<PAGE>
DRAFT
8/13/99
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
---------------------
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-6388 56-0950247
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
401 NORTH MAIN ST.
WINSTON-SALEM, NC 27102
(336) 741-5500
(Address, including zip code, and telephone number, including area code,
of the registrant's principal executive offices)
------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: JULY 31, 1999,
109,622,838 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income (Unaudited)--Three and Six Months Ended June 30,
1999 and 1998............................................................................... 1
Consolidated Condensed Statements of Cash Flows (Unaudited)--Six Months Ended June 30, 1999
and 1998.................................................................................... 2
Consolidated Condensed Balance Sheets--June 30, 1999 (Unaudited) and December 31, 1998........ 3
Notes to Consolidated Condensed Financial Statements (Unaudited).............................. 4-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 17-24
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 25
Item 2. Changes in Securities and Use of Proceeds..................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders........................................... 26
Item 6. Exhibits and Reports on Form 8-K.............................................................. 27-29
Signature................................................................................................ 30
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
NET SALES*......................................... $ 1,907 $ 1,435 $ 3,600 $ 2,648
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of products sold* (note 1).................. 843 347 1,593 665
Selling, advertising, administrative and general
expenses....................................... 753 687 1,426 1,251
Tobacco settlement and related expenses (notes 1
and 4)......................................... -- 145 -- 457
Amortization of trademarks and goodwill.......... 91 92 183 183
Headquarters close-down and related charges (note
1)............................................. 143 -- 143 --
--------------- --------------- --------------- ---------------
OPERATING INCOME............................... 77 164 255 92
Interest and debt expense.......................... 77 109 182 216
Other expense, net................................. 1 25 8 30
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES.............. (1) 30 65 (154)
Provision for income taxes......................... 38 44 74 1
--------------- --------------- --------------- ---------------
LOSS FROM CONTINUING OPERATIONS................ (39) (14) (9) (155)
Discontinued operations:
Income (loss) from operations of discontinued
businesses, net of income taxes (note 2)....... 20 (100) 85 33
Gain on discontinued businesses, net of income
taxes (note 2)................................. 2,648 -- 2,648 --
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM........ 2,629 (114) 2,724 (122)
Extraordinary item--loss on early extinguishment of
debt, net of income taxes (note 2)............... (250) -- (250) --
--------------- --------------- --------------- ---------------
NET INCOME (LOSS).............................. $ 2,379 $ (114) $ 2,474 $ (122)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
BASIC NET INCOME (LOSS) PER SHARE:
Loss from continuing operations.................. $ (.36) $ (.13) $ (.08) $ (1.43)
Income (loss) from discontinued operations....... 24.54 (.92) 25.14 .30
Extraordinary loss............................... (2.30) -- (2.30) --
--------------- --------------- --------------- ---------------
Net income (loss)................................ $ 21.88 $ (1.05) $ 22.76 $ (1.13)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
DILUTED NET INCOME (LOSS) PER SHARE:
Loss from continuing operations.................. $ (.36) $ (.13) $ (.08) $ (1.43)
Income (loss) from discontinued operations....... 24.54 (.92) 25.14 .30
Extraordinary loss............................... (2.30) -- (2.30) --
--------------- --------------- --------------- ---------------
Net income (loss)................................ $ 21.88 $ (1.05) $ 22.76 $ (1.13)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (IN THOUSANDS):
Basic............................................ 108,703 108,691 108,697 108,691
Diluted.......................................... 108,703 108,691 108,697 108,691
</TABLE>
- ------------------------
* Excludes excise taxes of $318 million and $336 million for the three months
ended June 30, 1999 and 1998, respectively, and $578 million and $640
million for the six months ended June 30, 1999 and 1998, respectively.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1
<PAGE>
R. J. REYNOLDS TOBACCO HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 2,474 $ (122)
Less income from discontinued operations....................................... 2,733 33
------- -------
Subtotal....................................................................... (259) (155)
------- -------
Adjustments to reconcile to net cash flows from
(used in) continuing operating activities:
Depreciation and amortization.............................................. 243 253
Deferred income tax benefit................................................ (147) (108)
Extraordinary loss on early extinguishment of debt......................... 384 --
Changes in working capital items, net...................................... 776 (39)
Initial, upfront tobacco settlement and related expenses, net of cash
payments................................................................. (411) 377
Headquarters close-down and related charges, net of cash payments.......... 21 --
Other, net................................................................. (13) (47)
------- -------
Total adjustments........................................................ 853 436
------- -------
Net cash flows from continuing operating activities.......................... 594 281
Net cash flows from (used in) discontinued operations........................ 116 (334)
------- -------
Net cash flows from (used in) operating activities........................... 710 (53)
------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures........................................................... (20) (20)
Net proceeds from the sale of the international tobacco business............... 7,796 --
Proceeds from sale of operating assets......................................... -- 2
------- -------
Net cash flows from (used in) investing activities........................... 7,776 (18)
------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt....................................... 1,244 --
Repayments of long-term debt................................................... (4,450) (68)
Increase (decrease) in short-term borrowings................................... (62) 53
Transfer and payments to former parent......................................... (2,077) --
Other, net..................................................................... 6 1
------- -------
Net cash flows used in financing activities.................................. (5,339) (14)
------- -------
Net change in cash and cash equivalents...................................... 3,147 (85)
Cash and cash equivalents at beginning of period................................. -- 85
------- -------
Cash and cash equivalents at end of period....................................... $ 3,147 $ --
------- -------
------- -------
Income taxes paid, net of refunds................................................ $ 101 $ 169
Interest paid.................................................................... $ 258 $ 201
Tobacco settlement and related expense payments.................................. $ 416 $ 80
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
JUNE 30, 1999
--------------
(UNAUDITED)
--------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 3,147 $ --
Accounts and notes receivable, net.......................................... 166 58
Inventories (note 3)........................................................ 503 529
Prepaid excise taxes and other.............................................. 360 537
Net assets of discontinued businesses (note 2).............................. -- 5,961
------- -------
TOTAL CURRENT ASSETS.................................................... 4,176 7,085
------- -------
Property, plant and equipment, net............................................ 1,091 1,115
Trademarks, net............................................................... 3,123 3,176
Goodwill, net................................................................. 7,713 7,829
Other assets and deferred charges............................................. 216 196
------- -------
$ 16,319 $ 19,401
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ -- $ 29
Accounts payable and accrued liabilities.................................... 2,341 1,564
Current maturities of long-term debt........................................ 23 62
Income taxes accrued........................................................ 2,161 165
------- -------
TOTAL CURRENT LIABILITIES............................................... 4,525 1,820
------- -------
Long-term debt (less current maturities)...................................... 1,994 4,861
Other noncurrent liabilities.................................................. 1,099 931
Deferred income taxes......................................................... 1,434 1,903
Contingencies (note 4)
Stockholders' equity (note 5):
Common stock................................................................ 1 1
Paid-in capital............................................................. 7,279 10,861
Retained earnings (accumulated deficit)..................................... -- (516)
Accumulated other comprehensive income (loss)............................... (6) (460)
Other stockholders' equity.................................................. (7) --
------- -------
TOTAL STOCKHOLDERS' EQUITY............................................ 7,267 9,886
------- -------
$ 16,319 $ 19,401
------- -------
------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- INTERIM REPORTING
BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of R.J.
Reynolds Tobacco Holdings, Inc. ("RJR Tobacco Holdings") and its subsidiaries,
including R.J. Reynolds Tobacco Company ("RJR Tobacco Company").
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, and in management's opinion, contain all
adjustments, consisting only of normal recurring items, necessary for a fair
statement of the results for the periods presented. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The results for the
three and six month periods ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
The account balances and activities of the international tobacco business
and Nabisco Holdings Corp. ("Nabisco") are segregated and reported as
discontinued operations in the accompanying consolidated condensed financial
statements. In addition, financial data for all prior periods has been restated
to give effect to the number of shares issued in connection with the
distribution of RJR Tobacco Holdings common stock to the stockholders of its
former parent, Nabisco Group Holdings Corp. ("NGH" -- formerly RJR Nabisco
Holdings Corp.). See note 2 for further discussion. The consolidated condensed
financial statements should be read in conjunction with the restated
consolidated financial statements and footnotes of RJR Tobacco Holdings for the
year ended December 31, 1998 included in the information statement as Exhibit
99.1 of the Form 8-A of RJR Tobacco Holdings filed May 19, 1999.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
On January 1, 1999, RJR Tobacco Holdings adopted SOP No. 98-5, Reporting on
the Costs of Start-Up Activities. SOP No. 98-5 established standards on
accounting for start-up and organization costs and, in general, requires such
costs to be expensed as incurred. The adoption of SOP No. 98-5 did not have a
material effect on RJR Tobacco Holdings' financial position or results of
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, which must be
adopted by January 1, 2000, with early adoption permitted. In June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, which
amended SFAS No. 133 to delay its effective date one year. SFAS No. 133 requires
that all derivative instruments be recorded on the consolidated balance sheet at
their fair value. Changes in the fair value of derivatives will be recorded each
period in earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. RJR Tobacco Holdings has not yet determined the impact, if
any, that adoption of SFAS No. 133 will have on its financial position or
results of operations.
COMPREHENSIVE INCOME
Total comprehensive income (loss) for the three months ended June 30, 1999
and 1998 was $2.4 billion and $(145) million, respectively. Total comprehensive
income (loss) for the six months ended June 30, 1999 and 1998 was $2.4 billion
and $(153) million, respectively. Total comprehensive
4
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 1 -- INTERIM REPORTING (CONTINUED)
income includes net income (loss), foreign currency translation adjustments and
minimum pension liability adjustments.
HEADQUARTERS CLOSE-DOWN AND RELATED CHARGES
In the second quarter of 1999, RJR Tobacco Holdings recorded a charge of
$143 million, $93 million after-tax, to reflect the elimination of its New York
corporate headquarters. Total cash expenditures related to this charge were $122
million. The elimination of headquarters resulted from a series of
reorganization transactions completed during the quarter that fundamentally
changed its business and capital structure, which are described in note 2.
Approximately $127 million of the charge is for employee severance and related
benefits pertaining to the elimination of all functions at the New York
headquarters (approximately 100 employees). The employment of these individuals
was terminated on June 14, 1999, at which time RJR Tobacco Holdings satisfied
its obligation in full. The remainder of the charge was primarily related to
contractual lease termination payments and the write-off of leasehold
improvements and abandoned equipment. Anticipated annual future cash savings
from the elimination of the New York headquarters is approximately $60 million.
RESTRUCTURING EXPENSE
In the fourth quarter of 1997, RJR Tobacco Company recorded a pre-tax
restructuring expense of $80 million, $52 million after-tax, to reorganize its
operations. Cash outlays will approximate $40 million. The charge included $30
million for severance and related benefits, $30 million for the rationalization
of manufacturing operations and $20 million for contract terminations and other
costs. Pre-tax savings in 1998 were $33 million and, after completion of this
program, are expected to be approximately $18 annually. During 1997, $5 million
of the accrual was utilized for employee severance and related benefits and $2
million was utilized for rationalization of manufacturing operations. During
1998, $63 million of the accrual was utilized as follows: $15 million for
employee severance and related benefits, $28 million for rationalization of
manufacturing operations, and $20 million for contract termination and other
costs. For the six months ended June 30, 1999, $5 million of the remaining
restructuring accruals was utilized for employee severance and related benefits,
resulting in a reserve balance of approximately $5 million. All of the charges
applied against the reserve during 1999 were cash expenditures.
TOBACCO SETTLEMENT AND RELATED EXPENSES
In the first quarter of 1998, RJR Tobacco Company recorded $312 million,
$199 million after-tax, for initial, upfront tobacco settlement costs relating
to the agreements between RJR Tobacco Company and the Minnesota state attorney
general and Blue Cross and Blue Shield of Minnesota. In the second quarter of
1998, RJR Tobacco Company recorded $145 million, $97 million after-tax, for
additional initial, upfront tobacco settlement costs under a "most favored
nation" agreement with Florida, Mississippi and Texas. Ongoing tobacco
settlement costs recorded during the first six months of 1999 are included in
cost of products sold.
In the fourth quarter of 1998, RJR Tobacco Company recorded a $151 million
expense for a workforce reduction of approximately 1,300 employees in response
to changing business conditions that management expects to result from the
multi-state settlement agreement signed in November 1998. Pre-tax savings in
1999 and 2000 are expected to be approximately $60 million and $95 million,
respectively. During 1998, $54 million of the reserve was utilized, and for the
six months ended June 30, 1999, RJR Tobacco Company incurred $17 million of cash
payments, which were applied against the reserve, resulting in a reserve balance
of approximately $80 million.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 -- THE REORGANIZATION
On March 9, 1999, RJR Tobacco Holdings and RJR Tobacco Company entered into
a definitive agreement to sell the international tobacco business for
approximately $8 billion, including the assumption of approximately $200 million
of net debt, to Japan Tobacco Inc. ("Japan Tobacco"). The sale was substantially
completed on May 12, 1999 and resulted in a net gain of $2.97 billion, after
income taxes of $1.9 billion, subject to post-closing adjustments. Under the
terms of the agreement, Japan Tobacco acquired substantially all of the
business, including intellectual property rights of the international tobacco
business, including the international rights to the CAMEL, WINSTON and SALEM
brand names. Proceeds from the sale have been used to reduce debt and for
general corporate purposes. RJR Tobacco Holdings expects that this debt
reduction will substantially strengthen the financial position of RJR Tobacco
Holdings and RJR Tobacco Company.
Also on March 9, 1999, NGH announced that its board of directors had
approved a plan to separate the domestic tobacco business conducted by RJR
Tobacco Company, from the food business conducted by operating subsidiaries of
Nabisco. Under the plan, the separation was accomplished on May 18, 1999 by the
transfer of RJR Tobacco Holdings' 80.5% interest in Nabisco, together with
approximately $1.6 billion in after-tax proceeds from the sale of the
international tobacco business, to NGH through a merger transaction, followed by
a spin-off to NGH stockholders of shares in RJR Tobacco Holdings. An additional
$193 million of proceeds from the sale of the international tobacco business
were transferred by RJR Tobacco Holdings to NGH prior to the spin-off in
satisfaction of certain liabilities paid by NGH on RJR Tobacco Holdings' behalf.
The merger transaction and subsequent spin-off are intended to be tax-free. In
connection with the merger transaction a loss of approximately $322 million was
recognized related to the cumulative translation account of Nabisco. This loss
is netted against the gain on discontinued operations for the periods presented.
On May 12, 1999, NGH's board of directors approved the spin-off, which
occurred on June 14, 1999. NGH continues to exist as a holding company, owning
80.5% of Nabisco. Nabisco Group Holdings Corp. (symbol: NGH) and Nabisco
(symbol: NA) each will continue to trade as separate companies on the New York
Stock Exchange. Shares of RJR Tobacco Holdings, the owner of 100% of RJR Tobacco
Company, began trading separately on June 15, 1999 (symbol: RJR).
RJR Tobacco Holdings, RJR Tobacco Company and NGH have entered into several
agreements governing the relationships among the parties after the distribution
of RJR Tobacco Holdings' shares to NGH stockholders, including certain tax
matters, indemnification rights and obligations and other matters.
On April 13, 1999, RJR Tobacco Holdings offered to purchase substantially
all of its outstanding debt securities and sought consents from the holders of
those securities to waive covenants that might have prevented some of the
reorganization transactions described above. These consents were received as of
April 26, 1999. The tender offers were completed on May 18, 1999, which resulted
in RJR Tobacco Holdings repurchasing approximately $4 billion of its debt with a
portion of the proceeds from the sale of the international tobacco business. As
a result, RJR Tobacco Holdings recognized an extraordinary loss from the early
extinguishment of debt of approximately $384 million, $250 million after-tax.
On May 7, 1999, RJR Tobacco Holdings entered into a $1.235 billion floating
rate revolving credit agreement with a syndicate of commercial banks, which was
not utilized as of June 30, 1999. On May 18, 1999, RJR Tobacco Holdings
completed a private placement offering of $1.25 billion in debt securities. The
net proceeds received were used for general corporate purposes. RJR Tobacco
Company has guaranteed RJR Tobacco Holdings' obligations under the revolving
credit agreement and the debt
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 -- THE REORGANIZATION (CONTINUED)
securities. On July 16, 1999, RJR Tobacco Holdings filed a registration
statement in order to issue publicly registered notes in exchange for the
private placement notes.
In connection with the reorganization, the assets and liabilities of the
retirement plan for employees of RJR Nabisco, Inc. (the "old plan") were split
into two new plans. One new plan covers employees and former employees of RJR
Tobacco Holdings (the "RJR Plan") and the other new plan covers employees and
former employees of Nabisco and NGH.
The split of the assets and liabilities of the old plan was in accordance
with a May 20, 1999 agreement between the Pension Benefit Guaranty Corporation
(the "PBGC"), RJR Tobacco Company and NGH. Based on this agreement and as
required by Section 414(I) of the Internal Revenue Code, the assets of the old
plan were allocated in proportion to the benefit obligations of each of the
respective new plans. This methodology resulted in a different allocation of old
plan assets than had been reflected in the historical allocation to the tobacco
business, which resulted in the increase in the RJR Plan assets of approximately
$155 million and an increase in benefit obligations of approximately $20
million. The impact of this change, a decrease in the unfunded pension liability
of $135 million, will be recognized in net periodic benefit costs over future
periods. As a result, periodic benefit cost for 1999 is expected to decrease by
approximately $7 million.
The PBGC agreement described above also required contributions of $58
million in each of the five years beginning in 1999, as well as contribution of
the RJR Plan's normal cost beginning in 2000 through the end of the agreement.
The normal cost to be contributed in 2000 is expected to be approximately $23
million. The agreement is expected to continue for five years, however there are
certain circumstances under which it could be extended. The PBGC agreement also
requires a $116 million letter of credit with respect to these contributions.
In connection with the reorganization, 17,065,066 options held by employees
to purchase NGH common stock were equitably adjusted into 5,456,114 options
covering RJR shares and 18,359,932 options covering NGH shares in a manner
intended to preserve the aggregate benefits under the options.
The operating results of the international tobacco business until the date
of sale, May 12, 1999, are segregated and reported as discontinued operations in
the accompanying consolidated condensed financial statements. Nabisco's
operating results through May 18, 1999, the date of the merger transaction, are
segregated and reported as discontinued operations in the accompanying
consolidated condensed financial statements. Prior period financial statements
have been restated to conform to the current year presentation.
Summarized operating results of the discontinued operations are as follows
(dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $ 1,299 $ 2,857 $ 3,827 $ 5,591
Provision (benefit) for income taxes....... 39 (57) 87 19
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 -- THE REORGANIZATION (CONTINUED)
Assets and liabilities of the discontinued businesses are as follows
(dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Current assets.................................................................. $ 3,357
Property, plant and equipment, net.............................................. 4,183
Trademarks and goodwill, net.................................................... 7,710
Other assets and deferred charges............................................... 227
Current liabilities............................................................. (2,685)
Long-term debt (less current maturities)........................................ (3,794)
Minority interest in Nabisco.................................................... (752)
Deferred income taxes........................................................... (1,195)
Other noncurrent liabilities.................................................... (1,090)
------------
Net assets of discontinued businesses......................................... $ 5,961
------------
------------
</TABLE>
NOTE 3 -- INVENTORIES
The major classes of inventories are as follows (dollars in millions):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Finished products............................................... $ 90 $ 94
Leaf tobacco.................................................... 306 334
Raw materials................................................... 23 26
Other........................................................... 84 75
------ ------
$ 503 $ 529
------ ------
------ ------
</TABLE>
NOTE 4 -- CONTINGENCIES
TOBACCO LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against RJR Tobacco Company or its affiliates or indemnitees,
including those claiming that lung cancer and other diseases as well as
addiction have resulted from the use, of or exposure to, RJR Tobacco Company's
tobacco products. During the second quarter of 1999, 36 new actions were served
against RJR Tobacco Company and/or its affiliates or indemnitees (including NGH)
(as compared to 67 in the second quarter of 1998) and 77 actions were dismissed
or otherwise resolved in favor of RJR Tobacco Company and/or its affiliates or
indemnitees without trial. There have been noteworthy increases in the number of
cases pending. On June 30, 1999, there were 620 active cases pending, as
compared with 575 on June 30, 1998 and 345 on June 30, 1997. As of August 5,
1999, 609 active cases were pending against RJR Tobacco Company and/or its
affiliates or indemnitees: 603 in the United States; 3 in Canada; and 1 in each
of the Marshall Islands, Nigeria and Puerto Rico.
The U.S. cases are pending in 42 states and the District of Columbia. The
breakdown is as follows: 110 in each of New York and West Virginia; 74 in
Florida; 58 in California; 39 in Massachusetts; 23 in Louisiana; 18 in Texas; 15
in Tennessee; 14 in the District of Columbia; 13 in Pennsylvania; 12 in Alabama;
10 in each of Illinois and New Jersey; 9 in Mississippi; 8 in Ohio; 7 in Iowa; 6
in Nevada; 5 in each of Maryland and Missouri; 4 in each of Arkansas, Georgia,
Indiana, Minnesota and
8
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
New Mexico; 3 in each of Arizona, Colorado, Oklahoma and Washington; 2 in each
of Hawaii, Kentucky, Michigan, North Carolina, North Dakota, Rhode Island, South
Carolina, South Dakota, Utah and Virginia; and 1 in each of Connecticut, Kansas,
New Hampshire, Oregon and Wisconsin. Of the 603 active cases, 158 are pending in
federal court, 440 in state court and 5 in tribal court. Most of these cases
were brought by individual plaintiffs, but a significant number, discussed
below, seek recovery on behalf of third parties or large classes of claimants.
THEORIES OF RECOVERY. The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, antitrust, RICO, indemnity,
medical monitoring and common law public nuisance. In a number of cases,
plaintiffs specifically plead punitive damages, often in amounts ranging into
the hundreds of millions or even billions of dollars, in addition to
compensatory and other damages. Seven of the 603 active cases in the United
States involve alleged non-smokers claiming injuries purportedly resulting from
exposure to environmental tobacco smoke. Fifty-five cases purport to be class
actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes, individuals and their estates
claiming illness and death from cigarette smoking, persons making claims based
on alleged exposure to environmental tobacco smoke, African-American smokers
claiming their civil rights have been violated by the sale of menthol
cigarettes, purchasers of cigarettes claiming to have been defrauded and seeking
to recover their costs and Blue Cross and Blue Shield subscribers seeking
reimbursement for premiums paid. Approximately 99 of the active cases seek,
INTER ALIA, recovery of health-related costs paid for treatment of individuals
suffering from diseases or conditions allegedly related to tobacco use. Eight,
brought by entities administering asbestos liability, seek contribution for the
costs of settlements and judgments.
DEFENSES. The defenses raised by RJR Tobacco Company and/or its affiliates,
where applicable, include preemption by the Federal Cigarette Labeling and
Advertising Act of some or all such claims arising after 1969; the lack of any
defect in the product; assumption of the risk; contributory or comparative
fault; lack of proximate cause; and statutes of limitations or repose; and, when
applicable, additional statutory, equitable, constitutional and other defenses.
RJR Tobacco Holdings has asserted additional defenses, including jurisdictional
defenses, in many of the cases in which it is named.
INDUSTRY TRIAL RESULTS. Juries have found for plaintiffs in six smoking and
health cases in which RJR Tobacco Company was not a defendant. In one of these
cases, no damages were awarded and the judgment was affirmed on appeal. The jury
awarded plaintiffs $400,000 in another of these cases, CIPOLLONE V. LIGGETT
GROUP, INC., but the award was overturned on appeal and the case was
subsequently dismissed. In the third of these cases, on August 9, 1996, a
Florida jury awarded damages of $750,000 to an individual plaintiff. That case,
CARTER V. BROWN & WILLIAMSON, was overturned on appeal on June 22, 1998. In
another Florida case brought by the same attorney, WIDDICK V. BROWN &
WILLIAMSON, a state court jury awarded the plaintiff approximately $1 million in
compensatory and punitive damages on June 10, 1998. On January 29, 1999, the
Florida Court of Appeals reversed this verdict and ordered a new trial in a
different location (Palm Beach County). On February 9-10, 1999, in HENLEY V.
PHILIP MORRIS, INC., a San Francisco state court jury awarded an individual
smoker $1.5 million in compensatory damages and $50 million in punitive damages.
Philip Morris moved to have this verdict set aside or reduced. On April 16,
1999, the trial judge reduced the punitive damages award to $25 million, but
otherwise denied Philip Morris' motions. Philip Morris is appealing the verdict.
On March 30, 1999, in WILLIAMS V. PHILIP MORRIS, an Oregon state court jury
returned a verdict against Philip
9
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
Morris in the amount of $1.5 million in compensatory damages and $79 million in
punitive damages. Although the judge in this case has reduced the punitive
damages to $32 million, Philip Morris is appealing this verdict as well. The
most recent verdict in a non-RJR Tobacco Company individual case was announced
on May 13, 1999. In that case, STEELE V. BROWN & WILLIAMSON, a jury in Missouri
federal court found that Brown & Williamson was not liable for the death of the
plaintiff.
On May 5, 1997, in an individual case filed against RJR Tobacco Company,
CONNOR V. R. J. REYNOLDS TOBACCO CO., brought by the same attorney who
represented plaintiffs in the CARTER and WIDDICK cases, a Florida state court
jury found no RJR Tobacco Company liability. On October 31, 1997, in still
another case, KARBIWNYK V. R. J. REYNOLDS TOBACCO COMPANY, brought by the same
attorney, another Florida state court jury found no RJR Tobacco Company
liability. On March 19, 1998, an Indiana state court jury found for RJR Tobacco
Company, NGH and other defendants in an individual case, DUNN V. RJR NABISCO
HOLDINGS CORP., in which plaintiffs sought damages for the alleged harm caused
to a non-smoker by environmental tobacco smoke. On March 18, 1999, the jury in
an Ohio federal district court found for the defendants, including RJR Tobacco
Company, on all counts in a class-action union trust-fund case, IRONWORKERS
LOCAL 17 V. PHILIP MORRIS. On May 10, 1999 in NEWCOMB V. R. J. REYNOLDS TOBACCO
CO., one of three individual cases in Tennessee state court which had been
consolidated for trial, a state-court jury refused to award damages against RJR
Tobacco Company or Brown & Williamson. The tobacco company defendants in the
other two cases were found to have no liability. Finally, on June 2, 1999, a
Mississippi state court jury found in favor of defendants, including RJR Tobacco
Company and RJR Tobacco Holdings, in an environmental tobacco smoke case, BUTLER
V. AMERICAN TOBACCO COMPANY. Finally, on July 9, 1999, a Louisiana state court
jury found in favor of RJR Tobacco Company and Brown & Williamson as successor
to American Tobacco Company in an individual smoker case, GILBOY V. AMERICAN
TOBACCO COMPANY.
CLASS-ACTION SUITS. In May 1996, in an early class action case, CASTANO V.
AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals overturned the
certification of a purported nationwide class of persons whose claims related to
alleged addiction to tobacco. Since this ruling by the Fifth Circuit, most
purported class-action suits have sought certification of statewide, rather than
nationwide, classes.
Putative class-action suits based on claims similar to those asserted in
CASTANO have been brought against RJR Tobacco Company, and in some cases RJR
Tobacco Holdings, in state and, in a few instances, federal courts in Alabama,
Arkansas, California, the District of Columbia (D.C. court), Florida, Hawaii,
Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, New Mexico, Nevada, New Jersey, New York, North Carolina,
Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia,
and West Virginia. A putative class action filed in Tennessee seeks
reimbursement of Blue Cross and Blue Shield premiums paid by subscribers
throughout the United States. On October 19, 1998, a putative class action was
filed in federal court in Philadelphia, Pennsylvania, on behalf of "all living
Black Americans who have purchased or consumed menthol tobacco products since
1954 (including minors through their legal representatives)" seeking redress of
alleged violations of the plaintiffs' civil rights. A purported class action
suit against RJR Tobacco Company in New Jersey claims that the marketing of
"lights" and "ultralight" cigarettes is deceptive. Plaintiffs have made similar
claims in other lawsuits. Other types of class-action suits have also been filed
in additional jurisdictions and there are also putative class action suits
pending in Canada, Puerto Rico and Nigeria. Most of these suits assert claims on
behalf of classes of individuals who claim to be addicted, injured, or at
greater risk of injury by the use of tobacco or exposure to environmental
tobacco smoke, or are the legal survivors of those persons.
10
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
Despite the marked increase of purported class actions brought against
tobacco companies, few purported class actions have been certified, or if
certified, have survived on appeal. Most recently, on May 17, 1999 the U.S.
Supreme Court declined review of a circuit court decision upholding the denial
of class certification in a Pennsylvania medical monitoring case, BARNES V.
AMERICAN TOBACCO. On April 12, 1999, in CHAMBERLAIN V. AMERICAN TOBACCO COMPANY,
a federal district court in Ohio refused to certify a class of
"nicotine-dependent" Ohio residents. On April 13, 1999, in AVALLONE V. AMERICAN
TOBACCO COMPANY, a state court judge in New Jersey refused to certify a
purported class of casino workers exposed to environmental tobacco smoke. On
June 21, 1999, in GEIGER V. AMERICAN TOBACCO COMPANY, a New York State court
refused to certify a class of New York State residents who were alleged to have
contracted lung and throat cancer as a result of cigarette smoking. On June 29,
1999, in CLAY V. AMERICAN TOBACCO COMPANY, a federal district court in Illinois
refused to certify a class of persons in 46 states who "as children, purchased
and smoked cigarettes designed, manufactured, promoted or sold by the
defendants". On July 21, 1999, in HANSEN V. THE AMERICAN TOBACCO COMPANY, a
federal district court in Arkansas refused to certify an Arkansas state-wide
class consisting of smokers claiming to have tobacco-related disease, and on
July 23, 1999, in REED V. PHILLIP MORRIS, a District of Columbia superior court
judge entered an opinion and order refusing to certify as a class residents of
the District of Columbia claiming to have tobacco-related disease.
Class certification was granted in 1998 by a Maryland state court in
RICHARDSON V. PHILIP MORRIS. The Maryland Court of Appeals is reviewing that
decision. In addition, on November 5, 1998, a Louisiana state appeals court
affirmed the certification of a medical monitoring and/or smoking cessation
class of Louisiana residents who were smokers on or before May 24, 1996 (SCOTT
V. AMERICAN TOBACCO COMPANY). On February 26, 1999, the Louisiana Supreme Court
denied the defendants' petition for writ of certiorari and/or review. Finally,
defendants settled another class-action suit, BROIN V. PHILIP MORRIS, in
October, 1997. The Florida Court of Appeals denied challenges to this settlement
on March 24, 1999 and subsequently denied motions to reconsider.
Trial is underway in a class-action suit pending in Florida, ENGLE V. R.J.
REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or
their survivors who claim to have diseases or medical conditions caused by their
alleged "addiction" to cigarettes has been certified. The trial is divided into
three phases. A jury determination of liability was handed down on July 7, 1999
against RJR Tobacco Company and the other cigarette manufacturer defendants in
the initial phase, which included common issues related to liability, general
causation and a potential award of or entitlement to punitive damages. On August
2, 1999, the trial court judge issued an order which provides that the second
phase of ENGLE will begin on September 7, 1999, and will consist of the trial of
the claims of two of the named class representatives. In addition, the trial
court ordered that the jury shall determine punitive damages, if any, on a
dollar amount basis, which amount would then be applicable as punitive damages
for the entire qualified class. The third phase of ENGLE will address other
class members' claims in individual trials before separate juries.
On August 2, 1999, the defendants also filed a motion asking that the judge
recuse himself on the grounds that the defendants just learned that the judge is
an ex-smoker who has a disease (arteriolosclerosis) that the jury found in the
initial phase of the trial can be tobacco-related, and as such, is a member of
the ENGLE class. On August 5, 1999, the judge denied the defendants' recusal
motion.
No compensatory damages would have to be paid to any plaintiff until the end
of his or her trail and the appellate process. As currently structured, punitive
damages, if any, will not be awarded to any
11
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
individual plaintiff until the completion of both the second and third phases of
ENGLE. RJR Tobacco Company does not believe it would be necessary to post bond
to stay execution of any judgment awarding punitive damages until a judgment is
entered awarding punitive damages to an individual plaintiff. However, in a
worst case scenario, at the end of the second phase, the court could enter a
judgment for punitive damages on behalf of the entire class in an amount not
capable of being bonded, resulting in the possible execution of the judgment
before it could be overturned on appeal. RJR Tobacco Company believes this
result would be contrary to U.S. and Florida law and will take all appropriate
actions to prevent this scenario from occurring.
HEALTH-CARE COST RECOVERY CASES. In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members, including RJR Tobacco Company. This case was brought on behalf
of the State to recover state funds paid for healthcare and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. By making the State the plaintiff in the case and basing
its claims on economic loss rather than personal injury, the State sought to
avoid the defenses otherwise available against an individual plaintiff.
Following the filing of the MOORE case, most other states, through their
attorneys general and/ or other state agencies, sued RJR Tobacco Company and
other U.S. cigarette manufacturers based on similar theories. The cigarette
manufacturer defendants, including RJR Tobacco Company, settled the first four
of these cases scheduled to come to trial, those of Mississippi, Florida, Texas
and Minnesota, by separate agreements between the state and those manufacturers
in each case.
On November 23, 1998, the major U.S. cigarette manufacturers, including RJR
Tobacco Company, entered into the Master Settlement Agreement with attorneys
general representing the remaining 46 states, the District of Columbia, Puerto
Rico, Guam, the Virgin Islands, American Samoa and the Northern Marianas. The
Master Settlement Agreement settles all the health-care cost recovery actions
brought by the settling states and contains releases of various additional
present and future claims.
In each state where final approval has been obtained, the Master Settlement
Agreement will release RJR Tobacco Company and several of its indemnitees and
RJR Tobacco Holdings and NGH from: (1) all claims of the settling states, and
their respective political subdivisions and other recipients of state
health-care funds, relating to past conduct arising out of the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, the exposure to, or research, statements or warnings about, tobacco
products; and (2) all monetary claims relating to future conduct arising out of
the use of, or exposure to, tobacco products that have been manufactured in the
ordinary course of business.
The Master Settlement Agreement is scheduled to become effective on the
earlier of June 30, 2000 or the date on which final approval of the settlement
has been obtained in courts of 80% of the settling states, both by number and
percentage share of the settlement payments due. As of July 6, 1999, final
approval was obtained in the requisite number of settling states (42), but those
states' percentage shares comprise only 54.18%, rather than the necessary 80%,
of the payments due.
Payments for all tobacco litigation settlement agreements currently in
effect, including the Master Settlement Agreement and four individual state
settlements, will be approximately $1.6 billion in 1999 to be funded through
price increases. RJR Tobacco Company estimates payments in future years to
exceed $2 billion per year, but these payments will be subject to adjustments
based upon, among other things, the volume of cigarettes sold by RJR Tobacco
Company, RJR Tobacco Company's market share and inflation.
12
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
On April 20, 1999, the Canadian Province of British Columbia brought a case,
similar to the U.S. attorney-general cases, against RJR Tobacco Company and
other Canadian and U.S. tobacco companies and their parent companies, including
RJR Tobacco Holdings, in British Columbia Provincial Court. This lawsuit relies
heavily upon recently enacted legislation in British Columbia which is being
separately challenged by Canadian tobacco companies. An agreement has been
reached with the government in British Columbia that these separate
constitutional challenges will be litigated prior to the health-care recovery
action. These constitutional challenges are scheduled to be heard by the
Canadian courts in the autumn of 1999.
UNION CASES. Although the Master Settlement Agreement settled some of the
most potentially burdensome health-care cost recovery actions, many other such
cases have been brought by other types of plaintiffs. As of August 5, 1999,
approximately 66 lawsuits by union trust funds against cigarette manufacturers
and others are pending. The funds seek recovery of payments made by them for
medical expenses of their participants' union members and their dependents
allegedly injured by cigarettes. The claims in these cases are almost identical,
and more than 30 of the cases purport to be class actions on behalf of all union
trust funds in a particular state.
The defendants in these actions argue, among other things, the settled law
that one who pays an injured person's medical expenses is legally too remote to
maintain an action against the person allegedly responsible for the injury. In
addition, they argue that the traditional subrogation remedy cannot be
supplanted by a direct right of action for the trust fund that strips defendants
of the defenses they would ordinarily have against the allegedly injured
individual.
In the first of these cases to be considered by a federal court of appeals,
on March 29, 1999, the Third Circuit Court of Appeals affirmed a district court
ruling dismissing a case, STEAMFITTERS LOCAL UNION 420 V. PHILIP MORRIS, on
remoteness grounds. Then, a week later, the Second Circuit handed down its
decision in LABORERS LOCAL 17 V. PHILIP MORRIS, reversing a district court's
decision and remanding the case for dismissal, again on remoteness grounds. On
July 14, 1999, the U.S. Court of Appeals for the Ninth Circuit affirmed the
district court's dismissal in OREGON LABORERS V. PHILIP MORRIS on remoteness and
standing grounds. Numerous trial court judges have also dismissed these cases on
remoteness grounds, including most recently, on July 22, 1999, a federal
district court in Washington in NORTHWEST LABORERS-EMPLOYEES HEALTH & SECURITY
TRUST FUND V. PHILIP MORRIS. Nonetheless, in other federal circuits, there are
still some union cases that have survived motions to dismiss and that may
proceed to trial. Most recently, on August 2, 1999, a federal district court in
New York denied defendants' motions to dismiss in two separate cases heard
together--NATIONAL ASBESTOS WORKERS MEDICAL FUND V. PHILIP MORRIS and BLUE CROSS
AND BLUE SHIELD OF NEW JERSEY, INC. V. PHILIP MORRIS.
The first union case to survive motions to dismiss and go to trial was IRON
WORKERS LOCAL NO. 17 V. PHILIP MORRIS. This case, in which a class of
approximately 111 union trust funds was certified by a federal district court in
Ohio, went to trial on February 22, 1999 on the counts that survived motions to
dismiss: state and federal RICO claims and civil conspiracy claims. The federal
RICO claim was dismissed during the trial, and after the conclusion of
plaintiffs' case, the court directed a verdict dismissing RJR Tobacco Holdings
and NGH from the case. On March 18, 1999, the jury in this case returned a
unanimous verdict for the defendants, including RJR Tobacco Company, on all
remaining counts. On May 11, 1999, the trial court judge denied plaintiffs'
motion for a new trial. The plaintiffs are appealing the case to the Sixth
Circuit Court of Appeals.
OTHER HEALTH-CARE COST RECOVERY AND AGGREGATED CLAIMS PLAINTIFFS. Native
American tribes have filed similar cases, five in tribal courts and one putative
class action in San Diego Superior Court. Five
13
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
groups of health-care insurers, as well as a private entity that purported to
self insure its employee health-care programs, have also advanced claims similar
to those found in the union health-care cost recovery actions. Two of these
"insurer" cases, WILLIAMS & DRAKE V. AMERICAN TOBACCO and REGENCE BLUESHIELD V.
PHILIP MORRIS, were dismissed in their entirety on remoteness grounds by federal
district courts in Pennsylvania and Washington, respectively. In a third
"insurers" case, GROUP HEALTH PLAN, INC. V. PHILIP MORRIS, a federal district
judge in Minnesota, on April 29, 1999, dismissed all claims, except a state
antitrust claim and a conspiracy claim. Five foreign countries have also brought
health-care cost recovery suits against RJR Tobacco Company in U.S. courts.
Other cost recovery suits have been brought by, among others, local governmental
jurisdictions, taxpayers (on behalf of a governmental jurisdiction), a
university and a hospital. Finally, eight actions have been filed against RJR
Tobacco Company by asbestos companies and/or asbestos-related trust funds based
on the theory that the plaintiffs "overpaid" claims brought against them to the
extent that tobacco use, not asbestos exposure, was the cause of the alleged
personal injuries for which they paid compensation.
RECENT AND SCHEDULED TRIALS. As of August 5, 1999, there were three cases
scheduled for trial in 1999 against RJR Tobacco Company alleging injuries
relating to tobacco. In addition, one case is currently in progress, the ENGLE
case in Florida. Cases against other tobacco company defendants are also
scheduled for trial in 1999 and thereafter. Although trial schedules are subject
to change and many cases are dismissed before trial, it is likely that there
will be an increased number of tobacco cases, some involving claims for possibly
billions of dollars, against RJR Tobacco Company and RJR Tobacco Holdings coming
to trial over the next year.
OTHER DEVELOPMENTS. On April 9, 1999, a class action complaint, A.D. BEDELL
WHOLESALE CO. V PHILIP MORRIS INC., was filed on behalf of cigarette wholesalers
and distributors against RJR Tobacco Company, Philip Morris and Brown &
Williamson in the U.S. District Court for the District of Pennsylvania alleging
violations of the federal antitrust laws based, in large part, on the Master
Settlement Agreement.
RJR Tobacco Company is aware of grand jury investigations being conducted in
New York and Washington, D.C. that relate to the cigarette business. In
addition, RJR Tobacco Company received a document subpoena, dated September 17,
1998, from a federal grand jury convened in the Eastern District of Pennsylvania
by the Antitrust Division of the Department of Justice. RJR Tobacco Company
understands that the grand jury is investigating possible violations of the
antitrust laws related to tobacco leaf buying practices. RJR Tobacco Company is
responding to the subpoena. RJR Tobacco Company also is responding to document
subpoenas dated February 5 and March 10, 1999, arising from a grand jury
investigation being conducted in the Western District of New York into the
actions of some cigarette retailers and a distributor, and to a document
subpoena dated July 7, 1999, arising from a grand jury investigation being
conducted in the Eastern District of North Carolina into the export sales
practices of RJR Tobacco Company's former international tobacco business.
On December 22, 1998, Northern Brands International, Inc. ("Northern
Brands"), a now inactive tobacco subsidiary that was part of the business of
R.J. Reynolds International B.V. ("Reynolds International"), a former
Netherlands subsidiary of RJR Tobacco Company recently sold to Japan Tobacco,
entered into a plea agreement with the United States Attorney for the Northern
District of New York. Northern Brands was charged with aiding and abetting
certain customers who brought merchandise into the United States "by means of
false and fraudulent practices. . . ." Northern Brands agreed to pay a $10
million forfeiture and a $5.2 million fine and special assessment. In the plea
agreement, the U.S. Attorney agreed not to bring additional criminal charges in
the Northern District
14
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4 -- CONTINGENCIES (CONTINUED)
against Northern Brands or its corporate affiliates, including NGH, RJR Tobacco
Holdings, RJR Tobacco Company and Reynolds International, for actions from 1985
through 1998 that are related to those that gave rise to the agreement.
RJR-MacDonald, Reynolds International's operating company in Canada, is
cooperating with an investigation now being conducted by the Royal Canadian
Mounted Police relating to the same events that gave rise to the Northern Brands
investigation. Management cannot predict whether any other authorities in the
United States or Canada will seek to take further actions with regard to these
events. Although the international tobacco business was sold, RJR Tobacco
Company retained certain liabilities relating to events disclosed above.
Litigation is subject to many uncertainties and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJR Tobacco Company or its affiliates, including RJR Tobacco Holdings,
or indemnitees. Determinations of liability or adverse rulings against other
cigarette manufacturers that are defendants in similar actions, even if those
rulings are not final, could adversely affect the litigation against RJR Tobacco
Company or its affiliates or indemnitees and could encourage an increase in the
number of those claims. There have been a number of political, legislative,
regulatory and other developments relating to the tobacco industry and cigarette
smoking that have received wide media attention, including the Master Settlement
Agreement referred to above. These developments may negatively affect the
outcomes of tobacco-related legal actions and encourage the institution of
additional similar litigation.
Although it is impossible to predict the outcome of these events on pending
litigation and the rate at which new lawsuits are filed against RJR Tobacco
Company and RJR Tobacco Holdings, a significant increase in litigation and/or in
adverse outcomes for tobacco defendants could have an adverse effect on any one
or all of these entities. RJR Tobacco Company and RJR Tobacco Holdings each
believes that it has a number of valid defenses to any of those actions and
intends to defend those actions vigorously.
RJR Tobacco Holdings believes that, notwithstanding the quality of defenses
available to it and RJR Tobacco Company in litigation matters, it is possible
that the results of operations or cash flows of RJR Tobacco Holdings in
particular quarterly or annual periods or RJR Tobacco Holdings' financial
condition could be materially affected by the ultimate outcome of pending
litigation matters, including bonding and litigation costs. Management is unable
to predict the outcome of the litigation or to derive a meaningful estimate of
the amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.
15
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5 -- STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the six months ended June 30, 1999 are
as follows (dollars in millions):
<TABLE>
<CAPTION>
RETAINED
EARNINGS ACCUMULATED OTHER OTHER TOTAL
PAID-IN (ACCUMULATED COMPREHENSIVE STOCKHOLDERS' STOCKHOLDERS'
COMMON STOCK CAPITAL DEFICIT) INCOME (LOSS) EQUITY EQUITY
----------------- --------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1999....................... $ 1 $ 10,861 $ (516) $ (460) $ -- $ 9,886
Net income.................. -- -- 2,474 -- -- 2,474
Foreign currency translation
adjustment................. -- -- -- (86) -- (86)
Items related to
international tobacco
business (see note 2)...... -- -- -- 218 -- 218
Merger transaction*......... -- (3,586) (1,958) 322 -- (5,222)
Exercise of stock options... -- 3 -- -- -- 3
Other....................... -- 1 -- -- (7) (6)
--
----- --------- ------------- ----- -------------
Balance June 30, 1999....... $ 1 $ 7,279 $ -- $ (6) $ (7) $ 7,267
--
--
----- --------- ------------- ----- -------------
----- --------- ------------- ----- -------------
</TABLE>
* Transfer of RJR Tobacco Holdings' 80.5% interest in Nabisco, together with a
portion of the proceeds from the sale of the international tobacco business,
to NGH (see note 2).
NOTE 6 -- SUBSEQUENT EVENT
On July 28, 1999, the board of directors of RJR Tobacco Holdings declared a
quarterly cash dividend of $.775 per common share, or $3.10 per common share on
an annualized basis. The dividend will be paid on October 1, 1999 to
stockholders of record as of September 10, 1999.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJR Tobacco Holdings. It should be read
in conjunction with the financial information included in the Consolidated
Condensed Financial Statements.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED
JUNE 30 JUNE 30
-------------------- PERCENTAGE -------------------- PERCENTAGE
1999 1998 CHANGE 1999 1998 CHANGE
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
Net sales................................................ $ 1,907 $ 1,435 32.9% $ 3,600 $ 2,648 36.0%
Cost of products sold (1)................................ 843 347 142.9 1,593 665 139.5
Selling, advertising, administrative and general
expenses............................................... 753 687 9.6 1,426 1,251 14.0
--------- --------- --------- ---------
Operating company contribution........................... 311 401 (22.4) 581 732 (20.6)
Tobacco settlement and related expenses (1).............. -- 145 (100.0) -- 457 (100.0)
Amortization of intangibles.............................. 91 92 (1.1) 183 183 --
Restructuring expense.................................... 143 -- n/a 143 -- n/a
--------- --------- --------- ---------
Operating income......................................... $ 77 $ 164 (53.0) $ 255 $ 92 177.2
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) $563 million and $38 million of ongoing settlement expense was recorded in
cost of products sold in the second quarter of 1999 and 1998, respectively,
and $1,070 million and $75 million was recorded during the six months ended
June 30, 1999 and 1998, respectively. Tobacco settlement and related
expenses include only initial, up-front tobacco settlement and other related
expenses.
NET SALES. Net sales of $1.9 billion and $3.6 billion for the three and six
months ended June 30, 1999 increased 32.9% and 36%, respectively, from the
comparable prior year periods. The increase in both periods was the result of
price increases in the latter half of 1998 in response to increased settlement
costs ($642 million for the second quarter and $1.3 billion for the six month
period), partly offset by lower volumes ($175 million for the second quarter and
$347 million for the six month period).
Volume during the second quarter of 1999 declined 12.4% from the prior year
quarter, while industry volume declined 10.3%. Volume declined 13.3% during the
first six months of 1999 versus the prior year period, while industry volume
declined 10%. RJR Tobacco Company's full-price shipments represented 62.2% and
62.5% of total shipments in the second quarter of 1999 and 1998, respectively,
and 62.1% and 62.2% in the six month periods ended June 30, 1999 and 1998,
respectively. Industry-wide full-price shipments represented 73.2% of total
shipments in the second quarter 1999 and 1998, and 73.5% and 72.9% for the first
six months of 1999 and 1998, respectively.
During the second quarter of 1999, the shipment volume of the WINSTON styles
supported by the "No Bull" repositioning, down 9% compared to the second quarter
of 1998, outperformed the industry full-price decline of 10.3%. Shipment volume
was down 13% for the six months of 1999 versus the 1998 period. Shipments of
CAMEL, excluding the non-filter style, declined 10.9% and 9.6% during the three
and six month periods ended June 30, 1999, respectively, from the comparable
prior year periods. SALEM shipments were down 14.9% and 13.9% for the three and
six month periods ended June 30, 1999, respectively, compared to the prior year
periods. Volume for DORAL, the industry's leading savings brand was down 13%
from the second quarter of 1998, while shipments in the first six months of 1999
were 14.5% lower than the prior year period. DORAL's comparative performance was
somewhat
17
<PAGE>
impacted by the expansion of box styles in the second quarter of 1998 and
aggressive competitive activity in the savings category, but still maintained a
stable market share during the comparative quarters.
RJR Tobacco Company's overall retail share of market for the second quarter
of 1999 decreased to 24.08% from 25.33% in the second quarter of 1998. For the
second quarter of 1999, RJR Tobacco Company's full-price share decreased to
15.17% from 16.42%, while its savings share of market remained at 8.91% for the
second quarter of both 1999 and 1998. For the first six months of 1999, RJR
Tobacco Company's retail share of market decreased to 24.24% compared to 25.38%
in 1998. Its full-price share decreased to 15.35% for the first six months of
1999 compared to 16.44% in 1998, while its savings share declined slightly to
8.89% from 8.94%.
COST OF PRODUCTS SOLD. Cost of products sold of $843 million in the second
quarter of 1999 increased $496 million from the second quarter of 1998,
primarily due to an increase of $525 million in ongoing settlement costs. Cost
of products sold of $1.6 billion in the first six months of 1999 increased $928
million from 1998, primarily due to an increase of $995 million in ongoing
settlement costs.
SELLING, ADVERTISING, ADMINISTRATIVE AND GENERAL EXPENSES. Selling,
advertising, administrative and general expenses of $753 million for the second
quarter of 1999 increased $66 million, or 9.6%, from the comparable prior year
quarter. For the first six months of 1999, selling, advertising, administrative
and general expenses of $1.4 billion increased 14% from the prior year period.
The increases over prior year periods were primarily due to increased
promotional expense, composed mainly of competitive discounts provided directly
to retailers and passed through to the consumer.
OPERATING COMPANY CONTRIBUTION. Operating company contribution decreased
22.4% to $311 million for the second quarter of 1999 and decreased 20.6% to $581
million for the first six months of 1999. The decreases are primarily due to
higher ongoing settlement costs, lower volumes and increased competitive
discounts, partly offset by increased pricing.
TOBACCO SETTLEMENT AND RELATED EXPENSES. In the three and six month periods
ended June 30, 1998, RJR Tobacco Company recorded $145 million and $457 million,
respectively, for initial, up-front tobacco settlement costs relating to the
agreements between RJR Tobacco Company and the Minnesota state attorney general
and Blue Cross and Blue Shield of Minnesota and certain other settlement
agreements.
In the fourth quarter of 1998, RJR Tobacco Company recorded a $151 million
expense for a workforce reduction of approximately 1,300 employees in response
to changing business conditions that management expects to result from the
multi-state settlement agreement signed in November 1998. Pre-tax savings in
1999 and 2000 are expected to be approximately $60 million and $95 million,
respectively. During 1998, $54 million of the reserve was utilized, and for the
six months ended June 30, 1999, RJR Tobacco Company incurred $17 million of cash
payments, which were applied against the reserve, resulting in a reserve balance
of approximately $80 million. See note 1 to the Consolidated Condensed Financial
Statements.
HEADQUARTERS CLOSE-DOWN AND RELATED CHARGES. During the second quarter of
1999, RJR Tobacco Holdings recorded a charge of $143 million in connection with
the elimination of its New York corporate headquarters. A significant portion of
the charge is for employee severance and related benefits pertaining to the
elimination of all functions previously performed at the holding company. The
anticipated annual future cash savings from the elimination of the New York
headquarters is approximately $60 million. See note 1 to the Consolidated
Condensed Financial Statements.
INTEREST AND DEBT EXPENSE. Interest and debt expense of $77 million in the
second quarter of 1999 decreased $32 million, or 29.4%, from the second quarter
of 1998. For the first six months of 1999, interest and debt expense of $182
million decreased $34 million from the prior year period. The
18
<PAGE>
decreases in the periods were due to the repurchase of approximately $4 billion
of debt, partly offset by the issuance of $1.25 billion of debt. See note 2 to
the Consolidated Condensed Financial Statements.
OTHER EXPENSE, NET. Other expense, net decreased $24 million and $22
million for the three and six month periods ended June 30, 1999, respectively,
due to interest income earned in the second quarter of 1999 related to the
investment of proceeds from the sale of the international tobacco business. See
note 2 to the Consolidated Condensed Financial Statements.
PROVISION FOR INCOME TAXES. RJR Tobacco Company recorded a tax provision of
$38 million in the second quarter of 1999 compared to $44 million recorded in
the second quarter of 1998. The effective tax rates were impacted by certain
nondeductible items, including goodwill amortization, and to a lesser extent,
state taxes.
FACTORS THAT MAY AFFECT FUTURE RESULTS RELATED TO THE REORGANIZATION
Management anticipates that savings of approximately $15 million per quarter
will be realized from the elimination of certain corporate expenses.
Additionally, management anticipates that, as a result of the net extinguishment
of debt which occurred during the second quarter of 1999, interest and debt
expense will approximate $45 million in each of the next four quarterly periods.
Management also expects that, as a result of the investment of the proceeds
received from the sale of the international tobacco business during the second
quarter of 1999, net of taxes to be paid in the second half of 1999, interest
income will approximate $15 million in each of the next four quarterly periods.
See notes 1 and 2 to the Consolidated Condensed Financial Statements.
DISCONTINUED OPERATIONS
Total results of discontinued operations increased approximately $2.8
billion in the second quarter of 1999 compared to the second quarter of 1998 and
increased approximately $2.7 billion for the first six months of 1999 compared
to the comparable 1998 period. The increases were primarily due to the gain on
the sale of the international tobacco business in May of 1999, partially offset
by the loss on the recognition of Nabisco's cumulative translation adjustment
account. See note 2 to the Consolidated Condensed Financial Statements.
EXTRAORDINARY LOSS
An extraordinary loss of approximately $384 million, $250 million after-tax,
was incurred during the three and six month periods ended June 30, 1999 in
connection with the repurchase of approximately $4 billion of debt securities.
See note 2 to the Consolidated Condensed Financial Statements.
GOVERNMENTAL ACTIVITY
In December 1992, the U.S. Environmental Protection Agency (the "EPA")
issued a report entitled, "Respiratory Health Effects of Passive Smoking: Lung
Cancer and Other Disorders," which classified environmental tobacco smoke as a
Group A (known human) carcinogen. On June 22, 1993, RJR Tobacco Company and
others filed suit in the U.S. District Court for the Middle District of North
Carolina (FLUE-CURED STABILIZATION CORP. V. U.S. ENVIRONMENTAL PROTECTION
AGENCY) to challenge the validity of the EPA report. On July 17, 1998, the
court's ruling on the plaintiffs' motion for summary judgment found that the
EPA's classification of environmental tobacco smoke was invalid, and vacated
those portions of the EPA report dealing with lung cancer. The government
appealed this ruling to the Court of Appeals for the Fourth Circuit where oral
argument was heard in June 1999.
19
<PAGE>
In July 1996, Massachusetts enacted legislation requiring manufacturers of
tobacco products sold in Massachusetts to report yearly, beginning December 15,
1997, the ingredients of each brand sold. The statute also requires the
reporting of nicotine yield ratings in accordance with procedures established by
the State. The legislation contemplates public disclosure of all ingredients in
descending quantitative order, a trade-secret disclosure that RJR Tobacco
Company believes could damage the competitive position of its brands. RJR
Tobacco Company, together with other cigarette manufacturers, filed suit in the
U.S. District Court for the District of Massachusetts seeking to have the
statute declared null and void and to restrain Massachusetts officials from
enforcing it. A similar suit was filed by manufacturers of smokeless tobacco
products. The court granted a preliminary injunction that enjoined Massachusetts
officials from enforcing the law relating to ingredient reporting. Massachusetts
appealed that decision, which was affirmed by the Court of Appeals for the First
Circuit. Both the manufacturers and Massachusetts are now seeking summary
judgment from the district court. The case has been briefed and argued.
In 1997, Texas enacted legislation very similar to the Massachusetts law,
except that the Texas statute authorizes confidentiality of trade secrets. The
Texas Department of Health promulgated regulations that require both ingredient
and nicotine-yield reports to be filed by December 1, 1999. RJR Tobacco Company
currently intends to comply with the regulations.
In 1997, the Minnesota legislature enacted a requirement that manufacturers
of tobacco products sold in Minnesota report annually the presence of five
substances in each brand of their products in its "unburned" and "burned"
states. RJR Tobacco Company complied with this requirement on February 15, 1999.
In August 1998, the Massachusetts Department of Health (the "DOH") issued
regulations for public comment that would require annual reporting, beginning
July 1, 2000, on a brand-by-brand basis of 43 smoke constituents in both
mainstream smoke and sidestream smoke. RJR Tobacco Company and the other
manufacturers believe that the DOH lacks legal authority to promulgate these
proposed regulations. Nevertheless, RJR Tobacco Company and the other
manufacturers proposed conducting a cooperative benchmarking study to address
certain DOH concerns. The benchmarking study will obtain smoke constituent
information on a representative number of cigarette brand styles. The DOH has
agreed not to finalize or amend these regulations until it has reviewed the
results of the manufacturers study.
On May 21, 1999, RJR Tobacco Company, Lorillard Tobacco Company, Brown &
Williamson Tobacco Corporation and Philip Morris, Inc. filed separate lawsuits
in the U.S. District Court for the District of Massachusetts to enjoin
implementation of certain Massachusetts Attorney General regulations concerning
the advertisement and display of tobacco products. The regulations go beyond
those required by the Master Settlement Agreement. RJR Tobacco Company is
challenging regulations that ban all self-service cigarette sales; prohibit
cigarette manufacturers from offering promotional items tied to cigarette sales;
prohibit mail distribution of cigarettes in exchange for coupons and proofs of
purchase; and prohibit point-of-sale advertising less than five feet above the
ground in any retail outlet that is not limited to adults only. RJR Tobacco
Company also is challenging the regulation that bans all cigarette advertising
(other than a black-and-white sign reading "Tobacco Products Sold Here") visible
within 1,000 feet of any public playground, public park or school. This
provision would effectively ban outdoor advertising in all but the most rural
areas of the state. RJR Tobacco Company believes that it has strong arguments
that the regulations violate constitutional provisions concerning free speech,
equal protection, due process, the Commerce Clause and federal preemption. The
Massachusetts Attorney General has postponed implementation of the regulations
until February 2000, when the trial of this matter is scheduled to occur.
It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJR
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<PAGE>
Tobacco Company or the cigarette industry generally, but such legislation or
regulations could have a material effect on RJR Tobacco Company or the cigarette
industry generally.
For a description of certain litigation affecting RJR Tobacco Company and
its affiliates, including the effects on results of operations of certain
attorney general agreements, see note 4 to the Consolidated Condensed Financial
Statements.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
On January 1, 1999, RJR Tobacco Holdings adopted Statement of Position No.
98-5, Reporting on the Costs of Start-up activities. See note 1 to the
Consolidated Condensed Financial Statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which must be adopted by
January 1, 2000, with early adoption permitted. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, which
delays the effective date of SFAS No. 133 one year. See note 1 to the
Consolidated Condensed Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from continuing operating activities were $594 million in the
first six months of 1999 compared to $281 million in the comparable 1998 period.
The increase in cash flow primarily reflects increased pricing, the timing of
payments for leaf purchases and other accounts payable, and lower income tax
payments, partially offset by an increase in payments related to the close-down
of the New York headquarters (see note 1 to the Consolidated Condensed Financial
Statements), settlement payments (see note 1 to the Consolidated Condensed
Financial Statements), interest payments and lower product volume.
Net cash flows from investing activities were $7.8 billion in the first six
months of 1999 compared to an outflow of $18 million for the comparable 1998
period. The increase is due primarily to the proceeds received from the sale of
the international tobacco business.
Cash flows used in financing actitivities were $5.3 billion and $14 million
for the six months ended June 30, 1999 and 1998, respectively. The increase in
funds used was primarily due to the early extinguishment of approximately $4
billion in debt and transfers and payments of approximately $2.1 billion made to
RJR Tobacco Holdings' former parent company, partially offset by proceeds from
the issuance of $1.25 billion of private placement debt.
At present, the principal sources of liquidity for RJR Tobacco Company's
business and operating needs are internally generated funds from its operations
and available revolving credit borrowings under a credit agreement through RJR
Tobacco Holdings. RJR Tobacco Company anticipates that it will be able to fund
its operating requirements and to meet its debt service obligations with cash
flow from operations and available revolving credit borrowings, although no
assurance can be given in this regard.
