RJR NABISCO HOLDINGS CORP, S-3, 1994-02-24

RJR NABISCO HOLDINGS CORP
S-3, 1994-02-24
COOKIES & CRACKERS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1994

REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RJR NABISCO HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)

DELAWARE 13-3490602
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)

LAWRENCE R. RICCIARDI, ESQ.
RJR NABISCO HOLDINGS CORP.
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------

COPY TO:

CHARLES I. COGUT, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT OFFERING PRICE
Series C Depositary Shares each representing
one-tenth of a share of Series C
Conversion Preferred Stock

345,000,000 shares(1) $7.50(2) $2,587,500,000
Series C Conversion Preferred Stock......... 34,500,000 shares(3) N/A N/A
Common Stock, par value $.01 per share...... 345,000,000 shares(4) N/A N/A

</TABLE>

TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
Series C Depositary Shares each representing
one-tenth of a share of Series C
Conversion Preferred Stock

$892,242
Series C Conversion Preferred Stock......... N/A
Common Stock, par value $.01 per share...... N/A

(1) Includes 45,000,000 Series C Depositary Shares which the Underwriters have
the option to purchase from the Registrant to cover over-allotments, if any.

(2) Estimated in accordance with Rule 457 solely for the purpose of determining
the registration fee.

(3) Includes 4,500,000 shares of Series C Conversion Preferred Stock to be
issued if the Underwriters exercise their over-allotment option in full.

(4) Represents the number of shares of Common Stock issuable upon conversion of
the Series C Conversion Preferred Stock. Also being registered are such
indeterminate number of shares of Common Stock as may be issuable upon or in
connection with the conversion of the Series C Conversion Preferred Stock as
a consequence of adjustments to the Common Equivalent Rate (i.e., the rate
at which shares of Series C Conversion Preferred Stock are converted into
shares of Common Stock) or upon the redemption of the Series C Conversion
Preferred Stock.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>

PROSPECTUS (Subject to Completion)
Issued February 24, 1994

300,000,000 Shares
RJR Nabisco Holdings Corp.
SERIES C DEPOSITARY SHARES
EACH REPRESENTING ONE-TENTH OF A SHARE
OF SERIES C CONVERSION PREFERRED STOCK
(Preferred Equity Redemption Cumulative StockTM -- PERCSTM)
(Par Value $.01 Per Share)
(Subject to Conversion into Shares of
Common Stock, Par Value $.01 Per Share)

------------------------

Each of the Series C Depositary Shares (the "Depositary Shares") represents
ownership of one-tenth of a share of Series C Conversion Preferred Stock of RJR
Nabisco Holdings Corp., a Delaware corporation ("Holdings" or the "Company"), to
be deposited with First Chicago Trust Company of New York, as Depositary, and
entitles the owner to all of the proportionate rights, preferences and
privileges of the Series C Conversion Preferred Stock represented thereby. The
shares of Series C Conversion Preferred Stock are referred to herein as
Preferred Equity Redemption Cumulative Stock (the "PERCS").

The proportionate annual dividend rate for each Depositary Share is
$ (based on the annual dividend rate for each PERCS of $ ) and
the proportionate liquidation preference of each Depositary Share (based on the
liquidation preference of the PERCS) is equal to the sum of (i) the per share
price to public shown below and (ii) one-tenth of the amount of accrued and
unpaid dividends on each of the PERCS, and no more. Dividends are cumulative and
are payable quarterly in arrears on the th day of each ,
, and , commencing , 1994.

On , 1997 (the "Mandatory Conversion Date"), each of the
outstanding Depositary Shares will automatically convert into (i) one share of
Common Stock, par value $.01 per share ("Common Stock"), of the Company
(equivalent to ten shares for each PERCS) (or, following certain events, such
other consideration as described herein), subject to adjustment in certain
events and (ii) the right to receive on such date an amount in cash equal to all
accrued and unpaid dividends thereon. Automatic conversion of the outstanding
Depositary Shares (and the PERCS) will also occur upon certain mergers or
consolidations of the Company, as more fully described herein. See "Description
of Capital Stock--Series C PERCS-- Mandatory Conversion" and "--Antidilution
Provisions and the Effect of Mergers or Consolidations."

At any time or from time to time prior to the Mandatory Conversion Date, the
Company may call the outstanding PERCS (and thereby the Depositary Shares), in
whole or in part, for redemption. Upon any such redemption, each owner of
Depositary Shares will receive, in exchange for each Depositary Share so called,
shares of Common Stock (or, following certain events, such other consideration
as described herein) having a market value initially equal to $
(equivalent to $ for each PERCS), declining by $ (equivalent
to $ for each PERCS) on each day following the date of issue of the
PERCS to $ (equivalent to $ for each PERCS) on ,
1997, and equal to $ (equivalent to $ for each PERCS)
thereafter (the "Call Price"), plus an amount in cash equal to all proportionate
accrued and unpaid dividends thereon. For a detailed description of the terms of
the PERCS and the Depositary Shares, see "Description of Capital Stock--Series C
PERCS" and "Description of Series C Depositary Shares."

The Common Stock is listed on the New York Stock Exchange under the symbol
RN. The closing sale price of the Common Stock on the New York Stock Exchange on
February 18, 1994 was $7.50 per share.
------------------------

APPLICATION WILL BE MADE TO LIST THE DEPOSITARY SHARES ON THE NEW YORK STOCK
EXCHANGE.
------------------------
SEE "CERTAIN SIGNIFICANT CONSIDERATIONS" FOR A DISCUSSION OF THE IMPACT ON
HOLDERS OF DEPOSITARY SHARES OF CERTAIN POTENTIAL TRANSACTIONS AND OTHER
IMPORTANT CONSIDERATIONS.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------

PRICE $ A SERIES C DEPOSITARY SHARE
------------------------

<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(3)
------------------ ---------------- --------------------
Per Depositary Share............................................. $ $ $
Total(4)......................................................... $ $ $
</TABLE>

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(1) Plus a proportionate amount of the accrued dividends on the PERCS, if
any, from the date of issue.

(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(3) Before deduction of expenses payable by the Company estimated at
$ 1,400,000.

(4) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Depositary Shares at the Price to Public less
Underwriting Discounts and Commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Holdings will be $ , $ and
$ , respectively. See "Underwriters."

------------------------

The Depositary Shares are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the receipts for the Depositary Shares will be made on
or about , 1994 at the office of Morgan Stanley & Co. Incorporated,
New York, New York, against payment therefor in New York funds.
------------------------

MORGAN STANLEY & CO. SMITH BARNEY SHEARSON INC.
Incorporated
, 1994
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT
A PUBLIC OFFERING OF THE SHARES OF THE SECURITIES OFFERED HEREBY OR POSSESSION
OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT
PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE
POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO
THE OFFERING OF THE SECURITIES OFFERED HEREBY AND THE DISTRIBUTION OF THIS
PROSPECTUS.
------------------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
---------
Incorporation of Certain Documents by Reference.................................................................. 2
Summary.......................................................................................................... 3
Use of Proceeds.................................................................................................. 10
Certain Significant Considerations............................................................................... 10
Capitalization................................................................................................... 13
Selected Historical Consolidated Financial Data.................................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 16
Description of Capital Stock..................................................................................... 27
Description of Series C Depositary Shares........................................................................ 40
Federal Income Tax Considerations................................................................................ 44
Underwriters..................................................................................................... 47
Legal Matters.................................................................................................... 48
Experts.......................................................................................................... 48
Available Information............................................................................................ 48
Index to Financial Statements.................................................................................... 49
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE DEPOSITARY
SHARES, THE COMMON STOCK OR THE DEPOSITARY SHARES REPRESENTING THE COMPANY'S
SERIES A CONVERSION PREFERRED STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR CERTAIN OTHER EXCHANGES OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Incorporated herein by reference are (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, (ii) the Company's Proxy
Statement filed March 15, 1993 and (iii) the Company's Current Reports on Form
8-K dated April 1, 1993 and May 28, 1993, which have been filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (File No.
1-10215).

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

Copies of the documents incorporated herein by reference (excluding
exhibits unless such exhibits are specifically incorporated by reference into
such documents) may be obtained upon written or oral request without charge by
persons, including beneficial owners, to whom this Prospectus is delivered.
Requests should be made to RJR Nabisco, Inc., Attention: Investor Relations
Department, 1301 Avenue of the Americas, New York, New York 10019, telephone
number (212) 258-5600.

2
<PAGE>
SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained in this Prospectus. As used
herein, "Holdings" or the "Company" means the Company and its consolidated
subsidiaries, unless the context otherwise requires. Unless indicated otherwise,
the information contained in this Prospectus assumes that the Underwriters do
not exercise their over-allotment option. Unless otherwise defined herein,
capitalized terms used in this Summary have the respective meanings ascribed to
them elsewhere in this Prospectus.

THE COMPANY

The operating subsidiaries of the Company owned through its subsidiary RJR
Nabisco, Inc. ("RJRN") comprise one of the largest tobacco and food companies
in the world. In the United States, the tobacco business is conducted by R.J.
Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of
cigarettes, and the packaged foods business is conducted by the Nabisco Foods
Group ("Nabisco"), the largest manufacturer and marketer of cookies and
crackers. Tobacco operations outside the United States are conducted by R.J.
Reynolds Tobacco International, Inc. ("Tobacco International") and packaged food
operations outside the United States and Canada are conducted by Nabisco
International, Inc. ("Nabisco International"). Together, RJRT's and Tobacco
International's tobacco products are sold around the world under a variety of
brand names. Food products are sold in the United States, Canada, Latin America
and certain other international markets.

Domestic Tobacco. RJRT's largest selling cigarette brands in the United
States include WINSTON, DORAL, SALEM, CAMEL, MONARCH and BEST VALUE. RJRT's
other cigarette brands, including VANTAGE, MORE, NOW, STERLING, MAGNA and
CENTURY, are marketed to meet a variety of smoker preferences. All RJRT brands
are marketed in a variety of styles. A primary long-term objective of RJRT is to
increase earnings and cash flow through selective marketing investments in its
key brands and continual improvements in its cost structure and operating
efficiency. Marketing programs for full-price brands are designed to build brand
awareness and add value to the brands in order to retain current adult smokers
and attract adult smokers of competitive brands. RJRT believes it is essential
to compete in all segments of the cigarette market, and accordingly offers a
range of lower-priced brands intended to appeal to more cost-conscious adult
smokers. Based on data collected for RJRT by an independent market research
firm, RJRT had an overall share of retail consumer cigarette sales during 1993
of 29.8%, an increase of approximately one share point from 1992.

International Tobacco. Tobacco International operates in over 160 markets
around the world and is the second largest of two international cigarette
producers that have significant positions in the American Blend segment of the
international tobacco market. Tobacco International markets over 55 brands of
which WINSTON, CAMEL and SALEM, all American Blend cigarettes, are its
international leaders. Tobacco International has strong brand presence in
Western Europe and is well established in its other key markets in the Middle
East/Africa, Asia and Canada. Tobacco International is aggressively pursuing
development opportunities in Eastern Europe and the former Soviet Union.

Nabisco Foods Group. Nabisco's domestic operations represent one of the
largest packaged food businesses in the world. Through its domestic divisions,
Nabisco manufacturers and markets cookies, crackers, snack foods, hard roll and
bite-size candy, gum, nuts, hot cereals, margarine, pet foods, dry-mix dessert
products and other grocery products under established and well-known trademarks,
including OREO, CHIPS AHOY!, NEWTONS, RITZ, PREMIUM, LIFE SAVERS, PLANTERS, A.1,
GREY POUPON, MILK-BONE, ORTEGA, CREAM OF WHEAT, FLEISCHMANN'S and BLUE BONNET.
Nabisco Biscuit Company ("Nabisco Biscuit") is the largest manufacturer and
marketer in the United States cookie and cracker industry with the nine top
selling brands, each of
3

<PAGE>
which had annual sales of over $100 million in 1993. Overall, in 1993, Nabisco
Biscuit had a 39% share of the domestic cookie industry sales, more than double
the share of its closest competitor, and a 55% share of the domestic cracker
industry sales, more than three times the share of its closest competitor. In
1992, Nabisco Biscuit became the leading manufacturer and marketer of no
fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S
line. In 1993, the SNACKWELL'S brand recorded over $200 million in sales to
become the sixth largest cookie/cracker brand in the United States. On the basis
of the most recent data available, LIFE SAVERS is the largest selling hard roll
candy in the United States, with an approximately 25% share of the hard roll
candy category and PLANTERS nuts are the clear leader in the packaged nut
category, with a market share of more than five times that of its nearest
competitor.

Nabisco International. Nabisco International is a leading producer of
powdered dessert and drink mixes, biscuits, baking powder and other grocery
items, industrial yeast and bakery ingredients in many of the 17 Latin American
countries in which it has operations. During 1993, Nabisco International
significantly increased its presence in Europe through the acquisition of a 50%
interest in each of Royal Brands S.A. in Spain and Royal Brands Portugal.
Nabisco International has contractual arrangements pursuant to which it expects
to acquire the remaining 50% of such businesses in 1994.

RJRN was acquired in 1989 by an indirect, wholly owned subsidiary of the
Company (the "Acquisition") at the direction of Kohlberg Kravis Roberts & Co.,
L.P. ("KKR"). Prior to the Acquisition, RJRN was a publicly held corporation.
KKR is a private investment firm organized as a Delaware limited partnership.
See "Certain Significant Considerations--KKR Ownership."

The principal executive office of the Company is located at 1301 Avenue of
Americas, New York, New York 10019; its telephone number is (212) 258-5600.

4
<PAGE>
DESCRIPTION OF THE DEPOSITARY SHARES AND THE PERCS*

The PERCS are shares of Series C Conversion Preferred Stock of the Company
and rank senior to the Company's Common Stock. The PERCS convert automatically
into shares of Common Stock on the Mandatory Conversion Date. Automatic
conversion of the outstanding PERCS will also occur upon certain mergers or
consolidations of the Company. In addition, the Company has the option to call
the PERCS, in whole or in part, at any time or from time to time prior to the
Mandatory Conversion Date, for redemption with the Call Price (as defined
herein) being paid in shares of Common Stock.

Each Depositary Share represents ownership of one-tenth of a PERCS to be
deposited with First Chicago Trust Company of New York, as Depositary, and
entitles the owner to all of the proportionate rights, preferences and
privileges of the PERCS represented thereby (including the dividend, voting,
liquidation and other rights thereof). See "Description of Series C Depositary
Shares."

GENERAL

The PERCS are an equity security of the Company designed to provide
investors with a dividend-paying equity security, whereas the Company does not
currently pay dividends on the Common Stock. The annual dividend rate on the
PERCS is $ per share (equivalent to $ per Depositary
Share).

Unlike the Common Stock, however, the PERCS limit an investor's ability to
participate in appreciation of the Common Stock because the PERCS may be called
for redemption by the Company at any time prior to the Mandatory Conversion Date
at the predetermined Call Price. If the PERCS are not called for redemption by
the Company prior to the Mandatory Conversion Date, they will automatically
convert into shares of Common Stock and owners of Depositary Shares will receive
shares of Common Stock on a one-for-one basis (subject to adjustment for stock
splits and other events as more fully described herein). The Company may be
expected to call the PERCS for redemption prior to the Mandatory Conversion Date
if, among other reasons, the market price for the Common Stock has theretofore
exceeded the Call Price for the Depositary Shares (equivalent to one-tenth of
the Call Price for the PERCS), in which event owners of Depositary Shares will
receive shares of Common Stock on a less than one-for-one basis, based on the
then Current Market Price (as defined herein) of the Common Stock with respect
to such redemption.

DIVIDENDS

The owners of Depositary Shares are entitled to receive, when, as and if
dividends on the PERCS are declared by the board of directors of the Company out
of funds legally available therefor, cumulative preferential cash dividends from
the issue date of the PERCS, accruing at the rate per share of $ per
annum or $ per quarter for each of the Depositary Shares (equivalent
to $ per annum or $ per quarter for each PERCS), payable
quarterly in arrears on the th day of each , ,
and or, if any such date is not a business day, on the
next succeeding business day. The first dividend payment will be paid on
, 1994. Dividends will cease to accrue in respect of the PERCS on
the Mandatory Conversion Date or on the date of their earlier redemption or on
the Settlement Date (as defined herein), in the event of an automatic
conversion. Accrued and unpaid dividends will not bear interest. See
"Description of Capital Stock--Series C PERCS--Dividends."

MANDATORY CONVERSION OF PERCS

On the Mandatory Conversion Date, each outstanding PERCS will convert
automatically into (i) ten shares of Common Stock (equivalent to one share of
Common Stock for each Depositary Share), subject to adjustment in the event of
certain stock dividends or distributions, subdivisions, splits, combinations,
issuances of certain rights or warrants or distributions of certain assets with
respect to the Common Stock (including certain transactions set forth in
"Certain Significant Considerations--Event
- ---------------

* "Preferred Equity Redemption Cumulative Stock" and "PERCS" are trademarks of
Morgan Stanley & Co. Incorporated in connection with its investment banking
services.

5
<PAGE>
Risk") and in the event of a merger or consolidation of the Company with or into
a wholly owned subsidiary of the Company (the "Common Equivalent Rate"), plus
(ii) the right to receive an amount in cash equal to all accrued and unpaid
dividends on such PERCS (the "Mandatory Conversion"). See "Description of
Capital Stock--Series C PERCS--Mandatory Conversion" and "--Antidilution
Provisions and the Effect of Mergers or Consolidations." This Mandatory
Conversion, however, is subject to the Company's right to call all or a portion
of the outstanding PERCS prior to the Mandatory Conversion Date as described
below. See "Description of Capital Stock--Series C PERCS--Right to Call."

In addition, immediately prior to the effectiveness of a merger or
consolidation of the Company (other than a merger or consolidation of the
Company with or into a wholly owned subsidiary of the Company) that results in
the conversion or exchange of the Common Stock into, or the right to receive,
other securities or other property, each outstanding PERCS will convert
automatically into (i) shares of Common Stock at the Common Equivalent Rate,
plus (ii) the right to receive an amount in cash equal to the accrued and unpaid
dividends on such PERCS to and including the Settlement Date, plus (iii) the
right to receive an amount in cash initially equal to $ (equivalent
to $ for each Depositary Share), declining by $
(equivalent to $ for each Depositary Share) on each day following the
date of issue of the PERCS (computed on the basis of a 360-day year of twelve
30-day months) to $ (equivalent to $ for each Depositary
Share) on , 1997, and equal to zero thereafter, determined with
reference to the Settlement Date, unless sooner redeemed. At the option of the
Company, it may deliver on the Settlement Date, in lieu of some or all of the
cash consideration described in clauses (ii) and (iii) above, a number of
shares of Common Stock (or, following certain events, such other consideration
as described herein) to be determined by dividing the amount of cash
consideration that the Company has elected to pay in Common Stock by the Current
Market Price (as defined herein) as of the second trading day immediately
preceding the Notice Date (as defined herein). Because the Current Market Price
is determined as of a date different from the date of the delivery of the Common
Stock, the value of the Common Stock so delivered may be more or less than such
cash consideration. This conversion, however, is subject to the Company's right
to call all or a portion of the outstanding PERCS as described below. See
"Certain Significant Considerations--Event Risk" and "Description of Capital
Stock--Series C PERCS--Antidilution Provisions and the Effect of Mergers or
Consolidations."

Because the price of the Common Stock is subject to market fluctuations,
the value of the Common Stock received by an owner of Depositary Shares upon
Mandatory Conversion of the PERCS on the Mandatory Conversion Date or upon the
effectiveness of certain mergers or consolidations of the Company may be more or
less than the amount paid for the Depositary Shares offered hereby.

The holders of PERCS have no right to require conversion of their PERCS.

RIGHT TO CALL PERCS

At any time or from time to time prior to the Mandatory Conversion Date,
the Company may call, in whole or in part, the outstanding PERCS (and thereby
the Depositary Shares) for redemption. Upon any such redemption, each owner of
Depositary Shares will receive in exchange for each Depositary Share so called,
(i) shares of Common Stock (or, following certain events, such other
consideration as described herein) having a market value, initially equal to
$ (equivalent to $ for each PERCS), declining by
$ (equivalent to $ for each PERCS) on each day following
the date of issue of the PERCS (computed on the basis of a 360-day year of
twelve 30-day months) to $ (equivalent to $ for each
PERCS) on , 1997, and equal to $ (equivalent to
$ for each PERCS) thereafter (the "Call Price"), which Call Price is
subject to adjustment in certain circumstances, plus (ii) an amount in cash
equal to accrued and unpaid dividends for each of the Depositary Shares redeemed
to and including the date of redemption. See "Description of Capital
Stock--Series C PERCS--Right to Call."

The opportunity for equity appreciation afforded by an investment in the
Depositary Shares (and the PERCS) is limited because the Company may, at its
option, call the PERCS and thereby the
6
<PAGE>

Depositary Shares at any time prior to the Mandatory Conversion Date at the Call
Price (payable in shares of Common Stock) plus an amount in cash equal to
accrued and unpaid dividends, and may be expected to do so prior to the
Mandatory Conversion Date if, among other things, the market price for the
Common Stock has theretofore exceeded the Call Price for the Depositary Shares
(equivalent to one-tenth of the Call Price for the PERCS). If the Company
elects to call the PERCS (and thereby the Depositary Shares), the equity
appreciation, exclusive of accrued and unpaid dividends, realized on an
investment in the Depositary Shares will, for any owner of Depositary Shares
called by the Company, be equal to the excess, if any, of (i) the value of the
Common Stock received in payment of the Call Price (the Call Price, subject to
adjustment, for the Depositary Shares being $ initially, declining
thereafter to $ as indicated above), over (ii) the price paid by
such owner for such Depositary Shares (the initial price to public being
$ and the price thereafter being subject to market fluctuations).

LIQUIDATION PREFERENCE

The PERCS rank senior to the Company's Common Stock and on a parity with
the Company's outstanding shares of Series A Conversion Preferred Stock (the
"Series A PERCS"), Series B Cumulative Preferred Stock (the "Series B Preferred
Stock") and ESOP Convertible Preferred Stock (the "ESOP Preferred Stock") upon
liquidation. The liquidation preference of each PERCS will be in an amount equal
to the sum of (i) ten times the price to public per Depositary Share set forth
on the cover page of this Prospectus (equivalent to a liquidation preference per
Depositary Share of the price to public set forth on the cover page of this
Prospectus) and (ii) all accrued and unpaid dividends thereon, and no more. See
"Description of Capital Stock--Series C PERCS--Liquidation Rights."

VOTING RIGHTS

The holders of PERCS shall have the right, voting together with the holders
of Common Stock (and any other capital stock of the Company entitled to vote
together with the Common Stock, including the Series A PERCS and the ESOP
Preferred Stock) as one class, to vote in the election of directors and upon
each other matter coming before any meeting of the stockholders on the basis
initially of one vote (equal to one-tenth of the Common Equivalent Rate) for
each PERCS (initially equivalent to one-tenth vote for each Depositary Share)
held; provided that the holders of PERCS will not be entitled to vote on any
increase or decrease in the number of authorized shares of any class or classes
of stock. In the event dividends payable on all series of Preferred Stock,
including the PERCS, shall be in arrears for six quarterly periods, the holders
of PERCS, together with the holders of all other outstanding series of the
Preferred Stock entitled to vote thereon, shall be entitled to elect two
additional directors to the board of directors of the Company until all
cumulative dividends on all series of Preferred Stock, including the PERCS, have
been paid or declared and set aside for payment; provided that such directors do
not exceed 25% of the total board of directors of the Company; and provided,
further, that such holders shall be entitled to elect at least one director
notwithstanding the foregoing proviso. The owners of Depositary Shares will be
entitled to direct the voting of the underlying PERCS. See "Description of
Capital Stock--Series C PERCS--Voting Rights" and "Description of Series C
Depositary Shares--Voting PERCS."

LISTING

Application will be made to list the Depositary Shares on the New York
Stock Exchange (the "NYSE").

CERTAIN SIGNIFICANT CONSIDERATIONS

PROSPECTIVE INVESTORS ARE URGED TO READ THE SECTION ENTITLED "CERTAIN
SIGNIFICANT CONSIDERATIONS" FOR A DISCUSSION OF THE IMPACT ON HOLDERS OF
DEPOSITARY SHARES OF CERTAIN POTENTIAL TRANSACTIONS AND OTHER IMPORTANT
CONSIDERATIONS RELATING TO THE COMPANY, THE DEPOSITARY SHARES, THE PERCS AND
THE COMMON STOCK.

7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The summary historical consolidated financial data presented below as of
December 31, 1993 and 1992 and for each of the years in the three-year period
ended December 31, 1993 for the Company were derived from the historical
consolidated financial statements of the Company and notes thereto (the
"Consolidated Financial Statements") set forth herein, which have been audited
by Deloitte & Touche, independent auditors. In addition, the summary historical
consolidated financial data as of December 31, 1991, 1990 and 1989, for the year
ended December 31, 1990 and for the period from February 9, 1989 through
December 31, 1989 for the Company and for the period from January 1, 1989
through February 8, 1989 for RJRN were derived from the consolidated financial
statements of the Company and RJRN as of December 31, 1991, 1990 and 1989, for
the year ended December 31, 1990 and for each of the periods within the one-year
period ended December 31, 1989, not presented herein, which have been audited by
Deloitte & Touche, independent auditors. The historical data should be read in
conjunction with the Consolidated Financial Statements set forth herein. The
summary pro forma financial data has been calculated as indicated in the
corresponding footnotes and is unaudited.

8
<PAGE>
(Continued from preceding page)

- ---------------

(1) The 1992 amount includes a gain of $98 million on the sale of the
ready-to-eat cold cereal business.

(2) The 1989 amount for the Company included $237 million of interest expense
allocated to discontinued operations.

(3) The 1993 pro forma amount assumes the issuance of 300 million Depositary
Shares at an assumed offering price of $7.50 per Depositary Share (equal to
the Closing Price of the Common Stock on the NYSE on February 18, 1994) as
of January 1, 1993 and the application of the net proceeds of the offering,
estimated at $ billion (after estimated underwriting discounts and
commissions and offering expenses), temporarily to repay indebtedness
outstanding as of January 1, 1993 under RJRN's revolving credit facilities
(the average outstanding 1993 indebtedness under these facilities was $1.725
billion) and to invest the remaining funds in short-term liquid investments,
resulting in adjustments to historical interest expense ($60 million) and
interest income ($21 million) (at annual rates of 3.97% and 3.14%,
respectively). In addition, income taxes have been recognized on the pro
forma amounts at the U.S. statutory rate of 35%. Each share of Series C
Preferred Stock is assumed to bear cumulative cash dividends at a rate of
$5.81 (equivalent to $.581 per Depositary Share) per annum. The summary pro
forma financial information is provided for informational purposes only and
should not be construed to be indicative of the results of operations of the
Company had the offering occurred on January 1, 1993 and does not project
the results of operations for any future date or period.

(4) On November 8, 1991, the Company issued 52,500,000 shares of Series A PERCS
and sold 210,000,000 $.835 depositary shares (the "Series A Depositary
Shares"). Each Series A Depositary Share represents a one-quarter ownership
interest in a share of Series A PERCS. Each share of Series A PERCS bears
cumulative cash dividends at a rate of $3.34 per annum and is payable
quarterly in arrears on the 15th day of each February, May, August and
November. Because Series A PERCS mandatorily convert into Common Stock by
November 15, 1994, dividends on shares of Series A PERCS are reported
similar to common equity dividends.

(5) For purposes of these computations, earnings before fixed charges and
preferred dividends consist of income (loss) from continuing operations
before provision (benefit) for income taxes plus fixed charges. Earnings
before fixed charges and the resulting calculation of deficiency in the
coverage of fixed charges and preferred dividends by earnings before fixed
charges and preferred dividends for 1993 includes amortization of trademarks
and goodwill in the amount of $625 million. Fixed charges consist of
interest on indebtedness, amortization of debt issuance costs and that
portion of operating rental expense representative of the interest factor.
Also, for purposes of these computations, preferred stock dividends have
been increased to present the equivalent pre-tax amount.

(6) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of the Company was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
the Company on November 1, 2015. Accordingly, such securities were presented
as a component of the Company's stockholders' equity as of December 31, 1992
and 1991. Such securities were redeemed on December 6, 1993 (see Note 12 to
the Consolidated Financial Statements).

(7) The Company's stockholders' equity at December 31 of each year from 1993 to
1989 includes non-cash expenses related to accumulated trademark and
goodwill amortization of $3.015 billion, $2.390 billion, $1.774 billion,
$1.165 billion and $557 million, respectively. (See Note 13 to the
Consolidated Financial Statements.)

See Notes to Consolidated Financial Statements.

9
<PAGE>
USE OF PROCEEDS

The estimated net proceeds to the Company from the sale of the Depositary
Shares will be approximately $ billion. The net proceeds may be used for
general corporate purposes which may include refinancings of indebtedness,
working capital, capital expenditures, acquisitions and repurchases and
redemptions of securities. In addition, such proceeds may be used to facilitate
one or more significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of the
Company. See "Certain Significant Considerations--Event Risk." As of the date
hereof, the specific uses of proceeds have not been determined. Pending such
uses, proceeds will be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.

CERTAIN SIGNIFICANT CONSIDERATIONS

EVENT RISK

Management currently is reviewing and expects to continue to review various
corporate transactions, including, but not limited to, joint ventures, mergers,
acquisitions, divestitures, asset swaps, spin-offs and recapitalizations.
Although the Company has discussed and continues to discuss various transactions
with third parties, no assurance may be given that any transaction will be
announced or completed. It is likely that the Company's tobacco and food
businesses would be separated should certain of the foregoing transactions be
consummated. If the tobacco and food businesses of the Company are separated, it
is the Company's intention that the PERCS, upon conversion or redemption, would
be converted into, or exchanged for, shares of a tobacco business. With respect
to certain anti-dilution and other applicable provisions, see "Description of
Capital Stock--PERCS--Mandatory Conversion" and "--Antidilution Provisions and
the Effect of Mergers or Consolidations" and "Federal Income Tax
Considerations."

TOBACCO-RELATED LEGISLATION, LITIGATION AND OTHER CONCERNS

RJRT is the second largest cigarette manufacturer in the United States, and
in the year ended December 31, 1993, RJRT's domestic tobacco business comprised
approximately 33% of the Company's net sales and approximately 42% of the
Company's operating income from continuing operations before corporate expenses,
amortization of trademarks and goodwill and restructuring expense. Domestic
cigarette industry retail unit sales have declined in the last three calendar
years at an average rate of approximately 2.5% per year. The Company believes
that the decline is due to a number of factors, including manufacturers' price
increases in recent years, excise tax increases, asserted adverse health effects
of smoking, diminishing social acceptance of smoking and governmental and
private restrictions on smoking. For many years the advertising, sale and use of
cigarettes has been under attack by government and health officials in the
United States and in other countries, principally due to claims that cigarette
smoking is harmful to health. This attack has resulted in a number of
substantial restrictions on the marketing, advertising and use of cigarettes,
diminishing social acceptability of smoking and activities by anti-smoking
groups designed to inhibit cigarette sales, the form and content of cigarette
advertising and the testing and introduction of new cigarette products. Together
with substantial increases in state and federal excise taxes on cigarettes, this
has had and will likely continue to have an adverse effect on cigarette sales.

In addition, the Clinton Administration and members of Congress have
introduced bills in Congress that would significantly increase the federal
excise tax on cigarettes, eliminate the deductibility of a portion of the cost
of tobacco advertising, ban smoking in public buildings and workplaces, add
additional health warnings on cigarette packaging and advertising and further
restrict the marketing of tobacco products.

10
<PAGE>
In January 1993, the U.S. Environmental Protection Agency released a report
on the respiratory effects of environmental tobacco smoke ("ETS") which
concludes that ETS is a known human lung carcinogen in adults; and in children
causes increased respiratory tract disease and middle ear disorders and
increases the severity and frequency of asthma. In September 1991, the U.S.
Occupational Safety and Health Administration issued a Request for Information
relating to indoor air quality, including ETS, in occupational settings.

It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, Tobacco International or the
cigarette industry generally but such legislation or regulations could have an
adverse effect on RJRT, Tobacco International or the cigarette industry
generally.

In addition, various legal actions, proceedings and claims are pending or
may be instituted against RJRT or its affiliates or indemnitees, including those
claiming that lung cancer and other diseases have resulted from the use of or
exposure to RJRT's tobacco products. Litigation is subject to many
uncertainties, and it is possible that some of the legal actions, proceedings or
claims could be decided against RJRT or its affiliates or indemnitees.
Determinations of liability or adverse rulings against other cigarette
manufacturers that are defendants in similar actions, even if such rulings are
not final, could adversely affect the litigation against RJRT and its affiliates
or indemnitees and increase the number of such claims. Although it is impossible
to predict the outcome of such events or their effect on RJRT, a significant
increase in litigation activities could have an adverse effect on RJRT. RJRT
believes that it has a number of valid defenses to any such actions, and intends
to defend vigorously all such actions. The Company believes that the ultimate
outcome of all pending tobacco litigation matters should not have a material
adverse effect on the financial position of the Company; however, it is possible
that the results of operations or cash flows of the Company in a particular
quarterly or annual period could be materially affected by the ultimate outcome
of certain pending litigation matters. For an additional discussion of
legislation and litigation relating to the cigarette industry and RJRT, see
"Business-- Tobacco--Legislation and Other Matters Affecting the Cigarette
Industry" and "--Litigation Affecting the Cigarette Industry" in the Company's
Annual Report on Form 10-K, which is incorporated into this Prospectus by
reference.

COMPETITIVE ACTIVITY

Competitive initiatives by RJRT's largest competitor in the U.S. cigarette
market together with RJRT's and other competitors' marketplace responses to
these initiatives resulted in significant marketplace instability during the
second and third quarters of 1993. The costs of responding to these competitive
initiatives and the resulting decrease in list prices for full-price cigarette
brands were primarily responsible for a sharp decline in RJRT's 1993 operating
company contribution. Although some improved stability and trends occurred in
the marketplace during the second half of 1993, the Company is unable to predict
whether this will continue. Depressed profit margins for RJRT are expected to
continue until such time as the competitive environment improves and operating
costs are further reduced. For additional information concerning this
competitive activity, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Tobacco--1993 Competitive Activity" set
forth in this Prospectus and "Business--Other Matters--Competition" in the
Company's Annual Report on Form 10-K, which is incorporated into this Prospectus
by reference.

LEVERAGE AND DEBT SERVICE

The Company, together with its subsidiaries, had, at December 31, 1993, a
ratio of consolidated debt to total stockholders' equity of 1.4-to-1.

Although the Company has significantly reduced its consolidated
indebtedness and improved its consolidated debt-to-equity ratio since the
Acquisition, the indebtedness and debt-to-equity ratio of the Company and its
subsidiaries continue to have the effect, generally, of restricting the
flexibility of
11
<PAGE>

the Company and its subsidiaries in responding to changing business and economic
conditions insofar as they affect the financial condition and financing
requirements of the Company and its subsidiaries. Moreover, the terms governing
the indebtedness incurred in connection with the financing of the Acquisition,
and certain refinancings related thereto, impose significant operating and
financial restrictions on the Company and its subsidiaries. These restrictions
limit the ability of the Company and its subsidiaries to incur indebtedness,
engage in transactions with stockholders and affiliates, create liens, sell
certain assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries and pay
dividends. See "Description of Capital Stock-- Contractual Restrictions on
Payment of Dividends."

HOLDING COMPANY STRUCTURE

The Company's cash flow and consequent ability to meet its obligations
under its indebtedness and to pay dividends on the PERCS are substantially
dependent upon the earnings and cash flow available after debt service of RJRN
and the availability of such earnings and cash flows to the Company by way of
dividends, distributions, loans and other advances. The PERCS are junior in
right of payment to all existing and future liabilities and obligations (whether
or not for borrowed money) of the Company (other than the Series A PERCS, the
Series B Preferred Stock and the ESOP Preferred Stock, which are on a parity
with the PERCS, and any other preferred stock of the Company which by its terms
is on a parity with or junior to the PERCS), and is structurally subordinate to
all existing and future liabilities and obligations (whether or not for borrowed
money) of RJRN and its subsidiaries, but senior to the Company's Common Stock.
As of December 31, 1993, total current liabilities and long-term debt of the
Company's subsidiaries were approximately $15.9 billion.

KKR OWNERSHIP

As of January 31, 1994, an aggregate of approximately 46.2% (or 38.3% on a
fully diluted basis without giving effect to the offering of the PERCS) of the
total voting power of the Company was held by two limited partnerships, of which
KKR Associates, an affiliate of KKR, is the sole general partner (the "Common
Stock Partnerships"). After giving effect to the offering of the PERCS,
approximately % of the total voting power of the Company would be held by the
Common Stock Partnerships (or % on a fully diluted basis assuming conversion
of all the Company's convertible securities (including the PERCS) into Common
Stock). In addition, eight of the seventeen directors of the Company are
partners or executives of KKR.

12
<PAGE>
CAPITALIZATION

The table below sets forth, as of December 31, 1993, the historical
capitalization of the Company and as adjusted for the sale of the Depositary
Shares and the assumed application of the net proceeds therefrom temporarily to
repay indebtedness under RJRN's revolving credit facilities and to invest the
remaining funds in short-term liquid investments. The as adjusted information is
provided for informational purposes only and should not be construed to be
indicative of the financial position of the Company had the offering occurred on
December 31, 1993 and does not project the financial position for any future
date or period.

<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------
HISTORICAL AS ADJUSTED
----------- -----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Current debt............................................................................. $ 443 $ 443
Long-term debt(1)........................................................................ 12,005 11,677
----------- -----------
Total debt........................................................................ 12,448 12,120
----------- -----------
Stockholders' equity:
ESOP convertible preferred stock....................................................... 249 249
Series A conversion preferred stock.................................................... 2 2
Series B cumulative preferred stock.................................................... 1,250 1,250
Series C conversion preferred stock (PERCS)............................................ -- 3
Common Stock........................................................................... 11 11
Paid-in capital........................................................................ 8,778 10,957
Retained earnings (accumulated deficit)................................................ (883) (883)
Receivable from ESOP................................................................... (211) (211)
Other stockholders' equity............................................................. (126) (126)
----------- -----------
Total stockholders' equity........................................................ 9,070 11,252
----------- -----------
Total capitalization.............................................................. $ 21,518 $ 23,372
----------- -----------
----------- -----------
</TABLE>

- ---------------

(1) Includes amounts under the 1991 Credit Agreement (as defined herein). At
December 31, 1993, approximately $6.2 billion of the $6.5 billion available
thereunder was unused. At December 31, 1993 availability of the unused
portion is reduced by $456 million for the extension of letters of credit.

13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below as of December 31,
1993 and 1992 and for each of the years in the three-year period ended December
31, 1993 for the Company was derived from the Consolidated Financial Statements
set forth herein, which have been audited by Deloitte & Touche, independent
auditors. In addition, the selected consolidated financial data as of December
31, 1991, 1990 and 1989, for the year ended December 31, 1990 and for the period
from February 9, 1989 through December 31, 1989 for the Company and for the
period from January 1, 1989 through February 8, 1989 for RJRN were derived from
the consolidated financial statements of the Company and RJRN as of December 31,
1991, 1990 and 1989, for the year ended December 31, 1990 and for each of the
periods within the one-year period ended December 31, 1989, not presented
herein, which have been audited by Deloitte & Touche, independent auditors. The
data should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information set forth herein.

