative response
to clause 1 or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without
first consulting with the Company.
SECTION 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock and Preferred Stock by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
or of any state of the United States, in good standing, having a principal
office in the State of New York, which is authorized under such laws to exercise
stock transfer or corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate of a corporation described in clause 21(a).
After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights
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Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and, subsequent to the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
SECTION 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by the Board to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares of stock issuable upon
exercise of the Rights made in accordance with the provisions of this Agreement.
SECTION 23. Redemption. (a) The Board may, at its option, at any time
prior to the earlier of (i) the close of business on the tenth day after the
Stock Acquisition Date (or such later date as a majority of the Board may
designate prior to such time as the Rights are no longer redeemable) and (ii)
the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, as such amount may
be appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "REDEMPTION PRICE"); provided that after any
Person has become an Acquiring Person, any redemption of the Rights shall be
effective only if such redemption shall have been approved by a majority of the
Board. Notwithstanding anything in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board in its sole discretion may establish. The
Redemption Price shall be payable, at the option of the Company, in cash, shares
of Common Stock, or such other form of consideration as the Board shall
determine.
(b) Immediately upon the action of the Board electing to redeem the
Rights (or at such later time as the Board may establish for the effectiveness
of such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and thereafter the only right of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. The Company shall promptly thereafter give notice of such redemption to
the Rights
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Agent and the holders of the Rights in the manner set forth in Section 26;
provided that the failure to give, or any defect in, such notice shall not
affect the validity of such redemption. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
SECTION 24. Exchange. (a) At any time after the occurrence of a Section
11(a)(ii) Event, the Board may, at its option, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to Section 7(d)) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "EXCHANGE
RATIO"). Notwithstanding the foregoing, the Board shall not be empowered to
effect such exchange at any time after an Acquiring Person together with all
Affiliates and Associates of such Acquiring Person, becomes the Beneficial Owner
of 50% or more of the shares of Common Stock then outstanding. From and after
the occurrence of a Section 13 Event, any Rights that theretofore have not been
exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
24(a). The exchange of the Rights by the Board may be made effective at such
time, on such basis and with such conditions as the Board in its sole discretion
may establish.
(b) Immediately upon the effectiveness of the action of the Board
electing to exchange any Rights pursuant to Section 24(a) and without any
further action and without any notice, the right to exercise such Rights will
terminate and thereafter the only right of a holder of such Rights shall be to
receive that number of shares of Common Stock equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
thereafter give notice of such exchange to the Rights Agent and the holders of
the Rights to be exchanged in the manner set forth in Section 26; provided that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to Section 7(d)) held by each holder of Rights.
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(c) The Company may at its option substitute, and, in the event that
there shall not be sufficient shares of Common Stock issued but not outstanding
or authorized but unissued to permit the exchange of Rights for Common Stock
ordered in accordance with Section 24(a), the Company shall substitute to the
extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of one-one hundredths
of a share of Preferred Stock such that the current market price (determined
pursuant to Section 11(d)) of such number of one-one hundredths of a share of
Preferred Stock is equal to the current market price (determined pursuant to
Section 11(d)) of one share of Common Stock as of the date of such exchange.
SECTION 25. Notice of Proposed Actions. (a) In case the Company shall
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the Company), or
(ii) to offer to the holders of its Preferred Stock rights or warrants to
subscribe for or to purchase any additional shares of Preferred Stock or shares
of stock of any class or any other securities, rights or options, or (iii) to
effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision or combination of outstanding
shares of Preferred Stock) or (iv) to effect any consolidation or merger with
any other Person, or to effect and/or to permit one or more of its Subsidiaries
to effect any sale or other transfer, in one transaction or a series of related
transactions, of assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries, taken as a whole, to any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Right, to the extent feasible and in accordance with Section
26, a notice of such proposed action, which shall specify the record date for
the purposes of any such dividend, distribution or offering of rights or
warrants, or the date on which any such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up is to take place and the
date of participation therein by the holders of Preferred Stock, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause 25(a)(i) or 25(a)(ii) above at least 20 days prior to the
record date for determining holders of the Preferred Stock entitled to
participate in such dividend, distribution or offering, and in the case of any
such other action, at least 20 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of Preferred
Stock, whichever shall be the earlier. The failure to give notice required by
this Section or any defect therein shall not affect the legality or validity of
the action taken by the Company or the vote upon any such action.
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(b) Notwithstanding anything in this Agreement to the contrary, prior
to the Distribution Date a public filing by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Agreement
and no other notice need be given to such holders.
(c) If a Triggering Event shall occur, then, in any such case, (i) the
Company shall as soon as practicable thereafter give to each holder of a Right,
in accordance with Section 26, a notice of the occurrence of such event, which
shall specify the event and the consequences of the event to holders of Rights
under Section 11(a)(ii) or 13, as the case may be, and (ii) all references in
Section 25(a) to Preferred Stock shall be deemed thereafter to refer to Common
Stock or other capital stock, as the case may be.
SECTION 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right to or on the
Company shall be sufficiently given or made if sent by first-class mail (postage
prepaid) to the address of the Company indicated on the signature page hereof or
such other address as the Company shall specify in writing to the Rights Agent.
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right to or
on the Rights Agent shall be sufficiently given or made if sent by first-class
mail (postage prepaid) to the address of the Rights Agent indicated on the
signature page hereof or such other address as the Rights Agent shall specify in
writing to the Company. Notices or demands authorized by this Agreement to be
given or made by the Company or the Rights Agent to the holder of any Right
Certificate (or, prior to the Distribution Date, to the holder of any
certificate representing shares of Common Stock) shall be sufficiently given or
made if sent by first-class mail (postage prepaid) to the address of such holder
shown on the registry books of the Company.
SECTION 27. Supplements and Amendments. For so long as the Rights are
then redeemable, the Company may, and the Rights Agent shall if the Company so
directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of certificates representing shares of
Common Stock. At any time when the Rights are no longer redeemable, the Company
may, and the Rights Agent shall if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Rights; provided, however,
that no such supplement or amendment may (a) adversely affect the interests of
the holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person), (b) cause this Agreement again to become
amendable other than in accordance with this sentence, or (c) cause the Rights
again to become redeemable. Notwithstanding the foregoing, after any Person has
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become an Acquiring Person, any supplement or amendment shall be effective only
if such supplement or amendment has been approved by a majority of the Board.
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with the
terms of this Section, the Rights Agent shall execute such supplement or
amendment.
SECTION 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 29. Determinations and Actions by the Board, etc. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) under the Exchange Act as in effect on the date
of this Agreement. The Board shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including the right and power to (i)
interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or exchange or not to redeem or exchange
the Rights or to amend the Agreement).
SECTION 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the certificates representing the shares of Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the certificates representing the shares of Common Stock).
SECTION 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws
36
<PAGE>
of the State of Delaware and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State, except that the rights and obligations of
the Rights Agent shall be governed by the laws of the State of New York.
SECTION 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute one and
the same instrument.
SECTION 34. Descriptive Headings. The captions herein are included for
convenience of reference only, do not constitute a part of this Agreement and
shall be ignored in the construction and interpretation hereof.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By:
---------------------------------------
Name:
Title:
1301 Avenue of the Americas
New York, NY 10019-6013
THE BANK OF NEW YORK
By:
---------------------------------------
Name:
Title:
101 Barclay Street
New York, NY 10286
Attention: Stock Transfer Administrator
<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
We, [name], [title], and [name], [title], of R.J. Reynolds Tobacco
Holdings, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware ("DELAWARE LAW"), in accordance with
the provisions thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation, the Board of Directors on
May 17, 1999, adopted the following resolution creating a series of Preferred
Stock in the amount and having the designation, voting powers, preferences and
relative, participating, optional and other special rights and qualifications,
limitations and restrictions thereof as follows:
SECTION 1. Designation and Number of Shares. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"SERIES A PREFERRED STOCK"), and the number of shares constituting such series
shall be 1,500,000. Such number of shares of the Series A Preferred Stock may be
increased or decreased by resolution of the Board of Directors; provided that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options or other
securities issued by the Corporation.
A-1
<PAGE>
SECTION 2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable on March 10, June 10, September 10 and December 10 of each year
(each such date being referred to herein as a "QUARTERLY DIVIDEND
PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of any share or fraction of a share of Series
A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (i) $1.00 and (ii) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends or other distributions and 100 times the
aggregate per share amount of all non-cash dividends or other
distributions (other than (A) a dividend payable in shares of Common
Stock, par value $0.01 per share, of the Corporation (the "COMMON
STOCK") or (B) a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise)), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock. If the Corporation shall at any time after May 17, 1999 (the
"RIGHTS DECLARATION DATE") pay any dividend on Common Stock payable in
shares of Common Stock or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under clause
2(a)(ii) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph 2(a) above
immediately after it declares a dividend or distribution on the Common
Stock (other than as described in clauses 2(a)(ii)(A) and 2(a)(ii)(B)
above); provided that if no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date (or, with respect to the first Quarterly Dividend Payment
Date, the period between the first issuance of any share or fraction of
a share of Series A Preferred Stock and such first Quarterly Dividend
Payment Date), a
A-2
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dividend of $1.00 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares
of Series A Preferred Stock, unless the date of issue of such shares is
on or before the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue and
be cumulative from the date of issue of such shares, or unless the date
of issue is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and on or before such Quarterly Dividend Payment
Date, in which case dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on shares of Series A Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall not be more than 60 days prior to the date fixed for the
payment thereof.
SECTION 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of stockholders
of the Corporation. If the Corporation shall at any time after the
Rights Declaration Date pay any dividend on Common Stock payable in
shares of Common Stock or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event.
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<PAGE>
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as a single class on all matters submitted to
a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of
a period (herein called a "DEFAULT PERIOD") which shall extend until
such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend
period on all shares of Series A Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each
default period, all holders of Preferred Stock and any other series of
Preferred Stock then entitled as a class to elect directors, voting
together as a single class, irrespective of series, shall have the
right to elect two Directors.
(ii) During any default period, such voting right of the
holders of Series A Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph 3(c)(iii)
hereof or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders; provided that
neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be
exercised unless the holders of 10% in number of shares of
Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of holders of Common Stock
shall not affect the exercise by holders of Preferred Stock of
such voting right. At any meeting at which holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies,
if any, in the Board of Directors as may then exist up to two
Directors or, if such right is exercised at an annual meeting,
to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to
make such increase in the number of Directors as shall be
necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period
and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote
of the holders of Preferred
A-4
<PAGE>
Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the
Series A Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during
an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or
any stockholder or stockholders owning in the aggregate not
less than 10% of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling
of a special meeting of holders of Preferred Stock, which
meeting shall thereupon be called by the President, a Vice
President or the Secretary of the Corporation. Notice of such
meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this
paragraph 3(c)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his
last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may
be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 10% of the total number
of shares of Preferred Stock outstanding, irrespective of
series. Notwithstanding the provisions of this paragraph
3(c)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for
the next annual meeting of stockholders.
(iv) In any default period, the holders of Common Stock,
and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of
Directors until the holders of Preferred Stock shall have
exercised their right to elect two Directors voting as a
class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such
holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided
in paragraph 3(c)(ii) hereof) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders
of the class of stock which elected the Director whose office
shall have become vacant. References in this paragraph 3(c) to
Directors elected by the holders of a particular class of
stock
A-5
<PAGE>
shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be such
number as may be provided for in the certificate of
incorporation or bylaws irrespective of any increase made
pursuant to the provisions of paragraph 3(c)(ii) hereof (such
number being subject, however, to change thereafter in any
manner provided by law or in the certificate of incorporation
or bylaws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
(d) The Certificate of Incorporation of the Corporation shall not
be amended in any manner (whether by merger or otherwise) so as to
adversely affect the powers, preferences or special rights of the
Series A Preferred Stock without the affirmative vote of the holders of
a majority of the outstanding shares of Series A Preferred Stock,
voting separately as a class.
(e) Except as otherwise provided herein, holders of Series A
Preferred Stock shall have no special voting rights, and their consent
shall not be required for taking any corporate action.
SECTION 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding
shares of Series A Preferred Stock shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a parity
(either as
A-6
<PAGE>
to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such other
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem, purchase or otherwise acquire for value any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Preferred Stock; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of stock of the
Corporation ranking junior (as to dividends and upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for value any
shares of Series A Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of Series A Preferred Stock and
all such other parity stock upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for value any shares of
stock of the Corporation unless the Corporation could, under paragraph
4(a), purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Reacquired Shares. Any shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock without designation as to series and may be reissued
as part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors as permitted by the Certificate of
Incorporation or as otherwise permitted under Delaware Law.
A-7
<PAGE>
SECTION 6. Liquidation, Dissolution and Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment; provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such other parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. If the Corporation shall at any time after the Rights
Declaration Date pay any dividend on Common Stock payable in shares of Common
Stock or effect a subdivision or combination of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, Etc. If the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged for or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash or any other property, as the case may be, into which or for
which each share of Common Stock is changed or exchanged. If the Corporation
shall at any time after the Rights Declaration Date pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or combination
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock
A-8
<PAGE>
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
SECTION 8. No Redemption. The Series A Preferred Stock shall not be
redeemable.
SECTION 9. Rank. The Series A Preferred Stock shall rank junior (as to
dividends and upon liquidation, dissolution and winding up) to all other series
of the Corporation's preferred stock except any series that specifically
provides that such series shall rank junior to the Series A Preferred Stock.
SECTION 10. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
A-9
<PAGE>
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
this ____th day of May ____ , 1999.
---------------------------------------
---------------------------------------
<PAGE>
EXHIBIT B
[FORM OF RIGHT CERTIFICATE]
No. R- _______________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF MAY 27, 2009 AND THE DATE ON WHICH THE
RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS SET FORTH IN
THE RIGHTS AGREEMENT. AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED OR
TRANSFERRED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY
ANY SUBSEQUENT HOLDER, MAY BE NULL AND VOID.
RIGHT CERTIFICATE
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
This Right Certificate certifies that ______________________, or
registered assigns, is the registered holder of the number of Rights set forth
above, each of which entitles the holder (upon the terms and subject to the
conditions set forth in the Rights Agreement dated as of May ____, 1999 and as
amended from time to time (the "RIGHTS AGREEMENT") between R.J. Reynolds Tobacco
Holdings, Inc., a Delaware corporation (the "COMPANY"), and The Bank of New
York (the "RIGHTS AGENT")) to purchase from the Company, at any time after
the Distribution Date and prior to the Expiration Date, ____ one-hundredth[s]
of a fully paid, nonassessable share of Series A Junior Participating
Preferred Stock (the "PREFERRED STOCK") of the Company at a purchase price of
$150 per one one-hundredth of a share (the "PURCHASE PRICE"), payable in
lawful money of the United States of America, upon surrender of this Right
Certificate, with the form of election to purchase and related certificate
duly executed, and payment of the Purchase Price at an office of the Rights
Agent designated for such purpose.
Terms used herein and not otherwise defined herein have the meanings
assigned to them in the Rights Agreement.
B-1
<PAGE>
The number of Rights evidenced by this Right Certificate (and the
number and kind of shares issuable upon exercise of each Right) and the Purchase
Price set forth above are as of ___________, and may have been or in the future
be adjusted as a result of the occurrence of certain events, as more fully
provided in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights
evidenced by this Right Certificate are beneficially owned by (a) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (b) a transferee of
an Acquiring Person (or any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (c) under certain
circumstances specified in the Rights Agreement, a transferee of an Acquiring
Person (or any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such, such Rights shall become
null and void, and no holder hereof shall have any right with respect to such
Rights from and after the occurrence of such Section 11(a)(ii) Event.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Upon surrender at the principal office or offices of the Rights Agent
designated for such purpose and subject to the terms and conditions set forth in
the Rights Agreement, any Rights Certificate or Certificates may be transferred
or exchanged for another Rights Certificate or Certificates evidencing a like
number of Rights as the Rights Certificate or Certificates surrendered.
Subject to the provisions of the Rights Agreement, the Board of
Directors of the Company may, at its option,
(a) at any time prior to the earlier of (i) the close of business
on the tenth day after the Stock Acquisition Date (or such later date
as a majority of the Board may designate prior to such time as the
Rights are no longer redeemable) and (ii) the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right; or
B-2
<PAGE>
(b) at any time after any Person becomes an Acquiring Person (but
before such Person becomes the Beneficial Owner of 50% or more of the
shares of Common Stock then outstanding), exchange all or part of the
then outstanding Rights (other than Rights held by the Acquiring Person
and certain related Persons) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right. If the Rights shall be
exchanged in part, the holder of this Right Certificate shall be
entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exchanged.
No fractional shares of Preferred Stock are required to be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exercised.
No holder of this Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital stock
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal by its authorized officers.
Dated as of ___________________
R.J. REYNOLDS TOBACCO
HOLDINGS, INC.
By:
---------------------------------------
Title:
Countersigned:
THE BANK OF NEW YORK,
as Rights Agent
By:
------------------------------
Authorized Signature
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed if the registered holder desires to transfer
the Right Certificate.)
FOR VALUE RECEIVED ___________________________________________________________
hereby sells, assigns and transfers unto _____________________________________
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
- ------------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _____________________, ____
---------------------------------
Signature
Signature Guaranteed:
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<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate ___are ___are not
being assigned by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it ___did ___did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: _____________________, ____
---------------------------------
Signature
------------------
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
------------------
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder desires to exercise
Rights represented by the Right Certificate.)
To: R.J. REYNOLDS TOBACCO HOLDINGS, INC.
The undersigned hereby irrevocably elects to exercise ____________
Rights represented by this Right Certificate to purchase shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such securities be issued in the name
of and delivered to:
Please insert social security
or other identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
Dated: _____________________, ____
---------------------------------
Signature
Signature Guaranteed:
B-7
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate ___are ___are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it ___did ___did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: _____________________, ____
---------------------------------
Signature
------------------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
------------------
B-8
<PAGE>
Exhibit 10.1
[FORM OF TAX SHARING AGREEMENT
dated as of June __, 1999
among
RJR NABISCO HOLDINGS CORP.
(to be renamed "Nabisco Group Holdings Corp.")
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(formerly named "RJR Nabisco, Inc.")
NABISCO HOLDINGS CORP.
and
R. J. REYNOLDS TOBACCO COMPANY]
<PAGE>
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT dated as of June __, 1999 among RJR Nabisco
Holdings Corp. (to be renamed "Nabisco Group Holdings Corp."), a Delaware
corporation (together with its successors, "Holdings"), R.J. Reynolds Tobacco
Holdings, Inc. (formerly named "RJR Nabisco, Inc."), a Delaware corporation
(together with its successors, "RJRN"), Nabisco Holdings Corp., a Delaware
corporation (together with its successors, "Nabisco"), and R. J. Reynolds
Tobacco Company, a New Jersey corporation (together with its successors,
"RJRT").
RECITALS
WHEREAS, pursuant to the Tax laws of various jurisdictions, Holdings,
certain members of the RJRN Tax Group and certain members of the Nabisco Tax
Group, as defined below, file certain Tax returns on an affiliated,
consolidated, combined, unitary or other group basis (including as permitted by
Section 1501 of the Internal Revenue Code of 1986, as amended (the "Code"))
(each such group, a "Consolidated Group");
WHEREAS, the Board of Directors of Holdings has determined that it is
in the best interests of Holdings and its stockholders to cause all of the
outstanding shares of the Class B common stock of Nabisco to be directly held by
Holdings (the "Internal Distribution") and to distribute all of the outstanding
shares of the common stock of RJRN to the holders of the common stock of
Holdings on a pro rata basis (the "Distribution");
WHEREAS, the parties have set forth in this Agreement certain
representations and covenants that support the treatment of each of the
Distribution and the Internal Distribution as a transaction described in Section
355(a)(1) of the Code;
WHEREAS, the parties have set forth in this Agreement the rights and
obligations of Nabisco and the other members of the Nabisco Tax Group, RJRN and
the other members of the RJRN Tax Group, and Holdings with respect to the
handling and allocation of certain federal, state, local and other Taxes
incurred in Taxable periods beginning prior to the Distribution Date, and
various other Tax matters; and
WHEREAS, Holdings and the Nabisco Tax Group will continue to file
<PAGE>
certain Tax returns on a Consolidated Group basis following the Distribution,
and have set forth in this Agreement their respective rights and obligations
with respect to the handling and allocation of certain federal, state, local and
other Taxes incurred in Taxable periods prior and subsequent to the
Distribution;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used herein, the following terms
have the following meanings:
"After-Tax Amount" means an additional amount (taking into account any
taxation of such additional amount) necessary to reflect the hypothetical tax
consequences of the receipt or accrual of any payment, using the highest tax
rate (or rates, in the case of an item that affects more than one tax)
applicable to the recipient of such payment for the relevant taxable period,
reflecting for example, the effect of any deductions available for interest paid
or accrued and for appropriate taxes such as Combined State Taxes.
"Business Day" means any day other than a Saturday, a Sunday or one on
which banks are authorized or required by law to close in New York, New York.
"Combined State Taxes" mean any income, franchise or similar tax
payable to a state or local taxing jurisdiction of the United States.
"Deconsolidation Date" means the date of any Nabisco Deconsolidation.
"Del Monte State Tax" means any Combined State Taxes as to which an
assertion by a Taxing Authority or a Final Determination has been made that Del
Monte Corporation and at least one member of the Nabisco Tax Group are part of
an affiliated, consolidated, combined or unitary group.
"Designated RJRN Affiliate" means RJRN or the member of the RJRN Tax
Group that has been designated as such by RJRN.
"Distribution Agreement" means the Distribution Agreement dated as of
May 12, 1999 among Holdings, RJRN and RJRT.
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<PAGE>
"Distribution Date" means the Business Day on which the Distribution
shall be effected.
"Effective Realization" (and the correlative terms, "Effectively
Realized" and "Effectively Realizes") means, with respect to a tax saving, tax
benefit or tax attribute, the earliest to occur of (i) the receipt by any of
Holdings, a member of the Nabisco Tax Group or a member of the RJRN Tax Group of
cash from a Taxing Authority reflecting such tax saving, tax benefit or tax
attribute, (ii) the application of such tax saving, tax benefit or tax attribute
to reduce (A) the tax liability on a Return of any of such corporations or of
any affiliated, consolidated, combined or unitary group of which any of such
corporations is a member, or (B) any other outstanding tax liability of any of
such corporations or of such group, or (iii) a Final Determination of the
entitlement of any of such corporations or of such group to such tax saving, tax
benefit or tax attribute.
"Federal Employment Tax" means the Federal Insurance Contributions Act,
the Federal Unemployment Tax Act and any other federal tax that applies or that
shall apply to a corporation in connection with the payment or provision of
salaries, or the provision of benefits and other remuneration, to employees.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" means (i) with respect to Federal Taxes, (A) a
"determination" as defined in Section 1313(a) of the Code, or (B) the acceptance
by or on behalf of the IRS of Form 870-AD (or any successor form thereto) as a
final resolution of Tax liability for any Taxable period, except as to items in
respect of which the right of the taxpayer to file a claim for refund or the
right of the IRS to assert a further deficiency has been reserved; (ii) with
respect to Taxes other than Federal Taxes, any final determination of liability
in respect of a Tax that, under applicable law, is not subject to further
appeal, review or modification, through Tax Proceedings or otherwise (including,
without limitation, the expiration of a statute of limitations or a period for
the filing of claims for refunds, amended returns or appeals from adverse
determinations); or (iii) the payment of tax by the corporation among Holdings,
the members of the Nabisco Tax Group and the members of the RJRN Tax Group that
is responsible for payment of such tax under applicable law with respect to any
item that has been disallowed or adjusted by a Taxing Authority and as to which
Holdings has made a determination that no recoupment shall be sought.
"Holdings Consolidated Group" means Holdings and each direct and
indirect corporate subsidiary (including predecessors and successors thereto)
that is eligible to join with Holdings (i) with respect to Federal Taxes, in the
filing of a consolidated Federal Tax return, (ii) with respect to Combined State
Taxes, in the
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<PAGE>
filing of an affiliated, consolidated, combined or unitary Combined State Tax
return, or (iii) with respect to other Taxes, in the filing of a Tax return as
an affiliated, consolidated, combined or unitary group. Unless the context
otherwise requires, a reference to the Holdings Consolidated Group in this
Agreement shall include a reference to any affiliated, consolidated, combined or
unitary group of which RJRN was the parent during any taxable period (or portion
thereof) ending on or before [_______, 1990].
"Intercompany Interest Rate" means the rate, from time to time, that is
equal to the [London Interbank Offered Rate for dollar deposits].
"Intercompany Services Agreement" means the Intercompany Services
Agreement to be dated as of the Distribution Date among Holdings, Nabisco and
RJRN, substantially in the form of Exhibit C to the Distribution Agreement.
"International Tobacco Purchase Agreement" means the Purchase Agreement
dated as of March 9, 1999 among Japan Tobacco Inc., RJRT and RJRN.
"International Tobacco Sale" means (i) the sale to Japan Tobacco Inc.
pursuant to the International Tobacco Purchase Agreement of the capital stock of
the companies listed in Exhibit D to such agreement and of certain other assets,
and (ii) the restructuring transactions and other transactions undertaken in
preparation for such sale.
"IRS" means the Internal Revenue Service.
"Nabisco Combined State Tax Liability" means, with respect to any
taxable period and any jurisdiction, an amount of Combined State Taxes
determined in accordance with the principles set forth in the definition of
Nabisco Federal Tax Liability and comparable provisions under applicable law.
"Nabisco Deconsolidation" means any event pursuant to which Nabisco
ceases to be a subsidiary includible in a Consolidated Group filing a
consolidated Federal Tax return of which Holdings is a member.
"Nabisco Federal Tax Liability" means, with respect to any taxable
period, the sum of the Nabisco Tax Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable period,
computed as if the Nabisco Tax Group were not and never were part of the
Holdings Consolidated Group, but rather were a separate affiliated group of
corporations filing a consolidated Federal Tax return pursuant to Section 1501
of the Code; provided, however, that transactions with members of the RJRN Tax
Group or
4
<PAGE>
Holdings shall be reflected according to the provisions of the consolidated
return regulations, promulgated under the Code, governing intercompany
transactions. Without limiting the generality of the foregoing, such computation
shall be made (i) without regard to the income, deductions (including, without
limitation, net operating loss and capital loss deductions) and credits in any
taxable period of any member of the Holdings Consolidated Group that is not a
member of the Nabisco Tax Group, (ii) by taking account of any Tax Asset of the
Nabisco Tax Group in accordance with the principles of Section 3.05(d), (iii)
with regard to tax carryforwards and tax carrybacks (including, without
limitation, carryforwards and carrybacks of net operating losses or capital
losses) of any member of the Nabisco Tax Group, but without regard to any
carryforwards from a taxable year or portion thereof ending on or before
December 31, 1994 and arising solely due to creating the Nabisco Tax Group as if
it were never part of the Holdings Consolidated Group, (iv) as though the
highest rate of tax specified in Section 11(b) of the Code were the only rates
set forth in that subsection, and (v) by taking account of the positions,
elections and accounting methods reflected in the consolidated Federal Tax
returns, as amended and as finally adjusted, of the Holdings Consolidated Group.
"Nabisco Tax Group" means, at any time, Nabisco and any direct or
indirect corporate subsidiaries (including predecessors and successors thereto)
of Nabisco that would be eligible, if Nabisco were not a member of a group that
included Holdings or RJRN, to join with Nabisco, (i) with respect to Federal
Taxes, in the filing of a consolidated Federal Tax return, (ii) with respect to
Combined State Taxes, in the filing of an affiliated, consolidated, combined or
unitary Combined State Tax return, or (iii) with respect to other Taxes, in the
filing of a Tax return as an affiliated, consolidated, combined or unitary
group.
"Name Change Merger" means such term as it is defined in the
Distribution Agreement.
"1999 Pre-Distribution Period" means the taxable period from January 1,
1999 through the Distribution Date.
"Post-Deconsolidation Period" means any taxable period (or portion
thereof) beginning after the close of business on the Deconsolidation Date.
"Post-Distribution Period" means any taxable period (or portion
thereof) beginning after the close of business on the Distribution Date.
"Post-January 1990 Period" means any taxable period (or portion
thereof) beginning after the close of business on December 31, 1989.
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<PAGE>
"Pre-Deconsolidation Period" means any taxable period (or portion
thereof) ending on or before the close of business on the Deconsolidation Date.
"Pre-Distribution Period" means any taxable period (or portion thereof)
ending on or before the close of business on the Distribution Date.
"Pre-January 1990 Period" means any taxable period (or portion thereof)
ending on or before the close of business on December 31, 1989.
"Return" means any Tax return, statement, report, form or election
(including, without limitation, estimated Tax returns and reports, extension
requests and forms, and information returns and reports) required to be filed
with any Taxing Authority, in each case as amended and as finally adjusted.
"RJRN Combined State Tax Liability" means, with respect to any taxable
period and any jurisdiction, an amount of Combined State Taxes determined in
accordance with the principles set forth in the definition of RJRN Federal Tax
Liability and comparable provisions under applicable law.
"RJRN Federal Tax Liability" means, with respect to any taxable period,
the sum of the RJRN Tax Group's Federal Tax liability and any interest,
penalties and other additions to such taxes for such taxable period, computed as
if the RJRN Tax Group were not and never were part of the Holdings Consolidated
Group, but rather were a separate affiliated group of corporations filing a
consolidated Federal Tax return pursuant to Section 1501 of the Code; provided,
however, that transactions with members of the Nabisco Tax Group or Holdings
shall be reflected according to the provisions of the consolidated return
regulations, promulgated under the Code, governing intercompany transactions.
Without limiting the generality of the foregoing, such computation shall be made
(i) without regard to the income, deductions (including, without limitation, net
operating loss and capital loss deductions) and credits in any taxable period of
any member of the Holdings Consolidated Group that is not a member of the RJRN
Tax Group, (ii) by taking account of any Tax Asset of the RJRN Tax Group in
accordance with the principles of Section 3.04(d), (iii) with regard to tax
carryforwards and tax carrybacks (including, without limitation, carryforwards
and carrybacks of net operating losses or capital losses) of any member of the
RJRN Tax Group, (iv) as though the highest rate of tax specified in Section
11(b) of the Code were the only rates set forth in that subsection, (v) by
taking account of the positions, elections and accounting methods reflected in
the consolidated Federal Tax returns, as amended and as finally adjusted, of the
Holdings Consolidated Group, and (vi) without gain, if any, attributable to the
Internal Distribution.
6
<PAGE>
"RJRN Tax Group" means, at any time, RJRN and any direct or indirect
corporate subsidiaries (including predecessors and successors thereto) of RJRN,
except for the members of the Nabisco Tax Group, that would be eligible, if RJRN
were not a member of a group that included Holdings, to join with RJRN, (i) with
respect to Federal Taxes, in the filing of a consolidated Federal Tax return,
(ii) with respect to Combined State Taxes, in the filing of an affiliated,
consolidated, combined or unitary Combined State Tax return or (iii) with
respect to other Taxes, in the filing of a Tax return as an affiliated,
consolidated, combined or unitary group.
"Tax" (and the correlative term, "Taxable") means (i) any Federal Tax,
or any net income, alternative or add-on minimum, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding (as payor or recipient), payroll, employment, excise, severance,
stamp, capital stock, occupation, property, real property gains, environmental,
windfall, premium, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever (including, without limitation, any
Tobacco Tax), together with any interest thereon and any penalty, addition to
tax or additional amount thereto; (ii) any liability of a corporation for the
payment of any amounts of the type described in clause (i) for any taxable
period resulting from such corporation's being a part of a Consolidated Group
pursuant to the application of Treasury Regulations Section 1.1502-6 (or a
successor thereto) or any similar provision applicable under state, local or
foreign law; or (iii) any liability for the payment of any amounts described in
clause (i) as a result of any express or implied obligation to indemnify any
other person.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction, or any other loss, credit,
deduction or tax attribute that could reduce any tax (including, without
limitation, deductions, credits, alternative minimum net operating loss
carryforwards related to alternative minimum taxes or additions to the basis of
property).
"Tax Opinion" means the opinion dated as of May 12, 1999 of Davis Polk
& Wardwell regarding the Federal Tax consequences of the Distribution and the
Internal Distribution, together with bring-downs of such opinion to each of the
date of the Internal Distribution and the Distribution Date.
"Tax Packages", with respect to a corporation, mean one or more
packages of information, relating to such corporation, that are (i) reasonably
necessary for the purpose of preparing the Return of any Consolidated Group that
includes such corporation, and (ii) presented in all material respects in
accordance with (A) the standards that Holdings has established for its
subsidiaries with respect to taxable years prior to the Distribution and (B) if
such corporation is a
7
<PAGE>
member of the Nabisco Tax Group and such Return is for a taxable year that
begins after the Distribution Date, any modifications to such standards that
Holdings has set forth in a written statement delivered to Nabisco.
"Tax Proceeding" means any Tax audit, dispute or proceeding (whether
administrative or judicial). Without limiting the generality of the foregoing, a
reference to a Tax Proceeding relating to any taxable year shall include a Tax
Proceeding relating to multiple taxable years that include such taxable year,
notwithstanding that other included taxable years may be (i) Post-Distribution
Periods, in the case of the RJRN Tax Group, or (ii) Post-Deconsolidation
Periods, in the case of the Nabisco Tax Group.
"Taxing Authority" means any governmental authority (whether United
States or non-United States, and including, without limitation, any state,
municipality, political subdivision or governmental agency) responsible for the
imposition of any Tax.
"Tobacco Claim" means such term as it is defined in the Distribution
Agreement.
"Tobacco Tax" means (i) any excise, custom duty or other tax, whether
United States or non-United States, (A) levied on or otherwise determined in
whole or in part, directly or indirectly, by the quantity, weight, raw
ingredient or other component content, value, cost or price (whether
intercompany, wholesale, retail, undiscounted, discounted or otherwise) of
cigarettes or other tobacco products, or (B) in connection with the manufacture,
development, import, export, shipment, delivery, transportation, movement,
receipt, distribution, sale, offering for sale, marketing, promotion or
advertisement of cigarette or other tobacco products, or (ii) any claim for
payment of any amounts described in clause (i), together, in the case of each of
clauses (i) and (ii), with any interest thereon and any penalty, addition to tax
or additional amount thereto.
"Two-Year Period" means the period that begins on the date on which the
Internal Distribution shall be effected and that ends on the date that is two
years after the Distribution Date.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
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Term Section
---- -------
Combined State Tax Payment Date 3.02(a)
Federal Tax Payment Date 3.02(a)
Indemnitee 7.04
Indemnitor 7.04
Pro Forma Combined State Return 3.04(a)
Pro Forma Federal Return 3.04(a)
Pro Forma Returns 3.04(a)
Tax Asset Beneficiary 3.06
Tax Asset Provider 3.06
Tax Benefit 7.07
(c) Any term used in this Agreement that is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or in comparable provisions of applicable Tax law.
ARTICLE 2
ADMINISTRATIVE AND COMPLIANCE MATTERS
SECTION 2.01. Sole Tax Sharing Agreement. (a) Except for Sections 7.03,
8.04 and 10.08 of the Distribution Agreement, any and all existing Tax sharing
agreements or arrangements, written or unwritten, among two or more of Holdings,
any member of the Nabisco Tax Group and any member of the RJRN Tax Group
(including, without limitation, the Tax Sharing Agreement dated January 26, 1995
between Holdings and Nabisco) shall be or shall have been terminated as of the
Distribution Date. On and after the Distribution Date, none of Holdings, the
members of the Nabisco Tax Group and the members of the RJRN Tax Group shall
have any rights or liabilities (including, without limitation, any rights and
liabilities that accrued prior to the Distribution Date) under terminated
agreements and arrangements, and this Agreement shall be the sole Tax sharing
agreement among such corporations.
(b) This Agreement shall not address the obligations or arrangements,
if any, (i) among members of the RJRN Tax Group, or (ii) among members of the
Nabisco Tax Group.
SECTION 2.02. Designation of Agent. (a) Each member of the RJRN Tax
Group and each member of the Nabisco Tax Group hereby irrevocably authorizes
and designates Holdings as its agent, attorney-in-fact, coordinator and
administrator for the purposes of taking any and all actions with respect to (i)
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Taxes for which such member is a member of the Holdings Consolidated Group and
(ii) Federal Employment Taxes of such member, in the case of each of clauses (i)
and (ii) in connection with any taxable year that includes a Pre-Distribution
Period, in the case of the RJRN Tax Group, or in connection with any taxable
year that includes a Pre-Deconsolidation Period, in the case of the Nabisco Tax
Group. In connection with any taxable year that includes a Pre-Distribution
Period, in the case of a member of the RJRN Tax Group, or with any taxable year
that includes a Pre-Deconsolidation Period, in the case of a member of the
Nabisco Tax Group, Holdings shall have the same authority under this Section
2.02(a), with respect to such Taxes as are described in the preceding sentence,
to act on behalf of each member of the RJRN Tax Group and each member of the
Nabisco Tax Group as would such member, were such member acting on its own
behalf, and as would the parent of the Consolidated Group that includes such
member, were such parent acting on behalf of such member. Holdings covenants to
the RJRN Tax Group and the Nabisco Tax Group that it shall be responsible to see
that matters handled pursuant to its exercise of its authority under this
Section 2.02(a) shall be handled promptly and, to the knowledge of Holdings,
appropriately.
(b) Without limiting the generality of Section 2.02(a), Holdings shall
have the authority, with respect to such Taxes and such taxable years as are
described in Section 2.02(a), to take any and all actions necessary, helpful or
incidental to, or otherwise in connection with, (i) the preparation or filing of
any Return or claim for refund (even where an item or Tax Asset giving rise to
an amended Return or claim for refund arises in a Post-Distribution Period, in
the case of the RJRN Tax Group, or in a Post-Deconsolidation Period, in the case
of the Nabisco Tax Group), (ii) the conduct, management, prosecution, defense,
contest, compromise or settlement of (A) any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Return, or (B) any other
Tax Proceeding, (iii) the determination of the taxable years (including, without
limitation, taxable years that include a Post-Distribution Period, in the case
of the RJRN Tax Group, or a Post-Deconsolidation Period, in the case of the
Nabisco Tax Group) that a settlement of a Tax Proceeding may impact and other
timing considerations, (iv) the determination as to whether any refunds shall be
received by way of refund or credited against tax liability, (v) the
determination as to the treatment of Tax Assets that are allowed under
applicable law to be carried back or carried forward, (vi) the determination as
to whether any Tax elections shall be made, (vii) the determination as to
whether any extensions shall be requested, (viii) the receipt of confidential
information from, or the provision of such information to, any Taxing Authority,
(ix) the making of payments to, or collection of refunds from, any Taxing
Authority, and (x) the performance of any and all actions that are described to
be undertaken by Holdings under this Agreement or that are necessary, helpful or
incidental to the implementation of the provisions of this Agreement.
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(c) Notwithstanding anything in Section 11.07 to the contrary,
Holdings may, in its sole and absolute discretion, delegate (including, without
limitation, pursuant to the Intercompany Services Agreement) at any time all or
a portion of its authority, rights or obligations under this Agreement to any
corporation(s) or any person(s) (including, without limitation, Nabisco and/or
Nabisco, Inc.). Such delegation may be revoked by Holdings in its sole and
absolute discretion.
SECTION 2.03. Preparation of Returns. (a) Holdings shall prepare and
file the Returns (including, without limitation, the consolidated Federal Tax
Returns and Combined State Tax Returns) of the Holdings Consolidated Group for
all taxable years through the taxable year in which a Nabisco Deconsolidation
occurs with the assistance of the members of the Nabisco Tax Group and, in the
case of any taxable year that includes a Pre-Distribution Period, the assistance
of the members of the RJRN Tax Group. In preparing such Returns, Holdings shall
not discriminate among the members of the Holdings Consolidated Group. Without
limiting the generality of Section 2.02, Holdings shall have the right to
determine the manner in which such Returns shall be prepared and filed,
including, without limitation, the manner in which any item of income, gain,
loss, deduction or credit shall be reported thereon.
(b) The Returns of the Holdings Consolidated Group for the taxable
year ended December 31, 1999 shall reflect the inclusion of the members of the
RJRN Tax Group in the Holdings Consolidated Group for the 1999 Pre-Distribution
Period.
SECTION 2.04. Procedure for Collection of Information. (a) No more than
120 days after the Distribution Date, the Designated RJRN Affiliate shall
prepare and deliver to Holdings Tax Packages with respect to the members of the
RJRN Tax Group for the 1999 Pre-Distribution Period.
[(b) At the request of the Designated RJRN Affiliate or Nabisco,
Holdings shall forward thereto, within 60 days of such request or such lengthier
period of time as Holdings shall determine to be appropriate, (i) in the case of
a request by the Designated RJRN Affiliate, any Federal Tax and Combined State
Tax information regarding the International Tobacco Sale that Holdings has
assembled at the time of such request, or (ii) such information, consistent with
practice prior to the Distribution, regarding Federal Tax and credit allocations
as is necessary for the preparation of Tax Packages related to Combined State
Taxes with respect to the members of the RJRN Tax Group or the members of the
Nabisco Tax Group, respectively. The information described in clause (i) of the
preceding sentence may include (A) the allocation of the purchase price paid by
Japan Tobacco Inc. among such assets as are described in clause (i) of the
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definition of International Tobacco Sale in Section 1.01(a), (B) any rulings
received from or correspondence with Tax Authorities, or any opinions of counsel
received, regarding the Tax treatment of the transactions described in clause
(ii) of the definition of International Tobacco Sale in Section 1.01(a), (C) any
elections made or to be made in connection with the International Tobacco Sale,
and (D) available computations of foreign tax credits in connection with the
International Tobacco Sale.]
(c) Within 120 days after (i) the end of each taxable year that begins
after the Distribution Date, but before the Deconsolidation Date, and for which
the Holdings Consolidated Group is required to file a Return, and (ii) December
31, 1999, Nabisco shall prepare and deliver to Holdings Tax Packages with
respect to the members of the Nabisco Tax Group.
SECTION 2.05. Allocation. Holdings may, at its option, elect, and the
RJRN Tax Group shall join it in electing (if necessary), to ratably allocate
items (other than extraordinary items) of the RJRN Tax Group in accordance with
relevant provisions of Treasury Regulations Section 1.1502-76. If Holdings
exercises its option to make such election, the members of the RJRN Tax Group
shall provide to Holdings such statements as are required under the regulations
and other appropriate assistance.
SECTION 2.06. Certain Other Returns. (a) The members of the RJRN Tax
Group shall be solely responsible for the preparation and filing of (i) their
respective separate state and local Returns, (ii) Returns filed on behalf of an
affiliated, consolidated, combined or unitary group that includes neither
Holdings nor any member of the Nabisco Tax Group, and (iii) Returns for all
taxable years that begin after the Distribution Date.
(b) The members of the Nabisco Tax Group shall be solely responsible
for the preparation and filing of (i) their respective separate state and local
Returns, (ii) Returns filed on behalf of an affiliated, consolidated, combined
or unitary group that includes neither Holdings nor any member of the RJRN Tax
Group, and (iii) Returns for all taxable years that begin after the
Deconsolidation Date.
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ARTICLE 3
TAX SHARING
SECTION 3.01. General Tax Sharing Principles. (a) For each taxable year
of the Holdings Consolidated Group during which income, loss or credit against
tax of any member of the RJRN Tax Group is includible in the consolidated
Federal Tax return of the Holdings Consolidated Group, the Designated RJRN
Affiliate shall pay to Holdings an amount equal to the RJRN Federal Tax
Liability, as shown on the Pro Forma Federal Return (as defined in Section
3.04(a) below) of the RJRN Tax Group for (i) such taxable year, if such taxable
year ends prior to the Distribution Date, or (ii) the 1999 Pre-Distribution
Period, if such taxable year includes the Distribution Date. For each taxable
year of the Holdings Consolidated Group during which income, loss or credit
against tax of any member of the RJRN Tax Group is includible in a return
relating to a Combined State Tax of the Holdings Consolidated Group, the
Designated RJRN Affiliate shall pay to Holdings an amount equal to the RJRN
Combined State Tax Liability, as shown on the Pro Forma Combined State Returns
(as defined in Section 3.04(a) below) of the RJRN Tax Group for (i) such taxable
year, if such taxable year ends prior to the Distribution Date, or (ii) the 1999
Pre-Distribution Period, if such taxable year includes the Distribution Date.
(b) For each taxable year of the Holdings Consolidated Group during
which income, loss or credit against tax of any member of the Nabisco Tax Group
is includible in the consolidated Federal Tax return of the Holdings
Consolidated Group, Nabisco shall pay to Holdings an amount equal to the Nabisco
Federal Tax Liability, as shown on the Pro Forma Federal Return of the Nabisco
Tax Group for (i) such taxable year, if such taxable year ends prior to a
Nabisco Deconsolidation, or (ii) the period from the beginning of such taxable
year through the Deconsolidation Date, if a Nabisco Deconsolidation occurs
during such taxable year. For each taxable year of the Holdings Consolidated
Group during which income, loss or credit against tax of any member of the
Nabisco Tax Group is includible in a return relating to a Combined State Tax of
the Holdings Consolidated Group, Nabisco shall pay to Holdings an amount equal
to the Nabisco Combined State Tax Liability, as shown on the Pro Forma Combined
State Returns of the Nabisco Tax Group for (i) such taxable year, if such
taxable year ends prior to a Nabisco Deconsolidation, or (ii) the period from
the beginning of such taxable year through the Deconsolidation Date, if a
Nabisco Deconsolidation occurs during such taxable year.
SECTION 3.02. Estimated Payments by RJRN Tax Group. (a) No later
than 20 Business Days prior to each date on which an estimated Federal Tax
installment or an estimated Combined State Tax installment of the Holdings
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Consolidated Group is due (including all applicable and valid extensions) (a
"Federal Tax Payment Date" or "Combined State Tax Payment Date", respectively)
with respect to a taxable year during which any member of the RJRN Tax Group is
included in the Holdings Consolidated Group, the Designated RJRN Affiliate shall
(i) determine (under Section 6655(d) of the Code or, if applicable, Section
6655(e) or other provisions of the Code in the case of Federal Taxes, or under
comparable provisions of Combined State Tax law) the estimated amount of the
related installment of the RJRN Federal Tax Liability or of the RJRN Combined
State Tax Liability, respectively (taking into account, without limitation, the
inclusion of the RJRN Tax Group in the Holdings Consolidated Group for the 1999
Pre-Distribution Period, in the case of the taxable year that includes the
Distribution Date), and (ii) deliver a written statement to Holdings reflecting
such determination. No later than two Business Days prior to the Federal Tax
Payment Date or the Combined State Tax Payment Date, as the case may be, the
Designated RJRN Affiliate shall pay to Holdings the amount thus determined.
(b) Holdings may adjust the determination made by the Designated RJRN
Affiliate under Section 3.02(a) if it notifies the Designated RJRN Affiliate, no
later than 10 Business Days prior to the applicable Federal Tax Payment Date or
Combined State Tax Payment Date, that the Designated RJRN Affiliate's
calculation of any amounts reflected in such determination is incorrect or
incomplete. Any adjustment made by Holdings under this Section 3.02(b) shall be
treated for the purposes of Section 3.02(a) as though it had always been
reflected in the determination made by the Designated RJRN Affiliate. The
Designated RJRN Affiliate shall not be permitted to invoke the dispute
resolution procedures in Section 11.02 until it shall have paid the amounts
reflected on such determination, as adjusted by Holdings.
SECTION 3.03. Estimated Payments by Nabisco Tax Group. (a) No later
than 20 Business Days prior to each Federal Tax Payment Date or Combined State
Tax Payment Date with respect to a taxable year during which any member of the
Nabisco Tax Group is included in the Holdings Consolidated Group, Nabisco shall
(i) determine (under Section 6655(d) of the Code or, if applicable, Section
6655(e) or other provisions of the Code in the case of Federal Taxes, or under
comparable provisions of Combined State Tax law) the estimated amount of the
related installment of the Nabisco Federal Tax Liability or of the Nabisco
Combined State Tax Liability, respectively (taking into account, without
limitation, the inclusion of the Nabisco Tax Group in the Holdings Consolidated
Group only for the period from the beginning of the taxable year through the
Deconsolidation Date, in the case of a taxable year during which a Nabisco
Deconsolidation occurs), and (ii) notify Holdings of such determination. No
later than two Business Days prior to the Federal Tax Payment Date or the
Combined
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State Tax Payment Date, as the case may be, Nabisco shall pay to Holdings the
amount thus determined.
(b) Holdings may adjust the determination made by Nabisco under
Section 3.03(a) if it notifies Nabisco, no later than 10 Business Days prior to
the applicable Federal Tax Payment Date or Combined State Tax Payment Date, that
Nabisco's calculation of any amounts reflected in such determination is
incorrect or incomplete. Any adjustment made by Holdings under this Section
3.03(b) shall be treated for the purposes of Section 3.03(a) as though it had
always been reflected in the determination made by Nabisco. Nabisco shall not be
permitted to invoke the dispute resolution procedures in Section 11.02 until it
shall have paid the amounts reflected on such determination, as adjusted by
Holdings.
SECTION 3.04. Payment of Taxes at Year-End by RJRN Tax Group. (a) No
later than 20 Business Days prior to the due date (including all applicable and
valid extensions) for the Holdings Consolidated Group's consolidated Federal Tax
return for a taxable year that includes a Pre-Distribution Period, the
Designated RJRN Affiliate shall deliver to Holdings a pro forma Federal Tax
return (a "Pro Forma Federal Return") of the RJRN Tax Group reflecting the RJRN
Federal Tax Liability for (i) such taxable year, if such taxable year ends prior
to the Distribution Date, or (ii) the 1999 Pre-Distribution Period, if such
taxable year includes the Distribution Date. No later than 20 Business Days
prior to the due date (including all applicable and valid extensions) for each
Combined State return of the Holdings Consolidated Group for a taxable year that
includes a Pre-Distribution Period, the Designated RJRN Affiliate shall deliver
to Holdings a pro forma Combined State Tax Return (each a "Pro Forma Combined
State Return", and, together with the Pro Forma Federal Return, the "Pro Forma
Returns") of the RJRN Tax Group reflecting the relevant RJRN Combined State Tax
Liability for (i) such taxable year, if such taxable year ends prior to the
Distribution Date, or (ii) the 1999 Pre-Distribution Period, if such taxable
year includes the Distribution Date. The Designated RJRN Affiliate shall not
take any unreasonable position in preparing such Pro Forma Returns. Each Pro
Forma Return shall be delivered together with a statement showing a calculation
of the amount to be paid pursuant to Section 3.04(c) below.
(b) Upon receipt of a Pro Forma Return from the Designated RJRN
Affiliate, Holdings may adjust such return if it determines that the calculation
of the RJRN Federal Tax Liability or the RJRN Combined State Liability, as the
case may be, reflected on such return is incorrect or incomplete. Any adjustment
made by Holdings under this Section 3.04(b) shall be treated for purposes of
Article 3 as though it had always been reflected on such Pro Forma Return. The
Designated RJRN Affiliate shall not be permitted to invoke the dispute
resolution
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procedures in Section 11.02 until it shall have paid any amounts required under
Section 3.04(c).
(c) No later than two Business Days prior to the due date for the
Return of the Holdings Consolidated Group that results in the delivery of a Pro
Forma Return pursuant to Section 3.04(a) above, the Designated RJRN Affiliate
shall pay to Holdings, or Holdings shall pay to the Designated RJRN Affiliate,
as appropriate, an amount equal to the difference, if any, between the RJRN
Federal Tax Liability or the RJRN Combined State Tax Liability, as the case may
be, reflected on such Pro Forma Return for such year and the aggregate amount of
the estimated installments paid by the Designated RJRN Affiliate with respect to
such year in accordance with the principles of Section 3.02.
(d) If a Pro Forma Return of the RJRN Tax Group described in Section
3.04(a) reflects a Tax Asset that may under applicable law be used to reduce a
Federal Tax liability or Combined State Tax liability, in each case for any
taxable period of a member of the Holdings Consolidated Group that is not also a
member of the RJRN Tax Group, Holdings shall pay to the Designated RJRN
Affiliate (and, as appropriate, shall receive payment from Nabisco of) an amount
equal to the actual tax saving produced by such Tax Asset within 30 days of the
Effective Realization of such tax saving, and the Pro Forma Returns of the RJRN
Tax Group and other relevant determinations under this Article 3 shall
thereafter reflect such use. The amount of the tax saving under this Section
3.04(d) or under Section 3.05(d) for any taxable period shall be the amount of
the reduction in Federal Taxes or Combined State Taxes that are payable to a
Taxing Authority with respect to such taxable period, as compared to the Federal
Taxes or Combined State Taxes that would have been payable to a Taxing Authority
with respect to such taxable period in the absence of such Tax Asset. Without
limiting the generality of the foregoing, the determination of the tax saving
under this Section 3.04(d) or under Section 3.05(d) shall take into account the
application of Section 3.06.
SECTION 3.05. Payment of Taxes at Year-End by Nabisco Tax Group. (a) No
later than 20 Business Days prior to the due date (including all applicable and
valid extensions) for the Holdings Consolidated Group's consolidated Federal Tax
return for a taxable year that begins prior to a Nabisco Deconsolidation,
Nabisco shall deliver to Holdings a Pro Forma Federal Return of the Nabisco Tax
Group reflecting the Nabisco Federal Tax Liability for (i) such taxable year, if
such taxable year ends prior to a Nabisco Deconsolidation, or (ii) the period
from the beginning of such taxable year through the Deconsolidation Date, if a
Nabisco Deconsolidation occurs during such taxable year. No later than 20
Business Days prior to the due date (including all applicable and valid
extensions) for each Combined State return of the Holdings Consolidated Group
for a taxable year that
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begins prior to a Nabisco Deconsolidation, Nabisco shall deliver to Holdings a
Pro Forma Combined State Return of the Nabisco Tax Group reflecting the relevant
Nabisco Combined State Tax Liability for (i) such taxable year, if such taxable
year ends prior to a Nabisco Deconsolidation, or (ii) the period from the
beginning of such taxable year through the Deconsolidation Date, if a Nabisco
Deconsolidation occurs during such taxable year. Nabisco shall not take any
unreasonable position in preparing such Pro Forma Returns. Each Pro Forma Return
shall be delivered together with a statement showing a calculation of the amount
to be paid pursuant to Section 3.05(c) below.
(b) Upon receipt of a Pro Forma Return from Nabisco, Holdings may
adjust such return if it determines that the calculation of the Nabisco Federal
Tax Liability or the Nabisco Combined State Liability, as the case may be,
reflected on such return is incorrect or incomplete. Any adjustment made by
Holdings under this Section 3.05(b) shall be treated for the purposes of Article
3 as though it had always been reflected on such Pro Forma Return. Nabisco shall
not be permitted to invoke the dispute resolution procedures in Section 11.02
until it shall have paid any amounts required under Section 3.05(c).
(c) No later than two Business Days prior to the due date for the
Return of the Holdings Consolidated Group that results in the delivery of a Pro
Forma Return pursuant to Section 3.05(a) above, Nabisco shall pay to Holdings,
or Holdings shall pay to Nabisco, as appropriate, an amount equal to the
difference, if any, between the Nabisco Federal Tax Liability or the Nabisco
Combined State Tax Liability, as the case may be, reflected on such Pro Forma
Return for such year and the aggregate amount of the estimated installments paid
by Nabisco with respect to such year in accordance with the principles of
Section 3.03.
(d) If a Pro Forma Return of the Nabisco Tax Group described in
Section 3.05(a) reflects a Tax Asset that may under applicable law be used to
reduce a Federal Tax liability or a Combined State Tax liability for any taxable
period of a member of the Holdings Consolidated Group that is not also a member
of the Nabisco Tax Group, Holdings shall pay to Nabisco (and, as appropriate,
shall receive payment from the Designated RJRN Affiliate of) an amount equal to
the actual tax saving (which would be computed in accordance with Section
3.04(d)) produced by such Tax Asset within 30 days of the Effective Realization
of such tax saving, and the Pro Forma Returns of the Nabisco Tax Group and other
relevant determinations under this Article 3 shall thereafter reflect such use.
SECTION 3.06. Foreign Tax Credit Considerations. Any determinations
under Section 3.04(d), 3.05(d), 3.08(a), 3.09(e) or 5.02(a) of the tax saving or
tax benefit Effectively Realized by a corporation (the "Tax Asset Beneficiary")
from the use of a Tax Asset of another corporation (the "Tax Asset Provider")
shall be
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made (i) with regard to the tax saving or tax benefit from any net increase in
the foreign tax credits to which the Tax Asset Beneficiary or any other member
of the Nabisco Tax Group or of the RJRN Tax Group, whichever (if either)
includes the Tax Asset Beneficiary as a member, is entitled by reason of the use
of such Tax Asset, and (ii) without regard to the tax effect of (A) any net
decrease in the foreign tax credits to which the corporations described in
clause (i) are entitled by reason of the use of such Tax Asset, or (B) any
change in the foreign tax credits to which any other corporation, including the
Tax Asset Provider, is entitled by reason of the use of such Tax Asset.
SECTION 3.07. Deposits With Taxing Authorities. (a) In the event that
Holdings makes a cash deposit (other than a mandatory estimated tax payment or a
payment of tax in connection with the filing of a Return at year-end) with a
Taxing Authority to stop the running of interest, Nabisco and the Designated
RJRN Affiliate shall pay to Holdings an amount equal to the appropriate share of
the Nabisco Tax Group or the RJRN Tax Group, respectively, of the amount to be
so deposited no later than two Business Days prior to the date on which Holdings
makes such deposit with such Taxing Authority. For purposes of this Section
3.07(a), the appropriate share of the Nabisco Tax Group or the RJRN Tax Group,
as the case may be, of any deposit shall be determined by Holdings. No later
than five Business Days prior to the date planned for a deposit under this
Section 3.07(a), Holdings shall notify Nabisco and the Designated RJRN Affiliate
of (i) such planned date, and (ii) their respective appropriate shares of such
deposit.
(b) Upon the Effective Realization by Holdings, any member of the
Nabisco Tax Group or any member of the RJRN Tax Group of the benefit
attributable to the refund or recoupment of amounts paid by Nabisco or the
Designated RJRN Affiliate under Section 3.07(a), the corporation that
Effectively Realized such benefit shall pay to Nabisco or the Designated RJRN
Affiliate, respectively, the amount of such refund or recoupment, together with
any interest received thereon, within 30 days of Effective Realization thereof.
If and to the extent that any claim for refund or contest relating to amounts
paid under Section 3.07(a) shall be unsuccessful, any payment made by Nabisco or
the Designated RJRN Affiliate under Section 3.07(a) shall be credited toward any
payment obligations of Nabisco or the RJRN Tax Group, respectively, under
Article 3.
(c) To the extent that Nabisco or the Designated RJRN Affiliate, as
the case may be, made a cash deposit prior to the date of this Agreement to stop
the running of interest, any determinations under Article 3 affecting the
Nabisco Tax Group or the RJRN Tax Group, respectively, shall take such deposit
into account, as appropriate.
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SECTION 3.08. Carrybacks from Periods After the Distribution. (a)
Holdings agrees to pay the Designated RJRN Affiliate, within 30 days of
Effective Realization, the actual Federal Tax or Combined State Tax benefit
Effectively Realized by any member of the Holdings Consolidated Group from the
use in any taxable year that includes a Pre-Distribution Period (but that is not
a Pre-January 1990 Period) of a carryback of any Tax Asset of any member of the
RJRN Tax Group from a Post-Distribution Period. Such tax benefit shall be
considered equal to the excess of (i) the amount of Federal Taxes or Combined
State Taxes, as the case may be, that would have been payable (or the Federal
Tax or Combined State Tax refund actually receivable) by the Holdings
Consolidated Group in the absence of such carryback, over (ii) the amount of
Federal Taxes or Combined State Taxes actually payable (or the Federal Tax or
Combined State Tax refund that would have been receivable). The determination of
the tax benefit under this Section 3.08(a) shall take into account (A) the
application of Section 3.06, (B) the receipt by any member of the Holdings
Consolidated Group of any interest on a carryback that results in a tax refund,
or (C) the reduction of any interest otherwise owed by any member of the
Holdings Consolidated Group as a result of a carryback that reduces a tax
deficiency.
(b) If, subsequent to the payment by Holdings to the Designated RJRN
Affiliate of an amount pursuant to Section 3.08(a), there shall be (i) a Final
Determination that results in a disallowance or a reduction of the Tax Asset so
carried back or (ii) a reduction in the amount of the tax benefit Effectively
Realized by the Holdings Consolidated Group from such Tax Asset as a result of
the use by the Holdings Consolidated Group of a Tax Asset of Holdings or any
member of the Nabisco Tax Group, the Designated RJRN Affiliate shall repay to
Holdings, within 30 days of such event, any amount that would not have been
payable by Holdings pursuant to Section 3.08(a) had the amount of the tax
benefit been determined in light of such event. In addition, the RJRN Tax Group
shall hold Holdings and the Nabisco Tax Group harmless from any penalty or
interest payable as a result of any event described in the preceding sentence.
SECTION 3.09. Treatment of Adjustments. (a) If any adjustment of an
item of tax is made in a Return relating to Federal Taxes or Combined State
Taxes of the Holdings Consolidated Group, after the filing thereof, in which
income or loss of any member of the RJRN Tax Group is included, then within 30
days of the time of a Final Determination of such adjustment, the Designated
RJRN Affiliate shall pay to Holdings, or Holdings shall pay to the Designated
RJRN Affiliate, as the case may be, the difference between (A) all payments
actually made, net of all refunds or recoupments received or otherwise
Effectively Realized, by the Designated RJRN Affiliate (or treated as such) in
accordance with the principles of Article 3 with respect to such tax item for
the taxable year covered by such Return, and (B) all payments that would have
been made by the Designated RJRN
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Affiliate (or treated as such) in accordance with the principles of this Article
3 with respect to such tax item for the taxable year covered by such Return
taking such adjustment into account.
(b) Upon the Final Determination of an adjustment of an item of tax
under Section 3.09(a), the Designated RJRN Affiliate shall pay to Holdings, or
Holdings shall pay to the Designated RJRN Affiliate, as the case may be, the
difference between (A) all interest and penalty payments actually made, net of
refunds or recoupments of interest and penalties received or otherwise
Effectively Realized, by the Designated RJRN Affiliate (or treated as such) with
respect to such tax item, and (B) all interest and penalty payments that would
have been made by the Designated RJRN Affiliate with respect to such tax item
(with regard to the timing and magnitude of each payment, refund or recoupment
actually made, received or Effectively Realized with respect to the tax item to
which the interest or penalty relates) taking such adjustment into account.
(c) If any adjustment of an item of tax is made in a Return relating
to Federal Taxes or Combined State Taxes of the Holdings Consolidated Group,
after the filing thereof, in which income or loss of any member of the Nabisco
Tax Group is included, then within 30 days of the time of a Final Determination
of such adjustment, Nabisco shall pay to Holdings, or Holdings shall pay to
Nabisco, as the case may be, the difference between (A) all payments actually
made, net of all refunds or recoupments received or otherwise Effectively
Realized, by Nabisco (or treated as such) in accordance with the principles of
Article 3 with respect to such tax item for the taxable year covered by such
Return, and (B) all payments that would have been made by Nabisco (or treated as
such) in accordance with the principles under Article 3 with respect to such tax
item for the taxable year covered by such Return taking such adjustment into
account.
(d) Upon the Final Determination of an adjustment of an item of tax
under Section 3.09(c), Nabisco shall pay to Holdings, or Holdings shall pay to
Nabisco, as the case may be, the difference between (A) all interest and penalty
payments actually made, net of refunds or recoupments of interest and penalties
received or otherwise Effectively Realized, by Nabisco (or treated as such) with
respect to such tax item, and (B) all interest and penalty payments that would
have been made by Nabisco with respect to such tax item (with regard to the
timing and magnitude of each payment, refund or recoupment actually made,
received or Effectively Realized with respect to the tax item to which the
interest or penalty relates) taking such adjustment into account.
(e) Any refunds or credits of tax received by Holdings, a member of the
Nabisco Tax Group or a member of the RJRN Tax Group, as the case may be,
relating to a taxable year that includes a Pre-Distribution Period, to the
extent
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reflecting a tax saving attributable to any item of income, loss, credit,
deduction or other tax attribute of (i) any member of the Nabisco Tax Group or
of the RJRN Tax Group, in the case of Holdings, shall be paid to Nabisco or the
Designated RJRN Affiliate, respectively, (ii) Holdings or any member of the RJRN
Tax Group, in the case of a member of the Nabisco Tax Group, shall be paid to
Holdings (and, as appropriate, forwarded by Holdings to the Designated RJRN
Affiliate), or (iii) Holdings or any member of the Nabisco Tax Group, in the
case of a member of the RJRN Tax Group, shall be paid to Holdings (and, as
appropriate, forwarded by Holdings to Nabisco), in each case within 30 days of
Effective Realization of such tax saving. In addition, any refunds or credits of
tax received by Holdings or a member of the Nabisco Tax Group, as the case may
be, relating to a taxable year that includes a Post-Distribution Period, to the
extent reflecting a tax saving attributable to any item of income, loss, credit,
deduction or other tax attribute of any member of the Nabisco Tax Group or
Holdings, respectively, shall be paid to Nabisco or Holdings, respectively,
within 30 days of Effective Realization of such tax saving. Notwithstanding
anything in this Section 3.09(e) to the contrary, no payment shall be required
to the extent such refunds or credits are attributable to (i) a Tax Asset for
which payment has been made in accordance with the principles of Section
3.04(d), 3.05(d), 3.08(a), 3.09(e) or 5.02(a) by the corporation receiving the
refund or credit, or (ii) an adjustment for which payment in respect thereof has
previously been made in accordance with the principles of Section 3.09(a) or
3.09(c).
(f) For purposes of the calculations under this Section 3.09, any
income, loss, credit, deduction or other tax attribute of, any tax liability,
refund or credit of tax of, or any payments by or on behalf of, any member of
the Holdings Consolidated Group (including, without limitation, Holdings or a
member of the Nabisco Tax Group) with respect to a Pre-January 1990 Period shall
be treated as an item of the RJRN Tax Group. If, with respect to any Pre-January
1990 Period, Holdings or any member of the Nabisco Tax Group Effectively
Realizes the benefit of a refund of any Federal Tax or Combined State Tax,
Holdings or Nabisco, respectively, shall promptly remit to the Designated RJRN
Affiliate the amount of such refund, together with any interest received
thereon.
ARTICLE 4
CERTAIN REPRESENTATIONS AND COVENANTS IN CONNECTION WITH THE
DISTRIBUTION AND THE INTERNAL DISTRIBUTION
SECTION 4.01. RJRN Tax Group Representations. RJRN and each other
member of the RJRN Tax Group represent to Holdings and each member of the
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Nabisco Tax Group that as of the date of this Agreement there is no plan or
intention to (i) liquidate RJRN or RJRT or merge or consolidate any of such
corporations with any other person subsequent to the Distribution, (ii) sell or
otherwise dispose of the assets of RJRN, RJRT or any other member of the RJRN
Tax Group subsequent to the Distribution, except in the ordinary course of
business, (iii) take any action inconsistent with the information and
representations furnished by RJRN in connection with the Tax Opinion, (iv)
repurchase stock of RJRN other than pursuant to the requirements of Revenue
Procedure 96-30 and in conformity with the representations furnished by RJRN in
connection with the Tax Opinion, or (v) enter into any negotiations, agreements
or arrangements with respect to transactions or events (including, without
limitation, stock issuances, pursuant to the exercise of options or otherwise,
option grants, capital contributions or acquisitions, or a series of such
transactions or events, but excluding the Internal Distribution and the
Distribution) that may cause the Distribution and/or the Internal Distribution
to be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly stock of RJRN, Nabisco or Holdings representing a
"50-percent or greater interest" therein within the meaning of Section 355(d)(4)
of the Code.
SECTION 4.02. Holdings and Nabisco Tax Group Representations. Holdings
and each member of the Nabisco Tax Group represent to each member of the RJRN
Tax Group that as of the date of this Agreement there is no plan or intention to
(i) liquidate Holdings, Nabisco or Nabisco, Inc. or merge or consolidate any of
such corporations with any other person subsequent to the Internal Distribution,
(ii) sell or otherwise dispose of the assets of Holdings, Nabisco, Nabisco, Inc.
or any other member of the Nabisco Tax Group subsequent to the Internal
Distribution, except (A) in the ordinary course of business, or (B) pursuant to
plant rationalization programs, to the extent implemented in a manner consistent
with practice prior to the Distribution, (iii) take any action inconsistent with
the information and representations furnished by Holdings in connection with the
Tax Opinion, (iv) repurchase stock of Nabisco or Holdings, other than (A)
pursuant to the requirements of Revenue Procedure 96- 30 and in conformity with
the representations furnished by Holdings in connection with the Tax Opinion
(including, without limitation, the purchase by Nabisco on the New York Stock
Exchange of shares of its Class A common stock for delivery upon the exercise of
employee stock options), or (B) any payment of cash in lieu of fractional shares
in any reverse stock split with respect to the common stock of Holdings or
Nabisco following the Internal Distribution, or (v) enter into any negotiations,
agreements or arrangements with respect to transactions or events (including
stock issuances, pursuant to the exercise of options or otherwise, option
grants, capital contributions or acquisitions, or a series of such transactions
or events, but excluding the Internal Distribution and the Distribution) that
may cause the Internal Distribution and/or the Distribution
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to be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly stock of Nabisco, Holdings or RJRN representing a "50-
percent or greater interest" therein within the meaning of Section 355(d)(4) of
the Code.
SECTION 4.03. Representations of Holdings, RJRN Tax Group and Nabisco
Tax Group. Each of Holdings, the members of the Nabisco Tax Group, RJRN and the
other members of the RJRN Tax Group represents that it is not aware of any plan
or intention by the shareholders or securityholders of Holdings to sell,
exchange, transfer or otherwise dispose of any of their stock or securities in
Holdings or RJRN subsequent to the Distribution.
SECTION 4.04. RJRN Tax Group Covenants. RJRN and each other member of
the RJRN Tax Group covenant to Holdings and each member of the Nabisco Tax Group
that (i) during the Two-Year Period, RJRN and RJRT shall not liquidate or merge
or consolidate with any other person, (ii) during the Two-Year Period, RJRN
shall not sell, exchange, distribute or otherwise dispose of the assets of RJRN,
RJRT or any other member of the RJRN Tax Group, except in the ordinary course of
business, (iii) during the Two-Year Period, RJRT shall continue the active
conduct of the historic trade or business (i.e., the manufacture, distribution
and sale of cigarettes and other tobacco products in the United States), within
the meaning of Section 355 of the Code, conducted throughout the five-year
period prior to the Internal Distribution, (iv) no member of the RJRN Tax Group
shall repurchase stock of RJRN, other than pursuant to the requirements of
Revenue Procedure 96-30 and in conformity with the representations furnished by
RJRN in connection with the Tax Opinion, (v) on or after the Distribution Date,
RJRN shall not, nor shall it permit any member of the RJRN Tax Group to, make or
change any tax election, change any accounting method, amend any Return or take
any tax position on any Return, take any action, omit to take any action or
enter into any transaction that results in an increased tax liability or
reduction of any Tax Asset of Holdings or of the Nabisco Tax Group with respect
to any Pre-Distribution Period that is not also a Pre-January 1990 Period, and
(vi) during the Two-Year Period, RJRN shall not enter into any transaction or
make any change in equity structure (including, without limitation, stock
issuances, pursuant to the exercise of options or otherwise, option grants,
capital contributions or acquisitions, or a series of such transactions or
events, but excluding the Distribution and the Internal Distribution) that may
cause the Distribution and/or the Internal Distribution to be treated as part of
a plan pursuant to which one or more persons acquire directly or indirectly
stock of RJRN, Nabisco or Holdings representing a "50-percent or greater
interest" therein within the meaning of Section 355(d)(4) of the Code. The RJRN
Tax Group agrees that Holdings and the Nabisco Tax Group shall have no liability
for any Tax resulting from any
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action referred to in the preceding sentence and agrees to hold harmless
Holdings and the Nabisco Tax Group from any such Tax.
SECTION 4.05. Holdings and Nabisco Tax Group Covenants. Holdings and
each member of the Nabisco Tax Group covenant to each member of the RJRN Tax
Group that (i) during the Two-Year Period, Holdings, Nabisco and Nabisco, Inc.
shall not liquidate or merge or consolidate with any other person, (ii) during
the Two-Year Period, Holdings shall not sell, exchange, distribute or otherwise
dispose of the assets of Holdings, Nabisco, Nabisco, Inc. or any other member of
the Nabisco Tax Group, except (A) in the ordinary course of business, (B)
pursuant to plant rationalization programs, to the extent implemented in a
manner consistent with practice prior to the Distribution, or (C) for an asset,
(I) the gross proceeds of disposition of which do not exceed $10 million, (II)
which, together with all other assets to which this clause (C) has been applied,
would not have aggregate gross proceeds of disposition in excess of $200
million, and (III) which is not part of a plan for the disposition of multiple
assets unless each of the assets covered by such plan would meet the
requirements of this clause (C), (iii) during the Two-Year Period, Nabisco, Inc.
shall continue the active conduct of the historic trade or business (i.e., the
manufacture, distribution and sale of cookies, crackers and other food and snack
products within the United States), within the meaning of Section 355 of the
Code, conducted throughout the five-year period prior to the Internal
Distribution, (iv) during the Two-Year Period, neither any member of the Nabisco
Tax Group nor Holdings shall repurchase stock of Nabisco or Holdings other than
(A) pursuant to the requirements of Revenue Procedure 96-30 and in conformity
with the representations furnished by Holdings in connection with the Tax
Opinion (including, without limitation, the purchase by Nabisco on the New York
Stock Exchange of shares of its Class A common stock for delivery upon the
exercise of employee stock options), or (B) any payment of cash in lieu of
fractional shares in any reverse stock split with respect to the common stock of
Nabisco or Holdings following the Internal Distribution, and (v) during the
Two-Year Period, each of Nabisco and Holdings shall not enter into any
transaction or make any change in equity structure (including, without
limitation, stock issuances, pursuant to the exercise of options or otherwise,
option grants, capital contributions or acquisitions, or a series of such
transactions or events, but excluding the Internal Distribution and the
Distribution) that may cause the Internal Distribution and/or the Distribution
to be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly stock of Nabisco, Holdings or RJRN representing a
"50-percent or greater interest" therein within the meaning of Section 355(d)(4)
of the Code. Each of Holdings and Nabisco agrees that the members of the RJRN
Tax Group shall have no liability for any Tax resulting from any action referred
to in the preceding sentence taken by Holdings or any member of the Nabisco Tax
Group,
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respectively, and agrees to indemnify and hold harmless any member of the RJRN
Tax Group from any such Tax.
SECTION 4.06. Exceptions. Notwithstanding the foregoing, RJRN and the
other members of the RJRN Tax Group shall be permitted to take an action
inconsistent with the covenants contained in Section 4.04, and Holdings and the
members of the Nabisco Tax Group shall be permitted to take an action
inconsistent with the covenants contained in Section 4.05, if, prior to taking
such action RJRN, Holdings or Nabisco, as the case may be, (i) provides
notification, upon determining that it shall pursue such action, to the other
parties to this Agreement of its plans with respect to such action, and promptly
respond to any inquiries made by such parties following such notification, and
(ii) obtains (A) a ruling from the IRS to the effect that such action shall not
cause the Distribution to be taxable to Holdings or its shareholders or the
Internal Distribution to be taxable to RJRN or Holdings, or (B) an opinion of
Davis Polk & Wardwell (or of an independent counsel, comparable thereto, that is
nationally recognized as an expert in Federal Tax matters), which opinion and,
in the case of counsel other than Davis Polk & Wardwell, which counsel are
acceptable to the parties to which the relevant covenant(s) in this Agreement
have been made, to the same effect as is set forth in clause (A).
ARTICLE 5
COVENANTS AND OTHER MATTERS FOLLOWING NABISCO DECONSOLIDATION
SECTION 5.01. Certain Nabisco Covenants. Nabisco covenants to Holdings
that upon or after a Nabisco Deconsolidation it shall not, nor shall it cause or
permit any member of the Nabisco Tax Group to, make or change any tax election,
change any accounting method, amend any Return or take any tax position on any
Return, take any action, omit to take any action or enter into any transaction
that results in any increased tax liability or reduction of any Tax Asset of the
Holdings Consolidated Group with respect to any Pre-Deconsolidation Period;
provided, however, that with respect to a Pre-Deconsolidation Period that is
also a Post-January 1990 Period, for purposes of this Section 5.01, the Holdings
Consolidated Group shall include only those members of the Holdings Consolidated
Group that are not members of the Nabisco Tax Group. Nabisco agrees that
Holdings and the RJRN Tax Group, as applicable, shall have no liability for any
tax or any increase in indemnification obligations resulting from any action
referred to in the preceding sentence and agrees to hold harmless such
corporations from any such tax or increase in indemnification obligations.
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SECTION 5.02. Carrybacks from Periods Following Nabisco
Deconsolidation. (a) Holdings agrees to pay to Nabisco the actual Federal Tax or
Combined State Tax benefit Effectively Realized by any member of the Holdings
Consolidated Group from the use in any taxable year that includes a
Pre-Deconsolidation Period and that does not include a Pre-January 1990 Period
of a carryback of any Tax Asset of any member of the Nabisco Tax Group from a
taxable year that includes a Post-Deconsolidation Period. Such tax benefit shall
be considered equal to the excess of (i) the Federal Taxes or Combined State
Taxes, as the case may be, that would have been payable (or the Federal Tax or
Combined State Tax refund actually receivable) by the Holdings Consolidated
Group in the absence of such carryback, over (ii) the amount of Federal Taxes or
Combined State Taxes actually payable (or the Federal Tax or Combined State Tax
refund that would have been receivable). Without limiting the generality of the
foregoing, the determination of the tax benefit under this Section 5.02(a) shall
take into account the application of Section 3.06. Payment of the amount of the
tax benefit under this Section 5.02(a) shall be made within 30 days of the
Effective Realization thereof.
(b) If, subsequent to the payment by Holdings to Nabisco of an amount
under Section 5.02(a), there shall be (i) a Final Determination that results in
a disallowance or a reduction of the Tax Asset so carried back or (ii) a
reduction in the amount of the benefit Effectively Realized by the Holdings
Consolidated Group from such Tax Asset as a result of the use by the Holdings
Consolidated Group of a Tax Asset of Holdings or of the RJRN Tax Group, Nabisco
shall repay to Holdings, within 30 days of such event, any amount that would not
have been payable to Nabisco pursuant to Section 5.02(a) had the amount of the
benefit been determined in light of such events. Nabisco shall hold Holdings
harmless from any penalty or interest payable as a result of any event described
in the preceding sentence.
ARTICLE 6
CERTAIN TAX MATTERS RELATED TO THE DISTRIBUTION AGREEMENT AND TO
POST-DISTRIBUTION DEDUCTIONS
SECTION 6.01. Payment of After-Tax Amounts. If any amount paid by RJRN
or Holdings under the Distribution Agreement results in any increased tax
liability or reduction of any Tax Asset of Holdings or any member of the Nabisco
Tax Group, in the case of RJRN, or any member of the RJRN Tax Group, in the case
of Holdings, then the party making such payment shall, in addition to paying any
amounts otherwise owed under the Distribution Agreement, indemnify the
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recipient of such payment against and hold it harmless from (i) such increased
tax or the reduction of such Tax Asset, (ii) any interest or penalty
attributable to such increased tax liability or the reduction of such Tax Asset
and (iii) the After-Tax Amount.
SECTION 6.02. Deductions and Certain Taxes Related to Stock Options.
(a) Holdings shall claim the Federal Tax deductions and any Combined State Tax
deductions attributable to the exercise, following the date of the Internal
Distribution, of options to purchase the stock of Holdings, of Nabisco or of
RJRN or the vesting of restricted stock of Holdings, of Nabisco or of RJRN, in
each case that are held by a person who is at the time the deduction is claimed
(or, in the case of a person who is no longer employed by any of Holdings, a
member of the RJRN Tax Group or a member of the Nabisco Tax Group at the time
the deduction is claimed, who immediately before the Internal Distribution was)
an employee of Holdings; provided that, notwithstanding anything in this Section
6.02 to the contrary, if the person holding options or restricted stock has been
an employee of Holdings at any time after the Internal Distribution, Holdings
shall claim the relevant Federal Tax and Combined State Tax deductions.
(b) Any member of the Nabisco Tax Group shall claim the Federal Tax
deductions and any Combined State Tax deductions attributable to the exercise,
following the date of the Internal Distribution, of options to purchase the
stock of Holdings, of Nabisco or of RJRN or the vesting of restricted stock of
Holdings, of Nabisco or of RJRN, in each case that are held by a person who is
at the time the deduction is claimed (or, in the case of a person who is no
longer employed by any of Holdings, a member of the RJRN Tax Group or a member
of the Nabisco Tax Group at the time the deduction is claimed, who immediately
before the Internal Distribution was) an employee of such member of the Nabisco
Tax Group.
(c) Any member of the RJRN Tax Group shall claim the Federal Tax
deductions and any Combined State Tax deductions attributable to the exercise,
following the date of the Internal Distribution, of options to purchase the
stock of Holdings, of Nabisco or of RJRN or the vesting of restricted stock of
Holdings, of Nabisco or of RJRN, in each case that are held by a person who is
at the time the deduction is claimed (or, in the case of a person who is no
longer employed by any of Holdings, a member of the RJRN Tax Group or a member
of the Nabisco Tax Group at the time the deduction is claimed, who immediately
before the Internal Distribution was) an employee of such member of the RJRN Tax
Group.
(d) The employer of the person who exercises stock options or with
respect to whom unrestricted stock vests (or, if such person is not employed by
any of Holdings, a member of the RJRN Tax Group or a member of the Nabisco
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Tax Group, the company among Holdings, the members of the Nabisco Tax Group and
the members of the RJRN Tax Group that employed such person immediately before
the Internal Distribution) shall timely pay the applicable Federal Employment
Tax or any state employment tax in connection with such exercise or vesting.
SECTION 6.03. Deductions Related to Employee Severance and Other
Enumerated Expenses. For purposes of computing the RJRN Federal Tax Liability
and the RJRN Combined State Tax Liability for the 1999 Pre-Distribution Period,
RJRN shall receive the Federal Tax deductions and any Combined State Tax
deductions, as appropriate, attributable to any and all expenses (except for
such expenses related to stock options and restricted stock as are addressed in
Section 6.02) incurred in connection with the termination of the employment of
persons who were employees of RJRN immediately before the Internal Distribution.
SECTION 6.04. Deductions Related to Certain Litigation Expenses. RJRN
shall claim the Federal Tax deductions and any Combined State Tax deductions
attributable to all expenses (including, without limitation, attorneys' fees,
expenses of investigation and other expenses) incurred in the defense of Tobacco
Claims against (i) RJRN, including Tobacco Claims the defense of which has been
assumed by Holdings pursuant to the Distribution Agreement, or (ii) Holdings,
Nabisco, Nabisco, Inc. or any other Nabisco Indemnitee as such term is defined
in the Distribution Agreement, to the extent that RJRN has agreed under the
Distribution Agreement to indemnify such party against any liabilities in
connection with such Tobacco Claims.
SECTION 6.05. Effect of Article 6. (a) The computation of the
respective Federal Tax and Combined State Tax liabilities of Holdings, the
Nabisco Tax Group and the RJRN Tax Group under this Agreement shall reflect the
entitlement of the corporation that is accorded a deduction under Section 6.02,
6.03 or 6.04 to such deduction, to the extent that any of Holdings, any member
of the Nabisco Tax Group or any member of the RJRN Tax Group is entitled to such
deduction. Without limiting the generality of the foregoing, Sections 6.02, 6.03
and/or 6.04 shall be taken into account in (i) the preparation of the respective
Pro Forma Returns of the RJRN Tax Group and the Nabisco Tax Group in accordance
with Sections 3.04 or 3.05, respectively, and (ii) the determination of
indemnification obligations under Article 7.
SECTION 6.06. Indemnification under Article 6. (a) To the extent that
any deduction accorded to Holdings by Section 6.02(a) is disallowed because a
Taxing Authority makes a Final Determination that a member of the RJRN Tax Group
or of the Nabisco Tax Group should have claimed such deduction, the Designated
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RJRN Affiliate or Nabisco, respectively, shall pay to Holdings an amount equal
to the resulting actual tax benefit Effectively Realized by the RJRN Tax Group
or the Nabisco Tax Group, respectively, within 30 days of the Effective
Realization thereof.
(b) To the extent that any deduction accorded to a member of the
Nabisco Tax Group by Section 6.02(b) is disallowed because a Taxing Authority
makes a Final Determination that Holdings or a member of the RJRN Tax Group
should have claimed such deduction, Holdings or the Designated RJRN Affiliate,
respectively, shall pay to Nabisco an amount equal to the resulting actual tax
benefit Effectively Realized by Holdings or the RJRN Tax Group, respectively,
within 30 days of the Effective Realization thereof.
(c) To the extent that any deduction accorded to a member of the RJRN
Tax Group by Section 6.02(c), 6.03 or 6.04 is disallowed because a Taxing
Authority determines that Holdings or a member of the Nabisco Tax Group should
have claimed such deduction, Holdings or Nabisco, respectively, shall pay to the
Designated RJRN Affiliate an amount equal to the resulting actual tax benefit
Effectively Realized by Holdings or the Nabisco Tax Group, respectively, within
30 days of the Effective Realization thereof.
ARTICLE 7
INDEMNITIES
SECTION 7.01. Indemnification of Holdings and Nabisco Tax Group by RJRN
Tax Group. RJRN, RJRT and each other member of the RJRN Tax Group shall jointly
and severally indemnify Holdings, Nabisco, Nabisco, Inc. and the other members
of the Nabisco Tax Group against and hold them harmless from:
(a) liability for Taxes attributable to any member of the RJRN Tax
Group relating to any taxable period (provided that, for purposes of the
foregoing portion of this Section 7.01(a), Taxes shall refer only to such taxes
as are described in clause (i) of the definition of such term in Section
1.01(a)), including without limitation, (i) any Tax liability resulting from the
International Tobacco Sale, (ii) any Tobacco Tax liability, (iii) any tax
liability of any member of the RJRN Tax Group resulting from the existence of
any excess loss accounts or deferred intercompany gains immediately before the
Distribution, (iv) any Federal Employment Tax of any member of the RJRN Tax
Group and (v) any Puerto Rican tax liability of any member of the RJRN Tax
Group, but excluding any Tax liability resulting from the Internal Distribution
except (A) to the extent the
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Internal Distribution is taxable by reason of a breach by RJRN or any other
member of the RJRN Tax Group of any representation or covenant made by any
member of the RJRN Tax Group in this Agreement, and (B) for such amounts as are
described in clause (iii) of this Section 7.01(a);
(b) liability for Taxes relating to any taxable period resulting from
a breach by RJRN or any other member of the RJRN Tax Group of any representation
or covenant made by any member of the RJRN Tax Group in this Agreement;
(c) liability for Taxes relating to any Pre-January 1990 Period of
Holdings, Nabisco, Nabisco, Inc. or any other member of the Holdings
Consolidated Group; and
(d) liability for Taxes of Del Monte Corporation relating to any
taxable period (or portion thereof) ending on or before the close of business on
January 9, 1990, including, without limitation, (i) any tax liability pursuant
to the Stock Purchase Agreement dated as of September 24, 1989, as amended,
among DMPF Corp., RJR Investments, Inc., DMPF Holdings Corp. and RJRN, and (ii)
any Del Monte State Tax.
SECTION 7.02. Indemnification of RJRN Tax Group by Holdings or Nabisco
Tax Group. (a) Holdings shall indemnify RJRN, RJRT and the other members of the
RJRN Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to Holdings (including,
without limitation, any Federal Employment Tax of Holdings)
relating to a Post-January 1990 Period, provided that, for
purposes of this Section 7.02(a)(i), (A) Tax shall refer only
to such taxes as are described in clause (i) of the definition
of such term in Section 1.01(a), and (B) any Federal
Employment Tax relating to a Pre-January 1990 Period shall be
treated as relating to a Post-January 1990 Period;
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Holdings of any representation or
covenant made by Holdings in this Agreement;
(iii) liability for Taxes resulting from the Name Change
Merger; and
(iv) liability for Taxes resulting from the Internal
Distribution or from the Distribution, except (A) to the
extent that such liability
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arises by reason of the breach by RJRN or any other member of
the RJRN Tax Group of any representation or covenant made by
any member of the RJRN Tax Group in this Agreement, and (B)
for such amounts as are described in Section 7.01(a)(iii).
(b) Nabisco, Nabisco, Inc. and each other member of the Nabisco Tax
Group shall jointly and severally indemnify RJRN, RJRT and the other members of
the RJRN Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to any member of the
Nabisco Tax Group (including, without limitation, any Federal
Employment Tax of any member of the Nabisco Tax Group)
relating to a Post-January 1990 Period, provided that, for
purposes of this Section 7.02(b)(i), (A) Tax shall refer only
to such taxes as are described in clause (i) of the definition
of such term in Section 1.01(a), and (B) any Federal
Employment Tax relating to a Pre-January 1990 Period shall be
treated as relating to a Post-January 1990 Period; and
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Nabisco or any other member of the
Nabisco Tax Group of any representation or covenant made by
any member of the Nabisco Tax Group in this Agreement.
SECTION 7.03. Indemnification Between Holdings and Nabisco. (a)
Holdings shall indemnify Nabisco, Nabisco, Inc. and the other members of the
Nabisco Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to Holdings relating to
any taxable period (including, without limitation, any Federal
Employment Tax of Holdings), provided that, for purposes of
this Section 7.03(a)(i), Tax shall refer only to such taxes as
are described in clause (i) of the definition of such term in
Section 1.01(a);
(ii) liability for Taxes resulting from the Name Change
Merger;
(iii) liability for Taxes resulting from the Internal
Distribution or from the Distribution, except (A) the extent
that such liability arises by reason of the breach by (I) RJRN
or any other member of the RJRN Tax Group of any
representation or covenant made by any member of the RJRN Tax
Group in this Agreement, or (II) Nabisco or any other member
of the Nabisco Tax Group of any
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representation or covenant made by any member of the Nabisco
Tax Group in this Agreement, (B) for such amounts as are
described in Section 7.01(a)(iii), and (C) for any tax
liability of any member of the Nabisco Tax Group resulting
from the existence of any deferred intercompany gains
immediately before the Distribution; and
(iv) liability for Taxes relating to any taxable period
resulting from a breach by Holdings of any representation or
covenant made by Holdings in this Agreement.
(b) Nabisco, Nabisco, Inc. and each other member of the Nabisco
Tax Group shall jointly and severally indemnify Holdings against and hold it
harmless from:
(i) liability for Taxes attributable to the Nabisco Tax Group
(including, without limitation, any Federal Employment Tax of
the Nabisco Tax Group) relating to a Post-January 1990 Period,
provided that, for purposes of this Section 7.03(b)(i), Tax
shall refer only to such taxes as are described in clause (i)
of the definition of such term in Section 1.01(a), and (B) any
Federal Employment Tax relating to a Pre-January 1990 Period
shall be treated as relating to a Post-January 1990 Period;
and
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Nabisco or any other member of the
Nabisco Tax Group of any representation or covenant made by
any member of the Nabisco Tax Group in this Agreement.
SECTION 7.04. Additional Indemnity Amounts. Each party with
indemnification obligations under Section 7.01, 7.02 or 7.03 (an "Indemnitor")
shall also pay to each party that is indemnified by such Indemnitor under such
provision (an "Indemnitee") all liabilities, losses, damages, assessments,
settlements, judgments, costs or properly documented expenses (including,
without limitation, expenses of investigation and attorneys' fees and expenses)
arising out of or incident to the imposition, assessment or assertion of any
liabilities or damage described in such provision, including, without
limitation, those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any such
liability or damage.
SECTION 7.05. Notice of Claim. The Indemnitee agrees to give prompt
notice to the Indemnitor of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
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Section 7.01, 7.02 or 7.03.
SECTION 7.06. Discharge of Indemnity. An Indemnitor shall discharge its
obligations by paying all amounts specified in Sections 7.01, 7.02, 7.03 and
7.04 within 30 days of demand therefor. After a Final Determination of an
obligation against which an Indemnitee is indemnified, the Indemnitee shall send
a statement to the Indemnitor showing the amount, if any, due under such
provisions. Certain calculation mechanics relating to items described in
Sections 7.01, 7.02 and 7.03 shall be in accordance with the principles of
Article 3. Notwithstanding that an Indemnitor disputes in good faith the fact or
the amount of any obligation under Section 7.01, 7.02 or 7.03, payment
thereunder and under Section 7.04 shall be made within 30 days of demand
therefor.
SECTION 7.07. Tax Benefits. If an indemnification obligation of any
Indemnitor under this Article 7 arises in respect of an adjustment that makes
allowable to the Indemnitee any deduction, amortization, exclusion from income
or other allowance (a "Tax Benefit") that would not, but for such adjustment, be
allowable, then any payment by the Indemnitor pursuant to this Article 7 shall
be an amount equal to the excess of (a) the amount otherwise due but for this
Section 7.07, over (b) the present value of the product of the Tax Benefit
multiplied by (i) in the case of a credit, 100 percent, or (ii) otherwise, the
highest tax rate in effect under applicable law at the time such Tax Benefit
becomes allowable to the Indemnitee. Present value computations shall be made by
discounting, at the Intercompany Interest Rate, the product described in Section
7.07(b) in view of the date on which the Tax Benefit becomes allowable.
ARTICLE 8
AUDIT AND OTHER TAX PROCEEDINGS
SECTION 8.01. Control Over Tax Proceedings. (a) Notwithstanding Section
11.02 or anything in this Agreement to the contrary, Holdings shall have full
control over any and all matters with respect to which the Nabisco Tax Group and
the RJRN Tax Group have provided authority to Holdings under Section 2.02,
including, without limitation, any and all matters that would give rise to an
indemnification obligation under Article 7 on the part of any member of the
Nabisco Tax Group or any member of the RJRN Tax Group. Holdings shall have
absolute discretion with respect to any decisions to be made, or any action to
be taken, with respect to any matter described in the preceding sentence.
(b) Without limiting the generality of Section 8.01(a), Holdings
may, in
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its sole and absolute discretion, settle any Tax Proceeding with respect to the
Taxes over which it has authority under Section 2.02(a) (including, without
limitation, a Tax Proceeding relating to any and all matters that would give
rise to an indemnification obligation under Section 7.01, 7.02 or 7.03). Any
such settlement shall be binding on the parties to this Agreement without
further recourse. Section 11.02 shall not apply with respect to (i) any such
settlement or (ii) any Tax Proceeding with respect to the Taxes over which
Holdings has authority under Section 2.02(a).
SECTION 8.02. Del Monte State Taxes and Certain Other Combined State
Taxes. Holdings shall conduct, and shall have full control over all matters
relating to, any Tax Proceedings in connection with (i) Del Monte State Taxes,
or (ii) any Combined State Tax liability of Holdings or any member of the
Nabisco Tax Group (including, without limitation, tax liabilities that are
reflected on (A) a separate Combined State Tax return, or (B) a Combined State
Tax return filed on behalf of an affiliated, consolidated, combined or unitary
group that does not include any member of the RJRN Tax Group) with respect to
any Pre-January 1990 Period. In its sole and absolute discretion, Holdings may
determine that the RJRN Tax Group shall be required to conduct such Tax
Proceedings following the provision by Holdings of not less than 180 days'
notice to the Designated RJRN Affiliate to such effect.
SECTION 8.03. Federal Employment Taxes. Holdings shall conduct, and
shall have full control over all matters relating to, any Tax Proceedings in
connection with any Federal Employment Tax for which (i) any member of the
Nabisco Tax Group is liable with respect to a taxable year that begins prior to
a Nabisco Deconsolidation, or (ii) any member of the RJRN Tax Group is liable
with respect to a taxable year that begins prior to the Distribution Date.
ARTICLE 9
COMMUNICATIONS AND COOPERATION
SECTION 9.01. Consult and Cooperate. Holdings, Nabisco, RJRN and RJRT
shall consult and cooperate (and shall cause their respective subsidiaries to
cooperate) fully at such time and to the extent reasonably requested by a party
to this Agreement in connection with all matters subject to this Agreement;
provided that, in the case of the companies listed in Exhibit D to the
International Tobacco Purchase Agreement, RJRN and RJRT shall be required to
cause such companies to cooperate only to the extent allowed under the
International Tobacco Purchase Agreement. The cooperation under this Section
9.01 shall include, without
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limitation:
(a) the retention and provision on reasonable request of any
information (including, without limitation, any books, records, documentation or
other information) pertaining to Tax matters relating to Holdings, the Nabisco
Tax Group and the RJRN Tax Group, any necessary explanations of information, and
access to personnel, until the expiration of the applicable statute of
limitation (giving effect to any extension, waiver, or mitigation thereof);
(b) the execution, acknowledgment and delivery of any instrument or
document that may be necessary or helpful in connection with (i) any Return,
(ii) any Tax Proceeding or other litigation, investigation or action, or (iii)
the carrying out of the parties' respective obligations under this Agreement;
and
(c) the use of the parties' best efforts to obtain any documentation
from a Taxing Authority, another governmental authority or another third party
that may be necessary or helpful in connection with the foregoing.
SECTION 9.02. Provide Information. Holdings, Nabisco and the Designated
RJRN Affiliate shall keep one another fully informed with respect to any
material developments relating to the matters subject to this Agreement.
SECTION 9.03. Tax Attribute Matters. Holdings, Nabisco and the
Designated RJRN Affiliate shall promptly advise one another with respect to any
proposed Tax adjustments, relating to a Consolidated Group, that are the subject
of a Tax Proceeding or other litigation, investigation or action and that may
materially affect any Tax liability or Tax attribute of the other parties to
this Agreement.
ARTICLE 10
PAYMENTS
SECTION 10.01. Procedure for Making Payments. All payments to be made
under this Agreement shall be made in immediately available funds. Except as
otherwise provided, all payments required to be made under this Agreement shall
be due 30 days after the receipt of notice of such payment or, where no notice
is required, 30 days after (i) the fixing of a tax liability, (ii) the Effective
Realization of a tax saving, tax benefit or tax attribute, (iii) the receipt of
a refund, or (iv) the resolution of a dispute. Unless otherwise indicated, any
payment that is not made when due shall bear interest at the Intercompany
Interest Rate. If, pursuant to a Final Determination, any amount paid by
Holdings, the members of
35
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the Nabisco Tax Group or the members of the RJRN Tax Group under this Agreement
results in any increased tax liability or reduction of any Tax Asset of the
recipient of such payment, then, in addition to any amounts otherwise owed under
this Agreement, the payor shall pay the sum of (i) any interest or penalty
attributable to such increased tax liability or to the reduction of such Tax
Asset, and (ii) the After-Tax Amount.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Guarantee. Nabisco shall guarantee the obligations under
this Agreement of each other member of the Nabisco Tax Group. RJRN and RJRT
shall guarantee the obligations under this Agreement of each other member of the
RJRN Tax Group.
SECTION 11.02. Dispute Resolution. If the parties hereto are unable to
resolve any disagreement or dispute relating to this Agreement within 20 days,
such disagreement or dispute shall be resolved by Holdings. Any such resolution
shall be binding on the parties to this Agreement without further recourse.
SECTION 11.03. Authorization. Each of Holdings, RJRN, Nabisco and RJRT
hereby represents and warrants that (i) it has the power and authority to
execute, deliver and perform this Agreement, (ii) this Agreement has been duly
authorized by all necessary corporate action on the part of such party, (iii)
this Agreement constitutes a legal, valid and binding obligation of such party,
and (iv) the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision or law or of such party's
charter or bylaws or any agreement, instrument or order binding on such party.