DEBT
On April 13, 1999, RJR Tobacco Holdings offered to purchase substantially
all of its outstanding debt securities and sought consents from the holders of
those securities to waive covenants that might have prevented some of the
reorganization transactions described in the notes to the Consolidated Condensed
Financial Statements. These consents were received as of April 26, 1999. The
tender offers were completed on May 18, 1999, which resulted in RJR Tobacco
Holdings repurchasing approximately
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<PAGE>
$4 billion of its debt with a portion of the proceeds from the sale of the
international tobacco business. As a result, RJR Tobacco Holdings recognized an
extraordinary loss from the early extinguishment of debt of approximately $384
million, $250 million after-tax.
On May 7, 1999, RJR Tobacco Holdings entered into a $1.235 billion floating
rate revolving credit agreement with a syndicate of commercial banks. At June
30, 1999, RJR Tobacco Holdings had approximately $460 million in letters of
credit and no borrowings outstanding under the revolving credit agreement. On
May 18, 1999, RJR Tobacco Holdings completed a private placement offering of
$1.25 billion in debt securities. The net proceeds received were used for
general corporate purposes. RJR Tobacco Company has guaranteed RJR Tobacco
Holdings' obligations under the revolving credit agreement and the debt
securities. On July 16, 1999 RJR Tobacco Holdings filed a registration statement
in order to issue publicly registered notes in exchange for the private
placement notes.
DIVIDENDS
On July 28, 1999, the board of directors of RJR Tobacco Holdings declared a
quarterly cash dividend of $.775 per common share, or $3.10 per common share on
an annualized basis. The dividend will be paid on October 1, 1999 to
stockholders of record as of September 10, 1999.
CAPITAL EXPENDITURES
Capital expenditures were $20 million in each of the first six months of
1999 and 1998. The level of expenditures currently planned for 1999 is
approximately $50 million. Management expects that its capital expenditure
program will continue at a level sufficient to support the strategic and
operating needs of RJR Tobacco Company. There were no material long-term
commitments for capital expenditures as of June 30, 1999.
SETTLEMENT AND RELATED EXPENSES
Total estimated payments in 1999 for all tobacco litigation settlement
agreements currently in effect and their associated costs, including the Master
Settlement Agreement, will be approximately $1.6 billion, $416 million of which
has been paid as of June 30, 1999, to be funded through price increases. RJR
Tobacco Company funded these payments primarily by cash flows from operating and
financing activities. In future years, estimated payments will exceed $2 billion
per year. However, these payments will be subject to, among other things, the
volume of cigarettes sold by RJR Tobacco Company, RJR Tobacco Company's market
share and inflation adjustments. For further discussion of the potential impact
of litigation issues and various litigation settlements, see note 4 to the
Consolidated Condensed Financial Statements.
RESTRUCTURING EXPENSE
In the fourth quarter of 1997, RJR Tobacco Company recorded a pre-tax
restructuring expense of $80 million, $52 million after-tax, to reorganize its
operations. Cash outlays will approximate $40 million. The charge included $30
million for severance and related benefits, $30 million for the rationalization
of manufacturing operations and $20 million for contract terminations and other
costs. Pre-tax savings in 1998 were $33 million and, after completion of the
program, are expected to be approximately $18 annually. During 1997, $5 million
of the accrual was utilized for employee severance and related benefits and $2
million was utilized for rationalization of manufacturing operations. During
1998, $63 million of the accrual was utilized as follows: $15 million for
employee severance and related benefits, $28 million for rationalization of
manufacturing operations, and $20 million for contract termination and other
costs. For the six months ended June 30, 1999 $5 million of the remaining
restructuring accruals was utilized for employee severance and related benefits,
resulting in a reserve
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balance of approximately $5 million. All of the charges applied against the
reserve during 1999 were cash expenditures.
YEAR 2000
The year 2000 issue stems from computer applications that were written using
two digits rather than four digits to define the applicable year. The issue is
whether computer systems will properly interpret date-sensitive information when
the year changes to 2000.
RJR Tobacco Company has inventoried, assessed and developed detailed plans
for required systems modifications or replacements of all information technology
systems and operating systems with embedded technology, which include, but are
not limited to, process control, automated factory/ assembly lines,
environmental safety, quality control and facilities.
As of June 30, 1999, software remediation, which entails modifying existing
programs to make them year 2000 compliant, was complete for both information
technology systems and operating systems with embedded technology.
As of June 30, 1999, software testing following remediation was
approximately 98% complete for information technology systems. RJR Tobacco
Company expects that testing will be completed by the end of the third quarter
of 1999. With respect to operating systems with embedded technology, testing was
approximately 97% complete and RJR Tobacco Company expects it to be completed by
the end of the third quarter of 1999.
As of June 30, 1999, approximately 94% of information technology systems
were compliant and in use. RJR Tobacco Company anticipates the balance to be
completed by the end of the third quarter of 1999. Approximately 92% of
operating systems with embedded technology were compliant and in use. Management
expects all operating systems with embedded technology to be fully year 2000
compliant by the end of October 1999.
RJR Tobacco Company is also in contact with suppliers, vendors, service
providers and customers to assess the potential impact on operations if they are
not successful in converting their systems in a timely manner. As of June 30,
1999, RJR Tobacco Company had received responses from all identified third
parties, as follows: 85% of identified third parties had confirmed that they are
fully compliant, 14% were not currently compliant but expect to be by the end of
1999, and 1% will not be in compliance. RJR Tobacco Company continues to monitor
the status of year 2000 efforts for those third parties that have been
identified as critical and contingency plans specific to those third parties
have been developed.
RJR Tobacco Company's systems risk management program includes emergency
backup and recovery procedures to be followed in the event of failure of a
business-critical system. RJR Tobacco Company has expanded these procedures to
include additional procedures for potential year 2000 issues. In addition,
contingency plans to protect the business from year 2000-related interruptions
have been developed, which include development of backup procedures,
identification of alternate suppliers and possible increases in inventory
levels. The possible consequences of RJR Tobacco Company or key third parties
not being fully year 2000 compliant include temporary plant closings, delays in
the delivery of products or receipt of supplies, invoice and collection errors
and inventory obsolescence. RJR Tobacco Company believes its year 2000
implementation plan, including contingency measures, will be complete in all
material respects by the end of 1999, thereby reducing the possible material
adverse effects of the year 2000 issue on RJR Tobacco Company's business,
results of operations and financial condition.
As of June 30, 1999, RJR Tobacco Company had incurred expenses of $30
million to be year 2000 compliant. The current estimated cost to complete RJR
Tobacco Company's year 2000 program is an
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additional $7 million. The table below sets forth a breakdown of current and
estimated expenses associated with the year 2000 issue:
<TABLE>
<CAPTION>
TOTAL COST AS OF ESTIMATED TOTAL
JUNE 30, 1999 PROJECT COST
----------------- -----------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
BY SYSTEM TYPE:
Information technology systems............................. $ 27 $ 33
Operating systems with embedded technology................. 3 4
BY WORK PERFORMED:
Remediation................................................ 28 33
Replacement................................................ 2 4
INTERNAL/EXTERNAL:
Internal costs............................................. 22 28
Replacement/contractor costs............................... 8 9
</TABLE>
RJR Tobacco Holdings is primarily dependent on the systems and systems
infrastructure of RJR Tobacco Company. All of RJR Tobacco Holdings' information
technology systems that are separately maintained are in compliance and in use.
RJR Tobacco Holdings has no operating systems with embedded technology for which
it is not dependent on RJR Tobacco Company's systems. RJR Tobacco Holdings has
been in contact with third parties that it does not have in common with RJR
Tobacco Company, all of which expect to be in compliance by the end of 1999.
------------------------
Statements included in the foregoing "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which are not historical in
nature are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding RJR Tobacco Holdings' future performance
and financial results are subject to certain risks and uncertainties that could
cause actual results to differ materially from those set forth in the
forward-looking statements, including, among others, the substantial and
increasing regulation and taxation of the cigarette industry; various legal
actions, proceedings and claims arising out of the sale, distribution,
manufacture, development, advertising, marketing and claimed health effects of
cigarettes that are pending or may be instituted against RJR Tobacco Holdings or
its subsidiaries; the substantial payment obligations of RJR Tobacco Company,
and limitations on the advertising and marketing of cigarettes, under various
litigation settlement agreements; the recent decline in sales in the domestic
cigarette industry; competition from other cigarette manufacturers; competitive
pricing for products; the success of new product innovations and acquisitions;
the ratings of RJR Tobacco Holdings' securities; the level of savings associated
with the New York headquarters close-down; and the successful discovery and
correction of potential "Year 2000" computer sensitive problems by both RJR
Tobacco Holdings and its subsidiaries and their key suppliers and customers. Due
to such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date
hereof.
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PART II
ITEM 1. LEGAL PROCEEDINGS
TOBACCO-RELATED LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against R.J. Reynolds Tobacco Company ("RJR Tobacco Company") or
its affiliates or indemnitees, including those claiming that lung cancer and
other diseases as well as addiction have resulted from the use of, or exposure
to, RJR Tobacco Company tobacco products. During the second quarter of 1999, 36
new actions were served against RJR Tobacco Company and/or affiliates or
indemnities (including NGH) (as compared to 67 in the second quarter of 1998)
and 77 actions were dismissed or otherwise resolved in favor of RJR Tobacco
Company and/or its affiliates or indemnitees without trial. There have been
noteworthy increases in the number of cases pending. On June 30, 1999, there
were 620 active cases pending, as compared with 575 on June 30, 1998 and 345 on
June 30, 1997. As of August 5, 1999, 609 active cases were pending against RJR
Tobacco Company and/or affiliates or indemnitees: 603 in the United States; 3 in
Canada; and 1 in each of the Marshall Islands, Nigeria and Puerto Rico.
The U.S. cases are pending in 42 states and the District of Columbia. The
breakdown is as follows: 110 in each of New York and West Virginia; 74 in
Florida; 58 in California; 39 in Massachusetts; 23 in Louisiana; 18 in Texas; 15
in Tennessee; 14 in the District of Columbia; 13 in Pennsylvania; 12 in Alabama;
10 in each of Illinois and New Jersey; 9 in Mississippi; 8 in Ohio; 7 in Iowa; 6
in Nevada; 5 in each of Maryland and Missouri; 4 in each of Arkansas, Georgia,
Indiana, Minnesota and New Mexico; 3 in each of Arizona, Colorado, Oklahoma and
Washington; 2 in each of Hawaii, Kentucky, Michigan, North Carolina, North
Dakota, Rhode Island, South Carolina, South Dakota, Utah and Virginia; and 1 in
each of Connecticut, Kansas, New Hampshire, Oregon and Wisconsin. Of the 603
active cases, 158 are pending in federal court, 440 in state court and 5 in
tribal court. Most of these cases were brought by individual plaintiffs, but a
significant number seek recovery on behalf of third parties or large classes of
claimants.
Litigation is subject to many uncertainties and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJR Tobacco Company or its affiliates (including RJR Tobacco Holdings)
or indemnitees. Determinations of liability or adverse rulings against other
cigarette manufacturers that are defendants in similar actions, even if such
rulings are not final, could adversely affect the litigation against RJR Tobacco
Company or its affiliates or indemnitees and could encourage an increase in the
number of such claims. There have been a number of political, legislative,
regulatory and other developments relating to the tobacco industry and cigarette
smoking that have received wide media attention, the various litigation
settlements and the release and wide availability of various industry documents
referred to above. These developments may negatively affect the outcomes of
tobacco-related legal actions and encourage the commencement of additional
similar litigation.
Although it is impossible to predict the outcome of such events on pending
litigation and the rate at which new lawsuits are filed against RJR Tobacco
Company and RJR Tobacco Holdings, a significant increase in litigation and/or is
adverse outcomes for tobacco defendants could have an adverse effect on either
or both of these entities. RJR Tobacco Company and RJR Tobacco Holdings each
believe that they have a number of valid defenses to any such actions and intend
to defend such actions vigorously.
RJR Tobacco Holdings believes, that notwithstanding the quality of defenses
available to it and RJR Tobacco Company in litigation matters, it is possible
that the results of operations or cash flows of RJR Tobacco Holdings in
particular quarterly or annual periods or the financial condition of RJR Tobacco
Holdings could be materially affected by the ultimate outcome of certain pending
litigation matters, including bonding and litigation costs. Management is unable
to predict the outcome of the
25
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
litigation or to derive a meaningful estimate of the amount or range of any
possible loss in any particular quarterly or annual period or in the aggregate.
For information about other litigation and legal proceedings, see note 4 to
the Consolidated Condensed Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Governmental
Activity."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 13, 1999, RJR Tobacco Holdings offered to purchase substantially
all of its outstanding debt securities (listed below) and sought consents from
the holders of those securities to waive covenants that might have prevented
some of the reorganization transactions described in note 2 to the Consolidated
Condensed Financial Statements. The requisite consents were received as of April
26, 1999 (as detailed below), and supplemental indentures were executed which
became operative upon the completion of the tender offers on May 18, 1999. The
supplemental indentures eliminated substantially all the restrictive operating
and financial covenants contained in the indentures under which the debt
securities were issued.
INDENTURE DATED AS OF JULY 24, 1995
8.0% Notes due 2000
7.625% Medium Term Notes ("MTNs") due 2000
8.00% Notes due 2001
7.375% MTNs due 2001
7.63% MTNs due 2001
6.8% MTNs due 2001
8 5/8% Notes due 2002
7 5/8% Notes due 2003
8.25% Notes due 2004
8.75% Notes due 2005
8.5% Notes due 2007
8.75% Notes due 2007
9.25% Debentures due 2013
As of 5:00 p.m. on April 26, 1999, the consent date, consents had been
delivered by the holders of $3,364,752,000 in aggregate principal amount of
securities, which equated to 88.79% of the $3,789,486,000 in aggregate principal
amount of securities outstanding under the indenture dated as of July 24, 1995.
INDENTURE DATED AS OF MAY 18, 1992
8.75% Senior Notes due 2004
As of 5:00 p.m. on April 26, 1999, the consent date, consents had been
delivered by the holders of $535,566,000 in aggregate principal amount of
securities, which equated to 89.26% of the $600,000,000 in aggregate principal
amount of securities outstanding under the indenture dated as of May 18, 1992.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See Item 2.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Distribution Agreement dated as of May 12, 1999 among RJR Nabisco Holdings, Corp., RJR Nabisco, Inc. and
R. J. Reynolds Tobacco Company (incorporated herein by reference to Exhibit 2.1 of the Form 8-A of R.J.
Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
2.2 Certificate of Merger and Agreement and Plan of Merger among RJR Nabisco Holdings Corp., RJR Nabisco,
Inc. and R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by reference to Exhibit 2.2 of the
Form 8-K of R.J. Reynolds Tobacco Holdings, Inc., dated May 12, 1999).
3.1 Restated Certificate of Incorporation of R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by
reference to Exhibit 3.1 of the Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
3.2 Bylaws of R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 of the
Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
4.1 Rights Agreement dated as of May 18, 1999 between R.J. Reynolds Tobacco Holdings, Inc. and its rights
agent (incorporated herein by reference to Exhibit 4.1 of the Form 8-K of R.J. Reynolds Tobacco
Holdings, Inc., dated June 14, 1999).
4.2 Indenture, dated as of May 15, 1999, among RJR Nabisco, Inc., R. J. Reynolds Tobacco Company and The
Bank of New York, as Trustee (incorporated herein by reference to Exhibit 10.2 to the Form 8-A of R.J.
Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
4.3 Registration Rights Agreement, dated as of May 18, 1999, among RJR Nabisco, Inc., R. J. Reynolds Tobacco
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and
the other initial purchasers of the old notes (incorporated herein by reference to Exhibit 4.2 of the
Registration Statement on Form S-4 of R.J. Reynolds Tobacco Holdings, Inc. filed July 16, 1999).
4.4 First Supplemental Indenture and Wavier dated as of April 27, 1999 between RJR Nabisco, Inc. and The
Bank of New York, to the Amended and Restated Indenture dated as of July 24, 1995 between RJR Nabisco,
Inc. and The Bank of New York, as successor trustee (incorporated herein by reference to Exhibit 10.3 to
the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
4.5 Second Supplemental Indenture and Waiver dated as of April 27, 1999 between RJR Nabisco, Inc. and The
Bank of New York, to the Amended and Restated Indenture dated as of May 18, 1992 between RJR Nabisco,
Inc. and The Bank of New York, as successor trustee, as amended by the Form of First Supplemental
Indenture and Waiver thereto dated as of June 2, 1995 (incorporated herein by reference to Exhibit 10.4
to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.1 Tax Sharing Agreement dated as of June 14, 1999 among RJR Nabisco Holdings Corp., R. J. Reynolds Tobacco
Holdings, Inc., R. J. Reynolds Tobacco Company and Nabisco Holdings Corp. (incorporated herein by
reference to Exhibit 10.1 to the Form 8-K of R. J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
</TABLE>
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.2 Guarantee dated as of May 18, 1999 by R. J. Reynolds Tobacco Company to the holders and to The Bank of
New York, as trustee, in connection with the Indenture dated as of May 15, 1999 among RJR Nabisco, Inc.,
R. J. Reynolds Tobacco Company and The Bank of New York, as trustee (incorporated herein by reference to
Exhibit 10.6 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.3 Credit Agreement dated as of May 7, 1999, among RJR Nabisco, Inc., RJR Nabisco Holdings Corp. and the
lending institutions listed and to be listed from time to time on Annex 1 (incorporated herein by
reference to Exhibit 10.5 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.4 First Amendment to the Credit Agreement, dated as of July 12, 1999, among R.J. Reynolds Tobacco
Holdings, Inc. and the lending institutions party to the Credit Agreement.
10.5 Consent to the Credit Agreement, dated as of July 22, 1999, among R.J. Reynolds Tobacco Holdings, Inc.
(f/k/a RJR Nabisco, Inc.) and the lending institutions party to the Credit Agreement.
10.6 Form of Subsidiary Guaranty by R. J. Reynolds Tobacco Company to the creditors defined therein, in
connection with the Credit Agreement dated as of May 7, 1999, among RJR Nabisco, Inc., RJR Nabisco
Holdings Corp. and the lending institutions listed and to be listed from time to time on Annex 1
(incorporated herein by reference to Exhibit 10.7 to the Form 8-A of R.J. Reynolds Tobacco Holdings,
Inc. filed May 19, 1999).
10.7 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. (incorporated herein by reference to
Exhibit 2.1 to the Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated May 12, 1999).
10.8 Equity Incentive Award Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. and Subsidiaries
(Effective June 14, 1999) (the "EIAP").
10.9 Form of Deferred Stock Unit Agreement between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.10 Form of Stock Option Agreement (Initial) between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.11 Form of Stock Option Agreement (Annual) between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.12 Deferred Compensation Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. (Effective June 14,
1999).
10.13 R.J. Reynolds Tobacco Holdings, Inc. 1999 Long Term Incentive Plan (incorporated herein by reference to
Exhibit 10.8 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.14 R. J. Reynolds Tobacco Company Defined Benefit Master Trust Agreement, as amended and restated June 14,
1999, between R. J. Reynolds Tobacco Company and the Chase Manhattan Bank, as Trustee.
</TABLE>
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.15 Master Trust Agreement, dated as of June 14, 1999, between R. J. Reynolds Tobacco Company and Wachovia
Bank, N.A., as Trustee.
10.16 Agreement, dated as of May 20, 1999, among Pension Benefit Guaranty Corporation, RJR Nabisco Holdings
Corp. and R. J. Reynolds Tobacco Company.
12.1 R.J. Reynolds Tobacco Holdings, Inc. Computation of Ratio of Earnings to Fixed Charges for the six
months ended June 30, 1999.
27.1 R.J. Reynolds Tobacco Holdings, Inc. Financial Data Schedule for the six months ended June 30, 1999.
27.2 R.J. Reynolds Tobacco Holdings, Inc. Financial Data Schedule for the six months ended June 30, 1998.
</TABLE>
(b) Reports on Form 8-K
On April 8, 1999, RJR Nabisco Holdings Corp. ("RJRNH") and RJR Nabisco, Inc.
("RJRN") filed a Current Report on Form 8-K dated March 9, 1999, announcing,
among other things, that (i) RJRN and RJR Tobacco Company had entered into a
definitive sale of the international tobacco business of RJR Tobacco Company and
its subsidiaries to Japan Tobacco, Inc., and (ii) the Board of Directors of
RJRNH had approved a plan to distribute shares of its domestic tobacco business
to RJRNH's shareholders in the form of a tax-free spin-off transaction (the
"Spin-off").
On April 16, 1999, RJRNH and RJRN filed a Current Report on Form 8-K dated
April 13, 1999, regarding the commencement of cash tender offers and consent
solicitations for approximately $4.4 billion in debt and $373.8 million in Trust
Originated Preferred Securities ("TOPrS").
On May 28, 1999, RJRNH and RJR Tobacco Holdings filed a Current Report on
Form 8-K dated May 12, 1999, describing the Spin-off and containing pro forma
consolidated condensed statements of income for the three months ended March 31,
1999 and the year ended December 31, 1998 and a pro forma condensed balance
sheet dated March 31, 1999.
On June 16, 1999, RJR Tobacco Holdings filed a Current Report on Form 8-K
dated June 14, 1999, announcing the completion of the Spin-off and the
composition of RJR Tobacco Holdings' Board of Directors upon completion of the
Spin-off.
29
<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.
<TABLE>
<CAPTION>
R.J. REYNOLDS TOBACCO
HOLDINGS, INC.
(Registrant)
/s/ KENNETH J. LAPIEJKO
Date: August 16, 1999 ------------------------
<S> <C>
Kenneth J. Lapiejko
Executive Vice President
and Chief Financial
Officer
</TABLE>
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------- DESCRIPTION
--------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Distribution Agreement dated as of May 12, 1999 among RJR Nabisco Holdings, Corp., RJR Nabisco, Inc. and
R. J. Reynolds Tobacco Company (incorporated herein by reference to Exhibit 2.1 of the Form 8-A of R.J.
Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
2.2 Certificate of Merger and Agreement and Plan of Merger among RJR Nabisco Holdings Corp., RJR Nabisco,
Inc. and R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by reference to Exhibit 2.2 of the
Form 8-K of R.J. Reynolds Tobacco Holdings, Inc., dated May 12, 1999).
3.1 Restated Certificate of Incorporation of R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by
reference to Exhibit 3.1 of the Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
3.2 Bylaws of R.J. Reynolds Tobacco Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 of the
Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
4.1 Rights Agreement dated as of May 18, 1999 between R.J. Reynolds Tobacco Holdings, Inc. and its rights
agent (incorporated herein by reference to Exhibit 4.1 of the Form 8-K of R.J. Reynolds Tobacco
Holdings, Inc., dated June 14, 1999).
4.2 Indenture, dated as of May 15, 1999, among RJR Nabisco, Inc., R. J. Reynolds Tobacco Company and The
Bank of New York, as Trustee (incorporated herein by reference to Exhibit 10.2 to the Form 8-A of R.J.
Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
4.3 Registration Rights Agreement, dated as of May 18, 1999, among RJR Nabisco, Inc., R. J. Reynolds Tobacco
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and
the other initial purchasers of the old notes (incorporated herein by reference to Exhibit 4.2 of the
Registration Statement on Form S-4 of R.J. Reynolds Tobacco Holdings, Inc. filed July 16, 1999).
4.4 First Supplemental Indenture and Wavier dated as of April 27, 1999 between RJR Nabisco, Inc. and The
Bank of New York, to the Amended and Restated Indenture dated as of July 24, 1995 between RJR Nabisco,
Inc. and The Bank of New York, as successor trustee (incorporated herein by reference to Exhibit 10.3 to
the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
4.5 Second Supplemental Indenture and Waiver dated as of April 27, 1999 between RJR Nabisco, Inc. and The
Bank of New York, to the Amended and Restated Indenture dated as of May 18, 1992 between RJR Nabisco,
Inc. and The Bank of New York, as successor trustee, as amended by the Form of First Supplemental
Indenture and Waiver thereto dated as of June 2, 1995 (incorporated herein by reference to Exhibit 10.4
to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.1 Tax Sharing Agreement dated as of June 14, 1999 among RJR Nabisco Holdings Corp., R. J. Reynolds Tobacco
Holdings, Inc., R. J. Reynolds Tobacco Company and Nabisco Holdings Corp. (incorporated herein by
reference to Exhibit 10.1 to the Form 8-K of R. J. Reynolds Tobacco Holdings, Inc. dated June 14, 1999).
10.2 Guarantee dated as of May 18, 1999 by R. J. Reynolds Tobacco Company to the holders and to The Bank of
New York, as trustee, in connection with the Indenture dated as of May 15, 1999 among RJR Nabisco, Inc.,
R. J. Reynolds Tobacco Company and The Bank of New York, as trustee (incorporated herein by reference to
Exhibit 10.6 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------- DESCRIPTION
--------------------------------------------------------------------------------------------------------
<C> <S>
10.3 Credit Agreement dated as of May 7, 1999, among RJR Nabisco, Inc., RJR Nabisco Holdings Corp. and the
lending institutions listed and to be listed from time to time on Annex 1 (incorporated herein by
reference to Exhibit 10.5 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.4 First Amendment to the Credit Agreement, dated as of July 12, 1999, among R.J. Reynolds Tobacco
Holdings, Inc. and the lending institutions party to the Credit Agreement.
10.5 Consent to the Credit Agreement, dated as of July 22, 1999, among R.J. Reynolds Tobacco Holdings, Inc.
(f/k/a RJR Nabisco, Inc.) and the lending institutions party to the Credit Agreement.
10.6 Form of Subsidiary Guaranty by R. J. Reynolds Tobacco Company to the creditors defined therein, in
connection with the Credit Agreement dated as of May 7, 1999, among RJR Nabisco, Inc., RJR Nabisco
Holdings Corp. and the lending institutions listed and to be listed from time to time on Annex 1
(incorporated herein by reference to Exhibit 10.7 to the Form 8-A of R.J. Reynolds Tobacco Holdings,
Inc. filed May 19, 1999).
10.7 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. (incorporated herein by reference to
Exhibit 2.1 to the Form 8-K of R.J. Reynolds Tobacco Holdings, Inc. dated May 12, 1999).
10.8 Equity Incentive Award Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. and Subsidiaries
(Effective June 14, 1999) (the "EIAP").
10.9 Form of Deferred Stock Unit Agreement between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.10 Form of Stock Option Agreement (Initial) between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.11 Form of Stock Option Agreement (Annual) between R.J. Reynolds Tobacco Holdings, Inc. and the Director
named therein, pursuant to the EIAP, dated as of June 15, 1999.
10.12 Deferred Compensation Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. (Effective June 14,
1999).
10.13 R.J. Reynolds Tobacco Holdings, Inc. 1999 Long Term Incentive Plan (incorporated herein by reference to
Exhibit 10.8 to the Form 8-A of R.J. Reynolds Tobacco Holdings, Inc. filed May 19, 1999).
10.14 R. J. Reynolds Tobacco Company Defined Benefit Master Trust Agreement, as amended and restated June 14,
1999, between R. J. Reynolds Tobacco Company and the Chase Manhattan Bank, as Trustee.
10.15 Master Trust Agreement, dated as of June 14, 1999, between R. J. Reynolds Tobacco Company and Wachovia
Bank, N.A., as Trustee.
10.16 Agreement, dated as of May 20, 1999, among Pension Benefit Guaranty Corporation, RJR Nabisco Holdings
Corp. and R. J. Reynolds Tobacco Company.
12.1 R.J. Reynolds Tobacco Holdings, Inc. Computation of Ratio of Earnings to Fixed Charges for the six
months ended June 30, 1999.
27.1 R.J. Reynolds Tobacco Holdings, Inc. Financial Data Schedule for the six months ended June 30, 1999.
27.2 R.J. Reynolds Tobacco Holdings, Inc. Financial Data Schedule for the six months ended June 30, 1998.
</TABLE>
32
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO THE CREDIT AGREEMENT
FIRST AMENDMENT, dated as of July 12, 1999, among RJ REYNOLDS
TOBACCO HOLDINGS, INC. (f/k/a RJR NABISCO, INC.), a Delaware corporation (the
"Borrower") and the lending institutions party to the Credit Agreement
referred to below (the "Amendment"). All capitalized terms used herein and
not otherwise defined herein shall have the respective meanings provided such
terms in the Credit Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Borrower, Holdings and various lending institutions (the
"Lenders") are parties to a Credit Agreement, dated as of May 7, 1999 (as in
effect on the date hereof, the "Credit Agreement"); and
WHEREAS, the Borrower, Holdings and the Lenders wish to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENT TO THE CREDIT AGREEMENT.
1. The definition of "Consolidated Fixed Charges"
appearing in Section 10 of the Credit Agreement is hereby amended by inserting
the text "(other than any such cash taxes paid as a result of the International
Tobacco Sale)" after the words "cash taxes paid during such period" in subclause
(ii) of clause (A) of said definition.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this
Amendment, each of Holdings and the Borrower hereby (i) makes each of the
representations, warranties and agreements contained in Section 6 of the Credit
Agreement and (ii) represents and warrants that there exists no Default or Event
of Default, in each case on the date hereof and on the Amendment Effective Date,
both before and after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document (as defined in the Credit
Agreement).
3. This Amendment may be executed in any number of counterparts
and by the
<PAGE>
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
5. This Amendment shall become effective as of the date first
written above on the date (the "Amendment Effective Date") when (i) each of the
Credit Parties and (ii) Lenders constituting Required Lenders under the Credit
Agreement shall have signed a copy hereof (whether the same or different copies)
and shall have delivered (including by way of facsimile transmission) the same
to White & Case, L.L.P., 1155 Avenue of the Americas, New York, New York 10036,
Attention: Darryl Carbonaro (Facsimile No.: (212) 354-8113). After transmitting
its executed signature page to White & Case, L.L.P. as provided above, each of
the Lenders shall deliver executed hard copies of this Amendment to White &
Case, L.L.P., Attention: Darryl Carbonaro at the address provided above.
* * *
2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By
----------------------------------
Title:
SENIOR MANAGING AGENTS
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By:
----------------------------------
Name:
Title:
BANKERS TRUST COMPANY, Individually
and as Syndication Agent
By:
----------------------------------
Name:
Title:
CITIBANK, N.A., Individually and as
Syndication Agent
By:
----------------------------------
Name:
Title:
3
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH,
Individually and as Syndication
Agent
By:
----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, Individually
and as Syndication Agent
By:
----------------------------------
Name:
Title:
BARCLAYS BANK PLC (NEW YORK),
Individually and as Syndication Agent
By:
----------------------------------
Name:
Title:
4
<PAGE>
ABN AMRO BANK (NEW YORK)
By:
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
HSBC BANK USA
By:
----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
----------------------------------
Name:
Title:
5
<PAGE>
THE SUMITOMO BANK, LIMITED
By:
----------------------------------
Name:
Title:
CITY NATIONAL BANK OF NEW JERSEY
By:
----------------------------------
Name:
Title:
NORDDEUTSCHE LANDESBANK
(NEW YORK)
By:
----------------------------------
Name:
Title:
UBS AG, STAMFORD BRANCH
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By:
----------------------------------
Name:
Title:
6
<PAGE>
BANKBOSTON, N.A.
By:
----------------------------------
Name:
Title:
DLJ CAPITAL FUNDING, INC.