<TABLE>
<CAPTION>
COMPANY RJRN
-------------------------------------------------------- -----------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE
AMOUNTS) 1993 1992 1991 1990 1989
--------- --------- --------- --------- -------------------------
2/9 TO 12/31 1/1 TO 2/8
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales.................................. $ 15,104 $ 15,734 $ 14,989 $ 13,879 $ 12,114 $ 650
--------- --------- --------- --------- ------------ -----------
Cost of products sold...................... 6,640 6,326 6,088 5,652 5,241 332
Selling, advertising, administrative and
general expenses......................... 5,731 5,788 5,358 4,801 4,276 295
Amortization of trademarks and goodwill.... 625 616 609 608 557 10
Restructuring expense...................... 730 106 -- -- -- --
--------- --------- --------- --------- ------------ -----------
Operating income(1)...................... 1,378 2,898 2,934 2,818 2,040 13
Interest expense........................... (1,190) (1,429) (2,113) (3,000) (2,893) (44)
Amortization of debt issuance costs........ (19) (20) (104) (176) (447) --
Change in control costs.................... -- -- -- -- -- (247)
Other income (expense), net................ (58) 7 (69) (44) 169 15
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing operations
before income taxes.......................... 111 1,456 648 (402) (1,131) (263)
Provision (benefit) for income taxes....... 114 680 280 60 (156) (66)
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing
operations................................... (3) 776 368 (462) (975) (197)
Income (loss) from operations of
discontinued businesses, net of income
taxes(2)..................................... -- -- -- -- (1) 24
Extraordinary item (loss) gain on early
extinguishment of debt, net of income
taxes........................................ (142) (477) -- 33 -- --
--------- --------- --------- --------- ------------ -----------
Net income (loss).......................... (145) 299 368 (429) (976) (173)
Preferred stock dividends.................. 68 31 173 50 -- 4
--------- --------- --------- --------- ------------ -----------
Net income (loss) applicable to common
stock........................................ $ (213) $ 268 $ 195 $ (479) $ (976) $ (177)
--------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- ------------ -----------
PER SHARE DATA
Income (loss) from continuing operations
per common and common equivalent share... $ (0.05) $ 0.55 $ 0.22 $ (1.19) $ (3.21) $ (0.89)
Dividends per share of Series A Preferred
Stock(3)..................................... 3.34 3.34 0.49 -- -- --
OTHER DATA
Ratio of earnings to fixed charges and
preferred dividends(4)....................... -- 1.6 1.1 -- -- --
Deficiency in the coverage of fixed charges
and preferred dividends by earnings
before fixed charges and preferred
dividends(4)................................. $ 264 -- -- $ 490 $ 1,143 $ 266
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital............................ $ 202 $ 730 $ 165 $ (1,089) $ 106 --
Total assets............................... 31,295 32,041 32,131 32,915 36,412 --
Total debt................................. 12,448 14,218 14,531 18,918 25,159 --
Redeemable preferred stock(5).............. -- -- -- 1,795 -- --
Stockholders' equity(6).................... 9,070 8,376 8,419 2,494 1,237 --
</TABLE>

(Footnotes on following page)

14
<PAGE>
(Footnotes for preceding page)

- ---------------

(1) The 1992 amount includes a gain of $98 million on the sale of the
ready-to-eat cold cereal business.

(2) The 1989 amount for the Company included $237 million of interest expense
allocated to discontinued operations.

(3) On November 8, 1991, the Company issued 52,500,000 shares of Series A PERCS
and sold 210,000,000 Series A Depositary Shares. Each Series A Depositary
Share represents a one-quarter ownership interest in a share of Series A
PERCS. Each share of Series A PERCS bears cumulative cash dividends at a
rate of $3.34 per annum and is payable quarterly in arrears on the 15th day
of each February, May, August and November. Because Series A PERCS
mandatorily converts into Common Stock by November 15, 1994, dividends on
shares of Series A PERCS are reported similar to common equity dividends.

(4) For purposes of these computations, earnings before fixed charges and
preferred dividends consist of income (loss) from continuing operations
before provision (benefit) for income taxes plus fixed charges. Income
(loss) from continuing operations before provision (benefit) for income
taxes includes amortization of trademarks and goodwill and depreciation
expense. Fixed charges consist of interest on indebtedness, amortization of
debt issuance costs and that portion of operating rental expense
representative of the interest factor. Also, for purposes of these
computations, preferred stock dividends have been increased to present the
equivalent pre-tax amount.

(5) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of the Company was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
the Company on November 1, 2015. Accordingly, such securities were presented
as a component of the Company's stockholders' equity as of December 31, 1992
and 1991. Such securities were redeemed on December 6, 1993 (see Note 12 to
the Consolidated Financial Statements).

(6) The Company's stockholders' equity at December 31 of each year from 1993 to
1989 includes non-cash expenses related to accumulated trademark and
goodwill amortization of $3.015 billion, $2.390 billion, $1.774 billion,
$1.165 billion and $557 million, respectively. (See Note 13 to the
Consolidated Financial Statements.)

See Notes to Consolidated Financial Statements.

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RJR Nabisco, Inc.'s ("RJRN") operating subsidiaries comprise one of the
largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the
second largest manufacturer of cigarettes, and the packaged food business is
conducted by the Nabisco Foods Group ("NFG"), the largest manufacturer and
marketer of cookies and crackers. Tobacco operations outside the United States
are conducted by R.J. Reynolds Tobacco International, Inc. ("Tobacco
International") and food operations outside the United States and Canada are
conducted by Nabisco International, Inc. ("Nabisco International").

The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJR Nabisco Holdings Corp. ("Holdings"),
the parent company of RJRN. The discussion and analysis should be read in
connection with the historical financial information included in the
Consolidated Financial Statements.

RESULTS OF OPERATIONS

Summarized financial data for Holdings is as follows:

<TABLE>
<CAPTION>
% CHANGE FROM
PRIOR YEAR
------------------------
1993 1992 1991 1993 1992
--------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales:
RJRT..................................................... $ 4,949 $ 6,165 $ 5,861 (20)% 5%
Tobacco International.................................... 3,130 2,862 2,679 9% 7%
--------- --------- ---------
Total Tobacco............................................ 8,079 9,027 8,540 (11)% 6%
Total Food............................................... 7,025 6,707 6,449 5% 4%
--------- --------- ---------
$ 15,104 $ 15,734 $ 14,989 (4)% 5%
--------- --------- ---------
--------- --------- ---------
Operating Company Contribution(1):
RJRT..................................................... $ 1,200 $ 2,112 $ 2,226 (43)% (5)%
Tobacco International.................................... 644 575 500 12% 15%
--------- --------- ---------
Total Tobacco............................................ 1,844 2,687 2,726 (31)% (1)%
Total Food............................................... 995 947 920 5% 3%
Headquarters............................................. (106) (112) (103) 5% (9)%
--------- --------- ---------
$ 2,733 $ 3,522 $ 3,543 (22)% (1)%
--------- --------- ---------
--------- --------- ---------
Operating Income:
RJRT..................................................... $ 480 $ 1,704 $ 1,860 (72)% (8)%
Tobacco International.................................... 413 537 462 (23)% 16%
--------- --------- ---------
Total Tobacco............................................ 893 2,241 2,322 (60)% (3)%
Total Food............................................... 624 769 715 (19)% 8%
Headquarters............................................. (139) (112) (103) (24)% (9)%
--------- --------- ---------
$ 1,378 $ 2,898 $ 2,934 (52)% (1)%
--------- --------- ---------
--------- --------- ---------
</TABLE>

(Footnotes on following page)

16
<PAGE>
INDUSTRY SEGMENTS

The percentage contributions of each of Holdings' industry segments to net
sales and operating company contribution during the last five years were as
follows:

<TABLE>
<CAPTION>
1993 1992 1991 1990 1989(3)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales:
Total Tobacco.......................................... 53% 57% 57% 58% 55%
Total Food............................................. 47 43 43 42 45
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Operating Company Contribution(1)(2):
Total Tobacco.......................................... 65% 74% 75% 77% 73%
Total Food............................................. 35 26 25 23 27
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

- ---------------

(1) Operating income before amortization of trademarks and goodwill and
exclusive of restructuring expenses (RJRT: 1993-$355 million, 1992-$43
million; Tobacco International: 1993-$189 million, 1992-$0; Total Food:
1993-$153 million, 1992-$63 million; Headquarters: 1993-$33 million, 1992-
$0) and a 1992 gain ($98 million) on the sale of Holdings' ready-to-eat cold
cereal business as discussed below.

(2) Contributions by industry segments were computed without effects of
Headquarters' expenses.

(3) Includes predecessor period January 1, 1989 through February 8, 1989.

TOBACCO

Holdings' tobacco business is conducted by RJRT and Tobacco International.

1993 vs. 1992. Holdings' worldwide tobacco business experienced continued
net sales growth in its international business that was more than offset by a
significant sales decline in the domestic business, resulting in reported net
sales of $8.08 billion in 1993, a decline of 11% from the 1992 level of $9.03
billion. Operating company contribution for the worldwide tobacco business of
$1.84 billion in 1993 declined 31% from the 1992 level of $2.69 billion,
reflecting sharp reductions for the domestic business which were partially
offset by gains in the international business. Operating income for the
worldwide tobacco business in 1993 of $893 million declined 60% from $2.24
billion in 1992, reflecting the lower operating company contribution and a $544
million restructuring expense in 1993 versus a restructuring expense of $43
million in 1992. The 1993 restructuring expense includes expenses to streamline
both the domestic and international operations by the reduction of personnel in
administration, manufacturing and sales functions, as well as rationalization of
manufacturing and office facilities.

Net sales for RJRT amounted to $4.95 billion in 1993, a decline of 20% from
the 1992 level, reflecting the impact of industry-wide price reductions and
price discounting on higher price brands, a higher proportion of sales from
lower price brands and an overall volume decline of approximately 3.6%. The 1993
decrease in overall volume resulted from a decline in the full-price segment
that more than offset growth in the lower price segment. The growth in lower
price brands was slowed in the second half of 1993 by net price reductions on
full-price brands. RJRT's operating company contribution was $1.20 billion in
1993, a 43% decline from the 1992 level of $2.11 billion, primarily due to the
lower net sales and a higher proportion of sales from the lower margin segment,
offset in part by lower operating expenses. RJRT's operating income was $480
million in 1993, a decline of 72% from $1.7 billion in 1992. The decline in
operating income reflected the lower RJRT operating company contribution as well
as a restructuring expense of $355 million in 1993 which is significantly higher
than the $43 million restructuring expense recorded in 1992.

Tobacco International recorded net sales of $3.13 billion in 1993, an
increase of 9% from the 1992 level, due to higher volume in all regions of
business, the expansion of markets through ventures in Eastern Europe and
Turkey, contract sales to the Russian Republic, favorable pricing in certain
regions
17
<PAGE>
and a change in fiscal year end, which more than offset unfavorable currency
developments in Western Europe. Tobacco International's operating company
contribution rose to $644 million in 1993, an increase of 12% compared to the
prior year due to higher volume and pricing which was offset in part by higher
operating expenses and to a lesser extent foreign currency developments. Tobacco
International's operating income was $413 million for 1993, a decline of 23%
from the 1992 level. The decline in operating income reflects a restructuring
expense of $189 million in 1993 that more than offset the increase in operating
company contribution.

1993 Competitive Activity. During recent years, the lower price segment of
the domestic cigarette market has grown significantly and the full price segment
has declined. The shifting of smokers of full price brands to lower price brands
adversely affects RJRT's earnings since lower price brands are generally less
profitable than full price brands. Although the difference in profitability is
often substantial, it varies greatly depending on marketing and promotion levels
and the terms of sale. Accordingly, RJRT has in recent years experienced
substantial increased volume in the lower price segment, but the earnings
attributable to these sales have not been sufficient to offset decreased
earnings from declining sales of RJRT's full price brands.

In April 1993, RJRT's largest competitor announced a shift in strategy
designed to gain share of market while sacrificing short-term profits. The
competitor's tactics included increased promotional spending and temporary price
reductions on its largest cigarette brand, followed several months later by list
price reductions on all its full-price and mid-price brands. RJRT defended its
major full-price brands during the period of temporary price reductions and, to
remain competitive in the marketplace, also reduced list prices on all its
full-price and mid-price brands in August 1993. The cost of defensive price
promotions and the impact of lower list prices were primarily responsible for
the sharp drop in RJRT's 1993 operating company contribution.

Currently, the domestic cigarette market has consolidated list prices for
cigarettes from four or more tiers into two tiers, with price competition being
conducted principally through trade and retail promotion on a brand-by-brand
basis. The resulting effects from increased list prices on lower price brands
and reduced promotional spending by RJRT on its full price brands have not been
sufficient to offset the effect of decreased list prices on RJRT's full price
brands. This has resulted in lower aggregate profit margins for RJRT. These
depressed margins are expected to continue until such time as the competitive
environment improves and operating costs are further reduced.

Although some improvement to the stability of the competitive environment
has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any
further improvement to the competitive environment will occur or whether such
stability will continue. In addition, growth in lower price brands was slowed in
the second half of 1993 due to net price reductions on full price brands. RJRT
is unable to predict whether this trend will continue. RJRT's domestic cigarette
volume of non-full price brands as a percentage of total domestic volume was 44%
in 1993, 35% in 1992 and 25% in 1991 versus 37%, 30% and 25%, respectively, for
the domestic cigarette market.

1993 Governmental Activity. Legislation recently enacted restricts the use
of imported tobacco in cigarettes manufactured in the United States and is
expected to increase RJRT's future raw material cost. In addition, the Clinton
Administration and members of Congress have introduced bills in Congress that
would significantly increase the federal excise tax on cigarettes, eliminate the
deductibility of a portion of the cost of tobacco advertising, ban smoking in
public buildings and workplaces, add additional health warnings on cigarette
packaging and advertising and further restrict the marketing of tobacco
products. It is not possible to determine what additional federal, state or
local legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on RJRT, Tobacco
International or the cigarette industry generally but such legislation or
regulations could have an adverse effect on RJRT, Tobacco International or
the cigarette industry generally.

18
<PAGE>
1992 vs. 1991. Net sales for RJRT rose 5% from 1991 to $6.17 billion in
1992 as higher unit selling prices and volume were offset in part by a higher
proportion of sales from lower price brands. Overall volume for the 1992 year
increased 3% from the prior year as a result of gains in the lower price segment
more than offsetting a decline in the full price segment. RJRT's operating
company contribution in 1992 was $2.11 billion, a 5% decline from the prior
year. The decline in operating company contribution was primarily due to the
higher proportion of sales of lower margin brands and higher marketing and
selling expenditures, which when combined more than offset the effect of higher
unit selling prices and volume. RJRT's operating income of $1.70 billion in 1992
declined 8% from the prior year as a result of the decline in operating company
contribution as well as a $43 million charge incurred in connection with a
restructuring plan, the purpose of which was to improve productivity by
realigning operations in the sales, manufacturing, research and development, and
administrative areas.

Tobacco International recorded net sales of $2.86 billion in 1992, an
increase of 7% from 1991. Excluding contract sales to the Russian Republic, for
which there were major shipments in 1991, Tobacco International would have
reported an increase in net sales in 1992 of 10%. The sales increase is a result
of volume gains in Eastern Europe (where the company made several acquisitions),
Asia and the Middle East, favorable currency developments and higher selling
prices that more than offset lower volume in Western Europe. Operating company
contribution and operating income for 1992 rose 15% and 16%, respectively, from
the prior year to $575 million and $537 million. The increase in operating
company contribution and operating income was due to higher volume, favorable
currency developments and higher selling prices offset in part by a higher
proportion of sales in the lower margin segment.

For a description of certain litigation affecting RJRT and its affiliates,
see Note 11 to the Consolidated Financial Statements.

FOOD

Holdings' food business is conducted by NFG, which comprises the Nabisco
Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty
Products Company, the Fleischmann's Division, the Food Service Division and
Nabisco Brands Ltd, (collectively the "North American Group") and Nabisco
International.

1993 vs. 1992. NFG reported net sales of $7.03 billion in 1993, an increase
of 5% from 1992. Excluding the 1992 operating results of the ready-to-eat cold
cereal business, which was sold at the end of that year, net sales in 1993
increased 9% from 1992, resulting from higher volume, sales from recently
acquired businesses and modest price increases in both the North American Group
and Nabisco International. The North American Group volume increase was
primarily attributable to the success of new product introductions in the U.S.,
including the Snackwell's line of low fat/fat free cookies and crackers, Fat
Free Newtons, Life Savers Gummi Savers candy and Planters' stand-up bag line of
peanuts and snacks. Nabisco International's net sales increased as a result of
the 1993 acquisitions in Spain and Peru and higher volume and prices from its
Latin American businesses.

NFG's operating company contribution of $995 million in 1993 was 5% higher
than the 1992 amount. Excluding the 1992 operating results of the ready-to-eat
cold cereal business, operating company contribution increased 14%, with the
North American Group up 13% and Nabisco International up 18%. The North American
Group increase was primarily due to the gain in net sales, savings from
productivity programs, and contributions from the recently acquired businesses,
offset in part by higher expenses for consumer marketing programs. Nabisco
International increased operating company contribution through acquisitions and
gains in net sales.

19
<PAGE>
NFG's operating income was $624 million in 1993, a decrease of 19% from
1992, as a result of the $153 million restructuring expense in 1993, which was
significantly higher than the restructuring expense of $63 million recorded in
1992, that more than offset the gain in operating company contribution.
Excluding the 1992 operating results of the ready-to-eat cold cereal business
and the related gain on its sale, as well as the restructuring expenses in both
1993 and 1992, NFG's operating income was up 16% as a result of the increase in
operating company contribution. The 1993 restructuring expense primarily
consists of expenses related to the reorganization and downsizing of
manufacturing and sales functions which will reduce personnel costs, both
domestically and internationally, in order to improve productivity and, to a
lesser extent, the rationalization of facilities.

1992 vs. 1991. NFG reported net sales of $6.71 billion in 1992, an increase
of 4% from 1991. The increase primarily results from higher volume and pricing
in the Latin American subsidiaries and the addition of recently acquired
businesses in Mexico and Brazil. Net sales for the North American Group were
relatively flat, as higher unit selling prices and volume in U.S. cookie and
selected grocery products, including new products and product varieties, were
offset by lower sales in the balance of the food lines as a result of restrained
consumer spending. NFG's operating company contribution increased 3% from 1991
to $947 million in 1992 as a result of the increase in net sales in Latin
America. Operating company contribution in the North American Group was about
even with last year reflecting the modest net sales performance in 1992. Margins
in the North America Group were maintained in 1992 as a result of productivity
gains offsetting the industry trends toward higher trade promotion spending.
NFG's 1992 operating income, which included a restructuring expense of $63
million, as well as a gain of $98 million on the sale of the ready-to-eat cold
cereal business, rose 8% from 1991 to $769 million as a result of the increase
in 1992 operating company contribution. The $63 million charge was incurred in
connection with a restructuring plan, the purpose of which was to reduce costs
and improve productivity by realigning sales operations and implementing a
voluntary separation program.

RESTRUCTURING EXPENSE

Holdings recorded a pre-tax restructuring expense of $730 million in the
fourth quarter of 1993 ($467 million after-tax) related to a program announced
on December 7, 1993. Such restructuring program was undertaken in response to a
changing consumer product business environment and is expected to streamline
operations and improve profitability. Implementation of the program, although
begun in the latter part of 1993, will primarily occur in 1994. Approximately
75% of the restructuring program will require cash outlays which will occur
primarily in 1994 and early 1995. As an offset to the cash outlays, Holdings
expects annual after-tax cash savings of approximately $250 million.

The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993 stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) of domestically grown flue cured and burly tobaccos. As
a result the domestic and international tobacco businesses accrued approximately
$70 million of related restructuring charges resulting from a reassessment of
raw material sourcing and production arrangements. In addition, a shift in
pricing strategy designed to gain share of market by RJRT's largest competitor
has resulted in a redeployment of spending and changes in sales and
distribution strategies resulting in a restructuring charge of approximately
$80 million primarily related to contract termination costs. Abandonment of
leases related to the above changes in the businesses results in approximately
$60 million of restructuring charges. The remainder of the charge,
approximately $120 million, represents
20
<PAGE>
non-cash costs to rationalize and close manufacturing and sales facilities in
both the tobacco and food businesses to facilitate cost improvements.

INTEREST EXPENSE

1993 vs. 1992. Consolidated interest expense of $1.19 billion in 1993
decreased 17% from 1992, primarily as a result of the refinancings of debt that
were completed during 1992 and 1993, lower debt levels from the application of
net proceeds from the issuance of preferred stock in 1993 and lower effective
interest rates and the impact of declining market interest rates in 1993.

1992 vs. 1991. Consolidated interest expense of $1.43 billion in 1992
decreased 32% from 1991, primarily due to the refinancings completed during 1991
and 1992, lower effective interest rates and the impact of declining market
interest rates in 1992.

INCOME TAXES

Effective January 1, 1993, Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. SFAS
No. 109 superseded Statement of Financial Accounting Standards No. 96, the
method of accounting for income taxes previously followed by the Registrants.
The adoption of SFAS No. 109 did not have a material impact on the financial
statements of either Holdings or RJRN.

Holdings' provision for income taxes for 1993 was increased by $96 million
as a result of the enactment of certain federal tax legislation during the third
quarter of 1993 which increased federal corporate income tax rates to 35% from
34%, retroactively to January 1, 1993. The components of this increase to
Holdings' provision for income taxes included an $86 million non-cash charge
resulting primarily from the remeasurement of the balance of deferred federal
income taxes at the date of enactment of the new federal tax legislation for the
change in the income tax rates, and a $10 million charge resulting from the
increase in current federal income taxes accrued for the change in the income
tax rates and other effects of the new tax legislation. Also during 1993,
Holdings' provision for income taxes was decreased by a $108 million credit
resulting from a remeasurement of the balance of deferred income taxes for a
change in estimate of the basis of certain deferred tax amounts relating
primarily to international operations.

NET INCOME

1993 vs. 1992. Holdings reported a net loss of $145 million in 1993, a
decrease of $444 million from 1992. Included in Holdings' 1993 net loss is an
after-tax extraordinary loss of $142 million related to the repurchases of high
cost debt during 1993 and an after-tax restructuring expense of $467 million.
Excluding the extraordinary loss and restructuring expense recorded in 1993,
Holdings would have reported net income of $464 million in 1993. Excluding a
similar after-tax extraordinary loss and an after-tax restructuring expense of
$477 million and $66 million, respectively, in 1992, as well as a 1992 after-tax
gain on the sale of Holdings' ready-to-eat cold cereal business of $30 million,
Holdings would have reported net income of $812 million in 1992. The decrease in
net income in 1993 from 1992 after such exclusions is due to the lower operating
income offset in part by lower interest expense.

1992 vs. 1991. Holdings' net income of $299 million in 1992 includes an
after-tax extraordinary loss of $477 million related to the repurchases of high
cost debt during 1992. However, after excluding the extraordinary loss, Holdings
would have reported net income of $776 million for 1992, an increase of $408
million over last year, primarily as a result of significantly lower interest
expense. Net income in 1991 was reduced by $28 million of net charges included
in "Other income (expense), net" as a result of the write-off of $109 million of
unamortized debt issuance costs and the recognition of $144 million of
21
<PAGE>
unrealized losses from interest rate hedges related to the refinancing of
existing credit lines, partially offset by a $225 million credit for a change in
estimated postretirement health care liabilities.

Holdings' net income (loss) applicable to its common stock for 1993, 1992
and 1991 of $(213) million, $268 million and $195 million, respectively,
includes a deduction for preferred stock dividends of $68 million, $31 million
and $173 million, respectively.

Effective January 1, 1993, RJRN adopted Statement of Financial Accounting
Standards No. 112 ("SFAS No. 112"), Employers' Accounting for Postemployment
Benefits. Under SFAS No. 112, RJRN is required to accrue the costs for
preretirement postemployment benefits provided to former or inactive employees
and recognize an obligation for these benefits. The adoption of SFAS No. 112 did
not have a material impact on the financial statements of either Holdings or
RJRN.

22
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION

DECEMBER 31, 1993

Holdings continued to generate significant free cash flow in 1993, although
at a lower level than in 1992. Free cash flow, which represents cash available
for the repayment of debt and certain other corporate purposes before the
consideration of any debt and equity financing transactions, acquisition
expenditures and divestiture proceeds, was $1.0 billion for 1993 and $1.6
billion for 1992. The lower level of free cash flow for 1993 primarily reflects
lower operating company contribution in the domestic tobacco business, higher
capital expenditures for tobacco manufacturing facilities in Eastern Europe and
Turkey and for Nabisco Biscuit facilities and higher taxes paid, offset in part
by lower inventory levels in the domestic tobacco business, higher sales of
receivables, and a decrease in interest paid.

The components of free cash flow are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
OPERATING INCOME........................................................................... $ 1,378 $ 2,898
Amortization of intangibles.............................................................. 625 616
Restructuring expense, net of a 1992 gain from the sale of the ready-to-eat cold cereal
business................................................................................... 730 8
--------- ---------
OPERATING COMPANY CONTRIBUTION............................................................. 2,733 3,522
Depreciation and other amortization...................................................... 524 530
Increase in operating working capital.................................................... (121) (196)
Capital expenditures..................................................................... (615) (519)
Change in other assets and liabilities................................................... (21) (298)
--------- ---------
OPERATING CASH FLOW*....................................................................... 2,500 3,039
Taxes paid............................................................................... (332) (116)
Interest paid............................................................................ (912) (1,102)
Dividends paid........................................................................... (241) (214)
Other, net............................................................................... 19 31
--------- ---------
FREE CASH FLOW............................................................................. $ 1,034 $ 1,638
--------- ---------
--------- ---------
</TABLE>

- ---------------

* Operating cash flow, which is used as an internal measurement for evaluating
business performance, includes, in addition to net cash flow from (used in)
operating activities as recorded in the Consolidated Statement of Cash Flows,
proceeds from the sale of capital assets less capital expenditures, and is
adjusted to exclude income taxes paid and items of a financial nature (such as
interest paid, interest income, and other miscellaneous financial income or
expense items).

---------------

In 1993, Holdings and RJRN continued to enter into a series of transactions
designed to refinance long-term debt, lower debt levels and lower interest
costs, thereby improving the consolidated debt cost and maturity structure.
These transactions included the issuance of preferred stock and the repurchase
and redemption of certain debt obligations with funds provided from the issuance
of debt securities (including medium-term notes), borrowings under Holdings' and
RJRN's credit agreement, dated as of December 1, 1991, as amended (the "1991
Credit Agreement"), and free cash flow, as well as RJRN's management of interest
rate exposure through swaps, options, caps and other interest rate arrangements.
As a result of these transactions and lower market interest rates during 1993,
Holdings reduced the effective interest rate on its consolidated long-term debt
from 8.7% at December 31, 1992 to 8.4% at December 31, 1993. Future effective
interest rates may vary as a result of RJRN's ongoing management of interest
rate exposure and changing market interest rates as well as refinancing
activities and changes in the ratings assigned to RJRN's debt securities by
independent rating agencies.

One of Holdings' current financial objectives is to achieve a
capitalization ratio of 43% over time. Holdings' capitalization ratio was 44.5%
at December 31, 1993. The capitalization ratio, which is
23
<PAGE>
intended to measure Holdings' long-term debt (including current maturities) as a
percentage of total capital, is calculated by dividing (i) Holdings' long-term
debt by (ii) the sum of Holdings' total equity, consolidated long-term debt,
deferred income taxes and certain other long-term liabilities.

Certain of Holdings' other current financial objectives, which are all
based on income before extraordinary items excluding after-tax amortization of
trademarks and goodwill and referred to below as cash net income, are to achieve
a 20% return on year beginning common stockholders' equity, a 2.7 interest and
preferred stock dividend coverage ratio and a trendline average annual earnings
per share growth of 15% over time.

The 20% return on year beginning common stockholders' equity objective,
which is intended to measure the return to Holdings' common equity holders on
the net assets employed in the business, is calculated by dividing (i) cash net
income (after deducting preferred stock dividends) by (ii) total stockholders'
equity at the beginning of the year exclusive of preferred stockholders' equity
interest. For purposes of calculating the return on year beginning common
stockholders' equity, Series A Preferred Stock and similar convertible preferred
stock securities, if any, are considered common equity and the related dividends
thereon are considered common dividends. The 2.7 interest and preferred stock
dividend coverage ratio objective, which is intended to measure Holdings'
ability to service its annual interest and preferred stock dividend payments, is
calculated by dividing (i) operating income before amortization of trademarks
and goodwill and depreciation by (ii) the sum of cash interest expense and
preferred stock dividends. The trendline average annual earnings per share
growth of 15% as adjusted for after-tax amortization of trademarks and goodwill,
is intended to measure Holdings' ability to achieve a certain level of earnings
per share growth over time.

At December 31, 1993, Holdings had an outstanding total debt level (notes
payable and long-term debt, including current maturities) and a total capital
level (total debt and total stockholders' equity) of approximately $12.4 billion
and $21.5 billion, respectively, each of which is lower than the corresponding
amounts at December 31, 1992. Holdings' ratio of total debt to total
stockholders' equity at December 31, 1993 improved to 1.4-to-1 versus 1.7-to-1
at December 31, 1992. RJRN's ratio of total debt to common equity at
December 31, 1993 was 1.3-to-1, compared with 1.6-to-1 December 31, 1992. Total
current liabilities and long-term debt of RJRN's subsidiaries was approximately
$3.4 billion at December 31, 1993 and 1992.

Management believes that the improvement to Holdings' and its subsidiaries'
financial structure since 1991 has enhanced its ability to take advantage of
opportunities to further improve its capital and/or cost structure. Management
expects that it will continue to consider opportunities as they arise. Such
opportunities, if pursued, could involve further acquisitions from time to time
of substantial amounts of securities of Holdings or its subsidiaries through
open market purchases, redemptions, privately negotiated transactions, tender or
exchange offers or otherwise and/or the issuance from time to time of additional
securities by Holdings or its subsidiaries. Acquisitions of securities at prices
above their book value, together with the accelerated amortization of deferred
financing fees attributable to the acquired securities, would reduce reported
net income, depending upon the extent of such acquisitions. Nonetheless,
Holdings' and its subsidiaries' ability to take advantage of such opportunities
is subject to restrictions in the 1991 Credit Agreements and Holdings' and
RJRN's credit agreement, dated as of April 5, 1993, as amended (the "1993 Credit
Agreement", and together with the 1991 Credit Agreement, the "Credit
Agreements"), and in certain of their debt indentures. For a discussion of
recent developments affecting the tobacco business and the potential effect on
RJRT's cash flow, see "Results of Operations--Tobacco."

In addition, management currently is reviewing and expects to continue to
review various corporate transactions, including, but not limited to, joint
ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and
recapitalizations. Although Holdings has discussed and continues to discuss
various transactions with third parties, no assurance may be given that any
transaction will be announced or completed. It is likely that Holdings' tobacco
and food businesses would be separated should certain of the foregoing
transactions be consummated.

24
<PAGE>
During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the sale of 50,000,000 depositary shares at $25 per share
issued in connection with the issuance of Series B Cumulative Preferred Stock
have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.

A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 at a
price of $1,065.63 for each $1,000 principal amount of such debentures, plus
accrued and unpaid interest thereon.

The 1991 Credit Agreement is a $6.5 billion revolving bank credit facility
that provides for the issuance of up to $800 million of irrevocable letters of
credit. Availability under the 1991 Credit Agreement is reduced by an amount
equal to the stated amount of such letters of credit outstanding, by commercial
paper borrowings in excess of $1 billion and by amounts borrowed under such
facility. At December 31, 1993, approximately $456 million stated amount of
letters of credit was outstanding and $328 million was borrowed under the 1991
Credit Agreement. Accordingly, the amount available under the 1991 Credit
Agreement at December 31, 1993 was $5.72 billion.

On April 5, 1993, Holdings and RJRN entered into the 1993 Credit Agreement,
which matures on April 4, 1994 and provides a back-up line of credit to support
commercial paper issuances of up to $1 billion. Availability thereunder is
reduced by an amount equal to the aggregate amount of commercial paper
outstanding. At December 31, 1993, approximately $913 million of commercial
paper was outstanding. Accordingly, $87 million was available under the 1993
Credit Agreement at December 31, 1993. Holdings and RJRN expect to obtain bank
consent to extend the maturity date of the 1993 Credit Agreement for an
additional 364 days.

The aggregate of consolidated indebtedness and interest rate arrangements
subject to fluctuating interest rates approximated $5.5 billion at December 31,
1993. This represents an increase of $800 million from the year end 1992 level
of $4.7 billion, primarily due to Holdings' on-going management of its interest
rate exposure.

As a result of the general decline in market interest rates compared with
the high interest cost on certain of Holdings' consolidated debt obligations,
the estimated fair value amount of Holdings' long-term debt reflected in its
Consolidated Balance Sheets at December 31, 1993 and 1992 exceeded the carrying
amount (book value) of such debt by approximately $400 million and $1.1 billion,
respectively. For additional disclosures concerning the fair value of Holdings'
consolidated indebtedness as well as the fair value of its interest rate
arrangements at December 31, 1993 and 1992, see Notes 10 and 11 to the
Consolidated Financial Statements.

Capital expenditures were $615 million, $519 million and $459 million for
1993, 1992 and 1991, respectively. The current level of expenditures planned for
1994 is expected to be approximately $600 million (approximately 60% Food and
40% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
Holdings' businesses.

Holdings has operations in many countries, utilizing 35 functional
currencies in its foreign subsidiaries and branches. Significant foreign
currency net investments are located in Germany, Canada, Hong Kong, Brazil and
Spain. Changes in the strength of these countries' currencies relative to the
U.S. dollar result in direct charges or credits to equity for
non-hyperinflationary countries and direct charges or credits to the income
statement for hyperinflationary countries. Translation gains or losses,
resulting from foreign-denominated borrowings that are accounted for as hedges
of certain
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<PAGE>
foreign currency net investments, also result in charges or credits to equity.
Holdings also has significant exposure to foreign exchange sale and purchase
transactions in currencies other than its functional currency. The exposures
include the U.S. dollar, German mark, Japanese yen, Swiss franc, Hong Kong
dollar, Singapore dollar and cross-rate exposure among the French franc, British
pound, Italian lira and the German mark. Holdings manages these exposures to
minimize the effects of foreign currency transactions on its cash flows.

Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries. As a result of
the increased competitive conditions in the domestic cigarette market and in
order to provide Holdings with additional flexibility under certain financial
ratios contained in the Credit Agreements, Holdings obtained an amendment to
such Credit Agreements during October 1993. Holdings and RJRN believe that they
are currently in compliance with all covenants and restrictions in the Credit
Agreements and their other indebtedness.

On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each representing a
one-tenth ownership interest in a share of a newly created series of Preferred
Equity Redemption Cumulative Stock ("PERCS"). Each depositary share would
mandatorily convert in three years into one share of Common Stock, subject to
adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.

ENVIRONMENTAL MATTERS

RJRN has been engaged in a continuing program to assure compliance with
U.S. Government and various state and local government laws and regulations
concerning the protection of the environment. Certain subsidiaries of the
Registrants have been named "potentially responsible parties" with third parties
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") with respect to approximately fifteen sites. Although it is difficult
to identify precisely the portion of capital expenditures or other costs
attributable to compliance with environmental laws and the Company cannot
reasonably estimate the cost of resolving the above mentioned CERCLA matters,
the Company does not expect such expenditures or costs to have a material
adverse effect on its financial condition.

<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 2,200,000,000
shares of common stock, par value $.01 per share (the "Common Stock"), and
150,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of January 31, 1994, 1,138,110,712 shares of Common Stock were
outstanding. As of such date, 68,115,681 shares of Preferred Stock were
outstanding, of which 52,500,000 shares were Series A PERCS, 50,000 shares were
Series B Preferred Stock and 15,565,681 shares were ESOP Preferred Stock.

The following is a description of the terms of the capital stock of the
Company. This description does not purport to be complete and is qualified in
its entirety by reference to the Company's Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") and the form of
Certificate of Designation authorizing the PERCS (the "Certificate of
Designation"), each of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is incorporated by reference
herein.

COMMON STOCK

Each share of Common Stock is entitled to one vote at all meetings of
stockholders of the Company for the election of directors of the Company and on
all other matters. Dividends may be paid to the holders of Common Stock when, as
and if declared by the board of directors of the Company out of funds legally
available therefor. The Common Stock has no preemptive or similar rights.
Holders of Common Stock are not liable to further call or assessment. Upon
liquidation, dissolution or winding up of the affairs of the Company, any assets
remaining after provision for payment of creditors (and any liquidation
preference of any outstanding preferred stock) would be distributed pro rata
among holders of the Common Stock. The Company has never paid any cash dividends
on shares of the Common Stock. The Credit Agreements restrict cash dividends and
other distributions on Common Stock. The indentures relating to subordinated
debentures (the "RJRN Subordinated Debentures") of RJRN (the "RJRN Subordinated
Debenture Indentures") and the indenture relating to certain senior notes (the
"Senior Notes") of RJRN (the "Senior Note Indenture") restrict dividends or
distributions to the Company from RJRN and its subsidiaries which could
otherwise be used for the payment of cash dividends on the Common Stock by the
Company. When applicable restrictions on the payment of dividends permit or when
such restrictions cease, the timing, amount and form of dividends, if any, will
depend, among other things, upon the Company's results of operations, financial
condition, cash requirements, prospects and other factors deemed relevant by the
board of directors of the Company. See "Certain Significant
Considerations--Holding Company Structure" and "Description of Capital
Stock--Contractual Restrictions on Payment of Dividends."

The Common Stock is listed on the NYSE.

First Chicago Trust Company of New York is the registrar and transfer agent
for the Common Stock.

SERIES C PERCS

Pursuant to the Certificate of Incorporation, the board of directors of the
Company has adopted resolutions authorizing the issuance of a series of PERCS
out of the Company's authorized and unissued Preferred Stock. Upon issuance, the
PERCS will be fully paid and nonassessable. The holders of PERCS will have no
preemptive rights.

Rank. With respect to dividend rights and rights upon liquidation,
dissolution or winding up, the PERCS rank (i) senior to all classes of Common
Stock, and to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank junior to the PERCS
(collectively referred to as "Junior Securities"); (ii) on a parity with the
Series A PERCS, the Series B
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<PAGE>
Preferred Stock and the ESOP Preferred Stock and all equity securities issued by
the Company the terms of which specifically provide that such equity securities
rank on a parity with the PERCS (collectively referred to as "Parity
Securities"); and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the PERCS (collectively referred to as "Senior Securities").

Dividends. The owners of Depositary Shares (each of which represent
one-tenth of a share of PERCS) are entitled to receive, when, as and if
dividends on the PERCS are declared by the board of directors of the Company out
of funds legally available therefor, cumulative preferential cash dividends from
the issue date of the PERCS, accruing at the rate per share of $ per
annum or $ per quarter for each Depositary Share (equivalent to
$ per annum or $ per quarter for each PERCS), payable
quarterly in arrears on the th day of each , , and
or, if any such date is not a business day, on the next succeeding
business day. The first dividend payment will be paid on , 1994.
Dividends will cease to accrue in respect of the PERCS on the Mandatory
Conversion Date or on the date of their earlier redemption or on the Settlement
Date, in the event of an automatic conversion. Dividends (or cash amounts equal
to accrued and unpaid dividends) payable on the PERCS for any period shorter
than a quarterly dividend period will be computed on the basis of a 360-day year
of twelve 30-day months.

Dividends on the PERCS will accrue whether or not the Company has earnings,
whether or not there are funds legally available for the payment of such
dividends and whether or not such dividends are declared. Accrued and unpaid
dividends will not bear interest.

Payment of dividends on the PERCS is subject to certain contractual
restrictions. See "Contractual Restrictions on Payment of Dividends" below.

So long as any PERCS are outstanding, no full dividends may be declared by
the board of directors of the Company or paid or set apart for the payment by
the Company on any Parity Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum set apart sufficient for such payment on the PERCS through the most recent
dividend payment date. When dividends have not been paid or set apart in full
upon the PERCS and any other Parity Securities, all dividends declared upon the
PERCS and any Parity Securities shall be declared pro rata so that the amount of
dividends declared per share on the PERCS and such Parity Securities shall in
all cases bear to each other the same ratio that accrued dividends per share on
the PERCS and such Parity Securities bear to each other. Unless full cumulative
dividends, if any, accrued on all outstanding PERCS have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment through the most recent dividend payment date, no
dividend shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other Junior
Securities (other than a dividend or distribution paid in shares of, or
warrants, rights or options exercisable for or convertible into, Common Stock or
any other Junior Securities), nor shall any Common Stock nor any other Junior
Securities be redeemed, purchased or otherwise retired for any consideration,
nor may any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such securities, by the Company, except by
conversion into or exchange in Junior Securities (other than purchases and
redemptions pursuant to or in accordance with employee stock subscription
agreements entered into between the Company and its or its subsidiaries'
directors, officers and key employees). Holders of the PERCS shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of full cumulative dividends as herein provided.

First Chicago Trust Company of New York is the registrar, transfer agent
and dividend disbursing agent for the PERCS.

Mandatory Conversion. On the Mandatory Conversion Date, each outstanding
PERCS will convert automatically into shares of Common Stock and the right to
receive an amount in cash equal to
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<PAGE>
all accrued and unpaid dividends on such PERCS, subject to the right of the
Company to call the PERCS prior to Mandatory Conversion, as described below.
Upon Mandatory Conversion, each PERCS will be converted into shares of Common
Stock at the Common Equivalent Rate (as described below) in effect on such date.
The "Common Equivalent Rate" is initially ten shares of Common Stock for each
PERCS (equivalent to one share of Common Stock for each Depositary Share).

Because the price of the Common Stock is subject to market fluctuations,
the value of the Common Stock received by a holder of PERCS upon Mandatory
Conversion of the PERCS on the Mandatory Conversion Date may be more or less
than the amount paid for the PERCS.