SECTION 11.04. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given:
if to Holdings, to:
RJR Nabisco Holdings Corp.
Nabisco Group Holdings Corp.
1301 Avenue of the Americas
New York, NY 10019-6013
Attention: [ ]
Facsimile: [ ]
36
<PAGE>
if to RJRN and/or RJRT, to:
R.J. Reynolds Tobacco Holdings, Inc.
f/k/a/ RJR Nabisco, Inc.
R. J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Attention: [Vice President -- Tax]
Facsimile: 336-741-0259
if to Nabisco, to:
Nabisco Holdings Corp.
7 Campus Drive
Parsippany, NJ 07054-0311
Attention: Vice President -- Tax
Facsimile: 973-682-6649
or such other address or facsimile number as such party may hereafter specify in
writing for this purpose by notice to the other parties hereto. Each such
notice, request or other communication shall be effective (a) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 11.04 and the appropriate facsimile confirmation is received or
(b) if given by any other means, when delivered at the address specified in this
Section 11.04.
SECTION 11.05. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by Holdings, RJRN, Nabisco
and RJRT, or in the case of a waiver, by the parties against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.06. Expenses. Except as specifically provided otherwise in
this Agreement or in Section 10.03 or 10.08 of the Distribution Agreement, each
party shall bear its own costs and expenses (including, without limitation,
attorneys' fees and other professional fees and expenses).
SECTION 11.07. Successors and Assigns. The provisions of this
37
<PAGE>
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors (whether by merger, acquisition of assets
or otherwise, and, including, without limitation, any successor succeeding to
the tax attributes of a party under Section 381 of the Code) and assigns, to the
same extent as if such successor or assign had been an original party to this
Agreement; provided that, except as set forth in this Agreement, no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of each of the other parties hereto.
SECTION 11.08. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York.
SECTION 11.09. Counterparts; Effectiveness; No Third Party
Beneficiaries. (a) This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall become
effective upon the consummation of the Distribution, provided that at or before
such time, each party hereto shall have received a counterpart hereof signed by
the other parties hereto. No provision of this Agreement is intended to confer
any rights, benefits, remedies, obligations or liabilities hereunder upon any
person other than (i) the parties hereto, (ii) other members of the Nabisco Tax
Group and (iii) other members of the RJRN Tax Group, together in each case with
their respective successors and assigns.
(b) All rights and obligations arising under of this Agreement shall
survive until they are fully effectuated or performed. Notwithstanding anything
in this Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
SECTION 11.10. Severability. If any one or more of the provisions of
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions so that the replacement provisions will be
valid, legal and enforceable and will have an economic effect which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 11.11. Specific Performance. Each of RJRN and the other
members of the RJRN Tax Group acknowledges and agrees that damages for a
breach or threatened breach of any of the provisions of this Agreement would be
inadequate and that irreparable harm would occur. In recognition of this fact,
38
<PAGE>
each such corporation agrees that, in the event of such breach or threatened
breach, in addition to any damages, any of the other parties to this Agreement,
without posting any bond, shall be entitled to seek and obtain equitable relief
in the form of specific performance, temporary restraining order, temporary or
permanent injunction, attachment or any other equitable remedy that may then be
available to obligate the breaching party to (i) comply with the covenants made
by, and perform other obligations of, it (or, as appropriate, of RJRN) under
this Agreement, or (ii) if the breaching party is unable, for whatever reason,
to comply with such covenants and perform such obligations, to take such other
actions as are necessary or appropriate to give the other parties to this
Agreement the tax effect and the economic effect that come as close as possible
to compliance with such covenants and performance of such obligations.
SECTION 11.12. Captions. Section captions used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
39
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Tax Sharing
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
RJR NABISCO HOLDINGS CORP.
By_________________________________
Name: J. T. Pearson
Title: Senior Vice President -- Taxation
R.J. REYNOLDS TOBACCO HOLDINGS,
INC.
By_________________________________
Name: J. T. Pearson
Title: Senior Vice President -- Taxation
NABISCO HOLDINGS CORP.
By_________________________________
Name: Gary Lewbel
Title: Vice President -- Tax
R. J. REYNOLDS TOBACCO COMPANY
By_________________________________
Name: Frank Skinner
Title: Vice President -- Tax
40
<PAGE>
Exhibit 10.2
===============================================================================
RJR NABISCO, INC.,
Issuer,
R.J. REYNOLDS TOBACCO COMPANY,
as Guarantor
AND
THE BANK OF NEW YORK,
as Trustee
7-3/8% Notes due 2003
7-3/4% Notes due 2006
7-7/8% Notes due 2009
INDENTURE
Dated as of May 15, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.....................................................1
SECTION 1.2. Other Definitions..............................................10
SECTION 1.3. Incorporation by Reference of TIA..............................10
SECTION 1.4. Rules of Construction..........................................11
ARTICLE II
The Notes
SECTION 2.1. Form, Dating and Terms.........................................12
SECTION 2.2. Restrictive Legends............................................14
SECTION 2.3. Book-Entry Provisions for Global Notes.........................15
SECTION 2.4. Execution, Authentication and Denominations....................17
SECTION 2.5. Registrar and Paying Agent.....................................18
SECTION 2.6. Paying Agent To Hold Money in Trust............................18
SECTION 2.7. Transfer and Exchange..........................................19
SECTION 2.8. Special Transfer Provisions....................................20
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Notes.....................23
SECTION 2.10. Outstanding Notes..............................................24
SECTION 2.11. Temporary Notes................................................25
SECTION 2.12. Cancellation...................................................25
SECTION 2.13. Payment of Interest; Defaulted Interest........................25
SECTION 2.14. Computation of Interest........................................26
SECTION 2.15. CUSIP Numbers..................................................26
ARTICLE III
Covenants
SECTION 3.1. Payment of Notes...............................................27
SECTION 3.2. Maintenance of Office or Agency................................27
SECTION 3.3. SEC Reports and Available Information..........................27
SECTION 3.4. Certificate to Trustee.........................................27
SECTION 3.5. Negative Pledge................................................28
SECTION 3.6. Certain Sale and Lease-back Transactions.......................29
SECTION 3.7. Corporate Existence............................................30
SECTION 3.8. Payment of Taxes and Other Claims..............................30
SECTION 3.9. Waiver of Stay, Extension or Usury Laws........................31
SECTION 3.10. Further Instruments and Acts...................................31
SECTION 3.11. Notice of Defaults.............................................31
ARTICLE IV
Consolidation, Merger, Sale or Conveyance
SECTION 4.1. Covenant Not to Merge, Consolidate, Sell or Convey Property
Except Under Certain Conditions31
SECTION 4.2. Successor Corporation Substituted..............................32
SECTION 4.3. Opinion of Counsel to Trustee..................................32
ARTICLE V
Redemption of Notes
SECTION 5.1. Optional Redemption............................................32
SECTION 5.2. Notices to Trustee.............................................33
SECTION 5.3. Selection of Notes to be Redeemed..............................33
SECTION 5.4. Notice of Redemption...........................................33
SECTION 5.5. Effect of Notice of Redemption.................................34
SECTION 5.6. Deposit of Redemption Price....................................34
SECTION 5.7. Notes Payable on Redemption Date...............................34
SECTION 5.8. Notes Redeemed in Part.........................................35
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Event of Default Defined; Acceleration of Maturity; Waiver of
Default.......................................................35
SECTION 6.2. Collection of Indebtedness by Trustee; Trustee May Prove Debt..37
SECTION 6.3. Application of Proceeds........................................39
SECTION 6.4. Suits for Enforcement..........................................40
SECTION 6.5. Restoration of Rights on Abandonment of Proceedings............40
SECTION 6.6. Limitations on Suits by Noteholders............................40
SECTION 6.7. Unconditional Right of Noteholders to Institute Certain Suits..41
SECTION 6.8. Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default.......................................................41
SECTION 6.9. Control by Noteholders.........................................42
SECTION 6.10. Waiver of Past Defaults........................................42
SECTION 6.11. Trustee to Give Notice of Default, But May Withhold in Certain
Circumstances.................................................42
SECTION 6.12. Right of Court to Require Filing of Undertaking to Pay Costs...43
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee..............................................43
SECTION 7.2. Rights of Trustee..............................................45
SECTION 7.3. Individual Rights of Trustee...................................45
SECTION 7.4. Trustee's Disclaimer...........................................46
SECTION 7.5. Notice of Defaults.............................................46
SECTION 7.6. Reports by Trustee to Holders..................................46
SECTION 7.7. Compensation and Indemnity.....................................46
SECTION 7.8. Replacement of Trustee.........................................47
SECTION 7.9. Successor Trustee by Merger....................................48
SECTION 7.10. Eligibility; Disqualification..................................49
SECTION 7.11. Preferential Collection of Claims Against the Company..........49
ARTICLE VIII
Satisfaction and Discharge of Indenture; Unclaimed Moneys
SECTION 8.1. Satisfaction and Discharge of Indenture........................49
SECTION 8.2. Application by Trustee of Funds Deposited for Payment of Notes.52
SECTION 8.3. Repayment of Moneys Held by Paying Agent.......................53
SECTION 8.4. Return of Moneys Held by Trustee and Paying Agent Unclaimed for
Two Years.....................................................53
ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Noteholders.................................53
SECTION 9.2. With Consent of Noteholders....................................55
SECTION 9.3. Effect of Supplemental Indenture...............................56
SECTION 9.4. Documents to Be Given to Trustee...............................56
SECTION 9.5. Notation on Notes in Respect of Supplemental Indentures........56
SECTION 9.6. Compliance with TIA............................................56
SECTION 9.7. Revocation and Effect of Consents and Waivers..................57
SECTION 9.8. Trustee to Sign Amendments.....................................57
ARTICLE X
Guarantees
SECTION 10.1. Guarantee......................................................57
SECTION 10.2. Limitation on Liability; Termination, Release and Discharge....59
SECTION 10.3. Right of Contribution..........................................59
SECTION 10.4. No Subrogation.................................................59
SECTION 10.5. Future Guarantors..............................................60
ARTICLE XI
Miscellaneous
SECTION 11.1. TIA Controls..................................................60
SECTION 11.2. Notices.......................................................60
SECTION 11.3. Communication by Holders with other Holders...................61
SECTION 11.4. Certificate and Opinion as to Conditions Precedent............61
SECTION 11.5. Statements Required in Certificate or Opinion.................62
SECTION 11.6. When Notes Disregarded........................................62
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar..................62
SECTION 11.8. Legal Holidays................................................62
SECTION 11.9. GOVERNING LAW.................................................62
SECTION 11.10. No Recourse Against Others....................................63
SECTION 11.11. Successors....................................................63
SECTION 11.12. Multiple Originals............................................63
SECTION 11.13. Variable Provisions...........................................63
SECTION 11.14. Qualification of Indenture....................................63
SECTION 11.15. Incorporators, Stockholders, Officers and Directors of
Company Exempt and Individual Liability......................63
SECTION 11.16. Provisions of Indenture for the Sole Benefit of Parties and
Noteholders..................................................63
<PAGE>
EXHIBIT A-1 Form of 2003 U.S. Global Note
EXHIBIT A-2 Form of 2006 U.S. Global Note
EXHIBIT A-3 Form of 2009 U.S. Global Note
EXHIBIT B-1 Form of 2003 Temporary Offshore Global Note
EXHIBIT B-2 Form of 2006 Temporary Offshore Global Note
EXHIBIT B-3 Form of 2009 Temporary Offshore Global Note
EXHIBIT C-1 Form of 2003 Permanent Offshore Global Note
EXHIBIT C-2 Form of 2006 Permanent Offshore Global Note
EXHIBIT C-3 Form of 2009 Permanent Offshore Global Note
EXHIBIT D-1 Form of 2003 Offshore Physical Note
EXHIBIT D-2 Form of 2006 Offshore Physical Note
EXHIBIT D-3 Form of 2009 Offshore Physical Note
EXHIBIT E-1 Form of 2003 U.S. Physical Note
EXHIBIT E-2 Form of 2006 U.S. Physical Note
EXHIBIT E-3 Form of 2009 U.S. Physical Note
EXHIBIT F-1 Form of 2003 Exchange Global Note
EXHIBIT F-2 Form of 2006 Exchange Global Note
EXHIBIT F-3 Form of 2009 Exchange Global Note
EXHIBIT G-1 Form of Certificate for Notes Due 2003
EXHIBIT G-2 Form of Certificate for Notes Due 2006
EXHIBIT G-3 Form of Certificate for Notes Due 2009
EXHIBIT H-1 Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors for Notes Due
2003
EXHIBIT H-2 Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors for Notes Due
2006
EXHIBIT H-3 Form of Certificate to Be Delivered in Connection with
Transfers QIB Accredited Investors for Notes Due 2009
EXHIBIT I-1 Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S for Notes Due 2003
EXHIBIT I-2 Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S for Notes Due 2006
EXHIBIT I-3 Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S for Notes Due 2009
EXHIBIT J Form of Supplemental Indenture
EXHIBIT K Form of Exchange Physical Note
<PAGE>
INDENTURE dated as of May 15, 1999, among RJR NABISCO, INC., a Delaware
corporation (the "Company"), R.J. REYNOLDS TOBACCO COMPANY, a New Jersey
Corporation, as Guarantor (as defined herein) and THE BANK OF NEW YORK, a New
York banking corporation (the "Trustee") as Trustee.
WHEREAS, the Company has duly authorized the execution and delivery
of this Indenture to provide for the issuance of $550,000,000 aggregate
principal amount of the Company"s 7-3/8% Notes due 2003, $500,000,000 aggregate
principal amount of the Company's 7-3/4% Notes due 2006 and $200,000,000
aggregate principal amount of the Company's 7-7/8% Notes due 2009 issuable as
provided in this Indenture.
WHEREAS, prior to the date hereof, the following transactions have
occurred:(1) the sale by the Company and RJRT (as defined herein) of the
international tobacco business to Japan Tobacco Inc. and (2) the completion of
the Company's debt tender offers pursuant to the Offer to Purchase and Consent
Solicitation dated April 13, 1999, as amended (the ADebt Tenders");
WHEREAS, shortly following the date hereof, the following
transactions are expected to occur: (1) the transfer of the 80.5% interest of
the Company in Nabisco (as defined herein), together with approximately $1.6
billion in after-tax proceeds from the international tobacco sale, to Parent (as
defined herein) and (2) the spin-off of the Company, which will then be renamed
R.J. Reynolds Tobacco Holdings, Inc., to the common stockholders of Parent;
WHEREAS, the Company and RJRT will file a registration statement
covering the Notes and offer to exchange the Notes for substantially identical
notes registered under the Securities Act (as defined herein) within 9 months
of this offering; and
WHEREAS, all things necessary to make this Indenture a valid
agreement of the Company, in accordance with its terms, have been done, and the
Company has done all things necessary to make the Notes (as defined herein),
when executed by the Company and authenticated and delivered by the Trustee
hereunder and duly issued by the Company, valid obligations of the Company as
hereinafter provided.
ARTICLE I
Definitions and Incorporation by Reference
SECTION I.1. Definitions.
"Additional Interest" shall have the meaning assigned to such
term in the Registration Rights Agreement.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, Acontrol"
(including, with correlative meanings, the terms
<PAGE>
2
"controlling," Acontrolled by" and Aunder common control with"), as applied to
any Person, is defined to mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means any Registrar, Co-Registrar, Paying Agent, Transfer
Agent or authenticating agent.
"Agent Members" has the meaning provided in Section 2.3.
"Attributable Debt" means, when used in connection with a sale
and lease-back transaction, at any date as of which the amount thereof is to be
determined, the product of (a) the net proceeds from such sale and lease-back
transaction multiplied by (b) a fraction, the numerator of which is the number
of full years of the term of the lease relating to the property involved in such
sale and lease-back transaction (without regard to any options to renew or
extend such term) remaining at the date of the making of such computation and
the denominator of which is the number of full years of the term of such lease
measured from the first day of such term.
"Authorized Newspaper" means a newspaper (which, in the case
of The City of New York, will, if practicable, be The Wall Street Journal
(Eastern Edition), and in the case of the United Kingdom, will, if practicable,
be the Financial Times (London Edition) published in an official language of the
country of publication customarily published at least once a day for at least
five days in each calendar week and of general circulation in The City of New
York and the United Kingdom.
"Bank Credit Agreement" means the Credit Agreement, dated as
of May 7, 1999 among the Company, RJR Nabisco Holdings Corp., The Chase
Manhattan Bank, as Administrative Agent and the various lending institutions
named on the signature pages thereof, as such agreement may be amended,
modified, renewed, refunded, restated, refinanced or replaced from time to time.
"Bank Credit Agreement Guarantor" means RJRT and every Subsidiary of
the Company that is or becomes a guarantor under the Bank Credit Agreement
from time to time; provided that, to the extent that any Subsidiary ceases to
be a guarantor under the Bank Credit Agreement, such Subsidiary shall cease to
be Bank Credit Agreement Guarantor.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any committee thereof duly authorized to
act on behalf of such Board of Directors.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
<PAGE>
3
"Business Day" means a day which is not, in New York City, a
Saturday, Sunday, legal holiday or other day on which banking institutions are
authorized or obligated by law to close.
"capital stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) equity of such Person, including any
preferred stock, partnership interests and limited liability company
membership interests, but excluding any debt securities convertible into such
equity.
"Company Order" means a written request or order signed in the name
of the Company (i) by its Chairman of the Board, its Chief Executive Officer,
its President, a Vice President or its Chief Financial Officer and (ii) by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and
delivered to the Trustee; provided, however, that such written request or
order may be signed by any two officers or directors listed in clause (i)
above in lieu of being signed by one of such officers or directors listed in
such clause (i) and one of the officers listed in clause (ii) above.
"Comparable Treasury Issue" means the U.S. Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term (ARemaining Life") of the Notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Notes.
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the
highest and lowest Reference Treasury Dealer Quotations, or (2) if the
Independent Investment Banker obtains fewer than five such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Consolidated Net Worth" means, at any date of determination,
the consolidated stockholder's equity of the Company and its consolidated
subsidiaries, as set forth on the then most recently available consolidated
balance sheet of the Company and its consolidated Subsidiaries.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or
otherwise. A Person shall be deemed to Control another Person if such Person
(i) is an officer or director of such other Person or (ii) directly or
indirectly owns or controls 10% or more of such other Person's capital stock.
AControlling" and AControlled" have meanings correlative thereof.
"Corporate Trust Office" means the principal office of the
Trustee at which any particular time its corporate trust business shall be
administered which office at the date of the execution of the Indenture is
located at 101 Barclay Street, Floor 21 West, New York, New York
<PAGE>
4
10286 or at any other time at such other address as the Trustee may designate
from time to time by notice to the Holders.
"Debt Tenders" shall mean the Company's debt tender offers
pursuant to the Offer to Purchase and Consent Solicitation Statement dated April
13, 1999.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Dollar" means the coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts.
"DTC" means The Depository Trust Company, its nominees and their
respective successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer Registration Statement" means a Registration
Statement issued pursuant to an exchange offer registered under the Securities
Act.
"Exchange Notes" means any securities of the Company containing
terms identical to each series of the Notes (except that such Exchange Notes
shall be registered under the Securities Act and shall not contain provisions
materially restricting the transferability thereof) that are issued and
exchanged for each series of the Notes pursuant to the Registration Rights
Agreement and this Indenture.
"Exempted Debt" means the sum, without duplication, of the following
items outstanding as of the date Exempted Debt is being determined: (i)
indebtedness of the Company and the Restricted Subsidiaries incurred after the
Issue Date and secured by liens created, assumed or otherwise incurred or
permitted to exist pursuant to Section 3.5(b); and (ii) Attributable Debt of
the Company and the Restricted Subsidiaries in respect of all sale and
lease-back transactions with regard to any Principal Property entered into
pursuant to Section 3.6(b).
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any state
thereof or the District of Columbia.
"Funded Debt" means all indebtedness for money borrowed, including
purchase money indebtedness, having a maturity of more than one year from the
date of its creation or having a maturity of less than one year but by its
terms being renewable or extendible, at the option of the obligor in respect
thereof, beyond one year from its creation.
<PAGE>
5
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date.
"Global Notes" has the meaning provided in Section 2.1.
"guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term Aguarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term Aguarantee"
used as a verb has a corresponding meaning.
"Guarantee" means, individually, any guarantee of payment of the
Notes by a Guarantor pursuant to the terms of this Indenture, and,
collectively, all such Guarantees.
"Guarantor" means RJRT and each other Subsidiary of the Company that
is or becomes a Bank Credit Agreement Guarantor and any other Person that
becomes a Bank Credit Agreement Guarantor; provided that, to the extent that
RJRT or any or all of such Subsidiaries cease to be Bank Credit Agreement
Guarantors, such Subsidiaries shall cease to be Guarantors.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable for.
"Indebtedness" means, with respect to any Person, obligations (other
than Non-Recourse Obligations, the Notes or the Guarantees) of such Person for
borrowed money or evidenced by bonds, debentures, notes or similar
instruments.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Independent Investment Banker" means either Merrill Lynch, Pierce,
Fenner & Smith Incorporated or Morgan Stanley & Co. Incorporated, or, if both
firms are unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by
the Company.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. and those other purchasers listed on
Schedule 1 hereto.
<PAGE>
6
"Institutional Accredited Investor" or AIAI" means an
institution that is an Aaccredited investor" as that term is defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Issue Date" means the date on which the Notes are originally
issued.
"Lien" means, with respect to any asset, any lien, mortgage, deed of
trust, pledge, security interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the
nature thereof and any agreement to give any security interest.)
"Nabisco" means Nabisco Holdings Corp.
"Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company, any Guarantor or any of their respective Subsidiaries or (ii) the
financing of a project involving the development or expansion of properties of
the Company, any Guarantor or any of their respective Subsidiaries, as to
which the obligee with respect to such indebtedness or obligation has no
recourse to the Company, any Guarantor or any of their respective Subsidiaries
or any assets of the Company, any Guarantor or any of their respective
Subsidiaries other than the assets which were acquired with the proceeds of
such transaction or the project financed with the proceeds of such transaction
(and the proceeds thereof).
"Non-U.S. Person" means a person who is not a AU.S. person" (as
defined in Regulation S).
"Notes" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture. For all purposes of this Indenture, the term ANotes" shall
include the Notes initially issued on the Issue Date, any Exchange Notes to be
issued and exchanged for any Notes pursuant to the Registration Rights Agreement
and this Indenture and any other Notes issued after the Issue Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"Obligations" has the meaning provided in Section 10.1.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Vice Chairman, any Vice President, the Treasurer,
the Chief Financial Officer or the Secretary of the Company, as applicable.
"Officers' Certificate" means a certificate signed by any two
Officers of the Company.
"Offshore Global Notes" has the meaning provided in Section 2.1.
<PAGE>
7
"Offshore Physical Notes" has the meaning provided in Section 2.1.
"Opinion of Counsel" means a written opinion from Davis Polk &
Wardwell or any other legal counsel to the Company. The counsel may be an
employee of or counsel to the Company.
"Parent" means RJR Nabisco Holdings Corp.
"Paying Agent" has the meaning provided in Section 2.5, except
that, for the purposes of Article Eight, the Paying Agent shall not be the
Company or a Subsidiary of the Company or an Affiliate of any of them. The term
APaying Agent" includes any additional Paying Agent.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.1.
"Principal" means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time; provided, however, that for purposes of calculating any such
premium, the term Aprincipal" shall not include the premium with respect to
which such calculation is being made.
"Principal Property" means land, land improvements, buildings
and associated factory and laboratory equipment owned or leased pursuant to a
capital lease and used by the Company or a Restricted Subsidiary primarily for
processing, producing, packaging or storing its products, raw materials,
inventories, or other materials and supplies and located within the United
States of America and having an acquisition cost plus capitalized improvements
in excess of 2% of Consolidated Net Worth, as of the date of such determination,
but not including any such property financed through the issuance of tax exempt
governmental obligations, or any such property that has been determined by Board
Resolution of the Company not to be of material importance to the respective
businesses conducted by the Company or such Restricted Subsidiary effective as
of the date such resolution is adopted.
"Private Placement Legend" means the legend initially set forth on
the Notes in the form set forth in Section 2.2(a).
"Purchase Agreement" means the Purchase Agreement dated May 10, 1999
among the Company, RJRT and the Initial Purchasers.
"QIB" means any Aqualified institutional buyer" (as defined in Rule
144A under the Securities
Act).
<PAGE>
8
"Reference Treasury Dealer" means (1) Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Morgan Stanley & Co. Incorporated and their
respective successors, provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
APrimary Treasury Dealer"), the Company will substitute for such Initial
Purchaser another Primary Treasury Dealer and (2) any other Primary Treasury
Dealer selected by the Independent Investment Banker after consultation with
the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at
5:00 p.m., New York City time, on the third Business Day preceding such
redemption date.
"Registered Note" means any Note registered on the Note
Register of the Company.
"Registrar" has the meaning provided in Section 2.5.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement, dated May 18, 1999 among the Company, RJRT and the Initial
Purchasers.
"Registration Statement" means any Registration Statement as defined
and described in the Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
"Reorganization" means (1) the sale by the Company and RJRT of the
international tobacco business to Japan Tobacco Inc.; (2) completion of the
Company's Debt Tenders; (3) the transfer of the 80.5% interest of the Company in
Nabisco, together with approximately $1.6 billion in after-tax proceeds from the
international tobacco sale, to Parent; and (4) the spin-off of the Company,
which will then be renamed R.J. Reynolds Tobacco Holdings, Inc., to the common
stockholders of Parent.
"Responsible Officer" means, when used with respect to the
Trustee, any officer within the corporate trust department of the Trustee,
including any vice president, assistant vice president, assistant secretary,
assistant treasurer, trust officer or any other officer of the Trustee who
customarily performs functions similar to those performed by the Persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such person's knowledge of and familiarity with
the particular subject and who shall have direct responsibility for the
administration of this Indenture.
<PAGE>
9
"Restricted Subsidiary" means any Subsidiary organized and existing
under the laws of the United States of America and the principal business of
which is carried on within the United States of America which owns or is a
lessee pursuant to a capital lease of any Principal Property and in which the
investment of the Company and all its Subsidiaries exceeds 5% of Consolidated
Net Worth as of the date of such determination other than (i) each Subsidiary
the major part of whose business consists of finance, banking, credit,
leasing, insurance, financial services or other similar operations, or any
combination thereof; and (ii) each Subsidiary formed or acquired after the
Issue Date for the purpose of acquiring the business or assets of another
person and which does not acquire all or any substantial part of the business
or assets of the Company or any Restricted Subsidiary. However, the Board of
Directors of the Company may declare any such Subsidiary to be a Restricted
Subsidiary.
"RJRT" means R.J. Reynolds Tobacco Company.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such SEC is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties
at such time.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation of which at least a majority of
all outstanding stock having by the terms thereof ordinary voting power in the
election of directors of such corporation (irrespective of whether or not at
the time stock of any class or classes of such corporation has or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by the Company, or by one or more Subsidiaries
of the Company or by the Company and one or more Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sections
77aaa-77bbbb) as in effect on the date of this Indenture; provided, however,
that, in the event the Trust Indenture Act of 1939 is amended after such date,
ATIA" means, to the extent required by any such amendments, the TIA as so
amended.
"Treasury Rate" means, with respect to any redemption date, (1) the
yield, under the heading which represents the average for the immediately
preceding week, appearing in the most recently published statistical release
designated AH.15(519)" or any successor publication which is published weekly
by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded U.S. Treasury securities adjusted to constant
maturity under the caption ATreasury Constant Maturities," for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue will be
determined and the Treasury Rate will be interpolated or extrapolated from such
yields on
<PAGE>
10
a straight line basis, rounding to the nearest month) or (2) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate will be calculated on the third
Business Day preceding the redemption date.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means such successor.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Bankruptcy Law" means the Bankruptcy Reform Act of 1978, as amended
and as codified in Title 11 of the United States Code, as amended from time to
time hereafter, or any successor federal bankruptcy law.
"U.S. Global Notes" has the meaning provided in Section 2.1.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the Company's option.
"U.S. Physical Notes" has the meaning provided in Section 2.1.
SECTION I.2. Other Definitions.
Defined in
Term Section
---- ----------
"covenant defeasance"....................................... 8.1
"Defaulted Interest"........................................ 2.13
"Event of Default".......................................... 6.1
"Global Notes".............................................. 2.1
"Legal Holiday"............................................. 11.8
"Note Register"............................................. 2.5
"Notice of Default"......................................... 6.1
"Permanent Offshore Global Notes"........................... 2.1
"Special Interest Payment Date"............................. 2.13
"Special Record Date"....................................... 2.13
"Temporary Offshore Global Notes"........................... 2.1
<PAGE>
11
SECTION I.3. Incorporation by Reference of TIA. This Indenture is
subject to the mandatory provisions of the TIA which are incorporated by
reference in and made a part of this Indenture. The following TIA terms have
the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined in the TIA by reference to another statute or defined by SEC
rule have the meanings assigned to them by such definitions.
SECTION I.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in
the plural include the singular;
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(7) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.1; and
<PAGE>
12
(8) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE II
The Notes
SECTION II.1. Form, Dating and Terms. The Notes are being offered
and sold by the Company pursuant to a Purchase Agreement, dated May 10, 1999,
among the Company, RJRT, and the Initial Purchasers. The Notes will be resold
initially only (A) to QIBs, (B) to a limited number of other IAIs and (C) in
offshore transactions to Non-U.S. Persons in reliance on Regulation S. Such
Notes may thereafter be transferred to among others, QIBs pursuant to Rule
144A, Non-U.S. Persons in reliance on Regulation S and pursuant to other
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act, including sales to IAIs that are not QIBs,
in accordance with the procedure described herein.
The Notes and the Trustee's certificates of authentication shall
be substantially in the forms annexed hereto as Exhibits A, B, C, D, F and K
which are incorporated by reference and made a part of this Indenture with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law or stock exchange agreements to which
the Company is subject. Each Note shall be dated the date of its
authentication.
The terms and provisions contained in the forms of the Notes
annexed hereto as Exhibits A, B, C, D, E, F and K shall constitute, and are
hereby expressly made, a part of this Indenture. To the extent applicable, the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Each series of notes offered and sold to QIBs will be issued
on the Issue Date in the form of a permanent global Note, without interest
coupons, substantially in the form of Exhibit A, including appropriate legends
as set forth in Section 2.2(a) and (b) (the AU.S. Global Notes"), registered in
the name of the nominee of the depositary, deposited with the Trustee, as
custodian for DTC, duly executed by the Company and authenticated by the Trustee
as hereinafter provided. The U.S. Global Notes may be represented by more than
one certificate, if so required by DTC's rules regarding the maximum principal
amount to be represented by a single certificate. The aggregate principal amount
of the U.S. Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for DTC or its
nominee, as hereinafter provided.
Each series of notes offered and sold in offshore transactions
in reliance on Regulation S shall be issued initially in the form of one or more
temporary global Notes in registered form, without interest coupons,
substantially in the form set forth in Exhibit B
<PAGE>
13
including appropriate legends as set forth in Section 2.2(a) and (b) (the
"Temporary Offshore Global Notes"), registered in the name of the nominee of
the depositary, deposited with the Trustee, as custodian for the depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Offshore Global Notes (as
defined below) may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the depositary or its
nominee, as hereinafter provided. At any time after the 40th day following the
later of commencement of the offering of the Notes and the Issue Date, upon
receipt by the Trustee and the Company of a certificate substantially in the
form of Exhibit G hereto, one or more permanent global Notes in registered
form substantially in the form set forth in Exhibit C including appropriate
legends as set forth in Section 2.2(b) (the "Permanent Offshore Global Notes";
and together with the Temporary Offshore Global Notes, the "Offshore Global
Notes") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
depositary or its nominee, and the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the applicable
Temporary Offshore Global Note in an amount equal to the principal amount of
the beneficial interest in the applicable Temporary Offshore Global Note
transferred in exchange for a beneficial interest in the applicable Permanent
Offshore Global Note and a corresponding increase in the principal amount of
the corresponding Permanent Offshore Global Note.
Notes offered and sold to IAIs and Notes issued pursuant to
Section 2.3 in exchange for interests in the U.S. Global Notes shall be issued
in the form of permanent certificated Notes in registered form, without interest
coupons, in substantially the form set forth in Exhibit E including appropriate
legends as set forth in Section 2.2(a) (the AU.S. Physical Notes").
Notes issued pursuant to Section 2.3(b) in exchange for
interests in the Permanent Offshore Global Notes shall be in the form of
permanent certificated Notes in registered form substantially in the form set
forth in Exhibit D (the "Offshore Physical Notes").
Exchange Notes exchanged for interests in the U.S. Global
Notes or Permanent Offshore Global Notes and the Physical Notes (as defined
below) will be issued in the form of a permanent global Note substantially in
the form of Exhibit F (the "Exchange Global Notes"), which is hereby
incorporated by reference and made a part of this Indenture, deposited with the
Trustee as hereinafter provided, including the appropriate legend pertaining to
Global Notes set forth in Section 2.2(b). Such Exchange Global Notes may be
represented by more than one certificate, if so required by DTC's rules
regarding the maximum principal amount to be represented by a single
certificate. Exchange Notes issued pursuant to Section 2.3(b) in exchange for
interests in existing Exchange Global Notes shall be in the form of permanent
certificated Exchange Notes in registered form substantially in the form set
forth in Exhibit K (the "Exchange Physical Notes", together with the Exchange
Global Notes, the "Exchange Notes").
<PAGE>
14
The Offshore Physical Notes, U.S. Physical Notes and the
Exchange Physical Notes are sometimes collectively herein referred to as the
"Physical Notes." The U.S. Global Notes, the Offshore Global Notes and the
Exchange Global Notes are sometimes referred to herein as the "Global Notes."
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION II.2. Restrictive Legends. Unless and until a Note is
exchanged for an Exchange Note or otherwise sold in connection with an effective
registration statement under the Securities Act pursuant to the Registration
Rights Agreement or otherwise, (A) the U.S. Global Notes shall bear the legends
set forth in subparagraphs (a) and (b) below on the face thereof, (B) the U.S.
Physical Notes shall bear the applicable legend set forth in subparagraph (a)
below on the face thereof, and (C) the Temporary Offshore Global Note shall bear
the legends set forth in subparagraphs (a) and (b) below on the face thereof.
a) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE ASECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE
HOLDING PERIOD APPLICABLE TO SALES OF THIS NOTE UNDER RULE 144(k) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE COMPANY OR ONE OF ITS SUBSIDIARIES, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
<PAGE>
15
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) OR (F)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THIS NOTE UNDER RULE 144(k) UNDER THE SECURITIES ACT
(OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A U.S. PERSON,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THIS NOTE PURSUANT TO CLAUSE 2(E) ABOVE OR UPON ANY
TRANSFER OF THIS NOTE UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND AU.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. NO REPRESENTATION IS MADE AS TO THE
AVAILABILITY OF ANY EXEMPTION PROVIDED BY RULE 144(k) UNDER THE SECURITIES
ACT.
(b) Each Global Note, whether or not an Exchange Note, shall
bear the following legend on the face thereof:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH
<PAGE>
16
THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF."
SECTION II.3. Book-Entry Provisions for Global Notes. (a) The U.S.
Global Notes and Offshore Global Notes initially shall (i) be registered in
the name of the depositary for such Global Notes or the nominee of such
depositary, (ii) be delivered to the Trustee as custodian for such depositary
and (iii) bear the legends as set forth in Section 2.2.
Members of, or participants in, the depositary (each, an "Agent
Member") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the depositary, or the Trustee as its custodian,
or under such Global Note, and the depositary may be treated by the Company,
any Guarantor, the Trustee and any agent of the Company, any Guarantor, or the
Trustee as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, any
Guarantor, the Trustee or any agent of the Company, any Guarantor, or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the depositary or impair, as between the depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note.
b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the depositary, its successors or
their respective nominees. Interests of beneficial owners in Global Notes may
be transferred in accordance with the rules and procedures of the depositary
and the provisions of Section 2.8. In addition, U.S. Physical Notes and
Offshore Physical Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the U.S. Global Notes or the
Permanent Offshore Global Notes, as the case may be, and Exchange Physical
Notes shall be transferred to all beneficial owners in exchange for their
beneficial interests in Exchange Global Notes if (i) the Company notifies the
Trustee in writing that the depositary is no longer willing or able to act as
depositary or the depositary ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed by the
Company within 90 days of such notice, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in definitive form under this Indenture, (iii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
depositary or (iv) in accordance with the rules and procedures of the
depositary and the provisions of Section 2.8.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in another
Global Note will, upon transfer, cease to be an interest in such Global Note and
become an interest in such other Global Note and, accordingly, will thereafter
be subject to all transfer restrictions, if any, and other procedures applicable
to beneficial interests in such other Global Note for as long as it remains such
an interest.
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17
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Note to beneficial owners pursuant to paragraph (b) of
this Section 2.3, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Note in an amount
equal to the principal amount of the beneficial interest in such Global Note
to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Notes, Offshore Physical
Notes or Exchange Physical Notes, as the case may be, of like tenor and
amount.
(e) In connection with the transfer of the U.S. Global Notes, the
the Permanent Offshore Global Notes or the Exchange Global Notes, in whole, to
beneficial owners pursuant to paragraph (b) of this Section 2.3, the U.S. Global
Notes, Permanent Offshore Global Notes or the Exchange Global Notes, as case may
be, shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the depositary in exchange for its beneficial
interest in the U.S. Global Notes, Permanent Offshore Global Notes or the
Exchange Global Notes, as the case may be, an equal aggregate principal amount
of U.S. Physical Notes, Offshore Physical Notes or Exchange Physical Notes, as
the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Notes pursuant to paragraph (b), (d) or (e) of this Section
2.3 shall, except as otherwise provided by paragraph (e) of Section 2.8, bear
the legend regarding transfer restrictions applicable to the U. S. Physical
Note set forth in Section 2.2(a).
(g) The registered holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION II.4. Execution, Authentication and Denominations. The
Notes shall be executed by two Officers of the Company. The signature of these
Officers on the Notes may be by facsimile or manual signature in the name and
on behalf of the Company. If an Officer whose signature is on a Note no longer
holds that office at the time the Trustee or authenticating agent
authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
written order signed by an Officer of the Company authenticate for original
issue Notes in the aggregate principal amount specified in such order;
provided that the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company in connection with such
authentication of Notes. Such order
<PAGE>
18
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated.
The Trustee may appoint an authenticating agent to authenticate
Notes. An authenticating agent may authenticate Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such authenticating agent. An authenticating agent
has the same rights as an Agent to deal with the Company or an Affiliate of
the Company.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount and any integral
multiple thereof, except that U.S. Physical Notes shall be in denominations of
$100,000 and any integral multiples of $1,000 in excess thereof.
In case the Company or any Guarantor, pursuant to Articles IV or X,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company
or any Guarantor shall have been merged, or the Person which shall have
received a conveyance, transfer, lease or other disposition as aforesaid,
shall have executed an indenture supplemental hereto with the Trustee pursuant
to Article IV or X, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Notes surrendered for such exchange and of like principal amount;
and the Trustee, upon Company Order of the successor Person, shall
authenticate and deliver Notes as specified in such order for the purpose of
such exchange. If Notes shall at any time be authenticated and delivered in
any new name of a successor Person pursuant to this Section 2.4 in exchange or
substitution for or upon registration of transfer of any Notes such successor
Person, at the option of the Holders but without expense to them, shall
provide for the exchange of all Notes at the time outstanding for Notes
authenticated and delivered in such new name.
SECTION II.5. Registrar and Paying Agent. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where Notes
may be presented for payment (the "Paying Agent"). The Company shall cause
each of the Registrar and the Paying Agent to maintain an office or agency in
the Borough of Manhattan, The City of New York. The Registrar shall keep a
register of the Notes and of their transfer and exchange (the "Note
Register"). The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the
<PAGE>
19
terms of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify the Trustee of
the name and address of each such agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation therefor pursuant to Section 7.7. The Company, any
Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar,
co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent for the Notes. The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee as of
each record date and at such other times as the Trustee may reasonably request
the names and addresses of Holders as they appear in the Note Register,
including the aggregate principal amount of Notes held by each Holder.
SECTION II.6. Paying Agent To Hold Money in Trust. By at least
10:00 a.m (New York City time) on the date on which any principal of, premium,
if any, and interest, including Additional Interest, on any Notes is due and
payable, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal, premium, if any, and interest, including Additional
Interest, when due. The Company shall require each Paying Agent (other than
the Trustee) to agree in writing that such Paying Agent shall hold in trust
for the benefit of the Holders or the Trustee all money held by such Paying
Agent for the payment of principal of, premium, if any, and interest,
including Additional Interest, on the Notes and shall notify the Trustee in
writing of any default by the Company or any Guarantor in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a separate trust
fund. The Company at any time may require a Paying Agent (other than the
Trustee) to pay all money held by it to the Trustee and to account for any
funds disbursed by such Paying Agent. Upon complying with this Section, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money delivered to the Trustee. Upon any bankruptcy,
reorganization or similar proceeding with respect to the Company, the Trustee
shall serve as Paying Agent for the Notes.
SECTION II.7. Transfer and Exchange. (a) The Notes are issuable
only in registered form. A Holder may transfer a Note only by written
application to the Registrar or another transfer agent stating the name of the
proposed transferee and otherwise complying with the terms of this Indenture.
No such transfer shall be effected until, and such transferee shall succeed to
the rights of a Holder only upon, final acceptance and registration of the
transfer by the Registrar in the Note Register. Prior to the registration of
any transfer by a Holder as provided herein, the Company, the Trustee, and any
agent of the Company shall treat the person in whose name the Note is
registered as the owner thereof for all purposes whether or not the Note shall
be overdue, and neither the Company, the Trustee, nor any such agent shall be
affected by notice to the contrary. Furthermore, any Holder
<PAGE>
20
of a Global Note shall, by acceptance of such Global Note, agree that
transfers of beneficial interests in such Global Note may be effected only
through a book entry system maintained by the Holder of such Global Note (or
its agent) and that ownership of a beneficial interest in the Note shall be
required to be reflected in a book entry. When Notes are presented to the
Registrar or another transfer agent with a request to register the transfer or
to exchange them for an equal principal amount of Notes of other authorized
denominations (including an exchange of Notes for Exchange Notes), the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met (including that such Notes are duly
endorsed or accompanied by a written instrument of transfer duly executed by
the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the Holder); provided that no exchanges of Notes for Exchange Notes
shall occur until a Registration Statement shall have been declared effective
by the SEC and that any Notes that are exchanged for Exchange Notes shall be
cancelled by the Trustee. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange or redemption of the Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 5.8 or 9.5).
Neither the Registrar nor any other transfer agent shall be
required (i) to issue, register the transfer of or exchange any Note during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of Notes selected for redemption under
Section 5.3 and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION II.8. Special Transfer Provisions. Unless and until a Note
is exchanged for an Exchange Note or otherwise sold in connection with an
effective Registration Statement pursuant to the Registration Rights
Agreement, the following provisions shall apply:
(a) Transfers to Non-QIB IAIs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note or any
beneficial interest therein to any IAI which is not a QIB (excluding Non-U.S.
Persons):
(i) The Registrar shall register the transfer of any Note or
beneficial interest therein, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
time period referred to in Rule 144(k) under the Securities Act or
(y) the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit H hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Notes, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i)
above and (y) instructions given in accordance with the
<PAGE>
21
depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the U.S. Global Notes in an amount equal to the
principal amount of the beneficial interest in the U.S. Global
Notes to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical
Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note or beneficial
interest therein to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x)
U.S. Physical Notes, the Registrar shall register the transfer if
such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that
the sale has been made in compliance with the provisions of Rule
144A to a transferee who has signed the certification provided for
on the form of Note stating, or has otherwise advised the Company
and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A and is aware that the sale to
it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A or (y) an
interest in the U.S. Global Notes, the transfer of such interest
may be effected only through the book entry system maintained by
the depositary.
(ii) If the proposed transferee is an Agent Member, and the
Note to be transferred consists of U.S. Physical Notes, upon
receipt by the Registrar of the documents referred to in paragraph
(i) above and instructions given in accordance with the
depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of U.S. Global Notes in an amount equal to the
principal amount of the U.S. Physical Notes to be transferred, and
the Trustee shall cancel the U.S. Physical Notes so transferred.
(c) Transfers of Interests in the Temporary Offshore Global Notes
The following provisions shall apply with respect to registration of any
proposed transfer of an interest in a Temporary Offshore Global Note:
(i) The transfer of such interest may be effected only through
the book entry system maintained by the appropriate depositary and
only if (x) the proposed transferee is a Non-U.S. Person and the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit I hereto or (y) the proposed
transferee is a QIB and the proposed transferor has checked the box
provided for on the form of Note
<PAGE>
22
stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it
is purchasing the Note for its own account or an account with
respect to which it exercises sole investment discretion and that
it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule
144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware
that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule
144A.
(ii) If the proposed transferee is an Agent Member, upon receipt
by the Registrar of the documents referred to in clause (i)(y)
above and instructions given in accordance with the depositary's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and an increase in the principal amount
of the U.S. Global Notes in an amount equal to the principal amount
of the Temporary Offshore Global Notes to be transferred, and the
Trustee shall decrease the amount of the Temporary Offshore Global
Notes.
d) Transfers of Interests in the Permanent Offshore Global
Notes, Offshore Physical Notes, Exchange Global Notes or Exchange Physical
Notes. The following provisions shall apply with respect to any transfer of
interests in Permanent Offshore Global Notes, Offshore Physical Notes, Exchange
Global Notes or Exchange Physical Notes. The Registrar shall register the
transfer of any such Note without requiring any additional certification. The
transfer of interests in the Permanent Offshore Global Notes and the Exchange
Global Notes may be effected only through the book entry system maintained by
the appropriate depositary. The Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the Permanent Offshore Global
Notes or Exchange Global Notes, as applicable, in an amount equal to the
principal amount of the beneficial interest in such Note to be transferred, and,
if the proposed transferee is an Agent Member that will take delivery in the
form of a beneficial interest in a Global Note, upon receipt by the Registrar of
instructions given in accordance with the depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date and an
increase in the principal amount of such new Global Notes in an amount equal to
the principal amount of the applicable Notes to be transferred and will
simultaneously cancel a like principal amount of physical Notes being
surrendered for transfer or exchange, or simultaneously record a decrease in
like principal amount of the Global Note the beneficial interest in which is
being surrendered for transfer or exchange, as applicable.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note or a beneficial
interest therein to a Non-U.S. Person:
(i) Prior to the 41st day following the later of commencement
of the offering of the Notes and the Issue Date, the Registrar
shall register any proposed transfer
<PAGE>
23
of a Note to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit I hereto from the proposed
transferor.
(ii) On and after the 41st day following the later of
commencement of the offering of the Notes and the Issue Date, the
Registrar shall register any proposed transfer to any Non-U.S.
Person if the Note to be transferred is a U.S. Physical Note or an
interest in U.S. Global Notes, upon receipt of a certificate
substantially in the form of Exhibit I hereto from the proposed
transferor. If the Note to be transferred is a U.S. Physical Note,
the Company shall execute, and the Trustee shall authenticate and
deliver, one or more Offshore Physical Notes of like tenor and
amount, or, if the proposed transferee is an Agent Member, upon
receipt by the Registrar of instructions given in accordance with
the depositary's and the Registrar's procedures, the Registrar
shall reflect on its books and records the date and an increase in
the principal amount of the Offshore Global Notes in an amount
equal to the principal amount of the U.S. Physical Notes to be
transferred, and the Trustee shall cancel the U.S. Physical Notes
so transferred.
iii) (a) If the proposed transferor is an Agent Member holding
a beneficial interest in the U.S. Global Notes, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (ii)
and (y) instructions in accordance with the depositary's and the
Registrar's procedures, the Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the
U.S. Global Notes in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Notes to be transferred, and
(b) if the proposed transferee is an Agent Member, upon receipt by
the Registrar of instructions given in accordance with the
depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Offshore Global Notes in an amount equal to
the principal amount of the U.S. Global Notes to be transferred,
and the Trustee shall decrease the principal amount of the U.S.
Global Notes.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the eighth paragraph of
Section 2.1 or (a)(i)(x) or (e)(ii) of this Section 2.8 exist or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall be entitled to receive and rely on written
instructions from the Company verifying that such transfer complies with such
<PAGE>
24
restrictions on transfer. In connection with any transfer of Notes, each Holder
agrees by its acceptance of the Notes to furnish the Registrar or the Company
such certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.3 or this Section 2.8.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
SECTION II.9. Mutilated, Destroyed, Lost or Stolen Notes. If a
mutilated Note is surrendered to the Registrar or if the Holder of a Note
claims that the Note has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Note if the
requirements of Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the Trustee. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar
from any loss which any of them may suffer if a Note is replaced, and, in the
absence of notice to the Company, any Guarantor or the Trustee that such Note
has been acquired by a bona fide purchaser, the Company shall execute and upon
Company Order the Trustee shall authenticate and make available for delivery,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a new Note of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Guarantor (if
applicable) and any other obligor upon the Notes, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
<PAGE>
25
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION II.10. Outstanding Notes. Notes outstanding at any
time are all Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding. A Note ceases to be outstanding in the event the Company or an
Affiliate of the Company holds the Note, provided, however, that for purposes of
determining which are outstanding for consent or voting purposes hereunder, in
determining whether the Trustee shall be protected in making a determination
whether the holders of the requisite principal amount of outstanding Notes are
present at a meeting of holders of Notes for quorum purposes or have consented
to or voted in favor of any request, demand, authorization, direction, notice,
consent, waiver, amendment or modification hereunder, or relying upon any such
quorum, consent or vote, only Notes which a Responsible Officer of the Trustee
actually knows to be held by the Company or an Affiliate of the Company shall
not be considered outstanding.
If a Note is replaced pursuant to Section 2.9, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal, premium, if any, and interest, including Additional
Interest, payable on that date with respect to the Notes (or portions thereof)
to be redeemed or maturing, as the case may be, and the Paying Agent is not
prohibited from paying such money to the Noteholders on that date pursuant to
the terms of this Indenture, then on and after that date such Notes (or
portions thereof) cease to be outstanding and interest on them ceases to
accrue.
SECTION II.11. Temporary Notes. Until definitive Notes are ready
for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have variations that the Company considers
appropriate for temporary Notes. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate definitive Notes. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at any office or agency
maintained by the Company for that purpose and such exchange shall be without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute, and the Trustee shall authenticate
and make available for delivery in exchange therefor, one or more definitive
Notes representing an equal principal amount of Notes. Until so exchanged, the
Holder of temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as a holder of definitive Notes.
<PAGE>
26
SECTION II.12. Cancellation. The Company at any time may deliver
Notes to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel and
return to the Company all Notes surrendered for registration of transfer,
exchange, payment or cancellation. The Company may not issue new Notes to
replace Notes it has paid or delivered to the Trustee for cancellation for any
reason other than in connection with a transfer or exchange.
SECTION II.13. Payment of Interest; Defaulted Interest. Interest on
any Note which is payable, and is punctually paid or duly provided for, on any
interest payment date shall be paid to the Person in whose name such Note (or
one or more predecessor Notes) is registered at the close of business on the
regular record date for such interest at the office or agency of the Company
maintained for such purpose pursuant to Section 2.5.
Any interest on any Note which is payable, but is not paid when the
same becomes due and payable and such nonpayment continues for a period of 30
days shall forthwith cease to be payable to the Holder on the regular record
date by virtue of having been such Holder, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by
the Notes (such defaulted interest and interest thereon herein collectively
called ADefaulted Interest") shall be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their
respective predecessor Notes) are registered at the close of
business on a Special Record Date (as defined below) for the
payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each
Note and the date (not less than 30 days after such notice) of the
proposed payment (the "Special Interest Payment Date"), and at the
same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in
this clause provided. Thereupon the Trustee shall fix a record date
(the "Special Record Date") for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10
days prior to the Special Interest Payment Date and not less than
10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date, and in the name and at the expense of the
Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date and Special Interest
Payment Date therefor to be given in the manner provided for in
Section 11.2, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date and Special Interest Payment Date
<PAGE>
27
therefor having been so given, such Defaulted Interest shall be
paid on the Special Interest Payment Date to the Persons in whose
names the Notes (or their respective predecessor Notes) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of, transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION II.14. Computation of Interest. Interest on the Notes
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION II.15. CUSIP Numbers. The Company in issuing the Notes
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption or exchange as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption or exchange and that
reliance may be placed only on the other identification numbers printed on the
Notes, and any such redemption or exchange shall not be affected by any defect
in or omission of such CUSIP numbers.
<PAGE>
28
ARTICLE III
Covenants
SECTION III.1. Payment of Notes. The Company shall promptly
pay the principal of, interest, including Additional Interest, and premium, if
any, on the Notes on the dates and in the manner provided in the Notes and in
this Indenture. Principal, interest, including Additional Interest, and premium,
if any, shall be considered paid on the date due if on such date the Trustee or
the Paying Agent holds in accordance with this Indenture money sufficient to pay
all principal, interest, including Additional Interest, and premium, if any,
then due and the Trustee or the Paying Agent, as the case may be, is not
prohibited from paying such money to the Holders on that date pursuant to the
terms of this Indenture. If any Additional Interest is due, the Company shall
deliver an Officers' Certificate to the Trustee setting forth the Additional
Interest per $1,000 aggregate principal amount of Notes.
The Company shall pay interest on overdue principal, interest,
including Additional Interest, and premium, if any, at the rate specified
therefor in the Notes, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION III.2. Maintenance of Office or Agency. The Company
shall maintain the office or agency required under Section 2.5. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
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SECTION III.3. SEC Reports and Available Information. The Company
shall comply with all the applicable provisions of TIA ss. 314(a).
SECTION III.4. Certificate to Trustee. (a) The Company shall
deliver to the Trustee, within 45 days after the end of each fiscal quarter (120
days after the end of the last fiscal quarter of each year), an Officer's
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal year. In the case of the Officer's
Certificate delivered within 120 days after the end of the Company's fiscal
year, such certificate shall contain a certification from the principal
executive officer, principal financial officer or principal accounting officer
of the Company that a review has been conducted of the activities of the Company
and its Restricted Subsidiaries and the Company's and its Restricted
Subsidiaries' performance under this Indenture and that the Company has complied
with all conditions and covenants under this Indenture. For purposes of this
Section 3.4, such compliance shall be determined without regard to any period of
grace or requirement of notice provided under this Indenture. If any of the
Officers signing such certificate has knowledge of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default and
its status. The first certificate to be delivered pursuant to this Section
3.4(a) shall be for the first fiscal quarter beginning after the execution of
this Indenture.
(b) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, beginning with the fiscal year in which this
Indenture was executed, a certificate signed by the Company's independent
certified public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Notes as they relate to
accounting matters, (ii) that they have read the most recent Officers'
Certificate delivered to the Trustee pursuant to paragraph (a) of this Section
3.4 and (iii) whether, in connection with their audit examination, anything came
to their attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or conditions of Article
III and Article IV of this Indenture as they pertain to accounting matters and,
if any Default or Event of Default has come to their attention, specifying the
nature and period of existence thereof; provided that such independent certified
public accountants shall not be liable in respect of such statement by reason of
any failure to obtain knowledge of any such Default or Event of Default that
would not be disclosed in the course of an audit examination conducted in
accordance with generally accepted auditing standards in effect at the date of
such examination.
SECTION III.5. Negative Pledge. (a) The Company will not, and will
not permit any Restricted Subsidiary to, mortgage or pledge as security for
any indebtedness any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property of the Company or a Restricted
Subsidiary, whether such shares of stock, indebtedness or other obligations of
a Subsidiary or Principal Property is owned at the date of this Indenture or
hereafter acquired, unless the Company secures or causes such Restricted
Subsidiary to secure the outstanding Notes equally and ratably with all
indebtedness secured by such mortgage or pledge, so long as such indebtedness
shall be so secured; provided,
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however, that this covenant shall not apply in the case of: (i) the creation
of any mortgage, pledge or other lien on any shares of stock, indebtedness or
other obligations of a Subsidiary or any Principal Property hereafter acquired
(including acquisitions by way of merger or consolidation) by the Company or a
Restricted Subsidiary contemporaneously with such acquisition, or within 120
days thereafter, to secure or provide for the payment or financing of any part
of the purchase price thereof, or the assumption of any mortgage, pledge or
other lien upon any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property hereafter acquired existing at the time
of such acquisition, or the acquisition of any shares of stock, indebtedness
or other obligations of a Subsidiary or any Principal Property subject to any
mortgage, pledge or other lien without the assumption thereof, provided that
every such mortgage, pledge or lien referred to in this clause (i) shall
attach only to the shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property so acquired and fixed improvements
thereon; (ii) any mortgage, pledge or other lien on any shares of stock,
indebtedness or other obligations of a Subsidiary or any Principal Property
existing at the date of this Indenture; (iii) any mortgage, pledge or other
lien on any shares of stock, indebtedness or other obligations of a Subsidiary
or any Principal Property in favor of the Company or any Restricted
Subsidiary; (iv) any mortgage, pledge or other lien on Principal Property
being constructed or improved securing loans to finance such construction or
improvements; (v) any mortgage, pledge or other lien on shares of stock,
indebtedness or other obligations of a Subsidiary or any Principal Property
incurred in connection with the issuance of tax-exempt governmental
obligations; (vi) any renewal of or substitution for any mortgage, pledge or
other lien permitted by any of the preceding clauses (i) through (v),
provided, in the case of a mortgage, pledge or other lien permitted under
clause (i), (ii) or (iv), the debt secured is not increased nor the lien
extended to any additional assets.
(b) Notwithstanding the provisions of paragraph (a) of this Section,
the Company or any Restricted Subsidiary may create or assume liens in
addition to those permitted by paragraph (a) of this Section, and renew,
extend or replace such liens, provided that at the time of such creation,
assumption, renewal, extension or replacement, and after giving effect
thereto, Exempted Debt does not exceed 10% of Consolidated Net Worth.
SECTION III.6. Certain Sale and Lease-back Transactions. (a) The
Company will not, and will not permit any Restricted Subsidiary to, sell or
transfer, directly or indirectly, except to the Company or a Restricted
Subsidiary, any Principal Property as an entirety, or any substantial portion
thereof, with the intention of taking back a lease of such property, except a
lease for a period of three years or less at the end of which it is intended
that the use of such property by the lessee will be discontinued; provided
that, notwithstanding the foregoing, the Company or any Restricted Subsidiary
may sell any such Principal Property and lease it back for a longer period (i)
if the Company or such Restricted Subsidiary would be entitled, pursuant to
the provisions of Section 3.5(a), to create a mortgage on the property to be
leased securing Funded Debt in an amount equal to the Attributable Debt with
respect to such sale and lease-back transaction without equally and ratably
securing the outstanding Notes or (ii) if (A) the Company promptly informs the
Trustee of such transaction, (B) the net proceeds of such transaction are at
least equal to the
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fair value (as determined by Board Resolution of the Company) of such property
and (C) the Company causes an amount equal to the net proceeds of the sale to
be applied to the retirement, within 120 days after receipt of such proceeds,
of Funded Debt incurred or assumed by the Company or a Restricted Subsidiary
(including the Notes); provided further that, in lieu of applying all of or
any part of such net proceeds to such retirement, the Company may, within 75
days after such sale, deliver or cause to be delivered to the applicable
trustee for cancellation either debentures or notes evidencing Funded Debt of
the Company (which may include the outstanding Notes) or of a Restricted
Subsidiary previously authenticated and delivered by the applicable trustee,
and not theretofore tendered for sinking fund purposes or called for a sinking
fund or otherwise applied as a credit against an obligation to redeem or
retire such notes or debentures, and an Officers' Certificate (which
Certificate shall be delivered to the Trustee and each paying agent and which
need not contain the statements prescribed by the second paragraph of Section
11.5) stating that the Company elects to deliver or cause to be delivered such
debentures or notes in lieu of retiring Funded Debt as hereinabove provided.
If the Company shall so deliver debentures or notes to the applicable trustee
and the Company shall duly deliver such Officers' Certificate, the amount of
cash which the Company shall be required to apply to the retirement of Funded
Debt under this Section 3.6(a) shall be reduced by an amount equal to the
aggregate of the then applicable optional redemption prices (not including any
optional sinking fund redemption prices) of such debentures or notes, or, if
there are no such redemption prices, the principal amount of such debentures
or notes; provided, that in the case of debentures or notes which provide for
an amount less than the principal amount thereof to be due and payable upon a
declaration of the maturity thereof, such amount of cash shall be reduced by
the amount of principal of such debentures or notes that would be due and
payable as of the date of such application upon a declaration of acceleration
of the maturity thereof pursuant to the terms of the indenture pursuant to
which such debentures or notes were issued.
(b) Notwithstanding the provisions of paragraph (a) of this Section
3.6, the Company or any Restricted Subsidiary may enter into sale and
lease-back transactions in addition to those permitted by paragraph (a) of
this Section 3.6 and without any obligation to retire any outstanding Notes or
other Funded Debt, provided that at the time of entering into such sale and
lease-back transactions and after giving effect thereto, Exempted Debt does
not exceed 10% of Consolidated Net Worth.
SECTION III.7. Corporate Existence. Subject to Article IV and
Section 10.2, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and that of
each Restricted Subsidiary and the corporate rights (charter and statutory)
licenses and franchises of the Company and each Restricted Subsidiary; provided,
however, that nothing in this Indenture or the Notes or the Guarantees shall
restrict the ability of the Company and any Guarantor to effect the
Reorganization and the Company shall not be required to preserve any such
existence (except the Company), right, license or franchise if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and each of its
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, disadvantageous in any material respect to the Holders, and
provided,
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further, the Company or any Guarantor, as the case may be, may merge in
accordance with Sections 4.1 and 10.2.
SECTION III.8. Payment of Taxes and Other Claims. The Company
will pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all material taxes, assessments and governmental charges
levied or imposed upon the Company or any Subsidiary or upon the income, profits
or property of the Company or any Subsidiary and (ii) all lawful claims for
labor, materials and supplies, which, if unpaid, might by law become a material
liability or lien upon the property of the Company or any Restricted Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate reserves, if necessary (in the
good faith judgment of management of the Company), are being maintained in
accordance with GAAP or where the failure to effect such payment will not be
disadvantageous to the Holders.
SECTION III.9. Waiver of Stay, Extension or Usury Laws. The
Company covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest, including Additional Interest, on
the Notes as contemplated herein, wherever enacted, now or at any time hereafter
in force, or that may affect the covenants or the performance of this Indenture;
and (to the extent that it may lawfully do so) the Company hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION III.10. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION III.11. Notice of Defaults. In the event that any
Officer becomes aware of any Default or Event of Default, the Company shall
promptly deliver to a Responsible Officer of the Trustee an Officers'
Certificate specifying such Default or Event of Default.
ARTICLE IV
Consolidation, Merger, Sale or Conveyance
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SECTION IV.1. Covenant Not to Merge, Consolidate, Sell or
Convey Property Except Under Certain Conditions. Nothing contained in this
Indenture or in any of the Notes or Guarantees shall prevent any consolidation
or merger of the Company into any other corporation or corporations (whether or
not affiliated with the Company), or successive consolidations or mergers to
which the Company or its respective successor or successors shall be a party or
parties, or shall prevent any sale, lease or conveyance of the property of the
Company as an entirety or substantially as an entirety or, subject to Section
3.6, otherwise; provided, that upon any such consolidation, merger, sale, lease
or conveyance to which the Company is a party, other than the transactions
comprising the Reorganization, and in which the Company is not the surviving
corporation, the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed or observed by the
Company and the due and punctual payment of the principal of, interest,
including Additional Interest, and premium, if any, on all of the Notes,
according to their tenor, shall be expressly assumed by supplemental indenture
executed and delivered to the Trustee, by the corporation formed by such
consolidation, or into which the Company shall have been merged, or which shall
have acquired such property.
SECTION IV.2. Successor Corporation Substituted. In case of any such
consolidation, merger, sale or conveyance, and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein. Such successor corporation may cause to be signed, and may issue
either in its own name or in the name of the Company prior to such succession
any or all of the Notes issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee; and, upon the order
of such successor corporation instead of the Company and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver any Notes which previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All of
the Notes so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Notes theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Notes had
been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or
conveyance such changes in phraseology and form (but not in substance) may be
made in the Notes thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a
conveyance by way of lease) the Company or any successor corporation which shall
theretofore have become such in the manner described in this Article shall be
discharged from all obligations and covenants under this Indenture and the Notes
and may be liquidated and dissolved.
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SECTION IV.3. Opinion of Counsel to Trustee. The Trustee,
subject to the provisions of Sections 7.1 and 7.2, shall receive an Opinion of
Counsel, prepared in accordance with Section 11.4, as conclusive evidence that
any such consolidation, merger, sale, lease or conveyance, and any such
assumption, and any such liquidation or dissolution, complies with the
applicable provisions of this Indenture.
ARTICLE V
Redemption of Notes
SECTION V.1. Optional Redemption. Each of the Notes are redeemable,
in whole or in part, at any time and from time to time, at the option of the
Company, at a redemption price equal to the greater of (i) 100% of the
principal amount of the applicable series of Notes and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
on the applicable series of Notes, discounted to the redemption date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the applicable Treasury Rate plus 12.5 basis points for the Notes due 2003,
plus 25 basis points for the Notes due 2006, and plus 37.5 basis points for
the Notes due 2009, plus, with respect to each of the Notes, accrued and
unpaid interest on the principal amount being redeemed to the date of
redemption.
Except as set forth above, the Notes will not be redeemable by the
Company prior to maturity and will not be entitled to the benefit of any
sinking fund.
SECTION V.2. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 5.1, it shall notify the Trustee in writing of the
redemption date and the principal amount of Notes to be redeemed.
The Company shall give written notice to the Trustee provided for
in this Section at least 60 days (45 days in the case of redemption of all the
Notes) before the redemption date unless the Trustee consents to a shorter
period. Such notice shall be accompanied by an Officers' Certificate from the
Company to the effect that such redemption will comply with the conditions
herein. The record date relating to such redemption shall be selected by the
Company and set forth in the related notice given to the Trustee, which record
date shall be not less than 15 days prior to the date selected for redemption
by the Company.
SECTION V.3. Selection of Notes to be Redeemed. If fewer than all
the Notes then outstanding are to be redeemed, the Trustee shall select the
Notes (not more than 60 days prior to the redemption date) to be redeemed and
that the Trustee considers to be fair and appropriate in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Notes not
previously called for redemption. The Trustee may select for redemption
portions of the principal of Notes that have denominations larger than
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$1,000. Notes and portions of them that the Trustee selects shall be in amounts
of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Notes called for redemption also apply to portions of Notes called for
redemption. The Trustee shall notify the Company of the Notes or portions of
Notes to be redeemed.
SECTION V.4. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Notes, notice of redemption shall
be mailed by first-class mail to each Holder of Notes to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the redemption date;
(ii) the redemption price (or the method of calculating such
price) and the amount of accrued interest to be paid, if any;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued and
unpaid interest, if any;
(v) if fewer than all the outstanding Notes are to be
redeemed, the Bond No. (if certificated) and principal amounts of
the particular Notes to be redeemed;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Notes (or portion thereof) called for
redemption ceases to accrue on and after the redemption date;
(vii) the CUSIP number, if any, printed on the Notes being
redeemed; and
(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the name of the Company and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required by
this Section 5.4.
SECTION V.5. Effect of Notice of Redemption. Once notice of
redemption is mailed in accordance with Section 5.4, Notes called for
redemption shall become due and payable on the redemption date and at the
redemption price as stated in the notice. Failure to give notice or any defect
in the notice to any Holder shall not affect the validity of the notice to any
other Holder.
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SECTION V.6. Deposit of Redemption Price. By no later than 10:00
a.m. (New York City time) on the date of redemption, the Company shall deposit
with the Paying Agent (or, if the Company or any of its respective
Subsidiaries is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued and unpaid interest on
all Notes to be redeemed on that date other than Notes or portions of Notes
called for redemption which are owned by the Company or a Subsidiary and have
been delivered by the Company or such Subsidiary to the Trustee for
cancellation.
SECTION V.7. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Notes so to be redeemed shall, on the
redemption date, become due and payable at the redemption price therein
specified (together with accrued interest, if any, to the redemption date),
and from and after such date (unless the Company shall default in the payment
of the redemption price and accrued interest) such Notes shall cease to bear
such interest. Upon surrender of any such Note for redemption in accordance
with said notice, such Note shall be paid by the Company at the redemption
price, together with accrued interest, if any, to the redemption date (subject
to the rights of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date.)
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption because of the Company's failure to deposit
money sufficient to pay the redemption price of and accrued and unpaid
interest on all Notes to be redeemed, the principal (and premium, if any)
shall, until paid, bear interest from the redemption date at the rate borne by
the Notes.
SECTION V.8. Notes Redeemed in Part. Any Notes which are to be
redeemed only in part (pursuant to the provision of this Article) shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 3.2 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and make available for delivery to the
Holder of such Note at the expense of the Company, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered, provided, that each such new Note will be in a
principal amount of $1,000 or integral multiple thereof, except that U.S.
Physical Notes shall be in denominations of $100,000 and any integral
multiples of $1,000 in excess thereof.
ARTICLE VI
Defaults and Remedies
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SECTION VI.1. Event of Default Defined; Acceleration of Maturity;
Waiver of Default. AEvent of Default" with respect to Notes of any series
wherever used herein, means each one of the following events which shall have
occurred and be continuing (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon
any of the Notes of such series as and when the same shall become due
and payable, and continuance of such default for a period of 30 days;
or
(b) default in the payment of all or any part of the principal
on any of the Notes of such series as and when the same shall become
due and payable either at maturity, upon any redemption, by
declaration or otherwise; or
(c) default in the payment of any sinking fund installment as
and when the same shall become due and payable by the terms of the
Notes of such series; or
(d) default in the performance, or breach, of any covenant or
agreement of the Company or the Guarantors in respect of the Notes
of such series (other than a covenant or agreement in respect of
the Notes of such series a default in whose performance or whose
breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90 days after
there has been given, by first class mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the outstanding Notes of all
series affected thereby, a written notice specifying such default
or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company or the
Guarantors in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or for
any substantial part of its property or ordering the winding up or
liquidation of its affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(f) the Company or any Restricted Subsidiary shall commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of
an order for relief in an involuntary case under any such law, or
consent to the appointment of or taking possession by
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38
a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Company or for any
substantial part of its property, or make any general assignment
for the benefit of creditors; or
(g) any Guarantee ceases to be in full force and effect (except
as contemplated by the terms hereof), or any Guarantee is declared
in a judicial proceeding to be null and void, or any Guarantor
denies or disaffirms in writing its obligations under the terms of
this Indenture or its Guarantee; or
(h) any other Event of Default provided in the supplemental
indenture or Board Resolution under which such series of Notes is
issued or in the form of Note for such series.
If an Event of Default described in clauses (a), (b), (c), (d)
or (h) above (if the Event of Default under clause (d) or (h) is with respect to
less than all series of Notes then outstanding) occurs and is continuing, then,
and in each and every such case, except for any series of Notes the principal of
which shall have already become due and payable, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Notes of each
such affected series then outstanding hereunder (voting as a single class) by
notice in writing to the Company (and to the Trustee if given by Noteholders),
may declare the entire principal of all Notes of all such affected series, and
the interest accrued thereon, if any, to be due and payable immediately, and
upon any such declaration the same shall become immediately due and payable. If
an Event of Default described in clauses (d) or (h) (if the Event of Default
under clause (d) or (h), as the case may be, is with respect to all series of
Notes then outstanding), (e), (f) or (g) occurs and is continuing, then and in
each and every such case, unless the principal of all the Notes shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of all the Notes then outstanding
hereunder (treated as one class), by notice in writing to the Company (and to
the Trustee if given by Noteholders), may declare the entire principal of all
the Notes then outstanding and interest accrued thereon, if any, to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable.
The foregoing provisions, however, are subject to the condition
that if, at any time after the principal of the Notes of any series (or of all
the Notes, as the case may be) shall have been so declared due and payable,
and before any judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Company or any Guarantor
shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Notes of each such series (or of
all the Notes, as the case may be) and the principal of any and all Notes of
each such series (or of all the Notes, as the case may be) which shall have
become due otherwise than by acceleration (with interest upon such principal
and, to the extent that payment of such interest is enforceable under
applicable law, on overdue installments of interest, at the same rate as the
rate of interest specified in the Notes of each such series to the date of
such payment or deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee and each predecessor Trustee, their
respective
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agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of gross negligence or bad faith, and if any and all Events
of Default under the Indenture, other than the non-payment of the principal of
Notes which shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then and in every such case
the Holders of a majority in aggregate principal amount of all the Notes of
each such series, or of all the Notes, in each case voting as a single class,
then outstanding, by written notice to the Company and to the Trustee, may
waive all defaults with respect to each such series (or with respect to all
the Notes, as the case may be) and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or shall impair any right consequent
thereon.
SECTION VI.2. Collection of Indebtedness by Trustee; Trustee
May Prove Debt. The Company covenants that (a) in case default shall be made in
the payment of any installment of interest on any of the Notes of any series
when such interest shall have become due and payable, and such default shall
have continued for a period of 30 days or (b) in case default shall be made in
the payment of all or any part of the principal of any of the Notes of any
series when the same shall have become due and payable, whether upon maturity of
the Notes of such series or upon any redemption, repurchase or by declaration or
otherwise, then upon demand of the Trustee, the Company or any Guarantor will
pay to the Trustee for the benefit of the Holders of the Notes of such series
the whole amount that then shall have become due and payable on all Notes of
such series for principal or interest, as the case may be (with interest to the
date of such payment upon the overdue principal and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments of
interest at the same rate as the rate of interest specified in the Notes of such
series); and in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including reasonable compensation to
the Trustee and each predecessor Trustee, their respective agents, attorneys and
counsel, and any reasonable expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of its
negligence or bad faith.
Until such demand is made by the Trustee, the Company or any
Guarantor may pay the principal of and interest on the Notes of any series to
the Holders, whether or not the principal of and interest on the Notes of such
series be overdue.
In case the Company or the Guarantors shall fail forthwith to pay
such amounts upon such demand, the Trustee, in its own name and as trustee of
an express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceedings to judgment or final
decree, and may enforce any such judgment or final decree against the Company
or other obligor upon the Notes and collect in the manner provided by law out
of the property of the Company or other obligor upon the Notes, wherever
situated, the moneys adjudged or decreed to be payable.
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40
In case there shall be pending proceedings relative to the Company
or any other obligor upon the Notes under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Company or its property or such other
obligor, or in case of any other comparable judicial proceedings relative to
the Company or other obligor upon the Notes, or to the creditors or property
of the Company or such other obligor, the Trustee, irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section, shall be entitled
and empowered, by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes, and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for
reasonable compensation to the Trustee and each predecessor Trustee,
and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee, except as a
result of gross negligence or bad faith) and of the Noteholders allowed
in any judicial proceedings relative to the Company or other obligor
upon the Notes or to the creditors or property of the Company or such
other obligor,
(b) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of the Notes of any series in any
election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable
proceedings, and
(c) to collect and receive any moneys or other property payable
or deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Trustee on their behalf; and any trustee, receiver, or liquidator,
custodian or other similar official is hereby authorized by each of the
Noteholders to make payments to the Trustee, and, in the event that the
Trustee shall consent to the making of payments directly to the
Noteholders, to pay to the Trustee such amounts as shall be sufficient
to cover reasonable compensation to the Trustee, each predecessor
Trustee and their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of gross
negligence or bad faith.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes of any series or the rights of any
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41
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Noteholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture,
or under any of the Notes of any series, may be enforced by the Trustee
without the possession of any of the Notes of such series appertaining to such
Notes or the production thereof at any trial or other proceedings relative
thereto, and any such action or proceedings instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of such
Notes in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
Holders of the Notes or in respect of which such action was taken, and it
shall not be necessary to make any Holders of such Notes parties to any such
proceedings.
SECTION VI.3. Application of Proceeds. Any moneys collected by the
Trustee pursuant to this Article in respect of any series of Notes shall be
applied in the following order at the date or dates fixed by the Trustee and,
in case of the distribution of such moneys on account of principal or
interest, upon presentation of the several Notes in respect of which monies
have been collected and stamping (or otherwise noting) thereon the payment, or
issuing Notes of such series in reduced principal amounts in exchange for the
presented Notes of like series if only partially paid, or upon surrender
thereof if fully paid:
FIRST: To the payment of costs and expenses applicable to such
series in respect of which monies have been collected, including
reasonable compensation to the Trustee and each predecessor Trustee and
their respective agents and attorneys and of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee and their respective agents and attorneys except as
a result of negligence or bad faith;
SECOND: In case the principal of the Notes of such series in
respect of which moneys have been collected shall not have become and
be then due and payable, to the payment of interest on the Notes of
such series in default in the order of the maturity of the installments
of such interest, with interest (to the extent that such interest has
been collected by the Trustee) upon the overdue installments of
interest at the same rate as the rate of interest specified in such
Notes, such payments to be made ratably to the persons entitled
thereto, without discrimination or preference;
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42
THIRD: In case the principal of the Notes of such series in
respect of which moneys have been collected shall have become and shall
be then due and payable, to the payment of the whole amount then owing
and unpaid upon all the Notes of such series for principal and
interest, with interest upon the overdue principal, and (to the extent
that such interest has been collected by the Trustee) upon overdue
installments of interest at the same rate as the rate of interest
specified in the Notes of such series; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon the
Notes of such series, then to the payment of such principal and
interest, without preference or priority of principal over interest, or
of interest over principal, or of any installment of interest over any
other installment of interest, or of any Note of such series over any
other Note of such series, ratably to the aggregate of such principal
and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, if any, to the
Company or any other person lawfully entitled thereto as directed in
writing.
SECTION VI.4. Suits for Enforcement. In case an Event of Default
has occurred, has not been waived and is continuing, the Trustee may proceed
to protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any
power granted in this Indenture or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law.
SECTION VI.5. Restoration of Rights on "bandonment of Proceedings.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned for
any reason, or shall have been determined adversely to the Trustee, then and
in every such case the Company, the Guarantors, and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company, the Guarantors, the Trustee and
the Noteholders shall continue as though no such proceedings had been taken.
SECTION VI.6. Limitations on Suits by Noteholders. No Holder of any
Note of any series shall have any right by virtue or by availing of any
provision of this Indenture to institute any action or proceeding at law or in
equity or in bankruptcy or otherwise upon or under or with respect to this
Indenture, or for the appointment of a trustee, receiver, liquidator,
custodian or other similar official or for any other remedy hereunder, unless
such Holder previously shall have given to a Responsible Officer of the
Trustee written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the Holders of not less than 25% in
aggregate principal amount of the Notes of each affected series then
outstanding (treated as a single class) shall have made written request
<PAGE>
43
upon the Trustee to institute such action or proceedings in its own name as
trustee hereunder and shall have offered to the Trustee such reasonable
security or indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action or proceeding and no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 6.9; it being understood and intended, and being expressly
covenanted by the taker and Holder of every Note with every other taker and
Holder and the Trustee, that no one or more Holders of Notes of any series
shall have any right in any manner whatever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other such Holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such Holder or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all Holders of Notes of the applicable series. For the
protection and enforcement of the provisions of this Section, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION VI.7. Unconditional Right of Noteholders to Institute
Certain Suits. Notwithstanding any other provision in this Indenture and any
provision of any Note, the right of any Holder of any Note to receive payment
of the principal of, premium, if any, and interest, including Additional
Interest, on such Note on or after the respective due dates expressed in such
Note, or to institute suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent
of such Holder.
SECTION VI.8. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. Except as provided in Section 6.6, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Notes is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of Notes to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 6.6, every power and remedy given by this
Indenture or by law to the Trustee or to the Holders of Notes may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee
or by the Holders of Notes.
SECTION VI.9. Control by Noteholders. The Holders of a majority in
aggregate principal amount of the Notes of each series affected (with each
such series voting as a separate class) at the time outstanding shall have the
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44
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee with respect to the Notes of such series by this
Indenture; provided that such direction shall not be otherwise than in
accordance with law and the provisions of this Indenture and provided further
that (subject to the provisions of Section 7.1) the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith, or a trust committee or
Responsible Officers of the Trustee shall determine that the action or
proceedings so directed would involve the Trustee in personal liability or if
the Trustee in good faith shall so determine that the actions or forebearances
specified in or pursuant to such direction would be unduly prejudicial to the
interests of Holders of the Notes of all series so affected not joining in the
giving of said direction, it being understood that (subject to Section 7.1)
the Trustee shall have no duty to ascertain whether or not such actions or
forebearances are unduly prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee to
take any action deemed proper by the Trustee and which is not inconsistent
with such direction or directions by Noteholders.
SECTION VI.10. Waiver of Past Defaults. Prior to the acceleration
of the maturity of the Notes as provided in Section 6.1, the Holders of a
majority in aggregate principal amount of the Notes of all series at the time
outstanding with respect to which an event of default shall have occurred and
be continuing (voting as a single class) may on behalf of the Holders of all
such Notes waive any past Default or Event of Default described in Section 6.1
and its consequences, except a Default in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the Holder
of each Note affected. In the case of any such waiver, the Company, the
Guarantors, the Trustee and the Holders of all such Notes of each series
affected shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION VI.11. Trustee to Give Notice of Default, But May Withhold
in Certain Circumstances. The Trustee shall, within 90 days after the
occurrence of a Default with respect to the Notes of any series, give notice
of all Defaults with respect to that series actually known to a Responsible
Officer of the Trustee (i) if any Unregistered Notes of that series are then
outstanding, to the Holders thereof, by publication at least once in an
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45
Authorized Newspaper in the Borough of Manhattan, the City of New York and at
least once in an Authorized Newspaper in London and (ii) to all Holders of
Notes of such series in the manner and to the extent provided in Section
313(c) of the TIA, unless in each case such Defaults shall have been cured
before the mailing or publication of such notice; provided that, except in the
case of Default in the payment of the principal of or interest, including
Additional Interest, on any of the Notes of such series, or in the payment of
any sinking fund installment on such series, the Trustee shall be protected in
withholding such notice if and so long Responsible Officers of the Trustee in
good faith determines that the withholding of such notice is in the interests
of the Noteholders of such series.
SECTION VI.12. Right of Court to Require Filing of Undertaking to
Pay Costs. All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to:
(A) any suit instituted by the Trustee,
(B) any suit instituted by any Noteholder or group of
Noteholders of any series holding in the aggregate more than 10% in
aggregate principal amount of the Notes of such series, or, in the case
of any suit relating to or arising under clauses (d) or (h) of Section
6.1 (if the suit relates to Notes of more than one but less than all
series), 10% in aggregate principal amount of Notes outstanding
affected thereby, or in the case of any suit relating to or arising
under clauses (d) or (h) (if the suit under (d) or (h) relates to all
the Notes then outstanding), (c), (e), (f), (g) or (i) of Section 6.1,
10% in aggregate principal amount of all Notes outstanding, or
(C) any suit instituted by any Noteholder for the enforcement
of the payment of the principal of or interest on any Note on or after
the due date expressed in such Note or any date fixed for redemption.
ARTICLE VII
Trustee
SECTION VII.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a
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46
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs; provided that if an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under this Indenture at the request or direction of any of
the Holders unless such Holders have offered to the Trustee reasonable
indemnity or security satisfactory to the Trustee against loss, liability or
expense.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon Officers'
Certificates and Opinions of Counsel furnished to the Trustee and
conforming to the requirements of this Indenture. However, in the case
of any such Officers' Certificates and Opinions of Counsel which by any
provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such Officers' Certificates and
Opinions of Counsel to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or investigate the
accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 7.1;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.9.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
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(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.1 and to the provisions of the TIA.
(i) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(j) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity satisfactory to the Trustee against the costs,
expenses (including reasonable attorneys' fees and expenses) and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION VII.2. Rights of Trustee. (a) The Trustee may conclusively
rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and
the advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be charged with knowledge of any
Default or Event of Default with respect to the Notes unless either (1) a Trust
Officer shall have actual knowledge of such Default or Event of Default or (2)
written notice of such Default or Event of Default shall
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48
have been given to a Trust Officer of the Trustee by an Company or any other
obligor on the Notes or by any Holder of the Notes.
SECTION VII.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company with the same rights it would have if it
were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the
same with like rights. However, the Trustee must comply with Sections 7.10 and
7.11.
SECTION VII.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes or any offering document, it shall not be
accountable for the Company's use of the proceeds from the Notes, and it shall
not be responsible for any statement of an Company in this Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Trustee's certificate of authentication.
SECTION VII.5. Notice of Defaults. If a Default or an Event of
Default occurs with respect to the Notes and is continuing and if it is known
to the Trustee, the Trustee shall mail to each Noteholder notice of the
Default within 90 days after it is known to a Trust Officer or written notice
of it is received by a Trust Officer of the Trustee. Except in the case of a
Default in payment of Principal of, premium, if any or interest, including
Additional Interest, on any Note (including payments pursuant to the optional
redemption or required repurchase provisions of such Note, if any), the
Trustee may withhold the notice if and so long as the board of directors, the
executive committee, or a trust committee of directors or trustees and/or
Responsible Officers of the Trustee in good faith determines that withholding
the notice is not opposed to the interests of Noteholders.
SECTION VII.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Noteholder a brief report dated as of such May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall promptly deliver to the Company a copy of any report it
delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to Noteholders
shall be filed by the Trustee with the SEC and each stock exchange (if any) on
which the Notes are listed. The Company agrees to notify promptly the Trustee
whenever the Notes become listed on any stock exchange and of any delisting
thereof.
SECTION VII.7. Compensation and Indemnity. The Company and the
Guarantors jointly and severally covenant and agree to pay to the Trustee from
time to time such compensation for its services as the Company and the Trustee
shall from time to time agree in writing. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company and the Guarantors shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or
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49
made by it in accordance with the provisions of this Indenture, including
costs of collection, costs of preparing and reviewing reports, certificates
and other documents, costs of preparation and mailing of notices to
Noteholders and reasonable fees and expenses of counsel retained by the
Trustee in connection with the delivery of an Opinion of Counsel or otherwise,
in addition to such compensation for its services, except any such expense,
disbursement or advance as may arise from its negligence, wilful misconduct or
bad faith. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable
notice of any expenditure not in the ordinary course of business; provided
that prior approval by the Company of any such expenditure shall not be a
requirement for the making of such expenditure nor for reimbursement by the
Company thereof. The Company and the Guarantors shall indemnify each of the
Trustee, its officers, directors, employees and any predecessor Trustees
against any and all loss, damage, claim, liability or expense (including
reasonable attorneys' fees and expenses) (other than taxes applicable to the
Trustee's compensation hereunder) incurred by it without negligence or bad
faith on its part in connection with the acceptance or administration of this
trust and the performance of its duties hereunder including the costs and
expenses of enforcing this Indenture (including this Section 7.7) and of
defending itself against any claims (whether asserted by any Noteholder, the
company or otherwise). The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee so to notify the
Company shall not relieve the Company and the Guarantors of each of its
obligations hereunder, except to the extent that the Company and the
Guarantors have been prejudiced by such failure. The Company and the
Guarantors shall defend the claim and the Trustee may have separate counsel
and the Company and the Guarantors shall pay the fees and expenses of such
counsel. The Company and the Guarantors need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee
through the Trustee's own wilful misconduct, negligence or bad faith. The
Company and the Guarantors need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld or delayed.
To secure the payment obligations of the Company and the Guarantors
in this Section 7.7, the Trustee shall have a lien prior to the Notes on all
money or property held or collected by the Trustee other than money or
property held in trust to pay Principal of and interest on particular Notes.
The payment obligations of the Company and the Guarantors pursuant
to this Section 7.7 shall survive the resignation or removal of the Trustee
and any discharge of this Indenture including any discharge under any
Bankruptcy Law. When the Trustee incurs expenses after the occurrence of a
Default specified in Section 6.1(e) or (f), the expenses are intended to
constitute expenses of administration under the Bankruptcy Law.
SECTION VII.8. Replacement of Trustee. The Trustee may resign at
any time with 30 days notice to the Company. The Holders of a majority in
principal amount of the Notes then outstanding, may remove the Trustee with 30
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50
days notice to the Trustee and may appoint a successor Trustee, which
successor Trustee shall be reasonably acceptable to the Company. The Company
shall remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Notes and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Such retiring trustee must receive all funds owed to it
prior to the completion of such resignation.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company and the Company or the
Guarantors shall pay all amounts due and owing to the Trustee under Section
7.7 of the Indenture. Thereupon the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. The successor
Trustee shall mail a notice of its succession to Noteholders affected by such
resignation or removal. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office with respect to the
Notes within 30 days after the retiring Trustee resigns or is removed, the
retiring Trustee or the Holders of 10% in aggregate principal amount of the
Notes may petition any court of competent jurisdiction for the appointment of
a successor Trustee at the expense of the Company.
If the Trustee fails to comply with Section 7.10, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section 7.8, each Company's obligations under Section 7.7 shall continue for
the benefit of the retiring Trustee.
SECTION VII.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the
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51
successor Trustee, provided that such corporation shall be eligible under this
Article Seven and TIA Section 3.10(a).
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to
the Trustee; and in all such cases such certificates shall have the full force
which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Trustee shall have.
SECTION VII.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) and any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
either Company are outstanding if the requirements for such exclusion set
forth in TIA ss. 310(b)(1) are met.
SECTION VII.11. Preferential Collection of Claims Against the
Company. The Trustee shall comply with ' TIA 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
Satisfaction and Discharge of Indenture; Unclaimed Moneys
SECTION VIII.1. Satisfaction and Discharge of Indenture. (A) If at
any time (a) the Company or any Guarantor shall have paid or caused to be paid
the principal of, premium, if any, and interest, including Additional
Interest, on all the Notes of any series outstanding hereunder (other than
Notes of such series which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.9) as and when the same shall
have become due and payable, or (b) the Company shall have delivered to the
Trustee for cancellation all Notes of any series theretofore authenticated
(other than any Notes of such series which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Section 2.9)
or (c) in the case of any series of Notes where the exact amount (including
the currency of payment) of principal of,
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52
premium, if any, and interest, including Additional Interest, due on which can
be determined at the time of making the deposit referred to in clause (ii)
below, (i) all the Notes of such series not theretofore delivered to the
Trustee for cancellation shall have become due and payable, or are by their
terms to become due and payable within one year or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption, and (ii) the Company or any Guarantor
shall have irrevocably deposited or caused to be deposited with the Trustee as
trust funds the entire amount in cash (other than moneys repaid by the Trustee
or any Paying Agent to the Company in accordance with Section 8.4) or, in the
case of any series of Notes the payments on which may only be made in Dollars,
U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash, or a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay (X) the principal, premium, if any, and
interest, including Additional Interest, on all Notes of such series on each
date that such principal, premium, if any, or interest, including Additional
Interest, is due and payable and (Y) any mandatory sinking fund payments on
the dates on which such payments are due and payable in accordance with the
terms of the Indenture and the Notes of such series; and if, in any such case,
the Company or any Guarantor shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect (except as to (i) rights of registration of transfer and
exchange of Notes of such series and the Company's right of optional
redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost
or stolen Notes, (iii) rights of Holders of Notes to receive payments of
principal thereof, premium, if any, and interest thereon, upon the original
stated due dates therefor (but not upon acceleration), and remaining rights of
the Holders to receive mandatory sinking fund payments, if any, (iv) the
rights, obligations, duties and immunities of the Trustee hereunder, (v) the
rights of the Holders of Notes of such as beneficiaries hereof with respect to
the property so deposited with the Trustee payable to all or any of them, and
(vi) the obligations of the Company under Section 2.5) and the Trustee, on
demand of the Company accompanied by an Officer's Certificate and an Opinion
of Counsel which comply with Section 11.4 and at the cost and expense of the
Company, shall execute proper instruments acknowledging such satisfaction of
and discharging this Indenture; provided, that the rights of Holders of the
Notes to receive amounts in respect of principal of, premium, if any, and
interest, including Additional Interest, on the Notes held by them shall not
be delayed longer than required by then-applicable mandatory rules or policies
of any securities exchange upon which the Notes are listed. The Company and
the Guarantors agree to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred and to compensate the Trustee for
any services thereafter reasonably and properly rendered by the Trustee in
connection with this Indenture or the Notes of such series. Notwithstanding
the satisfaction and discharge of this Indenture, the obligations of the
Company and the Guarantors to the Trustee under Section 7.7 and the
obligations of the Trustee under Section 8.1 shall survive.
(B) In addition to discharge of the Indenture pursuant to the
preceding paragraph, in the case of any series of Notes the exact amounts
(including the currency of payment) of principal of and interest due on which
can be determined at the time of making the deposit referred to in clause (a)
below, the Company and the Guarantors shall be deemed to have paid
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53
and discharged the entire indebtedness on all the Notes and the Guarantees of
such a series on the 91st day after the date of the deposit referred to in
subparagraph (a) below, and the provisions of this Indenture with respect to
the Notes of such series and the Guarantees shall no longer be in effect
(except as to (i) rights of registration of transfer and exchange of Notes of
such series and the Company's right of optional redemption, if any, (ii)
substitution of mutilated, defaced, destroyed, lost or stolen Notes, (iii)
rights of Holders of Notes to receive payments of principal thereof, premium,
if any, and interest, including Additional Interest, thereon, upon the
original stated due dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Notes of such series as beneficiaries hereof with
respect to the property so deposited with the Trustee payable to all or any of
them and (vi) the obligations of the Company under Section 2.5) and the
Trustee, at the expense of the Company and the Guarantors, shall at the
Company's request, execute proper instruments acknowledging the same, if
(a) with reference to this provision the Company or any
Guarantor has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Notes of such series (i) cash in an amount, or (ii) in
the case of any series of Notes the payments on which may only be made
in Dollars, U.S. Government Obligations, maturing as to principal and
interest at such times and in such amounts as will insure the
availability of cash or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay (A) the principal, premium, if any, and interest,
including Additional Interest, on all Notes of such series on each date
that such principal, premium, if any, or interest, including Additional
Interest, is due and payable and (B) any mandatory sinking fund
payments on the dates on which such payments are due and payable in
accordance with the terms of the Indenture and the Notes of such
series;
(b) such deposit will not result in a breach or violation of,
or constitute a default under, any agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound;
(c) the Company has delivered to the Trustee an Opinion of
Counsel based on the fact that (x) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or
(y) since the date hereof, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and such
opinion shall confirm that, the Holders of the Notes of such series
will not recognize income, gain or loss for Federal income tax purposes
as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amount and in the same manner
and at the
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54
same times, as would have been the case if such deposit, defeasance
and discharge had not occurred; and
(d) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the defeasance contemplated by this
provision have been complied with.
(C) The Company and the Guarantors shall be released from each
of its obligations with respect to the Notes of any series outstanding (except
for: (i) the obligations set forth as exceptions above in paragraph (A); (ii)
the obligations to (w) compensate and indemnify the Trustee, (x) to appoint a
successor Trustee, (y) to repay certain moneys held by the Paying Agent and (z)
to return certain unclaimed moneys held by the Trustee; and (iii) such
obligations of the Company and the Guarantors are required by the TIA) on and
after the date the conditions set forth below are satisfied (hereinafter,
Acovenant defeasance"). For this purpose, such covenant defeasance means that,
with respect to the outstanding Notes of any series, the Company and the
Guarantors are required only to comply with the above obligations and shall have
no liability in respect of any term, condition or limitation set forth in any
other Section, whether directly or indirectly by reason of any reference to such
Section by any other remaining provision or in any other document and such
compliance only to the above obligations shall not constitute an Event of
Default under Section 6.1. The following shall be the conditions to application
of this subsection C of this Section 8.1:
(a) The Company or any Guarantor has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of
the Notes of such series, (i) cash in an amount, or (ii) in the case of
any series of Notes the payments on which may only be made in Dollars,
U.S. Government Obligations maturing as to principal and interest at
such times and in such amounts as will insure the availability of cash
or (iii) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay (X)
the principal, premium, if any, and interest, including Additional
Interest, on all Notes of such series and (Y) any mandatory sinking
fund payments on the day on which such payments are due and payable in
accordance with the terms of the Indenture and the Notes of such
series.
(b) Such covenant defeasance shall not cause the Trustee to
have a conflicting interest as set forth in Article 7 and for purposes
of the TIA with respect to any securities of the Company.
(c) Such covenant defeasance shall not result in a breach or
violation of, or constitute a default under, this Indenture or any
other agreement or instrument to which the Company or any Guarantor is
a party or by which it is bound.
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55
(d) The Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders of the Notes of such series
will not recognize income, gain or loss for Federal income tax purposes
as a result of such covenant defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(e) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the covenant defeasance
contemplated by this provision have been complied with.
SECTION VIII.2. Application by Trustee of Funds Deposited for
Payment of Notes. Subject to Section 8.4, all moneys deposited with the
Trustee pursuant to Section 8.1 shall be held in trust and applied by it to
the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent), to the Holders of the particular
Notes of such series for the payment or redemption of which such moneys have
been deposited with the Trustee, of all sums due and to become due thereon for
principal and interest; but such money need not be segregated from other funds
except to the extent required by law.
SECTION VIII.3. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect
to Notes of any series, all moneys then held by any Paying Agent under the
provisions of this Indenture with respect to such series of Notes shall, upon
demand of the Company, be repaid to it or paid to the Trustee and thereupon
such Paying Agent shall be released from all further liability with respect to
such moneys.
SECTION VIII.4. Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years. Any moneys or Government Obligations deposited with
or paid to the Trustee or any Paying Agent for the payment of the principal
of, premium, if any, or interest, including Additional Interest, on any Note
of any series and not applied but remaining unclaimed for two years after the
date upon which such principal, premium, if any, or interest, including
Additional Interest, shall have become due and payable, shall, upon the
written request of the Company and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property law, be
repaid to the Company by the Trustee for such series or such Paying Agent, and
the Holder of the Note of such series shall, unless otherwise required by
mandatory provisions of applicable escheat or abandoned or unclaimed property
laws, thereafter look only to the Company or the Guarantors for any payment
which such Holder may be entitled to collect, and all liability of the Trustee
or any Paying Agent with respect to such moneys shall thereupon cease
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56
ARTICLE IX
Amendments
SECTION IX.1. Without Consent of Noteholders. The Company and the
Guarantors, when authorized by a Board Resolution (which resolution may
provide general terms or parameters for such action and may provide that the
specific terms of such action may be determined in accordance with or pursuant
to a Company Order), and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto for one or more of
the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Notes of one or more series any property or
assets;
(b) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Four;
(c) to add to the covenants of the Company such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection or
benefit of the Holders of all or any series of Notes, (and if such
covenants, restrictions, conditions or provisions are for the
protection or benefit of less than all series of Notes, stating that
they are expressly being included solely for the benefit or protection
of such series), and to make the occurrence, or the occurrence and
continuance, of a default in any such additional covenants,
restrictions, conditions or provisions an Event of Default permitting
the enforcement of all or any of the several remedies provided in this
Indenture as herein set forth; provided, that in respect of any such
additional covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the remedies
available to the Trustee upon such an Event of Default or may limit the
right of the Holders of a majority in aggregate principal amount of the
Notes of such series to waive such an Event of Default;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other provisions in
regard to matters or questions arising under this Indenture or under
any supplemental indenture as the Board of Directors may deem necessary
or desirable and which shall not adversely affect the interests of the
Holders of the Notes in any material respect;
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57
(e) to establish the form or forms or terms of Notes of any
series as permitted by Sections 2.1;
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Notes of one or
more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one trustee,
pursuant to the requirements of Article Seven;
(g) to provide for uncertificated Notes and to make all
appropriate changes for such purpose;
(h) to comply with the requirements of the TIA;
(i) to add additional Guarantors with respect to the Notes;
and
(j) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee.