By:
----------------------------------
Name:
Title:
ERSTE BANK
By:
----------------------------------
Name:
Title:
EUROPEAN-AMERICAN BANK
By:
----------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By:
----------------------------------
Name:
Title:
7
<PAGE>
PIMCO TOTAL RETURN FUND
By:
----------------------------------
Name:
Title:
ROYALTON COMPANY
By:
----------------------------------
Name:
Title:
STOCK PLUS, L.P., FUND A
By:
----------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.5
CONSENT TO THE CREDIT AGREEMENT
CONSENT, dated as of July 22, 1999, among RJ REYNOLDS TOBACCO HOLDINGS,
INC. (f/k/a RJR NABISCO, INC.), a Delaware corporation (the "Borrower") and the
lending institutions party to the Credit Agreement referred to below (the
"Consent"). All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided such terms in the Credit Agreement
(as defined below).
W I T N E S S E T H :
WHEREAS, the Borrower, Holdings and various lending institutions (the
"Lenders") are parties to a Credit Agreement, dated as of May 7, 1999 (as in
effect on the date hereof, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders grant a certain
consent to the Credit Agreement as herein provided; and
WHEREAS, the Lenders wish to grant that certain consent to the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. CONSENT TO THE CREDIT AGREEMENT.
1. Notwithstanding any contrary requirement contained in
Section 8.05(iv) of the Credit Agreement that a Dividend declared and paid by
Parent pursuant to said Section be paid within 45 days of the declaration
thereof, the Lenders hereby agree that Parent may declare a Dividend on July 28,
1999 and pay such Dividend on October 1, 1999 (I.E., more than 45 days after the
declaration thereof), so long as the declaration and payment of such Dividend is
permitted by said Section 8.05(iv) in all other respects.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this Consent,
the Borrower hereby (i) makes each of the representations, warranties and
agreements contained in Section 6 of the Credit Agreement and (ii) represents
and warrants that there exists no Default or Event of Default, in each case on
the date hereof and on the Consent Effective Date, both before and after giving
effect to this Consent.
2. This Consent is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
<PAGE>
3. This Consent may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
4. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Consent shall become effective as of the date first
written above on the date (the "Consent Effective Date") when (i) the Borrower
and (ii) Lenders constituting Required Lenders under the Credit Agreement shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered (including by way of facsimile transmission) the same to White & Case,
L.L.P., 1155 Avenue of the Americas, New York, New York 10036, Attention: Darryl
Carbonaro (Facsimile No.: (212) 354-8113). After transmitting its executed
signature page to White & Case, L.L.P. as provided above, each of the Lenders
shall deliver executed hard copies of this Consent to White & Case, L.L.P.,
Attention: Darryl Carbonaro at the address provided above.
* * *
2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Consent to be duly executed and delivered as of the date first above
written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By
----------------------------------
Title:
SENIOR MANAGING AGENTS
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By:
----------------------------------
Name:
Title:
BANKERS TRUST COMPANY, Individually
and as Syndication Agent
By:
----------------------------------
Name:
Title:
CITIBANK, N.A., Individually and as
Syndication Agent
By:
----------------------------------
Name:
Title:
3
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH,
Individually and as Syndication
Agent
By:
----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, Individually
and as Syndication Agent
By:
----------------------------------
Name:
Title:
BARCLAYS BANK PLC (NEW YORK),
Individually and as Syndication Agent
By:
----------------------------------
Name:
Title:
4
<PAGE>
ABN AMRO BANK (NEW YORK)
By:
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
HSBC BANK USA
By:
----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
----------------------------------
Name:
Title:
5
<PAGE>
THE SUMITOMO BANK, LIMITED
By:
----------------------------------
Name:
Title:
CITY NATIONAL BANK OF NEW JERSEY
By:
----------------------------------
Name:
Title:
NORDDEUTSCHE LANDESBANK
(NEW YORK)
By:
----------------------------------
Name:
Title:
UBS AG, STAMFORD BRANCH
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By:
----------------------------------
Name:
Title:
6
<PAGE>
BANKBOSTON, N.A.
By:
----------------------------------
Name:
Title:
DLJ CAPITAL FUNDING, INC.
By:
----------------------------------
Name:
Title:
ERSTE BANK
By:
----------------------------------
Name:
Title:
EUROPEAN-AMERICAN BANK
By:
----------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By:
----------------------------------
Name:
Title:
7
<PAGE>
PIMCO TOTAL RETURN FUND
By:
----------------------------------
Name:
Title:
ROYALTON COMPANY
By:
----------------------------------
Name:
Title:
STOCK PLUS, L.P., FUND A
By:
----------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.8
EQUITY INCENTIVE AWARD PLAN FOR
DIRECTORS OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC. AND SUBSIDIARIES
(EFFECTIVE JUNE 14, 1999)
R.J. Reynolds Tobacco Holdings, Inc., a Delaware corporation, hereby
adopts this Equity Incentive Award Plan for Directors of R.J. Reynolds Tobacco
Holdings, Inc. and Subsidiaries. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of
Holdings by providing additional incentives to its Directors by assisting them
to become owners of capital stock of Holdings and thus to benefit directly from
its growth, development and financial success.
(2) To enable Holdings to obtain and retain the services of, and
business relationships with, the type of Directors considered essential to the
long range success of Holdings by providing and offering them an opportunity to
become owners of capital stock of Holdings.
ARTICLE I
DEFINITIONS
SECTION 1.1 - GENERAL
Whenever the following terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary.
SECTION 1.2 - BOARD
"Board" shall mean the Board of Directors of Holdings.
SECTION 1.3 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.4 - COMMITTEE
"Committee" shall mean the Compensation Committee of the Board.
<PAGE>
SECTION 1.5 - COMMON STOCK
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of Holdings.
SECTION 1.6 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.7 - ELIGIBLE DIRECTOR
"Eligible Director" shall mean a Director who has never been an
employee or officer of Holdings or any Subsidiary.
SECTION 1.8 - GRANT
"Grant" shall mean an award made to a Participant pursuant to the Plan.
SECTION 1.9 - HOLDINGS
"Holdings" shall mean R.J. Reynolds Tobacco Holdings, Inc., a Delaware
Corporation.
SECTION 1.10 - OPTION
"Option" shall mean an option granted under the Plan to purchase Common
Stock. Options include only options which are not intended to be "incentive
stock options" under Section 422 of the Code.
SECTION 1.11 - OPTION PRICE
"Option Price" shall have the meaning given in Section 4.2.
SECTION 1.12 - OPTIONEE
"Optionee" shall mean a Director to whom an Option is granted under the
Plan.
SECTION 1.13 - PARTICIPANT
"Participant" shall mean a Director to whom a Grant has been made.
Page 2 of 12
<PAGE>
SECTION 1.14 - PLAN
"Plan" shall mean the Equity Incentive Award Plan for Directors of R.J.
Reynolds Tobacco Holdings, Inc. and Subsidiaries.
SECTION 1.15 - SECRETARY
"Secretary" shall mean the Secretary of Holdings.
SECTION 1.16 - STOCK AWARD
"Stock Award" shall mean the annual award, either in the form of
deferred stock units or shares of Common Stock, made pursuant to ARTICLE VI.
SECTION 1.17 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with Holdings if each of the corporations, or if each
group of commonly controlled corporations, other than the last corporation in an
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Grant shall be shares of Common Stock.
The aggregate number of shares of Common Stock which are available for Grants
under the Plan shall not exceed 500,000. Shares related to Grants that are
forfeited, terminated, canceled, expire unexercised, settled in cash in lieu of
stock or in such manner that all or some of the shares of Common Stock covered
by a Grant are not issued to a Participant, shall immediately become available
for Grants.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any Eligible Director of Holdings or of any Subsidiary shall be
eligible to be granted Options as set forth in this Article III.
Page 3 of 12
<PAGE>
SECTION 3.2 - GRANTING OF OPTIONS TO DIRECTORS
(a) Each Eligible Director who is elected to serve on the Board on or
after June 15, 1999 shall be granted an Option to purchase an aggregate 10,000
shares of Common Stock. Such Option shall be granted only once to each Eligible
Director as soon as practicable following the Director's initial election to
serve on the Board and shall be subject to the terms and conditions set forth in
Article IV.
(b) In addition to Options granted pursuant to Section 3.2 (a), each
Eligible Director shall receive an annual grant of an Option to purchase the
number of shares of Common Stock determined pursuant to the following formula
(rounded up to the next multiple of 100): $45,000, divided by the closing
trading price of Common Stock (as reported on the New York Stock Exchange
consolidated tape) on the date of grant.
Options granted pursuant to this Section 3.2(b) shall be granted
annually on the date of Holdings' annual meeting of shareholders to each
Director who serves on the Board immediately following such date; provided,
however, that the grant for 1999 shall be made on June 15, 1999.
All Options granted pursuant to this Section 3.2(b) shall be subject to
the terms and conditions set forth in Article IV.
ARTICLE IV
TERMS OF OPTIONS FOR DIRECTORS
SECTION 4.1 - OPTION AGREEMENT
The grant of Options to Eligible Directors shall be evidenced by a
Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of Holdings and which shall incorporate the terms and
conditions of this Article IV and such other terms and conditions as the
Committee shall determine, consistent with the Plan.
SECTION 4.2 - OPTION PRICE
The exercise price of each share of Common Stock subject to an Option
granted pursuant to Section 3.2 shall be the final closing price of Common Stock
(as reported on the New York Stock Exchange consolidated tape) on the date of
grant.
Page 4 of 12
<PAGE>
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
Options granted pursuant to Section 3.2(a) shall not be exercisable
prior to six months after the date of grant, and thereafter shall be exercisable
in full, subject to applicable securities regulations. Options granted pursuant
to Section 3.2(b) shall be exercisable in three installments. The first
installment shall be exercisable on the first anniversary of the date of grant
for 33% of the number of shares of Common Stock subject to the Option.
Thereafter, on each subsequent anniversary of the date of grant, an installment
shall become exercisable for 33% and 34%, respectively, of the number of shares
subject to the Option until the Option has become fully exercisable. To the
extent that any of the above installments is not exercised when it becomes
exercisable, it shall not expire, but shall continue to be exercisable at any
time thereafter until the Option shall terminate, expire or be surrendered. An
exercise shall be for whole shares only.
SECTION 4.4 - EXPIRATION OF OPTION
The Option shall expire and may not be exercised to any extent after
the expiration of ten years from the date the Option was granted.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSONS ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or his guardian may
exercise an Option granted to him, or any portion thereof. After the death of
the Optionee, any exercisable portion of an Option may, prior to the time when
such portion becomes unexercisable under Section 4.4, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof expires or becomes
unexercisable under Section 4.4, such Option or portion thereof may be exercised
in whole or in part; provided, however, that Holdings shall not be required to
issue fractional shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivering to the Secretary or his office all of the
following prior to the time when such Option or such portion becomes
unexercisable:
Page 5 of 12
<PAGE>
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion thereof, stating that such
Option or portion thereof is exercised;
(b) Full payment of the Option Price (in cash, by check or by a
combination thereof) for the shares with respect to which such Option
or portion thereof is thereby exercised, together with payment or
arrangement for payment of any federal income or other tax required to
be withheld by Holdings with respect to such shares. Payment of the
Option Price may also be made by tender of an amount equal to the full
exercise price which has been borrowed from Holdings or one of its
Subsidiaries if the Participant also authorizes the concurrent sale of
the exercised Common Stock by a broker (through an arrangement
established by Holdings, or one of its Subsidiaries, for Participants)
and repays the borrowing, all in accordance with any applicable
guidelines of the Committee;
(c) Such representations and documents as the Committee reasonably
deems necessary or advisable to effect compliance with all applicable
provisions of the Securities Act of 1933, as amended and any other
federal, state or foreign securities laws or regulations. The Committee
may, in its absolute discretion, also take whatever additional actions
it deems appropriate to effect such compliance, including, without
limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(d) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.
SECTION 5.4 - RIGHTS AS STOCKHOLDERS
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of Holdings in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by Holdings to such holders.
SECTION 5.5 - TRANSFER RESTRICTIONS
The Committee, in its absolute discretion, may impose such restrictions
on the transferability of the shares purchasable upon the exercise of an Option
as it deems appropriate, and any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such shares.
Page 6 of 12
<PAGE>
ARTICLE VI
STOCK AWARDS
SECTION 6.1 - ELIGIBILITY
Each Eligible Director shall receive an annual Stock Award as of the
date of such Director's initial election to serve on the Board and, thereafter,
as of the date of Holdings' annual meeting of shareholders, provided that the
Director serves on the Board immediately following such date. The Stock Award
for 1999 shall be made as of June 15, 1999 or, if later, the date of the
Director's election or re-election to serve on the Board. All Stock Awards shall
be subject to the terms and conditions of this Article VI and such other terms
and conditions as the Committee shall determine, consistent with the Plan.
SECTION 6.2 - GRANTING OF STOCK AWARD
(a) Except as provided in Section 6.2(b) below, the annual Stock Award
shall be made in the form of deferred stock units, as described in Section 6.3.
Each Eligible Director shall receive an annual Stock Award of 1,000 deferred
stock units.
(b) Notwithstanding the foregoing, commencing with the annual Stock
Award for 2000, an Eligible Director may elect to receive the Stock Award in the
form of 1,000 shares of Common Stock. The election to receive shares of Common
Stock must be made in writing by December 31 of the year preceding the year
during which the Stock Award would otherwise be granted or, if later, within
thirty days after the date a Director becomes a Director. An election to receive
shares of Common Stock shall be irrevocable by the Director and shall be
effective only for the year immediately the date on which it was filed.
SECTION 6.3 - DEFERRED STOCK UNITS
Each deferred stock unit shall be equal in value to one share of Common
Stock. As of the date any dividend is paid to shareholders of Common Stock, the
Director shall be credited with additional deferred stock units equal to the
number of shares of Common Stock (including fractions of a share) that could
have been purchased at the closing price of Common Stock on such date with the
dividend paid on the number of shares of Common Stock to which the Director's
deferred stock units are then equivalent. In case of dividends paid in property,
the dividend shall be deemed to be the fair market value of the property at the
time of distribution of the dividend, as determined by the Committee.
Page 7 of 12
<PAGE>
SECTION 6.4 - DISTRIBUTION OF DEFERRED STOCK UNITS
(a) Unless a Director has elected to receive installment payments as
provided below, payment of a Director's deferred stock units shall be made in
one lump-sum as soon as practicable following the end of the year in which the
Director ceases to be a Director.
At the election of the Director made in writing and delivered to the
Committee at any time on or before December 1 of the year of termination of the
Director's service as a Director, distribution of all of his or her deferred
stock units, commencing as soon as practicable following the end of the year in
which the Director ceases to be a Director, shall be made in any number of
annual installments not exceeding ten. Any such election, unless made
irrevocable by its terms, may be changed by written notice to the Committee at
any time prior to December 1 of the year of a Director's termination of service
as a Director.
(b) Distribution of a Director's deferred stock units shall be made in
cash or stock. If distribution is made in cash, the amount of distribution shall
be determined by multiplying the number of deferred stock units attributable to
the installment by the average of the closing price in Common Stock on each
business day in the month of December immediately prior to the year in which the
installment is to be paid.
SECTION 6.5 - INSTALLMENT AMOUNT
In the event a Participant has elected to receive distribution of his
or her deferred stock units in more than one installment, the amount of each
installment shall be determined by multiplying the current number of deferred
stock units by a fraction, the numerator of which is one, and the denominator of
which is the number of installments yet to be paid.
SECTION 6.6 - DISTRIBUTION UPON DEATH
In the event of the death of a Participant, whether before or after
ceasing to serve as a Director, any deferred stock units to which he or she was
entitled, shall be converted to cash and distributed in a lump sum to such
person or persons or the survivors thereof, including corporations,
unincorporated associations or trusts, as the Participant may have designated.
All such designations shall be made in writing signed by the Participant and
delivered to the Committee. A Participant may from time to time revoke or change
any such designation by written notice to the Committee. If there is no
unrevoked designation on file with the Committee at the time of the
Participant's death, or if the person or persons designated therein shall have
all predeceased the Participant or otherwise ceased to exist, such distributions
shall be made in accordance with the Participant's will or in the absence of a
will, to the administrator of the Participant's estate. Any distribution under
this Section 6.6 shall be made as soon as practicable
Page 8 of 12
<PAGE>
following the end of the fiscal quarter in which the Committee is notified of
the Participant's death. In this case, a Participant's deferred stock units
shall be converted to cash by multiplying the number of whole and fractional
shares of Common Stock to which the Participant's deferred stock units are
equivalent by the average of the Closing Price of Common Stock on each business
day during the last month of the calendar quarter prior to the date of death.
SECTION 6.7 - WITHHOLDING TAXES
The Company shall deduct from all distributions under the Plan any
taxes required to be withheld by federal, state, or local governments.
ARTICLE VII
ADMINISTRATION
SECTION 7.1 - COMPENSATION COMMITTEE
The Plan shall be administered by the Compensation Committee of the
Board.
SECTION 7.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Grants and to adopt such
rules for the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules shall be consistent with the basic purpose of the Plan
to make Grants. In its absolute discretion, the Board may at any time and from
time to time exercise any and all rights and duties of the Committee under the
Plan. The Committee may act either by vote at a telephonic or other meeting or
by a memorandum or other written instrument signed by a majority of the
Committee.
Page 9 of 12
<PAGE>
SECTION 7.3 - COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall not receive compensation for their
services as members but all expenses and liabilities they incur in connection
with the administration of the Plan shall be borne by Holdings. The Committee
may employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, Holdings and the officers and Directors of Holdings
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon all Participants,
Holdings and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Grants, and all members of the Committee
shall be fully protected by Holdings with respect to any such action,
determination or interpretation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 - AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board. Except as
expressly permitted by the terms of the Plan, neither the amendment, suspension
nor termination of the Plan shall, without the consent of the Participant alter
or impair any rights or obligations under any Grant theretofore granted. No
Grant may be made during any period of suspension nor after termination of the
Plan.
SECTION 8.2 - EFFECT OF PLAN UPON OTHER OPTIONS AND COMPENSATION PLANS
Nothing in this Plan shall be construed to limit the right of Holdings
or any of its Subsidiaries (a) to establish any other forms of incentives or
compensation for Directors of Holdings or any of its Subsidiaries or (b) to
grant or assume options otherwise than under this Plan in connection with any
proper corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
Page 10 of 12
<PAGE>
SECTION 8.3 - ADJUSTMENTS
(a) In the event of any change in the outstanding Common Stock by
reason of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, change of control, or similar
event, the Committee may adjust appropriately the number of Shares subject to
the Plan and available for or covered by Grants and Share prices related to
outstanding Grants and make such other revisions to outstanding Grants as it
deems are equitably required. Any such adjustment made by the Committee shall be
final and binding upon all Participants, Holdings and all other interested
persons.
(b) In the event of a Change of Control (as defined in paragraph 8.
3(c) hereof):
(i) Stock options granted pursuant to Section 3 hereof shall
become fully vested and exercisable; provided; however, that the
Committee may elect to make a cash payment to Participants in
cancellation of such options in such amount as the Committee in its
sole discretion shall determine, which amount shall not be less than
the product of (x) and (y), where (x) is the excess of the Fair Market
Value of Common Stock on the date of exercise over the exercise price,
and (y) is the number of Shares subject to the stock options being
canceled.
(ii) The Committee shall have authority to revise the terms of
any such Grant or any other Grant as it, in its discretion, deems
appropriate; provided; however, that the Committee may not make
revisions that are adverse to the Participant without the Participant's
consent unless such revision is provided for or contemplated in the
terms of the Grant.
(c) For purposes of the Plan, a "Change of Control" shall mean the
first to occur of the following events:
(i) an individual, corporation, partnership, group, associate
or other entity or "person", as such term is defined inn Section 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
Holdings or any employee benefit plans sponsored by Holdings or the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 30% or more of the
combined voting power of Holdings' outstanding securities ordinarily
having the right to vote at elections of directors.
Page 11 of 12
<PAGE>
(ii) individuals who constitute the Holdings Board on June 15,
1999 (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to such date whose election, or nomination for election by
Holdings' shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of Holdings in
which such person is named as a nominee of Holdings for director), but
excluding for this purpose any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an individual,
corporation, partnership, group, associate or other entity or "person"
other than the Holdings Board, shall be, for purposes of this paragraph
(ii), considered as though such person were a member of the Incumbent
Board;
(iii) the approval by the shareholders of Holdings of a plan
or agreement providing (1) for a merger or consolidation of Holdings
other than with a wholly-owned subsidiary and other than a merger or
consolidation that would result in the voting securities of Holdings
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) more than 50% of the combined voting power of
the voting securities of Holdings or such surviving entity outstanding
immediately after such merger or consolidation, or (2) for a sale,
exchange or other disposition of all or substantially all of the assets
of Holdings. If any of the events enumerated in this paragraph (iii)
occur, the Holdings Board shall determine the effective date of the
Change of Control resulting therefrom for purposes of the Program.
SECTION 8.4 - TITLES
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
SECTION 8.5 - PRONOUNS
The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
Page 12 of 12
Exhibit 10.9
Director's
DSU
1999
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
EQUITY INCENTIVE AWARD PLAN FOR DIRECTORS OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
AND SUBSIDIARIES
DEFERRED STOCK UNIT AGREEMENT
------------------------------
DATE OF GRANT: JUNE 15, 1999
W I T N E S S E T H:
1. GRANT. Pursuant to the provisions of the Equity Incentive Award Plan
For Directors of R.J. Reynolds Tobacco Holdings, Inc. and Subsidiaries (the
"Plan"), R.J. Reynolds Tobacco Holdings, Inc. (the "Company") on the above date
has granted to
[FIRST NAME] [LAST NAME] (THE "GRANTEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan, a Grant of
1,000 DEFERRED STOCK UNITS.
A copy of the Plan is attached and made a part of this agreement with the same
effect as if set forth in the Agreement itself. All capitalized terms used
herein shall have the meaning set forth in the Plan, unless the context requires
a different meaning.
2. VALUE OF DEFERRED STOCK UNITS. Each Deferred Stock Unit shall be
equal in value to one share of Common Stock.
3. DIVIDENDS. As of the date any dividend is paid to shareholders of
Common Stock, the Grantee shall be credited with additional Deferred Stock Units
equal to the number of shares of Common Stock (including fractions of a share)
that could have been purchased at the closing price of Common Stock on such date
with the dividend paid on the number of shares of Common Stock to which the
Grantee's Deferred Stock Units are then equivalent. In case of dividends paid in
property, the dividend shall be deemed to be the fair market value of the
property at the time of distribution of the dividend, as determined by the
Committee.
1
<PAGE>
4. PAYMENT OF DEFERRED STOCK UNITS.
(a) Unless a Grantee has elected to receive installment payments
as provided below, payment of a Grantee's Deferred Stock Units
shall be made in one lump-sum as soon as practicable following
the end of the year in which the Grantee ceases to be a
Director.
At the election of the Grantee made in writing and delivered
to the Committee at any time on or before December 1 of the
year of termination of the Grantee's service as a Director,
distribution of all of his or her Deferred Stock Units,
commencing as soon as practicable following the end of the
year in which the Grantee ceases to be a Director, shall be
made in any number of annual installments not exceeding ten.
Any such election, unless made irrevocable by its terms, may
be changed by written notice to the Committee at any time
prior to December 1 of the year of a Grantee's termination of
service as a Director.
(b) Distribution of a Grantee's Deferred Stock Units shall be made
in cash. The amount of distribution shall be determined by
multiplying the number of Deferred Stock Units attributable to
the installment by the average of the closing price in Common
Stock on each business day in the month of December
immediately prior to the year in which the installment is to
be paid.
(c) In the event a Grantee has elected to receive distribution of
his or her Deferred Stock Units in more than one installment,
the amount of each installment shall be determined by
multiplying the remaining number of Deferred Stock Units by a
fraction, the numerator of which is one, and the denominator
of which is the number of installments yet to be paid.
5. TRANSFERABILITY. Other than as specifically provided in the Plan
with regard to the death of the Grantee, this Agreement and any benefit provided
or accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Grantee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Grantee.
6. CONSIDERATION TO THE COMPANY. In consideration of the Grant by the
Company, the Grantee agrees to render faithful and efficient services to the
Company, with such duties and responsibilities as the Company shall from time to
time prescribe. Nothing in this Agreement or in the Plan shall confer upon the
Grantee any right to continue in the service of the Company or any Subsidiary as
a director or in any other capacity or shall interfere with or restrict in any
way the rights of the Company and its Subsidiaries and their respective
shareholders, which are hereby expressly reserved, in connection with the
removal of the Grantee from the Board of Directors of the Company or any
Subsidiary at any time for any reason whatsoever, with or
2
<PAGE>
without cause, subject to applicable law and the relevant certificate of
incorporation and bylaws.
3
<PAGE>
7. ADJUSTMENTS IN DEFERRED STOCK UNITS. In the event that the
outstanding shares of the Common Stock subject to the Grant are, from time to
time, changed into or exchanged for a different number or kind of shares of the
Company or other securities by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, spinoff,
combination of shares, or otherwise, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares or other consideration as
to which the Grant, shall be equivalent. Any adjustment made by the Committee
shall be final and binding upon the Grantee, the Company and all other
interested persons.
8. APPLICATION OF LAWS. The Grant and the obligations of the Company
hereunder shall be subject to all applicable laws, rules, and regulations and to
such approvals of any governmental agencies as may be required.
9. TAXES. Any taxes required by federal, state, or local laws to be
withheld by the Company on the grant or payment of Deferred Stock Units shall be
paid to the Company before payment of the Deferred Stock Units is made to the
Grantee.
10. NOTICES. Any notices required to be given hereunder to the Company
shall be addressed to The Secretary, R.J. Reynolds Tobacco Holdings, Inc., 401
North Main Street, Winston-Salem, NC 27102, and any notice required to be given
hereunder to the Grantee shall be sent to the Grantee's address as shown on the
records of the Company.
11. GRANTEE. In consideration of the grant, the Grantee specifically
agrees that the Committee shall have the exclusive power to interpret the Plan
and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and Agreement as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretation and determinations made by the Committee shall be final,
conclusive, and binding upon the Grantee, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Agreement. The Committee may delegate its interpretive authority to an
officer or officers of the Company.
12. OTHER PROVISIONS.
(a) Titles are provided herein for convenience only and are not to
serve as a basis for interpretation of the Agreement.
(b) This Agreement may be amended only by a writing executed by
the parties hereto which specifically states that it is
amending this Agreement.
(c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS
AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER
PRINCIPLES OF CONFLICTS OF LAWS.
4
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Grantee have executed this Agreement as of the Date of Grant first above
written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By:
-------------------------
Authorized Signatory
- ------------------------------
GRANTEE
Date:
--------------------------
Grantee's Taxpayer Identification Number:
- ------------------------------
Grantee's Home Address:
- ------------------------------
- ------------------------------
- ------------------------------
5
<PAGE>
Exhibit 10.10
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
EQUITY INCENTIVE AWARD PLAN FOR DIRECTORS OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
AND SUBSIDIARIES
STOCK OPTION AGREEMENT
---------------------------
DATE OF GRANT: JUNE 15, 1999
W I T N E S S E T H :
1. GRANT OF OPTION. Pursuant to the provisions of the Equity Incentive
Award Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. and
Subsidiaries (the "Plan"), R.J. Reynolds Tobacco Holdings, Inc. (the "Company")
on the above date has granted to
(THE "OPTIONEE"),
----------
subject to the terms and conditions which follow and the terms and conditions
of the Plan, the right and option to exercise from the Company a total of
10,000 SHARES
of Common Stock, par value $.01 per share, of the Company, at the exercise price
of $__________ per share (the "Option"). A copy of the Plan is attached and made
a part of this agreement with same effect as if set forth in the
agreement itself. All capitalized terms used herein shall have the meaning set
forth in the Plan, unless the context requires a different meaning.
2. EXERCISE OF OPTION.
(a) Shares may be purchased by giving the Corporate Secretary of
the Company written notice of exercise, on a form prescribed
by the Company, specifying the number of whole shares to be
purchased. The notice of exercise shall be accompanied by:
(i) tender to the Company of cash for the full purchase price of
the shares with respect to which such Option or portion
thereof is exercised; together with payment for taxes pursuant
to Section 8 herein; OR
1
<PAGE>
(ii) the unsecured, demand borrowing by the Optionee
from the Company on an open account maintained solely
for this purpose in the amount of the full exercise
price together with the instruction from the Optionee to
sell the shares exercised on the open market through a
duly registered broker-dealer with which the Company
makes an arrangement for the sale of such shares under
the Plan. This method is known as the "broker-dealer
exercise method" and is subject to the terms and
conditions set forth herein, in the Plan and in
guidelines established by the Committee. The Option
shall be deemed to be exercised simultaneously with the
sale of the shares by the broker-dealer. If the shares
purchased upon the exercise of an Option or a portion
thereof cannot be sold for a price equal to or greater
than the full exercise price plus direct costs of the
sales, then there is no exercise of the Option. Election
of this method authorizes the Company to deliver shares
to the broker-dealer and authorizes the broker-dealer to
sell said shares on the open market. The broker-dealer
will remit proceeds of the sale to the Company which
will remit net proceeds to the Optionee after repayment
of the borrowing, deduction of costs, if any, and
withholding of taxes. The Optionee's borrowing from the
Company on an open account shall be a personal
obligation of the Optionee which shall bear interest at
the published Applicable Federal Rate (AFR) for
short-term loans and shall be payable upon demand by the
Company. Such borrowing may be authorized by telephone
or other telecommunications acceptable to the Company.
Upon such borrowing and the exercise of the Option or
portion thereof, title to the shares shall pass to the
Optionee whose election hereunder shall constitute
instruction to the Company to register the shares in the
name of the broker-dealer or its nominee. The Company
reserves the right to discontinue this broker-dealer
exercise method at any time for any reason whatsoever.
The Optionee agrees that if this broker-dealer exercise
method under this paragraph is used, the Optionee
promises unconditionally to pay the Company the full
balance in his open account at any time upon demand.
Optionee also agrees to pay interest on the account
balance at the AFR for short-term loans from and after
demand.
(b) This Option shall not be exercisable prior to six months after
the Date of Grant, and thereafter, subject to applicable
securities regulations, shall be exercisable in full.
(c) If any shares of the Common Stock are to be disposed of in
accordance with Rule 144 under the Securities Act of 1933 or
otherwise, the Optionee shall promptly notify the Company of
such intended disposition and shall deliver to the Company at
or prior to the time of such disposition such documentation
as the Company may reasonably request in connection with such
sale and, in the case of a disposition pursuant to Rule 144,
shall
2
<PAGE>
deliver to the Company an executed copy of any notice on Form
144 required to be filed with the SEC.
3. EXPIRATION OF OPTION. The Option shall expire or terminate and may
not be exercised to any extent by the Optionee after the tenth anniversary of
the Date of Grant.
