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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 12, 1999
Date of Report (Date of earliest event reported)
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
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Delaware 1-10215 13-349-0602
(State of other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(Exact name of registrant as specified in charter)
Delaware 1-6388 56-0950247
(State or other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
1301 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices) (Zip code)
(212) 258-5600
Registrant's telephone number,
including area code
R.J. Reynolds Tobacco Holdings, Inc. last
reported on Form 8-K as RJR Nabisco, Inc.
(Former name or address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
INTRODUCTION
RJR Nabisco Holdings Corp. (which will shortly be renamed Nabisco Group
Holdings Corp. and which this document refers to as NGH) and several of its
subsidiaries have recently completed a series of dispositions and reorganization
transactions constituting a fundamental restructuring of their businesses and
capital structures. The principal transactions in this reorganization that
affect NGH are the following:
o On May 12, 1999, RJR Nabisco, Inc. and R. J. Reynolds Tobacco Company
(which this document refers to as 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, except to the extent that local regulatory approvals for
this sale are still pending. As a result of this sale, Reynolds
Tobacco's only cigarette market will be the United States and its
territories, commonwealths, protectorates and possessions. This
document refers to RJR Nabisco, Inc. (which has subsequently been
renamed R.J. Reynolds Tobacco Holdings, Inc.) as RJR.
o On May 12, 1999, the board of directors of NGH declared a dividend of
100% of the common stock of RJR to record holders of NGH common stock
as of May 27, 1999, the record date for the distribution. 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. The distribution is intended to be tax-free for United States
federal income tax purposes. Currently, NGH expects the distribution
to occur on or about June 14, 1999. After the completion of the
distribution, NGH's sole asset (besides approximately $300 million in
cash remaining after the securities redemptions described below) will
be 100% of the outstanding Class B Common Stock of Nabisco Holdings
Corp. (which this document refers to as Nabisco). The Class B Common
Stock currently represents approximately 80.5% of the economic
interest and approximately 97.7% of the voting interest in Nabisco.
For more information about the distribution, stockholders should
refer to the Information Statement of RJR dated May 19, 1999, which
is filed as Exhibit 99.1 to this document.
o 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.".
o On May 18, 1999, NGH completed a tender offer and consent
solicitation relating to Trust Originated Preferred Securities that
were issued by RJR Nabisco Holdings Capital Trust II, an affiliate of
NGH. In that transaction:
o the holders of those securities agreed to waive a covenant in the
related indenture, thereby enabling NGH to complete the
distribution of the RJR common stock to its stockholders without
violating the terms of that indenture; and
o NGH repurchased approximately $276 million of those securities
out of a total of $373.75 million.
o On May 18, 1999, NGH called for redemption an additional $950 million
in Trust Originated Preferred Securities issued by RJR Nabisco
Holdings Capital Trust I, another affiliate of NGH. NGH will
complete this mandatory redemption on June 18, 1999.
o On May 18, 1999, NGH called for redemption approximately $205 million
of its ESOP Convertible Preferred Stock. NGH will complete this
mandatory redemption on June 10, 1999.
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THE DISTRIBUTION
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 and
related contracts, see the section of this document found under the heading
"Relationship Between NGH and RJR-- Distribution Agreement".
NGH currently expects to 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 the distribution,
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.
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:
o 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.
o 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.
o 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.
o 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.
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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 located under the heading "Relationship Between NGH and
RJR--Tax Sharing Agreement".
RELATIONSHIP BETWEEN NGH AND RJR
This section describes the primary agreements between NGH and RJR 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, the
tax sharing agreement, the intercompany services agreement and the corporate
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,
forms of which NGH has filed as exhibits to RJR's Registration Statement on Form
8-A dated May 19, 1999.
Distribution Agreement
NGH has entered into a distribution agreement with RJR and Reynolds Tobacco
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 NGH, RJR and Reynolds Tobacco 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:
o All liabilities, other than for taxes (which are covered by the tax
sharing agreement described below), that arise out of any claim which
may at any time be made that:
o 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
<PAGE>
o 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;
o All liabilities, other than for taxes (which are covered by the tax
sharing agreement described below) 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;
o 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;
o 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
o 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.
In the distribution agreement, NGH has agreed to indemnify RJR, its
subsidiaries and those entities' directors, officers and employees fully against
the following liabilities:
o All liabilities, other than any for taxes (which are covered by the
tax sharing agreement described below), 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;
o 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
o 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. This 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.
<PAGE>
Because RJR and Reynolds Tobacco may be required to perform their indemnity
obligations to NGH and other indemnitees that are described above, the
distribution agreement imposes limitations on the ability of RJR and its
subsidiaries to engage in specific transactions. For a description of the
restrictions imposed on RJR and its subsidiaries by the distribution agreement,
stockholders should refer to the Information Statement of RJR dated May 19,
1999, which is filed as Exhibit 99.1 to this document.
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:
o 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.
o 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 the Trust Originated Preferred Securities of NGH's
affiliates and the ESOP Convertible Preferred Stock of NGH. RJR is also
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.
On the distribution date, NGH and Nabisco will enter into an intercompany
services agreement under which Nabisco will agree to provide various services to
NGH, including those relating to the provision of insurance, the administration
of benefit plans and specified tax, accounting, reporting cash management,
public relations, risk management, legal and other corporate services. In return
for those services, NGH will pay to Nabisco an amount in cash equal to those
services' fair market value as determined by the parties. The intercompany
services agreement will terminate on the date that NGH owns less than 50% of the
shares of Nabisco's Class B Common Stock that NGH owns on the distribution date.
Upon completion of the distribution, NGH currently anticipates that it will
be responsible for three general categories of non-contingent obligations, (1)
those arising out of the ongoing operation of NGH as a holding company
(including the services to be provided by Nabisco to NGH under the intercompany
services agreement), (2) those arising out of the distribution and other
reorganization transactions, including expenses relating to severance benefits,
the closing of prior headquarters and other transaction costs, and (3) those
relating to Trust Originated Preferred Securities with an aggregate outstanding
liquidation preference of approximately $97.75 million on the distribution date
(assuming completion on that date of the redemption of $950 million in Trust
Originated Preferred Securities). NGH anticipates that, upon completion of the
distribution, it will have approximately $300 million in cash that it expects to
use to satisfy these obligations, including the ongoing administrative expenses
for a number of years.
<PAGE>
Tax Sharing Agreement
NGH will enter into a tax sharing agreement with RJR, 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 NGH
stockholders 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 NGH and Nabisco will covenant to
the RJR tax group, and each of RJR and Reynolds Tobacco will covenant to NGH and
the Nabisco 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 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:
o the liquidation, merger or consolidation with another company of that
corporation or of various subsidiaries;
o the sale, exchange, distribution or other disposition of assets of
that corporation or of various subsidiaries outside of the ordinary
course of business;
o the discontinuation of the active conduct of the food business or the
tobacco business, as the case may be;
o the repurchase of stock of that corporation, other than through
transactions meeting a set of IRS guidelines; and
o 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
<PAGE>
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.
Under the tax sharing agreement, the RJR tax group, the Nabisco tax group
and NGH have agreed to indemnify one another against various tax liabilities.
The chart immediately below summarizes these tax indemnification arrangements.
<TABLE>
<CAPTION>
TAX SHARING AGREEMENT INDEMNITIES
<S> <C> <C> <C> <C>
The RJR tax group NGH will indemnify NGH will indemnify The Nabisco tax group The Nabisco tax group
will indemnify NGH the RJR tax group the Nabisco tax group will indemnify the will indemnify NGH
and the Nabisco tax against, among other against, among other RJR tax group against, against, among other
group against, among things, things, among other things, things,
other things,
o tax liabilities o tax liabilities o tax liabilities o tax liabilities o tax liabilities
attributable to the attributable to NGH attributable to NGH attributable to the attributable to the
RJR tax group relating to tax relating to tax Nabisco tax group Nabisco tax group
relating to any tax periods after periods after relating to tax relating to tax
period; December 1989; December 1989; periods after periods after
December 1989; December 1989; and
and
o tax liabilities o tax liabilities o tax liabilities o tax liabilities o tax liabilities
attributable to NGH relating to any tax relating to any tax relating to any tax relating to any tax
or the Nabisco tax period resulting period resulting period resulting period resulting
group relating to from a breach by from a breach by from a breach by from a breach by the
tax periods before NGH of any NGH of any the Nabisco tax Nabisco tax group
January 1990; and representation or representation or group of any of any
covenant made by covenant made in representation or representation or
NGH in the tax the tax sharing covenant made in covenant made in
sharing agreement; agreement; and the tax sharing the tax sharing
and agreement. agreement.
o tax liabilities o any tax liabilities o any tax liabilities
relating to any tax resulting from resulting from
period resulting RJR's transfer of RJR's transfer of
from a breach by the Nabisco interest the Nabisco interest
the RJR tax group to NGH or the to NGH or the
of any distribution, except, distribution, except,
representation or among other things, among other things,
covenant made by to the extent those to the extent those
the RJR tax group liabilities arise from liabilities arise from
in the tax sharing a breach by the RJR a breach by the RJR
agreement. tax group of any tax group or the
representation or Nabisco tax group
covenant made in of any
the tax sharing representation or
agreement. covenant made by
the relevant 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.
<PAGE>
Corporate Agreement
On the distribution date, NGH and Nabisco will enter into a corporate
agreement under which Nabisco will grant to NGH (1) a continuing option, that is
transferable to any of NGH's subsidiaries, to purchase, under specified
circumstances, additional shares of Class B Common Stock, or shares of nonvoting
capital stock, of Nabisco and (2) registration rights. These rights are
substantially similar to those that Nabisco had granted to RJR in a predecessor
corporate agreement dated as of January 26, 1995. On the distribution date,
Nabisco and RJR will agree to terminate that predecessor agreement.
DIVIDENDS
Before the distribution, NGH paid 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 NGH will be responsible for determining NGH's
dividend policy after the distribution. NGH 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 yield an annual dividend of approximately $0.49 per share on the
325,711,720 shares of NGH stock outstanding on May 12, 1999.
Forward-looking statements may not be accurate. This document contains
forward-looking statements about NGH that NGH 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 NGH or its
management or board of directors 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, NGH 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 NGH.
The actual results, performance or achievement by 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 NGH. NGH does not undertake 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.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information
RJR Nabisco Holdings Corp.
<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 NGH. You should read the unaudited pro forma consolidated condensed
financial statements in conjunction with the consolidated financial statements
of NGH included in its Form 10-K for the year ended December 31, 1998 and the
consolidated condensed financial statements of NGH included in its Form 10-Q for
the three months ended March 31, 1999, both incorporated by reference herein.
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 international tobacco sale;
- 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 NGH
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 five bullet points,
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. NGH is providing the unaudited pro forma consolidated condensed
financial statements for informational purposes only. They should not be
construed to be indicative of NGH'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.
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERNATIONAL
TOBACCO
BUSINESS APPLICATION
NGH DISCONTINUED NEW OF ADJUSTMENT AS
HISTORICAL OPERATIONS(1) DEBT(1) PROCEEDS(1) OF EXPENSES(1) ADJUSTED
----------- ---------------- ----------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES.......................... $ 4,221 $ (673) $ -- $ -- $ -- $ 3,548
COSTS AND EXPENSES
Costs of products sold........... 2,109 (332) -- -- -- 1,777
Selling, advertising, admin. and
general expenses............... 1,550 (236) -- -- (12) 1,302
Tobacco settlement and related
expenses....................... -- -- -- -- -- --
Amortization of intangibles...... 154 (9) -- -- -- 145
Restructuring expense............ -- -- -- -- -- --
----------- ------- ----- ----- ----- ----------
Operating income (loss)............ 408 (96) -- -- 12 324
Interest and debt expense.......... (216) 13 (25) 118 -- (110)
Other income (expense), net........ (39) 22 -- -- 7 (10)
----------- ------- ----- ----- ----- ----------
Income (loss) before taxes......... 153 (61) (25) 118 19 204
Provision (benefit) for income
taxes(1)......................... 70 (25) (9) 44 7 87
----------- ------- ----- ----- ----- ----------
Income (loss) before minority
interest in Nabisco.............. 83 (36) (16) 74 12 117
Less minority interest in income
(loss) of Nabisco................ 7 -- -- -- -- 7
----------- ------- ----- ----- ----- ----------
Income (loss) from continuing
operations....................... $ 76 $ (36) $ (16) $ 74 $ 12 $ 110
----------- ------- ----- ----- ----- ----------
----------- ------- ----- ----- ----- ----------
Basic EPS.......................... $ 0.22
Diluted EPS........................ $ 0.22
<CAPTION>
RJR NGH
SPIN- OFF(1) PRO FORMA(2)
------------ ---------------
<S> <C> <C>
NET SALES.......................... $ (1,693) $ 1,855
COSTS AND EXPENSES
Costs of products sold........... (750) 1,027
Selling, advertising, admin. and
general expenses............... (658) 644
Tobacco settlement and related
expenses....................... -- --
Amortization of intangibles...... (92) 53
Restructuring expense............ -- --
------------ -------
Operating income (loss)............ (193) 131
Interest and debt expense.......... 43 (67)
Other income (expense), net........ -- (10)
------------ -------
Income (loss) before taxes......... (150) 54
Provision (benefit) for income
taxes(1)......................... (66) 21
------------ -------
Income (loss) before minority
interest in Nabisco.............. (84) 33
Less minority interest in income
(loss) of Nabisco................ -- 7
------------ -------
Income (loss) from continuing
operations....................... $ (84) $ 26
------------ -------
------------ -------
Basic EPS.......................... $ 0.08
Diluted EPS........................ $ 0.08
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average number of
common and common
equivalent shares out-
standing (in thousands):
Basic EPS................ 324,053
Diluted EPS.............. 324,301
<CAPTION>
Weighted average number of
equivalent shares out-
standing (in thousands):
Basic EPS................ 325,002
Diluted EPS.............. 325,250
<CAPTION>
common and common
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET FORTH
HEREIN.
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERNATIONAL
TOBACCO
BUSINESS APPLICATION
NGH DISCONTINUED NEW OF ADJUSTMENT AS
HISTORICAL OPERATIONS(1) DEBT(1) PROCEEDS(1) OF EXPENSES(1) ADJUSTED
----------- ---------------- ----------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES........................... $ 17,037 $ (2,921) $ -- $ -- $ -- $ 14,116
COSTS AND EXPENSES
Costs of products sold............ 7,530 (1,494) -- -- -- 6,036
Selling, advertising, admin. and
general expenses................ 6,453 (1,003) -- -- (48) 5,402
Tobacco settlement and related
expenses........................ 1,442 -- -- -- -- 1,442
Amortization of intangibles....... 629 (42) -- -- -- 587
Restructuring expense............. 585 (55) -- -- -- 530
----------- ------- ----- ----- ----- -----------
Operating income (loss)............. 398 (327) -- -- 48 119
Interest and debt expense........... (880) 53 (98) 444 -- (481)
Other income (expense), net......... (132) 75 -- -- 28 (29)
----------- ------- ----- ----- ----- -----------
Income (loss) before taxes.......... (614) (199) (98) 444 76 (391)
Provision (benefit) for income
taxes(1).......................... (23) (139) (34) 161 27 (8)
----------- ------- ----- ----- ----- -----------
Income (loss) before minority
interest in Nabisco............... (591) (60) (64) 283 49 (383)
Less minority interest in income
(loss) of Nabisco................. (14) -- -- -- -- (14)
----------- ------- ----- ----- ----- -----------
Income (loss) from continuing
operations........................ $ (577) $ (60) $ (64) $ 283 $ 49 $ (369)
----------- ------- ----- ----- ----- -----------
----------- ------- ----- ----- ----- -----------
Basic EPS........................... $ (1.91)
Diluted EPS......................... $ (1.91)
Weighted average number of common
and common equivalent shares
outstanding (in thousands):
Basic EPS....................... 323,853
Diluted EPS..................... 323,853
<CAPTION>
RJR NGH
SPIN- OFF(1) PRO FORMA(2)
------------ --------------
<S> <C> <C>
NET SALES........................... $ (5,716) $ 8,400
COSTS AND EXPENSES
Costs of products sold............ (1,353) 4,683
Selling, advertising, admin. and
general expenses................ (2,719) 2,683
Tobacco settlement and related
expenses........................ (1,442) --
Amortization of intangibles....... (366) 221
Restructuring expense............. -- 530
------------ --------------
Operating income (loss)............. 164 283
Interest and debt expense........... 176 (305)
Other income (expense), net......... -- (29)
------------ --------------
Income (loss) before taxes.......... 340 (51)
Provision (benefit) for income
taxes(1).......................... 41 33
------------ --------------
Income (loss) before minority
interest in Nabisco............... 299 (84)
Less minority interest in income
(loss) of Nabisco................. -- (14)
------------ --------------
Income (loss) from continuing
operations........................ $ 299 $ (70)
------------ --------------
------------ --------------
Basic EPS........................... $ (0.29)
Diluted EPS......................... $ (0.29)
Weighted average number of common
and common equivalent shares
outstanding (in thousands):
Basic EPS....................... 324,700
Diluted EPS..................... 325,300
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET FORTH
HEREIN.
<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 results of operations to exclude the results of the
international tobacco business;
- 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 (i) repay $4.04 billion of outstanding RJR borrowings,
including 90% of the debt securities that RJR offered to purchase on April
13, 1999, (ii) repurchase approximately $276 million of Trust Originated
Preferred Securities (approximately 74% of that class of securities
outstanding) and (iii) redeem the $950 million of Trust Originated
Preferred Securities;
- Adjust historical selling, advertising, administrative and general
expenses to reflect the estimated level of administrative expense of NGH
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;
- Adjust historical results of operations to exclude the results of RJR; 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 for the year ended December 31, 1998, subject to any
post-closing adjustments;
- the one-time loss of $348 million, net of tax, that would be recognized
for the three months ended March 31, 1999 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 repurchase of approximately $276 million of
Trust Originated Preferred Securities, the redemption of $950 million of
Trust Originated Preferred Securities and certain other transaction costs;
- the one-time costs and expenses of $226 million after-tax to eliminate
corporate headquarters;
- interest income on (i) the net proceeds from the issuance by RJR of $1.25
billion in debt securities and (ii) the funds invested (approximately $114
million) from the application of a portion of the net proceeds from the
international tobacco sale to cover the cash requirements of the Trust
Originated Preferred Securities not tendered.