The Trustee is hereby authorized to join with the Company and the
Guarantors in the execution of any such supplemental indenture, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer, assignment, mortgage or pledge of any
property thereunder, but the Trustee shall not be obligated to enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section may be executed without the consent of the Holders of any of the Notes
at the time outstanding, notwithstanding any of the provisions of Section
9.2.
SECTION IX.2. With Consent of Noteholders. With the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding of all series affected by such supplemental indenture
(voting as one class), the Company and the Guarantors, each when authorized by
a Board Resolution (which resolution may provide general terms or parameters
for such action and may provide that the specific terms of such action may be
determined in accordance with or pursuant to a Company Order), and the Trustee
may, from time to time and at any time, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the Holders
of the Notes of each such series; provided, that no such supplemental
indenture shall (a) extend the final maturity of any Note, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption thereof or make
the principal thereof, premium, if any, or interest thereon, including
Additional Interest,
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58
payable in any coin or currency other than that provided in the Notes or in
accordance with the terms thereof, premium, if any, that would be due and
payable upon an acceleration of the maturity thereof pursuant to Section 6.1
or the amount thereof provable in bankruptcy pursuant to Section 6.2, or
impair or affect the right of any Noteholder to institute suit for the payment
thereof or, if the Notes provide therefor, any right of repayment at the
option of the Noteholder in each case without the consent of the Holder of
each Note so affected, or (b) reduce the aforesaid percentage in principal
amount of Notes of any series, the consent of the Holders of which is required
for any such supplemental indenture, without the consent of the Holders of
each Note so affected.
A supplemental indenture which changes or eliminates any covenant
or other provision of this Indenture which has expressly been included solely
for the benefit of one or more particular series of Notes, or which modifies
the rights of Holders of Notes with respect to such covenant or provision,
shall be deemed not to affect the rights under this Indenture of the Holders
of Notes of any other series.
Upon the request of the Company and the Guarantors, accompanied by
a copy of a Board Resolution (which resolution may provide general terms or
parameters for such action and may provide that the specific terms of such
action may be determined in accordance with or pursuant to a Company Order)
certified by the secretary or an assistant secretary of the Company and the
Guarantors authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid and other documents, if any, required by Sections 7.1 and 9.4, the
Trustee shall join with the Company and the Guarantors in the execution of
such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated
to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Noteholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Company, the Guarantors and the
Trustee of any supplemental indenture pursuant to the provisions of this
Section, the Trustee shall give notice thereof (i) to the Holders of then
outstanding Registered Notes of each series affected thereby, by mailing a
notice thereof by first class mail to such Holders at their addresses as they
shall appear on the Note register, (ii) if any Unregistered Notes of a series
affected thereby are then outstanding, to the Holders thereof who have filed
their names and addresses with the Trustee pursuant to Section 313(c)(2) of
the TIA, by mailing a notice thereof by first class mail to such Holders at
such addresses as were so furnished to the Trustee and (iii) if any
Unregistered Notes of a series affected thereby are then outstanding, to all
Holders thereof, by publication of a notice thereof at least one in an
Authorized Newspaper in the Borough of Manhattan, The City of New York and at
least once in an Authorized Newspaper in London at the expense of the Company,
and in each case such notice shall set forth in general terms the substance of
such
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59
supplemental indenture. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
SECTION IX.3. Effect of Supplemental Indenture. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations,
duties and immunities under this Indenture of the Trustee, the Company, the
Guarantors and the Holders of Notes of each series affected thereby shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION IX.4. Documents to Be Given to Trustee. The Trustee,
subject to the provisions of Sections 7.1 and 7.2, shall receive an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article Nine complies with
the applicable provisions of this Indenture.
SECTION IX.5. Notation on Notes in Respect of Supplemental
Indentures. Notes of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee for such series as
to any matter provided for by such supplemental indenture or as to any action
taken at any such meeting. If the Company so determines, new Notes of any
series so modified as to conform, in the opinion of the Board of Directors, to
any modification of this Indenture contained in any such supplemental
indenture may be prepared by the Company, authenticated by the Trustee and
delivered in exchange for the Notes of such series then outstanding.
SECTION IX.6. Compliance with TIA. Every amendment to this
Indenture or the Notes shall comply with the TIA as then in effect.
SECTION IX.7. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Note shall bind the Holder
and every subsequent Holder of that Note or portion of the Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
or waiver is not made on the Note. However, any such Holder or subsequent Holder
may revoke the consent or waiver as to such Holder's Note or portion of the Note
if the Trustee receives the notice of revocation before the date the amendment
or waiver becomes effective. After an amendment or waiver becomes effective, is
shall bind every Note holder. An amendment or waiver shall become effective upon
receipt by the Trustee of the requisite number of written consents under Section
9.1 or 9.2 as applicable.
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60
The Company may, but shall note be obligated to, fix a record date
for the purpose of determining the Noteholders entitled to give this consent
or take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding
the immediately preceding paragraph, those Persons who were Noteholders at
such record date (or their duly designated proxies), and only those Persons,
shall be entitled to give such consent or to revoke any consent previously
given or to take any such action, whether or not such Persons continue to be
Holders after such record date. No such consent shall become valid or
effective more than 120 days after such record date.
SECTION IX.8. Trustee to Sign Amendments. The Trustee shall sign
any amendment authorized pursuant to this Article Nine if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall receive indemnity reasonably satisfactory to it
and to receive, and (subject to Sections 7.1 and 7.2) shall be fully protected
in relying upon, an Officers' Certificate and an Opinion of Counsel stating
that such amendment is authorized or permitted by this Indenture and that such
supplemental indenture constitutes the legal valid and binding obligation of
the Company and the Guarantors in accordance with its terms subject to
customary exceptions.
ARTICLE X
Guarantees
SECTION X.1. Guarantees. Each Guarantor hereby fully,
unconditionally and irrevocably guarantees, as primary obligor and not merely
as surety, jointly and severally with each other Guarantor, to each Holder of
the Notes and the Trustee the full and punctual payment when due, whether at
maturity, by acceleration, by redemption, by repurchase, or otherwise, of the
principal of, premium, if any, and interest, including Additional Interest, on
the Notes and all other obligations of the Company under this Indenture (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Guarantor further agrees (to the extent permitted by law) that the Obligations
may be extended or renewed, in whole or in part, without notice or further
assent from it, and that it will remain bound under this Article X
notwithstanding any extension or renewal of any Obligation.
Each Guarantor waives presentation to, demand of payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. Each Guarantor waives notice of any default under the
Notes or the Obligations. The obligations of each Guarantor hereunder shall
not be affected by (a) the failure of any Holder to assert any claim or demand
or to enforce any right or remedy against the Company or any other person
under this Indenture, the Notes or any other agreement or otherwise; (b) any
extension or renewal of any thereof; (c) any rescission, waiver, amendment or
modification of any of the terms or provisions of this Indenture, the Notes or
any other agreement; (d) the release of any security held by any Holder or the
Trustee for the Obligations or any of them; (e) the failure of any
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61
Holder toexercise any right or remedy against any other Guarantor; or (f) any
change in the ownership of the Company.
Each Guarantor further agrees that its Guarantee herein constitutes
a Guarantee of payment when due (and not a Guarantee of collection) and waives
any right to require that any resort be had by any Holder to any security held
for payment of the Obligations.
The obligations of each Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason (other
than payment of the Obligations in full), including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations
of each Guarantor herein shall not be discharged or impaired or otherwise
affected by the failure of any Holder to assert any claim or demand or to
enforce any remedy under this Indenture, the Notes or any other agreement, by
any waiver or modification of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Obligations, or by any other
act or thing or omission or delay to do any other act or thing which may or
might in any manner or to any extent vary the risk of any Guarantor or would
otherwise operate as a discharge of such Guarantor as a matter of law or
equity.
Each Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any of the
Obligations is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Company to pay any of the Obligations when and
as the same shall become due, whether at maturity, by acceleration, by
redemption, by repurchase or otherwise, each Guarantor hereby promises to and
will, upon receipt of written demand by the Trustee, forthwith pay, or cause
to be paid, in cash, to the Holders an amount equal to the sum of (i) the
unpaid amount of such Obligations then due and owing and (ii) accrued and
unpaid interest on such Obligations then due and owing (but only to the extent
not prohibited by law).
Each Guarantor further agrees that, as between such Guarantor, on
the one hand, and the Holders, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in this Indenture
for the purposes of its Guarantee herein, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby and (y) in the event of any such declaration of
acceleration of such Obligations, such Obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantor for the
purposes of this Guarantee.
<PAGE>
62
Each Guarantor also agrees to pay any and all reasonable costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or the
Holders in enforcing any rights under this Section.
SECTION X.2. Limitation on Liability; Termination, Release and
Discharge. The obligations of each Guarantor hereunder will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including, without limitation, any guarantees
under the Bank Credit Agreement) and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each Guarantor may consolidate with or merge into or sell its
assets to the Company or another Guarantor without limitation. Each Guarantor
may consolidate with or merge into or sell its assets to a Person other than
the Company or another Guarantor (whether or not an Affiliate of the
Guarantor), provided, that upon any such consolidation, merger or sale to
which such Guarantor is a party, other than transactions in which such
Guarantor is not the surviving corporation, the Obligations shall be expressly
assumed by supplemental indenture executed and delivered to the Trustee, by
the corporation formed by such consolidation, or into which such Guarantor
shall have been merged, or which shall have acquired such property, provided,
such corporation is also a Bank Credit Agreement Guarantor, and such Guarantor
will be deemed released from all its obligations under the Indenture and its
Guarantee and such Guarantee will terminate.
If a Guarantor ceases to be a Bank Credit Agreement Guarantor for
any reason, such Guarantor will be deemed released from all of its obligations
under the Indenture and its Guarantee of the Notes and such Guarantee will
terminate.
SECTION X.3. Right of Contribution. Each Guarantor hereby agrees
that to the extent that any Guarantor shall have paid more than its
proportionate share of any payment made on the obligations under the
Guarantees, such Guarantor shall be entitled to seek and receive contribution
from and against the Company or any other Guarantor who has not paid its
proportionate share of such payment. The provisions of this Section 10.3 shall
in no respect limit the obligations and liabilities of each Guarantor to the
Trustee and the Holders and each Guarantor shall remain liable to the Trustee
and the Holders for the full amount guaranteed by such Guarantor hereunder.
SECTION X.4. No Subrogation. Notwithstanding any payment or
payments made by each Guarantor hereunder, no Guarantor shall be entitled to
be subrogated to any of the rights of the Trustee or any Holder against the
Company or any other Guarantor or any collateral security or guarantee or
right of offset held by the Trustee or any Holder for the payment of the
Obligations, nor shall any Guarantor seek or be
<PAGE>
63
entitled to seek any contribution or reimbursement from the Company or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Trustee and the Holders by the Company on account of
the Obligations are paid in full. If any amount shall be paid to any Guarantor
on account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Guarantor
in trust for the Trustee and the Holders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Trustee in the exact form received by such Guarantor (duly indorsed by
such Guarantor to the Trustee, if required), to be applied against the
Obligations.
SECTION X.5. Future Guarantors. After the date on which a
Subsidiary other than RJRT (whether previously existing or created or acquired
by the Company) becomes a Bank Credit Agreement Guarantor, the Company will
execute and deliver and cause such Subsidiary to execute and deliver to the
Trustee a supplemental indenture substantially in the form set forth as
Exhibit J to the Indenture pursuant to which such Subsidiary will
unconditionally guarantee, on a joint and several basis with the other
Guarantors, the full and prompt payment of the principal of, premium, if any,
and interest, including Additional Interest, on the Notes on an unsecured and
unsubordinated basis and become a party to this Indenture as a Guarantor for
all purposes of the Indenture.
ARTICLE XI
Miscellaneous
SECTION XI.1. TIA Controls. If any provision of this Indenture
limits, qualifies or conflicts with another provision which is required to be
included in this Indenture by the TIA, the provision required by the TIA shall
control. Each Guarantor in addition to performing its obligations under its
Guarantee shall perform such other obligations as may be imposed upon it with
respect to this Indenture under the TIA.
SECTION XI.2. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, New York 10019
Attention: Corporate Secretary
<PAGE>
64
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Joseph A. Hall
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West,
New York, New York 10286
Attention: Legal Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a registered Noteholder shall
be mailed to the Noteholder at the Noteholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION XI.3. Communication by Holders with other Holders.
Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders
with respect to their rights under this Indenture or the Notes. The Company,
the Guarantors, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c).
SECTION XI.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or
refrain from taking any action under this Indenture, the Company shall furnish
to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
<PAGE>
65
Notwithstanding the foregoing, the Trustee shall not be required to obtain and
Officers' Certificate from the Guarantor with respect to the initial issuance of
the Guarantees.
SECTION XI.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(i) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
In giving such Opinion of Counsel, counsel may rely as to factual
matters on an Officers' Certificate or on certificates of public officials.
SECTION XI.6. When Notes Disregarded. In determining whether the
Holders of the required principal amount of Notes have concurred in any
direction, waiver or consent, Notes owned by the Company or by any Person
directly or indirectly Controlling or Controlled by or under direct or
indirect common Control with the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, waiver or
consent, only Notes which a Responsible Officer of the Trustee actually knows
are so owned shall be so disregarded. Also, subject to the foregoing, only
Notes outstanding at the time shall be considered in any such determination.
SECTION XI.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by, or a meeting of, Noteholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION XI.8. Legal Holidays. A ALegal Holiday" is a Saturday, a
Sunday or other day on which commercial banking institutions are authorized or
required to be closed in New York City. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest
<PAGE>
66
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION XI.9. GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION XI.10. No Recourse Against Others. An incorporator,
director, officer, employee, stockholder or controlling person, as such, of
each of the Company or any Guarantor shall not have any liability for any
obligations of the Company under the Notes, this Indenture or the Guarantees
or for any claim based on, in respect of or by reason of such obligations or
their creation. By accepting a Note, each Noteholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Notes.
SECTION XI.11. Successors. All agreements of the Company and the
Guarantors in this Indenture and the Notes shall bind their respective
successors. All agreements of the Trustee in this Indenture shall bind their
successors.
SECTION XI.12. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION XI.13. Variable Provisions. The Company initially appoints
the Trustee as Paying Agent and Registrar and custodian with respect to any
Global Notes.
SECTION XI.14. Qualification of Indenture. The Company shall
qualify this Indenture under the TIA in accordance with the terms and
conditions of the Registration Rights Agreement and the Company and the
Guarantors shall pay all reasonable costs and expenses (including attorneys'
fees and expenses for the Company, the Guarantors, the Trustee and the
Holders) incurred in connection therewith, including, but not limited to,
costs and expenses of qualification of this Indenture and the Notes and
printing this Indenture and the Notes. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel
or other documentation as it may reasonably request in connection with any
such qualification of this Indenture under the TIA.
SECTION XI.15. Incorporators, Stockholders, Officers and Directors
of Company Exempt and Individual Liability. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any Note,
or because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such or against any
<PAGE>
67
past, present or future stockholder, officer or director, as such, of the
Company or the Guarantors or of any successor, either directly or through the
Company or the Guarantors or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such liability being expressly
waived and release by the acceptance of the Notes by the holders thereof and
as part of the consideration for the issue of the Notes.
SECTION XI.16. Provisions of Indenture for the Sole Benefit of
Parties and Noteholders. Nothing in this Indenture or in the Notes expressed
or implied, shall give or be construed to give to any person, firm or
corporation, other than the parties hereto and their successors and the
Holders of the Notes any legal or equitable right, remedy or claim under this
Indenture or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the Holder of the Notes.
<PAGE>
68
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
RJR NABISCO, INC.
By:_____________________________
Name:
Title:
R.J. REYNOLDS TOBACCO COMPANY
By:_____________________________
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:_____________________________
Name:
Title:
<PAGE>
Exhibit 10.3
[EXECUTION COPY]
RJR NABISCO, INC.,
Issuer
and
THE BANK OF NEW YORK,
Trustee
----------
FIRST SUPPLEMENTAL INDENTURE AND WAIVER
Dated as of April 27, 1999
(Supplemental to the Amended and Restated Indenture dated as of July 24, 1995)
----------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE AND WAIVER (this "First Supplemental
Indenture"), dated as of April 27, 1999 between RJR NABISCO, INC., a Delaware
corporation (the "Issuer"), and THE BANK OF NEW YORK, a New York banking
corporation (the "Trustee"),
WHEREAS, there is proposed to be a series of certain transactions
(collectively, the "Reorganization"), which includes (i) the sale (the
"International Tobacco Sale") by the Issuer and R.J. Reynolds Tobacco Company of
the international tobacco business to Japan Tobacco Inc., (ii) the transfer of
the Issuer's 80.5% interest in Nabisco Holdings Corp., together with
approximately $1.6 billion in after-tax proceeds from the International Tobacco
Sale, to RJR Nabisco Holdings Corp., the parent of the Issuer ("RJRN Holdings"),
through a merger transaction that is intended to be tax-free, and (iii) the
spinoff of the Issuer to the common stockholders of RJRN Holdings that is
intended to be tax-free;
WHEREAS, as part of the Reorganization, RJRN intends (i) to issue new
RJRN debt securities and (ii) to enter into a new bank credit facility
(together, the "Debt Restructuring");
WHEREAS, the Issuer executed and delivered an Amended and Restated
Indenture dated as of July 24, 1995 (the "Original Indenture") between the
Issuer and Citibank, N.A., as trustee (the "Original Trustee"), providing for
the issue from time to time of its debentures, notes or other evidences of
indebtedness to be issued in one or more series (the "Securities");
WHEREAS, the Trustee succeeded to the obligations of the Original
Trustee pursuant to the Agreement of Resignation, Appointment and Acceptance,
dated as of July 27, 1998, by and among the Issuer, the Original Trustee and the
Trustee and relating to the Original Indenture;
WHEREAS, Section 8.2 of the Original Indenture provides that the
Original Indenture may be amended with the consent of the holders of a majority
in aggregate principal amount of the Securities then Outstanding (as defined
therein) of all series affected by such supplemental indenture (voting as one
class) and the Issuer has determined that, as of the date hereof, the
Outstanding series of Securities affected by this First Supplemental Indenture
include (i) the 8% Notes due January 15, 2000; (ii) the 7.625% Medium Term Notes
due September 1, 2000; (iii) the 8% Notes due July 15, 2001; (iv) the 7.375%
Medium Term Notes due August 1, 2001; (v) the 7.63% Medium Term Notes due August
13, 2001; (vi) the 6.80% Medium Term Notes due September 1, 2001; (vii) the
85/8% Notes due December 1, 2002; (viii) the 75/8% Notes due September 15, 2003;
(ix) the 8.25% Notes due July 1, 2004; (x) the 8.75% Notes due August 15, 2005;
(xi) the 8.50%
1
<PAGE>
Notes due July 1, 2007; (xii) the 8.75% Notes due July 15, 2007 and (xiii) the 9
1/4% Debentures due August 15, 2013 (together, the "Outstanding Securities") and
that such required holders of the Outstanding Securities have consented to the
amendments and waiver herein; and
WHEREAS, all other conditions and requirements necessary to make this
First Supplemental Indenture a valid and binding instrument in accordance with
its terms and the terms of the Original Indenture have been satisfied.
NOW, THEREFORE, this First Supplemental Indenture
W I T N E S S E T H:
That in consideration of the premises and of the mutual covenants
herein contained, the Issuer and the Trustee hereby covenant and agree, for the
equal and proportionate benefit of all holders from time to time of the
Securities as follows:
SECTION 1. For all purposes of this First Supplemental Indenture,
(a) except as otherwise expressly provided or unless the context
otherwise requires, all capitalized terms used and not defined herein that are
defined in the Original Indenture shall have the meanings assigned to them in
the Original Indenture; and
(b) "Statement" means the Offer to Purchase and Consent Solicitation
Statement of the Issuer dated April 13, 1999, as amended from time to time.
"Offer" means the offer to purchase for cash any and all of the
Outstanding Securities, upon the terms and conditions set forth in the
Statement.
SECTION 2. Section 1.1 of the Original Indenture is hereby amended by
deleting the definitions of "Attributable Debt", "Consolidated Net Worth",
"Exempted Debt", "Funded Debt", "Principal Property" and "Restricted
Subsidiary" therein in their entirety.
SECTION 3. The Original Indenture is hereby amended by deleting
Sections 3.6, 3.7, 3.8 and 9.1 thereof (the "Negative Covenants") in their
entirety.
SECTION 4. The Original Indenture is hereby amended by deleting the
words "or any Restricted Subsidiary" from Section 5.1(f) thereof.
2
<PAGE>
SECTION 5. Subject to Section 6(b) hereof, the application of the
Negative Covenants is hereby waived to the extent required to effect the
Reorganization and permit the Debt Restructuring (the "Waiver").
SECTION 6. (a) Upon the execution and delivery of this First Supple
mental Indenture by the Issuer and the Trustee, the Original Indenture shall be
amended and supplemented in accordance herewith, and this First Supplemental
Indenture shall form a part of the Original Indenture for all purposes, and
every holder of Securities heretofore or hereafter authenticated and delivered
under the Original Indenture shall be bound thereby, as hereby amended and
supplemented; provided, however, that the provisions of this First Supplemental
Indenture, except as described in (b) with respect to the Waiver, shall not
become operative until the Issuer has notified the Trustee that it has accepted
for payment the Securities tendered pursuant to the Offer upon the terms and
conditions set forth in the Statement (and at such time the provisions of this
First Supplemental Indenture shall automatically become operative without the
requirement of any further action by or notice to the Issuer, the Trustee or any
holder of Securities).
(b) The Waiver shall become operative immediately upon the execution
and delivery of this First Supplemental Indenture by the Issuer and the Trustee.
However, if the Offer is terminated or withdrawn or the tendered Securities are
not accepted for payment pursuant to the Offer, the Waiver will cease to be
operative.
SECTION 7. Nothing in this First Supplemental Indenture, expressed or
implied, is intended or shall be construed to confer upon or give to any person
or corporation, other than the parties hereto and the holders of the Securities
any right, remedy or claim under or by reason of this First Supplemental
Indenture or any covenant, stipulation, promise or agreement contained herein;
all the covenants, stipulations, promises and agreements contained herein being
for the sole and exclusive benefit of the parties hereto and their successors,
and the holders from time to time of the Securities.
SECTION 8. This First Supplemental Indenture shall form a part of the
Original Indenture for all purposes and every holder of Securities heretofore or
hereafter authenticated and delivered under the Original Indenture shall be
bound hereby. The Original Indenture as supplemented by this First Supplemental
Indenture is hereby in all respects ratified and confirmed.
SECTION 9. The Trustee, for itself and its successor or successors,
accepts the trust of the Original Indenture as amended by this First
Supplemental Indenture, and agrees to perform the same, but only upon the terms
and conditions set forth in the Original Indenture, including the terms and
provisions defining
3
<PAGE>
and limiting the liabilities and responsibilities of the Trustee, which terms
and provisions shall in like manner define and limit its liabilities and
responsibilities in the performance of the trust created by the Original
Indenture, and, without limiting the generality of the foregoing, the recitals
contained herein shall be taken as the statements of the Issuer, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this First Supplemental
Indenture other than as to the validity of its execution and delivery by the
Trustee.
SECTION 10. This First Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 11. This First Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of April 27, 1999.
RJR NABISCO, INC.,
Issuer
By:
--------------------------------
Name: Francis X. Suozzi
Title: Senior Vice President and
Treasurer
[CORPORATE SEAL]
Attest:
By:____________________
Name:
Title:
THE BANK OF NEW YORK,
Trustee
By:________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By:____________________
Name:
Title:
5
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, on this _______ day of April,
1999, personally appeared ______________________, ____________________ of RJR
Nabisco, Inc., a Delaware corporation, known to me (or proved to me by
introduction upon the oath of a person known to me) to be the person and officer
whose name is subscribed to the foregoing instrument, and acknowledged to me
that he/she executed the same as the act of such corporation for the purposes
and consideration herein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL THIS ____ DAY OF APRIL,
1999.
(SEAL)
--------------------------------
NOTARY PUBLIC, STATE OF NEW YORK
Print Name:_____________________
Commission Expires:_____________
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, on this _______ day of April,
1999, personally appeared ______________________, ____________________ of The
Bank of New York, a New York banking corporation, known to me (or proved to me
by introduction upon the oath of a person known to me) to be the person and
officer whose name is subscribed to the foregoing instrument, and acknowledged
to me that he/she executed the same as the act of such trust for the purposes
and consideration herein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL THIS _____ DAY OF APRIL,
1999.
(SEAL)
--------------------------------
NOTARY PUBLIC, STATE OF NEW YORK
Print Name:_____________________
Commission Expires:_____________
1
<PAGE>
Exhibit 10.4
[EXECUTION COPY]
RJR NABISCO, INC.,
Issuer
and
THE BANK OF NEW YORK,
Trustee
-----------
SECOND SUPPLEMENTAL INDENTURE AND WAIVER
Dated as of April 27, 1999
(Supplemental to the Amended and Restated Indenture dated as of May 18, 1992,
as amended by the First Supplemental Indenture thereto dated as of June 2, 1995)
-----------
<PAGE>
SECOND SUPPLEMENTAL INDENTURE AND WAIVER (this "Second Supplemental
Indenture"), dated as of April 27, 1999 between RJR NABISCO, INC., a Delaware
corporation (the "Issuer"), and THE BANK OF NEW YORK, a New York banking
corporation (the "Trustee"),
WHEREAS, there is proposed to be a series of certain transactions
(collectively, the "Reorganization"), which includes (i) the sale (the
"International Tobacco Sale") by the Issuer and R.J. Reynolds Tobacco Company
of the international tobacco business to Japan Tobacco Inc., (ii) the transfer
of the Issuer's 80.5% interest in Nabisco Holdings Corp., together with
approximately $1.6 billion in after-tax proceeds from the International Tobacco
Sale, to RJR Nabisco Holdings Corp., the parent of the Issuer ("RJRN
Holdings"), through a merger transaction that is intended to be tax-free, and
(iii) the spinoff of the Issuer to the common stockholders of RJRN Holdings
that is intended to be tax-free;
WHEREAS, as part of the Reorganization, RJRN intends (i) to issue new RJRN
debt securities and (ii) to enter into a new bank credit facility (together,
the "Debt Restructuring");
WHEREAS, the Issuer executed and delivered an Amended and Restated
Indenture dated as of May 18, 1992 between the Issuer and Citibank, N.A., as
trustee (the "Original Trustee"), as supplemented by the First Supplemental
Indenture dated as of June 2, 1995 between the Issuer and the Original Trustee
(as so supplemented, the "Original Indenture"), providing for the issuance of
$600,000,000 of 8.75% Senior Notes due April 15, 2004 (the "Securities");
WHEREAS, the Trustee succeeded to the obligations of the Original Trustee
pursuant to the Agreement of Resignation, Appointment and Acceptance, dated as
of July 27, 1998, by and among the Issuer, the Original Trustee and the Trustee
and relating to the Original Indenture;
WHEREAS, Section 7.2 of the Original Indenture provides that the Original
Indenture may be amended with the consent of the holders of a majority in
aggregate principal amount of the Securities then outstanding and the Issuer
has determined that the required holders of such Securities have consented to
the amendments and waiver herein; and
WHEREAS, all other conditions and requirements necessary to make this
Second Supplemental Indenture a valid and binding instrument in accordance with
its terms and the terms of the Original Indenture have been satisfied.
NOW, THEREFORE, this Second Supplemental Indenture
1
<PAGE>
W I T N E S S E T H:
That in consideration of the premises and of the mutual covenants herein
contained, the Issuer and the Trustee hereby covenant and agree, for the equal
and proportionate benefit of all holders from time to time of the Securities as
follows:
SECTION 1. For all purposes of this First Supplemental Indenture,
(a) except as otherwise expressly provided or unless the context otherwise
requires, all capitalized terms used and not defined herein that are defined in
the Original Indenture shall have the meanings assigned to them in the Original
Indenture; and
(b) "Statement" means the Offer to Purchase and Consent Solicitation
Statement of the Issuer dated April 13, 1999, as amended from time to time.
"Offer" means the offer to purchase for cash any and all of the
outstanding Securities, upon the terms and conditions set forth in the
Statement.
SECTION 2. Section 1.1 of the Original Indenture is hereby amended by
deleting the definitions of "Attributable Debt", "Consolidated Net Worth",
"Exempted Debt", "Funded Debt", "Principal Property" and "Restricted
Subsidiary" therein in their entirety.
SECTION 3. The Original Indenture is hereby amended by deleting Sections
3.9, 3.10, 3.11 and 8.1 thereof (the "Negative Covenants") in their entirety.
SECTION 4. Section 4.1 of the Original Indenture is hereby amended by
deleting each reference to "any Restricted Subsidiary" in clauses (d) and (e)
thereof.
SECTION 5. Subject to Section 6(b) hereof, the application of the Negative
Covenants is hereby waived to the extent required to effect the Reorganization
and the Debt Restructuring (the "Waiver").
SECTION 6. (a) Upon the execution and delivery of this Second Supple
mental Indenture by the Issuer and the Trustee, the Original Indenture shall be
amended and supplemented in accordance herewith, and this Second Supplemental
Indenture shall form a part of the Original Indenture for all purposes, and
every holder of Securities heretofore or hereafter authenticated and delivered
under the Original Indenture shall be bound thereby, as hereby amended and
supplemented; provided, however, that the provisions of this Second
2
<PAGE>
Supplemental Indenture, except as described in (b) with respect to the Waiver,
shall not become operative until the Issuer has notified the Trustee that it has
accepted for payment the Securities tendered pursuant to the Offer upon the
terms and conditions set forth in the Statement (and at such time the provisions
of this Second Supplemental Indenture shall automatically become operative
without the requirement of any further action by or notice to the Issuer, the
Trustee or any holder of Securities).
(b) The Waiver shall become operative immediately upon the execution and
delivery of this Second Supplemental Indenture by the Issuer and the Trustee.
However, if the Offer is terminated or withdrawn or the tendered Securities are
not accepted for payment pursuant to the Offer, the Waiver will cease to be
operative.
SECTION 7. Nothing in this Second Supplemental Indenture, expressed or
implied, is intended or shall be construed to confer upon or give to any person
or corporation, other than the parties hereto and the holders of the Securities
any right, remedy or claim under or by reason of this Second Supplemental
Indenture or any covenant, stipulation, promise or agreement contained herein;
all the covenants, stipulations, promises and agreements contained herein being
for the sole and exclusive benefit of the parties hereto and their successors,
and the holders from time to time of the Securities.
SECTION 8. This Second Supplemental Indenture shall form a part of the
Original Indenture for all purposes and every holder of Securities heretofore
or hereafter authenticated and delivered under the Original Indenture shall be
bound hereby. The Original Indenture as supplemented by this Second
Supplemental Indenture is hereby in all respects ratified and confirmed.
SECTION 9. The Trustee, for itself and its successor or successors,
accepts the trust of the Original Indenture as amended by this Second
Supplemental Indenture, and agrees to perform the same, but only upon the terms
and conditions set forth in the Original Indenture, including the terms and
provisions defining and limiting the liabilities and responsibilities of the
Trustee, which terms and provisions shall in like manner define and limit its
liabilities and responsibilities in the performance of the trust created by the
Original Indenture, and, without limiting the generality of the foregoing, the
recitals contained herein shall be taken as the statements of the Issuer, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Second
Supplemental Indenture other than as to the validity of its execution and
delivery by the Trustee.
3
<PAGE>
SECTION 10. This Second Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 11. This Second Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of April 27, 1999.
RJR NABISCO, INC.,
Issuer
By:________________________________
Name: Francis X. Suozzi
Title: Senior Vice President and
Treasurer
[CORPORATE SEAL]
Attest:
By:__________________________________
Name:
Title:
THE BANK OF NEW YORK,
Trustee
By:________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By:__________________________________
Name:
Title:
5
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, on this _______ day of April, 1999,
personally appeared ______________________, ____________________ of RJR
Nabisco, Inc., a Delaware corporation, known to me (or proved to me by
introduction upon the oath of a person known to me) to be the person and
officer whose name is subscribed to the foregoing instrument, and acknowledged
to me that he/she executed the same as the act of such corporation for the
purposes and consideration herein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL THIS ____ DAY OF APRIL, 1999.
(SEAL)
_________________________________
NOTARY PUBLIC, STATE OF NEW YORK
Print Name:_____________________
Commission Expires:_____________
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, on this _______ day of April, 1999,
personally appeared ______________________, ____________________ of The Bank of
New York, a New York banking corporation, known to me (or proved to me by
introduction upon the oath of a person known to me) to be the person and
officer whose name is subscribed to the foregoing instrument, and acknowledged
to me that he/she executed the same as the act of such trust for the purposes
and consideration herein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL THIS _____ DAY OF APRIL, 1999.
(SEAL)
_________________________________
NOTARY PUBLIC, STATE OF NEW YORK
Print Name:_____________________
Commission Expires:_____________
<PAGE>
Exhibit 10.5
================================================================================
CREDIT AGREEMENT
AMONG
RJR NABISCO, INC.
RJR NABISCO HOLDINGS CORP.,
AND
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
AND
BANKERS TRUST COMPANY,
CITIBANK, N.A.,
CREDIT LYONNAIS NEW YORK BRANCH
THE FUJI BANK, LIMITED
AND
BARCLAYS BANK PLC,
AS SYNDICATION AGENTS
AND
VARIOUS LENDING INSTITUTIONS
-----------------
Dated as of May 7, 1999
-----------------
$1,235,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit........................................1
1.01 Commitments.......................................................1
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings....3
1.03 Notice of Borrowing of Committed Loans............................3
1.04 Competitive Bid Borrowings........................................4
1.05 Disbursement of Funds.............................................6
1.06 Notes; Register...................................................6
1.07 Conversions.......................................................7
1.08 Pro Rata Borrowings...............................................7
1.09 Interest..........................................................8
1.10 Interest Periods..................................................9
1.11 Increased Costs, Illegality, etc.................................10
1.12 Compensation.....................................................12
1.13 Change of Lending Office.........................................12
1.14 Maturity Date Extensions.........................................12
1.15 Replacement of Lenders...........................................13
1.16 Notice of Certain Costs..........................................14
SECTION 2. Letters of Credit................................................14
2.01 Letters of Credit................................................14
2.02 Letter of Credit Requests........................................16
2.03 Letter of Credit Participations..................................16
2.04 Agreement to Repay Letter of Credit Drawings.....................18
2.05 Increased Costs..................................................19
2.06 Indemnification; Nature of Letter of Credit Issuers' Duties......20
SECTION 3. Fees; Commitments................................................21
3.01 Fees.............................................................21
3.02 Voluntary Reduction of Commitments...............................22
3.03 Mandatory Reduction of Commitments, etc..........................22
SECTION 4. Payments.........................................................23
4.01 Voluntary Prepayments............................................23
4.02 Mandatory Prepayments............................................23
4.03 Method and Place of Payment......................................24
4.04 Net Payments.....................................................25
SECTION 5. Conditions Precedent.............................................26
5.01 Conditions Precedent to Closing Date.............................26
(i)
<PAGE>
5.02 Conditions Precedent to All Credit Events........................28
SECTION 6. Representations, Warranties and Agreements.......................29
6.01 Corporate Status.................................................30
6.02 Corporate Power and Authority....................................30
6.03 No Violation.....................................................30
6.04 Litigation.......................................................30
6.05 Use of Proceeds; Margin Regulations..............................30
6.06 Governmental Approvals...........................................31
6.07 Investment Company Act...........................................31
6.08 True and Complete Disclosure.....................................31
6.09 Financial Condition; Financial Statements........................31
6.10 Tax Returns and Payments.........................................32
6.11 Compliance with ERISA............................................32
6.12 Subsidiaries.....................................................32
6.13 Patents, etc.....................................................32
6.14 Pollution and Other Regulations..................................33
6.15 Properties.......................................................33
6.16 Year 2000 Compliance.............................................33
SECTION 7. Affirmative Covenants............................................33
7.01 Information Covenants............................................33
7.02 Books, Records and Inspections...................................35
7.03 Insurance........................................................36
7.04 Payment of Taxes.................................................36
7.05 Consolidated Corporate Franchises................................36
7.06 Compliance with Statutes, etc....................................36
7.07 ERISA............................................................36
7.08 Good Repair......................................................37
7.09 End of Fiscal Years; Fiscal Quarters.............................37
7.10 Competitive Bid Loan Outstandings................................37
7.11 Subsidiary Guaranty; Collateral..................................38
7.12 Indebtedness.....................................................38
SECTION 8. Negative Covenants...............................................38
8.01 Changes in Business..............................................38
8.02 Consolidation, Merger, Sale of Assets, etc.......................39
8.03 Liens............................................................39
8.04 Indebtedness.....................................................41
8.05 Limitation on Dividends..........................................42
8.06 Transactions with Affiliates.....................................44
8.07 Consolidated Net Worth...........................................44
8.08 Fixed Charge Coverage Ratio......................................44
8.09 Investments......................................................44
8.10 No Negative Pledge...............................................45
8.11 Prepayments of Indebtedness......................................45
(ii)
<PAGE>
SECTION 9. Events of Default................................................45
9.01 Payments.........................................................45
9.02 Representations, etc.............................................45
9.03 Covenants........................................................45
9.04 Default Under Other Agreements...................................45
9.05 Bankruptcy, etc..................................................46
9.06 ERISA............................................................46
9.07 Guaranty.........................................................47
9.08 Judgments........................................................47
9.09 Security Documents...............................................47
SECTION 10. Definitions......................................................48
SECTION 11. The Senior Managing Agents.......................................70
11.01 Appointment.....................................................70
11.02 Delegation of Duties............................................70
11.03 Exculpatory Provisions..........................................71
11.04 Reliance by Senior Managing Agents..............................71
11.05 Notice of Default...............................................71
11.06 Non-Reliance on Senior Managing Agents and Other Lenders........72
11.07 Indemnification.................................................72
11.08 Senior Managing Agents in Their Individual Capacities...........73
11.09 Successor Senior Managing Agents................................73
SECTION 12. Miscellaneous...................................................73
12.01 Payment of Expenses, etc........................................73
12.02 Right of Setoff.................................................74
12.03 Notices.........................................................74
12.04 Benefit of Agreement............................................74
12.05 No Waiver; Remedies Cumulative..................................77
12.06 Payments Pro Rata...............................................78
12.07 Calculations; Computations......................................78
12.08 Governing Law; Submission to Jurisdiction; Venue................79
12.09 Counterparts....................................................80
12.10 Execution.......................................................80
12.11 Headings Descriptive............................................80
12.12 Amendment or Waiver.............................................80
12.13 Survival........................................................81
12.14 Domicile of Loans...............................................81
12.15 Confidentiality.................................................81
12.16 Waiver of Jury Trial............................................81
SECTION 13. Holdings Guaranty...............................................82
13.01 The Holdings Guaranty...........................................82
13.02 Bankruptcy......................................................82
(iii)
<PAGE>
13.03 Nature of Liability.............................................82
13.04 Independent Obligation..........................................82
13.05 Authorization...................................................83
13.06 Reliance........................................................83
13.07 Subordination...................................................83
13.08 Waiver..........................................................83
ANNEX I -- List of Lenders and Commitments
ANNEX II -- Lender Addresses
ANNEX III -- Existing Letters of Credit
ANNEX IV -- Certain Litigation
ANNEX V -- Schedule of Material Subsidiaries
ANNEX VI -- Existing Debt
EXHIBIT A -- Form of Note
EXHIBIT B -- Form of Letter of Credit Request
EXHIBIT C-1 -- Form of Opinion of Senior Vice President, Associate
General Counsel and Secretary of the Borrower
EXHIBIT C-2 -- Form of Opinion of White & Case LLP
EXHIBIT D -- Subsidiary Guaranty
EXHIBIT E-1 -- Notice of Assignment
EXHIBIT E-2 -- Form of Assignment Agreement
EXHIBIT F -- Form of Confidentiality Agreement
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of May 7, 1999, among RJR NABISCO,
INC., a Delaware corporation, and until consummation of the Spin-Off referred to
below, RJR NABISCO HOLDINGS CORP., a Delaware corporation, and the lending
institutions listed from time to time on Annex I hereto (each a "Lender" and,
collectively, the "Lenders"). Unless otherwise defined herein, all capitalized
terms used herein and defined in Section 10 are used herein as so defined.
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein
set forth, the Lenders are willing to make available the credit facility
provided for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitments. (A) Subject to and upon the terms and
conditions herein set forth, each Lender severally agrees to make a loan or
loans (each a "Revolving Loan" and, collectively, the "Revolving Loans") to the
Borrower, which Revolving Loans:
(i) shall be made at any time and from time to time on and
after the Closing Date and prior to such Lender's Maturity Date;
(ii) may, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Reference Rate Loans or
Eurodollar Loans, provided that all Revolving Loans made by all Lenders
pursuant to the same Borrowing shall, unless otherwise specifically
provided herein, consist entirely of Revolving Loans of the same Type;
(iii) may be repaid and reborrowed in accordance with the
provisions hereof; and
(iv) shall not exceed for any Lender at any time outstanding
that aggregate principal amount which, when added to (A) the product of
(x) such Lender's Adjusted Percentage and (y) the sum of (I) the
aggregate Letter of Credit Outstandings and (II) the aggregate
outstanding principal amount of all Swingline Loans then outstanding
plus (B) the product of (x) such Lender's Percentage and (y) the
aggregate outstanding principal amount of all Competitive Bid Loans
then outstanding, equals the Commitment of such Lender at such time.
(B) Subject to and upon the terms and conditions herein set
forth, each Swingline Lender severally agrees, at any time and from time to time
on and after the Closing Date and prior to the Swingline Maturity Date, to make
a loan or loans (each a "Swingline Loan" and, collectively, the "Swingline
Loans") to the Borrower, which Swingline Loans:
(i) shall be Reference Rate Loans;
(ii) shall have the benefit of the provisions of Section
1.01(C);
<PAGE>
(iii) shall not exceed in the aggregate at any one time
outstanding the Swingline Commitment of such Swingline Lender at such
time;
(iv) shall not exceed in the aggregate for all Swingline Lenders
at any one time outstanding, when combined with the aggregate principal
amount of all Revolving Loans and Competitive Bid Loans then
outstanding and all Letter of Credit Outstandings at such time, the
Total Commitment then in effect; and
(v) may be repaid and reborrowed in accordance with the
provisions hereof.
On (x) the Swingline Maturity Date, all Swingline Loans shall be repaid in full
and (y) the last Business Day of each calendar quarter, all Swingline Loans
shall be repaid in full and may not be reborrowed until the next succeeding
Business Day, provided that repayment of the Swingline Loans pursuant to this
clause (y) shall not be required to the extent that the aggregate outstanding
principal amount of Swingline Loans to be repaid is less than $10,000,000. No
Swingline Lender will make a Swingline Loan after it has received written notice
from the Required Lenders that one or more of the applicable conditions to
Credit Events specified in Section 5 are not then satisfied.
(C) On any Business Day, a Swingline Lender (the "Notifying SL
Lender") may, in its sole discretion, give notice to the Lenders that all then
outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans
(provided that such notice shall be deemed to have been automatically given by
each Swingline Lender and each Swingline Lender shall constitute a Notifying SL
Lender upon the occurrence of an Event of Default under Section 9.05), in which
case a Borrowing of Revolving Loans constituting Reference Rate Loans (each such
Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding
Business Day by all Lenders pro rata based on each Lender's Adjusted Percentage,
and the proceeds thereof shall be applied directly to repay ratably all
Swingline Lenders for their outstanding Swingline Loans. Each Lender hereby
irrevocably agrees to make Reference Rate Loans upon one Business Day's notice
pursuant to each Mandatory Borrowing in the amount and in the manner specified
in the preceding sentence and on the date specified in writing by the Notifying
SL Lender notwithstanding (i) that the amount of the Mandatory Borrowing may not
comply with the Minimum Borrowing Amount otherwise required hereunder, (ii)
whether any conditions specified in Section 5 are then satisfied, (iii) whether
a Default or an Event of Default has occurred and is continuing, (iv) the date
of such Mandatory Borrowing and (v) any reduction in the Total Commitment after
any such Swingline Loans were made. In the event that any Mandatory Borrowing
cannot for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code in respect of the Borrower), each Lender (other than each
Swingline Lender with respect to its Swingline Loans) hereby agrees that it
shall forthwith purchase from each Swingline Lender (without recourse or
warranty) such assignment of its outstanding Swingline Loans as shall be
necessary to cause the Lenders to share in such Swingline Loans ratably based
upon their respective Adjusted Percentages; provided that all interest payable
on such Swingline Loans shall be for the account of the Swingline Lenders until
the date the respective assignment is purchased and, to the extent attributable
to the purchased assignment, shall be payable to the Lender purchasing same from
and after such date of purchase.
2
<PAGE>
(D) Subject to and upon the terms and conditions herein set
forth, each Lender severally agrees that the Borrower may incur a loan or loans
(each a "Competitive Bid Loan" and, collectively, the "Competitive Bid Loans")
pursuant to a Competitive Bid Borrowing from time to time on and after the
Closing Date and prior to the date which is the third Business Day preceding the
date which is 14 days prior to the Facility Maturity Date; provided that, after
giving effect to any Competitive Bid Borrowing and the use of the proceeds
thereof, (x) the aggregate outstanding principal amount of Competitive Bid Loans
when combined with the aggregate outstanding principal amount of all Revolving
Loans and Swingline Loans then outstanding and the aggregate Letter of Credit
Outstandings at such time shall not exceed the Total Commitment at such time or
(y) if the Interest Period applicable to such Competitive Bid Borrowing extends
beyond the then Maturity Date of any Lender, the aggregate outstanding principal
amount of all Competitive Bid Loans and Revolving Loans with Interest Periods
that extend beyond such Maturity Date when combined with the Stated Amount of
all outstanding Letters of Credit with expiration dates that extend beyond such
Maturity Date will not exceed the Expected Total Commitment in effect for each
day of the Interest Period applicable to such Competitive Bid Loan that occurs
beyond such Maturity Date. Within the foregoing limits and subject to the
conditions set out in Section 1.04, Competitive Bid Loans may be repaid and
reborrowed in accordance with the provisions hereof.
1.02 Minimum Amount of Each Borrowing; Maximum Number of
Borrowings. The aggregate principal amount of each Borrowing of Committed Loans
shall not be less than the Minimum Borrowing Amount with respect thereto (except
that Mandatory Borrowings shall be made in the amounts required by Section
1.01(C)). More than one Borrowing may be incurred on any date; provided, that at
no time shall there be outstanding more than twenty Borrowings of Eurodollar
Loans under this Agreement.
1.03 Notice of Borrowing of Committed Loans. (a) Whenever the
Borrower desires to incur Revolving Loans hereunder (other than Mandatory
Borrowings), it shall give the Administrative Agent at the Administrative
Agent's Office (x) prior to 11:00 A.M. (New York time) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Revolving Loans constituting Eurodollar Loans and (y) prior
to 11:00 A.M. (New York time) at least one Business Day's prior written notice
(or telephonic notice promptly confirmed in writing) of each Borrowing of
Revolving Loans constituting Reference Rate Loans. Each such notice (each,
together with each notice of a Borrowing of Swingline Loans pursuant to Section
1.03(b), a "Notice of Borrowing") shall be irrevocable and shall specify (i) the
aggregate principal amount of the Revolving Loans to be made pursuant to such
Borrowing, (ii) the date of Borrowing (which shall be a Business Day) and (iii)
whether the respective Borrowing shall consist of Reference Rate Loans or
Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing of Revolving Loans, of such Lender's proportionate share
thereof and of the other matters covered by the Notice of Borrowing.
(b) Whenever the Borrower desires to incur Swingline Loans
hereunder, it shall give the Administrative Agent at the Administrative Agent's
Office written notice (or telephonic
3
<PAGE>
notice promptly confirmed in writing) of each Borrowing of Swingline Loans prior
to 11:00 A.M. (New York time) on the date of such Borrowing. Each such notice
shall be irrevocable and shall specify (i) the aggregate principal amount of the
Swingline Loans to be made pursuant to such Borrowing and (ii) the date of
Borrowing (which shall be a Business Day). The Administrative Agent shall
promptly give each Swingline Lender written notice (or telephonic notice
promptly confirmed in writing) of each proposed Borrowing of Swingline Loans, of
such Swingline Lender's proportionate share thereof and of the other matters
covered by the Notice of Borrowing.
(c) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(C), with the Borrower irrevocably agreeing, by its
incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set
forth in such Section.
(d) Without in any way limiting the obligation of the Borrower
to confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice, believed by the
Administrative Agent in good faith to be from the Chairman, Chief Financial
Officer or Treasurer of the Borrower, or from any other person designated in
writing to the Administrative Agent by the Chief Financial Officer or Treasurer
of the Borrower as a person entitled to give telephonic notices under this
Agreement on behalf of the Borrower. In each such case the Borrower hereby
waives the right to dispute the Administrative Agent's record of the terms of
any such telephonic notice.
1.04 Competitive Bid Borrowings. (a) Whenever the Borrower
desires to incur a Competitive Bid Borrowing, it shall deliver to the
Administrative Agent at the Administrative Agent's Office, prior to 11:00 A.M.
(New York time) at least three Business Days prior to the date of such proposed
Competitive Bid Borrowing, a written notice (a "Notice of Competitive Bid
Borrowing"), which notice shall specify in each case (i) the date (which shall
be a Business Day) and the aggregate amount of the proposed Competitive Bid
Borrowing, (ii) the maturity date for repayment of each Competitive Bid Loan to
be made as part of such Competitive Bid Borrowing (which maturity date may not
be earlier than 14 days after the date of such Competitive Bid Borrowing or
later than the earlier to occur of (x) 180 days after the date of such
Competitive Bid Borrowing and (y) the third Business Day preceding the Facility
Maturity Date), (iii) the interest payment date or dates relating thereto and
(iv) any other terms to be applicable to such Competitive Bid Borrowing. The
Administrative Agent shall promptly notify each Bidder of each such request for
a Competitive Bid Borrowing received by it from the Borrower by telecopying to
each such Bidder a copy of the related Notice of Competitive Bid Borrowing.
(b) Each Bidder shall, if, in its sole discretion, it elects
to do so, irrevocably offer to make one or more Competitive Bid Loans to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates
of interest specified by such Lender in its sole discretion and determined by
such Lender independently of each other Lender, by notifying the Administrative
Agent (which shall give prompt notice thereof to the Borrower) before 11:00 A.M.
(New York time) on the date (the "Reply Date") which is two Business Days before
the
4
<PAGE>
date of such proposed Competitive Bid Borrowing, of the minimum amount and
maximum amount of each Competitive Bid Loan which such Lender would be willing
to make as part of such proposed Competitive Bid Borrowing (which amounts may,
subject to the proviso to the first sentence of Section 1.01(D), exceed such
Lender's Commitment), the rate or rates of interest therefor and such Lender's
lending office with respect to such Competitive Bid Loan; provided, that if the
Administrative Agent in its capacity as a Lender shall, in its sole discretion,
elect to make any such offer, it shall notify the Borrower of such offer before
9:30 A.M. (New York time) on the Reply Date. Any Bidder not giving the
Administrative Agent the notice specified in the preceding sentence shall not be
obligated to, and shall not, make any Competitive Bid Loan as part of such
Competitive Bid Borrowing.
(c) The Borrower shall, in turn, before 12:00 Noon (New York
time) on the Reply Date, either:
(i) cancel such Competitive Bid Borrowing by giving the
Administrative Agent notice to such effect, or
(ii) accept one or more of the offers made by any Bidder or
Bidders by giving notice (in writing or by telephone confirmed in
writing) to the Administrative Agent of the amount of each Competitive
Bid Loan (which amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount, notified to the
Borrower by the Administrative Agent on behalf of such Bidder for such
Competitive Bid Borrowing) to be made by each Bidder as part of such
Competitive Bid Borrowing, and reject any remaining offers made by
Bidders by giving the Administrative Agent notice to that effect;
provided, that (x) acceptance of offers may only be made on the basis
of ascending Absolute Rates commencing with the lowest rate so offered
and (y) if offers are made by two or more Bidders at the same rate and
acceptance of all such equal offers would result in a greater principal
amount of Competitive Bid Loans being accepted than the aggregate
principal amount requested by the Borrower, the Borrower shall then
have the right to accept one or more such equal offers in their
entirety and reject the other equal offer or offers or to allocate
acceptance among all such equal offers (but giving effect to the
minimum and maximum amounts specified for each such offer), as the
Borrower may elect in its sole discretion; provided further, that in no
event shall the aggregate principal amount of the Competitive Bid Loans
accepted by the Borrower as part of a Competitive Bid Borrowing exceed
the amount specified by the Borrower in the related Notice of
Competitive Bid Borrowing.
(d) If the Borrower notifies the Administrative Agent that
such Competitive Bid Borrowing is canceled, the Administrative Agent shall give
prompt notice thereof to the Bidders and such Competitive Bid Borrowing shall
not be made.
(e) If the Borrower accepts one or more of the offers made by
any Bidder or Bidders, the Administrative Agent shall in turn promptly notify
(x) each Bidder that has made an offer of the date and aggregate amount of such
Competitive Bid Borrowing and whether or not any offer or offers made by such
Bidder have been accepted by the Borrower and (y) each Bidder
5
<PAGE>
that is to make a Competitive Bid Loan as part of such Competitive Bid Borrowing
of the amount of each Competitive Bid Loan to be made by such Bidder.
(f) On the last Business Day of each calendar quarter, the
Administrative Agent shall notify the Lenders of the aggregate principal amount
of Competitive Bid Loans outstanding at such time.
1.05 Disbursement of Funds. (a) No later than 1:00 P.M. (New
York time) on the date of each Borrowing (including Mandatory Borrowings), each
Lender will make available its pro rata portion, if any, of each Borrowing
requested to be made on such date in the manner provided below.
(b) Each Lender shall make available all amounts it is to fund
under any Borrowing in U.S. dollars and immediately available funds to the
Administrative Agent at the Administrative Agent's Office and the Administrative
Agent will (except in the case of Mandatory Borrowings) make available to the
Borrower by depositing to its account at the Administrative Agent's Office the
aggregate of the amounts so made available in U.S. dollars and the type of funds
received. Unless the Administrative Agent shall have been notified by any Lender
prior to the date of any such Borrowing that such Lender does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Lender
has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Lender and the Administrative
Agent has made available same to the Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to recover
from such Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to the Borrower to the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds
Rate or (y) if paid by the Borrower, the then applicable rate of interest,
calculated in accordance with Section 1.09, for the respective Loans.
(c) Nothing in this Section 1.05 shall be deemed to relieve
any Lender from its obligation to fulfill its commitments hereunder or to
prejudice any rights which the Borrower may have against any Lender as a result
of any default by such Lender hereunder.
1.06 Notes; Register. (a) The Borrower's obligation to pay the
principal of, and interest on, the Revolving Loans made by each Lender shall,
except as provided in Sections 1.15 and 12.04 and only to the extent requested
by such Lender, be evidenced by a promissory note
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duly executed and delivered by the Borrower substantially in the form of Exhibit
A with blanks appropriately completed in conformity herewith (each a "Note" and,
collectively, the "Notes").
(b) The Note issued to each Lender shall (i) be payable to the
order of such Lender and be dated the Closing Date, (ii) be in a stated
principal amount equal to the Commitment of such Lender and be payable in the
principal amount of the Revolving Loans evidenced thereby, (iii) mature on such
Lender's Maturity Date and (iv) bear interest as provided in the appropriate
clause of Section 1.09 in respect of the Reference Rate Loans and Eurodollar
Loans, as the case may be, evidenced thereby.
(c) Each Lender will note on its internal records the amount
of each Loan made by it and each payment in respect thereof and will prior to
any transfer of its Note endorse on the reverse side thereof the outstanding
principal amount of Revolving Loans evidenced thereby. Failure to make any such
notation or any error in any such notation shall not affect the Borrower's
obligations in respect of such Revolving Loans.
(d) The Administrative Agent shall maintain at the
Administrative Agent's Office a register for the recordation of the names and
addresses of the Lenders, the Commitments of the Lenders from time to time, and
the principal amount of the Revolving Loans, Swingline Loans and Competitive Bid
Loans owing to each Lender from time to time together with the maturity and
interest rates applicable to each such Competitive Bid Loan, and other terms
applicable thereto (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error. The Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
1.07 Conversions. The Borrower shall have the option to
convert on any Business Day all or a portion equal to at least the Minimum
Borrowing Amount of the outstanding principal amount of Revolving Loans of one
Type into a Borrowing or Borrowings of another Type; provided that (i) no
partial conversion of Eurodollar Loans shall reduce the outstanding principal
amount of Eurodollar Loans made pursuant to a single Borrowing to less than the
Minimum Borrowing Amount, (ii) Reference Rate Loans may only be converted into
Eurodollar Loans if no Event of Default is in existence on the date of the
conversion and (iii) Borrowings resulting from conversions pursuant to this
Section 1.07 shall be limited in number as provided in Section 1.02. Each such
conversion shall be effected by the Borrower by giving the Administrative Agent
at the Administrative Agent's Office prior to 11:00 A.M. (New York time) at
least three Business Days' (or one Business Day's in the case of a conversion
into Reference Rate Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each a "Notice of Conversion") specifying the Revolving
Loans to be so converted, the Type of Revolving Loans to be converted into and,
if to be converted into Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall give each Lender notice as
promptly as practicable of any such proposed conversion affecting any of its
Revolving Loans.
1.08 Pro Rata Borrowings. All Borrowings of Revolving Loans
under this Agreement shall be loaned by the Lenders pro rata on the basis of
their Percentages; provided that all Borrowings of Revolving Loans made pursuant
to a Mandatory Borrowing shall be
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loaned by the Lenders pro rata on the basis of their Adjusted Percentages.
All Borrowings of Swingline Loans shall be loaned by the Swingline Lenders pro
rata on the basis of their Swingline Commitments. It is understood that no
Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to
make the Loans provided to be made by it hereunder, regardless of the failure
of any other Lender to fulfill its commitments hereunder.
1.09 Interest. (a) The unpaid principal amount of each
Reference Rate Loan shall bear interest from the date of the Borrowing thereof
until maturity (whether by acceleration or otherwise) at a rate per annum which
shall at all times be the Applicable Reference Rate Margin plus the Reference
Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Eurodollar Margin plus the relevant Eurodollar Rate.
(c) The unpaid principal amount of each Competitive Bid Loan
shall bear interest from the date the proceeds thereof are made available to the
Borrower until maturity (whether by acceleration or otherwise) at the rate or
rates per annum specified by a Bidder or Bidders, as the case may be, pursuant
to Section 1.04(b) and accepted by the Borrower pursuant to Section 1.04(c).
(d) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan shall bear interest at a rate per annum
equal to the Reference Rate in effect from time to time plus the sum of (i) 2%
and (ii) the Applicable Reference Rate Margin; provided, that each Eurodollar
Loan and Competitive Bid Loan shall bear interest after maturity (whether by
acceleration or otherwise) until the end of the Interest Period then applicable
thereto at a rate per annum equal to 2% in excess of the rate of interest
applicable thereto at maturity.
(e) Interest on each Loan shall accrue from and including the
date of any Borrowing to but excluding the date of any repayment thereof and
shall be payable (i) in respect of each Reference Rate Loan, quarterly in
arrears on the 15th day of each January, April, July and October, (ii) in
respect of any Competitive Bid Loan, at such times as specified in the Notice of
Competitive Bid Borrowing relating thereto, (iii) in respect of each Eurodollar
Loan, on the last day of each Interest Period applicable thereto and, in the
case of an Interest Period in excess of three months, on each date occurring at
three-month intervals after the first day of such Interest Period, (iv) in
respect of each Loan (other than a Reference Rate Loan), on any prepayment (on
the amount prepaid) and (v) in respect of each Loan, at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(f) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
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(g) The Administrative Agent, upon determining the interest
rate for any Borrowing of Eurodollar Loans for any Interest Period, shall
promptly notify the Borrower and the Lenders thereof.
1.10 Interest Periods. At the time the Borrower gives a Notice
of Competitive Bid Borrowing in respect of the making of a Competitive Bid
Borrowing or at the time it gives a Notice of Borrowing or Notice of Conversion
in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans
(in the case of the initial Interest Period applicable thereto) or prior to
11:00 A.M. (New York time) on the third Business Day prior to the expiration of
an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have
the right to elect by giving the Administrative Agent written notice (or
telephonic notice promptly confirmed in writing) the Interest Period applicable
to such Borrowing, which Interest Period shall, at the option of the Borrower,
be (x) in the case of a Eurodollar Loan, a one, two, three or six month period
and (y) in the case of a Competitive Bid Loan, subject to availability, a period
of 14 to 180 days as elected by the Borrower in the related Notice of
Competitive Bid Borrowing. Notwithstanding anything to the contrary contained
above:
(i) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date
of any conversion from a Borrowing of Reference Rate Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall
commence on the day on which the next preceding Interest Period
expires;
(ii) if any Interest Period relating to a Borrowing of
Eurodollar Loans begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the last Business Day of such
calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period in
respect of a Eurodollar Loan would otherwise expire on a day which is
not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on
the next preceding Business Day; and
(iv) no Interest Period in respect of any Borrowing of
Eurodollar Loans shall extend beyond the Maturity Date for any Lender
participating in such Borrowing.
Notwithstanding the foregoing, if an Event of Default is in existence at the
time any Interest Period in respect of any Eurodollar Loans is to expire, such
Eurodollar Loans may not be continued as Eurodollar Loans but instead shall be
automatically converted on the last day of such Interest Period into Reference
Rate Loans. If upon the expiration of any Interest Period in respect of
Eurodollar Loans, the Borrower has failed to elect a new Interest Period to be
applicable thereto as provided above, the Borrower shall be deemed to have
elected to convert such Borrowing into a Borrowing of Reference Rate Loans
effective as of the expiration date of such current Interest Period.
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1.11 Increased Costs, Illegality, etc. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising on or after the
date of this Agreement affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of Eurodollar
Rate; or
(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loans or Competitive Bid Loans because of (x)
any change since the date of this Agreement (or, in the case of any
such cost or reduction with respect to any Competitive Bid Loan, since
the date of the making of such Competitive Bid Loan) in any applicable
law, governmental rule, regulation, guideline or order (or in the
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guideline or order)
(such as, for example, but not limited to, a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D and/or (y) other circumstances affecting the interbank
Eurodollar market; or
(iii) at any time, that the making or continuance of any Loan
(other than Reference Rate Loans) has become unlawful by compliance by
such Lender in good faith with any law, governmental rule, regulation,
guideline or order (or would conflict with any such governmental rule,
regulation, guideline or order not having the force of law even though
the failure to comply therewith would not be unlawful), or, in the case
of a Eurodollar Loan, has become impracticable as a result of a
contingency occurring after the date of this Agreement which materially
and adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall on such date give notice (if by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Lenders). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice by the Administrative Agent no longer
exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower
with respect to Eurodollar Loans which have not yet been incurred shall be
deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, upon written demand therefor, such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as shall be required to compensate such Lender for such increased
costs or reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Lender, showing in reasonable detail the basis
for the calculation thereof, submitted to the Borrower by such Lender shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) and (z) in the case of
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clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.11(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any Eurodollar Loan or Competitive Bid
Loan is affected by the circumstances described in Section 1.11(a)(ii) (for
Eurodollar Loans only) or (iii), the Borrower may (and in the case of a
Eurodollar Loan or a Competitive Bid Loan affected pursuant to Section
1.11(a)(iii) shall) either (i) if the affected Eurodollar Loan or Competitive
Bid Loan is then being made pursuant to a Borrowing, cancel said Borrowing by
giving the Administrative Agent telephonic notice (confirmed promptly in
writing) thereof as promptly as practicable after the Borrower was notified by a
Lender pursuant to Section 1.11(a)(ii) or (iii), (ii) if the affected Eurodollar
Loan is then outstanding, upon at least three Business Days' notice to the
Administrative Agent, require the affected Lender to convert each such
Eurodollar Loan into a Reference Rate Loan or (iii) if the affected Competitive
Bid Loan is then outstanding, prepay such Competitive Bid Loan in full; provided
that if more than one Lender is affected in a similar manner at any time, then
all such similarly affected Lenders must be treated the same pursuant to this
Section 1.11(b).
(c) If after the date hereof, the adoption of any applicable
law, rule or regulation regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Lender or its parent with any request
or directive made or adopted after the date hereof regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's or its parent's capital or assets as a consequence of such
Lender's commitments or obligations hereunder to a level below that which such
Lender or its parent could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Lender's or its parent's
policies with respect to capital adequacy), then from time to time, within 15
days after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or its parent for such reduction. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 1.11(c), will give prompt written notice thereof to the
Borrower, which notice shall set forth in reasonable detail the basis of the
calculation of such additional amounts, although the failure to give any such
notice shall not, subject to Section 1.16, release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section
1.11(c) upon receipt of such notice.
(d) In the event that any Lender shall reasonably determine
(which determination shall, absent manifest error, be final and conclusive and
binding on all parties hereto) at any time that by reason of Regulation D such
Lender is required to maintain reserves in respect of eurodollar loans or
liabilities during any period it has a Eurodollar Loan outstanding, such Lender
shall promptly notify the Borrower in writing specifying the additional amounts
required to indemnify such Lender against the cost of maintaining such reserves
(such written notice to set forth in reasonable detail a computation of such
additional amounts) and the Borrower shall pay to such Lender such specified
amounts as additional interest at the time that such Borrower is
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otherwise required to pay interest in respect of the affected Eurodollar Loan
or, if later, on written demand therefor from such Lender.
1.12 Compensation. The Borrower shall compensate each Lender,
upon its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund its Eurodollar Loans or Competitive Bid Loans
but excluding any loss of anticipated profit with respect to such Loans) which
such Lender may sustain: (i) if for any reason (other than a default by such
Lender or the Administrative Agent) a Borrowing of Eurodollar Loans or
Competitive Bid Loans accepted by the Borrower in accordance with Section
1.04(c)(ii) does not occur on a date specified therefor in a Notice of
Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion (whether
or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.11);
(ii) if any repayment or conversion of any of its Eurodollar Loans or any
repayment of Competitive Bid Loans occurs on a date which is not the last day of
an Interest Period applicable thereto; (iii) if any prepayment of any of its
Eurodollar Loans is not made on any date specified in a notice of prepayment
given by the Borrower; or (iv) as a consequence of (x) any other default by the
Borrower to repay its Eurodollar Loans or Competitive Bid Loans when required by
the terms of this Agreement or (y) an election made pursuant to Section 1.11(b).
Calculation of all amounts payable to a Lender under this Section 1.12 in
respect of Eurodollar Loans shall be made as though that Lender had actually
funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit
bearing interest at the Eurodollar Rate in an amount equal to the amount of that
Loan, having a maturity comparable to the relevant Interest Period and through
the transfer of such Eurodollar deposit from an offshore office of that Lender
to a domestic office of that Lender in the United States of America; provided,
however, that each Lender may fund each of its Eurodollar Loans in any manner it
sees fit and the foregoing assumption shall be utilized only for the calculation
of amounts payable under this Section 1.12.
1.13 Change of Lending Office. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 1.11(a)(ii)
or (iii), 2.05 or 4.04 with respect to such Lender, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another lending office for any Loans affected by such
event; provided, that such designation is made on such terms that such Lender
and its lending office suffer no economic, legal or regulatory disadvantage,
with the object of avoiding the consequence of the event giving rise to the
operation of any such Section. Nothing in this Section 1.13 shall affect or
postpone any of the obligations of the Borrower or the right of any Lender
provided in Section 1.11, 2.05 or 4.04.
1.14 Maturity Date Extensions. Prior to (but not less than 60
days nor more than 90 days prior to) the first anniversary of the Measurement
Date and prior to (but not less than 60 days nor more than 90 days prior to)
each subsequent anniversary of the Measurement Date, the Borrower may make a
written request to the Administrative Agent, who shall forward a copy of each
such request to each of the Continuing Lenders, that the Facility Maturity Date
then in effect be extended to the date which is one year after such existing
Facility Maturity Date. Such
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request shall be accompanied by a certificate of an Authorized Officer of the
Borrower stating that no Default or Event of Default has occurred and is
continuing. If, by the date (a "Response Date") which is 30 days prior to any
such anniversary, Continuing Lenders which are not Defaulting Lenders holding at
least a majority of the Commitments held by Continuing Lenders which are not
Defaulting Lenders agree thereto in writing, the Facility Maturity Date, and the
Maturity Date of each Continuing Lender then consenting, shall be automatically
extended to such first anniversary of the then existing Facility Maturity Date.
In the event that the Borrower has not obtained the requisite percentage of
Continuing Lenders to permit an extension by the relevant Response Date, the
Borrower may extend the deadline for obtaining such percentage to the 30th day
following such Response Date in order to take such actions, including those
contemplated by Section 1.15, with respect to any Lender that is a
Non-Continuing Lender after giving effect to such Response Date in order to
obtain the requisite percentage of Lenders constituting Continuing Lenders to
permit such extension. The Administrative Agent shall notify the Borrower and
each Lender of the effectiveness of any such extension. No Lender shall be
obligated to grant any extensions pursuant to this Section 1.14 and any such
extension shall be in the sole discretion of each of them. A Lender's Maturity
Date shall not be so extended pursuant to this Section 1.14 for (x) any Lender
that is a Non-Continuing Lender at the time such request for extension is made
and (y) any Continuing Lender at the time of such request that has not consented
in writing, within the time specified above, to any such request for the
extension thereof.
1.15 Replacement of Lenders. If (w) any Lender becomes a
Non-Continuing Lender, (x) any Lender becomes a Defaulting Lender or otherwise
defaults in its obligations to make Loans or fund Unpaid Drawings, (y) any
Lender refuses to give timely consent to proposed changes, waivers, discharges
or terminations with respect to this Agreement which have been approved by the
Required Lenders or (z) any Lender is owed increased costs under Section 1.11(a)
or (c), Section 2.05 or Section 4.04 which in the judgment of the Borrower are
material in amount and which are not otherwise requested generally by the other
Lenders, the Borrower shall have the right, if no Event of Default then exists
and, in the case of a Lender described in clause (z) above, such Lender has not
withdrawn its request for such compensation or changed its applicable lending
office with the effect of eliminating or substantially decreasing (to a level
which in the judgment of the Borrower is not material) such increased cost, to
replace such Lender (the "Replaced Lender") with one or more other Eligible
Transferee or Transferees (collectively, the "Replacement Lender") reasonably
acceptable to the Majority SMA, provided that (i) at the time of any replacement
pursuant to this Section 1.15, the Replacement Lender shall enter into one or
more Assignment Agreements pursuant to which the Replacement Lender shall
acquire all of the Commitment and outstanding Loans of, and participations in
Letters of Credit by, the Replaced Lender and, in connection therewith, shall
pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of
(a) an amount equal to the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Lender, (b) an amount equal to such Replaced
Lender's participations in Unpaid Drawings that have been funded by such
Replaced Lender, together with all then unpaid interest with respect thereto at
such time, and (c) an amount equal to all accrued, but theretofore unpaid, Fees
owing to the Replaced Lender pursuant to Section 3.01 hereof and (y) the
appropriate Letter of Credit Issuer (or to the extent the Letter of Credit
Issuer has been funded for any portion of Unpaid Drawings not funded by
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such Replacement Lender through an increase in the other Lenders' Adjusted
Percentages, the other Lenders so affected) an amount equal to such Replaced
Lender's Percentage of any Unpaid Drawing not funded by such Replaced Lender,
(ii) all obligations of the Borrower owing to the Replaced Lender (other than
those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid) shall be
paid in full to such Replaced Lender concurrently with such replacement and
(iii) the Maturity Date applicable to the Replacement Lender's Commitment shall
be the Facility Maturity Date then in effect. Upon the execution of the
respective assignment documentation, the payment of amounts referred to in
clauses (i) and (ii) above and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Note executed by the
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions under this Agreement, which shall survive
as to such Replaced Lender.
1.16 Notice of Certain Costs. Notwithstanding anything in this
Agreement to the contrary, to the extent any notice required by Section 1.11 or
2.05 is given by any Lender more than 180 days after the occurrence of the event
giving rise to the additional cost, reduction in amounts or other additional
amounts of the type described in such Section, such Lender shall not be entitled
to compensation under Section 1.11 or Section 2.05, as the case may be, for any
such amounts incurred or accruing prior to the giving of such notice to the
Borrower.
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower, at any time and from time to time on
or after the Closing Date and prior to the Facility Maturity Date, may request
that a Letter of Credit Issuer issue, for the account of the Borrower and in
support of any Permitted Obligations, to replace Existing Letters of Credit, to
effect Permitted Litigation Bonding or in support of such other obligations of
the Borrower and/or any of its Subsidiaries as are acceptable to the Majority
SMA, an irrevocable standby letter of credit or letters of credit in such form
as may be approved by such Letter of Credit Issuer and the Majority SMA, acting
reasonably, and, subject to and upon the terms and conditions set forth in this
Agreement, each Designated Issuer and, to the extent it has agreed to issue
Letters of Credit, each other Letter of Credit Issuer will issue the Letters of
Credit so requested to be issued. It is the intention of the Borrower and the
Designated Issuers that each Designated Issuer only issue Letters of Credit in
an aggregate Stated Amount that is substantially pro rata to the aggregate
Stated Amount of the Letters of Credit issued by each other Designated Issuer,
it being recognized that credit policies of beneficiaries may result in non-pro
rata treatment for one or more Designated Issuers and may require adjustments to
the procedures set forth in the next sentence. To effect the foregoing
intention, (i) subject to the following clauses (ii) and (iii), new Letters of
Credit issued after the Closing Date will be issued serially by the Designated
Issuers in the same order as the Designated Issuers are listed in the definition
thereof, (ii) any Letter of Credit with a Stated Amount in excess of
$100,000,000 that is to be issued by a Designated Issuer will be issued
severally by all Designated Issuers, pro rata among same (or otherwise allocated
to give effect to clause (i) above), with Chase, if an issuer thereunder (or, if
Chase is not an issuer, such other issuer as selected by the Borrower) to be the
paying agent under any
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such Letter of Credit, and (iii) a Designated Issuer will not be obligated to
(but may in its sole discretion) issue any Letter of Credit if after giving
effect thereto the aggregate Stated Amount of all outstanding Letters of Credit
issued by such Designated Issuer shall exceed by more than $100,000,000 the
highest aggregate Stated Amount of outstanding Letters of Credit issued by any
other Designated Issuer, with the Administrative Agent to provide the
Designated Issuers at the time of issuance of any new Letter of Credit with any
requested information relating to the outstanding Letters of Credit issued by
the Designated Issuers. The Administrative Agent will coordinate the issuance
of Letters of Credit by the Designated Issuers to give effect to the two
foregoing sentences.
(b) Notwithstanding the foregoing (i) no Letter of Credit
shall be issued (x) the Stated Amount of which, when added to the Letter of
Credit Outstandings at such time would exceed, when added to the sum of the
aggregate principal amount of all Revolving Loans made by Non-Defaulting Lenders
and all Competitive Bid Loans and all Swingline Loans then outstanding, the
Adjusted Total Commitment at such time or (y) with an expiration date beyond the
then Maturity Date of any Lender if after giving effect thereto the Stated
Amount of all Letters of Credit with an expiration date beyond such Maturity
Date would exceed, when added to the aggregate outstanding principal amount of
all Competitive Bid Loans and Revolving Loans with Interest Periods that extend
beyond such Maturity Date, the Expected Total Commitment in effect for each day
on which such Letter of Credit is to be outstanding that occurs beyond such
Maturity Date; (ii) each Letter of Credit shall, unless otherwise agreed by the
Majority SMA and the Letter of Credit Issuer, have an expiry date occurring no
later than one year after the date of issuance thereof (except to the extent
consented to by the prospective Letter of Credit Issuer or Issuers), and in no
event occurring later than the Business Day next preceding the Maturity Date of
the Letter of Credit Issuer or Issuers thereunder, except that, in the case of
the Existing Letters of Credit, the initial expiry date will be automatically
extended for consecutive one year periods (or shorter period as required and
specified by the Borrower) (but not later than the Business Day preceding the
Maturity Date of the Letter of Credit Issuer or Issuers thereunder) unless (I)
any of the Letter of Credit Issuers thereof elects, in accordance with the terms
of such Existing Letter of Credit, not to permit any such extension, (II) the
Borrower elects not to obtain such extension or (III) the Required Lenders shall
have notified the Administrative Agent (who shall promptly inform the Letter of
Credit Issuers thereof) on or prior to the seventy-seventh day preceding any
such extension that a Default or Event of Default has occurred and is continuing
or would result from the extension of the then outstanding Existing Letters of
Credit and, accordingly, that the then expiry date for all the outstanding
Existing Letters of Credit shall not be extended, in which case the Letter of
Credit Issuers of all then outstanding Existing Letters of Credit shall, and
hereby agree to, give notice to the beneficiaries thereof of such nonextension;
(iii) each Letter of Credit shall be denominated in U.S. dollars or an Approved
Alternate Currency; and (iv) no Letter of Credit shall be issued by a Letter of
Credit Issuer after it has received a notice in writing from the Required
Lenders that one or more of the applicable conditions specified in Section 5 are
not then satisfied.
(c) Annex III hereto contains a description of all letters of
credit that were initially issued pursuant to the 1995 3 Year Credit Agreement
in whole or severally in part by institutions that are to be Lenders hereunder
on the Closing Date and that are to remain
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outstanding on and after the Closing Date. Each such letter of credit (including
the several portions issued by Lenders), including any extension or renewal
thereof (each, as amended from time to time in accordance with the terms thereof
and hereof, an "Existing Letter of Credit") shall constitute a "Letter of
Credit" for all purposes of this Agreement, issued, for purposes of Section
2.03(a), on the Closing Date.
2.02 Letter of Credit Requests. Whenever the Borrower desires
that a Letter of Credit be issued for its account, it shall give the
Administrative Agent and the Letter of Credit Issuer or Letter of Credit Issuers
that are to issue same at least five Business Days' (or such lesser number of
days as may be agreed to by the relevant Letter of Credit Issuer) written notice
thereof. Each notice shall be executed by the Borrower and shall be in the form
of Exhibit B attached hereto (each a "Letter of Credit Request"). The
Administrative Agent shall promptly transmit copies of each Letter of Credit
Request to each Lender.
2.03 Letter of Credit Participations. (a) Immediately upon the
issuance by a Letter of Credit Issuer of any Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each other Lender
(each such other Lender, in its capacity under this Section 2.03, a
"Participant"), and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from such Letter of Credit
Issuer, without recourse or warranty, an undivided interest and participation
(each a "participation"), to the extent of such Participant's Adjusted
Percentage, in such Letter of Credit, each substitute letter of credit, each
drawing made thereunder and the obligations of the Borrower under this Agreement
with respect thereto, and any security therefor that remains in effect after the
Closing Date, or guaranty pertaining thereto (although Letter of Credit Fees
will be paid directly to the Administrative Agent for the ratable account of the
Participants as provided in Section 3.01(c) and the Participants shall have no
right to receive any portion of any Facing Fees). Upon any change in the
Commitments of the Lenders pursuant to Section 1.15 or 12.04, the termination of
a Commitment of a Non-Continuing Lender or the occurrence of any Lender Default,
it is hereby agreed that, with respect to all outstanding Letters of Credit and
Unpaid Drawings, there shall be an automatic adjustment to the participations
pursuant to this Section 2.03 to reflect the new Adjusted Percentages of the
assignor and assignee Lender, of all Continuing Lenders or of all Non-Defaulting
Lenders, as the case may be.
(b) In determining whether to pay under any Letter of Credit,
the Letter of Credit Issuer issuing same shall have no obligation relative to
the Participants other than to confirm that any documents required to be
delivered under such Letter of Credit have been delivered and that they appear
to comply on their face with the requirements of such Letter of Credit. Any
action taken or omitted to be taken by a Letter of Credit Issuer under or in
connection with any Letter of Credit issued by it, if taken or omitted in the
absence of gross negligence or willful misconduct, shall not create for such
Letter of Credit Issuer any resulting liability.
(c) In the event that any Letter of Credit Issuer makes any
payment under any Letter of Credit issued by it and the Borrower shall not have
reimbursed such amount in full to such Letter of Credit Issuer pursuant to
Section 2.04(a), such Letter of Credit Issuer shall promptly notify the
Administrative Agent and each Participant of such failure, and each
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Participant shall promptly and unconditionally pay to the Administrative Agent
for the account of such Letter of Credit Issuer, the amount of such
Participant's Adjusted Percentage of such unreimbursed payment in lawful money
of the United States of America and in same day funds; provided, however, that
no Participant shall be obligated to pay to the Administrative Agent for the
account of such Letter of Credit Issuer its Adjusted Percentage of such
unreimbursed amount for any wrongful payment made by such Letter of Credit
Issuer under a Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence as determined by a court of competent
jurisdiction on the part of such Letter of Credit Issuer. If such Letter of
Credit Issuer so notifies, prior to 11:00 A.M. (New York time) on any Business
Day, any Participant required to fund a payment under a Letter of Credit, such
Participant shall make available to the Administrative Agent for the account of
such Letter of Credit Issuer such Participant's Adjusted Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Adjusted Percentage of the
amount of such payment available to the Administrative Agent for the account of
such Letter of Credit Issuer, such Participant agrees to pay to the
Administrative Agent for the account of such Letter of Credit Issuer, forthwith
on demand such amount, together with interest thereon for each day from such
date until the date such amount is paid to the Administrative Agent for the
account of such Letter of Credit Issuer at the overnight Federal Funds Rate. The
failure of any Participant to make available to the Administrative Agent for the
account of the applicable Letter of Credit Issuer its Adjusted Percentage of any
payment under any Letter of Credit shall not relieve any other Participant of
its obligation hereunder to make available to the Administrative Agent for the
account of such Letter of Credit Issuer its Adjusted Percentage of any payment
under any Letter of Credit on the date required, as specified above, but no
Participant shall be responsible for the failure of any other Participant to
make available to the Administrative Agent such other Participant's Adjusted
Percentage of any such payment.
(d) Whenever any Letter of Credit Issuer receives a payment in
respect of an unpaid reimbursement obligation as to which the Administrative
Agent has received for the account of such Letter of Credit Issuer any payments
from the Participants pursuant to the preceding clause (c), such Letter of
Credit Issuer shall pay to the Administrative Agent and the Administrative Agent
shall promptly pay to each Participant which has paid its Adjusted Percentage of
such reimbursement obligation, in lawful money of the United States of America
and in same day funds, an amount equal to such Participant's share (based upon
the proportionate aggregate amount originally funded by such Participant to the
aggregate amount funded by all Participants) of the principal amount of such
reimbursement obligation and interest thereon accruing after the purchase of the
respective participations.
(e) The obligations of the Participants to make payments to
the Administrative Agent for the account of the Letter of Credit Issuers with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever (except as expressly provided in Section 2.03(c)) and shall be made
in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
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(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in
a Letter of Credit, any transferee of any Letter of Credit (or any
Person for whom any such transferee may be acting), the Administrative
Agent, any Letter of Credit Issuer, any Lender, or other Person,
whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents;
(v) the occurrence of any Default or Event of Default; or
(vi) the failure of any condition precedent set forth in Section
5 hereof to have been satisfied at the time of the issuance of any
Letter of Credit unless the applicable Letter of Credit Issuer shall
have received a notice in writing to such effect from the Required
Lenders pursuant to Section 2.01(b)(iv) hereof prior to the issuance of
such Letter of Credit.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the respective Letter of Credit Issuer, by
making payment to the Administrative Agent in U.S. dollars and immediately
available funds at the Administrative Agent's Office, for any payment or
disbursement made by such Letter of Credit Issuer under any Letter of Credit
issued by it (each such amount so paid until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date of, notice given by such Letter
of Credit Issuer to the Borrower of such payment (which notice each Letter of
Credit Issuer hereby agrees to give promptly after the making of any payment or
disbursement under a Letter of Credit), with interest on the amount so paid or
disbursed by such Letter of Credit Issuer, to the extent not reimbursed prior to
1:00 P.M. (New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but excluding the date such Letter of
Credit Issuer is reimbursed therefor, at a rate per annum which shall be the
Applicable Reference Rate Margin plus the Reference Rate as in effect from time
to time (plus an additional 2% per annum if not reimbursed by the second
Business Day following any such notice of payment or disbursement), such
interest to be payable on demand. Notwithstanding the foregoing, to the extent
that a Letter of Credit Issuer of a Letter of Credit denominated in a currency
other than U.S. dollars has agreed in writing to such arrangement at the time of
the issuance of such Letter of Credit, the Borrower shall reimburse any Drawing
thereunder in the currency in which such Letter of Credit is denominated;
provided, that (x) if any such Drawing is made at a time when there exists an
Event of Default or (y) if such reimbursement is not made by the close of
business
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two Business Days after the Borrower has received notice of such Drawing, then,
in either such case, such reimbursement shall instead be made in U.S. dollars
and in immediately available funds.
(b) The Borrower's obligations under this Section 2.04 to
reimburse each Letter of Credit Issuer with respect to Unpaid Drawings
(including, in each case, interest thereon) issued by it shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which the Borrower or any other Person may
have or have had against any Lender (including in its capacity as a Letter of
Credit Issuer or as a Participant), including, without limitation, any defense
based upon the failure of any drawing under a Letter of Credit (each a
"Drawing") to conform to the terms of the Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
Drawing; provided, that the Borrower shall not be obligated to reimburse the
respective Letter of Credit Issuer for any wrongful payment made by such Letter
of Credit Issuer under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence as determined by a court of
competent jurisdiction on the part of such Letter of Credit Issuer.
2.05 Increased Costs. If after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or actual compliance by any Letter of Credit Issuer or
any Participant with any request or directive made or adopted after the date
hereof (whether or not having the force of law), by any such authority, central
bank or comparable agency shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by such Letter of Credit Issuer, or such Participant's
participation therein, or (ii) impose on any Letter of Credit Issuer or any
Participant any other conditions affecting its obligations under this Agreement
in respect of Letters of Credit or participations therein or any Letter of
Credit or such Participant's participation therein; and the result of any of the
foregoing is to increase the cost to such Letter of Credit Issuer or such
Participant of issuing, maintaining or participating in any Letter of Credit, or
to reduce the amount of any sum received or receivable by such Letter of Credit
Issuer or such Participant hereunder in respect of Letters of Credit or
participations therein, then, upon demand to the Borrower by such Letter of
Credit Issuer or such Participant, as the case may be (a copy of which notice
shall be sent by such Letter of Credit Issuer or such Participant to each Senior
Managing Agent), the Borrower shall pay to such Letter of Credit Issuer or such
Participant such additional amount or amounts as will compensate such Letter of
Credit Issuer or such Participant for such increased cost or reduction. A
certificate submitted to the Borrower by such Letter of Credit Issuer or such
Participant, as the case may be (a copy of which certificate shall be sent by
such Letter of Credit Issuer or such Participant to each Senior Managing Agent),
setting forth in reasonable detail the basis for the determination of such
additional amount or amounts necessary to compensate such Letter of Credit
Issuer or such Participant as aforesaid shall be conclusive and binding on the
Borrower absent manifest error although the failure to deliver any such
certificate shall not, subject to Section 1.16, release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section 2.05
upon receipt of such certificate.
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2.06 Indemnification; Nature of Letter of Credit Issuers'
Duties. (a) In addition to its other obligations under this Section 2, the
Borrower hereby agrees to protect, indemnify, pay and save each of the Letter of
Credit Issuers harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees but excluding those taxes excluded from the definition of Taxes
in Section 4.04) that any such Letter of Credit Issuer may incur or be subject
to as a consequence, direct or indirect, of (i) the issuance of any Letter of
Credit or (ii) the failure of any Letter of Credit Issuer to honor a drawing
under a Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein called "Government
Acts").
(b) As between the Borrower and the Letter of Credit Issuers,
the Borrower shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Letter of Credit Issuers shall
not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, that may prove to be invalid or ineffective for any reason; (iii) for
failure of the beneficiary of a Letter of Credit to comply fully with conditions
required in order to draw upon a Letter of Credit; (iv) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for
errors in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under a Letter of Credit or of the proceeds thereof; and (vii) for any
consequences arising from causes beyond the control of the Letter of Credit
Issuers, including, without limitation, any Government Acts. None of the above
shall affect, impair, or prevent the vesting of any of the Letter of Credit
Issuers' rights or powers hereunder.
(c) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by any
Letter of Credit Issuer, under or in connection with any Letter of Credit or the
related certificates, if taken or omitted in good faith, shall not put such
Letter of Credit Issuer under any resulting liability to the Borrower. It is the
intention of the parties that this Agreement shall be construed and applied to
protect and indemnify the Letter of Credit Issuers against any and all risks
involved in the issuance of the Letters of Credit arising from any present or
future Government Acts. The Letter of Credit Issuers shall not, in any way, be
liable for any failure by the Letter of Credit Issuers or anyone else to pay any
Drawing under any Letter of Credit as a result of any Government Acts or any
other cause beyond the control of the Letter of Credit Issuers.
(d) Nothing in this Section 2.06 is intended to limit the
reimbursement obligation of the Borrower contained in Section 2.04 hereof. The
obligations of the Borrower under this Section 2.06 shall survive the
termination of this Agreement. No act or omission of any current
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or prior beneficiary of a Letter of Credit shall in any way affect or impair the
rights of the Letter of Credit Issuers to enforce any right, power or benefit
under this Agreement.
(e) Notwithstanding anything to the contrary contained in this
Section 2.06, (i) the Borrower shall have no obligation to indemnify any Letter
of Credit Issuer in respect of any liability incurred by such Letter of Credit
Issuer arising solely out of the gross negligence or willful misconduct of such
Letter of Credit Issuer as determined by a court of competent jurisdiction and
(ii) the Borrower shall have a claim against any Letter of Credit Issuer and
such Letter of Credit Issuer shall be liable to the Borrower to the extent, but
only to the extent, of any direct, as opposed to consequential, damages suffered
by the Borrower which the Borrower proves were caused by (x) such Letter of
Credit Issuer's willful misconduct or gross negligence as determined by a court
of competent jurisdiction in determining whether the documents presented under
its Letter of Credit complied with the terms of such Letter of Credit or (y)
such Letter of Credit Issuer's willful or grossly negligent failure to pay under
its Letter of Credit after presentation to it of a drawing certificate and any
other documents strictly complying with the terms and conditions of such Letter
of Credit as determined by a court of competent jurisdiction.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower agrees to pay the Administrative
Agent for the account of Non-Defaulting Lenders a facility fee (the "Facility
Fee") in the amounts and at the times set forth in the letter dated as of May
__, 1999 (the "Facility Fee Letter") from the Borrower to the Administrative
Agent.
(b) The Borrower agrees to pay to the Administrative Agent for
the account of the Lenders pro rata on the basis of their respective Adjusted
Percentages, a fee in respect of each Letter of Credit (the "Letter of Credit
Fee"), computed for each day at a rate equal to the Applicable Eurodollar Margin
for such day multiplied by the then Stated Amount of such Letter of Credit. Such
Letter of Credit Fees shall be due and payable quarterly in arrears on the 15th
day of each January, April, July and October and on the date upon which the
Total Commitment is terminated.
(c) The Borrower agrees to pay to the Administrative Agent for
the account of each Letter of Credit Issuer a fee in respect of each Letter of
Credit issued by it (the "Facing Fee") computed for each day at a rate equal to
.25% multiplied by the average daily Stated Amount of such Letter of Credit.
Such Facing Fees shall be due and payable quarterly in arrears on the 15th day
of each January, April, July and October and on the date upon which the Total
Commitment is terminated.
(d) The Borrower hereby agrees to pay directly to each Letter
of Credit Issuer upon each issuance of, drawing under, and/or amendment of, a
Letter of Credit issued by such Letter of Credit Issuer such amount as shall at
the time of such issuance, drawing or amendment be the administrative charge
which such Letter of Credit Issuer is customarily charging for issuances of,
drawings under or amendments of, letters of credit issued by it.
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(e) The Borrower shall pay to the Administrative Agent for the
account of each Senior Managing Agent and each other Lender the fees specified
in the accepted commitment letter, or related fee letter, executed by such
Senior Managing Agent or such Lender, as the case may be, when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at the Administrative Agent's Office (which notice
the Administrative Agent shall promptly transmit to each of the Lenders), the
Borrower shall have the right, without premium or penalty, (i) to terminate the
Total Unutilized Commitment, in part or in whole (or, to the extent that at such
time there are no Loans outstanding and no Letter of Credit Outstandings, to
terminate the Total Commitment, in whole), provided, that (x) any such
termination shall apply to proportionately and permanently reduce the Commitment
of each of the Lenders and (y) any partial reduction pursuant to this Section
3.02(i) shall be in the amount of at least $10,000,000, and (ii) at any time
within the 30 days prior to the Maturity Date of any Non-Continuing Bank and so
long as no Event of Default then exists, to terminate the Commitment of such
Non-Continuing Bank provided that (x) all Loans, together with unpaid accrued
interest thereon, of such Non-Continuing Bank are repaid in full and (y) after
giving effect to such termination and repayment, the sum of the aggregate
principal amount of all outstanding Loans and the Letter of Credit Outstandings
does not exceed the Total Commitment.
3.03 Mandatory Reduction of Commitments, etc. (a) The Total
Commitment and the Total Swingline Commitment (and the Commitment and Swingline
Commitment, if any, of each Lender) shall be terminated on the Commitment
Termination Date unless the Closing Date has occurred on or before such date.
(b) On the date which is the earlier of (x) 30 days after any
date on which a Change of Control occurs and (y) the date on which any
Indebtedness of the Borrower in excess of $75,000,000 individually or
$150,000,000 in the aggregate is required to be repurchased as a result of any
such Change of Control, the Total Commitment and Total Swingline Commitment
shall be reduced to zero.
(c) The Total Commitment shall be reduced on any date on which
the Borrower issues or incurs Specified Debt if after giving effect to such
issuance the sum of (i) the Total Commitment plus (ii) the aggregate outstanding
principal amount of Specified Debt exceeds $3 billion, such reduction to be in
amount equal to the excess of such sum over $3 billion.
(d) The Total Commitment shall terminate on the Facility
Maturity Date.
(e) The Total Swingline Commitment shall terminate on the
Swingline Maturity Date.
(f) Each Lender's Commitment and Swingline Commitment, if any,
shall terminate on such Lender's Maturity Date.
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(g) Each partial reduction of the Total Commitment pursuant to
Section 3.03(c) shall apply proportionately to the Commitment of each Lender.
SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right
to prepay Revolving Loans and Swingline Loans in whole or in part from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Administrative Agent's Office written notice (or
telephonic notice promptly confirmed in writing) of its intent to make such
prepayment, the amount of such prepayment and (in the case of Eurodollar Loans)
the specific Borrowing(s) pursuant to which made, which notice shall be given by
the Borrower no later than (x) in the case of Revolving Loans, 11:00 A.M. (New
York time) one Business Day prior to, or (y) in the case of Swingline Loans,
11:00 A.M. (New York time) on, the date of such prepayment and shall promptly be
transmitted by the Administrative Agent to each of the Lenders or Swingline
Lenders, as the case may be; (ii) each partial prepayment of any Borrowing shall
be in an aggregate principal amount of at least $10,000,000, provided that no
partial prepayment of Eurodollar Loans made pursuant to a single Borrowing shall
reduce the outstanding Revolving Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for Eurodollar Loans; and (iii)
each prepayment in respect of any Revolving Loans or Swingline Loans made
pursuant to a Borrowing shall be applied pro rata among such Revolving Loans or
Swingline Loans, provided that, at the Borrower's election in connection with
any prepayment pursuant to this Section 4.01, such prepayment shall not be
applied to any Revolving Loan of a Defaulting Lender at any time when the
aggregate amount of Revolving Loans of any Non-Defaulting Lender exceeds such
Non-Defaulting Lender's Percentage of all Revolving Loans then outstanding. The
Borrower shall not have the right to voluntarily prepay any Competitive Bid Loan
without the consent of the Lender that has made same.
4.02 Mandatory Prepayments.
(A) Requirements. If on any date the sum of the outstanding
principal amount of Revolving Loans made by Non-Defaulting Lenders, Swingline
Loans and Competitive Bid Loans and the aggregate amount of Letter of Credit
Outstandings (all the foregoing, collectively, the "Aggregate Outstandings")
exceeds the Adjusted Total Commitment as then in effect, the Borrower shall
repay on such date the principal of Swingline Loans and, after Swingline Loans
have been paid in full, Revolving Loans, in an amount equal to such excess. If,
after giving effect to the prepayment of all outstanding Swingline Loans and
Revolving Loans, the Aggregate Outstandings exceed the Adjusted Total Commitment
then in effect, the Borrower shall pay to the Administrative Agent an amount in
cash equal to such excess and the Administrative Agent shall hold such payment
as security for the obligations of the Borrower hereunder (including without
limitation obligations in respect of Letter of Credit Outstandings) pursuant to
a cash collateral agreement to be entered into in form and substance
satisfactory to the Administrative Agent (which shall permit certain investments
in cash equivalents satisfactory to the Administrative Agent, until the proceeds
are applied to the secured obligations). If, after giving effect to the
prepayment of all outstanding Swingline Loans and Revolving Loans and the cash
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collateralization of all Letter of Credit Outstandings as set forth above, the
remaining Aggregate Outstandings exceed the Adjusted Total Commitment, the
Borrower shall repay on such date the principal of Competitive Bid Loans in an
aggregate amount equal to such excess, provided that no Competitive Bid Loan
shall be prepaid pursuant to this sentence unless the Lender that made same
consents to such prepayment. In addition, the Borrower shall repay the Revolving
Loans and Swingline Loans, if any, of each Lender on such Lender's Maturity
Date.
(B) Application. With respect to each prepayment of Loans
required by this Section 4.02, the Borrower may designate the Types of Loans
which are to be prepaid and the specific Borrowing(s) pursuant to which made;
provided, that: (i) if any prepayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Revolving Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount for
Eurodollar Loans, such Borrowing shall immediately be converted into Reference
Rate Loans; (ii) each prepayment of any Loans made pursuant to a Borrowing shall
be applied pro rata among such Loans; and (iii) notwithstanding the provisions
of the preceding clause (ii), no prepayment made pursuant to Section 4.02(A)
(other than the last sentence thereof) of Revolving Loans shall be applied to
the Revolving Loans of any Defaulting Lender. In the absence of a designation by
the Borrower as described in the preceding sentence, the Administrative Agent
shall, subject to the above, make such designation in its sole discretion with a
view, but no obligation, to minimize breakage costs owing under Section 1.12.
4.03 Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments under this Agreement shall be made to
the Administrative Agent for the ratable account of the Lenders entitled
thereto, not later than 1:00 P.M. (New York time) on the date when due and shall
be made in immediately available funds and in lawful money of the United States
of America at the Administrative Agent's Office, it being understood that
written, telex or facsimile notice by the Borrower to the Administrative Agent
to make a payment from the funds in the Borrower's account at the Administrative
Agent's Office shall constitute the making of such payment to the extent of such
funds held in such account. The Administrative Agent will thereafter cause to be
distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 P.M. (New York time) on such day) like funds
relating to the payment of principal or interest or Fees ratably to the Lenders
entitled thereto. If and to the extent that any such distribution shall not be
so made by the Administrative Agent in full on the same day (if payment was
actually received by the Administrative Agent prior to 2:00 P.M. (New York time)
on such day), the Administrative Agent shall pay to each Lender its ratable
amount thereof and each such Lender shall be entitled to receive from the
Administrative Agent, upon demand, interest on such amount at the overnight
Federal Funds Rate for each day from the date such amount is paid to the
Administrative Agent until the date the Administrative Agent pays such amount to
such Lender.