4. TRANSFERABILITY. Other than as specifically provided with regard to
the death of the Optionee, this option agreement and any benefit provided or
accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Optionee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Optionee.
5. CONSIDERATION TO THE COMPANY. In consideration of the granting of
this Option by the Company, the Optionee agrees to render faithful and efficient
services to the Company, with such duties and responsibilities as shall from
time to time prescribe. Nothing in this Agreement or in the Plan shall confer
upon the Optionee any right to continue in the service of the Company or any
Subsidiary as a director or in any other capacity or shall interfere with or
restrict in any way the rights of the Company and its Subsidiaries and their
respective shareholders, which are hereby expressly reserved, in connection with
the removal of the Optionee from the Board of Directors of the Company or any
Subsidiary at any time for any reason whatsoever, with or without cause, subject
to applicable law and the relevant certificate of incorporation and bylaws.
6. ADJUSTMENTS IN OPTION. In the event that the outstanding shares of
the Common Stock subject to the Option are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other
securities by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Committee shall make an appropriate and equitable adjustment in
the number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any adjustment made by
the Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
7. APPLICATION OF LAWS. The granting and the exercise of this Option
and the obligations of the Company to sell and deliver shares hereunder shall be
subject to all applicable laws, rules, and regulations and to such approvals of
any governmental agencies as may be required.
8. TAXES. Any taxes required by federal, state, or local laws to be
withheld by the Company on exercise by the Optionee of the Option for Common
Stock shall be paid to the Company before delivery of the Common Stock is made
to the Optionee. When the Option is exercised under the broker-dealer exercise
method, the full amount of any taxes required to be withheld by the Company on
exercise of stock options shall be deducted by the Company from the proceeds.
3
<PAGE>
9. NOTICES. Any notices required to be given hereunder to the Company
shall be addressed to The Secretary, R.J. Reynolds Tobacco Holdings, Inc., 401
North Main Street, Winston-Salem, NC 27102, and any notice required to be given
hereunder to the Optionee shall be sent to the Optionee's address as shown on
the records of the Company.
10. ADMINISTRATION AND INTERPRETATION. In consideration of the grant,
the Optionee specifically agrees that the Committee shall have the exclusive
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Committee shall be
final, conclusive, and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive authority
to an officer or officers of the Company.
11. OTHER PROVISIONS.
a) Titles are provided herein for convenience only and are not
to serve as a basis for interpretation of the Agreement.
b) This Agreement may be amended only by a writing executed by
the parties hereto which specifically states that it is amending this Agreement.
c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAWS.
4
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Optionee have executed this Agreement as of the date of Grant first above
written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By
Authorized Signatory
OPTIONEE
Date: -----------------
Optionee's Home Address:
- -----------------------------
- -----------------------------
- -----------------------------
5
<PAGE>
Exhibit 10.11
Director's
Option
1999-Annual
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
EQUITY INCENTIVE AWARD PLAN FOR DIRECTORS OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
STOCK OPTION AGREEMENT
---------------------------
DATE OF GRANT: JUNE 15, 1999
W I T N E S S E T H :
1. GRANT OF OPTION. Pursuant to the provisions of the Equity Incentive
Award Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. and
Subsidiaries (the "Plan"), R.J. Reynolds Tobacco Holdings, Inc. (the "Company")
on the above date has granted to
[FIRSTNAME] [LASTNAME] (THE "OPTIONEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan, the right and option to exercise from the Company a total of
[STOCK_OPTION] SHARES
of Common Stock, par value $.01 per share, of the Company, at the exercise price
of $__________ per share (the "Option"). A copy of the Plan is attached and made
a part of this Agreement with same effect as if set forth in the Agreement
itself. All capitalized terms used herein shall have the meaning set forth in
the Plan, unless the context requires a different meaning.
2. EXERCISE OF OPTION.
(a) Shares may be purchased by giving the Corporate Secretary of
the Company written notice of exercise, on a form prescribed
by the Company, specifying the number of whole shares to be
purchased. The notice of exercise shall be accompanied by:
(i) tender to the Company of cash for the full purchase
price of the shares with respect to which such Option or
portion thereof is exercised;
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together with payment for taxes pursuant to Section 9 herein;
OR
(ii) the unsecured, demand borrowing by the Optionee from
the Company on an open account maintained solely for this
purpose in the amount of the full exercise price together with
the instruction from the Optionee to sell the shares exercised
on the open market through a duly registered broker-dealer
with which the Company makes an arrangement for the sale of
such shares under the Plan. This method is known as the
"broker-dealer exercise method" and is subject to the terms
and conditions set forth herein, in the Plan and in guidelines
established by the Committee. The Option shall be deemed to be
exercised simultaneously with the sale of the shares by the
broker-dealer. If the shares purchased upon the exercise of an
Option or a portion thereof cannot be sold for a price equal
to or greater than the full exercise price plus direct costs
of the sales, then there is no exercise of the Option.
Election of this method authorizes the Company to deliver
shares to the broker-dealer and authorizes the broker-dealer
to sell said shares on the open market. The broker-dealer will
remit proceeds of the sale to the Company which will remit net
proceeds to the Optionee after repayment of the borrowing,
deduction of costs, if any, and withholding of taxes. The
Optionee's borrowing from the Company on an open account shall
be a personal obligation of the Optionee which shall bear
interest at the published Applicable Federal Rate (AFR) for
short-term loans and shall be payable upon demand by the
Company. Such borrowing may be authorized by telephone or
other telecommunications acceptable to the Company. Upon such
borrowing and the exercise of the Option or portion thereof,
title to the shares shall pass to the Optionee whose election
hereunder shall constitute instruction to the Company to
register the shares in the name of the broker-dealer or its
nominee. The Company reserves the right to discontinue this
broker-dealer exercise method at any time for any reason
whatsoever. The Optionee agrees that if this broker-dealer
exercise method under this paragraph is used, the Optionee
promises unconditionally to pay the Company the full balance
in his open account at any time upon demand. Optionee also
agrees to pay interest on the account balance at the AFR for
short-term loans from and after demand.
(b) This Option shall be exercisable in three installments. The
first installment shall be exercisable on the first
anniversary following Date of Grant for 33% of the number of
shares of Common Stock subject to this option. Thereafter, on
each subsequent anniversary, an installment shall become
exercisable for 33% and 34%, respectively, of the number of
shares subject to this Option until the Option has become
fully exercisable. To the extent that any of the above
installments is not exercised when it becomes exercisable, it
shall not expire, but shall continue to be
2
<PAGE>
exercisable at any time thereafter until this Option shall
terminate, expire or be surrendered. An exercise shall be for
whole shares only.
(c) This Option shall not be exercisable prior to six months after
the Date of Grant.
(d) If any shares of the Common Stock are to be disposed of in
accordance with Rule 144 under the Securities Act of 1933 or
otherwise, the Optionee shall promptly notify the Company of
such intended disposition and shall deliver to the Company at
or prior to the time of such disposition such documentation as
the Company may reasonably request in connection with such
sale and, in the case of a disposition pursuant to Rule 144,
shall deliver to the Company an executed copy of any notice on
Form 144 required to be filed with the SEC.
3. RIGHTS IN THE EVENT OF RESIGNATION OR NON-ELECTION TO THE BOARD.
Except as may be otherwise provided in this Section 3, after the Optionee's
resignation or non-election to the Board of Directors of the Company (the
"Board"), the Option shall NOT become exercisable as to any shares in addition
to those already exercisable pursuant to the schedule described in Section 2(b).
Notwithstanding the foregoing, if a non-election of the Optionee to the Board is
due to death or Permanent Disability (as defined in the Company's Long Term
Disability Plan), the Option shall immediately become exercisable as to all
shares.
4. EXPIRATION OF OPTION. The Option shall expire or terminate and may
not be exercised to any extent by the Optionee after the tenth anniversary of
the Date of Grant.
5. TRANSFERABILITY. Other than as specifically provided with regard to
the death of the Optionee, this Agreement and any benefit provided or accruing
hereunder shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so
shall be void. No such benefit shall, prior to receipt thereof by the Optionee,
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the Optionee.
6. CONSIDERATION TO THE COMPANY. In consideration of the granting of
this Option by the Company, the Optionee agrees to render faithful and efficient
services to the Company, with such duties and responsibilities as shall from
time to time prescribe. Nothing in this Agreement or in the Plan shall confer
upon the Optionee any right to continue in the service of the Company or any
Subsidiary as a director or in any other capacity or shall interfere with or
restrict in any way the rights of the Company and its Subsidiaries and their
respective shareholders, which are hereby expressly reserved, in connection with
the removal of the Optionee from the Board of Directors of the Company or any
Subsidiary at any time for any reason whatsoever, with or without cause, subject
to applicable law and the relevant certificate of incorporation and bylaws.
3
<PAGE>
7. ADJUSTMENTS IN OPTION. In the event that the outstanding shares of
the Common Stock subject to the Option are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other
securities by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Committee shall make an appropriate and equitable adjustment in
the number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any adjustment made by
the Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
8. APPLICATION OF LAWS. The granting and the exercise of this Option
and the obligations of the Company to sell and deliver shares hereunder shall be
subject to all applicable laws, rules, and regulations and to such approvals of
any governmental agencies as may be required.
9. TAXES. Any taxes required by federal, state, or local laws to be
withheld by the Company on exercise by the Optionee of the Option for Common
Stock, shall be paid to the Company before delivery of the Common Stock is made
to the Optionee. When the Option is exercised under the broker-dealer exercise
method, the full amount of any taxes required to be withheld by the Company on
exercise of stock options shall be deducted by the Company from the proceeds.
10. NOTICES. Any notices required to be given hereunder to the Company
shall be addressed to The Secretary, R.J. Reynolds Tobacco Holdings, Inc., 401
North Main Street, Winston-Salem, NC, 27102, and any notice required to be given
hereunder to the Optionee shall be sent to the Optionee's address as shown on
the records of the Company.
11. ADMINISTRATION AND INTERPRETATION. In consideration of the grant,
the Optionee specifically agrees that the Committee shall have the exclusive
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Committee shall be
final, conclusive, and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive authority
to an officer or officers of the Company.
12. OTHER PROVISIONS.
(a) Titles are provided herein for convenience only and are not to
serve as a basis for interpretation of the Agreement.
4
<PAGE>
(b) This Agreement may be amended only by a writing executed by
the parties hereto which specifically states that it is
amending this Agreement.
(c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS
AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER
PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Optionee have executed this Agreement as of the date of Grant first above
written.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By:
------------------------------
Authorized Signatory
Optionee
- ------------------------------
Date
Optionee's Taxpayer Identification Number:
Optionee's Home Address:
5
<PAGE>
Exhibit 10.12
DEFERRED COMPENSATION PLAN FOR
DIRECTORS OF
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(EFFECTIVE JUNE 14, 1999)
ARTICLE I
1.1 NAME AND PURPOSE. The name of this plan is the "Deferred
Compensation Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc." (the
"Plan"). Its purpose is to provide non-employee Directors of the Company with
increased flexibility in timing the receipt of board service fees and to assist
the Company in attracting and retaining qualified individuals to serve as
Directors.
1.2 DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meaning set forth below:
(a) "Closing Price" means the closing price of the Company's
Common Stock as reported in THE WALL STREET JOURNAL.
(b) "Common Stock" means the Common Stock, par value $.01 per
share, of R.J. Reynolds Tobacco Holdings, Inc.
(c) "Company" means R.J. Reynolds Tobacco Holdings, Inc. and each
Participating Company.
(d) "Compensation" means all remuneration paid to a Director for
service as a Director other than reimbursement for expenses
and shall include, but not be limited to, Board of Directors
retainer fees, Board of Directors committee chairmanship
and/or committee attendance fees, and any fees for attendance
at Board of Directors meetings.
(e) "Director" means any individual serving on the Board of
Directors of the Company who is not an employee of the Company
or any of its subsidiaries.
(f) "Participant" means a Director who has filed an election to
participate under Section 3.1 with regard to any Plan Year.
Page 1 of 6
<PAGE>
(g) "Participating Company" means any corporation which is a
direct or indirect subsidiary of R.J. Reynolds Tobacco
Holdings, Inc., which has, by action of its board of
directors, adopted the Plan and consented to being a
Participating Company in the Plan.
(h) "Plan Administrator" means the RJR Employee Benefits Committee.
(i) "Plan Year" means the calendar year except the first Plan year
is the period June 14, 1999 through December 31, 1999.
ARTICLE II
2.1 PARTICIPATION IN THE PLAN. Any individual who is a Director as
defined in Section 1.2(e) may participate in the Plan.
ARTICLE III
3.1 ELECTION TO PARTICIPATE. Each Director may elect annually to have
payment of all or any increment of 25% of his or her Compensation for that Plan
Year deferred. An election to defer may provide that the Compensation deferred
will be paid in January of a specified year in the future or in January
following the end of the Plan Year during which the Participant ceased to be a
Director.
No election to defer under this Plan may be made after December 31 of
the year preceding the Plan Year during which Compensation would otherwise be
paid or, if later, within thirty days after the date a Director becomes a
Director. An election to defer any Compensation shall be in writing and shall be
delivered to the Plan Administrator. An election to defer shall be irrevocable
by the Director and shall be effective only for the Plan Year immediately
following the date on which it was filed. In the absence of a written election
to defer filed by a Director with the Plan Administrator, any Compensation will
be paid directly to the Director.
3.2 MODE OF DEFERRAL. Payment of a Participant's Compensation may be
deferred in 25% increments by means of a cash credit, a stock credit or a
combination of the two as the Participant shall elect in writing at the same
time as the election provided for in Section 3.1. If a Participant fails to make
an election as to mode of deferral, he or she shall be deemed to have elected
deferral by means of a cash credit. Cash credits and stock credits shall be
recorded in accounts established in Participants' names on the books of the
Company.
Page 2 of 6
<PAGE>
(a) CASH CREDITS. If the deferral is wholly or partly by means of
a cash credit, the Participant's cash credit account shall be
credited, as of the last day of the calendar quarter, with the
dollar amount of Compensation deferred during the quarter by
means of a cash credit. As of the last day of each calendar
quarter, the Participant's cash credit account shall also be
credited with interest equivalent in an amount determined by
applying to the balance in the account as of the first day of
the quarter (less any distributions during the quarter) an
interest rate for such quarter which, when annualized, shall
be the prime rate of Morgan Guaranty Trust Company of New York
as of the first business day of the quarter. Interest shall be
calculated on the actual number of days in the quarter based
upon a 360-day year.
(b) STOCK CREDITS. If the deferral is wholly or partly by
means of a stock credit, the Participant's stock credit
account shall be credited, as of the last day of the calendar
quarter, with a Common Stock equivalent equal to the number of
shares of Common Stock (including fractions of a share) that
could have been purchased at the average of the Closing Price
of Common Stock on each business day during the last month of
the calendar quarter with the amount of the Compensation
deferred during the quarter by means of a stock credit. As of
the date any dividend is paid to shareholders of Common Stock,
the Participant's stock credit account shall also be credited
with an additional Common Stock equivalent equal to the number
of shares of Common Stock (including fractions of a share)
that could have been purchased at the Closing Price of Common
Stock on such date with the dividend paid on the number of
shares of Common Stock to which the Participant's stock credit
account is then equivalent. In case of dividends paid in
property, the dividend shall be deemed to be the fair market
value of the property at the time of distribution of the
dividend, as determined by the Plan Administrator.
(c) A Participant may elect in writing that all or any
designated portion of his stock credit account or his cash
credit account be changed to, and such Participant shall
instead be credited with, the other type of account as of the
first day of the month following the month in which the
election is received by the Plan Administrator. For this
purpose, the value of a participant's stock credit account
will be determined using the average of the Closing Price of
Common Stock on each business day during the month preceding
the effective date of the election. Notwithstanding the
foregoing,
Page 3 of 6
<PAGE>
any election to transfer between accounts may be made no more
frequently than once in any six-month period and no such
election may be made unless the transfer would be an exempt
transaction for purposes of Section 16(b) of the Securities
Exchange Act of 1934.
3.3 DISTRIBUTION OF CREDITS.
(a) Unless a Participant has elected to receive installment
payments as provided below, payment of a Participant's
accounts shall be made in one lump-sum as soon as practicable
in the year in which the Participant had elected to receive
payment.
At the election of the Participant made in writing and
delivered to the Plan Administrator at any time on or before
December 1 of the year prior to the year in which the
Participant had elected to receive payment, distribution of
all of his or her account shall be made in any number of
annual installments not exceeding ten. Any such election,
unless made irrevocable by its terms, may be changed by
written notice to the Plan Administrator at any time prior to
December 1 of the Plan Year prior to the year in which the
Participant had elected to receive payment.
(b) Distribution of a Participant's cash credit and stock credit
accounts shall be made in cash. For this purpose, the value of
a Participant's stock credit account shall be determined by
multiplying the number of shares of Common Stock attributable
to the payment by the average of the Closing Price of Common
Stock on each business day in the month of December
immediately prior to the Plan Year in which the payment is to
be paid.
3.4 ADJUSTMENT. If at any time the number of outstanding shares of
Common Stock shall be changed or increased as the result of any stock dividend,
subdivision or reclassification of shares, the number of shares of Common Stock
to which each Participant's stock credit account is equivalent shall be changed
or increased in the same proportion as the outstanding number of shares of
Common Stock is changed or increased, or if the number of outstanding shares of
Common Stock shall at any time be decreased as the result of any combination or
reclassification of shares, the number of shares of Common Stock to which each
Participant's stock credit account is equivalent shall be decreased in the same
proportion as the outstanding number of shares of Common Stock is decreased. In
the event the Company shall at any time be consolidated with or merged into any
other corporation and holders of the Company's
Page 4 of 6
<PAGE>
Common Stock receive common shares of the resulting or surviving corporation,
there shall be credited to each Participant's stock credit account, in place
of the shares then credited thereto, a stock equivalent determined by
multiplying the number of common shares of stock given in exchange for a
share of Common Stock upon such consolidation or merger, by the number of
shares of Common Stock to which the Participant's account is then equivalent.
If in such a consolidation or merger, holders of the Company's Common Stock
shall receive any consideration other than common shares of the resulting or
surviving corporation, the Plan Administrator, in its sole discretion, shall
determine the appropriate change in Participants' accounts.
3.5 INSTALLMENT AMOUNT. In the event a Participant has elected to
receive distribution of his or her accounts in more than one installment, the
amount of each installment shall be determined either (i) by multiplying the
current balance (denominated in cash units for the portion elected to be
deferred as cash credits and denominated in stock units for the portion elected
to be deferred in stock credits) in the accounts as determined under Section
3.2, by a fraction, the numerator of which is one, and the denominator of which
is the number of installments yet to be paid or (ii) by any other method
acceptable to the Plan Administrator.
3.6 DISTRIBUTION UPON DEATH. In the event of the death of a Participant,
whether before or after ceasing to serve as a Director, any cash credit account
and stock credit account to which he or she was entitled, shall be converted to
cash and distributed in a lump sum to such person or persons or the survivors
thereof, including corporations, unincorporated associations or trusts, as the
Participant may have designated. All such designations shall be made in writing
signed by the Participant and delivered to the Plan Administrator. A Participant
may from time to time revoke or change any such designation by written notice to
the Plan Administrator. If there is no unrevoked designation on file with the
Plan Administrator at the time of the Participant's death, or if the person or
persons designated therein shall have all predeceased the Participant or
otherwise ceased to exist, such distributions shall be made in accordance with
the Participant's will or in the absence of a will, to the administrator of the
Participant's estate. Any distribution under this Section 3.6 shall be made as
soon as practicable following the end of the fiscal quarter in which the Plan
Administrator is notified of the Participant's death. In this case, a
Participant's stock credit account shall be converted to cash by multiplying the
number of whole and fractional shares of Common Stock to which the Participant's
stock credit account is equivalent by the average of the Closing Price of Common
Stock on each business day during the last month of the calendar quarter prior
to the date of death.
3.7 WITHHOLDING TAXES. The Company shall deduct from all distributions
under the Plan any taxes required to be withheld by federal, state, or local
governments.
ARTICLE IV
Page 5 of 6
<PAGE>
4.1 PLAN ADMINISTRATOR. The Plan Administrator shall have full power and
authority to administer the Plan including the power to promulgate forms to be
used with regard to the Plan, the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, and the power to make such decisions or take such action
as the Plan Administrator, in its sole discretion, deems necessary or advisable
to aid in the proper maintenance of the Plan.
ARTICLE V
5.1 FUNDING. No promise hereunder shall be secured by any specific
assets of the Company, nor shall any assets of the Company be designated as
attributable or allocated to the satisfaction of such promises.
ARTICLE VI
6.1 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by the Participant, be in any manner
liable for or subject to the debts, contracts, liabilities, engagements, or
torts of the Participant.
ARTICLE VII
7.1 DELEGATION OF ADMINISTRATIVE DUTIES. Administrative duties imposed
by this Plan may be delegated by the Plan Administrator or the individual
charged with such duties.
7.2 GOVERNING LAW. This Plan shall be governed by the laws of the State
of Delaware.
7.3 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Plan
Administrator at any time may terminate and in any respect, amend or modify the
Plan.
Page 6 of 6
<PAGE>
Exhibit 10.14
R. J. REYNOLDS TOBACCO COMPANY
DEFINED BENEFIT
MASTER TRUST AGREEMENT
Defined Benefit Master Trust
As Amended and Restated
June 14, 1999
1
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TABLE OF CONTENTS
INTRODUCTION 3
Master Trust Provisions 4
1. Definitions 4
2. Trust Assets 7
3. Commingled Fund 8
4. Responsibility With Respect to Global Assets 9
5. Accounts 13
6. Ivestment Managers 14
7. Duties of the Trustee 16
8. Duties of an Investment Manager 19
9. Duties of the Trustee in Respect of Certain Assets 20
10. Investment Powers of the Trustee 20
11. Administrative Powers of the Trustee 24
12. Transfer of Assets 26
13. Responsibilities of Trustee 26
14. Consultation with Counsel 28
15. Expenses 28
16. Computerized Reporting Services 29
17. Accounts of Trustee 30
18. Removal of Trustee; Resignation 32
19. Termination of the Trust 33
20. Termination of Any Plan 33
21. Court Actions 34
22. Amendment 34
23. Construction 34
24. Parties Bound; Survival 36
25. Additional Plans 37
26. Miscellaneous 37
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INTRODUCTION
This Defined Benefit Master Trust Agreement was first made as of June 1,
1972 between Wachovia Bank and Trust Company, N.A., and R. J. Reynolds
Industries, Inc., (now R. J. Reynolds Tobacco Holdings, Inc. ) and certain
affiliated companies. It has since been amended and restated in its entirety,
the last such amendment and restatement being effective as of October 9, 1985.
As of January 1, 1999, The Chase Manhattan Bank replaced Wachovia Bank and Trust
Company as Trustee. The parties wish to further amend and restate this Defined
Benefit Master Trust Agreement to reflect recent changes in the names of RJR
Nabisco and the trust.
The purpose of this Defined Benefit Master Trust Agreement is to set out
the provisions governing the trusts through which R. J. Reynolds Tobacco Company
and its affiliated companies fund their separate defined benefit pension plans.
It is hereby amended and restated in its entirety effective as of June 14, 1999.
This Defined Benefit Master Trust Agreement amends and supersedes all prior
trust agreements for any plan covered by this Defined Benefit Master Trust
Agreement.
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MASTER TRUST PROVISIONS
R. J. Reynolds Tobacco Company and The Chase Manhattan Bank, as
trustee, hereby amend and restate the R. J. Reynolds Tobacco Company Defined
Benefit Master Trust Agreement and continue the trust as the funding vehicle for
the Plans, upon the terms and conditions set forth below.
1. DEFINITIONS.
(a) "Account" has the meaning set forth in Section 5.
(b) "Administrative Committee" means the RJR Employee Benefits
Committee appointed by the Board as the plan administrator of each Plan.
Reference to the Administrative Committee includes the person, board or
committee designated by the Administrative Committee to perform any or all of
the obligations and to exercise any or all of the powers of a plan administrator
of a Plan.
(c) "Agreement" means this Defined Benefit Master Trust Agreement
between The Chase Manhattan Bank, and the Company, the provisions of which are
set forth in this document.
(d) "Applicable Law" means, (in each case after taking into account the
full preemptive effect of ERISA) (i) any applicable statute of a jurisdiction,
whether federal, state, or local, in the United States, (ii) any other law,
rule, regulation or interpretation of any governmental entity having authority
in the United States, or (iii) any applicable federal or state common law
applicable in the United States.
(e) "Board" means the Board of Directors of R. J. Reynolds
Tobacco Holdings, Inc.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time,
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and the regulations promulgated thereunder.
(g) "Commingled Fund" has the meaning set forth in Section 3.
(h) "Committee" means the RJR Pension Investment Committee appointed by
the Board as the named investment fiduciary for each Plan to act on behalf of
the Company with respect to each Plan and this Agreement. Reference to the
Committee includes any person or committee designated by the Committee to
perform any or all of the obligations and to exercise any or all of the powers
entrusted to the Committee hereunder.
(i) "Company" means R. J. Reynolds Tobacco Company and each other
company that is an affiliate of R. J. Reynolds Tobacco Company and is the plan
sponsor of any Plan covered by this Agreement; provided that R. J. Reynolds
Tobacco Company has the full and exclusive power to exercise all powers of the
Company under this Agreement on behalf of each other company or employer
sponsoring a Plan covered by this Agreement.
(j) "Compulsory Depository" means a securities depository or clearing
agency the use of which is compulsory because: (i) its use is required by law or
regulation, (ii) Securities or other Property cannot be withdrawn from the
depository, or (iii) maintaining Securities or other Property outside the
depository is not consistent with prevailing custodial practices in the country
which the depository serves.
(k) "Covered Individual" means a participant, retired participant,
vested former participant, surviving spouse, alternate payee under a qualified
domestic relations order, contingent annuitant or other beneficiary of a Plan.
(l) "Damages" means liabilities, losses, costs, damages, penalties,
fines, obligations or expenses (including, without limitation, reasonable
attorneys', accountants', consultants' or experts' fees and disbursements).
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(m) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated thereunder.
(n) "Global Assets" means any assets (i) for which the principal
trading market is located outside of the United States, (ii) for which
presentment for payment is to be made outside of the United States, (iii) which
are acquired outside of the United States, or (iv) which are held as an incident
to the Trust's investments in other Global Assets.
(o) "Investment Manager" means a fiduciary appointed by the Committee
to manage, acquire or dispose of any asset of a Plan within the meaning of
Section 3(38) of ERISA. Reference to the Investment Manager includes any person
or committee designated by the Investment Manager to perform any or all of the
obligations and to exercise any or all of the powers entrusted to the Investment
Manager hereunder.
(p) "Plan" means any defined benefit pension plan funded through a
separate trust subject to this Agreement. "Plans" refers to all plans subject to
this Agreement that are set forth in Schedule A. Each Plan (i) is "qualified"
within the meaning of Section 401(a) of the Code, (ii) is permitted by existing
or future rulings of the U. S. Treasury Department to pool its funds in a group
trust, and (iii) permits its assets to be commingled for investment purposes
with the assets of other such Plans by investing such assets in this Trust
whether or not its assets will in fact be held in a separate Account.
(q) "Securities or other Property" means any property, real or
personal, or part interest therein, wherever situated, including, without
limitation, currency, governmental, corporate or personal obligations, trust and
participation certificates, partnership interests, annuity or investment
contracts issued by an insurance company, leaseholds, fee titles, mortgages and
other interests in realty, preferred and common stocks, certificates of deposit,
financial options and futures or any other form of option, evidences of
indebtedness or ownership in
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foreign corporations or other enterprises or
indebtedness or ownership, including Securities or other Property of the
Company, even though the same may not be legal investment for trustees under any
law other than ERISA.
(r) "Subcustodian" has the meaning set forth in Section 4(b).
(s) "Trustee" means The Chase Manhattan Bank, as successor trustee
effective as of January 1, 1999, or any successor established pursuant to
Section 18.
(t) "Trust Fund" means this master trust which shall be known as the R.
J. Reynolds Tobacco Company Defined Benefit Master Trust and generally the
assets held in trust under this Agreement at the time of reference.
2. TRUST ASSETS.
The assets held in any trust established under each Plan covered by
this Agreement upon being transferred to the Trustee, such other property or
money as may from time to time be delivered or paid to the Trustee pursuant to
each Plan, and the earnings and profits thereon, will be held in a separate
trust for each Plan by the Trustee and dealt with in accordance with the
provisions of this Agreement. The Trustee shall receive and accept into the
Trust Fund all sums of money and all Securities and other Property paid to it by
or at the direction of the Company which are reasonably acceptable to the
Trustee. The Trustee need not inquire into the source of any money or property
transferred to it nor into the authority or right of the transferor of such
money or property to transfer such money or property to the Trustee. Except as
permitted under Federal statutes and as provided in a Plan, no part of the
corpus or income of such separate trust of a Plan may be used for or diverted to
purposes other than the exclusive benefit of Covered Individuals and paying the
expenses of such Plan, until all liabilities for benefits under the Plan have
been satisfied. This Agreement sets forth the master trust that holds and
accounts for the assets of each Plan's separate trust and provides the terms of
each separate trust.
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3. COMMINGLED FUND.
(a) The Trustee is directed to consolidate into a single fund (the
"Commingled Fund") and to commingle all assets received and held by it in trust
pursuant to the master trust provisions of this Agreement excepting any such
assets required to be segregated by the provisions herein or the provisions of
any Plan. The Trustee is directed to maintain at all times such records as will
enable it to effect, as of any time, an equitable allocation and segregation of
such Commingled Fund into one or more separate funds held for the benefit of
all, or some, of the Covered Individuals under a Plan. If the Trustee receives
written notice from the Committee to effect an allocation and segregation of
assets, the Trustee will do so as soon thereafter as practicable. Thereafter,
the Trustee will administer each such separate fund in the manner provided in
Section 9, or if so directed by the Committee, will deliver the assets of any
such separate fund to a successor trustee or trustees as may be designated by
the Committee. The Trustee is hereby directed to effect such allocation and
segregation in the event that a Plan or trust administered hereunder ceases to
remain qualified and exempt under Sections 401(a) and 501(a) of the Code. Each
separate Plan will share proportionately in the aggregate investment experience
of the Commingled Fund except that with respect to assets segregated as provided
under this Section 3, the investment experience will be shared proportionately
by those participating in such segregated portion.
(b) From time to time the Committee may direct the transfer of assets
held in the Trust Fund to one or more insurance companies under a contract for
the purpose of investment by the insurance company through its general account
or a separate account. In such a case, the assets underlying the contract with
the insurance company shall not be treated as part of the Trust Fund, and the
insurance company shall have their sole and exclusive ownership and possession,
except as otherwise provided by law.
(c) In order to facilitate the investment of the Trust Fund, the
Company, or an
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Investment Manager with the written approval of the Committee,
may direct the Trustee to enter into custody arrangements with third parties
reasonably acceptable to the Trustee and transfer assets from the Trust Fund to
the custody of that third party. Except as otherwise required by ERISA, the
Trustee shall not be responsible for monitoring the performance or
creditworthiness of such a third party custodian.