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
INTERNATIONAL
TOBACCO
BUSINESS INTERNATIONAL
NGH DISCONTINUED TOBACCO APPLICATION OF
HISTORICAL OPERATIONS(1) SALE(1) NEW DEBT(1) PROCEEDS(1) AS ADJUSTED
----------- --------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents(2).... $ 246 $ (143) $ 7,800 $ 1,250 $ (5,918) $ 3,235
Accounts and other receivables,
net............................. 1,160 (521) -- -- -- 639
Inventories..................... 2,353 (1,023) -- -- -- 1,330
Prepaid expenses and excise
tax............................. 728 (235) -- -- -- 493
----------- ------- ------------- ------------- ------- -----------
Total current assets........ 4,487 (1,922) 7,800 1,250 (5,918) 5,697
Property, plant and equipment,
net............................. 5,180 (1,220) -- -- -- 3,960
Investments in subsidiary......... 2,838 (2,838) -- -- --
Trademarks........................ 7,202 (717) -- -- -- 6,485
Goodwill.......................... 11,325 (434) -- -- -- 10,891
Other assets and deferred
charges......................... 438 (133) -- -- 88 393
----------- ------- ------------- ------------- ------- -----------
Total assets................ $ 28,632 $ (1,588) $ 4,962 $ 1,250 $ (5,830) $ 27,426
----------- ------- ------------- ------------- ------- -----------
----------- ------- ------------- ------------- ------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short term borrowings........... $ 279 $ (212) $ -- $ -- $ -- $ 67
Accounts payable and accrued
liabilities..................... 3,721 (746) -- -- -- 2,975
Current maturities of long-term
debt............................ 407 (19) -- -- (111) 277
Income taxes accrued............ 277 (2) 2,000 -- -- 2,275
----------- ------- ------------- ------------- ------- -----------
Total current liabilities... 4,684 (979) 2,000 -- (111) 5,594
Long-term debt (less current
maturities)..................... 8,630 (195) -- 1,250 (3,928) 5,757
Minority interest in Nabisco.... 727 -- -- -- -- 727
Other noncurrent liabilities.... 2,277 (388) -- -- -- 1,889
Deferred income taxes........... 3,149 (26) (300) -- (9) 2,814
----------- ------- ------------- ------------- ------- -----------
Total liabilities........... 19,467 (1,588) 1,700 1,250 (4,048) 16,781
Commitments and contingencies
NGH's obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely junior subordinated
debentures...................... 1,327 -- -- -- (1,229) 98
Stockholders' equity:
ESOP Preferred stock............ 201 -- -- -- (205) (4)
Common stock.................... 3 -- -- -- -- 3
Paid in capital................. 8,918 -- -- -- -- 8,918
Retained earnings (accumulated
deficit)........................ (577) -- 3,029 -- (348) 2,104
Accumulated other comprehensive
income.......................... (566) -- 233 -- -- (333)
Treasury stock, at cost......... (100) -- -- -- -- (100)
Other stockholders' equity...... (41) -- -- -- -- (41)
----------- ------- ------------- ------------- ------- -----------
Total stockholders'
equity...................... 7,838 -- 3,262 -- (553) 10,547
----------- ------- ------------- ------------- ------- -----------
Total liabilities and
stockholders' equity........ $ 28,632 $ (1,588) $ 4,962 $ 1,250 $ (5,830) $ 27,426
----------- ------- ------------- ------------- ------- -----------
----------- ------- ------------- ------------- ------- -----------
<CAPTION>
RJR
SPIN-OFF AND
OTHER NGH
ADJUSTMENTS(1) PRO FORMA
--------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents(2).... $ (3,092) $ 143
Accounts and other receivables,
net............................. (151) 488
Inventories..................... (527) 803
Prepaid expenses and excise
tax............................. (424) 69
--------------- -----------
Total current assets........ (4,194) 1,503
Property, plant and equipment,
net............................. (1,101) 2,859
Investments in subsidiary......... -- --
Trademarks........................ (3,150) 3,335
Goodwill.......................... (7,759) 3,132
Other assets and deferred
charges......................... (193) 200
--------------- -----------
Total assets................ $ (16,397) $ 11,029
--------------- -----------
--------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short term borrowings........... $ -- $ 67
Accounts payable and accrued
liabilities..................... (1,606) 1,369
Current maturities of long-term
debt............................ (12) 265
Income taxes accrued............ (2,267) 8
--------------- -----------
Total current liabilities... (3,885) 1,709
Long-term debt (less current
maturities)..................... (2,065) 3,692
Minority interest in Nabisco.... -- 727
Other noncurrent liabilities.... (1,183) 706
Deferred income taxes........... (1,544) 1,270
--------------- -----------
Total liabilities........... (8,677) 8,104
Commitments and contingencies
NGH's obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely junior subordinated
debentures...................... -- 98
Stockholders' equity:
ESOP Preferred stock............ 4 --
Common stock.................... -- 3
Paid in capital................. (7,539) 1,379
Retained earnings (accumulated
deficit)........................ (226) 1,878
Accumulated other comprehensive
income.......................... -- (333)
Treasury stock, at cost......... -- (100)
Other stockholders' equity...... 41 0
--------------- -----------
Total stockholders'
equity...................... (7,720) 2,827
--------------- -----------
Total liabilities and
stockholders' equity........ $ (16,397) $ 11,029
--------------- -----------
--------------- -----------
</TABLE>
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET SET FORTH HEREIN.
<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:
- Adjust the historical balance sheets accounts to eliminate the accounts of
the international tobacco business;
- 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 any
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, (2) repurchase approximately $276 million of Trust Originated
Preferred Securities (approximately 74% of that class of securities
outstanding), (3) redeem $950 million of Trust Originated Preferred
Executives, (4) redeem the ESOP Convertible Preferred Stock and (5) invest
funds (approximately $114 million) to cover the nontendered Trust
Originated Preferred Securities. As a result of the difference between the
cash paid to effect the first four transactions and the net carrying value
of such securities, and after giving effect to the write-off of related
deferred issuance costs of $26 million and certain other transaction
costs, a one-time charge on a pro forma basis of approximately $348
million after-tax is reflected;
- Reflect one-time costs and expenses of $226 million after-tax to eliminate
corporate headquarters; and
- Adjust the historical balance sheet accounts to reflect the elimination of
the accounts of RJR that are being distributed by NGH to its 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.
<PAGE>
R.J. Reynolds Tobacco Holdings, Inc.
See pages 32-39 of the Information Statement of RJR dated as of May 19,
1999 that is Exhibit 99.1 to this document.
(c) Exhibits
Exhibit
No. Description
--- -----------
2.1 Purchase Agreement dated as of March 9, 1999 among R.J.
Reynolds Tobacco Company, RJR Nabisco, Inc. and Japan Tobacco
Inc. and amended as of May 11, 1999.
2.2 Certificate of Merger and Agreement and Plan of Merger dated as
of May 18, 1999 among RJR Nabisco Holdings Corp., RJR Nabisco,
Inc. and R.J. Reynolds Tobacco Holdings, Inc.
99.1 Information Statement of R.J. Reynolds Tobacco Holdings, Inc.
dated May 19, 1999 and incorporated by reference from Exhibit
99.1 to the Registration Statement of R.J. Reynolds Tobacco
Holdings, Inc. on Form 8-A dated May 19, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RJR NABISCO HOLDINGS CORP.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By: /s/ H. Colin McBride
---------------------------------
Name: H. Colin McBride
Title: Senior Vice President,
Associate General Counsel and
Corporate Secretary
May 27, 1999
<PAGE>
Exhibit 2.1
PURCHASE AGREEMENT
dated as of
March 9, 1999,
AS AMENDED AND RESTATED
as of
May 11, 1999,
among
R. J. REYNOLDS TOBACCO COMPANY
RJR NABISCO, INC.
and
JAPAN TOBACCO INC.
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................................2
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale...............................................9
SECTION 2.02. Purchase Price.................................................10
SECTION 2.03. Closing........................................................10
SECTION 2.04. Subsequent Closings............................................10
SECTION 2.05. Closing Financial Statements...................................12
SECTION 2.06. Adjustment of Purchase Price...................................16
SECTION 2.07. Allocation of Purchase Price...................................17
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
SECTION 3.01. Corporate Existence and Power..................................18
SECTION 3.02. Corporate Authorization........................................18
SECTION 3.03. Governmental Authorization.....................................18
SECTION 3.04. Noncontravention...............................................19
SECTION 3.05. Capitalization.................................................19
SECTION 3.06. Ownership of Shares............................................20
SECTION 3.07. Subsidiaries...................................................20
SECTION 3.08. Financial Statements...........................................20
SECTION 3.09. Absence of Certain Changes.....................................21
SECTION 3.10. No Undisclosed Material Liabilities............................22
SECTION 3.11. Intercompany Accounts..........................................23
SECTION 3.12. Material Contracts.............................................23
SECTION 3.13. Litigation.....................................................24
SECTION 3.14. Compliance with Laws and Court Orders..........................25
SECTION 3.15. Intellectual Property..........................................25
SECTION 3.16. Insurance Coverage.............................................25
SECTION 3.17. Finders' Fees..................................................26
SECTION 3.18. Environmental Matters..........................................26
SECTION 3.19. Year 2000 Compliance...........................................26
SECTION 3.20. Necessary Property.............................................27
SECTION 3.21. Sellers' Group.................................................27
<PAGE>
PAGE
----
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01. Corporate Existence and Power..................................27
SECTION 4.02. Corporate Authorization........................................28
SECTION 4.03. Governmental Authorization.....................................28
SECTION 4.04. Noncontravention...............................................28
SECTION 4.05. Financing......................................................28
SECTION 4.06. Purchase for Investment........................................29
SECTION 4.07. Litigation.....................................................29
SECTION 4.08. Finders' Fees..................................................29
SECTION 4.09. Inspections; No Other Representations..........................29
ARTICLE 5
COVENANTS OF SELLERS
SECTION 5.01. Conduct of the RJRI Companies..................................30
SECTION 5.02. Access to Information..........................................31
SECTION 5.03. Resignations...................................................32
SECTION 5.04. Related Agreements.............................................32
SECTION 5.05. Delivery of Director Qualifying Shares.........................32
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.01. Confidentiality................................................32
SECTION 6.02. Related Agreements.............................................33
SECTION 6.03. Guarantees of RJRI Group Indebtedness..........................33
SECTION 6.04. Transfer and Assignment of Purchased IPRs......................33
ARTICLE 7
COVENANTS OF BUYER AND SELLERS
SECTION 7.01. Best Efforts; Further Assurances...............................34
SECTION 7.02. Certain Filings................................................35
SECTION 7.03. Public Announcements...........................................35
SECTION 7.04. Intercompany Accounts..........................................35
SECTION 7.05. Notices of Certain Events......................................35
ii
<PAGE>
PAGE
----
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions................................................36
SECTION 8.02. Tax Representations............................................36
SECTION 8.03. Tax Covenants..................................................37
SECTION 8.04. Cooperation on Tax Matters.....................................38
SECTION 8.05. Indemnification by Sellers.....................................38
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Definitions....................................................40
SECTION 9.02. Representations................................................42
SECTION 9.03. RJRI Employees.................................................43
SECTION 9.04. Sellers' U.S. Pension Plans
....................................................................45
SECTION 9.05. Sellers' U.S. Individual Account Plans.........................45
SECTION 9.06. Certain Incentive Benefits.....................................46
SECTION 9.07. Allocation of Certain Liabilities..............................46
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.01. Conditions to Obligations of Buyer and Sellers................48
SECTION 10.02. Conditions to Obligations of Buyer............................48
SECTION 10.03. Conditions to Obligations of Sellers..........................49
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival......................................................50
SECTION 11.02. Indemnification...............................................50
SECTION 11.03. Procedures....................................................52
SECTION 11.04. Calculation of Damages........................................52
SECTION 11.05. Assignment of Claims..........................................53
SECTION 11.06. Exclusivity of Remedies.......................................53
iii
<PAGE>
PAGE
----
ARTICLE 12
TERMINATION
SECTION 12.01. Grounds for Termination.......................................54
SECTION 12.02. Effect of Termination.........................................54
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Notices.......................................................55
SECTION 13.02. Amendments and Waivers........................................56
SECTION 13.03. Expenses......................................................56
SECTION 13.04. Successors and Assigns........................................56
SECTION 13.05. Governing Law.................................................57
SECTION 13.06. Jurisdiction..................................................57
SECTION 13.07. WAIVER OF JURY TRIAL..........................................57
SECTION 13.08. Counterparts; Third Party Beneficiaries.......................57
SECTION 13.09. Entire Agreement..............................................58
SECTION 13.10. Captions......................................................58
SECTION 13.11. Disclosure Letter.............................................58
EXHIBIT A - Intellectual Property Agreement
EXHIBIT B - Puerto Rico Transfer Agreement
EXHIBIT C - Production Agreement
EXHIBIT D - Puerto Rico Production Agreement
EXHIBIT E - Cast Sheet Agreement
EXHIBIT F - Transitional Services Agreement
EXHIBIT G - Puerto Rico Transitional Services Agreement
EXHIBIT H - Document Preservation and Access Agreement
and Defense Cooperation Agreement
EXHIBIT I - List of Companies to be Sold
EXHIBIT J - Allocation of Purchase Price
EXHIBIT K - List of Companies to be Sold Post-Closing
EXHIBIT L - Flow of Funds
EXHIBIT M - Contracts Assigned to Buyer (or its Affiliates)
EXHIBIT N - Additional Assets and Liabilities
EXHIBIT O - Supplemental Disclosure Schedule
iv
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT dated as of March 9, 1999, as amended and restated as
of May 11, 1999, among JAPAN TOBACCO INC., a Japanese corporation ("Buyer"), R.
J. REYNOLDS TOBACCO COMPANY, a New Jersey corporation ("RJRT"), and RJR
NABISCO, INC., a Delaware corporation ("RJRN" and, together with RJRT, the
"Sellers").
W I T N E S S E T H :
WHEREAS, Buyer and Sellers entered into a Purchase Agreement dated as of
March 9, 1999 (the "Purchase Agreement");
WHEREAS, the parties hereto desire to amend and restate the Purchase
Agreement as of May 11, 1999, as set forth herein;
WHEREAS, Sellers (and certain of their direct or indirect subsidiaries)
are the record and beneficial owners of the Shares (as defined below) of each
of the RJRI Companies (as defined below) and desire to sell the Shares and the
Purchased Assets (as defined below) to Buyer, and Buyer desires to (or to have
one or more of its direct or indirect subsidiaries) purchase the Shares of each
of the RJRI Companies and the Purchased Assets from Sellers (or their direct or
indirect subsidiaries), upon the terms and subject to the conditions set forth
below;
WHEREAS, Sellers and Buyer (and/or their Affiliates, as appropriate) will
enter into agreements on and as of the Closing Date providing for the sale,
conveyance, transfer, assignment and delivery of (i) the Purchased IPRs (as
defined below), pursuant to the Intellectual Property Agreement attached hereto
as Exhibit A (the "IPR Agreement") and (ii) the Puerto Rico Plant (as defined
below) pursuant to the Puerto Rico Transfer Agreement attached hereto as
Exhibit B (the "Transfer Agreement") providing for the transfer of all of the
assets and assumption of all of the liabilities, in each case relating to the
Puerto Rico Plant on the Closing Date (as defined below);
WHEREAS, the RJRI Companies conduct an international business involving
(i) the manufacture, marketing, sale and distribution of tobacco products for
sale outside of the United States (as defined below), (ii) the manufacture of
tobacco products in Puerto Rico for export outside of the United States and
(iii) a brand diversification business outside the United States (collectively,
the "Business");
<PAGE>
WHEREAS, Buyer and Sellers (and/or their Affiliates, as appropriate) on
and as of the Closing Date will enter into (i) the Production Agreement
attached as Exhibit C hereto (the "Production Agreement") for the supply of
tobacco products by Sellers' Group (as defined below) to Buyer, its Affiliates
(as defined below) or the RJRI Group (as defined below) for use in the Business
following the Closing, (ii) the Puerto Rico Production Agreement attached
hereto as Exhibit D hereto (the "Puerto Rico Production Agreement") for the
supply of tobacco products by the Puerto Rico Plant to Sellers' Group after the
Closing and (iii) the Cast Sheet Agreement attached as Exhibit E hereto (the
"Cast Sheet Agreement") for the supply of Cast Sheet by the RJRI Group to
Sellers' Group after the Closing; and
WHEREAS, Buyer and Sellers (and/or their Affiliates, as appropriate) on
and as of the Closing Date will enter into (i) the Transitional Services
Agreement attached as Exhibit F hereto (the "Transitional Services Agreement")
relating to certain services to be performed by members of Sellers' Group for
the benefit of Buyer, its Affiliates or the RJRI Group following the Closing to
permit an orderly transition of ownership of the Business and (ii) the Puerto
Rico Transitional Services Agreement attached as Exhibit G hereto (the "Puerto
Rico Transitional Services Agreement") relating to services to be performed by
the RJRI Group for the benefit of Sellers' Group following the Closing and
(iii) the Document Preservation and Access Agreement and the Defense
Cooperation Agreement attached as Exhibit H hereto (the "Litigation
Agreements").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; provided that none of the RJRI Companies or any Subsidiary shall be
considered an Affiliate of Sellers or Buyer, but shall be considered an
Affiliate of Buyer immediately after the Closing Date and further provided that
the Government of Japan shall not be considered an Affiliate of Buyer. For
purposes of this definition, the term "control" (including the correlative
terms "controlling", "controlled by" and "under common control with") means the
possession, direct
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or indirect, 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.
"Balance Sheet" means the audited combined balance sheet of the RJRI Group
as of December 31, 1998.
"Balance Sheet Date" means December 31, 1998.
"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 or in
Tokyo, Japan.
"Capital Stock" means the capital stock of each of the RJRI Companies set
forth on Exhibit I hereto.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986.
"Confidentiality Agreement" means the confidentiality agreement between
RJRN and Buyer dated December 14, 1998.
"Disclosure Letter" means the letter from Sellers to Buyer that is
identified as the disclosure letter and that is dated the date of this
Agreement.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or any agreement with any Governmental Entity relating to the
environment, the effect of the environment on human health and safety or to
pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"Environmental Liabilities" means any and all liabilities arising in
connection with or in any way relating to the Business (as currently or
previously conducted), the RJRI Group or any activities or operations occurring
or conducted at the real property used or held for use in the conduct of the
Business (together with all buildings, fixtures and improvements thereon and,
also including, without limitation, offsite disposal), whether accrued,
contingent, absolute, determined,
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determinable or otherwise, which arise under or relate to any Environmental
Law, whether now or hereinafter in effect, (including, without limitation, any
matter disclosed or required to be disclosed in the Disclosure Letter pursuant
to Section 3.18).
"Excluded Liabilities" means any and all liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, arising out of or
related to the matters described in paragraphs 22, 23 or 24 of Section 3.13 of
the Disclosure Letter or otherwise arising out of or related to activities of
Northern Brands International, Inc. or its employees.
"GAAP" means generally accepted accounting principles in the United
States.
"Governmental Entity" means any government or any state, department or
other political subdivision thereof, or any governmental body, agency,
authority (including, without limitation, any central bank or taxing authority)
or instrumentality (including, without limitation, any court or tribunal) in
any jurisdiction exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substances" means any pollutant, contaminant or any toxic,
radioactive or otherwise hazardous substance, as such terms are defined in, or
identified pursuant to, any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Intellectual Property Right" means any trademark, service mark, trade
name, trade dress, invention, patent, trade secret, copyright, rights in
designs, know-how (including any registrations or applications for registration
of any of the foregoing) or any other similar type of proprietary intellectual
property right.
"knowledge of Sellers", "Sellers' knowledge" or any other similar
knowledge qualification in this Agreement means to the actual knowledge of any
senior vice president or more senior executive officer of R. J. Reynolds
International B.V. (Hilversum), Geneva branch.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance in respect of such property or
asset.
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"Material Adverse Effect" means a material adverse effect on the financial
condition, business, assets, liabilities or results of operations of the
Business taken as a whole, except any such effect resulting from or arising in
connection with (i) any of the Transaction Documents, the transactions
contemplated by the Transaction Documents or the announcement thereof, (ii)
changes or conditions (including changes in GAAP, law, regulation or judicial
or other interpretation) affecting the tobacco industry generally or any
particular markets in which the Business is operated, (iii) changes in
economic, financial market, regulatory or political conditions generally or in
particular markets in which the Business is operated or (iv) any matters
disclosed in the Disclosure Letter.
"1934 Act" means the Securities Exchange Act of 1934.