The Company will at all times reserve and keep available, free from
pre-emptive rights, out of the aggregate of its authorized but unissued Common
Stock or its issued Common Stock held in its treasury or both, for the purpose
of effecting the Mandatory Conversion of the PERCS, the full number of shares of
Common Stock then deliverable upon the Mandatory Conversion of all outstanding
PERCS.

Antidilution Provisions and the Effect of Mergers or Consolidations. The
Certificate of Incorporation contains antidilution provisions which provide that
in the event the Company (a) pays a dividend or makes a distribution with
respect to Common Stock in shares of Common Stock, (b) subdivides or splits its
outstanding shares of Common Stock into a greater number of shares, (c) combines
its outstanding shares of Common Stock into a smaller number of shares, or (d)
issues by reclassification of its shares of Common Stock any shares of common
stock of the Company, then the Common Equivalent Rate in effect immediately
prior thereto shall be adjusted so that the holder of a share of PERCS shall be
entitled to receive on the conversion thereof the number of shares of common
stock of the Company which such holder would have owned or been entitled to
receive after the happening of any of the events described above had such share
of PERCS been converted at the Common Equivalent Rate in effect immediately
prior to such event or any record date with respect thereto.

In addition, if the Company issues rights or warrants to all holders of
Common Stock entitling them (for a period not exceeding 45 days from the date of
issuance) to acquire shares of Common Stock at a price per share less than the
Current Market Price of the Common Stock on the record date for the
determination of stockholders entitled to receive such rights or warrants, then
the Common Equivalent Rate shall be adjusted by multiplying the Common
Equivalent Rate in effect immediately prior to the date of issuance of such
rights or warrants by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on such date of issuance, plus the number of
additional shares of Common Stock to be acquired pursuant to such rights or
warrants, and of which the denominator shall be the number of shares of Common
Stock outstanding on such date of issuance, plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock to be acquired pursuant to such rights or warrants would purchase at the
Current Market Price.

The Certificate of Incorporation also provides that if the Company pays a
dividend or makes a distribution to all holders of its Common Stock of evidences
of its indebtedness, other securities or other assets (including shares of
capital stock of the Company (other than Common Stock) and including shares of
capital stock of a subsidiary of the Company but excluding any distributions
and dividends referred to in the first paragraph of this section and any cash
dividends), or issues to all holders of its Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than those referred to
in the second paragraph of this section ), then, in each case at the option of
the Company, the Company will either:

(1) adjust the Common Equivalent Rate by multiplying the Common
Equivalent Rate in effect on the record date for such distribution by a
fraction, of which the numerator shall be the Current Market Price per
share of the Common Stock on the record date for the determination of
stockholders entitled to receive such dividend or distribution, and of
which the denominator shall be such Current Market Price per share of
Common Stock less the fair value (as determined by the board of directors
of the Company, whose determination shall be conclusive) as of such record
date
29
<PAGE>
of the portion of the securities or assets so distributed, or of such
rights or warrants, applicable to one share of Common Stock (provided
that such determination of fair value by the board of directors of the
Company applicable to one share of Common Stock shall not be greater
than or equal to such Current Market Price per share of Common Stock, in
each case as of such record date) (the "Fair Value"),

(2) reserve shares or other units of such securities or assets to be
distributed for distribution to the holders of PERCS upon redemption or
conversion so that a holder of a PERCS will receive upon such redemption or
conversion, in addition to the shares of Common Stock issuable at the
Common Equivalent Rate, the kind and amount of such securities or assets
which such holder would have received had conversion into shares of Common
Stock occurred immediately prior to the record date for such dividend or
distribution or

(3) distribute, at the time such dividend, distribution or issuance is
made to holders of the Common Stock, to each holder of PERCS the kind and
amount of such securities or assets of the Company as such holder would
have been entitled to receive had conversion into shares of Common Stock
occurred immediately prior to the record date for such dividend or
distribution.

Section 305 of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that certain stock or rights distributions or similar transactions with
respect to the stockholders of the Company may be taxable to such stockholders
unless a full adjustment is made to the conversion ratio of any convertible
securities (such as the PERCS) to reflect such distributions. The Company will
be entitled to make additional upward adjustments in the Common Equivalent Rate,
as it in its sole discretion may determine to be advisable, in order that any
stock dividends, subdivision of shares, distribution of rights to purchase stock
or securities, or distribution of securities convertible into or exchangeable
for stock (or any transaction which could be treated as any of the foregoing
transactions pursuant to Section 305) hereafter made by the Company to its
stockholders will not be taxable pursuant to Section 305. All adjustments to the
Common Equivalent Rate will be calculated to the nearest 1/100th of a share of
Common Stock. See "Certain Significant Considerations--Event Risk."

In addition, immediately prior to the effectiveness of a merger or
consolidation of the Company (other than a merger or consolidation of the
Company with or into a wholly owned subsidiary of the Company) that results in
the conversion or exchange of the Common Stock into, or the right to receive,
other securities or other property (whether of the Company or any other entity)
(any such merger or consolidation is referred to herein as a "Merger or
Consolidation"), each outstanding PERCS will convert automatically into (i)
shares of Common Stock at the Common Equivalent Rate in effect immediately prior
to such Merger or Consolidation, plus (ii) the right to receive an amount in
cash equal to all accrued and unpaid dividends on such PERCS to and including
the Settlement Date (as defined below), plus (iii) the right to receive an
amount of cash initially equal to $ (equivalent to $ for
each Depositary Share), declining by $ (equivalent to $
for each Depositary Share) on each day following the date of issue of the PERCS
(computed on the basis of a 360-day year of twelve 30-day months) to
$ (equivalent to $ for each Depositary Share) on
, 1997, and equal to zero thereafter, in each case determined with
reference to the Settlement Date, unless sooner redeemed. At the option of the
Company, it may deliver on the Settlement Date in lieu of some or all of the
cash consideration described in clauses (ii) and (iii) of the preceding
sentence, a number of shares of Common Stock to be determined by dividing the
amount of cash consideration that the Company has elected to pay in Common Stock
by the Current Market Price determined as of the second trading day immediately
preceding the Notice Date (as defined below). Because the Current Market Price
is determined as of a date different from the date of the delivery of the Common
Stock, the value of the Common Stock so delivered may be more or less than such
cash consideration. The automatic conversion of the PERCS immediately prior to a
Merger or Consolidation is intended to ensure that the holders of PERCS will be
entitled to the benefits of ownership of Common Stock upon the occurrence of
such Merger or
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<PAGE>
Consolidation and will participate in such Merger or Consolidation together with
the holders of Common Stock. The automatic conversion may have the effect of
deterring certain takeovers to the extent the premiums described in clause (iii)
of the first sentence of this paragraph requires the payment of additional
consideration.

In the event of conversion or exchange of the Common Stock into, or the
right to receive, other securities or property of the Company or a wholly owned
subsidiary of the Company or a merger or consolidation of the Company with or
into a wholly owned subsidiary of the Company that results in the conversion or
exchange of the Common Stock into, or the right to receive, other securities or
other property (whether of the Company or any other entity), then the PERCS will
thereafter no longer be subject to conversion into shares of Common Stock as
described above, but instead will be subject to conversion into the kind and
amount of securities or other property which the holder of such PERCS would have
owned immediately after such conversion or exchange or merger or consolidation
if such PERCS had been converted into shares of Common Stock immediately before
the effective time of such conversion or exchange or merger or consolidation.
If any such conversion or exchange or merger or consolidation shall have
occurred and the Company (or its successor) exercises its option upon any
succeeding Merger or Consolidation described in the preceding paragraph with
respect to cash consideration described in clauses (ii) and (iii) therein, the
Company (or its successor) will deliver, in lieu of Common Stock, such kind of
securities or other property with an aggregate market price determined as of the
second trading date immediately preceding the Notice Date equal to such cash
consideration.

For purposes of the foregoing provisions, certain terms are defined as
follows:

The term "Current Market Price" per share of the Common Stock on any
date of determination means the average of the daily regular way closing
prices (with any relevant due bill attached) as reported on the NYSE
Consolidated Tape for the five consecutive trading days ending on and
including such date of determination; provided, however, that, for purposes
of the first paragraph of "Right to Call" below, if the closing price of
the Common Stock as reported on the NYSE Consolidated Tape on the trading
day next following such five-day period (the "next-day closing price") is
less than 95% of said average closing price, then the Current Market Price
per share of Common Stock on such date of determination will be the
next-day closing price; and provided, further, that, with respect to any
redemption, conversion or antidilution adjustment of the PERCS, if any
event that results in an adjustment of the Common Equivalent Rate occurs
during the period beginning on the first day of such five-day period and
ending on the applicable redemption or conversion date, the Current Market
Price as determined pursuant to the foregoing will be appropriately
adjusted to reflect the occurrence of such event.

The term "Notice Date" with respect to any notice given by the Company
in connection with a call or conversion of the PERCS means the commencement
of the mailing of such notice to the holders of PERCS in accordance with
"Notice to Holders of PERCS" below.

The term "Settlement Date" means the business day immediately prior to
the effective date of a Merger or Consolidation.

Because the price of the Common Stock is subject to market fluctuations,
the value of the Common Stock received by a holder of PERCS upon the
effectiveness of a Merger or Consolidation may be more or less than the amount
paid for the PERCS.

The holders of PERCS have no right to require conversion of their PERCS.

Right to Call. At any time or from time to time prior to the Mandatory
Conversion Date, the Company shall have the right to call, in whole or in part,
the outstanding PERCS for redemption at a redemption price equal to the Call
Price plus an amount equal to accrued and unpaid dividends to and including the
date of redemption. The portion of the redemption price equal to the Call Price
shall be paid in shares of Common Stock and the remainder in cash. Upon such
call, the Company shall deliver to the holders thereof in exchange for each
PERCS a number of shares of Common Stock equal to the Call Price of the PERCS in
effect on the redemption date, divided by the Current Market Price of the
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Common Stock determined as of the second trading date immediately preceding the
Notice Date, plus an amount in cash equal to any accrued and unpaid dividends.
The Call Price of each PERCS is initially $ (equivalent to $ for
each Depositary Share); declining by $ (equivalent to $ for each
Depositary Share) on each day following the date of issue of the PERCS (computed
on the basis of a 360-day year of twelve 30-day months) to $ (equivalent to
$ for each Depositary Share) on , 1997 and will be
equal to $ (equivalent to $ for each Depositary Share)
thereafter; provided that if the Company reserves or distributes shares or other
units of securities or assets as provided in clauses (2) or (3) of the third
paragraph of "Antidilution Provisions and the Effect of Mergers or
Consolidations" above, then, from and after the record date related to such
reservation or distribution, the Call Price per share for any day shall be
reduced by the Fair Value of such shares or other units of securities or assets;
provided further that in no event shall the effect of the foregoing proviso be
to reduce the Call Price per share to an amount less than $0.

In the event of conversion or exchange of the Common Stock into, or the
right to receive, other securities or other property of the Company or a wholly
owned subsidiary of the Company or a merger or consolidation of the Company
with or into a wholly owned subsidiary of the Company that results in the
conversion or exchange of the Common Stock into, or the right to receive, other
securities or other property (whether of the Company or any other entity), then
the PERCS will thereafter no longer be subject to redemption into shares of
Common Stock as described in the preceding paragraph, but instead will be
subject to redemption into the kind of securities or other property which the
holder of such PERCS would have owned immediately after such conversion or
exchange or merger or consolidation if such PERCS had been converted into
shares of Common Stock immediately before the effective time of such conversion
or exchange or merger or consolidation, in an amount with an aggregate market
price, determined as of the second trading date immediately preceding the
Notice Date, equal to the Call Price of the PERCS in effect on the redemption
date.

The opportunity for equity appreciation afforded by an investment in the
Depositary Shares (and the PERCS) is limited because the Company may, at its
option, call the PERCS (and thereby the Depositary Shares) at any time prior to
the Mandatory Conversion Date at the Call Price (payable in shares of Common
Stock) plus an amount in cash equal to accrued and unpaid dividends, and may be
expected to do so prior to the Mandatory Conversion Date if the market price for
the Common Stock has theretofore exceeded the Call Price for the Depositary
Shares (equivalent to one-tenth of the Call Price for the PERCS). If the Company
elects to call the PERCS (and thereby the Depositary Shares), the equity
appreciation, exclusive of accrued and unpaid dividends, realized on an
investment in the Depositary Shares will, for any owner of Depositary Shares
called by the Company, be equal to the excess, if any, of (i) the value of the
Common Stock received in payment of the Call Price (the Call Price for the
Depositary Shares, subject to adjustment under certain circumstances, being
$ initially, declining to $ thereafter as indicated
above), over (ii) the price paid by such holder for such Depositary Shares (the
initial price to public being $ and the price thereafter being
subject to market fluctuations). Because the number of shares of Common Stock to
be delivered in payment of the Call Price will be determined on the basis of the
market price of the Common Stock prior to the notice of the call, the value of
the shares of Common Stock to be delivered may be more or less than the Call
Price on the date of delivery.

Fractional Shares. No fractional shares of Common Stock will be issued upon
redemption or conversion of the PERCS. In lieu of any fractional share otherwise
issuable in respect of all PERCS of any holder which are redeemed or converted
on any redemption or conversion date, such holder shall be entitled to receive,
at the Company's election, either (a) an amount in cash equal to the same
fraction of the Current Market Price of the Common Stock determined as of the
second trading day immediately preceding the relevant Notice Date or (b) a cash
payment equal to such holder's proportionate interest in the net proceeds
(following the deduction of applicable transaction costs) from the sale promptly
by an agent, on behalf of such holders, of shares of Common Stock representing
the aggregate of such fractional shares. See "Description of Series C Depositary
Shares--Call or Conversion of Depositary Shares."

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<PAGE>
Notice to Holders of PERCS. The Company will provide notice of any call or
conversion (including any potential conversion upon the effectiveness of a
Merger or Consolidation) of the PERCS to holders of record of PERCS to be called
or converted not less than 30 nor more than 60 days prior to the date fixed for
call or conversion; provided that if the timing of the effectiveness of a Merger
or Consolidation makes it impracticable to provide at least 30 days notice, the
Company shall provide the notice as soon as practicable prior to such
effectiveness. Such notice shall specify the Current Market Price to be used to
calculate the number of shares of Common Stock to be delivered, if any, and
whether the Company is exercising any option to deliver shares of Common Stock
in lieu of cash. Such notice shall be provided by mailing notice of such call or
conversion to the holders of PERCS to be called or converted. Each holder of
PERCS to be called or converted shall surrender the certificates evidencing such
PERCS to the Company at the place designated in such notice and shall be
entitled to receive certificates for shares of Common Stock and any funds
payable upon call or conversion as described above following such surrender and
following the date of such call or conversion. If fewer than all the outstanding
PERCS are to be called, the PERCS to be called shall be selected by the Company
from outstanding PERCS by lot or pro rata (as nearly as may be practicable
without creating fractional shares) or by any other method determined by the
board of directors of the Company in its sole discretion to be equitable. The
Depositary Shares are subject to call or conversion upon the same terms and
conditions (including those as to notice to the owners of Depositary Shares and
as to selection of Depositary Shares to be called if fewer than all of the
outstanding Depositary Shares are to be called) as the PERCS held by the
Depositary, adjusted to reflect the fact that ten Depositary Shares are the
equivalent of one share of PERCS. See "Description of Series C Depositary
Shares--Call or Conversion of Depositary Shares."

The holders of PERCS at the close of business on a dividend payment record
date will be entitled to receive the dividend payable on such PERCS on the
corresponding dividend payment date notwithstanding the call or conversion
thereof (except that holders of PERCS called for redemption or to be converted
on a date occurring between such record date and the dividend payment date shall
not be entitled to receive such dividend on such dividend payment date but
instead will receive accrued and unpaid dividends to such date or the related
Settlement Date, as the case may be) or the Company's default in payment of the
dividend due. Except as provided above, the Company will make no payment or
allowance for unpaid dividends, whether or not in arrears, on called or
converted PERCS or for dividends on the shares of Common Stock issued upon call
or conversion.

Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of PERCS then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, after payment or provision for
payment of the debts and other liabilities of the Company and any Senior
Securities, an amount per PERCS in cash equal to the sum of (i) ten times the
price to public per Depositary Share set forth on the cover page of this
Prospectus (equivalent to a liquidation preference per Depositary Share of the
price to public set forth on the cover page of this Prospectus) and (ii) all
accrued and unpaid dividends thereon to the date of liquidation, dissolution or
winding up, before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities. If the assets of the Company are not
sufficient to pay in full the liquidation payments payable to the holders of
outstanding PERCS and any other Parity Securities, the holders of PERCS and any
other Parity Securities shall share ratably in any distribution of assets in
accordance with the amount which would be payable on such distribution if the
amounts to which the holders of outstanding PERCS and the holders of outstanding
shares of such Parity Securities are entitled were paid in full. After payment
of the full amount of the liquidation distribution to which they are entitled,
the holders of PERCS will not be entitled to any further participation in any
distribution of assets of the Company. Neither the sale, transfer or lease of
all or any part of the assets of the Company nor the consolidation or merger of
the Company with one or more corporations shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Company.

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The Certificate of Incorporation does not contain any language requiring
funds to be set aside to protect the liquidation preference of the PERCS,
although such liquidation preference will be substantially in excess of the par
value of the PERCS. In addition, the Company is not aware of any provision of
the Delaware General Corporation Law (the "GCL") or any controlling decision of
the courts of the State of Delaware (the state of incorporation of the Company)
that requires a restriction upon the surplus of the Company solely because the
liquidation preference of the PERCS will exceed its par value. Consequently,
there will be no restriction upon the surplus of the Company solely because the
liquidation preference of the PERCS will exceed the par value and there will be
no remedies available to holders of the PERCS before or after the payment of any
dividend, other than in connection with the liquidation of the Company, solely
by reason of the fact that such dividend would reduce the surplus of the Company
to an amount less than the difference between the liquidation preference of the
PERCS and its par value.

Voting Rights. Holders of PERCS will have the right, voting together with
the holders of Common Stock (and any other capital stock of the Company entitled
to vote together with the Common Stock, including the Series A PERCS and the
ESOP Preferred Stock) as one class, to vote in the election of directors and
upon each other matter coming before any meeting of the stockholders on the
basis initially of one vote (equal to one-tenth of the Common Equivalent Rate)
for each share of PERCS (initially equivalent to one-tenth vote for each
Depositary Share) held; provided, however, that the holders of PERCS will not be
entitled to vote on any increase or decrease in the number of authorized shares
of any class or classes of stock. The Certificate of Incorporation also provides
that in the event that dividends on all series of Preferred Stock, including the
PERCS, are in arrears and unpaid for six quarterly periods, the board of
directors of the Company will be increased by two directors and the holders of
PERCS, together with the holders of all other outstanding series of the
Preferred Stock entitled to vote thereon, will be entitled to elect two
directors of the expanded board of directors, provided such directors do not
exceed 25% of such total board of directors of the Company and provided,
further, that such holders shall be entitled to elect at least one director
notwithstanding the foregoing proviso. Such voting rights will continue until
such time as all dividends in arrears have been paid or declared and set aside
for payment. While such holders are entitled to elect two directors, they shall
not be entitled to participate with the holders of Common Stock in the election
of any other directors, but would continue to vote with the holders of Common
Stock upon each other matter coming before any meeting of the stockholders.
After giving effect to the offering, the PERCS will have % of the total
voting power of the Company.

In addition, the Certificate of Incorporation provides that the Company
will not authorize a new class of Parity Securities without the affirmative vote
or consent of holders of a majority of the then outstanding shares of PERCS and
any other series of Preferred Stock of the Company entitled to vote thereon then
outstanding, voting or consenting, as the case may be, together as one class,
and that the Company will not authorize a new class of Senior Securities without
the affirmative vote or consent of holders of at least two-thirds of the then
outstanding PERCS and any other series of Preferred Stock of the Company
entitled to vote thereon then outstanding voting or consenting, as the case may
be, together as one class. The Certificate of Incorporation also provides that
the Company may not amend the Certificate of Incorporation so as to affect
materially and adversely the specified rights, preferences, privileges or voting
rights of the Preferred Stock without the affirmative vote or consent of the
holders of at least two-thirds of the then outstanding PERCS and any other
series of Preferred Stock of the Company entitled to vote thereon then
outstanding, voting or consenting, as the case may be, together as one class.
These voting rights with respect to the PERCS will terminate if the Company has
given notice of any call or conversion of all outstanding PERCS and the shares
of Common Stock and any necessary funds required for such call or conversion
have been deposited in trust for such call or conversion. The Certificate of
Incorporation also provides that (a) except as set forth above, the creation,
authorization or issuance of any shares of Junior Securities, Parity Securities
or Senior Securities, including the designation of series thereof within the
existing class of Preferred Stock, (b) the creation of any indebtedness of any
kind of the Company or (c) the increase or decrease in the amount of authorized
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capital stock of any class, including any Preferred Stock, shall not require the
consent of the holders of PERCS and shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting rights of PERCS.

Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the Certificate of Incorporation, whether or
not entitled to vote thereon by the Certificate of Incorporation, if the
amendment would increase or decrease the par value of the shares of such class
or alter or change the powers, preferences, or special rights of the shares of
such class so as to affect them adversely. Pursuant to the Certificate of
Incorporation, the holders of a majority of the outstanding shares of Common
Stock may, however, increase or decrease (but not below the number of shares of
such class then outstanding) the aggregate number of authorized shares of
Preferred Stock without the vote of holders of Preferred Stock.

Reissuance. PERCS redeemed for or converted into Common Stock or otherwise
acquired by the Company will assume the status of authorized but unissued
Preferred Stock and may thereafter be reissued in the same manner as other
authorized but unissued Preferred Stock.

Listing. Application will be made to list the Depositary Shares on the
NYSE.

OTHER PREFERRED STOCK

Series A PERCS. Each share of Series A PERCS is entitled to receive, when,
as and if declared by the board of directors of the Company, out of funds
legally available therefor, cumulative cash dividends at a rate of $3.34 per
annum, payable quarterly in arrears. Each share of Series A PERCS will
mandatorily convert into four shares of Common Stock of the Company on November
15, 1994, subject to adjustment in certain events. In addition, each share of
Series A PERCS may be redeemed by the Company, in whole or in part, at any time
at a redemption price to be paid in shares of Common Stock, plus accrued and
unpaid dividends. The optional redemption price declines from $64.82 per share
by $.009218 on each day following November 8, 1991 to $55.36 on September 15,
1994, and is $54.80 thereafter.

Immediately prior to the effectiveness of a Merger or Consolidation of the
Company, each outstanding Series A PERCS will convert automatically into (i)
shares of Common Stock at a rate, which currently is four shares of Common Stock
for each Series A PERCS, in effect immediately prior to such Merger or
Consolidation, plus (ii) the right to receive an amount in cash equal to all
accrued and unpaid dividends on such Series A PERCS to and including the
Settlement Date, plus (iii) the right to receive an amount of cash initially
equal to $10.02, declining by $.009218 on each day following November 8, 1991 to
$.56 on September 15, 1994, and equal to zero thereafter, unless sooner
redeemed. At the option of the Company, it may deliver on the Settlement Date in
lieu of some or all of the cash consideration described in clauses (ii) and
(iii) of the preceding sentence, shares of Common Stock.

Holders of Series A PERCS have voting rights which are generally consistent
with those of the holders of the PERCS.

Series B Preferred Stock. Each share of Series B Preferred Stock is
entitled to receive, when, as and if declared by the board of directors of the
Company, out of funds legally available therefor, cumulative preferential cash
dividends at the rate per annum of 9.25%, payable quarterly in arrears. On and
after August 19, 1998, the Company, at its option upon not less than 30 nor more
than 60 days' notice, may redeem shares of the Series B Preferred Stock, as a
whole or in part, at any time, at a redemption price equivalent to $25,000 per
share, plus accrued and unpaid dividends thereon to the date fixed for
redemption, without interest, to the extent the Company will have funds legally
available therefor.

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The Series B Preferred Stock has no stated maturity and is not subject to
any sinking fund or mandatory redemption. The Series B Preferred Stock is not
convertible into, or exchangeable for, shares of any other class or series of
stock of the Company.

The holders of the Series B Preferred Stock do not have any voting rights,
except as otherwise provided by law and under certain other limited
circumstances.

ESOP Preferred Stock. Each share of ESOP Preferred Stock is entitled to
receive, when, as and if declared by the board of directors of the Company, out
of funds legally available therefor, cumulative cash dividends at a rate of
7.8125% of stated value per annum ($1.25 per annum) at least until April 10,
1999, payable semi-annually in arrears. Each share of ESOP Preferred Stock is
convertible into one share of Common Stock, subject to adjustment in certain
events. The ESOP Preferred Stock is redeemable at the option of the Company, in
whole or in part, at any time on or after April 10, 1999, at an initial optional
redemption price of $16.25 per share, declining thereafter on an annual basis in
the amount of $.125 a year to $16 per share on April 10, 2001, plus accrued and
unpaid dividends. Under certain other circumstances, the ESOP Preferred Stock is
subject to redemption at any time. Holders of ESOP Preferred Stock have voting
rights which are generally consistent with those of the holders of the PERCS.

CONTRACTUAL RESTRICTIONS ON PAYMENT OF DIVIDENDS

The Company is subject to various contractual restrictions on its ability
to pay dividends on its Preferred Stock and Common Stock.

Under the Credit Agreements, if no event of default exists thereunder in
the case of clauses (i), (iii) and (iv) below, the Company may (i) declare and
pay regularly scheduled dividends on its preferred or preference stock
outstanding on December 9, 1991, in the case of the 1991 Credit Agreement, and
April 5, 1993, in the case of the 1993 Credit Agreement, when and as scheduled
at dividend rates not exceeding those in effect on December 19, 1991, in the
case of the 1991 Credit Agreement, and April 5, 1993, in the case of the 1993
Credit Agreement; (ii) issue shares of Common Stock upon the exercise of any
warrants or options or upon the conversion or redemption of any convertible or
redeemable preferred stock, and in connection with any such exercise, conversion
or redemption, the Company may pay cash in lieu of issuing fractional shares of
Common Stock; (iii) repurchase shares of Common Stock (and/or options or
warrants in respect thereof) pursuant to and in accordance with the terms of,
management and/or employee stock plans; (iv) declare and pay, or otherwise
effect, any other cash dividend or other dividend or distribution, or repurchase
or redeem any capital stock, provided that the aggregate amount of such other
dividends or distributions, repurchases or redemptions, when added to all
dividends or distributions, repurchases or redemptions, made in accordance with
this clause (iv) after December 19, 1991, in the case of the 1991 Credit
Agreement, and January 1, 1992, in the case of the 1993 Credit Agreement, will
not exceed an amount equal to the sum of (x) 50% of the sum of (A) consolidated
net income of the Company and its subsidiaries for the period (taken as one
accounting period) from January 1, 1992 to the last day of the last fiscal
quarter of the Company then ended plus (B) all losses from debt retirement
deducted in determining consolidated net income of the Company and its
subsidiaries for the period referred to in clause (A) above plus (y) the
aggregate cash proceeds (net of underwriting discounts and commissions) received
by the Company after March 22, 1993, in the case of the 1991 Credit Agreement,
and April 5, 1993, in the case of the 1993 Credit Agreement, from issuances of
its equity securities; (v) issue and exchange shares of any class or series of
Common Stock now or hereafter outstanding for shares of any other class or
series of Common Stock now or hereafter outstanding and (vi) in connection with
any reclassification of Common Stock and any exchange permitted by clause (v)
above, pay cash in lieu of issuing fractional shares of any class or series of
Common Stock. The Company believes that the dividend restrictions set forth in
the Credit Agreements will not prevent the Company from paying the dividends it
intends to pay on the PERCS.

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The RJRN Subordinated Debenture Indentures and the Senior Note Indenture,
by containing restrictions on the payment of cash dividends or the making of
other distributions by RJRN to the Company in excess of certain specified
amounts and for certain specified purposes, also effectively limit the payment
of dividends on the Common Stock or any Preferred Stock. The restrictions in
these indentures have the effect of prohibiting the payment of dividends or the
making of other payments or distributions by RJRN in respect of its Capital
Stock (as defined in the RJRN Subordinated Debenture Indentures and the Senior
Note Indenture) if, at the time of such payment (x) a default under such
indentures shall have occurred and be continuing, (y) RJRN, after giving effect
to such payment, could not incur at least $1.00 of additional Indebtedness (as
defined in the RJRN Subordinated Debenture Indentures and the Senior Note
Indenture) by virtue of meeting certain fixed charge coverage ratios as set
forth in the restrictions on Indebtedness in such indentures or (z) after giving
effect to such payment, the aggregate amount expended for all Restricted
Payments (as hereinafter defined) subsequent to September 30, 1990 (December 31,
1990, in the case of the Senior Note Indenture) shall exceed the sum of (1) 25%
(50% in the case of the Senior Note Indenture excluding the cash dividends
referred to in (3) below) of the aggregate Consolidated Net Operating Income (as
hereinafter defined) of RJRN accrued on a cumulative basis subsequent to
December 31, 1990, plus (2) the aggregate net proceeds received by RJRN from the
issuance and sale (other than to a subsidiary (as defined in the RJRN
Subordinated Debenture Indentures and the Senior Note Indenture)) after December
31, 1990, of RJRN's Capital Stock (other than Redeemable Stock (as defined in
the RJRN Subordinated Debenture Indentures and the Senior Note Indenture)),
including the issuance or sale for cash after December 31, 1990, or upon the
conversion after December 31, 1990, of any Indebtedness of RJRN (which
Indebtedness is, by its terms, convertible into Capital Stock (other than
Redeemable Stock) of RJRN) or from the exercise after December 31, 1990 of any
options, warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of RJRN plus (3) in the case of the Senior Note Indenture, the
aggregate net proceeds received by RJRN from capital contributions made to RJRN
after December 31, 1990 plus $250 million plus the amount of all cash dividends
from an Unrestricted Subsidiary (as defined in the Senior Note Indenture) after
December 31, 1990, minus (4) the aggregate amount of certain payments made with
respect to minority interests previously made by all Subsidiaries of RJRN;
provided, however, that notwithstanding the foregoing restrictions, (a) such
indentures do not prevent the payment of dividends by RJRN on RJRN's common
stock, following public offerings of RJRN's or the Company's common stock, of up
to 6% per annum of the net proceeds received by RJRN in such public offering or,
in the case of public offerings by the Company, up to 6% per annum of the amount
of proceeds contributed down to RJRN as common equity and (b) the RJRN
Subordinated Debenture Indentures permit loans, advances, dividends and
distributions by RJRN to the Company to the extent necessary to permit the
Company to pay cash dividends on the Common Stock on and after May 1, 1993, up
to $100 million per annum limited to an aggregate of $250 million, provided no
default under such indentures shall have occurred and be continuing or occur and
be continuing as a consequence thereof.

As used herein:

"Restricted Payments" means (i) the declaration or payment of any
dividend or the making of any distribution on RJRN's Capital Stock or to
holders of RJRN's Capital Stock (other than dividends or distributions
payable in RJRN's common stock or in shares of RJRN's Capital Stock) or the
making of any loans or advances to the holders of RJRN's Capital Stock or
to the Company or the purchase of Capital Stock of the Company, (ii) the
purchase, redemption or acquisition or retirement for value by RJRN or any
of its Subsidiaries of any such Capital Stock (or options, warrants or
other rights to acquire such Capital Stock) or Capital Stock or any other
security of a direct or indirect parent of RJRN, (iii) the redemption,
repurchase, defeasance (including, but not limited to, in substance or
legal defeasance) or the acquisition or retirement for value by RJRN or any
of its Subsidiaries prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of Indebtedness of RJRN that is pari passu
or subordinate (whether pursuant to its terms or by operation of law) in
right of payment to the RJRN Subordinated Debentures under the
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RJRN Subordinated Debenture Indentures or subordinate (whether pursuant to
its terms or by operation of law) in right of payment to the Senior Notes
under the Senior Note Indenture and which was scheduled to mature (after
giving effect to any and all options to extend the maturity thereof) on or
after the maturity date of the RJRN Subordinated Debentures or the Senior
Notes, as the case may be (after giving effect to any and all options to
extend the maturity thereof) (except, in the case of the Senior Notes,
certain permitted redemptions, repurchases, defeasances, acquisitions or
retirements for value of the subordinated Indebtedness of RJRN) or (iv) the
making of any Investment in any Unrestricted Subsidiary in excess of the
Minimum Permitted Investment (as such terms are defined, respectively, in
the RJRN Subordinated Debenture Indentures and the Senior Note Indenture).

"Consolidated Net Operating Income" of any person means, for any
period, the aggregate Consolidated Net Income of such person and its
Subsidiaries for such period, determined on a consolidated basis in
accordance with generally accepted accounting principles, adjusted by
excluding (to the extent not otherwise excluded in calculating Consolidated
Net Income) the net extraordinary gain or the net extraordinary loss, as
the case may be, during such period and including, in the case of the RJRN
Subordinated Debenture Indentures, the amount of all dividends received by
RJRN or its Subsidiaries from an Unrestricted Subsidiary in excess of the
amount of all Investments made by RJRN in such Unrestricted Subsidiary.

"Consolidated Net Income" of any person means, for any period, the net
income (or loss) of such person and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles, provided that there shall be excluded (i) the net
income (or loss) of any person that is not a Subsidiary of such person in
which any other person (other than such person or any of its Subsidiaries)
has a joint interest, except to the extent of the amount of dividends or
other distributions actually paid to such person or any of its Subsidiaries
by such other person during such period, (ii) except to the extent
includible pursuant to the foregoing clause (i), the net income (or loss)
of any other person accrued prior to the date it becomes a Subsidiary of
such person or is merged into or consolidated with such person or any of
its Subsidiaries or such other person's assets are acquired by such person
or any of its Subsidiaries, (iii) the net income of any Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary and (iv) any gains or losses
attributable to Asset Sales (as defined in the RJRN Subordinated Debenture
Indentures and the Senior Note Indenture) on an after-tax basis (in the
case of the Senior Note Indenture).

In determining "Consolidated Net Income" the RJRN Subordinated Debenture
Indentures and the Senior Note Indenture specify that generally accepted
accounting principles applicable to RJRN for 1988 fiscal year shall apply,
without giving effect to (i) certain adjustments required or permitted by
Accounting Principles Board Opinions Nos. 16 and 17 in respect of the
Acquisition and the related financings, (ii) the effects of any "carryover
basis" accounting required by generally accepted accounting principles, (iii)
the amortization of certain goodwill and intangible assets consummated prior to
the tender offer for RJRN's shares of Common Stock ended February 9, 1989 and,
(iv) the amortization or write-off of certain expenses in respect of the
Acquisition and the related financing and debt issued prior to the Acquisition.

RJRN believes that it has and will continue to have sufficient Restricted
Payment capacity under the RJRN Subordinated Debenture Indentures and the Senior
Note Indenture for it to fund the dividends that the Company intends to pay on
the PERCS.

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CERTAIN STATUTORY AND BY-LAW PROVISIONS

The Company is currently, and following the consummation of the offering
will be, subject to the "business combination" statute of the GCL. In general,
Section 203 of the GCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (a) prior to such date the board of
directors of the corporation approved either the "business combination" or the
transaction which resulted in the stockholder becoming an "interested
stockholder," (b) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned (i) by persons who are directors and
also officers and (ii) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, or (c) on or subsequent
to such date the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." A "business combination" includes
mergers, stock or asset sales and other transactions resulting in a financial
benefit to the "interested stockholders." An "interested stockholder" is a
person who, together with affiliates and associates, owns (or if such person is
an affiliate or associate of the corporation within three years, did own) 15% or
more of the corporation's voting stock.

Assuming the offering is completed, a person will become an "interested
stockholder" of the Company at such time as such person owns 15% or more of the
votes of the Company's voting stock.

The Company's By-laws establish an advance notice procedure for
stockholders to make nominations of candidates for election as directors, or to
bring other business before an annual meeting of stockholders of the Company.
The By-laws provide that only persons who are nominated by, or at the direction
of, the board of directors of the Company or any committee designated by the
board of directors of the Company, or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. The By-laws also provide that in order to properly submit any business
to an annual meeting of stockholders, a stockholder must give timely written
notice to the Secretary of the Company of such stockholder's intention to bring
such business before such meeting. Generally, for notice of stockholder
nominations or other business to be made at an annual meeting to be timely under
the By-laws, such notice must be received by the Company (i) not less than 120
days nor more than 150 days before the first anniversary date of the Company's
proxy statement in connection with the last annual meeting of stockholders or
(ii) if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, not less than a
reasonable time, as determined by the board of directors of the Company, prior
to the date of the applicable annual meeting. Under the By-laws, a stockholder's
notice must also contain certain information specified in the By-laws.

The provisions described above may have the effect of delaying stockholder
actions with respect to certain business combinations and the election of new
members of the board of directors of the Company. As such, the provisions could
have the effect of discouraging open market purchases of Common Stock because
they may be considered disadvantageous by a stockholder who desires to
participate in a business combination or elect a new director.

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DESCRIPTION OF SERIES C DEPOSITARY SHARES

Each Depositary Share represents one-tenth of a share of Series C
Conversion Preferred Stock deposited under the Deposit Agreement, dated as of
, 1994 (the "Deposit Agreement") between the Company and First
Chicago Trust Company of New York, as depositary (the "Depositary"). Subject to
the terms of the Deposit Agreement, each owner of a Depositary Share is
entitled, proportionately, to all the rights, preferences and privileges of the
PERCS represented thereby (including dividend, voting and liquidation rights),
and subject, proportionately, to all of the limitations of the PERCS represented
thereby contained in the Certificate of Designation for the PERCS, summarized
under "Description of Capital Stock--Series C PERCS."

The Depositary Shares are evidenced by depositary receipts issued pursuant
to the Deposit Agreement (the "Depositary Receipts"). The following summary of
the terms and provisions of the Depositary Shares does not purport to be
complete and is subject to, and qualified in its entirety by, the Deposit
Agreement (which contains the form of Depositary Receipt), which is an exhibit
to the Registration Statement. Copies of the Deposit Agreement are available for
inspection at the Corporate Office (as defined in the Deposit Agreement) of the
Depositary.

ISSUANCE OF DEPOSITARY RECEIPTS

Immediately following the issuance of the PERCS by the Company, the Company
will deposit the PERCS with the Depositary, which will then execute and deliver
the Depositary Receipts to the Company. The Company will, in turn, deliver the
Depositary Receipts to the Underwriters. Depositary Receipts will only be issued
evidencing whole Depositary Shares.

WITHDRAWAL OF PERCS

Upon surrender of Depositary Receipts at the principal office of the
Depositary, upon payment of any unpaid amount due the Depositary, and subject to
the terms of the Deposit Agreement, the owner of the Depositary Shares evidenced
thereby is entitled to delivery of the number of whole shares of PERCS and all
money and other property, if any, represented by such Depositary Shares. Partial
shares of PERCS will not be issued. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of whole shares of PERCS to be
withdrawn, the Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares. Holders
of PERCS thus withdrawn will not thereafter be entitled to deposit such shares
under the Deposit Agreement or to receive Depositary Receipts evidencing
Depositary Shares therefor.

CALL OR CONVERSION OF DEPOSITARY SHARES

As described under "Description of Capital Stock--Series C PERCS--Mandatory
Conversion" and "--Right to Call", the PERCS are subject to automatic conversion
into shares of Common Stock on the Mandatory Conversion Date, and the right of
the Company to call the PERCS, at the Company's option, for redemption.
Automatic conversion of the outstanding PERCS will also occur upon certain
mergers or consolidations of the Company. The Depositary Shares are subject to
call or conversion upon the same terms and conditions (including as to notice to
the owners of Depositary Shares and as to selection of Depositary Shares to be
called if fewer than all the outstanding Depositary Shares are to be called) as
the PERCS held by the Depositary using the Common Stock received by the
Depositary, except that the number of shares of Common Stock received upon call
or conversion of each Depositary Share will be equal to one-tenth of the number
of shares of Common Stock received upon redemption or conversion of each PERCS.
To the extent that Depositary Shares are redeemed for or converted into shares
of Common Stock and all of such shares of Common Stock cannot be distributed to
the record holders of Depositary Receipts without creating fractional interests
in such shares, the Depositary may,
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with the consent of the Company, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including the sale
(at public or private sale) of such shares of Common Stock representing in the
aggregate such fractional interest at such places and upon such terms as it may
deem proper, and the net proceeds of any such sale shall be distributed or made
available for distribution to such record holders that would otherwise have
received fractional interests in such shares of Common Stock. The amount
distributed in the foregoing cases will be reduced by any amounts required to be
withheld by the Company or the Depositary on account of taxes or otherwise
required pursuant to law, regulation or court process.