(d) All transfers to, withdrawals from, and other transactions
regarding the Trust Fund shall be conducted in such a way that the proportionate
interest in the Trust Fund of each Plan and the fair market value of that
interest may be determined at any date when the fair market value of the
Investments held in the Trust Fund is determined as provided in Section 17.
Whenever the assets of more than one Plan are commingled in the Trust Fund or in
any Account, the undivided interest therein of that Plan shall be debited or
credited (as the case may be) (i) for the entire amount of every contribution
received on behalf of that Plan, every benefit payment, or other expense
attributable solely to that Plan, and every other transaction relating only to
that Plan and (ii) for its proportionate share of every item of collected or
accrued income, gain or loss, and general expense; and other transactions
attributable to the Trust Fund or that Account as a whole. As of each date when
the fair market value of the investments held in the Trust Fund or an Account is
determined as provided for in Section 17, the Trustee shall adjust the value of
each Plan's interest therein to reflect the net increase or decrease in such
values since the last such date. For all of the foregoing purposes, fractions of
a cent may be disregarded. The Trustee shall not be required to maintain any
separate records or accounts with respect to any Participant, unless separately
agreed upon by the Trustee and the Company.
4. RESPONSIBILITY WITH RESPECT TO GLOBAL ASSETS.
(a) Global Assets (other than currency) will be held in the country or
other jurisdictions where (i) the principal trading market for such Global
Assets is located, (ii) such Global Assets are to be presented for payment or
(iii) such Global Assets are acquired, unless the Company or an Investment
Manager specifically requires another location acceptable to the Trustee.
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(b) The Trustee may act under this Agreement with respect to Global
Assets through the subcustodians with which the Trustee has entered into
subcustodial agreements from time to time ("Subcustodians"). Except as otherwise
permitted by ERISA, each Subcustodian shall be an eligible sub-custodian under
Department of Labor Regulation 404b-1(a)(2)(ii)(C), as amended or any successor
to that regulation. The Trustee and Subcustodians are authorized to hold any of
the Securities or other Property in their account with any securities depository
in which they participate. If the Company or an Investment Manager wishes to
have any assets of the Trust Fund held in the custody of an institution other
than the established Subcustodians (or their securities depositories), such
arrangement must be authorized by a written agreement, signed by the Trustee and
the Company.
(c) The Trustee reserves the right to add new, replace or remove
Subcustodians. The Company will be given reasonable notice by the Trustee of any
such change. Upon request by the Company, the Trustee will identify the name,
address and principal place of business of any Subcustodian of the Trust Fund
and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
(d) Each Subcustodian will hold such Securities or other Property in
accounts identified on such Subcustodian's books as special custody accounts for
the exclusive benefit of customers of the Trustee. Any Securities or other
Property held by a Subcustodian will be subject only to the instructions of the
Trustee or its agent. Any Securities or other Property held in a securities
depository for the account of a Subcustodian will be subject only to the
instructions of such Subcustodian. Any agreement the Trustee enters into with a
Subcustodian for holding its customer's Securities or other Property shall
provide that such Securities or other Property will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
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ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration.
(e) The Trustee will provide services relating to proxy voting for
Global Assets only pursuant to a separate agreement. Those proxy voting services
may be provided by the Trustee or, in whole or in part, by one or more third
parties appointed by the Trustee (which may be affiliates of the Trustee).
(f) The Trustee shall be liable for any loss which shall occur as the
result of the failure of a Subcustodian to exercise reasonable care with respect
to the safekeeping of Global Assets held by it where such loss results directly
from the failure by the Subcustodian to use reasonable care in the provision of
custodial services by it in accordance with the standards prevailing in its
local market or from the willful default of such Subcustodian in the provision
of custodial services by it. In cases where compliance with Department of Labor
Regulation 404b-1 is based solely on compliance with paragraph (a)(2)(ii)(C) of
that Regulation, however, the Trustee shall be liable for any loss which shall
occur as the result of the failure of a Subcustodian to exercise reasonable care
with respect to the safekeeping of Global Assets held by it to the same extent
that the Trustee would be liable if the Trustee were holding such assets in New
York. Nevertheless, the Trustee will not be responsible for the acts or
omissions or insolvency of any Compulsory Depository or for the insolvency of
any Subcustodian which is not a branch or affiliate of Trustee unless Trustee
was negligent in the selection and oversight of that Subcustodian or Compulsory
Depository.
(g) It shall be the responsibility of the Committee or Investment
Manager, as the case may be, to be aware of any laws or regulations of any
foreign countries or any United States territory or possession which shall apply
in any manner whatsoever to any Global Assets held in the Trust Fund and of
Country Risk, as defined below. The Trustee shall have no responsibility for any
loss or damage suffered by the Trust Fund or any Plan to the extent that it
arises out of Country Risk, except to the extent that the Trustee is acting as
an Investment Manager pursuant
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to Section 6(d) of this Trust Agreement and has
breached its fiduciary responsibilities insofar as they relate to Country Risk.
"Country Risk" means the risk of investing or holding Securities or other
Property in a particular country including, but not limited to, losses resulting
from malfunction, interruption of or error in the transmission of information
caused by any machines or system or interruption of communication facilities,
abnormal operating conditions, nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which prevent
the orderly execution of securities transactions or affect the value of
Securities or other Property.
(h) Subject to the provisions of this Agreement and this Section 4(g),
the Trustee will apply for a reduction of withholding tax and any refund of any
tax paid or tax credits which apply in each applicable market in respect of
income payments on Global Assets for the benefit of the Plan which the Trustee
believes may be available.
(i) The provision of tax reclaim services is conditional upon
the Trustee receiving from the Committee) certain documentation (PRO
FORMA copies of which are available from the Trustee). If the Trustee
does not receive this documentation, it will be unable to provide tax
reclaim services.
(ii) Subject to the provisions of ERISA, the Trustee shall not
be liable to the Trust Fund for any taxes, fines or penalties payable
by the Trust Fund, whether these result from the inaccurate completion
of documents by the Committee or any third party, or as a result of the
provision to the Trustee or any third party of inaccurate or misleading
information or the withholding of material information by the Committee
or any other third party, or as a result of any delay of any revenue
authority or any other matter beyond the Trustee's control.
(iii) The Trustee shall perform tax reclaim services only with
respect to
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taxation levied by the revenue authorities of the countries notified
to the Company and the applicable Investment Manager from time to
time and the Trustee may, by notification in writing, at its
absolute discretion, supplement or amend the markets in which the
tax reclaim services are offered. Other than as expressly provided
in the preceding sentence, the Trustee shall have no responsibility
with regard to the Trust Fund's or any Plan's tax position or status
in any jurisdiction.
(iv) The Company confirms that the Trustee is authorized to
disclose to the extent reasonable any information requested by any
revenue authority or any governmental body in relation to the Plan, any
Global Assets, or any cash held in the Trust Fund.
(v) Tax reclaim services may be provided by the Trustee or, in
whole or in part, by one or more third parties appointed by the Trustee
(which may be affiliates of the Trustee); provided that the Trustee
shall be liable for the performance of any such third party to the same
extent as the Trustee would have been if it performed such services
itself.
5. ACCOUNTS.
From time to time, the Committee may designate assets under this
Agreement to be allocated to an Account for the purposes of directing the
investment of such assets and the Trustee shall establish such Accounts as
designated by the Committee. An Account describes the assets for which an
Investment Manager or the Committee exercises investment discretion but is not a
segregation or separation of assets. Each Account will be managed by an
Investment Manager as provided in Section 6. Except with respect to assets
segregated as provided in Section 3, assets allocated to an Account shall be
part of the Commingled Fund. The Committee will direct the investment of any
assets not allocated to an Account in accordance with Section 6(e).
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6. INVESTMENT MANAGERS.
(a) Except as otherwise provided in this Section 6, the Committee may
appoint, in writing, an Investment Manager for each Account who will have the
sole power and duty to manage and direct the investment and reinvestment of the
assets of such Account, and to instruct the Trustee accordingly, either in
writing or orally (to be followed promptly by written confirmation), subject to
such guidelines and restrictions as may be contained in an agreement between the
Committee and such Investment Manager. Any Investment Manager so appointed will
be (i) registered as an investment advisor under the Investment Advisors Act of
1940; (ii) a bank, as defined in the Investment Adviser's Act of 1940; (iii) an
insurance company qualified under the laws of more than one state to manage,
acquire and dispose of trust assets under a Plan or (iv) otherwise an
"Investment Manager" as defined in Section 3(38) of ERISA. Each Investment
Manager will acknowledge in writing to the Committee that it (A) meets the
requirements of this section, (B) is a fiduciary with respect to the master
trust created by this Agreement and the Plans, and (C) has accepted its
appointment as an Investment Manager.
(b) Without limitation of the authority of the Trustee or any
Investment Manager as set forth herein, the Trustee, the Committee or an
Investment Manager appointed by the Committee has the authority to invest all or
any part of the Trust Fund over which it has investment responsibility in a
group trust which meets all of the conditions of Revenue Ruling 81-100 (a "Group
Trust"), including such a trust maintained by the Trustee or the Investment
Manager, provided that the making of such investment is evidenced by a written
document executed by the Trustee or such Investment Manager. To the extent that
any portion of the Trust Fund is so invested in a Group Trust, that Group Trust
is made a part of the Plans and is hereby incorporated by reference into this
Agreement.
(c) If the Company has established an in-house investment manager which
is a unit, department, division, subsidiary or affiliate of the Company that
manages investments like an
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Investment Manager (an "In-House Manager"), the
Committee has the authority to allocate one or more Accounts to the In-House
Manager and the In-House Manager may instruct the Trustee with respect to any
such Account in the same manner as if the In-House Manager were an Investment
Manager under (a) above. An In-House Manager will be a named fiduciary and be
considered for purposes of this Agreement to be an Investment Manager, subject
to the terms and conditions applicable to an Investment Manager generally under
this Agreement. The Committee will review from time to time any In-House
Manager's compliance with the Code, ERISA and applicable laws with respect to
its Account(s).
(d) The Trustee and the Committee may agree in writing to appoint the
Trustee to direct the investment and reinvestment of any Account. In the event
of such an agreement, the Trustee shall have the powers and duties of an
Investment Manager under this Trust Agreement with regard to that Account.
(e) Notwithstanding the foregoing, the Committee as a named investment
fiduciary can exercise investment direction with respect to assets under this
Agreement and will direct the Trustee in connection with any such investment.
(f) If, and to the extent specifically authorized by the Plans, the
Committee may direct the Trustee to establish one or more Accounts the assets of
which shall be invested primarily in securities which constitute "qualifying
employer securities" or "qualifying employer real property" within the meaning
of Section 407 of ERISA. It shall be the duty of the Committee to determine that
such investment is not prohibited by Sections 406 or 407 of ERISA. The Trustee's
responsibilities with respect to such an Account shall be no different than if
an Investment Manager were appointed with respect to that Investment Account.
(g) If the Trustee concludes that it may be subject to a conflict of
interest with respect to a transaction relating to Securities or other Property
held in the Trust Fund which might affect, or have the appearance of affecting,
the performance of its fiduciary responsibilities under this
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Agreement, the Trustee may, in its discretion, select a third party to exercise
the Trustee's fiduciary responsibilities with respect to the transaction.
Provided that the third party is reasonably acceptable to the Committee and
satisfies the criteria set forth in Section 6(a), the Committee shall engage
such third party as an Investment Manager for the limited purpose described in
the previous sentence. The Trustee shall pay the fees of such an Investment
Manager with respect to this limited engagement.
(h) The Committee will anticipate the need for cash for distribution
under the Plans and for payment of expenses under this Agreement and will make
arrangements among the Investment Managers, or otherwise, as may be needed to
provide cash sufficient to satisfy such need. The Committee may direct the
Trustee to borrow on a short-term basis for the purpose of making cash
distributions for the Plans and may direct the Trustee to borrow under an
interest-free loan in accordance with Prohibited Transaction Class Exemption
80-26.
7. DUTIES OF THE TRUSTEE.
(a) Subject to Sections 3(c), 4, and 6(b), The Trustee will receive and
hold in safekeeping, with appropriate auditing and security safeguards, the
assets initially transferred to the Trustee as above provided or subsequently
brought within the operation of this Agreement.
(b) The Trustee shall have the following duties in respect of any
Account:
(i) to receive and deliver securities and cash from and to
purchasers, sellers, brokers and their agents in accordance
with the instructions of an Investment Manager ;
(ii) to collect interest and dividends, and the principal of
called or matured securities;
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(iii) to invest U.S. currency automatically in either a group
trust maintained by the Trustee for short-term investments or
a commercial paper pooled note or otherwise as instructed by
an Investment Manager or the Committee;
(iv) to give an Investment Manager prompt advice of each
transaction affecting the Account of that Investment Manager,
in writing, electronically, or by such other means as may be
mutually acceptable to the Trustee and the Investment Manager;
(v) to render to the Committee and to an Investment Manager
such reports as the Committee may from time to time require,
including a monthly valuation of each Account, reports of
transactions, capital gains and losses, dividends, and
interest income, quarterly investment review valuation reports
and annual summary accounting reports;
(vi) to advise an Investment Manager of stock dividends,
splits, rights offerings, calls on bonds and bonds maturing;
(vii) to notify an Investment Manager of late deliveries of
securities and any other non-compliance with the original
authorization;
(viii) for the United States market and those global markets
where the Trustee offers this service, to credit dividends and
interest to the account of an Account when due, even if not
received, and process any required claims for such items;
(ix) to cause securities to be reregistered in a manner
satisfactory to the Trustee;
(x) subject to Section 4(c), to forward to an Investment
Manager proxy
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statements and other notices received, as instructed by the
Investment Manager or, in the absence of such instruction,
by the Committee; and
(xii) subject to Section 4(c), to vote proxies at the
directions of an Investment Manager, or in the absence of an
Investment Manager or as provided under a plan's written
policy with respect to proxy voting, at the direction of the
Committee.
(c) The Trustee shall from time to time on the directions of the
Committee make payments out of the Trust Fund in cash or in-kind to such
persons, including covered individuals, in such manner, in such amounts and for
such purposes as may be specified in the directions of the Committee. Payment in
response to such directions shall be a complete discharge of the Trustee of its
responsibility for the holding and safekeeping of such assets and any assets so
paid over shall no longer be part of the Trust Fund. The Committee shall be
responsible for insuring that any payment directed under this Article conforms
to the provisions of the Plans, this Trust Agreement, and the provisions of
ERISA. Each direction of the Committee shall be in writing and shall be deemed
to include a certification that any payment or other distribution directed
thereby is one which the Committee is authorized to direct, and the Trustee may
reasonably rely on such certification without further investigation unless the
Trustee has actual knowledge to the contrary. The Company may elect to appoint a
third party agent for benefit payments upon notice to the Trustee, in which
event, the Trustee's sole duty shall be to make payments to, or receive amounts
back from, such agent as may be directed by the Committee or its delegate. If
any distribution made by the Trustee is returned unclaimed, the Trustee will
notify the Administrative Committee and shall dispose of the distribution as the
Administrative Committee directs.
(d) Notwithstanding the provisions of Section 6, upon direction of the
Committee in accordance with Section 6(h), the Trustee shall retain all or any
portion designated by the Committee of the cash contributions received under the
Plans to meet anticipated requisitions or
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orders of the Administrative Committee, and shall invest such contributions
temporarily or in a non-interest bearing account as directed by the Committee.
(e) Notwithstanding any other provisions of this Agreement, the Trustee
shall have the responsibility of discharging its duties and its investment and
administrative powers with respect to the trust assets solely in the interest of
the Covered Individuals and for the exclusive purpose of providing benefits
under the Plans and defraying the reasonable expenses of administering the
assets subject to the Agreement. The Trustee shall exercise the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. To the extent
the Trustee is responsible for investment of the trust assets under Section 9,
it shall diversify such investments so as to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not to do so, and shall
administer the trust assets in accordance with the terms and provisions of this
Agreement insofar as this Agreement is consistent with the provisions of
applicable law and the terms of the respective Plans.
(f) The Trustee shall have a duty to effect transactions and make
elections in accordance with the duly authorized instructions of the Investment
Manager or the Committee.
8. DUTIES OF AN INVESTMENT MANAGER.
Each Investment Manager (including any In-House Manager) may direct the
Trustee with respect to the assets of the Account allocated to such Investment
Manager pursuant to a written agreement between the Investment Manager and the
Committee if the Investment Manager:
(a) has agreed to confirm oral instructions given to the Trustee in
writing, electronically, or in such other manner as is mutually acceptable to
the Trustee and the Investment Manager, and
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(b) directs the Trustee with respect to the powers of the Trustee under
Section 10 and otherwise in accordance with this Agreement.
9. DUTIES OF THE TRUSTEE IN RESPECT OF CERTAIN ASSETS.
The Trustee shall invest and reinvest, in accordance with such
directions, guidelines and restrictions as the Committee may from time to time
specify, any portion of the assets hereunder which (a) have been segregated
pursuant to Section 3, (b) have been allocated to an Account pursuant to Section
6(d), (c) have not been allocated to any Account, or (d) which were allocated to
an Account during any period after the Account's Investment Manager has
resigned, been removed or otherwise has ceased to act and prior to appointment
of a successor, without distinction between principal and income and without
regard to any restriction under any present or future state laws, if applicable,
relating to investments by trustees.
10. INVESTMENT POWERS OF THE TRUSTEE.
The Trustee shall have and exercise the following powers and authority
(i) over Accounts where it has express investment management discretion as
provided in Section 6(d), and (ii) upon direction of an Investment Manager or
the Committee, as the case may be, for all other Accounts:
(a) To purchase, receive or subscribe for any Securities or other
Property and to retain in trust such Securities or other Property;
(b) To acquire and hold qualifying employer securities and qualifying
employer real property, as such investments are defined in Section 407(d) of
ERISA;
(c) To sell for cash or on credit, to grant options, convert, redeem,
exchange for other Securities or other Property, to enter into standby
agreements for future investment, either with
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or without a standby fee, or otherwise to dispose of any Securities or other
Property at any time held by it;
(d) To settle, compromise or submit to arbitration any claims, debts,
or damages, due or owing to or from the trust, to commence or defend suits or
legal proceedings and to represent the trust in all suits or legal proceedings
in any court of law or before any other body or tribunal;
(e) To trade in financial options and futures, (including index options
and options on futures); to enter into repurchase agreements, reverse,
repurchase agreements, swaps, caps, floors, straddles, collars and other
derivative arrangements; and to execute in connection therewith such account
agreements and other agreements in such form and upon such terms as the
Investment Manager or the Committee shall direct;
(f) Subject to Section 4, to exercise all voting rights, tender or
exchange rights, any conversion privileges, subscription rights and other rights
and powers available in connection with any Securities or other Property at any
time held by it; to oppose or to consent to the reorganization, consolidation,
merger or readjustment of the finances of any corporation, company or
association, or to the sale, mortgage, pledge or lease of the property of any
corporation, company or association any of the Securities or other Property
which may at any time be held by it and to do any act with reference thereto,
including the exercise of options, the making of agreements or subscriptions and
the payment of expenses, assessments or subscriptions, which may be deemed
necessary or advisable by the Investment Manager or Committee in connection
therewith, and to hold and retain any Securities or other Property which it may
so acquire; and to deposit any property with any protective, reorganization or
similar committee, and to pay and agree to pay part of the expenses and
compensation of any such committee and any assessments levied with respect to
property so deposited;
(g) To invest all or a portion of the Trust Fund in contracts issued by
insurance companies, including contracts under which the insurance company holds
Plan assets in a
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separate account or commingled separate account managed by the insurance
company. The Trustee shall be entitled to rely upon any written directions of
the Committee or the Investment Manager under this Section 10, and the Trustee
shall not be responsible for the terms of any insurance contract that it is
directed to purchase and hold or for the selection of the issuer thereof or for
performing any functions under such contract (other than the execution of any
documents incidental thereto on the instructions of the Committee or the
Investment Manager);
(h) To manage, administer, operate, lease for any number of years,
develop, improve, repair, alter, demolish, mortgage, pledge, grant options with
respect to, or otherwise deal with any real property or interest therein at any
time held by it, and to hold any such real property in its own name or in the
name of a nominee, with or without the addition of words indicating that such
property is held in a fiduciary capacity, all upon such terms and conditions as
may be deemed advisable by the Investment Manager or Committee;
(i) To renew, extend or participate in the renewal or extension of any
mortgage, upon such terms as may be deemed advisable by the Investment Manager
or Committee, and to agree to a reduction in the rate of interest on any
mortgage or of any guarantee pertaining thereto in any manner and to any extent
that may be deemed advisable by the Investment Manager or Committee for the
protection of the Trust Fund or the preservation of the value of the investment;
to waive any default, whether in the performance of any covenant or condition of
any mortgage or in the performance of any guarantee, or to enforce any such
default in such manner and to such extent as may be deemed advisable by the
Investment Manager or Committee; to exercise and enforce any and all rights of
foreclosure, to bid on property on foreclosure, to take a deed in lieu of
foreclosure with or without paying consideration therefor, and in connection
therewith to release the obligation on the bond secured by such mortgage, and to
exercise and enforce in any action, suit or proceeding at law or in equity any
rights or remedies in respect to any such mortgage or guarantee;
(j) To loan pursuant to separate agreement as may be agreed upon any
securities to
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brokers or dealers and to secure the same in any manner, and during the term of
any such loan to permit the loaned securities to be transferred into the name of
and voted by the borrower or others;
(k) To purchase, enter, sell, hold, and generally deal in any manner in
and with contracts for the immediate or future delivery of financial instruments
of any issuer or of any other property; to grant, purchase, sell, exercise,
permit to expire, permit to be held in escrow, and otherwise to acquire, dispose
of, hold and generally deal in any manner with and in all forms of options in
any combination; to sell Securities or other Property short and, in connection
with its exercise of the powers granted in this Trust Agreement, to deposit any
Securities or other Property as collateral with any broker-dealer or other
person, to permit Securities or other Property to be held by or in the name of
others or in transferable form, to retain any form of Securities or other
Property received as a result of the exercise of any of the foregoing powers
whether or not investment in such Securities or other Property is otherwise
authorized under this Trust Agreement and to hold and administer any Securities
or other Property with respect to which the foregoing powers have or may be
exercised, including any securities or collateral acquired by it or in any
property received as a result of its exercise of such powers, as a part of the
account subject to the foregoing powers, or in any sub-account, which property
may be invested in Securities or other Property of different types that the
Securities or other Property otherwise held in the account;
(l) To borrow money on a secured or unsecured basis and to enter into,
execute, and deliver notes, agreements, mortgages, and other instruments in that
regard;
(m) To employ suitable agents and counsel and to pay their reasonable
and proper expenses and compensation;
(n) To purchase and sell foreign exchange and contracts for foreign
exchange, including transactions entered into with the Trustee, its agents or
Subcustodians;
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(o) To form corporations and to create trusts to hold title to any
Securities or other Property, all upon such terms and conditions as may be
deemed advisable by the Investment Manager or Committee; and
(p) To invest at the Trustee (i) in any type of interest bearing
investments (including, but not limited to savings accounts, money market
accounts, certificates of deposit and repurchase agreements) and (ii) in
non-interest bearing accounts (including, but not limited to checking accounts).
11. ADMINISTRATIVE POWERS OF THE TRUSTEE.
Notwithstanding the appointment of an Investment Manager, the Trustee
shall have the following powers and authority with respect to the Trust Fund:
(a) To employ suitable agents, custodians and counsel and to
pay their reasonable expenses and compensation;
(b) To appoint ancillary trustees to hold any portion of the assets of
the trust and to pay their reasonable expenses and compensation;
(c) To register any Securities or other Property held by it hereunder
in its own name or in the name of a nominee with or without the addition of
words indicating that such Securities or other Property are held in a fiduciary
capacity and to hold any Securities or other Property in bearer form and to
deposit any Securities or other Property in a depository or clearing
corporation;
(d) To permit overdrafts in any Account in connection with the
settlement of investment transactions relating to, or the distribution of funds
from, the Trust Fund, (and the
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Investment Manager, if any, of such Account shall be deemed to have requested
the Trustee to permit such overdraft under the terms and conditions announced by
the Trustee from time to time for overdrafts); to repay any such overdraft out
of the Trust Fund; to permit the party extending any such overdraft (including
the Trustee in its corporate capacity) to set the overdraft off against any cash
balances in the Trust Fund; and to pay reasonable compensation to the party
extending the overdraft for its services (or reimburse that party for its
expenses) to the extent permitted under Applicable Law;
(e) To reverse any erroneous or provisional credit entries to the Trust
Fund retroactively to the date upon which the correct entry or no entry should
have been made;
(f) To make, execute and deliver, as Trustee, any and all deeds,
leases, mortgages, conveyances, waivers, releases or other instruments in
writing necessary or desirable for the accomplishment of any of the foregoing
powers; and
(g) Generally to do all ministerial acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable in carrying out
its duties under this Trust Agreement.
(h) To invest at the Trustee (i) in any type of interest bearing
investments (including, but not limited to savings accounts, money market
accounts, certificates of deposit and repurchase agreements) and (ii) in
non-interest bearing accounts (including, but not limited to checking accounts).
12. TRANSFER OF ASSETS.
In the event that a Plan provides for the transfer of assets from the
trust administered hereunder to (a) a trust established under a retirement or
pension plan of a company affiliated with the Company, on behalf of employees
transferred from employment by the Company to employment by such affiliated
company, or (b) a trust established under another retirement
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or pension plan of the Company on behalf of employees whose coverage has been
transferred from the Plan to such other plan, upon the direction of the
Committee, the Trustee shall, in accordance with the Plan, segregate and
transfer such assets to the trustees of such other trust. If the assets of the
acquiring trust are, or upon such transfer will become, part of the Commingled
Fund, such segregation shall not be required and the value of the assets
transferred shall be reflected in appropriate accounting entries made by the
Trustee in the records of the respective trusts maintained in accordance with
SECTION 3. In the event that the Company enters into an agreement for the sale
of all or a portion of its business and assets and agrees to cause the assets
held under this Agreement, or an appropriate part thereof, to be transferred to
a trust established under a retirement or pension plan qualified under section
401(a) of the Code and exempt from taxation under Section 501(a) of the Code of
the purchaser on behalf of former employees of the Company who become employed
by the purchaser, upon direction of the Committee, the Trustee shall segregate
and transfer such assets to the trustee of such other trust maintained by the
purchaser.
13. RESPONSIBILITIES OF TRUSTEE.
(a) Subject to the provisions of ERISA and the regulations thereunder,
the Trustee shall not be liable for any Damages sustained by the Commingled Fund
or the Trust Fund administered hereunder by reason of decisions made by or the
actions of any Investment Manager, In-House Manager, the Committee, or the
Company, nor with respect to its duties under this Agreement shall the Trustee
be liable for any error of judgment or for any loss or reduction in value of
trust funds except where due to negligence, willful misconduct or lack of good
faith. The Trustee shall have no duty at any time or under any circumstances to
inquire into the propriety of decisions and actions of any Investment Manager,
an In-House Manager, the Committee, or the Company, or to review any Account.
The Trustee shall not be liable for any Damages arising from failure of any
Investment Manager to give instructions or directions to the Trustee as provided
herein. The Trustee shall not be under any duty to require payment of any
contributions to the Trust Fund, or to see that any payment made to it is
computed in accordance
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with the provisions of the Plans, or otherwise be responsible for the adequacy
of the Trust Fund to meet and discharge any liabilities under the Plans. In the
event of its breach of its fiduciary obligations under ERISA, the Trustee shall,
however, be liable to the Trust Fund for Damages to the extent provided by
ERISA.
(b) Unless otherwise specifically required by this Agreement,
directives, instructions, and other communications under this Agreement or
relating to the Trust Fund (including without limitation, instructions regarding
the investments of the Trust Fund and directions to make benefit payments and
other disbursements) may be provided in writing or by telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic instruction
or trade information system acceptable to the Trustee. If the Trustee has issued
to the Company or the Committee security codes or passwords in order that the
Trustee may verify that certain transmissions of directions, instructions, or
other information have been originated by the Company or the Committee, as the
case may be, the Trustee shall be kept indemnified by and be without liability
for any action taken or omitted by it in reliance upon receipt by the Trustee of
transmissions of information with the proper security code or password,
including communications purporting to be directions or instructions, which the
Trustee reasonably believes to be from the Company or the Committee, as the case
may be.
(c) In the event the Committee delegates any or all of its obligations
and/or powers to any person or committee in accordance with Section 1(h), the
Committee shall inform the Trustee in writing as to (i) the identity of such
person or committee, (ii) the obligations and/or powers so delegated, and (iii)
any limitations or restrictions in respect of such delegation. The Trustee may
continue to rely on the authority of a person to act for the Committee until the
Committee or the Company notifies the Trustee that that person is no longer
authorized to act for the Committee.
(d) The Trustee on the one hand and the Company and the Committee on
the other
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hand confirm that they are assuming contractual obligations to each other under
this Agreement and nothing in this Agreement shall be construed to limit or
restrict any legal recourse otherwise available to either party under Applicable
Law.
14. CONSULTATION WITH COUNSEL.
The Trustee may from time to time consult with counsel, who may be
counsel to the Company (and its affiliates) or to the Trustee or affiliates of
the Trustee, and shall be fully protected in legal questions when acting upon
the advice of competent counsel.
15. EXPENSES.
(a) Except as otherwise provided in this section or prohibited under
ERISA, the expenses incurred by the Trustee in the performance of its duties,
including fees for legal services rendered to the Trustee, such compensation to
the Trustee as may be agreed upon in writing from time to time by the Committee
and the Trustee, and all other reasonable and proper charges and disbursements
of the Trustee, will, upon authorization of the Committee, be paid from the
Trust Fund hereunder. In the absence of such authorization, any such expenses
shall be paid by the Company, but until paid shall constitute a charge upon the
Trust Fund hereunder. All other expenses of administering the Plans will be paid
in accordance with the terms of the Plans and as directed by the Committee.
(b) All taxes of any nature whatsoever that may be imposed under
existing or future laws upon or in respect of the assets of the Trust Fund
administered hereunder or the income therefrom shall be paid from such Trust
Fund other than any excise tax with respect to any prohibited transaction
involving any assets under this Agreement. Until advised to the contrary by the
Committee, the Trustee shall assume that the Trust is exempt from Federal, state
and local income taxes, and shall act in accordance with that assumption.
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16. COMPUTERIZED REPORTING SERVICES
This section shall apply only in the event the Company uses the
informational and computerized reporting systems described in this Agreement.
(a) The Company agrees to use the equipment, computer programs and
other information supplied by the Trustee under this Agreement solely for its
own internal use (which shall include use by its designated counsel) and benefit
and not for resale or other transfer or disposition to, or use by or for the
benefit of, any other person or organization without the prior written approval
of the Trustee.