"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 (or
any equivalent in any jurisdiction).
"Puerto Rico Plant" means the real property, and personal property
appurtenant thereto, located in Puerto Rico currently used in the operation of
the Business primarily in connection with (i) the manufacture of tobacco
products and (ii) the sale, marketing and distribution of tobacco products
outside the United States, but shall exclude the real property, and personal
property appurtenant thereto, located in Puerto Rico currently used by the
Sellers' Group or the RJRI Group exclusively in connection with the sale,
marketing and distribution of tobacco products in the United States, as more
particularly defined in the Transfer Agreement.
"Purchased Assets" means the Purchased IPRs and the Puerto Rico Plant.
"Purchased IPRs" means the Intellectual Property Rights identified on
Schedule 1.01(a).
"RJRI Companies" means the companies listed on Exhibit I hereto.
"RJRI Group" means the RJRI Companies and their Subsidiaries.
"RJRI Liabilities" means all debts, obligations, contracts and liabilities
of any member of either the RJRI Group or the Sellers' Group (or any
predecessor of any member of either the RJRI Group or the Sellers' Group or any
prior owner of all or part of their businesses or assets) of any kind,
character or description (whether known or unknown, accrued, absolute,
contingent, indirect or derivative,
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or otherwise) in any way relating to or arising out of the conduct of the
Business, in whole or in part, including without limitation, (i) all
liabilities set forth on the April 30 Balance Sheet; (ii) all liabilities
relating to any Sellers' Group Guarantee remaining outstanding after the
Closing; (iii) all liabilities of any member of the Sellers' Group arising on
or after the Closing Date under the contracts and agreements listed on Exhibit
M or to any other contracts, agreements, licenses, permits or approvals
relating to the Business that are assigned or otherwise transferred by any
member of the Sellers' Group to, and assumed by, any member of the RJRI Group,
(iv) all Environmental Liabilities; (v) all liabilities and obligations arising
out of any action, suit, investigation or proceeding before any arbitrator or
Governmental Entity listed in the Disclosure Letter; (vi) all liabilities and
obligations arising out of any action, suit, investigation or proceedings
before any arbitrator or Governmental Entity which may at any time (whether
past, present or future) be made, commenced, asserted or pursued that in any
way are based upon or arise from tobacco products of any description consumed
or intended to be consumed outside of the United States, including, without
limitation, all such liabilities and obligations relating to or arising in any
way from (A) the manufacture, marketing, development, advertising, research,
distribution or sale of such products on or before the Closing Date and (B) any
statement or other actions or omissions of any member of either the RJRI Group
or the Sellers' Group (or any predecessor of any member of either the RJRI
Group or the Sellers' Group or any prior owner of all or part of their
businesses or assets) made or occurring on or before the Closing Date relating
to such products, (vii) all liabilities and obligations relating to any
products manufactured or sold by the Business at any time, including without
limitation all warranty obligations and product liabilities and any liability
or obligation relating to the health effects of, or exposure to, any products
manufactured or sold by the Business at any time and (viii) except as expressly
provided in Article 9, all liabilities or obligations relating to employee
benefits or compensation arrangements existing on or prior to the Closing Date
with respect to any employee or former employee of the Business.
Notwithstanding the foregoing, "RJRI Liabilities" shall exclude the liabilities
for which Buyer or its Affiliates are expressly indemnified by Sellers pursuant
to this Agreement.
"Sellers' Group" means Sellers and their respective Affiliates (exclusive
of any member of the RJRI Group).
"Sellers' Group Guarantees" means the guarantees by members of Sellers'
Group of indebtedness of any member of the RJRI Group listed on Schedule 6.03.
"Sellers Product Liabilities" means all liabilities and obligations of any
member of either the RJRI Group or the Sellers' Group (or any predecessor of
any
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member of either the RJRI Group or the Sellers' Group or any prior owner of all
or part of their businesses or assets) of any kind, character or description
(whether known or unknown, accrued, absolute, contingent, indirect or
derivative, or otherwise) arising out of any action, suit, investigation or
proceeding before any arbitrator or Governmental Entity which may at any time
(whether past, present or future) be made, commenced, asserted or pursued that
are in any way based upon or arise from tobacco products of any description
consumed or intended to be consumed in the United States (exclusive of any such
liabilities and obligations in any way based upon or arising from the
manufacture, marketing, development, advertising, research, distribution or
sale of tobacco products by Buyer or its Affiliates on or before the Closing
Date), including, without limitation, all such liabilities and obligations
relating to or arising in any way from (A) the manufacture, marketing,
development, advertising, research, distribution or sale of such products on or
before the Closing Date and (B) any statement or other actions or omissions of
any member of either the RJRI Group or the Sellers' Group (or any predecessor
of any member of either the RJRI Group or the Sellers' Group or any prior owner
of all or part of their businesses or assets) made or occurring on or before
the Closing Date.
"Shares" means the shares of Capital Stock referred to in Exhibit I
hereto.
"Special Purpose Accounting Basis" means the basis of accounting and
reporting for special purpose financial presentations. The Special Purpose
Accounting Basis shall conform with GAAP, applied on a basis consistent with
those used in preparing the Pro Forma Balance Sheet (except as may be indicated
in the notes thereto), except that: (i) accounting standards which become
effective after December 31, 1998 will not be adopted; (ii) intangible assets
(including, without limitation, goodwill, patents, trademarks, deferred
expenses and unamortized debt discount) will not be amortized or otherwise
adjusted subsequent to December 31, 1998 and (iii) any currency translation
adjustments recorded on the Pro Forma Balance Sheet will not be adjusted
subsequent to December 31, 1998.
"Subsidiary" means any 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 any of the RJRI Companies.
"Transaction Documents" means this Agreement, the Production Agreement,
the Transitional Services Agreement, the IPR Agreement, the Transfer Agreement,
the Puerto Rico Production Agreement, the Cast Sheet Agreement, the Puerto Rico
Transitional Services Agreement, the Litigation
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Agreements and the documents referred to in Sections 2.03(b) and (c) and
2.04(a)(ii), 2.04(b)(ii), (d), (e) and (f).
"United States" means the United States of America and each of its
territories, commonwealths and possessions (including, without limitation,
Puerto Rico) but shall not include U.S. embassies and consulates, U.S. military
installations located outside the United States and worldwide duty-free sales.
Any reference in this Agreement to a statute shall be to such statute, as
in effect on the date of this Agreement, and to the rules and regulations
promulgated thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
April 30 Balance Sheet 2.05(a)
April 30 Stockholder's Equity 2.05(a)
Alternative Sale 12.01
Base Stockholder's Equity 2.05
Business Recitals
Business IPRs 3.15(a)
Buyer Preamble
Cast Sheet Agreement Recitals
Claim 11.03
Closing 2.03
Closing Stockholder's Equity 2.04
Condition 2.04(b)
Damages 11.02
Exhibit K Companies 2.03
Exhibit K Company Closing 2.04(b)
Fair Market Value 2.04(b)
Final Stockholder's Equity 2.05
Indemnified Party 11.03
Indemnifying Party 11.03
IPR Agreement Recitals
Litigation Agreements Recitals
Loss 8.05
May 31 Balance Sheet 2.05(b)
May 31 Stockholder's Equity 2.05
Net May Financing 2.05
Post-Closing Tax Period 8.01
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Term Section
Potential Contributor 11.05
Pre-Closing Tax Period 8.01
Production Agreement Recitals
Pro Forma Balance Sheet 3.08
Pro Forma Financial Statements 3.08(b)
Puerto Rico Production Agreement Recitals
Puerto Rico Transitional Services Agreement Recitals
Purchase Agreement Recitals
Purchase Price 2.01
Returns 8.02
RJRI Company Securities 3.05
RJRN Preamble
RJRT Preamble
Sellers Preamble
Subsidiary Securities 3.07
Tax 8.01
Tax Benefit 8.05
Taxing Authority 8.01
Third Party Claim 11.03
Transfer Agreement Recitals
Transitional Services Agreement Recitals
Year 2000 Complaint 3.19(a)
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Except as otherwise provided below, upon
the terms and subject to the conditions of this Agreement, (i) Sellers agree to
sell, or to cause one or more of their direct or indirect subsidiaries to sell
to Buyer, and Buyer agrees to purchase (or to cause one or more of its direct
or indirect subsidiaries to purchase) from Sellers or such subsidiary or
subsidiaries, the Shares free from all Liens and together with all rights
attaching thereto and (ii) Buyer agrees to acquire or to cause one or more of
its direct or indirect subsidiaries to acquire, and Sellers agree to sell,
convey, transfer, assign and deliver, or cause to be sold, conveyed,
transferred, assigned and delivered, to Buyer free and clear of all Liens
(except as indicated in Section 3.15 of the Disclosure Letter) (x) all of the
right, title and interest in, to and under the Purchased IPRs contemplated to
be transferred pursuant to the IPR Agreement,
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(y) all of the right, title and interest of any member of the Sellers' Group in
and to the Puerto Rico Plant pursuant to the Transfer Agreement and (z) the
other assets and liabilities transferred hereunder.
SECTION 2.02. Purchase Price. The aggregate purchase price for the Shares,
Purchased Assets and the other assets and liabilities transferred hereunder
(the "Purchase Price") is $7,832,539,000.00 in cash. The Purchase Price shall
be paid as provided in Sections 2.03 and 2.04 and shall be subject to
adjustment as provided in Section 2.05.
SECTION 2.03. Closing. The closing (the "Closing") of the purchase and
sale of the Shares (other than Shares of the Companies listed on Exhibit K
(collectively, the "Exhibit K Companies"), R.J. Reynolds Berhad, Tanzania
Cigarette Company and R.J. Reynolds (Thailand) Inc.) and the Purchased Assets
shall take place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue,
New York, New York, on May 11, 1999, or at such other time or place as Buyer
and Sellers may agree. At the Closing:
(a) Buyer shall deliver to Sellers an aggregate of $7,544,305,000.00 in
immediately available funds by wire transfer to the accounts of Sellers or one
or more of their Affiliates with banks designated by Sellers on Exhibit L
(transactions 1 through 6 thereof).
(b) Sellers shall deliver to Buyer (i) certificates for the Shares (other
than Shares of Exhibit K Companies, R.J. Reynolds Berhad, Tanzania Cigarette
Company and R.J. Reynolds (Thailand) Inc.) duly endorsed or accompanied by
stock powers duly endorsed in blank or such other documents as may be required
to effect transfer thereof in any applicable jurisdiction and (ii) such
documents as the parties and their respective counsel shall deem reasonably
necessary to assign to Buyer or any of its designated Affiliates the contracts
and agreements listed on Exhibit M.
(c) Sellers and Buyer (or their respective Affiliates) shall enter into,
or have previously entered into, each of the Transaction Documents, and,
subject to the provisions hereof, Sellers shall deliver to Buyer such deeds,
bills of sale, endorsements, consents, assignments and other good and
sufficient instruments of conveyance and assignment as the parties and their
respective counsel shall deem reasonably necessary to vest in Buyer all right,
title and interest in, to and under the Purchased Assets.
SECTION 2.04. Subsequent Closings. (a) On May 12, 1999, at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York, or at such
other time or place as Buyer and Sellers may agree, (i) Buyer shall deliver to
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Sellers an aggregate of $277,685,000.00 in immediately available funds by wire
transfer to accounts of Sellers or one or more of their Affiliates with banks
or brokers designated by Sellers on Exhibit L (transactions 7 and 8 thereof)
and (ii) Sellers shall deliver to Buyer, certificates for Shares of R.J.
Reynolds Berhad and Tanzania Cigarette Company duly endorsed or accompanied by
stock powers duly endorsed in blank or such other documents as may be required
to effect transfer thereof in any applicable jurisdiction. The parties
acknowledge that the purchase and sale of Shares of R.J. Reynolds Berhad will
take place pursuant to a brokerage transaction in Malaysia, with a trade date
of May 12, 1999 and a clearing date of May 19, 1999.
(b) The closing for Shares of each Exhibit K Company (each, an "Exhibit K
Company Closing") shall take place at the offices of Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York, as soon as possible, but in no event
later than eight Business Days, after satisfaction of the condition set forth
opposite the applicable Exhibit K Company's name under the heading "Condition",
or at such other time or place as Buyer and Sellers may agree. At an Exhibit K
Company Closing:
(i) Buyer shall deliver to Sellers the amount set forth opposite the
applicable Exhibit K Company's name under the heading "Fair Market Value"
in immediately available funds by wire transfer to accounts of Sellers or
one or more of their Affiliates with banks designated by Sellers on
Exhibit L.
(ii) Sellers shall deliver to Buyer certificates for Shares of the
applicable Exhibit K Company duly endorsed or accompanied by stock powers
duly endorsed in blank or such other documents as may be required to
effect transfer thereof in any applicable jurisdiction.
(c) Sellers and Buyer hereby acknowledge that (i) Buyer and its Affiliates
are, to the extent permitted by applicable law, authorized to and shall operate
each Exhibit K Company and R.J. Reynolds (Thailand) Inc. for the account of
Buyer and its Affiliates from the Closing Date through the Closing applicable
to such Exhibit K Company or R.J. Reynolds (Thailand) Inc. and (ii) the closing
financial statements described in Section 2.05 will be prepared as if the
closings described in Section 2.04 took place on the Closing Date, so as to
include R.J. Reynolds Berhad, Tanzania Cigarette Company, the Exhibit K
Companies and R.J. Reynolds (Thailand) Inc. in such financial statements. The
parties agree to make appropriate adjustments and take appropriate actions
consistent with this Agreement in the event a closing under Section 2.04 does
not take place by December 31, 1999.
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(d) The closing in respect of R.J. Reynolds (Thailand) Inc. will take
place at such time as reasonably requested by Buyer, in which case Seller shall
deliver to Buyer certificates for the Shares of R.J. Reynolds (Thailand) Inc.
duly endorsed or accompanied by stock powers duly endorsed in blank, or
pursuant to such other mutually satisfactory arrangements as the parties hereto
may agree.
(e) Effective as of the Closing Date, an Affiliate of Buyer will be
directly or indirectly responsible for the lease payments in respect of the
office used by the U.S. RJRTI Employees at Suite 1803, 9130 South Dadeland
Boulevard, Miami, Florida. Such responsibility will be discharged either
through payments made pursuant to the Transitional Services Agreement, a
sublease or a direct assumption of such lease. In consideration for such
assumption, following the Closing Sellers will assign, or cause to be assigned
to any Affiliate of Buyer, the furniture, office equipment and other personal
property used by the US. RJRTI Employees at such location.
(f) After the Closing, the parties hereto will use their best efforts to
cause Sellers' Group to assign to the RJRI Group the assets and liabilities
relating to the ledger entries set forth on Exhibit N hereto (the "Additional
Assets and Liabilities"), to the extent that such assets and liabilities exist
on the Closing Date. Effective as of the Closing, the RJRI Group will have the
benefits of such assets and will be responsible for discharging such
liabilities.
SECTION 2.05. Closing Financial Statements. (a) As promptly as
practicable, but no later than July 12, 1999, Sellers will cause to be prepared
and delivered to Buyer the April 30 Balance Sheet. As promptly as practicable,
but no later than August 12, 1999, Buyer will cause to be prepared and
delivered to Sellers the May 31 Balance Sheet. Within 20 Business Days of
agreement or determination of the April 30 Stockholder's Equity or the May 31
Stockholder's Equity pursuant to Sections 2.05(b) and 2.05(c) respectively
(whichever is later), Sellers shall deliver to Buyer a certificate based on
such April 30 Stockholder's Equity and May 31 Stockholder's Equity setting
forth Sellers' calculation of Closing Stockholder's Equity. The "April 30
Balance Sheet" means the audited balance sheet of the RJRI Group, adjusted to
present fairly the pro forma combined financial position of the RJRI Group as
at the close of business on April 30, 1999 in accordance with the Special
Purpose Accounting Basis and assumptions, adjustments and accounting policies
and practices otherwise consistent with those used in preparing the Pro Forma
Balance Sheet (as defined in Section 3.08). The "May 31 Balance Sheet" means
the unaudited balance sheet of the RJRI Group, adjusted to present fairly the
pro forma combined financial position of the RJRI Group as at the close of
business on May 31, 1999 in accordance with the Special Purpose Accounting
Basis and assumptions, adjustments and accounting policies and practices
otherwise consistent with those
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used in preparing the Pro Forma Balance Sheet, provided that the May 31 Balance
Sheet will exclude any capital contributions, capital reductions, dividends or
any other similar financial transactions between Buyer and its Affiliates, on
the one hand, and the RJRI Group, on the other hand, on or after the Closing.
Buyer agrees to conduct the Business in the ordinary course consistent with
past practice during the period from the Closing through May 31, 1999 and the
parties agree that the operating results of the RJRI Group for the month ended
May 31, 1999 will not include discretionary expenses that relate to periods
after May 31, 1999 except to the extent such expenses would have been incurred
in the ordinary course of business consistent with past practice. Each of the
April 30 Balance Sheet and the May 31 Balance Sheet shall have at least the
same level of detail as the Pro Forma Balance Sheet and include line items
consistent with those in the Pro Forma Balance Sheet. "April 30 Stockholder's
Equity" means the combined stockholder's equity (i.e., RJRN's Investment) of
the RJRI Group as shown on the April 30 Balance Sheet. "May 31 Stockholder's
Equity" means the combined stockholder's equity (i.e., RJRN's Investment) of
the RJRI Group as shown on the May 31 Balance Sheet. The April 30 Stockholder's
Equity and the May 31 Stockholder's Equity shall exclude (A) the effect
(including the tax effect) of any act, event or transaction occurring on or
after the Closing Date and not in the ordinary course of the operation of the
Business, (B) any accounting for deferred income tax assets or liabilities, (C)
any write up or write down of assets (other than current assets) from their
historic depreciated or amortized carrying cost to reflect any higher or lower
market value and (D) any reserves established on or after the Closing Date for
any contingent liabilities that are reflected in the Disclosure Letter or that
were otherwise previously disclosed to Buyer. Each of the April 30
Stockholder's Equity and the May 31 Stockholder's Equity shall be calculated in
accordance with the Special Purpose Accounting Basis and assumptions,
adjustments and accounting policies and practices otherwise consistent with
those used in preparing the Pro Forma Financial Statements (as defined in
Section 3.08). "Closing Stockholder's Equity" means the sum of
(i) the April 30 Stockholder's Equity;
(ii) .3158 multiplied by the result of (x) May 31 Stockholder's
Equity less the April 30 Stockholder's Equity less (y) the
aggregate amounts paid by members of the Sellers' Group to
members of the RJRI Group less the aggregate amounts paid by
members of the RJRI Group to members of the Sellers' Group as a
result of capital contributions, capital reductions, dividends
or any other similar financial transactions from May 1, 1999 to
and including the Closing Date between members of the RJRI Group
and members of the Sellers' Group (collectively, the "Net May
Financing",
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which will be a negative number if amounts paid to Sellers'
Group exceed amounts paid by Sellers' Group); and
(iii) the amount of the Net May Financing.