DIVIDENDS AND OTHER DISTRIBUTIONS

The Depositary will distribute all cash dividends or other cash
distributions received in respect of the PERCS represented by the Depositary
Shares to the record holders of Depositary Receipts in proportion to the number
of Depositary Shares owned by such holders on the relevant record date, which
will be the same date as the record date fixed by the Company for the PERCS. The
Depositary, however, will distribute only such amount as can be distributed
without attributing to any Depositary Share a fraction of one cent, and any
balance not so distributed will be added to and treated as part of the next sum
received by the Depositary for distribution to record holders of Depositary
Receipts then outstanding.

In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Receipts
entitled thereto, in proportion, as nearly as may be practicable, to the number
of Depositary Shares owned by such holders on the relevant record date, unless
the Depositary determines (after consultation with the Company) that it is not
feasible to make such distribution, in which case the Depositary may (with the
approval of the Company) adopt any other method for such distribution as it
deems appropriate, including the sale of such property and distribution of the
net proceeds from such sale to such holders.

VOTING PERCS

Promptly upon receipt of notice of any meeting at which the holders of
PERCS represented by such holders' Depositary Shares are entitled to vote or any
solicitation of consents in respect of the PERCS, the Depositary will mail the
information contained in such notice of meeting or consent solicitation, as the
case may be, to the record holders of Depositary Receipts as of the record date
for such meeting. Each such record holder of Depositary Receipts will be
entitled to instruct the Depositary as to the exercise of the voting rights or
the delivery of consents with respect to the number of PERCS represented by such
holder's Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote or deliver a consent with respect to the number of PERCS
represented by such Depositary Shares in accordance with such instructions, and
the Company intends to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting or delivering consents with respect to the PERCS to the
extent it does not receive specific written instructions from the holders of
Depositary Receipts.

AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT

The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary. However, any
amendment which imposes or increases any fees, taxes, or charges upon holders of
Depositary Receipts (other than taxes and other governmental charges, fees and
other expenses payable by such holders as stated under "Charges of Depositary"),
or which otherwise prejudices any substantial existing right of holders of
Depositary Receipts, will not take effect as to outstanding Depositary Receipts
until the expiration of 30 days after notice of such amendment has been mailed
to the record holders of outstanding Depositary Receipts. Every holder of an
outstanding
41
<PAGE>
Depositary Receipt at the time any such amendment becomes effective will be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the Deposit Agreement as amended thereby. No
such amendment may impair the right, subject to the terms of the Deposit
Agreement, of any owner of any Depositary Shares to surrender the Depositary
Receipt evidencing such Depositary Shares with instructions to the Depositary to
deliver to the holder PERCS and all money and other property, if any,
represented thereby, except in order to comply with mandatory provisions of
applicable law.

The Deposit Agreement may be terminated by the Company or the Depositary
only if (i) all outstanding Depositary Shares have been redeemed or converted or
(ii) there has been a final distribution in respect of the PERCS in connection
with any liquidation, dissolution or winding up of the Company and such
distribution has been made to all the holders of Depositary Shares. In the event
the Deposit Agreement is terminated, the Company will use its best efforts to
list the PERCS on the NYSE or any other national securities exchange on which
the Common Stock is listed.

CHARGES OF DEPOSITARY

The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of the
PERCS and the initial issuance of the Depositary Shares, any redemption or
conversion of the PERCS and all withdrawals of the PERCS by owners of Depositary
Shares. Holders of Depositary Receipts will pay transfer, income and other taxes
and governmental charges and certain other charges as are provided in the
Deposit Agreement to be for their accounts. In certain circumstances, the
Depositary may refuse to transfer Depositary Shares, may withhold dividends and
distributions and sell the Depositary Shares evidenced by such Depositary
Receipt if such charges are not paid.

MISCELLANEOUS

The Company will deliver to the Depositary all annual and quarterly reports
to stockholders and other communications which the Company is required to
furnish to the holders of PERCS by law, by the rules of the NYSE or by the
Certificate of Incorporation or Certificate of Designation relating to the
PERCS. Currently, only the rules of the NYSE require the delivery of annual and
quarterly reports to stockholders. The Depositary will forward to the holders of
Depositary Receipts and will make available for inspection by holders of
Depositary Receipts at the principal office of the Depositary, and at such other
places as it may from time to time deem advisable, any such reports and
communications received from the Company.

Neither the Depositary nor the Company assumes any obligation or will be
subject to any liability under the Deposit Agreement to holders of Depositary
Receipts other than for its negligence, bad faith or willful misconduct. Neither
the Depositary nor the Company will be liable if it is prevented or delayed by
law or any circumstance beyond its control in performing its obligations under
the Deposit Agreement. The obligations of the Company and the Depositary under
the Deposit Agreement will be limited to performance in good faith of their
duties thereunder, and they will not be obligated to prosecute or defend any
legal proceeding in respect of any Depositary Shares or PERCS unless
satisfactory indemnity is furnished. The Company and the Depositary may rely on
written advice of counsel or accountants, on information provided by holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.

42
<PAGE>
RESIGNATION AND REMOVAL OF DEPOSITARY

The Depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 45 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its principal
office in the United States of America and having a combined capital and surplus
of at least $50,000,000.

43
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS

Simpson Thacher & Bartlett (a partnership which includes professional
corporations), counsel to the Company ("Counsel"), is of the opinion that the
following discussion sets forth the material anticipated federal income tax
consequences of the ownership and disposition of the Depositary Shares and the
PERCS represented thereby. Prospective investors should note, however, that
stock with terms closely comparable to those of the PERCS has not been the
subject of any regulations, rulings or judicial decision. There can be no
assurance that the Internal Revenue Service (the "Service") will take a similar
view as to any of the tax consequences described below. No ruling has been or
will be requested from the Service on any tax matters relating to the PERCS.

This summary is based upon the provisions of the Code, the regulations,
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to an investor's decision to
purchase Depositary Shares and it is not intended to be applicable to all
categories of investors, some of which, such as dealers in securities, banks,
insurance companies, tax-exempt organizations and foreign persons, may be
subject to special rules. In addition, the summary is limited to persons that
will hold the Depositary Shares and any PERCS or Common Stock received in
exchange therefor as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Code. ALL PROSPECTIVE PURCHASERS OF
PERCS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
DEPOSITARY SHARES.

OVERVIEW

Subject to the full discussion below, which qualifies, and should be read
in conjunction with, the following overview, the principal federal income tax
considerations with respect to the ownership and disposition of the PERCS are as
follows:

Dividends. Dividends paid on the PERCS out of the Company's current or
accumulated earnings and profits (if any) will qualify for the 70%
intercorporate dividends-received deduction, subject to the minimum holding
period (generally at least 46 days) and other applicable requirements.

Effect of Dividends on Tax Basis. While the issue is not free from doubt,
original corporate holders of the PERCS should not be required to reduce their
tax basis in the PERCS pursuant to Section 1059 of the Code in respect of any
dividends-received deductions relating to regular quarterly dividends on the
PERCS paid currently.

Call for or Mandatory Conversion into Common Stock. Gain or loss generally
will not be recognized by an owner upon a call of the PERCS solely for Common
Stock or Mandatory Conversion of the PERCS solely into shares of Common Stock.

Call Premium. While the issue is not free from doubt, owners should not be
required to include in income prior to receipt any call premium which may be
payable with respect to the PERCS.

DEPOSITARY SHARES

The tax treatment for the owners of the Depositary Shares will be the same
as the tax treatment for the owners of the PERCS as described below. In
addition, no gain or loss will be recognized upon the withdrawal of the PERCS in
exchange for Depositary Shares pursuant to the Deposit Agreement, an owner's tax
basis in the withdrawn PERCS will be the same as the tax basis in the Depositary
Shares surrendered therefor, and such owner's holding period for the withdrawn
PERCS will include the period during which the owner held the surrendered
Depositary Shares.

44
<PAGE>
DIVIDENDS

Counsel believes that dividends paid on the PERCS out of the Company'
current or accumulated earnings and profits (if any) will be taxable as ordinary
income and will qualify for the 70% intercorporate dividends-received deduction
subject to the minimum holding period (generally at least 46 days) and other
applicable requirements. Under certain circumstances, a corporate holder may be
subject to the alternative minimum tax with respect to the amount of its
dividends-received deduction. Dividends in excess of the Company's current and
accumulated earnings and profits will be taxed first as a tax-free return of
capital to the extent of the holder's basis in its PERCS, and thereafter as
capital gain from the sale or exchange of the PERCS. Such gain will be long-term
or short-term capital gain depending on the holder's holding period for the
PERCS. The amount of the Company's earnings and profits (if any) will depend
upon the Company's future actions and financial performance, and cannot
presently be determined.

Under certain circumstances, a corporation that receives an "extraordinary
dividend," as defined in Section 1059(c) of the Code, is required to reduce its
stock basis by the non-taxed portion of such dividend. Generally, regular
quarterly dividends paid currently (i.e., dividends not accumulated beyond the
dividend payment date) to an original holder of the PERCS will not constitute
extraordinary dividends under Section 1059(c). In addition, under Section
1059(f), any dividend with respect to "disqualified preferred stock" is treated
as an "extraordinary dividend." However, Counsel believes that the PERCS will
not constitute "disqualified preferred stock", although the issue is not free
from doubt.

REDEMPTION PREMIUM

Under certain circumstances, Section 305(c) of the Code requires that the
excess of the redemption price of preferred stock over its issue price be
includable in income, prior to receipt, as a constructive dividend. However,
Counsel believes that Section 305(c) does not currently apply to stock with
terms such as those of the PERCS, although the issue is not free from doubt.

CALL FOR OR MANDATORY CONVERSION INTO COMMON STOCK

Gain or loss will generally not be recognized by a holder upon call of the
PERCS for shares of Common Stock or conversion of the PERCS into shares of
Common Stock if no cash or other property is received. Income may be recognized,
however, to the extent cash or Common Stock is received in payment of dividends
in arrears. In addition, a holder who receives cash in lieu of a fractional
share will be treated as having received such share and (i) exchanged it for
cash in a transaction subject to Section 302 of the Code and related provisions
if such cash is received directly from the Company, or alternatively (ii)
recognized gain or loss from the sale of the fractional share if such share is
disposed of by an agent appointed by the Company to sell such share on behalf of
a holder. A holder who receives cash (other than any cash in lieu of a
fractional share or cash in payment of dividends in arrears) or other property
or both upon the call or conversion of the PERCS will not recognize loss (if
any), and will recognize gain (if any), on such call or conversion, but not in
excess of the sum of such cash and the value of such other property. The measure
of such a holder's gain will be the excess (if any) of the sum of such cash and
the value of such other property plus the value of the shares of Common Stock
received over such holder's basis in the called or converted PERCS. Depending
upon the facts and circumstances, any gain may be treated in whole or in part as
a dividend. Any such dividend to a corporate holder may constitute (and may
cause other dividends, including regular dividends, to constitute) an
"extraordinary dividend" under Section 1059 of the Code.

Generally, a holder's basis in the Common Stock received upon the call or
conversion of the PERCS (other than shares, if any, taxed as a dividend upon
receipt) will equal the basis of the called or converted PERCS, plus the amount
of gain (if any) recognized, minus the sum of cash and the value of other
property received (if any), and the holding period of such Common Stock will
include the holding period of the called or converted PERCS.

45
<PAGE>
ADJUSTMENT OF CONVERSION RATE

Certain adjustments to the Common Equivalent Rate to reflect the Company's
issuance of certain rights, warrants, evidences of indebtedness, securities or
other assets to holders of Common Stock may result in constructive distributions
taxable as dividends to the holders of the PERCS. Similarly, if instead of
adjusting the Common Equivalent Rate upon such an issuance the Company elects at
such time to alter the consideration receivable by the holders of the PERCS upon
conversion to include the assets such holders would have been entitled to
receive if conversion had occurred prior to the record date for such issuance,
the alteration may result in constructive distributions taxable as dividends to
the holders of the PERCS. Further, if instead of adjusting the Common Equivalent
Rate upon such issuance or altering the consideration receivable by the holders
of PERCS upon conversion, the Company elects to distribute assets currently to
the holders of the PERCS, such distribution may be taxable as a dividend to the
holders of the PERCS. Any of the actual or constructive dividends described in
this paragraph may constitute (and may cause other dividends, including regular
dividends, to constitute) extraordinary dividends to corporate holders (see
"Dividends" above).

BACKUP WITHHOLDING

Certain noncorporate holders may be subject to backup withholding at a rate
of 31% on dividends and certain consideration received upon the call or
conversion of the PERCS. Generally, backup withholding applies only when the
taxpayer fails to furnish or certify a proper Taxpayer Identification Number or
when the taxpayer is notified by the Service that he has failed to report
payments of interest and dividends properly. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining any applicable exemption.

CERTAIN UNITED STATES WITHHOLDING TAX CONSEQUENCES

Dividends received by a nonresident alien individual, foreign corporation,
foreign partnership, foreign estate or foreign trust (a "non-U.S. person") will
be subject to U.S. federal withholding tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty, unless such dividends are
effectively connected with the conduct of a trade or business of the holder in
the United States, in which case the dividends will be subject to regular U.S.
federal income tax plus, in the case of a corporate holder, a possible
additional "branch profits" tax. All non-U.S. persons are urged to consult their
tax advisors regarding the consequences of the purchase, ownership and
disposition of PERCS, including the requirements for claiming a reduction in
withholding tax under an applicable income tax treaty.

46
<PAGE>
UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally and
not jointly agreed to purchase, and the Company has agreed to sell to the
Underwriters, severally and not jointly, the respective number of Depositary
Shares set forth opposite their names below:

<TABLE> <CAPTION>
NUMBER OF
DEPOSITARY
NAME SHARES
- ----------------------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley & Co. Incorporated............................................
Smith Barney Shearson Inc....................................................
--------------
Total................................................................... 300,000,000
--------------
--------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Depositary Shares are subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the
Depositary Shares offered hereby (other than those covered by the over-allotment
option) if any are taken.

The Underwriters propose to offer part of the Depositary Shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price which represents a concession not in excess
of $ per Depositary Share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Depositary
Share to Underwriters or to certain other dealers.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to additional
Depositary Shares at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase additional Depositary Shares solely for the
purpose of covering over-allotments, if any, incurred in the sale of the
Depositary Shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional Depositary Shares as the
number set forth next to such Underwriter's name in the preceding table bears to
300,000,000.

The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for Common Stock for a period of 180 days after the date of
this Prospectus, subject to certain exceptions. Certain limited partnerships of
which KKR Associates, an affiliate of KKR, is the sole general partner, shall
agree that, subject to certain exceptions, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for Common Stock for a period of 180 days after the date of
this Prospectus.

The Company and the Underwriters have agreed to indemnity each other
against certain liabilities, including liabilities under the Securities Act of
1933.

From time to time certain Underwriters and their affiliates have rendered
investment banking and other advisory services to the Company.

47
<PAGE>
LEGAL MATTERS

The validity of the Depositary Shares, the PERCS and the Common Stock
offered hereby will be passed upon for the Company by Jo-Ann Ford, Vice
President and Assistant General Counsel of the Company, and will be passed upon
for the Underwriters by Davis Polk & Wardwell, New York, New York. Simpson
Thacher & Bartlett (a partnership which includes professional corporations), New
York, New York, counsel to the Company, will pass upon certain material
anticipated federal income tax consequences of the purchase, ownership and
disposition of the Depositary Shares and the PERCS and certain legal matters
with respect to the liquidation preference of the PERCS. Ms. Ford owns and has
options to purchase shares of Common Stock which represent less than 0.1% of the
currently outstanding shares of Common Stock. A member of Simpson Thacher &
Bartlett owns shares of Common Stock which represent less than 0.1% of the
currently outstanding shares of Common Stock. Davis Polk & Wardwell has in the
past provided, and continues to provide, legal services to the Company and its
affiliates.

EXPERTS

The consolidated financial statements of the Company and RJRN as of
December 31, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993 included and incorporated by reference herein in this
Prospectus have been audited by Deloitte & Touche, independent auditors, as
stated in their reports, which are included and incorporated by reference
herein, and have been so included and incorporated by reference herein in
reliance upon such reports given upon the authority of that firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and also are available for inspection and copying at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and
other information also can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which exchange certain
of the Company's securities are listed.

This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended. This
Prospectus omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.

48
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE> <CAPTION>
PAGE
--------------
<S> <C>
Report of Deloitte & Touche, Independent Auditors................................................. F-1
Summary of Significant Accounting Policies...................................................... F-2
Consolidated Statements of Income and Retained Earnings--Years Ended December 31, 1993, 1992 and
1991.............................................................................................. F-3
Consolidated Statements of Cash Flows--Years Ended December 31, 1993,
1992 and 1991................................................................................ F-4
Consolidated Balance Sheets--December 31, 1993 and 1992......................................... F-5
Notes to Consolidated Financial Statements...................................................... F-6-F-32
</TABLE>

49
<PAGE>
REPORT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS

RJR Nabisco Holdings Corp.:
RJR Nabisco, Inc.:

We have audited the accompanying consolidated balance sheets of RJR Nabisco
Holdings Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN") as of December 31,
1993 and 1992, and the related consolidated statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Holdings and RJRN
at December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE

New York, New York
February 1, 1994 (except with respect
to the subsequent event discussed in
Note 17, as to which the date is
February 24, 1994)

F-1
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED FINANCIAL STATEMENTS

The Summary of Significant Accounting Policies below and the notes to
consolidated financial statements on pages F-6 through F-32 are integral parts
of the accompanying consolidated financial statements of RJR Nabisco Holdings
Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN" and, collectively with
Holdings, the "Registrants") (the "Consolidated Financial Statements").

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This Summary of Significant Accounting Policies is presented to assist in
understanding the Consolidated Financial Statements included in this report.
These policies conform to generally accepted accounting principles.

Consolidation

Consolidated Financial Statements include the accounts of each Registrant
and its subsidiaries.

Cash Equivalents

Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and so near maturity that they
present an insignificant risk of changes in value because of changes in interest
rates.

Inventories

Inventories are stated at the lower of cost or market. Various methods are
used for determining cost. The cost of U.S. tobacco inventories is determined
principally under the LIFO method. The cost of remaining inventories is
determined under the FIFO, specific lot and weighted average methods. In
accordance with recognized trade practice, stocks of tobacco, which must be
cured for more than one year, are classified as current assets.

Depreciation

Property, plant and equipment are depreciated principally by the
straight-line method.

Trademarks and Goodwill

Values assigned to trademarks are based on appraisal reports and are
amortized on the straight-line method over a 40 year period. Goodwill is also
amortized on the straight-line method over a 40 year period.

Other Income (Expense), Net

Interest income, gains and losses on foreign currency transactions and
other financial items are included in "Other income (expense), net".

Income Taxes

Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income
Taxes, and are calculated for each Registrant on a separate return basis.

Postretirement Benefits Other Than Pensions

Postretirement benefits other than pensions are accounted for under the
provisions of Statement of Financial Accounting Standards No. 106 ("SFAS No.
106"), Employers' Accounting for Postretirement Benefits Other Than Pensions.

Postemployment Preretirement Benefits

Postemployment preretirement benefits are accounted for under the
provisions of Statement of Financial Accounting Standards No. 112 ("SFAS No.
112"), Employers' Accounting for Postemployment Benefits.

Excise Taxes

Excise taxes are excluded from "Net sales" and "Cost of products sold".

Reclassifications and Restatements

Certain reclassifications have been made to prior years' amounts to conform
to the 1993 presentation.

F-2
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
----------------------- ----------------------- ---------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
------------ --------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET SALES (NOTE 1)............................... $ 15,104 $ 15,104 $ 15,734 $ 15,734 $ 14,989 $ 14,989
------------ --------- ------------ --------- ---------- ---------
Costs and expenses (Note 1):
Cost of products sold.......................... 6,640 6,640 6,326 6,326 6,088 6,088
Selling, advertising, administrative and
general expenses............................. 5,731 5,723 5,788 5,776 5,358 5,345
Amortization of trademarks and goodwill........ 625 625 616 616 609 609
Restructuring expense.......................... 730 730 106 106 -- --
------------ --------- ------------ --------- ---------- ---------
OPERATING INCOME.......................... 1,378 1,386 2,898 2,910 2,934 2,947
Interest expense (Notes 8 and 10)................ (1,190) (1,167) (1,429) (1,340) (2,113) (2,030)
Amortization of debt issuance costs.............. (19) (19) (20) (19) (104) (110)
Other income (expense), net (Note 1)............. (58) (88) 7 (75) (69) (157)
------------ --------- ------------ --------- ---------- ---------
Income before income taxes................ 111 112 1,456 1,476 648 650
Provision for income taxes (Note 3).............. 114 116 680 693 280 301
------------ --------- ------------ --------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (3) (4) 776 783 368 349
Extraordinary item--loss on early extinguishments
of debt, net of income taxes (Note 4).......... (142) (135) (477) (464) -- --
------------ --------- ------------ --------- ---------- ---------
NET INCOME (LOSS)......................... (145) (139) 299 319 368 349
Less preferred stock dividends................... 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
Net income (loss) applicable to common
stock................................. (213) (139) 268 319 195 349
Retained earnings (accumulated deficit) at
beginning of period............................ (738) (320) (1,037) (639) (1,405) (988)
Add preferred stock dividends charged to paid-in
capital........................................ 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
RETAINED EARNINGS (ACCUMULATED DEFICIT) AT END OF
PERIOD (NOTE 13)............................... $ (883) $ (459) $ (738) $ (320) $ (1,037) $ (639)
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Net income (loss) per common and common
equivalent share:
Income (loss) before extraordinary item........ $ (.05) -- $ 0.55 -- $ 0.22 --
Extraordinary item............................. (.10) -- (0.35) -- -- --
------------ --------- ------------ --------- ---------- ---------
Net income (loss)......................... $ (.15) -- $ 0.20 -- $ 0.22 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Dividends per share of Series A Preferred Stock
(Note 12)...................................... $ 3.34 -- $ 3.34 -- $ 0.49 --
Average number of common and common equivalent
shares outstanding (in thousands)(Note 2)...... 1,349,196 -- 1,363,549 -- 887,622 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
-------------------- -------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES (NOTE 5).. $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures............................. (615) (615) (519) (519) (459) (459)
Proceeds from dispositions of businesses......... 450 450 -- -- 98 98
Acquisition of businesses........................ (128) (128) (385) (385) -- --
Other, net....................................... 32 32 11 11 20 20
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) investing
activities................................... (261) (261) (893) (893) (341) (341)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt......... 25,747 25,747 19,179 19,179 7,079 7,079
Repayments of long-term debt..................... (28,031) (27,483) (20,622) (20,371) (11,597) (11,597)
Increase (decrease) in notes payable............. (24) (24) (25) (25) 46 46
Proceeds from issuance of common stock and
exercise of warrants........................... 9 -- 1 -- 1,300 --
Proceeds from issuance of Series A Preferred
Stock.......................................... -- -- -- -- 2,126 --
Proceeds from issuance of Series B Preferred
Stock.......................................... 1,250 -- -- -- -- --
Financing and advisory fees paid................. (48) (9) (35) (33) (227) (81)
Capital contributions from/issuance of common
stock to parent................................ -- 1,214 -- -- -- 3,454
Dividends paid to parent......................... -- (48) -- (278) -- --
Preferred stock dividends paid................... (241) -- (214) -- (205) --
Repurchase of Preferred Stock.................... (105) -- -- -- -- --
Repurchases and cancellations of common stock,
stock options and warrants..................... (1) -- (89) -- (4) --
Other, net--including intercompany transfers..... 62 (621) 62 (363) (12) (191)
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) financing
activities................................... (1,382) (1,224) (1,743) (1,891) (1,494) (1,290)
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents.................................. (10) (10) (6) (6) (25) (25)
--------- --------- --------- --------- --------- ---------
Net change in cash and cash equivalents........ 116 109 (335) (335) 111 325
Cash and cash equivalents at beginning of period... 99 96 434 431 323 106
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period......... $ 215 $ 205 $ 99 $ 96 $ 434 $ 431
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)

<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
-------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 5)....................................... $ 215 $ 205 $ 99 $ 96
Accounts and notes receivable, net (Notes 1 and 5)....................... 856 847 1,356 1,333
Inventories (Note 6)..................................................... 2,700 2,700 2,776 2,776
Prepaid expenses and excise taxes........................................ 374 374 345 345
--------- --------- --------- ---------
TOTAL CURRENT ASSETS................................................ 4,145 4,126 4,576 4,550
--------- --------- --------- ---------
Property, plant and equipment--at cost..................................... 7,166 7,166 6,515 6,515
Less accumulated depreciation.............................................. (1,998) (1,998) (1,657) (1,657)
--------- --------- --------- ---------
Net property, plant and equipment (Note 7)............................... 5,168 5,168 4,858 4,858
--------- --------- --------- ---------
Trademarks, net of accumulated amortization of $1,223 and $972,
respectively............................................................. 8,727 8,727 8,959 8,959
Goodwill, net of accumulated amortization of $1,767 and $1,395,
respectively............................................................. 12,851 12,851 13,062 13,062
Other assets and deferred charges.......................................... 404 400 586 581
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 8)................................................... $ 301 $ 301 $ 298 $ 298
Accounts payable......................................................... 515 515 401 401
Accrued liabilities (Note 9)............................................. 2,751 2,705 2,468 2,425
Current maturities of long-term debt (Note 10)........................... 142 142 379 351
Income taxes accrued (Note 3)............................................ 234 234 300 300
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES........................................... 3,943 3,897 3,846 3,775
--------- --------- --------- ---------
Long-term debt (less current maturities) (Note 10)......................... 12,005 12,005 13,541 13,054
Other noncurrent liabilities............................................... 2,503 2,353 2,203 2,859
Deferred income taxes (Note 3)............................................. 3,774 3,701 4,075 3,978
Commitments and contingencies (Note 11)....................................
Stockholders' equity (Notes 12, 13 and 17):
Redeemable convertible preferred stock--4,032,968 shares issued and
outstanding at December 31, 1992....................................... -- -- 101 --
ESOP convertible preferred stock--15,573,973 and 15,625,000 shares issued
and outstanding at December 31, 1993 and 1992, respectively........... 249 -- 250 --
Series A convertible preferred stock--52,500,000 shares issued and
outstanding at December 31, 1993 and 1992.............................. 2 -- 2 --
Series B preferred stock--50,000 shares issued and outstanding at
December 31, 1993...................................................... 1,250 -- -- --
Common stock--1,138,011,292 and 1,134,648,542 shares issued and
outstanding at December 31, 1993 and 1992, respectively............... 11 -- 11 --
Paid-in capital.......................................................... 8,778 9,877 9,048 8,711
Cumulative translation adjustments....................................... (102) (102) (47) (47)
Retained earnings (accumulated deficit).................................. (883) (459) (738) (320)
Receivable from ESOP..................................................... (211) -- (227) --
Loans receivable from employees.......................................... (18) -- (24) --
Unamortized value of restricted stock.................................... (6) -- -- --
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY.......................................... 9,070 9,316 8,376 8,344
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--OPERATIONS

Net sales and cost of products sold exclude excise taxes of $3.757 billion,
$3.560 billion and $3.715 billion for 1993, 1992 and 1991, respectively.

Operating income in the fourth quarter of 1993 was reduced by a $730
million restructuring expense for a program initiated at the domestic tobacco
operations ($355 million), the international tobacco operations ($189 million),
the food operations ($153 million) and Headquarters ($33 million). Such
restructuring program was undertaken in response to a changing consumer product
business environment and is expected to streamline operations and improve
profitability. Implementation of the program, although begun in the latter part
of 1993, will primarily occur in 1994. Approximately 75% of the restructuring
program will require cash outlays which will occur primarily in 1994 and early
1995. As an offset to the cash outlays, Holdings expects annual after-tax cash
savings of approximately $250 million.

The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993 stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) of domestically grown flue cured and burly tobaccos. As a
result, the domestic and international tobacco businesses accrued approximately
$70 million of related restructuring charges resulting from a reassessment of
raw material sourcing and production arrangements. In addition, a shift in
pricing strategy designed to gain share of market by RJRT's largest competitor
has resulted in a redeployment of spending and changes in sales and distribution
strategies resulting in a restructuring charge of approximately $80 million
primarily related to contract termination costs. Abandonment of leases related
to the above changes in the businesses results in approximately $60 million of
restructuring charges. The remainder of the charge, approximately $120 million,
represents non-cash costs to rationalize and close manufacturing and sales
facilities in both the tobacco and food businesses to facilitate cost
improvements.

During the fourth quarter of 1992, operating income was reduced by a net
charge of $8 million as a result of a $106 million restructuring expense
recorded at the tobacco operations ($43 million) and the food operations ($63
million), partially offset by a $98 million gain recognized from the sale of
Holdings' ready-to-eat cold cereal business for $456 million in cash, prior to
post-closing adjustments. The restructuring expense was incurred in connection
with a restructuring plan at the tobacco operations, the purpose of which was to
improve productivity by realigning operations in the sales, manufacturing,
research and development, and administrative areas and a restructuring plan at
the food operations, the purpose of which was to reduce costs and improve
productivity by realigning sales operations and implementing a previously
announced voluntary separation program. The receivable established at December
31, 1992 for the sale of the ready-to-eat cold cereal business was collected on
January 4, 1993, except for certain escrow amounts which were subsequently
collected.

During the fourth quarter of 1991, net income was reduced by $28 million of
net charges included in "Other income (expense), net" as a result of the
write-off of $109 million of unamortized debt issuance costs and the recognition
of $144 million of unrealized losses from interest rate hedges related
F-6
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--OPERATIONS--(CONTINUED)
to the refinancing of the bank credit agreement of RJR Nabisco Capital Corp.
("Capital") dated as of January 31, 1989 (as amended, the "1989 Credit
Agreement") and the repayment of the $2.25 billion bank credit facility (as
amended, the "1990 Credit Agreement"), partially offset by a $225 million credit
for a change in estimated postretirement health care liabilities.

NOTE 2--EARNINGS PER SHARE

Earnings per share is based on the weighted average number of shares of
common stock and Series A Depositary Shares (hereinafter defined) outstanding
during the period and common stock assumed to be outstanding to reflect the
effect of dilutive warrants and options. Holdings' other potentially dilutive
securities are not included in the earnings per share calculation because the
effect of excluding interest and dividends on such securities for the period
would exceed the earnings allocable to the common stock into which such
securities would be converted. Accordingly, Holdings' earnings per share and
fully diluted earnings per share are the same.

NOTE 3--INCOME TAXES

The provision for income taxes consisted of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------------ ------------------------ ------------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal.......................................... $ 295 $ 366 $ 165 $ 115 $ 53 $ 20
Foreign and other................................ 169 169 216 216 206 202
----------- ----------- ----------- ----------- ----------- -----------
464 535 381 331 259 222
----------- ----------- ----------- ----------- ----------- -----------
Deferred:
Federal.......................................... (298) (367) 300 363 17 75
Foreign and other................................ (52) (52) (1) (1) 4 4
----------- ----------- ----------- ----------- ----------- -----------
(350) (419) 299 362 21 79
----------- ----------- ----------- ----------- ----------- -----------
Provision for income taxes......................... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

F-7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--INCOME TAXES--(CONTINUED)

The components of the deferred income tax liability disclosed on the
Consolidated Balance Sheet at December 31, 1993 included the following:

<TABLE><CAPTION>
DECEMBER 31, 1993
----------------------
HOLDINGS RJRN
----------- ---------
<S> <C> <C>
Deferred tax assets:
Pension liabilities.............................................................. $ (123) $ (123)
Other postretirement liabilities................................................. (342) (342)
Restructure and other accrued liabilities........................................ (325) (325)
----------- ---------
Total deferred tax assets................................................ (790) (790)
----------- ---------
Deferred tax liabilities:
Property and equipment........................................................... 1,154 1,154
Trademarks....................................................................... 2,913 2,913
Other............................................................................ 465 392
----------- ---------
Total deferred tax liabilities........................................... 4,532 4,459
----------- ---------
Net deferred tax liabilities before valuation allowance............... 3,742 3,669
Valuation allowance.............................................................. 32 32
----------- ---------
Net deferred income taxes........................................................ $ 3,774 $ 3,701
----------- ---------
----------- ---------
</TABLE>

Pre-tax income (loss) before extraordinary item for domestic and foreign
operations is shown in the following table:

F-8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--INCOME TAXES--(CONTINUED)

The differences between the provision for income taxes and income taxes
computed at statutory U.S. federal income tax rates are explained as follows:

At December 31, 1993, there was $1.242 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings are intended by
management to be reinvested abroad indefinitely. Accordingly, no applicable U.S.
federal deferred income taxes or foreign withholding taxes have been provided
nor is a determination of the amount of unrecognized U.S. federal deferred
income taxes practicable.

At December 31, 1993, Holdings had cumulative minimum tax credit
carryforwards for U.S. federal tax purposes of $64 million.

Effective January 1, 1993, Holdings and RJRN adopted SFAS No. 109. SFAS No.
109 superseded Statement of Financial Accounting Standards No. 96, the method of
accounting for income taxes previously followed by the Registrants. The adoption
of SFAS No. 109 did not have a material impact on the financial statements of
either Holdings or RJRN.

NOTE 3--INCOME TAXES--(CONTINUED)
increase to Holdings' provision for income taxes included an $86 million
non-cash charge resulting primarily from the remeasurement of the balance of
deferred federal income taxes at the date of enactment of the new federal tax
legislation for the change in the income tax rates, and a $10 million charge
resulting from the increase in current federal income taxes accrued for the
change in the income tax rates and other effects of the new tax legislation.
Also during 1993, Holdings' provision for income taxes was decreased by a $108
million credit resulting from a remeasurement of the balance of deferred income
taxes for a change in estimate of the basis of certain deferred tax amounts
relating primarily to international operations.

During 1993, $101 million of previously recognized deferred income tax benefits
for operating loss carryforwards ($36 million), minimum tax credit carryforwards
($44 million) and other carryforward items ($21 million) were realized for U.S.
federal tax purposes.

NOTE 4--EXTRAORDINARY ITEM

The extinguishments of debt of Holdings and RJRN resulted in the following
extraordinary losses:

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash paid in excess of net carrying amount (book value) of debentures
extinguished........................................................... $ (206) $ (196) $ (636) $ (616)
Write-off of debt issuance costs......................................... (12) (12) (40) (40)
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt before income
taxes.................................................................. (218) (208) (676) (656)
Benefit for income taxes................................................. 76 73 199 192
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt, net of income
taxes.................................................................. $ (142) $ (135) $ (477) $ (464)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>

F-10
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION

A reconciliation of net income (loss) to net cash flows from operating
activities follows:

Cash payments for income taxes and interest were as follows:

F-11
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED)

Cash equivalents at December 31, 1993 and 1992, valued at cost (which
approximates market value), totaled $215 million and $99 million, respectively,
and consisted principally of domestic and Eurodollar time deposits and
certificates of deposit.

At December 31, 1993 and 1992, cash of $62 million and $63 million,
respectively, was held in escrow as collateral for letters of credit issued in
connection with certain foreign currency debt.

On February 7, 1990, RJRN entered into an arrangement in which it agreed to
sell for cash substantially all of its domestic trade accounts receivable
generated during a five-year period to a financial institution. Pursuant to
amendments entered into in 1992, the length of the receivable program was
extended an additional year. The accounts receivable have been and will continue
to be sold with limited recourse at purchase prices reflecting the rate
applicable to the cost to the financial institution of funding its purchases of
accounts receivable and certain administrative costs. During 1993, 1992 and
1991, total proceeds of approximately $8.2 billion, $8.5 billion and $8.7
billion, respectively, were received by RJRN in connection with this
arrangement. At December 31, 1993 and 1992, the accounts receivable balance has
been reduced by approximately $437 million and $352 million, respectively, due
to the receivables sold.

For information regarding certain non-cash financing activities, see Notes
10 and 12 to the Consolidated Financial Statements.

NOTE 6--INVENTORIES

The major classes of inventory are shown in the table below:

DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Finished products....................................................... $ 771 $ 730
Leaf tobacco............................................................ 1,458 1,501
Raw materials........................................................... 208 222
Other................................................................... 263 323
------------- -------------
$ 2,700 $ 2,776
------------- -------------
------------- -------------
</TABLE>

At December 31, 1993 and 1992, approximately $1.4 billion of inventory was
valued under the LIFO method. The current cost of LIFO inventories at December
31, 1993 and 1992 was greater than the amount at which these inventories were
carried on the Consolidated Balance Sheets by $284 million and $277 million,
respectively.

For the years ended December 31, 1993, 1992 and 1991, net income was
increased by $6 million, $4 million, and $9 million, respectively, as a result
of LIFO inventory liquidations. The LIFO liquidations resulted from programs to
reduce leaf durations consistent with forecasts of future operating
requirements.

F-12
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--PROPERTY, PLANT AND EQUIPMENT

Components of property, plant and equipment were as follows:

DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Land and land improvements.............................................. $ 308 $ 277
Buildings and leasehold improvements.................................... 1,771 1,682
Machinery and equipment................................................. 4,624 4,086
Construction-in-process................................................. 463 470
------------- -------------
7,166 6,515
Less accumulated depreciation........................................... (1,998) (1,657)
------------- -------------
Net property, plant and equipment.................................. $ 5,168 $ 4,858
------------- -------------
------------- -------------
</TABLE>

NOTE 8--NOTES PAYABLE

Notes payable consisted of the following:

DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Notes payable to foreign banks.......................................... $ 301 $ 280
Foreign commercial paper................................................ -- 18
------ ------
$ 301 $ 298
------ ------
------ ------
</TABLE>

NOTE 9--ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Marketing and advertising............................................... $ 643 $ 645
Payroll and employee benefits........................................... 325 291
Excise taxes............................................................ 226 322
Accrued interest........................................................ 260 236
Restructuring........................................................... 377 124
Other................................................................... 920 850
------------- -------------
$ 2,751 $ 2,468
------------- -------------
------------- -------------
</TABLE>

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE

Interest expense consisted of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Cash interest................................................. $ 914 $ 995 $ 1,326
Non-cash interest............................................. 276 434 787
------------- ------------- -------------
$ 1,190 $ 1,429 $ 2,113
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

F-13
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)

Long-term debt consisted of the following:

<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
RJRN Debt:
7 3/8-9 3/8% Debentures with annual sinking fund payments through
2017 (net of $160 million and $162 million of such debentures
held by RJRN on December 31, 1993 and 1992, respectively, for
future sinking fund requirements, and $137 million of such
debentures held by Holdings on December 31, 1992)............... $ -- $ 1,464 $ 216 $ 1,572
5.09-10.5% Notes, due 1995 through 2013............................ -- 6,631 100 4,655
5.375-10%, Foreign Currency Debt, due 1994 to 2001................. 123 472 -- 605
1991 Credit Agreement, variable interest (varies with prime rate
and LIBOR--weighted average interest rate of 3.94% at December
31, 1993), due December 31, 1996(2)............................. -- 328 -- 2,831
Commercial paper(3)................................................ -- 913 -- 571
Other indebtedness................................................. 19 247 35 239
Subordinated Debentures:
15% Subordinated Debentures, net of discount of $18 million and $27
million at December 31, 1993 and 1992, respectively, effective
interest rate of 15.88%, interest payable-in-kind or cash, at
the option of RJRN, until May 15, 1994, cash payment thereafter,
sinking fund requirements beginning 1999, due 2001.............. -- 280 -- 423
Subordinated Discount Debentures, net of discount of $133 million
and $495 million at December 31, 1993 and 1992, respectively,
effective interest rate of 15.88%, interest payable-in-kind
until May 15, 1994, cash payment thereafter, sinking fund
requirements beginning 1999, due 2001........................... -- 1,393 -- 1,799
Other Subordinated Debentures, fixed rate of 13 1/2%, due 2001..... -- 277 -- 359
----------- ----------- ----------- ---------
RJRN(4)....................................................... 142 12,005 351 13,054
</TABLE>

F-14
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
<TABLE><CAPTION>

DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Holdings Debt:
Converting Debentures, fixed rate of 17 3/8%, interest
payable-in-kind or cash at Holdings' option through May 1, 1999,
cash payment thereafter, convertible into Holdings' Common Stock
on April 30, 1993, otherwise due 2009........................... -- -- -- 413
11.68% ESOP participation.......................................... -- -- 28 74
----------- ----------- ----------- ---------
Holdings...................................................... $ 142 $ 12,005 $ 379 $ 13,541
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>

- ---------------

(1) The payment of debt through December 31, 1998 is due as follows (in
millions): 1995--$617; 1996--$465; 1997--$70 and 1998--$1,714.

(2) RJRN maintains a revolving credit facility of $6.5 billion of which $6.2
billion was unused at December 31, 1993. At December 31, 1993, availability
of the unused portion is reduced by $456 million for the extension of
irrevocable letters of credit which support the principal and interest on
certain existing foreign debt of RJRN and its subsidiaries. A commitment fee
of 1/4% per annum is payable on the unused portion of the facility.