The Company acknowledges that the data bases, computer programs, screen
formats, screen designs, report formats, interactive design techniques, and
other information furnished to the Company by the Trustee may constitute
copyrighted trade secrets or proprietary information of substantial value to the
Trustee. Such data bases, programs and other information are collectively
referred to below as "Proprietary Information." The Company agrees that it shall
treat all Proprietary Information as proprietary to the Trustee and that is
shall not divulge any Proprietary Information to any person or organization
except as expressly permitted hereunder. Unless otherwise agreed, without
limiting the foregoing, the Company agrees for itself and its employees and
agents:
(i) to use such programs and data bases solely in accordance
with the Trustee's applicable user documentation;
(ii) to refrain from copying or duplicating in any way (other than in
the normal course of performing processing) any part of any Proprietary
Information;
(iii) to refrain from obtaining unauthorized access to any programs,
data or other information not owned by the Company, and if such access
is accidentally obtained, to
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respect and safeguard the same as
Proprietary Information;
(iv) to refrain from knowingly causing or allowing information
transmitted from the Trustee's computer to the Company's terminals to
be re-transmitted to another computer, terminal or other device;
(v) that the Company shall have access to only those authorized
transactions as agreed to between the Company and the Trustee;
(vi) to honor reasonable written requests made by the Trustee to
protect at the Trustee's expense the rights of the Trustee in
Proprietary Information at common law, under the Federal copyright
statutes and under other Federal and state or foreign statutes.
(b) The Company hereby acknowledges that the data and information it
will be accessing from the on-line data information services described in
subparagraph (a) from Trustee is unaudited and may not be accurate due to
inaccurate pricing of Securities or other Property, delays in updating the
accounting records of the Trust Fund and other causes for which Trustee will not
be liable to the Company.
17. ACCOUNTS OF TRUSTEE.
(a) The Trustee shall maintain or cause to be maintained suitable
records, data and information relating to its functions hereunder. These books
and records shall be open to inspection and audit, upon reasonable notice and
during regular business hours, by the Committee or its duly authorized
representatives and each Investment Manager. The Trustee shall be entitled to
reasonable compensation and reimbursement of its reasonable expenses incurred in
connection with such audits or inspections.
(b) Within sixty days after the close of each fiscal year of the trust
and at more
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frequent intervals if agreed to by the parties hereto, and within sixty days
after the removal or resignation of the Trustee as provided hereunder, the
Trustee shall render to the Company a written statement and account showing in
reasonable summary the investments, receipts, disbursements, and other
transactions engaged in during the preceding fiscal year or period, and setting
forth the assets and liabilities of the trust. Unless the Company shall have
filed with the Trustee written exceptions or objections to any such statement
and account within sixty days after receipt thereof, the Company shall be deemed
to have approved such statement and account, and in such case or upon written
approval by the Committee of any such statement and account, the Trustee shall
be released and discharged with respect to all matters and things embraced in
such statement and account as though it had been settled by a decree of a court
of competent jurisdiction in an action or proceeding in which the Company, all
other necessary parties and all persons having any beneficial interest in the
Trust Fund were parties.
(c) Nothing contained in this Trust Agreement or in the Plans shall
deprive the Trustee of the rights to have a judicial settlement of its account.
In any proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the trust, the only necessary party thereto in
addition to the Trustee shall be the Company, and no participant or other person
having or claiming any interest in the Trust Fund shall be entitled to any
notice or service of process (except as required by Applicable Law). Any
judgment, decision or award entered in any such proceeding or action shall be
conclusive upon all interested persons.
(d) Trustee shall determine the fair market value or fair value of
assets held in the Trust Fund based upon one or more of the following:
information and financial publications of general circulation, statistical and
valuation services, records of security exchanges, appraisals by qualified
persons, transactions and bona fide offers in assets of the type in question,
valuations provided by Investment Managers, and other information customarily
used in the valuation of property. Units in Group Trusts shall be valued at the
value stated by the trustee of the Group Trust. Units or shares in registered
investment companies, limited partnerships, limited liability companies, or
other funds (each a "Fund") shall be their net asset value or other unit or
share
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value as announced by the Fund or its operator. An Investment Manager
(including an In-House Manager) shall certify, at the request of the Trustee,
the value of any assets held in any Account managed by such Investment Manager,
and such certification shall be regarded as a direction with regard to such
valuation. The Trustee shall be entitled to rely upon such valuation for all
purposes under this Trust Agreement.
(e) Valuations of property reasonably deemed by the Trustee to be
commodity interests or over the-counter options or derivative instruments shall
be valued at their last prior sales prices on the principal board of trade or
other contracts market in which dealings are made or by quotations from the
contraparty bank or party. The Company acknowledges that values of derivative
instruments are indicative values only based on market levels on the date, or
upon change in rates, so indicated. These valuations do not indicate the actual
terms at which derivatives could be liquidated or unwound or the calculation or
estimate of an amount that would be payable following the designation of an
early termination date under any applicable agreement. Valuations of derivatives
will be derived from proprietary models (including proprietary models developed
by the dealer from which a given derivative was purchased) based upon estimates
about relevant future market conditions. Valuations based on other models or
different assumptions may yield different results. The Trustee expressly
disclaims any responsibility for the accuracy of the models or estimates used in
deriving the valuations.
18. REMOVAL OF TRUSTEE; RESIGNATION.
The Trustee may resign at any time by giving sixty days' prior written
notice to the Company, which notice may be waived by the Company. The Company
may remove the Trustee at any time upon sixty days' prior written notice to the
Trustee, which notice may be waived by the Trustee. In case of the resignation
or removal of the Trustee, the Company shall appoint a successor trustee which
is a bank or trust company with equity capital of at least fifty million
dollars. Any successor trustee shall have the same powers and duties as those
conferred upon the Trustee named in this Trust Agreement. The removal of a
Trustee and the appointment
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of a new Trustee shall be by a written instrument
delivered to the Trustee. Upon the appointment of a successor trustee and after
the final account of the resigning or removed Trustee has been approved or
settled, as provided in Article 9, the resigning or removed Trustee shall
transfer or deliver the Trust Fund to such successor trustee or, in its
discretion, to a court of competent jurisdiction if a successor trustee has not
accepted appointment within a reasonable time.
19. TERMINATION OF THE TRUST.
This Trust Agreement and the trust created hereby may be terminated at
any time by the Company, and upon such termination or upon the dissolution or
liquidation of the Company, in the event that a successor to the Company by
operation of law or by the acquisition of its business interests shall not elect
to continue the Plans and the trust, the Trust Fund shall be paid out by the
Trustee after the settlement of its final account when directed by the
Committee. Notwithstanding the foregoing, the Trustee shall not be required to
pay out any assets of the Trust Fund upon termination of the Trust until the
Trustee has received written certification from the Committee that all
provisions of law with respect to such termination have been complied with. The
Trustee may rely conclusively on such written certification, and shall be under
no obligation to investigate or otherwise determine its propriety.
20. TERMINATION OF ANY PLAN.
In the event of the termination of a Plan as provided therein, the
Trustee shall dispose of the assets of the Trust Fund with respect to such Plan
in such manner as shall be directed by the Committee, who shall be governed by
the terms of the Plan and the provisions of Section 2 hereof.
21. COURT ACTIONS.
In any application to the courts for an interpretation of this
Agreement or for an
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accounting by the Trustee, only the Trustee and the Company
shall be necessary parties; and except as may be required by ERISA, no Covered
Individual under any Plan or other person having an interest therein shall be
entitled to any notice or service of process. Any final judgment entered in such
an action or proceeding will be conclusive upon all persons claiming under this
Agreement.
22. AMENDMENT.
The Company reserves the right at any time and from time to time by
action of the Board or of the Committee, as its agent, to amend any or all of
the provisions of this Agreement by notice thereof in writing delivered to the
Trustee; provided that no such amendment which affects the rights, duties or
responsibilities of the Trustee may be made without its consent; and provided
further that no such amendment shall authorize or permit at any time, prior to
the satisfaction of all liabilities for benefits under a Plan, any part of the
corpus or income of the Trust Fund administered hereunder to be used for or
diverted to purposes other than for the exclusive benefit of Covered Individuals
under the Plan and payment of expenses of the Plan.
23. CONSTRUCTION.
To the extent, if any, not governed by ERISA, the validity of this
Agreement will be determined by, and this Agreement will be governed,
administered, construed and enforced according to, the laws of the State of New
York, without regard to New York's principles regarding conflicts of laws. In
case of any conflict between the provisions of a Plan and of this Agreement, the
provisions of the Plan shall govern. Except where otherwise specifically
required by ERISA, the United States District Court for the Southern District of
New York shall have the sole and exclusive jurisdiction over any lawsuit or
other judicial proceeding relating to or arising from this Agreement. If that
court lacks federal subject matter jurisdiction, the Supreme Court of the State
of New York, New York County shall have sole and exclusive jurisdiction. Either
of these courts shall have proper venue for any such lawsuit or judicial
proceeding, and the parties
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waive any objection to venue or their convenience as a forum.
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24 PARTIES BOUND; SURVIVAL.
(a) This Trust Agreement shall be binding upon the parties hereto, all
Participants in the Plans and persons claiming under or through them pursuant to
the Plans, and, as the case may be, the heirs, executors, Committees,
successors, and assigns of each of them.
(b) In the event of the merger or consolidation of the Company or other
circumstances whereby a successor person, firm or company shall continue to
carry on all or a substantial part of its business, and such successor shall
elect to carry on the provisions of the Plan or Plans applicable to such
business, as therein provided, such successor shall be substituted hereunder for
the Company upon the filing in writing of its election so to do with the
Trustee. The Trustee may, but need not, rely on the certification of an officer
of the Company, and a certified copy of a resolution of the Board of Directors
of such successor, reciting the facts, circumstances and consummation of such
succession and the election of such successor to continue the Plan or Plans as
conclusive evidence thereof, without requiring any additional evidence.
(c) Any corporation into which the Trustee may be merged, or with which
it may be consolidated or any corporation resulting from any merger or
consolidation to which the Trustee may be a party, or any corporation succeeding
to the business of the Trustee or to which substantially all the assets of the
Trustee may be transferred, shall be the successor of the Trustee hereunder
without the execution or filing of any paper and without any further action on
the part of the parties hereto, with like effect as if such successor trustee
had originally been named trustee herein; and in any such event it will not be
necessary for the Trustee or any successor trustee to give notice to any person
having an interest in this Agreement or in the Trust Fund hereby created or in
any of the property held by the Trustee hereunder, and the requirements of any
and all statutes and laws (other than ERISA) that notice shall be given in any
such case are
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hereby waived.
25. ADDITIONAL PLANS.
From time to time, the Committee will deliver to the Trustee a written
statement identifying each defined benefit pension plan that is hereafter
established or terminated by the Company, and any defined benefit pension plans
that are merged and will update Exhibit A accordingly. With respect to each new,
changed or merged plan, the Committee will provide the Trustee with effective
dates and the Trustee will treat each Plan in accordance with the separate trust
provisions of Section 2. The Committee is hereby designated on behalf of the
Company and any affiliate of the Company that adopts and sponsors a Plan to
elect to bring such Plan within the coverage of this Agreement. Each employer
which has adopted or hereafter adopts a Plan shall, by virtue of such adoption,
be deemed to be a party to this Agreement without further action.
26. MISCELLANEOUS
(a) The provisions of Articles 13, 15, 16 and 17 shall survive
termination of the Trust created under this Trust Agreement or resignation or
removal of the Trustee for any reason.
(b) Necessary parties to any accounting, litigation or other
proceedings shall include only the Trustee and the Company, and the settlement
or judgment in any such case in which the Company and the Trustee are duly
served or cited shall be binding upon the Employers and all Participants and
their estates, and upon all persons claiming by, through or under them.
(c) If any provisions of this Trust Agreement shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
provisions of this Trust Agreement shall continue to be fully effective.
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(d) Unless the context clearly indicates to the contrary, a reference
to a statute, regulation, document or provision shall be construed as referring
to any subsequently enacted, adopted or executed counterpart.
(e) Headings and subheadings in this Trust Agreement are inserted for
convenience of reference only and are not to be considered in the construction
of its provisions.
(f) The Trustee shall have no liability for the acts or omissions of
any predecessors or successors in office.
(g) This Trust Agreement may be executed in one or more counterparts,
each of which shall constitute an original.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the ___ day of , 1998, by their respective officers thereunto duly
authorized.
CHASE MANHATTAN BANK
By:
ATTEST:
R. J. REYNOLDS TOBACCO COMPANY.
By:
Chairman, RJR Pension Investment Committee
By:
Chief Financial Officer
WITNESS:
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EXHIBIT A-1
SCHEDULE A
DEFINED BENEFIT MASTER TRUST
CURRENT PARTICIPATING PLANS
June 14, 1999
Retirement Plan for Employees of R. J. Reynolds
Tobacco Company
Aminoil Retirement Plan
Retirement Plan for Seasonal Employees of RJR Tobacco Company, Inc.
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Exhibit 10.15
AGREEMENT, made as of June 14, 1999, among WACHOVIA BANK, N.A.,
hereinafter called "the Trustee", and R. J. REYNOLDS TOBACCO COMPANY,
hereinafter referred to as the "Company";
R E C I T A L S:
WHEREAS, a Master Trust Agreement was entered into as of October 1,
1979 between Wachovia Bank and Trust Company, N.A., R. J. Reynolds Tobacco
Company, RJR Nabisco, Inc. and various other employers (the "Master Trust
Agreement");
WHEREAS, the Master Trust Agreement has been amended from time to time;
WHEREAS, the Master Trust Agreement was most recently amended effective
June 10, 1999, to reflect the cessation of the ESOP under the RJR Nabisco
Capital Investment Plan;
WHEREAS, effective June 14, 1999, RJR Nabisco Holdings Corp., the
parent company of RJR Nabisco, Inc., spun-off its tobacco related operations by
distributing to its shareholders all of the outstanding shares of common stock
of RJR Nabisco Inc.;
WHEREAS, as a result of the spin-off, (i) Nabisco Holdings Corp.
(formerly a subsidiary of RJR Nabisco, Inc.) is no longer an affiliate of RJR
Nabisco, Inc., (ii) RJR Nabisco, Inc. was renamed R. J. Reynolds Tobacco
Holdings, Inc. and (iii) RJR Nabisco Holdings Corp. was renamed Nabisco Group
Holdings Corp.;
<PAGE>
WHEREAS, effective June 14, 1999, the Company has assumed sponsorship
of the R. J. Reynolds Tobacco Company Capital Investment Plan;
WHEREAS, in connection with the above described spin-off and assumption
of the R. J. Reynolds Tobacco Company Capital Investment Plan by the Company,
the Company and the Trustee deem it advisable to restate the Master Trust
Agreement to continue to provide for management of the assets of one or more
defined contribution plans maintained by the Company, and for the period
commencing June 14, 1999 through June 21, 1999, the assets of the defined
contribution plans maintained by Nabisco, Inc., which defined contribution plans
are from time to time designated on Exhibit A hereto. References herein to "the
Plans" shall mean collectively all of such plans, and references herein to "the
Plan" shall mean each of such plans individually;
WHEREAS, the RJR Pension Investment Committee is authorized to amend
and restate the Master Trust Agreement; and
WHEREAS, the RJR Pension Investment Committee has approved the adoption
of the restated Master Trust Agreement by Written Consent in Lieu of a Meeting.
NOW, THEREFORE, the parties hereto agree as follows:
1. TRUST ASSETS. The assets held in any trust heretofore established
under a Plan upon being held by or
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<PAGE>
transferred to the Trustee, such other property or money as shall from time to
time be delivered or paid to the Trustee pursuant to such Plan, and the earnings
and profits thereon, shall be held in a separate trust by the Trustee and dealt
with in accordance with the provisions of this Agreement. References herein to
"the Separate Trust" shall be deemed to refer to each such separate trust, and
references herein to "the Master Trust" shall be deemed to refer to the master
trust created by this Agreement. At no time prior to the satisfaction of all
liabilities for benefits under a Plan shall any part of the corpus or income of
the Separate Trust thereunder be used for or diverted to purposes other than the
exclusive benefit of those individuals having an interest in such Plan,
hereinafter collectively referred to with respect to each Plan as "Covered
Individuals", and paying the expenses of such Plan.
2. COMMINGLED FUND. The Trustee is directed to consolidate into a
single fund (hereinafter called "the Commingled Fund") and to commingle all
assets received and held by it in each Separate Trust with all assets received
and held by it in each other Separate Trust governed by this Agreement,
excepting any such assets hereinafter required to be segregated. The Trustee is
directed to maintain at all times such records as will enable it to effect, as
of any time, an equitable allocation and segregation of assets in the Commingled
Fund into a separate fund held for the benefit of some or all of the Covered
3
<PAGE>
Individuals under one or more of the Plans. The Chief Financial Officer (as
defined in Section 3) or the Company shall upon request of the Trustee provide
the Trustee with such information as will enable the Trustee to maintain such
records. If in the future the Trustee receives written notice from the Chief
Financial Officer or the Company to effect any such allocation and segregation,
the Trustee shall do so as soon thereafter as practicable. Thereafter the
Trustee shall administer each such separate fund in the manner provided in
Section 9, or if so directed by the Company shall deliver the assets of such
separate fund to such successor trustee or trustees as shall be designated by
the Company. The Trustee is hereby directed to effect such allocation and
segregation in the event that any Separate Trust shall cease to remain qualified
and exempt under Sections 401(a) and 501(a) of the Internal Revenue Code of
1986, as amended (the "Code"). Each Separate Trust shall share proportionately
in the aggregate investment experience of the Commingled Fund. With respect to
assets hereunder segregated as provided in Section 2, the investment experience
shall be shared proportionately by those participating therein.
3. THE CHIEF FINANCIAL OFFICER. As used herein, the term "Chief
Financial Officer" shall mean the Chief Financial Officer of R. J. Reynolds
Tobacco Company or such person or persons as may be designated by said Chief
Financial Officer to perform each obligation and exercise each power herein
entrusted to said Chief Financial Officer.
4
<PAGE>
4. PORTFOLIOS. The Trustee shall establish such number of Portfolios as
the Chief Financial Officer from time to time shall designate, to each of which
shall be allotted such assets of the Master Trust as the Chief Financial Officer
shall designate. Except as provided in Section 6, each Portfolio shall be
managed by an Investment Manager as provided in Section 5. Except with respect
to assets segregated as provided in Section 2, assets allocated to a Portfolio
shall be a part of the Commingled Fund.
5. INVESTMENT MANAGERS. The Chief Financial Officer may appoint an
Investment Manager for each Portfolio who shall have the sole power and duty to
manage and direct the investment and reinvestment of the assets of such
Portfolio, and to instruct the Trustee accordingly, in writing or orally (to be
followed promptly by written confirmation), subject to such guidelines and
restrictions as may be contained in the Plans in this Agreement, and in any
separate agreement between the Company (executed by the Chief Financial Officer
acting on behalf of the Company) and such Investment Manager. In the event that
an Investment Manager appointed hereunder is a bank or trust company, the Chief
Financial Officer shall have full authority and discretion to authorize such
Investment Manager to invest and reinvest all or any part of the Commingled Fund
allocated to its Portfolio in any common, collective or commingled trust fund
maintained by it as trustee for the investment of assets of trusts under plans
which
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<PAGE>
are qualified under Section 401(a) and exempt from taxation under Section 401(a)
of the Code as such Sections may from time to time be amended or renumbered, and
during such period of time as an investment in any such common, collective or
commingled trust fund shall exist the trust document establishing such trust
fund shall constitute a part of this Agreement.
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<PAGE>
6. PARTICIPANT DIRECTED ACCOUNTS.
(a) Notwithstanding the provisions of Sections 4 and 5, the
Chief Financial Officer, pursuant to the terms of the Plans, may direct the
Trustee as to the investment options in which Covered Individuals may direct the
investment of all or a portion of their accounts under the Plans (such accounts
hereinafter referred to as "Participant Directed Accounts"). With respect to the
Participant Directed Accounts, the Trustee shall have no responsibility for the
selection of investment options or for the allocation of Covered Individual's
Participant Directed Accounts among such investment options under the Master
Trust and shall not render investment advice to any person in connection with
the selection of such options. Notwithstanding the immediately preceding
sentence, however, the Trustee shall be considered a fiduciary with respect to
Plan assets that are invested in any investment funds maintained by the Trustee
for qualified plans except proprietary mutual funds.
(b) If the Chief Financial Officer exercises its discretion as
described above, each Covered Individual shall, pursuant to the terms of the
Plan, direct the Trustee in which investment option(s) to invest the assets in
the Covered Individual's Participant Directed Accounts.
7. FURTHER DUTIES OF THE TRUSTEE.
(a) The Trustee shall receive and hold in safekeeping, with
appropriate auditing and security safeguards, the assets initially transferred
to the Trustee as above provided
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<PAGE>
or subsequently brought within the operation of this Agreement.
(b) The Trustee shall have the following duties in respect of
each Portfolio:
(i) to receive and deliver securities and cash from
and to purchasers, sellers, brokers and their agents in accordance with
the instructions of the Investment Manager;
(ii) to collect interest and dividends, and the
principal of called or matured securities;
(iii) to invest cash in excess of $1,000
automatically in either a short-term investment common trust fund
maintained by the Trustee, or a commercial paper pooled note or
otherwise, as instructed by the Investment Manager or the Chief
Financial Officer;
(iv) to buy and sell fractional shares and
rights as instructed by the Investment Manager;
(v) to give the Investment Manager prompt written
advice of each transaction affecting the Portfolio;
(vi) to render to the Chief Financial Officer and to
the Investment Manager a monthly valuation of each Portfolio, reports
of transactions, capital gains and losses, dividends, and interest
income, quarterly investment review valuation reports
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<PAGE>
and annual summary accounting reports, and such other reports as the
Chief Financial Officer may from time to time reasonably request;
(vii) to advise the Investment Manager of
stock dividends, splits, rights offerings, calls on bonds and bonds
maturing;
(viii) to notify the Investment Manager of
late deliveries of securities and any other non-compliance with the
original authorization;
(ix) to credit dividends and interest to the account
of the Portfolio when due, even if not received, and process any
required claims for such items;
(x) to cause securities to be registered in a manner
satisfactory to the Trustee; and
(xi) to forward to the Investment Manager proxy
statements and other notices received, as instructed by the Investment
Manager.
(c) The Trustee shall make such payments from the
Master Trust at such time or times and to such person or persons as the
committee or board charged with the administration of the Plan, hereinafter
called the "Administrative Committee" or "Administrative Board", shall direct.
The Trustee may appoint an agent or agents to make such payments, and such agent
or agents may appoint subagents to make such payments. The Trustee, agent
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<PAGE>
or subagent may make any payment required to be made by it hereunder by mailing
a check for the amount directed by the Administrative Committee or Board at such
address as may have been last furnished to the Trustee, or if an address has not
been furnished, to such person in care of the Company or the Administrative
Committee or Board.
(d) Notwithstanding the provisions of Section 2, upon
direction of the Chief Financial Officer, the Trustee shall retain all or any
portion designated by the Chief Financial Officer of the cash contributions
received under a Plan to meet anticipated requisitions or orders of the
Administrative Committee or Board, and shall invest such contributions
temporarily in the manner referred to in Section 7(b)(iii).
(e) Notwithstanding any other provisions of this Agreement,
the Trustee shall have the responsibility of discharging its duties with respect
to the Master Trust assets solely in the interest of the Covered Individuals and
for the exclusive purpose of providing benefits under the Plan and defraying the
reasonable expense of administering the Master Trust. The Trustee shall exercise
the care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims. Moreover, the Trustee shall administer this Master Trust in accordance
with the terms and provisions of this
10
<PAGE>
Agreement insofar as this Agreement is consistent with the provisions of
applicable law.
8. FURTHER DUTIES OF THE CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall:
(a) anticipate the need for cash distributions pursuant to the
terms of the Plan and make such arrangements with each Investment Manager or
otherwise as may be needed to provide cash sufficient to satisfy such need;
(b) designate one or more individuals who shall
have authority to give and receive communications on behalf of the Chief
Financial Officer and
(c) cause each Investment Manager to confirm oral instructions
given to the Trustee immediately thereafter in writing.
9. DUTIES OF THE TRUSTEE IN RESPECT OF CERTAIN ASSETS.
(a) The Trustee shall invest and reinvest, in accordance with
such guidelines and restrictions as the Chief Financial Officer may from time to
time specify, any portion of the assets hereunder which has been segregated
pursuant to Section 2 and which is not subject to management by an Investment
Manager other than the Trustee, or which is not allotted to a Portfolio, or
which was allotted to a Portfolio and its Investment Manager has resigned, been
removed or otherwise has ceased to act and prior to appointment of a successor,
or is not
11
<PAGE>
invested in accordance with Section 6, without distinction between
principal and income and without regard to any restriction under any present or
future state laws, if applicable, relating to investments by trustees. Any
assets segregated pursuant to Section 2 shall be accounted for separately by the
Trustee.
(b) The Trustee shall have in separate funds (i) all shares of
Common Stock of R. J. Reynolds Tobacco Holdings, Inc. ("RJR Stock") specially
allocated to the RJR Common Stock Fund under one or more of the Plans; (ii) all
shares of class A Common Stock of Nabisco Holdings Corp. ("Nabisco Holdings
Stock") specially allocated to the Nabisco Common Stock Fund of individuals
under one or more of the Plans; and (iii) all shares of Common Stock of Nabisco
Group Holdings Corp. ("Nabisco Group Stock") specially allocated to the Nabisco
Group Holdings Common Stock Fund of individuals under one or more of the Plans;
each of which separate funds shall be subject to being administered as provided
in the respective Plan documents. Notwithstanding the provisions of Section
10(b), (i) voting rights with respect to said Stock credited under a Plan to an
individual on a record date for determining shareholders entitled to vote shall
be exercised in accordance with instructions in writing received by the Trustee
at least five banking business days before the day on which voting of such Stock
is to take place given by said individual to whom such Common Stock is credited;
(ii) the
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<PAGE>
Trustee shall cause to be sent promptly to each such individual requests for
voting instructions and copies of proxy solicitation material used in connection
with the meeting at which the voting of such shares of Stock is to take place,
which proxy solicitation material shall be furnished to the Trustee by the
Company; and (iii) the Trustee may in its discretion exercise the voting rights
with respect to any shares of such Stock as to which instructions in writing
shall not be received by the Trustee at least five banking business days before
the date on which voting is to take place, as hereinbefore provided. For
purposes of this Section 9, "Stock" shall mean RJR Stock, Nabisco Holdings Stock
and Nabisco Group Stock, as the case may be.
(c) In the event that any person shall make a public tender
offer for any Stock, the Company undertakes to use its best efforts to provide a
copy of the offer, and any other material information concerning such offer, to
each Covered Individual who has an interest in such Stock, together with a form
for furnishing to the Trustee instructions as to whether Stock credited to the
Covered Individuals' accounts should be tendered. Each Covered Individual may
elect that all, but not less than all, of the Stock credited to his account be
tendered by the Trustee on his behalf. Upon receipt of instructions from a
Covered Individual to so tender, the Trustee shall tender all such Stock held by
the Trustee. As to which it receives no instruction from the Covered Individual
to whose account such
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<PAGE>
stock is credited, then such Stock shall be voted at the discretion of the
Trustee. Any securities received by the Trustee as a result of having tendered
Stock, as hereinabove provided, shall be held, and any cash so received shall be
invested in short term investments, pending any further action which the Trustee
may be required to take pursuant to the Plan. Notwithstanding anything in this
Agreement to the contrary, during the period of any public tender offer for
Stock the Trustee shall refrain from making purchases of Stock under this
Agreement or transferring assets to and from the RJR Common Stock Fund, the
Nabisco Common Stock Fund, or the Nabisco Group Holdings Common Stock Fund, as
the case may be.
The Trustee shall be entitled to reasonable compensation and
reimbursement for its out-of-pocket expenses for any services attributable to
the duties and responsibilities described in this Section.
10. POWERS OF THE TRUSTEE. Subject to any other provisions hereof to
the contrary, the Trustee is authorized and empowered:
(a) to sell, exchange, convey, transfer or otherwise dispose
of any property held by it, by private contract or at public auction, and no
person dealing with the Trustee shall be bound to see to the application of any
money or property paid or delivered to the Trustee in connection with any such
sale or other disposition, or to inquire into the validity or
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<PAGE>
propriety of any such sale or other disposition;
(b) except as provided in Sections 9(b) and (c), to exercise
the voting rights of any stocks, bonds or other securities; to give general or
special proxies or powers of attorney with or without power of substitution; to
exercise any conversion privileges, subscription rights or other options and to
make any payments incidental thereto; to consent to or otherwise participate in
corporate reorganizations or other changes affecting corporate securities and to
delegate discretionary powers and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an owner
with respect to stocks, bonds, securities or other property held in the Master
Trust;
(c) to make, execute or acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments that may
be necessary or appropriate to carry out the powers herein granted;
(d) to register any security held in the Master Trust in its
own name or in the name of a nominee and to hold any security in bearer form,
but the books and records of the Trustee shall at all times show that all such
securities are part of the Master Trust;
(e) to borrow for purposes of a Plan, with the approval of the
Chief Financial Officer from the Trustee's
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<PAGE>
commercial banking department or from others (to the extent permitted under the
Employee Retirement Income Security Act of 1974 ("ERISA")), and to issue the
promissory notes of the Trustee for any sums so borrowed and to secure repayment
thereof by pledging or mortgaging all or any portion of the assets of the Master
Trust;
(f) to employ suitable agents and counsel and to pay their
reasonable expenses and compensation;
(g) to compromise, arbitrate or otherwise adjust, settle or
defend claims in favor of or against any Separate Trust or the Master Trust;
(h) to lend stock certificates or other securities to
a broker-dealer registered under the Securities Exchange Act of 1934 or to a
bank; and
(i) to write options against any securities or other property
or other forms of options directly related to any such options outstanding.
(j) to commingle the assets of this Trust for investment
purposes with the assets of any plan established by the Company, or its
affiliates, which is qualified under Section 401(a) of the Code and exempt from
taxation pursuant to Section 501(a) of the Code, the assets of which are owned
by another trustee or its custodian.
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<PAGE>
11. TRANSFER OF ASSETS. In the event that any Plan provides for the
transfer of assets from any Separate Trust to (i) a trust established under a
defined benefit or defined contribution plan of a company affiliated with the
Company (which may or may not be a Separate Trust administered hereunder), on
behalf of employees transferred from employment by the Company to employment by
such affiliated company, (ii) a trust established under another defined benefit
or defined contribution plan of the Company on behalf of employees whose
coverage has been transferred from the Plan to such other plan (which may or may
not be a Separate Trust administered hereunder), upon the direction of the Board
of Directors of the Company, the Trustee shall in accordance with the Plan,
segregate and transfer such assets to the trustee of such other Trust, or (iii)
a trust established under a defined benefit or defined contribution plan
maintained by Nabisco, Inc. or one of its affiliates, upon the direction of the
Board of Directors of the Company. If the assets of the acquiring trust are, or
upon such transfer will become, part of the Master Trust, such segregation shall
not be required and the value of the assets transferred shall be reflected in
appropriate accounting entries made by the Trustee in the records of the
respective Separate Trusts maintained in accordance with Section 2. In the event
that the Company enters into an agreement for the sale of all or a portion of
its business and assets and agrees to cause the assets of any Separate Trust, or
an appropriate part thereof, to be transferred
17
<PAGE>
to a trust established under a defined benefit or defined contribution plan of
the purchaser on behalf of former employees of such Company who become employed
by the purchaser, upon direction of the Board of Directors of such Company the
Trustee shall segregate and transfer such assets to the trustee of such other
trust maintained by the purchaser.