(b) Any payments under this Agreement which are made later
than 1:00 P.M. (New York time) shall be deemed to have been made on the next
succeeding Business Day. Whenever any payment to be made hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and,
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with respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by the Borrower
hereunder will be made without setoff or counterclaim. The Borrower will pay,
prior to the date on which penalties attach thereto, all present and future
income, stamp and other taxes, levies, or costs and charges whatsoever imposed,
assessed, levied or collected on or in respect of a Loan and/or the recording,
registration, notarization or other formalization thereof and/or any payments of
principal, interest or other amounts made on or in respect of a Loan (all such
taxes, levies, costs and charges being herein collectively called "Taxes";
provided that Taxes shall not include taxes imposed on or measured by the
overall net income of that Lender (or any alternative tax imposed generally by
any relevant jurisdiction in lieu of a tax on net income) by the United States
of America or any political subdivision or taxing authority thereof or therein,
taxes imposed under Section 884 of the Code or taxes on or measured by the
overall net income (or any alternative tax imposed generally by any relevant
jurisdiction in lieu of a tax on net income) of that Lender or any foreign
office, branch or subsidiary of that Lender by any foreign country or
subdivision thereof in which that Lender or that office, branch or subsidiary is
doing business). The Borrower shall also pay such additional amounts equal to
increases in taxes payable by that Lender described in the foregoing proviso
which increases are attributable to payments made by the Borrower described in
the immediately preceding sentence of this Section. Promptly after the date on
which payment of any such Tax is due pursuant to applicable law, the Borrower
will, at the request of that Lender, furnish to that Lender evidence, in form
and substance satisfactory to that Lender, that the Borrower has met its
obligation under this Section 4.04. The Borrower will indemnify each Lender
against, and reimburse each Lender on demand for, any Taxes, as determined by
that Lender in its good faith and reasonable discretion. Such Lender shall
provide the Borrower with appropriate receipts for any payments or
reimbursements made by the Borrower pursuant to this Section 4.04.
(b) Each Lender which is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for Federal income tax
purposes agrees to provide to the Borrower on or prior to the Closing Date, or
in the case of a Lender that is an assignee or transferee of an interest under
this Agreement pursuant to Section 1.15 or Section 12.04 (unless the respective
Lender was already a Lender hereunder immediately prior to such assignment or
transfer and such Lender is in compliance with the provisions of this Section
4.04(b)), on the date of such assignment or transfer to such Lender, two
accurate and complete original signed copies of Internal Revenue Service Form
W8ECI or Form W8BEN (with respect to a complete exemption under an income tax
treaty) (or successor forms) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement or any Note. Each Lender that is a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
Federal income tax purposes, but that is not a corporation (as such term is
defined in Section 7701(a)(3) of the Code) for such purposes, agrees to provide
to the Borrower on or prior to the Closing Date, or in the case of a Lender
that is an assignee or transferee of an interest under this Agreement pursuant
to Section 1.15 or Section 12.04 (unless the respective Lender was already a
Lender hereunder immediately prior to such assignment or transfer and such
Lender is in compliance with the provisions of this Section
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4.04(b)), on the date of such assignment to such Lender, two accurate and
complete original signed copies of Internal Revenue Service Form W-9 (or
successor form). In addition, each such Lender agrees that from time to time
after the Measurement Date, when a lapse in time or change in circumstances
renders the previous certification obsolete or inaccurate in any material
respect, it will deliver to the Borrower two new accurate and complete original
signed copies of Internal Revenue Service Form W8ECI or W8BEN (with respect to
a claim for benefits of an income tax treaty), as the case may be, and such
other forms as may be required in order to confirm or establish the entitlement
of such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement or any Note, or
it shall immediately notify the Borrower and the Administrative Agent of its
inability to deliver any such form. Notwithstanding anything to the contrary
contained in Section 4.04(a), (x) the Borrower shall be entitled, to the extent
it is required to do so by law, to deduct or withhold income or other similar
taxes imposed by the United States (or any political subdivision or taxing
authority thereof or therein) from interest, fees or other amounts payable
hereunder for the account of any Lender which is not a United States person (as
such term is defined in Section 7701(a)(30) of the Code) for United States
federal income tax purposes and which has not provided to the Borrower such
forms that establish a complete exemption from such deduction or withholding
and (y) the Borrower shall not be obligated pursuant to Section 4.04(a) to pay
a Lender in respect of income or similar taxes imposed by the United States or
any additional amounts with respect thereto if such Lender has not provided to
the Borrower the Internal Revenue Service forms required to be provided to the
Borrower pursuant to this Section 4.04(b).
SECTION 5. Conditions Precedent.
5.01 Conditions Precedent to Closing Date. This Agreement
shall become effective on the date (the "Closing Date") when each of the
following conditions are first satisfied:
A. Execution; Notes. The Execution Date shall have occurred as
provided in Section 12.10 and there shall have been delivered to the
Administrative Agent for the account of each Lender the appropriate Note
executed by the Borrower in the amount, maturity and as otherwise provided
herein.
B. Officer's Certificate. The Administrative Agent shall have
received certificates dated the Closing Date signed by an appropriate officer of
each of Holdings and the Borrower stating that all of the applicable conditions
set forth in Sections 5.01E., F., G., H., J., K., L., M., N. and O. and 5.02
exist as of such date.
C. Opinions of Counsel. The Administrative Agent shall have
received an opinion, or opinions, in form and substance satisfactory to each
Senior Managing Agent, addressed to each of the Lenders and dated the Closing
Date, from (i) H. Colin McBride, Senior Vice President, Associate General
Counsel and Secretary of Holdings and the Borrower, which opinion shall cover
the matters contained in Exhibit C-1 hereto and (ii) White & Case LLP, special
counsel to the Lenders, which opinion shall cover the matters contained in
Exhibit C-2 hereto, together with such other opinions, if any, covering such
matters as the Majority SMA
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shall reasonably request, from counsel, and in form and substance, satisfactory
to the Majority SMA.
D. Corporate Proceedings. On the Closing Date, all corporate
and legal proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be satisfactory in form and substance to each Senior Managing Agent, and the
Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including records of corporate proceedings
and governmental approvals, if any, which any Senior Managing Agent reasonably
may have requested in connection therewith, such documents and papers where
appropriate to be certified by proper corporate or governmental authorities.
E. Organizational Documentation etc. The Lenders shall have
received copies of the Certificate of Incorporation and By-Laws of each Credit
Party, certified on the Closing Date as true and complete by an appropriate
corporate officer or governmental authority.
F. Adverse Change, etc. (a) Nothing shall have occurred from
December 31, 1998 to the Closing Date which has (x) a material adverse effect on
the ability of any Credit Party to perform its obligations to the Lenders or (y)
a Material Adverse Effect.
(b) All governmental and third party approvals in connection
with Transactions and the transactions contemplated by the Credit Documents and
otherwise referred to therein to be completed on or before the Closing Date
shall have been obtained and remain in effect.
G. Litigation. Except as set forth in Annex IV hereto, there
shall be on the Closing Date no actions, suits, proceedings, inquiry, injunction
or restraining order pending, entered or threatened with respect to Holdings or
any of its Subsidiaries that are reasonably likely to have (x) a material
adverse effect on the rights or remedies of the Lenders or on the ability of any
Credit Party to perform its obligations to the Lenders hereunder or under any
other Credit Document to which it is a party or (y) a Material Adverse Effect.
H. Termination of the Existing Credit Agreements. The total
commitments under the Existing Credit Agreements shall have been terminated, and
all loans thereunder shall have been repaid in full, together with interest
thereon, and all other amounts owing pursuant to the Existing Credit Agreements
shall have been repaid in full (except to the extent the letters of credit
issued thereunder remain outstanding pursuant to arrangements satisfactory to
the issuers thereof) and the Existing Credit Agreements shall have been
terminated and be of no further force or effect (except as to indemnities
contained therein which survive the termination of the Existing Credit
Agreements in accordance with the terms thereof).
I. Projections; Pro Forma Balance Sheets. The Lenders shall
have received (i) financial forecasts for Borrower and its Non-Nabisco
Subsidiaries for the period from January 1, 1999 to and including the initial
Facility Maturity Date (the "Projections") and (ii) pro forma consolidated
balance sheet of the Borrower and its Non-Nabisco Subsidiaries as at December
31, 1998, which in each case give effect to the Transactions. The Projections
(and the supporting
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assumptions and explanations thereto) and pro forma balance sheet shall be in
form and substance satisfactory to the Majority SMA.
J. International Tobacco. The International Tobacco Sale
shall have been consummated.
K. Existing Senior Notes. The Borrower shall have successfully
completed a tender offer and consent solicitation (collectively, the "Borrower
Tender") with respect to the Existing Senior Notes pursuant to which amendments
to the indentures governing the Existing Senior Notes not tendered shall have
become effective that substantially eliminate the covenants and restrictions
contained in such indentures, all as contemplated by the Borrower's Tender Offer
and Consent Solicitation (without any waiver of any conditions specified
therein) or otherwise on a basis reasonably satisfactory to the Senior Managing
Agents, and all Existing Senior Notes that have been duly tendered shall have
been, or shall on the Closing Date be, redeemed.
L. Holdings Indebtedness. Holdings shall have (i) redeemed the
9.5% TOPrS due 2047 duly tendered for redemption pursuant to Holdings' Tender
Offer and Consent Solicitation, (ii) irrevocably called for redemption all of
its 10% TOPrS due 2044 and its ESOP Convertible Preferred Stock, and (iii) set
aside from the proceeds of the Reorganization Merger Payment sufficient cash and
cash equivalents to (x) economically defease the untendered 9.5% TOPrS due 2047
and redeem all such securities called for redemption and (y) defray its expected
operating expenses, with all such redemptions and payments to be effected as
contemplated by Holdings' Tender Offer and Consent Solicitation (without any
waiver of any condition specified therein) or otherwise on a basis reasonably
satisfactory to the Senior Managing Agents (all the foregoing, the "Other Debt
Repayment").
M. Credit Ratings. The Loans under this Agreement and, if
issued, the New Senior Notes, each shall have received a Credit Rating from each
Rating Agency equal to or greater than the Minimum Investment Grade Rating
(after giving pro forma effect to the Spin-Off).
N. No Defaults. On the Closing Date, there shall exist no
event of default (or condition which would constitute an event of default with
the giving of notice or the passage of time) under any material financing or
lease agreement or other material contract of any of the Credit Parties, it
being agreed that this condition would not be breached by the Transactions
resulting in (i) a put of the Existing Foreign Currency Debt, (ii) the need to
cash collateralize any letter of credit (or several portion thereof) outstanding
immediately prior to the Closing Date to the extent not an Existing Letter of
Credit, and (iii) defaults under guaranties by the Parent or any of its
Subsidiaries of the obligations of International Tobacco to the extent Parent or
such Subsidiary is indemnified by Japan Tobacco Inc. for any liability under
such guaranties (the "Excluded Defaults").
O. Subsidiary Guaranty. Reynolds Tobacco shall have duly
authorized, executed and delivered a Guaranty substantially in the form of
Exhibit D hereto (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "Subsidiary Guaranty"), and
the Subsidiary Guaranty shall be in full force and effect.
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P. New Senior Notes. If (i) any New Senior Notes had been
issued prior to, or are issued on, the Closing Date, Reynolds Tobacco shall have
duly authorized, executed and delivered a guaranty of such New Senior Notes that
satisfies the requirements of the agreements governing same (which guaranty will
be reasonably satisfactory to the Senior Managing Agents) and (ii) any New
Senior Notes had been issued prior to the Closing Date and the proceeds of such
issuance had been deposited in a trust arrangement provided for in the
agreements governing the New Senior Notes, all amounts so deposited in such
trust arrangement shall have been released to the Borrower.
Q. Fees, etc. On the Closing Date, the Borrower shall have
paid to each Senior Managing Agent and each Lender all costs, fees and expenses
payable to the Senior Managing Agents or the Lenders, to the extent then due.
5.02 Conditions Precedent to All Credit Events. The obligation
of each Lender to make any Loans (other than pursuant to a Mandatory Borrowing)
and the obligation of each Letter of Credit Issuer to issue (or in the case of
Existing Letters of Credit, to continue same hereunder on the Closing Date)
Letters of Credit, is subject, at the time of the making of each such Loan
and/or the issuance (or in the case of Existing Letters of Credit, continuance
hereunder on the Closing Date) of each such Letter of Credit, to the
satisfaction of the following conditions at such time:
A. No Default; Representations and Warranties. At the time of
each Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such Credit Event.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Credit Party to each of the Lenders that all
of the applicable conditions specified above exist as of that time. All of the
certificates, legal opinions and other documents and papers referred to in
Section 5.01, unless otherwise specified, shall be delivered to the
Administrative Agent at the Administrative Agent's Office for the account of
each of the Lenders and, except for the Notes, in sufficient counterparts for
each of the Lenders and shall be satisfactory in form and substance to each
Senior Managing Agent.
SECTION 6. Representations, Warranties and Agreements. In
order to induce the Lenders to enter into this Agreement, to make the Loans and
issue or participate in Letters of Credit as provided for herein, the Borrower
and, so long as a Credit Party, Holdings each makes the following
representations and warranties to and agreements with the Lenders, all of which
shall survive the execution and delivery of this Agreement and the making of the
Loans and the issuance of the Letters of Credit (with (x) all such
representations, warranties and agreements being first made on the Closing Date
and (y) occurrence of each Credit Event being deemed to constitute a
representation and warranty that the matters specified in this Section 6 are
true and correct in all material respects on and as of the date hereof and as of
the date of each such Credit Event unless such representation and warranty
expressly indicates that it is being made as of any specific date):
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6.01 Corporate Status. Each of Parent and each of its Material
Subsidiaries (i) is a duly organized and validly existing corporation or other
entity in good standing under the laws of the jurisdiction of its organization
and has the corporate or other organizational power and authority to own its
property and assets and to transact the business in which it is engaged and (ii)
has duly qualified and is authorized to do business and is in good standing in
all jurisdictions where it is required to be so qualified and where the failure
to be so qualified would have a material adverse effect on the operations,
business, properties, assets or financial condition of Parent and its
Subsidiaries taken as a whole.
6.02 Corporate Power and Authority. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents to which it is a party. Each Credit Party has duly
executed and delivered each Credit Document to which it is a party and each such
Credit Document constitutes the legal, valid and binding obligation of such
Person enforceable in accordance with its terms.
6.03 No Violation. Neither the execution, delivery and
performance by any Credit Party of the Credit Documents to which it is a party
nor compliance with the terms and provisions thereof, nor the consummation of
the transactions contemplated therein (including, without limitation, the
Transactions) (i) will contravene any applicable provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
Parent or any of its Subsidiaries pursuant to the terms of any material
indenture, mortgage, deed of trust, agreement or other instrument to which
Parent or any of its Subsidiaries is a party or by which it or any of its
property or assets is bound or to which it may be subject other than Excluded
Defaults or (iii) will violate any provision of the charter or By-Laws of Parent
or any of its Subsidiaries.
6.04 Litigation. Except as set forth on Annex IV, there are no
actions, suits or proceedings pending or threatened with respect to Parent or
any of its Subsidiaries that are reasonably likely to have (x) a material
adverse effect on the rights or remedies of the Lenders or on the ability of any
Credit Party to perform its obligations to them hereunder and under the other
Credit Documents to which it is a party or (y) a Material Adverse Effect.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
all Loans shall be utilized by the Borrower (i) to refinance outstandings, if
any, under the Existing Credit Agreements and (ii) for general corporate
purposes of the Borrower and/or its Non-Nabisco Subsidiaries (including, without
limitation, payment of fees and expenses in connection with the Transactions,
the refinancing of Indebtedness, the backing up of commercial paper issued by
the Borrower and Permitted Litigation Bonding).
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(b) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System. At
the time of each Credit Event, not more than 25% of the value of the assets of
the Borrower or Parent and its Subsidiaries on a consolidated basis subject to
the restrictions contained in Sections 8.02 and 8.03 will constitute Margin
Stock. Notwithstanding the foregoing provisions of this Section 6.05, no
proceeds of any Loan will be utilized to purchase any Margin Stock (other than,
prior to the consummation of the Spin-Off, the stock of NHC) in a transaction,
or as part of a series of transactions, the result of which is the ownership by
Parent and/or its Subsidiaries of 5% or more of the capital stock of a
corporation unless the Board of Directors of such corporation has approved such
transaction prior to any public announcement of the purchase, or the intent to
purchase, any such Margin Stock.
6.06 Governmental Approvals. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any foreign or domestic governmental or public body or
authority, or any subdivision thereof, is required to authorize or is required
in connection with (i) the execution, delivery and performance of any Credit
Document or (ii) the legality, validity, binding effect or enforceability of any
Credit Document.
6.07 Investment Company Act. Neither Parent nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.08 True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
the Credit Parties or any of their Subsidiaries in writing to any Senior
Managing Agent or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated herein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of such
Persons in writing to any Lender will be, true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. The projections and pro
forma financial information contained in such materials were based on good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by the Lenders that such projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such projections may differ from the projected
results.
6.09 Financial Condition; Financial Statements. The
consolidated balance sheets of each of Holdings and its Subsidiaries and the
Borrower and its Subsidiaries, at December 31, 1996, at December 31, 1997 and at
December 31, 1998 and the related consolidated statements of income and cash
flows (and retained earnings) for the fiscal years ended as of said dates, which
statements have been examined by Deloitte & Touche LLP, independent certified
public accountants, who delivered an unqualified opinion in respect thereof, and
the pro forma (after giving effect to the Transactions and related financings)
consolidated balance sheets of the Bor-
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rower and its Non-Nabisco Subsidiaries as at December 31, 1998, copies of which
have heretofore been furnished to each Lender, present fairly the consolidated
financial position of Holdings and the Borrower at the dates of said statements
and the results of operations for the periods covered thereby (or, in the case
of the pro forma balance sheet, present a good faith estimate of the adjusted
consolidated pro forma financial condition of the Borrower at the date
thereof). All such financial statements (other than the aforesaid pro forma
balance sheet) have been prepared in accordance with GAAP consistently applied
except to the extent provided in the notes to said financial statements. Since
December 31, 1998, nothing has occurred which has had a Material Adverse
Effect.
6.10 Tax Returns and Payments. Each of Parent and its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. Parent
and each of its Subsidiaries have paid, or have provided adequate reserves (in
the good faith judgment of the management of Parent) for the payment of, all
federal, state and foreign income taxes applicable for all prior fiscal years
and for the current fiscal year to the date hereof.
6.11 Compliance with ERISA. Except to the extent that all
events described in the following clauses of this sentence and then in existence
would not, in the aggregate, be likely to have a Material Adverse Effect, each
Plan is in substantial compliance with ERISA and the Code; no Reportable Event
has occurred with respect to any Plan; no Plan is insolvent or in
reorganization, no Plan has an Unfunded Current Liability, and no Plan has an
accumulated or waived funding deficiency or permitted decreases in its funding
standard account within the meaning of Section 412 of the Code; neither Parent,
any Subsidiary nor any ERISA Affiliate has incurred any material liability to or
on account of a Plan pursuant to Section 409, 502(i), 502(1), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code; no
proceedings have been instituted to terminate any Plan; no condition exists
which presents a material risk to Parent or any Subsidiary of incurring a
liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code. With respect to Plans that are multiemployer plans (within
the meaning of Section 3(37) of ERISA) and Plans which are not currently
maintained or contributed to by Parent, any Subsidiary or any ERISA Affiliate,
the representations and warranties in this Section are made to the best
knowledge of Parent.
6.12 Subsidiaries. Annex V hereto lists each Material
Subsidiary of Holdings (and the direct and indirect ownership interest of
Holdings therein) other than NHC and its Subsidiaries, in each case existing on
the Closing Date. All ownership percentages referred to in Annex V are
calculated without regard to directors' or nominees' qualifying shares.
6.13 Patents, etc. Parent and each of its Subsidiaries have
obtained all material patents, trademarks, servicemarks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their respective businesses as presently
conducted and as proposed to be conducted.
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6.14 Pollution and Other Regulations. Parent and each of its
Subsidiaries are in material compliance with all material laws and regulations
relating to pollution and environmental control, equal employment opportunity
and employee safety in all domestic jurisdictions in which Parent and each of
its Subsidiaries is presently doing business, and Parent will comply and cause
each of its Subsidiaries to comply with all such laws and regulations which may
be imposed in the future in jurisdictions in which Parent or such Subsidiary may
then be doing business other than in each case those the non-compliance with
which would not have a material adverse effect on the business, assets,
properties or financial condition of Parent and its Subsidiaries taken as a
whole.
6.15 Properties. Parent and each of its Subsidiaries have good
title to all properties that are necessary for the operation of their respective
businesses as presently conducted and as proposed to be conducted, free and
clear of all Liens, other than as permitted by this Agreement.
6.16 Year 2000 Compliance. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) the
computer systems of Parent and its Subsidiaries and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which the systems of Parent and its Subsidiaries interface) and the testing of
all such systems and equipment, as so reprogrammed, will be completed by
September 30, 1999. The cost to Parent and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to Parent and its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) will not
result in a Default or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of Parent and its Subsidiaries are
and, with ordinary course upgrading and maintenance, will continue for the term
of this Agreement to be, sufficient to permit Parent and its Subsidiaries to
conduct their business without a Material Adverse Effect, resulting therefrom.
SECTION 7. Affirmative Covenants. Parent hereby covenants and
agrees that on the Closing Date and thereafter, for so long as this Agreement is
in effect and until the Commitments and each Letter of Credit have terminated
and the Loans and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. Parent will furnish to each
Lender:
(a) Annual Financial Statements. Within 100 days after the
close of each fiscal year of Parent (x) to the extent prepared to
comply with SEC requirements, a copy of the SEC Form 10-Ks filed by
Parent (and at such time when the Borrower is not Parent, the Borrower)
with the SEC for such fiscal year, or, if no such Form 10-K was so
filed by Parent and/or the Borrower for such fiscal year, the
consolidated balance sheet of Parent and its Subsidiaries (and at such
time when the Borrower is not Parent, of the Borrower and its
Subsidiaries), as at the end of such fiscal year and the related
consolidated statements of income and of cash flows for such fiscal
year, setting forth comparative
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consolidated figures as of the end of and for the preceding fiscal
year, and examined by independent certified public accountants of
recognized national standing whose opinion shall not be qualified as
to the scope of audit or as to the status of Parent or any of its
Subsidiaries as a going concern, together in any event with a
certificate of such accounting firm stating that in the course of its
regular audit of the business of Parent (and at such time when the
Borrower is not Parent, the Borrower), which audit was conducted in
accordance with generally accepted auditing standards, such accounting
firm has obtained no knowledge of any Default or Event of Default
which has occurred and is continuing or, if in the opinion of such
accounting firm such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and (y) the
consolidated balance sheet of Parent and its Non-Nabisco Subsidiaries
(and at such time when the Borrower is not Parent, of the Borrower and
its Non-Nabisco Subsidiaries), as at the end of such fiscal year and
the related consolidated statements of income and of cash flows for
such fiscal year, setting forth comparative consolidated figures as of
the end of and for the preceding fiscal year, and examined by an
independent certified public accountant of recognized national
standing whose opinion shall not be qualified as to the scope of audit
or as to the status of Parent or any of its Non-Nabisco Subsidiaries
as a going concern.
(b) Quarterly Financial Statements. As soon as available and
in any event within 55 days after the close of each of the first three
quarterly accounting periods in each fiscal year of Parent (x) to the
extent prepared to comply with SEC requirements, a copy of the SEC Form
10-Qs filed by Parent (and at such time when the Borrower is not
Parent, the Borrower) with the SEC for each such quarterly period, or,
if no such Form 10-Q was so filed by Parent or the Borrower with
respect to any such quarterly period, the consolidated condensed
balance sheet of Parent and its Subsidiaries (and at such time when the
Borrower is not Parent, of the Borrower and its Subsidiaries) as at the
end of such quarterly period and the related consolidated condensed
statements of income for such quarterly period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly
period, and the related consolidated condensed statement of cash flows
for the elapsed portion of the fiscal year ended with the last day of
such quarterly period, and (y) the consolidated condensed balance sheet
of Parent and its Non-Nabisco Subsidiaries (and at such time when the
Borrower is not Parent, of the Borrower and its Non-Nabisco
Subsidiaries), as at the end of such quarterly period and the related
consolidated condensed statements of income for such quarterly period
and for the elapsed portion of the fiscal year ended with the last day
of such quarterly period, and the related consolidated condensed
statement of cash flows for the elapsed portion of the fiscal year
ended with the last day of such quarterly period, and in each case
setting forth comparative consolidated figures for the related periods
in the prior fiscal year or, in the case of such consolidated condensed
balance sheet, for the last day of the prior fiscal year, all of which
shall be certified by the Chief Financial Officer, Controller, Chief
Accounting Officer or other Authorized Officer of Parent or the
Borrower, as the case may be, subject to changes resulting from audit
and normal year-end audit adjustments.
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(c) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 7.01(a) and (b), a
certificate of the Chief Financial Officer, Controller, Chief
Accounting Officer or other Authorized Officer of Parent to the effect
that no Default or Event of Default exists or, if any Default or Event
of Default does exist, specifying the nature and extent thereof, which
certificate shall set forth the calculations required to establish
whether Parent and its Subsidiaries were in compliance with the
provisions of Sections 3.03(c), 8.03(g), 8.04(l), 8.05, 8.07, and 8.08
as at the end of such fiscal period or year, as the case may be.
(d) Notice of Default or Litigation. Promptly, and in any
event within three Business Days after any senior financial or legal
officer of Parent (or, if not Parent, the Borrower) obtains knowledge
thereof, notice of (x) the occurrence of any event which constitutes a
Default or Event of Default which notice shall specify the nature
thereof, the period of existence thereof and what action Parent
proposes to take with respect thereto and (y) any litigation or
governmental proceeding pending against or affecting Parent or any of
its Subsidiaries which is likely to have a material adverse effect on
the business, properties, assets, financial condition or prospects of
Parent and its Subsidiaries taken as a whole or the ability of any
Credit Party to perform its obligations hereunder or under any other
Credit Document.
(e) Credit Rating Changes. Promptly after any senior financial
or legal officer of Parent obtains knowledge thereof, notice of any
change in the Applicable Credit Rating assigned by either Rating
Agency.
(f) Other Information. Promptly upon transmission thereof,
copies of any filings and registrations with, and reports to, the
Securities and Exchange Commission or any successor thereto (the "SEC")
by Parent or any of its Subsidiaries (other than amendments to any
registration statement (to the extent such registration statement, in
the form it becomes effective, is delivered to the Lenders), exhibits
to any registration statement and any registration statements on Form
S-8 and Forms 3, 4 and 5) and copies of all financial statements, proxy
statements, notices and reports that Parent or any of its Subsidiaries
shall send to analysts or the holders of any publicly issued debt of
Parent and/or any of its Subsidiaries in their capacity as such holders
(in each case to the extent not theretofore delivered to the Lenders
pursuant to this Agreement) and, with reasonable promptness, such other
information or documents (financial or otherwise) as any Senior
Managing Agent on its own behalf or on behalf of the Required Lenders
may reasonably request from time to time.
7.02 Books, Records and Inspections. Parent will, and will
cause each of its Subsidiaries to, permit, upon reasonable notice to the Chief
Financial Officer, Controller or any other Authorized Officer of the Borrower,
officers and designated representatives of any Senior Managing Agent or the
Required Lenders to visit and inspect any of the properties or assets of Parent
and any of its Subsidiaries in whomsoever's possession, and to examine the books
of account of Parent and any of its Subsidiaries and discuss the affairs,
finances and accounts of Parent and of any of its Subsidiaries with, and be
advised as to the same by, its and their officers
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and independent accountants, all at such reasonable times and intervals and to
such reasonable extent as any Senior Managing Agent or the Required Lenders may
desire.
7.03 Insurance. Parent will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice.
7.04 Payment of Taxes. Parent will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which material
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien or charge upon any properties of Parent or any of its Subsidiaries;
provided, that neither Parent nor any Subsidiary shall be required to pay any
such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves (in the
good faith judgment of the management of Parent) with respect thereto in
accordance with GAAP.
7.05 Consolidated Corporate Franchises. Parent will do, and
will cause each of its Material Subsidiaries to do, or cause to be done, all
things necessary to preserve and keep in full force and effect its existence,
rights and authority; provided, that any transaction permitted by Section 8.02
will not constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. Parent will, and will
cause each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls) other than those
the non-compliance with which would not have a material adverse effect on the
business, properties, assets or financial condition of Parent and its
Subsidiaries taken as a whole or on the ability of any Credit Party to perform
its obligations under any Credit Document to which it is party.
7.07 ERISA. As soon as possible and, in any event, within 10
days after Parent or any Subsidiary knows or has reason to know of the
occurrence of any of the following, Parent will deliver to each of the Lenders a
certificate of the Chief Financial Officer, Treasurer or Controller of Parent
setting forth details as to such occurrence and the action, if any, which
Parent, such Subsidiary or an ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by Parent, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant
(other than notices relating to an individual participant's benefits) or the
Plan administrator with respect thereto: that a Reportable Event has occurred,
that an accumulated funding deficiency has been incurred or an application may
be or has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required installment
payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan, that a Plan which has an Unfunded Current Liability
has been or may be terminated, reorganized, partitioned or
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declared insolvent under Title IV of ERISA, that a Plan has an Unfunded Current
Liability giving rise to a lien under ERISA or the Code, that proceedings may be
or have been instituted to terminate a Plan which has an Unfunded Current
Liability, that a proceeding has been instituted pursuant to Section 515 of
ERISA to collect a delinquent contribution to a Plan, or that Parent, any
Subsidiary or any ERISA Affiliate will or may incur any liability (including any
contingent or secondary liability) to or on account of the termination of or
withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of
ERISA or with respect to a Plan under Section 4971 or 4975 of the Code or
Section 409 or 502(i) or 502(l) of ERISA. Upon request of a Lender, Parent will
deliver to such Lender a complete copy of the annual report (Form 5500) of each
Plan required to be filed with the Internal Revenue Service. In addition to any
certificates or notices delivered to the Lenders pursuant to the first sentence
hereof, copies of any notices received by Parent or any Subsidiary shall be
delivered to the Lenders no later than 10 days after the later of the date such
notice has been filed with the Internal Revenue Service or the PBGC, given to
Plan participants (other than notices relating to an individual participant's
benefits) or received by Parent or such Subsidiary.
7.08 Good Repair. Parent will, and will cause each of its
Subsidiaries to, ensure that its properties and equipment used or useful in its
business in whomsoever's possession they may be, are kept in good repair,
working order and condition, normal wear and tear excepted, and that from time
to time there are made in such properties and equipment all needful and proper
repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, to the extent and in the manner customary for companies in
similar businesses.
7.09 End of Fiscal Years; Fiscal Quarters. Parent will, for
financial reporting purposes, cause (i) each of its (and to the extent the
Borrower is not Parent, the Borrower's) fiscal years to end on December 31 of
each year, (ii) each of its (and to the extent the Borrower is not Parent, the
Borrower's) fiscal quarters to end on March 31, June 30, September 30 and
December 31 of each year and (iii) each of the Subsidiaries to maintain the
accounting periods maintained by such Subsidiary on the Closing Date, consistent
with the past practice and procedures of each such Subsidiary; provided that any
of the foregoing fiscal or reporting periods may be changed if (x) Parent gives
the Lenders 30 days' prior written notice of such proposed change and (y) prior
to effecting such change Parent and the Majority SMA shall have agreed upon
adjustments, if any, to Sections 3.03(c), 8.03(h), 8.04(c) and (j), 8.05, 8.07
and 8.08 (and the definitions used therein) the sole purpose of which shall be
to give effect to the proposed change in fiscal or accounting periods (it being
understood and agreed that to the extent that Parent and the Majority SMA cannot
agree on appropriate adjustments to such Sections (or that no adjustments are
necessary), the proposed change may not be effected).
7.10 Competitive Bid Loan Outstandings. On the date of the
delivery by the Borrower of any Notice of Borrowing, Notice of Competitive Bid
Borrowing or Letter of Credit Request at any time when the Borrower shall have
knowledge that a mandatory prepayment is required pursuant to Section 4.02(A) of
this Agreement and, in any event, on the last Business Day of each fiscal
quarter of the Borrower, the Borrower will furnish to the Administrative Agent a
statement setting forth the aggregate outstanding principal amount of
Competitive Bid Loans at such time.
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7.11 Subsidiary Guaranty; Collateral. (a) No later than 15
days after the date on which a Guaranty Event occurs, each Material Subsidiary
not then a Subsidiary Guarantor shall (i) authorize the execution of, and
execute and deliver to the Administrative Agent on behalf of the Lenders, a
Subsidiary Guaranty and (ii) cause to be delivered such opinions of counsel as
are reasonably requested by, and are reasonably satisfactory to, the Senior
Managing Agents in respect of such Subsidiary Guaranty.
(b) No later than 15 days after the date on which a Trigger
Event occurs each Credit Party (including any Person required by Section 7.11(a)
to become a Credit Party at such time) shall (i) authorize, execute and deliver
to the Collateral Agent on behalf of the Secured Creditors pledge agreements,
security agreements and/or mortgages that are reasonably acceptable in form and
substance to the Senior Managing Agents (the "Security Documents") which create
in favor of the Collateral Agent on behalf of the Secured Creditors a pledge of
and/or a lien on substantially all of its assets with such exceptions as are
reasonably satisfactory to the Senior Managing Agents (the "Collateral") with
such priority as is provided for in the representations contained in the
respective Security Documents, (ii) deliver in pledge thereunder all securities,
notes and stock powers required to be delivered by the terms of the respective
Security Documents, (iii) execute and cause to be filed such financing
statements and mortgages as are required to perfect the pledges and Liens
created under the Security Documents and to obtain the priority of such
perfection required by the respective Security Documents and (iv) cause to be
delivered such opinions of counsel as are reasonably requested by, and as are
reasonably satisfactory to, the Senior Managing Agents with respect to the
Security Documents and the pledges and Liens created thereunder. Notwithstanding
the foregoing, all Collateral shall be automatically released (subject to
reinstatement upon the occurrence of a new Trigger Event) if at any time
subsequent to the Credit Parties providing the Collateral in compliance with the
preceding sentence the Applicable Credit Rating issued by each Rating Agency
shall, giving effect to such release and subject to the completion of such
release, if applicable, each be the Minimum Investment Grade Rating or higher.
7.12 Indebtedness. The Borrower shall issue prior to, and
shall have outstanding on, December 31, 1999 New Senior Notes in an aggregate
principal amount which, when combined with the aggregate principal amount of
Qualified Stub Notes outstanding on such date, equals at least $1 billion.
SECTION 8. Negative Covenants. Parent hereby covenants and
agrees that on the Closing Date and thereafter, for so long as this Agreement is
in effect and until the Commitments and each Letter of Credit have terminated
and the Loans and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
8.01 Changes in Business. Except as otherwise permitted by
Section 8.02, Parent and its Non-Nabisco Subsidiaries, taken as a whole, will
not substantively alter the character of their business from that conducted by
Parent and its Non-Nabisco Subsidiaries taken as a whole at the Execution Date.
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8.02 Consolidation, Merger, Sale of Assets, etc. (a) Parent
will not, and will not permit Borrower (if not Parent), any Subsidiary Guarantor
and (whether or not a Subsidiary Guarantor) any Specified Subsidiary to, wind
up, liquidate or dissolve its affairs, or enter into any transaction of merger
or consolidation, or sell or otherwise dispose of all or any substantial part of
its property or assets (other than inventory and equipment to the extent sold or
disposed of in the ordinary course of business) or agree to do any of the
foregoing at any future time, except that the following shall be permitted:
(i) any other Non-Nabisco Subsidiary (including any of the
Specified Subsidiaries) may merge with, or liquidate into, Reynolds
Tobacco, with Reynolds Tobacco being the survivor thereof, or transfer
all or any of their business, properties and assets to Reynolds
Tobacco;
(ii) FSH and GMB may merge or consolidate with each other and
all of the capital stock of IHC may be transferred to GMB;
(iii) if not effected on or prior to the Closing Date and, in
such case, no Event of Default exists at the time of the consummation
thereof, the Reorganization Merger; and
(iv) if no Event of Default exists at the time of the
consummation thereof, the Spin-Off.
(b) Parent will not permit any Non-Nabisco Subsidiary to enter
into any transaction of merger of consolidation with, or to sell or otherwise
dispose of all or any substantial part of its assets to, Holdings, the Borrower,
NHC or any Subsidiary of NHC.
(c) Parent will not, and will not permit Borrower (if not
Parent) or any Non-Nabisco Subsidiary to liquidate into, or enter into any
transaction of merger or consolidation with, or sell or otherwise dispose of any
part of its properties to any other Subsidiary (including one formed as a result
thereof) if (x) any such transaction involves a Subsidiary Guarantor and the
survivor of such merger or consolidation or the transferee of such properties or
assets is not a Subsidiary Guarantor and/or (y) the Person that is the survivor
of any such merger or consolidation is a Material Subsidiary and none of the
Persons so merging or consolidating were Material Subsidiaries prior thereto, or
the Person that is any such transferee is a Material Subsidiary after giving
effect thereto but was not a Material Subsidiary prior thereto unless, in each
case, either (I) the Senior Managing Agents have consented to such transaction
in writing or (II) the new Material Subsidiary resulting becomes a Subsidiary
Guarantor and executes (x) a counterpart of the Subsidiary Guaranty and (y) if
the Security Documents are in effect at such time, such Security Documents as
the Majority SMA shall reasonably request, with, in the case of this clause (y)
such actions having been taken to perfect the pledge of, and Liens on, the stock
and substantially all of the assets of such new Subsidiary as would have been
taken if such new Subsidiary had been a Subsidiary at the time of the last
Trigger Event, all to the reasonable satisfaction of the Majority SMA.
8.03 Liens. Parent will not, and will not permit Borrower (if
not Parent) or any Non-Nabisco Subsidiary to, (x) create, incur, assume or
suffer to exist any Lien in respect of
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Indebtedness upon any property or assets of any kind (real or personal, tangible
or intangible) of Parent, the Borrower (if not Parent) or any such Non-Nabisco
Subsidiary whether now owned or hereafter acquired or (y) assign any right to
receive income as security for the payment of Indebtedness, except:
(a) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business
and which are within the general parameters customary in the industry,
securing obligations under Permitted Commodities Agreements;
(b) Liens securing reimbursement obligations of the Borrower
and its Non-Nabisco Subsidiaries with respect to (x) trade letters of
credit incurred in the ordinary course of business, which are to be
repaid in full not more than one year after the date originally
incurred to finance the purchase of goods by the Borrower or any of its
Non-Nabisco Subsidiaries, provided that such Liens shall attach only to
documents or other property relating to such letters of credit and the
products and proceeds thereof and (y) letters of credit incurred in the
ordinary course of business in connection with payments of foreign
excise taxes in respect of tobacco sales, provided that (i) no such
letter of credit shall have an expiry date later than six months after
the date of issuance thereof and (ii) such Liens are granted in the
ordinary course of business;
(c) Liens (x) arising pursuant to purchase money mortgages
securing Indebtedness (and any extensions, renewals or refinancings of
such Indebtedness to the extent not increasing the outstanding
principal amount thereof) representing the purchase price (or financing
of the purchase price within 180 days after the respective purchase) of
assets acquired after the Closing Date, provided that (i) any such
Liens attach only to the assets so purchased and (ii) the Indebtedness
(including any such permitted extensions, renewals or refinancings)
secured by any such Lien does not exceed 100%, nor is less than 70%, of
the purchase price of the property being purchased and (y) existing on
specific tangible assets at the time acquired by the Borrower or any of
its Non-Nabisco Subsidiaries or on assets of a Person at the time such
Person first becomes a Subsidiary (together with Liens securing any
extensions, renewals or refinancings of the Indebtedness secured
thereby to the extent not increasing the outstanding principal amount
thereof), provided that (i) any such Liens were not created at the time
of or in contemplation of the acquisition of such assets or Person by
the Borrower and/or its Non-Nabisco Subsidiaries, (ii) in the case of
any such acquisition of a Person, any such Lien attaches only to a
specific tangible asset of such Person and not assets of such Person
generally and (iii) the Indebtedness secured by any such Lien does not
exceed 100% of the fair market value of the asset to which such Lien
attaches, determined at the time of the acquisition of such asset or at
the time such Person first becomes a Subsidiary, as the case may be;
(d) Liens created pursuant to the Security Documents and the
Escrow;
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(e) Liens resulting from the Borrower cash collateralizing
supersedeas and other appeal bonds, or providing cash collateral
directly to courts to satisfy such courts' requirements for a stay to
appeal verdicts, orders and/or judgments, in each case to the extent
utilizing Permanent Surplus Cash;
(f) Existing Liens (and any extensions or renewals of such
Liens (to the extent included in clause (i) of the definition of
Existing Liens) to the extent such Liens do not attach to any
additional properties and the Indebtedness secured thereby is not
increased); and
(g) Liens not otherwise permitted by the foregoing clauses (a)
through (f) securing any Indebtedness of the Borrower and/or its
Non-Nabisco Subsidiaries provided that the aggregate principal amount
of Indebtedness on a consolidated basis secured by Liens permitted by
this clause (g) shall not exceed $25,000,000 at any time.
8.04 Indebtedness. Parent (to the extent Holdings) will not,
and Parent will not permit any Non-Nabisco Subsidiary to, contract, create,
incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness of (x) Holdings under the Holdings Guaranty
and (y) Subsidiary Guarantors under the Subsidiary Guaranty;
(b) (i) Indebtedness owing by any Subsidiary Guarantor to the
Borrower or any other Subsidiary Guarantor and (ii) Indebtedness of any
Subsidiary (other than a Specified Subsidiary) (x) consisting of
Contingent Obligations in respect of, or (y) constituting reimbursement
obligations under letters of credit issued in support of, obligations
(other than Contingent Obligations) of any Subsidiary of the Borrower
to the extent such other obligations are permitted by this Agreement
but excluding any Contingent Obligations in respect of, or
reimbursement obligations relating to, Independent Litigation Bonds;
(c) Obligations under letters of credit described in Section
8.03(b);
(d) Indebtedness of Reynolds Tobacco under any guaranty of
Permitted Currency Agreements;
(e) Obligations of any Non-Nabisco Subsidiary (other than any
Specified Subsidiary) under letters of credit incurred in the ordinary
course of business in connection with the purchase of tobacco or other
products or goods for use in the day-to-day operations of the Borrower
and its Subsidiaries consistent with the Borrower's past practices or
then current industry practices;
(f) Indebtedness secured by Liens permitted by Section
8.03(e);
(g) Existing Debt (and any extensions, renewals or
refinancings of such Indebtedness to the extent not increasing the
outstanding principal amount thereof);
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(h) Indebtedness of Subsidiary Guarantors as guarantors of the
Borrower's obligations in respect of any Specified Debt (other than the
Stub Notes) and/or any Supported CP;
(i) Indebtedness of Reynolds Tobacco (x) owing to IHC on the
Closing Date together with any interest accrued in respect thereof, (y)
owing from time to time to FHS and (z) owing from time to time to other
Subsidiaries of Reynolds Tobacco to the extent arising in the normal
course of business in connection with their cash management systems, in
each case to the extent such Indebtedness is subordinated to the
obligations of Reynolds Tobacco under the Subsidiary Guaranty in a
manner reasonably satisfactory to the Majority SMA;
(j) Indebtedness of any Non-Nabisco Subsidiary (other than any
Specified Subsidiary) in any manner guaranteeing or intended to
guarantee, whether directly or indirectly, any leases, dividends or
other monetary obligations of any Person in which such Subsidiary has
an ownership interest, provided that the aggregate maximum stated or
determinable amount (or, if not stated or determinable, the maximum
reasonably anticipated liability in respect of such Indebtedness as
determined in good faith by such Subsidiary) of all Indebtedness
permitted pursuant to this clause (j) shall not exceed at any time an
amount in excess of $50,000,000;
(k) Indebtedness of (i) Non-Nabisco Subsidiaries other than
Reynolds Tobacco owing to Reynolds Tobacco to the extent incurred in
the ordinary course of business consistent with past practices, (ii)
Non-Nabisco Subsidiaries that are not Subsidiary Guarantors or
Specified Subsidiaries to other Non-Nabisco Subsidiaries that are not
Subsidiary Guarantors or Specified Subsidiaries; and (iii) GMB to FSH
and/or FSH to GMB;
(l) Indebtedness of Non-Nabisco Subsidiaries (other than the
Specified Subsidiaries) not otherwise permitted by the foregoing
clauses (a) through (k), provided that the aggregate outstanding
principal amount of Indebtedness on a consolidated basis incurred
pursuant to this clause (l) shall not exceed $50,000,000 at any time.
8.05 Limitation on Dividends. Parent will not, and to the
extent not Parent, the Borrower will not, declare or pay any dividends (other
than dividends payable solely in its capital stock) or return any capital to its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any warrants for
or options or stock appreciation rights in respect of any of such shares but not
including any convertible debt), or set aside any funds for any of the foregoing
purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for
consideration any shares of any class of the capital stock of Holdings or the
Borrower now or hereafter outstanding (or any options or warrants or stock
appreciation rights issued by Holdings or the Borrower with respect to its
capital stock) (all of the foregoing "Dividends"), provided that so long as no
Event of Default then exists in the case of clauses (i), (iii), (iv) and (vii):
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(i) the Reorganization Merger shall be permitted to the extent
not in violation of Section 8.02 and in connection therewith the
Borrower may make the Reorganization Merger Payment to Holdings with
Holdings to utilize substantially all of the proceeds of such payment
for the purposes described in Section 5.01L;
(ii) Parent may issue shares of Parent Common Stock upon the
exercise of any warrants or options or upon the conversion or
redemption of any convertible or redeemable preferred or preference
stock, and in connection with any such exercise, conversion or
redemption Parent may pay cash in lieu of issuing fractional shares of
Parent Common Stock;
(iii) Parent may repurchase Parent Common Stock (and/or options
or warrants in respect thereof) pursuant to, and in accordance with the
terms of, management and/or employee stock plans, provided that the
aggregate amount of cash paid in respect of all such repurchases in any
calendar year pursuant to this clause (iii) does not exceed $15,000,000
and to the extent not Parent, the Borrower may declare and pay, or
otherwise effect, Dividends to Holdings to fund the repurchases made by
Holdings while Parent pursuant to this clause (iii);
(iv) Parent may declare and pay, or otherwise effect, any other
Dividend provided that, at the time it is declared, the aggregate
amount of such Dividend, when added to all Dividends theretofore
declared pursuant to this clause (iv) after the Closing Date shall not
exceed an amount equal to the sum of (x) $500,000,000 plus (y) 50% of
Cumulative Adjusted Cash Net Income plus (z) the aggregate cash
proceeds (net of underwriting discounts and commissions) received by
Parent after the Closing Date from issuances of its equity securities
(provided that the aggregate amount of such aggregate net cash proceeds
received in any twelve-month period shall be deemed not to exceed
$250,000,000 for purposes of this clause (iv)(z)), in each case
determined at the time of the declaration thereof, provided that such
Dividend is paid within 45 days of the making of such declaration, and
to the extent not Parent, the Borrower may declare and pay, or
otherwise effect, Dividends to Holdings to fund the permitted Dividends
that are paid by Holdings while Parent pursuant to this clause (iv),
provided that (a) any Dividend declared by Holdings while Parent that
is paid by Holdings after the consummation of the Spin-Off and is not
funded by Dividends from the Borrower will not be included in the
computation of Dividends declared by Parent for the purposes of this
clause (iv), (b) Holdings, while Parent, may declare a Dividend for
payment on or prior to July 1, 1999 in an amount not in excess of the
last regularly scheduled Dividend paid by Holdings prior to the Closing
Date and such Dividend (except to the extent not funded by a cash pass
through dividend paid by NHC in an amount at least comparable to the
dividend paid by NHC in respect of such last scheduled quarterly
Dividend so paid by Holdings) will not be included in the computation
of Dividends declared by Parent for purposes of this clause (iv) and
(c) Dividends may only be paid by Parent under this clause (iv) if at
the time of the declaration thereof the excess of (i) the sum of the
Total Unutilized Commitment and Permanent Surplus Cash, in each case at
such time over (ii) the sum of
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the amount of such Dividends so declared and the outstanding principal
or face amount of Supported CP at such time shall equal at least
$225,000,000;
(v) the Spin-Off shall be permitted to the extent not in
violation of Section 8.02;
(vi) Parent and the Borrower (if not Parent) may issue and
exchange shares of any class or series of its common stock now or
hereafter outstanding for shares of any other class or series of its
common stock now or hereafter outstanding; and
(vii) Parent and the Borrower (if not Parent) may, in connection
with any reclassification of its common stock and any exchange
permitted by clause (vi) above, pay cash in lieu of issuing fractional
shares of any class or series of its common stock.
8.06 Transactions with Affiliates. Parent will not, and will
not permit any Subsidiary to, enter into any transaction or series of
transactions, whether or not in the ordinary course of business, with any
Affiliate (other than any Wholly-Owned Subsidiary of Parent and, prior to the
Spin-Off in the case of a member of the Nabisco Group, any other member of the
Nabisco Group) other than on terms and conditions substantially as favorable to
Parent or such Subsidiary as would be obtainable by Parent or such Subsidiary at
the time in a comparable arm's-length transaction with a Person other than an
Affiliate; provided, that the foregoing restrictions shall not apply to: (i)
customary fees paid to members of the Board of Directors of Parent and of its
Subsidiaries; (ii) the Distribution Agreement and, prior to the consummation of
the Spin-Off, the RJRN Agreements; (iii) the Transactions; and (iv) prior to the
consummation of the Spin-Off, any transaction with any member of the Nabisco
Group if the Board of Directors of Holdings determines in good faith that such
transaction is in the best interest of Holdings and/or such Subsidiary, as the
case may be.
8.07 Consolidated Net Worth. Parent will not permit
Consolidated Net Worth to be less than (x) at any time on or prior to March 31,
2000, $6,800,000,000 and (y) at any time thereafter, $6,900,000,000.
8.08 Fixed Charge Coverage Ratio. Parent will not permit the
ratio of (i) Adjusted Operating Income to (ii) Consolidated Fixed Charges for
any Test Period ending (x) after the Closing Date and on or prior to March 31,
2000, to be less than 1.05 to 1.00 and (y) at any time thereafter, to be less
than 1.10 to 1.00.
8.09 Investments. The Parent will not, and will not permit the
Borrower (if not Parent) and the Non-Nabisco Subsidiaries to, purchase or
acquire any stock of, or any other ownership or equity interest in, or make any
capital contribution to, any other Person except pursuant to an acquisition
wherein the merger or consolidation, and/or the consideration paid by Parent,
the Borrower and/or the Non-Nabisco Subsidiaries in connection with such
acquisition, is permitted by Section 8.02, provided that any such acquisition of
the stock or interests in a Person that has theretofore been conducting a
business or that theretofore has owned assets and that was not theretofore a
Subsidiary must constitute a Permitted Investment:
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8.10 No Negative Pledge. Parent shall not, and shall not
permit the Borrower (if not Parent) or any Non-Nabisco Subsidiary to, enter into
any agreement or arrangement that prohibits or restricts (including by requiring
ratable sharing of Liens) the Borrower or any Subsidiary Guarantor from entering
into the Security Documents and/or granting any Lien in favor of the Collateral
Agent for the benefit of the Secured Creditors other than (i) any ratable
sharing of Liens provisions governing any of the New Senior Notes to the extent
such provisions shall be satisfied by the entering into of the Security
Documents and the granting of Liens thereunder in favor of the Collateral Agent
for the benefit of the Secured Creditors and (ii) any prohibition created in
connection with any Lien permitted by Section 8.03 to the extent applicable only
to the property subject to such Lien.
8.11 Prepayments of Indebtedness. The Borrower will not prepay
or redeem any Qualified Stub Notes or New Senior Notes if after giving effect
thereto the aggregate outstanding principal amount of Qualified Stub Notes and
New Senior Notes would be less than $1 billion.
SECTION 9. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment
when due of any principal of the Loans or (ii) default, and such default shall
continue for five or more days, in the payment when due of any interest on the
Loans or any Fees or any Unpaid Drawings or any other amounts owing hereunder or
under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or
statement made or deemed made by any Credit Party herein or in any other Credit
Document or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.10, 7.11, 7.12 or 8, or (b) default in the due performance or
observance by it of any term, covenant or agreement (other than those referred
to in Section 9.01, 9.02 or clause (a) of this Section 9.03) contained in this
Agreement and such default shall continue unremedied for a period of at least 30
days after notice to the Borrower by any Senior Managing Agent or the Required
Lenders; or
9.04 Default Under Other Agreements. (a) Except in all cases
for Excluded Defaults, Parent or any of its Subsidiaries shall (i) default in
any payment with respect to any Indebtedness (other than the Obligations) in
excess of $75,000,000 individually or $150,000,000 in the aggregate, for Parent
and its Subsidiaries, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause (determined without regard to whether
any notice or lapse of time is required, provided that, prior to the
consummation of the Spin-Off, the existence of any
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Event of Default under this Section 9.04(a)(ii) with respect to Indebtedness
outstanding under the Nabisco Credit Agreement shall be determined after giving
effect to any notice or lapse of time provided to Nabisco, Inc. in the Nabisco
Credit Agreement, as the case may be), any such Indebtedness to become due prior
to its stated maturity; or (b) any such Indebtedness shall be declared to be due
and payable, or required to be prepaid other than by a regularly scheduled
required prepayment or as a mandatory prepayment (unless such required
prepayment or mandatory prepayment results from a default or an event of the
type that constitutes an Event of Default), prior to the stated maturity
thereof; or
9.05 Bankruptcy, etc. Parent or any of its Material
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy," as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against Parent or any of its Material Subsidiaries and the petition is
not controverted within 10 days after service of notice of such case on Parent
or such Material Subsidiary, or is not dismissed within 60 days after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Parent or any of its Material Subsidiaries; or Parent or any of its Material
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to Parent or any of its Material Subsidiaries; or there is
commenced against Parent or any of its Material Subsidiaries any such proceeding
which remains undismissed for a period of 60 days; or Parent or any of its
Material Subsidiaries is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or
Parent or any of its Material Subsidiaries suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or Parent or any of its
Material Subsidiaries makes a general assignment for the benefit of creditors;
or any corporate action is taken by Parent or any of its Material Subsidiaries
for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) A single-employer plan (as defined in Section
4001 of ERISA) maintained or contributed to by any Credit Party or any of its
Subsidiaries or any ERISA Affiliate shall fail to maintain the minimum funding
standard required by Section 412 of the Code for any plan year or part thereof
or a waiver of such standard or extension of any amortization period is sought
or granted under Section 412 of the Code or shall provide security to induce the
issuance of such waiver or extension, (b) any Plan is or shall have been
terminated or the subject of termination proceedings under ERISA or an event has
occurred entitling the PBGC to terminate a Plan under Section 4042(a) of ERISA,
(c) any Plan shall have an Unfunded Current Liability, (d) Parent or any
Subsidiary or any ERISA Affiliate has incurred or is likely to incur a material
liability to or on account of a termination of or a withdrawal from a Plan under
Section 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA, (e) Parent or any
Subsidiary has incurred after the Closing Date liabilities (after giving effect
to any reserves applicable thereto and maintained on the Closing Date) pursuant
to one or more employee welfare benefit plans (as defined in Section 3(1) of
ERISA) which provide benefits to retired employees (other than as required by
Section 601 of ERISA) or employee pension benefit plans (as defined in Section
3(2)
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of ERISA) (except in each case solely as a result of a change in estimate
or adjustment of liabilities existing on the Closing Date upon the adoption or
implementation of Financial Accounting Statement 106), or (f) Parent or any
Subsidiary or any ERISA Affiliate has incurred a liability under Section 409,
502(i) or 502(l) of ERISA or Section 4971 or 4975 of the Code; and there shall
result from any such event or events described in the preceding clauses of this
Section 9.06 the imposition of a Lien upon the assets of Parent or any
Subsidiary, the granting of a security interest, or a liability or a material
risk of incurring a liability, which Lien, security interest or liability would
have a material adverse effect upon the business, operations or financial
condition of Parent and its Subsidiaries taken as a whole; or
9.07 Guaranty. Any Guaranty or any provision thereof shall
cease to be in full force or effect (other than in each case as a result of the
termination of the Holdings Guaranty upon the consummation of the Spin-Off), or
Holdings (for so long as the Holdings Guaranty is in effect) or any Subsidiary
Guarantor or any Person acting by or on behalf thereof shall deny or disaffirm
Holdings' or such Subsidiary Guarantor's obligations under any Guaranty (other
than in each case as a result of the termination of the Holdings Guaranty upon
the consummation of the Spin-Off) or Holdings (for so long as the Holdings
Guaranty is in effect) or any Subsidiary Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Guaranty and such default, if a default of
the covenant therein not to violate the provisions of Section 7 hereof, shall
continue unremedied for a period of at least 30 days after written notice to the
Borrower from the Administrative Agent; or
9.08 Judgments. One or more judgments or decrees shall be
entered against Parent or any of its Material Subsidiaries involving a liability
of $75,000,000 or more in the case of any one such judgment or decree and
$150,000,000 or more in the aggregate for all such judgments and decrees for
Parent and its Material Subsidiaries (to the extent not paid or fully covered by
insurance) and any such judgments or decrees shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof; or
9.09 Security Documents. At any time the Security Documents
are required to be in effect pursuant to Section 7.11, (a) any Security Document
shall cease to be in full force and effect, or shall cease to give the
Collateral Agent the Liens or any of the material rights, powers and privileges
purported to be created thereby in favor of the Collateral Agent, or (b) any
Credit Party shall default in the due performance or observance of any material
term, covenant or agreement on its part to be performed or observed pursuant to
any such Security Document and such default (other than a default arising from
the failure to deliver collateral) shall continue unremedied for a period of at
least 30 days after written notice to the Borrower by the Collateral Agent;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Lenders, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of any Senior
Managing Agent or any Lender to enforce its claims against the Borrower, except
as otherwise specifically provided for in this Agreement (provided that, if an
Event of Default specified in Section 9.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii)
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below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment terminated, whereupon the Commitment and Swingline
Commitment, if any, of each Lender shall forthwith terminate immediately and any
Facility Fee theretofore accrued shall forthwith become due and payable without
any other notice of any kind; (ii) declare the principal of and any accrued
interest in respect of all Loans and all other Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by Holdings and the Borrower; (iii) terminate any Letter of
Credit which may be terminated in accordance with its terms; (iv) direct the
Borrower to pay (and the Borrower agrees that upon receipt of such notice, or
upon the occurrence of an Event of Default specified in Section 9.05 with
respect to the Borrower, it will pay) to the Administrative Agent at the
Administrative Agent's Office such additional amounts of cash, to be held as
security for the Borrower's reimbursement obligations for Drawings that may
subsequently occur thereunder, equal to the aggregate Stated Amount of all
Letters of Credit issued and then outstanding; and/or (v) direct the Collateral
Agent to enforce any or all of the Security Documents then in effect.
Notwithstanding anything contained in the foregoing paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to the
preceding paragraph, the Borrower shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Defaults (other than non-payment of the principal of and accrued
interest on the Loans, in each case which is due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 12.12, then
Non-Defaulting Lenders holding at least 66-2/3% of the Adjusted Total Commitment
(which Lenders shall include in any event the Majority SMA), by written notice
to the Borrower, may at their option rescind and annul the acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Default or impair any right consequent thereon. The provisions of this
paragraph are intended merely to bind the Lenders to a decision which may be
made at the election of the aforesaid percentage of the Lenders and are not
intended to benefit the Borrower and do not grant the Borrower the right to
require the Lenders to rescind or annul any acceleration hereunder, even if the
conditions set forth herein are met.
SECTION 10. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Absolute Rate" shall mean an interest rate (rounded to the
nearest .0001) expressed as a decimal.
"Adjusted Operating Income" shall mean for any period (x) the
consolidated operating income of Parent, the Borrower (if not Parent) and the
Non-Nabisco Subsidiaries for such period plus (y) the sum of the consolidated
depreciation expense and consolidated amortization expense of Parent, the
Borrower (if not Parent) and the Non-Nabisco Subsidiaries for such period, all
as determined in accordance with GAAP, it being understood that the
determination of the amount specified in clauses (x) and (y) shall be made on a
consistent basis with the
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methodology utilized by Holdings to determine such amount on the Closing Date,
provided that (i) for the purposes of Section 8.08 only, for any Test Period
during which Consolidated Fixed Charges includes cash taxes paid as a result of
any extraordinary sale of assets (other than the International Tobacco Sale),
Adjusted Operating Income shall include a portion of the gross cash proceeds
received by Parent, the Borrower (if not Parent) and the Non-Nabisco
Subsidiaries as a result of such extraordinary sale of assets equal to the
percentage of such gross cash proceeds determined by dividing the cash taxes
paid during such Test Period as a result of such sale by the aggregate cash
taxes payable as a result of such sale, (ii) for the purposes only of Section
8.08 (to the extent such acquisition resulted in Consolidated Capital
Expenditures) for any Test Period during which any acquisition of any Person or
business occurs, Adjusted Operating Income shall give pro forma effect to such
acquisition as if it occurred on the first day of such Test Period, (iii) for
all purposes, Adjusted Operating Income shall be adjusted by subtracting
therefrom the amount of all payments made by Parent and its Subsidiaries during
any Test Period pursuant to any settlement with respect to tobacco liability
which otherwise did not reduce Adjusted Operating Income for such period or
prior periods and (iv) for all purposes, Adjusted Operating Income shall be
adjusted for (x) any Test Period including either or both of the last two fiscal
quarters in 1998, by adding thereto the amounts that were otherwise deducted in
determining Adjusted Operating Income for such quarter or quarters to the extent
attributable to tobacco liability settlements and/or restructuring charges and
(y) any Test Period during which they were otherwise deducted in determining
Adjusted Operating Income, by adding thereto the Reorganization Severance Costs
payable by the Borrower and the Non-Nabisco Subsidiaries.
"Adjusted Percentage" shall mean (x) at a time when no Lender
Default exists, for each Lender such Lender's Percentage and (y) at a time when
a Lender Default exists (i) for each Lender that is a Defaulting Lender, zero
and (ii) for each Lender that is a Non-Defaulting Lender, the percentage
determined by dividing such Lender's Commitment at such time by the Adjusted
Total Commitment at such time, it being understood that all references herein to
Commitments at a time when the Total Commitment has been terminated shall be
references to the Commitments in effect immediately prior to such termination,
provided that (A) no Lender's Adjusted Percentage shall change upon the
occurrence of a Lender Default from that in effect immediately prior to such
Lender Default if after giving effect to such Lender Default, and any repayment
of Loans at such time pursuant to Section 4.02(A)(a) or otherwise, the sum of
(i) the aggregate outstanding principal amount of Loans plus (ii) the Letter of
Credit Outstandings exceeds the Adjusted Total Commitment, (B) the changes to
the Adjusted Percentage that would have become effective upon the occurrence of
a Lender Default but that did not become effective as a result of the preceding
clause (A) shall become effective on the first date after the occurrence of the
relevant Lender Default on which the sum of (i) the aggregate outstanding
principal amount of the Loans plus (ii) the Letter of Credit Outstandings is
equal to or less than the Adjusted Total Commitment and (C) if (i) a
Non-Defaulting Lender's Adjusted Percentage is changed pursuant to the preceding
clause (B) and (ii) any repayment of such Lender's Loans that were made during
the period commencing after the date of the relevant Lender Default and ending
on the date of such change to its Adjusted Percentage must be returned to the
Borrower as a preferential or similar payment in any Bankruptcy or similar
proceeding of the Borrower, then the change to such Non-Defaulting Lender's
Adjusted Percentage effected pursuant to said clause (B) shall be reduced to
that positive change, if any, as would have been made to its Adjusted Percentage
if (x)
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such repayments had not been made and (y) the maximum change to its
Adjusted Percentage would have resulted in the sum of the outstanding principal
of Revolving Loans made by such Lender plus such Lender's new Adjusted
Percentage of the outstanding principal amount of Swingline Loans and of Letter
of Credit Outstandings equaling such Lender's Commitment at such time.
"Adjusted Total Commitment" shall mean at any time the Total
Commitment less the aggregate Commitments of all Defaulting Lenders.
"Administrative Agent" shall mean Chase, provided that if
Chase shall cease to constitute a Senior Managing Agent hereunder, the remaining
Senior Managing Agents shall have the option to appoint one of such remaining
Senior Managing Agents as the Administrative Agent.
"Administrative Agent's Office" shall mean the office of the
Administrative Agent located at 270 Park Avenue, New York, New York 10017, or
such other office in New York City as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 20% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Aggregate Outstandings" shall have the meaning provided in
Section 4.02(A)(a).
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time modified, amended and/or supplemented.
"Applicable Credit Rating" shall mean the highest rating level
(a rating level being, e.g., each of BBB-, BBB and BBB+, in the case of S&P)
assigned by each Rating Agency to any of the Long Term Debt Issues of the
Borrower.
"Applicable Eurodollar Margin" shall mean, in respect of each
Interest Period commencing during a period set forth below, the percentage set
forth below opposite such period below:
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Applicable
Period Eurodollar Margin
------ -----------------
Level II NIG Period 1.500%
Level I NIG Period 1.500%
Minimum Investment Grade Period 1.500%
Increased Investment Grade Period 1.375%
Maximum Investment Grade Period 1.250%
"Applicable Reference Rate Margin" shall mean, at any time
during a period set forth below, the percentage set forth opposite such period
below:
Applicable
Reference
Period Rate Margin
------ -----------
Level II NIG Period .500%
Level I NIG Period .500%
Minimum Investment Grade Period .500%
Increased Investment Grade Period .375%
Maximum Investment Grade Period .250%
"Approved Alternate Currency" shall mean Deutsche Marks and
Swiss Francs.
"Assignment Agreement" shall have the meaning provided in
Section 12.04(b)(A).
"Authorized Officer" shall mean any senior officer of Holdings
or the Borrower, as the case may be, designated as such in writing to the Senior
Managing Agents by Holdings or the Borrower, as the case may be, in each case to
the extent acceptable to the Majority SMA.
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Barclays" shall mean Barclays Bank PLC and any successor
corporation thereto by merger, consolidation or otherwise.
"Base Rate" shall mean, for any day, the publicly announced
prime rate on such date of Chase.
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"Bidder" shall mean each Lender that has notified in writing
(and has not withdrawn such notice) the Administrative Agent that it desires to
participate generally in the bidding arrangements relating to Competitive Bid
Borrowings.
"Borrower" shall mean RJR Nabisco, Inc., a Delaware
corporation (which shall change its name to R.J. Reynolds Tobacco Holdings, Inc.
upon consummation of the Spin-Off).
"Borrower Tender" shall have the meaning provided in Section
5.01K.
"Borrowing" shall mean and include (i) the incurrence of
Swingline Loans from the Swingline Lenders on a pro rata basis on a given date,
(ii) the incurrence of one Type of Loan by the Borrower from all of the Lenders
on a pro rata basis on a given date (or resulting from conversions on a given
date), having in the case of Eurodollar Loans the same Interest Period, provided
that Reference Rate Loans incurred pursuant to Section 1.11(b) shall be
considered part of any related Borrowing of Eurodollar Loans and (iii) a
Competitive Bid Borrowing.
"BTCo" shall mean Bankers Trust Company and any successor
corporation thereto by merger, consolidation or otherwise.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Lease," as applied to any Person, shall mean any
lease of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is, or is required to be, accounted for as a
capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of Holdings or any of its Subsidiaries in each case taken
at the amount thereof accounted for as liabilities in accordance with GAAP.
"Change of Control" shall mean and include (a) at any time
Continuing Directors shall not constitute a majority of the Board of Directors
of Parent (and if the Borrower is not Parent, the Borrower); and/or (b) any
Person or group (as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall acquire, directly
or indirectly, beneficial ownership (within the meaning of Rule 13d-3 and 13d-5
of the Exchange Act) of 30% or more, on a fully diluted basis, of the economic
or voting interest in Parent's capital stock; and/or (c) prior to the
consummation of the Spin-Off, Holdings ceases to own 100% of the common stock of
the Borrower.
"Chase" shall mean The Chase Manhattan Bank and any successor
corporation thereto by merger, consolidation or otherwise.
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"Citibank" shall mean Citibank, N.A. and any successor
corporation thereto by merger, consolidation or otherwise.
"Closing Date" shall have the meaning provided in Section
5.01.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall have the meaning provided in Section 7.11.
"Collateral Agent" shall mean the Administrative Agent acting
as Collateral Agent under the Security Documents.
"Commitment" shall mean, with respect to each Lender, the
amount set forth opposite such Lender's name in Annex I hereto, as the same may
be reduced from time to time pursuant to Section 3.02, 3.03, 9 and/or
12.04(b)(A).
"Commitment Termination Date" shall mean June 30, 1999.
"Committed Loans" shall mean Revolving Loans and Swingline
Loans.
"Commodities Agreement" shall mean any forward contract,
futures contract, option contract or similar agreement or arrangement, in each
case intended to protect the Persons entering into same from fluctuations in the
price of, or shortage of supply of, commodities.
"Competitive Bid Borrowing" shall mean a Borrowing of
Competitive Bid Loans pursuant to Section 1.04 with respect to which the
Borrower has requested that the Lenders offer to make Competitive Bid Loans at
Absolute Rates.
"Competitive Bid Loans" shall have the meaning provided in
Section 1.01(D).
"Computation Date" shall mean the last Business Day of each
month and any other date specified in writing by a Letter of Credit Issuer with
respect to an Existing Letter of Credit, or any replacement or renewal thereof.
"Consolidated Capital Expenditures" shall mean, for any
period, the aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including in all events all amounts expended or capitalized
under Capital Leases but excluding any amount representing capitalized interest)
by Parent, the Borrower (if not Parent) and the Non-Nabisco Subsidiaries during
that period that, in conformity with GAAP, are or are required to be included as
additions during such period to property, plant or equipment reflected in a
consolidated balance sheet of Parent, the Borrower (if not Parent) and the
Non-Nabisco Subsidiaries, provided that (x) except as set forth in clause (y)
below, Consolidated Capital Expenditures shall in any event include the purchase
price paid in connection with the acquisition of any Person (including through
the purchase of all of the capital stock or other ownership interests of such
Person, or through merger
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or consolidation with any Person but not including any capital contribution that
forms or establishes any Subsidiary) whether or not allocable to property, plant
and equipment and (y) Consolidated Capital Expenditures shall in any event
exclude expenditures made in connection with the replacement, substitution or
restoration of assets (i) to the extent financed from insurance proceeds paid on
account of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced.
"Consolidated Cash Interest Expense" shall mean, for any
period, (x) (i) consolidated interest expense of Parent, the Borrower (if not
Parent) and the Non-Nabisco Subsidiaries, but excluding, however, to the extent
included in such consolidated interest expense, (I) non-cash interest expense
and (II) amortization of debt issuance cost less (ii) consolidated cash interest
income of Parent, the Borrower (if not Parent) and Non-Nabisco Subsidiaries plus
(y) cash dividends paid on all preferred stock of Parent, the Borrower (if not
Parent) and the Non-Nabisco Subsidiaries during such period, it being understood
that the determination of the amounts specified in clauses (x)(i)(I) and
(x)(i)(II) shall be made on a consistent basis with the methodology utilized by
Holdings to determine such amounts on the Closing Date.
"Consolidated Fixed Charges" shall mean, for any period, the
sum, without duplication, of (A) the amounts for such period of (i) Consolidated
Cash Interest Expense, (ii) cash taxes paid during such period, and (iii)
Consolidated Capital Expenditures, all as determined on a consolidated basis for
Parent, the Borrower (if not Parent) and the Non-Nabisco Subsidiaries in
accordance with GAAP, it being understood that the determination of the amounts
specified in clause (iii) shall be made on a consistent basis with the
methodology utilized by Holdings to determine such amount on the Closing Date
plus (B) all Dividends paid (x) by Parent during such period pursuant to Section
8.05 (iii), (iv) or (vii) (including, if during such period, any Dividend paid
by Holdings pursuant to Section 8.05(iv)(b) but only to the extent in excess of
the pass through dividend paid by NHC in connection therewith) and (y) during
any portion of such period prior to the Closing Date, by Holdings but only to
the extent in excess of the pass through dividend paid by NHC in connection
therewith.
"Consolidated Net Worth" shall mean, as at any date of
determination, the stockholders' equity of Parent determined in accordance with
GAAP and as would be reflected on a consolidated balance sheet of Parent, the
Borrower (if not Parent) and the Non-Nabisco Subsidiaries only prepared as of
such date, it being understood that determinations of such amounts shall be made
on a consistent basis with the methodology utilized by Holdings to determine
such amounts on the Closing Date.
"Contingent Obligations" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other monetary obligations including
reimbursement obligations in respect of Litigation Bonds "primary obligations")
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or
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indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the owner of such primary
obligation against loss in respect thereof; provided, however, that the term
Contingent Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the lesser of (x) the
maximum stated or determinable amount of such Contingent Obligation and (y) the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Director" shall mean, at any date, an individual
(x) who is a member of the Board of Directors of Holdings or the Borrower, as
the case may be, on the date of this Agreement, (y) who, as at such date, has
been a member of such Board of Directors for at least the twelve preceding
months, or (z) who has been nominated to be a member of such Board of Directors
by a majority of the other Continuing Directors then in office or, in the case
of the Borrower, by Holdings on or prior to the consummation of the Spin-Off.
"Continuing Lender" shall mean, at any time, each Lender whose
Maturity Date is the Facility Maturity Date.
"Credit Documents" shall mean this Agreement, the Notes, the
Subsidiary Guaranty, the Facility Fee Letter and once executed and delivered and
in effect, the Security Documents.
"Credit Event" shall mean and include the making of a Loan
and/or the issuance of a Letter of Credit.
"Credit Lyonnais" shall mean Credit Lyonnais New York Branch
and any successor corporation thereto by merger, consolidation or otherwise.
"Credit Party" shall mean each of the Borrower, each
Subsidiary Guarantor and, prior to the consummation of the Spin-Off, Holdings.
"Credit Rating" shall mean (i) the Applicable Credit Rating
assigned by each Rating Agency, if such Applicable Credit Ratings are the same
or (ii) if the Applicable Credit Ratings assigned by the Rating Agencies differ,
the lower of the Applicable Credit Ratings assigned by the Rating Agencies.
"Cumulative Adjusted Cash Net Income" shall mean, at any time
for any determination thereof, the sum of (i) consolidated net income of Parent,
the Borrower (if not Parent) and the Non-Nabisco Subsidiaries, determined in
accordance with GAAP, for the period
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(taken as one accounting period) commencing July 1, 1999 and ending on the last
day of the last fiscal quarter of Parent then ended plus (ii) all losses from
debt retirement deducted in determining such consolidated net income of Parent,
the Borrower (if not Parent) and the Non-Nabisco Subsidiaries for the period
referred to in clause (i) above plus (iii) all cash dividends actually received
from NHC during such period to the extent not included in clause (i) above plus
(iv) all trademark and goodwill amortization deducted in determining such
consolidated net income, reduced by any tax benefit relating thereto included in
determining such consolidated net income for such period.
"Currency Agreement" shall mean any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement designed to protect the Persons entering into same
against fluctuations in currency values.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default other
than an Event of Default under Section 9.08.
"Defaulting Lender" shall mean any Lender with respect to
which a Lender Default is in effect.
"Designated Issuers" shall mean Chase, BTCo, Credit Lyonnais
and Barclays.
"Distribution Agreement" shall mean the Distribution Agreement
among Holdings, the Borrower and Reynolds Tobacco in the form of the draft dated
April ___, 1999 delivered to, and found acceptable by, the Senior Managing
Agents prior to the Execution Date as the same may be changed, modified or
amended with the consent of the Senior Managing Agents.
"Dividends" shall have the meaning provided in Section 8.05.
"Domestic Tobacco" shall mean Reynolds Tobacco, except for the
businesses and operations thereof (and capital stock interests therein) which
are included in International Tobacco and the intangibles as used by
International Tobacco.
"Drawing" shall have the meaning provided in Section 2.04(b).
"Eligible Transferee" shall mean and include a commercial
Lender, financial institution or other "accredited investor" (as defined in SEC
Regulation D); provided that Eligible Transferee shall not include any Person
(or any Affiliate thereof) who competes with Parent and its Subsidiaries in the
tobacco business or prior to the consummation of the Spin-Off, the cookie,
cracker, snack food or candy business.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
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"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Parent, a Subsidiary or a Credit
Party would be deemed to be a "single employer" within the meaning of Section
414(b), (c), (m) or (o) of the Code.
"Escrow" shall have the meaning provided in the definition of
Specified Debt.
"Eurodollar Loans" shall mean each Revolving Loan bearing
interest at the rates provided in Section 1.09(b).
"Eurodollar Rate" shall mean, with respect to each day during
each Interest Period for a Eurodollar Loan, the rate of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Telerate Service (or otherwise on such
service), the "Eurodollar Rate" shall be determined by reference to such other
publicly available service for displaying eurodollar rates as may be agreed upon
by the Administrative Agent and the Borrower or, in the absence of such
agreement, the "Eurodollar Rate" shall instead be the rate per annum announced
by the Administrative Agent as the rate at which the Administrative Agent is
offered Dollar deposits at or about 10:00 A.M., New York time, two Business Days
prior to the beginning of such Interest Period, in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of its Eurodollar Loan to be outstanding
during such Interest Period.
"Event of Default" shall have the meaning provided in Section
9.
"Excluded Default" shall have the meaning provided in Section
5.01N.
"Execution Date" shall have the meaning provided in Section
12.10.
"Existing Credit Agreements" shall mean, collectively, (i) the
364 Day Credit Agreement and (ii) the 3 Year Credit Agreement, each as in effect
on the Execution Date.
"Existing Debt" shall mean (i) the Indebtedness of the
Non-Nabisco Subsidiaries outstanding on the Closing Date and set forth in Annex
VII provided that such Indebtedness shall not exceed $200,000,000 in aggregate
outstanding principal amount and (ii) Indebtedness of Holdings in respect of the
Indebtedness described in Section 5.01L.(iii) until such Indebtedness is repaid.
"Existing Foreign Currency Debt" shall mean the 5%/10% Dual
Coupon/Dual Currency Swiss Franc/U.S. Dollar Bonds due 2001, the 5 3/8% Swiss
Franc Bonds due 2000 and the 6 7/8% Deutsche Mark Bearer Bonds due 2000.
"Existing Letter of Credit" shall have the meaning provided in
Section 2.01(c).
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"Existing Liens" shall mean (i) the Liens on the assets and
properties of the Non-Nabisco Subsidiaries outstanding on the Closing Date and
set forth in Annex VI provided that the Indebtedness secured by all such Liens
shall not exceed $20,000,000 in aggregate outstanding principal amount and (ii)
Liens resulting from the cash collateralization of letters of credit issued
under the 3 Year Credit Agreement in whole or severally in part by institutions
that are not Lenders hereunder and that remain outstanding on and after the
Closing Date provided that such letters of credit are as promptly as practical
terminated or replaced by Letters of Credit.
"Existing Senior Notes" shall mean the outstanding senior
notes of the Borrower on April 1, 1999 other than any thereof constituting
Existing Foreign Currency Debt, which senior notes aggregated approximately $4.4
billion in outstanding principal amount on April 1, 1999.
"Expected Total Commitment" shall mean, at any time of
determination with respect to any future date, the Adjusted Total Commitment in
effect at such time of determination less the aggregate Commitments of all
Non-Defaulting Lenders with a Maturity Date prior to such future date.
"Facility Fee" shall have the meaning provided in Section
3.01(a).
"Facility Fee Letter" shall have the meaning provided in
Section 3.01(a).
"Facility Maturity Date" shall mean the date which is the
second anniversary of the Measurement Date, as the same may be extended pursuant
to Section 1.14.
"Facing Fee" shall have the meaning provided in Section
3.01(d).
"Federal Funds Rate" shall mean for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 3.01.
"FSH" shall mean FHS, LLC, a Delaware limited liability
company.
"Fuji" shall mean The Fuji Bank, Limited and any successor
corporation thereto by merger, consolidation or otherwise.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time; it being understood
and agreed that determinations in
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accordance with GAAP for purposes of Section 8, including defined terms as used
therein, shall be made pursuant to Section 12.07(a).
"GMB" shall mean GMB, Inc. a North Carolina corporation.
"Government Acts" shall have the meaning provided in Section
2.06(a).
"Guaranteed L/C Obligations" shall mean the reimbursement
obligations of the Borrower in respect of letters of credit (other than Letters
of Credit) issued for its account to the extent such reimbursement obligations
are guaranteed by Reynolds Tobacco.
"Guarantor" for purposes of Section 13 of this Agreement shall
mean Holdings.
"Guaranty" shall mean and include (i) the Subsidiary Guaranty
and (ii) prior to the consummation of the Spin-Off, the Holdings Guaranty.
"Guaranty Event" shall mean that the Applicable Credit Rating
issued by at least one Rating Agency is at least one level below the Minimum
Investment Grade Rating.
"Hedging Agreements" shall mean and include Commodities
Agreements, Currency Agreements and Interest Rate Agreements and all other
similar hedging arrangements.
"Holdings" shall mean RJR Nabisco Holdings Corp., a Delaware
corporation.
"Holdings Guaranty" shall mean the guaranty of Holdings set
forth in Section 13, as the same may be supplemented, amended, modified or
terminated from time to time.
"IHC" shall mean RJR Tobacco Consolidated IHC, Inc., a
Delaware corporation.
"Increased Investment Grade Period" shall mean any period
during which the Credit Rating at all times is the Increased Investment Grade
Rating.
"Increased Investment Grade Rating" shall mean the rating
assigned by each Rating Agency which is one rating level above the Minimum
Investment Grade Rating, it being understood that as of the date of this
Agreement the "Increased Investment Grade Rating" of S&P is BBB and the
"Increased Investment Grade Rating" of Moody's is Baa2.
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money, (ii) the deferred purchase price of assets or
services which in accordance with GAAP would be shown on the liability side of
the balance sheet of such Person, (iii) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all drafts drawn
thereunder until reimbursed in full, (iv) the stated amount of all Litigation
Bonds issued for the account of such Person and without duplication of all
payments made thereunder until reimbursed in full, (v) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such Indebtedness has been assumed, (vi) all Capitalized Lease
Obligations of such Person, (vii) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, i.e., take-or-
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pay and similar obligations, (viii) all obligations of such Person under Hedging
Agreements and (ix) all Contingent Obligations of such Person, provided that
Indebtedness shall not include (x) trade payables and accrued expenses, in each
case arising in the ordinary course of business and (y) any obligation of the
Borrower or any Subsidiary thereof to purchase tobacco and/or other products,
services and produce utilized in its business pursuant to the RJRN Agreements or
agreements entered into in the ordinary course of business on a basis consistent
with the Borrower's past practices or then current industry practices; and
provided further, that (a) for the purposes of Section 9.04, the amount of
Indebtedness represented by any Hedging Agreement shall be at any time the
unrealized net loss position, if any, of the Borrower and/or its Subsidiaries
thereunder on a marked to market basis determined no more than one month prior
to such time and (b) for the purposes of determining the Indebtedness permitted
to be secured by Section 8.03(h) or outstanding under Section 8.04(i), the
amount of Indebtedness included in such determination that is attributable to
all Hedging Agreements secured or permitted thereunder, as the case may be,
shall be the Net Termination Value, if any, of all such Hedging Agreements.
"Independent Litigation Bond" shall mean any surety bond,
judgment bond or other bond or insurance policy issued for bonding litigation
judgments for appeal, other than any such bond or insurance policy that has been
fully cash collateralized (to the satisfaction of the Majority SMA) by the
Borrower or which is supported by Letters of Credit issued hereunder in the full
stated amount of such bond or insurance policy.
"Interest Period" shall mean, with respect to any Loan, the
interest period applicable thereto, as determined pursuant to Section 1.10.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate futures contract, interest rate option contract or other similar agreement
or arrangement.
"International Tobacco" shall mean the international tobacco
business managed by RJR International Tobacco Holding B.V. and consisting of (i)
the manufacture for export from the United States and the sale outside the
United States of tobacco products by Domestic Tobacco and (ii) the manufacture
and sale outside the United States of tobacco products by certain Subsidiaries
of the Borrower, it being understood and agreed that Puerto Rico shall be deemed
to be in the United States for the purpose of this definition.
"International Tobacco Sale" shall mean the sale of
International Tobacco to Japan Tobacco, Inc. for at least $7.8 billion in cash
(subject to post-closing adjustment) on terms consistent with those publicly
announced by the Borrower and Holdings prior to April 1, 1999 and otherwise as
are acceptable to the Majority SMA provided that the International Tobacco Sale
shall be deemed to have been consummated if (i) the sale closes with respect to
each of International Tobacco's operations except those in Russia, Ukraine
and/or Poland, (ii) the proceeds received from such closing consist of at least
$3.7 billion in cash (subject to post-closing adjustment) and (iii) the sellers
and buyer agree to complete the sale of the remaining International Tobacco
operations as soon as they receive required governmental approvals.
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"Lender" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not
been retracted) of a Lender to make available its portion of any Borrowing or to
fund its portion of any unreimbursed payment under Section 2.03(c) or (ii) a
Lender having notified any Senior Managing Agent and/or the Borrower that it
does not intend to comply with its obligations under Section 1.01(A) or 1.01(C)
or under Section 2.03(c), in the case of either (i) or (ii) as a result of the
appointment of a receiver or conservator with respect to such Lender at the
direction or request of any regulatory agency or authority.
"Letter of Credit" shall mean each standby letter of credit
issued pursuant to Section 2.01.
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(c).
"Letter of Credit Issuer" shall mean and include (i) each of
the Designated Issuers and (ii) each other Lender requested by the Borrower to
issue Letters of Credit to the extent consented to by such Lender.
"Letter of Credit Outstandings" shall mean, at any time, the
sum of, without duplication, (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 2.02.
"Level I NIG Period" shall mean any period during which the
Credit Rating is at all times the Level I NIG Rating.
"Level I NIG Rating" shall mean the rating assigned by each
Rating Agency which is one level below the Minimum Investment Grade Rating, it
being understood that as of the Closing Date the "Level I NIG Rating" of S&P is
BB+ and the "Level I NIG Rating" of Moody's is Ba1.
"Level II NIG Period" shall mean any period during which the
Credit Rating is at all times below the Level I NIG Rating.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement (other than
customary negative pledge clauses) to give any of the foregoing, any conditional
sale or other title retention agreement or any lease in the nature thereof).
"Loan" shall mean any Competitive Bid Loan, Revolving Loan or
Swingline Loan.
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"Long Term Debt Issues" shall mean, with respect to the
Borrower, each issuance of long-term senior debt of the Borrower which ranks on
a parity, as to payment and security, with the Loans.
"Majority SMA" shall mean, at any time, at least one-half in
number of the Senior Managing Agents.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(C).
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean (i) a material adverse
effect on the operations, business, property, assets or financial condition of
Parent and its Subsidiaries taken as a whole or of the Borrower and its
Non-Nabisco Subsidiaries taken as a whole and/or (ii) in the case of Section
5.01G and Section 6.04, a material adverse effect on the prospects of Parent and
its Subsidiaries taken as a whole or the Borrower and its Non-Nabisco
Subsidiaries taken as a whole provided that (w) neither the existence of the
Permitted Obligations described in clause (ix) of the definition thereof nor the
issuance of Letters of Credit to support such Permitted Obligations shall
constitute a Material Adverse Effect, (x) the existence of any action, suit,
proceeding or inquiry or the rendering of any verdict or entry of any order,
injunction or judgment thereunder will not have a Material Adverse Effect, or a
material adverse effect on the rights or remedies of the Lenders or the ability
of any Credit Party to perform its obligations to the Lenders hereunder or under
any other Credit Documents to which it is party unless such action, suit,
proceeding or verdict, order, injunction and/or judgment has also been
designated in writing by the Required Lenders as having such a Material Adverse
Effect or material adverse effect, as the case may be, (y) the existence of, or
the rendering of any verdict or entry of any order, injunction or judgment in,
any action, suit, proceeding or inquiry listed on Annex IV will not have a
Material Adverse Effect for purposes of Section 5.01G and Section 6.04 and (z)
(I) the existence of, or the rendering of, any verdict or entry of any order,
injunction or judgment that in each case can be stayed pending appeal (but only
for so long as such stay can still be obtained) or that is stayed pending appeal
and (II) the posting of a supersedeas or other appeal bond in respect of any
verdict, order or judgment shall not, in each case, in and of itself have a
Material Adverse Effect for purposes of Section 5.01F or Section 6.09, even if
such verdict, order or judgment could be viewed as having a material adverse
effect on future litigation prospects, unless such verdict, order or judgment
results in an actual material adverse effect on the operations, business,
property, assets or financial condition of Parent and its Subsidiaries taken as
a whole or of the Borrower and its Non-Nabisco Subsidiaries taken as a whole.
"Material Subsidiary" shall mean and include (x) for purposes
of Section 9.05 and 9.08 only, the Borrower (if not Parent) and (y) for all
purposes, Reynolds Tobacco, each of the Specified Subsidiaries and each other
Non-Nabisco Subsidiary (including any Person first becoming a Subsidiary upon
consummation of a Permitted Investment) to the extent that (x) the aggregate
book value of the assets of such other Non-Nabisco Subsidiary, determined on a
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consolidating basis, is equal to or more than $100,000,000 or (y) the net sales
of such other Non-Nabisco Subsidiary during its then most recently ended fiscal
year, determined on a consolidating basis, were equal to or more than
$75,000,000 provided that such net sales shall be determined on a pro forma
basis for the 12 months last ended when determining whether any Person that is
the survivor of any merger or consolidation or that is the transferee of any
property or assets from other Subsidiaries of Parent is a Material Subsidiary.
"Maturity Date" shall mean, with respect to each Lender, the
date which is the second anniversary of the Measurement Date, as the same may be
extended for such Lender pursuant to Section 1.14.
"Maximum Investment Grade Period" shall mean any period during
which the Credit Rating is at all times above the Increased Investment Grade
Rating.
"Measurement Date" shall mean the date which is six months
after the Closing Date.
"Minimum Borrowing Amount" shall mean (i) with respect to a
Borrowing of Revolving Loans, $10,000,000 and (ii) with respect to a Borrowing
of Swingline Loans, $5,000,000.
"Minimum Investment Grade Period" shall mean any period during
which the Credit Rating is at all times the Minimum Investment Grade Rating.
"Minimum Investment Grade Rating" shall mean the lowest rating
level established as investment grade by each Rating Agency, it being understood
that as of the date of this Agreement the "Minimum Investment Grade Rating" of
S&P is BBB- and the "Minimum Investment Grade Rating" of Moody's is Baa3.
"Moody's" shall mean Moody's Investors Service, Inc., or any
successor corporation thereto.
"Nabisco Credit Agreement" shall mean the Credit Agreement
dated as of April 28, 1995 among NHC, Nabisco, Inc. and the lending institutions
party thereto, as the same may be modified, supplemented or amended from time to
time.
"Net Termination Value" shall mean at any time, with respect
to all Hedging Agreements for which a Net Termination Value is being determined,
the excess, if positive, of (i) the aggregate of the unrealized net loss
position of the Borrower and/or its Subsidiaries under each of such Hedging
Agreements on a marked to market basis determined no more than one month prior
to such time less (ii) the aggregate of the unrealized net gain position of the
Borrower and/or its Subsidiaries under each of such Hedging Agreements on a
marked to market basis determined no more than one month prior to such time.
"New Senior Notes" shall mean senior notes of the Borrower
issued after May 1, 1999 on terms specified in the Borrower's Preliminary
Offering Memorandum dated April ___, 1999 relating to the issuance of such notes
(a copy of which was delivered to the Senior Managing Agents prior to the
Execution Date) or otherwise on terms reasonably satisfactory to
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the Senior Managing Agents, which term shall not include any Stub Notes or the
Existing Foreign Currency Debt.
"NHC" shall mean Nabisco Holdings Corp., a Delaware
corporation.
"Non-Continuing Lender" shall mean, at any time, each Lender
which is not a Continuing Lender at such time.
"Non-Defaulting Lender" shall mean and include each Lender
other than a Defaulting Lender.
"Non-Nabisco Subsidiary" shall mean (i) prior to the
consummation of the Reorganization Merger, each Subsidiary of the Borrower other
than NHC and its Subsidiaries and (ii) thereafter, all Subsidiaries of the
Borrower.
"Note" shall have the meaning provided in Section 1.06(a).
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Competitive Bid Borrowing" shall have the meaning
provided in Section 1.04.
"Notice of Conversion" shall have the meaning provided in
Section 1.07.
"Notifying SL Lender" shall have the meaning provided in
Section 1.01(C).
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to any Senior Managing Agent, the Administrative Agent or any Lender
pursuant to the terms of this Agreement or any other Credit Document.
"Other Debt Repayment" shall have the meaning provided in
Section 5.01L.
"Parent" shall mean (x) until the consummation of the
Spin-Off, Holdings and (y) on and after such consummation, the Borrower.
"Parent Common Stock" shall mean the common stock of Holdings.
"Participant" shall have the meaning provided in Section
2.03(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" shall mean at any time for each Lender, the
percentage obtained by dividing such Lender's Commitment by the Total
Commitment, provided that at any time when the Total Commitment shall have been
terminated each Lender's Percentage shall be the
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percentage obtained by dividing such Lender's outstanding Revolving Loans by the
aggregate outstanding Revolving Loans.
"Permanent Surplus Cash" shall mean cash on hand and cash
equivalents (including marketable securities) at the Borrower and its Domestic
Subsidiaries that (x) has not been designated to be used to pay income, excise
or other taxes (including taxes payable in respect of the International Tobacco
Sale) or to make settlement payments in respect of tobacco liability or (y) is
not on deposit in the Escrow, provided that the lesser of $100,000,000 and the
total amount of cash on hand in the cash management systems of the Borrower and
its Domestic Subsidiaries shall be excluded from Permanent Surplus Cash.
"Permitted Currency Agreement" shall mean any Currency
Agreement entered into in the ordinary course of business by the Borrower with
any Lender or Lenders (and/or their affiliates) to the extent consistent with
the practices of the Borrower and the Non-Nabisco Subsidiaries prior to the
Closing Date or with then current practices in the industry.
"Permitted Investment" shall mean the acquisition of a Person
that theretofore has been conducting a business or that theretofore has owned
assets and was not a Subsidiary prior to such acquisition to the extent that (i)
all or substantially all of the purchase price would constitute Consolidated
Capital Expenditures and (ii) such Person shall not be a Material Subsidiary
after giving effect to such acquisition unless such acquisition has been
consented to in writing by the Senior Managing Agents or such Person becomes a
Subsidiary Guarantor upon the consummation of such acquisition and takes all of
the actions specified in clause (ii)(II) of the proviso in Section 8.02(a)
"Permitted Litigation Bonding" shall mean the making of
deposits with the proceeds of Loans and/or the issuance of Letters of Credit, in
each case for the purposes of bonding litigation judgments entered against any
Credit Party after the Closing Date provided that at the time of the making of
any such Loan or issuance of any such Letter of Credit, and after giving effect
to any usage by the Credit Parties of Permanent Surplus Cash to effect such
bonding of litigation judgments, the amount of Permanent Surplus Cash shall be
zero.
"Permitted Obligations" shall mean and include obligations (i)
to pay taxes, (ii) to pay import duties, to post customs bonds and otherwise in
connection with customs and trade laws, (iii) to purchase equipment or fixtures
and otherwise in connection with capital expenditures, (iv) in connection with
the importation or purchase of tobacco or other products or goods for use in the
day-to-day operations of the Borrower and its Non-Nabisco Subsidiaries
consistent with the Borrower's practices in effect prior to the Closing Date or
with then current practices in the industry, (v) to make utility payments, (vi)
in connection with worker's compensation obligations or other employee
disability obligations, (vii) to provide credit support for any of the
foregoing, (viii) in respect of employee loans made in connection with
transfers, (ix) to provide credit support for suppliers and distributors in the
ordinary course of business, (ix) imposed by the PBGC in connection with the
Transactions provided that the Letter of Credit issued in connection with such
obligations shall not exceed $125 million in aggregate Stated Amount and (x) to
support Indebtedness supported by Existing Letters of Credit on the Closing
Date.
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"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any multiemployer or single-employer plan as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribution of), or at any time during the
five calendar years preceding the date of this Agreement was maintained or
contributed to by (or to which there is an obligation to contribution of),
Holdings, a Subsidiary, a Credit Party or an ERISA Affiliate.
"Qualified Stub Notes" shall mean Stub Notes with no scheduled
principal payment due prior to the initial Facility Maturity Date.
"Rating Agency" shall mean each of S&P and Moody's.
"Reference Rate" shall mean, at any time, the higher of (x)
the rate which is 1/2 of 1% in excess of the Federal Funds Rate and (y) the Base
Rate as in effect from time to time.
"Reference Rate Loan" shall mean each Revolving Loan or
Swingline Loan bearing interest at the rates provided in Section 1.09(a).
"Register" shall have the meaning provided in Section 1.06(d).
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reorganization Merger" shall mean the transfer by the
Borrower of its 80.5% interest in NHC, together with approximately $1.6 billion
(adjusted upwards to the extent Holdings pays Reorganization Severance Costs) in
after-tax proceeds of the International Tobacco Sale (the "Reorganization Merger
Payment"), to Holdings through a merger that is intended to be tax-free.
"Reorganization Merger Payment" shall have the meaning
provided in the definition of Reorganization Merger.
"Reorganization Severance Costs" shall mean severance costs
and expenses, together with headquarters elimination costs and expenses, payable
by the Borrower and/or Holdings as a result of the Transactions, with all such
costs and expenses not to exceed $305 million.
"Reply Date" shall have the meaning provided in Section
1.04(b).
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"Reportable Event" shall mean an event described in Section
4043(b) of ERISA with respect to a Plan as to which the 30-day notice
requirement has not been waived by the PBGC.
"Required Lenders" shall mean at any time Non-Defaulting
Lenders holding more than 50% of the Adjusted Total Commitment (or, if the Total
Commitment has been terminated, of the Adjusted Total Commitment as in effect
immediately prior to such termination).
"Revolving Loan" shall have the meaning provided in Section
1.01(A).
"Reynolds Tobacco" shall mean R.J. Reynolds Tobacco Company, a
New Jersey corporation.
"RJRN Agreements" shall have the meaning provided such term in
the Nabisco Credit Agreement and shall include the agreements that, on and after
the date of the Reorganization Merger, replace, modify or supplement such
agreements to the extent reasonably satisfactory to the Majority SMA.
"S&P" shall mean Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc., or any successor thereto.
"SEC" shall have the meaning provided in Section 7.01(f).
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Secured Creditors" shall mean and include with respect to any
Collateral (i) all Lenders (including in their capacity as Letter of Credit
Issuers or parties to Hedging Agreements) and their affiliates and other Hedging
Agreements parties as provided in the Security Documents, (ii) all holders of
the Existing Foreign Currency Debt to the extent the Lien sharing provisions of
the Existing Foreign Currency Debt require them to be secured by such Collateral
and (iii) all holders of New Senior Notes to the extent the Lien sharing
provisions of the New Senior Notes require them to be secured by such
Collateral.