(3) RJRN maintains a back-up line of credit to support commercial paper
issuances of up to $1 billion. Commercial paper outstanding in excess of $1
billion is supported by the 1991 Credit Agreement.

(4) As a result of RJRN's management of its interest rate exposure through
swaps, options, caps, and other interest rate arrangements, the effective
interest rate on certain debt may differ from that disclosed in the table.
------------------------

During 1991, Holdings entered into the following refinancing transactions:
(i) the repayment on March 11, 1991 of the aggregate principal amount
outstanding of a subordinated promissory note held by a limited partnership
affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR") plus accrued and
unpaid interest thereon for a total of approximately $468 million in cash from
borrowings under the revolving credit portion of the 1989 Credit Agreement, (ii)
the issuance by Capital on April 25, 1991 of $1.5 billion principal amount of 10
1/2% Senior Notes due 1998 (the "10 1/2% Senior Notes") (the "Senior Note
Offering") and the repayment of a portion of the amount outstanding under the
1990 Credit Agreement with a portion of the net proceeds from the Senior Note
Offering equal to approximately $731 million in cash, (iii) the redemption on
June 3, 1991 of 100% of the aggregate principal amount of all outstanding
Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings Group, Inc.
("Group") equal to approximately $1.86 billion plus accrued and unpaid interest
thereon to the redemption date with (a) an additional portion of the net
proceeds from the Senior Note Offering and (b) the entire net proceeds from the
issuance by Holdings on April 18, 1991 of 115,000,000 shares of common stock of
Holdings, par value $.01 per share (the "Common Stock") at $11.25 per share,
(iv) open market purchases of certain of Capital's debentures totalling
approximately $128 million with the remaining net proceeds from the Senior Note
Offering, (v) the exchange by Holdings of 3.8 shares of Common Stock for each of
the 67,997,769 shares of Cumulative Convertible Preferred Stock (the "Preferred
Stock") exchanged pursuant to an exchange offer commenced on November 7, 1991
and completed on December 7, 1991, (vi) the issuance by Holdings on November 8,
1991 of 52,500,000 shares of Series A Conversion Preferred Stock, par value .01
per share ("Series A Preferred Stock") of Holdings and the sale of 210,000,000
$ .835 depositary shares ("Series A Depositary
F-15
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Shares") at $10.125 per Series A Depositary Share in connection with such
issuance (the "Series A Preferred Stock Offering"), (vii) the repayment of the
aggregate amount outstanding under the 1990 Credit Agreement, the repayment of a
portion of the amount outstanding under the 1989 Credit Agreement and the
redemption of certain notes of RJRN with the net proceeds from the Series A
Preferred Stock Offering equal to approximately $2.1 billion and (viii) the
repayment by Capital on December 19, 1991 of the aggregate amount outstanding
under the working capital facility, revolving credit facility and term loan
portions of the 1989 Credit Agreement with approximately $3.3 billion in cash
from borrowings under a $6.5 billion bank credit facility (as amended, the "1991
Credit Agreement").

On May 15, 1992, Capital merged with and into its wholly-owned subsidiary,
RJRN. As a result of the merger, Group became the direct parent of RJRN and RJRN
assumed all of the obligations of Capital under the 1991 Credit Agreement and
with respect to the following debt securities: Subordinated Discount Debentures
due May 15, 2001 (the "Subordinated Discount Debentures"); 15% Payment-in-Kind
Subordinated Debentures due May 15, 2001 (the "15% Subordinated Debentures"); 13
1/2% Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated
Debentures" and, collectively with the Subordinated Discount Debentures and the
15% Subordinated Debentures, the "Subordinated Debentures"); 10 1/2% Senior
Notes; 8.30% Senior Notes due April 15, 1999 (the "8.30% Senior Notes"); and
8.75% Senior Notes due April 15, 2004 (the "8.75% Senior Notes" and,
collectively with the 8.30% Senior Notes, the "1992 Senior Notes"). Prior to
this merger, RJRN had guaranteed all of Capital's obligations with respect to
such indebtedness, and the financial statements of RJRN had reflected such
indebtedness and all debt related costs.

On December 17, 1992, Group merged with and into its wholly-owned
subsidiary, RJRN.

Also during 1992, Holdings entered into the following refinancing
transactions: (i) the redemption on February 15, 1992 of $250 million principal
amount of Capital's Subordinated Floating Rate Notes due 1999 (the "Subordinated
Floating Rate Notes") at a price of $1,005 for each $1,000 principal amount of
Subordinated Floating Rate Notes plus accrued and unpaid interest thereon, (ii)
the early extinguishments by Capital of approximately $1 billion aggregate
principal amount of certain of Capital's subordinated debentures in a privately
negotiated transaction (the "1992 Capital Debenture Repurchase") for
approximately $995 million in cash, consisting of $165 million aggregate
principal amount of its 15% Subordinated Debentures, $85 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $750 million
aggregate principal amount (approximately $550 million accreted amount) of its
Subordinated Discount Debentures, (iii) the issuance by Capital on April 9, 1992
of $600 million principal amount of 8.30% Senior Notes and $600 million
principal amount of 8.75% Senior Notes and the application of substantially all
of the net proceeds from the issuance of the 1992 Senior Notes to repay a
portion of the funds temporarily drawn under the 1991 Credit Agreement for the
redemption of the Subordinated Floating Rate Notes and for the 1992 Capital
Debenture Repurchase, (iv) the retirement on May 15, 1992 of $225 million
aggregate principal amount of Capital's Subordinated Extendible Reset Debentures
due May 15, 1991 (the "Subordinated Reset Debentures") at a price of $1,010 for
each $1,000 principal amount of Subordinated Reset Debentures plus accrued and
unpaid interest thereon with the remaining proceeds available from the 1992
Senior Notes plus temporary borrowings under the 1991 Credit Agreement, which
were repaid with proceeds of medium-term notes and (v) the additional
repurchases during 1992 for approximately $1.822 billion in cash of certain of
RJRN's subordinated debentures consisting of $690 million aggregate principal
amount of its 15% Subordinated Debentures, $81 million aggregate principal
amount of its 13 1/2%
F-16
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Subordinated Debentures and $941 million aggregate principal amount
(approximately $728 million accreted amount) of its Subordinated Discount
Debentures. The principal or accreted amount of the debentures in item (v) was
refinanced with proceeds of debt securities maturing in the years 1999-2004. The
purchase of most of such amount had been temporarily funded with borrowings
under the 1991 Credit Agreement. Also during 1992, Holdings repurchased $126
million aggregate principal amount (approximately $209 million including accrued
interest) of its Senior Converting Debentures due 2009 (the "Converting
Debentures") for $229 million in cash, and RJRN repurchased $229 million
aggregate principal amount of various other debentures for $240 million in cash.
The funds for the repurchase of Converting Debentures and various other
debentures of RJRN and for a portion of the purchase price of the Subordinated
Debentures in item (v) were provided from the issuance of medium-term notes
maturing in the years 1995-1997, borrowings under the 1991 Credit Agreement and
cash flow from operations.

During 1993, RJRN repurchased for approximately $1.0 billion in cash
certain of its subordinated debentures consisting of $153 million aggregate
principal amount of its 15% Subordinated Debentures, $82 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $768 million
aggregate principal amount (approximately $671 million accreted amount) of its
Subordinated Discount Debentures. The principal or accreted amounts of such
debentures was refinanced from proceeds of debt securities maturing after 1998,
including debt securities issued during 1993. The purchase of most of such
amount had been temporarily funded with borrowings under the 1991 Credit
Agreement.

The remaining portion of the ESOP participation was repurchased on January
15, 1993 for cash, plus accrued and unpaid interest thereon.

Holdings redeemed on May 1, 1993, 100% of the aggregate principal amount of
its outstanding Converting Debentures at a price of $1,000 for each $1,000
principal amount of Converting Debentures, plus accrued and unpaid interest
thereon, for the period from February 9, 1989 through April 30, 1993, of $937.54
for each $1,000 principal amount of Converting Debentures.

During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the Series B Preferred Stock Offering (as hereinafter
defined) have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.

A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 (the
"9 3/8% Debenture") at a price of $1,065.63 for each $1,000 principal amount of
9 3/8% Debentures, plus accrued and unpaid interest thereon.

On April 5, 1993, the Registrants entered into a credit agreement (as
amended, the "1993 Credit Agreement" and together with the 1991 Credit
Agreement, the "Credit Agreements"), which matures on April 4, 1994 and provides
a back-up line of credit to support commercial paper issuances of up to $1
billion. Availability thereunder is reduced by an amount equal to the aggregate
amount of commercial
F-17
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)

paper outstanding. At December 31, 1993, approximately $913 million of
commercial paper was outstanding. Accordingly, $87 million was available under
the 1993 Credit Agreement at December 31, 1993. Holdings and RJRN expect to
obtain bank consent to extend the maturity date of the 1993 Credit Agreement for
an additional 364 days.

Based on RJRN's intention and ability to continue to refinance, for more
than one year, the amount of its commercial paper borrowings outstanding either
in the commercial paper market or with additional borrowings under the 1991
Credit Agreement, the commercial paper borrowings have been included under
"Long-term debt".

As permitted by the governing indenture, RJRN intends to pay in cash the
May 15, 1994 interest payment due on its 15% Subordinated Debentures.
Accordingly, the interest accrued thereon as of December 31, 1993 has been
included in "Accrued liabilities".

The estimated fair value of Holdings' consolidated long-term debt as of
December 31, 1993 and 1992 was approximately $12.4 billion and $14.9 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate. The estimated fair value exceeded the carrying amount of
Holdings' long-term debt by approximately $400 million and $1.1 billion at
December 31, 1993 and 1992, respectively, as a result of the general decline in
market interest rates compared with the higher interest cost on certain of
Holdings' debt obligations. Considerable judgment was required in interpreting
market data to develop the estimates of fair value. In addition, the use of
different market assumptions and/or estimation methodologies may have had a
material effect on the estimated fair value amounts. Accordingly, the estimated
fair value of Holdings' consolidated long-term debt as of December 31, 1993 and
1992 is not necessarily indicative of the amounts that Holdings could realize in
a current market exchange.

NOTE 11--COMMITMENTS AND CONTINGENCIES

Various legal actions, proceedings and claims are pending or may be
instituted against R. J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnities, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16
new actions were filed or served against RJRT and/or its affiliates or
indemnities and 18 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its
F-18
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
affiliates or indemnities. A total of 35 such actions in the United States, one
in Puerto Rico and one against RJRT's Canadian subsidiary were pending on
December 31, 1993. As of February 7, 1994, 35 active cases were pending against
RJRT and/or its affiliates or indemnities, 33 in the United States, one in
Puerto Rico and one in Canada. Four of the 33 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. One of such cases is currently scheduled for trial
on September 5, 1994 and if tried, will be the first such case to reach trial.
One of the active cases is alleged to be a class action on behalf of a purported
class of 60,000 individuals.

The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive
damages, often in amounts totalling many millions of dollars, are specifically
pleaded in 20 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Federal Cigarette Labeling and Advertising Act, as amended (the "Cigarette
Act") of some or all such claims arising after 1969; the lack of any defect in
the product; assumption of the risk; comparative fault; lack of proximate cause;
and statutes of limitations or repose. Juries have found for plaintiffs in two
smoking and health cases, but in one such case, which has been appealed by both
parties, no damages were awarded. The jury awarded plaintiffs $400,000 in the
other such case, Cipollone v. Liggett Group, Inc., et. al., which award was
overturned on appeal and the case was subsequently dismissed.

On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.

Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted, if so, in what form, or whether such legislation would be intended
by Congress to apply retroactively. The Supreme Court's Cipollone decision
itself, or the passage of such legislation, could increase the number of cases
filed against cigarette manufacturers, including RJRT.

RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.

RJRT recently received a civil investigative demand from the U.S.
Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.

Litigation is subject to many uncertainties, and it is possible that some
of the legal actions, proceedings or claims could be decided against RJRT or its
affiliates or indemnities. Determinations of
F-19
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
liability or adverse rulings against other cigarette manufacturers that are
defendants in similar actions, even if such rulings are not final, could
adversely affect the litigation against RJRT and its affiliates or indemnities
and increase the number of such claims. Although it is impossible to predict the
outcome of such events or their effect on RJRT, a significant increase in
litigation activities could have an adverse effect on RJRT. RJRT believes that
it has a number of valid defenses to any such actions, including but not limited
to those defenses based on preemption under the Cipollone decision, and RJRT
intends to defend vigorously all such actions.

The Registrants believe that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on either of the Registrants'
financial position; however, it is possible that the results of operations or
cash flows of the Registrants in a particular quarterly or annual period could
be materially affected by the ultimate outcome of certain pending litigation
matters. Management is unable to derive a meaningful estimate of the amount or
range of such possible loss in any particular quarterly or annual period or in
the aggregate.

COMMITMENTS

At December 31, 1993, other commitments totalled approximately $556
million, principally for minimum operating lease commitments, the purchase of
machinery and equipment and other contractual arrangements.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT CONCENTRATIONS
OF CREDIT RISK

Certain financial instruments with off-balance sheet risk have been entered
into by the RJRN to manage its interest rate and foreign currency exposures.

Interest Rate Arrangements

At December 31, 1993 and 1992, RJRN had outstanding interest rate swaps,
options, caps and other interest rate arrangements with financial institutions
having a total notional principal amount of $5.7 billion and $5.2 billion,
respectively. The arrangements at December 31, 1993 mature as follows:
1994--$2.7 billion; 1995--$1.1 billion; 1996--$1.1 billion; 1997--$450 million
and 1998 $350 million, respectively. The estimated fair value of these
arrangements as of December 31, 1993 and 1992 was favorable by approximately $37
million and unfavorable by approximately $1 million, respectively, based on
calculations from independent third parties for similar arrangements.

Because interest rate swaps and purchased options and other interest rate
arrangements effectively hedge interest rate exposures, the differential to be
paid or received is accrued and recognized in interest expense as market
interest rates change. If an arrangement is terminated prior to maturity, then
the realized gain or loss is recognized over the remaining original life of the
agreement if the hedged item remains outstanding, or immediately, if the
underlying hedged instrument does not remain outstanding. If the arrangement is
not terminated prior to maturity, but the underlying hedged instrument is no
longer outstanding, then the unrealized gain or loss on the related interest
rate swap, option, cap or other interest rate arrangement is recognized
immediately. In addition, for written options and other similar interest rate
arrangements that are entered into to manage interest rate exposure, changes in
market value of such instruments would result in the current recognition of any
related gains or losses.

F-20
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Foreign Currency Arrangements

At December 31, 1993 and 1992, RJRN had outstanding forward foreign
exchange contracts with banks to purchase or sell an aggregate notional
principal amount of $476 million and $566 million, respectively. The estimated
fair value of these arrangements as of December 31, 1993 and 1992 was favorable
by approximately $3 million and $4 million, respectively, based on calculations
from independent third parties for similar arrangements.

The forward foreign exchange contracts and other hedging arrangements
entered into by RJRN generally mature at the time the hedged foreign currency
transactions are settled. Gains or losses on forward foreign currency
transactions are determined by changes in market rates and are generally
included at settlement in the basis of the underlying hedged transaction. To the
extent that the foreign currency transaction does not occur, gains and losses
are recognized immediately.

The above interest rate and foreign currency arrangements entered into by
RJRN involve, to varying degrees, elements of market risk as a result of
potential changes in future interest and foreign currency exchange rates. To the
extent that the financial instruments entered into remain outstanding as
effective hedges of existing interest rate and foreign currency exposure, the
impact of such potential changes in future interest and foreign currency
exchange rates on the financial instruments entered into would offset the
related impact on the items being hedged. Also, RJRN may be exposed to credit
losses in the event of non-performance by the counterparties to these financial
instruments. However, RJRN continually monitors its positions and the credit
rating of its counterparties and therefore, does not anticipate any
non-performance.

There are no significant concentrations of credit risk with any individual
counterparties or groups of counterparties as a result of any financial
instruments entered into including those financial instruments discussed above.

F-21
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL

The changes in Common Stock and paid-in capital are shown as follows:
<TABLE><CAPTION>

1993 1992
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ----------- -------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 1,134,648,542 $ 11 1,121,658,569 $ 11
Shares issued during the period.................. 3,692,911 -- 13,117,248 --
Management shares repurchased and
cancelled...................................... (330,161) -- (127,275) --
-------------- ----------- -------------- -----------
Balance at end of year....................... 1,138,011,292 $ 11 1,134,648,542 $ 11
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 9,048 $ 9,352
Shares issued during the period, net of stock
issuance costs................................. (16) (8)
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 3 4
Issuance of Series A Preferred Stock............. -- --
Management shares and stock options repurchased
and cancelled.................................. (2) (6)
Preferred stock dividends........................ (246) (207)
Warrants repurchased and cancelled............... -- (87)
Other............................................ (9) --
----------- -----------
Balance at end of year....................... $ 8,778 $ 9,048
----------- -----------
----------- -----------
</TABLE>
<TABLE><CAPTION>
1991
----------------------------
SHARES AMOUNT
-------------- -----------

<S> <C> <C>
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 580,023,513 $ 6
Shares issued during the period.................. 542,135,431 5
Management shares repurchased and
cancelled...................................... (500,375) --
-------------- -----------
Balance at end of year....................... 1,121,658,569 $ 11
-------------- -----------
-------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 3,860
Shares issued during the period, net of stock
issuance costs................................. 3,630
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 4
Issuance of Series A Preferred Stock............. 2,060
Management shares and stock options repurchased
and cancelled.................................. (4)
Preferred stock dividends........................ (198)
Warrants repurchased and cancelled............... --
Other............................................ --
-----------
Balance at end of year....................... $ 9,352
-----------
-----------

</TABLE>
<PAGE>
The changes in stock options are shown as follows:
<TABLE><CAPTION>
1993 1992 1991
------------------------- -------------------------- -----------
OPTIONS PRICE OPTIONS PRICE OPTIONS
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Stock Option Plan................................ 25,355,948 $ 5.00-10.45 25,814,648 $ 5.00- 5.75 25,638,520
Long Term Incentive Plan......................... 19,654,600 7.50-11.56 12,990,600 7.50-11.63
Options granted to management investors and
directors:
Stock Option Plan................................ 2,400 5.00 2,176,828
Long Term Incentive Plan......................... 49,213,100 4.52- 9.13 7,004,000 8.25-10.125 13,041,800
Management options exercised:
Stock Option Plan................................ (1,116,046) 5.00
Management options repurchased and cancelled:
Stock Option Plan................................ (999,790) 5.00- 8.55 (461,100) 5.00-10.45 (2,000,700)
Long Term Incentive Plan......................... (4,235,066) 5.56-10.00 (340,000) 7.50-11.63 (51,200)
----------- ----------- -----------
Balance at end of year:
Stock Option Plan................................ 23,240,112 5.00-10.45 25,355,948 5.00-10.45 25,814,648
Long Term Incentive Plan......................... 64,632,634 4.52-11.56 19,654,600 7.50-11.56 12,990,600
----------- ----------- -----------
87,872,746 4.52-11.56 45,010,548 5.00-11.56 38,805,248
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
PRICE
------------
<S> <C>
Balance at beginning of year:
Stock Option Plan................................ $ 5.00
Long Term Incentive Plan.........................
Options granted to management investors and
directors:
Stock Option Plan................................ 5.75
Long Term Incentive Plan......................... 7.50-11.63
Management options exercised:
Stock Option Plan................................
Management options repurchased and cancelled:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50
Balance at end of year:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50-11.63
5.00-11.63

</TABLE>

At December 31, 1993, options were exercisable as to 20,018,041 shares,
compared with 15,590,909 shares at December 31, 1992, and 11,310,162 shares at
December 31, 1991. As of December 31, 1993, options for 66,777,008 shares of
Common Stock were available for future grant.

F-22
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)

To provide an incentive to attract and retain key employees responsible for
the management and administration of the business affairs of Holdings and its
subsidiaries, on June 15, 1989 the board of directors of Holdings adopted the
Stock Option Plan for Directors and key Employees of RJR Holdings Corp. and
Subsidiaries (the "Stock Option Plan") pursuant to which options to purchase
Common Stock may be granted. On June 16, 1989 the Stock Option Plan was
approved by the written consent of the holders of a majority of the Common
Stock. Any director or key employee of Holdings or any subsidiary of Holdings is
eligible to be granted options under the Stock Option Plan. A maximum of
30,000,000 shares of Common Stock (which may be adjusted in the event of certain
capital changes) may be issued under the Stock Option Plan. The options to key
employees granted under the Stock Option Plan generally vest over a five year
period and the options granted to directors under the Stock Option Plan are
immediately fully vested. The exercise price of such options is generally the
fair market value of the Common Stock on the date of grant.

On August 1, 1990, the board of directors of Holdings adopted the 1990 Long
Term Incentive Plan (the "1990 LTIP") which was approved on such date by the
written consent of the holders of a majority of the Common Stock. The 1990 LTIP
authorizes grants of incentive awards ("Grants") in the form of "incentive stock
options" under Section 422 of the Code, other stock options, stock appreciation
rights, restricted stock, purchase stock, dividend equivalent rights,
performance units, performance shares or other stock-based grants. Awards under
the 1990 LTIP may be granted to key employees of, or other persons having a
unique relationship to, Holdings and its subsidiaries. Directors who are not
also employees of Holdings and its subsidiaries are ineligible for Grants. A
maximum of 105,000,000 shares of Common Stock (which may be adjusted in
the event of certain capital changes) may be issued under the 1990 LTIP pursuant
to Grants. The 1990 LTIP also limits the amount of shares which may be issued
pursuant to "incentive stock options" and the amount of shares subject to Grants
which may be issued to any one participant. As of December 31, 1993, purchase
stock, stock options other than incentive stock options, restricted stock,
performance shares and other stock-based grants have been granted under the 1990
LTIP. The options granted before 1993 under the 1990 LTIP generally will vest
over a three year period ending December 31, 1995. Prior to January 1, 1993,
such options had vested over a six to eight year period. Options granted in 1993
vest over a three year period beginning from the date of grant. The exercise
prices of such options are between $4.50 and $11.56 per share. In connection
with the purchase stock grants awarded during 1993, 1992 and 1991, 622,222
shares and 495,000 shares and 2,681,000 shares, respectively, of Common Stock
were purchased and options to purchase four shares were granted for every share
of such Common Stock purchased. In addition, arrangements were made enabling
purchasers to borrow on a secured basis from Holdings the price of the stock
purchased, as well as the taxes due on any taxable income recognized in
connection with such purchases. The current annual interest rate on such
arrangements, which was set in July 1993 at the then applicable federal rate for
long-term loans, is 6.37%. These borrowings plus accrued interest and taxes
must generally be repaid within two years following termination of active
employment. During 1993, 1,484,840 shares of Common Stock were awarded in
connection with restricted stock grants made. These shares are subject to
restrictions that will lapse on December 31, 1994. Performance shares were also
granted under the 1990 LTIP during 1993, pursuant to which participants are
granted a designated number of performance shares that may be earned over a
three year performance period commencing January 1, 1993. Pay outs of awards at
the end of the performance period, which are denominated in shares of Common
Stock, but which may be paid at Holdings' option in either Common Stock or
cash, are currently based on Holdings' cumulative cash-earnings per share
during such performance period. During 1993, 3,307,500 performance shares were
awarded. The maximum aggregate number of shares of Common Stock that
F-23

<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)

may be paid at the end of the performance period is 4,961,250. Commitments to
make other stock-based awards were made in 1993 under the 1990 LTIP to
individuals who previously acquired certain purchase stock under the 1990 LTIP.
Under this program, such individuals may receive grants of Common Stock or cash
at the Company's election on either three or four annual grant dates beginning
July 1994 and ending either July 1, 1996 or July 1, 1997. The fair market value
of Common Stock to be awarded on each grant date is equal to the excess, if any,
of (i) 33% or 25%, respectively, of the maximum amount the individual could have
borrowed to acquire purchase stock, over (ii) the then fair market value of the
same percentage of such individual's purchase stock. The grant is increased by
the amount of presumed borrowing costs and the amount necessary to hold the
individual harmless from income taxes due as a result of the grant. No grant
will be made on a grant date if, on such grant date, the amount determined under
clause (ii) above equals or exceeds the amount determined in clause (i) above.

In addition to the shares purchased under the 1990 LTIP, approximately
550,000 shares of Common Stock were sold during 1991 to certain management
investors. No such sales occurred in 1992 or 1993. Unlike the shares sold
under the 1990 LTIP, a portion of these shares remain subject to significant
restrictions on transferability.

The Preferred Stock, together with the Series A Preferred Stock, Series B
Preferred Stock and ESOP Convertible Preferred Stock, stated value $16.00 per
share and par value $.01 per share, of Holdings (the "ESOP Preferred Stock")
(150,000,000 aggregate preferred shares authorized at December 31, 1993 and
1992) are senior to the Common Stock as to dividends and preferences in
liquidation.

On December 6, 1993, the outstanding Preferred Stock was redeemed at a
redemption price of $27.0125 per share plus accrued and unpaid dividends
thereon. Also during 1993, 123,523 shares of Preferred Stock were converted into
342,976 shares of Common Stock. During 1992, 379 shares of Preferred Stock were
converted into 1,051 shares of Common Stock. During 1991, 884 shares of
Preferred Stock were converted into 2,450 shares of Common Stock and 67,997,769
shares of Preferred Stock were exchanged for 258,391,523 shares of Common Stock
in connection with the December 1991 Exchange Offer. The Preferred Stock, stated
value $25 per share at par value $.01 per share, paid cash dividends at a rate
of 11.5% of stated value per annum, payable quarterly in arrears commencing
January 15, 1991. The Preferred Stock was convertible after May 1, 1991 into
shares of Common Stock at a conversion price of $9 of stated value per share of
Common Stock.

Each Series A Depositary Share represents a one-quarter ownership interest
in a share of Series A Preferred Stock of Holdings. Each share of Series A
Preferred Stock bears cumulative cash dividends at a rate of $3.34 per annum and
is payable quarterly in arrears commencing February 18, 1992. Each share of
Series A Preferred Stock will mandatorily convert into four shares of Common
Stock by November 15, 1994, subject to adjustment in certain events. In
addition, each share of Series A Preferred Stock may be convertible upon the
occurrence of certain other events, including the option by Holdings to redeem,
in whole or in part, at any time at an initial optional redemption price of
$64.82 per share, to be paid in shares of Common Stock, plus accrued and unpaid
dividends. The initial optional redemption price declines by $.009218 on each
day following the issuance of the Series A Preferred Stock to $55.36 on
September 15, 1994 and $54.80 thereafter. Holders of Series A Preferred Stock
have voting rights with respect to certain matters submitted to a vote of the
holders of the Common
F-24
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
Stock. Because Series A Preferred Stock mandatorily converts into Common Stock,
dividends on shares of Series A Preferred Stock are reported similar to common
equity dividends.

On August 18, 1993, Holdings issued 50,000 shares of Series B Cumulative
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), and sold
50,000,000 depositary shares ("Series B Depositary Shares") at $25 per Series B
Depositary Share ($1.250 billion) in connection with such issuance (the "Series
B Preferred Stock Offering"). Each share of Series B Preferred Stock bears
cumulative cash dividends at a rate of $2,312.50 per annum, or $2.3125 per
Series B Depositary Share, and is payable quarterly in arrears commencing
December 1, 1993. Each Series B Depositary Share represents .001 ownership
interest in a share of Series B Preferred Stock of Holdings. At Holdings'
option, on or after August 19, 1998, Holdings may redeem shares of the Series B
Preferred Stock (and the Depositary will redeem the number of Series B
Depositary Shares representing the shares of Series B Preferred Stock) at a
redemption price equivalent to $25 per Series B Depositary Share, plus accrued
and unpaid dividends thereon.

On August 1, 1991, Holdings issued 2,983,904 shares of Common Stock in
exchange for certain debentures of RJRN aggregating approximately $32.3 million
in principal amount.

On April 10, 1991, an employee stock ownership plan established by Holdings
borrowed $250 million from Holdings (the "ESOP Loan") to purchase 15,625,000
shares of ESOP Preferred Stock. The ESOP Loan, which was renegotiated in 1993,
has a final maturity in 2006 and bears interest at the rate of 8.2% per annum.
The ESOP Preferred Stock is convertible as of December 31, 1993 into 15,573,973
shares of Common Stock, subject to adjustment in certain events, and bears
cumulative dividends at a rate of 7.8125% of stated value per annum at least
until April 10, 1999, payable semi-annually in arrears commencing January 2,
1992, when, as and if declared by the board of directors of Holdings. The ESOP
Preferred Stock is redeemable at the option of Holdings, in whole or in part, at
any time on or after April 10, 1999, at an initial optional redemption price of
$16.250 per share. The initial optional redemption price declines thereafter on
an annual basis in the amount of $.125 a year to $16 per share on April 10,
2001, plus accrued and unpaid dividends. Holders of ESOP Preferred Stock have
voting rights with respect to certain matters submitted to a vote of the holders
of the Common Stock. Effective January 1, 1992, RJRN's matching contributions to
eligible employees under its Capital Investment Plan are being made in the form
of ESOP Preferred Stock. RJRN's matching contribution obligation in respect of
each participating employee is equal to $.50 for every pre-tax dollar
contributed by the employee, up to 6% of the employee's pay. The shares of ESOP
Preferred Stock are allocated at either the floor value of $16 a share or the
fair market value of Common Stock, whichever is higher. During 1993 and 1992,
approximately $29 million and $29 million, respectively, was contributed to the
ESOP by RJRN or Holdings and approximately $20 million and $24 million,
respectively, of ESOP dividends were used to service the ESOP's debt to
Holdings.

On February 9, 1989, 15,254,238 warrants were issued to purchase 15,254,238
shares of Common Stock. Such warrants were initially exercisable at an exercise
price of $5.00 per share, subject to adjustment in certain events, at any time
prior to February 9, 1999. On November 8, 1991, the exercise price for the
warrants and the number of shares of Common Stock issuable upon exercise thereof
were adjusted to $4.9164 and 1.017, respectively. During the third quarter of
1992, Holdings repurchased from a limited partnership of which KKR Associates,
an affiliate of KKR, is the sole general partner and certain affiliates of
Merrill Lynch & Co., Inc. 6,182,586 warrants of the 15,254,238 warrants issued
F-25
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
on February 9, 1989 for approximately $36 million in cash. During October 1992,
Holdings repurchased from the same parties the remaining 9,071,652 warrants for
approximately $51 million in cash. Each of these warrants allowed the holder to
purchase 1.017 shares of Common Stock for an exercise price of $4.9164 at any
time on or prior to February 8, 1999.

Warrants to purchase 45,529,024 shares of Common Stock were issued in
connection with the sale of the 15% Subordinated Debentures and the Subordinated
Discount Debentures. Such warrants were initially exercisable at an exercise
price of $0.07 per share, subject to adjustment in certain events, and expired
January 31, 1992. On November 8, 1991, the exercise price for the warrants and
the number of shares of Common Stock issuable upon exercise thereof were
adjusted to $0.0688 and 1.017, respectively. During 1992, 12,370,936 warrants
were exercised at $0.0688 per share. During 1991, 29,695,730 warrants were
exercised at $0.07 per share and 3,361,323 warrants were exercised at $0.0688
per share.

See Note 10 for transactions involving the exchange of capital stock for
long-term debt.

NOTE 13--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS

Retained earnings (accumulated deficit) at December 31, 1993, 1992 and 1991
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.015 billion, $2.390 billion and $1.774 billion, respectively.

The changes in cumulative translation adjustments are shown as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of period...................................... $ (47) $ 11 $ 35
Translation and other adjustments................................. (55) (58) (24)
------------- ------ ------
Balance at end of period............................................ $ (102) $ (47) $ 11
------------- ------ ------
------------- ------ ------
</TABLE>

NOTE 14--RETIREMENT BENEFITS

RJRN sponsors a number of non-contributory defined benefit pension plans
covering most U.S. and certain foreign employees. Plans covering regular
full-time employees in the tobacco operations as well as the majority of
salaried employees in the corporate groups and food operations to provide
pension benefits that are based on credits, determined by age, earned throughout
an employee's service and final average compensation before retirement. Plan
benefits are offered as lump sum or annuity options. Plans covering hourly as
well as certain salaried employees in the corporate groups and food operations
provide pension benefits that are based on the employee's length of service and
final average compensation before retirement. RJRN's policy is to fund the cost
of current service benefits and past service cost over periods not exceeding 30
years to the extent that such costs are currently tax deductible. Additionally,
RJRN participates in several multi-employer and other defined contribution
plans, which provide benefits to certain of RJRN's union employees. Employees in
foreign countries who are not
F-26
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
U.S. citizens are covered by various post-employment benefit arrangements, some
of which are considered to be defined benefit plans for accounting purposes.

A summary of the components of pension expense for RJRN-sponsored plans
follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Defined benefit pension plans:
Service cost--benefits earned during the period........................ $ 76 $ 84 $ 71
Interest cost on projected benefit obligation.......................... 255 251 239
Less actual return on plan assets...................................... (262) (259) (504)
Net amortization and deferral.......................................... (4) (4) 252
------------- ------------- -------------
Total............................................................. 65 72 58
Multi-employer and other contribution plans.............................. 32 31 33
------------- ------------- -------------
Total pension expense............................................. $ 97 $ 103 $ 91
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The principal plans used the following actuarial assumptions for accounting
purposes:

<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Weighted average discount rate............................ 7.5% 8.5%
Rate of increase in compensation levels................... 5.0% 5.0%
Expected long-term rate of return on assets............... 9.5% 10.0%
</TABLE>

F-27
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--RETIREMENT BENEFITS--(CONTINUED)

The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1993 and 1992 for RJRN's defined
benefit pension plans.
<TABLE><CAPTION>
U.S. PLANS FOREIGN PLANS
------------------------------------------------------------------------ ----------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1993
---------------------------------- ------------------------------------ ----------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS
BENEFITS ASSETS(1) BENEFITS ASSETS(1) BENEFITS EXCEEDED ASSETS
--------------- ----------------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial
present value
of:
Vested
benefits...... $ 2,252 $ 272 $ 2,133 $ 80 $ 148 $ 186
Non-vested
benefits.... 225 5 118 4 6 23
------ ----- ------ --- ----- -----
Accumulated
benefit
obligation.. 2,477 277 2,251 84 154 209
Effect of
future
salary
increases... 296 29 366 5 42 31
------ ----- ------ --- ----- -----
Projected
benefit
obligation.. 2,773 306 2,617 89 196 240
Plan assets at
fair market
value......... 2,529 204 2,449 35 172 109
------ ----- ------ --- ----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (244) (102) (168) (54) (24) (131)
Unrecognized net
(gain) loss... (68) 3 (121) (19) 17 26
Unrecognized
prior service
cost.......... (31) (10) (32) (13) (8) 14
------ ----- ------ --- ----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (343) $ (109) $ (321) $ (86) $ (15) $ (91)
------ ----- ------ --- ----- -----
------ ----- ------ --- ----- -----

</TABLE>
<TABLE><CAPTION>

FOREIGN PLANS
----------------------------------
DECEMBER 31, 1992
----------------------------------
PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEEDED ASSETS
----------------- ---------------
<S> <C> <C>
Actuarial
present value
of:
Vested
benefits...... $ 159 $ 155
Non-vested
benefits.... 6 21
----- -----
Accumulated
benefit
obligation.. 165 176
Effect of
future
salary
increases... 46 33
----- -----
Projected
benefit
obligation.. 211 209
Plan assets at
fair market
value......... 196 88
----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (15) (121)
Unrecognized net
(gain) loss... 11 20
Unrecognized
prior service
cost.......... (11) 11
----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (15) $ (90)
----- -----
----- -----
</TABLE>

- ---------------

(1) Of the net pension liability, $34 million and $12 million were related
to qualified plans at December 31, 1993 and 1992, respectively.

At December 31, 1993, approximately 99 percent of the plans' assets were
invested in listed stocks and bonds and other highly liquid investments. The
balance consisted of various income producing investments.

In addition to providing pension benefits, RJRN provides certain health
care and life insurance benefits for retired employees and their dependents.
Substantially all of its regular full-time employees, including certain
employees in foreign countries, may become eligible for those benefits if they
reach retirement age while working for RJRN. Effective January 1, 1992, RJRN
adopted SFAS No. 106. Under SFAS No. 106, RJRN is required to accrue the costs
for retirees' health and other postretirement benefits other than pensions and
recognize the unfunded and unrecognized accumulated benefit obligation for these
benefits. RJRN had previously accrued a liability for postretirement benefits
other
F-28
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
than pensions and as a result, SFAS No. 106 did not have a material impact on
RJRN's financial statements.

Net postretirement health and life insurance benefit cost for 1993 consists
of the following:

<TABLE><CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Service cost--benefits earned during the period..................................................... $ 16 $ 12
Interest cost on accumulated postretirement benefit obligation...................................... 60 58
----- -----
Net postretirement health care cost............................................................... $ 76 $ 70
----- -----
----- -----
</TABLE>

Net postretirement health and life insurance benefit costs representing
accretion on the liability balance of $89 million was charged to operations for
the year ended December 31, 1991. The reduction in expense in 1992 reflects the
reduction of recorded liabilities by approximately $225 million at December 31,
1991 as disclosed in Note 1 to the Consolidated Financial Statements.

RJRN's postretirement health and life insurance benefit plans currently are
not funded. The status of the plans was as follows:

<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit obligation:
Retirees.......................................................................... $ 693 $ 598
Fully eligible active plan participants........................................... 88 135
Other active plan participants.................................................... 263 226
Unrecognized actuarial amounts...................................................... (58) --
------ ------
Accrued postretirement health care costs............................................ $ 986 $ 959
------ ------
------ ------
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1993, 9% in 1994 and 10.7% in
1995 gradually declining to 6.0% by the year 2002 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 and net postretirement health care cost by
approximately 7% and 8.5%, respectively.

The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 8.5% as of December 31, 1993 and
1992, respectively.

Effective January 1, 1993, RJRN adopted SFAS No. 112. Under SFAS No. 112,
RJRN is required to accrue the costs for preretirement postemployment benefits
provided to former or inactive employees and recognize an obligation for these
benefits. The adoption of SFAS No. 112 did not have a material impact on the
financial statements of either Holdings or RJRN.

F-29
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 15--SEGMENT INFORMATION

Industry Segment Data

Holdings classifies its continuing operations into two industry segments
which are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations, appearing elsewhere herein. Summarized
financial information for these operations is shown in the following tables.

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
<S> <C> <C> <C>
Tobacco........................................................... $ 8,079 $ 9,027 $ 8,540
Food.............................................................. 7,025 6,707 6,449
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:
Tobacco(1)(2)..................................................... $ 893 $ 2,241 $ 2,322
Food(1)(2)........................................................ 624 769 715
Headquarters (2).................................................. (139) (112) (103)
------------- ------------- -------------
Consolidated operating income.................................. $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures:
Tobacco........................................................... $ 224 $ 189 $ 200
Food.............................................................. 391 330 254
Headquarters...................................................... -- -- 5
------------- ------------- -------------
Consolidated capital expenditures.............................. $ 615 $ 519 $ 459
------------- ------------- -------------
------------- ------------- -------------
Depreciation expense:
Tobacco........................................................... $ 237 $ 252 $ 242
Food.............................................................. 207 197 194
Headquarters...................................................... 4 6 5
------------- ------------- -------------
Consolidated depreciation expense.............................. $ 448 $ 455 $ 441
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

<TABLE><CAPTION>
Assets: DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
<S> <C> <C>
Tobacco............................................................. $ 19,904 $ 20,592
Food................................................................ 11,270 11,165
Headquarters(3)..................................................... 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
</TABLE>

- ---------------

(1) Includes amortization of trademarks and goodwill for Tobacco and Food,
respectively, for the year ended December 31, 1993, of $407 million and $218
million; for the year ended December 31, 1992, of $404 million and $212
million and for the year ended December 31, 1991, of $404 million and $205
million.

(2) The 1993 and 1992 amounts include the effects of the restructuring expense
at Tobacco (1993-- $544 million; 1992--$43 million), Food (1993--$153
million; 1992--$63 million) and Headquarters (1993--$33 million; 1992--$0),
as applicable, and the sale of Holdings' ready-to-eat cold cereal business
(See Note 1 to the Consolidated Financial Statements).

(3) Cash and cash equivalents for the domestic operating companies are included
in Headquarters' assets.

F-30
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 15--SEGMENT INFORMATION--(CONTINUED)

Geographic Data

The following tables show certain financial information relating to
Holdings' continuing operations in various geographic areas.