Anything herein to the contrary notwithstanding, (i) members of the RJRI
Group or the Sellers' Group, as the case may be, shall discharge commercial
accounts payable and other commercial payment obligations to members of the
Sellers' Group or the RJRI Group, as the case may be, in the ordinary course of
business and in accordance with their terms and (ii) the parties acknowledge
that, consistent with the Pro Forma Balance Sheet, neither the April 30 Balance
Sheet nor the May 31 Balance Sheet will reflect the approximately $70,539,000
in proceeds received from Gallaher Limited in connection with the transaction
described in Schedule 3.09, and Net May Financing will not reflect the transfer
of such proceeds by the RJRI Group to Seller's Group. The parties acknowledge
and agree that the Purchase Price takes into account the stockholder's equity
reflected on the RJRI Pro Forma Balance Sheet and that the sole adjustment
contemplated by Section 2.05 is to reflect the change in the stockholder's
equity of the RJRI Companies solely as a result of operations of the Business
from the Balance Sheet Date to the Closing Date inclusive of all transactions
and all changes in facts and circumstances actually occurring between the two
dates.
(b) If Buyer disagrees with Sellers' calculation of April 30 Stockholder's
Equity delivered pursuant to Section 2.05(a), Buyer may, within 20 days after
delivery by Sellers of the certificate setting forth Sellers' calculations of
April 30 Shareholder's Equity and the April 30 Balance Sheet, deliver a notice
to Sellers disagreeing with such calculation and setting forth Buyer's
calculation of such amount. Any such notice of disagreement shall specify those
items or amounts as to which Buyer disagrees, and Buyer shall be deemed to have
agreed with all other items and amounts contained in the April 30 Balance Sheet
and the calculation of April 30 Stockholder's Equity delivered pursuant to
Section 2.05(a).
(c) If Sellers disagree with Buyer's calculation of May 31 Stockholder's
Equity delivered pursuant to Section 2.05(a), Sellers may, within 20 days after
delivery by Buyer of the certificate setting forth Buyer's calculation of May
31 Stockholder's Equity and the May 31 Balance Sheet, deliver a notice to Buyer
disagreeing with such calculation and setting forth Sellers' calculation of
such amount. Any such notice of disagreement shall specify those items or
amounts as to which Sellers disagree, and Sellers shall be deemed to have
agreed with all other items and amounts contained in the May 31 Balance Sheet
and the calculation of May 31 Stockholder's Equity delivered pursuant to
Section 2.05(a).
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(d) If Buyer disagrees with Sellers' calculation of Closing Stockholder's
Equity delivered pursuant to Section 2.05(a), Buyer may, within 20 days after
delivery by Sellers of the certificate setting forth Sellers' calculations of
Closing Shareholder's Equity, deliver a notice to Sellers disagreeing with such
calculation and setting forth Buyer's calculation of such amount. Any such
notice of disagreement shall specify those items or amounts as to which Buyer
disagrees, and Buyer shall be deemed to have agreed with all other items and
amounts contained in the calculation of Closing Stockholder's Equity delivered
pursuant to Section 2.05(a).
(e) If a notice of disagreement is duly delivered pursuant to Section
2.05(b), Section 2.05(c) or Section 2.05(d), Buyer and Sellers shall, during
the 15 days following such delivery, use their best efforts to reach agreement
on the disputed items or amounts in order to determine, as may be required, the
amount of April 30 Stockholder's Equity, May 31 Stockholder's Equity or Closing
Stockholder's Equity, as the case may be, which amount (i) in the case of April
30 Stockholder's Equity, shall not be more than the amount thereof shown in
Sellers' calculations delivered pursuant to Section 2.05(a) nor less than the
amount thereof shown in Buyer's calculation delivered pursuant to Section
2.05(b); (ii) in the case of May 31 Stockholder's Equity, shall not be less
than the amount thereof shown in Buyer's calculations delivered pursuant to
Section 2.05(a) not more than the amount thereof shown in Sellers' calculation
delivered pursuant to Section 2.05(c) and (iii) in the case of Closing
Stockholder's Equity, shall not be more than the amount thereof shown in
Sellers' calculations delivered pursuant to Section 2.04(a) nor less than the
amount thereof shown in Buyer's calculation delivered pursuant to Section
2.04(d). If, during such period, Buyer and Sellers are unable to reach such
agreement, they shall promptly thereafter cause independent accountants of
internationally recognized standing reasonably satisfactory to Buyer and
Sellers (who shall not have any material relationship with Buyer or Sellers),
promptly to review this Agreement and the disputed items or amounts for the
purpose of calculating April 30 Stockholder's Equity, May 31 Stockholder's
Equity or Closing Stockholder's Equity, as the case may be. In making such
calculation, such independent accountants shall consider only those items or
amounts in the April 30 Balance Sheet, the May 31 Balance Sheet, Sellers'
calculation of Closing Stockholder's Equity or April 30 Stockholder's Equity or
Buyer's calculation of May 31 Stockholder's Equity as to which Buyer or
Sellers, as the case may be, have disagreed. Such independent accountants shall
deliver to Buyer and Sellers, as promptly as practicable, a report setting
forth such calculation. Such report shall be final and binding upon Buyer and
Sellers. The cost of such review and report, (i) in the case of disagreement
with respect to the Closing Stockholder Equity shall be borne (x) by Sellers if
the difference between Final Stockholder's Equity and Sellers' calculation of
Closing Stockholder's Equity delivered pursuant to Section 2.05(a) is greater
than the difference between
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Final Stockholder's Equity and Buyer's calculation of Closing Stockholder's
Equity delivered pursuant to Section 2.05(d), (y) by Buyer if the first such
difference is less than the second such difference, and (z) otherwise equally
by Buyer and Sellers; (ii) in the case of disagreement with respect to April 30
Stockholder's Equity, shall be borne (x) by Sellers if the difference between
April 30 Stockholder's Equity as calculated by the independent accountants and
Sellers' calculations of April 30 Stockholder's Equity delivered pursuant to
Section 2.04(a) is greater than the difference between April 30 Stockholder's
Equity as calculated by the independent accountants and Buyer's calculation of
April 30 Stockholder's Equity delivered pursuant to Section 2.04(b), (y) by
Buyer if the first such difference is less than the second such difference, and
(z) otherwise equally by Buyer and Sellers and (iii) in the case of
disagreement with respect to May 31 Stockholder's Equity, shall be borne (x) by
Buyer if the difference between May 31 Stockholder's Equity as calculated by
the independent accountants and Buyer's calculations of May 31 Stockholder's
Equity delivered pursuant to Section 2.05(a) is greater than the difference
between May 31 Stockholder's Equity as calculated by the independent
accountants and Sellers' calculation of May 31 Stockholder's Equity delivered
pursuant to Section 2.05(c), (y) by Sellers if the first such difference is
less than the second such difference, and (z) otherwise equally by Buyer and
Sellers. If Buyer and Sellers are unable to agree on the selection of
independent accountants pursuant to this Section within five days of one or
both of the Buyer and Sellers having first nominated independent accountants
for this purpose, then either Buyer or Sellers may give written notice of
intention to submit the selection of such accountants to the American
Arbitration Association in New York City, it being understood that the American
Arbitration Association will be instructed to select independent accountants of
internationally recognized standing from among the "big five" internationally
recognized firms. The selection of independent accountants by the American
Arbitration Association shall be binding on the parties.
(f) Buyer and Sellers agree that they will, and agree to cause their
respective independent accountants and the members of the RJRI Group to,
cooperate and assist in the preparation of the April 30 Balance Sheet and the
May 31 Balance Sheet and the calculation of April 30 Stockholder's Equity, May
31 Stockholder's Equity and Closing Stockholder's Equity and in the conduct of
the audits and reviews referred to in this Section 2.05, including without
limitation, the making available to the extent necessary of books, records,
work papers and personnel.
SECTION 2.06. Adjustment of Purchase Price. (a) If Base Stockholder's
Equity exceeds Final Stockholder's Equity, Sellers shall pay to Buyer, as an
adjustment to the Purchase Price, in the manner and with interest as provided
in Section 2.05(b), the amount of such excess. If Final Stockholder's Equity
exceeds
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Base Stockholder's Equity, Buyer shall pay to Sellers, in the manner and with
interest as provided in Section 2.05(b), the amount of such excess. "Base
Stockholder's Equity" means $2,375,228,000.00. "Final Stockholder's Equity"
means Closing Stockholder's Equity (i) as shown in Sellers' calculation
delivered pursuant to Section 2.05(a), if no notice of disagreement with
respect thereto is duly delivered pursuant to Section 2.05(d) or (ii) if such a
notice of disagreement is delivered, (A) as agreed by Buyer and Sellers
pursuant to Section 2.05(e) or (B) in the absence of such agreement, as shown
in the independent accountant's calculation delivered pursuant to Section
2.05(e); provided that in no event shall Final Stockholder's Equity be more
than Sellers' calculation of Closing Stockholder's Equity delivered pursuant to
Section 2.05(a) or less than Buyer's calculation of Closing Stockholder's
Equity delivered pursuant to Section 2.05(d). Any adjustment to the Purchase
Price shall be allocated one-half to the Purchased IPRs owned by members of the
Sellers' Group and one-half to the stock of R.J. Reynolds International B.V.
(b) Any payment pursuant to Section 2.06(a) shall be made at a mutually
convenient time and place within 10 days after the Final Stockholder's Equity
has been determined by delivery by Buyer or Sellers, as the case may be, of a
certified or official bank check payable in immediately available funds to the
other party or by causing such payments to be credited to such account of such
other party as may be designated by such other party. The amount of any payment
to be made pursuant to this Section 2.06 shall bear interest from and including
the Closing Date to but excluding the date of payment at a rate per annum equal
to the Prime Rate as published in the Wall Street Journal, Eastern Edition in
effect from time to time during the period from the Closing Date to the date of
payment. Such interest shall be payable at the same time as the payment to
which it relates and shall be calculated daily on the basis of a year of 365
days and the actual number of days elapsed.
SECTION 2.07. Allocation of Purchase Price. Sellers and Buyer agree that
the Purchase Price shall be allocated as follows: (i) $5,065,069,000.00 to the
Shares, (ii) $2,600,000,000.00 to the Purchased IPRs owned by members of the
Sellers' Group, and (iii) $167,470,000.00 to certain other assets. Sellers and
Buyer agree to act in accordance with the foregoing allocation in the
preparation of financial statements and filing of all Tax returns. The
allocation of the Purchase Price among the Shares and certain other assets is
set forth on Exhibit J hereto.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth in the Disclosure Letter, Sellers jointly and
severally represent and warrant to Buyer as of the date hereof and as of the
Closing Date (unless and to the extent any such representation or warranty
speaks specifically as of an earlier date, in which case, as of such earlier
date) that:
SECTION 3.01. Corporate Existence and Power. Each Seller and each member
of the RJRI Group is a business entity duly organized, validly existing and
(with respect to those jurisdictions recognizing the concept of good standing)
in good standing under the laws of its jurisdiction of organization and has all
powers and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted, except for those
powers, licenses, authorizations, permits, consents and approvals the absence
of which would not have a Material Adverse Effect. Each member of the RJRI
Group is duly qualified to do business and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified or in good standing would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by each Seller and each of its direct or indirect subsidiaries that
is selling Shares to the Buyer pursuant to Section 2.01 of the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby are within the corporate powers of that Seller and each of its direct
or indirect subsidiaries that is selling Shares to the Buyer pursuant to
Section 2.01 and have been duly authorized by all necessary corporate action on
the part of that Seller or that subsidiary, as the case may be. The Transaction
Documents constitute valid and binding agreements of each Seller that is a
party thereto.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by each Seller and each of its direct or indirect subsidiaries that
is selling Shares to the Buyer pursuant to Section 2.01 of the Transaction
Documents and the consummation of the transactions contemplated thereby require
no action by or in respect of, or filing with, any Governmental Entity other
than (i) compliance with any applicable requirements of the HSR Act and Council
Regulation (EC) No. 4064/89 of the Council of the European Union (or the
requirements of any national authority within the European Community to whom
the acquisition of the Shares and the Purchased Assets (or any part thereof) is
referred pursuant to Article 9(3) of such regulation); (ii) compliance with any
applicable requirements of the 1934 Act; (iii) compliance with any applicable
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requirements of the Investment Canada Act and the Competition Act of Canada;
(iv) compliance with any other similar law or measure under which any
Governmental Entity of competent jurisdiction regulates or controls the
purchase or sale of any entity or assets; (v) any such action or filing needed
to effect the transfer of the Purchased IPRs; (vi) any notice filing required
by any jurisdiction as a result of the transfer of ownership of any RJRI
Company; (vii) the filing of appropriate documents with the relevant stock
exchange authorities or other self-regulatory organizations in other
jurisdictions in which any member of the RJRI Group is qualified to do
business; and (viii) any such action or filing which, if not obtained or made,
would not have a Material Adverse Effect.
SECTION 3.04. Noncontravention. The execution, delivery and performance by
each Seller, each of its direct or indirect subsidiaries that is selling Shares
to the Buyer pursuant to Section 2.01 or each member of the RJRI Group of the
Transaction Documents (to the extent that it is a party thereto) and the
consummation of the transactions contemplated hereby and thereby do not and
will not (i) violate the organizational documents of either Seller, each of its
direct or indirect subsidiaries that is selling Shares to the Buyer pursuant to
Section 2.01 or such member of the RJRI Group, (ii) assuming compliance with
the matters referred to in Section 3.03, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, except for any such
violations as would not reasonably be expected to have a Material Adverse
Effect, (iii) except as to matters that would not reasonably be expected to
have a Material Adverse Effect, require any consent or other action by any
Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of such
member of the RJRI Group or to a loss of any benefit to which such member of
the RJRI Group is entitled under any provision of any agreement or other
instrument binding upon such member of the RJRI Group or (iv) result in the
creation or imposition of any Lien on any Purchased Asset or any asset of such
member of the RJRI Group.
SECTION 3.05. Capitalization. The Disclosure Letter sets forth the
authorized capital stock of the RJRI Companies. All outstanding shares of
capital stock of each RJRI Company have been duly authorized and validly issued
and are fully paid and each outstanding share of capital stock of each RJRI
Company which is incorporated in a State of the United States is
non-assessable. The Disclosure Letter sets forth all outstanding (i) shares of
capital stock or voting securities of any RJRI Company, (ii) securities of any
RJRI Company convertible into or exchangeable for shares of capital stock or
voting securities of such RJRI Company and (iii) options or other rights to
acquire from any RJRI Company, or other obligation of any RJRI Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of such RJRI Company (the
items in clauses 3.05(i), 3.05(ii) and
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3.05(iii) being referred to collectively as the "RJRI Company Securities").
There are no outstanding obligations of any member of the RJRI Group to
repurchase, redeem or otherwise acquire any RJRI Company Securities.
SECTION 3.06. Ownership of Shares. Sellers, or one or more of their direct
or indirect subsidiaries, are the record and beneficial owner of the Shares,
free and clear of any Lien, and will transfer and deliver to Buyer at the
Closing valid title to the Shares free and clear of any Lien.
SECTION 3.07. Subsidiaries. All Subsidiaries and their respective
jurisdictions of incorporation or organization are identified in the Disclosure
Letter. All of the outstanding capital stock or other voting securities of each
Subsidiary is owned by the RJRI Companies, directly or indirectly, free and
clear of any Lien. There are no outstanding (i) securities of any member of the
RJRI Group convertible into or exchangeable for shares of capital stock or
voting securities of any Subsidiary or (ii) options or other rights to acquire
from any member of the RJRI Group, or other obligation of any member of the
RJRI Group to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of any
Subsidiary (the items in clauses 3.07(a)(i) and 3.07(a)(ii) being referred to
collectively as the "Subsidiary Securities"). There are no outstanding
obligations of any member of the RJRI Group to repurchase, redeem or otherwise
acquire any outstanding Subsidiary Securities.
SECTION 3.08. Financial Statements. (a) The audited combined balance sheet
as of December 31, 1998 and the related audited combined statements of income
and cash flows for the year ended December 31, 1998 of R.J. Reynolds
International and related companies fairly present, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes
thereto), the combined financial position of the RJRI Group (including the
Additional Assets and Liabilities) as of the date thereof and their combined
results of operations and cash flows for the period then ended and are
consistent with the books and records of the RJRI Group. The parties understand
and acknowledge that there are certain differences between, on the one hand,
the financial position and results of operations and cash flows of the RJRI
Group as presented in the audited financial statements as of and for the period
ended December 31, 1998 and, on the other hand, the pro forma financial
position and results of operations and cash flows of the RJRI Group reflecting
certain differences in the assets and liabilities being transferred pursuant to
this Agreement, the principal differences being specified in the notes to the
Pro Forma Financial Statements.
(b) The pro forma combined balance sheet as of December 31, 1998 (the "Pro
Forma Balance Sheet") and the related combined statements of income
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and cash flows for the year ended December 31, 1998 (together with the Pro
Forma Balance Sheet, the "Pro Forma Financial Statements") of the RJRI Group
fairly present the combined pro forma financial position of the RJRI Group as
of the date thereof and their combined pro forma results of operations and cash
flows for the year then ended, in each case in conformity with GAAP applied on
a consistent basis (except as may be indicated in the notes thereto) as
modified by the adjustments and assumptions specified in the notes thereto.
(c) The historical entity financial statements of the RJRI Companies for
the period from 1996 to 1998 included in binders 1, 2, 4, 5, 6 and 7 of the
financial data contained in the data room and made available to Buyer are the
internal management basis financial statements of those entities prepared by
management and relied upon in conducting the Business in the ordinary course.
SECTION 3.09. Absence of Certain Changes. Since the Balance Sheet Date,
the Business has been conducted in the ordinary course consistent with past
practices and there has not been:
(a) any event, occurrence or development that has had a Material Adverse
Effect;
(b) any amendment of any material term of any outstanding security of any
member of the RJRI Group;
(c) any incurrence, assumption or guarantee by any member of the RJRI
Group of any indebtedness for borrowed money other than under an existing
credit facility (or any refinancing thereof) of any member of the RJRI Group
and in the ordinary course of business consistent with past practices;
(d) any making of any material loan, advance or capital contributions to
or investment in any Person other than intercompany loans or advances and other
than loans, advances or capital contributions to or investments made in the
ordinary course of business consistent with past practices or pursuant to
existing commitments or agreements;
(e) any transaction or commitment made, or any contract or agreement
entered into, by any member of the RJRI Group relating to its assets or
business, in either case, material to the Business, taken as a whole, other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by the Transaction Documents;
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(f) any material change in any method of accounting or accounting practice
by any member of the RJRI Group except for any such change required by reason
of a concurrent change in GAAP;
(g) any (i) material employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director or
executive officer of any member of the RJRI Group (or any amendment to any such
existing agreement), (ii) grant of any material severance or termination pay to
any director or executive officer of any member of the RJRI Group that would be
an obligation of Buyer or any member of the RJRI Group after the Closing Date
or (iii) material change in compensation or other benefits payable to any
director or executive officer of the RJRI Group pursuant to any severance or
retirement plan or policies thereof, in each case other than (x) in the
ordinary course of business consistent with past practices, (y) pursuant to
agreements or policies existing on the date hereof or (z) consistent in
magnitude and character with terms of agreements or policies with respect to
individuals with comparable positions or responsibilities;
(h) lapse, abandonment, sale or other disposal of any Intellectual
Property Right of the Business, except (i) in accordance with the terms thereof
(other than as a result of breach thereof by any member of the RJRI Group) or
(ii) where the lapse, abandonment, sale or other disposal thereof would not
have a Material Adverse Effect; or
(i) agreement or arrangement to take any of the actions specified in this
Section 3.09, except as expressly contemplated by any of the Transaction
Documents.