"Security Documents" shall have the meaning provided in
Section 7.11(b).
"Senior Managing Agent" shall mean and include Chase, BTCo,
Citibank, Credit Lyonnais, Fuji and Barclays, and any successor to any thereof
appointed pursuant to Section 11.09.
"Specified Debt" shall mean and include (x) all Indebtedness
for borrowed money of the Borrower (including Stub Notes and the Existing
Foreign Currency Debt) other than (i) any Indebtedness for borrowed money
outstanding under this Agreement, (ii) Stub Notes with principal payments due
earlier than the initial Facility Maturity Date to the extent an amount equal to
the principal payments so due has been escrowed for the payment thereof pursuant
to arrangements (the "Escrow") reasonably satisfactory to the Majority SMA,
(iii) Qualified Stub
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Notes and/or New Senior Notes in an aggregate principal amount of up to $500
million and (iv) Supported CP, (y) the full stated amount of all outstanding
Independent Litigation Bonds issued for the account of the Borrower and (z) all
Guaranteed L/C Obligations.
"Specified Subsidiaries" shall mean GMB, IHC and FSH.
"Spin-Off" shall mean the spin-off of all of the capital stock
of the Borrower owned by Holdings to the shareholders of Holdings on terms
consistent with those announced prior to April 1, 1999 or as otherwise
reasonably acceptable to the Majority SMA.
"Stated Amount" of any Letter of Credit shall mean the maximum
amount available to be drawn thereunder, determined without regard to whether
any conditions to drawing could then be met.
"Stub Notes" shall mean any Existing Senior Notes that are not
tendered pursuant to the Borrower Tender and remain outstanding after the
closing thereof.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of Parent.
"Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower that has executed and delivered the Subsidiary Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in
Section 5.01.
"Supported CP" shall mean outstanding commercial paper issued
by the Borrower to the extent the credit rating assigned to such commercial
paper by any rating agency is premised on the liquidity support provided by this
Agreement.
"Swingline Commitment" shall mean for each Swingline Lender,
$16,666,666.66.
"Swingline Lender" shall mean and include each of Chase, BTCo,
Citibank, Credit Lyonnais, Fuji and Barclays, in each case, so long as such
entity constitutes a Lender hereunder.
"Swingline Loans" shall have the meaning provided in Section
1.01(B).
"Swingline Maturity Date" shall mean the date which is five
Business Days prior to the Facility Maturity Date.
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"Taxes" shall have the meaning provided in Section 4.04(a).
"Tender Offer and Consent Solicitation" shall mean (i) the
Tender Offer and Consent Solicitation Statement of the Borrower relating to
$4,389,486,000 of debt securities, and (ii) the Tender Offer and Consent
Solicitation Statement of Holdings relating to $373,750,000 of TOPrS, each dated
as of April 13, 1999, as the same may be amended from time to time with the
consent of the Majority SMA.
"Test Period" shall mean for any determination under Section
8.08, the four consecutive fiscal quarters of the Borrower then last ended.
"364 Day Credit Agreement" shall mean the Credit Agreement
dated as of April 28, 1995 among Holdings, the Borrower and the lending
institutions party thereto relating to commitments aggregating $750 million.
"3 Year Credit Agreement" shall mean the Credit Agreement
dated as of April 28, 1995 among Holdings, the Borrower and the lending
institutions party thereto relating to commitments aggregating $2.75 billion.
"Total Commitment" shall mean the sum of the Commitments of
each Lender.
"Total Swingline Commitment" shall mean the sum of the
Swingline Commitments of each of the Swingline Lenders, provided that the Total
Swingline Commitment shall not at any time exceed the Total Commitment.
"Total Unutilized Commitment" shall mean the excess of (x) the
Total Commitment over (y) the sum of (i) the aggregate outstanding principal
amount of all Revolving Loans, Swingline Loans and Competitive Bid Loans and
(ii) the Letter of Credit Outstandings.
"Transactions" shall mean and include: (i) the refinancing of
the Existing Credit Agreements; (ii) the International Tobacco Sale; (iii) the
Borrower Tender and the redemption of Existing Senior Notes; (iv) the Other Debt
Repayments; (v) the Reorganization Merger; and (vi) the Spin-Off.
"Trigger Event" shall mean that the Applicable Credit Rating
issued by each Rating Agency is at least one level below the Minimum Investment
Grade Rating or that the Applicable Credit Rating issued by either Rating Agency
is at least two levels below the Minimum Investment Grade Rating.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Reference Rate Loan or
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the present value of the accrued benefits under such
Plan as of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards No. 35, based
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upon the actuarial assumptions used by such Plan's actuary in the most recent
annual valuation of such Plan, exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
"Unpaid Drawing" shall have the meaning provided in Section
2.04(a).
"Wholly-Owned Subsidiary" of any Person shall mean any
Subsidiary of such Person to the extent all of the capital stock or other
ownership interests in such Subsidiary, other than directors' or nominees'
qualifying shares is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, telecopier device, telegraph
or cable.
SECTION 11. The Senior Managing Agents.
11.01 Appointment. Each Lender hereby irrevocably designates
and appoints Chase, BTCo, Citibank, Credit Lyonnais, Fuji and Barclays as Senior
Managing Agents (such term to include any of the Senior Managing Agents acting
as Administrative Agent or Syndication Agent and the Administrative Agent acting
as Collateral Agent) of such Lender to act as specified herein and in the other
Credit Documents, and each such Lender hereby irrevocably authorizes Chase,
BTCo, Citibank, Credit Lyonnais, Fuji and Barclays , as the Senior Managing
Agents for such Lender, to take such action on its behalf under the provisions
of this Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated to the respective Senior Managing
Agents by the terms of this Agreement and the other Credit Documents, together
with such other powers as are reasonably incidental thereto. Each Senior
Managing Agent agrees to act as such upon the express conditions contained in
this Section 11. Notwithstanding any provision to the contrary elsewhere in this
Agreement, no Senior Managing Agent shall have any duties or responsibilities,
except those expressly set forth herein or in the other Credit Documents, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against any Senior Managing Agent. The provisions
of this Section 11 are solely for the benefit of the Senior Managing Agents and
the Lenders, and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof, provided that the Borrower shall
have the rights granted to it pursuant to Section 11.09. In performing its
functions and duties under this Agreement, each Senior Managing Agent shall act
solely as agent of the Lenders and does not assume and shall not be deemed to
have assumed any obligation or relationship of agency or trust with or for
either Credit Party. No Managing Agent, Lead Manager, Manager or Co-Manager
shall have any duties or obligations in its capacity as such under this
Agreement.
11.02 Delegation of Duties. Each Senior Managing Agent may
execute any of its duties under this Agreement or any other Credit Document by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. No Senior Managing
Agent shall be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 11.03.
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11.03 Exculpatory Provisions. No Senior Managing Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Lenders for any recitals, statements, representations
or warranties made by Holdings, any Subsidiary or any of their respective
officers contained in this Agreement, any other Credit Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by any Senior Managing Agent under or in connection with, this
Agreement or any other Credit Document or for any failure of Holdings or any
Subsidiary or any of their respective officers to perform its obligations
hereunder or thereunder. No Senior Managing Agent shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of Holdings or any Subsidiary. No
Senior Managing Agent shall be responsible to any Lender for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Credit Document or for any representations, warranties,
recitals or statements made herein or therein or made in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by any Senior Managing Agent to the Lenders or by or on behalf
of the Borrower to any Senior Managing Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default.
11.04 Reliance by Senior Managing Agents. Each Senior Managing
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Credit Parties), independent accountants and other
experts selected by such Senior Managing Agent. Each Senior Managing Agent shall
be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. Each Senior Managing Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Lenders (or
to the extent specifically provided in Section 12.12, all the Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders.
11.05 Notice of Default. No Senior Managing Agent shall be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless such Senior Managing Agent has received notice from a
Lender or the Borrower or Holdings referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a
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"notice of default". In the event that any Senior Managing Agent receives such a
notice, such Senior Managing Agent shall give prompt notice thereof to the
Lenders. Each Senior Managing Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until a Senior Managing Agent shall have
received such directions, such Senior Managing Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
11.06 Non-Reliance on Senior Managing Agents and Other
Lenders. Each Lender expressly acknowledges that no Senior Managing Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
any Senior Managing Agent hereafter taken, including any review of the affairs
of Holdings or any Subsidiary, shall be deemed to constitute any representation
or warranty by any Senior Managing Agent to any Lender. Each Lender represents
to each Senior Managing Agent that it has, independently and without reliance
upon any Senior Managing Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of Parent and its Subsidiaries
and made its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon any Senior Managing Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, assets, operations, property,
financial and other condition, prospects and creditworthiness of Parent and its
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, no Senior
Managing Agent shall have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, operations, assets,
property, financial and other conditions, prospects or creditworthiness of
Parent or any of its Subsidiaries which may come into the possession of such
Senior Managing Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
11.07 Indemnification. The Lenders agree to indemnify each
Senior Managing Agent in its capacity as such ratably according to their
aggregate Commitments (or, if the Total Commitment has been terminated, their
aggregate Commitments as in effect immediately prior to such termination), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against such Senior Managing Agent in its capacity as such in any way
relating to or arising out of this Agreement or any other Credit Document, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted to be taken by any Senior
Managing Agent under or in connection with any of the foregoing, but only to the
extent that any of the foregoing is not paid by Parent or any of its
Subsidiaries; provided that no Lender shall be liable to any Senior
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Managing Agent for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from such Senior Managing Agent's gross
negligence or willful misconduct. If any indemnity furnished to any Senior
Managing Agent for any purpose shall, in the opinion of such Senior Managing
Agent, be insufficient or become impaired, such Senior Managing Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section 11.07 shall survive the payment of all Obligations.
11.08 Senior Managing Agents in Their Individual Capacities.
Each Senior Managing Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with Parent and its
Subsidiaries as though such Senior Managing Agent were not a Senior Managing
Agent hereunder. With respect to the Loans made by it and all Obligations owing
to it, each Senior Managing Agent shall have the same rights and powers under
this Agreement as any Lender and may exercise the same as though it were not a
Senior Managing Agent, and the terms "Lender" and "Lenders" shall include each
Senior Managing Agent in its individual capacity.
11.09 Successor Senior Managing Agents. Any Senior Managing
Agent may resign as a Senior Managing Agent upon 20 days' notice to the Lenders,
provided that prior to, and as a condition of, the last remaining Senior
Managing Agent so resigning, the Required Lenders shall appoint from among the
Lenders a successor Senior Managing Agent for the Lenders subject to prior
approval by the Borrower (such approval not to be unreasonably withheld,
provided that such Lender agrees to assume the Swingline Commitment of such
Senior Managing Agent in full), whereupon such successor agent shall succeed to
the rights, powers and duties of the Senior Managing Agents, and the term
"Senior Managing Agents" shall include such successor agent effective upon its
appointment, and the resigning Senior Managing Agent's rights, powers and duties
as a Senior Managing Agent shall be terminated, without any other or further act
or deed on the part of such former Senior Managing Agent or any of the parties
to this Agreement. After any retiring Senior Managing Agent's resignation
hereunder as a Senior Managing Agent, the provisions of this Section 11 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was a Senior Managing Agent under this Agreement.
SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower agrees to: (i)
pay all reasonable out-of-pocket costs and expenses of (x) the Senior Managing
Agents, whether or not the transactions herein contemplated are consummated, in
connection with the negotiation, preparation, execution and delivery of the
Credit Documents and the documents and instruments referred to therein and any
amendment, waiver or consent relating thereto (including, without limitation,
the reasonable fees and disbursements of White & Case LLP but of no other
counsel) and (y) each Senior Managing Agent and each of the Lenders in
connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for each Senior Managing Agent and for each of
the Lenders); (ii) pay and hold each of the Lenders harmless from and against
any
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and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender, its affiliates and their respective officers, directors,
employees, representatives, agents and affiliates from and hold each of them
harmless against any and all losses, liabilities, claims, damages or expenses
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding (whether
or not any Lender is a party thereto) related to the entering into and/or
performance of any Credit Document or the use of the proceeds of any Loans
hereunder or the Transactions or the consummation of any other transactions
contemplated in any Credit Document, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
12.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
Lender is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to either Credit Party
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other Indebtedness at any time held or owing by such Lender (including,
without limitation, by branches and agencies of such Lender wherever located) to
or for the credit or the account of either Credit Party against and on account
of the Obligations and liabilities of such Credit Party to such Lender under
this Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of such Credit Party purchased by such
Lender pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, telecopied, cabled or delivered, if to a
Credit Party, at the address specified opposite its signature below or in the
other relevant Credit Documents, as the case may be; if to any Lender, at its
address specified for such Lender on Annex II hereto; or, at such other address
as shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be telegraphed, telexed,
telecopied, or cabled or sent by overnight courier, and shall be effective when
received.
12.04 Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, provided that no Credit Party may
assign or transfer any of its interests hereunder, except to the extent any such
assignment results from the consummation of a transaction permitted
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under Section 8.02, without the prior written consent of the Lenders and
provided further that the rights of each Lender to transfer, assign or grant
participations in its rights and/or obligations hereunder shall be limited as
set forth below in this Section 12.04, provided that nothing in this Section
12.04 shall prevent or prohibit any Lender from pledging its rights under this
Agreement and/or its Loans and/or Note hereunder to a Federal Reserve Lender in
support of borrowings made by such Lender from such Federal Reserve Lender.
(b) Each Lender shall have the right to transfer, assign or
grant participations in all or any part of its remaining rights and obligations
hereunder on the basis set forth below in this clause (b).
(A) Assignments. At any time, each Lender may assign pursuant
to an Assignment Agreement substantially in the form of Exhibit E-2 hereto
(each, an "Assignment Agreement") all or a portion of its rights and obligations
hereunder pursuant to this clause (b)(A) to (x) one or more Lenders and/or their
affiliates or (y) with the consent of the Administrative Agent and so long as no
Event of Default then exists with the consent of the Borrower (which consent
shall not be unreasonably withheld), one or more other Eligible Transferees,
provided that any such assignment pursuant to clause (y) above shall be in the
aggregate amount of at least $5,000,000, except to the extent that after giving
effect to such assignment such Lender's Commitment is reduced to zero. Any
assignment to another Lender pursuant to this clause (b)(A) will become
effective upon the payment to the Administrative Agent by (I) either the
assigning or the assignee Lender or (II) in the case of an assignment pursuant
to Section 1.15, the Replacement Lender, of a nonrefundable assignment fee of
$3,500 and the recording by the Administrative Agent of such assignment, and the
resultant effects thereof on the Commitments of the assigning Lender and the
assignee Lender, in the Register, the Administrative Agent hereby agreeing to
effect such recordation no later than five Business Days after its receipt of a
written notification by the assigning Lender and the assignee Lender of the
proposed assignment, provided that the Administrative Agent shall not be
required to (but may if it so elects) so record any assignment in the Register
on or after the date on which any proposed amendment, modification or supplement
in respect of this Agreement has been circulated to the Lenders for approval
until the earlier of (x) the effectiveness of such amendment, modification or
supplement in accordance with Section 12.12 or (y) 30 days following the date
on which such proposed amendment, modification or supplement was circulated to
the Lenders. Assignments pursuant to this clause (b)(A) to any Person not
theretofore a Lender hereunder will only be effective if the Administrative
Agent shall have received a written notice in the form of Exhibit E-1 hereto
from the assigning Lender and the assignee Lender and payment of a
nonrefundable assignment fee of $3,500 to the Administrative Agent by (I)
either the assigning or the assignee Lender or (II) in the case of an
assignment pursuant to Section 1.15, the Replacement Lender. No later than five
Business Days after its receipt of such written notice, the Administrative
Agent will record such assignment, and the resultant effects thereof on the
Commitment of the assigning Lender, in the Register, at which time such
assignment shall become effective, provided that the Administrative Agent shall
not be required to (but may if it so elects) record any assignment in the
Register on or after the date on which any proposed amendment, modification or
supplement in respect of this Agreement has been circulated to the Lenders for
approval until the earlier of (x) the effectiveness of such amendment,
modification or supplement in accordance with Section 12.12
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or (y) 30 days following the date on which such proposed amendment,
modification or supplement was circulated to the Lenders. Upon the
effectiveness of any assignment pursuant to this clause (b)(A), (x) the
assignee will become a "Lender" for all purposes of this Agreement and the
other Credit Documents with a Commitment as so recorded by the Administrative
Agent in the Register, and to the extent of such assignment, the assigning
Lender shall be relieved of its obligations hereunder with respect to the
portion of its Commitment being assigned and (y) if such assignment occurs
after the Closing Date, the Borrower shall issue new Notes (in exchange for the
Note of the assigning Lender) to the assigning Lender (to the extent such
Lender's Commitment is not reduced to zero as a result of such assignment) and
to the assignee Lender, in each case to the extent requested by the assigning
Lender or assignee Lender, as the case may be, in conformity with the
requirements of Section 1.06 to the extent needed to reflect the revised
Commitments of such Lenders. The Administrative Agent will (x) notify each
Letter of Credit Issuer within 5 Business Days of the effectiveness of any
assignment hereunder and (y) prepare on the last Business Day of each calendar
quarter during which an assignment has become effective pursuant to this clause
(b)(A) a new Annex I giving effect to all such assignments effected during such
quarter and will promptly provide same to the Borrower and each of the Lenders.
(B) Participations. Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests and obligations
hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided
that (i) such Lender shall remain a "Lender" for all purposes of this Agreement
and the transferee of such participation shall not constitute a Lender hereunder
and (ii) no participant under any such participation shall have rights to
approve any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (x) extend the
final scheduled maturity of any of the Loans or the Commitment in which such
participant is participating, (y) reduce the interest rate (other than as a
result of waiving the applicability of any post-default increases in interest
rates) or Fees applicable to any of the Loans, Commitments or Letters of Credit
or postpone the payment of any thereof or (z) release Reynolds Tobacco from the
Subsidiary Guaranty or prior to the consummation of the Spin-Off, release the
Holdings Guaranty. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the other Credit Documents
(the participant's rights against the granting Lender in respect of such
participation to be those set forth in the agreement with such Lender creating
such participation) and all amounts payable by the Borrower hereunder shall be
determined as if such Lender had not sold such participation, provided that such
participant shall be entitled to receive additional amounts under Sections 1.11,
1.12, 2.05 and 4.04 on the same basis as if it were a Lender. In addition, each
agreement creating any participation must include an agreement by the
participant to be bound by the provisions of Section 12.15 and such participant
shall have executed a confidentiality agreement in the form of Exhibit E hereto.
(c) Notwithstanding any other provisions of this Section
12.04, no transfer or assignment of the interests or obligations of any Lender
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower or the Guarantor to
file a registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any State.
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(d) Each Lender initially party to this Agreement hereby
represents, and each Person that becomes a Lender pursuant to an assignment
permitted by the preceding clause (b)(A) will upon its becoming party to this
Agreement represent, that it is an Eligible Transferee which makes loans in the
ordinary course of its business and that it will make or acquire Loans for its
own account in the ordinary course of such business, provided that, subject to
the preceding clauses (a) through (c), the disposition of any promissory notes
or other evidences of or interests in Indebtedness held by such Lender shall at
all times be within its exclusive control.
(e) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Lender") may grant to a special purpose funding vehicle
(an "SPC") of such Granting Lender, identified as such in writing from time to
time by the Granting Lender to the Administrative Agent and the Borrower, the
option to provide to the Borrower all or any part of any Loan that such Granting
Lender would otherwise be obligated to make to the Borrower pursuant to Section
1.01(A) or (D) provided that (i) nothing herein shall constitute a commitment to
make any Loan by any SPC and (ii) if an SPC elects not to exercise such option
or otherwise fails to provide all or any part of such Loan, the Granting Lender
shall be obligated to make such Loan pursuant to the terms hereof. The making of
a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender
to the same extent, and as if, such Loan were made by the Granting Lender. Each
party hereto hereby agrees that no SPC shall be liable for any payment under
this Agreement for which a Lender would otherwise be liable, for so long as, and
to the extent, the related Granting Lender makes such payment. In furtherance of
the foregoing, each party hereto hereby agrees that, prior to the date that is
one year and one day after the payment in full of all outstanding senior
indebtedness of any SPC, it will not institute against, or join any other person
in instituting against, such SPC any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or similar proceedings under the laws of
the United States or any State thereof. In addition, notwithstanding anything to
the contrary contained in this Section 12.04 any SPC may (i) with notice to, but
without the prior written consent of, the Borrower or the Administrative Agent
and without paying any processing fee therefor, assign all or a portion of its
interests in any Loans to its Granting Lender or to any financial institutions
(if consented to by the Borrower and the Administrative Agent) providing
liquidity and/or credit facilities to or for the account of such SPC to fund the
Loans made by such SPC or to support the securities (if any) issued by such SPC
to fund such Loans and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency, commercial paper dealer
or provider of a surety, guarantee or credit or liquidity enhancement to such
SPC.
12.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of any Senior Managing Agent, Administrative Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between either Credit Party and any Senior
Managing Agent or any Lender shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which any Senior Managing Agent or any Lender would
otherwise have. No notice to or demand on either Credit Party in any case shall
entitle either Credit Party to any other or further notice or demand in similar
or other cir-
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cumstances or constitute a waiver of the rights of the Senior Managing Agents
or the Lenders to any other or further action in any circumstances without
notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of either
Credit Party in respect of any Obligations of such Credit Party, it shall,
except as otherwise provided in this Agreement, distribute such payment to the
Lenders pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or Lender's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligations then owed and due to such Lender bears to the total of such
Obligations then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all of the Lenders in such
amount; provided, that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements
to be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Holdings to the Lenders); provided, that, except as otherwise specifically
provided herein, all computations determining compliance with Section 8,
including definitions used therein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity with
those used to prepare, the historical financial statements delivered to the
Lenders pursuant to Section 6.09, provided that in the event GAAP shall be
modified from that in effect at the time of the preparation of such financial
statements, the Borrower shall be entitled to utilize GAAP, as so modified, for
purposes of such computations to the extent that (x) the Borrower gives the
Lenders 30 days' prior written notice of such proposed modification and (y)
prior thereto the Borrower and the Majority SMA shall have agreed upon
adjustments, if any, to Sections 8.03(g), 8.04(l), 8.05, 8.07 and 8.08 (and the
definitions used therein) the sole purpose of which shall be to give effect to
such proposed change (it being understood and agreed that to the extent that the
Borrower and the Majority SMA cannot agree on appropriate adjustments to such
Sections (or that no adjustments are necessary), the proposed change may not be
effected); and provided further, that if at any time the computations
determining compliance with Section 8 utilize accounting principles different
from those utilized in the financial statements furnished to the Lenders, such
financial statements shall be accompanied by reconciliation work-sheets.
Notwithstanding the foregoing, for purposes of the computations determining
compliance with Section 8, all expenses and other charges arising from any
settlement of tobacco liability which are required by GAAP to be retroactively
applied
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to a previous fiscal quarter of Parent shall instead be accrued in the fiscal
quarter in which such expenses and charges occur.
(b) All computations of interest and Fees hereunder shall be
made on the actual number of days elapsed over a year of 360 days.
(c) All determinations of the Stated Amount of Letters of
Credit and of the principal amount of Unpaid Drawings, in each case to the
extent denominated in a currency other than U.S. dollars, shall be made by
converting same into U.S. dollars at (x) if a Currency Agreement has been
entered into by the Borrower and/or any of its Subsidiaries in connection with
such Indebtedness, and is in effect at the time of such determination, the rate
provided in such Currency Agreement, provided that this clause (x) shall not be
applicable (I) unless the Administrative Agent has received sufficient
information from the Borrower to determine the exchange rate established by such
Currency Agreement and the duration thereof, or (II) to any determination of the
Borrower's obligation to reimburse in U.S. dollars a Drawing under a Letter of
Credit denominated in a currency other than U.S. dollars, (y) in the case of a
determination of the Borrower's obligation to reimburse in U.S. dollars a
Drawing under a Letter of Credit denominated in a currency other than U.S.
dollars, the spot exchange rate for the currency in question of the Letter of
Credit Issuer on the date of such Drawing or (z) if the provisions of the
foregoing clauses (x) and (y) are not applicable, the "official" exchange rate,
if applicable, or the spot exchange rate for the currency in question calculated
by the Administrative Agent on the last Computation Date preceding the date on
which any such determination is being made and at such other times as the
Administrative Agent elects to make such determination, it being understood that
the Administrative Agent shall have no obligation to make any such other
determinations. The Administrative Agent will promptly notify the Borrower and
each Letter of Credit Issuer of its determinations hereunder.
12.08 Governing Law; Submission to Jurisdiction; Venue. (a)
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Agreement or any other Credit Document may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, each
Credit Party hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Credit Party further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
the respective Credit Party at its address for notices pursuant to Section
12.03, such service to become effective 30 days after such mailing. Each Credit
Party hereby irrevocably appoints the Borrower as its agent for service of
process in respect of any such action or proceeding. Nothing herein shall affect
the right of any Senior Managing Agent or any Lender to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against either Credit Party in any other jurisdiction.
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(b) Each Credit Party hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in the
preceding clause (a) and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
12.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
12.10 Execution. This Agreement shall be fully executed on the
date (the "Execution Date") on which each of Holdings and the Borrower and each
of the Lenders shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Administrative Agent at the
Administrative Agent's Office or, in the case of the Lenders, shall have given
to the Administrative Agent telephonic (confirmed in writing), written, telex or
facsimile notice (actually received) at such office that the same has been
signed and mailed to it. The Administrative Agent will give Holdings, the
Borrower and each Lender prompt written notice of the occurrence of the
Execution Date.
12.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
12.12 Amendment or Waiver. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Required Lenders; provided, that (x) no such change,
waiver, discharge or termination shall, without the consent of each Lender
(other than a Defaulting Lender) with Obligations being directly affected
thereby, (i) extend the scheduled final maturity of any Loan or Note, or any
portion thereof, or reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any post-default
increase in interest rates) thereon or Fees or reduce the principal amount
thereof, or increase the Commitment of any Lender over the amount thereof then
in effect (it being understood that a waiver of any Default or Event of Default
or of a mandatory reduction in the Total Commitment shall not constitute a
change in the terms of the Commitment of any Lender), (ii) release Reynolds
Tobacco from the Subsidiary Guaranty or prior to the consummation of the
Spin-Off, the Holdings Guaranty, (iii) at any time Collateral is pledged
pursuant to the Security Documents release (other than pursuant to the automatic
release provided for in Section 7.11) all or substantially all of the
Collateral, (iv) amend, modify or waive any provision of this Section, or
Section 1.11, 1.12, 1.14, 2.05, 4.04, 9.01, 11.07, 12.01, 12.02, 12.04, 12.06,
12.07(b) or 12.15, (v) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders or (vi) consent to the assignment or transfer
by the Borrower or (prior to the consummation of the Spin-Off) Holdings of any
of its rights and
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obligations under this Agreement; and (y) the financial covenants set forth in
Sections 8.03(g), 8.04(l), 8.05, 8.07 and 8.08, (and the defined terms used
therein) may be adjusted with the consent of the Borrower and the Majority SMA
to the extent provided in Sections 7.09 and 12.07(a). No provision of Section 11
may be amended or modified without the consent of any Senior Managing Agent
adversely affected thereby. The obligations of Swingline Lenders to make
Swingline Loans, the terms of any such Swingline Loans and the obligations of
the other Lenders to fund Mandatory Drawings shall not be amended or modified
without the consent of the Swingline Lenders. The terms of Section 2 shall not
be amended or modified without the consent of any Letter of Credit Issuer
adversely affected thereby.
12.13 Survival. All indemnities set forth herein including,
without limitation, in Section 1.11, 1.12, 2.05, 4.04, 11.07 or 12.01 shall
survive the execution and delivery of this Agreement and the making of the
Loans, the issuances of Letters of Credit, the repayment of the Obligations and
the termination of the Total Commitment.
12.14 Domicile of Loans. Subject to Section 12.04, each Lender
may transfer and carry its Loans at, to or for the account of any branch office,
subsidiary or affiliate of such Lender; provided, that the Borrower shall not be
responsible for costs arising under Section 1.11, 1.12, 2.05 or 4.04 resulting
from any such transfer (other than a transfer pursuant to Section 1.13) to the
extent not otherwise applicable to such Lender prior to such transfer.
12.15 Confidentiality. Subject to Section 12.04, each Lender
shall hold all non-public information furnished by or on behalf of Holdings or
the Borrower in connection with such Lender's evaluation of whether to become a
Lender hereunder or obtained pursuant to the requirements of this Agreement,
which has been identified as such by Holdings ("Confidential Information"), in
accordance with its customary procedure for handling confidential information of
this nature and in accordance with safe and sound banking practices and in any
event may make disclosure reasonably required by any bona fide transferee or
participant (which shall be an Eligible Transferee) in connection with the
contemplated transfer of any Loans or participations therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process or to such Lender's attorneys or independent auditors; provided,
that, unless specifically prohibited by applicable law or court order, each
Lender shall notify Holdings of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and provided further, that in no event shall any Lender be
obligated or required to return any materials furnished by Holdings or any
Subsidiary. Each Lender agrees that it will not provide to prospective
assignees, transferees or participants any of the Confidential Information
unless such Person has executed a Confidentiality Agreement in the form of
Exhibit F.
12.16 Waiver of Jury Trial. Each of the parties to this
Agreement hereby irrevocably waives all right to a trial by jury in any action,
proceeding or counterclaim arising out of or relating to this Agreement, the
other Credit Documents or the transactions contemplated hereby or thereby.
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SECTION 13. Holdings Guaranty.
13.01 The Holdings Guaranty. In order to induce the Lenders to
enter into this Agreement and to extend credit hereunder and in recognition of
the direct benefits to be received by the Guarantor from the proceeds of the
Loans and the issuance of the Letters of Credit, the Guarantor hereby agrees
with the Lenders as follows: the Guarantor hereby unconditionally and
irrevocably guarantees as primary obligor and not merely as surety the full and
prompt payment when due, whether upon maturity, by acceleration or otherwise, of
any and all indebtedness of the Borrower to the Lenders. If any or all of the
indebtedness of the Borrower to the Lenders becomes due and payable hereunder,
the Guarantor unconditionally promises to pay such indebtedness to the Lenders,
or order, on demand, together with any and all expenses which may be incurred by
the Senior Managing Agents or the Lenders in collecting any of the indebtedness.
The word "indebtedness" is used in this Section 13 in its most comprehensive
sense and includes any and all advances, debts, obligations and liabilities of
the Borrower arising in connection with this Agreement and any other Credit
Document, in each case, heretofore, now, or hereafter made, incurred or created,
whether voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or incurred,
whether the Borrower may be liable individually or jointly with others, whether
or not recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.
13.02 Bankruptcy. Additionally, the Guarantor unconditionally
and irrevocably guarantees the payment of any and all indebtedness of the
Borrower to the Lenders whether or not due or payable by the Borrower upon the
occurrence in respect of the Borrower of any of the events specified in Section
9.05, and unconditionally promises to pay such indebtedness to the Lenders, or
order, on demand, in lawful money of the United States.
13.03 Nature of Liability. The liability of the Guarantor
hereunder is exclusive and independent of any security for or other guaranty of
the indebtedness of the Borrower whether executed by the Guarantor, any other
guarantor or by any other party, and the liability of the Guarantor hereunder
shall not be affected or impaired by (a) any direction as to application of
payment by the Borrower or by any other party, or (b) any other continuing or
other guaranty, undertaking or maximum liability of a guarantor or of any other
party as to the indebtedness of the Borrower, or (c) any payment on or in
reduction of any such other guaranty or undertaking, or (d) any dissolution,
termination or increase, decrease or change in personnel by the Borrower, or (e)
any payment made to the Senior Managing Agents or the Lenders on the
indebtedness which the Senior Managing Agents or such Lenders repay the Borrower
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and the Guarantor waives any right
to the deferral or modification of its obligations hereunder by reason of any
such proceeding.
13.04 Independent Obligation. The obligations of the Guarantor
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
the Guarantor whether or not action is brought
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against any other guarantor or the Borrower and whether or not any other
guarantor or the Borrower be joined in any such action or actions. The Guarantor
waives, to the fullest extent permitted by law, the benefit of any statute of
limitations affecting its liability hereunder or the enforcement thereof. Any
payment by the Borrower or other circumstance which operates to toll any statute
of limitations as to the Borrower shall operate to toll the statute of
limitations as to the Guarantor.
13.05 Authorization. The Guarantor authorizes the Senior
Managing Agents and the Lenders without notice or demand (except as shall be
required by applicable statute and cannot be waived), and without affecting or
impairing its liability hereunder, from time to time to (a) renew, compromise,
extend, increase, accelerate or otherwise change the time for payment of, or
otherwise change the terms of, the indebtedness or any part thereof in
accordance with this Agreement, including any increase or decrease of the rate
of interest thereon, (b) take and hold security from any guarantor or any other
party for the payment of this Holdings Guaranty or the indebtedness and
exchange, enforce, waive and release any such security, (c) apply such security
and direct the order or manner of sale thereof as the Senior Managing Agents and
the Lenders in their discretion may determine and (d) release or substitute any
one or more endorsers, guarantors, the Borrower or other obligors.
13.06 Reliance. It is not necessary for the Senior Managing
Agents or the Lenders to inquire into the capacity or powers of the Borrower or
its Subsidiaries or the officers, directors, partners or agents acting or
purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
13.07 Subordination. Any indebtedness of the Borrower now or
hereafter held by the Guarantor is hereby subordinated to the indebtedness of
the Borrower to the Senior Managing Agents and the Lenders; and such
indebtedness of the Borrower to the Guarantor, if any Senior Managing Agent,
after an Event of Default has occurred, so requests, shall be collected,
enforced and received by the Guarantor as trustee for the Lenders and be paid
over to the Lenders on account of the indebtedness of the Borrower to the
Lenders, but without affecting or impairing in any manner the liability of the
Guarantor under the other provisions of this Holdings Guaranty. Prior to the
transfer by the Guarantor of any note or negotiable instrument evidencing any
indebtedness of the Borrower to the Guarantor, the Guarantor shall mark such
note or negotiable instrument with a legend that the same is subject to this
subordination.
13.08 Waiver. (a) The Guarantor waives any right (except as
shall be required by applicable statute and cannot be waived) to require the
Senior Managing Agents or the Lenders to (a) proceed against the Borrower, any
other guarantor or any other party, (b) proceed against or exhaust any security
held from the Borrower, any other guarantor or any other party or (c) pursue any
other remedy in the Senior Managing Agents' or the Lenders' power whatsoever.
The Guarantor waives any defense based on or arising out of any defense of the
Borrower, any other guarantor or any other party other than payment in full of
the indebtedness, including, without limitation, any defense based on or arising
out of the disability of the Borrower, any other guarantor or any other party,
or the unenforceability of the indebtedness or any part thereof from any cause,
or the cessation from any cause of the liability of the Borrower other than
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payment in full of the indebtedness. The Senior Managing Agents and the Lenders
may, at their election, foreclose on any security held by the Senior Managing
Agents or the Lenders by one or more judicial or nonjudicial sales, whether or
not every aspect of any such sale is commercially reasonable (to the extent such
sale is permitted by applicable law), or exercise any other right or remedy the
Senior Managing Agents and the Lenders may have against the Borrower or any
other party, or any security, without affecting or impairing in any way the
liability of the Guarantor hereunder except to the extent the indebtedness has
been paid. The Guarantor waives any defense arising out of any such election by
the Senior Managing Agents and the Lenders, even though such election operates
to impair or extinguish any right of reimbursement or subrogation or other right
or remedy of the Guarantor against the Borrower or any other party or any
security. Until all indebtedness of the Borrower to the Lenders shall have been
paid in full, the Guarantor shall not have any right of subrogation, and waives
any right to enforce any remedy which the Senior Managing Agents and the Lenders
now have or may hereafter have against the Borrower, and waives any benefit of,
and any right to participate in, any security now or hereafter held by the
Senior Managing Agents and the Lenders.
(b) The Guarantor waives all presentments, demands for
performance, protests and notices, including without limitation notices of
nonperformance, notice of protest, notices of dishonor, notices of acceptance of
this Holdings Guaranty, and notices of the existence, creation or incurring of
new or additional indebtedness. The Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the indebtedness and the nature, scope and extent of the risks which the
Guarantor assumes and incurs hereunder, and agrees that the Senior Managing
Agents and the Lenders shall have no duty to advise the Guarantor of information
known to them regarding such circumstances or risks.
13.09 Limitation on Enforcement. The Lenders agree that this
Holdings Guaranty may be enforced only by the action of a Senior Managing Agent
acting upon the instructions of the Required Lenders and that no Lender shall
have any right individually to seek to enforce or to enforce this Holdings
Guaranty, it being understood and agreed that such rights and remedies may be
exercised by each Senior Managing Agent for the benefit of the Lenders upon the
terms of this Agreement.
13.10 Termination. The guaranty of the Guarantor set forth in
this Section 13 shall terminate, and be of no further force and effect, upon the
consummation of the Spin-Off and upon such termination the Guarantor shall have
no obligations or liabilities under this Section 13 or any Credit Document.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address
RJR NABISCO, INC.
By______________________________________________
Title:
RJR NABISCO HOLDINGS CORP.
By______________________________________________
Title:
SENIOR MANAGING AGENTS
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By______________________________________________
Title:
BANKERS TRUST COMPANY,
Individually and as Syndication Agent
By______________________________________________
Title:
CITIBANK, N.A.,
Individually and as Syndication Agent
By______________________________________________
Title:
85
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
Individually and as Syndication Agent
By______________________________________________
Title:
THE FUJI BANK LIMITED,
Individually and as Syndication Agent
By______________________________________________
Title:
BARCLAYS BANK PLC, Individually and as
Syndication Agent
By______________________________________________
Title:
86
<PAGE>
Exhibit 10.6
GUARANTEE
R.J. Reynolds Tobacco Company (hereinafter referred to as the
"Guarantor"), which term includes any successor or assign under the Indenture,
dated as of May 15, 1999, among RJR Nabisco, Inc., a Delaware corporation or any
assignee or successor thereto (the "Obligor" ), the Guarantor and The Bank of
New York, as trustee (the "Indenture"), hereby irrevocably and unconditionally
guarantees that: (i) the principal of, premium, if any, and interest, including
Additional Interest, on the Note upon which this Guarantee is endorsed will be
duly and punctually paid in full when due, whether at maturity, by acceleration,
by redemption, by repurchase or otherwise, and interest on overdue principal and
(to the extent permitted by law) interest on any interest on the Note upon which
this Guarantee is endorsed and all other monetary obligations of the Obligor to
the Holders or the Trustee hereunder or under the Note upon which this Guarantee
is endorsed (including fees and expenses) will be promptly paid in full, all in
accordance with the terms hereof, and (ii) in case of any extension of time of
payment or renewal of the Note upon which this Guarantee is endorsed or any of
such other ;monetary obligations, the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal.
The obligations of the Guarantor to the Holder and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
X of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, officer, director or incorporator, as such, past,
present or future of the Guarantor shall have any liability under this Guarantee
by reason of his or its status as such stockholder, officer, director or
incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its successors and assigns
until full and final payment and performance of all of the Obligor's obligations
under the Notes and the Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders, and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Guarantee is
endorsed shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers. This Guarantee shall be
governed by and construed in accordance with the laws of the State of New York.
THE TERMS OF ARTICLE X OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE>
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated: May 18, 1999
R.J. REYNOLDS TOBACCO COMPANY
By: /s/ K. Lapiejko
------------------------------
Name: K. Lapiejko
Title: Chief Financial Officer
<PAGE>
Exhibit 10.7
SUBSIDIARY GUARANTY
GUARANTY, dated as of May __, 1999 (as amended, restated,
modified and/or supplemented from time to time, this "Guaranty"), made by the
undersigned (together with any other entity which becomes a party hereto
pursuant to Section 24, each a "Guarantor" and, collectively, the "Guarantors").
Except as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, RJR Nabsico, Inc. (which is to change its name to
R.J. Reynolds Tobacco Holdings, Inc. and herein, the "Borrower"), RJR Nabisco
Holdings Corp., the various lending institutions from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as Administrative Agent (the
"Administrative Agent"), and Bankers Trust Company, Citibank, N.A., Credit
Lyonnais New York Branch, The Fuji Bank, Limited and Barclays Bank PLC, as
Syndication Agents (the "Syndication Agents"), have entered into a Credit
Agreement, dated as of May 7, 1999 (as amended, restated, modified and/or
supplemented from time to time, the "Credit Agreement"), providing for the
making of Loans to the Borrower and the issuance of, and participation in,
Letters of Credit for the account of the Borrower, all as contemplated therein
(the Lenders, the Administrative Agent, the Syndication Agents and the
Collateral Agent herein called the "Lender Creditors");
WHEREAS, the Borrower may from time to time enter into one or
more (i) interest rate protection agreements (including, without limitation,
interest rate swaps, caps, floors, collars and similar agreements), (ii) foreign
exchange contracts, currency swap agreements, commodity agreements or other
similar agreements or arrangements designed to protect against the fluctuations
in currency values and/or (iii) other types of hedging agreements from time to
time (each such agreement or arrangement with a Hedging Creditor (as hereinafter
defined), a "Permitted Hedging Agreement") with any Lender or Lenders or a
syndicate of financial institutions organized by a Lender or an affiliate of a
Lender (even if in either case any such Lender ceases to be a Lender under the
Credit Agreement for any reason) (any institution that participates therein, and
in each case their subsequent successors and assigns, collectively, the "Hedging
Creditors", and together with the Lender Creditors, the "Creditors");
WHEREAS, each Guarantor is a direct or indirect Subsidiary of
the Borrower;
WHEREAS, the Credit Agreement and the Permitted Hedging
Agreements require that this Guaranty be executed and delivered; and
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans by the Borrower and the issuance of, and participation in,
Letters of Credit for the account of the Borrower under the Credit Agreement and
the entering into of the Permitted Hedging
<PAGE>
Agreements and, accordingly, desires to execute this Guaranty in order to
satisfy the requirements described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. Each Guarantor, jointly and severally, irrevocably and
unconditionally guarantees: (i) to the Lender Creditors the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of (x) the principal of and interest on the Notes issued by, and the Loans made
to, the Borrower under the Credit Agreement and all reimbursement obligations
and Unpaid Drawings with respect to Letters of Credit and (y) all other
obligations (including obligations which, but for any automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrower to the Lender Creditors (including, without limitation,
indemnities, Fees and interest thereon) now existing or hereafter incurred
under, arising out of or in connection with the Credit Agreement or any other
Credit Document and the due performance and compliance with the terms,
conditions and agreements contained in the Credit Documents by the Borrower (all
such principal, interest, liabilities and obligations being herein collectively
called the "Credit Document Obligations"); and (ii) to each Hedging Creditor the
full and prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of all obligations (including obligations which, but
for any automatic stay under Section 362(a) of the Bankruptcy Code, would become
due) and liabilities owing by the Borrower to the Hedging Creditors (including,
without limitation, indemnities, fees and interest thereon) under any Permitted
Hedging Agreements, whether now in existence or hereafter arising, and the due
performance and compliance by the Borrower with all terms, conditions and
agreements contained therein (all such obligations and liabilities under this
clause (ii) being herein collectively called the "Hedging Obligations", and
together with the Credit Document Obligations are herein collectively called the
"Guaranteed Obligations"). Each Guarantor understands, agrees and confirms that
the Creditors may enforce this Guaranty up to the full amount of the Guaranteed
Obligations against each Guarantor without proceeding against any other
Guarantor, the Borrower, against any security for the Guaranteed Obligations, or
against any other guarantor under any other guaranty covering all or a portion
of the Guaranteed Obligations. This Guaranty shall constitute a guaranty of
payment and not of collection. All payments by each Guarantor under this
Guaranty shall be made on the same basis as payments by the Borrower under
Sections 4.03 and 4.04 of the Credit Agreement.
2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations to the Creditors whether or not due or payable by the
Borrower upon the occurrence in respect of the Borrower of any of the events
specified in Section 9.05 of the Credit Agreement, and unconditionally and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Creditors, or order, on demand, in lawful money of the United States of
America.
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<PAGE>
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Guaranteed Obligations
whether executed by such Guarantor, any other Guarantor, any other guarantor or
by any other person, and the liability of each Guarantor hereunder shall not be
affected or impaired by (i) any direction as to application of payment by the
Borrower or by any other person, (ii) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other person as to the
Guaranteed Obligations, (iii) any payment on or in reduction of any such other
guaranty or undertaking, (iv) any dissolution, termination or increase, decrease
or change in personnel by the Borrower, (v) any payment made to any Creditor on
the Guaranteed Obligations which any Creditor repays the Borrower pursuant to
court order in any bankruptcy, reorganization, arrangement, moratorium or other
debtor relief proceeding, and each Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding, (vi)
any action or inaction by the Creditors as contemplated in Section 6 hereof or
(vii) any invalidity, irregularity or unenforceability of all or part of the
Guaranteed Obligations or of any security therefor.
4. The obligations of each Guarantor hereunder are independent
of the obligations of any other Guarantor, any other guarantor of the Borrower
or the Borrower, and a separate action or actions may be brought and prosecuted
against each Guarantor whether or not action is brought against any other
Guarantor, any other guarantor of the Borrower or the Borrower and whether or
not any other Guarantor, any other guarantor of the Borrower or the Borrower be
joined in any such action or actions. Each Guarantor waives, to the fullest
extent permitted by law, the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrower or
other circumstance which operates to toll any statute of limitations as to the
Borrower shall operate to toll the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Administrative Agent or any other Creditor against, and any other notice
to, any party liable thereon (including such Guarantor or any other guarantor of
the Borrower).
6. Any Creditor may at any time and from time to time without
the consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations, (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the guaranty herein made
shall apply to the Guaranteed Obligations as so changed, extended,
renewed or altered;
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(ii) take and hold security for the payment of the Guaranteed
Obligations and/or sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset there against;
(iii) exercise or refrain from exercising any rights against the
Borrower, any Guarantor, any other guarantor of the Borrower or others
or otherwise act or refrain from acting;
(iv) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of
any liability (whether due or not) of the Borrower to creditors of the
Borrower;
(v) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Borrower to the Creditors
regardless of what liabilities of the Borrower remain unpaid;
(vi) release or substitute any one or more endorsers,
guarantors, Guarantors, the Borrower or other obligors;
(vii) consent to or waive any breach of, or any act, omission or
default under, the Permitted Hedging Agreements, the Credit Documents
or any of the instruments or agreements referred to therein, or
otherwise amend, modify or supplement any of the Permitted Hedging
Agreements, the Credit Documents or any of such other instruments or
agreements; and/or
(viii) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against the Borrower to recover full indemnity for any payments made
pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or
any part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.
8. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Creditor in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any
4
<PAGE>
other right, power or privilege. The rights and remedies herein expressly
specified are cumulative and not exclusive of any rights or remedies which any
Creditor would otherwise have. No notice to or demand on any Guarantor in any
case shall entitle such Guarantor to any other further notice or demand in
similar or other circumstances or constitute a waiver of the rights of any
Creditor to any other or further action in any circumstances without notice or
demand. It is not necessary for any Creditor to inquire into the capacity or
powers of the Borrower or any of its Subsidiaries or the officers, directors,
partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by
any Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred, so requests, shall
be collected, enforced and received by such Guarantor as trustee for the
Creditors and be paid over to the Creditors on account of the indebtedness of
the Borrower to the Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this Guaranty.
Prior to the transfer by any Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrower to such Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination. Without limiting the generality of the foregoing,
each Guarantor hereby agrees with the Creditors that it will not exercise any
right of subrogation which it may at any time otherwise have as a result of this
Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise) until all Guaranteed Obligations have been irrevocably paid in full
in cash.
10. (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors
to: (i) proceed against the Borrower, any other Guarantor, any other guarantor
of the Borrower or any other person; (ii) proceed against or exhaust any
security held from the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other person; or (iii) pursue any other remedy in the Creditors'
power whatsoever. Each Guarantor waives any defense based on or arising out of
any defense of the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other person other than payment in full in cash of the
Guaranteed Obligations, including, without limitation, any defense based on or
arising out of the disability of the Borrower, any other Guarantor, any other
guarantor of the Borrower or any other person, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment in full in cash of
the Guaranteed Obligations. The Creditors may, at their election, foreclose on
any security held by the Administrative Agent, the Collateral Agent or the other
Creditors by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Creditors may have against the Borrower or any other person, or any security,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent the Guaranteed Obligations have been paid in full
in cash. Each Guarantor waives any defense arising out of any such election by
the Creditors, even though such election operates to impair or extinguish any
right of reimbursement
5
<PAGE>
or subrogation or other right or remedy of such Guarantor against the Borrower
or any other person or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Until such time as the Guaranteed Obligations have been
paid in full in cash, each Guarantor hereby waives all contractual, statutory or
common law rights of reimbursement, contribution or indemnity from the Borrower
or any other Guarantor which it may at any time otherwise have as a result of
this Guaranty.
11. If and to the extent that any Guarantor makes any payment
to any Creditor or to any other Person pursuant to or in respect of this
Guaranty, any claim which such Guarantor may have against the Borrower by reason
thereof shall be subject and subordinate to the prior payment in full of the
Guaranteed Obligations to each Creditor. Prior to the transfer by any Guarantor
of any note or negotiable instrument evidencing any indebtedness of the Borrower
to such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination.
12. Each Guarantor covenants and agrees that on and after the
date hereof and until the termination of the Total Commitment and all Permitted
Hedging Agreements and when no Note or Letter of Credit remains outstanding and
all other Guaranteed Obligations have been paid in full (other than those
arising from indemnities for which no request has been made), such Guarantor
shall take, or will refrain from taking, as the case may be, all actions that
are necessary to be taken or not taken so that no violation of any provision,
covenant or agreement contained in Section 7 or 8 of the Credit Agreement, and
so that no Event of Default, is caused by the actions of such Guarantor or any
of its Subsidiaries.
13. The Guarantors hereby jointly and severally agree to pay
all reasonable and actual out-of-pocket costs and expenses of each Creditor in
connection with the enforcement of this Guaranty and the protection of such
Creditor's rights hereunder, and in connection with any amendment, waiver or
consent relating hereto (including, without limitation, the reasonable and
actual fees and disbursements of counsel employed by the Administrative Agent or
any of the other Creditors). Any reference in this Guaranty, to "fees of
counsel" shall mean the actual and reasonable fees of counsel incurred at
customary and reasonable rates in the jurisdiction in which such counsel
performed its services, not pursuant to any statutory formula or percentage
calculation.
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14. This Guaranty shall be binding upon each Guarantor and
its successors and assigns and shall inure to the benefit of the Creditors and
their successors and assigns.
15. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated in any manner whatsoever unless in
writing duly signed by the Administrative Agent (with the consent of (x) the
Required Lenders or, to the extent required by Section 12.12 of the Credit
Agreement, all of the Lenders, at all times prior to the time at which all
Credit Document Obligations have been paid in full, or (y) the holders of at
least a majority of the outstanding Hedging Obligations at all times after the
time at which all Credit Document Obligations have been paid in full) and each
Guarantor directly affected thereby (it being understood that the addition or
release of any Guarantor hereunder shall not constitute a change, waiver,
discharge or termination affecting any Guarantor other than the Guarantor so
added or released); provided, that any change, waiver, modification or variance
affecting the rights and benefits of a single Class (as defined below) of
Creditors (and not all Creditors in a like or similar manner) shall require the
written consent of the Requisite Creditors (as defined below) of such Class. For
the purpose of this Guaranty, the term "Class" shall mean each class of
Creditors, i.e., whether (i) the Lender Creditors as holders of the Credit
Document Obligations or (ii) the Hedging Creditors as holders of the Hedging
Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of
any Class shall mean each of (i) with respect to the Credit Document
Obligations, the Required Lenders and (ii) with respect to the Hedging
Obligations, the holders of at least a majority of all obligations outstanding
from time to time under the Secured Hedging Agreements.
16. Each Guarantor acknowledges that an executed (or
conformed) copy of each of the Credit Documents and the Permitted Hedging
Agreements has been made available to its principal executive officers and such
officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" as defined in the Credit Agreement or
any payment default under any Permitted Hedging Agreement and shall in any
event, include, without limitation, any payment default on any of the Guaranteed
Obligations continuing after any applicable grace period), each Creditor is
hereby authorized at any time or from time to time, without notice to any
Guarantor or to any other Person, any such notice being expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other indebtedness at any time held or owing by such Creditor to or for the
credit or the account of such Guarantor, against and on account of the
obligations and liabilities of such Guarantor to such Creditor under this
Guaranty, irrespective of whether or not such Creditor shall have made any
demand hereunder and although said obligations, liabilities, deposits or claims,
or any of them, shall be contingent or unmatured. Each Creditor acknowledges and
agrees that the provisions of this Section 17 are subject to the sharing
provisions set forth in Section 12.06(b) of the Credit Agreement.
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<PAGE>
18. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Lender Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at its address set forth opposite
its signature below and (iii) in the case of any Hedging Creditor, at such
address as such Hedging Creditor shall have specified in writing to the
Guarantor; or in any case at such other address as any of the foregoing Persons
may hereafter notify the others in writing.
19. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of said Creditors repays all or part of said
amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such Creditor or any of its
property or (ii) any settlement or compromise of any such claim effected by such
Creditor with any such claimant (including the Borrower), then and in such event
each Guarantor agrees that any such judgment, decree, order, settlement or
compromise shall be binding upon such Guarantor, notwithstanding any revocation
hereof or the cancellation of any Note or any Permitted Hedging Agreement or
other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to such Creditor hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by any such Creditor.
20. (a) This Guaranty and the rights and obligations of the
Creditors and of the undersigned hereunder shall be governed by and construed in
accordance with the law of the state of New York.
(b) Any legal action or proceeding with respect to this
Guaranty or any other Credit Document to which any Guarantor is a party may be
brought in the courts of the state of New York or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Guaranty, each Guarantor hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each Guarantor further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such Guarantor at its address set forth opposite its signature
below, such service to become effective 30 days after such mailing. Each
Guarantor hereby irrevocably waives any objection to such service of process and
further irrevocably waives and agrees not to plead or claim in any action or
proceeding commenced hereunder or under any other credit document to which such
Guarantor is a party that service of process was in any way invalid or
ineffective. Each Guarantor hereby irrevocably appoints the Borrower as its
agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of any of the creditors to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Guarantor in any other jurisdiction.
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<PAGE>
(c) Each Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Guaranty or any other Credit Document brought in the courts referred to in
clause (b) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that such action or proceeding brought in any such
court has been brought in an inconvenient forum.
(d) Each Guarantor hereby irrevocably waives all rights to a
trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Guaranty, the other Credit Documents or the transactions
contemplated hereby or thereby.
21. In the event that all of the capital stock or other equity
interests of one or more Guarantors is sold or otherwise disposed of (to a
Person other than the Borrower or a Subsidiary thereof) or liquidated in
compliance with the requirements of Section 8.02 of the Credit Agreement (or
such sale, disposition or liquidation has been approved in writing by the
Required Lenders (or all Lenders if required by Section 12.12 of the Credit
Agreement)), such Guarantor shall be released from this Guaranty and this
Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no
further force or effect (it being understood and agreed that the sale of one or
more Persons that own, directly or indirectly, all of the capital stock of any
Guarantor shall be deemed to be a sale of such Guarantor for the purposes of
this Section 21).
22. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
23. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
24. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute a counterpart of this Guaranty pursuant to
the Credit Agreement shall automatically become a Guarantor hereunder by
executing a counterpart hereof and delivering the same to the Administrative
Agent.
25. Notwithstanding anything else to the contrary in this
Guaranty, the Creditors agree that this Guaranty may be enforced only by the
action of the Administrative Agent acting upon the instructions of the Required
Lenders (or, after the date on which all Credit Document Obligations have been
paid in full, the holders of at least a majority of the outstanding Hedging
Obligations), and that no other Creditor shall have any right individually to
seek to enforce or to enforce this Guaranty, it being understood and agreed that
such rights and remedies may be exercised by the Administrative Agent or the
holders of at least a majority of the outstanding Hedging Obligations, as the
case may be, for the benefit of the Creditors upon the terms of this Guaranty.
The Creditors further agree that this Guaranty may not be enforced against any
director, officer, employee, or stockholder of any Guarantor (except to the
extent such
9
<PAGE>
stockholder is also a Guarantor hereunder). It is understood that
the agreement in this Section 25 is among and solely for the benefit of the
Lenders and that if the Required Lenders so agree (without requiring the consent
of any Guarantor), this Guaranty may be directly enforced by any Creditor.
26. Each Guarantor hereby confirms that it is its intention
that this Guaranty not constitute a fraudulent transfer or conveyance for
purposes of any bankruptcy, insolvency or similar law, the Uniform Fraudulent
Conveyance Act or any similar Federal, state of foreign law. To effectuate the
foregoing intention, each Guarantor hereby irrevocably agrees that the
Guaranteed Obligations shall be limited to the maximum amount as will, after
giving effect to such maximum amount and all other (contingent or otherwise)
liabilities of such Guarantor that are relevant under such laws, result in the
Guaranteed Obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.
10
<PAGE>
* * *
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
Address:
P.O. Box 2959 R.J. REYNOLDS TOBACCO COMPANY,
401 N. Main Street as a Guarantor
Winston Salem, NC 27102
Attn: Guy Blynn
By_____________________________
Title:
Accepted and Agreed to:
THE CHASE MANHATTAN BANK,
as Administrative Agent for the Lenders
By__________________________________
Title:
11
<PAGE>
Exhibit 10.8
RJR NABISCO, INC.
1999 LONG TERM INCENTIVE PLAN
1. Purpose of Plan
The RJR Nabisco, Inc. 1999 Long Term Incentive Plan is effective June
14, 1999 and is designed:
(a) to promote the long term financial interests and growth of RJR
Nabisco, Inc. and subsidiaries (the "Corporation") by attracting and retaining
management personnel with the training, experience and ability to enable them to
make a substantial contribution to the success of the Corporation's business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the identity of interests of participants with those of
the stockholders of the Corporation through opportunities for increased stock,
or stock-based, ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Base Value" means not less than the Fair Market Value on the date
a Stock Appreciation Right is granted, or, in the case of a Stock Appreciation
Right granted retroactively in tandem with (or in replacement of) an outstanding
stock option, not less than the exercise price of such option;
(b) "Board of Directors" means the Board of Directors of RJRN;
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Committee" means the Compensation Committee of the Board of
Directors;
<PAGE>
5
(e) "Common Stock" or "Share" means common stock of RJRN which may be
authorized but unissued, or issued and reacquired;
(f) "Effective Date" shall have the meaning set forth in Section 12;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(h) "Fair Market Value" means such value of a Share as reported for
stock exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time;
(i) "Grant Agreement" means an agreement between RJRN and a Participant
that sets forth the terms, conditions and limitations applicable to a Grant;
(j) "Grant" means an award made to a Participant pursuant to the Plan
and described in Paragraph 5, including, without limitation, an award of an
Incentive Stock Option, Other Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Units or Performance Shares or any combination of the
foregoing;
(k) "Incentive Stock Options" shall have the meaning set forth in
Section 5(a);
(l) "Other Stock Options" shall have the meaning set forth in Section
5(b);
(m) "Options" shall mean Incentive Stock Options and Other Stock
Options;
(n) "Participant" means any employee, or other person having a unique
relationship with RJRN or one of its Subsidiaries, to whom one or more Grants
have been made and such Grants have not all been forfeited or terminated under
the Plan; provided, however, a non-employee director of RJRN or one of its
Subsidiaries may not be a Participant;
(o) "Performance Units" shall have the meaning set forth in Section
5(e);
(p) "Performance Shares" shall have the meaning set forth in Section
5(f);
(q) "Restricted Stock" shall have the meaning set forth in Section
5(d);
(r) "RJRN" means RJR Nabisco, Inc. and any successors thereto;
(s) "Stock Appreciation Rights" shall have the meaning set forth in
Section 5(c); and
(t) "Subsidiary" means any corporation or other entity in which RJRN
has a significant equity or other interest as determined by the Committee.
3. Administration of Plan
(a) The Plan shall be administered by the Committee or, in lieu of the
Committee, the Board of Directors. The Committee may adopt its own rules of
procedure, and the action of a majority of the Committee, taken at a meeting or
taken without a meeting by a writing signed by such majority, shall constitute
action by the Committee. The Committee shall have the power and authority to
administer, construe and interpret the Plan, to make rules for carrying it out
and to make changes in such rules. Any such interpretations, rules, and
administration shall be consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Corporation its duties under the Plan, subject to
such conditions and limitations as the Committee shall prescribe, except that
only the Committee may designate and make Grants to Participants who are subject
to Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, RJRN, and the officers and
directors of RJRN shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, RJRN and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Grants, and
all members of the Committee shall be fully protected by RJRN with respect to
any such action, determination or interpretation.
4. Eligibility
The Committee may from time to time make Grants under the Plan to such
employees, or other persons having a unique relationship with RJRN or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine. No Grants may be made under this Plan to
non-employee directors of RJRN or any of its Subsidiaries. Grants may be granted
singly, in combination or in tandem. The terms, conditions and limitations of
each Grant under the Plan shall be set forth in a Grant Agreement, in a form
approved by the Committee, consistent, however, with the terms of the Plan;
provided, however, such Grant Agreement shall contain provisions dealing with
the treatment of Grants in the event of the termination, death or disability of
a Participant, and may also include provisions concerning the treatment of
Grants in the event of a change of control of RJRN.
5. Grants
From time to time, the Committee will determine the forms and amounts
of Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the
meaning of Section 422 of the Code to purchase Common Stock. In addition to
other restrictions contained in the Plan, an option granted under this Section
5(a), (i) may not be exercised more than 10 years after the date it is granted,
(ii) except for options granted in connection with equitable adjustments made to
RJR Nabisco Holdings Corp. options upon the distribution of Common Stock by RJR
Nabisco Holdings Corp. to its shareholders, may not have an option price less
than the Fair Market Value of Common Stock on the date the option is granted,
(iii) must otherwise comply with Code Section 422, and (iv) must be designated
as an "Incentive Stock Option" by the Committee. The maximum aggregate Fair
Market Value of Common Stock (determined at the time of each Grant) with respect
to which any Participant may first exercise Incentive Stock Options under this
Plan and any Incentive Stock Options granted to the Participant for such year
under any plans of RJRN or any Subsidiary in any calendar year is $100,000.
Payment of the option price shall be made in cash or in shares of Common Stock,
or a combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at the
time.
(b) Other Stock Options - These are options to purchase Common Stock
which are not designated by the Committee as "Incentive Stock Options". At the
time of the Grant the Committee shall determine, and shall have contained in the
Grant Agreement or other Plan rules, the option exercise period, the option
price, and such other conditions or restrictions on the grant or exercise of the
option as the Committee deems appropriate. In addition to other restrictions
contained in the Plan, an option granted under this Section 5(b), (i) may not be
exercised more than 15 years after the date it is granted and (ii) may not have
an option exercise price less than the Fair Market Value of Common Stock on the
date the option is granted. Payment of the option price shall be made in cash or
in shares of Common Stock, or a combination thereof, in accordance with the
terms of the Plan and of any applicable guidelines of the Committee in effect at
the time. Payment of the option price may also be made by tender of an amount
equal to the full exercise price which has been borrowed from RJRN or one of its
Subsidiaries if the Participant also authorizes the concurrent sale of the
exercised Common Stock by a broker (through an arrangement established by RJRN,
or one of its Subsidiaries, for Participants) and repays the borrowing, all in
accordance with any applicable guidelines of the Committee.
(c) Stock Appreciation Rights - These are rights that on exercise
entitle the holder to receive the excess of (i) the Fair Market Value of a share
of Common Stock on the date of exercise over (ii) the Base Value multiplied by
(iii) the number of rights exercised in cash, stock or a combination thereof as
determined by the Committee. Stock Appreciation Rights granted under the Plan
may, but need not be, granted in conjunction with an Option under Paragraphs
5(a) or 5(b).
The Committee, in the Grant Agreement or by other Plan rules, may
impose such conditions or restrictions on the exercise of Stock Appreciation
Rights as it deems appropriate, and may terminate, amend, or suspend such Stock
Appreciation Rights at any time. No Stock Appreciation Right granted under this
Plan may be exercised more than 15 years after the date it is granted.
(d) Restricted Stock - Restricted Stock is a Grant of Common Stock or
stock units equivalent to Common Stock subject to such conditions and
restrictions as the Committee shall determine. Any rights to dividends or
dividend equivalents accruing due to a grant of Restricted Stock shall also be
determined by the Committee. Grants of Restricted Stock shall be subject to a
normal minimum vesting schedule of 3 years. The number of shares of Restricted
Stock and the restrictions or conditions on such shares, as the Committee may
determine, shall be set forth in the Grant Agreement or by other Plan rules, and
the certificate for the Restricted Stock shall bear evidence of the restrictions
or conditions.
(e) Performance Units - These are rights, denominated in cash or cash
units, to receive, at a specified future date, payment in cash or stock of an
amount equal to all or a portion of the value of a unit granted by the
Committee. At the time of the Grant, in the Grant Agreement or by other Plan
rules, the Committee must determine the base value of the unit, the performance
factors applicable to the determination of the ultimate payment value of the
unit as set forth in Section 7 and the period over which performance will be
measured.
(f) Performance Shares - These are rights granted in the form of Common
Stock or stock units equivalent to Common Stock to receive, at a specified
future date, payment in cash or Common Stock, as determined by the Committee, of
an amount equal to all or a portion of the Fair Market Value at which the Common
Stock is traded on the last day of the specified performance period of a
specified number of shares of Common Stock based on performance during the
period. At the time of the Grant, the Committee, in the Grant Agreement or by
Plan rules, will determine the factors which will govern the portion of the
Grants so payable as set forth in Section 7 and the period over which
performance will be measured.
6. Limitations and Conditions
(a) The number of shares available for Grants under this Plan shall be
8 million shares of the authorized Common Stock as of the Effective Date. The
maximum number of Shares subject to Grants of Options and Stock Appreciation
Rights to any one Participant in any calendar year shall not exceed 2 million
shares for each type of Grant, plus any amount of shares that were available
within this limit for such type of Grant for any prior year such limitation was
in effect and which were not covered by Options or Stock Appreciation Rights
granted to such Participant during such year. No more than 3 million shares of
Common Stock may be granted as Incentive Stock Options. The maximum payment that
any one Participant may be paid in respect of any Grant of Performance Units
granted for any specified performance period shall not exceed $10 million. The
maximum payment that any one Participant may receive in respect of any Grant of
Performance Shares granted for any specified performance period shall not exceed
500,000 shares of Common Stock or the cash equivalent thereof. The aggregate
maximum number of shares of Common Stock to which Restricted Stock granted may
relate shall not exceed 3 million shares. Shares related to Grants that are
forfeited, terminated, cancelled, expire unexercised, settled in cash in lieu of
stock, received in full or partial payment of any exercise price or in such
manner that all or some of the Shares covered by a Grant are not issued to a
Participant, shall immediately become available for Grants. A Grant may contain
the right to receive dividends or dividend equivalent payments which may be paid
either currently, credited to a Participant or deemed invested in shares or
share units of Common Stock. Any such crediting of dividends or dividend
equivalents or reinvestment in Shares may be subject to such conditions,
restrictions and contingencies as the Committee shall establish, including the
reinvestment of such credited amounts in Common Stock equivalents. Subject to
the overall limitation on the number of shares of Common Stock that may be
delivered under this Plan, the Committee may use available shares of Common
Stock as the form of payment for compensation, grants or rights earned or due
under any other compensation plans or arrangements of RJRN, including the plan
of any entity acquired by RJRN.
(b) At the time a Grant is made or amended or the terms or conditions
of a Grant are changed, the Committee may provide for limitations or conditions
on such Grant. RJRN may adopt other compensation programs, plans or arrangements
as it deems appropriate.
(c) Nothing contained herein shall affect the right of the Corporation
to terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole
discretion of the Committee, in the Grant Agreements.
(e) No benefit under the Plan shall, prior to receipt thereof by the
Participant, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements, or torts of the Participant.
(f) Except to the extent otherwise provided in any other retirement or
benefit plan, any grant under this Plan shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of
RJRN or its Subsidiaries and shall not affect any benefits under any other
benefit plan of any kind or subsequently in effect under which the availability
or amount of benefits is related to level of compensation.
This Plan is not a "Retirement Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended. This Plan shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The Plan shall not establish any fiduciary relationship between
RJRN and any Participant or beneficiary of a Participant. To the extent any
person holds any obligation of RJRN by virtue of an award granted under this
Plan, such obligation shall merely constitute a general unsecured liability of
RJRN and accordingly shall not confer upon such person any right, title or
interest in any assets of RJRN.
(g) Unless the Committee determines otherwise, no benefit or promise
under the Plan shall be secured by any specific assets of RJRN or any of its
Subsidiaries, nor shall any assets of RJRN or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of RJRN's
obligations under the Plan.
7. Performance Factors
The performance factors selected by the Compensation Committee in
respect of Performance Units and Performance Shares shall be based on any one or
more of the following: price of Common Stock or the stock of any affiliate,
shareholder return, return on equity, return on investment, return on capital,
return on invested capital, economic profit, economic value added, net income,
cash net income, free cash flow, earnings per share, cash earnings per share,
operating company contribution or market share. These factors shall have a
minimum performance standard below which no amount will be paid and may have a
maximum performance standard above which no additional payments will be made.
The applicable performance period shall not exceed 10 years.
8. Adjustments
(a) In the event of any stock split, spin-off, stock dividend,
extraordinary cash dividend, stock combination or reclassification,
recapitalization or merger, change in control, or similar event, the Committee
may adjust appropriately the number or kind of shares subject to the Plan and
available for or covered by Grants, share prices related to outstanding Grants
and the other applicable limitations of Section 6(a), and make such other
revisions to outstanding Grants and the LTIP as it deems are equitably required.
(b) In the event of a Change of Control, except as otherwise set forth
in the terms of a Grant:
(i) Options granted pursuant to paragraphs 5(a) or 5(b) hereof
shall become fully vested and exercisable; provided, however, that the Committee
may make a cash payment to Participants (A) in cancellation of such Options as
provided in the applicable Grant Agreements or any amendments or deemed
amendments thereto entered into by RJRN and the Participant in such amount as
shall be provided in such Grant Agreements or amendments or (B) in lieu of the
delivery of shares upon exercise, equal to the product of (x) and (y), where (x)
is the excess of the Fair Market Value on the date of exercise over the exercise
price, and (y) is the number of Shares subject to the stock options being
exercised;
(ii) Stock Appreciation Rights shall become fully vested and
exercisable;
(iii) Restricted Stock shall have all restrictions removed;
(iv) Performance Units whose performance period ends after the
date of the Change of Control shall become vested as to a percentage of
Performance Units granted equal to the number of months (including partial
months) in the performance period before the date of the Change of Control,
divided by the total number of months in the performance period. The value of
the Performance Units shall be equal to the greater of the target value of the
Performance Units or the value derived from the actual performance as of the
date of the Change of Control;
(v) Performance Shares whose performance period ends after the
date of the Change of Control shall become vested pro rata as to the number of
Performance Shares granted equal to the number of months (including partial
months) in the performance period before the date of Change of Control, divided
by the total number of months in the performance period. The prorated number of
Performance Shares derived from the preceding calculation shall be further
adjusted by applying the higher of target or actual performance to the date of
Change of Control; and
(vi) The Committee shall have authority to establish or to
revise the terms of any such Grant or any other Grant as it, in its discretion,
deems appropriate; provided, however, that the Committee may not make revisions
that are adverse to the Participant without the Participant's consent unless
such revision is provided for or contemplated in the terms of the Grant.
(c) For purposes of the Plan, a "Change of Control" shall mean the
first to occur of the following events:
(i) an individual, corporation, partnership, group, associate
or other entity or "person", as such term is defined in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than any employee
benefit plans sponsored by RJRN, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or
more of the combined voting power of RJRN's outstanding securities ordinarily
having the right to vote at elections of directors.
(ii) individuals who constitute the Board of Directors on June
14, 1999 (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to
such date whose election, or nomination for election by RJRN's shareholders, was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy statement
of RJRN in which such person is named as a nominee of RJRN for director), but
excluding for this purpose any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of an individual, corporation, partnership, group, associate or
other entity or person other than RJRN's Board, shall be, for purposes of this
paragraph (ii), considered as though such person were a member of the Incumbent
Board;
(iii) the approval by the shareholders of RJRN of a plan or
agreement providing (1) for a merger or consolidation of RJRN other than with a
wholly-owned subsidiary and other than a merger or consolidation that would
result in the voting securities of RJRN outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of RJRN or such surviving entity
outstanding immediately after such merger or consolidation, or (2) for a sale,
exchange or other disposition of all or substantially all of the assets of RJRN.
If any of the events enumerated in this paragraph (iii) occur, RJRN's Board
shall determine the effective date of the Change of Control resulting therefrom
for purposes of this Plan and the Grants hereunder.
9. Amendment and Termination
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with
this Plan, provided that, except for adjustments under Paragraph 8(a) hereof, no
such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant. Except as provided in Section 8(a), the
exercise price of any outstanding Option or Stock Appreciation Right may not be
adjusted or amended, whether through amendment, cancellation or replacement,
unless such adjustment or amendment is properly approved by RJRN's shareholders.
Likewise, the share and payment limitations set forth in Section 6(a) cannot be
increased, and the minimum Option or Stock Appreciation Right grant price
limitations set forth in Sections 5(a), 5(b) and 5(c) cannot be reduced, in
either case without proper shareholder approval. Subject to the foregoing,
RJRN's Board of Directors may amend, suspend or terminate this Plan as it deems
necessary and appropriate to better achieve the Plan's purpose.
10. Foreign Options and Rights
(a) The Committee may make Grants to employees who are subject to the
tax laws of nations other than the United States, which Grants may have terms
and conditions that differ from the terms thereof as provided elsewhere in the
Plan for the purpose of complying with the foreign tax laws. Grants of stock
options may have terms and conditions that differ from Incentive Stock Options
and Other Stock Options for the purpose of complying with the foreign tax laws.
(b) The terms and conditions of stock options granted under Paragraph
10(a) may differ from the terms and conditions which the Plan would require to
be imposed upon Incentive Stock Options and Other Stock Options if the Committee
determines that the Grants are desirable to promote the purposes of the Plan.
11. Withholding Taxes
The Corporation shall have the right to deduct from any payment or
settlement made under the Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such payment.
12. Effective Date and Termination Dates
The Plan was adopted by RJRN (and approved by its shareholder) on May
12, 1999. The Plan shall be effective on and as of June 14, 1999, and shall
terminate ten years later, subject to earlier termination by the Board of
Directors pursuant to Paragraph 9. The terms of Grants made on or before the
expiration of the Plan shall extend beyond such expiration. Grants made under
the Plan prior to the Effective Date shall be governed by the terms of the Plan
as in effect on the date such Grant was made.
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Date of Place of
Name of Subsidiary Incorporation Incorporation
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
R.J. Reynolds Tobacco Holdings, Inc. Mar 04, 1970 Delaware
ABCO (Poland) Sp. Zo.o Sept 24, 1991 Poland
Arjay Equipment Corporation Nov 08, 1968 Delaware
Arjay Holdings, Inc. May 07, 1984 Delaware
FHS LLC Apr 02, 1998 Delaware
GMB, Inc. May 09, 1996 N. Carolina
Northern Brands International, Inc. Dec 10, 1992 Delaware
R. J. Reynolds Europe, Inc. Apr 24, 1992 Delaware
R. J. Reynolds, Inc. Oct 09, 1985 Delaware
R. J. Reynolds Tobacco Co. Aug 08, 1969 Delaware
R.J. Reynolds Tobacco Company Apr 04, 1899 New Jersey
R. J. Reynolds Tobacco Company, S.L. Apr 27, 1971 Spain
R. J. Reynolds Tobacco Foreign Sales Corporation Dec 19, 1984 US Virgin Is.
R. J. Reynolds Tobacco International, Inc. Jan 12, 1976 Delaware
Reynolds Technologies, Inc. Mar 01, 1994 Delaware
RJR Comercial Ltda. * Aug 18, 1977 Brazil
RJR Group, Inc., The Dec 13, 1985 Delaware
RJR Industries, Inc. Dec 29, 1975 Delaware
RJR Merchandise Marketing Company Aug 22, 1994 Delaware
RJR-Nabisco Industries, Inc. Dec 13, 1985 Delaware
RJR Realty Relocation Services, Inc. Nov 01, 1994 N. Carolina
RJR Sales Co. Feb 18, 1993 Delaware
RJR Technical Company May 16, 1991 Delaware
RJR Tobacco Company, Inc. Dec 30, 1982 N. Carolina
RJR Tobacco Consolidated IHC, Inc. Mar 22, 1989 Delaware
R.J.R. Tobacco International Holding B.V. [HOLDCO] Nov 22, 1996 Netherlands
RJR Tobacco Russia ** Dec 05, 1991 Russia
RJR Trade Promotion Company Feb 18, 1993 Delaware
S.F. Imports, Inc. May 26, 1994 Delaware
Smoker's Connection, Inc., The Feb 18, 1993 Delaware
Sports Marketing Enterprises, Inc. **** Apr 14, 1988 N. Carolina
Targacept, Inc. Mar 07, 1997 Delaware
TOTAL: 32
</TABLE>
* Inactive Page 1
** In Liquidation SUB-RJRN/RJRTH
*** Partnership/Joint Venture/Trust
**** Nameholder At 5/18/99
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 58
<ALLOWANCES> 0
<INVENTORY> 529
<CURRENT-ASSETS> 7,085
<PP&E> 2,342
<DEPRECIATION> (1,227)
<TOTAL-ASSETS> 19,401
<CURRENT-LIABILITIES> 1,820
<BONDS> 4,861
0
0
<COMMON> 3
<OTHER-SE> 9,883
<TOTAL-LIABILITY-AND-EQUITY> 19,401
<SALES> 5,716
<TOTAL-REVENUES> 5,716
<CGS> 2,795
<TOTAL-COSTS> 2,795
<OTHER-EXPENSES> 366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 426
<INCOME-PRETAX> (679)
<INCOME-TAX> (160)
<INCOME-CONTINUING> (519)
<DISCONTINUED> 3
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (516)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 85
<SECURITIES> 0
<RECEIVABLES> 52
<ALLOWANCES> 0
<INVENTORY> 635
<CURRENT-ASSETS> 1,935
<PP&E> 2,599
<DEPRECIATION> (1,184)
<TOTAL-ASSETS> 20,251
<CURRENT-LIABILITIES> 1,256
<BONDS> 4,944
0
0
<COMMON> 3
<OTHER-SE> 11,076
<TOTAL-LIABILITY-AND-EQUITY> 20,251
<SALES> 5,044
<TOTAL-REVENUES> 5,044
<CGS> 1,568
<TOTAL-COSTS> 1,568
<OTHER-EXPENSES> 446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433
<INCOME-PRETAX> 204
<INCOME-TAX> 185
<INCOME-CONTINUING> 19
<DISCONTINUED> 414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 75
<ALLOWANCES> 0
<INVENTORY> 732
<CURRENT-ASSETS> 1,766
<PP&E> 2,585
<DEPRECIATION> (1,118)
<TOTAL-ASSETS> 20,747
<CURRENT-LIABILITIES> 1,145
<BONDS> 4,928
0
0
<COMMON> 3
<OTHER-SE> 11,666
<TOTAL-LIABILITY-AND-EQUITY> 20,747
<SALES> 4,702
<TOTAL-REVENUES> 4,702
<CGS> 1,186
<TOTAL-COSTS> 1,186
<OTHER-EXPENSES> 366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 462
<INCOME-PRETAX> 563
<INCOME-TAX> 337
<INCOME-CONTINUING> 226
<DISCONTINUED> 440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 666
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 46
<ALLOWANCES> 0
<INVENTORY> 527
<CURRENT-ASSETS> 7,259
<PP&E> 2,349
<DEPRECIATION> 1,248
<TOTAL-ASSETS> 19,476
<CURRENT-LIABILITIES> 2,036
<BONDS> 4,743
0
0
<COMMON> 3
<OTHER-SE> 9,871
<TOTAL-LIABILITY-AND-EQUITY> 19,476
<SALES> 1,693
<TOTAL-REVENUES> 1,693
<CGS> 750
<TOTAL-COSTS> 750
<OTHER-EXPENSES> 92
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 66
<INCOME-TAX> 36
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<DISCONTINUED> 65
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<INVENTORY> 636
<CURRENT-ASSETS> 2,085
<PP&E> 2,607
<DEPRECIATION> 1,209
<TOTAL-ASSETS> 20,184
<CURRENT-LIABILITIES> 1,123
<BONDS> 5,013
0
0
<COMMON> 3
<OTHER-SE> 11,064
<TOTAL-LIABILITY-AND-EQUITY> 20,184
<SALES> 1,213
<TOTAL-REVENUES> 1,213
<CGS> 630
<TOTAL-COSTS> 630
<OTHER-EXPENSES> 91
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (184)
<INCOME-TAX> (43)
<INCOME-CONTINUING> (141)
<DISCONTINUED> 133
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
INFORMATION STATEMENT
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(formerly named "RJR Nabisco, Inc.")
COMMON STOCK
(par value $0.01 per share)
------------------------
This document relates to the distribution of 100% of the common stock of
R.J. Reynolds Tobacco Holdings, Inc. (which was formerly named "RJR Nabisco,
Inc." and which this document refers to as RJR) by RJR Nabisco Holdings Corp.
(which will be renamed "Nabisco Group Holdings Corp." and which this document
refers to as NGH). NGH will make the distribution to record holders of NGH
common stock as of May 27, 1999. In the distribution, those NGH stockholders
will receive one share of RJR common stock for every three shares of NGH common
stock that they hold on that date. If you are a record holder of NGH common
stock on May 27, 1999, you will receive your RJR common shares automatically.
You do not need to take any further action. Currently, RJR expects the
distribution to occur on or about June 14, 1999.
------------------------
Before the distribution, RJR expects The New York Stock Exchange to approve
shares of its common stock for listing under the symbol "RJR", subject to
official notice of issuance. NGH has advised RJR that it will not complete the
distribution before RJR receives this approval.
------------------------
IN REVIEWING THIS DOCUMENT, YOU SHOULD CAREFULLY CONSIDER THE MATTERS
AFFECTING RJR'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND THE VALUE OF
ITS COMMON SHARES THAT THIS DOCUMENT DESCRIBES IN DETAIL UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 13.
------------------------
STOCKHOLDER APPROVAL IS NOT REQUIRED FOR THE DISTRIBUTION OR ANY OF THE
OTHER TRANSACTIONS THAT THIS DOCUMENT DESCRIBES. RJR IS NOT ASKING YOU FOR A
PROXY AND REQUESTS THAT YOU NOT SEND ONE TO IT.
This document is not an offer to sell or solicitation of an offer to buy any
securities.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this document is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this document is May 19, 1999, and RJR first mailed this
document to stockholders
on May 20, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION........................................... 1
SUMMARY................................................................................ 5
RISK FACTORS........................................................................... 13
THE REORGANIZATION..................................................................... 17
THE DISTRIBUTION....................................................................... 19
RELATIONSHIP BETWEEN RJR AND NGH....................................................... 22
TRADING MARKET......................................................................... 29
DIVIDENDS.............................................................................. 29
CAPITALIZATION......................................................................... 31
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS........................ 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 39
BUSINESS............................................................................... 48
MANAGEMENT............................................................................. 59
SECURITY OWNERSHIP OF SIGNIFICANT BENEFICIAL OWNERS AND MANAGEMENT..................... 71
DESCRIPTION OF CAPITAL STOCK........................................................... 72
STATUTORY, CHARTER AND BYLAW PROVISIONS................................................ 73
STOCKHOLDER RIGHTS PLAN................................................................ 78
INDEPENDENT AUDITORS................................................................... 80
ADDITIONAL INFORMATION................................................................. 80
REPORT OF INDEPENDENT AUDITORS......................................................... F-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR RJR'S THREE MOST RECENT FISCAL YEARS..... F-2
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR RJR'S MOST RECENTLY ENDED
FISCAL QUARTER....................................................................... F-28
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
The following questions and answers highlight important information about
the distribution. For a more complete description of the terms of the
distribution, please read this entire document and the other materials to which
it refers.
Q: WHAT WILL HAPPEN IN THE DISTRIBUTION AND OTHER REORGANIZATION
TRANSACTIONS?
A: NGH is separating the tobacco business of RJR's subsidiary, R.J. Reynolds
Tobacco Company, from the food business conducted by RJR's 80.5%-owned
subsidiary, Nabisco Holdings Corp., in a two-step transaction. First, on
May 18, 1999, RJR transferred its entire interest in Nabisco to NGH
through a merger transaction. Second, in the distribution, NGH will
distribute all of the outstanding common stock of RJR to NGH stockholders
of record as of May 27, 1999.
Upon completion of these transactions, you will own shares in two
separately traded public companies, R.J. Reynolds Tobacco Holdings, Inc.,
formerly named RJR Nabisco, Inc., and Nabisco Group Holdings Corp.,
formerly named RJR Nabisco Holdings Corp. This document refers to R.J.
Reynolds Tobacco Company as Reynolds Tobacco and to Nabisco Holdings
Corp. as Nabisco.
Q: WHAT WILL I RECEIVE IN THE DISTRIBUTION?
A: You will receive one share of RJR common stock for every three shares of
NGH common stock that you own of record on May 27, 1999, the record date
for the distribution. After the distribution, you will also continue to
own your shares of NGH common stock.
Q: WHAT WILL RJR'S BUSINESS BE AFTER THE DISTRIBUTION?
A: After the distribution, RJR will continue to own 100% of the common stock
of Reynolds Tobacco, the second largest cigarette manufacturer in the
United States. On May 12, 1999, RJR and Reynolds Tobacco completed the
sale of the international tobacco business to Japan Tobacco Inc. for
approximately $8 billion, including the assumption of $200 million of net
debt. As a result of the international sale, Reynolds Tobacco's only
cigarette market is in the United States and its territories,
commonwealths, protectorates and possessions.
Q: WHAT WILL NGH'S BUSINESS BE AFTER THE DISTRIBUTION?
A: After the distribution, NGH will own all of the Class B common stock of
Nabisco, which represents approximately 80.5% of the economic interest
and approximately 97.7% of the total voting power of Nabisco. Nabisco,
through its wholly owned subsidiary, Nabisco, Inc., is one of the largest
food businesses in the world and is the largest manufacturer and marketer
of cookies and crackers in the United States.
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE DISTRIBUTION?
A: Nothing. No proxy or vote is necessary for the distribution or the other
transactions described in this document to occur. You do not need to, and
should not, mail in any certificates of NGH common stock to receive
shares of RJR common stock in the distribution.
Q: HOW WILL NGH DISTRIBUTE RJR COMMON STOCK TO ME?
A: If you are a record holder of NGH common stock as of the close of
business on the record date, NGH's distribution agent will automatically
credit your shares of RJR common stock to a book-entry account
established to hold your RJR common stock. This credit will occur on or
around June 14, 1999. At that time, the distribution agent will mail you
a statement of your RJR common stock ownership. Following the
distribution, you may retain your shares of RJR
1
<PAGE>
common stock in your book-entry account, sell them or transfer them to a
brokerage or other account.
You will not receive new RJR stock certificates in the distribution.
However, if you wish, you may request a physical stock certificate for
whole shares after you receive your statement of RJR common stock
ownership. The statement will contain instructions on how to do this.
Q: WHAT IF I HOLD MY SHARES OF NGH COMMON STOCK THROUGH MY STOCKBROKER, BANK
OR OTHER NOMINEE?
A: If you hold your shares of NGH common stock through your stockbroker,
bank or other nominee, you are probably not a registered stockholder of
record and your receipt of RJR common stock depends on your arrangements
with the broker, bank or nominee that holds your shares of NGH common
stock for you. RJR anticipates that stockbrokers and banks generally will
credit their customers' accounts with RJR common stock on or about June
14, 1999, but you should confirm that with your stockbroker, bank or
other nominee.
After the distribution, you may instruct your stockbroker, bank or other
nominee to transfer your shares of RJR common stock into your own name to
be held in book-entry form through the direct registration system
operated by the distribution agent.
Q: WHAT ABOUT FRACTIONAL SHARES?
A: If you own three or more shares of NGH common stock, your book-entry
account will be credited with all whole and any fractional shares of RJR
common stock that you are entitled to receive in the distribution. After
you receive your statement of RJR common stock ownership, you may request
a physical certificate for all whole shares of RJR common stock that you
receive in the distribution, and cash for any fractional share interest.
Fractional shares to be cashed out will be aggregated and sold by the
distribution agent. If you own fewer than three shares of NGH common
stock, you will receive cash instead of your fractional share of RJR
common stock. Promptly after the distribution, the distribution agent
will distribute to those registered stockholders the portion of the cash
proceeds that those holders are entitled to receive. No interest will be
paid on any cash distributed in lieu of fractional shares.
Q: ON WHICH EXCHANGE WILL SHARES OF RJR COMMON STOCK TRADE?
A: RJR expects that shares of its common stock will trade on The New York
Stock Exchange. Before the distribution, RJR expects that The New York
Stock Exchange will approve shares of RJR common stock for listing under
the symbol "RJR", subject to official notice of issuance. NGH has advised
RJR that it will not complete the distribution before RJR receives this
approval.
Q: WHEN WILL I BE ABLE TO BUY AND SELL RJR COMMON SHARES?
A: Regular trading in RJR common stock will begin on The New York Stock
Exchange on or about June 15, 1999. RJR expects, however, that
"when-issued" trading for RJR common stock will develop before the
distribution date, which is expected to be on or about June 14, 1999.
"When-issued" trading means that you may trade RJR common shares before
the distribution date. "When-issued" trading reflects the value at which
the market expects the RJR common shares to trade after the distribution.
If "when-issued" trading develops in RJR common shares, you may buy and
sell those shares before the distribution date. None of these trades,
however, will settle until after the distribution date, when regular
trading in RJR common stock has begun. If the distribution does not
occur, all "when-issued" trading will be null and
2
<PAGE>
void. If "when-issued" trading in RJR common stock occurs, the symbol on
The New York Stock Exchange will be "RJRwi".
Q: WHAT WILL HAPPEN TO THE LISTING OF NGH COMMON SHARES ON THE NEW YORK
STOCK EXCHANGE AFTER THE DISTRIBUTION?
A: Following the distribution, The New York Stock Exchange will list the NGH
common stock under the symbol "NGH", rather than under the current symbol
"RN". You will not receive new share certificates for NGH common stock,
nor will the distribution change the number of NGH common shares that you
own.
Q: HOW WILL I BE ABLE TO BUY AND SELL NGH COMMON STOCK BEFORE THE
DISTRIBUTION DATE?
A: NGH has advised RJR that it expects that its common stock will continue
to trade on a regular basis through the distribution date under the
current symbol "RN". Any shares of NGH common stock sold on a regular
basis in the period between the date that is two days before the record
date and the distribution date (I.E., between May 25 and June 14, 1999)
will be accompanied by an attached "due bill" representing RJR common
stock to be distributed in the distribution.
Additionally, NGH has advised RJR that it expects that "ex-distribution"
trading for NGH common stock will develop before the distribution date.
"Ex-distribution" trading means that you may trade NGH common shares
before the completion of the distribution, but on a basis that reflects
the value at which the market expects the NGH common shares to trade
after the distribution.
If "ex-distribution" trading develops in NGH common shares, you may buy
and sell those shares before the distribution date on The New York Stock
Exchange under the symbol "NGHwi". None of these trades, however, will
settle until after the distribution date, when regular trading in NGH
common stock has begun. If the distribution does not occur, all
"ex-distribution" trading will be null and void.
Q: WILL MY DIVIDENDS CHANGE?
A: Before the distribution, NGH has been paying a regular quarterly cash
dividend at the quarterly rate of $0.5125 per share of its common stock,
which is equivalent to an annual rate of $2.05 per share. On May 12,
1999, NGH declared its regular quarterly cash dividend of $0.5125 per NGH
common share. This cash dividend will be payable on June 9, 1999 to
record holders of NGH common shares as of May 27, 1999.
The board of directors of each of RJR and NGH will be responsible for
determining the applicable company's dividend policy after the
distribution. RJR's board of directors has not yet established RJR's
initial regular quarterly dividend policy for the period after the
distribution, and will not do so until after the distribution. NGH has
advised RJR that, after the distribution, it currently anticipates that
it will pay a regular quarterly cash dividend that passes through, on an
adjusted per share basis, the regular quarterly cash dividend that NGH
expects to receive from Nabisco after the distribution. For a further
description of the dividend policies of, and any related restrictions on,
NGH and RJR, see pages 23-24 and 29-30 of this document.
Q: WILL I BE TAXED AS A RESULT OF THE DISTRIBUTION?
A: No. Your receipt of RJR common stock should be tax-free for United States
federal income tax purposes, except that you will be taxed on any gain
attributable to cash that you receive in lieu of a fractional share.
3
<PAGE>
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN NGH AND RJR AFTER THE DISTRIBUTION?
A: NGH and RJR will be independent, separate, publicly owned companies.
After the distribution, NGH will not own any of RJR's common stock. One
of RJR's initial directors will also be an NGH director after the
distribution. In connection with the distribution, NGH and RJR are
entering into agreements to govern their relationship after the
distribution. This document describes these agreements and ongoing
relationships in detail on pages 22-28.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE DISTRIBUTION?
A: If you have questions about the distribution or the reorganization
transactions or if you would like additional copies of this document or
any other materials to which this document refers, you should contact:
[LOGO OF MACKENZIE PARTNERS]
156 Fifth Avenue
New York, NY 10010
Phone Number: (212) 929-5500
(collect for international callers)
or
(800) 322-2885 (toll-free)
4
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATTERS THAT THIS DOCUMENT
ADDRESSES. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. FOR A MORE COMPLETE DESCRIPTION OF THE DISTRIBUTION, YOU
SHOULD READ THIS ENTIRE DOCUMENT AND THE OTHER MATERIALS TO WHICH IT REFERS.
THE REORGANIZATION
NGH and RJR have recently completed a series of reorganization transactions
constituting a fundamental restructuring of their businesses and capital
structures. The principal transactions in this reorganization are the following:
- On May 12, 1999, RJR and Reynolds Tobacco completed the sale of the
international tobacco business to Japan Tobacco Inc. for $8 billion,
including the assumption of approximately $200 million of net debt. As a
result of this sale, Reynolds Tobacco's only cigarette market is the
United States and its territories, commonwealths, protectorates and
possessions;
- On May 18, 1999, RJR used a portion of the net proceeds from the
international tobacco sale to repurchase approximately $3.96 billion of
public debt;
- On May 18, 1999, RJR transferred its 80.5% interest in Nabisco, together
with approximately $1.6 billion in cash proceeds from the international
tobacco sale, to NGH through a merger transaction that is intended to be
tax-free. In the merger transaction, RJR adopted the name "R.J. Reynolds
Tobacco Holdings, Inc."; and
- On May 7 and May 18, 1999, respectively, RJR entered into a $1.235 billion
revolving credit agreement with a syndicate of commercial banks and
completed a private placement of $1.25 billion in debt securities.
Reynolds Tobacco has guaranteed RJR's obligations under those debt
securities and that credit agreement.
In the distribution, NGH will distribute on or about June 14, 1999 all of
the outstanding RJR common stock to NGH common stockholders in a transaction
that is intended to be tax-free. Before the distribution, NGH will be renamed
"Nabisco Group Holdings Corp.". This document describes the reorganization
transactions in greater detail on page 17 and includes two diagrams on page 18
that illustrate the corporate structure of NGH and RJR before and after these
transactions and the distribution. You should read those sections of this
document carefully.
RJR
RJR is a holding company that owns 100% of the stock of Reynolds Tobacco,
the second largest cigarette manufacturer in the United States. Reynolds Tobacco
had an approximate 25.17% overall share of retail domestic consumer cigarette
sales in 1998 and an approximate 24.41% share in the first quarter of 1999.
Reynolds Tobacco's largest selling cigarette brands include DORAL, WINSTON,
CAMEL, SALEM and VANTAGE. WINSTON, CAMEL and SALEM are its largest selling
premium brands, while DORAL is its largest selling savings brand. Reynolds
Tobacco markets its other brands, including MONARCH, MORE, NOW, BEST VALUE and
CENTURY, to meet a variety of smoker preferences.
RJR's principal executive offices will be located at 401 North Main Street,
Winston-Salem, NC 27102, and its telephone number will be (336) 741-5000.
5
<PAGE>
INDUSTRY
U.S. cigarette shipments have decreased at a compound annual rate of 1.9%
over the past 10 years. From 1995 through 1997, U.S. cigarette sales volume
increased slightly, from 481.4 billion to 482.9 billion units. In the first
quarter of 1999, the industry experienced a 9.6% decline in shipments to 97.8
billion units from 108.2 billion units in the first quarter of 1998. In 1998,
the industry experienced a 4.6% decline in shipments to 460.8 billion units with
substantial price increases, reflecting litigation settlement costs and higher
state sales and excise taxes, responsible for a portion of this volume decline.
Since August 1997, wholesale cigarette prices have increased six times, totaling
approximately $0.70 per pack. Reynolds Tobacco implemented the most recent $0.45
per pack increase in November 1998 to satisfy its payment obligations under the
Master Settlement Agreement with various state attorneys general. For a detailed
discussion of the tobacco litigation and the Master Settlement Agreement, see
the portions of this document found under the headings "Business--Litigation and
Regulation--Litigation", note 4 to the consolidated condensed financial
statements as of March 31, 1999 and note 10 to the consolidated financial
statements of RJR as of December 31, 1998, included on pages 53-55, F-34 - F-40
and F-13 - F-20, respectively.
The breakdown between premium and savings brands of the U.S. cigarette
industry's sales volume is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED
MARCH 31 DECEMBER 31
-------------------- --------------------
BRAND TYPE 1999 1998 1998 1997
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Premium............................................................... 73.9% 72.6% 73.0% 72.3%
Savings............................................................... 26.1% 27.4% 27.0% 27.7%
</TABLE>
The breakdown between premium and savings brands of Reynolds Tobacco's sales
volume is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED
MARCH 31 DECEMBER 31
-------------------- --------------------
BRAND TYPE 1999 1998 1998 1997
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Premium............................................................... 61.9% 61.9% 62.6% 63.4%
Savings............................................................... 38.1% 38.1% 37.4% 36.6%
</TABLE>
Profit margins on savings brands tend to be lower than profit margins on
premium brands. Reynolds Tobacco cannot predict the potential adverse impact of
price increases on industry volume or Reynolds Tobacco volume, on the mix
between premium and savings sales or on Reynolds Tobacco's market share.
STRATEGY
Reynolds Tobacco's primary long-term business objective is to increase
earnings and cash flow through selective marketing investments in key brands and
continual improvements in its cost structure and operating efficiency.
Reynolds Tobacco has several new products, product-line extensions and brand
repositionings in process, including:
- revision of the WINSTON blend and packaging as part of the "No Bull"
campaign;
- revision of the SALEM blend and packaging as well as implementation of the
"It's Not What You Expect" advertising campaign; and
- ECLIPSE, a cigarette currently in test market that reduces second-hand
smoke and ash by primarily heating, rather than burning, tobacco.
6
<PAGE>
Reynolds Tobacco is in the course of important strategic cost-reduction
projects undertaken in response to the changing business conditions that
Reynolds Tobacco expects to result from the Master Settlement Agreement with
state attorneys general and other existing settlement agreements. These projects
include:
- a 15% work force reduction; and
- a write-down of one of Reynolds Tobacco's production facilities and other
equipment to fair value.