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
<S> <C> <C> <C>
United States (including U.S. export sales)....................... $ 11,570 $ 13,182 $ 12,548
Europe............................................................ 1,671 1,109 1,037
Other geographic areas............................................ 2,794 1,855 1,675
Less transfers between geographic areas(1)........................ (931) (412) (271)
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:(2)
United States..................................................... $ 1,284 $ 2,634 $ 2,692
Europe............................................................ 40 138 117
Other geographic areas............................................ 193 238 228
Headquarters...................................................... (139) (112) (103)
------------- ------------- -------------
Consolidated operating income(3)............................... $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
Assets:
<S> <C> <C>
United States....................................................... $ 27,143 $ 28,553
Europe.............................................................. 1,820 1,360
Other geographic areas.............................................. 2,211 1,844
Headquarters........................................................ 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
Liabilities of Holdings' continuing operations located in foreign
countries............................................................. $ 1,689 $ 1,352
---------- ----------
---------- ----------
</TABLE>

- ---------------

(1) Transfers between geographic areas (which consist principally of tobacco
transferred principally from the United States to Europe) are generally made
at fair market value.

(2) The 1993 and 1992 amounts include the effects of the restructuring expense
of $730 million and $106 million, respectively, and a gain on the sale of
Holdings' ready-to-eat cold cereal business ($98 million) (see Note 1 to the
Consolidated Financial Statements).

(3) Includes amortization of trademarks and goodwill of $625 million, $616
million and $609 million for the 1993, 1992 and 1991 periods, respectively.

F-31
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for
Holdings for the quarterly periods of 1993 and 1992:

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1993
<S> <C> <C> <C> <C>
Net sales................................................................ $ 3,736 $ 3,719 $ 3,598 $ 4,051
Operating income (loss).................................................. 683 582 431 (318)
Income (loss) before extraordinary item.................................. 210 142 74 (429)
Net income (loss)........................................................ 163 77 76 (461)
Income (loss) before extraordinary item per common share(1).............. 0.15 0.10 0.04 (0.34)
Net income (loss) per common share(1).................................... 0.12 0.05 0.04 (0.36)
</TABLE>

<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1992
<S> <C> <C> <C> <C>
Net sales................................................................ $ 3,643 $ 3,983 $ 4,021 $ 4,087
Operating income......................................................... 664 768 763 703
Income before extraordinary item......................................... 144 209 252 171
Net income (loss)........................................................ (15) 87 182 45
Income before extraordinary item per common share(1)..................... 0.10 0.15 0.18 0.12
Net income (loss) per common share(1).................................... (0.02) 0.06 0.13 0.03
</TABLE>

- ---------------

(1) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year. In addition, assuming that
the transactions discussed in Notes 10 and 12 to the Consolidated Financial
Statements had occurred on January 1, 1993 or January 1, 1992, as
applicable, and the net proceeds thereof were used to redeem or to repay
outstanding indebtedness, the impact on earnings per share would be
anti-dilutive for the reported periods.

NOTE 17--SUBSEQUENT EVENT

On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each representing a
one-tenth ownership interest in a share of a newly created series of Preferred
Equity Redemption Cumulative Stock ("PERCS"). Each depositary share would
mandatorily convert in three years into one share of Common Stock, subject
to adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.

------------------------------------

F-32

<PAGE>
Paste up
[Logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
Registration fee.............................................................. $ 892,242
Blue Sky fees and expenses.................................................... 20,000
Printing and engraving expenses............................................... 200,000
Legal fees and expenses....................................................... 200,000
Accounting fees and expenses.................................................. 25,000
Miscellaneous................................................................. 82,758
-------------
Total............................................................... $ 1,400,000
-------------
-------------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.

In accordance with the Delaware Law, the Certificate of Incorporation of
the Company contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability to the Company or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.

Article IV of the Amended and Restated By-Laws of the Company provides for
indemnification of the officers and directors of the Company to the full extent
permitted by applicable law.

II-1
<PAGE>
ITEM 16. EXHIBITS.

EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
4.1 Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., filed October 1, 1990 (incorporated by
reference to Exhibit 3.1 to Amendment No. 4 filed on October 2,
1990, to the Registration Statement on Form S-4 of RJR Nabisco
Holdings Corp., Registration No. 33-36070, filed on July 25,
1990, as amended (the "Form S-4, Registration No. 33-36070")).
4.1(a) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed January 29,
1991 (incorporated by reference to Exhibit 3.1(a) to Amendment
No. 3, filed on January 31, 1991, to the Registration Statement
on Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-
38227).
4.1(b) Certificate of Designation of ESOP Convertible Preferred Stock,
filed April 10, 1991 (incorporated by reference to Exhibit
3.1(b) to Amendment No. 2 filed on April 11, 1991, to the
Registation Statement on Form S-1 of RJR Nabisco Holdings
Corp., Registration No. 33-39532, filed on March 20, 1991).
4.1(c) Certificate of Designation of Series A Conversion Preferred
Stock, filed November 7, 1991 (incorporated by reference to
Exhibit 3.1(c) to Amendment No. 3, filed on November 1, 1991,
to the Registration Statement on Form S-1 of RJR Nabisco
Holdings Corp., Registration No. 33-43137, filed October 2,
1991).
4.1(d) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed December 16,
1991 (incorporated by reference to Exhibit 3.1(d) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1991, File
Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991 Form
10-K")).
4.1(e) Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of RJR Nabisco Holdings Corp. (relating to the
authorization of the issuance of additional shares of Common
Stock) filed April 6, 1993 (incorporated by reference to
Exhibit 3.3 of the Quarterly Report on Form 10-Q of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
ended March 31, 1993, filed April 30, 1993 (the "March 1993
Form 10-Q")).
4.1(f) Certificate of Designation of Series B Cumulative Preferred
Stock, filed August 16, 1993 (incorporated by reference to
Exhibit 3.1(g) of the Annual Report on Form 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended
December 31, 1993, File Nos. 1-10215 and 1-6388 (the "1993 Form
10-K").
4.1(g) A composite of the Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., as amended to
August 16, 1993 (incorporated by reference to Exhibit 3.1(g) of
the 1993 Form 10-K).
*4.1(h) Form of Certificate of Designation of Series C Conversion
Preferred Stock.
*4.2 Form of Deposit Agreement.
4.3 Credit Agreement dated as of December 1, 1991, among RJR Nabisco
Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco
Capital Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.1 of the
1991 Form 10-K).
4.3(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992
(incorporated by reference to Exhibit 4.1(a) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1992, File
Nos. 1-10215 and 1-6388).
4.3(b) Amendment No. 2 to Credit Agreement, dated as of March 4, 1993
(incorporated by reference to Exhibit 4.2 of the March 1993
Form 10-Q).
4.3(c) Amendment to Credit Agreement, dated as of October 12, 1993
(incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the quarter ended September 30, 1993 (the
"September 1993 Form 10-Q").
4.4 Credit Agreement dated as of April 5, 1993 among RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.3 of the
March 1993 Form 10-Q).

II-2
<PAGE>

4.4(a) Amendment to Credit Agreement, dated October 12, 1993
(incorporated by reference to Exhibit 10.1 of the September
1993 10-Q).
4.5 Indenture dated as of April 25, 1991 among RJR Nabisco Capital
Corp., RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco, Inc. and Citibank, N.A., as Trustee,
relating to the 10 1/2% Senior Notes due 1998, including form
of securities. (incorporated by reference to Exhibit 4.5 to
Amendment No. 7 filed on August 11, 1993, to the Registration
Statement of Form S-3 of RJR Nabisco Holdings Corp.,
Registration No. 33-58930, filed March 1, 1993, as amended (the
"Form S-3, Registration No. 33-58930")).
4.5(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Citibank, N.A., as Trustee, relating to the 10
1/2% Senior Notes due 1998 (incorporated by reference to
Exhibit 4.5(a) to the Form S-3, Registration No. 33-58930).
4.6 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001, including form of securities
(incorporated by reference to Exhibit 4.6 to the Form S-3,
Registration No. 33-58930).
4.6(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.6(a) to the Form S-3, Registration No. 33-58930).
4.7 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001, including form of securities (incorporated
by reference to Exhibit 4.7 to the Form S-3, Registration No.
33-58930).
4.7(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001 (incorporated by reference to Exhibit
4.7(a) to the Form S-3, Registration No. 33-58930).
4.8 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and U.S. Trust Company of California, N.A., as
Trustee, relating to the 13 1/2% Subordinated Debentures due
2001, including form of securities (incorporated by reference
to Exhibit 4.8 to the Form S-3, Registration No. 33-58930).
4.8(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as trustee, relating to the 13 1/2% Subordinated
Debentures due 2001 (incorporated by reference to Exhibit
4.8(a) to the Form S-3, Registration No. 33-58930).
4.9 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended, effective January 20, 1994 (incorporated by reference
to Exhibit 3.2 to the 1993 Form 10-K).
*5.1 Opinion of Jo-Ann Ford regarding the legality of the securities
being registered.
*7.1 Opinion of Simpson Thacher & Bartlett regarding the liquidation
preference of the securities being registered.
*8.1 Opinion of Simpson Thacher & Bartlett regarding certain federal
income tax matters with respect to the securities being
registered (included on Exhibit 7.1).
12.1 RJR Nabisco, Inc. Computation of Historical Ratio of Earnings to
Fixed Charges for the year ended December 31, 1988
(incorporated by reference to Exhibit 12.2 to the Form S-1,
Registration No. 33-32728).
12.2 RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR
Nabisco Capital Corp., RJR Nabisco, Inc. (Successor) and RJR
Nabisco, Inc. (Predecessor) Computation of Historical Ratio of
Earnings to Fixed Charges/Deficiency in the Coverage of Fixed
Charges by Earnings Before Fixed Charges for the periods within
the year ended December 31, 1989 (incorporated by reference to
Exhibit 12.3 to the Form S-4, Registration No. 33-36070).

II-3
<PAGE>

12.3 RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group Inc., RJR
Nabisco Capital Corp. and RJR Nabisco, Inc. Computation of
Historical Ratio of Earnings to Fixed Charges/Deficiency in the
Coverage of Combined Fixed Charges and Preferred Stock
Dividends by Earnings Before Fixed Charges for the year ended
December 31, 1990 (incorporated by reference to Exhibit 12.4 to
Form S-1, Registration Statement No. 33-32728).
*12.5 RJR Nabisco Holdings Corp. Computation of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for each of the
years in the two year period ended December 31, 1992 and for
the six months ended June 30, 1993 and 1992.
*23.1 Consent of Independent Auditors.
*23.2 Consent of Jo-Ann Ford (included in her opinion filed as Exhibit
5.1).
*23.3 Consent of Simpson Thacher & Bartlett (included in their opinions
filed as Exhibits 7.1 and 8.1)
*25 Powers of Attorney of Charles M. Harper, Stephen R. Wilson,
Robert S. Roath, John T. Chain, Jr., Saul A. Fox, Louis V.
Gerstner, Jr., James H. Greene, Jr., H. John Greeniaus, James
W. Johnston, Vernon E. Jordan, Jr., Henry R. Kravis, John G.
Medlin, Jr., Paul E. Raether, Lawrence R. Ricciardi, Rozanne L.
Ridgway, Clifton S. Robbins, George R. Roberts, Scott M. Stuart
and Michael T. Tokarz.
- ---------------

* Filed herewith.

ITEM 17. UNDERTAKINGS.

The undersigned hereby undertakes:

1. For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered thereby,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

2. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

3. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and

4. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a registrant of expenses
incurred or paid by a director, officer or controlling person of such registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on February 24, 1994.

RJR NABISCO HOLDINGS CORP.

By: /s/ STEPHEN R. WILSON
...................................
Stephen R. Wilson
Title: Executive Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on February 24, 1994.

SIGNATURE TITLE
- ----------------------------- ----------------------------
* Chairman of the Board and
............................. Chief Executive Officer
(Charles M. Harper) (principal executive
officer) and Director
* Executive Vice President and
............................. Chief Financial Officer
(Stephen R. Wilson) (principal financial
officer)
* Senior Vice President and
............................. Controller (principal
(Robert S. Roath) accounting officer)
* Director
.............................
(John T. Chain, Jr.)
* Director
.............................
(Saul A. Fox)
* Director
.............................
(Louis V. Gerstner, Jr.)
* Director
.............................
(James H. Greene, Jr.)
* Director
.............................
(H. John Greeniaus)
* Director
.............................
(James W. Johnston)
* Director
.............................
(Vernon E. Jordan, Jr.)
* Director
.............................
(Henry R. Kravis)
* Director
.............................
(John G. Medlin, Jr.)
* Director
.............................
(Paul E. Raether)
* Director
.............................
(Lawrence R. Ricciardi)
* Director
.............................
(Rozanne L. Ridgway)
* Director
.............................
(Clifton S. Robbins)
* Director
.............................
(George R. Roberts)
* Director
.............................
(Scott M. Stuart)
* Director
.............................
(Michael T. Tokarz)

*By: /s/ JO-ANN FORD
..........................
Jo-Ann Ford
Attorney-in-Fact

II-5

<PAGE>

<TABLE><CAPTION>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- ----------- --------------------------------------------------------------------------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
4.1 Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., filed October 1, 1990 (incorporated by
reference to Exhibit 3.1 to Amendment No. 4 filed on October 2,
1990, to the Registration Statement on Form S-4 of RJR Nabisco
Holdings Corp., Registration No. 33-36070, filed on July 25,
1990, as amended (the "Form S-4, Registration No. 33-36070")).
4.1(a) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed January 29,
1991 (incorporated by reference to Exhibit 3.1(a) to Amendment
No. 3, filed on January 31, 1991, to the Registration Statement
on Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-
38227).
4.1(b) Certificate of Designation of ESOP Convertible Preferred Stock,
filed April 10, 1991 (incorporated by reference to Exhibit
3.1(b) to Amendment No. 2 filed on April 11, 1991, to the
Registation Statement on Form S-1 of RJR Nabisco Holdings
Corp., Registration No. 33-39532, filed on March 20, 1991).
4.1(c) Certificate of Designation of Series A Conversion Preferred
Stock, filed November 7, 1991 (incorporated by reference to
Exhibit 3.1(c) to Amendment No. 3, filed on November 1, 1991,
to the Registration Statement on Form S-1 of RJR Nabisco
Holdings Corp., Registration No. 33-43137, filed October 2,
1991).
4.1(d) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed December 16,
1991 (incorporated by reference to Exhibit 3.1(d) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1991, File
Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991 Form
10-K")).
4.1(e) Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of RJR Nabisco Holdings Corp. (relating to the
authorization of the issuance of additional shares of Common
Stock) filed April 6, 1993 (incorporated by reference to
Exhibit 3.3 of the Quarterly Report on Form 10-Q of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
ended March 31, 1993, filed April 30, 1993 (the "March 1993
Form 10-Q")).
4.1(f) Certificate of Designation of Series B Cumulative Preferred
Stock, filed August 16, 1993 (incorporated by reference to
Exhibit 3.1(g) of the Annual Report on Form 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended
December 31, 1993, File Nos. 1-10215 and 1-6388 (the "1993 Form
10-K").
4.1(g) A composite of the Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., as amended to
August 16, 1993 (incorporated by reference to Exhibit 3.1(g) of
the 1993 Form 10-K).
*4.1(h) Form of Certificate of Designation of Series C Conversion
Preferred Stock.
*4.2 Form of Deposit Agreement.
4.3 Credit Agreement dated as of December 1, 1991, among RJR Nabisco
Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco
Capital Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.1 of the
1991 Form 10-K).
4.3(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992
(incorporated by reference to Exhibit 4.1(a) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1992, File
Nos. 1-10215 and 1-6388).
4.3(b) Amendment No. 2 to Credit Agreement, dated as of March 4, 1993
(incorporated by reference to Exhibit 4.2 of the March 1993
Form 10-Q).
4.3(c) Amendment to Credit Agreement, dated as of October 12, 1993
(incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the quarter ended September 30, 1993 (the
"September 1993 Form 10-Q").
4.4 Credit Agreement dated as of April 5, 1993 among RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.3 of the
March 1993 Form 10-Q).

</TABLE>
<PAGE>

<TABLE><CAPTION>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- ----------- --------------------------------------------------------------------------------
<S> <C> <C>
4.4(a) Amendment to Credit Agreement, dated October 12, 1993
(incorporated by reference to Exhibit 10.1 of the September
1993 10-Q).
4.5 Indenture dated as of April 25, 1991 among RJR Nabisco Capital
Corp., RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco, Inc. and Citibank, N.A., as Trustee,
relating to the 10 1/2% Senior Notes due 1998, including form
of securities. (incorporated by reference to Exhibit 4.5 to
Amendment No. 7 filed on August 11, 1993, to the Registration
Statement of Form S-3 of RJR Nabisco Holdings Corp.,
Registration No. 33-58930, filed March 1, 1993, as amended (the
"Form S-3, Registration No. 33-58930")).
4.5(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Citibank, N.A., as Trustee, relating to the 10
1/2% Senior Notes due 1998 (incorporated by reference to
Exhibit 4.5(a) to the Form S-3, Registration No. 33-58930).
4.6 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001, including form of securities
(incorporated by reference to Exhibit 4.6 to the Form S-3,
Registration No. 33-58930).
4.6(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.6(a) to the Form S-3, Registration No. 33-58930).
4.7 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001, including form of securities (incorporated
by reference to Exhibit 4.7 to the Form S-3, Registration No.
33-58930).
4.7(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001 (incorporated by reference to Exhibit
4.7(a) to the Form S-3, Registration No. 33-58930).
4.8 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and U.S. Trust Company of California, N.A., as
Trustee, relating to the 13 1/2% Subordinated Debentures due
2001, including form of securities (incorporated by reference
to Exhibit 4.8 to the Form S-3, Registration No. 33-58930).
4.8(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as trustee, relating to the 13 1/2% Subordinated
Debentures due 2001 (incorporated by reference to Exhibit
4.8(a) to the Form S-3, Registration No. 33-58930).
4.9 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended, effective January 20, 1994 (incorporated by reference
to Exhibit 3.2 to the 1993 Form 10-K).
*5.1 Opinion of Jo-Ann Ford regarding the legality of the securities
being registered.
*7.1 Opinion of Simpson Thacher & Bartlett regarding the liquidation
preference of the securities being registered.
*8.1 Opinion of Simpson Thacher & Bartlett regarding certain federal
income tax matters with respect to the securities being
registered (included on Exhibit 7.1).
12.1 RJR Nabisco, Inc. Computation of Historical Ratio of Earnings to
Fixed Charges for the year ended December 31, 1988
(incorporated by reference to Exhibit 12.2 to the Form S-1,
Registration No. 33-32728).
12.2 RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR
Nabisco Capital Corp., RJR Nabisco, Inc. (Successor) and RJR
Nabisco, Inc. (Predecessor) Computation of Historical Ratio of
Earnings to Fixed Charges/Deficiency in the Coverage of Fixed
Charges by Earnings Before Fixed Charges for the periods within
the year ended December 31, 1989 (incorporated by reference to
Exhibit 12.3 to the Form S-4, Registration No. 33-36070).
</TABLE>

<PAGE>

<TABLE><CAPTION>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- ----------- --------------------------------------------------------------------------------
<S> <C> <C>
12.3 RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group Inc., RJR
Nabisco Capital Corp. and RJR Nabisco, Inc. Computation of
Historical Ratio of Earnings to Fixed Charges/Deficiency in the
Coverage of Combined Fixed Charges and Preferred Stock
Dividends by Earnings Before Fixed Charges for the year ended
December 31, 1990 (incorporated by reference to Exhibit 12.4 to
Form S-1, Registration Statement No. 33-32728).
*12.5 RJR Nabisco Holdings Corp. Computation of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for each of the
years in the two year period ended December 31, 1992 and for
the six months ended June 30, 1993 and 1992.
*23.1 Consent of Independent Auditors.
*23.2 Consent of Jo-Ann Ford (included in her opinion filed as Exhibit
5.1).
*23.3 Consent of Simpson Thacher & Bartlett (included in their opinions
filed as Exhibits 7.1 and 8.1)
*25 Powers of Attorney of Charles M. Harper, Stephen R. Wilson,
Robert S. Roath, John T. Chain, Jr., Saul A. Fox, Louis V.
Gerstner, Jr., James H. Greene, Jr., H. John Greeniaus, James
W. Johnston, Vernon E. Jordan, Jr., Henry R. Kravis, John G.
Medlin, Jr., Paul E. Raether, Lawrence R. Ricciardi, Rozanne L.
Ridgway, Clifton S. Robbins, George R. Roberts, Scott M. Stuart
and Michael T. Tokarz.
- ---------------
* Filed herewith.

</TABLE>

RJR NABISCO HOLDINGS CORP.

[___________] Series C Depositary Shares

Representing

Series C Conversion Preferred Stock
(par value $.01 per share)

UNDERWRITING AGREEMENT

March __, 1994

<PAGE>

March __, 1994

Morgan Stanley & Co. Incorporated
Smith Barney Shearson Inc.
as Representatives of the
Several Underwriters
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020

Dear Sirs:

RJR Nabisco Holdings Corp., a Delaware corporation (the
"Company"), proposes to issue up to _________ shares of its Series
C Conversion Preferred Stock, par value $.01 per share (the
"PERCS"), of which ________ PERCS would be issued in connection
with the sale of the Firm Shares (as hereinafter defined) and up to
_______ PERCS would be issued in connection with the sale of the
Additional Shares (as hereinafter defined). The PERCS will, when
issued, be deposited by the Company against delivery of Depositary
Receipts ("Depositary Receipts") to be issued by First Chicago
Trust Company of New York, as depositary (the "Depositary"), under
a Deposit Agreement dated as of March __, 1994 (the "Deposit
Agreement") among the Company and the Depositary. Each Depositary
Receipt will evidence one or more Series C Depositary Shares, and
each Series C Depositary Share will represent one-___ of a PERCS.

The PERCS will be converted by the Company into shares of
common stock, par value $.01 per share (the "Common Stock"), of the
Company unless previously redeemed by the Company for shares of
Common Stock.

The Company proposes to sell to the several Underwriters
named in Schedule I hereto __________ of the Series C Depositary
Shares (the "Firm Shares"). The Company also proposes to sell to
the several Underwriters not more than an additional ____________
of the Series C Depositary Shares (the "Additional Shares") if and
to the extent that you, as Representatives of the several
Underwriters, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such Series C Depositary Shares
granted to the Underwriters in Article II hereof. The Firm Shares
and the Additional Shares are hereinafter collectively referred to
as the Depositary Shares.

The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement including a
prospectus relating to the PERCS, the Depositary Shares and the

<PAGE>

Common Stock. The registration statement as amended at the time
it becomes effective, including the information (if any) deemed to
be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "Securities Act"), is hereinafter referred to as the
Registration Statement; the prospectus in the form first used to
confirm sales of Depositary Shares is hereinafter referred to as
the Prospectus (including, in case of all references to the
Registration Statement and the Prospectus, documents incorporated
therein by reference).

The Company represents and warrants to each of the
Underwriters that:

(a) The Registration Statement has become effective
under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement is in effect, and
no proceedings for such purpose are pending before or, to the
Company's knowledge, threatened by the Commission.

(b) (i) Each document, if any, filed or to be filed
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and incorporated by reference in the
Prospectus complied or will comply when so filed in all
material respects with the Exchange Act and the applicable
rules and regulations of the Commission thereunder, (ii) each
part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, (iii) the Registration
Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the
Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph
1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly
for use therein.

<PAGE>

(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority
to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
would not have a material adverse effect on the financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole.

(d) Each of RJR Nabisco, Inc. ("RJRN"), R.J. Reynolds
Tobacco Company ("RJRT"), R.J. Reynolds Tobacco International,
Inc., Nabisco, Inc. (collectively, the "Significant
Subsidiaries") has been duly incorporated, is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
would not have a material adverse effect on the financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole.

(e) (i) The authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus; (ii) except as set forth in the
Prospectus and except for (A) the common stock of RJRT which
is pledged pursuant to the RJRN Pledge Agreement dated May 13,
1992 (the "RJRN Pledge Agreement") between RJRN and Chemical
Bank, as collateral agent (the "Collateral Agent"), and (B)
the common stock of RJRN which is pledged pursuant to the
Amended and Restated Parents Pledge Agreement dated as of
February 9, 1989, as amended, and as amended and restated as
of December 19, 1991 (the "Company Pledge Agreement") between
the Company and the Collateral Agent, all of the outstanding
capital stock of each of the Significant Subsidiaries is owned
directly or indirectly by the Company free and clear of any
security interest, claim, lien or other encumbrance or
preemptive rights; and (iii) there are no outstanding rights
(including, without limitation, preemptive rights), warrants
or options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock or other equity
interest in any of the Significant Subsidiaries or any
contract, commitment, agreement, understanding or arrangement
of any kind relating to the issuance of any such capital

<PAGE>

stock, any such convertible or exchangeable securities or any
such rights, warrants or options.

(f) The PERCS, and the deposit of the PERCS by the
Company in accordance with the Deposit Agreement, have been
duly and validly authorized and, when the PERCS are issued and
delivered as provided herein, and upon payment for the
Depositary Shares and delivery of the Depositary Receipts in
accordance with this Agreement, the PERCS will be validly
issued, fully paid and non-assessable and will conform as to
legal matters to the description of the PERCS contained in the
Prospectus, and the issuance of the PERCS will not be subject
to any preemptive or similar rights.

(g) The shares of Common Stock initially issuable upon
the mandatory conversion of the PERCS have been duly
authorized and reserved for issuance upon such conversion and,
when issued upon such conversion, will be validly issued,
fully paid and non-assessable and the issuance of such Common
Stock will not be subject to any preemptive or similar rights.

(h) Assuming due authorization, execution and delivery
of the Deposit Agreement by the Depositary, each Depositary
Share, upon delivery of the Depositary Receipts in accordance
with the provisions of the Deposit Agreement against the
deposit of validly issued, fully paid and nonassessable PERCS,
will represent an interest in one-tenth of a validly issued,
outstanding, fully paid and non-assessable PERCS; assuming due
execution and delivery of the Depositary Receipts by the
Depositary pursuant to the Deposit Agreement and upon payment
for the Depositary Shares and delivery of the Depositary
Receipts in accordance with this Agreement, the Depositary
Receipts will entitle the holders thereof to the benefits
provided therein and in the Deposit Agreement.

(i) This Agreement has been duly authorized, executed
and delivered by the Company.

(j) The Deposit Agreement has been duly authorized,
executed and delivered by the Company.

(k) The execution and delivery by the Company of, and
the performance by the Company of its obligations under, this
Agreement and the Deposit Agreement will not contravene any
provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or
other instrument binding upon the Company or any of its
subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Company or any subsidiary, except for such contraventions
that would not, individually or in the aggregate, have a

<PAGE>

material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries taken as a
whole, and no consent, approval or authorization or order of,
or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement and the Deposit Agreement, except such as
may have been obtained and such as may be required by the
securities or Blue Sky laws of the various states or the
securities laws of non-U.S. jurisdictions in connection with
the offer and sale of the Depositary Shares.

(l) There has not been any material adverse change, or
any development involving a prospective material adverse
change, in the financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).

(m) There are no legal or governmental proceedings
pending or, to the best of the Company's knowledge, threatened
to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that are not described
or filed as required.

(n) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the
Securities Act, complied when so filed in all material
respects with the Securities Act and the rules and regulations
of the Commission thereunder.

(o) Neither the Company nor RJRN is, or after giving
effect to the offering and sale of the Depositary Shares will
be, and neither the Company nor is directly or indirectly
controlled by, or acting on behalf of any person which is, an
investment company within the meaning of the Investment
Company Act of 1940, as amended.

(p) The Company has complied with all provisions of
Section 517.075 Florida Statutes (Chapter 92-198, Laws of
Florida).

II.

<PAGE>

The Company hereby agrees to sell to the several
Underwriters named in Schedule I hereto, and the Underwriters, upon
the basis of the representations and warranties herein contained,
but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company the respective
numbers of Firm Shares set forth opposite their names at $______ a
share - the purchase price.

On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and
conditions, the Company agrees to sell to the Underwriters the
Additional Shares, and the Underwriters shall have a one-time right
to purchase, severally and not jointly, up to ____________
Additional Shares at the purchase price. Additional Shares may be
purchased as provided in Article IV hereof solely for the purpose
of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased,
each Underwriter agrees, severally and not jointly, to purchase the
number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.

The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated, it will not offer,
sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the
date of the Prospectus, other than (i) the Depositary Shares to be
sold hereunder, the PERCS and any shares of Common Stock issued
upon conversion or redemption of the PERCS, (ii) upon conversion or
exercise of securities, options or warrants outstanding prior to
the date hereof, (iii) in connection with the 1990 Long Term
Incentive Plan or any management equity or other employee
compensation plan of the Company or its subsidiaries or (iv) in
connection with the acquisition of or merger with any corporation
or other entity or the acquisition of any assets or properties
thereof.

III.

The Company is advised by you that the Underwriters
propose to make a public offering of their respective portions of
the Depositary Shares as soon after the Registration Statement and
this Agreement have become effective as in your judgment is
advisable. The Company is further advised by you that the
Depositary Shares are to be offered to the public initially at
$_____ a share (the public offering price) and to certain dealers
selected by you at a price that represents a concession not in

<PAGE>

excess of $______ a share under the public offering price, and that
any Underwriter may allow, and such dealers may reallow, a
concession, not in excess of $______ a share, to any Underwriter or
to certain other dealers.

IV.

Payment for the Firm Shares shall be made by certified or
official bank check or checks payable to the order of the Company
in New York Clearing House funds at the office of Morgan Stanley &
Co. Incorporated, 1251 Avenue of the Americas, New York, New York,
at 10:00 A.M., local time, on March __, 1994, or at such other time
on the same or such other date as shall be agreed upon in writing
by you and the Company. The time and date of such payment are
hereinafter referred to as the Closing Date.

Payment for any Additional Shares shall be made by
certified or official bank check or checks payable to the order of
the Company in New York Clearing House funds at the office of
Morgan Stanley & Co. Incorporated, 1251 Avenue of the Americas, New
York, New York, at 10:00 A.M., local time, on such date (which may
be the same as the Closing Date but shall in no event be earlier
than the Closing Date nor later than ten business days after the
giving of the notice hereinafter referred to) as shall be
designated in a written notice from you to the Company of your
determination, on behalf of the Underwriters, to purchase a number,
specified in said notice, of Additional Shares, or on such other
date as shall be agreed upon in writing by you and the Company.
The time and date of such payment are hereinafter referred to as
the Option Closing Date. The notice of the determination to
exercise the option to purchase Additional Shares and of the Option
Closing Date may be given at any time within 30 days after the date
of this Agreement.

Depositary Receipts for the Firm Shares and Additional
Shares shall be in definitive form and registered in such names and
in such denominations as you shall request in writing not later
than two full business days prior to the Closing Date or the Option
Closing Date, as the case may be. The Depositary Receipts
evidencing the Firm Shares and Additional Shares shall be delivered
to you on the Closing Date or the Option Closing Date, as the case
may be, for the respective accounts of the several Underwriters,
with any transfer taxes payable in connection with the transfer of
the Depositary Shares to the Underwriters duly paid, against
payment of the purchase price therefor.

The obligations of the Company and the several
obligations of the Underwriters hereunder are subject to the

<PAGE>

condition that the Registration Statement shall have become
effective not later than the date hereof.

The several obligations of the Underwriters hereunder are
subject to the following further conditions:

(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have
occurred any change, or any development involving a
prospective change, in the financial condition or results of
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that is material and adverse and that makes
it, in your reasonable judgment, impracticable to market the
Depositary Shares on the terms and in the manner contemplated
in the Prospectus.

(b) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an
executive officer of the Company, to the effect that the
representations and warranties of the Company contained in
this Agreement shall be true and correct in all material
respects as of the Closing Date and the Company shall have
performed all of its obligations to be performed hereunder on
or prior to the Closing Date.

(c) You shall have received on the Closing Date an
opinion of Jo-Ann Ford, counsel for the Company, dated the
Closing Date, to the effect that:

(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing
under the laws of the State of Delaware, has the
corporate power and authority to own its property
and to conduct its business as described in the
Prospectus and is duly qualified to transact
business and is in good standing in each
jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent that the failure
to be so qualified or be in good standing would not
have a material adverse effect on the financial
condition or results of operations of the Company
and its subsidiaries, taken as a whole (such counsel
being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel, provided
that such counsel shall state that both you and she
are justified in relying on such opinion);

<PAGE>

(ii) each of the Significant Subsidiaries has
been duly incorporated, is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, has the corporate
power and authority to own its property and to
conduct its business as described in the Prospectus
and is duly qualified to transact business and is in
good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing
of property requires such qualification, except to
the extent that the failure to be so qualified or be
in good standing would not have a material adverse
effect on the financial condition or results of
operations of the Company and its subsidiaries,
taken as a whole (such counsel being entitled to
rely in respect of the opinion in this clause upon
opinions of local counsel, provided that such
counsel shall state that both you and she are
justified in relying on such opinion);

(iii) (1) the authorized capital stock of the
Company conforms as to legal matters to the
description thereof contained in the Prospectus; (2)
except as for (a) the common stock of RJRT which is
pledged pursuant to the RJRN Pledge Agreement and
(b) the common stock of RJRN which is pledged
pursuant to the Company Pledge Agreement, all of the
outstanding capital stock of each of the Significant
Subsidiaries is owned directly or indirectly by the
Company free and clear of any security interest,
claim, lien or other encumbrance or preemptive
rights; and (3) there are no outstanding rights
(including, without limitation, preemptive rights),
warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of
capital stock or other equity interest in any of the
Significant Subsidiaries or any contract,
commitment, agreement, understanding or arrangement
of any kind relating to the issuance of any such
capital stock, any such convertible or exchangeable
securities or any such rights, warrants or options;

(iv) this Agreement has been duly authorized,
executed and delivered by the Company;

(v) the Deposit Agreement has been duly
authorized, executed and delivered by the Company;

(vi) the execution and delivery by the Company
of, and the performance by the Company of its
obligations under, this Agreement and the Deposit

<PAGE>

Agreement will not contravene any provision of
applicable law or the certificate of incorporation
or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its
subsidiaries or, to the best of such counsel's
knowledge, any judgment, order or decree of any
governmental body, agency or court having
jurisdiction over the Company or any subsidiary,
except for such contraventions that would not,
individually or in the aggregate, have a material
adverse effect on the financial condition or
results of operations of the Company and its
subsidiaries taken as a whole, and no consent,
approval, authorization or order of, or
qualification with, any governmental body or
agency is required for the performance by the
Company of its obligations under this Agreement
and the Deposit Agreement, except such as have
been obtained and such as may be required by the
securities or Blue Sky laws of the various states
or the securities laws of non-U.S. jurisdictions
in connection with the offer and sale of the
Depositary Shares by the Underwriters;

(vii) after due inquiry, such counsel does not
know of any legal or governmental proceedings
pending or threatened to which the Company or any
of its subsidiaries is a party or to which any of
the properties of the Company or any of its
subsidiaries is subject that are required to be
described in the Registration Statement or the
Prospectus and are not so described or of any
statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement
that are not described or filed as required;

(viii) the statements made in the Prospectus
under the captions "Description of Capital Stock
-- Common Stock," "Description of Capital Stock --
Series C PERCS", "Description of Capital Stock --
Other Preferred Stock", "Description of Capital
Stock -- Certain Statutory and By-law Provisions"
and "Description of Depositary Shares," insofar as
such statements constitute a summary of the legal
matters or documents referred to therein are
accurate in all material respects; and

(ix) such counsel (1) is of the opinion that
each document filed pursuant to the Exchange Act

<PAGE>

and incorporated by reference in the Registration
Statement and the Prospectus (except for financial
statements and schedules as to which such counsel
need not express any opinion) complied when so
filed as to form in all material respects with the
Exchange Act and the rules and regulations of the
Commission thereunder, (2) has no reason to
believe that (except for financial statements and
schedules as to which such counsel need not
express any belief) each part of the Registration
Statement, when such part became effective
contained, and as of the Closing Date, contains
any untrue statement of a material fact or, when
such part became effective, omitted or, as of the
Closing Date, omits to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, (3) is of
the opinion that the Registration Statement and
Prospectus (except for financial statements and
schedules included therein as to which such
counsel need not express any opinion), comply as
to form in all material respects with the
Securities Act and the applicable rules and
regulations of the Commission thereunder and (4)
has no reason to believe that (except for
financial statements and schedules as to which
such counsel need not express any belief) the
Prospectus, as of the Closing Date, contains any
untrue statement of a material fact or omits to
state a material fact necessary in order to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading.

In rendering such opinion, such counsel may rely
as to certain matters of fact on certificates of
officers of the Company and of public officials and
with respect to matters of New Jersey law, on a member
of such counsel's legal staff admitted to practice in
the State of New Jersey and may state that she
expresses no opinion as to the laws of any jurisdiction
other than the State of New York, the federal law of
the United States and the Delaware General Corporation
Law.

With respect to paragraph (ix) above, such counsel
may state that such counsel's opinion and belief are
based upon such counsel's participation in the
preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto
and documents incorporated therein by reference and
review and discussion of the contents thereof, but are
without independent check or verification, except as
specified.

<PAGE>

(d) You shall have received on the Closing Date an
opinion of Simpson Thacher & Bartlett, counsel for the
Company, dated the Closing Date, to the effect that:

(i) the PERCS, and the deposit of the PERCS
by the Company in accordance with the Deposit
Agreement, have been duly and validly authorized
and, when the PERCS are issued and delivered as
provided herein, and upon payment for the
Depositary Shares and delivery of the Depositary
Receipts in accordance with this Agreement, the
PERCS will be validly issued, fully paid and
non-assessable and the issuance of the PERCS is
not subject to any preemptive or similar rights
arising by operation of the certificate of
incorporation of the Company or the Delaware
General Corporation Law;

(ii) the shares of Common Stock initially
issuable upon the mandatory conversion of the
PERCS have been duly authorized and reserved for
issuance upon such conversion and, when issued
upon such conversion, will be validly issued,
fully paid and non-assessable and will not be
subject to any preemptive or similar rights
arising by operation of the certificate of
incorporation of the Company or the Delaware
General Corporation Law;

(iii) assuming due authorization, execution and
delivery of the Deposit Agreement by the
Depositary, each Depositary Share, upon delivery
of the Depositary Receipts in accordance with the
provisions of the Deposit Agreement against the
deposit of validly issued, fully paid and
nonassessable PERCS, will represent an interest in
one-tenth of a validly issued, outstanding, fully
paid and non-assessable PERCS; assuming due
execution and delivery of the Depositary Receipts
by the Depositary pursuant to the Deposit
Agreement and upon payment for the Depositary
Shares and delivery of the Depositary Receipts in
accordance with this Agreement, the Depositary
Receipts will entitle the holders thereof to the
benefits provided therein and in the Deposit
Agreement; and

(iv) the Registration Statement and the
Prospectus and any further amendments and
supplements thereto made by the Company prior to
the Closing Date (other than the financial
statements and other financial data therein, as to
which such counsel need express no opinion), as of
their respective effective dates or issue dates,

<PAGE>

as the case may be, comply as to form in all material
respects with the requirements of the Securities Act
and the rules and regulations thereunder.

Such opinion shall also state that the discussion set
forth under the captions, "Description of Depositary
Shares -- Federal Income Tax Consequences" and "Federal
Income Tax Considerations" in the Prospectus accurately
reflect such counsel's views on the matters discussed
therein and is based upon reasonable interpretations of
existing law.

In passing on the form of the Registration Statement
and the Prospectus and each amendment and supplement
thereto, such counsel may state that it has not
independently verified the accuracy, completeness or
fairness of the statements made or included or incorporated
by reference therein other than as provided in clause (vii)
above and takes no responsibility therefor and that such
opinion is based upon such counsel's examination of the
Registration Statement, the Prospectus as amended or
supplemented, its investigations made in connection with the
preparation thereof and its participation in conferences
with certain officers and employees of the Company and its
subsidiaries and with representatives of Deloitte & Touche
and any others referred to in such opinion; subject to the
same qualifications, such counsel shall also state that they
have no reason to believe that, as of its effective date,
the Registration Statement or any further amendment thereto
made by the Company prior to the Closing Date (other than
the financial statements and other financial data therein,
as to which such counsel need express no belief) contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of
the Closing Date, the Prospectus or any further amendment or
supplement thereto made by the Company prior to the Closing
Date (other than the financial statements and other
financial data therein, as to which such counsel need
express no belief) contains an untrue statement of a
material fact or omits to state a material fact necessary to
make the statements therein, in light of the circumstances
in which they were made, not misleading.

In rendering such opinion, such counsel may rely as to
certain matters of fact on certificates of officers of the
Company and of public officials and may state that they
express no opinion as to the laws of any jurisdiction other
than the State of New York, the federal law of the United
States and the Delaware General Corporation Law.

(e) You shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the

<PAGE>

Underwriters, dated the Closing Date, in form and substance
satisfactory to you.