12. RESPONSIBILITIES OF TRUSTEE. Subject to the provisions of ERISA,
the Trustee shall not be liable for any loss sustained by the Master Trust or
any Separate Trust by reason of decisions made by or the actions of any
Investment Manager, the Chief Financial Officer or the Company, any Covered
Individual with respect to an instruction made pursuant to Section 6, nor with
respect to investment shall the Trustee be liable for any error of judgment or
for any loss or reduction in value of trust funds except where due to the
Trustee's negligence, willful misconduct or lack of good faith. The Trustee
shall have no duty at any time or under any circumstances to inquire into the
propriety of decisions and actions of any Investment Manager, the Chief
Financial Officer or the Company, or to review any Portfolio. The Trustee shall
not be liable for any loss or damage arising from failure of any Investment
Manager or the Chief Financial Officer to give instructions or directions to the
Trustee as provided herein.
13. CONSULTATION WITH COUNSEL. The Trustee may from
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<PAGE>
time to time consult with counsel, who may be counsel to the Company or to
Wachovia Bank, N.A., and shall be fully protected in legal questions when acting
upon the advice of competent counsel.
14. EXPENSES. The expenses incurred by the Trustee in the performance
of its duties, including fees for legal services rendered to the Trustee, such
compensation to the Trustee as may be agreed upon in writing from time to time
by the Chief Financial Officer and the Trustee, and all other proper charges and
disbursements of the Trustee, shall unless otherwise provided in a Plan be paid
by the Company, but until paid shall constitute a charge upon the Master Trust
assets. All taxes of any nature whatsoever that may be imposed under existing or
future laws upon or in respect of the Master Trust assets or the income
therefrom shall be paid from the Master Trust.
15. ACCOUNTS OF TRUSTEE. The Trustee shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions of
the Master Trust, and all accounts, books and records relating thereto shall be
open to inspection and audit at all reasonable times by any person designated by
the Chief Financial Officer. Within 90 days after a removal or resignation of
the Trustee as provided in Section 16, the Trustee shall file with the Chief
Financial Officer a written account setting forth all such investments,
receipts, disbursements and other transactions effected by it during such
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fiscal year or during the period from the close of the last fiscal year to the
date of such removal or resignation. Upon the expiration of ninety days from the
date of filing such annual or other account, the Trustee shall be forever
released and discharged from all liability and accountability to anyone with
respect to the propriety of its acts and transactions shown in such account,
except with respect to any acts or transactions as to which the Chief Financial
Officer shall within such ninety-day period file with the Trustee written
objection and except for loss resulting from negligence, willful misconduct or
lack of good faith of the Trustee.
16. REMOVAL OF TRUSTEE; RESIGNATION. The Trustee may be removed by the
Chief Financial Officer at any time upon thirty days notice in writing to the
Trustee. The Trustee may resign at any time upon thirty days notice in writing
to the Chief Financial Officer. Upon such removal or resignation of the Trustee,
the Chief Financial Officer shall appoint a successor trustee or trustees who
shall have the same powers and duties as those conferred upon the Trustee
hereunder and, upon acceptance of such appointment by the successor trustee or
trustees, the Trustee shall assign, transfer, pay over and deliver to such
successor trustee or trustees all of the assets of the Master Trust.
17. TERMINATION OF ANY PLAN. In the event of the termination of a Plan
as provided therein, the Trustee shall
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dispose of the assets of the Separate Trust thereunder in such manner as shall
be directed by the Board of Directors of the Company, who shall be governed by
the terms of the Plan and the provisions of Section 1 hereof.
18. COURT ACTIONS. In any application to the courts for an
interpretation of this Agreement or for an accounting by the Trustee, only the
Trustee and the Company shall be necessary parties; and except as may be
required by ERISA, no Covered Individual under any Plan or other person having
an interest therein shall be entitled to any notice or service of process. Any
final judgment entered in such an action or proceeding shall be conclusive upon
all persons claiming under this Agreement.
19. AMENDMENT. The Company reserves the right at any time and from time
to time by action of its Board of Directors or of the Chief Financial Officer,
as its agent, to amend any or all of the provisions of this Agreement by notice
thereof in writing delivered to the Trustee; provided that no such amendment
which affects the rights, duties or responsibilities of the Trustee may be made
without its consent; and provided further that no such amendment shall authorize
or permit at any time, prior to the satisfaction of all liabilities for benefits
under a Plan, any part of the corpus of income of the Separate Trust with
respect to such Plan to be used for or diverted to purposes other than for the
exclusive benefit of Covered Individuals under such Plan and payment of expenses
of such Plan.
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20. CONSTRUCTION. To the extent, if any, not governed by ERISA, the
validity of this Agreement shall be determined by, and this Agreement shall be
governed, administered, construed and enforced according to, the laws of the
State of North Carolina. In case of any conflict between the provisions of any
Plan and of this Agreement, the provisions of such Plan shall govern.
21. CORPORATE REORGANIZATION OF TRUSTEE. Any corporation into which the
Trustee may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Trustee may be a party,
or any corporation succeeding to the business of the Trustee or to which
substantially all of the assets of the Trustee may be transferred, shall be the
successor of the Trustee hereunder without the execution or filing of any paper
and without any further action on the part of the parties hereto, with like
effect as if such successor trustee had originally been named trustee herein;
and in any such event, and except as may be otherwise provided in ERISA, it
shall not be necessary for the Trustee or any successor trustee to give notice
to any person having an interest in this Agreement or in the Master Trust hereby
created or in any of the property held by the Trustee hereunder, and the
requirements of any and all statutes and laws (other than ERISA) that notice
shall be given by the Trustee in any such case are hereby waived.
22. ADDITIONAL PLANS. Any corporation more than
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eighty percent of the voting stock of which is directly or indirectly owned by
R. J. Reynolds Tobacco Company or R. J. Reynolds Tobacco Holdings, Inc. which
has adopted or hereafter adopts a defined contribution plan for its employees
which is, or is intended to be, funded through a trust which is qualified and
exempt under the provisions of Sections 401(a) and 501(a) of the Internal
Revenue Code may bring within the coverage of this Agreement any such defined
contribution plan, by:
(a) delivering to the Trustee a written statement identifying
such plan and stating that it elects to bring such plan within the coverage of
this Agreement and, if not already a party, that it elects to become a party
hereto; and by
(b) either causing the assets of the trust established
pursuant to such plan, if then existing, to be transferred to the Trustee as
successor trustee, or making an initial contribution pursuant to such plan to
the Trustee, or instructing that assets be transferred to a new trust to be
established pursuant to such plan by an accounting entry pursuant to Section 11.
Nothing in the foregoing provisions of this Section 22 shall be
interpreted to cause any Plan listed on Exhibit A hereto as duly updated from
time to time not to be within the coverage of this Agreement, and,
notwithstanding such provisions or any other provision of this Agreement, any
employer which has adopted or hereafter adopts a plan so listed shall, by virtue
of any such adoption, be deemed, if not already a party, to be a party
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hereto. Thereupon, this Master Trust Agreement shall be deemed to be a separate
trust agreement executed pursuant to such plan, and references herein to "the
Plan" or "the Plans" shall include such plan.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ______ day of June, 1999.
WACHOVIA BANK, N.A.
By:____________________________________
Title:_________________________________
R. J. REYNOLDS TOBACCO COMPANY
By:____________________________________
Title: Chairman, RJR Pension
Investment Committee
-------------------------------
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EXHIBIT A
DEFINED CONTRIBUTION MASTER TRUST
CURRENT PARTICIPATING PLANS
June 14, 1999
R. J. Reynolds Tobacco Company Capital Investment Plan
Nabisco, Inc. Capital Investment Plan (this Plan shall be a
Participating Plan only for the period commencing June 14,
1999 and ending on June 21, 1999)
Nabisco, Inc. Employee Savings Plan (this Plan shall be a
a Participating Plan only for the period commencing June 14,
1999 and ending on June 21, 1999)
26
<PAGE>
Exhibit 10.16
AGREEMENT
THIS AGREEMENT is executed and entered into effective as of May 20,
1999 (the "EFFECTIVE DATE"), by and among the PENSION BENEFIT GUARANTY
CORPORATION ("PBGC"), RJR NABISCO HOLDINGS CORP. ("Holdings") and R.J. REYNOLDS
TOBACCO COMPANY ("RJR").
WITNESSETH
WHEREAS, RJR Nabisco, Inc. ("RJRN" ) is the contributing sponsor, as
defined in 29 U.S.C. ss. 1301(a)(13), of the Retirement Plan for Employees of
RJR Nabisco, Inc. (the "Plan"); and
WHEREAS, Holdings, RJR and Nabisco Holdings Corp. ("Nabisco Holdings")
are members of the contributing sponsor's controlled group, as defined in 29
U.S.C. ss. 1301(a)(14) (the "RJR Controlled Group"); and
WHEREAS, the members of the RJR Controlled Group sponsor or the Plan
and other pension plans (together with the Plan, the "Plans") covered by Title
IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and
WHEREAS, each member of the RJR Controlled Group may be jointly and
severally liable for any liabilities arising under 29 U.S.C. ss. 1362 in the
event of the termination of any of the Plans; and
WHEREAS, in a series of transactions, Holdings separated the domestic
tobacco business of RJR from the food business of Nabisco, Inc. (the
"Transactions"); and
WHEREAS, the Transactions resulted in the separation of the RJR
Controlled Group; and
WHEREAS, in connection with the Transactions, Holdings caused the
portion of the assets and liabilities of the Plan which were associated with the
employees and former employees of Holdings and Nabisco, Inc. to be spun off into
a new pension plan; and
WHEREAS, the remaining assets and liabilities which were associated
with the employees and former employees of RJR stayed with the Plan; and
WHEREAS, PBGC informed Holdings and RJR that, as a result of the
Transactions, PBGC may determine to initiate proceedings pursuant to section
4042(a)(4) of ERISA to terminate the Plan after the PBGC determined that the
possible long-run loss to the PBGC may reasonably be expected to increase
unreasonably; and
<PAGE>
WHEREAS, in consideration of Holdings and RJR's willingness to
undertake the obligations set forth below in this Agreement, PBGC will not
institute proceedings under section 4042(a)(4) of ERISA to terminate the Plan.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows.
I. DEFINITIONS.
When used herein:
"AGREEMENT" means this agreement made by and among PBGC, Holdings and
RJR.
"CODE" means the Internal Revenue Code of 1986, as amended.
"EFFECTIVE DATE" means May 20, 1999, the date of the Memorandum of
Understanding.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FUNDING STANDARD ACCOUNT" means the funding standard account required
by Section 412(b) of the Code.
"INITIAL CREDIT BALANCE" means the Plan's credit balance in its Funding
Standard Account as of the Plan Spin-off Date.
"LETTER OF CREDIT" means Irrevocable Stand-By Letter of Credit No.
990610IS015 issued in PBGC's favor by Credit Lyonnais for RJR Nabisco,
Inc. in the stated amount of $116,000,000 (One Hundred Sixteen Million
United States Dollars) effective June 14, 1999, and any replacement
letter of credit.
"MEMORANDUM OF UNDERSTANDING" means the Memorandum of Understanding
dated as of May 20, 1999, by and among PBGC, Holdings and RJR.
"RJR CONTROLLED GROUP" means, as of the Effective Date, Holdings,
Nabisco, Inc., Nabisco Holdings, and RJR.
"PBGC" means the Pension Benefit Guaranty Corporation, a wholly-owned
United States government corporation..
"PLAN" shall mean the Retirement Plan for Employees of RJR Nabisco,
Inc.
2
<PAGE>
"PLANS" shall mean the Plan and all other pension plans covered by
Title IV of ERISA for which the members of the RJR Controlled Group are
plan sponsors.
"PLAN YEAR" means the plan year (as defined in Section 3(39) of ERISA)
for the Plan, which is the 12-month period starting January 1 and
ending December 31.
"REQUIRED CREDIT BALANCE" shall have the meaning set forth in Section V
hereof. The Required Credit Balance shall be maintained until the
Agreement terminates pursuant to Section IX hereof.
"REQUIRED CONTRIBUTIONS" shall have the meaning set forth in Section
III hereof.
"R.J. REYNOLDS TOBACCO COMPANY" means R.J. Reynolds Tobacco Company, a
New Jersey corporation.
"RJR NABISCO HOLDINGS CORP." shall mean RJR Nabisco Holdings Corp., a
Delaware corporation.
"RJR NABISCO, INC." means RJR Nabisco, Inc., a Delaware corporation.
"TRANSACTIONS" means the series of transactions whereby the domestic
tobacco business of R.J. Reynolds Tobacco Company was legally separated
from the food business of Nabisco, Inc., which resulted in the
separation of the RJR Controlled Group.
"UNFUNDED BENEFIT LIABILITIES" shall have the meaning set forth in
Section 4001(a)(18) of ERISA.
II. ALLOCATION OF ASSETS AND LIABILITIES.
In connection with the Transactions , Holdings caused the portion of
the assets and liabilities of the Plan which were associated with the employees
and former employees of Holdings and Nabisco, Inc. to be spun off into a new
pension plan. The remaining assets and liabilities, which were associated with
the employees and former employees of RJR, stayed with the Plan. The assets and
liabilities spun off were calculated in accordance with the methodology
described in Attachment A to this Agreement. The Plan will continue to maintain
a calendar year Plan Year after the date of the spin-off ("PLAN SPIN-OFF DATE").
III. REQUIRED CONTRIBUTIONS TO THE PLAN.
3
<PAGE>
During the term of this Agreement, RJR shall make the following cash
contributions to the Plan (the "REQUIRED Contributions"), subject to any
limitations contained herein, including but not limited to Section IV:
(a) For Plan Year ending December 31, 1998, $58 million on the
Plan Spin-Off Date, which contribution shall not be included
in the determination of assets attributable to the liabilities
transferred as of the Plan Spin-Off Date;
(b) For each Plan Year beginning with the 1999 Plan Year, the
normal cost as used for Codess.412(b)(2)(A), by June 1 of the
following Plan Year; and
(c) For the Plan Year ending
(1) December 31, 1999, $58 million on or before June 1,
2000;
(2) December 31, 2000, $58 million on or before June 1,
2001;
(3) December 31, 2001, $58 million on or before June 1,
2002; and
(4) December 31, 2002, $58 million on or before June 1,
2003.
(d) As further described in Section V of this Agreement, all
Required Contributions that exceed the minimum funding
contributions required under Code ss. 412 will be carried as
credit balances for the duration of the Agreement.
(e) For each Plan Year, RJR shall make the greater of the Required
Contribution or the minimum funding contribution required
under Code ss. 412.
IV. DEDUCTIBILITY LIMITATION.
If any contribution required by this Agreement exceeds the maximum
deductible amount for the Plan under Code ss. 404 for the Plan Year, the portion
of the contribution that exceeds the maximum deductible contribution limitation
amount in that Plan Year will be carried forward and paid for the next Plan year
in which it is deductible. The lowest interest rate in the permissible range
prescribed by Code ss. 412(l)(7)(C) will be used for measuring deductibility, to
the extent that the contribution is limited by the maximum deductible amount
using another allowable interest rate..
V. REQUIRED CREDIT BALANCE.
4
<PAGE>
RJR shall maintain the Required Credit Balance for the term of this
Agreement. The Required Credit Balance shall be:
(a) for the Plan Year ending December 31, 1999:
(1) The Initial Credit Balance; and
(2) The Required Contribution under Section III(a) of
this Agreement to the extent that making this
Required Contribution produces a credit balance; and
(3) The Required Contribution under Section III(b) of
this Agreement to the extent that making this
Required Contribution produces a credit balance; and
(4) The Required Contribution under Section III(c)(1) of
this Agreement to the extent that making this
Required Contribution produces a credit balance; and
(5) Interest at the Funding Standard Account Rate to the
end of the Plan Year for all amounts under
subsections (a)(1)-(4) above.
(b) For each Plan Year after 1999, the Required Credit Balance
shall be
(1) The Plan's credit balance in its Funding Standard
Account as of the end of the prior Plan Year; and
(2) The Required Contribution under Section III(b) of
this Agreement to the extent that making this
Required Contribution produces a credit balance; and
(3) The Required Contribution for each Plan Year under
Section III(c) above to the extent that making this
Required Contribution produces a credit balance; and
(4) Interest at the Funding Standard Account Rate to the
end of the Plan Year for all amounts under
subsections (b)(1)-(3) above.
VI. LETTER OF CREDIT.
On or before the closing date of the Transactions, RJR will provide to
PBGC an irrevocable Letter of Credit payable to the PBGC with the following
terms:
5
<PAGE>
(a) AMOUNT AND DURATION: The Letter of Credit shall be a one year
irrevocable Letter of Credit in the amount of $116 million,
effective on the closing date of the Transactions, renewable
annually in the amount of $116 million. The Letter of Credit
shall permit partial draws. The amount of the Letter of Credit
will be reduced from $116 million to $58 million on June 15,
2002 if all Required Contributions due to the Plan through
June 1, 2002 have been made. Thereafter, the Letter of Credit
in the amount of $58 million will remain in effect until all
Required Contributions due to the Plan on June 1, 2003 have
been made. If all Required Contributions due to the Plan on
June 1, 2003 are made prior to the due date, the Letter of
Credit will by returned to RJR.
(b) ANNUAL NOTICE AND REPLACEMENT: The Letter of Credit shall
provide that the issuing bank shall notify PBGC no less than
sixty (60) days prior to the expiration of the Letter of
Credit as to whether it intends to renew the Letter of Credit
for another year. If the issuing bank does not intend to
renew, RJR must provide a replacement Letter of Credit before
the thirtieth (30) day prior to the expiration of the Letter
of Credit then in place. PBGC may, in its discretion, make
telephonic inquiry to the issuing bank to learn whether the
issuing bank intends to renew the Letter of Credit.
(c) DRAW EVENTS. PBGC may draw the full amount of the Letter of
Credit under the Agreement, in the event of any of the
following, except subsection (c)(4) below, :
(1) PBGC receives a Notice of Intent to Terminate the
Plan pursuant to 29 U.S.C.ss.1341(c) ;
(2) PBGC issues a Notice of Determination with respect to
the Plan pursuant to 29 U.S.C.ss.1342;
(3) RJR fails to provide a replacement Letter of Credit
under Section VI(b) of this Agreement more than
thirty (30) business days before the expiration of
the Letter of Credit then in place.
(4) RJR fails to make a Required Contribution by the
prescribed date. If this event occurs, PBGC may draw
down on the Letter of Credit in an amount equal to
the amount of the missed Required Contribution. In
the event the Letter of Credit is drawn upon to cover
a missed Required Contribution, RJR shall provide,
within five (5) business days of the prescribed date
of the Required Contribution, a replacement Letter of
Credit in the amount of $116 million, subject to the
limitations of Section VI(a) of this Agreement.
6
<PAGE>
VII. ESCROW ACCOUNT FOR LETTER OF CREDIT.
(a) Amounts received by PBGC pursuant to a draw of the Letter of
Credit or replacement Letter of Credit under Section VI(c)(1)
and (c)(2) of this Agreement shall be held in escrow until the
Plan has been terminated. If, however, PBGC subsequently
withdraws the Notice of Determination, or fails or otherwise
declines to terminate the Plan under 29 U.S.C. ss. 1341(c) or
1342, PBGC will return the amount in the escrow account to
RJR. If the Plan is terminated and the Unfunded Benefit
Liabilities of the Plan are less than the escrow amount, PBGC
will first apply the amount drawn to satisfy the Plan's
Unfunded Benefit Liabilities. Any amounts remaining in the
escrow after the Plan's Unfunded Benefit Liabilities are
satisfied will be returned to RJR.
(b) Amounts received by PBGC pursuant to a draw of the Letter of
Credit under Section VI(c)(3) of this Agreement shall be held
in escrow until such time as an event described in Sections
VI(c)(1), (2) or (4) occurs, at which time Section VII(a) or
(c) will govern the use of the amount in escrow account.
(c) Amounts received by PBGC pursuant to a draw of the Letter of
Credit under Section VI(c)(4) of this Agreement shall be held
in escrow until such time as the missed Required
Contribution(s) has been made and PBGC receives from RJR a
replacement Letter of Credit in the amount required under
Section VI(a) of this Agreement. If the missed Required
Contribution has been made to the Plan and PBGC receives a
replacement Letter of Credit under Section VI(b) of this
Agreement, PBGC will return the amount in the escrow account
to RJR
(d) In the event the Pension Plan is terminated in a standard
termination under 29 U.S.C. ss. 1341(b) of ERISA without the
issuance of a notice of noncompliance, amounts received by
PBGC pursuant to a draw of the Letter of Credit will be
returned to RJR. In addition, if the Agreement terminates in
accordance with Section VIII, any balance in the escrow
account will be returned to RJR.
VIII. EXPIRATION OF THE AGREEMENT
This Agreement will terminate upon the earliest to occur of (a), (b),
(c), or (d) below, but in the case of (a), (b) or (c), no earlier than five
years from the date of the Agreement. In addition, the Agreement will only
terminate if all payments to the Plan under the Agreement have been made. RJR
shall provide PBGC with written notice of any determination by RJR that it has
achieved one of the tests for termination of this Agreement. Within thirty days
of receipt of such notice, PBGC will respond in writing to RJR as to whether it
concurs with the determination, such concurrence not to be unreasonably
withheld.
7
<PAGE>
(a) The date on which RJR demonstrates to PBGC that the Plan has
no Unfunded Benefit Liabilities as of the last day of the Plan
year for any two consecutive Plan years (the last day of the
Plan year in the second consecutive Plan Year being the
measurement date).
(b) The date on which RJR obtains ratings on its unsecured debt
from Standard & Poor's and Moody's of at least BBB- and Baa3,
respectively.
(c) In the event there is no rating as provided in section (b)
above, the date on which RJR obtains a private rating on a
hypothetical issue of unsecured debt at the rating level from
Standard & Poor's and Moody=s of at least BBB- and Baa3,
respectively. For purposes of obtaining such private ratings,
the amount of the hypothetical debt issue will equal at least
$500 million.
(d) The date on which the Plan is terminated in a standard
termination under 29 U.S.C.ss.1341(b) without the issuance of
a notice of noncompliance.
IX. NOTICE REQUIREMENTS
During the term of the Agreement, RJR shall provide notices and
information to PBGC's Corporate Finance & Negotiations Department, as follows:
(a) Within 15 days of the transfer of assets from the Retirement
Plan for Employees of RJR Nabisco, Inc. to the new Plan, a
certification from the Plan's enrolled actuary of the amount
of assets transferred, and of the Plan's initial funding
standard account entries, including the Initial Credit
Balance.
(b) Copies of Form 5500 (with attachments) when filed with the
IRS, and Actuarial Valuation Report by March 1st of the
following Plan year.
(c) Written notice of the date and amount of all Required
Contributions made to the Plan within ten (10) business days
after any contribution is made, or written notice of failure
to make any contribution within five (5) business days after
the due date.
(d) Written notice thirty (30) days prior to any change in any of
the Plan's actuarial assumptions or methods for the purpose of
the minimum funding standard of section 412 of the Internal
Revenue Code, which change shall be subject to PBGC's prior
consent, such consent not to be unreasonably withheld.
8
<PAGE>
(e) Written notice no later than thirty (30) days prior to any
Plan merger or spin-off that is not de minimis (as determined
in IRC Reg. ss. 1.414(l)-1(h) and 1.414(l)-1(n)(2), except
that notice is not required if spin-off assets meet the safe
harbor requirements of IRC Reg. ss. 1.414(l)-1(b)(9).
(f) Written notice thirty (30) days prior to any material
refinancing of debt or material change in debt amortization
schedule.
(g) Written notice no later than five (5) business days after RJR
becomes aware of any violation of financial covenants, or
receipt of a waiver of financial covenants.
(h) Written notice thirty (30) days prior to any transaction that
would have the effect of transferring assets and liabilities
of the Plan or transferring sponsorship of the Plan.
(i) Written notice thirty (30) days prior to any sale, transfer or
other disposition of assets of any member of the controlled
group, where such assets represent (I) 10% or more of the book
value of the assets of the controlled group on a consolidated
basis, or (ii) generated 10% or more of the consolidated
revenues or operating income.
(j) Copies of any notices of reportable events at the time they
are filed.
X. GENERAL PROVISIONS.
(a) COMPLIANCE WITH ERISA. Nothing in this Agreement shall affect
or in any way diminish RJR's and Holdings' obligations, if
any, to comply with ERISA.
(b) LIMITATION OF RIGHTS. This Agreement is intended to be and is
for the sole and exclusive benefit of PBGC, Holdings and RJR.
Nothing expressed or mentioned in or to be implied from the
Agreement gives any person other than PBGC, Holdings and RJR
any legal or equitable right, remedy or claim against PBGC,
Holdings or RJR under or in respect of this Agreement.
(c) NOTICES. All notices, demands, instructions and other
communications required or permitted under the Agreement to
any party to the Agreement shall be in writing and shall be
personally delivered or sent by registered, certified or
express mail, postage prepaid, return receipt requested;
telefacsimile (which shall be immediately followed by the
original of such communication); or pre-paid overnight
delivery service with confirmed receipt and shall be deemed to
be given for purposes of this Agreement on the date the
writing is sent by the intended
9
<PAGE>
recipient, or in the case of telefacsimile, on the date
transmitted to the intended recipient. Unless otherwise
specified in a notice sent or delivered in accordance with the
foregoing provisions of this section, notices, demands,
instructions and other communications in writing shall be sent
to the parties as indicated below:
To RJR: Secretary
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27101
Telephone (336) 741-5162
Facsimile (336) 741-2998
To Holdings: Associate General Counsel
RJR Nabisco Holdings Corp.
1301 6th Avenue
New York, New York 10019
Telephone (212) 258-5789
Facsimile (212) 969-9214
To PBGC: Director, Corporate Finance
and Negotiations Department
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005-4026
Telephone: (202) 326-4070
Facsimile: (202) 842-2643; and
General Counsel
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005-4026
Telephone: (202) 326-4020
Facsimile: (202) 326-4112
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties on separate
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
(e) ENTIRE AGREEMENT. This Agreement contains the complete and
exclusive statement of the agreement and understanding by and
among the parties hereto and supersedes all prior agreements,
understandings, commitments, representations, communications,
and proposals, oral or written, between the
10
<PAGE>
parties relating to the subject matter of this Agreement. This
Agreement may not be amended, modified, or supplemented except
by an instrument in writing executed by the parties to this
Agreement.
(f) REPRESENTATIONS AND WARRANTIES. PBGC, Holdings and RJR each
represents and warrants to the other that it has full power
and authority to enter into this Agreement and that this
Agreement constitutes a legal, valid and binding obligation
enforceable against it in accordance with the Agreement's
terms.
(g) NO WAIVERS. The failure of any party to the Agreement to
enforce a provision of the Agreement shall not constitute a
waiver of the party's right to enforce that provision of the
Agreement.
(h) HEADINGS. The section and paragraph headings contained in this
Agreement are for convenience only and shall not affect the
meaning or interpretation of this Agreement.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of North
Carolina and by ERISA, the Code and other laws of the United
States to the extent they preempt North Carolina law.
(j) BINDING EFFECT. This Agreement shall be binding upon RJR,
Holdings and PBGC and their respective successors, if any.
(k) CONSTRUCTION. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall
be applied against any party hereto. Nor shall any rule of
construction that favors a non-draftsman be applied. A
reference to any statute shall be deemed also to refer to all
rules and regulations promulgated under the statute, unless
the context requires otherwise.
(l) ASSIGNMENT. This Agreement may not be assigned in whole or in
part by either party without the express written consent of
the other party.
11
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year first stated above.
PENSION BENEFIT GUARANTY CORPORATION
Date:
--------------- --------------------------------------------
By: Andrea E. Schneider
Title: Chief Negotiator and Director, Corporate
Finance and Negotiations Department
RJR NABISCO HOLDINGS CORP.
Date:
--------------- --------------------------------------------
By: H. Colin McBride
Title: Senior Vice President
R.J. REYNOLDS TOBACCO COMPANY
Date:
--------------- --------------------------------------------
By: Kenneth J. Lapiejko
Title: Executive Vice President, Chief
Financial Officer
12
<PAGE>
EXHIBIT 12.1
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
---------------
<S> <C>
Earnings before fixed charges:
Income from continuing operations before income taxes............................................ $ 65
Interest and debt expense........................................................................ 182
Interest portion of rental expense............................................................... 8
-----
Earnings before fixed charges...................................................................... $ 255
-----
-----
Fixed charges:
Interest and debt expense........................................................................ $ 182
Interest portion of rental expense............................................................... 8
-----
Total fixed charges............................................................................ $ 190
-----
-----
Ratio of earnings to fixed charges................................................................. 1.3
-----
-----
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,147
<SECURITIES> 0
<RECEIVABLES> 166
<ALLOWANCES> 0
<INVENTORY> 503
<CURRENT-ASSETS> 4,176
<PP&E> 2,326
<DEPRECIATION> (1,235)
<TOTAL-ASSETS> 16,319
<CURRENT-LIABILITIES> 4,525
<BONDS> 1,994
0
0
<COMMON> 1
<OTHER-SE> 7,266
<TOTAL-LIABILITY-AND-EQUITY> 16,319
<SALES> 3,600
<TOTAL-REVENUES> 3,600
<CGS> 1,593
<TOTAL-COSTS> 1,593
<OTHER-EXPENSES> 326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 65
<INCOME-TAX> 74
<INCOME-CONTINUING> (9)
<DISCONTINUED> 2,733
<EXTRAORDINARY> (250)
<CHANGES> 0
<NET-INCOME> 2,474
<EPS-BASIC> 22.76
<EPS-DILUTED> 22.76
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJR'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> R.J. REYNOLDS TOBACCO HOLDINGS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 43
<ALLOWANCES> 0
<INVENTORY> 577
<CURRENT-ASSETS> 7,508
<PP&E> 2,577
<DEPRECIATION> (1,220)
<TOTAL-ASSETS> 20,334
<CURRENT-LIABILITIES> 1,663
<BONDS> 4,823
0
0
<COMMON> 1
<OTHER-SE> 11,346
<TOTAL-LIABILITY-AND-EQUITY> 20,334
<SALES> 2,648
<TOTAL-REVENUES> 2,648
<CGS> 1,122
<TOTAL-COSTS> 1,122
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> (154)
<INCOME-TAX> 1
<INCOME-CONTINUING> (155)
<DISCONTINUED> 33
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122)
<EPS-BASIC> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