Reynolds Tobacco expects the cost-reduction projects to generate significant
annual cost savings in future years.
7
<PAGE>
THE DISTRIBUTION
The following is a brief summary of the principal terms of the distribution.
<TABLE>
<S> <C>
DISTRIBUTING COMPANY......................... RJR Nabisco Holdings Corp. Before the
distribution, RJR Nabisco Holdings Corp. will
be renamed "Nabisco Group Holdings Corp." and
its common stock will trade on The New York
Stock Exchange under the symbol "RN". After
the distribution, the distributing company's
common stock will trade under the symbol
"NGH" and it will not own any shares of RJR
common stock.
PRIMARY PURPOSES OF THE DISTRIBUTION......... The board of directors and management of NGH
have concluded that separating the food and
tobacco businesses by means of RJR's transfer
of its 80.5% interest in Nabisco to NGH and
the distribution of shares of RJR common
stock to NGH stockholders is in the best
interests of NGH, RJR and NGH stockholders.
In reaching this conclusion, NGH's board and
management considered that, among other
things, as a result of these transactions:
- each of the food and tobacco businesses
will be better able to respond to the
opportunities and challenges in its
industry and thereby achieve its full
potential under separate ownership;
- management of each business will be
able to focus solely on that business;
- RJR will be able to align management's
incentives more closely with
stockholders' interests;
- the companies will achieve substantial
cost savings; and
- investors and financial markets will be
better able to understand and evaluate
the food business and the tobacco
business.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
SECURITIES TO BE DISTRIBUTED................. All of the outstanding shares of RJR common
stock will be distributed to NGH stockholders
of record as of May 27, 1999. Based on the
number of shares of NGH common stock
outstanding as of May 12, 1999 and the
distribution ratio of one RJR common share
for every three NGH common shares, NGH will
distribute approximately 108,570,573 shares
of RJR common stock to NGH stockholders.
After the distribution, RJR will have
approximately 55,000 stockholders of record.
DISTRIBUTION RATIO........................... You will receive one share of RJR common
stock for every three shares of NGH common
stock that you own as of the close of
business on May 27, 1999.
RECORD DATE.................................. May 27, 1999 (5:00 p.m., New York time).
DISTRIBUTION DATE............................ June 14, 1999 (4:59 p.m., New York time). On
the distribution date, NGH's distribution
agent will credit the shares of RJR common
stock that you will receive in the
distribution to your new book-entry account
or to your stockbroker, bank or other nominee
if you are not a registered stockholder of
record.
DISTRIBUTION AGENT........................... Before the distribution date, NGH will
appoint First Chicago Trust Company of New
York, a division of EquiServe, as its
distribution agent for the distribution.
TRADING MARKET AND SYMBOL.................... There has been no trading market for RJR
common stock. RJR expects that a
"when-issued" trading market will develop
before the distribution date. RJR also
anticipates that, before the distribution,
The New York Stock Exchange will approve its
common stock for listing under the symbol
"RJR", subject to official notice of
issuance. NGH has advised RJR that it will
not complete the distribution until RJR
receives this approval.
FEDERAL INCOME TAX CONSEQUENCES.............. On May 12, 1999, RJR and NGH received an
opinion of Davis Polk & Wardwell that RJR's
transfer of its 80.5% interest in Nabisco to
NGH and the distribution of RJR common stock
to you should each qualify as tax-free to
you, NGH and RJR for United States federal
income tax purposes, except to the extent of
any gain attributable to cash you receive
instead of a fractional RJR common share in
the distribution. An opinion of counsel does
not bind the IRS or the courts.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
RISK FACTORS................................. You should carefully consider the matters
discussed under the section of this document
entitled "Risk Factors".
FRACTIONAL SHARE TREATMENT................... If you own three or more shares of NGH common
stock, your book-entry account will be
credited with all whole and any fractional
shares of RJR common stock that you are
entitled to receive in the distribution.
After you receive your statement of RJR
common stock ownership, you may, if you so
choose, request a physical certificate for
all whole shares of RJR common stock that you
receive in the distribution and cash for any
fractional share interest. Fractional shares
to be cashed out will be aggregated and sold
by the distribution agent. If you own fewer
than three shares of NGH common stock, you
will receive cash instead of your fractional
share of RJR common stock. The distribution
agent will distribute to each of those
registered stockholders the portion of the
cash proceeds that those holders are entitled
to receive, less any brokerage commissions,
promptly after the distribution. No interest
will be paid on any cash distributed in lieu
of fractional shares.
RELATIONSHIP WITH NGH
AFTER THE DISTRIBUTION..................... RJR has entered into a distribution agreement
with NGH and Reynolds Tobacco dated as of May
12, 1999. RJR will also enter into a tax
sharing agreement and other arrangements with
NGH, Nabisco and Reynolds Tobacco on or
before the distribution date.
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
MILLIONS) (DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Net sales........................ $ 1,693 $ 1,213 $ 5,716 $ 5,044 $ 4,702 $ 4,612 $ 4,730
Income (loss) from continuing
operations..................... 30 (141) (519) 19 226 65 111
BALANCE SHEET DATA
(AT END OF PERIODS)
Total assets..................... $ 19,476 $ 20,184 $ 19,401 $ 20,251 $ 20,747 $ 21,391 $ 22,138
Long-term debt................... 4,743 5,013 4,861 4,944 4,928 4,944 4,878
Stockholder's equity............. 9,874 11,067 9,886 11,079 11,669 12,153 11,410
</TABLE>
- ------------------------
During the three months ended March 31, 1998, Reynolds Tobacco recorded $312
million, $199 million after-tax, for initial, up-front tobacco settlement costs
relating to agreements between Reynolds Tobacco and the Minnesota state attorney
general and Blue Cross and Blue Shield of Minnesota.
During the year ended December 31, 1998, Reynolds Tobacco recorded $1.442
billion, $928 million after-tax, for initial, up-front tobacco settlement and
other related expenses, including the $312 million referred to above, $620
million related to the Master Settlement Agreement with various state attorneys
general, $145 million for the most favored nation adjustments for previously
settled states and $365 million for the rationalization of manufacturing
operations and workforce reductions resulting from the Master Settlement
Agreement.
During the year ended December 31, 1997, Reynolds Tobacco recorded $359
million, $218 million after-tax, for initial, up-front tobacco settlement costs
relating to agreements reached with the Florida, Mississippi and Texas state
attorneys general and in certain class action cases. Also, Reynolds Tobacco
recorded a restructuring charge of $80 million, $52 million after-tax, to
reorganize its operations.
During the year ended December 31, 1995, Reynolds Tobacco recorded a
restructuring charge of $100 million, $65 million after-tax, in connection with
a program to streamline its operations. Also, RJR and Nabisco completed a debt
exchange in that year that resulted in a pre-tax charge by RJR of approximately
$103 million for fees and expenses.
Net sales and costs of products sold exclude excise taxes of $260 million
and $304 million for the three months ended March 31, 1999 and 1998,
respectively, and $1.292 billion, $1.369 billion, $1.401 billion, $1.447 billion
and $1.526 billion for the years ended December 31, 1998, 1997, 1996, 1995 and
1994, respectively.
11
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data set forth below are derived from the
unaudited pro forma consolidated condensed financial statements of RJR at March
31, 1999 and for the three months ended March 31, 1999 and 1998 and for the year
ended December 31, 1998 set forth under the heading "Unaudited Pro Forma
Consolidated Condensed Financial Statements" and give effect to the transactions
described in that section of the document as if those transactions occurred, in
the case of the pro forma balance sheet, on the date of that balance sheet and,
in the case of each pro forma statement of income, on January 1, 1998.
RJR has provided the unaudited pro forma financial data to you for
informational purposes only. You should not construe them to be indicative of
the results of operations or financial position of RJR had the transactions
referred to above been consummated on the dates given. Those financial
statements also do not project the results of operations or financial position
for any future period or date. You should read this pro forma data in
conjunction with the information found under the heading "Unaudited Pro Forma
Consolidated Condensed Financial Statements" and also the consolidated financial
statements of RJR and the related notes as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 and the
consolidated condensed financial statements of RJR and related notes as of March
31, 1999 and for the three months ended March 31, 1999 and 1998, included on
pages 32-38 and F-2 - F-42, respectively.
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
MARCH 31, FOR THE YEAR
------------------------------ ENDED
1999 1998 DECEMBER 31, 1998
-------------- -------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Net sales.................................................. $ 1,693 $ 1,213 $ 5,716
Cost of products sold (1).................................. 750 318 1,353
Selling, advertising, administrative and general
expenses................................................. 658 550 2,719
Tobacco settlement and related expenses (1)................ -- 312 1,442
Amortization of intangibles................................ 92 91 366
-------------- -------------- -----------------
Operating income (loss).................................... $ 193 $ (58) $ (164)
-------------- -------------- -----------------
-------------- -------------- -----------------
Income (loss) from continuing operations................... $ 84 $ (90) $ (299)
-------------- -------------- -----------------
-------------- -------------- -----------------
Basic income (loss) per share from continuing operations... $ .77 $ (.83) $ (2.75)
-------------- -------------- -----------------
-------------- -------------- -----------------
Diluted income (loss) per share from continuing
operations............................................... $ .77 $ (.83) $ (2.75)
-------------- -------------- -----------------
-------------- -------------- -----------------
Average number of shares of common stock outstanding....... 108,570,573 108,570,573 108,570,573
-------------- -------------- -----------------
-------------- -------------- -----------------
PRO FORMA BALANCE SHEET DATA:
Total assets............................................... $ 16,301
Long-term debt (less current maturities)................... 2,065
Stockholders' equity....................................... 7,555
Book value per share of common stock....................... 70
</TABLE>
- ------------------------
(1) For the quarters ended March 31, 1999 and 1998 and the year ended December
31, 1998, $505 million, $37 million and $148 million, respectively, of
ongoing settlement expense are included within cost of products sold.
Tobacco settlement and related expenses include only initial, up-front
tobacco settlement and other related expenses.
12
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should carefully
review the following factors which may affect RJR's financial condition or
results of operations and/or the value of its common stock.
RJR WILL BE ENTIRELY DEPENDENT ON THE DOMESTIC TOBACCO BUSINESS.
After the distribution, RJR will no longer derive revenues from or have any
affiliation with the food businesses of Nabisco. Additionally, as a result of
the international tobacco sale, Reynolds Tobacco's only cigarette market is in
the United States and its territories, commonwealths, protectorates and
possessions. Reynolds Tobacco's domestic tobacco business has experienced
declining cigarette sales volumes and market share in recent years and is
subject to extensive litigation settlement payment obligations. If the U.S.
cigarette market continues to contract, RJR will not be able to offset these
effects with food sales by Nabisco, and Reynolds Tobacco will be unable to do so
with international tobacco sales. This trend could adversely impact RJR's and/or
Reynolds Tobacco's financial condition and/or results of operations.
EXPOSURE TO TOBACCO-RELATED LITIGATION COULD NEGATIVELY AFFECT RJR'S PROSPECTS.
Various legal actions, proceedings and claims arising out of the sale,
distribution, manufacture, development, advertising, marketing and health
effects of, exposure to, or research, statements or warnings regarding,
cigarettes are pending or may be instituted against RJR, Reynolds Tobacco and
their affiliates and indemnitees. There has been a noteworthy increase in the
number of these cases pending. As of May 14, 1999, 653 active cases were pending
against RJR, Reynolds Tobacco and/or its affiliates or indemnitees in the United
States. Plaintiffs have specifically pleaded punitive damages, often in amounts
ranging into the hundreds of millions, or even billions of dollars, in a number
of cases, in addition to compensatory and other damages. In January of 1999,
President Clinton announced that the U.S. Department of Justice is preparing a
litigation plan for a lawsuit by the federal government to recover federal
healthcare costs associated with cigarette smoking.
REYNOLDS TOBACCO HAS SUBSTANTIAL PAYMENT OBLIGATIONS UNDER LITIGATION SETTLEMENT
AGREEMENTS.
Under various settlement agreements with state attorneys general, including
the Master Settlement Agreement, Reynolds Tobacco estimates that it must pay
$1.6 billion in 1999--$316 million of which was paid as of March 31, 1999--and
more than $2 billion in each subsequent year. To satisfy its obligations under
these settlements, Reynolds Tobacco has raised prices on cigarettes, and the
price increases have adversely affected its sales volumes. These obligations
could materially adversely affect Reynolds Tobacco's financial condition and/or
results of operations.
THE MASTER SETTLEMENT AGREEMENT AND OTHER EXISTING SETTLEMENT AGREEMENTS IMPOSE
NEW LIMITATIONS ON ADVERTISING AND MARKETING CIGARETTES THAT COULD HARM
REYNOLDS TOBACCO'S COMPETITIVE POSITION.
Under the Master Settlement Agreement with various state attorneys general
and other existing settlement agreements, Reynolds Tobacco is no longer able to
use, or is restricted in using, billboard advertising, cartoon characters,
sponsorship of concerts, non-tobacco merchandise bearing its brand names and
various other advertising and marketing techniques that Reynolds Tobacco has
used in the past. These limitations may adversely affect Reynolds Tobacco's
competitive position, sales volumes, operating income and cash flows.
THE CIGARETTE INDUSTRY IS SUBJECT TO SUBSTANTIAL AND INCREASING REGULATION AND
TAXATION.
A wide variety of federal, state and local laws limits the advertising, sale
and use of cigarettes. These laws have proliferated in recent years. If this
trend continues, it may have material adverse effects on Reynolds Tobacco's
competitive position, sales volumes, operating income and cash flows.
13
<PAGE>
In addition, cigarettes are subject to substantial and increasing excise
taxes. The federal excise tax on cigarettes will rise from $0.24 per pack to
$0.34 in 2000, and to $0.39 in 2002. President Clinton has proposed a further
increase of $0.55 per pack. Additional state excise taxes range from $0.025 per
pack in Virginia to $1.00 per pack in Alaska. Increased excise taxes may result
in declines in overall sales volume and shifts by consumers to less expensive
brands. Each of these outcomes could adversely affect Reynolds Tobacco's
financial condition and/or results of operations.
The U.S. Food and Drug Administration has asserted jurisdiction over
cigarettes and adopted regulations that would, among other things, limit
advertising in print to black and white text. The U.S. Court of Appeals for the
Fourth Circuit held in 1998 that the FDA had exceeded its authority by
regulating tobacco products. On April 26, 1999, the U.S. Supreme Court agreed to
hear the FDA's appeal of the Fourth Circuit's ruling. If the Supreme Court holds
that the FDA has authority to regulate cigarettes, the FDA's exercise of
jurisdiction could lead to more expansive FDA-imposed restrictions on cigarette
operations than those set forth in the regulations and could materially
adversely affect Reynolds Tobacco's sales volumes, financial condition and/or
results of operations.
REYNOLDS TOBACCO'S MARKET SHARE HAS DECLINED IN RECENT PERIODS.
In 1998, Reynolds Tobacco's share of the U.S. cigarette market declined to
approximately 25.17% from approximately 25.41% in 1997. For the first quarter of
1999, Reynolds Tobacco's share declined to approximately 24.41%. If this trend
continues, it could adversely affect Reynolds Tobacco's sales volumes, financial
condition and/or results of operations.
THE DOMESTIC CIGARETTE INDUSTRY HAS EXPERIENCED DECLINING SALES VOLUMES IN
RECENT PERIODS.
Sales of cigarettes by volume in the United States declined by 4.6% in 1998
and by 9.6% in the first quarter of 1999 compared to the first quarter of 1998.
At least in part because Reynolds Tobacco's brands are more price sensitive than
those of specific competitors, Reynolds Tobacco's sales volume decreased more
significantly--5.5% in 1998 and 14.4% in the first quarter of 1999--than the
industry average. In addition, price increases may encourage smokers to switch
from premium to savings brands. Reynolds Tobacco's profit margins on savings
brands are generally less than its profit margins on premium brands. If these
trends continue or accelerate and Reynolds Tobacco is unable to capture market
share from its competitors, Reynolds Tobacco's sales volumes, financial
condition and/or results of operations could be materially adversely affected.
COMPETITION FROM OTHER CIGARETTE MAKERS COULD ADVERSELY AFFECT REYNOLDS TOBACCO.
The cigarette industry is highly competitive. Certain of Reynolds Tobacco's
competitors have substantially greater financial, marketing, personnel and other
resources than Reynolds Tobacco does. This may enable Reynolds Tobacco's
competitors to compete more aggressively in offering retail discounts.
Aggressive discounting can adversely affect operating income and cash flows.
RJR MAY BE RESPONSIBLE FOR SPECIFIED HISTORICAL TAX AND PENSION LIABILITIES OF
NGH, ITS AFFILIATES AND ITS INDEMNITEES.
Until the distribution occurs, RJR will be a member of NGH's consolidated
group for federal income tax purposes. Each member of a consolidated group is
liable for the federal income tax liability of the other members of the group,
as well as for pension and benefit funding liabilities of the other group
members. After the distribution, RJR will continue to be liable for these NGH
liabilities incurred for periods before the distribution.
RJR, NGH and Nabisco will enter into (1) a tax sharing agreement which
generally will seek to allocate tax liabilities based upon the tax liabilities
of NGH, Nabisco and its subsidiaries and RJR and its subsidiaries had those
corporations or groups of corporations been separate taxpayers, and (2) a
distribution agreement which will seek to allocate pension and benefit funding
liabilities between NGH and RJR. Under these agreements, NGH will generally
retain the authority to file returns, respond to
14
<PAGE>
inquiries and conduct proceedings on RJR's behalf with respect to consolidated
returns for years beginning before the distribution. These arrangements may
result in conflicts of interest among NGH, Nabisco, RJR and Reynolds Tobacco. In
addition, if NGH or Nabisco were unable to satisfy their liabilities, RJR could
be responsible for satisfying them, despite the tax sharing agreement and the
distribution agreement.
RJR and NGH have received an opinion of Davis Polk & Wardwell that the
transfer of RJR's interest in Nabisco to NGH and the distribution of the RJR
common stock to you should each be tax-free. Neither RJR nor NGH intends to seek
a ruling from the IRS that these transactions will be tax-free. An opinion of
counsel is not binding on the IRS or the courts, and it is possible that the IRS
could seek to assert claims that could be material in amount in connection with
the transfer of the Nabisco interest and the distribution of the RJR common
stock to you. Davis Polk & Wardwell has opined that RJR and NGH should prevail
if the IRS asserted any claims. In the tax sharing agreement, NGH will agree to
indemnify RJR for taxes arising from the transfer of the Nabisco interest and
the distribution of the RJR common stock to you, although RJR would be
responsible for those taxes if, among other things, its own act, omission or
misrepresentation caused that tax liability to arise.
RJR HAS NO RECENT OPERATING HISTORY AS AN INDEPENDENT PUBLIC COMPANY.
Before the distribution, RJR operated as a wholly owned subsidiary of NGH,
and it was not an independent public company. RJR has historically relied upon
corporate headquarters for administrative services in areas including finance
planning, SEC reporting, employee benefits, stockholder services, insurance,
treasury and tax. After the distribution, RJR will be responsible for
maintaining its own administrative functions. There can be no assurance as to
RJR's future operating results as an independent public company.
THERE HAS BEEN NO PRIOR MARKET FOR RJR COMMON STOCK.
There is no current public trading market for RJR common stock, and there
can be no assurance that an active trading market will develop or be sustained
in the future, although RJR expects that, before the distribution, The New York
Stock Exchange will approve its common stock for listing under the symbol "RJR",
subject to official notice of issuance. RJR cannot predict the prices at which
its common stock may trade, either before the distribution on a "when-issued"
basis or after the distribution. Until an orderly market develops, the trading
prices of that stock may fluctuate significantly. The marketplace will determine
the trading prices of RJR common stock. Many factors may influence those prices,
including the depth and liquidity of the market for the RJR shares, investor
perceptions of the tobacco industry and/or RJR, RJR's dividend policy and
general economic and market conditions.
RJR common stock will be freely transferable, except for shares received by
persons deemed to be its "affiliates" under the Securities Act of 1933. For a
discussion of the trading markets for, and transferability restrictions on, RJR
common stock after the distribution, you should review the section of this
document located under the heading "--Trading Market".
REYNOLDS TOBACCO'S SYSTEMS MAY BE AFFECTED BY THE YEAR 2000 COMPUTER PROBLEM.
Reynolds Tobacco uses software and related computer technologies essential
to its operations that use two digits rather than four to specify the year,
which could result in a date recognition problem with the transition to the year
2000. Reynolds Tobacco is currently addressing the year 2000 problem as it
affects the software and business systems that are critical to its business. If
Reynolds Tobacco is not successful in this effort, or third parties with whom it
interfaces are unsuccessful, Reynolds Tobacco could experience business
interruptions that could have a material adverse effect on its operations. As of
March 31, 1999, Reynolds Tobacco had incurred $28 million to be year 2000
compliant. The current estimated cost to complete Reynolds Tobacco's year 2000
program is an additional $9 million.
15
<PAGE>
VARIOUS RESTRICTIONS AND AGREEMENTS COULD HINDER TAKEOVERS NOT SUPPORTED BY
RJR'S BOARD AND LEVERAGED ACQUISITIONS OF RJR.
RJR's certificate of incorporation and bylaws, the Delaware General
Corporation Law, the preferred stock rights agreement and the agreements that
RJR and Reynolds Tobacco have entered into with NGH as part of the distribution
contain provisions that could delay or prevent a change in control of RJR in a
transaction that is not approved by its board of directors or that is on a
leveraged basis or otherwise. These include provisions creating a classified
board, limiting the stockholders' powers to remove directors, and prohibiting
stockholders from calling a special meeting or taking action by written consent
in lieu of a stockholders' meeting. In addition, RJR's board of directors has
the authority, without further action by the stockholders, to set the terms of
and to issue preferred stock. Issuing preferred stock could adversely affect the
voting power of the owners of RJR common stock, including the loss of voting
control to others. Additionally, RJR is entering into a rights agreement
providing for the issuance of rights that will cause substantial dilution to a
person or group of persons that acquires 15% or more of the outstanding RJR
common shares without the rights having been redeemed. The distribution
agreement that RJR and Reynolds Tobacco have entered into with NGH in connection
with the distribution and the credit arrangements also include restrictions on
the ability of RJR and its subsidiaries to pay dividends, make share repurchases
and engage in specified leveraged transactions in limited circumstances. These
provisions could deter or prevent an acquiror that is interested in acquiring
RJR on a leveraged basis or otherwise from doing so. You can find more
information on these provisions under the portions of this documents found under
the headings "Statutory Charter and Bylaw Provisions", "Distribution Agreement"
and "Stockholder Rights Plan".
FORWARD-LOOKING STATEMENTS MAY NOT BE ACCURATE.
This document contains forward-looking statements about RJR, Reynolds
Tobacco and NGH that RJR believes are within the meaning of the Private
Securities Litigation Reform Act of 1995. Statements in this document that are
not historical facts are identified by this risk factor as "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this document, the
words "anticipates", "believes", "expects", "intends", "projects", "forecasts",
and similar expressions as they relate to RJR, Reynolds Tobacco and/or NGH or
the management or board of directors of any of those companies are intended to
identify the statements in which they are used in this document as
forward-looking statements. In making any of those forward-looking statements,
RJR believes that the expectations are based on reasonable assumptions. However,
any of those statements may be influenced by factors that could cause actual
outcomes and results to be materially different from those projected. Those
forward-looking statements are subject to numerous risks and uncertainties that
could cause actual results to differ materially from that projected in any of
those forward-looking statements, some of which are beyond the control of RJR,
Reynolds Tobacco and/or NGH.
The actual results, performance or achievement by RJR, Reynolds Tobacco
and/or NGH could differ materially from those expressed in, or implied by, those
forward-looking statements. Accordingly, no assurances can be given that any of
the events anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what impact they will have on the results of
operations and financial condition of RJR, Reynolds Tobacco and/or NGH. None of
RJR, Reynolds Tobacco or NGH undertakes any obligation to revise any
forward-looking statement to reflect events or circumstances after the date of
this document or to reflect the occurrence or nonoccurrence of anticipated or
unanticipated events.
16
<PAGE>
THE REORGANIZATION
NGH and RJR have recently completed a series of reorganization transactions
constituting a fundamental restructuring of their businesses and capital
structures. The principal transactions in this reorganization are the following:
- On May 7, 1999, RJR entered into a 30-month $1.235 billion floating rate
revolving credit agreement with a syndicate of commercial banks. Reynolds
Tobacco has guaranteed RJR's obligations under this credit agreement.
- On May 12, 1999, RJR and Reynolds Tobacco completed the sale of the
international tobacco business to Japan Tobacco for $8 billion, including
the assumption of approximately $200 million of net debt. As a result of
this sale, Reynolds Tobacco's only cigarette market will be the United
States and its territories, commonwealths, protectorates and possessions.
- On May 18, 1999, RJR completed tender offers and consent solicitations
relating to its then outstanding public debt obligations. In these
transactions,
TRIANGLE the bondholders agreed to amend the indentures relating to
these debt obligations to remove substantially all of the
restrictive covenants. Removing these restrictions facilitated
the completion of the international tobacco sale, the
distribution and RJR's new financing arrangements, which are
described below; and
TRIANGLE RJR used a portion of the net proceeds from the international
tobacco sale to repurchase approximately $3.96 billion of its
public debt.
- On May 18, 1999, RJR completed an offering of $1.25 billion in debt
securities. Reynolds Tobacco has guaranteed RJR's obligations under the
indenture relating to these debt securities. These securities were not
registered under the Securities Act of 1933 and may not be offered or sold
in the United States, absent registration or an applicable exemption from
the registration requirements.
- On May 18, 1999, RJR transferred its approximately 80.5% interest in
Nabisco, together with approximately $1.6 billion in net cash proceeds
from the international tobacco sale, to NGH through a merger transaction.
In the merger transaction, RJR was renamed "R.J. Reynolds Tobacco
Holdings, Inc.".
- On May 18, 1999, NGH repurchased approximately $276 million in Trust
Originated Preferred Securities issued by one of its affiliates. Also, on
or about May 18, 1999, NGH called for redemption an additional $950
million in those securities and approximately $200 million of its ESOP
Convertible Preferred Stock.
In the distribution, NGH will distribute on or about June 14, 1999 all of
the outstanding shares of RJR common stock to NGH common stockholders of record
as of May 27, 1999. The distribution is intended to be tax-free for United
States federal income tax purposes.
17
<PAGE>
The diagram below presents the corporate structure of NGH, RJR and their
principal subsidiaries before the reorganization transactions and the
distribution that this document describes immediately above.
[CHART]
The diagrams below present the corporate structure of RJR and its principal
subsidiary and NGH and its principal subsidiary following the reorganization
transactions and the distribution that this document describes immediately
above.
[CHART]
18
<PAGE>
THE DISTRIBUTION
BACKGROUND TO AND REASONS FOR THE DISTRIBUTION
The board of directors and management of NGH have determined that separating
the food and tobacco businesses, by means of (1) RJR's transfer of its
approximately 80.5% interest in Nabisco to NGH and (2) the distribution of RJR
common stock to NGH stockholders, is in the best interest of NGH, RJR and NGH
stockholders. In reaching this conclusion, NGH's board of directors and
management considered, among other things, that:
- the food and tobacco businesses are large, complex businesses with
different challenges, strategies and means of doing business and that,
under a separate ownership structure, each business will be better able to
respond to the opportunities and challenges in its industry and thereby
achieve its full potential;
- the separation will permit the management of each business to focus solely
on the opportunities and challenges specific to that business;
- the separation will allow RJR to offer management incentives that are more
directly linked to the performance of the tobacco business so that these
incentives are better aligned with the interests of the holders of RJR
common stock;
- the separation will result in substantial cost savings, primarily by
eliminating corporate headquarters and most of its corporate staff
functions;
- the use of the proceeds from the international tobacco sale to reduce debt
obligations will strengthen the financial position of the domestic tobacco
business before the separation;
- the separation will permit investors to choose whether to invest in stock
in the food business, the tobacco business or both; and
- the separation will result in two distinct publicly traded equity
securities that will enable financial markets to better understand and
evaluate the food and tobacco businesses.
DESCRIPTION OF THE DISTRIBUTION
The distribution agreement among NGH, RJR and Reynolds Tobacco sets forth
the general terms and conditions relating to, and their relationship after, the
distribution. For an extensive description of the distribution agreement, see
the section of this document found under the heading "Relationship Between RJR
and NGH--Distribution Agreement".
NGH will effect the distribution on or about June 14, 1999 by distributing
all of the issued and outstanding shares of RJR common stock to the record
holders of NGH common stock on the record date for this transaction, which is
May 27, 1999. NGH will distribute one share of RJR common stock to each of those
holders for every three shares of NGH common stock owned of record by that
holder. The actual total number of shares of RJR common stock that NGH will
distribute will depend on the number of shares of NGH common stock outstanding
on the record date. Based upon the one-for-three distribution ratio and the
number of shares of NGH common stock outstanding on May 12, 1999, NGH will
distribute approximately 108,570,573 shares of RJR common stock to holders of
NGH common stock, which will constitute all of the outstanding shares of RJR
common stock. RJR common shares will be fully paid and nonassessable, and the
holders of those shares will not be entitled to preemptive rights. For a further
description of RJR common stock and the rights of its holders, see the portion
of this document located under the heading "Description of Capital Stock".
As part of the distribution, RJR will be adopting a book-entry stock
transfer and registration system for its common stock. NGH's distribution agent,
First Chicago Trust Company of New York, a division of EquiServe, will credit
the shares of RJR common stock distributed on the distribution date, including
any fractional interests for those registered holders of NGH common stock who
receive more than one whole share of RJR common stock in the aggregate, to
book-entry accounts established for all
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RJR common stock holders. The distribution agent will mail an account statement
to each of those holders stating the number of shares of RJR common stock,
including any fractional interests, received by that holder in the distribution.
After the distribution, registered holders of RJR common stock may request a
transfer of their shares to a brokerage or other account or physical stock
certificates for their whole shares of RJR common stock.
For those holders of NGH common stock who hold their shares of NGH common
stock through a stockbroker, bank or other nominee, the distribution agent will
transfer the shares of RJR common stock to the registered holders of record who
will make arrangements to credit their customers' accounts with RJR common
stock. NGH anticipates that stockbrokers and banks generally will credit their
customers' accounts with RJR common stock on or about June 14, 1999. If a holder
of NGH common stock owns fewer than three shares of NGH common stock and
therefore is entitled to receive less than one whole share of RJR common stock,
that holder will receive cash instead of a fractional share of RJR common stock.
If a holder of RJR common stock requests physical certificates after the
distribution for that holder's shares of RJR common stock, the holder will
receive physical certificates for all whole shares of RJR common stock and cash
for any fractional share interest.
The distribution agent will aggregate the fractional shares to be cashed out
into whole shares and sell them in the open market at then prevailing prices on
behalf of those registered holders who will receive instead a cash payment in
the amount of their PRO RATA share of the total proceeds of those sales, less
any brokerage commissions. The distribution agent will pay the net proceeds from
sales of fractional shares based upon the average selling price per share of RJR
common stock of all of those sales, less any brokerage commissions. RJR expects
the distribution agent to make sales on behalf of holders who will receive less
than one whole RJR common share in the aggregate in the distribution as soon as
practicable after the distribution date. None of NGH, RJR or the distribution
agent will guarantee any minimum sale price for those fractional shares of RJR
common stock, and no interest will be paid on the proceeds of those shares.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, RJR's transfer of the approximately
80.5% interest in Nabisco to NGH and the distribution by NGH of RJR common stock
to NGH stockholders should each qualify as tax-free spin-offs under Section 355
of the Internal Revenue Code of 1986, as amended.
Assuming that the transfer of the Nabisco interest to NGH and the
distribution by NGH of RJR common stock to NGH stockholders each qualify as
tax-free spin-offs for United States federal income tax purposes, it is the
opinion of Davis Polk & Wardwell that:
- A holder of NGH common stock will not recognize gain or loss as a result
of the distribution by NGH of RJR common stock, except as described
immediately below with respect to fractional shares. Cash, if any,
received by an NGH stockholder instead of a fractional share of RJR common
stock will be treated as received in exchange for that fractional share.
That stockholder will recognize gain or loss to the extent of the
difference between its tax basis in that fractional share and the amount
received for that fractional share, and, provided that fractional share is
held as a capital asset, the gain or loss will be capital gain or loss.
- An NGH stockholder will apportion its tax basis in its NGH common stock
between the NGH common stock and the RJR common stock received in the
distribution in proportion to the relative fair market values of the NGH
common stock and the RJR common stock on the distribution date.
- If an NGH stockholder holds its NGH common stock as a capital asset, that
stockholder's holding period for the RJR common stock received in the
distribution will include the period during which that stockholder held
the NGH common stock with respect to which the distribution was made.
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- RJR and NGH will not recognize any gain or loss as a result of either the
transfer of the Nabisco interest to NGH or the distribution by NGH of RJR
common stock, except to the extent of any excess loss accounts or deferred
intercompany gains.
An opinion of counsel does not bind the IRS or the courts. The IRS may
challenge positions taken based on an opinion of counsel, and could assert
claims, which could be material in amount, in connection with the transfer of
the Nabisco interest to NGH and/or the distribution by NGH of RJR common stock
to NGH stockholders. Davis Polk & Wardwell, however, is of the opinion that, if
the matter were litigated as a result of an assertion by the IRS that RJR's
transfer of the Nabisco interest to NGH and/or the distribution by NGH of RJR
common stock should be taxable, the taxpayer should prevail.
If the distribution by NGH of RJR common stock to NGH stockholders did not
qualify as tax-free, the fair market value of RJR's common stock received by a
holder of NGH common stock would be taxable as a dividend to the extent of NGH's
current-year and accumulated earnings and profits. If the distribution were
fully taxable as a dividend, that stockholder's tax basis in its NGH common
stock would not change as a result of the distribution, and its tax basis in RJR
common stock would equal the fair market value of the RJR common stock it
received on the distribution date. If the transfer of the Nabisco interest to
NGH did not qualify as a tax-free distribution, RJR would recognize a capital
gain equal to the difference between the fair market value of the Nabisco
interest and RJR's tax basis in that interest.
Each holder of NGH common stock that receives RJR common stock in the
distribution must attach a descriptive statement about the distribution to its
federal income tax return for the year in which the distribution occurs. NGH, or
RJR on its behalf, will provide the required information to each holder of NGH
common stock as of the record date for the distribution.
ALL NGH STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS ON THE PARTICULAR
FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM.
The tax sharing agreement describes the arrangements among NGH, RJR, Nabisco
and Reynolds Tobacco relating to tax sharing, tax indemnification and other tax
matters. For a description of these tax arrangements, see the section of this
document under the heading "Relationship Between RJR and NGH--Tax Sharing
Agreement".
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RELATIONSHIP BETWEEN RJR AND NGH
THIS SECTION DESCRIBES THE PRIMARY AGREEMENTS BETWEEN RJR AND NGH THAT WILL
DEFINE THE ONGOING RELATIONSHIP BETWEEN THEM AND THEIR SUBSIDIARIES AND
AFFILIATES AFTER THE DISTRIBUTION AND WILL PROVIDE FOR AN ORDERLY SEPARATION OF
THE TWO COMPANIES. THE FOLLOWING DESCRIPTION OF THE DISTRIBUTION AGREEMENT AND
THE TAX SHARING AGREEMENT SUMMARIZES THE MATERIAL TERMS OF THOSE AGREEMENTS. IF
THERE IS A DISCREPANCY BETWEEN THIS SUMMARY AND THOSE AGREEMENTS, YOU SHOULD
RELY ON THE INFORMATION IN THOSE AGREEMENTS. ALL STOCKHOLDERS SHOULD READ THOSE
AGREEMENTS WHICH RJR FILED AS EXHIBITS TO ITS REGISTRATION STATEMENT ON FORM 8-A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS DOCUMENT IS A PART OF
THAT REGISTRATION STATEMENT.
DISTRIBUTION AGREEMENT
RJR has entered into a distribution agreement with NGH as of May 12, 1999.
The distribution agreement provides for the principal corporate transactions and
procedures for separating the food and tobacco businesses and the distribution.
The distribution agreement also defines the relationship between RJR and NGH
after the distribution with respect to, among other things, indemnification
arrangements, restrictions on RJR's ability to engage in specified transactions,
and employee benefit arrangements.
INDEMNIFICATION
In the distribution agreement, each of RJR and Reynolds Tobacco has agreed,
jointly and severally, to indemnify NGH, Nabisco, Nabisco's subsidiaries and
those entities' directors, officers and employees fully against the following
liabilities:
- All liabilities, other than for taxes, that arise out of any claim which
may at any time be made that:
TRIANGLE is, in whole or in part, based on the use, sale, distribution,
manufacture, development, advertising, marketing or health
effects of, exposure to, or research, statements or warnings
regarding, any tobacco products; or
TRIANGLE seeks to impose liability on RJR or NGH on the grounds that any
liability of Reynolds Tobacco or any of its subsidiaries that
is based on an action described immediately above is
enforceable against or recoverable from RJR or NGH;
- All liabilities, other than for taxes and those tobacco-related
liabilities described above, that in any way relate to (1) RJR, its
subsidiaries or NGH, but only as to NGH with respect to matters and
conduct occurring or arising on or before the distribution or (2) the
tobacco business, or the ownership or use of property in connection with
that business;
- All liabilities for the fees, costs, expenses and transfer taxes to be
borne by RJR in connection with the transfer of its approximately 80.5%
interest in Nabisco to NGH and the distribution;
- All liabilities arising from any breach by RJR or its subsidiaries of any
obligation under the distribution agreement or the other agreements
relating to the distribution, other than the tax sharing agreement; and
- Various liabilities under the federal securities laws, including those
arising in connection with the information contained in filings made under
the federal securities laws by NGH or Nabisco, to the extent that the
information is (1) related primarily to the tobacco business, if before
the distribution date or (2) based upon information furnished to NGH or
Nabisco by RJR or its subsidiaries or incorporated by reference by either
of those parties from any SEC filings made by RJR or its subsidiaries, if
after the distribution date.
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In the distribution agreement, NGH has agreed to indemnify RJR, its
subsidiaries and those entities' directors, officers and employees fully against
the following liabilities:
- All liabilities, other than any for taxes, whenever arising, that in any
way relate to (1) any of Nabisco, Nabisco's subsidiaries or NGH, but only
as to NGH with respect to matters and conduct occurring or arising at any
time after the distribution or (2) the food business, or the ownership or
use of property in connection with that business;
- All liabilities arising from any breach by NGH, Nabisco or Nabisco's
subsidiaries of any obligation under the distribution agreement or any of
the other agreements relating to the distribution, other than the tax
sharing agreement; and
- Various liabilities under the federal securities laws, including those
arising in connection with the information contained in filings made under
the federal securities laws by RJR, to the extent that the information is
(1) related primarily to the food business, if before the distribution
date or (2) based upon information furnished to RJR by NGH, Nabisco or any
of its subsidiaries or incorporated by reference by RJR or its
subsidiaries from any SEC filings made by NGH, Nabisco or any of Nabisco's
subsidiaries, if after the distribution date.
The distribution agreement also includes procedures for notice and payment
of indemnification claims. Any indemnification under the indemnities described
above is to be paid net of any tax benefit to the indemnified party.
Additionally, the distribution agreement provides that NGH will have the right
to assume and control the defense of itself, RJR (but not Reynolds Tobacco and
Reynolds Tobacco's subsidiaries) and any member of the Nabisco group of
companies against any tobacco-related litigation and claims, which assumption
and control will not affect the indemnity obligations of RJR and Reynolds
Tobacco that are described above. For information regarding indemnification
against tax liabilities, see the portion of this document found under the
heading "--Tax Sharing Agreement" below.
BECAUSE RJR AND REYNOLDS TOBACCO MAY BE REQUIRED TO PERFORM THEIR INDEMNITY
OBLIGATIONS THAT ARE DESCRIBED ABOVE, THE DISTRIBUTION AGREEMENT IMPOSES
LIMITATIONS ON THE ABILITY OF RJR AND ITS SUBSIDIARIES TO ENGAGE IN SPECIFIC
TRANSACTIONS. IN GENERAL, THESE PROVISIONS WILL NOT AFFECT RJR'S FINANCIAL
FLEXIBILITY SO LONG AS (1) ITS LONG-TERM SENIOR, UNSECURED DEBT THAT IS
GUARANTEED BY REYNOLDS TOBACCO IS INVESTMENT GRADE (AS THE DISTRIBUTION
AGREEMENT DEFINES THAT TERM AS DESCRIBED BELOW), AND (2) RJR IS NOT ABOUT TO
DECLARE A DIVIDEND, MAKE SHARE REPURCHASES OR ENGAGE IN A BUSINESS COMBINATION
THAT WILL CAUSE THAT DEBT TO LOSE ITS INVESTMENT GRADE STATUS. HOWEVER, THESE
PROVISIONS COULD DETER OR PREVENT AN ACQUIROR FROM ACQUIRING RJR, PARTICULARLY
ON A LEVERAGED BASIS. THIS DOCUMENT DESCRIBES THESE RESTRICTIONS IN GENERAL
IMMEDIATELY BELOW.
LIMITATION ON DIVIDENDS AND SHARE REPURCHASES
So long as RJR's long-term senior unsecured public debt that is guaranteed
by Reynolds Tobacco on an unsecured basis is rated at least BBB- by Standard &
Poor's Ratings Services and at least Baa3 by Moody's Investors Service, Inc.,
the distribution agreement will not restrict RJR's ability to pay dividends or
make share repurchases. However, at any time that RJR debt with those
characteristics is rated below either of those levels, or would be reasonably
likely, after the payment of any dividend or making of any share repurchase, to
fall below either of those levels, then RJR has agreed that it will not make any
Restricted Payment, as defined below (generally, dividends and share
repurchases), unless:
(1) the Restricted Payment is RJR's regularly scheduled quarterly cash
dividend and the amount per share of that Restricted Payment does not
exceed the amount per share of its last regularly scheduled quarterly
cash dividend; or
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(2) the sum of the aggregate amount of that Restricted Payment, together
with the aggregate amounts of all other Restricted Payments made by RJR
and its subsidiaries, does not exceed the sum of:
(a) $300 million; PLUS
(b) 60% of Cash Net Income, as defined below, during the period from the
beginning of RJR's first full fiscal quarter ending after the
distribution date to the end of RJR's last fiscal quarter (or, if
Cash Net Income is negative, LESS 100% of the deficit); PLUS
(c) 100% of the net cash proceeds from the issuance of RJR equity
interests; or
(3) the Restricted Payment is the payment of a dividend within 60 days of
its declaration, if the dividend was permitted at the time of
declaration.
The distribution agreement defines a "Restricted Payment", subject to
specified exceptions, as (1) any dividend or distribution on account of the
equity interests of RJR or any of its subsidiaries; and (2) the purchase,
redemption or other acquisition or retirement for value of any of RJR's equity
interests or those of any of its subsidiaries, including by way of a merger,
consolidation, business combination, restructuring, recapitalization or similar
transaction.
The distribution agreement defines "Cash Net Income" for any period to mean
the consolidated net income or loss of RJR and its consolidated subsidiaries for
that period, excluding:
- all amortization and depreciation on trademarks and goodwill for that
period;
- all extraordinary or restructuring non-cash losses incurred in that
period;
- all extraordinary non-cash gains realized in that period;
- all earnings attributable to equity interests in persons that are not RJR
subsidiaries, except to the extent that RJR or one of its subsidiaries
actually receives dividends or distributions with respect to those equity
interests; and
- the cumulative effect on consolidated net income of any change in U.S.
generally accepted accounting principles or any change in the method of
accounting of RJR or its consolidated subsidiaries.
All cash restructuring charges and all charges, losses and expenses incurred
in connection with the settlement of any tobacco-related litigation or claims
that are otherwise required to be accrued under U.S. generally accepted
accounting principles on or before the date of the agreement to settle those
claims shall, in each case, be amortized on a straight-line basis using a
six-year amortization schedule.
The distribution agreement provides that these limitations on the making of
Restricted Payments shall cease on and after the twelfth anniversary of the
distribution date.
LIMITATIONS ON LEVERAGED TRANSACTIONS AND OTHER MERGERS
RJR has agreed that it will not, and will not permit any of its subsidiaries
to:
- assume or guarantee the indebtedness of, or invest in, any entity;
- enter into any transaction in connection with which RJR or any of its
subsidiaries will, directly or indirectly, assume or guarantee the
indebtedness of, or invest in, any entity; or
- enter into a merger, consolidation or other business combination with any
entity that has indebtedness or investments in another person,
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in each case, if the guarantee or the proceeds of the indebtedness or
investments have been used or will be used, directly or indirectly, to acquire
or finance the acquisition of any of RJR's equity interests or those of any of
its subsidiaries.
The distribution agreement provides, however, that the foregoing limitations
on leveraged transactions and other mergers shall not apply:
- to the use by RJR or any of its subsidiaries of the proceeds of any
guarantee, indebtedness or investment to finance the acquisition of
capital stock of RJR or of any of its subsidiaries by RJR or any of its
subsidiaries, so long as that use is not prohibited by the limitations on
Restricted Payments described above; or
- if RJR delivers to NGH an opinion from a nationally recognized investment
banking firm, which opinion and firm are reasonably acceptable to NGH,
that neither S&P nor Moody's has reduced, or is likely to reduce, the
credit rating of RJR's long-term senior unsecured public debt that is
guaranteed by Reynolds Tobacco on an unsecured basis below BBB- by S&P and
Baa3 by Moody's, or if before the announcement of that transaction the
credit rating of that debt is already below those levels, reduce the
rating further below those levels, as a result of the proposed or any
related transactions; or
- on and after the twelfth anniversary of the distribution date.
RJR and Reynolds Tobacco have also each agreed not to merge, combine,
consolidate or enter into a business combination with, or sell all or
substantially all of its assets to, the other.
EMPLOYEE BENEFIT MATTERS
The distribution agreement provides, generally, that RJR will be responsible
for all employee benefits relating to current and former RJR employees and that
NGH will be responsible for all employee benefits relating to current and former
NGH employees. Under the distribution agreement, NGH stock options will be
equitably adjusted to take into account the distribution as follows:
- The exercise price and number of shares subject to NGH options held by
current and former NGH employees will be adjusted to preserve the value of
the NGH options before the distribution.
- NGH options held by current and former employees of RJR and Reynolds
Tobacco will be equitably converted into two options, one relating to
RJR's common stock and one relating to NGH common stock, with adjustments
to preserve the value of the NGH options before the distribution.
INTERCOMPANY ACCOUNTS
Upon completion of the distribution, there will be no intercompany accounts
or indebtedness between NGH and any of its subsidiaries, on the one hand, and
RJR and any of its subsidiaries, on the other, except that Nabisco and RJR will
settle any accounts between them that are outstanding on the distribution date
in the ordinary course of business.
TRANSACTION EXPENSES
RJR is responsible for all material transaction expenses incurred in
connection with the distribution and the other transactions described in this
document, except that NGH will be responsible for all fees and expenses incurred
to redeem or refinance NGH's Trust Originated Preferred Securities and ESOP
Convertible Preferred Stock.
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RJR is responsible for all liabilities arising out of the closing of the
corporate headquarters, severance and benefits payment obligations to corporate
headquarters employees and related transaction and ongoing administrative
expenses. Before the distribution, RJR will transfer funds to NGH in an amount
that is sufficient to satisfy these obligations in full.
INTERCOMPANY SERVICES
Before the distribution, RJR will agree to terminate an intercompany
services agreement dated as of January 26, 1995 between RJR and Nabisco. After
the distribution, there will be no material services received or provided by NGH
and any of its subsidiaries at that time, on the one hand, and RJR and any of
its subsidiaries, on the other, except for cooperation in the ordinary course
between these groups on litigation matters.
TAX SHARING AGREEMENT
RJR will enter into a tax sharing agreement with NGH, Nabisco and Reynolds
Tobacco that will describe, among other things, each company's rights and
obligations relating to tax payments and refunds for periods before and after
the distribution and related matters like the filing of tax returns and the
handling of audits and other tax proceedings. The tax sharing agreement also
describes the indemnification arrangements among RJR and its subsidiaries (which
this document refers to as the RJR tax group), Nabisco and its subsidiaries
(which this document refers to as the Nabisco tax group) and NGH. The tax
sharing agreement contains the representations and covenants that the RJR tax
group, the Nabisco tax group and NGH will make relating to RJR's transfer of the
Nabisco interest to NGH, the distribution of the RJR common stock to you and
those parties' conduct after those transactions.
RETURN FILING, TAX PAYMENT AND CONDUCT OF TAX PROCEEDINGS
In general, NGH will be responsible for filing consolidated federal and
consolidated, combined or unitary state income tax returns that include the RJR
tax group and the Nabisco tax group for periods through the distribution date
and that include the Nabisco tax group for post-distribution tax periods, and
paying the associated taxes. RJR and Nabisco will reimburse NGH for the portion
of those taxes that relate to the tobacco business, in RJR's case, or the food
business, in Nabisco's case. The tax sharing agreement will generally seek to
allocate tax liabilities based upon the respective tax liabilities of the RJR
tax group, the Nabisco tax group and NGH, as if each group or company had filed
its own tax return. NGH will generally pay to RJR the net benefit received by
the NGH consolidated group from the carryback of various tax attributes of the
RJR tax group arising in post-distribution tax periods to pre-distribution tax
periods.
Under the tax sharing agreement, the RJR tax group and the Nabisco tax group
have irrevocably designated NGH as their agent for purposes of taking a broad
range of actions in connection with taxes for pre-distribution periods. Those
actions include the settlement of tax audits, other tax proceedings, and
disputes arising out of the interpretation of the tax sharing agreement. These
arrangements may result in conflicts of interest among NGH, Nabisco, RJR and
Reynolds Tobacco.
TAX REPRESENTATIONS, COVENANTS AND INDEMNIFICATION ARRANGEMENTS
Under the tax sharing agreement, each of RJR and Reynolds Tobacco will
covenant to NGH and the Nabisco tax group, and each of NGH and Nabisco will
covenant to the RJR tax group, that it will not engage in various transactions
for two years after the distribution, unless it obtains an IRS ruling or an
opinion of acceptable tax counsel that the contemplated transaction will not
cause the transfer of
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the Nabisco interest to NGH or the distribution of the RJR common stock to NGH
stockholders to be taxable. Transactions subject to these restrictions include,
subject to specified exceptions:
- the liquidation, merger or consolidation with another company of that
corporation or of various subsidiaries;
- the sale, exchange, distribution or other disposition of assets of that
corporation or of various subsidiaries outside of the ordinary course of
business;
- the discontinuation of the active conduct of the tobacco business or the
food business, as the case may be;
- the repurchase of stock of that corporation, other than through
transactions meeting a set of IRS guidelines; and
- any transaction or change in equity structure that may cause the transfer
of the Nabisco interest to NGH and/or the distribution of RJR common stock
to NGH stockholders to be treated as part of a plan pursuant to which one
or more persons acquire, directly or indirectly, stock of NGH, Nabisco or
RJR, as the case may be, representing 50% or more of the vote or of the
value of any of those corporations.
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Under the tax sharing agreement, the RJR tax group, NGH and the Nabisco tax
group have agreed to indemnify one another against various tax liabilities. The
chart immediately below summarizes these tax indemnification arrangements.
<TABLE>
<S> <C> <C> <C> <C>
TAX SHARING AGREEMENT INDEMNITIES
The RJR tax group NGH will indemnify NGH will indemnify The Nabisco tax The Nabisco tax
will indemnify NGH the RJR tax group the Nabisco tax group will group will
and the Nabisco against, among group against, indemnify the RJR indemnify NGH
tax group against, other things, among other tax group against, against, among
among other things, among other other things,
things, things,
- - tax liabilities - tax liabilities - tax liabilities - tax liabilities - tax liabilities
attributable to attributable to attributable to attributable to attributable to
the RJR tax NGH relating to NGH relating to the Nabisco tax the Nabisco tax
group relating tax periods tax periods group relating group relating
to any tax after December after December to tax periods to tax periods
period; 1989; 1989; after December after December
1989; and 1989; and
- - tax liabilities - tax liabilities - tax liabilities - tax liabilities - tax liabilities
attributable to relating to any relating to any relating to any relating to any
NGH or the tax period tax period tax period tax period
Nabisco tax resulting from a resulting from a resulting from a resulting from a
group relating breach by NGH of breach by NGH of breach by the breach by the
to tax periods any any Nabisco tax Nabisco tax
before January representation representation group of any group of any
1990; and or covenant made or covenant made representation representation
in the tax in the tax or covenant made or covenant made
sharing sharing in the tax in the tax
agreement; and agreement; and sharing sharing
agreement. agreement.
- - tax liabilities - any tax - any tax
relating to any liabilities liabilities
tax period resulting from resulting from
resulting from a RJR's transfer RJR's transfer
breach by the of the Nabisco of the Nabisco
RJR tax group of interest to NGH interest to NGH
any or the or the
representation distribution, distribution,
or covenant made except, among except, among
by the RJR tax other things, to other things, to
group in the tax the extent those the extent those
sharing liabilities liabilities
agreement. arise from a arise from a
breach by the breach by the
RJR tax group of RJR tax group or
any the Nabisco tax
representation group of any
or covenant made representation
in the tax or covenant made
sharing by the relevant
agreement. group in the tax
sharing
agreement.
</TABLE>
The amount of taxes against which each of the RJR tax group, NGH and the
Nabisco tax group will be required to indemnify the other parties is uncertain,
and could be material.
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TRADING MARKET
Before the distribution, there has been no trading market for RJR common
stock, and there can be no assurances on establishing or continuing a trading
market. However, RJR expects that, before the distribution, The New York Stock
Exchange will approve the RJR common stock for listing under the symbol "RJR",
subject to official notice of issuance. NGH has advised RJR that it will not
complete the distribution until RJR has received that approval. RJR also
anticipates that a "when-issued" trading market will develop in its common stock
before the distribution date.
RJR cannot predict at what price(s) its common stock may trade either before
the distribution, on a "when-issued" basis, or after the distribution. The
marketplace will determine the prices at which the RJR common stock will trade,
and these prices may fluctuate significantly. Many factors could affect these
prices, including, among others, government regulation or litigation affecting
RJR or Reynolds Tobacco or the tobacco industry generally and quarter-to-quarter
variations in RJR's actual or anticipated financial results or those of other
companies in the markets served by Reynolds Tobacco. These and other factors may
adversely affect the market price of RJR common stock. For a description of some
of the factors that may impact the prices at which shares of RJR common stock
may trade on a "when-issued" basis or after the distribution, see the section of
this document found under the heading "Risk Factors".
RJR common stock received in the distribution will be freely transferable,
except for those shares received by any person who may be deemed to be an RJR
"affiliate" within the meaning of Rule 144 under the Securities Act of 1933, as
amended. Persons who may be deemed to be RJR affiliates after the distribution
generally include individuals or entities that directly, or indirectly through
one or more intermediaries, control, are controlled by, or are under common
control with, RJR. RJR affiliates may sell their RJR common stock received in
the distribution only under an effective registration statement under the
Securities Act of 1933 or under another exemption from registration under that
Act.
The only outstanding equity securities of RJR, other than the approximately
108.57 million shares being distributed, are options and restricted stock issued
under NGH and RJR compensation plans. Options to purchase RJR common stock will
be issued to RJR employees upon equitable adjustment of their NGH options to
reflect the distribution. RJR cannot predict the number of RJR options that it
will issue upon the equitable adjustment of the NGH options. In addition,
options to purchase approximately 900,000 shares of RJR common stock will be
outstanding immediately following the distribution under RJR's 1999 Long Term
Incentive Plan. RJR granted the 900,000 options in tandem with awards of 225,000
restricted RJR shares, and holders of the awards must elect, prior to vesting,
which award to receive. The holder will forfeit the tandem award not selected.
Shares of RJR common stock issued upon exercise of all options referred to above
and upon vesting of tandem restricted stock will be registered on a Registration
Statement on Form S-8 under the Securities Act and will therefore generally be
freely transferable under the securities laws, except by affiliates as described
above. Except as described above and except for the rights agreement which is
discussed below under the heading "Stockholder Rights Plan", RJR will not have
any other securities outstanding as of or immediately after the distribution,
and RJR has not entered into any agreement or otherwise committed to register
any shares of the RJR common stock under the Securities Act for sale by security
holders.
DIVIDENDS
Before the distribution, NGH has been paying a regular quarterly cash
dividend at an annual rate of $2.05 per share of common stock. On May 12, 1999,
NGH declared its regularly scheduled quarterly cash dividend of $0.5125 per NGH
common share. This cash dividend will be payable on June 9, 1999 to holders of
NGH common shares as of May 27, 1999.
The board of directors of each of NGH and RJR will be responsible for
determining the applicable company's dividend policy after the distribution.
RJR's board of directors has not yet
29
<PAGE>
established RJR's initial, regular quarterly cash dividend policy for the period
after the distribution. NGH has advised RJR that it currently anticipates that,
after the distribution, it will pay a regular quarterly cash dividend that is
approximately equal to the amount of the regular Nabisco quarterly cash dividend
that NGH expects to receive after the distribution. However, the dividend
payable on each NGH common share will be less than the dividend payable on each
Nabisco common share because the number of outstanding NGH common shares exceeds
the number of Nabisco shares owned by NGH. Passing through Nabisco's current
annual dividend of $0.75 per share on NGH's 213,250,000 shares of Nabisco stock
would, according to NGH, yield an annual dividend of approximately $0.49 per
share on the 325,711,720 shares of NGH stock outstanding on May 12, 1999.
RESTRICTIONS ON DIVIDENDS. The $1.235 billion revolving credit agreement
that RJR and Reynolds Tobacco have entered into with a syndicate of commercial
banks restricts RJR's payment of dividends and its repurchase of stock. Under
that agreement, RJR's total dividends and stock repurchases after July 1, 1999
may, in general, not exceed $500 million, plus 50% of cumulative adjusted cash
net income thereafter. However, RJR can pay dividends and repurchase stock only
to the extent that the sum of its surplus cash and availability under the credit
agreement exceeds $225 million after the dividend payment or stock repurchase.
These payments are also subject to a minimum net worth requirement and a fixed
charge coverage ratio that treats all dividends and stock repurchases as fixed
charges.
In the distribution agreement, RJR has also agreed to limitations on its
ability to pay dividends and make share repurchases. This document describes
these limitations in greater detail on pages 23-24 under the heading
"Distribution Agreement--Limitations on Restricted Payments". These limitations
do not restrict RJR from paying its regularly scheduled quarterly dividend at
any given time. Additionally, there are no restrictions on RJR's ability to pay
dividends or make share repurchases if the credit rating of RJR debt with
certain characteristics is investment grade. When the credit rating of that debt
is below investment grade, however, the restrictions could limit RJR's ability
to increase its regularly quarterly dividend, to pay extraordinary dividends or
to make share repurchases.
Additionally, after the distribution, RJR's only asset will be its equity
interest in Reynolds Tobacco. RJR will rely on cash dividends and other
permitted payments from Reynolds Tobacco to pay cash dividends to RJR
stockholders.
30
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of RJR at March 31, 1999 (1) on an historical basis and (2) as
adjusted to give effect to the transactions described under the portion of this
document found under the heading "The Reorganization". You should read this
table in conjunction with the information located under the heading "Unaudited
Pro Forma Consolidated Condensed Financial Statements" and the consolidated
condensed financial statements of RJR and related notes as of March 31, 1999 and
for the three months ended March 31, 1999 and 1998, included on pages 32-38 and
F-28 - F-42, respectively, of this document.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term debt and current maturities of long-term debt..................................... $ 123 $ 12
----------- -----------
----------- -----------
Long-term debt (excluding current maturities):
Pre-reorganization debt.................................................................... $ 4,743 $ 815
Issuance of notes.......................................................................... -- 1,250
----------- -----------
Total long-term debt (excluding current maturities)...................................... 4,743 2,065
----------- -----------
Stockholder's equity:
Common stock............................................................................... 3 1
Paid-in capital............................................................................ 10,858 10,672
Retained earnings (accumulated deficit).................................................... (421) (3,118)
Accumulated other comprehensive income (loss).............................................. (566) --
----------- -----------
Total stockholder's equity............................................................... 9,874 7,555
----------- -----------
Total capitalization(1)................................................................ $ 14,617 $ 9,620
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Total capitalization excludes short-term debt and current maturities of
long-term debt.
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma consolidated condensed financial statements reflect
the effects of adjustments to the historical results of operations and financial
condition of RJR. You should read the unaudited pro forma consolidated condensed
financial statements in conjunction with the consolidated financial statements
of RJR as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 and the consolidated condensed financial
statements of RJR as of March 31, 1999 and for the three months ended March 31,
1999 and 1998, included on pages F-2 - F-42 of this document.
The unaudited pro forma consolidated condensed statements of income give
effect to the following transactions as if they had occurred on January 1, 1998:
- the issuance by RJR of $1.25 billion in debt securities at an effective
annual interest rate of 7.829%;
- the application of a portion of the net proceeds from the international
tobacco sale to reduce debt and for general corporate purposes;
- the transfer of RJR's interest in Nabisco to NGH;
- the distribution of RJR common stock to NGH stockholders;
- the adjustment to selling, advertising, administrative and general
expenses to reflect the estimated level of administrative expense of RJR
after the completion of the transfer of RJR's interest in Nabisco to NGH
and the distribution;
- the elimination of miscellaneous expenses that will not be incurred after
the distribution; and
- the tax effects of the foregoing transactions or items.
The unaudited pro forma consolidated condensed balance sheet gives effect to
the pro forma transactions and events described in the first four bullet points,
as well as the transfer to NGH of approximately $1.6 billion of the net cash
proceeds from the international tobacco sale, as if they occurred on March 31,
1999.
Management believes that the assumptions used provide a reasonable basis on
which to present the unaudited pro forma consolidated condensed financial
statements. RJR is providing the unaudited pro forma consolidated condensed
financial statements to you for informational purposes only. You should not
construe them to be indicative of RJR's results of operations or financial
position had the transactions and events described above been consummated on the
dates assumed. These pro forma financial statements also do not project the
results of operations or financial position for any future period or date.
32
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RJR APPLICATION ADJUSTMENT OF RJR PRO
HISTORICAL NOTES(1) OF PROCEEDS(1) EXPENSES(1) FORMA(2)
------------- ------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
NET SALES.................................... $ 1,693 $ -- $ -- $ -- $ 1,693
COSTS AND EXPENSES
Cost of products sold...................... 750 -- -- -- 750
Selling, advertising, administrative and
general expenses......................... 673 -- -- (15) 658
Amortization of intangibles................ 92 -- -- -- 92
------ --- ----- --- --------------
Operating income............................. 178 -- -- 15 193
Interest and debt expense.................... (105) (25) 87 -- (43)
Other income (expense), net.................. (7) -- -- 7 --
------ --- ----- --- --------------
Income (loss) before taxes................... 66 (25) 87 22 150
Provision (benefit) for income taxes (1)..... 36 (9) 31 8 66
------ --- ----- --- --------------
Income (loss) from continuing operations..... $ 30 $ (16) $ 56 $ 14 $ 84
------ --- ----- --- --------------
------ --- ----- --- --------------
Basic income per share from continuing
operations................................. $ .77
--------------
--------------
Diluted income per share from continuing
operations................................. $ .77
--------------
--------------
Average number of shares of common stock
outstanding................................ 108,570,573
--------------
--------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET
FORTH IN THIS DOCUMENT.
33
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RJR APPLICATION ADJUSTMENT OF RJR PRO
HISTORICAL NOTES(1) OF PROCEEDS(1) EXPENSES(1) FORMA(2)
------------ ----------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
NET SALES...................................... $ 1,213 $ -- $ -- $ -- $ 1,213
COSTS AND EXPENSES
Cost of products sold........................ 318 -- -- -- 318
Selling, advertising, administrative and
general expenses........................... 564 -- -- (14) 550
Tobacco settlement and related expenses...... 312 -- -- -- 312
Amortization of intangibles.................. 91 -- -- -- 91
------------ --- ----- --- --------------
Operating income (loss)........................ (72) -- -- 14 (58)
Interest and debt expense...................... (107) (25) 87 -- (45)
Other income (expense), net.................... (5) -- -- 3 (2)
------------ --- ----- --- --------------
Income (loss) before taxes..................... (184) (25) 87 17 (105)
Provision (benefit) for income taxes (1)....... (43) (9) 31 6 (15)
------------ --- ----- --- --------------
Income (loss) from continuing operations....... $ (141) $ (16) $ 56 $ 11 $ (90)
------------ --- ----- --- --------------
------------ --- ----- --- --------------
Basic income (loss) per share from continuing
operations................................... $ (.83)
--------------
--------------
Diluted income (loss) per share from continuing
operations................................... $ (.83)
--------------
--------------
Average number of shares of common stock
outstanding.................................. 108,570,573
--------------
--------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET
FORTH IN THIS DOCUMENT.
34
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RJR APPLICATION ADJUSTMENT OF RJR PRO
HISTORICAL NOTES(1) OF PROCEEDS(1) EXPENSES(1) FORMA(2)
------------ ----------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
NET SALES...................................... $ 5,716 $ -- $ -- $ -- $ 5,716
COSTS AND EXPENSES
Cost of products sold........................ 1,353 -- -- -- 1,353
Selling, advertising, administrative and
general expenses........................... 2,780 -- -- (61) 2,719
Tobacco settlement and related expenses...... 1,442 -- -- -- 1,442
Amortization of intangibles.................. 366 -- -- -- 366
------------ --- ----- --- --------------
Operating income (loss)........................ (225) -- -- 61 (164)
Interest and debt expense...................... (426) (98) 348 -- (176)
Other income (expense), net.................... (28) -- -- 28 --
------------ --- ----- --- --------------
Income (loss) before taxes..................... (679) (98) 348 89 (340)
Provision (benefit) for income taxes (1)....... (160) (34) 122 31 (41)
------------ --- ----- --- --------------
Income (loss) from continuing operations....... $ (519) $ (64) $ 226 $ 58 $ (299)
------------ --- ----- --- --------------
------------ --- ----- --- --------------
Basic income (loss) per share from continuing
operations................................... $ (2.75)
--------------
--------------
Diluted income (loss) per share from continuing
operations................................... $ (2.75)
--------------
--------------
Average number of shares of common stock
outstanding.................................. 108,570,573
--------------
--------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET
FORTH IN THIS DOCUMENT.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(1) The following is a summary of the adjustments reflected in the unaudited
pro forma consolidated condensed statements of income:
- Adjust historical interest and debt expense, as applicable, based on the
issuance by RJR of $1.25 billion in debt securities at an effective annual
interest rate of 7.829%;
- Adjust historical interest and debt expense, as applicable, based on the
application of a portion of the net proceeds from the international
tobacco sale to repay $4.04 billion of outstanding RJR borrowings,
including 90% of the debt securities that RJR offered to purchase on April
13, 1999;
- Adjust historical selling, advertising, administrative and general
expenses to reflect the estimated level of administrative expense of RJR
after the completion of the transfer of RJR's interest in Nabisco to NGH
and the distribution of RJR common stock to NGH stockholders;
- Adjust historical other income (expense), net to eliminate miscellaneous
expenses that would not be incurred after the completion of the
distribution; and
- Recognize income taxes on the pro forma adjustments at the U.S. statutory
rate of 35%.
(2) The unaudited pro forma consolidated condensed statements of income do not
give effect to:
- the one-time net gain recognized upon completion of the international
tobacco sale of approximately $3.1 billion for the three months ended
March 31, 1999 and 1998 and for the year ended December 31, 1998, subject
to any post-closing adjustments;
- the extraordinary loss of $311 million, net of tax, that would be
recognized for each of the quarters ended March 31, 1999 and 1998 and for
the year ended December 31, 1998 upon the repayment of a portion of the
outstanding borrowings of RJR on a pro forma basis;
- the one-time costs and expenses of $186 million after-tax to eliminate
corporate headquarters;
- interest income on the net proceeds from the issuance by RJR of $1.25
billion in debt securities; and
- the recognition of the cumulative translation account of Nabisco resulting
from the transfer of RJR's interest in Nabisco to NGH. The amounts
recognized for this cumulative translation account were as follows: first
quarter of 1999: $333 million loss; first quarter of 1998: $187 million
loss; 1998 year: $225 million loss.
36
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
INTERNATIONAL
RJR TOBACCO APPLICATION OF REORGANIZATION
HISTORICAL SALE(1) NOTES(1) PROCEEDS(1) AS ADJUSTED MERGER(1)
----------- --------------- ----------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents(2).... $ 5 $ 7,800 $ 1,250 $ (5,918) $ 3,137 $ (101)
Accounts and other receivables,
net........................... 46 -- -- -- 46 105
Inventories..................... 527 -- -- -- 527 --
Prepaid expenses and excise
tax........................... 751 -- -- -- 751 (327)
Net assets of discontinued
businesses.................... 5,930 (2,838) -- -- 3,092 (3,092)
----------- ------ ----------- ------- ------------- --------------
Total current assets........ 7,259 4,962 1,250 (5,918) 7,553 (3,415)
Property, plant and equipment,
net............................. 1,101 -- -- -- 1,101 --
Trademarks........................ 3,150 -- -- -- 3,150 --
Goodwill.......................... 7,759 -- -- -- 7,759 --
Other assets and deferred
charges......................... 207 -- -- (14) 193 (40)
----------- ------ ----------- ------- ------------- --------------
Total assets................ $ 19,476 $ 4,962 $ 1,250 $ (5,932) $ 19,756 $ (3,455)
----------- ------ ----------- ------- ------------- --------------
----------- ------ ----------- ------- ------------- --------------
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Short term borrowings........... $ -- $ -- $ -- $ -- $ -- $ --
Accounts payable and accrued
liabilities................... 1,646 -- -- -- 1,646 (40)
Current maturities of long-term
debt.......................... 123 -- -- (111) 12 --
Income taxes accrued............ 267 2,000 -- -- 2,267 --
----------- ------ ----------- ------- ------------- --------------
Total current liabilities... 2,036 2,000 -- (111) 3,925 (40)
Long-term debt (less current
maturities)................... 4,743 -- 1,250 (3,928) 2,065 --
Other noncurrent liabilities.... 925 -- -- -- 925 418
Deferred income taxes........... 1,898 (300) -- (5) 1,593 (140)
----------- ------ ----------- ------- ------------- --------------
Total liabilities........... 9,602 1,700 1,250 (4,044) 8,508 238
Commitments and contingencies
Stockholder's equity:
Common stock.................... 3 -- -- -- 3 (2)
Paid in capital................. 10,858 -- -- -- 10,858 (186)
Retained earnings (accumulated
deficit)...................... (421) 3,029 -- (1,888) 720 (3,838)
Accumulated other comprehensive
income........................ (566) 233 -- -- (333) 333
----------- ------ ----------- ------- ------------- --------------
Total stockholder's
equity.................... 9,874 3,262 -- (1,888) 11,248 (3,693)
----------- ------ ----------- ------- ------------- --------------
Total liabilities and
stockholder's equity...... $ 19,476 $ 4,962 $ 1,250 $ (5,932) $ 19,756 $ (3,455)
----------- ------ ----------- ------- ------------- --------------
----------- ------ ----------- ------- ------------- --------------
<CAPTION>
RJR
PRO FORMA
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents(2).... $ 3,036
Accounts and other receivables,
net........................... 151
Inventories..................... 527
Prepaid expenses and excise
tax........................... 424
Net assets of discontinued
businesses.................... --
-----------
Total current assets........ 4,138
Property, plant and equipment,
net............................. 1,101
Trademarks........................ 3,150
Goodwill.......................... 7,759
Other assets and deferred
charges......................... 153
-----------
Total assets................ $ 16,301
-----------
-----------
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Short term borrowings........... $ --
Accounts payable and accrued
liabilities................... 1,606
Current maturities of long-term
debt.......................... 12
Income taxes accrued............ 2,267
-----------
Total current liabilities... 3,885
Long-term debt (less current
maturities)................... 2,065
Other noncurrent liabilities.... 1,343
Deferred income taxes........... 1,453
-----------
Total liabilities........... 8,746
Commitments and contingencies
Stockholder's equity:
Common stock.................... 1
Paid in capital................. 10,672
Retained earnings (accumulated
deficit)...................... (3,118)
Accumulated other comprehensive
income........................ --
-----------
Total stockholder's
equity.................... 7,555
-----------
Total liabilities and
stockholder's equity...... $ 16,301
-----------
-----------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET SET FORTH
IN THIS DOCUMENT.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(1) The following is a summary of the adjustments reflected in the unaudited
pro forma consolidated condensed balance sheet:
- Receipt of the proceeds from the international tobacco sale and
recognition of the cumulative translation account applicable to the
international tobacco business. The international tobacco sale results in
a one-time net gain of approximately $3.1 billion, subject to post-closing
adjustments, after the recognition of a $233 million loss pertaining to
the cumulative translation account;
- Receipt of the net proceeds from the issuance by RJR of $1.25 billion in
debt securities;
- Application of a portion of the net proceeds from the international
tobacco sale to (1) repay $4.04 billion of outstanding RJR borrowings,
including 90% of the debt securities that RJR offered to purchase on April
13, 1999, and (2) transfer to NGH approximately $1.6 billion of the net
cash proceeds through a merger transaction. As a result of the difference
between the cash paid to repay a portion of outstanding RJR borrowings and
the net carrying value of those borrowings, and after giving effect to the
write-off of related deferred issuance costs of $14 million, those
transactions would result in a one-time charge on a pro forma basis of
approximately $311 million after-tax;
- The recognition of a $333 million loss pertaining to the cumulative
translation account of Nabisco in connection with the transfer of RJR's
interest in Nabisco to NGH, one-time costs and expenses of $186 million
after-tax to eliminate corporate headquarters and the capitalization of
$258 million of intercompany accounts; and
- The distribution of RJR common stock to NGH stockholders.
(2) The line item "Cash and cash equivalents" does not reflect the additional
proceeds that RJR expects to receive from the international tobacco sale as a
result of the adjustment to the purchase price for any earnings generated by the
international tobacco business after December 31, 1998 through May 12, 1999, the
closing date of the international tobacco sale. Also not reflected in cash and
cash equivalents are the proceeds to be received by RJR from the international
tobacco business for the settlement of intercompany indebtedness in the ordinary
course of business. RJR expects that approximately $200 million of additional
proceeds will result from these transactions.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH RJR'S
HISTORICAL FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS BOTH INCLUDED
ELSEWHERE IN THIS DOCUMENT.
OVERVIEW
Reynolds Tobacco is the second largest cigarette manufacturer in the United
States. For the first quarter of 1999, Reynolds Tobacco had an approximate
24.41% overall share of retail domestic consumer cigarette sales and an
approximate 25.17% overall share for 1998. Reynolds Tobacco's largest selling
cigarette brands include DORAL, WINSTON, CAMEL, SALEM and VANTAGE. WINSTON,
CAMEL and SALEM are its largest selling premium brands, while DORAL is its
largest selling savings brand. Reynolds Tobacco markets its other brands,
including MONARCH, MORE, NOW, BEST VALUE and CENTURY, to meet a variety of
smoker preferences.
LITIGATION AND SETTLEMENTS
Numerous legal actions, proceedings and claims are pending or may be
instituted against RJR, Reynolds Tobacco and their affiliates or indemnitees
that allege damages arising out of the use of or exposure to Reynolds Tobacco's
products. This document describes this litigation under "Risk Factors" and
"Business--Litigation and Regulation--Litigation" and in note 4 to RJR's
consolidated condensed financial statements as of March 31, 1999 and note 10 to
RJR's consolidated financial statements as of December 31, 1998, included on
pages 13-14, 53-55, F-34 - F-40 and F-13 - F-20, respectively. Until 1997,
settlement expenses associated with this litigation did not have a material
effect on results of operations. RJR and Reynolds Tobacco believe that,
notwithstanding the quality of defenses available to RJR, Reynolds Tobacco and
RJR's other affiliates in litigation matters, it is possible that the results of
operations or cash flows of RJR and Reynolds Tobacco in particular quarterly or
annual periods could be materially affected by the ultimate outcome of various
pending or future litigation matters, including litigation costs. Management is
unable to predict the outcome of the litigation or 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.
In November 1998, Reynolds Tobacco and the other major U.S. cigarette
manufacturers entered into the Master Settlement Agreement with attorneys
general representing most U.S. states, territories and possessions. As described
under "Business--Litigation and Regulation--Litigation", the Master Settlement
Agreement imposes a stream of future payment obligations on Reynolds Tobacco and
the other major U.S. cigarette manufacturers and places significant restrictions
on their ability to market and sell cigarettes in the future. The Master
Settlement Agreement may have a significant negative impact on RJR's
consolidated results of operations or cash flows in particular quarterly or
annual periods. RJR expects the cash payments to be made by Reynolds Tobacco
under the Master Settlement Agreement and other existing settlement agreements
in 1999 to be approximately $1.6 billion, $316 million of which Reynolds Tobacco
paid as of March 31, 1999. In future years, Reynolds Tobacco estimates those
payments to exceed $2.0 billion per year. However, these payments will be
subject to, among other things, the volume of cigarettes sold by Reynolds
Tobacco, Reynolds Tobacco's market share and inflation adjustments. Reynolds
Tobacco cannot predict the impact of the Master Settlement Agreement and the
other existing settlement agreements on its business, competitive position and
results of operations of the business activity restrictions to which it is
subject, and the price increases that it may be required to make as a result of
those agreements.
PRICING AND VOLUME
In order to fund its obligations under the Master Settlement Agreement and
the other existing settlement agreements, Reynolds Tobacco implemented a series
of cigarette price increases in 1997 and
39
<PAGE>
1998. As a result, Reynolds Tobacco's manufacturer's list price increased by an
average of $0.70 per pack from August 1997 to December 1998. Other cigarette
manufacturers took similar steps. In absolute terms, this series of price
increases exceeded the net amount of price increases taken by Reynolds Tobacco
over the period from 1981 through July 1997. These price increases, coupled with
excise tax increases, have resulted in lower overall cigarette demand, leading
to lower volumes. Reynolds Tobacco expects these effects to be more pronounced
in the premium market, where operating margins have tended to be higher,
compared to the savings market. The price increases have also stimulated
competition among manufacturers to discount prices at the consumer level.
Because Reynolds Tobacco's brands are more price sensitive than those of some of
its competitors, Reynolds Tobacco's sales volume decreased more
significantly--5.5% in 1998 compared to 1997 and 14.4% in the first quarter of
1999 compared to the first quarter of 1998--than the industry average of 4.6% in
1998 and 9.6% in the first quarter of 1999. Reynolds Tobacco cannot predict how
its results of operations and financial condition in future periods will be
affected by price increases, demand and volume reduction, a shift in mix from
premium consumption to savings consumption and competitive discounting. In
addition, to the extent some manufacturers, including Reynolds Tobacco, have
significantly discounted prices to offset the impact of rapid price increases,
the full impact of price increases may not be seen until the second half of 1999
or beyond.
RESULTS OF OPERATIONS
The following table sets forth specific items from the historical financial
statements of income appearing on pages F-2 and F-29 of this document and shows
percentage changes in those items.
<TABLE>
<CAPTION>
QUARTER ENDED PERCENTAGE CHANGE
MARCH 31, PERCENTAGE YEAR ENDED DECEMBER 31, FROM PRIOR YEAR
-------------------- CHANGE FROM ------------------------------- --------------------
1999 1998 PRIOR QUARTER 1998 1997 1996 1998 1997
--------- --------- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
MILLIONS) (DOLLARS IN MILLIONS)
Net sales.............................. $ 1,693 $ 1,213 39.6% $ 5,716 $ 5,044 $ 4,702 13.3% 7.3%
Cost of products sold (1).............. 750 318 135.8 1,353 1,209 1,186 11.9 1.9
Selling, advertising, administrative
and general expenses................. 673 564 19.3 2,780 2,361 2,095 17.7 12.7
--------- --------- --------- --------- ---------
Operating company contribution (based
on ongoing results).................. 270 331 (18.4) 1,583 1,474 1,421 7.4 3.7
Tobacco settlement and related expenses
(1).................................. -- 312 (100.0) 1,442 359 -- 301.7 n/a
--------- --------- --------- --------- ---------
Operating company contribution......... 270 19 1,321.1 141 1,115 1,421 (87.4) (21.5)
Amortization of intangibles............ 92 91 1.1 366 366 366 -- --
Restructuring expense.................. -- -- -- -- 80 -- (100.0) n/a
--------- --------- --------- --------- ---------
Operating income (loss)................ $ 178 $ (72) 347.2 $ (225) $ 669 $ 1,055 (133.6) (36.6)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) $505 million and $37 million of ongoing settlement expense was recorded in
cost of products sold in the first quarter of 1999 and 1998, respectively,
and $148 million was recorded during the year ended December 31, 1998.
Tobacco settlement and related expenses include only initial, up-front
tobacco settlement and other related expenses.
FIRST QUARTER OF 1999 COMPARED TO FIRST QUARTER OF 1998
NET SALES. Net sales of $1.7 billion in the first quarter of 1999 increased
39.6% from $1.2 billion in the comparable 1998 period. The increase was driven
by higher prices offset in part by lower volumes.
Unit sales volumes for premium brands decreased an average of 14.4%, while
average volume for savings brands decreased 14.5%. Overall industry volume
decreased by 9.6% from the first quarter of 1998 compared to the first quarter
of 1999. Volumes for premium brands could decline at a faster rate
40
<PAGE>
than volumes for savings brands. The mix between Reynolds Tobacco's premium and
savings brands remained steady, with premium shipments representing 61.9% of
total shipments in both the first quarter of 1999 and 1998.
Reynolds Tobacco's overall retail share of market for the first quarter of
1999 decreased to 24.41% from 25.44% in the first quarter of 1998. Reynolds
Tobacco's premium share for the first quarter of 1999 decreased to 15.54% from
16.47% in the first quarter of 1998, while its savings share for the first
quarter of 1999 decreased to 8.87% from 8.97% in the first quarter of 1998.
COST OF PRODUCTS SOLD. Cost of products sold of $750 million in the first
quarter of 1999 more than doubled from $318 million in the first quarter of
1998. The increase was due primarily to an increase of $468 million in ongoing
settlement costs in the first quarter of 1999.
SELLING, ADVERTISING, ADMINISTRATIVE AND GENERAL EXPENSES. Selling,
advertising, administrative and general expenses of $673 million in the first
quarter of 1999 increased 19.3% from $564 million in the first quarter of 1998.
The increase was due primarily to a 35.3% increase in promotional expense,
chiefly competitive discounts provided directly to retailers and passed through
to the consumer.
TOBACCO SETTLEMENT AND RELATED EXPENSES. In the first quarter of 1998,
Reynolds Tobacco recorded $312 million, $199 million after-tax, for initial,
up-front tobacco settlement costs relating to the agreements between Reynolds
Tobacco and the Minnesota state attorney general and Blue Cross and Blue Shield
of Minnesota. Ongoing tobacco settlement costs recorded in the first quarter of
1999 are included in cost of products sold.
PROVISION (BENEFIT) FOR INCOME TAXES. Reynolds Tobacco recorded a tax
provision of $36 million, or a 54.5% effective rate, in the first quarter of
1999 compared to a tax benefit of $43 million, or a 23.4% effective rate,
recorded in the first quarter of 1998. The rate increase is primarily due to the
relative impact of nondeductible goodwill amortization on income (loss) before
income taxes.
1998 COMPARED TO 1997
NET SALES. Net sales of $5.7 billion in 1998 increased 13.3% from $5.0
billion in 1997. The increase was driven by higher prices offset in part by
lower volumes. Reynolds Tobacco's manufacturer's list prices increased in 1998
by approximately $0.64 per pack.
Unit sales volumes for premium brands decreased an average of 6.7%, compared
to an average volume decrease of 3.4% for savings brands. Overall industry
volume decreased by 4.6% from 1997 to 1998. Volumes for premium brands could
decline at a faster rate than volumes for savings brands. Although the mix
between Reynolds Tobacco's premium and savings brands changed only slightly,
with premium shipments representing 62.6% of total shipments in 1998 compared to
63.4% in 1997, the trend away from premium towards savings brands may accelerate
in future periods as price increases are absorbed and premium volumes are
affected to a greater extent than savings volumes.
Reynolds Tobacco's overall retail share of market for 1998 decreased to
25.17% from 25.41% in 1997. Reynolds Tobacco's premium share for 1998 decreased
to 16.27% from 16.65% in 1997, while its savings share for 1998 increased to
8.90% from 8.76% in 1997.
COST OF PRODUCTS SOLD. Cost of products sold of $1.4 billion in 1998
increased 11.9% from $1.2 billion in 1997. The increase was due primarily to the
inclusion of $148 million in ongoing settlement costs in 1998, with no
corresponding charge in 1997.
SELLING, ADVERTISING, ADMINISTRATIVE AND GENERAL EXPENSES. Selling,
advertising, administrative and general expenses of $2.8 billion in 1998
increased 17.7% from $2.4 billion in 1997. The increase was due primarily to a
26.8% increase in promotional expense, chiefly competitive discounts provided
directly to retailers and passed through to the consumer.
41
<PAGE>
TOBACCO SETTLEMENT AND RELATED EXPENSES. Reynolds Tobacco recorded $1.4
billion in tobacco settlement and related expenses in 1998 compared to $359
million in 1997. The 1998 expenses relate primarily to amounts payable under the
Master Settlement Agreement with state attorneys general representing most U.S.
states, territories and possessions and other existing settlement agreements.
The 1998 expenses also include (1) $214 million for rationalizing manufacturing
operations, primarily representing a charge to write down the book value of one
of Reynolds Tobacco's production facilities and various equipment to fair value
and (2) $151 million in employee severance and related benefits, representing a
charge for work force reductions totaling approximately 1,300 employees.
Reynolds Tobacco took both of these charges in response to the changing business
conditions it expects to result from the Master Settlement Agreement and other
existing settlement agreements. Reynolds Tobacco anticipates that the 1998 price
increases, which were necessary to satisfy its ongoing obligations under the
Master Settlement Agreement and other existing settlement agreements, may
adversely affect volumes and results of operations. A breakdown of initial,
up-front tobacco settlement and other related expenses recorded in 1998 is as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
-------------------
<S> <C>
Master Settlement Agreement............................................... $ 620
Minnesota settlement agreement............................................ 312
"Most favored nation" adjustments for previously settled states........... 145
Rationalization of manufacturing operations............................... 214
Employee severance and related benefits................................... 151
------
$ 1,442
------
------
</TABLE>
RJR anticipates that cash expenditures related to the termination of
employees will be approximately $100 million, which will be paid from operations
into the year 2000. RJR expects pre-tax savings in 1999 and 2000 relating to
employee terminations and rationalizing manufacturing operations to be
approximately $75 million and $110 million, respectively. As of December 31,
1998, Reynolds Tobacco used $268 million of the accrual as follows: $54 million
for severance and related benefits and $214 million for rationalizing
manufacturing operations.
As noted above, Reynolds Tobacco recorded ongoing settlement expenses of
$148 million in 1998 relating to other tobacco litigation, principally
settlements involving the attorneys general of Florida, Mississippi and Texas,
in cost of products sold.
RESTRUCTURING EXPENSE. Reynolds Tobacco recorded $80 million in
restructuring expense in 1997, with no corresponding expense in 1998. This
expense consisted of $30 million in employee severance and related benefits, $30
million for rationalizing manufacturing operations and $20 million for contract
termination and other costs. Reynolds Tobacco undertook the 1997 restructuring
program to enhance its competitive position and improve its long-term earnings
growth prospects.
The charge for employee severance and related benefits related to work force
reductions of 192 full-time positions and 217 seasonal positions at a
manufacturing facility and in staff-related areas. Reynolds Tobacco employed the
severed employees primarily at its now-closed Brook Cove, North Carolina
stemmery.
The charge for rationalizing manufacturing operations was primarily related
to the closing of the Brook Cove stemmery, which took place in February 1998
after Reynolds Tobacco finished processing tobacco purchased from the 1997
burley crop. Beginning with the 1998 flue-cured crop, Reynolds Tobacco began
contracting with a third party to perform leaf processing. The costs expensed in
connection with exiting this activity included the write-down to fair value of
the building and equipment held for sale, and the write-off of equipment to be
abandoned.
42
<PAGE>
The charge for contract termination and other costs represented the loss on
termination of a contract obligation. During 1997, management decided and
committed to a plan of termination of a leaf supply contract. The loss
represented the shortfall between the contract cost and the amount that was
recovered upon sale of the leaf inventory. Reynolds Tobacco, acting as a broker,
exercised all of its remaining obligations under the leaf supply contract and
transferred title to a third party without taking possession of the tobacco.
Of the $80 million total restructuring charge, cash outlays will aggregate
approximately $40 million. RJR expects the program to be substantially completed
in 1999. Pre-tax savings in 1998 were $33 million and, after completion of the
program, RJR expects them to be approximately $18 million annually. For the year
ended December 31, 1998, Reynolds Tobacco used $63 million of the 1997 tobacco
restructuring accruals as follows: $15 million for employee severance and
related benefits, $28 million for rationalizing manufacturing operations, and
$20 million for contract terminations and other costs. Of the charges applied
against the restructuring reserve in 1998, cash expenditures amounted to $35
million, which were provided from operations.
PROVISION (BENEFIT) FOR INCOME TAXES. A tax benefit of $160 million, at a
23.6% effective rate, was recorded in 1998 compared to a tax provision of $185
million, or a 90.7% effective rate, that was recorded in 1997. The rate decrease
is primarily due to the relative impact of nondeductible goodwill amortization
on income (loss) before income taxes.
1997 COMPARED TO 1996
NET SALES. Net sales of $5.0 billion in 1997 increased 7.3% from $4.7
billion in 1996. The increase was driven by higher prices offset in part by
lower volumes. Reynolds Tobacco's manufacturer's list prices increased in 1997
by approximately $0.12 per pack.
Unit sales volumes for premium brands decreased an average of 1.1%, compared
to an average volume decrease of 3.0% for savings brands. The mix between
Reynolds Tobacco's premium and savings brands changed slightly, with premium
shipments representing 63.4% of total shipments in 1997 compared to 63.0% in
1996. Overall industry volume decreased by 0.6% from 1996 to 1997. Reynolds
Tobacco believes that both its rate and the industry rate of volume decline were
slowed by wholesale trading activity that took place by the end of 1997 in
anticipation of settlement-driven price increases in 1998.
Reynolds Tobacco's overall retail market share for 1997 decreased to 25.41%
from 25.90% in 1996. Reynolds Tobacco's premium share for 1997 decreased to
16.65% from 16.81% in 1996, while its savings share for 1997 decreased to 8.76%
from 9.09% in 1996.
COST OF PRODUCTS SOLD. Cost of products sold remained flat at $1.2 billion
in 1997 and 1996.
SELLING, ADVERTISING, ADMINISTRATIVE AND GENERAL EXPENSES. Selling,
advertising, administrative and general expenses of $2.4 billion in 1997
increased 12.7% from $2.1 billion in 1996. The increase was due primarily to a
22.0% increase in promotional expense, chiefly competitive discounts.
TOBACCO SETTLEMENT AND RELATED EXPENSES. Reynolds Tobacco recorded $359
million in initial, up-front tobacco settlement and related expenses in 1997,
with no corresponding expense in 1996. The 1997 expense related primarily to
settlements arising from litigation involving the attorneys general of Florida,
Mississippi and Texas.
RESTRUCTURING EXPENSE. Reynolds Tobacco recorded $80 million in
restructuring expense in 1997, with no corresponding expense in 1996. For
discussion of the 1997 expense, see "--1998 Compared to 1997--Restructuring
expense".
PROVISION FOR INCOME TAXES. A tax provision of $185 million, reflecting a
90.7% effective rate, was recorded in 1997 compared to a tax provision of $337
million or a 59.9% effective rate in 1996. The
43
<PAGE>
increase in the rate is primarily due to the relative impact of nondeductible
goodwill amortization on income before income taxes.
PRO FORMA RESULTS OF OPERATIONS
Based on the transactions assumed in the pro forma consolidated financial
statements, operating income for three months ended March 31, 1999 and 1998 and
for the year ended December 31, 1998 would be higher than the corresponding
amounts reflected in the historical results of operations as a result of the
adjustment to reflect the estimated level of administrative expense of RJR after
the completion of the transfer of RJR's interest in Nabisco and the distribution
of RJR common stock.
Interest and debt expense for each period would be substantially lower
compared to the amount included in the historical results of operations
primarily as a result of the application of a portion of the net proceeds from
the international tobacco sale to repay outstanding borrowings assumed in the
pro forma consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Reynolds Tobacco believes that cash flows from operating activities will be
sufficient for the foreseeable future to enable it to meet its obligations under
the Master Settlement Agreement with attorneys general for most U.S. states,
territories and possessions and other existing settlement agreements, to fund
its required debt-service payments, to fund its budgeted capital expenditures
and to make payments to RJR that will enable it to make its required
debt-service payments and to pay dividends to RJR stockholders. Reynolds Tobacco
cannot predict its cash requirements relating to any future settlements and
judgments, including cash required to bond any appeals if necessary, and makes
no assurance that it will be able to meet all of those requirements.
DEBT
On May 18, 1999, RJR issued $550 million in principal amount of 7 3/8% notes
due 2003, $500 million in principal amount of 7 3/4% notes due 2006 and $200
million in principal amount of 7 7/8% notes due 2009. The notes are senior
unsecured obligations and, unlike RJR's other nonbank debt, are guaranteed by
Reynolds Tobacco. In addition, any other subsidiaries of RJR that in the future
guarantee the $1.235 billion revolving credit facility described in greater
detail below will also be required to guarantee the notes. Subject to specified
exceptions, the terms of the notes restrict the issuance of guarantees by
subsidiaries, the pledge of collateral, sale/leaseback transactions and the
transfer of all or substantially all of the assets of RJR and its subsidiaries.
RJR and Reynolds Tobacco have agreed to use their reasonable best efforts to
cause an exchange offer registration statement in respect of the notes to be
declared effective by the Securities and Exchange Commission no later than
January 13, 2000.
On May 7, 1999, RJR entered into a 30-month $1.235 billion revolving credit
facility with a syndicate of banks. RJR can use the full facility to obtain
loans or letters of credit, or to support the issuance of commercial paper, at
its option. Currently, RJR uses the facility only for letters of credit with an
aggregate stated amount of approximately $350 million. Accordingly, RJR will
have approximately $885 million of availability under the facility. Reynolds
Tobacco has guaranteed RJR's obligations under the facility. If RJR's new senior
unsecured debt is rated below BBB- by S&P or Baa3 by Moody's, some of its other
subsidiaries will have to guarantee the facility. If RJR falls below these
thresholds for both of those rating agencies, RJR and the guarantors will have
to pledge their assets to secure their obligations. The credit agreement also
limits RJR's ability to pay dividends, repurchase stock, incur indebtedness,
engage in transactions with affiliates, create liens, acquire, sell or dispose
of specific assets and engage in specified mergers or consolidations.
44
<PAGE>
On May 18, 1999, RJR completed tender offers and consent solicitations for
most of its outstanding public debt. In these transactions, RJR used a portion
of the proceeds from the international tobacco sale to repurchase approximately
$3.96 billion of its public debt. After completion of these transactions and
upon completion of the distribution, RJR's outstanding debt will total
approximately $2.07 billion, consisting of the $1.25 billion of newly-issued
notes guaranteed by Reynolds Tobacco, approximately $400 million of outstanding
Eurobonds, and approximately $500 million of public debt. The public debt
primarily consists of debt securities that were subject to, but not redeemed
pursuant to, the tender offers and consent solicitations. As a result of these
consent solicitations, the indentures relating to the untendered public debt
securities do not contain any material restrictive covenants.
CASH FLOWS
FIRST QUARTER OF 1999 COMPARED TO FIRST QUARTER OF 1998. Net cash flows
from continuing operating activities were $248 million in the first quarter of
1999 compared to an outflow of $59 million in the first quarter of 1998. The
increase in cash flow primarily reflects increased pricing, the timing of
payments for leaf purchases and other accounts payable, and lower income tax and
restructuring payments, partially offset by an increase in settlement payments
and lower product volume.
In the fourth quarter of 1998, Reynolds Tobacco recorded a $151 million
expense for a work force reduction of approximately 1,300 employees in response
to changing business conditions, which will likely result from the Master
Settlement Agreement signed in November 1998. Reynolds Tobacco expects pre-tax
savings in 1999 and 2000 to be approximately $60 million and $95 million,
respectively. For the three months ended March 31, 1999, Reynolds Tobacco made
$5 million of payments, which were applied against the reserve.
Net cash flows used in investing activities were $10 million in the first
quarter of 1999 and the first quarter of 1998.
1998 COMPARED TO 1997. Net cash flows from continuing operating activities
were $367 million in 1998 compared to $628 million in 1997. The decrease
primarily reflects increased tobacco settlement and restructuring payments,
partially offset by higher operating company contribution on an ongoing basis
and lower income tax payments.
Net cash flows used in investing activities were $43 million in 1998
compared to $46 million in 1997. The decrease is due to lower capital
expenditures in 1998, offset by lower proceeds from the sale of various assets
during 1998.
1997 COMPARED TO 1996. Net cash flows from continuing operating activities
were $628 million in 1997 compared to $665 million in 1996. The decrease
reflects tobacco settlement payments in 1997 and a lower benefit in 1997
compared to 1996 from leaf inventory reduction programs in 1996, partially
offset by lower income tax, restructuring and interest payments and higher
operating company contribution on an ongoing basis.
Net cash flows used in investing activities were $46 million in 1997
compared to net cash flows from investing activities of $59 million in 1996. The
decrease in net cash flows from investing activities was due primarily to lower
proceeds from the divestiture of various assets in 1997 compared to 1996.
Free cash flow, another measure used by management to evaluate liquidity and
financial condition, represents cash available for the repayment of debt and
various other corporate purposes like common stock dividends, stock repurchases
and acquisitions. It is essentially net cash flow from operating activities and
investing activities, adjusted for acquisitions and divestitures of businesses.
Free cash flow resulted in an inflow of $226 million in the first quarter of
1999 compared to an outflow of $97 million in the first quarter of 1998 and $313
million for the year ended December 31, 1998 compared to $594 million for the
year ended December 31, 1997. The increase in free cash flow from the first
45
<PAGE>
quarter of 1998 to the first quarter of 1999 is due primarily to the reasons
discussed above for the change in net cash flows from continuing operating
activities. The decrease in free cash flow from 1997 to 1998 primarily reflects
the increase in tobacco settlement and restructuring payments in 1998, partially
offset by the reduction in income tax payments discussed above and higher
operating company contribution, based on ongoing results.
In connection with the distribution, RJR will assume, subject to specified
exceptions, all U.S. pension liabilities and related assets for current and
former tobacco employees. RJR anticipates additional cash required compared to
1998 to fund those liabilities to be approximately $10 million in 1999 and
approximately $45 million in each of the years 2000, 2001, 2002 and 2003.
CAPITAL EXPENDITURES
Actual capital expenditures were $10 million for both the first quarter of
1999 and 1998, and $47 million, $57 million and $63 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The level of expenditures
currently planned for 1999 is approximately $50 million. Management expects that
its capital expenditure program will continue at a level sufficient to support
the strategic and operating needs of Reynolds Tobacco. There were no material
long-term commitments for capital expenditures as of March 31, 1999 and December
31, 1998.