SECTION 3.10. No Undisclosed Material Liabilities. There are no
liabilities of the RJRI Group of any kind, other than:
(a) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(b) liabilities not required under GAAP to be shown or disclosed on the
Balance Sheet;
(c) liabilities disclosed in, relating to or arising under any agreements,
instruments or other matters disclosed in the Disclosure Letter;
(d) liabilities incurred in the ordinary course of business since the
Balance Sheet Date;
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(e) liabilities arising from or related to matters affecting the tobacco
industry generally; or
(f) other undisclosed liabilities that, individually or in the aggregate,
would not have a Material Adverse Effect.
SECTION 3.11. Intercompany Accounts. (a) The Disclosure Letter contains a
complete list of all intercompany balances of at least $1 million as of the
Balance Sheet Date between any member of the Sellers' Group, on the one hand,
and any member of the RJRI Group, on the other hand. Since the Balance Sheet
Date, there has not been any accrual of liability by any member of the RJRI
Group to any member of the Sellers' Group or other transaction between any
member of the RJRI Group and any member of the Sellers' Group, except in the
ordinary course of business of the RJRI Group consistent with past practice.
(b) The intercompany accounts referred to in Section 7.04 of the
Disclosure Letter represent obligations for goods and services provided on
terms reasonably consistent with those that could be obtained on a reasonable
commercial basis from a third party, and those intercompany accounts are
reflected on the Pro Forma Balance Sheet. There were no other intercompany
accounts reflected as liabilities on the Pro Forma Balance Sheet that will be
capitalized on the April 30 Balance Sheet.
SECTION 3.12. Material Contracts. (a) No member of the RJRI Group is a
party to or bound by:
(i) any lease (whether of real or personal property) providing for
annual rental payments of $1 million or more that cannot be terminated on
not more than one year's notice without payment by any member of the RJRI
Group of any material penalty;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by any
member of the RJRI Group of $5 million or more that cannot be terminated
on not more than one year's notice without payment by any member of the
RJRI Group of any material penalty;
(iii) any sales, distribution or other similar agreement providing
for the sale by any member of the RJRI Group of materials, supplies,
goods, services, equipment or other assets that provides for annual
payments to the RJRI Group of $5 million or more that cannot be terminated
on not more than one year's notice without payment by any member of the
RJRI Group of any material penalty;
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(iv) any material partnership, joint venture or other similar
agreement or arrangement;
(v) any agreement relating to the acquisition or disposition of any
material business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset), except any such agreement
(A) with an aggregate outstanding principal amount not exceeding $5
million or (B) entered into subsequent to the date of this Agreement as
permitted by Section 3.09(c);
(vii) any material agreement that imposes a material limitation on
the freedom of any member of the RJRI Group to compete in the tobacco
products business;
(viii) any material agreement (other than a Transaction Document)
with any member of the Sellers' Group that will continue to be in effect
following the Closing;
(ix) any other agreement, commitment, arrangement or plan not made in
the ordinary course of business that is material to the RJRI Group, taken
as a whole; or
(x) any derivative transaction, other than those in the ordinary
course of business.
(b) Each agreement, contract, plan, lease, arrangement or commitment
required to be disclosed pursuant to this Section 3.12 is a valid and binding
agreement of the member of the RJRI Group which is a party thereto, and is in
full force and effect, and no member of the RJRI Group or, to the knowledge of
Sellers, any other party thereto is in default or breach in any respect under
the terms of any such agreement, contract, plan, lease, arrangement or
commitment, except for such defaults or breaches as would not have a Material
Adverse Effect.
SECTION 3.13. Litigation. To Sellers' knowledge, there is no action, suit
or proceeding pending against any member of the RJRI Group or any of their
respective properties or against any member of the Sellers' Group relating to
the Business before any arbitrator or Governmental Entity that is reasonably
likely to have a Material Adverse Effect or that, as of the date of this
Agreement, in any
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manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement and, to the Sellers' knowledge, as
of the date hereof, no such action, suit or proceeding is threatened in writing
against any member of the RJRI Group.
SECTION 3.14. Compliance with Laws and Court Orders. To Sellers'
knowledge, no member of the RJRI Group is in violation of any applicable law,
rule, regulation, judgment, injunction, order or decree, except for violations
that have not had and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
SECTION 3.15. Intellectual Property. (a) The Disclosure Letter contains a
list of all material Intellectual Property Rights owned or licensed and used or
held for use by any member of the RJRI Group, and Schedule 1.01(a) contains a
list of all Purchased IPRs (collectively, the "Business IPRs"). To the
knowledge of Sellers, members of the Sellers' Group or the RJRI Group own the
entire right, title and interest in and to each of the Business IPRs, free and
clear of any outstanding judgment, injunction, order, decree or Liens,
including, without limitation, licenses, registered user agreements and
covenants by Sellers not to sue third Persons, except in each case for such
matters as would not, individually or in the aggregate, have a Material Adverse
Effect. To the knowledge of Sellers, each of the Business IPRs is subsisting
and has not been adjudged invalid, unregistrable or unenforceable, in whole or
in part.
(b) To the knowledge of Sellers, neither Seller has received notice of any
claims, either asserted or threatened, that the use, sale, testing, promotion
or distribution of any of the Business IPRs infringes or otherwise violates the
rights of any third Person, except in each case for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect. Sellers make
no warranty that they have carried out any search to attempt to determine
whether any such third Person rights exist.
(c) Buyer agrees that Sellers shall not be liable to Buyer as a result of
Buyer's use of the Business IPRs for any damage or costs incurred or paid by
Buyer to any third Person for any claims, judgments or settlements that are
asserted or notified after the Closing.
SECTION 3.16. Insurance Coverage. Sellers have made available to Buyer a
list and summary of all material insurance policies and fidelity bonds relating
to the assets, business, operations, employees, officers or directors of any
member of the RJRI Group. There are no material claims by any member of the
RJRI Group pending under any of such policies or bonds as to which coverage has
been
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questioned, denied or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights.
SECTION 3.17. Finders' Fees. Except for Morgan Stanley & Co. Incorporated
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, whose fees will be paid
by Sellers, there is no investment banker, broker, finder or other intermediary
that has been retained by or is authorized to act on behalf of Sellers or the
RJRI Group who might be entitled to any fee or commission in connection with
the transactions contemplated by this Agreement.
SECTION 3.18. Environmental Matters. Except as to matters that would not
reasonably be expected to have a Material Adverse Effect, to the knowledge of
Sellers:
(a) no written notice, request for information, order, complaint or
penalty has been received by any Seller or member of the RJRI Group, and there
are no judicial, administrative or other actions, suits or proceedings pending
or threatened which allege a violation of any Environmental Law, in each case
relating to any member of the RJRI Group, the Puerto Rico Plant or the Business
and arising out of any Environmental Law;
(b) each member of the RJRI Group and the Puerto Rico Plant has all
environmental permits necessary for its operations to comply with all
applicable Environmental Laws and is in compliance with the terms of such
permits and with all other applicable Environmental Laws; and
(c) there has been no written environmental audit conducted within the
past five years by Sellers or any member of the RJRI Group of any property
currently owned or leased by any member of the RJRI Group or of the Puerto Rico
Plant that has not been delivered to Buyer prior to the date hereof.
SECTION 3.19. Year 2000 Compliance. (a) To the knowledge of Sellers, there
is no failure to be Year 2000 Compliant of any system (including any system
belonging to any of the RJRI Group's material suppliers) that would have, or be
reasonably expected to have, a Material Adverse Effect. "Year 2000 Compliant"
means the ability of the applicable system or item to (i) receive, record,
store, provide, recognize and process all date and time data from during, into
and between the twentieth and twenty-first centuries, the years 1999 and 2000
and (ii) accurately perform all date-dependent calculations and operations
(including, without limitation, mathematical operations, sorting, comparing and
reporting) from, during, into and between the twentieth and twenty-first
centuries, the years 1999 and 2000 and all leap years.
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(b) Any reprogramming required to make Year 2000 Compliant all of the RJRI
Group's internal systems that are material to the business or operations of the
RJRI Group, including, without limitation, computer hardware systems, software
applications, firmware, equipment containing embedded microchips and other
embedded systems, and the testing of all such systems and items, as so
reprogrammed, is currently expected to be completed by September 30, 1999.
SECTION 3.20. Necessary Property. The Purchased Assets and the assets of,
and the real property leased by, the members of the RJRI Group constitute all
of the assets and properties, now used, usable or otherwise necessary or
appropriate for the conduct of the Business after the Closing by Buyer in the
manner and to the extent that the Business is presently conducted. A member of
the RJRI Group (or a member of the Sellers' Group in the case of the Puerto
Rico Plant) has the necessary legal rights to use the real property used or
held for use in the Business and the buildings, structures, fixtures and
improvements situated thereon, in each case free and clear of all Liens except
as would not materially interfere with the use thereof in the conduct of the
Business in accordance with past practice. The RJRI Group has the benefit of
all necessary rights to enable the full enjoyment of all such assets and
property and to utilize each such asset and property for the purposes of the
Business as currently conducted, except for such rights the absence of which
will not have a Material Adverse Effect.
SECTION 3.21. Sellers' Group. All of the representations and warranties
set forth in this Article 3 concerning the debts, obligations, contracts and
liabilities of the RJRI Group are also made as to Sellers' Group (or any
predecessor of any member of the Sellers' Group or the RJRI Group or any prior
owner of all or part of their businesses or assets) to the extent (and only to
the extent) such debts, obligations, contracts and liabilities relate to or
arise out of conduct of the Business, in whole or in part.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as of the date hereof and as of
the Closing Date that:
SECTION 4.01. Corporate Existence and Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of Japan and
has all corporate powers and all material governmental licenses,
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authorizations, permits, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by Buyer of the Transaction Documents and the consummation of the
transactions contemplated thereby are within the corporate powers of Buyer and
have been duly authorized by all necessary corporate action on the part of
Buyer. The Transaction Documents constitute valid and binding agreements of
Buyer.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by Buyer of the Transaction Documents and the consummation of the
transactions contemplated thereby require no material action by or in respect
of, or material filing with, any Governmental Entity other than (i) compliance
with any applicable requirements of the HSR Act and Council Regulation (EC) No.
4064/89 of the Council of the European Union (or the requirements of any
national authority within the European Community to whom the acquisition of the
Shares and the Purchased Assets (or any part thereof) is referred pursuant to
Article 9(3) of such regulation); (ii) compliance with any applicable
requirements of the Investment Canada Act and the Competition Act of Canada;
(iii) compliance with any other similar law or other measure under which any
Governmental Entity of competent jurisdiction regulates or controls the
purchase or sale of any entity or assets; (iv) compliance with Japanese
antitrust regulations and the Japanese Foreign Exchange and Foreign Trade Law
and (v) the filing of appropriate documents with the relevant stock exchange
authorities or other self-regulatory organizations in other jurisdictions in
which any member of the RJRI Group is qualified to do business.
SECTION 4.04. Noncontravention. The execution, delivery and performance by
Buyer of the Transaction Documents and the consummation of the transactions
contemplated thereby do not and will not (i) violate the certificate of
incorporation or bylaws of Buyer, (ii) assuming compliance with the matters
referred to in Section 4.03, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (iii) require any consent or other
action by any Person under, constitute a default under, or give rise to any
right of termination, cancellation or acceleration of any right or obligation
of Buyer or to a loss of any benefit to which Buyer is entitled under any
provision of any agreement or other instrument binding upon Buyer or (iv)
result in the creation or imposition of any material Lien on any asset of
Buyer.
SECTION 4.05. Financing. Buyer has, or will have prior to the Closing,
sufficient cash, available lines of credit or other sources of immediately
available
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funds to enable it to make payment of the Purchase Price and any other amounts
to be paid by it hereunder.
SECTION 4.06. Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Buyer (either alone or together with
its advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its
investment in the Shares and is capable of bearing the economic risks of such
investment.
SECTION 4.07. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer before any arbitrator or Governmental Entity which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by the Transaction Documents.
SECTION 4.08. Finders' Fees. Except for Salomon Smith Barney Inc., whose
fees will be paid by Buyer, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer who might be entitled to any fee or commission from Sellers or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.09. Inspections; No Other Representations. Buyer is
knowledgeable about the tobacco products industry, is an informed and
sophisticated purchaser, and has engaged expert advisors, experienced in the
evaluation and purchase of companies such as members of the RJRI Group as
contemplated hereunder. Buyer has undertaken such investigation and has been
provided with and has evaluated such documents and information as it has deemed
necessary to enable it to make an informed and intelligent decision with
respect to the execution, delivery and performance of the Transaction
Documents. Buyer acknowledges that Sellers have given Buyer sufficient access
to the key employees, documents and facilities of the RJRI Group. Buyer will
undertake prior to Closing such further investigation and request such
additional documents and information as it deems necessary. Buyer agrees to
accept the Shares and the Purchased Assets in the condition they are in on the
Closing Date based upon its own inspection, examination and determination with
respect thereto as to all matters, and without reliance upon any express or
implied representations or warranties of any nature made by or on behalf of or
imputed to Sellers, except as expressly set forth in the Transaction Documents.
Without limiting the generality of the foregoing, Buyer acknowledges that
Sellers make no representation or warranty with respect to (i) any projections,
estimates or budgets delivered to or made available to Buyer of future
revenues, future results of operations (or any
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component thereof), future cash flows or future financial condition (or any
component thereof) of the Business or the future business and operations of the
Business or (ii) any other information or documents made available to Buyer or
its counsel, accountants or advisors with respect to the RJRI Companies or the
Subsidiaries or their respective businesses or operations, except as expressly
set forth in this Agreement.
ARTICLE 5
COVENANTS OF SELLERS
Each Seller agrees that:
SECTION 5.01. Conduct of the RJRI Companies. Except as set forth in
Section 3.09 of the Disclosure Letter delivered on and as of the date hereof
(without regard to any changes made to the Disclosure Letter pursuant to
Section 13.11), from the date hereof until the Closing Date, Sellers shall
cause the members of the RJRI Group to conduct their businesses in the ordinary
course consistent with past practice and to use reasonable efforts to (x)
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees and (y) maintain satisfactory relations with suppliers, contractors,
distributors, licensors, licensees, customers and others having business
relationships with it. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date, Sellers will not permit any member of
the RJRI Group to:
(a) except as provided in the Transaction Documents, adopt or propose any
change in its organizational documents;
(b) merge or consolidate with any Person (other than with another member
of the RJRI Group) or acquire a material amount of assets from any other Person
other than in the ordinary course of business consistent with past practice;
(c) sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments, (ii) to or
with another member of the RJRI Group or (iii) in the ordinary course
consistent with past practice;
(d) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, other than in the ordinary course of business consistent
with past practice;
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(e) other than in the ordinary course of business consistent with past
practice, enter into any material contract or modify, terminate or waive any
right under any material contract;
(f) increase the compensation payable to its directors, executive officers
or employees, except for increases in accordance with past practices, or grant
any severance or termination pay (other than pursuant to existing agreements)
to any director, executive officer or other employee, or establish, adopt,
enter into or amend any plan, agreement, trust, fund, policy or arrangement for
the benefit of any director, executive officer or employee; provided that the
foregoing will not apply to actions taken in respect of non-executive officers
and employees in the ordinary course of business consistent with past practice;
or
(g) agree or commit to do any of the foregoing.
Each Seller will not take, and will not permit any member of the RJRI Group to
take, any action that would make any representation or warranty of Sellers
hereunder inaccurate in any material respect at the Closing Date such that the
closing condition set forth in Section 10.02(a)(ii) would not be satisfied as
of such date.
SECTION 5.02. Access to Information. (a) From the date hereof until the
Closing Date, Sellers will (i) give, and will cause members of the RJRI Group
to give, Buyer, its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of members of the RJRI Group and to the books and records of Sellers relating
to members of the RJRI Group, (ii) furnish, and will cause members of the RJRI
Group to furnish, to Buyer, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to members of the RJRI Group as such Persons may
reasonably request and (iii) instruct the employees, counsel and financial
advisors of Sellers and members of the RJRI Group to cooperate with Buyer in
its investigation of members of the RJRI Group. Any investigation pursuant to
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of Sellers or members of the RJRI Group.
Notwithstanding the foregoing, Buyer shall not have access to personnel records
of members of the RJRI Group relating to individual performance or evaluation
records, medical histories or other information that in Sellers' good faith
opinion is sensitive or the disclosure of which could subject any member of the
RJRI Group to risk of liability.
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(b) On and after the Closing Date, each Seller will afford promptly to
Buyer and its agents reasonable access to its books of account, financial and
other records (including, without limitation, accountant's work papers),
information, employees and auditors to the extent necessary or useful for Buyer
in connection with any audit, investigation, dispute or litigation or any other
reasonable business purpose relating to the RJRI Group; provided that any such
access by Buyer shall not unreasonably interfere with the conduct of the
business of Sellers or any member of the RJRI Group. Buyer shall bear all of
the out-of-pocket costs and expenses (including, without limitation, attorneys'
fees, but excluding reimbursement for general overhead, salaries and employee
benefits) reasonably incurred in connection with the foregoing.
SECTION 5.03. Resignations. Sellers will deliver to Buyer the resignations
of all officers and directors of the RJRI Group who will be officers or
directors of either Seller or any of their respective Affiliates after the
Closing Date from their positions with each member of the RJRI Group at or
prior to the Closing Date.
SECTION 5.04. Related Agreements. At or prior to the Closing, Seller
(and/or its Affiliates) will execute and deliver to Buyer each of the
Transaction Documents.
SECTION 5.05. Delivery of Director Qualifying Shares. As soon as
reasonably practicable after the Closing, Sellers shall transfer (or cause to
be transferred) to nominees designated by Buyer all nominee director qualifying
or similar shares of capital stock of the RJRI Companies or Subsidiaries (or
any other Persons in which members of the RJRI Group are investors) that are
held by an employee or director of a member of the RJRI Group as of the Closing
Date.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning
members of the RJRI Group furnished to Buyer or its Affiliates in connection
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with the transactions contemplated by this Agreement, except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public domain through no fault of
Buyer or (iii) later lawfully acquired by Buyer from sources other than Sellers
or the RJRI Group; provided that Buyer may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to treat such information confidentially.
Buyer shall be responsible for any failure to treat such information
confidentially by such Persons. If this Agreement is terminated, Buyer and its
Affiliates will, and will use their best efforts to cause their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to, destroy or deliver to Sellers, upon request, all documents and other
materials, and all copies thereof, obtained by Buyer or its Affiliates or on
their behalf from Sellers or any member of the RJRI Group in connection with
this Agreement that are subject to such confidence.
SECTION 6.02. Related Agreements. At or prior to the Closing, Buyer
(and/or its Affiliates) will execute and deliver to Sellers each of the
Transaction Documents.
SECTION 6.03. Guarantees of RJRI Group Indebtedness. Buyer shall use
commercially reasonable efforts to effect the release of all members of
Sellers' Group from all obligations under or liability with respect to the
Sellers' Group Guarantees of RJRI Group indebtedness.
SECTION 6.04. Transfer and Assignment of Purchased IPRs. Buyer shall pay
all costs and expenses payable (other than any Taxes based on the income or
gains arising to a Seller, member of the Sellers Group or any member of the
RJRI Group) necessary to effect the sale, conveyance, transfer, assignment and
delivery of the Purchased IPRs to Buyer. To the extent that Buyer requests the
assistance of any member of Sellers' Group to effect the foregoing, Buyer shall
reimburse such member of Sellers' Group for the cost or expense of rendering
such assistance.