The opinions of Jo-Ann Ford and Simpson Thacher &
Bartlett described in paragraphs (c) and (d) above shall be
rendered to you at the request of the Company and shall so
state therein.

(f) You shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof
or the Closing Date, as the case may be, in form and
substance satisfactory to you, from Deloitte & Touche,
independent public accountants, containing statements and
information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the
financial statements and certain financial information
contained in or incorporated by reference into the
Registration Statement and the Prospectus.
(g) On or after the date hereof, (i) no downgrading
shall have occurred in the rating accorded the Company's
debt securities or preferred stock by any "nationally
recognized statistical rating organization," as that term is
defined by the Commission for purposes of Rule 436(g)(2)
under the Securities Act and (ii) no such organization shall
have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of
any of the Company's debt securities or preferred stock.

(h) As of the Closing Date, the Depositary Shares and
the shares of Common Stock initially issuable upon the
conversion of the PERCS shall have been duly listed, subject
to notice of issuance, on The New York Stock Exchange.

(i) The agreements between you and certain limited
partnerships pursuant to which each such partnership shall
agree that, other than in connection with any merger
involving the Company, without the prior written consent of
Morgan Stanley & Co. Incorporated, it will not offer, sell,
contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of
[180] days after the date of the Prospectus shall be in full
force and effect.

The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on
the Option Closing Date of such documents as you may reasonably
request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.

<PAGE>

VI.

In further consideration of the agreements of the
Underwriters herein contained, the Company covenants as follows:

(a) To furnish you, without charge, three signed
copies of the Registration Statement (including exhibits
thereto and documents incorporated therein by reference) and
to each other Underwriter a copy of the Registration
Statement (without exhibits but including documents
incorporated therein by reference) and, during the period
mentioned in paragraph (c) below, as many copies of the
Prospectus, any documents incorporated therein by reference,
and any supplements and amendments thereto as you may
reasonably request. The terms "supplement" and "amendment"
or "amend" as used in this Agreement shall include all
documents subsequently filed by the Company with the
Commission pursuant to the Exchange Act that are deemed to
be incorporated by reference in the Prospectus.

(b) Prior to termination of the offering of the
Depositary Shares pursuant to this Agreement before amending
or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and to file no such proposed
amendment or supplement to which you reasonably object
promptly after reasonable notice thereof; provided, however,
--------
that the foregoing shall not apply to any of the Company's
filings with the Commission required to be filed pursuant to
Section 13(a), 13(c), 14 or 15(d) under the Exchange Act,
copies of which will be delivered to you [prior to] being
transmitted for filing with the Commission.

(c) If, at any time when the Prospectus is required by
law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur as a result of
which it is necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if in the opinion of counsel
for the Underwriters or in the opinion of the Company, it is
necessary to amend or supplement the Prospectus to comply
with law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the
Company) to which Depositary Shares may have been sold by
you on behalf of the Underwriters and to any other dealers
upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus will
comply with law.

<PAGE>

(d) To endeavor to qualify the Depositary Shares for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request and to pay all
expenses (including fees and disbursements of counsel) in
connection therewith as well as all fees payable in
connection with the review (if any) of the offering of the
Depositary Shares by the National Association of Securities
Dealers, Inc.; provided that the Company shall not be
--------
obligated to so qualify the Depositary Shares if such
qualification requires it to file any general consent to
service of process or to register or qualify as a foreign
corporation in any jurisdiction in which it is not so
registered or qualified.

(e) To make generally available to the Company's
security holders as soon as practicable an earning statement
covering the twelve-month period ending ________, 1995, that
satisfies the provisions of Section 11(a) of the Securities
Act and the rules and regulations of the Commission
thereunder.

VII.

The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission
or alleged untrue statement or omission based upon information
furnished to the Company in writing by an Underwriter through you
expressly for use therein; provided that the foregoing indemnity
--------
agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities
purchased Depositary Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the
sale of the Depositary Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such losses, claims, damages or
liabilities.

<PAGE>

Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to
information furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto.

In case any proceeding (including any governmental
investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to either of
the two preceding paragraphs, such person (hereinafter called the
indemnified party) shall promptly notify the person against whom
such indemnity may be sought (hereinafter called the indemnifying
party) in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and
any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. It is understood
that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party, in connection with any
proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified
parties, and that all such fees and expenses shall be reimbursed
as they are incurred. In the case of any such separate firm for
the Underwriters and such control persons of the Underwriters,
such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company.
The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by
reason of such settlement or judgment.

If the indemnification provided for in the first or
second paragraph of this Article VII is unavailable to an

<PAGE>

indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other hand from the offering
of the Depositary Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other hand shall be deemed to be in the same
respective proportions as the net proceeds from the offering of
the Depositary Shares (before deducting expenses) received by the
Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus bear to the aggregate public
offering price of the Depositary Shares. The relative fault of
the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such
statement or omission. The Underwriters' obligations to
contribute pursuant to this Article VII are several in proportion
to their respective underwriting percentages (as defined in the
Agreement Among Underwriters) and not joint.

The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this
Article VII were determined by pro rata allocation (even if the
--- ----
Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages and liabilities referred
to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Article VII, no
Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Depositary
Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such

<PAGE>

Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The remedies provided for in
this Article VII are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified
party at law or in equity.

The indemnity and contribution agreements contained in
this Article VII and the representations and warranties of the
Company contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any other
person controlling the Company and (iii) acceptance of and
payment for any of the Depositary Shares.

VIII.

This Agreement shall be subject to termination by
notice given to the Company, if (a) after the execution and
delivery of this Agreement and on or prior to the Closing Date
(i) trading generally shall have been suspended or materially
limited on the New York Stock Exchange, (ii) trading of any
equity securities of the Company shall have been suspended on the
New York Stock Exchange, (iii) a general moratorium on commercial
banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change
in financial markets or any calamity or crisis that is material
and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with
any other such event makes it, in your reasonable judgment,
impracticable to market the Depositary Shares on the terms and in
the manner contemplated in the Prospectus.

IX.

This Agreement shall become effective upon the later of
(x) execution and delivery hereof by the parties hereto and (y)
release of notification of the effectiveness of the Registration
Statement by the Commission.

If, on the Closing Date or the Option Closing Date, as
the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Depositary Shares that it or they have
agreed to purchase hereunder on such date, and the aggregate

<PAGE>

number of Depositary Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Depositary Shares
to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm
Shares set forth opposite their respective names in Schedule I
bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such
other proportions as you may specify, to purchase the Depositary
Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase on such date; provided that in
--------
no event shall the number of Depositary Shares that any
Underwriter has agreed to purchase pursuant to Article II be
increased pursuant to this Article IX by an amount in excess of
one-ninth of such number of Depositary Shares without the written
consent of such Underwriter. If, on the Closing Date or the
Option Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Depositary Shares
and the aggregate number of Depositary Shares with respect to
which such default occurs is more than one-tenth of the aggregate
number of Depositary Shares to be purchased on such date, and
arrangements satisfactory to you and the Company for the purchase
of such Depositary Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to
postpone the Closing Date or the Option Closing Date, as the case
may be, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and
in the Prospectus or in any other documents or arrangements may
be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.

If this Agreement shall be terminated by the
Underwriters, or any of them, because of any failure or refusal
on the part of the Company to comply with the terms or to fulfill
any of the conditions of this Agreement, or if for any reason
(other than termination of this Agreement pursuant to the
preceding paragraph or Article VIII hereof) the Company shall be
unable to perform its obligations under this Agreement, the
Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering
contemplated hereunder; provided that the Company shall have no
--------
further liability to any Underwriter except as provided in
Article VII hereof and with respect to the payment of expenses
referred to in paragraph (d) of Article VI hereof.

<PAGE>

This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.

<PAGE>

This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.

Very truly yours,

RJR NABISCO HOLDINGS CORP.

By
-------------------------

Accepted, March __, 1994

MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY SHEARSON INC.

Acting severally on behalf of
themselves and the several
Underwriters named herein.

By Morgan Stanley & Co. Incorporated

By
----------------------------------

<PAGE>

SCHEDULE I

Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------

Morgan Stanley & Co. Incorporated ........
Smith Barney Shearson Inc. ...............

Total ........
===========

STB DRAFT 2/21/94
-----------------

RJR NABISCO HOLDINGS CORP.

CERTIFICATE OF DESIGNATION

Pursuant to Section 151 of the General
Corporation Law of the State of Delaware

-------------------------

SERIES C CONVERSION
PREFERRED STOCK

RJR Nabisco Holdings Corp. (the "Corporation"), a
corporation organized and existing under the laws of the State of
Delaware, HEREBY CERTIFIES that pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware the following resolution was duly adopted by the
Executive Committee of the Board of Directors of the Corporation,
pursuant to authority conferred upon the Board of Directors by
the provisions of the Amended and Restated Certificate of
Incorporation, as amended, of the Corporation (the "Certificate
of Incorporation") and pursuant to authority conferred upon the
Executive Committee of the Board of Directors by Section 141(c)
of the General Corporation Law of the State of Delaware, by the
Certificate of Incorporation, by Article II, Section 4 of the By-
Laws of the Corporation and by the resolutions of the Board of
Directors of the Corporation dated [__________, 1994], at a
meeting of the Executive Committee thereof duly held on
[__________, 1994]:

WHEREAS, the Board of Directors of the Corporation or
(except with respect to voting rights) a duly authorized
Committee thereof is authorized, within the limitations and
restrictions stated in the Certificate of Incorporation, to fix,
by resolution or resolutions for each series of Preferred Stock
(the "Preferred Stock"), the number of shares constituting such
series and the designations and powers, preferences and relative,
participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including,
without limiting the generality of the foregoing, such provisions
as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors or a duly
authorized Committee thereof under the General Corporation Law of
the State of Delaware; and

WHEREAS, the Board of Directors of the Corporation on
[__________, 1994] adopted resolutions authorizing a new series

<PAGE>

of Preferred Stock designated as Series C Conversion Preferred
Stock and delegating to the Executive Committee of the Board of
Directors the authority to act on behalf of the Board of
Directors in connection with the exercise of the powers set forth
in such resolutions to the fullest extent permitted by
Section 141(c) of the General Corporation Law of the State of
Delaware; and

WHEREAS, it is the desire of the Executive Committee of
the Board of Directors, pursuant to the authority conferred upon
the Executive Committee of the Board of Directors by
Section 141(c) of the General Corporation Law of the State of
Delaware, by the Certificate of Incorporation, by Article II,
Section 4 of the By-Laws of the Corporation and by the resolution
of the Board of Directors of the Corporation dated [__________,
1994], to fix the number of shares constituting a series of
Preferred Stock and the designations and powers, preferences and
relative, participating, optional and other special rights and
qualifications, limitations and restrictions of such series as
set forth below; and

WHEREAS, the Board of Directors of the Corporation on
[____________, 1994] adopted a resolution fixing the voting
rights of such shares of Preferred Stock as set forth in
paragraph (6) below.

NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized such series of Preferred Stock on the terms and with
the provisions herein set forth:

(1) Designation. The designation of the series of
Preferred Stock authorized by this resolution shall be "Series C
Conversion Preferred Stock" (the "Series C Preferred Stock")
consisting of [__________] shares.

(2) Rank. The Series C Preferred Stock shall, with
respect to dividend rights and rights upon liquidation,
dissolution and winding up, rank prior to the Common Stock, par
value $0.01 per share (the "Common Stock"), of the Corporation
and on a parity with the Series A Conversion Preferred Stock, par
value $0.01 per share (the "Series A Conversion Preferred
Stock"), the Series B Cumulative Preferred Stock, par value $0.01
per share (the "Series B Cumulative Preferred Stock"), and the
ESOP Convertible Preferred Stock, par value $0.01 per share and
stated value $16.00 per share (the "ESOP Convertible Preferred
Stock"), of the Corporation. All equity securities of the
Corporation to which the Series C Preferred Stock ranks prior,
including the Common Stock, are collectively referred to herein
as the "Junior Securities," all equity securities of the
Corporation with which the Series C Preferred Stock ranks on a
parity, including the Series A Conversion Preferred Stock, the
Series B Cumulative Preferred Stock and the ESOP Convertible
Preferred Stock, are collectively referred to herein as the
"Parity Securities" and all equity securities of the Corporation

<PAGE>

(other than convertible debt securities) to which the Series C
Preferred Stock ranks junior, whether with respect to dividends
or upon liquidation, dissolution, winding-up or otherwise, are
collectively referred to herein as the "Senior Securities." The
Series C Preferred Stock shall be subject to the creation of
Junior Securities, Parity Securities and Senior Securities.

(3) Dividends. (a) The holders of outstanding shares
of the Series C Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative
preferential cash dividends accruing at the per share rate of
[$____] per quarter and no more, payable in arrears on each
[Insert payment dates], respectively (each such date being
hereinafter referred to as a "Dividend Payment Date"), commencing
on [__________, 1994]. If any Dividend Payment Date shall be or
be declared a national or New York State holiday or if banking
institutions in the State of New York shall be closed because of
a banking moratorium or otherwise on such date, then such
dividends shall be paid on the next succeeding day on which such
banks shall be open. Each such dividend will be payable to
holders of record as they appear on the stock books of the
Corporation on such record dates, not less than 10 nor more than
50 days preceding the payment dates thereof, as shall be fixed by
the Board of Directors. Dividends on the Series C Preferred
Stock shall accrue (whether or not declared) on a daily basis
from the previous Dividend Payment Date, except that the first
dividend shall accrue from the date of issuance of the Series C
Preferred Stock. Accrued and unpaid dividends shall not bear
interest. Dividends will cease to accrue in respect of the
Series C Preferred Stock on the Mandatory Conversion Date (as
defined in paragraph (4)(a)) or on the date of their earlier
redemption or on the Settlement Date (as defined in paragraph
(4)(h)(v)), in the event of their earlier conversion, unless the
Corporation shall default in delivering the shares of Common
Stock and cash, if any, payable by the Corporation upon such
redemption or conversion pursuant to paragraph (4). Dividends
(or cash amounts equal to accrued and unpaid dividends) payable
on the Series C Preferred Stock for any period shorter than a
quarterly dividend period shall be computed on the basis of [a
360-day year of twelve 30-day months].

(b) No full dividends shall be declared by the Board
of Directors or paid or set apart for payment by the Corporation
on any Parity Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum set apart sufficient for such payment on the
Series C Preferred Stock through the most recent Dividend Payment
Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Series C Preferred Stock and
any Parity Securities, all dividends declared upon the Series C
Preferred Stock and any Parity Securities shall be declared pro
rata so that the amount of dividends declared per share on the
Series C Preferred Stock and such Parity Securities shall in all

<PAGE>

cases bear to each other the same ratio that accrued dividends
per share on the Series C Preferred Stock and such Parity
Securities bear to each other. Unless full cumulative dividends,
if any, accrued on all outstanding shares of the Series C
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum set apart sufficient for such payment
through the most recent Dividend Payment Date, no dividend shall
be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any
other Junior Securities (other than a dividend or distribution
paid in shares of, or warrants, rights or options exercisable for
or convertible into, Common Stock or any other Junior
Securities), nor shall any Common Stock nor any other Junior
Securities be redeemed, purchased or otherwise acquired for any
consideration, nor may any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such
securities, by the Corporation (other than redemptions and
purchases pursuant to or in accordance with employee stock
subscription agreements entered into between the Corporation and
its subsidiaries' directors, officers and key employees), except
by conversion into or exchange for Junior Securities. Holders of
the shares of the Series C Preferred Stock shall not be entitled
to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends as provided in paragraph
3(a).

(c) Subject to the foregoing provisions of this
paragraph (3) and paragraph (4)(d)(ii), the Board of Directors
may declare and the Corporation may pay or set apart for payment
dividends and other distributions on any of the Junior Securities
or Parity Securities, and may redeem, purchase or otherwise
acquire out of funds legally available therefor any Junior
Securities, and the holders of the shares of the Series C
Preferred Stock shall not be entitled to share therein.

(d) Any dividend payment made on shares of the Series
C Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of the
Series C Preferred Stock.

(e) All dividends paid with respect to shares of the
Series C Preferred Stock pursuant to this paragraph (3) shall be
paid pro rata to the holders entitled thereto.

(f) Holders of shares of the Series C Preferred Stock
shall be entitled to receive the dividends provided for in this
paragraph (3) in preference to and in priority over any dividends
upon any of the Junior Securities.

(4) Redemptions or Conversions. (a) Automatic
---------
Conversion on Mandatory Conversion Date. Unless earlier called
- ---------------------------------------
for redemption in accordance with the provisions hereof, on
[_______________, 1997] (the "Mandatory Conversion Date"), each

<PAGE>

outstanding share of the Series C Preferred Stock shall
automatically convert into:

(i) subject to paragraph (4)(d)(iv), shares of
Common Stock at the Common Equivalent Rate (determined as
provided in paragraph (4)(d)) in effect on the Mandatory
Conversion Date; and

(ii) the right to receive an amount in cash equal
to all accrued and unpaid dividends on such share of Series
C Preferred Stock to and including the Mandatory Conversion
Date, whether or not declared, out of funds legally
available for the payment of dividends (and dividends shall
cease to accrue on such share as of the Mandatory Conversion
Date).

The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock and its issued Common
Stock held in its treasury, for the purpose of effecting any
conversion of the Series C Preferred Stock pursuant to this
paragraph (4)(a), the full number of shares of Common Stock then
deliverable upon any such conversion of all outstanding shares of
Series C Preferred Stock.

(b) Automatic Conversion Upon the Occurrence of
-------------------------------------------
Certain Events. Immediately prior to the effectiveness of a
- --------------
merger or consolidation of the Corporation (other than a merger
or consolidation of the Corporation with or into a wholly owned
subsidiary of the Corporation) that results in the conversion or
exchange of Common Stock into, or the right to receive, other
securities or other property (whether of the Corporation or any
other entity) (any such merger or consolidation is referred to
herein as a "Merger or Consolidation"), each outstanding share of
the Series C Preferred Stock shall automatically convert into:

(i) subject to paragraph (4)(d)(iv), shares
of Common Stock at the Common Equivalent Rate in effect
immediately prior to such Merger or Consolidation; plus

(ii) the right to receive an amount in cash
equal to all accrued and unpaid dividends on such share
of the Series C Preferred Stock to and including the
Settlement Date, whether or not declared, out of funds
legally available for the payment of dividends (and
dividends shall cease to accrue on such share as of the
Settlement Date); plus

(iii) the right to receive an amount of cash
initially equal to [$__________], declining by
[$__________] on each day following the date of
issuance of the Series C Preferred Stock (computed on
the basis of [a 360-day year of twelve 30-day months])
to [$__________] on [_________________], and equal to

<PAGE>

zero thereafter, in each case determined with reference
to the Settlement Date, out of funds legally available
therefor,

unless sooner redeemed.

At the option of the Corporation, it may deliver on the
Settlement Date in lieu of some or all of the cash consideration
described in clauses (ii) and (iii) above, a number of shares of
Common Stock to be determined by dividing the amount of cash
consideration that the Corporation has elected to pay in Common
Stock by the Current Market Price (as defined in paragraph
(4)(d)(vi)) of the Common Stock determined as of the second
Trading Date (as defined in paragraph (4)(h)(vi)) immediately
preceding the Notice Date (as defined in paragraph (4)(h)(iv)).
Notwithstanding the foregoing, if there shall have occurred an
adjustment pursuant to paragraph (4)(d)(iv) as a result of a
conversion or exchange or merger or consolidation prior to the
Settlement Date, then relating to the exercise of any such option by
the Corporation (or its successor), the Corporation shall deliver
out of funds legally available therefor on such Settlement Date,
in lieu of shares of Common Stock as described in the preceding
sentences, the kind of securities or other property received by
holders of Common Stock as a result of such conversion or
exchange or merger or consolidation, in the same relative
proportions (if more than one kind of securities or other
property was so received) as exist in the Common Equivalent Rate
on such Settlement Date, with an aggregate market price
(determined, for any security or other property, to the extent
possible, in the manner that the Current Market Price is
determined for the Common Stock, and otherwise determined by the
Board of Directors of the Corporation (or its successor), whose
determination shall be conclusive), as of the second Trading Date
immediately preceding the Notice Date, equal to the amount of cash
consideration that the Corporation has elected to pay in such
securities or other property.

(c) Right to Call for Redemption. At any time and
----------------------------
from time to time prior to the Mandatory Conversion Date, the
Corporation shall have the right to call, in whole or in part,
the outstanding shares of the Series C Preferred Stock for
redemption (subject to the notice provisions set forth in
paragraph (4)(i)). Upon the redemption date, the Corporation
shall deliver to the holders thereof in exchange for each such
share called for redemption, (i) a number of shares of Common
Stock equal to the Call Price (as defined in paragraph
(4)(h)(ii)) in effect on the redemption date divided by the
Current Market Price of the Common Stock determined as of the
second Trading Date immediately preceding the Notice Date and
(ii) an amount in cash equal to all accrued and unpaid dividends
on such share of Series C Preferred Stock to and including the
redemption date (and dividends shall cease to accrue on such
share as of such date), whether or not declared, out of funds
legally available for the payment of dividends; provided that if

<PAGE>

there shall have occurred an adjustment pursuant to paragraph
(4)(d)(iv) as a result of a conversion or exchange or merger or
consolidation prior to the redemption date, the Corporation shall
deliver out of funds legally available therefor on the redemption
date to the holders of shares of Series C Preferred Stock in
exchange for each share thereof called for redemption, in lieu of
shares of Common Stock as described in paragraph (4)(c)(i), the
kind of securities or other property received by holders of
Common Stock as a result of such conversion or exchange or merger
or consolidation, in the same relative proportions (if more than
one kind of securities or other property was so received) as
exist in the Common Equivalent Rate on the redemption date, with
an aggregate market price (determined, for any security or other
property, to the extent possible, in the manner that the Current
Market Price is determined for the Common Stock, and otherwise
determined by the Board of Directors of the Corporation (or its
successor), whose determination shall be conclusive), as of the
second Trading Date immediately preceding the Notice Date, equal to
the Call Price in effect on the redemption date. If fewer than all
the outstanding shares of Series C Preferred Stock are to be called
for redemption, shares to be redeemed shall be selected by the
Corporation from outstanding shares of Series C Preferred Stock
not previously redeemed by lot or pro rata (as nearly as may be
practicable without creating fractional shares) or by any other
method determined by the Board of Directors of the Corporation in
its sole discretion to be equitable.

(d) Common Equivalent Rate; Adjustments. The Common
-----------------------------------
Equivalent Rate to be used to determine the number of shares of
Common Stock to be delivered on the conversion of the Series C
Preferred Stock into shares of Common Stock pursuant to paragraph
(4)(a) or (b) shall be initially ten shares of Common Stock for each
share of Series C Preferred Stock; provided, however, that such Common
-------- -------
Equivalent Rate shall be subject to adjustment from time to time as
provided below in this paragraph (4)(d). All adjustments to the
Common Equivalent Rate shall be calculated to the nearest 1/100th of
a share of Common Stock. Such rate in effect at any time is herein called
the "Common Equivalent Rate."

(i) If the Corporation shall either:

(A) pay a dividend or make a distribution
with respect to Common Stock in shares of Common
Stock,

(B) subdivide or split its outstanding
shares of Common Stock into a greater number
of shares,

<PAGE>

(D) issue by reclassification of its shares
of Common Stock any shares of common stock of the
Corporation,

then, in any such event, the Common Equivalent Rate in
effect immediately prior thereto shall be adjusted so that
the holder of a share of the Series C Preferred Stock shall
be entitled to receive on the conversion of such share of
the Series C Preferred Stock, the number of shares of common
stock of the Corporation which such holder would have owned
or been entitled to receive after the happening of any of
the events described above had such share of the Series C
Preferred Stock been converted at the Common Equivalent Rate
in effect immediately prior to such event or any record date
with respect thereto. Such adjustment shall become
effective at the opening of business on the business day
next following the record date for determination of
stockholders entitled to receive such dividend or
distribution in the case of a dividend or distribution, and
shall become effective immediately after the effective date
in case of a subdivision, split, combination or
reclassification; and any shares of Common Stock issuable in
payment of a dividend shall be deemed to have been issued
immediately prior to the close of business on the record
date for such dividend for purposes of calculating the
number of outstanding shares of Common Stock under clauses
(ii) and (iii) below. Such adjustment shall be made
successively.

(ii) If the Corporation shall, after the date
hereof, issue rights or warrants to all holders of its
Common Stock entitling them (for a period not exceeding 45
days from the date of such issuance) to subscribe for or
purchase shares of Common Stock at a price per share less
than the Current Market Price of the Common Stock
(determined pursuant to paragraph (4)(d)(vi)) on the record
date for the determination of stockholders entitled to
receive such rights or warrants, then in each case the
Common Equivalent Rate shall be adjusted by multiplying the
Common Equivalent Rate in effect immediately prior to the
date of issuance of such rights or warrants by a fraction,
of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance, plus
the number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to
such issuance, plus the number of shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase
at such Current Market Price (determined by multiplying such

<PAGE>

total number of shares by the exercise price of such rights
or warrants and dividing the product so obtained by such
Current Market Price). Such adjustment shall become
effective at the opening of business on the business day
next following the record date for the determination of
stockholders entitled to receive such rights or warrants.
To the extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the Common
Equivalent Rate shall be readjusted to the Common Equivalent
Rate which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common
Stock actually delivered. Such adjustment shall be made
successively.

(iii) If the Corporation shall pay a dividend or
make a distribution to all holders of its Common Stock of
evidence of its indebtedness, other securities or other assets
(including shares of capital stock of the Corporation (other than
Common Stock) and shares of capital stock of any subsidiary
of the Corporation but excluding any distributions and
dividends referred to in clause (i) above or any cash
dividends), or shall issue to all holders of its Common
Stock rights or warrants to subscribe for or purchase any of
its securities (other than those referred to in clause (ii)
above), then, in each such case at the option of the
Corporation, the Corporation shall either (1) adjust the
Common Equivalent Rate by multiplying the Common Equivalent
Rate in effect on the record date for the distribution of
the securities or assets by a fraction, of which the
numerator shall be the Current Market Price per share of the
Common Stock (determined pursuant to paragraph (4)(d)(vi))
on the record date for the determination of stockholders
entitled to receive such dividend or distribution, and of
which the denominator shall be such Current Market Price per
share of Common Stock less the fair value (as determined by
the Board of Directors of the Corporation, whose
determination shall be conclusive) as of such record date of
the portion of the securities or assets so distributed, or of such
rights or warrants, applicable to one share of Common Stock (provided
--------
that such determination of fair value by the Board of Directors of
the Corporation applicable to one share of Common Stock shall
not be greater than or equal to such Current Market Price per
share of Common Stock, in each case as of such record date) (the
"Fair Value"), (2) reserve shares or other units of
such securities or assets for distribution to the holders of
the Series C Preferred Stock upon the redemption or
conversion of the shares of Series C Preferred Stock so that
any holder of Series C Preferred Stock shall receive upon
such redemption or conversion, in addition to the shares of
the Common Stock to which such holder is entitled, the kind
and amount of such securities or assets which such holder
would have received if such shares of Series C Preferred

<PAGE>

Stock had been converted into shares of Common Stock
immediately prior to the record date for the distribution of
the securities or assets or (3) distribute, at the time such
dividend, distribution or issuance is made to the holders of
its Common Stock, to the holders of Series C Preferred Stock
the kind and amount of such securities or assets of the
Company as such holder would have been entitled to receive
if such shares of Series C Preferred Stock had been
converted into shares of Common Stock immediately prior to
the record date for such dividend or distribution. Such
adjustment shall become effective on the opening of business
on the business day next following the record date for the
determination of stockholders entitled to receive such
dividend or distribution.

(iv) If there shall occur a conversion or exchange
of the Common Stock into, or the right to receive, other
securities or other property of the Corporation or a wholly
owned subsidiary of the Corporation or a merger or consolidation
of the Corporation with or into a wholly owned subsidiary of the
Corporation that results in the conversion or exchange of
the Common Stock into, or the right to receive, other
securities or other property (whether of the Corporation or
any other entity), then the Series C Preferred Stock will
thereafter no longer be subject to conversion into shares of
Common Stock pursuant to paragraphs (4)(a), 4(b) and 4(c), but
instead will be subject to conversion into the kind and
amount of securities or other property which the holder of
such shares of Series C Preferred Stock would have owned
immediately after such conversion or exchange or merger or
consolidation if such shares of Series C Preferred Stock had
been converted into shares of Common Stock immediately
before the effective time of such conversion or exchange
merger or consolidation. If this paragraph (4)(d)(iv)
applies, then no adjustment in respect of the same
conversion or exchange or merger or consolidation shall be
made pursuant to the other provisions of this paragraph
(4)(d). In the event that at any time, as a result of an
adjustment made pursuant to this paragraph (4)(d)(iv), the
Series C Preferred Stock shall become subject to conversion
into any securities other than shares of Common Stock,
thereafter the number of such other securities so issuable
upon conversion of the shares of Series C Preferred Stock
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Series C Preferred
Stock contained in this paragraph (4)(d).

(v) Anything in this paragraph (4)
notwithstanding, the Corporation shall be entitled to make
such upward adjustments in the Common Equivalent Rate, in
addition to those required by this paragraph (4), as the
Corporation in its sole discretion may determine to be
advisable, in order that any stock dividends, subdivision of

<PAGE>

shares, distribution of rights to purchase stock or
securities, or a distribution of securities convertible into
or exchangeable for stock (or any transaction which could be
treated as any of the foregoing transactions pursuant to
Section 305 of the Internal Revenue Code of 1986, as
amended) hereafter made by the Corporation to its
stockholders shall not be taxable. If the Corporation
determines that an adjustment to the Common Equivalent Rate
should be made pursuant to this paragraph 4(d)(v), an
adjustment shall be made effective as of such date as is
determined by the Board of Directors of the Corporation.
The determination of the Board of Directors of the
Corporation as to whether an adjustment to the Common
Equivalent Rate should be made pursuant to the foregoing
provisions of this paragraph 4(d)(v), and, if so, as to what
adjustment should be made and when, shall be conclusive,
final and binding on the Corporation and all stockholders of
the Corporation.

(vi) As used in this paragraph (4), the "Current
Market Price" of the Common Stock on any date shall be the
average of the daily Closing Prices (as defined in paragraph
4(h)(iii)) for the five consecutive Trading Dates ending on
and including the date of determination of the Current
Market Price; provided, however, that for purposes of
paragraph 4(b) if the Closing Price for the Trading Date next
following such five-day period (the "next-day closing price")
is less than 95% of such average, then the Current Market Price
per share of Common Stock on such date of determination shall
be the next-day closing price; and provided, further, that, if
any event that results in an adjustment of the Common Equivalent
Rate occurs during such five-day period or, for the purposes of
calculating the Current Market Price in connection with any
redemption or conversion of Series C Preferred Stock or any
determination of an amount in cash payable in lieu of a fraction
of a share of Common Stock, if any event that results in an
adjustment of the Common Equivalent Rate occurs during the
period beginning on the first day of such five-day period
and ending on the applicable redemption or conversion date,
the Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the
occurrence of such event.

(vii) In any case in which paragraph (4)(d) shall
require that an adjustment as a result of any event become
effective at the opening of business on the business day
next following a record date and the date fixed for
conversion pursuant to paragraph (4)(a) and (b) occurs after
such record date, but before the occurrence of such event
the Corporation may in its sole discretion elect to defer
the following until after the occurrence of such event:
(A) issuing to the holder of any converted shares of the
Series C Preferred Stock the additional shares of Common

<PAGE>

Stock issuable upon such conversion before giving effect to
such adjustment and (B) paying to such holder any amount in
cash in lieu of a fractional share of Common Stock pursuant
to paragraph (4)(f).

(viii) Before taking any action which would cause an
adjustment to the Common Equivalent Rate that would cause
the Corporation to issue shares of Common Stock for
consideration below the then par value (if any) of the
Common Stock upon conversion of the Series C Preferred
Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully
paid and nonassessable shares of such Common Stock at such
adjusted Common Equivalent Rate.

(e) Notice of Adjustments. Whenever the Common
---------------------
Equivalent Rate is adjusted as herein provided, the Corporation
shall:

(i) forthwith compute the adjusted Common
Equivalent Rate in accordance with this paragraph (4) and
prepare a certificate signed by the Chief Financial Officer,
any Vice President, the Treasurer or Controller of the
Corporation setting forth the adjusted Common Equivalent
Rate, the method of calculation thereof in reasonable detail
and the facts requiring such adjustment and upon which such
adjustment is based, which certificate shall be conclusive,
final and binding evidence of the correctness of the
adjustment, and file such certificate forthwith with the
transfer agent or agents for the Series C Preferred Stock
and the Common Stock; and

(ii) mail a notice stating that the Common
Equivalent Rate has been adjusted, the facts requiring such
adjustment and the facts upon which such adjustment is based
and setting forth the adjusted Common Equivalent Rate to the
holders of record of the outstanding shares of the Series C
Preferred Stock at or prior to the time the Corporation
mails an interim statement to its stockholders covering the
fiscal quarter during which the facts requiring such
adjustment occurred, but in any event within 45 days of the
end of such fiscal quarter.

(f) No Fractional Shares. (i) No fractional shares or
--------------------
scrip representing fractional shares of Common Stock shall be
issued upon the redemption or conversion of any shares of Series
C Preferred Stock. Instead of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the
conversion of a share of Series C Preferred Stock, the
Corporation shall either (A) pay to the holder of such share (a
"Fractional Shareholder") an amount in cash (computed to the
nearest cent) equal to the same fraction of the Current Market
Price of the Common Stock determined as of the second Trading

<PAGE>

Date immediately preceding the relevant Notice Date or (B) follow
the procedures set forth in paragraph (f)(ii). If more than one
share shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of Series C Preferred Stock so
surrendered.

(ii) The Corporation may, in lieu of paying cash to
Fractional Shareholders as provided in paragraph (f)(i), issue,
in full payment of the Corporation's obligation with respect to
such fractional interests, shares of Common Stock equal to the
aggregate of such fractional interests of such Fractional
Shareholder and other Fractional Shareholders (aggregated over a
reasonable period of time, but not in any event more than 20
business days, and rounded upwards to the nearest whole share) to
an agent (the "Transfer Agent") appointed by the Corporation for
such Fractional Shareholders for sale promptly by the Transfer
Agent on behalf of the Fractional Shareholders. The Transfer
Agent will remit promptly to such Fractional Shareholders their
proportionate interest in the net proceeds (following the
deduction of applicable transaction costs and computed to the
nearest cent) from such sale.

(g) Cancellation. Shares of Series C Preferred Stock
------------
that have been issued and reacquired in any manner, including
shares purchased, exchanged, redeemed or converted, shall not be
reissued as part of the Series C Preferred Stock and shall (upon
compliance with any applicable provisions of the laws of the
State of Delaware) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series
and may be redesignated and reissued as part of any series of the
Preferred Stock.

(h) Definitions. As used in this paragraph (4):
-----------

(i) the term "business day" shall mean any day
other than a Saturday, Sunday, or a day on which banking
institutions in the State of New York are authorized or
obligated by law or executive order to close;

(ii) the term "Call Price" shall mean the per
share price (payable in shares of Common Stock) at which the
Corporation may redeem shares of Series C Preferred Stock,
which shall be initially equal to [$__________] declining by
[$__________] on each day following the date of issuance of
the Series C Preferred Stock (computed on the basis of a
360-day year of twelve 30-day months) to [$__________] on
[__________________] and equal to [$__________] thereafter,
if not sooner redeemed; provided that if the Corporation
--------
reserves or distributes shares or other units of securities
of assets as provided in paragraph (4)(d)(iii)(2) or
(4)(d)(iii)(3)), then, from and after the record date
related to such reservation or distribution, the Call Price

<PAGE>

per share for any day shall be reduced by the Fair Value;
provided further that in no event shall the effect of the
--------
foregoing proviso be to reduce the Call Price per share to
an amount less than $0;

(iii) the term "Closing Price" on any day shall
mean the closing sale price regular way (with any relevant
due bills attached) on such day or, in case no such sale
takes place on such day, the average of the reported closing
bid and asked prices regular way (with any relevant due
bills attached), in each case on the New York Stock Exchange
Consolidated Tape (or any successor composite tape reporting
transactions on national securities exchanges), or, if the
Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading
(which shall be the national securities exchange on which
the greatest number of shares of Common Stock has been
traded during the five consecutive Trading Dates ending on
and including the date of determination of the Current
Market Price), or, if not listed or admitted to trading on
any national securities exchange, the average of the closing
bid and asked prices regular way (with any relevant due bills
attached) of the Common Stock on the over-the-counter market
on the day in question as reported by the National Association
of Securities Dealers Automated Quotation System, or a similarly
generally accepted reporting service, or if not so available as
determined in good faith by the Board of Directors, on the basis
of such relevant factors as it in good faith considers, in the
reasonable judgment of the Board of Directors, appropriate;

(iv) the term "Notice Date" with respect to any
notice given by the Corporation in connection with a
redemption or conversion of any of the Series C Preferred
Stock shall be the commencement of the mailing of such
notice to the holders of the Series C Preferred Stock in
accordance with paragraph (4)(i);

(v) the term "Settlement Date" shall mean the
business day immediately prior to the effective date of a
Merger or Consolidation;

(vi) the term "Trading Date" shall mean a date on
which the New York Stock Exchange (or any successor to such
Exchange) is open for the transaction of business.

(i) Notice of Redemption or Conversion. The
----------------------------------
Corporation will provide notice of any redemption or conversion
(including any potential conversion upon the effectiveness of a
Merger or Consolidation) of shares of Series C Preferred Stock to
holders of record of the Series C Preferred Stock to be called or
converted not less than 30 nor more than 60 days prior to the
date fixed for such redemption or conversion, as the case may be;
provided, however, that if the timing of the effectiveness of a

<PAGE>

Merger or Consolidation makes it impracticable to provide at
least 30 days' notice, the Corporation shall provide such notice
as soon as practicable prior to such effectiveness. Such notice
shall be provided by mailing notice of such redemption or
conversion first class postage prepaid, to each holder of record
of the Series C Preferred Stock to be redeemed or converted, at
such holder's address as it appears on the stock register of the
Corporation; provided, however, that no failure to give such
notice nor any defect therein shall affect the validity of the
proceeding for the redemption or conversion of any shares of
Series C Preferred Stock to be redeemed or converted except as to
the holder to whom the Corporation has failed to give said notice
or except as to the holder whose notice was defective. Each such
notice shall state, as appropriate, the following:

(i) the redemption or conversion date;

(ii) that all outstanding shares of Series C
Preferred Stock are to be redeemed or converted or, in the
case of a call for redemption pursuant to paragraph 4(c) of
fewer than all outstanding shares of Series C Preferred
Stock pursuant to paragraph (4)(c), the number of such
shares held by such holder to be redeemed;

(iii) in the case of a call for redemption pursuant
to paragraph (4)(c), the Call Price, the number of shares of
Common Stock deliverable upon redemption of each share of
Series C Preferred Stock to be redeemed and the Current
Market Price used to calculate such number of shares of
Common Stock subject to any subsequent adjustments pursuant
to paragraph 4(d);

(iv) whether the Corporation is exercising any
option to deliver shares of Common Stock in lieu of cash (in
the case of a conversion pursuant to paragraph (4)(b)), the
Current Market Price to be used to calculate the number of
such shares of Common Stock and, if the Corporation is
exercising such option in respect of less than all the cash
that is deliverable by the Corporation upon such conversion,
the portion of such cash in lieu of which Common Stock will
be delivered;

(v) the place or places where certificates for
such shares are to be surrendered for redemption or
conversion; and

(vi) that dividends on the shares of Series C
Preferred Stock to be redeemed or converted will cease to
accrue on such redemption or conversion date or, in the case
of a conversion pursuant to paragraph (4)(b), on the related
Settlement Date, unless the Corporation shall default in
delivering the shares of Common Stock and cash, if any,
payable by the Corporation pursuant to this paragraph (4),
at the time and place specified in such notice.

<PAGE>

(j) Deposit of Shares and Funds. The Corporation's
---------------------------
obligation to deliver shares of Common Stock and provide funds in
accordance with this paragraph (4) shall be deemed fulfilled if,
on or before a redemption or conversion date, the Corporation
shall deposit, with a bank or trust company, or an affiliate of a
bank or trust company, having an office or agency in New York
City and having a capital and surplus of at least $50,000,000,
such number of shares of Common Stock as are required to be
delivered by the Corporation pursuant to this paragraph (4) upon
the occurrence of the related redemption or conversion (including
any payment of fractional share amounts pursuant to paragraph
(4)(f)(i)), together with funds (or, in the case of a conversion
pursuant to paragraph 4(b), shares of Common Stock and/or funds)
sufficient to pay all accrued and unpaid dividends on the shares
to be redeemed or converted as required by this paragraph (4), in
trust for the account of the holders of the shares to be redeemed
or converted (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to such
bank or trust company that such shares and funds be delivered
upon redemption or conversion of the shares of Series C Preferred
Stock so called for redemption or converted. Any interest
accrued on such funds shall be paid to the Corporation from time
to time. Any shares of Common Stock or funds so deposited and
unclaimed at the end of two years from such redemption or
conversion date shall be repaid and released to the Corporation,
after which the holder or holders of such shares of Series C
Preferred Stock so called for redemption or converted shall look
only to the Corporation for delivery of such shares of Common
Stock or funds.