SETTLEMENTS
Total payments in 1998 for all tobacco litigation settlement agreements
currently in effect and their associated costs, including the Master Settlement
Agreement, were $786 million. Reynolds Tobacco funded these payments primarily
by cash flows from operating and financing activities. RJR expects that the cash
payments to be made by Reynolds Tobacco under these agreements in 1999 will be
approximately $1.6 billion--$316 million of which Reynolds Tobacco paid as of
March 31, 1999--also to be funded through price increases. In future years, RJR
estimates them to exceed $2.0 billion per year. However, these payments will be
subject to, among other things, the volume of cigarettes sold by Reynolds
Tobacco, Reynolds Tobacco's market share and inflation adjustments. For further
discussion of the potential impact of litigation issues and various litigation
settlements, see the portions of this document found under the heading "Risk
Factors", "Business--Litigation and Regulation--Litigation", note 4 to RJR's
consolidated financial statements as of March 31, 1999 and note 10 to RJR's
consolidated financial statements as of December 31, 1998, included on pages
13-14, 53-55, F-34 - F-40 and F-13 - F-20, respectively.
PRO FORMA LIQUIDITY AND FINANCIAL CONDITION
After giving effect to the transactions assumed in the pro forma
consolidated condensed financial statements, RJR is expected to have long-term
debt, excluding current maturities, and total capital, which is defined as total
long-term debt, excluding current maturities, and total stockholders' equity, of
approximately $2.06 billion and $9.62 billion, respectively.
YEAR 2000
The year 2000 issue stems from computer applications that were written using
two digits rather than four digits to define the applicable year. The issue is
whether computer systems will properly interpret date-sensitive information when
the year changes to 2000.
Reynolds Tobacco has inventoried, assessed and developed detailed plans for
required systems modifications or replacements of all information technology
systems and operating systems with embedded technology, which include, but are
not limited to, process control, automated factory/ assembly lines,
environmental safety, quality control and facilities.
46
<PAGE>
As of March 31, 1999, software remediation, which entails modifying existing
programs to make them year 2000 compliant, was approximately 99% complete for
information technology systems. Reynolds Tobacco expects this phase of year 2000
readiness to be completed during the second quarter of 1999. In the case of
operating systems with embedded technology, Reynolds Tobacco completed these
software remediation efforts.
As of March 31, 1999, software testing following remediation was
approximately 92% complete for information technology systems. Reynolds Tobacco
expects that testing will be completed by the end of the third quarter of 1999.
With respect to operating systems with embedded technology, testing was
approximately 90% complete and Reynolds Tobacco anticipates it to be completed
by the end of the third quarter of 1999.
As of March 31, 1999, approximately 88% of information technology systems
were compliant and in production. Reynolds Tobacco anticipates the balance to be
completed by the end of the third quarter of 1999. Approximately 89% of
operating systems with embedded technology were compliant and in production.
Management expects all operating systems with embedded technology to be fully
year 2000 compliant by the end of the third quarter of 1999.
Reynolds Tobacco is also in contact with suppliers, vendors, service
providers and customers to assess the potential impact on operations if they are
not successful in converting their systems in a timely manner. As of March 31,
1999, Reynolds Tobacco had received responses from 99% of identified third
parties, as follows: 84% of identified third parties had confirmed that they are
fully compliant, 14% were not currently compliant but expected to be by the end
of 1999, and 1% will not be in compliance. Reynolds Tobacco continues to monitor
the status of year 2000 efforts for those third parties that have been
identified as critical and contingency plans specific to those third parties
have been developed.
Reynolds Tobacco's systems risk management program includes emergency backup
and recovery procedures to be followed in the event of failure of a
business-critical system. Reynolds Tobacco has expanded these procedures to
include additional procedures for potential year 2000 issues. In addition,
contingency plans to protect the business from year 2000-related interruptions
have been developed, which include development of backup procedures,
identification of alternate suppliers and possible increases in inventory
levels. The possible consequences of Reynolds Tobacco or key third parties not
being fully year 2000 compliant include temporary plant closings, delays in the
delivery of products or receipt of supplies, invoice and collection errors and
inventory obsolescence. Reynolds Tobacco believes its year 2000 implementation
plan, including contingency measures, will be completed in all material respects
by the end of 1999, thereby reducing the possible material adverse effects of
the year 2000 issue on Reynolds Tobacco's business, results of operations and
financial condition.
As of March 31, 1999, Reynolds Tobacco had incurred expenses of $28 million
to be year 2000 compliant. The current estimated cost to complete Reynolds
Tobacco's year 2000 program is an additional $9 million. The table below sets
forth a breakdown of current and estimated expenses associated with the year
2000 issue:
<TABLE>
<CAPTION>
TOTAL COST AS OF ESTIMATED TOTAL
MARCH 31, 1999 PROJECT COST
----------------- -----------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
BY SYSTEM TYPE:
Information technology systems............................. $ 26 $ 33
Operating systems with embedded technology................. 2 4
BY WORK PERFORMED:
Remediation................................................ 26 33
Replacement................................................ 2 4
INTERNAL/EXTERNAL:
Internal costs............................................. 20 28
Replacement/contractor costs............................... 8 9
</TABLE>
47
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of RJR due to adverse
changes in financial market prices and rates. RJR is exposed to interest rate
market risk. This exposure is directly related to its normal investing and
funding activities. RJR has established various policies and procedures to
manage its exposure to market risk, including the use of financial derivatives,
which are highly correlated to underlying exposures. RJR estimates its market
risk due to changes in interest rates utilizing a financial model called Value
at Risk. Value at Risk is a statistical measure of the potential loss in terms
of fair value, cash flows or earnings of market-risk sensitive instruments over
a one-year horizon assuming a 95% confidence interval for changes in market
rates and prices.
INTEREST RATE EXPOSURES
Upon reviewing its derivatives and interest rate instruments, based on the
fair value of market-rate sensitive instruments at year-end, RJR does not
believe that near-term changes in interest rates will have a material impact on
its future earnings, fair values or cash flows.
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
RJR was incorporated as a holding company in 1970 holding the stock of
Reynolds Tobacco and other companies that RJR has since sold. Reynolds Tobacco
can trace its origins back to its formation in 1875. Activities were confined to
the tobacco industry until the 1960's, when diversification led to investments
in transportation, energy and food. With the acquisition of Del Monte
Corporation in 1979, which RJR sold in 1989, RJR began to concentrate its focus
on consumer products. This strategy led to the 1985 acquisition of Nabisco,
which was formerly named Nabisco Brands, Inc.
As a result of the transfer of the Nabisco interest to NGH, RJR is now a
holding company that owns only 100% of the stock of Reynolds Tobacco, the second
largest cigarette manufacturer in the United States. Reynolds Tobacco's largest
selling cigarette brands include DORAL, WINSTON, CAMEL, SALEM and VANTAGE, and
its other brands, including MONARCH, MORE, NOW, BEST VALUE and CENTURY, are
marketed to meet a variety of smoker preferences. In the first quarter of 1999
and in 1998, Reynolds Tobacco had four of the top ten best selling brands of
cigarettes in the United States. These top-selling brands were DORAL, WINSTON,
CAMEL and SALEM.
Based on data collected by an independent market research firm, Reynolds
Tobacco's overall share of retail domestic consumer cigarette sales during the
first quarter of 1999 was approximately 24.41%, a decrease of approximately one
share point from the first quarter of 1998, and during 1998 was approximately
25.17%, a decrease of approximately one-quarter of a share point from 1997.
During the first quarter of 1999, the largest domestic cigarette manufacturer,
Philip Morris Incorporated, sold approximately 49.4% of all cigarettes consumed
in the United States.
As a result of the completion of the sale of the international tobacco
business to Japan Tobacco on May 12, 1999, Reynolds Tobacco's business will
consist exclusively of the manufacture and sale of cigarettes in the United
States and its territories, commonwealths, protectorates and possessions.
INDUSTRY OVERVIEW
U.S. cigarette shipments have decreased at a compound annual rate of 1.9%
over the past 10 years. From 1995 through 1997, U.S. cigarette sales volume
increased slightly from 481.4 billion to 482.9 billion units. In the first
quarter of 1999, the industry experienced a 9.6% decline in shipments to 97.8
billion units from 108.2 billion units in the first quarter of 1998. In 1998,
the industry experienced
48
<PAGE>
a 4.6% decline in shipments to 460.8 billion units with substantial price
increases, reflecting settlement costs and higher state sales and excise taxes,
responsible for a portion of this volume decline. Since August 1997, wholesale
cigarette prices have increased six times, totaling approximately $0.70 per
pack. Reynolds Tobacco implemented the most recent $0.45 per pack increase in
November 1998 to satisfy its payment obligations under the Master Settlement
Agreement with attorneys general for most U.S. states, territories and
possessions. For a detailed discussion of the tobacco litigation and the Master
Settlement Agreement, see note 4 to RJR's consolidated condensed financial
statements as of March 31, 1999 and note 10 to RJR's consolidated financial
statements as of December 31, 1998, which are included on pages F-34 - F-40 and
F-13 - F-20, respectively.
The breakdown between premium and savings brands of the U.S. cigarette
industry's sales volume is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED
MARCH 31 DECEMBER 31
-------------------- --------------------
BRAND TYPE 1999 1998 1998 1997
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Premium............................................................... 73.9% 72.6% 73.0% 72.3%
Savings............................................................... 26.1% 27.4% 27.0% 27.7%
</TABLE>
The breakdown between premium and savings brands of Reynolds Tobacco's sales
volume is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED
MARCH 31 DECEMBER 31
-------------------- --------------------
BRAND TYPE 1999 1998 1998 1997
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Premium............................................................... 61.9% 61.9% 62.6% 63.4%
Savings............................................................... 38.1% 38.1% 37.4% 36.6%
</TABLE>
Profit margins on savings brands tend to be lower than profit margins on
premium brands. Reynolds Tobacco cannot predict the potential adverse impact of
price increases on industry volume or Reynolds Tobacco volume, on the mix
between premium and savings sales or on Reynolds Tobacco's market share.
The following tables depict the comparative positions of the leading
producers and brands in the tobacco industry:
MANUFACTURERS' RETAIL MARKET SHARE
<TABLE>
<CAPTION>
FIRST QUARTER
MANUFACTURER OF 1999 1998 1997 1996 1995
- ----------------------------------------------------------------- --------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Philip Morris.................................................... 49.4% 48.6% 47.7% 46.8% 45.1%
Reynolds Tobacco................................................. 24.4 25.2 25.4 25.9 27.0
Brown & Williamson/American Brands............................... 13.7 15.0 16.0 17.1 17.8
Lorillard........................................................ 8.9 8.2 7.9 7.8 7.6
Other............................................................ 3.6 3.0 3.0 2.4 2.5
----- --------- --------- --------- ---------
Total............................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
</TABLE>
- ------------------------
Source: IRI/Marlin
49
<PAGE>
TOP 10 BRANDS BY MARKET SHARE--1998
<TABLE>
<CAPTION>
SHARE POINT CHANGE
BRAND MANUFACTURER TYPE MARKET SHARE FROM 1997
- -------------------------------------------- -------------------- ---------- --------------- ---------------------
<S> <C> <C> <C> <C>
Marlboro.................................... Philip Morris Premium 33.8% 1.7%
Doral....................................... Reynolds Tobacco Savings 6.4% 0.5%
Newport..................................... Lorillard Premium 5.8% 0.4%
Winston..................................... Reynolds Tobacco Premium 5.6% --
GPC......................................... B&W Savings 5.5% (0.1)%
Camel....................................... Reynolds Tobacco Premium 5.3% 0.1%
Basic....................................... Philip Morris Savings 4.9% 0.1%
Salem....................................... Reynolds Tobacco Premium 3.4% (0.3)%
Kool........................................ B&W Premium 3.3% (0.1)%
Virginia Slims.............................. Philip Morris Premium 2.7% (0.1)%
</TABLE>
- ------------------------
Source: IRI/Marlin
STRATEGY
Reynolds Tobacco's primary long-term objective is to increase earnings and
cash flow through selective marketing investments in key brands and continual
improvements in its cost structure and operating efficiency.
Reynolds Tobacco is committed to new product development, product-line
extensions and brand repositioning as sources of growth. In May 1996, Reynolds
Tobacco began test marketing in Chattanooga, Tennessee its ECLIPSE cigarette.
Reynolds Tobacco expanded test markets in 1997 to include Lincoln, Nebraska and
Atlanta, Georgia. ECLIPSE primarily heats rather than burns tobacco, thereby
substantially reducing second-hand smoke, while leaving virtually no ash, stains
or lingering odor. In 1997, Reynolds Tobacco revised the WINSTON blend and
packaging as part of its "No Bull" campaign which has led to the first market
share gains for this brand in 25 years. Also in 1997, Reynolds Tobacco
introduced CAMEL MENTHOL, KAMEL MENTHE and RED KAMEL to the CAMEL brand family.
Over the last year, Reynolds Tobacco has revised the SALEM blend and package
design to compete more effectively in the marketplace. Reynolds Tobacco
introduced these changes nationally in January 1999.
To improve its cost structure and respond to the changing business
conditions RJR expects to result from the Master Settlement Agreement with state
attorneys general and other existing settlement agreements, Reynolds Tobacco
announced in December 1998 a $365 million settlement-related charge to eliminate
15% of the work force equal to approximately 1,300 positions and a write-down of
one of Reynolds Tobacco's production facilities and other equipment to fair
value. RJR expects these programs to generate significant cost savings in future
years. RJR anticipates that pre-tax savings in 1999 and 2000 relating to the
employee terminations and rationalizing manufacturing operations will be
approximately $75 million and $110 million, respectively.
SALES AND MARKETING
Reynolds Tobacco markets each of its existing brands through various
campaigns designed to strengthen the brand's image among adult smokers and to
increase market share. Reynolds Tobacco designs its marketing programs to build
brand awareness and to add value to the brands by building brand loyalty among
current adult smokers and attracting adult smokers of competing brands.
In 1998, the WINSTON brand, supported by the "No Bull" campaign, gained
market share for the first time in 25 years, despite a fiercely competitive
marketplace. CAMEL continued to be a strong
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competitor, backed by its new "Mighty Tasty" advertising campaign and related
promotional events. After a year of successful test-marketing of a new
positioning, SALEM introduced the "It's Not What You Expect" campaign nationally
in January 1999. Reynolds Tobacco believes it is essential to compete in all
segments of the cigarette market and accordingly offers a range of lower-priced
brands, including DORAL, MONARCH and BEST VALUE, intended to appeal to more
cost-conscious adult smokers. DORAL has maintained its positive performance
trend, achieving significant gains and growing to an approximately 23.7% share
of the savings segment in 1998.
Television and radio advertising for cigarettes is prohibited in the United
States. As part of the Master Settlement Agreement, Reynolds Tobacco has agreed,
along with the other major cigarette manufacturers, to discontinue the use of
billboard advertising as well as other specific marketing and promotional tools.
Reynolds Tobacco plans to maintain advertising campaigns for its brands in
magazines, at retail cigarette locations and in other adult venues as an
integral part of its strategy to increase loyalty to its brands and to attract
adult smokers of other brands. In addition, Reynolds Tobacco engages in various
promotional campaigns like "Camel Cash", which enables adult smokers to purchase
goods using coupons from cigarette packages, and direct mail campaigns targeted
at adult smokers. Reynolds Tobacco offers buydown programs to retailers whereby
the retailers receive payments from Reynolds Tobacco that the retailer is
contractually obligated to pass through to consumers as a discount.
Reynolds Tobacco sells cigarettes principally to distributors and
wholesalers and to various large retail stores. Most of Reynolds Tobacco's
customers buy on a spot basis rather than under long-term agreements. Except for
McLane Company, Inc., the largest distributor of cigarettes in the United
States, which represented approximately 16.7% of Reynolds Tobacco's sales in
1998, no Reynolds Tobacco customer accounted for more than 10% of Reynolds
Tobacco's 1998 sales.
Over 1,500 sales personnel oversee Reynolds Tobacco's relationships with its
wholesale and retail customers. Reynolds Tobacco sales personnel monitor
inventories, work with retailers on display and signage and from time to time
enter into discount arrangements with retailers.
MANUFACTURING
Reynolds Tobacco manufactures cigarettes primarily at its Tobaccoville and
Whitaker Park plants in Winston-Salem, North Carolina, both of which it owns.
Tobaccoville is a two million square-foot facility constructed in 1985 with a
current capacity of approximately 110 billion cigarettes per year. The Whitaker
Park complex was built in 1960 and includes Reynolds Tobacco's Central
Distribution Center, the Bowman Gray Technical Center for research and
development activities and a pilot plant for trial manufacturing of new
products. RJR believes that Reynolds Tobacco's cigarette manufacturing
facilities are among the most technologically advanced in the United States.
In connection with the sale to Japan Tobacco of the international tobacco
business, (1) Reynolds Tobacco has entered into a contract to manufacture
cigarettes for delivery to and sale by Japan Tobacco outside the United States
and (2) Japan Tobacco has entered into a contract to manufacture cigarettes for
delivery to and sale by Reynolds Tobacco in Puerto Rico and the U.S. Virgin
Islands. These contracts will remain in effect until at least December 31, 2001.
Either party may terminate the contract under which Reynolds Tobacco
manufactures cigarettes for Japan Tobacco, effective on December 31, 2001 or on
December 31 of any succeeding year upon one year's notice given by that party.
Upon termination of the contract under which Reynolds Tobacco manufactures
cigarettes for Japan Tobacco, the contract under which Japan Tobacco
manufactures cigarettes for Reynolds Tobacco will automatically terminate.
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RAW MATERIALS
In its production of cigarettes, Reynolds Tobacco uses domestic burley and
flue-cured leaf tobacco purchased at domestic auction. Reynolds Tobacco also
purchases oriental tobacco, grown primarily in Turkey and Greece, and other
nondomestic tobacco. Tobacco is then aged or "cured" for approximately two years
before Reynolds Tobacco uses it in production.
INTELLECTUAL PROPERTY
Reynolds Tobacco owns numerous trademarks, including the brand names of its
cigarettes and their distinctive packaging and display. In addition, Reynolds
Tobacco considers the blends of tobacco that make each of its brands distinctive
to be trade secrets. These trade secrets are generally not the subject of
patents, though various of Reynolds Tobacco's manufacturing processes are
patented.
In connection with the sale of the international tobacco business, Reynolds
Tobacco will sell its trademarks outside the United States and specific patents
outside the United States.
All of Reynolds Tobacco's material trademarks are registered with the U.S.
Patent and Trademark Office. Rights in these trademarks in the United States
will last indefinitely as long as Reynolds Tobacco continues to use the
trademarks.
COMPETITION
The markets in which Reynolds Tobacco conducts its business are highly
competitive, with a number of large participants. Philip Morris Incorporated,
Reynolds Tobacco's largest competitor, has significantly greater resources than
Reynolds Tobacco. Members of the tobacco industry compete on numerous bases,
including brand and packaging recognition, brand loyalty, retail display and
promotion, quality and price. Substantial advertising, merchandising display and
promotional expenditures, including selective discounting, are generally
necessary to maintain or improve a brand's market position.
Increased selling prices and taxes on cigarettes have resulted in additional
price sensitivity of cigarettes at the consumer level and in a proliferation of
discounts and of brands in the savings segment of the market. Generally, sales
of cigarettes in the savings segment are not as profitable as those in the
premium segment.
Members of the tobacco industry use price discounting as a competitive tool.
For example, over the last five weeks of the first quarter of 1999, Philip
Morris offered discounts of $5.50 per carton or $0.55 per pack on MARLBORO.
Reynolds Tobacco matched these discounts on CAMEL and WINSTON. Similarly, Brown
& Williamson initiated aggressive discounts on its GPC brand which Reynolds
Tobacco matched on DORAL.
TRADE LOADING. Wholesalers began to increase their inventories of
cigarettes in mid-1997 in anticipation that litigation settlements would result
in significant price increases. Wholesale trade inventories of Reynolds Tobacco
products amounted to approximately 3.2 billion cigarettes in November 1998, and
at year-end had been reduced to approximately 1.9 billion cigarettes. It is
unclear when wholesalers will reduce excess stocks to normal levels.
GRAY MARKET. The price difference between cigarettes manufactured for sale
abroad and cigarettes manufactured for U.S. sale has increased, and consequently
a domestic "gray market" has developed in cigarettes manufactured for sale
abroad. These cigarettes compete with the cigarettes that Reynolds Tobacco
manufactures for domestic sale. RJR has taken legal action against various
distributors and retailers who engage in that practice.
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EMPLOYEES
As of December 31, 1998, Reynolds Tobacco had approximately 9,000 employees.
None of its employees is unionized. RJR believes that employee relations are
good.
PROPERTIES
Reynolds Tobacco's executive offices are housed in two of its buildings in
downtown Winston-Salem. Reynolds Tobacco owns several other smaller properties,
all located in or near Winston-Salem. See the portion of the document found
under the heading "Manufacturing" for a description of Reynolds Tobacco's
operating facilities.
LITIGATION AND REGULATION
LITIGATION
TOBACCO LITIGATION--GENERAL. Various legal actions, proceedings and claims
are pending or may be instituted against RJR, Reynolds Tobacco, RJR's other
affiliates or indemnitees, including those claiming that lung cancer and other
diseases, as well as addiction, have resulted from the use of or exposure to
Reynolds Tobacco's tobacco products. There has been a noteworthy increase in the
number of these cases pending. As of May 14, 1999, 653 active cases were pending
in the United States against RJR, Reynolds Tobacco, RJR's other affiliates or
indemnitees. The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, special
duty, voluntary undertaking, breach of warranty, failure to warn, fraud,
misrepresentation, unfair trade practices, conspiracy, aiding and abetting,
unjust enrichment, antitrust, Racketeer Influenced and Corrupt Organization Act,
indemnity, contribution, medical monitoring, common law public nuisance and
civil rights violations. Plaintiffs have specifically pleaded punitive damages,
often in amounts ranging into the hundreds of millions, or even billions of
dollars, in a number of cases in addition to compensatory and other damages.
In January of 1999, President Clinton announced that the U.S. Department of
Justice is preparing a litigation plan for a lawsuit by the federal government
to recover federal healthcare costs associated with cigarette smoking. Press
reports have indicated that the Justice Department has engaged a private law
firm to assist it in a federal lawsuit.
In addition, on December 22, 1998, a now inactive tobacco subsidiary that
was part of the international tobacco business, Northern Brands International,
Inc., entered into a plea agreement with the United States Attorney for the
Northern District of New York. Northern Brands was charged with aiding and
abetting specific customers who fraudulently brought merchandise into the United
States. In the plea agreement, the U.S. Attorney agreed not to bring additional
criminal charges in the Northern District against Northern Brands or its
corporate affiliates, including NGH, RJR and Reynolds Tobacco, for actions from
1985 through 1998 that are related to those that gave rise to the agreement.
RJR-MacDonald, an operating company in Canada, is cooperating with an
investigation now being conducted by the Royal Canadian Mounted Police relating
to the same events that gave rise to the Northern Brands investigation. Under
the sale agreement with Japan Tobacco, RJR and Reynolds Tobacco have retained
all liabilities that may arise from these events. Reynolds Tobacco cannot
predict whether any other authorities in the United States or Canada will seek
to take further actions with regard to these events.
RJR and Reynolds Tobacco believe that, notwithstanding the quality of
defenses available to them and their affiliates in litigation matters, it is
possible that the financial condition and/or results of operations of RJR and
Reynolds Tobacco in particular quarterly or annual periods could be materially
affected by the ultimate outcome of various pending litigation matters,
including litigation costs. RJR and Reynolds Tobacco are unable to predict the
outcome of the litigation or to derive a meaningful estimate of the amount or
range of any possible loss in any particular quarterly or annual period or in
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the aggregate. RJR and Reynolds Tobacco will indemnify NGH and its affiliates
for any liability that any of those parties incurs arising from tobacco-related
litigation.
LITIGATION SETTLEMENT AGREEMENTS. In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members including Reynolds Tobacco. This case was brought on behalf of
the state to recover state funds paid for healthcare and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. Following the filing of the MOORE case, most other
states, through their attorneys general and/or other state agencies, sued
Reynolds Tobacco and other U.S. cigarette manufacturers based on similar
theories.
On November 23, 1998, the major U.S. cigarette manufacturers entered into
the Master Settlement Agreement with attorneys general representing each of the
states of the United States (excepting those states with which the manufacturers
had previously concluded settlements), the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, American Samoa and the Northern Marianas. The Master
Settlement Agreement is subject to judicial approval by the state courts in
which the attorneys general filed suit. As of March 31, 1999, final approval had
been obtained in 40 of the settling jurisdictions having percentage shares equal
to 48.9% of the percentage shares of payments due. The Master Settlement
Agreement becomes effective on the earlier of June 30, 2000 or the date on which
final approval of the settlement has been obtained in courts of 80% of the
settling jurisdictions, both by number and percentage share of the settlement
payments due. To the extent approved, the Master Settlement Agreement settles
all the healthcare cost recovery actions brought by the settling jurisdictions
and contains releases of various additional present and future claims.
- MONETARY LIABILITIES. In addition to payments made in 1998, the Master
Settlement Agreement calls for four annual initial industry payments
starting in 2000 of up to approximately $2.47 billion, $2.5 billion, $2.6
billion and $2.7 billion, respectively. It also requires perpetual annual
industry payments, increasing from $4.5 billion in April 2000 to $8
billion in 2004 and further to $9 billion in 2018 and thereafter. Ten
additional industry payments of $861 million are due annually beginning in
April 2008. All payments are to be allocated among the companies on the
basis of relative market share and most are subject to adjustments for
changes in sales volume in units, inflation and other factors.
The tobacco companies have also agreed to (1) make a one-time payment of
$50 million on March 31, 1999 to establish a fund for enforcement of the
Master Settlement Agreement and laws relating to tobacco products and (2)
fund activities of the National Association of Attorneys General relating
to the Master Settlement Agreement at the cost of $150,000 per year for
ten years.
In addition, the Master Settlement Agreement calls for the creation of a
national foundation that would establish public education and other
programs and conduct or sponsor research to reduce youth smoking and to
understand and educate the public about diseases associated with
tobacco-product use. The tobacco companies would fund the establishment of
the foundation with 10 annual payments of $25 million commencing March 31,
1999, further payments of $250 million on March 31, 1999 and $300 million
annually thereafter for four years and additional annual payments of $300
million beginning in 2004 if, during the year preceding the year when
payment is due, participating manufacturers collectively accounted for at
least 99.05% of the cigarette market. Each of these payments is to be
allocated among the companies on the basis of relative market share. Other
than the $25 million annual payments and the $250 million payment due on
March 31, 1999, the payments for the foundation are subject to adjustments
for changes in sales volume in units, inflation and other factors.
The manufacturers have also agreed to pay the litigation costs, including
government attorneys' fees, of the offices of the attorneys general
relating to the settled cases and, subject to specific
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quarterly and annual payment caps, the costs and fees of outside counsel
to the settling jurisdictions. Outside counsel fees are to be determined
either by arbitration or in accordance with a negotiated fee procedure.
Awards determined by arbitration will be paid subject to an aggregate
annual cap on arbitrated attorneys' fees for all these and various other
settled cases of $500 million. Fees set by the negotiated fee procedure
would be subject to an annual cap of $250 million, and will not exceed a
total of $1.25 billion. Reimbursement of costs is capped at $150 million
for litigation costs, including government attorneys' fees and those of
the offices of the attorneys general and at $75 million annually for
outside counsels' costs. Payments for attorneys' fees and costs are to be
allocated on a market share basis.
Reynolds Tobacco estimates that the payments to be made by it under
existing settlements of lawsuits, including the Master Settlement
Agreement, in 1999 are approximately $1.6 billion, $316 million of which
was paid as of March 31, 1999. In future years, Reynolds Tobacco estimates
payments under those settlement arrangements to exceed $2.0 billion per
year. However, these payments will be subject to, among other things, the
volume of cigarettes sold by Reynolds Tobacco, Reynolds Tobacco's market
share and inflation adjustments.
Reynolds Tobacco has made all payments due March 31, 1999, predominantly
into escrow pending effectiveness of the Master Settlement Agreement.
- GROWERS' TRUST. As part of the Master Settlement Agreement, the tobacco
companies have agreed to work with tobacco growers to address the possible
adverse economic impact of the Master Settlement Agreement on growers.
Together with the other major manufacturers, Reynolds Tobacco has agreed
in principle to participate in funding a $5.15 billion trust fund to be
administered by the tobacco-growing states. Details of these arrangements
have not yet been established. However, Reynolds Tobacco anticipates that
its payment obligations will be payable over a number of years and will be
subject to adjustments for several factors, including inflation, U.S.
aggregate cigarette volumes and market share.
- OTHER MASTER SETTLEMENT AGREEMENT OBLIGATIONS. The Master Settlement
Agreement also contains provisions restricting the marketing of
cigarettes. Among these are restrictions or prohibitions on the use of
cartoon characters, brand-name sponsorships, brand-name non-tobacco
products, outdoor and transit brand advertising, payments for product
placement, free sampling and lobbying. The Master Settlement Agreement
requires the dissolution of three industry-sponsored research and advocacy
organizations.
The Master Settlement Agreement may have a significant negative impact on
the financial condition or results of operations of RJR and Reynolds Tobacco.
The financial effects depend, among other things, on the impact of increased
cigarette prices needed to cover the cost of settlement-related payments,
proposed marketing restrictions, increased funding of antismoking educational
programs, the amount and kind of additional requirements that may be imposed on
the industry by state and national legislation and regulation and the effect on
Reynolds Tobacco's payment obligations of variables like inflation, sales
volumes, the level of operating profits and Reynolds Tobacco's competitive
position in the industry. The effect of the Master Settlement Agreement, if any,
on existing claims, or the number and type of additional lawsuits filed against
Reynolds Tobacco in the future, is also difficult to predict at this time.
For further discussion of the tobacco litigation, see note 4 to RJR's
consolidated condensed financial statements as of March 31, 1999 and note 10 to
RJR's consolidated financial statements as of December 31, 1998, which are
included on pages F-34 - F-40 and F-13 - F-20, respectively.
OTHER GOVERNMENT REGULATION
The advertising, sale and use of cigarettes have been subject to substantial
regulation by government and health officials for many years. Together with
manufacturers' price increases in recent
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years and substantial increases in state and federal excise taxes on cigarettes,
these developments have had and will likely continue to have an adverse effect
on cigarette sales.
Cigarettes are subject to substantial excise taxes in the United States. The
federal excise tax per pack of 20 cigarettes is currently $0.24. The per pack
federal cigarette excise tax will increase by $0.10 in 2000, and by an
additional $0.05 in 2002. In his State of the Union address delivered in January
1999, President Clinton indicated support for a $0.55 additional increase in the
federal excise tax. In addition, all states and the District of Columbia impose
excise taxes at levels ranging from $0.025 per pack in Virginia to $1.00 per
pack in Alaska.
In 1964, the Report of the Advisory Committee to the Surgeon General of the
U.S. Public Health Service concluded that cigarette smoking was a health hazard
of sufficient importance to warrant appropriate remedial action. Since 1966,
federal law has required a warning statement on cigarette packaging. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States. Cigarette advertising in other media in the United States must include
information on the "tar" and nicotine yield content of cigarettes, as well as a
warning statement.
During the past three decades, various laws affecting the cigarette industry
have been enacted. In 1984, Congress enacted the Comprehensive Smoking Education
Act. Among other things, the Smoking Education Act:
- establishes an interagency committee on smoking and health that is charged
with carrying out a program to inform the public of any dangers to human
health presented by cigarette smoking;
- requires a series of four health warnings to be printed on cigarette
packages and advertising on a rotating basis;
- increases type size and area of the warning required in cigarette
advertisements; and
- requires that cigarette manufacturers provide annually, on a confidential
basis, a list of ingredients used in the manufacture of cigarettes to the
Secretary of Health and Human Services.
The warnings currently required on cigarette packages and advertisements,
other than billboards, are as follows:
- "SURGEON GENERAL'S WARNING: Smoking Causes Lung Cancer, Heart Disease,
Emphysema, And May Complicate Pregnancy";
- "SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly Reduces Serious
Risks To Your Health";
- "SURGEON GENERAL'S WARNING: Smoking By Pregnant Women May Result in Fetal
Injury, Premature Birth, and Low Birth Weight"; and
- "SURGEON GENERAL'S WARNING: Cigarette Smoke Contains Carbon Monoxide".
Since the initial report in 1964, the Secretary of Health, Education and
Welfare, now the Secretary of Health and Human Services, and the Surgeon General
have issued a number of other reports that purport to find the nicotine in
cigarettes addictive and to link cigarette smoking and exposure to cigarette
smoke with specific health hazards, including various types of cancer, coronary
heart disease and chronic obstructive lung disease. These reports have
recommended various governmental measures to reduce the incidence of smoking.
In 1992, the federal Alcohol, Drug Abuse and Mental Health Act was signed
into law. This act requires states to adopt a minimum age of 18 for purchases of
tobacco products and to establish a system to monitor, report and reduce the
illegal sale of tobacco products to minors in order to
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continue receiving federal funding for mental health and drug abuse programs. In
January 1996, the U.S. Department of Health and Human Services announced
regulations implementing this legislation.
The U.S. Food and Drug Administration has promulgated regulations asserting
jurisdiction over cigarettes as "drugs" or "medical devices" under the
provisions of the Food, Drug and Cosmetic Act. These regulations include severe
restrictions on the distribution, marketing and advertising of cigarettes, and
would require the industry to comply with a wide range of labeling, reporting,
record keeping, manufacturing and other requirements. If not reversed by
judicial or legislative action, the FDA's exercise of jurisdiction could lead to
more expansive FDA-imposed restrictions on cigarette operations than those set
forth in the regulations, and could materially adversely affect Reynolds
Tobacco's business, volume, results of operations, cash flows and/or financial
position. In August 1998, the Fourth Circuit Court of Appeals ruled that the FDA
does not have the authority to regulate tobacco products and declared some of
the FDA's regulations invalid. In November 1998, that court denied the FDA's
petition for rehearing. On April 26, 1999, the U.S. Supreme Court agreed to hear
the FDA's appeal of the Fourth Circuit's ruling.
In December 1992, the U.S. Environmental Protection Agency issued a report
that classified environmental tobacco smoke as a Group A (known human)
carcinogen. Reynolds Tobacco and others filed suit to challenge the validity of
the EPA report. On July 17, 1998, the trial court held that the EPA's
classification of environmental tobacco smoke was invalid and vacated those
portions of the report dealing with lung cancer. The EPA has appealed, and oral
argument is expected before the Court of Appeals for the Fourth Circuit in June
1999.
In March 1994, the U.S. Occupational Safety and Health Administration
announced proposed regulations that would restrict smoking in the workplace to
designated smoking rooms that are separately exhausted to the outside. Reynolds
Tobacco cannot predict the form or timing of any regulations that may be finally
adopted by OSHA. However, if the proposed regulations are adopted, Reynolds
Tobacco 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. Reynolds Tobacco submitted
comments on the proposed regulations during the comment period which closed in
February 1996, but no regulation has yet been adopted. Because many employers
currently do not permit smoking in the workplace, Reynolds Tobacco 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
Reynolds Tobacco.
Forty-eight states and many local jurisdictions have enacted legislation
imposing various restrictions on public smoking. Many employers have initiated
programs restricting or eliminating smoking in the workplace. A number of states
have enacted legislation designating a portion of increased cigarette excise
taxes to fund either antismoking programs, healthcare programs or cancer
research. In addition, educational and research programs addressing health care
issues related to smoking are being funded from industry payments made or to be
made under settlements with state attorneys general. Federal law prohibits
smoking on all domestic airline flights of six hours duration or less and the
U.S. Interstate Commerce Commission has banned smoking on buses transporting
passengers interstate. Various common carriers have imposed additional
restrictions on passenger smoking.
In July 1996, Massachusetts enacted legislation requiring manufacturers of
tobacco products sold in Massachusetts to report yearly, beginning December 15,
1997, the ingredients of each brand sold. The statute also requires the
reporting of nicotine yield ratings in accordance with procedures established by
the State. The legislation contemplates public disclosure of all ingredients in
descending order, a trade-secret disclosure that Reynolds Tobacco believes could
damage the competitive position of its brands. Together with other cigarette
manufacturers, Reynolds Tobacco filed suit in the U.S. District Court for the
District of Massachusetts seeking to have the statute declared null and void and
to restrain Massachusetts officials from enforcing it. Manufacturers of
smokeless tobacco products filed a similar suit. The court granted a preliminary
injunction that enjoined Massachusetts officials from enforcing
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the law relating to ingredient reporting, which has been upheld by the Court of
Appeals for the First Circuit. Both the manufacturers and the State are now
seeking summary judgment from the district court. The case has been briefed and
argued.
In 1997, Texas enacted legislation similar to the Massachusetts law, except
that the Texas statute authorizes confidentiality of trade secrets. After notice
and comment, the Texas Department of Health promulgated regulations that require
both ingredient and nicotine-yield reports to be filed December 1, 1999.
In August 1998, the Massachusetts Department of Health issued regulations
for public comment that would require annual reporting beginning July 1, 2000 on
a brand-by-brand basis of 43 smoke constituents in both mainstream smoke and
sidestream smoke. Together with other cigarette manufacturers, Reynolds Tobacco
filed comments with the Massachusetts Department of Health on October 9, 1998.
Reynolds Tobacco and the other manufacturers believe that the Massachusetts
Department of Health lacks legal authority to promulgate these regulations.
Nevertheless, Reynolds Tobacco and the other manufacturers have proposed
conducting a cooperative benchmarking study to address specific Massachusetts
Department of Health concerns. The Massachusetts Department of Health has agreed
not to amend or finalize these regulations until it has reviewed the results of
the manufacturers' study.
It is not possible to determine what additional federal, state, local or
foreign legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect on Reynolds Tobacco or the cigarette
industry generally, but legislation or regulations of that sort could have an
adverse effect on Reynolds Tobacco or the cigarette industry generally.
Tobacco leaf is an agricultural commodity subject to U.S. Government
production controls and price supports that can affect market prices
substantially. The tobacco leaf price support program is subject to
congressional review and may be changed at any time. In December 1994, Congress
enacted the Uruguay Round Agreements Act to replace a domestic content
requirement with a tariff rate quota system that keys tariffs to import volumes.
The tariff rate quotas have been established by the United States with overseas
tobacco producers and became effective on September 13, 1995. Because of the
importance of tobacco leaf as a raw material for Reynolds Tobacco's products,
substantial changes in the regulatory regime applicable to tobacco leaf could
have a material effect on Reynolds Tobacco's results of operations and cash
flows.
ENVIRONMENTAL MATTERS
Reynolds Tobacco is subject to federal, state and local environmental laws
and regulations concerning the discharge, storage, handling and disposal of
hazardous or toxic substances. Those laws and regulations provide for
significant fines, penalties and liabilities, in various cases without regard to
whether the owner or operator of the property knew of, or was responsible for,
the release or presence of hazardous or toxic substances. In addition, third
parties may make claims against owners or operators of properties for personal
injuries and property damage associated with releases of hazardous or toxic
substances. Management cannot predict what environmental legislation or
regulations will be enacted in the future or how existing or future laws or
regulations will be administered or interpreted. Management similarly cannot
predict the amount of future expenditures that may be required in order to
comply with any environmental laws or regulations or to satisfy any of those
claims.
Recently, the EPA has proposed regulations that would impose restrictions on
Reynolds Tobacco's use of specific fumigants used to protect stores of tobacco
from agricultural pests. Reynolds Tobacco may be unable to replace those
fumigants with other cost-effective fumigants. As a result, Reynolds Tobacco
could be required to make significant expenditures to comply with the EPA
regulations, or risk the loss of substantial stores of tobacco to agricultural
pests. Management cannot predict the amount of future expenditures that may be
required to comply with these regulations.
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MANAGEMENT
STRUCTURE OF RJR'S BOARD OF DIRECTORS
RJR will amend its certificate of incorporation before the distribution to
provide for a classified board of directors. RJR's board of directors will be
divided into three classes of directors and will consist of not less than five
nor more than twelve directors. The term of office of Class I Directors will
expire at the 2000 annual meeting, the term of office of Class II Directors will
expire at the 2001 annual meeting and the term of office of Class III Directors
will expire at the 2002 annual meeting. At each annual meeting of stockholders
held after the distribution, RJR's stockholders will elect a class of directors
for a three-year term to replace the class whose term has then expired. For a
further description of the classified board of directors, see the section of
this document located under the heading "Statutory, Charter and Bylaw
Provisions".
RJR's board of directors expects to establish the following committees:
- An executive committee that will, among other things, have all the powers
of the board in overseeing the business and affairs of RJR at all times
when the board is not in session;
- A compensation committee that will make recommendations to the board on
matters related to employee compensation and plans concerning the orderly
succession of officers and key management personnel;
- An audit committee that will, among other things, consider the overall
scope and approach of the annual audit and recommendations from the
independent accountants, recommend the appointment of the independent
accountants and consider significant accounting methods adopted or
proposed to be adopted and procedures for internal controls. Only outside
directors will be eligible to serve on this committee; and
- A corporate governance and nominating committee will have responsibility
for recruiting and nominating new directors and for corporate governance
issues, including board self-evaluation and chief executive officer
evaluation. Only outside directors will be eligible to serve on this
committee.
RJR's board of directors has not yet determined the ultimate composition of
these committees. However, RJR anticipates that its board of directors will
resolve these matters shortly after the distribution.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth selected information as of May 17, 1999,
concerning the directors and executive officers of RJR who will be serving in
office as of the distribution date:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John T. Chain, Jr.................................... 64 Class I Director
John G. Medlin, Jr................................... 65 Class II Director
Joseph P. Viviano.................................... 61 Class III Director
Nana Mensah.......................................... 46 Class II Director
Andrew J. Schindler.................................. 54 President, Chief Executive Officer and Class III
Director
Kenneth J. Lapiejko.................................. 50 Senior Vice President, Chief Financial Officer and
Treasurer
Charles A. Blixt..................................... 47 Executive Vice President and General Counsel
Lynn J. Beasley...................................... 41 Executive Vice President--Marketing
James V. Maguire..................................... 48 Senior Vice President-Sales
</TABLE>
JOHN T. CHAIN, JR. Gen. (Ret.) Chain has been the Chairman of Thomas Group,
Inc. since May 1998 and has been a member of the board of directors of Thomas
Group since May 1995. He also
59
<PAGE>
serves as the President of Quarterdeck Equity Partners, Inc., an investor in the
defense industry. He served as Special Assistant to the Chairman of Burlington
Northern Santa Fe Corporation from November 1995 to March 1996, and as Executive
Vice President of Burlington Northern from 1991 to November 1995. For more than
five years prior to that time, he served as a General (Commander-in-Chief, the
Strategic Air Command) in the United States Air Force. Gen. Chain is a member of
the boards of directors of NGH, Nabisco, Northrop Grumman Corporation, Kemper
Insurance and Thomas Group.
JOHN G. MEDLIN, JR. Mr. Medlin is Chairman Emeritus of Wachovia Corporation
and served as its Chairman from 1988 to April 1998 and its Chief Executive
Officer from 1977 until December 1993. Mr. Medlin is a member of the boards of
directors of BellSouth Corporation, Burlington Industries, Inc., Media General,
Inc., National Service Industries, Inc., USAirways Group, Inc. and Wachovia
Corporation. From 1983 until 1989, Mr. Medlin was a member of the board of
directors of RJR Nabisco, Inc. and, from 1989 to 1998, he was a member of the
board of directors of NGH.
JOSEPH P. VIVIANO. Mr. Viviano has served as the Vice Chairman of Hershey
Foods Corporation since January 1999. Previously, Mr. Viviano had been President
and Chief Operating Officer of Hershey Foods Corporation from 1994 through 1998.
He is a member of the boards of directors of Hershey Foods Corporation,
Chesapeake Corporation, Huffy Corporation and Harsco Corporation.
NANA MENSAH. Mr. Mensah has served as President and Chief Operating Officer
of Long John Silver's Restaurants, Inc. since 1997. Previously, Mr. Mensah had
been Senior Vice President, Operations and Concept Development of PepsiCo
Restaurants International since 1994. Prior to that time, he was Vice
President-Operations for KFC USA, Inc., from 1990 until 1994, and, from 1988 to
1990, he was Market Manager/Regional Operations Director of Southland
Corporation. Mr. Mensah does not currently serve on the board of directors of
any public companies.
ANDREW J. SCHINDLER. Mr. Schindler has served as President and Chief
Executive Officer of Reynolds Tobacco since 1995. He is expected to be elected
chairman of RJR's board of directors. Mr. Schindler joined RJR in 1974. He
became Senior Vice President--Operations in July, 1989 and was elected Executive
Vice President--Operations in 1991. In May of 1994, Mr. Schindler assumed the
position of President and Chief Operating Officer of Reynolds Tobacco. He is
currently a member of the board of directors of the United Way of Forsyth
County, a member of the advisory board of Wachovia Bank of North Carolina, N.A.,
the Board of Trustees of Old Salem, the North Carolina School of the Arts
Foundation Board, and the Wake Forest University-Baptist Hospital Medical Center
Board of Visitors.
KENNETH J. LAPIEJKO. Mr. Lapiejko has served as Senior Vice President,
Chief Financial Officer and Treasurer of Reynolds Tobacco since 1995. Mr.
Lapiejko joined R.J. Reynolds Tobacco International as a Senior Financial
Analyst in 1977. After holding a number of positions with Reynolds Tobacco, he
was promoted in 1991 to Vice President of Finance and Accounting. Before joining
Reynolds International in 1977, Mr. Lapiejko held financial positions with the
Glass Container Division and the International Division of Owens Illinois, Inc.
CHARLES A. BLIXT. Mr. Blixt has been Executive Vice President and General
Counsel of Reynolds Tobacco since 1998 and, before that time, was Senior Vice
President and General Counsel of Reynolds Tobacco since 1995. Mr. Blixt joined
Reynolds Tobacco as Associate Counsel-Litigation in 1985. Before joining
Reynolds Tobacco, Mr. Blixt served as counsel for Caterpillar Tractor Co. and
Fiat-Allis Construction Machinery, Inc. Mr. Blixt began his career in private
practice. Mr. Blixt serves on the Board of Visitors of Salem College and
Academy, and the Board of Visitors of Wake Forest University School of Law.
LYNN J. BEASLEY. Ms. Beasley has served as Executive Vice
President--Marketing for Reynolds Tobacco since 1997. Ms. Beasley joined
Reynolds Tobacco in 1982 as a marketing assistant. After
60
<PAGE>
holding a number of positions at Reynolds Tobacco, she became Senior Vice
President of the Winston/ Camel business unit in 1993. She was named Senior Vice
President of Brand Marketing for Winston, Camel and Salem in 1995. Before
joining Reynolds Tobacco, Ms. Beasley was a research assistant at the University
of Wisconsin. Ms. Beasley serves on the Salem College Board of Visitors. She is
a member of the Senior Services Board.
JAMES V. MAGUIRE. Mr. Maguire has served as Senior Vice President--Sales of
Reynolds Tobacco since 1994. Mr. Maguire joined Reynolds Tobacco in 1973 as a
sales representative. After holding a number of positions at Reynolds Tobacco
and other RJR Nabisco subsidiaries, he became Vice President of Sales/Marketing
Development in 1993.
Additionally, RJR is currently conducting a search for four additional
individuals who are qualified to serve on its board of directors. RJR may
complete this search before, on or after completion of the distribution and will
announce the names and backgrounds of these individuals upon their election to
its board of directors.
DIRECTORS' COMPENSATION
Directors who are not employees of RJR or its subsidiaries will receive an
annual retainer fee of $50,000 per year, plus attendance fees of $1,250 for each
meeting, including designated days during which the board or a committee of the
board conducts RJR's business. In addition, those outside directors who are
committee members will receive committee attendance fees of $1,250 for each
meeting and committee chairs will each receive a $5,000 annual retainer. RJR
will offer outside directors life insurance having a death benefit of up to
$100,000, a matching grants program and supplemental insurance programs. Upon
becoming a director, RJR will grant each outside director an option under a
stock option plan to purchase 10,000 shares of its common stock. The options
will have an exercise price equal to the fair market value of the common stock
on the date of grant. The options will not be exercisable for six months
following the date of grant but, thereafter, will be exercisable for ten years
from the date of grant.
In addition, an outside director will receive (1) an annual grant of stock
options that will be made on the date of the annual stockholders' meeting
determined under a formula set forth in the applicable plan and (2) an annual
grant of 1,000 common stock units. The annually granted stock options will have
a ten-year term and vest over three years (33% on the first and second
anniversaries of the date of grant and 34% on the third anniversary) and the
common stock units will only be paid on termination of a director's services.
RJR will not compensate any directors who are employees of RJR or its
subsidiaries in their capacity as directors.
EXECUTIVE COMPENSATION
The following pages describe the components of the total compensation of
RJR's five most highly compensated executive officers, as defined under SEC
rules, at the end of the last completed fiscal year.
The bonuses shown represent amounts that the Compensation Committee of NGH's
board of directors and its entire board approved for each named individual based
on RJR's performance for the applicable year.
The long-term compensation shown in the Summary Compensation Table was
provided under NGH's 1990 Long-Term Incentive Plan, which this document refers
to as the LTIP. The LTIP provides for various types of awards like stock
options, restricted stock, performance unit awards and performance appreciation
rights, as described below. This document also describes below the future
compensation that those individuals may receive under RJR's and/or NGH's
retirement plans or, following termination of employment under various
circumstances, under individual agreements.
61
<PAGE>
SUMMARY COMPENSATION TABLE
The following table presents specific information regarding the compensation
of RJR's five most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ---------------------------------------------------------
AGGREGATE SECURITIES
BASE OTHER ANNUAL RESTRICTED UNDERLYING LONG-TERM ALL OTHER
NAME & PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS INCENTIVE COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($)(3)(4) AWARDED (#)(4) PAYOUTS ($) ($)(5)
- -------------------- --------- ----------- --------- ------------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew J. 1998 $ 616,667 $ 438,000 $ 72,376 $1,192,188 -- $ -- $ 33,246
Schindler......... 1997 575,000 403,000 69,799 -- -- 3,000,000 31,200
PRESIDENT & CHIEF 1996 537,500 465,000 237,474 -- 200,000 709,200 26,358
EXECUTIVE OFFICER,
RJR
Charles A. Blixt.... 1998 320,000 292,000 58,478 340,625 -- 255,000 14,610
EXECUTIVE VICE 1997 302,500 167,000 48,925 -- -- 345,000 14,745
PRESIDENT AND 1996 255,167 189,000 48,561 -- 15,000 170,000 11,885
GENERAL COUNSEL
RJR
Lynn J. Beasley..... 1998 310,000 263,500 57,812 510,938 -- 156,000 13,260
EXECUTIVE VICE 1997 248,408 132,000 50,699 -- -- 525,000 5,642
PRESIDENT-- 1996 199,917 105,000 41,057 -- 9,500 320,000 8,938
MARKETING, RJR
Kenneth J. 1998 285,000 157,000 53,041 272,500 -- 255,000 12,450
Lapiejko.......... 1997 243,833 130,000 51,123 -- -- 525,000 11,665
SENIOR VICE 1996 225,000 145,000 50,069 -- 15,000 225,000 10,410
PRESIDENT, CHIEF
FINANCIAL OFFICER
AND TREASURER, RJR
James V. Maguire.... 1998 270,833 151,000 48,949 340,625 -- 278,421 12,665
SENIOR VICE 1997 246,167 138,000 50,334 -- -- 825,000 11,735
PRESIDENT--SALES, 1996 225,833 145,000 51,073 -- 16,000 302,558 10,825
RJR
</TABLE>
- ------------------------------
(1) Except as noted below, the bonus amounts shown for 1998 for all of the named
executive officers reflect annual cash bonus payments that were based on
RJR's performance during 1998. The bonus amount shown for Mr. Blixt includes
a $100,000 special bonus, and the bonus amount shown for Ms. Beasley
includes a $77,500 special bonus. The bonus amounts for all of the named
executive officers were supplemented with Performance Notes equal to 20% of
their target bonus. This document describes the Performance Notes on pages
64-65.
(2) The amounts shown in the table for 1998 include amounts attributable to the
named executive officers' participation in RJR's executive perquisite
program, which provides them with supplemental insurance, a leased
automobile and an annual allowance of $47,500 for Mr. Schindler; $40,000
each for Mr. Blixt and Ms. Beasley; and $32,500 each for Messrs. Lapiejko
and Maguire. These individuals may use this allowance to reimburse
miscellaneous expenses and, to the extent not so used, RJR will pay the
remainder in cash. The supplemental insurance consists of medical, dental,
business travel accident and, to the extent elected, life, spousal life,
automobile and personal liability insurance.
(3) All of the named executive officers were granted restricted shares of NGH
common stock in 1998. NGH made the grants on February 6, 1998. They are
scheduled to vest five years from the date of grant, which is February 6,
2003. The December 31, 1998 values of restricted NGH stock holdings for the
named executive officers are: Mr. Schindler (35,000 shares), $1,039,045; Mr.
Blixt (10,000 shares), $296,870; Ms. Beasley (15,000 shares), $445,305; Mr.
Lapiejko (8,000 shares), $237,496; and Mr. Maguire (10,000 shares),
$296,870. The awards may vest earlier than the date shown in various
circumstances. In connection with the distribution, holders of NGH
restricted stock will receive a distribution of restricted RJR common stock.
Dividends are paid on the restricted stock to the same extent as for
unrestricted shares.
62
<PAGE>
(4) Denominated in shares of NGH common stock. In connection with the
distribution, options held by RJR employees to purchase NGH common stock
will be equitably adjusted into options covering NGH shares and options
covering RJR shares in a manner intended to preserve the aggregate benefits
under the options.
(5) The amounts shown in the table for 1998 reflect RJR contributions made on
behalf of the named individuals under RJR's qualified and nonqualified
defined contribution plans. The following is a breakout of the 1998 amounts:
<TABLE>
<CAPTION>
RJR MATCHING RJR
CONTRIBUTION CONTRIBUTION
(QUALIFIED (NONQUALIFIED
NAME PLAN) PLAN)
- -------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Mr. Schindler....................................................... $ 4,800 $ 25,790
Mr. Blixt........................................................... 4,800 9,810
Ms. Beasley......................................................... 4,800 8,460
Mr. Lapiejko........................................................ 4,800 7,650
Mr. Maguire......................................................... 4,800 7,865
</TABLE>
The amount shown in the table for Mr. Schindler for 1998 also includes
$2,651, in connection with the partial forgiveness of Mr. Schindler's
indebtedness to NGH, as discussed below.
LONG-TERM INCENTIVE COMPENSATION
NGH maintains the LTIP to provide executives with long-term
performance-based incentive compensation. NGH has issued stock options,
restricted stock and other performance-based awards under the LTIP to the named
executive officers and to other key employees. NGH did not make any stock option
grants to the named executive officers in 1998.
NGH conditioned numerous options granted in prior years to Mr. Schindler
under the LTIP on his purchase of NGH common stock. In connection with the
purchase of NGH common stock under the LTIP, NGH made a secured loan to Mr.
Schindler in the amount of the purchase price for the purchased shares, plus an
additional amount to pay taxes, if any, due on any taxable income recognized in
connection with those purchases. In February 1998, Mr. Schindler sold the shares
of NGH common stock that were used to secure the outstanding indebtedness of
$343,276 and used the proceeds to repay all but $2,651 of the indebtedness. In
connection with a prior understanding under which Mr. Schindler had earlier
refrained from selling the shares, NGH forgave the shortfall.
The following table provides information relating to the number and value of
shares of NGH common stock subject to options held by the named executive
officers as of December 31, 1998. There were no stock option exercises during
1998 by any of the named individuals. In connection with the distribution,
options held by RJR employees to purchase NGH common stock will be equitably
adjusted into options covering NGH shares and options covering RJR shares in a
manner intended to preserve the aggregate benefits under the options.
63
<PAGE>
AGGREGATED OPTION VALUES AT FISCAL YEAR-END (12/31/98)
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NGH
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT FY-END (#) HELD AT FY-END ($)(1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
A. J. Schindler........................................... 287,800 120,000 $ 397,139 $ --
C. A. Blixt............................................... 47,300 5,100 46,754 --
L. J. Beasley............................................. 60,270 3,230 104,793 --
K. J. Lapiejko............................................ 49,700 5,100 66,638 --
J. V. Maguire............................................. 53,560 5,440 61,801 --
</TABLE>
- ------------------------------
(1) Calculated based on the excess of the fair market value on December 31, 1998
of NGH common stock ($29.687) over the option exercise price.
As noted in footnote (1) to the Summary Compensation Table, a portion of the
1998 annual bonus earned by all of the named executive officers is denominated
in the form of Performance Notes. Performance Notes are phantom units whose
value may fluctuate up and down based on attaining financial performance
objectives that are derived from RJR's long-term strategic plan. For 1998, all
of the named executive officers were granted Reynolds Tobacco Performance Notes
with an initial value of $36.00 and a value of $39.08 on December 31, 1998. The
Performance Notes do not vest until December 31, 2000 and will be paid-out based
on their value at that time.
The regular annual 1998 long-term incentive grants for all of the named
executive officers were made in the form of performance appreciation rights,
which are appreciation rights on the Performance Notes of NGH or of various
operating subsidiaries and which this document calls PARs. PARs granted to the
named executive officers were a combination of appreciation rights on Reynolds
Tobacco Performance Notes (80%) and NGH Performance Notes (20%). In connection
with the distribution, the Performance Notes, and subsequently, the PARs, will
have a minimum value based on the price of NGH common stock and RJR common stock
on the date of the distribution.
The following table sets forth the Performance Notes and PARs that were
granted to the named executive officers in 1998. Because the future value of
Performance Notes and, consequently, the PARs will depend on NGH's and/or RJR's
performance, there is no minimum or maximum payout amount. This document
includes the values of the Performance Notes and PARs on December 31, 1998 in
footnotes to the table.
64
<PAGE>
LONG-TERM INCENTIVE PLAN
AWARDS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
AWARDS
-----------------------------------------------------------------------
PERFORMANCE NOTES/UNITS PERFORMANCE APPRECIATION RIGHTS
-------------------------------------- -------------------------------
PERFORMANCE OR PERFORMANCE OR
OTHER PERIOD NO. OF OTHER PERIOD
UNTIL PERFORMANCE UNTIL
NO. OF PERFORMANCE MATURITY OR APPRECIATION MATURITY OR
NAME NOTES (1) PAYOUT RIGHTS (2) PAYOUT
- ----------------------------------------- ------------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
A.J. Schindler........................... 2,431 12/31/00 160,000 12/31/02
C.A. Blixt............................... 1,067 12/31/00 70,000 12/31/02
L.J. Beasley............................. 1,033 12/31/00 77,500 12/31/02
K.J. Lapiejko............................ 871 12/31/00 50,000 12/31/02
J.V. Maguire............................. 840 12/31/00 60,000 12/31/02
</TABLE>
- ------------------------------
(1) The December 31, 1998 value of Reynolds Tobacco Performance Notes was
$39.08.
(2) The number of PARs shown in the table for each of the named executive
officers represents a combination of 80% Reynolds Tobacco PARs and 20% NGH
PARs. The PARs have a term of 5 years from the date of grant and vest over 3
years in accordance with the following schedule: 33% on each of the first
and second December 31 following the date of grant and 34% on the third
December 31 following the date of grant. The December 31, 1998 values of the
PARs were as follows: NGH PARs $7.96; and Reynolds Tobacco PARs $3.08.
RETIREMENT PLANS
The named executive officers participate in noncontributory defined benefit
retirement plans maintained by NGH or its subsidiaries. Mr. Schindler also
participates in a Supplemental Executive Retirement Plan, which this document
refers to as the SERP. Benefits under the SERP are payable only after a
participant's retirement at a specified retirement age or earlier retirement or
termination in various circumstances. In connection with the distribution, RJR
will assume the liabilities under the SERP attributable to Mr. Schindler.
The following table shows the estimated annual benefits payable upon
retirement under the SERP, as described in the preceding paragraph. The
retirement benefits shown are computed before being offset for Social Security
and are based upon retirement at age 60 and the payment of a single-life annuity
to Mr. Schindler.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
- ------------------------------------
YEARS OF SERVICE
(1)
AVERAGE FINAL ------------------
COMPENSATION (1) 20 OR MORE
- ---------------- ------------------
<S> <C>
$ 900,000 $ 450,000
1,000,000 500,000
1,100,000 550,000
1,200,000 600,000
1,300,000 650,000
</TABLE>
- ------------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 36 consecutive months that yield the highest average
compensation during the participant's last 60 months of service. Mr.
Schindler's Average Final Compensation as of December 31, 1998 was
$1,011,722 and he is expected to have more than 20 years of credited service
at age 60.
65
<PAGE>
RJR has determined the retirement benefits for Mr. Blixt and Ms. Beasley by
the formula under a noncontributory defined benefit plan maintained by RJR that
has no Social Security offset. The following table shows the estimated annual
single life annuity payable at age 65 under the plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
-----------------------------------
AVERAGE FINAL COMPENSATION(1) 30 35 40 OR MORE
- --------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
$300,000................................................. $ 113,611 $ 121,767 $ 128,291
400,000................................................. 152,215 163,089 171,788
500,000................................................. 190,818 204,411 215,286
600,000................................................. 229,422 245,734 258,783
</TABLE>
- ------------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 36 consecutive months that yield the highest average
compensation during the participant's last 60 months of service. Average
Final Compensation as of December 31, 1998 was: for Mr. Blixt $475,222 and
for Ms. Beasley $393,775. Estimated years of credited service, rounded to
the nearest year, at age 65 was for Mr. Blixt, 32 years and, for Ms.
Beasley, 40 years.
RJR has determined the retirement benefits for Messrs. Lapiejko and Maguire
by the formula under a non-contributory defined benefit plan maintained by RJR
that is subject to an offset for Social Security. The following table shows the
estimated annual single life annuity payable at age 65 under the plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
-----------------------------------
AVERAGE FINAL COMPENSATION (1) 30 35 40 OR MORE
- --------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
$300,000................................................. $ 153,842 $ 179,482 $ 205,122
400,000................................................. 206,342 240,732 275,122
500,000................................................. 258,842 301,982 345,122
600,000................................................. 311,342 363,232 415,122
</TABLE>
- ------------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 60 consecutive months that yield the highest average
compensation during the participant's last 120 months of service. Average
Final Compensation as of December 31, 1998 was for Mr. Lapiejko $377,408 and
for Mr. Maguire $369,917. Estimated years of credited service, rounded to
the nearest year, at age 65 was, for Mr. Lapiejko, 30 years and, for Mr.
Maguire, 40 years.
AGREEMENTS WITH VARIOUS OFFICERS
In October 1988, RJR entered into an agreement with Mr. Schindler which was
supplemented in December 1988 and December 1995, providing that if Mr.
Schindler's employment is terminated other than for "cause" or, within
twenty-four months following a "change of control", for "good reason", he will
be entitled to an amount equal to two times his annual salary and target bonus,
payable over three years. In addition, he is entitled to receive retirement
credits, welfare benefits and other perquisites for the same three-year period.
Mr. Schindler also participates in the SERP.
66
<PAGE>
"Cause" includes, generally, criminal conduct, deliberate refusal to perform
employment duties or deliberate misconduct materially damaging to us. A "change
of control" includes specified acquisitions of 30% or more of the combined
voting power of NGH securities, various changes in the composition of the NGH
board of directors, selected mergers or consolidations of NGH or the disposition
of substantially all of the assets of NGH. "Good reason" includes a material
reduction in duties, reduction in pay, grade or bonus opportunity, reduction in
compensation programs or benefits, relocation or material breach of the
arrangement by us.
If a "parachute" excise tax would be imposed on any payments to Mr.
Schindler, Mr. Schindler would also be entitled to tax reimbursement payments.
In addition, upon a change of control, restrictions on restricted stock held by
Mr. Schindler will lapse and all his outstanding stock options under the LTIP
and a predecessor plan will vest and be cashed-out at the higher of the
difference between the option price and the market price or the value of the
options using a specified Black-Scholes methodology. In addition, upon
termination of employment following a change of control, Mr. Schindler's annual
incentive awards would vest PRO RATA and be paid in a lump sum and his PARs
would vest and be paid in a lump sum.
NGH and RJR entered into employment agreements with Mr. Blixt, Ms. Beasley
and Messrs. Lapiejko and Maguire which, in each case, provide that if the
executive's employment is involuntarily terminated other than for "cause" or if
the executive terminates his employment for "good reason", he or she will
receive two years base salary plus bonus, payable over three years, benefit
continuation for three years, and if in effect, coverage under the executive
perquisite plan for three years. "Cause" includes criminal dishonesty,
deliberate misconduct, and deliberate and continual refusal to perform
employment duties or to act in accordance with instructions of the board. "Good
reason" includes a substantial reduction in the executive's responsibilities, a
more than 20% reduction in the executive's salary and annual bonus opportunity
or relocation. Compensation continuance is based on the highest annual rate of
salary in effect during the twelve months immediately before termination and the
current target incentive award opportunity for the calendar year in which
employment terminates.
If there is a change of control of NGH, Mr. Blixt and Ms. Beasley are
entitled to tax reimbursement payments if a "parachute" excise tax is imposed,
reimbursement payments for legal and accounting fees as a result of termination,
and severance as if termination was by RJR without cause or by the executive
with "good reason". Following a change of control, "good reason" includes a
material reduction in the executive's duties, position and reporting
relationship, a reduction in pay grade or bonus opportunity, RJR's failure to
continue in effect any compensation plan in which the executive participated at
the time of the change of control, any action by RJR which directly or
indirectly materially reduces benefits under its retirement or savings plan or
fringe benefits, termination without written notice by RJR, and relocation.
THE RJR 1999 LONG TERM INCENTIVE PLAN
On May 12, 1999, RJR adopted, and NGH as the sole stockholder of RJR
approved, the RJR Nabisco, Inc. 1999 Long Term Incentive Plan, which this
document refers to as the RJR LTIP. RJR established the RJR LTIP to provide it
with an effective means to attract, retain, and motivate key personnel of RJR
and its subsidiaries.
The RJR LTIP provides for the granting of awards to employees of RJR or its
subsidiaries or other individuals who have a unique relationship with RJR or its
subsidiaries, as determined by the compensation committee of RJR's board of
directors. The RJR LTIP will be administered by the compensation committee or,
in lieu of the committee, RJR's board of directors, which is authorized to
establish rules and regulations for administration of the RJR LTIP, to make
determinations and interpretations under the RJR LTIP and to grant awards
pursuant to the RJR LTIP.
The RJR LTIP is not subject to any provision of ERISA and is not qualified
under Section 401(a) of the Code.
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SHARES AVAILABLE FOR GRANTS. The maximum number of shares of RJR common
stock that RJR may grant in respect of all awards during the term of the RJR
LTIP is 8 million shares, which may be adjusted in the event of specified
capital changes as described below. RJR may use shares authorized for issuance
under the RJR LTIP to satisfy its obligations under any other compensation plans
or arrangements. RJR may not grant more than 3 million shares of RJR common
stock as "incentive stock options", subject to adjustment as described below.
The aggregate maximum number of shares of RJR common stock that may be granted
as restricted RJR shares may not exceed three million shares, subject to
adjustment as described below. Limitations on other awards are described below.
Shares related to prior grants that are forfeited, terminated, canceled,
expire unexercised, settled in cash, tendered to or retained by RJR in
satisfaction of exercise price obligations or in any other manner that are not
issued as shares of RJR common stock will again become eligible for grant under
the RJR LTIP.
AWARDS. Subject to the terms of the RJR LTIP, the compensation committee,
or the entire board of directors in lieu of the compensation committee, may
grant awards in the amounts and in the forms permitted by the RJR LTIP as it
deems appropriate. The permissible forms of awards under the RJR LTIP are:
- stock options--both incentive stock options and other stock options;
- stock appreciation rights;
- restricted stock;
- performance units; and
- performance shares.
Rights to cash payments in respect of cash dividends paid on RJR common
stock may be a component of RJR LTIP awards. The material terms and features of
the various forms of awards are set forth below.
- STOCK OPTIONS--These are stock options that RJR may grant as either
"incentive stock options" under the restrictions of Section 422 of the
Code or as "non-qualified stock options". Generally, stock options may not
have a term of more than fifteen years, or ten years for incentive stock
options, and, except for options granted in connection with the equitable
adjustment of NGH options to reflect the distribution, may not have an
exercise price less than 100% of the fair market value of RJR common stock
on the date that they are granted. Payment of the option price may be made
in cash, shares of RJR common stock or any combination of the two, as
determined by the compensation committee. No participant may receive a
grant of stock options in any calendar year covering more than two million
shares of RJR common stock, plus any unused amount from a prior year.
- STOCK APPRECIATION RIGHTS--These are rights to receive cash or RJR common
stock in an amount equa l to the appreciation of shares of RJR common
stock after the date that RJR grants the stock appreciation rights. Stock
appreciation rights have a base price value equal to the value of a share
of RJR common stock on the date of grant or, if granted in tandem with
stock options, the exercise price of those options. Stock appreciation
rights are granted for no consideration, cannot be exercised following
fifteen years from the date of grant, may be granted in tandem with
options or separately and may be terminated by the compensation committee.
No participant may receive grants of more than two million stock
appreciation rights in any calendar year, plus any unused amount from a
prior year.
- RESTRICTED STOCK--These are shares of RJR common stock, or units
equivalent to RJR common stock, delivered to an individual generally
without payment of consideration that are subject to restrictions or
conditions.
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- PERFORMANCE UNITS--These are rights, including performance notes and
performance note appreciation rights, to receive cash payments or RJR
common stock at a future date based upon RJR's performance during a
performance period. The performance factors may be based on any one or
more of the following: price of RJR common stock or the stock of any
affiliate, shareholder return, return on equity, return on investment,
return on capital, return on invested capital, economic profit, economic
value added, net income, cash net income, free cash flow, earnings per
share, cash earnings per share, operating company contribution or market
share. These factors will have a minimum performance standard below which
no amount will be paid and may have a maximum performance standard above
which no additional payments will be made. The performance period may not
exceed 10 years. No participant may receive payment in respect of any
award of performance units granted for any performance period with a value
in excess of $10 million.
- PERFORMANCE SHARES--These are similar to performance units, but RJR may
make the ultimate payments in either cash or shares of RJR common stock.
The value of these units is determined not only on the basis of RJR's
performance during the interim period, but also upon the price of RJR
common stock at the end of the period. The performance factors that the
compensation committee may select are the same as those available in
respect of performance units and similar conditions relating to minimum
and maximum performance standards and maximum performance periods are
applicable. No participant may receive payment in respect of performance
shares granted for any performance period in excess of 500,000 shares of
RJR common stock or the cash equivalent of that amount.
ADJUSTMENTS, TERMINATION AND AMENDMENT. The total number of shares of RJR
common stock that may be allocated pursuant to awards made under the RJR LTIP or
that may be allocated to any one individual, the limitations on types of awards,
the number of shares of RJR common stock subject to outstanding options, the
exercise price for those options, the number of outstanding stock appreciation
rights, the base value of those rights, the number of outstanding performance
shares and other terms and conditions of awards may be equitably adjusted by the
compensation committee in the event of specific corporate transactions.
RJR's board of directors may terminate or amend the RJR LTIP, except that no
amendment or termination of the RJR LTIP may adversely affect any participant's
rights with respect to previously granted awards without the consent of that
participant, but stock appreciation rights may be changed or canceled without a
participant's consent. Except in the event of specific corporate transactions,
the individual and aggregate limitations on grants under the RJR LTIP may not be
increased, and the exercise price of stock options and base price of stock
appreciation rights may not be reduced, other than with the approval of RJR's
stockholders.
CHANGE OF CONTROL. In the event of a change of control of RJR, the
following will occur:
- stock options will generally become fully vested and exercisable, unless
the compensation committee elects to make a cash payment to participants
in lieu of delivery of shares upon exercise equal to the amount determined
pursuant to applicable stock option grant agreements or an amount equal to
the "spread"-- I.E., the excess of the fair market value of RJR common
stock on the date of exercise over the exercise price-- multiplied by the
number of shares exercised;
- stock appreciation rights will generally become fully vested and
exercisable;
- restricted stock units will have restrictions removed;
- performance units will become vested PRO RATA based on the number of
months in the performance period before the change of control, and will
have a value equal to the greater of their target value or the value
derived from actual performances as of the change of control; and
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- the compensation committee will have authority to establish or revise the
terms of grants in a manner that is not adverse to participants.
A change of control includes (1) specified acquisitions of 30% or more of
the combined voting power of RJR's securities, (2) specified changes in the
composition of the Board, including changes resulting from a proxy contest, (3)
specified mergers or consolidations of RJR or (4) the disposition of
substantially all of RJR's assets.
GRANTS
Effective on the date of the distribution, the RJR board of directors
approved grants of RJR restricted shares in tandem with RJR stock options. Each
share of restricted stock has four tandem stock options with an exercise price
equal to the stock price on the distribution date. These tandem options vest 50%
at the end of three years, 25% after four years and 25% after five years. Before
vesting, participants choose to receive either the shares or the options granted
in tandem with each share. The participant forfeits the award not selected.
The awards made to the named executive officers are as follows:
<TABLE>
<CAPTION>
TANDEM GRANTS
----------------------------
EXECUTIVE RESTRICTED SHARES OPTIONS
- ----------------------------------------------------------------- ----------------- ---------
<S> <C> <C>
A.J. Schindler................................................... 85,000 340,000
L.J. Beasley..................................................... 35,000 140,000
C.A. Blixt....................................................... 35,000 140,000
K.J. Lapiejko.................................................... 35,000 140,000
J.V. Maguire..................................................... 35,000 140,000
</TABLE>
If Mr. Schindler is involuntarily terminated without cause, his restricted
share and stock option grants will vest 50% if the termination is within the
first 3 years and 100% upon a later termination. The grants made to the other
named executive officers will vest PRO RATA upon a termination without cause.
All grants will be fully vested upon a termination without cause following a
change of control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
RJR's board of directors does not currently have a compensation committee.
Following the distribution, RJR expect that its board will establish a
compensation committee, the majority of the members of which will be independent
directors.
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SECURITY OWNERSHIP OF SIGNIFICANT BENEFICIAL OWNERS AND MANAGEMENT
NGH will hold, beneficially and of record, all of the outstanding shares of
RJR common stock before the distribution. This document sets forth information
in the table below as of May 17, 1999 with respect to the number of shares of
RJR common stock, after giving effect to the distribution, beneficially owned
upon the distribution by (1) each person or entity that RJR estimates will own
more than five percent of the outstanding shares of RJR common stock, (2) each
person whom RJR expects to be one of its directors (3) each of RJR's named
executive officers and (4) all prospective directors and executive officers of
RJR's as a group. RJR based this ownership information on record ownership of
NGH common stock at May 17 1999. In preparing this information, RJR assumed that
there has been no change in that person's or entity's beneficial ownership since
that date and that each person or entity named will receive one share of RJR
common stock for every three shares of NGH common stock owned by them. To RJR's
knowledge, unless otherwise indicated, each person or entity has sole voting and
investment power with respect to the shares set forth opposite the person's or
entity's name.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(2) SHARES
- -------------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS(1)
John T. Chain, Jr. 4,445 *
John G. Medlin, Jr. 3,600 *
Joseph P. Viviano -- *
Nana Mensah -- *
Andrew J. Schindler 124,660 *
Charles A. Blixt 22,181 *
Lynn J. Beasley 26,434 *
Kenneth J. Lapiejko 21,432 *
James V. Maguire 24,502 *
-------------
ALL DIRECTORS AND OFFICERS AS A GROUP 227,254 *
-------------
-------------
Other 5% Stockholders
Carl C. Icahn (3) 8,575,233 7.9%
c/o Carl Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, NY 10153
Capital Research and Management Company (4) 7,636,667 7.0%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ------------------
* Less than 0.1%
- ------------------------------
(1) The address of each director and named executive officer is c/o R.J.
Reynolds Tobacco Holdings, Inc., 401 North Main Street, Winston-Salem, NC
27102.
(2) For purposes of this table, RJR has deemed a person to be the "beneficial
owner" of any shares that person has the right to acquire within 60 days.
For purposes of computing the percentage of outstanding shares held by the
persons named above, RJR has deemed any security that those persons have the
right to acquire within 60 days to be outstanding. However, RJR has not
deemed that security to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) On March 11, 1999, Carl Icahn, High River Limited Partnership, Riverdale
LLC, American Real Estate Holdings L.P., American Real Estate Partners,
L.P., American Property Investors, Inc., Beckton Corp., Meadow Walk Limited
Partnership and Barberry Corp. filed Amendment No. 3 to a Schedule 13D with
the SEC. According to this amended Schedule 13D, these affiliates of Mr.
Icahn may be deemed to beneficially own, in the aggregate, 8,575,233 shares
of common stock. Mr. Icahn has shared voting and dispositive power over the
8,575,233 shares. His High River affiliate has sole, and Riverdale has
shared, voting and dispositive power over 6,006,933 of the shares. His
American Real Estate Holdings affiliate has sole, and his American Real
Estate Partners, American Property and Beckton affiliates have shared,
voting and dispositive power over 2,149,400 of the shares. His Meadow Walk
affiliate has sole, and the Barberry affiliate has shared, voting and
dispositive power over 418,900 of the shares.
(4) According to the Schedule 13G dated February 11, 1999 filed with the SEC by
Capital Research and Management Company, Capital Research, a registered
investment advisor, is deemed to be the beneficial owner of 7,636,667 shares
of common stock as a result of acting as investment advisor to various
registered investment companies.
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DESCRIPTION OF CAPITAL STOCK
RJR's certificate of incorporation will authorize RJR to issue 290 million
shares of common stock, par value $0.01 per share, and 50 million shares of
preferred stock, par value $0.01 per share.
RJR COMMON STOCK
Subject to the rights of the holders of any of RJR preferred stock that may
be outstanding, each holder of RJR common stock on the applicable record date is
entitled to receive such dividends as may be declared by RJR's board of
directors out of legally available funds. In the event of RJR's liquidation,
holders of RJR common stock would share PRO RATA in any distribution of RJR's
remaining assets after satisfying RJR's liabilities and paying any relevant
liquidation preference to the holders of RJR's preferred stock, if any. Each
holder of RJR common stock will be entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of RJR common stock
will not have any cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to that stock. Based on
the one-for-three distribution ratio and the number of shares of NGH common
stock outstanding on May 12, 1999, RJR anticipates that there will be
approximately 108,570,573 shares of RJR common stock outstanding upon completion
of the distribution.
The shares of RJR common stock that NGH will distribute in the distribution
will be fully paid and nonassessable. RJR's certificate of incorporation will
not contain any restrictions on the transferability of its common stock. For
further information on the securities laws restrictions, if any, on
transferability of RJR common stock, see the portion of this document found
under the heading "Trading Market".
RJR PREFERRED STOCK
RJR's certificate of incorporation will authorize RJR to issue up to 50
million shares of preferred stock in one or more series and to determine the
preferences, rights, privileges and restrictions of any series, including the
dividend rights, voting rights, rights and terms of redemption, liquidation
preferences, the number of shares constituting any of those series and the
designation of those series. RJR will be able to issue authorized shares of its
preferred stock, as well as authorized but unissued shares of its common stock,
without further action by its stockholders, unless stockholder action is
required by applicable law or by the rules of a stock exchange or quotation
system on which any series of RJR stock may then be listed or quoted. RJR will
not issue any preferred stock in connection with the distribution, other than
the preferred stock rights described under the section of this document entitled
"Stockholder Rights Plan", and no other preferred stock will be outstanding on
the distribution date.
DISTRIBUTION AGENT
First Chicago Trust Company of New York, a division of EquiServe, will serve
as the distribution agent for RJR common stock in connection with the
distribution.
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STATUTORY, CHARTER AND BYLAW PROVISIONS
SET FORTH BELOW IS A BRIEF SUMMARY OF SOME OF THE PROVISIONS OF THE DELAWARE
GENERAL CORPORATION LAW AND RJR'S CERTIFICATE OF INCORPORATION AND BYLAWS THAT
WILL GOVERN YOUR RIGHTS AS A HOLDER OF RJR COMMON STOCK AFTER THE DISTRIBUTION.
SOME OF THESE PROVISIONS MAY DETER TAKEOVERS OF RJR THAT YOU MAY CONSIDER TO BE
IN YOUR BEST INTERESTS. THOSE TAKEOVERS COULD INCLUDE OFFERS FOR RJR COMMON
STOCK FOR A PREMIUM OVER THE MARKET PRICE OF THAT STOCK. IF THE INFORMATION IN
THIS SUMMARY DIFFERS FROM THE INFORMATION IN RJR'S CERTIFICATE OF INCORPORATION
OR BYLAWS, YOU SHOULD RELY ON THE INFORMATION IN THE CERTIFICATE OF
INCORPORATION AND THE BYLAWS.
GENERAL
RJR is a Delaware corporation that is subject to the provisions of the
Delaware General Corporation Law. The rights of RJR's stockholders are governed
by its certificate of incorporation and bylaws, in addition to Delaware law.
AUTHORIZED CAPITAL
RJR's authorized capital stock consists of:
- 290,000,000 common shares; and
- 50,000,000 shares of preferred stock.
Under RJR's certificate of incorporation, its board of directors could
create and issue a series of preferred stock with the rights, powers, privileges
or restrictions that it may determine. One of the effects of authorized but
unissued and unreserved shares of capital stock may be to render more difficult
or to discourage an attempt by a potential acquiror to obtain control of RJR by
means of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of RJR's management and board of directors. The issuance of those
shares of capital stock may have the effect of delaying, deferring or preventing
a change in control of RJR without any further action by its stockholders.
AMENDMENT OF THE CHARTER
To amend RJR's certificate of incorporation, the following is required: (1)
an authorization by the RJR board of directors; followed by (2) a vote of the
majority of all outstanding voting stock.
AMENDMENTS OF THE BYLAWS
RJR's bylaws may be amended, adopted or repealed by:
- approval of holders of 80% of the outstanding voting stock; or
- a majority vote of the board of directors.
NUMBER OF DIRECTORS
The number of directors must be no less than 5 and no more than 12, with the
actual number to be determined by RJR's board of directors. The current number
of directors is 5. RJR expects that, upon or before completion of the
distribution, there will be additional individuals appointed to its board of
directors. RJR will disclose the names and backgrounds of any of these new board
members promptly after the appointment(s) of any of those individuals.
CLASSIFICATION OF RJR'S BOARD OF DIRECTORS
RJR's board of directors is divided into three classes, with one class being
elected annually to a three-year term. The term of office of the first class
expires at the 2000 annual meeting, the term of
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office of the second class expires at the 2001 annual meeting, and the term of
office of the third class expires at the 2002 annual meeting. At each subsequent
annual meeting, stockholders will elect a class of directors to replace the
class whose term has then expired. As a result, stockholders will elect
approximately one-third of the members of RJR's board of directors each year and
each of the directors will serve a staggered three-year term.
These provisions, together with the restrictions on director removal set
forth below, could prevent a stockholder, or group of stockholders, that owns a
majority of RJR common stock from obtaining control of its board of directors
until the second annual stockholders' meeting after it obtains majority
ownership. Accordingly, these provisions could discourage a potential acquiror
from making a tender offer, launching a proxy contest, making a hostile merger
proposal or otherwise attempting to obtain control of RJR.
NOMINATIONS OF DIRECTORS
Any nomination for a director that is made by a stockholder must be made in
writing by United States certified mail, postage pre-paid, to RJR's Corporate
Secretary at least 120 and not more than 150 days before any annual stockholder
meeting. A stockholder's nomination for director must include:
- the name and address of the stockholder, the class and number of shares
beneficially owned by the stockholder, the name in which those shares are
registered, a representation that the stockholder intends to appear in
person or by proxy at the annual meeting to make the nomination, any
material interest in the business to be submitted, and a brief description
of the business to be submitted at the meeting;
- any other information that RJR may request; and
- as to any nominee who is not an incumbent director:
TRIANGLE the name, age, principal occupation and the business and
residential addresses of the nominee;
TRIANGLE the number and class of shares of RJR capital stock
beneficially owned by the nominee;
TRIANGLE the written consent of the nominee to serve as a director if
elected;
TRIANGLE any other information about the nominee that must be disclosed
in proxy solicitations; and
TRIANGLE a description of all arrangements between the nominating
stockholder and the nominee.
Depending on the circumstances, these timing and notice requirements may
preclude or deter some stockholders from making nominations for directors at an
annual meeting.
REMOVAL OF DIRECTORS
Section 141(k) of the Delaware General Corporation Law provides that
directors of a corporation with a classified board may be removed only for
cause, unless the certificate of incorporation provides otherwise. RJR's
certificate of incorporation does not permit removal of a director without
cause.
VACANCIES ON RJR'S BOARD OF DIRECTORS
Any vacancy that occurs during the year or which occurs as a result of
death, resignation, removal, an increase in the size of RJR's board of directors
or otherwise, may be filled by a vote of the board of directors or by the sole
remaining director.
LIMITATION ON LIABILITY OF DIRECTORS
Under Delaware law, corporations may adopt charter provisions that no
director will be personally liable to the corporation or any of its stockholders
for monetary damages, as a result of breaches of fiduciary duty. RJR's
certificate of incorporation limits the liability of its directors to the
fullest extent
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<PAGE>
permitted by Delaware law. Under existing Delaware law, directors would not be
personally liable for monetary damages for breach of their fiduciary duties as a
director, except where a judgment or other final adjudication establishes that:
- the director's acts or omissions constituted a breach of the director's
duty of loyalty to RJR or its stockholders;
- the director's acts or omissions were not in good faith or involved
intentional misconduct or a knowing violation of law;
- the director derived improper personal benefit from the transaction(s) at
issue; or
- there was an unlawful payment of dividends or unlawful stock repurchases
or redemptions.
This exculpation provision may have the effect of reducing the likelihood of
derivative litigation against RJR's directors and may discourage or deter
stockholders or RJR from bringing a lawsuit against its directors for breach of
their fiduciary duties as directors. However, the provision does not affect the
availability of equitable remedies like an injunction or rescission.
INDEMNIFICATION OF DIRECTORS
RJR's certificate of incorporation provides that each person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative, because that person is or was an RJR director or officer or is or
was serving at RJR's request as a director or officer of another entity, shall
be indemnified and held harmless by RJR to the fullest extent permitted by
Delaware law. This right to indemnification also includes the right to be paid
by RJR the expenses incurred in connection with that proceeding in advance of
its final disposition to the fullest extent authorized by Delaware law. This
right to indemnification is a contract right. RJR's certificate of incorporation
authorizes its board of directors to indemnify any of RJR's employees or agents
to the extent approved by the board of directors and authorized under Delaware
law.
Delaware law does not permit a corporation to indemnify persons against
judgments in actions brought by or in the right of the corporation unless the
Delaware Court of Chancery approves the indemnification.
RJR intends to purchase and maintain insurance on behalf of any person who
is or was one of its directors, officers, employees or agents, or is or was
serving at RJR's request as a director, officer, employee or agent of another
entity against any liability asserted against him or her and incurred by him or
her in that capacity, or arising out of his or her status as such, whether or
not RJR would have the power or the obligation to indemnify him or her against
that liability under the provisions of RJR's certificate of incorporation.
INTERESTED PARTY TRANSACTIONS
Under Delaware law, no contract or transaction:
- between a corporation and one or more of its directors;
- between a corporation and another entity in which one or more of the
corporation's directors are directors or officers; or
- between a corporation and another entity in which one or more of the
corporation's directors has a material financial interest
is void or voidable because of the relationship or interest if one or more
of the following is true:
- the material facts of the transaction and the director's interest are
disclosed to or known by the board of directors or a committee of the
board and the board or that committee authorizes,
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approves or ratifies the transaction by an affirmative vote of the
majority of the disinterested directors;
- the material facts of the transaction and the director's interest are
disclosed or known to the voting stockholders and they authorize, approve
or ratify the transaction; or
- the transaction is fair to the corporation.
ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders must be held on a date and at a place
fixed by RJR's board of directors.
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings may be called at any time and for any purpose by:
- the chairman of RJR's board of directors;
- its president or secretary; or
- a majority of its board of directors.
Under RJR's certificate of incorporation, stockholders may not call a
special meeting. The fact that holders of RJR voting stock are unable to call a
special meeting may make it more difficult for stockholders to take action
opposed by RJR's board of directors.
STOCKHOLDER PROPOSALS
A stockholder wishing to bring business before the annual stockholder
meeting must provide written notice by United States certified mail, postage
pre-paid, to RJR's Corporate Secretary at its principal executive offices. The
notice must be received:
- between 120 and 150 days before the annual meeting, subject to the
information in the next bullet point; or
- not less than a reasonable time, as determined by RJR's board of
directors, before the meeting date, if (1) the notice relates to a special
meeting, (2) RJR did not hold an annual meeting in the previous year or
(3) the date of the applicable annual meeting has changed by more than 30
days from that anniversary date.
The notice must include:
- the name and address of the stockholder, the class and number of shares
beneficially owned by the stockholder, the name in which those shares are
registered, a representation that the stockholder intends to appear in
person or by proxy at the annual meeting to make the nomination, any
material interest in the business to be submitted, and a brief description
of the business to be submitted at the meeting; and
- any other information that RJR may request.
Depending on the circumstances, these timing and notice requirements may
preclude or deter some stockholders from bringing matters before an annual or
special meeting.
PREEMPTIVE RIGHTS
In general, preemptive rights allow stockholders whose dividend rights or
voting rights would be adversely affected by issuing new stock to purchase, on
terms and conditions set by the board of directors, that proportion of the new
issue that would preserve the relative dividend or voting rights of those
stockholders. As permitted by Delaware law, RJR's certificate of incorporation
does not grant its stockholders preemptive rights.
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STOCKHOLDER ACTION WITHOUT MEETING
RJR's certificate of incorporation provides that no action required or
permitted to be taken at an annual or special meeting of stockholders may be
taken without a meeting, and that no action may be taken by the written consent
of stockholders in lieu of a meeting. This restriction on stockholders' ability
to act by written consent may make it more difficult for stockholders to take
action opposed by RJR's board of directors.
DIVIDENDS AND DISTRIBUTIONS
Under Delaware law, a corporation may generally pay dividends or make
distributions on its common stock out of surplus. For a description of some of
the restrictions placed on RJR's ability to pay dividends or make distributions,
see the portion of this document found under the heading "Dividends" and
"Distribution Agreement--Limitations on Restricted Payments".
APPRAISAL AND DISSENTERS' RIGHTS
Stockholders of a corporation that is proposing to merge or consolidate with
another entity are sometimes entitled to appraisal or dissenters' rights in
connection with a proposed merger or consolidation depending on the
circumstances. Most commonly, these rights confer on stockholders who are
opposed to the merger or consolidation the right to receive the fair value for
their shares as determined in a judicial appraisal proceeding, in lieu of the
consideration being offered in the merger.
Appraisal rights are not available under Delaware law when a corporation is
to be the surviving corporation and no vote of its stockholders is required to
approve the merger. In addition, unless otherwise provided in the certificate of
incorporation, no appraisal rights are available under Delaware law to holders
of shares of any class of stock that is either:
- listed on a national securities exchange or designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, Inc. or
- held of record by more than 2,000 stockholders, unless those stockholders
are required by the terms of the merger to accept anything other than:
TRIANGLE shares of stock of the surviving corporation;
TRIANGLE shares of stock of another corporation which are listed on a
national securities exchange or designated as a national market
system security on an inter-dealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 stockholders as of the effective date
of the merger or consolidation;
TRIANGLE cash in lieu of fractional shares of the stock; or
TRIANGLE any combination of the items listed above.
Appraisal rights are not available under Delaware law in the event of a
transfer of all or substantially all of a corporation's assets or the adoption
of an amendment to its certificate of incorporation, unless those rights are
granted in the corporation's certificate of incorporation. RJR's certificate of
incorporation does not grant these rights.
APPROVAL OF, AND SPECIAL RIGHTS WITH RESPECT TO, MERGERS OR CONSOLIDATIONS AND
OTHER TRANSACTIONS
Under Delaware law, although a certificate of incorporation may require a
higher stockholder vote, the holders of a majority of the outstanding voting
common shares must approve a plan adopted by the board of directors in order to
authorize mergers, consolidations, share exchanges or the transfer of all or
substantially all of the corporation's assets. RJR's certificate of
incorporation does not require a higher vote to approve any of those
transactions.
77
<PAGE>
DELAWARE TAKEOVER STATUTE
RJR is also subject to Section 203 of the Delaware General Corporation Law.
In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the stockholder became an interested stockholder,
unless
- before that date the board of directors of that corporation approves
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
that the transaction commenced, excluding for purposes of determining the
number of shares outstanding, shares owned by:
TRIANGLE persons who are both directors and officers, and
TRIANGLE employee stock plans that do not provide employees with the
right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
- on or after that date the business combination is approved by the board
and authorized at a meeting of stockholders, and not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
A "business combination" includes a merger, consolidation, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The restrictions imposed by Section 203 will not apply to a corporation if,
among other things, (1) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or (2)
12 months have passed after the corporation, by action of its stockholders
holding a majority of the outstanding stock, adopts an amendment to its
certificate of incorporation or bylaws expressly electing not to be governed by
Section 203.
RJR has not opted out of Section 203 of the Delaware General Corporation
Law. Therefore, the restrictions that Section 203 imposes will apply to RJR.
STOCKHOLDER RIGHTS PLAN
On May 17, 1999, the RJR board of directors declared a dividend distribution
of one right for each outstanding RJR common share to be distributed to NGH
stockholders of record at the close of business on May 27, 1999. Each of those
rights entitles the registered holder to purchase from RJR one one-hundredth of
a share of RJR Series A Junior Participating Preferred Stock. The initial
exercise price of each right is $150, subject to adjustment in some
circumstances.
The rights are attached to all RJR common shares currently outstanding, and
no separate certificates or book-entries evidencing the RJR rights have been
distributed or made. The rights will also attach to all RJR common shares issued
after the distribution, but before the date on which the rights separate from
the RJR common shares with which they are associated, as described below. The
description and terms of the RJR rights are set forth in the Rights Agreement
dated as of May 17, 1999 between RJR and its rights agent which RJR has included
as an exhibit to its Form 8-A Registration Statement.
78
<PAGE>
The RJR rights will separate from the RJR common shares upon the earlier of:
- 10 days, or any later date as the board of directors may determine,
following a public announcement that a person or group of persons has
acquired beneficial ownership of 15% or more of the outstanding RJR
common shares; or
- 10 business days, or any later date as the RJR board of directors may
determine before an event described in the preceding bullet point,
after the launch of a tender or exchange offer that would result in a
person or group beneficially owning 15% or more of the outstanding RJR
common shares.
Until the RJR rights separate from the RJR common shares with which they are
associated:
- the rights will be evidenced by the RJR common share certificates or
book-entries and will be transferred only with the RJR common share
certificates or in connection with the book-entries relating to RJR
common shares;
- new RJR common shares issued after the distribution will refer to RJR's
rights agreement; and
- the transfer of any RJR common shares outstanding will also be a
transfer of the rights associated with the RJR common shares.
The rights are not exercisable until after they have separated from the RJR
common shares with which they are associated and will expire at the close of
business on May 27, 2009, unless earlier redeemed by RJR's board of directors as
described below.
If a third party triggers a separation of the RJR rights from the RJR common
shares by acquiring beneficial ownership of 15% of more of the outstanding RJR
common shares, as described above, each holder of a right will thereafter have
the right to receive, upon exercise and payment of the exercise price, RJR
common shares or, in some circumstances, cash, property or other securities of
RJR, having a value equal to two times the exercise price. Alternatively, if the
RJR rights separate from the RJR common shares and become exerciseable, RJR may
provide that each RJR right will be exchanged for one RJR common share without
any other payment of the exercise price. However, RJR's board of directors may
not effect that exchange at any time after any person or group of persons
beneficially owns 50% or more of the RJR common shares then outstanding.
If, at any time after a third party acquires, or obtains the right to
acquire, beneficial ownership of 15% of more of the outstanding RJR common
shares, as described above,
- RJR is acquired in a merger, statutory share exchange or other business
combination in which RJR is not the surviving corporation, or
- 50% or more of RJR's assets or earning power is sold or transferred,
each holder of a right, except as set forth below, will thereafter have the
right to receive, upon exercise and payment of the exercise price, common stock
of the acquiring company having a value equal to twice the exercise price.
At any time before the earlier of ten business days after the public
announcement that a person or group of persons has acquired beneficial ownership
of 15% or more of the outstanding RJR common shares, as described above (or any
later date as the board of directors may determine), or May 27, 2009, RJR's
board of directors may redeem the rights in whole, but not in part, at a
redemption price of $.01 per right. If RJR's board of directors orders the
redemption of the rights, those rights will terminate immediately and the only
right of the holders of the rights will be to receive the redemption price.
The rights may have anti-takeover effects. The rights will cause substantial
dilution to a person or group of persons that acquires beneficial ownership of
15% or more of the outstanding RJR common
79
<PAGE>
shares without the rights having been redeemed. However, the rights should not
interfere with any merger or other business combination approved by RJR's board
of directors and RJR stockholders because the rights may be redeemed by the
board of directors.
INDEPENDENT AUDITORS
RJR's board of directors has appointed Deloitte & Touche LLP as its
independent auditors to audit its financial statements for fiscal year 1999.
ADDITIONAL INFORMATION
RJR has filed a Registration Statement on Form 8-A with the SEC under the
Securities Exchange Act of 1934 with respect to the class of RJR common stock,
the shares of which are being received by NGH stockholders in the distribution.
In addition, RJR has filed with the SEC its Annual Report on Form 10-K for the
year ended December 31, 1998, and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999. As a wholly owned subsidiary of NGH that only had
debt securities registered under the Securities Exchange Act of 1934, RJR has
met the conditions for filing its reports in a reduced disclosure format and has
previously filed its reports in that format. After the distribution, RJR will no
longer be eligible to file its quarterly and annual reports in that format.
Going forward, and starting with this document, RJR's filings will include
additional information relating to RJR's business, properties, selected
financial data, directors and executive officers, management compensation and
security ownership, as well as a more complete management's discussion and
analysis of financial condition and results of operations relating to the
tobacco business.
This document does not contain all of the information set forth in the
Registration Statement, RJR's other filings with the SEC and the related
exhibits to which this document refers. Statements in this document as to the
contents of any contract, agreement or other document are summaries only and are
not necessarily complete. For complete information as to these matters, RJR
refers you to the applicable exhibit to the Registration Statement. You may
inspect and copy the Registration Statement, those other filings and the related
exhibits filed by RJR with the SEC as set forth below.
You may inspect and copy the Registration Statement, those other filings and
the exhibits to those documents at the public reference facilities that the SEC
maintains at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, as well as
at the Regional Offices of the Commission at Northwest Atrium Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, 13th
floor, New York, New York 10048. You can obtain copies of that information by
mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates. You may also access that
material electronically through the SEC's home page on the Internet at
http://www.sec.gov.
80
<PAGE>
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
R.J. Reynolds Tobacco Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of R.J.
Reynolds Tobacco Holdings, Inc. and subsidiaries ("RJR") as of December 31, 1998
and 1997, and the related consolidated statements of income, cash flows and
stockholder's equity and comprehensive income for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of RJR's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the consolidated financial position of RJR at December
31, 1998 and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
New York, New York
May 18, 1999
REPORT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management has prepared the financial statements presented in this report in
accordance with generally accepted accounting principles using, where
appropriate, management's best estimates and judgment. Management maintains a
system of internal controls to provide reasonable assurance that RJR's assets
are safeguarded and transactions are executed as authorized and properly
recorded. The system includes established policies and procedures, a program of
internal audits, management reviews and careful selection and training of
qualified personnel.
The audit committee is comprised solely of outside directors. The audit
committee meets periodically with management, the internal auditors, and the
independent auditors, Deloitte & Touche LLP, to discuss and address internal
accounting control, auditing and financial reporting matters. Both independent
and internal auditors have unrestricted access to the audit committee.