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ARTICLE 7
COVENANTS OF BUYER AND SELLERS
Buyer and Sellers agree that:
SECTION 7.01. Best Efforts; Further Assurances. (a) Subject to the terms
and conditions of this Agreement, Buyer and Sellers will use their best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by the Transaction Documents,
including, without limitation, the taking of any and all steps necessary to
avoid or eliminate any impediment under any antitrust, competition or trade
regulation law that may be asserted by any Governmental Entity with respect to
the transactions contemplated by the Transaction Documents so as to enable
consummation thereof to occur as soon as reasonably possible, including,
without limitation, the sale, divestiture or disposition of such assets of
Buyer, its Affiliates or the RJRI Group as may be required in order to avoid
the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order in any suit or proceeding which would
otherwise have the effect of preventing or delaying the consummation of the
transactions contemplated by the Transaction Documents.
(b) Sellers and Buyer agree to cause each member of Sellers' Group and the
RJRI Group, as the case may be, to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by the Transaction Documents. Without limiting
the generality of the foregoing, (i) Sellers will use their best efforts to
convey, transfer, assign and deliver, or cause to be sold, conveyed,
transferred, assigned and delivered to Buyer or any of its designated
Affiliates, as soon as practicable, any and all assets or liabilities included
in the April 30 Balance Sheet and May 31 Balance Sheet that shall not have been
directly or indirectly transferred, assigned and delivered to Buyer or any of
its designated Affiliates at the Closing and (ii) Buyer will use its best
efforts to assume, or cause one of its Affiliates to assume, such liabilities.
(c) Sellers and Buyer acknowledge that after the Closing Sellers' Group,
the RJRI Group or their respective Affiliates may be parties to contracts that
relate to both the Business and the business of Sellers' Group. In such event,
Sellers and Buyer will use commercially reasonable efforts to give the other
group the benefits (and any related obligations) of such contracts to the
extent necessary to conduct the business of such other group.
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SECTION 7.02. Certain Filings. Sellers and Buyer shall cooperate (i) in
determining whether any action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by the
Transaction Documents and (ii) in taking such actions or making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.03. Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to the Transaction Documents or the transactions contemplated thereby
and, except as may be required by applicable law or any listing agreement with
any national securities exchange, will not issue any such press release or make
any such public statement prior to such consultation.
SECTION 7.04. Intercompany Accounts. Except as provided in Schedule 7.04,
all intercompany account balances between a member of Sellers' Group, on the
one hand, and a member of the RJRI Group, on the other hand, outstanding at the
Closing shall be canceled.
SECTION 7.05. Notices of Certain Events. Each party hereto shall promptly
notify each of the other parties hereto of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by any of the Transaction Documents;
(b) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by any of the Transaction
Documents; and
(c) any actions, suits, claims, investigations or proceedings before any
arbitrator or Governmental Entity commenced relating to (i) such party or any
of its Affiliates that, (A) if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 3.13 (in the case
of either Seller) or Section 4.07 (in the case of Buyer) or (B) in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement, or (ii) the Business that is
reasonably likely to have a Material Adverse Effect.
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ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions. The following terms, as used herein, have
the following meanings:
"Post-Closing Tax Period" means any Tax period beginning after the Closing
Date and, with respect to a Tax period that begins on or before the Closing
Date and ends thereafter, the portion of such Tax period beginning after the
Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date and, with respect to a Tax period that begins on or before the
Closing Date and ends thereafter, the portion of such Tax period ending on the
Closing Date.
"Tax" means any U.S. or non-U.S. federal, state or local tax including,
but not limited to, tax on or measured by income or estimated income,
alternative or add-on minimum tax, gross receipts, sales, use, ad valorem,
franchise, capital stock, transfer, gains, profit, license, withholding,
employees' withholding, foreign person withholding, backup withholding, social
security, occupation, unemployment, disability, excise, severance, stamp,
premium, value added, services, real property, personal property, production,
inventory and merchandise, business privilege, windfall profit, customs duty or
other tax or other like assessment or charge, together with any interest,
penalty, addition to tax or additional amount due from, or in respect of, the
RJRI Group imposed by any governmental authority (domestic or foreign)
responsible for the imposition collection or administration of any such tax (a
"Taxing Authority").
SECTION 8.02. Tax Representations. Sellers jointly and severally represent
and warrant to Buyer as of the date hereof and as of the Closing Date that,
except as set forth in the Balance Sheet (including the notes thereto) or in
the Disclosure Letter, (i) all material computations, notices, information, Tax
returns, statements, reports and forms (collectively, the "Returns") filed or
required to be filed with any Taxing Authority on or before the Closing Date
with respect to any Pre-Closing Tax Period by, or with respect to, the members
of the RJRI Group have been filed (or properly extended) or will be filed on or
before the due date (including extensions) and in all cases were and are, to
Sellers' knowledge, materially accurate; (ii) all other Returns required to be
filed with respect to the members of the RJRI Group for any Pre-Closing Tax
Period (except in relation to any tax period that begins on or before the
Closing Date and ends thereafter) will be filed by Sellers when due (taking
into account any extension of a required
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filing date) and will when filed be, to Sellers' knowledge, materially
accurate; (iii) the members of the RJRI Group have timely paid or will timely
pay all Taxes shown as due and payable on the Returns that have been filed; and
(iv) there is no material action, suit, proceeding, investigation, audit or
claim now proposed, pending, outstanding or unresolved against or with respect
to the members of the RJRI Group in respect of any Tax.
SECTION 8.03. Tax Covenants. (a) With respect to the stock of any foreign
corporation that is being sold pursuant to this Agreement, Buyer covenants that
it will not cause or permit such corporation or any subsidiary or any Affiliate
thereof to make any election under Section 338 of the Code with respect to any
transaction described in this Agreement without the prior written consent of
Sellers.
(b) Buyer covenants that it will not cause or permit any member of the
RJRI Group or any Affiliate thereof to take or omit to take any action that
would, prior to January 1, 2000, (i) result in the sale or deemed sale for U.S.
tax purposes by any member of the RJRI Group, or any subsidiary of such member,
that constitutes a certain foreign entity within the meaning of U.S. Treasury
Regulations Section 301.7701-2(b)(8), of any stock in a corporation which it
owns, (ii) result in the distribution or deemed distribution for U.S. tax
purposes, of any amounts with respect to the stock of any member of the RJRI
Group that constitutes a certain foreign entity within the meaning of U.S.
Treasury Regulations Section 301.7701-2(b)(8), or (iii) at any time, increase
Sellers' indemnification obligations under Section 8.05 of this Agreement.
Buyer covenants that it will not take, or permit any other Person to take, any
action (or omit to take any action) that would, prior to the date that is two
years after the Closing Date, result in RJR-Macdonald Corp., or any successor
thereto, being organized as a legal entity other than a Nova Scotia unlimited
company.
(c) Buyer shall promptly pay or shall cause prompt payment to be made to
Sellers of all refunds of Taxes and interest thereon received by Buyer, any
Affiliate of Buyer, or any member of the RJRI Group attributable to Taxes paid
by Sellers, or any member of the RJRI Group (or any predecessor or Affiliate of
Sellers) with respect to any Pre-Closing Tax Period.
(d) All transfer, documentary, sales, use, stamp, registration and other
similar taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any real property transfer tax and
any similar tax) shall be borne and paid by Buyer (other than penalties or
interest attributable to the delay or default of a Seller or a subsidiary of a
Seller), and Buyer will, at its own expense, file all necessary tax returns and
other documentation with respect to all similar taxes and fees, and, if
required by applicable law, Sellers will, and
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will cause their Affiliates to, join in the execution of any such tax returns
and other documentation.
SECTION 8.04. Cooperation on Tax Matters. (a) Buyer and Sellers agree to
furnish or cause to be furnished to each other, upon request, as promptly as
practicable, such information (including access to books and records) and
assistance (including access to officers, directors, employees and agents)
relating to the RJRI Group as is reasonably requested for the filing of any
return, for the preparation for any audit, and for the prosecution or defense
of any claim, suit or proceeding relating to any proposed adjustment. Buyer and
Sellers agree to retain or cause to be retained all books and records pertinent
to members of the RJRI Group until the applicable period for assessment under
applicable law (giving effect to any and all extensions or waivers) has
expired, and to abide by or cause the abidance with all record retention
agreements entered into with any Taxing Authority. The RJRI Companies agree to
give Sellers reasonable notice prior to transferring, discarding or destroying
any such books and records relating to Tax matters and, if any Sellers so
requests, the RJRI Companies shall allow Sellers to take possession of such
books and records. Buyer and Sellers shall cooperate with each other in the
conduct of any audit or other proceedings involving the RJRI Companies for any
Tax purposes and each shall execute and deliver such powers of attorney and
other documents as are necessary to carry out the intent of this subsection.
(b) Buyer and Sellers further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to the Code and all Treasury Department Regulations promulgated thereunder.
Prior to a Seller filing any Return for any Pre-Closing Tax Period, such Seller
shall permit Buyer or Buyer's advisors to review the Return, and will as far as
possible take into account any reasonable comments made by Buyer or Buyer's
advisors before filing the Return.
SECTION 8.05. Indemnification by Sellers. (a) Sellers hereby jointly and
severally indemnify Buyer and its Affiliates against and agree to hold them
harmless from any (i) Tax of or imposed on any member of the RJRI Group (except
to the extent such Tax was reflected as a liability on the Closing Balance
Sheet) and (ii) liabilities, costs and expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses), arising
out of or incident to the imposition, assessment or assertion of any Tax,
including those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any Tax, in
each case with respect to any Pre-Closing Tax Period and in each case incurred
or suffered by Buyer, any of its Affiliates or, effective upon the Closing, any
member of the RJRI Group (the sum of 8.05(a)(i) and 8.05(a)(ii) being referred
to as a "Loss").
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(b) For purposes of this Section 8.05, in the case of any Taxes that are
imposed on a periodic basis and are payable for a Tax period that includes (but
does not end on) the Closing Date, the portion of the Tax related to the
portion of the Tax period ending on and including the Closing Date shall be
deemed equal to the amount that would be payable if the relevant Tax period
ended on and included the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the RJRI Group.
(c) If Sellers' indemnification obligation under this Section 8.05 arises
in respect of an adjustment that makes allowable to Buyer, any of its
Affiliates or, effective upon the Closing, any member of the RJRI Group any
deduction, amortization, exclusion from income or other allowance (a "Tax
Benefit") which would not, but for such adjustment, be allowable, then any
payment by Sellers to Buyer shall be an amount equal to (x) the amount
otherwise due but for this subsection 8.05(c), minus (y) the Tax Benefit
actually realized multiplied (i) by the maximum federal or state, as the case
may be, corporate tax rate in effect at the time such Tax Benefit is actually
realized by Buyer, any of its Affiliates, or any member of the RJRI Group (as
the case may be) or (ii) in the case of a credit, by 100 percent.
(d) Any payment by Sellers pursuant to this Section 8.05 shall be made not
later than 30 days after receipt by Sellers of written notice from Buyer
stating that any Loss has been paid by Buyer, any of its Affiliates or,
effective upon the Closing, any member of the RJRI Group and the amount thereof
and of the indemnity payment requested.
(e) If any claim or demand for Taxes in respect of which indemnity may be
sought pursuant to this Section 8.05 is asserted in writing against Buyer, any
of its Affiliates or, effective upon the Closing, any member of the RJRI Group,
Buyer shall notify Sellers of such claim or demand within 10 days of receipt
thereof, or such earlier time as would allow Sellers to respond to Buyer in a
timely manner with respect to such claim or demand, and shall give Sellers such
information with respect thereto as Sellers may reasonably request. Sellers may
discharge, at any time, their indemnification obligation under this Section
8.05 by paying to Buyer the amount of the applicable Loss, calculated on the
date of such payment. Sellers may, at their own expense, participate in and,
upon notice to Buyer, assume the defense of any such claim, suit, action,
litigation or proceeding (including any Tax audit). If Sellers assume such
defense, Buyer shall have the right (but not the duty) to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by Sellers. Whether or not Sellers choose to defend or
prosecute any claim, all of the parties hereto shall cooperate in the defense
or prosecution thereof.
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(f) Sellers shall not be liable under this Section 8.05 for (i) any Tax
the payment of which was made without Sellers' prior written consent or (ii)
any settlements effected without the consent of Sellers, which consent shall
not in either case be unreasonably withheld or delayed, or resulting from any
claim, suit, action, litigation or proceeding in which Sellers were not given
an opportunity to participate.
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
"Employee Plan" means any written employment, severance, international
expatriate allowance and expense reimbursement programs, perquisite plan, or
similar contract or arrangement or any plan, policy, fund, program or contract
or arrangement providing for compensation, bonus, profit-sharing, stock option,
or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, holiday pay benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits, sick or
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
that (i) is not a Seller Plan, (ii) is entered into, maintained, administered
or contributed to, as the case may be, by any member of the RJRI Group and
(iii) covers any current or former employee of any member of the RJRI Group;
provided, however, that the Puerto Rico Pension Plan shall be deemed an
Employee Plan for purposes of this Agreement.
"Former Puerto Rico Employees" means those hourly-paid individuals
identified as such on the Disclosure Letter.
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"IMG Employees" means those employees identified as such on the Disclosure
Letter.
"Puerto Rico Active Employees" means those employees identified as hourly
or salaried Puerto Rico employees on the Disclosure Letter.
"Puerto Rico Pension Plan" means the Retirement Plan for Hourly Rated
Employees of RJ Reynolds Tobacco Company (a Delaware corporation), at Yabucoa,
Puerto Rico.
"Retained IMG Participants" means those individuals identified as such on
the Disclosure Letter.
"RJRI Employee" means (i) each individual primarily employed by any member
of the RJRI Group as of the Closing Date, (ii) each individual whose last
employer prior to the Closing Date was a member of the RJRI Group and (iii) the
Puerto Rico Active Employees.
"Sellers' Plan" means any written employment, severance or similar
contract or arrangement or any plan, policy, fund, program or contract or
arrangement providing for compensation, bonus, profit-sharing, stock option, or
other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance or other benefits) that (i) is entered into,
maintained, administered or contributed to, as the case may be, by Sellers or
any of their Affiliates and (ii) covers any current or former employee of
Sellers or any of their Affiliates; provided, however, that the Puerto Rico
Pension Plan shall not be deemed a Sellers' Plan for purposes of this
Agreement.
"Sellers' Bonus Plans" means the RJR Nabisco, Inc. Annual Incentive Award
Plan, which is also referred to as the Profit Sharing Incentive Plan.
"Sellers' U.S. Individual Account Plans" means the RJR Nabisco Capital
Investment Plan, the Savings and Investment Plan for Employees of R.J.R.
Reynolds Tobacco Company in Puerto Rico and any successor plans thereto.
"Sellers' U.S. Pension Plans" mean any tax-qualified defined benefit plans
subject to Title IV of ERISA maintained or contributed to at any time by
Sellers or any of their Affiliates, other than the Puerto Rico Pension Plan,
and any successor plans thereto.
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"U.S. Active Expatriates" means those employees set forth as such on the
Disclosure Letter.
"U.S. RJRTC Employees-General" and "U.S. RJRTC Employees - Production"
means, in each case, the employees set forth as such on the Disclosure Letter.
"U.S. RJRTI Employees" means those employees set forth as such on the
Disclosure Letter.
"U.S. RJRTI Former Employees" means those individuals set forth as such on
the Disclosure Letter.
"U.S. RI Former Employees" means those individuals set forth as such on
the Disclosure Letter.
(b) Each of the following terms is defined in the section set forth
opposite such term:
Term Section
Bonus Year 9.06
Buyer Individual Account Plan 9.05
Direct Rollover 9.05
LTIP 9.06
Retention Trust 9.06
Target Amount 9.06
SECTION 9.02. Representations. (a) The Disclosure Letter identifies each
material Employee Plan and Sellers' Plan in which any RJRI Employees
participate. Sellers have made available to Buyer details of such Employee
Plans and Sellers' Plans reasonably sufficient to enable Buyer to determine the
material liabilities under them. With such exceptions as would not have a
Material Adverse Effect and except as set forth in the Disclosure Letter:
(i) each such Employee Plan is in compliance with the provisions of
the applicable laws of each applicable jurisdiction;
(ii) all contributions to, and payments from and with respect to
(including, without limitation, insurance premiums), such Employee Plan
that may have been required to be made in accordance with the terms of any
such Employee Plan and, when applicable, the law of the jurisdiction in
which such Plan is maintained, have been timely made;
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(iii) no such Employee Plan will require the payment to any RJRI
Employee of any money or other property or rights or accelerate or provide
any other material rights or benefits to any RJRI Employee solely as a
result of the transactions contemplated by this Agreement;
(iv) each such Employee Plan has been administered at all times in
accordance with its terms and there are no pending investigations by any
governmental agency involving any such Employee Plan, no claims pending or
threatened in writing (except for claims for benefits payable in the
normal operation of such Employee Plan), nor are there any suits or
proceedings against such Employee Plan asserting any rights or claims to
benefits under such Employee Plan which will give rise to any material
liability;
(v) no Employee Plan is (A) a Multiemployer Plan (as defined in
Section 3(37) of ERISA) subject to Title IV of ERISA, (B), other than the
Puerto Rico Pension Plan, a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA or (C) maintained in connection with
any trust described in Section 501(c)(9) of the Code; and
(vi) the Puerto Rico Pension Plan and any other Employee Plan which
covers any current or former employees of any member of the RJRI Group
which, as a matter of current Sellers' or Affiliate or RJRI Group
practice, is funded or which is required to be so funded by law (and
whether by means of a book reserve or otherwise) has been funded to the
extent required to comply with the currently applicable local statutes or
regulations.
(b) None of Sellers or any of their Affiliates has incurred, or reasonably
expects to incur prior to the Closing Date, (i) any material liability under
Title IV of ERISA arising in connection with the termination of, or a complete
or partial withdrawal from, any Sellers' Plan covered or previously covered by
Title IV of ERISA or (ii) any material liability under Section 4971 of the Code
that in either case could reasonably be expected to become a liability of any
member of the RJRI Group or Buyer or any of its ERISA Affiliates after the
Closing Date.
SECTION 9.03. RJRI Employees. (a) Except as otherwise provided in this
Section 9.03, for a period of not less than 12 months from the Closing Date,
Buyer agrees to make employee benefits available to each RJRI Employee while
such employee remains an employee of Buyer or any member of the RJRI Group.
Such employee benefits shall include, without limitation, benefits of the types
provided under Employee Plans and Sellers' Plans comparable in the aggregate to
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such benefits made available to such RJRI Employees immediately prior to the
Closing Date, provided, however, that Buyer shall make available for such
period post-employment welfare benefits to all RJRI Employees and all other
individuals who were receiving such benefits from any member of the RJRI Group
immediately prior to the Closing Date comparable to such benefits made
available to such individuals immediately prior to such date.
(b) Buyer agrees that each RJRI Employee shall be treated for purposes of
participation and vesting under Buyer's pension or retirement plans, and for
all purposes, under any other plan or arrangement, including, without
limitation, any international assignment, severance or vacation plan,
maintained by Buyer on or after the Closing Date, as having service with Buyer
for the entire period of such RJRI Employee's period of employment with
Sellers, or any of their Affiliates or any member of the RJRI Group.
(c) Buyer shall provide coverage for all U.S. RJRI Employees working at
least 20 hours per week under a group health plan or plans fulfilling the
requirements of Section 4980B(f)(2)(B)(iv)(I) of the Code. Any and all waiting
periods and pre-existing condition limitations in Buyer's health insurance
plans shall be waived for all RJRI Employees, except to the extent they apply
at the Closing Date under the applicable Sellers' Plan or Employee Plan.
Expenses incurred by RJRI Employees under Sellers' medical and dental plans
during the year that includes the Closing Date shall be taken into account for
purposes of satisfying the deductible, coinsurance and out-of-pocket provisions
of Buyer's medical and dental plans for such year. Sellers shall retain
liability for all medical or dental claims incurred prior to the Closing Date
by any U.S. RJRI Employee (or his or her beneficiary) and Buyer and the RJRI
Group shall be responsible for all medical or dental claims incurred on and
after the Closing Date by any RJRI Employee (or his or her beneficiary) to the
extent that Sellers would have been liable for such claims. For purposes of
this Section 9.03(c), a medical or dental claim shall be deemed "incurred" when
the relevant service is provided or item is purchased.
(d) Buyer shall cause the RJRI Companies to fulfill all obligations, and
to assume all obligations of Sellers, under the employee agreements between
Sellers or any member of the RJRI Group and the RJRI Employees listed in
Schedule 9.03(d) in accordance with their terms.
(e) Each RJRI Employee who ceases to be employed by Buyer within the
twelve-month period beginning on the Closing Date shall be entitled to a
severance benefit to be paid by Buyer and determined in accordance with the
rules of the applicable Employee Plan or Sellers' Plan, taking into account the
past
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service recognition provisions of Section 9.03(b); provided that this Section
9.03(c) shall not apply to the RJRI Employees referred to in Section 9.03(d).
(f) Buyer shall assume, or shall cause a member of the RJRI Group to
assume, on and effective as of the Closing Date, all assets and liabilities of
the Puerto Rico Pension Plan.
(g) Buyer shall indemnify Sellers against any Damages (as defined in
Section 11.02 hereof) attributable to Buyer on or after the Closing Date and
which Sellers may incur in relation to any act or omission of Buyer in relation
to an RJRI Employee occurring after the Closing Date which gives rise to a
claim against Sellers (whether statutory, contractual or otherwise).
(h) Sellers shall indemnify Buyer against any Damages, except to the
extent assumed by Buyer or any member of the RJRI Group pursuant to this
Article 9, that any member of the RJRI Group or Buyer or any of its ERISA
Affiliates may incur after the Closing Date in respect of any Sellers' Plan.
The indemnification obligation set forth herein shall not be subject to the
amount set forth in Section 11.02(a)(x) hereof.
(i) Sellers and Buyer shall give each other such assistance as either may
reasonably require to comply with any applicable laws or regulations in
relation to the RJRI Employees. In particular, Buyer and Sellers shall make
available to each other such information as will enable each to carry out their
duties under such applicable laws or regulations.
SECTION 9.04. Sellers' U.S. Pension Plans. Sellers shall retain (or a
designated Affiliate of Sellers shall retain or assume) all liabilities and
obligations in respect of benefits accrued by RJRI Employees under Sellers'
U.S. Pension Plans. Effective as of the Closing Date, each RJRI Employee shall
cease to accrue any benefits under Sellers' U.S. Pension Plans. No assets of
Sellers' U.S. Pension Plans shall be transferred to Buyer or any member of the
RJRI Group or to any plan of Buyer or of any member of the RJRI Group.
SECTION 9.05. Sellers' U.S. Individual Account Plans. On or promptly
following the Closing Date, Sellers shall take such action as may be necessary,
if any, to permit each RJRI Employee to exercise his or her rights to
distribution of such RJRI Employee's vested account balances under Sellers'
U.S. Individual Account Plans, if any, or to effect at any time a tax-free
rollover of the taxable portion of the account balances (to the extent
permitted by law) into an eligible retirement plan (within the meaning of
Section 401(a)(31) of the Code) (a "Direct Rollover") maintained by Buyer (the
"Buyer Individual Account Plan") or to an individual retirement account.
Sellers and Buyer shall cooperate to facilitate any
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such distribution or rollover and to effect a Direct Rollover for those
participants who elect to roll over their account balances directly into the
Buyer Individual Account Plan; provided that nothing in this Section 9.05 shall
obligate the Buyer Individual Account Plan to accept a Direct Rollover unless
Buyer is satisfied that any such Direct Rollover is described in Section
401(k)(10)(A) of the Code.
SECTION 9.06. Certain Incentive Benefits. (a) Buyer shall cause each
member of the RJRI Group that is, on the Closing Date, an employer of an RJRI
Employee who immediately prior to the Closing Date is a participant in Sellers'
Bonus Plans in respect to the fiscal year in which the Closing Date occurs (the
"Bonus Year"), to pay to such RJRI Employee a bonus in respect of such Bonus
Year in an amount equal to the amount ("Target Amount"), which amount shall be
deemed not to exceed $25 million, that would be payable for such year assuming
100% attainment of relevant target performance. Such payments shall be made not
later than 30 days after the end of the Bonus Year. An amount equal to the
Target Amount multiplied by a fraction, the numerator of which is the number of
calendar months in the Bonus Year prior to the Closing Date and the denominator
of which is 12, shall be accrued on each of the April 30 Balance Sheet and the
May 31 Balance Sheet.
(b) Sellers shall retain all obligations and liabilities under the RJR
Nabisco Holdings, Corp. 1990 Long-Term Incentive Plan ("LTIP") and the RJRN
Retention Trust Agreement dated May 13, 1998 (the "Retention Trust") and any
related supplemental payments. Buyer shall provide Sellers with such
information relating to RJRI Employees as Sellers shall reasonably request
relating to the LTIP and the Retention Trust and Sellers' obligations
thereunder.
SECTION 9.07. Allocation of Certain Liabilities. Notwithstanding anything
herein to the contrary:
(a) Sellers shall retain responsibility, and be liable, for retirement,
severance and health-care benefits for the Retained IMG Participants and the
U.S. RJRTI Former Employees.
(b) (i) Buyer shall assume responsibility, and be liable, for retirement,
severance and health-care benefits for the IMG Employees, and (ii) Buyer shall
assume responsibility and be liable for severance and health-care benefits for
U.S. RI Former Employees. To the extent requested by Buyer in writing, Sellers
shall, at Buyer's expense, administer and provide such benefits in respect of
U.S. RI Former Employees.
(c) Sellers and Buyer shall use their best efforts to cause the employment
of the U.S. Active Expatriates not employed by a member of the
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RJRI Group to be transferred prior to the Closing Date or as soon as
practicable thereafter to a member of the RJRI Group. To the extent the
employment of any such U.S. Active Expatriate is not so transferred prior to
the Closing Date, Sellers shall make available to Buyer until such transfer is
effected the services of such U.S. Active Expatriate and Buyer shall reimburse
Sellers for all costs of making such services available.
(d) Sellers shall make the services of the U.S. RJRTC Employees - General
and U.S. RJRTC Employees - Production available to Buyer through the Production
Agreement or the Transitional Services Agreement. Buyer shall promptly
reimburse Sellers for any severance benefits paid to the U.S. RJRTC Employees -
General upon their termination of employment with any member of the Sellers'
Group during the term of or within 90 days after termination of their services
under the Transitional Services Agreement. Sellers shall be responsible for any
severance benefits payable to U.S. RJRTC Employees - Production.
(e) Pursuant to the Transitional Services Agreement, (i) Sellers shall
make the services of the U.S. RJRTI Employees available to Buyer through the
Transitional Services Agreement or as requested in writing by Buyer and (ii)
Buyer shall reimburse Sellers for all costs of making the services of such U.S.
RJRTI Employees available to Buyer. In addition, if Buyer does not offer
comparable employment to any U.S. RJRTI Employee, then Buyer shall reimburse
Sellers for any severance benefits paid to each U.S. RJRTI Employee upon such
Employee's termination of employment with any member of the Sellers' Group
after the later of (i) the Closing Date or (ii) the date such U.S. RJRTI
Employee ceases to provide services to Buyer as provided herein.
(f) Buyer shall assume responsibility, and be responsible for, retiree
health-care and long-term disability benefits for the Former Puerto Rico
Employees and Sellers shall promptly reimburse Buyer for the administrative
costs of, and the payment of, such benefits.
(g) Buyer and Sellers agree to use their best efforts following the
Closing Date to agree upon written procedures for (i) the respective
reimbursements provided in this Article 9 and (ii) the replacement or
substitution of any individuals referred to in the Disclosure Letter pursuant
to this Article 9 and the allocation of any related costs.
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ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.01. Conditions to Obligations of Buyer and Sellers. The
obligations of Buyer and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) (i) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated, the
Commission of the European Communities shall have declared the transactions
contemplated hereby compatible with the common market under Council Regulation
(EC) No. 4064/89, or such approval shall have been deemed to have been granted
(and any national authority within the European Community to whom such
transactions (or any part thereof) have been referred pursuant to Article 9(3)
of such regulation shall have granted any clearance or given any consent
required) and (iii) any applicable requirements of the Investment Canada Act
and the Competition Act of Canada shall have been satisfied.
(b) No provision of any applicable law or regulation and no judgment, or
preliminary or permanent injunction, order or decree shall prohibit the
consummation of the Closing or shall in any way materially limit, restrict,
burden or otherwise impede the use of the Purchase Price by Sellers or their
Affiliates.
(c) All material actions by or in respect of, material filings with, and
any applicable requirements of, any Governmental Entity required to permit the
consummation of the Closing shall have been taken, made, obtained or satisfied,
except for any such actions or filings the failure to take, make or obtain
which would not have a Material Adverse Effect.
(d) Each of the Transaction Documents shall have been duly executed and
delivered by the parties thereto and such agreements shall be in full force and
effect upon Closing.
SECTION 10.02. Conditions to Obligations of Buyer. The obligation of Buyer
to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a) (i) Sellers shall have performed in all material respects all of their
obligations under the Transaction Documents required to be performed by them on
or prior to the Closing Date, (ii) the representations and warranties of
Sellers contained in the Transaction Documents and in any certificate or other
writing delivered by Sellers pursuant hereto that are qualified by materiality
or Material
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Adverse Effect shall be true and all other such representations and warranties
of Sellers shall be true in all material respects, in each case at and as of
the Closing Date (unless and to the extent that any such representation or
warranty speaks specifically as of an earlier date, in which case, at and as of
such earlier date) as if made at and as of the Closing Date (or such earlier
date) and Buyer shall have received a certificate signed by the General Counsel
of RJRN to the foregoing effect.
(b) Buyer shall have received all documents it may reasonably request
relating to the existence of Sellers, the RJRI Companies and the Subsidiaries
and the authority of Sellers for the Transaction Documents, all in form and
substance reasonably satisfactory to Buyer.
SECTION 10.03. Conditions to Obligations of Sellers. The obligation of
Sellers to consummate the Closing is subject to the satisfaction of the
following further conditions:
(a) (i) Buyer shall have performed in all material respects all of its
obligations under the Transaction Documents required to be performed by it at
or prior to the Closing Date, the representations and warranties of Buyer
contained in the Transaction Documents and in any certificate or other writing
delivered by Buyer pursuant thereto shall be true in all material respects at
and as of the Closing Date (unless and to the extent that any such
representation or warranty speaks specifically as of an earlier date, in which
case, at and as of such earlier date) as if made at and as of the Closing Date
(or such earlier date) and Sellers shall have received a certificate signed by
the Vice President, Legal Division, of Buyer to the foregoing effect.
(b) Sellers shall have received all documents they may reasonably request
relating to the existence of Buyer and the authority of Buyer for the
Transaction Documents, all in form and substance reasonably satisfactory to
Sellers.
(c) RJRN shall have completed a consent solicitation on commercially
reasonable terms and conditions pursuant to which RJRN shall have obtained
consent for amendments or waivers under the debt instruments listed on Schedule
10.03(c) permitting the transactions contemplated hereby together with the
proposed separation of RJRN's food business from its tobacco business, as
contemplated in RJRN's press release dated March 9, 1999.
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ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival. The covenants, agreements, representations and
warranties contained in Articles 8 and 9 shall survive until expiration of the
statute of limitations applicable to the matters covered thereby (giving effect
to any waiver, mitigation or extension thereof). The representations and
warranties in Sections 3.01, 3.02, 3.06, 3.07, 3.15, 3.18, 3.20 and 4.09 shall
survive for three years after the Closing Date, and all other representations
and warranties contained herein (except for those contained in Articles 8 and
9) shall survive for one year after the Closing Date. The covenants and
agreements contained herein (except for those contained in Articles 8 and 9)
shall survive for the period indicated therein or, if not so indicated,
indefinitely. Notwithstanding the foregoing, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the foregoing, if bona fide notice of such inaccuracy or breach
giving rise to such right of indemnity specifying with particularity (x) the
covenant, agreement, representation or warranty in this Agreement in respect of
which indemnity may be sought and (y) the facts and circumstances giving rise
to such right shall have been given to the party against whom such indemnity
may be sought prior to such time.
SECTION 11.02. Indemnification. (a) Sellers hereby jointly and severally
indemnify Buyer, its Affiliates and the members of the RJRI Group and, if
applicable, their respective directors, officers, agents, employees, successors
and assigns against and agree to hold each of them harmless from any and all
assessments, penalties, fines, damages, losses, liabilities and expenses
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer, any of its Affiliates or
any member of the RJRI Group or their respective directors, officers, agents,
employees, successors and assigns arising out of:
(i) any misrepresentation or breach of warranty made by the Sellers'
Group to Buyer or any of its Affiliates pursuant to the Transaction
Documents, or breach of warranty, made by the Sellers' Group pursuant to
the Transaction Documents (other than pursuant to Article 8 of this
Agreement), provided that, with respect to any Damages incurred or
suffered by Buyer or any of its Affiliates or any member of the RJRI Group
arising out of any misrepresentation or breach of warranty, Sellers shall
not be liable under this Section 11.02(a)(i) unless the aggregate
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amount of Damages exceeds $50,000,000 (and then only to the extent of
such excess);
(ii) any breach of covenant or agreement made or to be performed by
the Sellers' Group pursuant to the Transaction Documents (other than
pursuant to Article 8 of this Agreement);
(iii) Sellers Product Liabilities; or
(iv) Excluded Liabilities.
(b) Buyer hereby indemnifies each member of the Sellers' Group and, if
applicable, their respective directors, officers, agents, employees, successors
and assigns against and agrees to hold each of them harmless from any and all
Damages incurred or suffered by any member of the Sellers' Group or their
respective directors, officers, agents, employees, successors and assigns
arising out of:
(i) any misrepresentation or breach of warranty made or to be
performed by Buyer or its Affiliates pursuant to the Transaction Documents
(other than pursuant to Article 8 of this Agreement), provided that, with
respect to any Damages incurred or suffered by the Sellers' Group arising
out of any misrepresentations or breach of warranty, Buyer shall not be
liable under this Section 11.02(b)(i) unless the aggregate amount of
Damages exceeds $50,000,000 (and then only to the extent of such excess);
(ii) any breach of covenant or agreement made or to be performed by
Buyer or its Affiliates pursuant to the Transaction Documents (other than
pursuant to Article 8 of this Agreement); or
(iii) any RJRI Liabilities;
provided that it is understood that Sellers will first pursue any claims under
this Section 11.02(b) against members of the RJRI Group before making claims
against Buyer, and that Buyer will only be secondarily liable for such claims.
(c) The monetary thresholds set forth in this Section 11.02 have been
negotiated for the special purpose of the provision to which they relate and
are not to be taken as evidence of the level of "materiality" for purposes of
any statutory or common law which may be applicable to the transactions
contemplated by this Agreement under which a level of materiality might be an
issue.
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SECTION 11.03. Procedures. (a) The party seeking indemnification under
Article 8 or 9 or Section 11.02 (the "Indemnified Party") agrees to give prompt
notice to the party against whom indemnity is sought (the "Indemnifying Party")
of the assertion of any claim, or the commencement of any suit, action or
proceeding ("Claim") in respect of which indemnity may be sought under such
Section or Article and will provide the Indemnifying Party such information
with respect thereto as the Indemnifying Party may reasonably request. The
failure so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder, except to the extent such failure shall
have materially prejudiced the Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Claim asserted by any third party ("Third Party Claim") and, subject to
the limitations set forth in this Section, shall be entitled to (and at the
request of the Indemnifying Party shall) control and appoint lead counsel for
such defense, in each case at its expense. The Indemnified Party shall obtain
the written consent of the Indemnifying Party before entering into any
settlement of any Third Party Claim.
(c) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 11.03,
the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party before entering into any settlement of such Third Party
Claim, if the settlement does not release the Indemnified Party from all
liabilities and obligations with respect to such Third Party Claim or the
settlement imposes injunctive or other equitable relief against the Indemnified
Party and the Indemnified Party shall be entitled to participate in the defense
of such Third Party Claim and to employ separate counsel of its choice for such
purpose. The fees and expenses of such separate counsel shall be paid by the
Indemnified Party.
(d) Each party shall cooperate, and cause their respective Affiliates to
cooperate, in the defense or prosecution of any Third Party Claim (and any
Excluded Liability) 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 in connection
therewith to the same extent as if no indemnification were provided hereunder.
The Indemnifying Party shall bear the reasonable out-of-pocket expenses of such
cooperation.
SECTION 11.04. Calculation of Damages. (a) The amount of any Damages
payable under Article 8 or 9 or Section 11.02 by the Indemnifying Party shall
be net of any amounts recovered or recoverable by the Indemnified Party under
applicable insurance policies and any Tax Benefit realized by the
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Indemnified Party arising from the incurrence or payment of any such Damages.
In computing the amount of any such Tax Benefit, the Indemnified Party shall be
deemed fully to utilize, at the highest marginal tax rate then in effect, all
Tax items arising from the incurrence or payment of any indemnified Damages.
(b) The Indemnifying Party shall not be liable under Article 8 or 9 or
Section 11.02 for any (i) Damages relating to any matter to the extent that (A)
there is included in the April 30 Balance Sheet a specific liability or reserve
relating to such matter or the Indemnified Party has otherwise been compensated
for such matter pursuant to the Purchase Price adjustment under Section 2.05,
consequential Damages or Damages for lost profits. For the purposes of this
Agreement, Damages shall not be determined through any multiple of earnings
approach or variant thereof and shall take account of the time value of money.
(c) Notwithstanding any other provision of this Agreement to the contrary,
if on the Closing Date the Indemnified Party knows of any information that
would cause one or more of the representations and warranties made by the
Indemnifying Party to be inaccurate, the Indemnified Party shall have no right
or remedy after the Closing with respect to such inaccuracy and shall be deemed
to have waived its rights to indemnification in respect thereof.
SECTION 11.05. Assignment of Claims. If the Indemnified Party receives any
payment from an Indemnifying Party in respect of any Damages pursuant to
Section 11.02 and the Indemnified Party could have recovered all or a part of
such Damages from a third party (a "Potential Contributor") based on the
underlying Claim asserted against the Indemnifying Party, the Indemnified Party
shall assign such of its rights to proceed against the Potential Contributor as
are necessary to permit the Indemnifying Party to recover from the Potential
Contributor the amount of such payment.
SECTION 11.06. Exclusivity of Remedies. Except as specifically set forth
in this Agreement, effective as of the Closing, each party (on behalf of itself
and its Affiliates) waives any rights and claims it (or its Affiliates) may
have against the other party or its Affiliates, whether in law or in equity,
relating to the Business or the Shares or the transactions contemplated by the
Transaction Documents. The rights and claims waived include, without
limitation, claims for contribution or other rights of recovery arising out of
or relating to any Environmental Law, claims for breach of contract, breach of
representation or warranty, negligent misrepresentation and all other claims
for breach of duty. After the Closing, Articles 8 and 9 and Section 11.02 will
provide the exclusive remedy for any misrepresentation, breach of warranty,
covenant or other agreement or other claim arising out of the Transaction
Documents or the transactions contemplated thereby.