/S/ STEVEN F. GOLDSTONE
- ----------------------------
Chairman and
Chief Executive Officer
/S/ DAVID B. RICKARD
- ----------------------------
Senior Vice President
and Chief Financial Officer
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ----------------------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
NET SALES*............................................................................... $ 5,716 $ 5,044 $ 4,702
---------- ---------- ----------
Costs and expenses:
Cost of products sold*................................................................. 1,353 1,209 1,186
Selling, advertising, administrative and general expenses.............................. 2,780 2,361 2,095
Tobacco settlement and related expenses (notes 4 and 10)............................... 1,442 359 --
Amortization of trademarks and goodwill................................................ 366 366 366
Restructuring expense (note 3)......................................................... -- 80 --
---------- ---------- ----------
OPERATING INCOME (LOSS)............................................................ (225) 669 1,055
Interest and debt expense................................................................ (426) (433) (462)
Other income (expense), net.............................................................. (28) (32) (30)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................................................. (679) 204 563
Provision (benefit) for income taxes..................................................... (160) 185 337
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS........................................... (519) 19 226
Income from operations of discontinued businesses, net of income taxes
(note 15).............................................................................. 3 414 440
---------- ---------- ----------
NET INCOME (LOSS).................................................................. $ (516) $ 433 $ 666
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
* Excludes excise taxes as follows: 1998--$1.292 billion, 1997--$1.369 billion
and 1996--$1.401 billion.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (516) $ 433 $ 666
Less income from discontinued operations.......................................... (3) (414) (440)
--------- --------- ---------
Income (loss) from continuing operations.......................................... (519) 19 226
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Depreciation and amortization................................................... 498 508 534
Deferred income tax benefit..................................................... (374) (133) (61)
Tobacco settlement and related expenses, net of cash payments................... 803 226 --
Restructuring and restructuring-related expenses, net of cash payments.......... (41) 52 (66)
Other changes that provided (used) cash:
Accounts and notes receivable................................................. (5) 24 34
Inventories................................................................... 106 97 245
Accounts payable and accrued liabilities, including income taxes.............. (94) (166) (276)
Other, net.................................................................... (7) 1 29
--------- --------- ---------
Total adjustments............................................................. 886 609 439
--------- --------- ---------
Net cash flows from continuing operating activities............................. 367 628 665
Net cash flows with discontinued operations..................................... 202 351 526
--------- --------- ---------
Net cash flows from operating activities........................................ 569 979 1,191
--------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures.............................................................. (47) (57) (63)
Divestitures of certain assets.................................................... 4 11 122
--------- --------- ---------
Net cash flows from (used in) investing activities................................ (43) (46) 59
--------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......................................... -- 345 --
Repayments of long-term debt...................................................... (68) (28) (118)
Increase (decrease) in short-term borrowings...................................... 62 (331) (24)
Dividends paid to NGH............................................................. (607) (834) (1,108)
Other, net........................................................................ 2 -- --
--------- --------- ---------
Net cash flows used in financing activities..................................... (611) (848) (1,250)
--------- --------- ---------
Net change in cash and cash equivalents......................................... (85) 85 --
Cash and cash equivalents at beginning of period.................................... 85 -- --
--------- --------- ---------
Cash and cash equivalents at end of period.......................................... $ -- $ 85 $ --
--------- --------- ---------
--------- --------- ---------
Income taxes paid, net of refunds................................................... $ 250 $ 301 $ 407
Interest paid....................................................................... $ 414 $ 411 $ 436
Tobacco settlement payments......................................................... $ 786 $ 133 $ --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ -- $ 85
Accounts and notes receivable, net........................................................ 58 52
Inventories:
Finished products....................................................................... 94 100
Leaf tobacco............................................................................ 334 414
Raw materials........................................................................... 26 35
Other................................................................................... 75 86
--------- ---------
Total inventories....................................................................... 529 635
--------- ---------
Prepaid expenses and excise taxes......................................................... 537 190
Net assets of discontinued businesses (note 15)........................................... 5,961 973
--------- ---------
TOTAL CURRENT ASSETS.................................................................. 7,085 1,935
--------- ---------
Property, plant and equipment--at cost:
Land and land improvements.............................................................. 95 103
Buildings and leasehold improvements.................................................... 672 734
Machinery and equipment................................................................. 1,562 1,737
Construction-in-process................................................................. 13 25
--------- ---------
Total property, plant and equipment..................................................... 2,342 2,599
Less accumulated depreciation............................................................... 1,227 1,184
--------- ---------
Property, plant and equipment, net...................................................... 1,115 1,415
--------- ---------
Trademarks, net of accumulated amortization (1998--$1,047, 1997--$942)...................... 3,176 3,281
Goodwill, net of accumulated amortization (1998--$2,579, 1997--$2,319)...................... 7,829 8,086
Other assets and deferred charges........................................................... 196 238
Net assets of discontinued businesses (note 15)............................................. -- 5,296
--------- ---------
$ 19,401 $ 20,251
--------- ---------
--------- ---------
</TABLE>
F-4
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings..................................................................... $ 29 $ --
Accounts payable.......................................................................... 53 95
Accrued liabilities....................................................................... 1,511 1,029
Current maturities of long-term debt...................................................... 62 --
Income taxes accrued...................................................................... 165 132
--------- ---------
TOTAL CURRENT LIABILITIES............................................................. 1,820 1,256
--------- ---------
Long-term debt (less current maturities).................................................... 4,861 4,944
Other noncurrent liabilities................................................................ 931 855
Deferred income taxes....................................................................... 1,903 2,117
Commitments and contingencies (note 10)
Stockholder's equity:
Common stock (1998 and 1997--3,022 shares issued and outstanding)......................... 3 3
Paid-in capital........................................................................... 10,859 11,489
Retained earnings (accumulated deficit)................................................... (516) --
Accumulated other comprehensive income (loss):
Cumulative translation adjustment....................................................... (441) (391)
Minimum pension liability............................................................... (19) (22)
--------- ---------
Accumulated other comprehensive income (loss)........................................... (460) (413)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY............................................................ 9,886 11,079
--------- ---------
$ 19,401 $ 20,251
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK* CAPITAL EARNINGS INCOME TOTAL
----------- --------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.................................... $ 3 $ 11,963 $ 371 $ (184) $ 12,153
Net income.................................................. 666 666
Foreign currency translation, net of tax expense of $17
million................................................... (45) (45)
Minimum pension liability, net of tax benefit of $2
million................................................... (4) (4)
Total comprehensive income..................................
Dividends................................................... (71) (1,037) (1,108)
Other....................................................... 7 7
----------- --------- ----------- ----- ---------
Balance at December 31, 1996.................................. 3 11,899 -- (233) 11,669
Net income.................................................. 433 433
Foreign currency translation, net of tax expense of $12
million................................................... (170) (170)
Minimum pension liability, net of tax benefit of $5
million................................................... (10) (10)
Total comprehensive income..................................
Dividends................................................... (401) (433) (834)
Other....................................................... (9) (9)
----------- --------- ----------- ----- ---------
Balance at December 31, 1997.................................. 3 11,489 -- (413) 11,079
Net loss.................................................... (516) (516)
Foreign currency translation, net of tax benefit of $6
million................................................... (50) (50)
Minimum pension liability, net of tax expense of $1
million................................................... 3 3
Total comprehensive income (loss)...........................
Dividends................................................... (607) (607)
Other....................................................... (23) (23)
----------- --------- ----------- ----- ---------
Balance at December 31, 1998.................................. $ 3 $ 10,859 $ (516) $ (460) $ 9,886
----------- --------- ----------- ----- ---------
----------- --------- ----------- ----- ---------
<CAPTION>
COMPREHENSIVE
INCOME
-----------------
<S> <C>
Balance at January 1, 1996....................................
Net income.................................................. $ 666
Foreign currency translation, net of tax expense of $17
million................................................... (45)
Minimum pension liability, net of tax benefit of $2
million................................................... (4)
-----
Total comprehensive income.................................. $ 617
-----
-----
Dividends...................................................
Other.......................................................
Balance at December 31, 1996..................................
Net income.................................................. $ 433
Foreign currency translation, net of tax expense of $12
million................................................... (170)
Minimum pension liability, net of tax benefit of $5
million................................................... (10)
-----
Total comprehensive income.................................. $ 253
-----
-----
Dividends...................................................
Other.......................................................
Balance at December 31, 1997..................................
Net loss.................................................... $ (516)
Foreign currency translation, net of tax benefit of $6
million................................................... (50)
Minimum pension liability, net of tax expense of $1
million................................................... 3
-----
Total comprehensive income (loss)........................... $ (563)
-----
-----
Dividends...................................................
Other.......................................................
Balance at December 31, 1998..................................
</TABLE>
- ------------------------
* The number of shares of common stock, par value $1,000, authorized at December
31, 1998 was 4,000. All outstanding common stock was owned by NGH at December
31, 1998 and 1997.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of RJR and its
wholly owned subsidiary, Reynolds Tobacco. RJR is currently a subsidiary of NGH.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The account balances and activities of R.J. Reynolds International and
Nabisco are segregated and reported as discontinued operations in the
accompanying consolidated financial statements. See note 15 for further
discussion. Prior period financial statements have been reclassified to conform
to the current year presentation.
Unless otherwise noted, all dollar amounts presented are in millions.
CASH EQUIVALENTS
Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and that have original maturities
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of tobacco
inventories is determined principally under the LIFO method. In accordance with
recognized industry practice, stocks of tobacco, which must be cured for more
than one year, are classified as current assets.
DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLES
Property, plant and equipment are depreciated by the straight-line method
over the estimated useful lives of the assets.
Goodwill and trademarks are amortized using the straight-line method,
principally over 40 years. Management periodically evaluates the recoverability
of goodwill and trademarks. The carrying value of goodwill and trademarks would
be reduced if it is probable that management's best estimate of future operating
income before amortization of goodwill and trademarks from related operations,
on an undiscounted basis, will be less than the carrying value over the
remaining amortization period.
OTHER INCOME (EXPENSE), NET
Interest income, financing-related fees and other items of a financial
nature are included in "Other income (expense), net".
ADVERTISING AND RESEARCH AND DEVELOPMENT
Advertising and research and development costs are expensed as incurred.
F-7
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE ARRANGEMENTS
For interest rate swaps, the differential to be paid or received is accrued
and recognized in interest expense and may change as market interest rates
change. If an arrangement is terminated prior to maturity, the gain or loss is
recognized over the remaining original life of the arrangement if the item
hedged remains outstanding, or immediately, if the item hedged does not remain
outstanding. If the arrangement is not terminated prior to maturity, but the
underlying hedged item is no longer outstanding, the interest rate arrangement
is marked to market and any unrealized gain or loss is recognized immediately.
FOREIGN CURRENCY ARRANGEMENTS
Translation gains or losses resulting from foreign-denominated borrowings
that are accounted for as hedges of certain foreign currency net investments
result in charges or credits to the cumulative translation adjustments account
in stockholder's equity.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, RJR adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. SFAS No. 130 established standards for
reporting and displaying comprehensive income and its components. Comprehensive
income is defined as the change in stockholder's equity during a period from
transactions from nonowner sources and primarily includes net income (loss),
foreign currency translation adjustments and minimum pension liability
adjustments. The components of comprehensive income are displayed in the
consolidated statements of stockholder's equity. The adoption of SFAS No. 130
did not have a material effect on the financial position or results of
operations of RJR.
In the fourth quarter of 1998, RJR adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 established standards for the way in which information
about operating segments is reported. SFAS No. 131 also established standards
for related disclosures about products and services, geographic areas and major
customers. See note 13 for disclosures required by SFAS No. 131. The adoption of
SFAS No. 131 did not have a material effect on the financial position or results
of operations of RJR.
RJR also adopted Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits during
1998. SFAS No. 132 standardized the disclosure requirements for pensions and
other postretirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain requirements from other accounting
standards no longer deemed useful. It does not change the measurement or
recognition of these plans. See note 12 for disclosures required by SFAS No.
132. The adoption of SFAS No. 132 did not have a material effect on the
financial position or results of operations of RJR.
During 1998, RJR also adopted Statement of Position No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, which
requires various costs incurred in connection with developing or obtaining
internal-use software to be capitalized and other costs to be expensed. The
adoption of SOP No. 98-1 had no material effect on the financial position or
results of operations of RJR.
F-8
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 must be adopted by January 1, 2000, with
early adoption permitted. SFAS No. 133 requires that all derivative financial
instruments be recorded on the consolidated balance sheet at their fair value.
Changes in the fair value of derivatives will be recorded each period in
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. RJR has not yet determined the timing of adoption or the impact
that adoption or subsequent application of SFAS No. 133 will have on its
financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued SOP No. 98-5, Reporting on the
Costs of Start-Up Activities. SOP No. 98-5 establishes standards on accounting
for start-up and organization costs and, in general, requires such costs to be
expensed as incurred. This standard must be adopted on January 1, 1999. RJR does
not expect the adoption of SOP No. 98-5 to have a material effect on the
financial position or results of operations of RJR.
NOTE 2--RELATED PARTY TRANSACTIONS
Related party transactions consist of intercompany activity between RJR
(including Reynolds Tobacco), NGH and Reynolds International. Reynolds Tobacco
also manufactures products for sale by Reynolds International in certain
markets.
NOTE 3--RESTRUCTURING
Reynolds Tobacco recorded a pre-tax restructuring expense of $80 million,
$52 million after-tax, in the fourth quarter of 1997 to reorganize its tobacco
operations. Reynolds Tobacco implemented the 1997 restructuring program to
enhance its competitive position and improve its long-term earnings growth
prospects.
The components of the $80 million charge were as follows:
<TABLE>
<S> <C>
Employee severance and related benefits.................................... $ 30
Rationalization of manufacturing operations................................ 30
Contract termination and other costs....................................... 20
---
$ 80
---
---
</TABLE>
The employee severance and related benefits pertained to workforce
reductions of 192 full-time positions and 217 seasonal positions at a
manufacturing facility and staff related areas. The severed employees were
primarily employed at the Brook Cove, North Carolina Stemmery which was closed.
The rationalization of certain manufacturing operations primarily relates to the
closing of the Brook Cove, North Carolina Stemmery which took place in February
1998, after the tobacco purchased from the 1997 burley crop had been processed.
Beginning with the 1998 flue-cured crop, Reynolds Tobacco began contracting with
an outside third party to do its leaf processing. The type of costs that were
expensed with respect to the exit of this activity included the write-down of
the building and equipment held for sale to fair value and the write-off of
equipment to be abandoned.
The contract termination and other costs related to management's commitment
in 1997 to a plan of termination of a leaf supply contract at a price below
Reynolds Tobacco's contract price. The loss represents the shortfall between the
contract cost and the amount that was recovered upon the sale of
F-9
<PAGE>
NOTE 3--RESTRUCTURING (CONTINUED)
the leaf inventory. Reynolds Tobacco, acting as a broker, exercised all of its
remaining obligations under a leaf supply contract and immediately transferred
title to a third party without taking possession of the tobacco.
Of the $80 million total tobacco charge, cash outlays will aggregate
approximately $40 million. Reynolds Tobacco expects to complete the program in
late 1999.
For the year ended December 31, 1998, $63 million of the 1997 tobacco
restructuring accruals were utilized as follows: $15 million for employee
severance and related benefits, $28 million for rationalization of manufacturing
operations, and $20 million for contract terminations and other costs. Of the
charges applied against the restructuring reserve in 1998, cash expenditures
amounted to $35 million, which were provided from operations.
NOTE 4--OPERATIONS
Reynolds Tobacco recorded pre-tax charges totaling $1.442 billion during
1998 for tobacco settlement and related expenses as follows:
<TABLE>
<S> <C>
Master Settlement Agreement......................................... $ 620
Minnesota settlement agreement...................................... 312
"Most favored nation" adjustments for previously settled states..... 145
Rationalization of manufacturing operations......................... 214
Employee severance and related benefits............................. 151
---------
$ 1,442
---------
---------
</TABLE>
For a discussion regarding the provisions of the Master Settlement
Agreement, the Minnesota settlement and the most favored nation adjustments see
note 10. The rationalization of manufacturing operations primarily represents a
charge to write-down the book value of Reynolds Tobacco's production facility
and certain equipment in Winston-Salem, North Carolina to fair value. The
employee severance and related benefits expense represents a charge for
workforce reductions totaling approximately 1,300 employees. Reynolds Tobacco
took these charges in response to the changing business conditions that could
result from the Master Settlement Agreement signed in November 1998. Reynolds
Tobacco anticipates that the November price increase, which was necessary to
satisfy its ongoing annual payment obligations under the Master Settlement
Agreement, is likely to affect volume and its results of operations adversely.
Reynolds Tobacco anticipates that cash expenditures related to the
termination of employees will be approximately $100 million and that it will pay
these costs from operations into the year 2000. As of December 31, 1998,
Reynolds Tobacco used $268 million of the accrual as follows: $54 million for
severance and related benefits and $214 million for rationalization of
manufacturing operations.
Reynolds Tobacco recorded pre-tax charges totaling $359 million during 1997
related to settlement agreements reached with the Florida, Mississippi and Texas
state attorneys general and in various class action cases. See note 10 for a
further discussion of these matters.
NOTE 5--INVENTORIES
Inventories valued under the LIFO method were approximately $492 million at
December 31, 1998 and $592 million at December 31, 1997. The current cost of
LIFO inventories at December 31, 1998 and 1997 was greater than the amount at
which these inventories were carried on the consolidated balance sheets by $169
million and $151 million, respectively.
F-10
<PAGE>
NOTE 5--INVENTORIES (CONTINUED)
For the years ended December 31, 1998, 1997 and 1996, LIFO inventory
liquidations led to increases in net income of approximately $18 million, $14
million and $35 million, respectively. The LIFO liquidations resulted from
programs to reduce tobacco leaf durations consistent with forecasts of future
operating requirements.
NOTE 6--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS
Short-term borrowings at December 31, 1998 represent domestic commercial
paper and bank borrowings with a weighted average year-end interest rate of
6.4%. There were no such borrowings outstanding at December 31, 1997.
RJR maintained a three-year $2.146 billion revolving credit facility and a
364-day $212 million credit facility primarily to support commercial paper
issuances. Borrowings under the revolving credit facility bore interest at rates
that varied with the prime rate or LIBOR. Borrowings under the 364-day credit
facility bore interest at rates that varied with LIBOR. Due to restrictions
contained in the revolving credit facility, the agreement was terminated as of
May 12, 1999 as a result of the sale of the international tobacco business
described in note 15. Similarly, the 364-day facility was terminated on May 18,
1999 due to a restriction prohibiting the transfer of RJR's interest in Nabisco,
also described in note 15.
On May 7, 1999, RJR entered into a 30-month $1.235 billion revolving credit
facility, which was effective May 18, 1999 and is available to support
commercial paper issuances. Borrowings under the revolving credit facility bear
interest at rates that vary with the prime rate or LIBOR. Reynolds Tobacco has
guaranteed RJR's obligations under this revolving credit agreement.
Based on the intention and ability of RJR to continue to refinance for more
than one year the amount of its domestic commercial paper and revolving credit
agreement borrowings through long-term revolving credit facilities, $33 million
of those borrowings were reclassified as long-term debt at December 31, 1998.
RJR's financing agreements that were in effect at December 31, 1998
contained covenants that generally restricted cumulative common and preferred
dividends and distributions, limited the ability of RJR and its subsidiaries to
incur indebtedness, engage in transactions with stockholders and affiliates,
create liens, sell or dispose of certain assets and certain subsidiaries' stock,
issue certain equity securities and engage in certain mergers or consolidations.
NOTE 7--ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Payroll and employee benefits................................ $ 243 $ 248
Marketing and advertising.................................... 263 176
Excise taxes................................................. 33 48
Restructuring................................................ 11 71
Tobacco settlement and related accruals...................... 610 177
Accrued interest............................................. 120 125
Other........................................................ 231 184
------ ------
$ 1,511 $ 1,029
------ ------
------ ------
</TABLE>
F-11
<PAGE>
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal............................................................. $ 191 $ 283 $ 326
State and other..................................................... 23 35 72
----- ----- -----
214 318 398
----- ----- -----
Deferred:
Federal............................................................. (374) (133) (61)
----- ----- -----
Provision (benefit) for income taxes.................................. $ (160) $ 185 $ 337
----- ----- -----
----- ----- -----
</TABLE>
The components of the deferred income tax liability disclosed on the
consolidated balance sheets included the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Pension and other postretirement liabilities....................................... $ (261) $ (242)
Tobacco settlement related accruals and other accrued liabilities.................. (240) (75)
--------- ---------
Total deferred tax assets.................................................... (501) (317)
--------- ---------
Deferred tax liabilities:
Property and equipment............................................................. 425 451
Trademarks......................................................................... 1,490 1,570
Other.............................................................................. 489 413
--------- ---------
Total deferred tax liabilities............................................... 2,404 2,434
--------- ---------
Net deferred income taxes.................................................... $ 1,903 $ 2,117
--------- ---------
--------- ---------
</TABLE>
The differences between the provision (benefit) for income taxes and income
taxes computed at statutory U.S. federal income tax rates are explained as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- --------------- ---------------
<S> <C> <C> <C>
Income taxes computed at statutory U.S. federal income tax
rates....................................................... $ (238) $ 71 $ 197
State and local income taxes, net of federal tax benefits..... 8 23 47
Goodwill amortization......................................... 91 91 91
Exempt foreign sales corporation earnings..................... (10) -- --
Other items, net.............................................. (11) -- 2
----- ----- -----
Provision (benefit) for income taxes.......................... $ (160) $ 185 $ 337
----- ----- -----
----- ----- -----
Effective tax rate............................................ 23.6% 90.7% 59.9%
----- ----- -----
----- ----- -----
</TABLE>
F-12
<PAGE>
NOTE 9--LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Short-term borrowings, reclassified.......................................................... $ 33 $ --
6.80-9.25% notes, due 1999 through 2013...................................................... 4,444 4,443
5.375-10% foreign currency debt, due 2000 to 2001............................................ 414 469
Other indebtedness........................................................................... 32 32
Current maturities of long-term debt......................................................... (62) --
--------- ---------
Total long-term debt..................................................................... $ 4,861 $ 4,944
--------- ---------
--------- ---------
</TABLE>
- ------------------------
The payment of long-term debt through December 31, 2003 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------- -----------
<S> <C>
2000 $ 519
2001 455
2002 908
2003 750
</TABLE>
In July 1997, RJR repaid commercial paper borrowings with proceeds from the
issuance of $150 million 8 1/4% notes due 2004 and $200 million 8 1/2% notes due
2007.
On April 13, 1999, RJR offered to purchase up to $4.4 billion of its
outstanding debt securities and sought consents from the holders of those
securities to waive covenants that might have prevented some of the transactions
described in note 15. RJR received these consents as of April 26, 1999 and
completed these tender offers on May 18, 1999. In these offers, RJR repurchased
approximately $3.96 billion of its debt with a portion of the proceeds from the
international tobacco sale described in note 15. The after-tax extraordinary
loss on the debt repurchase was approximately $300 million.
In connection with the reorganization discussed in note 15, on May 18, 1999,
RJR completed a private placement offering to issue $550 million of 7 3/8% notes
due 2003, $500 million of 7 3/4% notes due 2006 and $200 million of 7 7/8% notes
due 2009. The net proceeds received will be used for general corporate purposes.
Reynolds Tobacco has guaranteed RJR's obligation under the debt securities.
The estimated fair value of the consolidated long-term debt of RJR as of
December 31, 1998 and 1997 was approximately $5.0 billion and $5.2 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate.
RJR manages overall interest rate exposure by adjusting the mix of floating
rate debt and fixed rate debt. As part of managing those interest rate
exposures, RJR may enter into various interest rate arrangements from time to
time.
NOTE 10--COMMITMENTS AND CONTINGENCIES
TOBACCO LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against Reynolds Tobacco or its affiliates or indemnitees,
including RJR and NGH, among which are those claiming that lung cancer and other
diseases as well as addiction have resulted from the use of or exposure to
Reynolds Tobacco's tobacco products. During 1998, 334 new actions were served
against Reynolds Tobacco and/or its affiliates or indemnitees and 183 actions
were dismissed or otherwise resolved in favor of Reynolds Tobacco and/or its
affiliates or indemnitees without trial. In recent years, there have been
noteworthy increases in the number of cases pending. On December 31, 1998, there
were 664 active cases pending, as compared with 516 on December 31, 1997 and 234
on December 31,
F-13
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
1996. As of May 14, 1999, 653 active cases were pending against Reynolds Tobacco
and/or its affiliates or indemnitees: 649 in the United States; one in each of
Canada; the Marshall Islands, Nigeria and Puerto Rico.
The U.S. cases are pending in 41 U.S. states and the District of Columbia,
although four states-- West Virginia, Florida, New York and California--account
for approximately 61% of these cases. The breakdown is as follows: 122 in West
Virginia; 110 in New York; 107 in Florida; 55 in California; 34 in
Massachusetts; 25 in Louisiana; 18 in Texas; 17 in Tennessee; 16 in
Pennsylvania; 15 in the District of Columbia; 11 in New Jersey; ten in Alabama;
nine in each of Illinois and Mississippi; seven in each of Iowa and Ohio; five
in each of Indiana, Maryland, Minnesota Missouri and Nevada; four in each of
Arkansas, Georgia, Oklahoma and Rhode Island; three in each of Arizona, New
Mexico, Virginia, Washington and Wisconsin; two in each of Colorado, Hawaii,
Kentucky, Michigan, North Carolina, North Dakota, South Carolina, South Dakota
and Utah; and one in each of Kansas, New Hampshire, and Oregon. Of the 649
active U.S. cases, 170 are pending in federal court, 474 in state court and five
in tribal courts. Individual plaintiffs brought most of these cases, but a
significant number, discussed below, seek recovery on behalf of third parties or
large classes of claimants.
THEORIES OF RECOVERY. The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, antitrust, Racketeer
Influenced and Corrupt Organization Act (which this document refers to as RICO),
indemnity, medical monitoring and common law public nuisance. In a number of
cases, plaintiffs specifically plead punitive damages, often in amounts ranging
into the hundreds of millions or even billions of dollars, in addition to
compensatory and other damages. Nine of the 653 active cases in the United
States involve alleged non-smokers claiming injuries purportedly resulting from
exposure to environmental tobacco smoke. Fifty-nine cases purport to be class
actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes, individuals and their estates
claiming illness and death from cigarette smoking, persons making claims based
on alleged exposure to environmental tobacco smoke, African-American smokers
claiming their civil rights have been violated by the sale of menthol
cigarettes, purchasers of cigarettes claiming to have been defrauded and seeking
to recover their costs, and Blue Cross/Blue Shield subscribers seeking
reimbursement for premiums paid. Approximately 103 of the active cases seek,
INTER ALIA, recovery of health-related costs paid for treatment of individuals
suffering from diseases or conditions allegedly related to tobacco use. Nine,
brought by entities administering asbestos liability, seek contribution for the
costs of settlements and judgments.
DEFENSES. The defenses raised by Reynolds Tobacco and/or its affiliates,
where applicable, include preemption by the Federal Cigarette Labeling and
Advertising Act of some or all of those claims arising after 1969; the lack of
any defect in the product; assumption of the risk; contributory or comparative
fault; lack of proximate cause; and statutes of limitations or repose; and, when
applicable, additional statutory, equitable, constitutional and other defenses.
RJR and NGH have asserted additional defenses, including jurisdictional
defenses, in many of these cases in which they are named.
INDUSTRY TRIAL RESULTS. Juries have found for plaintiffs in six smoking and
health cases in which Reynolds Tobacco was not a defendant. In one of those
cases, no damages were awarded and the judgment was affirmed on appeal. The jury
awarded plaintiffs $400,000 in another of those cases, CIPOLLONE V. LIGGETT
GROUP, INC., but the award was overturned on appeal and the case was
subsequently dismissed. In the third of those cases, on August 9, 1996, a
Florida jury awarded damages of $750,000 to an individual plaintiff. That case,
CARTER V. BROWN & WILLIAMSON, was overturned on appeal on
F-14
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
June 22, 1998. In another Florida case brought by the same attorney, WIDDICK V.
BROWN & WILLIAMSON, a state court jury awarded the plaintiff approximately $1
million in compensatory and punitive damages on June 10, 1998. On January 29,
1999, the Florida Court of Appeals reversed this verdict and ordered a new trial
in a different location (Palm Beach County). On February 9-10, 1999, in HENLEY
V. PHILIP MORRIS, INC., a San Francisco state court jury awarded an individual
smoker $1.5 million in compensatory damages and $50 million in punitive damages.
Philip Morris moved to have this verdict set aside or reduced. On April 16,
1999, the trial judge reduced the punitive damages award to $25 million, but
otherwise denied Philip Morris' motions. Philip Morris is appealing the verdict.
On March 30, 1999, in WILLIAMS V. PHILIP MORRIS, an Oregon state court jury
returned a verdict against Philip Morris in the amount of $1.5 million in
compensatory damages and $79 million in punitive damages. Although the judge in
this case has reduced the punitive damages to $32 million, Philip Morris will
appeal this verdict as well. The most recent verdict in an individual case was
announced on May 13, 1999. In that case, STEELE V. BROWN & WILLIAMSON, a jury in
Missouri federal court found that Brown & Williamson was not liable for the
death of the plaintiff.
On May 5, 1997, in an individual case filed against Reynolds Tobacco,
brought by the same attorney who represented plaintiffs in the CARTER and
WIDDICK cases, a Florida state court jury found no Reynolds Tobacco liability in
CONNOR V. R. J. REYNOLDS TOBACCO CO. On October 31, 1997, in still another case
brought by the same attorney, KARBIWNYK V. R.J. REYNOLDS TOBACCO COMPANY,
another Florida state court jury found no Reynolds Tobacco liability. On March
19, 1998, an Indiana state court jury found for Reynolds Tobacco, NGH and other
defendants in an individual case, DUNN V. RJR NABISCO HOLDINGS CORP., in which
plaintiffs sought damages for the alleged harm caused to a non-smoker by
environmental tobacco smoke. On March 18, 1999, the jury in an Ohio federal
district court found for the defendants, including Reynolds Tobacco, on all
counts in a class-action union trust-fund case, IRONWORKERS LOCAL 17 V. PHILIP
MORRIS. Finally, on May 12, 1999, in NEWCOMB V. R.J. REYNOLDS TOBACCO CO., one
of three individual cases in Tennessee state court which had been consolidated
for trial, a state court jury refused to award damages against Reynolds Tobacco
or Brown & Williamson. The tobacco company defendants in the other two cases
were also found to have no liability.
CLASS-ACTION SUITS. In May 1996, in an early class action case, CASTANO V.
AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals overturned the
certification of a purported nationwide class of persons whose claims related to
alleged addiction to tobacco. Since this ruling by the Fifth Circuit, most
purported class-action suits have sought certification of statewide, rather than
nationwide, classes.
Putative class-action suits based on claims similar to those asserted in
CASTANO have been brought against Reynolds Tobacco, and in some cases RJR, in
state and, in a few instances, federal courts in Alabama, Arkansas, California,
the District of Columbia (D.C. court), Florida, Hawaii, Illinois, Indiana, Iowa,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Mexico,
Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Utah, Virginia, and West Virginia. A putative
class action filed in Tennessee seeks reimbursement of Blue Cross/Blue Shield
premiums paid by subscribers throughout the United States. On October 19, 1998,
a putative class action was filed in federal court in Philadelphia,
Pennsylvania, on behalf of "all living Black Americans who have purchased or
consumed menthol tobacco products since 1954 (including minors through their
legal representatives)" seeking redress of alleged violations of the plaintiffs'
civil rights. A purported class action suit against Reynolds Tobacco in Texas
claims that the marketing of "lights" and "ultralight" cigarettes is deceptive.
Plaintiffs have made similar claims in other lawsuits. Other types of
class-action suits have also been filed in additional jurisdictions and there
are also putative class action suits pending in Canada, Puerto Rico and Nigeria.
Most of these suits assert claims on behalf of classes of individuals who claim
to be addicted, injured, or at greater risk of
F-15
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
injury by the use of tobacco or exposure to environmental tobacco smoke, or are
the legal survivors of those persons.
Despite the marked increase of purported class actions brought against
tobacco companies, few purported class actions have been certified, or if
certified, have survived on appeal. Most recently, on May 17, 1999, the U.S.
Supreme Court denied plaintiffs' request for review of a circuit court decision
upholding the denial of class certification in a Pennsylvania medical monitoring
case, BARNES V. AMERICAN TOBACCO. On April 12, 1999, in CHAMBERLAIN V. AMERICAN
TOBACCO COMPANY, a federal district court in Ohio refused to certify a class of
"nicotine-dependent" Ohio residents. On April 13, 1999, in AVALLONE V. AMERICAN
TOBACCO COMPANY, a state court judge in New Jersey refused to certify a
purported class of casino workers exposed to environmental tobacco smoke. Class
certification was granted in 1998, however, by a Maryland state court in
RICHARDSON V. PHILIP MORRIS. The Maryland Court of Appeals is reviewing that
decision. In addition, on November 5, 1998, a Louisiana state appeals court
affirmed the certification of a medical monitoring and/or smoking cessation
class of Louisiana residents who were smokers on or before May 24, 1996 (SCOTT
V. AMERICAN TOBACCO COMPANY). On February 26, 1999, the Louisiana Supreme Court
denied the defendants' petition for writ of certiorari and/or review. Finally,
defendants settled another class-action suit, BROIN V. PHILIP MORRIS, in
October, 1997. The Florida Court of Appeals denied challenges to this settlement
on March 24, 1999, but subsequent motions to reconsider are still pending.
Trial is underway in a class-action suit pending in Florida, ENGLE V. R. J.
REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or
their survivors who claim to have diseases or medical conditions caused by their
alleged "addiction" to cigarettes has been certified. The trial is divided into
three phases. RJR expects the initial phase, which includes common issues
related to liability and general causation, entitlement to punitive damages and
possibly the basis or ratio for assessment of punitive damages, to last several
more weeks, but even if potential liability is confirmed in this phase of the
trial, no actual liability would be established until the end of the trial and
appellate process of the second phase which could last for some years.
HEALTH-CARE COST RECOVERY CASES. In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members, including Reynolds Tobacco. This case was brought on behalf of
the state to recover state funds paid for healthcare and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. By making the State the plaintiff in the case and basing
its claims on economic loss rather than personal injury, the State sought to
avoid the defenses otherwise available against an individual plaintiff.
Following the filing of the MOORE case, most other states, through their
attorneys general and/or other state agencies, sued Reynolds Tobacco and other
U.S. cigarette manufacturers based on similar theories. The cigarette
manufacturer defendants, including Reynolds Tobacco, settled the first four of
these cases scheduled to come to trial, those of Mississippi, Florida, Texas and
Minnesota, by separate agreements between the state and those manufacturers.
On November 23, 1998, the major U.S. cigarette manufacturers, including
Reynolds Tobacco, entered into a Master Settlement Agreement with attorneys
general representing the remaining 46 states, the District of Columbia, Puerto
Rico, Guam, the Virgin Islands, American Samoa and the Northern Marianas. The
Master Settlement Agreement settles all the health-care cost recovery actions
brought by the settling states and contains releases of various additional
present and future claims.
When judicially approved, the Master Settlement Agreement will release
Reynolds Tobacco and several of its indemnitees, RJR and NGH from: (1) all
claims of the settling states and their respective political subdivisions and
other recipients of state health-care funds relating to past conduct arising out
of the use, sale, distribution, manufacture, development, advertising, marketing
or health effects of, the
F-16
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
exposure to, or research, statements or warnings about, tobacco products; and
(2) all monetary claims relating to future conduct arising out of the use of, or
exposure to, tobacco products that have been manufactured in the ordinary course
of business. For a more detailed description of the Master Settlement Agreement,
see the portion of this document located on pages 53-55 under the heading
"Business--Litigation and Regulation--Litigation".
The Master Settlement Agreement is scheduled to become effective on the
earlier of June 30, 2000 or the date on which final approval of the settlement
has been obtained in courts of 80% of the settling states, both by number and
percentage share of the settlement payments due. As of May 5, 1999, final
approval was obtained in the requisite number of settling states (42), but those
states' percentage shares comprise only 54.18%, rather than the necessary 80%,
of the payments due.
Payments for all tobacco litigation settlement agreements currently in
effect, including the Master Settlement Agreement and four individual state
settlements, will be approximately $1.6 billion in 1999. Reynolds Tobacco
expects to fund these costs through price increases. Reynolds Tobacco estimates
payments in future years to exceed $2.0 billion per year, but these payments
will be subject to adjustments based upon, among other things, the volume of
cigarettes sold by Reynolds Tobacco, Reynolds Tobacco's market share and
inflation.
On April 20, 1999, the Canadian Province of British Columbia brought a case,
similar to the U.S. attorney-general cases, against Reynolds Tobacco and other
Canadian and U.S. tobacco companies and their parent companies, including RJR,
in British Columbia Provincial Court. This lawsuit relies heavily upon recently
enacted legislation in British Columbia which is being separately challenged by
Canadian tobacco companies. An agreement has been reached with the government in
British Columbia that these separate constitutional challenges will be litigated
prior to the health-care recovery action. These constitutional challenges are
scheduled to be heard by the Canadian courts in the autumn of 1999.
UNION CASES. Although the Master Settlement Agreement settled some of the
most potentially burdensome healthcare cost recovery actions, other plaintiffs
have brought many other such cases. Approximately 70 lawsuits have been brought
by union trust funds against cigarette manufacturers and others in the past two
years. The funds seek recovery of payments made by them for medical expenses of
their participants' union members and their dependents allegedly injured by
cigarettes. The claims in these cases are almost identical, and more than 30 of
the cases purport to be class actions on behalf of all union trust funds in a
particular state.
The defendants in these actions argue, among other things, the settled law
that one who pays an injured person's medical expenses is legally too remote to
maintain an action against the person allegedly responsible for the injury. In
addition, they argue that the traditional subrogation remedy cannot be
supplanted by a direct right of action for the trust fund that strips defendants
of the defenses they would ordinarily have against the allegedly injured
individual.
In the first of these cases to be considered by a federal court of appeals,
on March 29, 1999, the Third Circuit Court of Appeals affirmed a district court
ruling dismissing a case, STEAMFITTERS LOCAL UNION 420 V. PHILIP MORRIS, on
remoteness grounds. Then, a week later, the Second Circuit handed down its
decision in LABORERS LOCAL 17 V. PHILIP MORRIS, reversing a district court's
decision and remanding the case for dismissal, again on remoteness grounds. On
May 3, 1999, the U.S. Court of Appeals for the Ninth Circuit heard oral argument
in OREGON LABORERS V. PHILIP MORRIS. Numerous trial court judges have also
dismissed these cases on remoteness grounds, including most recently, on April
29, 1999, a Minnesota federal district court in LYONS V. PHILIP MORRIS.
Nonetheless, in other federal circuits, there are still some union cases that
have survived motions to dismiss and that may proceed to trial. On March 31,
1999, a federal district court denied defendants' motion to dismiss in UTAH
LABORERS
F-17
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
V. PHILIP MORRIS. One such case, NORTHWEST LABORERS V. PHILIP MORRIS, is
scheduled for trial in September 1999.
The first union case to survive motions to dismiss and go to trial was IRON
WORKERS LOCAL NO. 17 V. PHILIP MORRIS. This case, in which a class of
approximately 111 union trust funds was certified by a federal district court in
Ohio, went to trial on February 22, 1999 on the counts that survived motions to
dismiss: state and federal RICO claims and civil conspiracy claims. The federal
RICO claim was dismissed during the trial, and after the conclusion of
plaintiffs' case, the court directed a verdict dismissing RJR and NGH from the
case. On March 18, 1999, the jury in this case returned a unanimous verdict for
the defendants, including Reynolds Tobacco, on all surviving counts. On May 11,
1999, the trial court denied plaintiffs' motion for a new trial.
OTHER HEALTH-CARE COST-RECOVERY AND AGGREGATED CLAIMS PLAINTIFFS. Native
American tribes have filed similar cases, five in tribal courts and one putative
class action in San Diego Superior Court. Four groups of health-care insurers,
as well as a private entity that purported to self insure its employee
health-care programs, have also advanced claims similar to those found in the
union health-care cost recovery actions. Two of these "insurer" cases, WILLIAMS
& DRAKE V. AMERICAN TOBACCO, and REGENCE BLUESHIELD V. PHILIP MORRIS, were
dismissed in their entirety on "remoteness" grounds by federal district courts
in Pennsylvania and Washington respectively. In a third "Insurers" case, GROUP
HEALTH PLAN, INC. V. PHILIP MORRIS, a federal district judge in Minnesota, on
April 29, 1999, dismissed all claims, except a state antitrust claim and a
conspiracy claim. Five foreign countries have also brought health-care
cost-recovery suits against Reynolds Tobacco in U.S. courts. Other cost recovery
suits have been brought by, among others, local governmental jurisdictions,
taxpayers (on behalf of a governmental jurisdiction), a university and a
hospital. Finally, nine actions have been filed against Reynolds Tobacco by
asbestos companies and/or asbestos-related trust funds based on the theory that
the plaintiffs "overpaid" claims brought against them to the extent that tobacco
use, not asbestos exposure, was the cause of the alleged personal injuries for
which they paid compensation.
RECENT AND SCHEDULED TRIALS. As of May 17, 1999, there were 11 cases
scheduled for trial in 1999 against Reynolds Tobacco alleging injuries relating
to tobacco. In addition, two cases are currently in progress: the ENGLE case in
Florida and an environmental tobacco smoke case in Mississippi, BUTLER V.
AMERICAN TOBACCO COMPANY. Cases against other tobacco company defendants are
also scheduled for trial in 1999 and thereafter. Although trial schedules are
subject to change and many cases are dismissed before trial, it is likely that
there will be an increased number of tobacco cases, some involving claims for
possibly billions of dollars, against Reynolds Tobacco and RJR coming to trial
over the next year.
OTHER DEVELOPMENTS. In January of 1999, President Clinton announced that
the U.S. Department of Justice is preparing a litigation plan for a lawsuit by
the federal government to recover federal healthcare costs associated with
cigarette smoking, and press reports have indicated that the Justice Department
has engaged a private law firm to assist in such a lawsuit.
On April 9, 1999, a class action complaint, A.D. BEDELL WHOLESALE CO. V
PHILIP MORRIS INC., was filed on behalf of cigarette wholesalers and
distributors against Reynolds Tobacco, Philip Morris and Brown & Williamson in
the U.S. District Court for the District of Pennsylvania alleging violations of
the federal antitrust laws based, in large part, on the Master Settlement
Agreement.
Reynolds Tobacco is aware of grand jury investigations being conducted in
New York and Washington, D.C. that relate to the cigarette business. In
addition, Reynolds Tobacco received a document subpoena, dated September 17,
1998, from a federal grand jury convened in the Eastern District of Pennsylvania
by the Antitrust Division of the Department of Justice. Reynolds Tobacco
F-18
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
understands that the grand jury is investigating possible violations of the
antitrust laws related to tobacco leaf buying practices. Reynolds Tobacco is
responding to the subpoena. Reynolds Tobacco is responding to document subpoenas
dated February 5 and March 10, 1999 arising from a grand jury investigation
being conducted in the Western District of New York into the actions of some
cigarette retailers and distributors.
On December 22, 1998, a now inactive tobacco subsidiary that was part of
Reynolds International's business, Northern Brands International, Inc., entered
into a plea agreement with the United States Attorney for the Northern District
of New York. Northern Brands was charged with aiding and abetting certain
customers who brought merchandise into the United States "by means of false and
fraudulent practices...." Northern Brands agreed to pay a $10 million forfeiture
and a $5.2 million fine and special assessment. In the plea agreement, the U.S.
Attorney agreed not to bring additional criminal charges in the Northern
District against Northern Brands or its corporate affiliates (including NGH,
RJR, Reynolds Tobacco and Reynolds International) for actions (from 1985 through
1998) that are related to those that gave rise to the agreement. RJR-MacDonald,
Reynolds International's operating company in Canada, is cooperating with an
investigation now being conducted by the Royal Canadian Mounted Police relating
to the same events that gave rise to the NBI investigation. Management cannot
predict whether any other authorities in the United States or Canada will seek
to take further actions with regard to these events.
ENVIRONMENTAL MATTERS
The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, substantial expenditures for pollution control, waste
treatment, plant modification and similar activities. Reynolds Tobacco has been
named a potentially responsible party with third parties under the Comprehensive
Environmental Response, Compensation and Liability Act, which this document
refers to as CERCLA, with respect to several superfund sites. Liability under
CERCLA is joint and several. Reynolds Tobacco has a continuing program to assure
compliance with U.S., state and local environmental laws and regulations. The
costs attributable to compliance with environmental laws and to resolving these
CERCLA matters, is unlikely to have a material adverse effect on the business or
financial condition of Reynolds Tobacco.
In April 1995, NGH was named a potentially responsible party with other
third parties under CERCLA with respect to a superfund site at which a former
subsidiary of RJR had operations. RJR has also been named in an insurance
coverage suit brought by another company named as a potentially responsible
party at this site. In this lawsuit, DEL MONTE FRESH PRODUCE V. FIREMEN'S FUND
INSURANCE, filed August 13, 1997 in the First Circuit Court of the State of
Hawaii, the plaintiff seeks declaratory judgment that it is entitled to
insurance coverage for the site or, in the alternative, that RJR is obligated to
indemnify Del Monte under the terms of the agreement by which RJR sold that
company in 1989. The Fireman's Fund Insurance Company has filed a motion for
summary judgment that has not yet been heard.
------------------------
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 Reynolds Tobacco or its affiliates or indemnitees, including RJR and
NGH. Determinations of liability or adverse rulings against other cigarette
manufacturers that are defendants in similar actions, even if those rulings are
not final, could adversely affect the litigation against Reynolds Tobacco or its
affiliates or indemnitees and could
F-19
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
encourage an increase in the number of those claims. There have been a number of
political, legislative, regulatory, and other developments relating to the
tobacco industry and cigarette smoking that have received wide media attention,
including the Master Settlement Agreement referred to above. These developments
may negatively affect the outcomes of tobacco-related legal actions and
encourage the institution of additional similar litigation.
Although it is impossible to predict the outcome of these events on pending
litigation and the rate at which new lawsuits are filed against Reynolds
Tobacco, RJR and NGH, a significant increase in litigation and/or in adverse
outcomes for tobacco defendants could have an adverse effect on any one or all
of these entities. Reynolds Tobacco and RJR each believes that it has a number
of valid defenses to these actions and intends to defend these actions
vigorously.
RJR believes, that notwithstanding the quality of defenses available to it
and Reynolds Tobacco in litigation matters, it is possible that the results of
operations or cash flows of RJR in particular quarterly or annual periods or the
financial condition of RJR could be materially affected by the ultimate outcome
of pending litigation matters, including litigation costs. Management is unable
to predict the outcome of the litigation or to derive a meaningful estimate of
the amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.
COMMITMENTS
At December 31, 1998, commitments totalled approximately $400 million,
principally for the purchase of leaf tobacco inventories and other contractual
arrangements.
NOTE 11--STOCK PLANS
NGH's 1989 stock plan provides for grants of options to purchase common
stock of NGH to non-employee directors, directors and key employees. A maximum
of 6,000,000 shares may be issued under this plan. The options granted under the
plan generally vest over three years, are separately exercisable for primarily
ten years from the date of grant and are exercisable at a price that is
generally the fair market value of the stock at the grant date.
NGH's 1990 long-term incentive plan, which this document refers to as the
NGH LTIP, provides for grants of incentive stock options, other stock options,
stock appreciation rights, restricted stock, purchase stock, dividend equivalent
rights, performance units, performance shares and other stock-based grants to
key employees. A maximum of 33,000,000 shares of common stock of NGH may be
issued under the NGH LTIP. The options granted under the plan generally vest
over three years, are exercisable for 10-15 years from date of grant, and are
exercisable at a price that is generally the fair market value of the stock at
the grant date. As of December 31, 1998, purchase stock, stock options other
than incentive stock options, restricted stock and other stock-based grants have
been granted under the LTIP.
Certain RJR and Reynolds Tobacco employees and non-employee directors were
granted stock options under NGH's stock plans. Options to purchase approximately
17.5 million shares of NGH's common stock were outstanding at December 31, 1998.
At December 31, 1998, options held by current and former RJR and Reynolds
Tobacco employees totaled approximately 12.4 million. The total number of
options granted to RJR and Reynolds Tobacco employees under NGH's option plans
was 0.6 million, 0.6 million and 2.7 million in 1998, 1997 and 1996,
respectively.
NGH and its subsidiaries recognize and measure compensation costs related to
employee stock plans utilizing the intrinsic value based method. Had
compensation expense been determined based upon the fair value of awards granted
to RJR and Reynolds Tobacco employees under the plans, net
F-20
<PAGE>
NOTE 11--STOCK PLANS (CONTINUED)
income (loss) would have been effected by approximately $7 million, $8 million
and $7 million in 1998, 1997 and 1996, respectively. These adjustments are not
necessarily indicative of the effects on net income of future stock-based
awards.
The fair value of NGH's options granted to RJR and Reynolds Tobacco
employees was determined using the Black-Scholes option pricing model with the
following weighted-average assumptions used by NGH:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Dividend yield.............................................................................. 5.8% 5.8% 5.3%
Expected volatility......................................................................... 31% 31% 29%
Risk-free interest rate..................................................................... 5.8% 6.4% 6.2%
Expected option life (years)................................................................ 5 5 5
</TABLE>
The weighted average fair value of NGH's stock options granted to RJR and
Reynolds Tobacco employees during 1998, 1997 and 1996 was $7.43, $6.79 and
$7.02, respectively.
F-21
<PAGE>
NOTE 12--RETIREMENT BENEFITS
RJR and Reynolds Tobacco sponsor a number of non-contributory defined
benefit pension plans covering most U.S. employees. RJR and Reynolds Tobacco
also provide certain health and life insurance benefits for retired employees
and their dependents. In 1998, RJR adopted SFAS No. 132. All of the information
is presented accordingly.
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
AS OF DECEMBER 31 1998 1997 1998 1997
- ------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Obligation at beginning of year.......................................... $ 2,295 $ 2,061 $ 586 $ 527
Service cost............................................................. 42 37 8 7
Interest cost............................................................ 158 149 40 37
Actuarial loss........................................................... 143 208 58 45
Plan amendments.......................................................... 1 (1) -- --
Benefits paid............................................................ (195) (159) (40) (30)
--------- --------- --------- ---------
Obligation at end of year................................................ $ 2,444 $ 2,295 $ 652 $ 586
--------- --------- --------- ---------
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year........................... $ 2,009 $ 1,835 $ -- $ --
Actual return on plan assets............................................. 203 261 -- --
Employer contributions................................................... 53 63 40 30
Benefits paid............................................................ (195) (150) (40) (30)
--------- --------- --------- ---------
Fair value of plan assets at end of year................................. $ 2,070 $ 2,009 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
FUNDED STATUS
Funded status............................................................ $ (374) $ (286) $ (652) $ (586)
Unrecognized transition (asset) obligation............................... -- (2) (33) (39)
Unrecognized prior service cost.......................................... (15) (17) -- --
Unrecognized loss........................................................ 189 70 124 66
--------- --------- --------- ---------
Net amount recognized.................................................... $ (200) $ (235) $ (561) $ (559)
--------- --------- --------- ---------
--------- --------- --------- ---------
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost................................................... $ 7 $ 6 $ -- $ --
Accrued benefit liability.............................................. (218) (258) (561) (559)
Intangible asset....................................................... 2 6 -- --
Accumulated other comprehensive income................................. 9 11 -- --
--------- --------- --------- ---------
Net amount recognized.................................................... $ (200) $ (235) $ (561) $ (559)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were approximately $3.58 billion, $3.23 billion, and
$3.05 billion, respectively, as of December 31, 1998 and approximately $3.40
billion, $3.11 billion, and $3.00 billion, respectively, as of December 31,
1997.
F-22
<PAGE>
NOTE 12--RETIREMENT BENEFITS (CONTINUED)
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------- -------------------------------
YEARS ENDED DECEMBER 31 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost................................................. $ 42 $ 37 $ 38 $ 8 $ 7 $ 9
Interest cost................................................ 158 149 145 40 37 35
Expected return on plan assets............................... (178) (162) (151) -- -- --
Amortization of transition asset............................. -- -- -- (7) (6) (7)
Amortization of prior service cost........................... (4) (5) (2) -- -- --
Amortization of net loss..................................... 1 1 2 3 -- --
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost.................................... $ 19 $ 20 $ 32 $ 44 $ 38 $ 37
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The principal pension and postretirement benefit plans used the following
weighted average actuarial assumptions as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Discount rate................................................................... 6.75% 7.00%
Expected return on plan assets.................................................. 9.50% 9.50%
Rate of compensation increase................................................... 5.00% 5.00%
</TABLE>
The assumed health care cost rate is 6.0% in 1998 and 5.5% in 1999,
declining to 5% by the year 2000 and remaining at that level thereafter. Assumed
health care cost trend rates have a significant effect on the amounts reported
for the health care plan. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
----------------- -----------------
<S> <C> <C>
Effect on postretirement benefit cost.......................... $ 2 $ (1)
Effect on postretirement benefit obligation.................... 26 (24)
</TABLE>
NOTE 13--ADDITIONAL INFORMATION
Reynolds Tobacco manufactures, markets and sells cigarettes in the United
States and its territories, commonwealths, protectorates and possessions. Its
largest brands include DORAL, WINSTON, CAMEL and SALEM. See note 10 for
information regarding legislation and other matters affecting the domestic
cigarette industry.
The management of RJR has historically evaluated the performance of its
business based upon ongoing Operating Company Contribution, which this document
refers to as OCC. OCC is operating income before amortization of trademarks and
goodwill, restructuring expenses and initial, upfront tobacco settlement
expenses.
See notes 3 and 4 regarding significant non-cash expenses recorded relating
to restructurings and tobacco settlement and related charges affecting Reynolds
Tobacco.
Net sales from one customer of Reynolds Tobacco were approximately 16.7% of
Reynolds Tobacco's consolidated net sales for the year ended December 31, 1998.
F-23
<PAGE>
NOTE 13--ADDITIONAL INFORMATION (CONTINUED)
SEGMENT PROFIT (LOSS) AND ASSET INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Ongoing OCC:
Reynolds Tobacco............................................................... $ 1,664 $ 1,551 $ 1,493
Corporate...................................................................... (81) (77) (72)
--------- --------- ---------
Consolidated OCC............................................................. $ 1,583 $ 1,474 $ 1,421
--------- --------- ---------
--------- --------- ---------
Depreciation:
Reynolds Tobacco............................................................... $ 130 $ 140 $ 166
Corporate...................................................................... 2 2 2
--------- --------- ---------
Consolidated depreciation.................................................... $ 132 $ 142 $ 168
--------- --------- ---------
--------- --------- ---------
Additions to long-lived assets:
Reynolds Tobacco............................................................... $ 46 $ 57 $ 62
Corporate...................................................................... 1 -- 1
--------- --------- ---------
Consolidated additions to long-lived assets.................................. $ 47 $ 57 $ 63
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31 1998 1997
- --------------------------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Segment assets:
Reynolds Tobacco............................................................... $ 1,808 $ 2,231
Unallocated intangibles, net(1)................................................ 11,001 11,364
Net assets of discontinued businesses.......................................... 5,961 6,269
Corporate...................................................................... 631 387
--------- ---------
Total segment assets......................................................... $ 19,401 $ 20,251
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Represents unallocated goodwill, trademarks and tradename resulting from the
1989 leveraged buyout of RJR.
A reconciliation of consolidated OCC to consolidated income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Ongoing OCC...................................................................... $ 1,583 $ 1,474 $ 1,421
Items excluded from OCC:
Goodwill and trademark amortization............................................ (366) (366) (366)
Interest and debt expense...................................................... (426) (433) (462)
Other income (expense), net.................................................... (28) (32) (30)
Tobacco settlement and related expenses........................................ (1,442) (359) --
Restructuring expenses and related costs....................................... -- (80) --
--------- --------- ---------
Income (loss) before income taxes............................................ $ (679) $ 204 $ 563
--------- --------- ---------
--------- --------- ---------
</TABLE>
OTHER INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Advertising expense..................................................................... $ 245 $ 195 $ 137
Research and development expense........................................................ 64 62 65
Rent expense............................................................................ 49 47 41
</TABLE>
F-24
<PAGE>
NOTE 14--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998(1)
Net sales.................................................................. $ 1,213 $ 1,435 $ 1,531 $ 1,537
Operating income (loss).................................................... (72) 164 325 (642)
Income (loss) from continuing operations................................... (141) (14) 121 (485)
Income (loss) from discontinued operations................................. 133 (100) 49 (79)
Net income (loss).......................................................... (8) (114) 170 (564)
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997(2)
Net sales.................................................................. $ 1,114 $ 1,254 $ 1,332 $ 1,344
Operating income........................................................... 282 297 57 33
Income (loss) from continuing operations................................... 69 79 (57) (72)
Income (loss) from discontinued operations................................. 156 181 187 (110)
Net income (loss).......................................................... 225 260 130 (182)
</TABLE>
- --------------------------
(1) The first quarter of 1998 includes $312 million, $199 million after-tax,
related to the agreements reached by Reynolds Tobacco with the state of
Minnesota and Blue Cross and Blue Shield of Minnesota, as well as other
settlement related costs.
The second quarter of 1998 includes $145 million, $97 million after-tax, of
additional tobacco settlement charges relating to certain prior state
settlement agreements.
The fourth quarter of 1998 includes $985 million, $632 million after-tax, of
tobacco settlement and related charges as a result of the Master Settlement
Agreement.
(2) The third quarter of 1997 includes $219 million, $133 million after-tax,
related to the settlement agreements reached by Reynolds Tobacco with the
Florida and Mississippi state attorneys general and in certain class action
cases.
The fourth quarter of 1997 includes $80 million, $52 million after-tax, of
restructuring expense and $140 million, $85 million after-tax, related to
the settlement agreement reached by Reynolds Tobacco with the Texas state
attorney general.
NOTE 15--SUBSEQUENT EVENTS
DISCONTINUED OPERATIONS
On March 9, 1999, RJR and Reynolds Tobacco entered into a definitive
agreement to sell the international tobacco business for approximately $8
billion, including the assumption of approximately $200 million of net debt, to
Japan Tobacco Inc. The sale was completed on May 12, 1999. Under the terms of
the agreement, Japan Tobacco acquired substantially all of the business
including intellectual property rights of Reynolds International, including the
international rights to the CAMEL, WINSTON and SALEM brand names. Proceeds from
the sale have been used to reduce the debt of RJR and for general corporate
purposes. RJR expects that this debt reduction will substantially strengthen the
financial position of RJR and Reynolds Tobacco.
Also on March 9, 1999, NGH announced that its board of directors had
approved a plan to separate the domestic tobacco business conducted by Reynolds
Tobacco, from the food business conducted by Nabisco's operating subsidiaries.
Under the plan, the separation will be accomplished by the transfer of RJR's
80.5% interest in Nabisco, together with approximately $1.6 billion in after-tax
proceeds from the international tobacco sale, to NGH through a merger
transaction that is intended to be tax-free and which occurred on May 18, 1999,
followed by a spin-off to NGH stockholders of shares in RJR that is intended to
be tax-free.
Upon completion of the spin-off, NGH will be renamed Nabisco Group Holdings
Corp. and continue to exist as a holding company, owning 80.5% of Nabisco. The
re-named Nabisco Group Holdings Corp. and Nabisco will each continue to trade as
separate companies on The New York Stock Exchange and shares of RJR, as the
owner of 100% of Reynolds Tobacco, will also trade separately
F-25
<PAGE>
NOTE 15--SUBSEQUENT EVENTS (CONTINUED)
under the changed name of R.J. Reynolds Tobacco Holdings, Inc. On May 12, 1999,
NGH's board of directors approved the spin-off, which is expected to occur on or
about June 14, 1999.
The operating results of Reynolds International and Nabisco are segregated
and reported as discontinued operations in the accompanying consolidated
financial statements. Prior period financial statements have been reclassified
to conform to the current year presentation.
Summarized operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales.................................................... $ 11,321 $ 12,013 $ 12,361
Provision for income taxes................................... 179 381 282
Net income................................................... 3 414 440
</TABLE>
Assets and liabilities of the discontinued businesses are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C> <C>
Current assets............................................... $ 3,357 $ 3,659
Property, plant and equipment, net........................... 4,183 4,524
Trademarks and goodwill, net................................. 7,710 8,277
Other assets and deferred charges............................ 227 215
Current liabilities.......................................... (2,685) (2,686)
Long-term debt (less current maturities)..................... (3,794) (4,512)
Minority interest in Nabisco................................. (752) (812)
Deferred income taxes........................................ (1,195) (1,343)
Other noncurrent liabilities................................. (1,090) (1,053)
--------- ---------
Net assets of discontinued businesses...................... $ 5,961 $ 6,269
--------- ---------
--------- ---------
</TABLE>
------------------------
The unaudited pro forma information below reflects adjustments to the
historical results of operations and financial condition of RJR. The unaudited
pro forma balance sheet gives effect to the following transactions as if they
occurred on December 31, 1998, as applicable:
- the sale of Reynolds International and application of a portion of the net
proceeds to reduce debt and for general corporate purposes;
- the issuance of $1.25 billion of debt securities by RJR;
- the transfer of RJR's interest in Nabisco to NGH, together with
approximately $1.6 billion of the net cash proceeds from the international
tobacco sale, through a merger transaction; and
- the spin-off of RJR to NGH stockholders.
The unaudited pro forma income statement gives effect to the above
transactions and the adjustment to selling, advertising, administrative and
general expenses to reflect the estimated level of RJR's administrative expenses
after the completion of the RJR spin-off, as if the transactions occurred on
January 1, 1998. No adjustment has been made for one-time or non-recurring items
in the unaudited pro forma income statement.
Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma consolidated financial data based on transactions
and events that are currently probable to occur. RJR has provided the Unaudited
Pro Forma Financial Statements for informational purposes only. You should not
construe them to be indicative of the results of operations or financial
position
F-26
<PAGE>
NOTE 15--SUBSEQUENT EVENTS (CONTINUED)
had the transactions and events described above been consummated on the dates
assumed and do not project the results of operations or financial position for
any future date or period.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents...................................................................... $ 3,030
Accounts and other receivables, net............................................................ 163
Inventories.................................................................................... 529
Prepaid expenses and excise taxes.............................................................. 411
-------
Total current assets....................................................................... 4,133
-------
Property, plant and equipment, net............................................................. 1,115
Trademarks, net................................................................................ 3,176
Goodwill, net.................................................................................. 7,829
Other assets and deferred charges.............................................................. 142
-------
Total assets............................................................................... $ 16,395
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings.......................................................................... $ 28
Accounts payable and accrued liabilities....................................................... 1,527
Current maturities of long-term debt........................................................... 6
Income taxes accrued........................................................................... 2,165
-------
Total current liabilities.................................................................. 3,726
-------
Long-term debt (less current maturities)....................................................... 2,128
Other noncurrent liabilities................................................................... 1,349
Deferred income taxes.......................................................................... 1,458
Total stockholders' equity..................................................................... 7,734
-------
Total liabilities and stockholders' equity................................................. $ 16,395
-------
-------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
(UNAUDITED)
Net sales...................................................................................... $ 5,716
Costs and expenses............................................................................. 5,514
Amortization of trademarks and goodwill........................................................ 366
Restructuring expense.......................................................................... --
-------
Operating income (loss).................................................................... (164)
Interest expense and other income (expense), net............................................... (176)
Income tax benefit............................................................................. (41)
-------
Loss from continuing operations............................................................ $ (299)
-------
-------
</TABLE>
Costs and expenses for RJR include $1,442 billion of tobacco settlement and
related costs. See notes 4 and 10 for further discussion.
------------------------
F-27
<PAGE>
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED
MARCH 31, 1999 AND 1998
F-28
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
--------------- ---------------
<S> <C> <C>
NET SALES*....................................................................... $ 1,693 $ 1,213
------ ------
Costs and expenses:
Cost of products sold* (note 1)................................................ 750 318
Selling, advertising, administrative and general expenses...................... 673 564
Tobacco settlement and related expenses (notes 1 and 4)........................ -- 312
Amortization of trademarks and goodwill........................................ 92 91
------ ------
OPERATING INCOME (LOSS)...................................................... 178 (72)
Interest and debt expense........................................................ (105) (107)
Other income (expense), net...................................................... (7) (5)
------ ------
INCOME (LOSS) BEFORE INCOME TAXES............................................ 66 (184)
Provision (benefit) for income taxes............................................. 36 (43)
------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS..................................... 30 (141)
Income from operations of discontinued businesses, net of income taxes........... 65 133
------ ------
NET INCOME (LOSS)............................................................ $ 95 $ (8)
------ ------
------ ------
</TABLE>
- ------------------------
* Excludes excise taxes of $260 million and $304 million for the three months
ended March 31, 1999 and 1998, respectively.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
F-29
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 95 $ (8)
Less income from discontinued operations....................................... (65) (133)
------- -------
Income (loss) from continuing operations....................................... 30 (141)
------- -------
Adjustments to reconcile net income (loss) to net cash flows from
(used in) operating activities:
Depreciation and amortization.............................................. 121 126
Deferred income tax benefit................................................ (46) (48)
Changes in working capital items, net...................................... 462 (261)
Initial, upfront tobacco settlement and related expenses, net of cash
payments................................................................. (316) 265
Other, net................................................................. (3) --
------- -------
Total adjustments........................................................ 218 82
------- -------
Net cash flows from (used in) continuing operating activities................ 248 (59)
Net cash flows with discontinued operations.................................. (171) (111)
------- -------
Net cash flows from (used in) operating activities........................... 77 (170)
------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures........................................................... (10) (10)
------- -------
Net cash flows used in investing activities.................................. (10) (10)
------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings................................... (62) 95
------- -------
Net cash flows from (used in) financing activities........................... (62) 95
------- -------
Net change in cash and cash equivalents...................................... 5 (85)
Cash and cash equivalents at beginning of period................................. -- 85
------- -------
Cash and cash equivalents at end of period....................................... $ 5 $ --
------- -------
------- -------
Income taxes paid, net of refunds................................................ $ -- $ 84
Interest paid.................................................................... $ 125 $ 124
Tobacco settlement payments...................................................... $ 316 $ 47
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
F-30
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 5 $ --
Accounts and notes receivable, net.......................................... 46 58
Inventories................................................................. 527 529
Prepaid expenses and excise taxes........................................... 751 537
Net assets of discontinued businesses....................................... 5,930 5,961
------- -------
TOTAL CURRENT ASSETS.................................................... 7,259 7,085
------- -------
Property, plant and equipment, net............................................ 1,101 1,115
Trademarks, net............................................................... 3,150 3,176
Goodwill, net................................................................. 7,759 7,829
Other assets and deferred charges............................................. 207 196
------- -------
$ 19,476 $ 19,401
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings....................................................... $ -- $ 29
Accounts payable and accrued liabilities.................................... 1,646 1,564
Current maturities of long-term debt........................................ 123 62
Income taxes accrued........................................................ 267 165
------- -------
TOTAL CURRENT LIABILITIES............................................... 2,036 1,820
------- -------
Long-term debt (less current maturities)...................................... 4,743 4,861
Other noncurrent liabilities.................................................. 925 931
Deferred income taxes......................................................... 1,898 1,903
Contingencies (note 4)
Stockholder's equity:
Common stock (3,022 shares issued and outstanding).......................... 3 3
Paid-in capital............................................................. 10,858 10,859
Retained earnings (accumulated deficit)..................................... (421) (516)
Accumulated other comprehensive income (loss)............................... (566) (460)
------- -------
TOTAL STOCKHOLDER'S EQUITY............................................ 9,874 9,886
------- -------
$ 19,476 $ 19,401
------- -------
------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
F-31
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM REPORTING
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of RJR and its
wholly-owned subsidiary, Reynolds Tobacco. RJR is currently a subsidiary of NGH.
In management's opinion, the accompanying unaudited consolidated condensed
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods presented. You should read the consolidated condensed financial
statements in conjunction with the restated consolidated financial statements
and footnotes of RJR for the year ended December 31, 1998.
For interim reporting purposes, specific costs and expenses are charged to
operations in proportion to the estimated total annual amount expected to be
incurred.
The account balances and activities of R.J. Reynolds International and
Nabisco are segregated and reported as discontinued operations in the
accompanying consolidated condensed financial statements. See note 5 for further
discussion.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 1999, RJR adopted SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 established standards on accounting for
start-up and organization costs and, in general, requires such costs to be
expensed as incurred. The adoption of SOP No. 98-5 did not have a material
effect on RJR's financial position or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards Board
issued SFAS No. 133, which must be adopted by January 1, 2000, with early
adoption permitted. SFAS No. 133 requires that all derivative instruments be
recorded on the consolidated balance sheet at their fair value. Changes in the
fair value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. RJR has not
yet determined the timing of adoption or the impact that adoption or subsequent
application of SFAS No. 133 will have on its financial position or results of
operations.
COMPREHENSIVE INCOME
Total comprehensive income for the three months ended March 31, 1999 and
1998 was $(11) million and $(8) million, respectively. Total comprehensive
income includes net income (loss), foreign currency translation adjustments and
minimum pension liability adjustments.
RESTRUCTURING EXPENSE
In the fourth quarter of 1997, Reynolds Tobacco recorded a pre-tax
restructuring expense of $80 million, $52 million after-tax, to reorganize its
operations. For the three months ended March 31, 1999, $3 million of the
restructuring accruals were utilized for employee severance and related
benefits. All of the charges applied against the reserve were cash expenditures.
F-32
<PAGE>
NOTE 1 -- INTERIM REPORTING (CONTINUED)
TOBACCO SETTLEMENT AND RELATED EXPENSES
In the first quarter of 1998, Reynolds Tobacco recorded $312 million, $199
million after-tax, for initial, upfront tobacco settlement costs relating to the
agreements between Reynolds Tobacco and the Minnesota state attorney general and
Blue Cross and Blue Shield of Minnesota. Ongoing tobacco settlement costs
recorded in the first quarter of 1999 are included in cost of products sold.
In the fourth quarter of 1998, Reynolds Tobacco recorded a $151 million
expense for a workforce reduction of approximately 1,300 employees in response
to changing business conditions which will likely result from the multi-state
settlement agreement signed in November 1998. For the three months ended March
31, 1999, Reynolds Tobacco incurred $5 million of payments, which were applied
against the reserve.
NOTE 2 -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Finished products............................................... $ 95 $ 94
Leaf tobacco.................................................... 326 334
Raw materials................................................... 24 26
Other........................................................... 82 75
------ ------
$ 527 $ 529
------ ------
------ ------
</TABLE>
NOTE 3 -- ADDITIONAL INFORMATION
Reynolds Tobacco's management evaluates the performance of its business
based upon ongoing OCC. OCC is operating income before amortization of
trademarks and goodwill, restructuring expenses and other items deemed unusual
by management. These items include initial, upfront tobacco settlement and
related costs in 1998.
SEGMENT PROFIT (LOSS) INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Ongoing OCC:
Reynolds Tobacco.......................................................................... $ 290 $ 351
Corporate................................................................................. (20) (20)
--------- ---------
Consolidated OCC........................................................................ $ 270 $ 331
--------- ---------
--------- ---------
</TABLE>
A reconciliation of consolidated OCC to consolidated income before income
taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Ongoing OCC................................................................................. $ 270 $ 331
Items excluded from OCC:
Goodwill and trademark amortization....................................................... (92) (91)
Interest and debt expense................................................................. (105) (107)
Other income (expense), net............................................................... (7) (5)
Tobacco settlement and related expenses................................................... -- (312)
--------- ---------
Income (loss) before income taxes....................................................... $ 66 $ (184)
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
NOTE 4 -- CONTINGENCIES
TOBACCO LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against Reynolds Tobacco or its affiliates or indemnitees, among
which are those claiming that lung cancer and other diseases as well as
addiction have resulted from the use of or exposure to Reynolds Tobacco's
tobacco products. During the first quarter of 1999, 35 new actions were served
against Reynolds Tobacco and/or its affiliates or indemnitees, as against 72 in
the first quarter of 1998, and 49 actions were dismissed or otherwise resolved
in favor of Reynolds Tobacco and/or its affiliates or indemnitees without trial.
In recent years, there have been noteworthy increases in the number of cases
pending. On March 31, 1999, there were 647 active cases pending, as compared
with 550 on March 31, 1998 and 278 on March 31, 1997. As of May 14, 1999, 653
active cases were pending against Reynolds Tobacco and/ or its affiliates or
indemnitees: 649 in the United States; one in each of Canada; the Marshall
Islands, Nigeria and Puerto Rico.
The U.S. cases are pending in 41 U.S. states and the District of Columbia,
although four states -- West Virginia, Florida, New York and California --
account for approximately 61% of these cases. The breakdown is as follows: 122
in West Virginia; 110 in New York; 107 in Florida; 55 in California; 34 in
Massachusetts; 25 in Louisiana; 18 in Texas; 17 in Tennessee; 16 in
Pennsylvania; 15 in the District of Columbia; 11 in New Jersey; ten in Alabama;
nine in each of Illinois and Mississippi; seven in each of Iowa and Ohio; five
in each of Indiana, Maryland, Minnesota Missouri and Nevada; four in each of
Arkansas, Georgia, Oklahoma and Rhode Island; three in each of Arizona, New
Mexico, Virginia, Washington and Wisconsin; two in each of Colorado, Hawaii,
Kentucky, Michigan, North Carolina, North Dakota, South Carolina, South Dakota
and Utah; and one in each of Kansas, New Hampshire, and Oregon. Of the 649
active U.S. cases, 170 are pending in federal court, 474 in state court and five
in tribal courts. Most of these cases were brought by individual plaintiffs, but
a significant number, discussed below, seek recovery on behalf of third parties
or large classes of claimants.
THEORIES OF RECOVERY. The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, antitrust, RICO, indemnity,
medical monitoring and common law public nuisance. In a number of cases,
plaintiffs specifically plead punitive damages, often in amounts ranging into
the hundreds of millions or even billions of dollars, in addition to
compensatory and other damages. Nine of the 653 active cases in the United
States involve alleged non-smokers claiming injuries purportedly resulting from
exposure to environmental tobacco smoke. Fifty-nine cases purport to be class
actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes, individuals and their estates
claiming illness and death from cigarette smoking, persons making claims based
on alleged exposure to environmental tobacco smoke, African-American smokers
claiming their civil rights have been violated by the sale of menthol
cigarettes, purchasers of cigarettes claiming to have been defrauded and seeking
to recover their costs and Blue Cross/Blue Shield subscribers seeking
reimbursement for premiums paid. Approximately 103 of the active cases seek,
INTER ALIA, recovery of health-related costs paid for treatment of individuals
suffering from diseases or conditions allegedly related to tobacco use. Nine,
brought by entities administering asbestos liability, seek contribution for the
costs of settlements and judgments.
DEFENSES. The defenses raised by Reynolds Tobacco and/or its affiliates,
where applicable, include preemption by the Federal Cigarette Labeling and
Advertising Act of some or all such claims arising after 1969; the lack of any
defect in the product; assumption of the risk; contributory or comparative
fault; lack of proximate cause; and statutes of limitations or repose; and, when
applicable, additional
F-34
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
statutory, equitable, constitutional and other defenses. RJR and NGH have
asserted additional defenses, including jurisdictional defenses, in many of
these cases in which they are named.
INDUSTRY TRIAL RESULTS. Juries have found for plaintiffs in six smoking and
health cases in which Reynolds Tobacco was not a defendant. In one of these
cases, no damages were awarded and the judgment was affirmed on appeal. The jury
awarded plaintiffs $400,000 in another of these cases, CIPOLLONE V. LIGGETT
GROUP, INC., but the award was overturned on appeal and the case was
subsequently dismissed. In the third of these cases, on August 9, 1996, a
Florida jury awarded damages of $750,000 to an individual plaintiff. That case,
CARTER V. BROWN & WILLIAMSON, was overturned on appeal on June 22, 1998. In
another Florida case brought by the same attorney, WIDDICK V. BROWN &
WILLIAMSON, a state court jury awarded the plaintiff approximately $1 million in
compensatory and punitive damages on June 10, 1998. On January 29, 1999, the
Florida Court of Appeals reversed this verdict and ordered a new trial in a
different location (Palm Beach County). On February 9-10, 1999, in HENLEY V.
PHILIP MORRIS, INC., a San Francisco state court jury awarded an individual
smoker $1.5 million in compensatory damages and $50 million in punitive damages.
Philip Morris moved to have this verdict set aside or reduced. On April 16,
1999, the trial judge reduced the punitive damages award to $25 million, but
otherwise denied Philip Morris' motions. Philip Morris is appealing the verdict.
On March 30, 1999, in WILLIAMS V. PHILIP MORRIS, an Oregon state court jury
returned a verdict against Philip Morris in the amount of $1.5 million in
compensatory damages and $79 million in punitive damages. Although the judge in
this case has reduced the punitive damages to $32 million, Philip Morris will
appeal this verdict as well. The most recent verdict in an individual case was
announced on May 13, 1999. In that case, STEELE V. BROWN & WILLIAMSON, a jury in
Missouri federal court found that Brown & Williamson was not liable for the
death of the plaintiff.
On May 5, 1997, in an individual case filed against Reynolds Tobacco,
brought by the same attorney who represented plaintiffs in the CARTER and
WIDDICK cases, a Florida state court jury found no Reynolds Tobacco liability in
CONNOR V. R. J. REYNOLDS TOBACCO CO. On October 31, 1997, in still another case,
KARBIWNYK V. R.J. REYNOLDS TOBACCO COMPANY, brought by the same attorney,
another Florida state court jury found no Reynolds Tobacco liability. On March
19, 1998, an Indiana state court jury found for Reynolds Tobacco, NGH and other
defendants in an individual case, DUNN V. RJR NABISCO HOLDINGS CORP., in which
plaintiffs sought damages for the alleged harm caused to a non-smoker by
environmental tobacco smoke. On March 18, 1999, the jury in an Ohio federal
district court found for the defendants, including Reynolds Tobacco, on all
counts in a class-action union trust-fund case, IRONWORKERS LOCAL 17 V. PHILIP
MORRIS. Finally, on May 12, 1999 in NEWCOMB V. R.J. REYNOLDS TOBACCO CO., one of
three individual cases in Tennessee state court which have been consolidated for
trial, a state-court jury refused to award damages against Reynolds Tobacco or
Brown & Williamson. The tobacco company defendants in the other two cases were
found to have no liability.
CLASS-ACTION SUITS. In May 1996, in an early class action case, CASTANO V.
AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals overturned the
certification of a purported nationwide class of persons whose claims related to
alleged addiction to tobacco. Since this ruling by the Fifth Circuit, most
purported class-action suits have sought certification of statewide, rather than
nationwide, classes.
Putative class-action suits based on claims similar to those asserted in
CASTANO have been brought against Reynolds Tobacco, and in some cases RJR, in
state and, in a few instances, federal courts in Alabama, Arkansas, California,
the District of Columbia (D.C. court), Florida, Hawaii, Illinois, Indiana, Iowa,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Mexico,
Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Utah, Virginia, and West Virginia. A putative
class action filed in Tennessee seeks reimbursement of
F-35
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
Blue Cross/Blue Shield premiums paid by subscribers throughout the United
States. On October 19, 1998, a putative class action was filed in federal court
in Philadelphia, Pennsylvania, on behalf of "all living Black Americans who have
purchased or consumed menthol tobacco products since 1954 (including minors
through their legal representatives)" seeking redress of alleged violations of
the plaintiffs' civil rights. A purported class action suit against Reynolds
Tobacco in Texas claims that the marketing of "lights" and "ultralight"
cigarettes is deceptive. Plaintiffs have made similar claims in other lawsuits.
Other types of class-action suits have also been filed in additional
jurisdictions and there are also putative class action suits pending in Canada,
Puerto Rico and Nigeria. Most of these suits assert claims on behalf of classes
of individuals who claim to be addicted, injured, or at greater risk of injury
by the use of tobacco or exposure to environmental tobacco smoke, or are the
legal survivors of those persons.
Despite the marked increase of purported class actions brought against
tobacco companies, few purported class actions have been certified, or if
certified, have survived on appeal. Most recently, on May 17, 1999 the U.S.
Supreme Court declined review of a circuit court decision upholding the denial
of class certification in a Pennsylvania medical monitoring case, BARNES V.
AMERICAN TOBACCO. On April 12, 1999, in CHAMBERLAIN V. AMERICAN TOBACCO COMPANY,
a federal district court in Ohio refused to certify a class of
"nicotine-dependent" Ohio residents. On April 13, 1999, in AVALLONE V. AMERICAN
TOBACCO COMPANY, a state court judge in New Jersey refused to certify a
purported class of casino workers exposed to environmental tobacco smoke.
Class certification was granted in 1998 by a Maryland state court in
RICHARDSON V. PHILIP MORRIS. The Maryland Court of Appeals is reviewing that
decision. In addition, on November 5, 1998, a Louisiana state appeals court
affirmed the certification of a medical monitoring and/or smoking cessation
class of Louisiana residents who were smokers on or before May 24, 1996 (SCOTT
V. AMERICAN TOBACCO COMPANY). On February 26, 1999, the Louisiana Supreme Court
denied the defendants' petition for writ of certiorari and/or review. Finally,
defendants settled another class-action suit, BROIN V. PHILIP MORRIS, in
October, 1997. The Florida Court of Appeals denied challenges to this settlement
on March 24, 1999, but subsequent motions to reconsider are still pending.
Trial is underway in a class-action suit pending in Florida, ENGLE V. R. J.
REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or
their survivors who claim to have diseases or medical conditions caused by their
alleged "addiction" to cigarettes has been certified. The trial is divided into
three phases. RJR expects the initial phase, which includes common issues
related to liability and general causation, entitlement to punitive damages and
possibly the basis or ratio for assessment of punitive damages, to last several
more weeks, but even if potential liability is confirmed in this phase of the
trial, no actual liability would be established until the subsequent phases,
which could last for some years.
HEALTH-CARE COST RECOVERY CASES. In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members, including Reynolds Tobacco. This case was brought on behalf of
the state to recover state funds paid for healthcare and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. By making the State the plaintiff in the case and basing
its claims on economic loss rather than personal injury, the State sought to
avoid the defenses otherwise available against an individual plaintiff.
Following the filing of the MOORE case, most other states, through their
attorneys general and/ or other state agencies, sued Reynolds Tobacco and other
U.S. cigarette manufacturers based on similar theories. The cigarette
manufacturer defendants, including Reynolds Tobacco, settled the first four of
these cases scheduled to come to trial, those of Mississippi, Florida, Texas and
Minnesota, by separate agreements between the state and those manufacturers in
each case.
F-36
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
On November 23, 1998, the major U.S. cigarette manufacturers, including
Reynolds Tobacco, entered into the Master Settlement Agreement with attorneys
general representing the remaining 46 states, the District of Columbia, Puerto
Rico, Guam, the Virgin Islands, American Samoa and the Northern Marianas. The
Master Settlement Agreement settles all the health-care cost recovery actions
brought by the settling states and contains releases of various additional
present and future claims.
When judicially approved, the Master Settlement Agreement will release
Reynolds Tobacco and several of its indemnitees and RJR and NGH from: (1) all
claims of the settling states, and their respective political subdivisions and
other recipients of state health-care funds, relating to past conduct arising
out of the use, sale, distribution, manufacture, development, advertising,
marketing or health effects of, the exposure to, or research, statements or
warnings about, tobacco products; and (2) all monetary claims relating to future
conduct arising out of the use of, or exposure to, tobacco products that have
been manufactured in the ordinary course of business.
The Master Settlement Agreement is scheduled to become effective on the
earlier of June 30, 2000 or the date on which final approval of the settlement
has been obtained in courts of 80% of the settling states, both by number and
percentage share of the settlement payments due. As of May 5, 1999, final
approval was obtained in the requisite number of settling states (42), but those
states' percentage shares comprise only 54.18%, rather than the necessary 80%,
of the payments due.
Payments for all tobacco litigation settlement agreements currently in
effect, including the Master Settlement Agreement and four individual state
settlements, will be approximately $1.6 billion in 1999 and will be funded
through price increases. Reynolds Tobacco estimates payments in future years to
exceed $2.0 billion per year, but these payments will be subject to adjustments
based upon, among other things, the volume of cigarettes sold by Reynolds
Tobacco, Reynolds Tobacco's market share and inflation.
On April 20, 1999, the Canadian Province of British Columbia brought a case,
similar to the U.S. attorney-general cases, against Reynolds Tobacco and other
Canadian and U.S. tobacco companies and their parent companies, including RJR,
in British Columbia Provincial Court. This lawsuit relies heavily upon recently
enacted legislation in British Columbia which is being separately challenged by
Canadian tobacco companies. An agreement has been reached with the government in
British Columbia that these separate constitutional challenges will be litigated
prior to the health-care recovery action. These constitutional challenges are
scheduled to be heard by the Canadian courts in the autumn of 1999.
UNION CASES. Although the Master Settlement Agreement settled some of the
most potentially burdensome health-care cost recovery actions, many other such
cases have been brought by other types of plaintiffs. Approximately 70 lawsuits
have been brought by union trust funds against cigarette manufacturers and
others in the past two years. The funds seek recovery of payments made by them
for medical expenses of their participants' union members and their dependents
allegedly injured by cigarettes. The claims in these cases are almost identical,
and more than 30 of the cases purport to be class actions on behalf of all union
trust funds in a particular state.
The defendants in these actions argue, among other things, the settled law
that one who pays an injured person's medical expenses is legally too remote to
maintain an action against the person allegedly responsible for the injury. In
addition, they argue that the traditional subrogation remedy cannot be
supplanted by a direct right of action for the trust fund that strips defendants
of the defenses they would ordinarily have against the allegedly injured
individual.
In the first of these cases to be considered by a federal court of appeals,
on March 29, 1999, the Third Circuit Court of Appeals affirmed a district court
ruling dismissing a case, STEAMFITTERS LOCAL UNION 420 V. PHILIP MORRIS, on
remoteness grounds. Then, a week later, the Second Circuit handed
F-37
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
down its decision in LABORERS LOCAL 17 V. PHILIP MORRIS, reversing a district
court's decision and remanding the case for dismissal, again on remoteness
grounds. On May 3, 1999, the U.S. Court of Appeals for the Ninth Circuit heard
oral argument in OREGON LABORERS V. PHILIP MORRIS. Numerous trial court judges
have also dismissed these cases on remoteness grounds, including most recently,
on April 29, 1999, a federal district court in Minnesota in LYONS V. PHILIP
MORRIS. Nonetheless, in other federal circuits, there are still some union cases
that have survived motions to dismiss and that may proceed to trial. Most
recently, on March 31, 1999, a federal district court denied defendants' motion
to dismiss in UTAH LABORERS V. PHILIP MORRIS. One such case, NORTHWEST LABORERS
V. PHILIP MORRIS, is scheduled for trial in September 1999.
The first union case to survive motions to dismiss and go to trial was IRON
WORKERS LOCAL NO. 17 V. PHILIP MORRIS. This case, in which a class of
approximately 111 union trust funds was certified by a federal district court in
Ohio, went to trial on February 22, 1999 on the counts that survived motions to
dismiss: state and federal RICO claims and civil conspiracy claims. The federal
RICO claim was dismissed during the trial, and after the conclusion of
plaintiffs' case, the court directed a verdict dismissing RJR and NGH from the
case. On March 18, 1999, the jury in this case returned a unanimous verdict for
the defendants, including Reynolds Tobacco, on all remaining counts. On May 11,
1999, the trial court judge denied plaintiffs' motion for a new trial.
OTHER HEALTH-CARE COST RECOVERY AND AGGREGATED CLAIMS PLAINTIFFS. Native
American tribes have filed similar cases, five in tribal courts and one putative
class action in San Diego Superior Court. Four groups of health-care insurers,
as well as a private entity that purported to self insure its employee
health-care programs, have also advanced claims similar to those found in the
union health-care cost recovery actions. Two of these "insurer" cases, WILLIAMS
& DRAKE V. AMERICAN TOBACCO and REGENCE BLUESHIELD V. PHILIP MORRIS, were
dismissed in their entirety on "remoteness" grounds by federal district courts
in Pennsylvania and Washington, respectively. In a third "insurers" case, GROUP
HEALTH PLAN, INC. V. PHILIP MORRIS, a federal district judge in Minnesota, on
April 29, 1999, dismissed all claims, except a state antitrust claim and a
conspiracy claim. Five foreign countries have also brought health-care cost
recovery suits against Reynolds Tobacco in U.S. courts. Other cost recovery
suits have been brought by, among others, local governmental jurisdictions,
taxpayers (on behalf of a governmental jurisdiction), a university and a
hospital. Finally, nine actions have been filed against Reynolds Tobacco by
asbestos companies and/or asbestos-related trust funds based on the theory that
the plaintiffs "overpaid" claims brought against them to the extent that tobacco
use, not asbestos exposure, was the cause of the alleged personal injuries for
which they paid compensation.
RECENT AND SCHEDULED TRIALS. As of May 17, 1999, there were 11 cases
scheduled for trial in 1999 against Reynolds Tobacco alleging injuries relating
to tobacco. In addition, two cases are currently in progress: the ENGLE case in
Florida and an environmental tobacco smoke case in Mississippi, BUTLER V.
AMERICAN TOBACCO COMPANY. Cases against other tobacco company defendants are
also scheduled for trial in 1999 and thereafter. Although trial schedules are
subject to change and many cases are dismissed before trial, it is likely that
there will be an increased number of tobacco cases, some involving claims for
possibly billions of dollars, against Reynolds Tobacco and RJR coming to trial
over the next year.
OTHER DEVELOPMENTS. In January of 1999, President Clinton announced that
the U.S. Department of Justice is preparing a litigation plan for a lawsuit by
the federal government to recover federal healthcare costs associated with
cigarette smoking, and press reports have indicated that the Justice Department
has engaged a private law firm to assist in such a lawsuit.
F-38
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
On April 9, 1999, a class action complaint, A.D. BEDELL WHOLESALE CO. V
PHILIP MORRIS INC., was filed on behalf of cigarette wholesalers and
distributors against Reynolds Tobacco, Philip Morris and Brown & Williamson in
the U.S. District Court for the District of Pennsylvania alleging violations of
the federal antitrust laws based, in large part, on the Master Settlement
Agreement.
Reynolds Tobacco is aware of grand jury investigations being conducted in
New York and Washington, D.C. that relate to the cigarette business. In
addition, Reynolds Tobacco received a document subpoena, dated September 17,
1998, from a federal grand jury convened in the Eastern District of Pennsylvania
by the Antitrust Division of the Department of Justice. Reynolds Tobacco
understands that the grand jury is investigating possible violations of the
antitrust laws related to tobacco leaf buying practices. Reynolds Tobacco is
responding to the subpoena. Reynolds Tobacco is also responding to document
subpoenas dated February 5 and March 10, 1999 arising from a grand jury
investigation being conducted in the Western District of New York into the
actions of some cigarette retailers and a distributor.
On December 22, 1998, a now inactive tobacco subsidiary that was part of
Reynolds International's business, Northern Brands International, Inc., entered
into a plea agreement with the United States Attorney for the Northern District
of New York. Northern Brands was charged with aiding and abetting certain
customers who brought merchandise into the United States "by means of false and
fraudulent practices. . . ." Northern Brands agreed to pay a $10 million
forfeiture and a $5.2 million fine and special assessment. In the plea
agreement, the U.S. Attorney agreed not to bring additional criminal charges in
the Northern District against Northern Brands or its corporate affiliates,
including NGH, RJR, Reynolds Tobacco and Reynolds International, for actions
from 1985 through 1998 that are related to those that gave rise to the
agreement. RJR-MacDonald, Reynolds International's operating company in Canada,
is cooperating with an investigation now being conducted by the Royal Canadian
Mounted Police relating to the same events that gave rise to the Northern Brands
investigation. Management cannot predict whether any other authorities in the
United States or Canada will seek to take further actions with regard to these
events.
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 Reynolds Tobacco or its affiliates, including NGH and RJR, or
indemnitees. Determinations of liability or adverse rulings against other
cigarette manufacturers that are defendants in similar actions, even if those
rulings are not final, could adversely affect the litigation against Reynolds
Tobacco or its affiliates or indemnitees and could encourage an increase in the
number of those claims. There have been a number of political, legislative,
regulatory, and other developments relating to the tobacco industry and
cigarette smoking that have received wide media attention, including the Master
Settlement Agreement referred to above. These developments may negatively affect
the outcomes of tobacco-related legal actions and encourage the institution of
additional similar litigation.
Although it is impossible to predict the outcome of these events on pending
litigation and the rate at which new lawsuits are filed against Reynolds Tobacco
and RJR, a significant increase in litigation and/or in adverse outcomes for
tobacco defendants could have an adverse effect on any one or all of these
entities. Reynolds Tobacco and RJR each believes that it has a number of valid
defenses to any of those actions and intends to defend those actions vigorously.
RJR believes that, notwithstanding the quality of defenses available to it
and Reynolds Tobacco in litigation matters, it is possible that the results of
operations or cash flows of RJR in particular quarterly or annual periods or
RJR's financial condition could be materially affected by the ultimate outcome
of pending litigation matters, including litigation costs. Management is unable
to predict the
F-39
<PAGE>
NOTE 4 -- CONTINGENCIES (CONTINUED)
outcome of the litigation or 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.
NOTE 5 -- THE REORGANIZATION
On March 9, 1999, RJR and Reynolds Tobacco entered into a definitive
agreement to sell the international tobacco business for approximately $8
billion, including the assumption of approximately $200 million of net debt, to
Japan Tobacco. The sale was completed on May 12, 1999. Under the terms of the
agreement, Japan Tobacco acquired substantially all of the business including
intellectual property rights of Reynolds International, including the
international rights to the CAMEL, WINSTON and SALEM brand names. Proceeds from
the sale have been used to reduce debt and for general corporate purposes RJR
expects that this debt reduction will substantially strengthen the financial
position of RJR and Reynolds Tobacco.
Also on March 9, 1999, NGH announced that its board of directors had
approved a plan to separate the domestic tobacco business conducted by Reynolds
Tobacco, from the food business conducted by operating subsidiaries of Nabisco
Holdings Corp. Under the plan, the separation will be accomplished by the
transfer of RJR's 80.5% interest in Nabisco, together with approximately $1.6
billion in after-tax proceeds from the international tobacco sale, to NGH
through a merger transaction that is intended to be tax-free and which occurred
on May 18, 1999, followed by a spin-off to NGH stockholders of shares in RJR
that is intended to be tax-free.
Upon completion of the spin-off, NGH will be renamed Nabisco Group Holdings
Corp. and continue to exist as a holding company, owning 80.5% of Nabisco. The
re-named Nabisco Group Holdings Corp. and Nabisco will each continue to trade as
separate companies on the New York Stock Exchange and shares of RJR, as the
owner of 100% of Reynolds Tobacco, will also trade separately under the changed
name of R.J. Reynolds Tobacco Holdings, Inc. On May 12, 1999, NGH's board of
directors approved the spin-off, which is expected to occur on or about June 14,
1999.
On April 13, 1999, RJR offered to purchase substantially all of its
outstanding debt securities and sought consents from the holders of those
securities to waive covenants that might have prevented some of the transactions
described above. These consents were received as of April 26, 1999. The tender
offers were completed on May 18, 1999, which resulted in RJR repurchasing $3.96
billion of its debt with a portion of the proceeds from the sale of the
international tobacco business.
On May 7, 1999, RJR entered into a $1.235 billion floating rate revolving
credit agreement with a syndicate of commercial banks and on May 18, 1999, RJR
completed a private placement offering of $1.25 billion in debt securities. The
net proceeds received will be used for general corporate purposes. Reynolds
Tobacco has guaranteed RJR's obligations under the revolving credit agreement
and the debt securities.
Reynolds International and Nabisco's operating results are segregated and
reported as discontinued operations in the accompanying consolidated condensed
financial statements. Prior period financial statements have been reclassified
to conform to the current year presentation.
F-40
<PAGE>
NOTE 5 -- THE REORGANIZATION (CONTINUED)
Summarized operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales.................................................................. $ 2,528 $ 2,734
Provision for income taxes................................................. 48 76
Net income................................................................. 65 133
</TABLE>
Assets and liabilities of the discontinued businesses are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Current assets...................................................... $ 3,407 $ 3,357
Property, plant and equipment, net.................................. 4,079 4,183
Trademarks and goodwill, net........................................ 7,618 7,710
Other assets and deferred charges................................... 219 227
Current liabilities................................................. (2,498) (2,685)
Long-term debt (less current maturities)............................ (3,887) (3,794)
Minority interest in Nabisco........................................ (727) (752)
Deferred income taxes............................................... (1,187) (1,195)
Other noncurrent liabilities........................................ (1,094) (1,090)
----------- ------------
Net assets of discontinued businesses............................. $ 5,930 $ 5,961
----------- ------------
----------- ------------
</TABLE>
The unaudited pro forma information below reflects adjustments to the
historical results of operations and financial condition of RJR. The unaudited
pro forma balance sheet gives effect to the following transactions as if they
occurred on March 31, 1999, as applicable:
- the sale of Reynolds International and application of a portion of the net
proceeds to reduce debt and for general corporate purposes:
- the issuance of $1.25 billion of debt securities by RJR;
- the transfer of RJR's interest in Nabisco to NGH, together with
approximately $1.6 billion of the net cash proceeds from the international
tobacco sale, through a merger transaction; and
- the spin-off of RJR to NGH stockholders.
The unaudited pro forma income statement gives effect to the above
transactions and the adjustment to selling, advertising, administrative and
general expenses to reflect the estimated level of RJR's administrative expenses
after the completion of the RJR spin-off, as if the transactions occurred on
January 1, 1999. No adjustment has been made for one-time or non-recurring items
in the unaudited pro forma income statement.
Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma consolidated financial data based on transactions
and events that are currently probable to occur. RJR has provided the unaudited
pro forma financial statements for informational purposes only. You should not
construe them to be indicative of the results of operations or financial
position had the transactions and events described above been consummated on the
dates assumed and these financial statements do not project the results of
operations or financial position for any future date or period.
F-41
<PAGE>
NOTE 5 -- THE REORGANIZATION (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------
<S> <C>
ASSETS
Cash and cash equivalents.................................................................... $ 3,036
Accounts and other receivables, net.......................................................... 151
Inventories.................................................................................. 527
Prepaid expenses and excise taxes............................................................ 424
-------
Total current assets....................................................................... 4,138
-------
Property, plant and equipment, net........................................................... 1,101
Trademarks, net.............................................................................. 3,150
Goodwill, net................................................................................ 7,759
Other assets and deferred charges............................................................ 153
-------
Total assets............................................................................... $ 16,301
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities..................................................... $ 1,606
Current maturities of long-term debt......................................................... 12
Income taxes accrued......................................................................... 2,267
-------
Total current liabilities.................................................................. 3,885
-------
Long-term debt (less current maturities)..................................................... 2,065
Other noncurrent liabilities................................................................. 1,343
Deferred income taxes........................................................................ 1,453
Total stockholders' equity................................................................... 7,555
-------
Total liabilities and stockholders' equity................................................. $ 16,301
-------
-------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------
<S> <C>
Net sales.................................................................................... $ 1,693
Costs and expenses........................................................................... 1,408
Amortization of trademarks and goodwill...................................................... 92
-------
Operating income........................................................................... 193
Interest expense and other income (expense), net............................................. (43)
Income tax provision......................................................................... 66
Minority interest............................................................................ --
-------
Income from continuing operations.......................................................... $ 84
-------
-------
</TABLE>
------------------------
F-42