53
<PAGE>
ARTICLE 12
TERMINATION
SECTION 12.01. Grounds for Termination. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of Sellers and Buyer;
(b) by either Sellers or Buyer if the Closing shall not have been
consummated on or before December 31, 1999; or
(c) by either Sellers or Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any Governmental Entity having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses
12.01(b) or 12.01(c) shall give notice of such termination to the other party.
If all conditions to consummation of the Closing are satisfied other than
the condition set forth in Section 10.03(c), and this Agreement is terminated
due solely to the failure to satisfy or waive the condition set forth in
Section 10.03(c), then if one or both Sellers enter into an agreement within 6
months after termination of this Agreement providing for the sale of the
Business to another buyer and such sale is subsequently consummated (the
"Alternative Sale"), the Sellers will pay to Buyer an amount equal to the net
after-tax excess of the gross purchase price received by Sellers in the
Alternative Sale (assuming no assumption of debt) over $8,000,000,000.
SECTION 12.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 12.01 or 13.11, such termination shall be without
liability of any party (or any stockholder, director, officer, employee, agent,
consultant or representative of such party) to the other parties to this
Agreement; provided that if such termination shall result from the (i) willful
failure of any party to fulfill a condition to the performance of the
obligations of the other parties or (ii) failure to perform a covenant of this
Agreement, such party shall be fully liable for any and all Damages incurred or
suffered by the other parties as a result of such failure or breach. The
provisions of Sections 6.01, 13.03, 13.05, 13.06 and 13.07 shall survive any
termination hereof pursuant to Section 12.01 or 13.11.
54
<PAGE>
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyer, to:
Japan Tobacco Inc.
2-2-1 Toranomon, Minato-ku
Tokyo, Japan
Attention: Vice President, Legal Division
Fax: 011 813 5572 1412
with a copy to:
Gilbert, Segall and Young LLP
430 Park Avenue
New York, New York 10022
Attention: Neal N. Beaton, Esq.
Fax: (212) 644-4051
and
Baker & McKenzie
100 New Bridge Street
London EC4V 6JA England
Attention: Hugh Stewart, Esq.
Fax: 011 44 171 919 1999
if to Sellers, to:
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, NY 10019
Attention: General Counsel
Fax: (212) 969-9917
55
<PAGE>
with a copy to:
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Attention: Charles A. Blixt, Esq.
Fax: (336) 741-5449
and
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: John Buttrick, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt.
SECTION 13.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived 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 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 herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 13.03. Expenses. Except as expressly provided in this Agreement,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
SECTION 13.04. 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 consent of each other party hereto, except that Buyer may assign
any
56
<PAGE>
or all of its rights or delegate any or all of its obligations hereunder to an
Affiliate of Buyer without the prior written consent of any of Sellers
provided, however, that such Affiliate shall agree in writing to be bound by
the terms and conditions of this Agreement. Such assignment or delegation shall
in no way limit or relieve Buyer of any of its obligations hereunder. Nothing
in this Agreement, expressed or implied, is intended to confer upon any Person
(including any employee or former employee) other than Buyer, Sellers and, to
the extent provided herein, their respective Affiliates, any rights or remedies
under or by reason of this Agreement. Further, no provision of this Agreement
shall create any such rights in any such Persons in respect of any benefit
plans, programs, policies and arrangements (to include fringe benefits) or any
plan or arrangement which may be established by Buyer or any of its Affiliates.
SECTION 13.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard
to the conflicts of law rules of such state.
SECTION 13.06. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
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 the Borough
of Manhattan, New York City, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding 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 suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 13.01 shall be deemed effective service of process on such party.
SECTION 13.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.08. Counterparts; Third Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be
57
<PAGE>
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 a counterpart hereof signed by the other parties
hereto. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 13.09. Entire Agreement. The Transaction Documents constitute the
entire agreement among the parties with respect to the subject matter of this
Agreement and supersede all prior agreements including the Confidentiality
Agreement and understandings, both oral and written, among the parties with
respect to the subject matter of this Agreement.
SECTION 13.10. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 13.11. Disclosure Letter. (a) The Disclosure Letter is
supplemented to include the items set forth on Exhibit O hereto.
(b) The parties acknowledge and agree that the Disclosure Letter may
include certain items and information solely for informational purposes for the
convenience of Buyer and the disclosure by Sellers of any matter in the
Disclosure Letter shall not be deemed to constitute an acknowledgment by
Sellers that the matter is required to be disclosed by the terms of this
Agreement or that the matter is material.
58
<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.
JAPAN TOBACCO INC.
By: /s/ Katsuhiko Honda
--------------------------------
Name: Katsuhiko Honda
Title: Senior Executive Vice
President
RJR NABISCO, INC.
By: /s/ William L. Rosoff
--------------------------------
Name: William L. Rosoff
Title: Senior Vice President and
General Counsel
R. J. REYNOLDS TOBACCO COMPANY
By: /s/ Sara L. Silbiger
--------------------------------
Name: Sara L. Silbiger
Title: Attorney-in-fact
<PAGE>
EXHIBIT A
[IPR AGREEMENT]
<PAGE>
EXHIBIT C
[PRODUCTION AGREEMENT]
<PAGE>
EXHIBIT F
[TRANSITIONAL SERVICES AGREEMENT]
<PAGE>
EXHIBIT I
List of Companies to be Sold
Name of Jurisdiction of
Corporation Incorporation
- ----------- -------------
Bisco Services B.V. Netherlands
Bisco Services SA Switzerland
CGM-Cooperation GmbH Germany
GEM: Global Event Management, Ltd. England
Loras Holding B.V. Netherlands
R.J. Reynolds Berhad Malaysia
R.J. Reynolds (Consults) Limited Cyprus
R.J. Reynolds (Cyprus) Limited Cyprus
R.J. Reynolds Espana, S.L. Spain
R.J. Reynolds Finance S.A. Switzerland
R.J. Reynolds Iberia, S.L. Spain
R.J. Reynolds International B.V. Netherlands
R.J. Reynolds Italia S.r.l. Italy
R.J. Reynolds/M.C. Tobacco Company, Japan
Limited
R.J. Reynolds Overseas Finance Co. Netherlands
N.V. Antilles
R.J. Reynolds Scandinavia A.B. Sweden
R.J. Reynolds (SEA) Sdn. Bhd. Malaysia
R.J. Reynolds (Thailand) Inc. Delaware
R.J. Reynolds Tobacco AG Switzerland
Dagmersellen
R.J. Reynolds Tobacco B.V. Netherlands
<PAGE>
Name of Jurisdiction of
Corporation Incorporation
- ----------- -------------
R.J. Reynolds Tobacco Company (Hong Hong Kong
Kong) Limited
R.J. Reynolds Tobacco Company Delaware
(Taiwan), Inc.
R.J. Reynolds Tobacco Holdings II B.V. Netherlands
R.J. Reynolds Tobacco International Netherlands
B.V.
R.J. Reynolds Tobacco International Delaware
(Korea), Inc.
R.J. Reynolds Tobacco International Delaware
(Mexico), Inc.
R.J. Reynolds Tobacco International Finland
OY
R.J. Reynolds Tobacco International South Africa
(Pty) Ltd.
R.J. Reynolds Tobacco-Kremenchuk Ukraine
R.J. Reynolds Tobacco Limited New Zealand
R.J. Reynolds Tobacco-LVIV JSC Ukraine
R.J. Reynolds Tobacco (Poland) Poland
Sp. Zo.o
Club Cigarettenfabrik GmbH Germany
Reyben Reinsurance Limited Ireland
Reynolds Manufacturing (Bulgaria) Ltd. Bulgaria
RJR-Armavirtabak, OAO Russia
RJR-Macdonald Corp. Nova Scotia
RJR Nabisco (Cyprus) Limited Cyprus
RJR Tobacco Yelets, OAO Russia
SIA Marketing and Sales Latvia
2
<PAGE>
Name of Jurisdiction of
Corporation Incorporation
- ----------- -------------
Tanzania Cigarette Co. Ltd. Tanzania
Transnational Services, Inc. Delaware
Worldwide Brands, Inc. Delaware
NOTE: The capitalization and share ownership data for the foregoing companies
are set forth in Section 3.05 of the Disclosure Letter.
3
<PAGE>
EXHIBIT J
PURCHASE PRICE ALLOCATION
<PAGE>
EXHIBIT K
List of Companies to be Sold Post-Closing
<TABLE>
Fair
Market
Company Condition Value
- ------- --------- ------
<S> <C> <C>
RJR Tobacco Yelets Receipt of the Russian Antimonopoly $1,708,000
OAO approval and the completion of
shareholder approval and other
required actions.
RJR-Armavirtabak, Receipt of the Russian Antimonopoly $0
OAO approval and the completion of
shareholder approval and other
required actions.
R.J. Reynolds Tobacco- Receipt of approval from the $2,545,000
Kremenchuk Ukrainian Antimonopoly Committee
and the completion of shareholder
approvals and the other required
actions.
R.J. Reynolds Tobacco- Receipt of approval from the $0
LVIV JSC Ukrainian Antimonopoly Committee
and the completion of shareholder
approvals and the other required
actions.
R.J. Reynolds Tobacco Receipt of approval from the Polish $6,296,000
Poland Sp. Zo.o (Ltd.) Ministry of Interior to the indirect
transfer of real estate.
</TABLE>
1
<PAGE>
EXHIBIT M
Contracts to be Assigned to Buyer or its Affiliates
1 Sourcing and Services Agreement dated 11/10/95 between RJ
Reynolds Tobacco International, Inc., Universal Leaf Tobacco Company, Inc. and
R.J. Reynolds Tobacco Company.
2 Lease Agreement amending lease between Olympia & York
Developments Limited and RJR-Macdonald Inc. dated August 6, 1991 and
November 20, 1992.
3 License Agreement between Rothmans, Benson & Hedges Inc.
(Licensor) and RJR-Macdonald Inc. (Licensee) dated as of September 18, 1995.
4 Asociacion en Participacion (Joint Venture) Agreement between
Cigarrera La Moderna, S.A. DE C.V. (General Partner) and R.J. Reynolds
Tobacco Company (Limited Partner) dated as of March 18, 1991.
5 Manufacturer and Sales Collaboration Agreement between Cigarrera
la Moderna SA de CV and RJR (NJ).
6 Camel Marketing Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. DE C.V. dated as of March 18,
1991.
7 Camel License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. De C.V. ("Licensee") dated as of
March 18, 1991.
8 Winston Marketing Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. De C.V. dated as of March 18,
1991.
9 Winston License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. De C.V. (Licensee) dated as of
March 18, 1991.
10 Salem Marketing Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. De C.V. dated as of March 18,
1991.
<PAGE>
11 Salem License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Cigarrera La Moderna, S.A. De C.V. (Licensee) dated as of
March 18, 1991.
12 Trademark License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Rothmans Holdings Limited dated as of May 9, 1991.
13 Distributor Agreement between R.J. Reynolds Tobacco Company
(N.J.) and Rothmans of Pall Mall (Australia) Limited (Buyer) dated as of May 9,
1991.
14 Option Agreement between R.J. Reynolds Tobacco Company (N.J.)
and Rothmans of Pall Mall (Australia) Limited dated as of May 9, 1991.
15 YSL Sub-License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Rothmans of Pall Mall (Australia) Limited (undated and
unexecuted).
16 Letter Agreement (Distribution Agreement) between R.J. Reynolds
Tobacco International Asia Pacific Inc. (signature line says R.J. Reynolds
Tobacco International (Hong Kong) Limited) and Nautilus Trading Co. Pty. Ltd.,
Metro Nautilus dated as of September 4, 1991.
17 Distribution Agreement commencing 1/2/92 between RJ Reynolds
Tobacco International (Asia Pacific) Inc. and Japan Marine Providores.
18 Distributorship Agreement between R.J. Reynolds Tobacco
International (Asia-Pacific) Inc. and Cambodia Trading Co. Ltd. (Distributor)
dated as of September 1, 1992.
19 Joint Venture Agreement dated 1/4/98 between Mitsubishi and
Holdco.
20 Letter Agreement (Distribution Agreement) between R.J. Reynolds
International (Asia Pacific) Inc. and Mitsubishi Corporation dated as of
April 1, 1985.
21 Distribution Agreement between R.J. Reynolds Tobacco
International (Asia Pacific), Inc. and Geotrade SDN. BHD. dated as of June 11,
1992.
2
<PAGE>
22 Distribution Agreement commencing 1/1/84 between RJ Reynolds
Tobacco International (Asia Pacific) Inc. and Thong Huat (Importers and
Exporters) Pte Ltd.
23 Distribution Agreement between R.J. Reynolds Tobacco
International (Asia Pacific), Inc. and TI Trading Co., Ltd. dated as of
January 1, 1997.
24 Importation and Distribution Agreement commencing 1/7/94
between RJ Reynolds Tobacco International (Asia Pacific) Inc. and Rothmans of
Pall Mall (S) Pte Ltd.
25 Joint Venture Agreement dated 2/7/92 between Tabacalera SA and
[RJ Reynolds Tobacco Company]. Re RJ Reynolds Espana S.L.
26 Trademark and Brand License dated 28/2/95 between RJR (NJ) and
Tabandor S.A.
27 Advertising Contract dated 11/5/93 between Tabacalera SA and RJ
Reynolds Tobacco Company.
28 Sale of Shares and Shareholders' Agreement between The
Government of the United Republic of Tanzania (Vendor) and R.J. Reynolds
Tobacco Company (N.J.) (Purchaser) and Tanzania Cigarette Company Limited
(Company) dated as of November 22, 1995.
29 Distribution Agreement between R.J. Reynolds Tobacco Company
and Santiago Castillo Ltd. dated as of January 14, 1981.
30 License Agreement between R.J. Reynolds Tobacco Company (N.J.)
and Nobleza Piccardo S.A.I.C. y F. (Licensee) dated as of April 1, 1995.
31 Options Agreement between R.J. Reynolds Tobacco Company (N.J.)
and Souza Cruz S.A. dated as of December 5, 1994.
32 Trademark License Agreement between R.J. Reynolds Tobacco
Company (N.J.) and Souza Cruz S.A. dated as of December 5, 1994.
33 Copyrighted Material License Agreement between R.J. Reynolds
Tobacco Company (N.J.) and Souza Cruz S.A. dated as of December 5, 1994.
3
<PAGE>
34 Customer Agreement (Letter of Appointment) between R.J.
Reynolds Tobacco Company and Mitani Free Zone, N.V. dated as of September
19, 1994.
35 Customer Agreement (Letter of Appointment) between R.J.
Reynolds Tobacco Company and Gonzalo Quinto & Sons dated as of February 4,
1992.
36 Customer Agreement dated as of 1/12/93 between RJ Reynolds
International, Inc. and Pitt & Co. Ltd.
37 Exclusive Distribution Agreement for Duty Free Port of
Margherita, Venezuela dated 1/2/83 between RJ Reynolds Tobacco Company and
Capriles Hermanos and Asociados, C.A.
38 Exclusive Distribution Agreement between R.J. Reynolds Tobacco
Company and Compania Panamena de Comercio, S.A. (Distributor) dated as of
November 6, 1986.
39 License Agreement between R.J. Reynolds Tobacco Company (N.J.)
and Tabacalera Nacional S.A. (Licensee) dated as of February 27, 1992 (together
with various modifications and extensions).
40 Advertising Agreement dated 1/12/92 between RJ Reynolds
International Inc. and McCann-Erickson Marketing.
41 Yves Saint Laurent Trademark License dated 13/4/91 between Yves
Saint Laurent Couture and RJ Reynolds Tobacco Company.
4
<PAGE>
42
5
<PAGE>
Exhibit 2.2
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:
Name State of Incorporation
------------------------------------ ----------------------
R.J. Reynolds Tobacco Holdings, Inc. Delaware
RJR Nabisco, Inc. Delaware
SECOND: The Agreement and Plan of Merger dated as of May 18, 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 18, 1999
RJR NABISCO, INC.
By: /s/ H. Colin McBride
--------------------------------
Name: H. Colin McBride
Title: Senior Vice President and
Secretary
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
May 18, 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
REPRESENTATIONS OF RJRN AND REORGSUB
SECTION 5.01. Stockholder Approval.........................................3
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Amendments; No Waivers.......................................4
SECTION 6.02. Expenses.....................................................4
SECTION 6.03. Successors and Assigns.......................................4
SECTION 6.04. Governing Law................................................4
SECTION 6.05. Counterparts; Effectiveness..................................4
SECTION 6.06. Entire Agreement.............................................5
SECTION 6.07. Severability.................................................5
i
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May 18, 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) 2,132,500 shares of Nabisco Stock; and
(ii) $16 million 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
<PAGE>
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
REPRESENTATIONS OF RJRN AND REORGSUB
RJRN and ReorgSub (each a "Constituent Corporation") each represent to the
other that:
SECTION 5.01. Stockholder Approval. As of the date hereof, Holdings, as
sole stockholder of each of the Constituent Corporations, has adopted this
Agreement and has approved the transactions contemplated hereby.
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ARTICLE 6
MISCELLANEOUS
SECTION 6.01. 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, without the further
approval of Holdings, as sole stockholder of both RJRN and ReorgSub, no such
amendment or waiver shall reduce the 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 6.02. 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 6.03. 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 6.04. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.
SECTION 6.05. 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.
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SECTION 6.06. 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 6.07. 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 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.
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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: /s/ H. Colin McBride
--------------------------------
Name: H. Colin McBride
Title: Senior Vice President and
Secretary
RJR NABISCO HOLDINGS CORP.
By: /s/ H. Colin McBride
--------------------------------
Name: H. Colin McBride
Title: Senior Vice President and
Secretary
R.J. REYNOLDS TOBACCO HOLDINGS,
INC.
By: /s/ Francis X. Suozzi
--------------------------------
Name: Francis X. Suozzi
Title: President
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ANNEX B
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
RJR NABISCO, INC.
(Originally incorporated under
the name of R. J. Reynolds Industries, Inc. on March 4, 1970)
ARTICLE I
The name of the Corporation is R.J.Reynolds Tobacco Holdings, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation 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 that address is Corporation
Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware (the "DGCL").
ARTICLE IV
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 IV, for each
such series the
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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 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 V
The Board of Directors of the Corporation is expressly authorized to make,
alter, amend or repeal the By-Laws of the Corporation.
ARTICLE VI
1. A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended. No repeal or
modification of the foregoing provisions of this Section 1 nor, to the fullest
extent permitted by law, any modifications of law, shall adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
2. Each person who is or was a director, officer, employee or agent of the
Corporation (and the heirs, executors or administrators of such person) who was
or is made a party to, or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by applicable law
as the same exists or may hereafter be amended. The right to indemnification
conferred in this Section 2 shall also include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition to the fullest extent authorized by applicable law as
the same exists or may hereafter be amended. The right to indemnification
conferred in this Section 2 shall be a contract right.
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The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any expense,
liability or loss incurred by such person in any such capacity, whether or not
the Corporation would have the power to indemnify such person in any such
capacity and whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under applicable law as the
same exists or may hereafter be amended.
The rights and authority conferred in this Section 2 shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation or By-Laws of
the Corporation, agreement, vote of stockholders or disinterested directors or
otherwise. No repeal or modification of the foregoing provisions of this
Section 2 nor, to the fullest extent permitted by law, any modification of law,
shall adversely affect any right or protection of a director, officer, employee
or agent of the Corporation or any other person existing at the time of such
repeal or modification.
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