(k) Surrender of Certificates; Status. Each holder of
---------------------------------
shares of Series C Preferred Stock to be redeemed or converted
shall surrender the certificates evidencing such shares (properly
endorsed or assigned for transfer, if the Board of Directors of
the Corporation shall so require and the notice shall so state)
to the Corporation at the place designated in the notice of such
redemption or conversion and shall thereupon be entitled to
receive certificates evidencing shares of Common Stock and to
receive any funds payable pursuant to this paragraph 4 following
such surrender and following the date of such redemption or
conversion. In case fewer than all the shares represented by any
such surrendered certificate are called for redemption, a new
certificate shall be issued at the expense of the Corporation
representing the unredeemed shares. If such notice of redemption
or conversion shall have been given, and if on the date fixed for
redemption or conversion shares of Common Stock and funds
necessary for the redemption or conversion shall have been either
set aside by the Corporation separate and apart from its other
funds or assets in trust for the account of the holders of the
shares to be redeemed or converted (and so as to be and continue
to be available therefor) or deposited with a bank or trust
company or affiliate thereof as provided in paragraph 4(j), then,
notwithstanding that the certificates evidencing any shares of
Series C Preferred Stock so called for redemption or subject to

<PAGE>

conversion shall not have been surrendered, the shares
represented thereby so called for redemption or subject to
conversion shall be deemed no longer outstanding, dividends with
respect to the shares so called for redemption or subject to
conversion shall cease to accrue after the date fixed for
redemption or conversion or, in the case of a conversion pursuant
to paragraph (4)(b), on the related Settlement Date, and all
rights with respect to the shares so called for redemption or
subject to conversion shall forthwith after such date cease and
terminate, except for the right of the holders to receive the
shares of Common Stock and funds, if any, payable pursuant to
this paragraph 4 without interest upon surrender of their
certificates therefor.

(l) Dividend Payments. The holders of shares of
-----------------
Series C Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the call or conversion thereof (except that
holders of shares called for redemption or to be converted on a
date occurring between such record date and the Dividend Payment
Date or on such Dividend Payment Date shall not be entitled to
receive such dividend on such Dividend Payment Date but instead
will receive accrued and unpaid dividends to such date or the
related Settlement Date, as the case may be) or the Corporation's
default in payment of the dividend due on such Dividend Payment
Date.

(m) Payment of Taxes. The Corporation will pay any
----------------
and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of shares of Common
Stock on the redemption or conversion of shares of Series C
Preferred Stock pursuant to this paragraph (4); provided,
however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of
Series C Preferred Stock redeemed or converted or to be redeemed
or converted, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.

(5) Liquidation Preference. (a) In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of shares of
Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for
distribution to its stockholders, after payment or provision for
payment of any Senior Securities, an amount per share of Series C
Preferred Stock in cash equal to the sum of (i) [$__________]
plus (ii) all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up, before any payment shall
be made or any assets distributed to the holders of any of the

<PAGE>

Junior Securities. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the Series C Preferred Stock and
any Parity Securities, then the holders of all such shares shall
share ratably in such distribution of assets in accordance with
the amount which would be payable on such distribution if the
amounts to which the holders of outstanding shares of Series C
Preferred Stock and the holders of outstanding shares of such
Parity Securities are entitled were paid in full. Except as
provided in this paragraph (5)(a), holders of Series C Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the
Corporation.

(b) For the purposes of this paragraph (5), neither
the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.

(6) Voting Rights. (a) The holders of record of
shares of Series C Preferred Stock shall not be entitled to any
voting rights except as hereinafter provided in this paragraph
(6) or as otherwise provided by law. The holders of shares of
Series C Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of Common Stock, voting
together with the holders of Common Stock (and any other capital
stock of the Corporation entitled to vote together with the
Common Stock) as one class; provided, however, that the holders
of Series C Preferred Stock shall not be entitled to vote on any
increase or decrease in the number of authorized shares of any
class or classes of stock. Each share of the Series C Preferred
Stock shall be entitled to a number of votes equal to one-tenth
of the Common Equivalent Rate; it being understood that whenever
the Common Equivalent Rate is adjusted as provided in paragraph
4(d) hereof, the voting rights of the Series C Preferred Stock
shall also be similarly adjusted.

(b) (i) If at any time or times dividends payable on
all series of Preferred Stock, including the Series C
Preferred Stock, shall be in arrears and unpaid for six
quarterly periods, then the number of directors constituting
the Board of Directors, without further action, shall be
increased by two (2) and the holders of shares of Series C
Preferred Stock shall have the right, together with the
holders of all other outstanding series of the Preferred
Stock entitled to vote thereon, to elect the directors of
the Corporation to fill such newly created directorships,
the remaining directors to be elected by the other class or
classes of stock entitled to vote therefor, at each meeting

<PAGE>

of stockholders held for the purpose of electing directors;
provided, that in no event shall such holders have the right
to elect more than 25% of the total number of directors of
the Corporation; provided, further, that, notwithstanding
the foregoing proviso, such holders shall have the right to
elect not less than one director pursuant to this paragraph
(6)(b)(i). While holders of shares of such series of
Preferred Stock are entitled to elect two directors, they
shall not be entitled to participate with the holders of
Common Stock in the election of any other directors, but
shall continue to be entitled to vote with the holders of
Common Stock upon each other matter coming before any
meeting of the stockholders.

(ii) Whenever such voting right shall have vested,
such right may be exercised initially either at a special
meeting of the holders of shares of Series C Preferred Stock
together with the holders of all other outstanding series of
the Preferred Stock entitled to vote thereon, called as
hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and
thereafter at such meetings or by the written consent of
such holders pursuant to Section 228 of the General
Corporation Law of the State of Delaware. Such voting right
shall continue until such time as all cumulative dividends
accumulated on all outstanding series of Preferred Stock
shall have been paid in full or declared and set aside for
payment in full, at which time such voting right of such
holders shall terminate, subject to revesting in the event
of each and every subsequent failure of the Corporation to
pay dividends for the requisite number of quarters as
described above.

(iii) At any time when such voting right shall have
vested in the holders of shares of Series C Preferred Stock
together with all other series of Preferred Stock entitled
to vote thereon and if such right shall not already have
been initially exercised, a proper officer of the
Corporation shall, upon the written request of 10% of the
holders of record of shares of such series of Preferred
Stock then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of holders of shares of
such series of Preferred Stock. Such meeting shall be held
at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation or, if
none, at a place designated by the Secretary of the
Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after the
personal service of such written request upon the Secretary
of the Corporation, or within 30 days after mailing the same
within the United States, by registered mail, addressed to
the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued

<PAGE>

by the postal authorities), then the holders of record of
10% of the shares of such series of Preferred Stock then
outstanding may designate in writing a holder of shares of
such series of Preferred Stock to call such meeting at the
expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for
annual meetings of stockholders and shall be held at the
same place as is elsewhere provided in this paragraph
(6)(b)(iii). Any holder of shares of such series of
Preferred Stock that would be entitled to vote at such
meeting shall have access to the stock books of the
Corporation for such series of Preferred Stock for the
purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph.
Notwithstanding the provisions of this paragraph, however,
no such special meeting shall be called during a period
within 90 days immediately preceding the date fixed for the
next annual meeting of stockholders.

(iv) At any meeting held for the purpose of
electing directors at which the holders of shares of Series
C Preferred Stock together with all other series of
Preferred Stock entitled to vote thereon shall have the
right to elect directors as provided herein, the presence in
person or by proxy of the holders of at least a majority of
the then outstanding shares of such series of Preferred
Stock shall be required and be sufficient to constitute a
quorum of such series for the election of directors by such
series. At any such meeting or adjournment thereof (x) the
absence of a quorum of the holders of shares of such series
of Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders of
stock of such series and the absence of a quorum or quorums
of the holders of capital stock entitled to elect such other
directors shall not prevent the election of directors to be
elected by the holders of shares of such series of Preferred
Stock and (y) in the absence of a quorum of the holders of
shares of such series of Preferred Stock, a majority of such
holders present in person or by proxy shall have the power
to adjourn the meeting for the election of directors which
the holders of shares of such series of Preferred Stock may
be entitled to elect, from time to time, without notice
(except as required by law) other than announcement at the
meeting, until a quorum shall be present.

(v) The term of office of all directors elected
by the holders of shares of Series C Preferred Stock
together with all other series of Preferred Stock entitled
to vote thereon pursuant to paragraph (6)(b)(i) in office at
any time when the aforesaid voting rights are vested in the
holders of shares of such series of Preferred Stock shall
terminate upon the election of their successors at any
meeting of stockholders for the purpose of electing
directors. Upon any termination of the aforesaid voting

<PAGE>

rights in accordance with paragraph (6)(b)(ii), the term of
office of all directors elected by the holders of shares of
such series of Preferred Stock pursuant to paragraph
(6)(b)(i) then in office shall thereupon terminate and upon
such termination the number of directors constituting the
Board of Directors shall, without further action, be reduced
by two (2) (or such other lesser number by which the number
of directors constituting the Board of Directors shall have
been increased pursuant to paragraph (6)(b)(i) hereof),
subject always to the increase of the number of directors
pursuant to paragraph (6)(b)(i) in case of the future right
of the holders of shares of such series of Preferred Stock
to elect directors as provided herein.

(vi) In case of any vacancy occurring among the
directors elected pursuant to paragraph (6)(b)(i), the
remaining director who shall have been so elected may
appoint a successor to hold office for the unexpired term of
the director whose place shall be vacant. If all directors
so elected by the holders of shares of Series C Preferred
Stock together with all other series of Preferred Stock
entitled to vote thereon shall cease to serve as directors
before their terms shall expire, the holders of shares of
such series of Preferred Stock then outstanding may, at a
special meeting of the holders called as provided above,
elect successors to hold office for the unexpired terms of
the directors whose places shall be vacant.

(c) So long as any shares of the Series C Preferred
Stock are outstanding (except when notice of the redemption or
conversion of all outstanding shares of Series C Preferred Stock
has been given pursuant to paragraph (4)(i) and shares of Common
Stock and any necessary funds have been deposited in trust for
such redemption or conversion pursuant to paragraph (4)(j)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Series C
Preferred Stock and any other series of Preferred Stock entitled
to vote thereon at the time outstanding voting or consenting, as
the case may be, together as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purpose, authorize any new class
of Parity Securities.

(d) So long as any shares of the Series C Preferred
Stock are outstanding (except when notice of the redemption or
conversion of all outstanding shares of Series C Preferred Stock
has been given pursuant to paragraph (4)(i) and shares of Common
Stock and any necessary funds have been deposited in trust for
such redemption or conversion pursuant to paragraph (4)(j)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least 66-2/3% of the shares of Series C
Preferred Stock and any other series of Preferred Stock entitled
to vote thereon at the time outstanding voting or consenting, as
the case may be, together as one class, given in person or by

<PAGE>

proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purpose, authorize any new class
of Senior Securities.

(e) So long as any shares of the Series C Preferred
Stock are outstanding (except when notice of the redemption or
conversion of all outstanding shares of Series C Preferred Stock
has been given pursuant to paragraph (4)(i) and shares of Common
Stock and any necessary funds have been deposited in trust for
such redemption or conversion pursuant to paragraph (4)(j)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least 66-2/3% of the shares of Series C
Preferred Stock and any other series of Preferred Stock entitled
to vote thereon at the time outstanding voting or consenting, as
the case may be, together as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purpose, amend the Certificate of
Incorporation or this Certificate of Designation so as to affect
materially and adversely the specified rights, preferences,
privileges or voting rights of holders of shares of Preferred
Stock.
(f) (i) Except as set forth in paragraphs (6)(c) and
(6)(d) above, the creation, authorization or issuance of any
shares of any Junior Securities, Parity Securities or Senior
Securities, (ii) the creation of any indebtedness of any kind of
the Corporation, or (iii) the increase or decrease in the amount
of authorized capital stock of any class, including Preferred
Stock, shall not require the consent of the holders of Series C
Preferred Stock and shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting rights of
holders of shares of Series C Preferred Stock.

(7) Increase in Shares. The number of shares of
Series C Preferred Stock may, to the extent of the Corporation's
authorized and unissued Preferred Stock, be increased by further
resolution duly adopted by the Board of Directors and the filing
of a certificate of increase with the Secretary of State of the
State of Delaware.

(8) Limitations. Except as may otherwise be required
by law, the shares of Series C Preferred Stock shall not have any
powers, preferences or relative, participating, optional or other
special rights other than those specifically set forth in this
resolution (as such resolution may be amended from time to time)

<PAGE>

or otherwise in the Certificate of Incorporation of the
Corporation.

IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has
caused this Certificate of Designation to be made under the seal
of the Corporation signed by Robert F. Sharpe, Jr., its Vice
President, Assistant General Counsel and Secretary, and attested
by ____________________________, this ____ day of ________, 1994.

RJR NABISCO HOLDINGS CORP.

By:________________________________
Name:
Title:

Attested:

By:_________________________
Name:
Title:

RJR NABISCO HOLDINGS CORP.

and

[INSERT NAME]

As Depositary

_____________

DEPOSIT AGREEMENT

for

SERIES C CONVERSION PREFERRED STOCK
_____________

Dated as of __________, 1994

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

DEFINITIONS . . . . . . . . . . . 1
"Certificate of Designation" . . . . . . . . . . . . . . 1
"Certificate of Incorporation" . . . . . . . . . . . . . 1
"Common Stock" . . . . . . . . . . . . . . . . . . . . . 1
"Company" . . . . . . . . . . . . . . . . . . . . . . . 1
"Corporate Office" . . . . . . . . . . . . . . . . . . . 1
"Deposit Agreement" . . . . . . . . . . . . . . . . . . 2
"Depositary" . . . . . . . . . . . . . . . . . . . . . . 2
"Depositary's Agent" . . . . . . . . . . . . . . . . . . 2
"Receipt" . . . . . . . . . . . . . . . . . . . . . . . 2
"Record holder" . . . . . . . . . . . . . . . . . . . . 2
"Registrar" . . . . . . . . . . . . . . . . . . . . . . 2
"Securities Act" . . . . . . . . . . . . . . . . . . . . 2
"Series C Depositary Share" . . . . . . . . . . . . . . 2
"Stock" . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II

FORM OF RECEIPTS, DEPOSIT OF STOCK, EXECUTION AND
DELIVERY, TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS 2
SECTION 2.01. Form and Transferability of Receipts . . 2
SECTION 2.02. Deposit of Stock; Execution and Delivery
of Receipts in Respect Thereof . . . . . . . . . . 4
SECTION 2.03. Redemptions and Conversions of Stock . . 5
SECTION 2.04. Transfer of Receipts . . . . . . . . . . 8
SECTION 2.05. Combination and Split-ups of Receipts . . 8
SECTION 2.06. Surrender of Receipts and Withdrawal of
Stock . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.07. Limitations on Execution and Delivery,
Transfer, Split-up, Combination, Surrender and
Exchange of Receipts . . . . . . . . . . . . . . . 9
SECTION 2.08. Lost Receipts, etc . . . . . . . . . . . 10
SECTION 2.09. Cancellation and Destruction of
Surrendered Receipts . . . . . . . . . . . . . . . 10

ARTICLE III

CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY
11
SECTION 3.01. Filing Proofs, Certificates and Other
Information . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.02. Payment of Taxes or Other Governmental
Charges . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.03. Representations and Warranties as to
Stock . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE IV

THE STOCK, NOTICES . . . . . . . . . 12

-i-

<PAGE>

Page
----

SECTION 4.01. Cash Distributions . . . . . . . . . . . 12
SECTION 4.02. Distributions Other Than Cash. . . . . . 12
SECTION 4.03. Subscription Rights, Preferences or
Privileges. . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.04. Notice of Dividends, Fixing of Record
Date for Holders of Receipts. . . . . . . . . . . . 14
SECTION 4.05. Voting Rights. . . . . . . . . . . . . . 14
SECTION 4.06. Changes Affecting Stock and
Reclassifications, Recapitalizations, etc. . . . . 15

ARTICLE V

THE DEPOSITARY AND THE COMPANY . . . . . . 15
SECTION 5.01. Maintenance of Offices, Agencies,
Transfer Books by the Depositary; the Registrar. . 15
SECTION 5.02. Liability of the Depositary, the
Depositary's Agents or the Company. . . . . . . . . 16
SECTION 5.03. Obligations of the Depositary, the
Depositary's Agents and the Company. . . . . . . . 17
SECTION 5.04. Resignation and Removal of the
Depositary, Appointment of Successor Depositary. . 19
SECTION 5.05. Corporate Notices and Reports. . . . . . 20
SECTION 5.06. Deposit of Stock by the Company. . . . . 20
SECTION 5.07. Indemnification by the Company. . . . . . 20
SECTION 5.08. Fees, Charges and Expenses. . . . . . . . 20

ARTICLE VI

AMENDMENT AND TERMINATION . . . . . . . . 21
SECTION 6.01. Amendment. . . . . . . . . . . . . . . . 21
SECTION 6.02. Termination. . . . . . . . . . . . . . . 21

ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . 22
SECTION 7.01. Counterparts . . . . . . . . . . . . . . 22
SECTION 7.02. Exclusive Benefits of Parties. . . . . . 22
SECTION 7.03. Invalidity of Provisions. . . . . . . . . 22
SECTION 7.04. Notices. . . . . . . . . . . . . . . . . 22
SECTION 7.05. Depositary's Agents. . . . . . . . . . . 23
SECTION 7.06. Holders of Receipts Are Parties. . . . . 23
SECTION 7.07. Governing Law. . . . . . . . . . . . . . 23
SECTION 7.08. Headings. . . . . . . . . . . . . . . . . 24

TESTIMONIUM . . . . . . . . . . . . . . . . . . . . 22

SIGNATURES . . . . . . . . . . . . . . . . . . . . 22

EXHIBIT A . . . . . . . . . . . . . . . . . . . . A-1

-ii-

<PAGE>

DEPOSIT AGREEMENT

DEPOSIT AGREEMENT, dated as of _________, 1994 between
RJR NABISCO HOLDINGS CORP., a Delaware corporation, and [Insert
Name], as Depositary.

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, it is desired to provide, as hereinafter set
forth in this Deposit Agreement, for the deposit of shares of
Series C Conversion Preferred Stock, $.01 par value, of the
Company (the "Stock") with the Depositary, as agent for the
beneficial owners of the Stock, for the purposes set forth in
this Deposit Agreement and for the issuance hereunder of the
Receipts evidencing Series C Depositary Shares representing an
interest in the Stock so deposited; and

WHEREAS, the Receipts are to be substantially in the
form of the Depositary Receipt annexed as Exhibit A to this
Deposit Agreement, with appropriate insertions, modifications and
omissions, as hereinafter provided in this Deposit Agreement;

NOW, THEREFORE, in consideration of the premises
contained herein, it is agreed by and among the parties hereto as
follows:

ARTICLE I

DEFINITIONS

The following definitions shall apply to the respective
terms (in the singular and plural forms of such terms) used in
this Deposit Agreement and the Depositary Receipts:

"Certificate of Designation" shall mean the Certificate
of Designation establishing and setting forth the rights,
preferences, privileges and limitations of the Stock.

"Certificate of Incorporation" shall mean the Amended
and Restated Certificate of Incorporation, as amended from time
to time, of the Company.

"Common Stock" shall mean the Company's Common Stock,
par value $.01 per share.

"Company" shall mean RJR Nabisco Holdings Corp., a
Delaware corporation, and its successors.

"Corporate Office" shall mean the office of the
Depositary in the Borough of Manhattan, New York, New York, which
at the date of this Deposit Agreement is located at [Insert
Address].

<PAGE>

"Deposit Agreement" shall mean this agreement, as the
same may be amended, modified or supplemented from time to time.

"Depositary" shall mean [Insert Name], and any
successor as depositary hereunder.

"Depositary's Agent" shall mean an agent appointed by
the Depositary as provided, and for the purposes specified, in
Section 7.05.

"Receipt" shall mean a Depositary Receipt issued
hereunder to evidence one or more Series C Depositary Shares,
whether in temporary or definitive form.

"Record holder" as applied to a Receipt shall mean the
person in whose name a Receipt is registered on the books
maintained by the Depositary for such purpose.

"Registrar" shall mean any bank or trust company
appointed to register ownership of Receipts as herein provided.

"Securities Act" shall mean the Securities Act of 1933,
as amended.

"Series C Depositary Share" shall mean an interest in
[Insert Fraction] of a share of Stock deposited with the
Depositary hereunder, as evidenced by the Receipts issued
hereunder. Subject to the terms of this Deposit Agreement, each
owner of a Series C Depositary Share is entitled,
proportionately, to all the rights and preferences of the Stock
represented by such Series C Depositary Share, including the
dividend, voting, redemption and liquidation rights contained in
the Certificate of Designation.

"Stock" shall mean shares of the Company's Series C
Conversion Preferred Stock, $.01 par value, heretofore validly
issued, fully paid and nonassessable.

ARTICLE II

FORM OF RECEIPTS, DEPOSIT OF STOCK, EXECUTION AND
DELIVERY, TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS

SECTION 2.01. Form and Transferability of Receipts.
Receipts shall be engraved or printed or lithographed with
steel-engraved borders and underlying tint and shall be
substantially in the form set forth in Exhibit A annexed to this
Deposit Agreement, with appropriate insertions, modifications and
omissions, as hereinafter provided. Pending the preparation of
definitive Receipts, the Depositary, upon the written order of
the Company or any holder of Stock, as the case may be, delivered
for deposit in compliance with Section 2.02, shall execute and
deliver temporary Receipts that are printed, lithographed,

<PAGE>

typewritten, mimeographed or otherwise substantially of the tenor
of the definitive Receipts in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and
other variations as the persons executing such Receipts may
determine, as evidenced by their execution of such Receipts. If
temporary Receipts are issued, the Company and the Depositary
will cause definitive Receipts to be prepared without
unreasonable delay. After the preparation of definitive
Receipts, the temporary Receipts shall be exchangeable for
definitive Receipts upon surrender of the temporary Receipts at
an office described in the second last paragraph of Section 2.02,
without charge to the holder. Upon surrender for cancellation of
any one or more temporary Receipts, the Depositary shall execute
and deliver in exchange therefor definitive Receipts representing
the same number of Series C Depositary Shares as represented by
the surrendered temporary Receipt or Receipts. Such exchange
shall be made at the Company's expense and without any charge to
the holder thereof. Until so exchanged, the temporary Receipts
shall in all respects be entitled to the same benefits under this
Agreement, and with respect to the Stock deposited hereunder, as
definitive Receipts.

Receipts shall be executed by the Depositary by the
manual signature of a duly authorized signatory of the
Depositary, provided, however, that such signature may be a
facsimile if a Registrar (other than the Depositary) shall have
countersigned the Receipts by manual signature of a duly
authorized signatory of the Registrar. No Receipt shall be
entitled to any benefits under this Deposit Agreement or be valid
or obligatory for any purpose unless it shall have been executed
as provided in the preceding sentence. The Depositary shall
record on its books each Receipt executed as provided above and
delivered as hereinafter provided.

Except as the Depositary may otherwise determine,
Receipts shall be in denominations of any number of whole Series
C Depositary Shares. All Receipts shall be dated the date of
their execution.

Receipts may be endorsed with or have incorporated in
the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Deposit Agreement as may
be required by the Depositary or required to comply with any
applicable law or regulation or with the rules and regulations of
any securities exchange upon which the Stock, the Series C
Depositary Shares or the Receipts may be listed or to conform
with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Receipts are
subject by reason of the date of issuance of the Stock or
otherwise.

Title to any Receipt (and to the Series C Depositary
Shares evidenced by such Receipt) that is properly endorsed or
accompanied by a properly executed instrument of transfer or

<PAGE>

endorsement shall be transferable by delivery with the same
effect as in the case of a negotiable instrument; provided,
however, that until a Receipt shall be transferred on the books
of the Depositary as provided in Section 2.04, the Depositary
may, notwithstanding any notice to the contrary, treat the record
holder thereof at such time as the absolute owner thereof for the
purpose of determining the person entitled to distribution of
dividends or other distributions or to any notice provided for in
this Deposit Agreement and for all other purposes.

SECTION 2.02. Deposit of Stock; Execution and Delivery
of Receipts in Respect Thereof. On the date any Stock is
initially issued by the Company, the Depositary, upon receipt of
a written order from the Company and a certificate or
certificates for the Stock to be deposited under this Deposit
Agreement in accordance with the provisions of this Section,
shall execute and deliver a Receipt or Receipts for the number of
Series C Depositary Shares representing such deposited Stock to
the person or persons stated in such order.

Subject to the terms and conditions of this Deposit
Agreement, any holder of Stock may deposit such Stock under this
Deposit Agreement by delivery to the Depositary of a certificate
or certificates for the Stock to be deposited, properly endorsed
or accompanied, if required by the Depositary, by a properly
executed instrument of transfer or endorsement in form
satisfactory to the Depositary, together with (i) all such
certifications as may be required by the Depositary in accordance
with the provisions of this Deposit Agreement and (ii) a written
order directing the Depositary to execute and deliver to or upon
the written order of the person or persons stated in such order a
Receipt or Receipts for the number of Series C Depositary Shares
representing such deposited Stock.

If required by the Depositary, Stock presented for
deposit at any time, whether or not the register of stockholders
of the Company is closed, shall also be accompanied by an
agreement or assignment, or other instrument satisfactory to the
Depositary, that will provide for the prompt transfer to the
Depositary or its nominee of any dividend or right to subscribe
for additional Stock or to receive other property that any person
in whose name the Stock is or has been registered may thereafter
receive upon or in respect of such deposited Stock, or in lieu
thereof such agreement of indemnity or other agreement as shall
be satisfactory to the Depositary.

Upon receipt by the Depositary of a certificate or
certificates for Stock to be deposited hereunder, together with
the other documents specified above, the Depositary shall, as
soon as transfer and registration can be accomplished, present
such certificate or certificates to the registrar and transfer
agent of the Stock for transfer and registration in the name of
the Depositary or its nominee of the Stock being deposited.

<PAGE>

Deposited Stock shall be held by the Depositary in an account to
be established by the Depositary at the Corporate Office.

Upon receipt by the Depositary of a certificate or
certificates for Stock to be deposited hereunder, together with
the other documents specified above, the Depositary, subject to
the terms and conditions of this Deposit Agreement, shall execute
and deliver to or upon the order of the person or persons named
in the written order delivered to the Depositary referred to in
the first or second paragraph of this Section 2.02 a Receipt or
Receipts for the number of whole Series C Depositary Shares
representing the Stock so deposited and registered in such name
or names as may be requested by such person or persons. The
Depositary shall execute and deliver such Receipt or Receipts at
the Corporate Office, except that, at the request, risk and
expense of any person requesting such delivery, such delivery may
be made at such other place as may be designated by such person.
In each case, delivery will be made only upon payment by such
person to the Depositary of all taxes and other governmental
charges and any fees payable in connection with such deposit and
the transfer of the Deposited Stock.

The Company shall deliver to the Depositary from time
to time such quantities of Receipts as the Depositary may
reasonably request to enable the Depositary to perform its
obligations under this Deposit Agreement.

SECTION 2.03. Redemptions and Conversions of Stock.
Whenever the Company shall elect to redeem or be required to
convert shares of Stock into shares of Common Stock in accordance
with the Certificate of Designation, it shall (unless otherwise
agreed in writing with the Depositary) give the Depositary in its
capacity as Depositary not less than 35 nor more than 60 days'
prior notice of the proposed date of the mailing of a notice of
redemption or conversion of Series C Depositary Shares to holders
of Receipts to be effected in connection with a redemption or
conversion of Stock and of the number of such shares of Stock
held by the Depositary to be redeemed or converted as hereinafter
provided, unless such notice involves a potential automatic
conversion pursuant to paragraph (4)(b) of the Certificate of
Designation, in which case the Company shall use its best efforts
to give the Depositary at least four business days' prior notice
of the proposed date of such automatic conversion, and shall give
the Depositary at least one business day's prior notice of the
proposed date of the mailing of the notice of such conversion.
On the date of any such redemption or conversion of Stock,
provided that the Company shall then have deposited with the
Depositary the shares of Common Stock and any funds required
pursuant to the Certificate of Designation for the Stock
deposited with the Depositary to be redeemed or converted, the
Depositary shall redeem or convert (using the shares of Common
Stock and funds, if any, deposited with it), the number of Series
C Depositary Shares representing such redeemed or converted
Stock. The Depositary shall, as directed by the Company, mail,

<PAGE>

first class postage prepaid, notice of the redemption or
conversion of Stock and the proposed simultaneous redemption or
conversion of the Series C Depositary Shares representing the
Stock to be redeemed or converted, not less than 30 and not more
than 60 days prior to the date fixed for redemption or conversion
(the "redemption or conversion date") of such Stock and Series C
Depositary Shares, provided, however, that if the timing of a
potential automatic conversion pursuant to paragraph (4)(b) of
the Certificate of Designation makes it impossible to provide at
least 30 days' notice, the Depositary shall, as directed by the
Company, provide such notice as soon as practicable prior to such
conversion. Such notice shall be mailed to each holder of record
on the record date fixed for such redemption or conversion
pursuant to Section 4.04 hereof of the Receipts evidencing the
Series C Depositary Shares to be so redeemed or converted, at the
address of such holder as the same appears on the records of the
Depositary; but neither failure to mail any such notice to one or
more such holders nor any defect in any notice shall affect the
sufficiency of the proceedings for redemption or conversion. The
Company shall provide the Depositary with such notice, and each
such notice shall state: the record date for such redemption or
conversion; the redemption or conversion date; that all
outstanding Series C Depositary Shares are to be redeemed or
converted or, in the case of a redemption of fewer than all
outstanding Series C Depositary Shares in connection with a
partial redemption of Stock pursuant to paragraph 4(c) of the
Certificate of Designation, the number of such Series C
Depositary Shares held by such holder to be so redeemed; in
connection with a redemption of Stock pursuant to paragraph
(4)(c) of the Certificate of Designation, the Call Price (as
defined in the Certificate of Designation) for the Depositary
Shares, the number of shares of Common Stock deliverable upon
redemption of each Depositary Share to be redeemed and the
Current Market Price (as defined in the Certificate of
Designation) used to calculate such number of shares of Common
Stock (subject to any subsequent adjustments pursuant to
paragraph 4(d) of the Certificate of Designation); whether the
Company is exercising any option to deliver shares of Common
Stock in lieu of cash (in the case of a conversion pursuant to
paragraph (4)(b) of the Certificate of Designation), the Current
Market Price to be used to calculate the number of such shares of
Common Stock and, if the Company is exercising such option in
respect of less than all the cash that is deliverable by the
Company upon such conversion, the portion of such cash in lieu of
which Common Stock will be delivered; the place or places where
Receipts evidencing Series C Depositary Shares to be redeemed or
converted are to be surrendered for redemption or conversion; and
that dividends in respect of the Stock represented by the Series
C Depositary Shares to be redeemed or converted will cease to
accrue on such redemption or conversion date or, in the case of a
conversion pursuant to paragraph (4)(b) of the Certificate of
Designation, on the related Settlement Date (as defined in the
Certificate of Designation), unless the Company shall default in
delivering the shares of Common Stock and cash, if any, payable

<PAGE>

by the Company at the time and place specified in such notice.
In case fewer than all the outstanding Series C Depositary Shares
are to be redeemed or converted, the Series C Depositary Shares
to be redeemed or converted shall be selected by lot or pro rata
(as nearly as practicable without creating fractional shares) or
by any other equitable method determined by the Company.

Notice having been mailed by the Depositary as
aforesaid, from and after the redemption or conversion date
(unless the Company shall have failed to redeem or convert the
shares of Stock to be redeemed or converted by it as set forth in
the Company's notice provided for in the preceding paragraph),
the Series C Depositary Shares called for redemption or
conversion shall be deemed no longer to be outstanding and all
rights of the holders of Receipts evidencing such Series C
Depositary Shares (except the right to receive the shares of
Common Stock and any cash upon redemption or conversion) shall,
to the extent of such Series C Depositary Shares, cease and
terminate. Upon surrender in accordance with said notice of the
Receipts evidencing such Series C Depositary Shares (properly
endorsed or assigned for transfer, if the Depositary shall so
require), such Series C Depositary Shares shall be redeemed or
converted (as nearly as may be practicable without creating
fractional shares) into shares of Common Stock at a conversion
rate equal to [Insert fraction] of the number of shares of Common
Stock delivered in respect of the shares of Stock represented by
such Depositary Shares pursuant to the Certificate of
Designation. The foregoing shall be subject further to the terms
and conditions of the Certificate of Designation.

If fewer than all of the Series C Depositary Shares
evidenced by a Receipt are called for redemption, the Depositary
will deliver to the holder of such Receipt upon its surrender to
the Depositary, a new Receipt evidencing the Series C Depositary
Shares evidenced by such prior Receipt and not called for
redemption, together with the shares of Common Stock for the
Depositary Shares called for redemption.

To the extent that Depositary Shares are redeemed for
or converted into shares of Common Stock and all of such shares
of Common Stock cannot be distributed to the record holders of
Receipts without creating fractional interests in such shares,
the Depositary may, with the consent of the Company, adopt such
method as it deems equitable and practicable for the purpose of
effecting such distribution, including the sale (at public or
private sale) of such shares of Common Stock representing in the
aggregate such fractional interests at such place or places and
upon such terms as it may deem proper, and the net proceeds of
any such sale shall, subject to Section 3.02, be distributed or
made available for distribution to such record holders that would
otherwise receive fractional interests in such shares of Common
Stock.

<PAGE>

Except with respect to a conversion of Depositary
Shares which may occur pursuant to paragraph (4)(b) of the
Certificate of Designation, the Depositary shall not be required
(a) to issue, transfer or exchange any Receipts for a period
beginning at the opening of business 15 days next preceding any
selection of Depositary Shares and Stock to be redeemed and
ending at the close of business on the day of the mailing of
notice of redemption of Depositary Shares or (b) to transfer or
exchange for another Receipt any Receipt evidencing Depositary
Shares called or being called for redemption in whole or in part,
except as provided in the second preceding paragraph of this
Section 2.03.

SECTION 2.04. Transfer of Receipts. Subject to the
terms and conditions of this Deposit Agreement, the Depositary
shall make transfers on its books from time to time of Receipts
upon any surrender thereof by the holder in person or by a duly
authorized attorney, properly endorsed or accompanied by a
properly executed instrument of transfer or endorsement, together
with evidence of the payment of any transfer taxes as may be
required by law. Upon such surrender, the Depositary shall
execute a new Receipt or Receipts and deliver the same to or upon
the order of the person entitled thereto evidencing the same
aggregate number of Series C Depositary Shares evidenced by the
Receipt or Receipts surrendered.

SECTION 2.05. Combination and Split-ups of Receipts.
Upon surrender of a Receipt or Receipts at the Corporate Office
or such other office as the Depositary may designate for the
purpose of effecting a split-up or combination of Receipts,
subject to the terms and conditions of this Deposit Agreement,
the Depositary shall execute and deliver a new Receipt or
Receipts in the authorized denominations requested evidencing the
same aggregate number of Series C Depositary Shares evidenced by
the Receipt or Receipts surrendered; provided, however, that the
Depositary shall not issue any Receipt evidencing a fractional
Series C Depositary Share.

SECTION 2.06. Surrender of Receipts and Withdrawal of
Stock. Any holder of a Receipt or Receipts may withdraw any or
all of the Stock (but only in whole shares of Stock) represented
by the Series C Depositary Shares evidenced by such Receipts and
all money and other property, if any, represented by such Series
C Depositary Shares by surrendering such Receipt or Receipts at
the Corporate Office or at such other office as the Depositary
may designate for such withdrawals. After such surrender,
without unreasonable delay, the Depositary shall deliver to such
holder, or to the person or persons designated by such holder as
hereinafter provided, the whole number of shares of Stock and all
such money and other property, if any, represented by the Series
C Depositary Shares evidenced by the Receipt or Receipts so
surrendered for withdrawal, but holders of such shares of Stock
will not thereafter be entitled to deposit such shares of Stock
hereunder or to receive Series C Depositary Shares therefor. If

<PAGE>

the Receipt or Receipts delivered by the holder to the Depositary
in connection with such withdrawal shall evidence a number of
Series C Depositary Shares in excess of the number of Series C
Depositary Shares representing the whole number of shares of
Stock to be withdrawn, the Depositary shall at the same time, in
addition to such whole number of shares of Stock and such money
and other property, if any, to be withdrawn, deliver to such
holder, or (subject to Section 2.04) upon his order, a new
Receipt or Receipts evidencing such excess number of Series C
Depositary Shares. Delivery of the Stock and such money and
other property being withdrawn may be made by the delivery of
such certificates, documents of title and other instruments as
the Depositary may deem appropriate, which, if required by the
Depositary, shall be properly endorsed or accompanied by proper
instruments of transfer.

If the Stock and the money and other property being
withdrawn are to be delivered to a person or persons other than
the record holder of the Receipt or Receipts being surrendered
for withdrawal of Stock, such holder shall execute and deliver to
the Depositary a written order so directing the Depositary and
the Depositary may require that the Receipt or Receipts
surrendered by such holder for withdrawal of such shares of Stock
be properly endorsed in blank or accompanied by a properly
executed instrument of transfer or endorsement in blank.

The Depositary shall deliver the Stock and the money
and other property, if any, represented by the Series C
Depositary Shares evidenced by Receipts surrendered for
withdrawal at the Corporate Office, except that, at the request,
risk and expense of the holder surrendering such Receipt or
Receipts and for the account of the holder thereof, such delivery
may be made at such other place as may be designated by such
holder.

SECTION 2.07. Limitations on Execution and Delivery,
Transfer, Split-up, Combination, Surrender and Exchange of
Receipts. As a condition precedent to the execution and
delivery, transfer, split-up, combination, surrender or exchange
of any Receipt, the Depositary, any of the Depositary's Agents or
the Company may require any or all of the following: (i) payment
to it of a sum sufficient for the payment (or, in the event that
the Depositary or the Company shall have made such payment, the
reimbursement to it) of any tax or other governmental charge with
respect thereto (including any such tax or charge with respect to
the Stock being deposited or withdrawn or with respect to the
Common Stock or other securities or property of the Company being
issued upon redemption or conversion); (ii) the production of
proof satisfactory to it as to the identity and genuineness of
any signature; and (iii) compliance with such regulations, if
any, as the Depositary or the Company may establish not
inconsistent with the provisions of this Deposit Agreement.

<PAGE>

The deposit of Stock may be refused, the delivery of
Receipts against Stock may be suspended, the transfer of Receipts
may be refused, and the transfer, split-up, combination,
surrender or exchange of outstanding Receipts may be suspended
(i) during any period when the register of stockholders of the
Company is closed, (ii) if any such action is deemed necessary or
advisable by the Depositary, any of the Depositary's Agents or
the Company at any time or from time to time because of any
requirement of law or of any government or governmental body or
commission, or under any provision of this Deposit Agreement, or
(iii) with the approval of the Company, for any other reason.
Without limitation of the foregoing, the Depositary shall not
knowingly accept for deposit under this Deposit Agreement any
shares of Stock that are required to be registered under the
Securities Act unless a registration statement under the
Securities Act is in effect as to such shares of Stock. The
Depositary shall not be required (a) to issue, transfer or
exchange any Receipts for a period beginning at the opening of
business 15 days next preceding any selection of Series C
Depositary Shares and Stock to be redeemed and ending at the
close of business on the day of the mailing of notice of
redemption of Series C Depositary Shares or (b) to transfer or
exchange for another Receipt any Receipt evidencing Series C
Depositary Shares called or being called for redemption in whole
or in part, except as provided in the last sentence of Section
2.03.

SECTION 2.08. Lost Receipts, etc. In case any Receipt
shall be mutilated or destroyed or lost or stolen, the Depositary
in its discretion may execute and deliver a Receipt of like form
and tenor in exchange and substitution for such mutilated Receipt
or in lieu of and in substitution for such destroyed, lost or
stolen Receipt; provided, however, that the holder thereof
provides the Depositary with (i) evidence satisfactory to the
Depositary of such destruction, loss or theft of such Receipt, of
the authenticity thereof and of his ownership thereof, (ii)
reasonable indemnification satisfactory to the Depositary and
(iii) payment of any expense (including fees, charges and
expenses of the Depositary) in connection with such execution and
delivery.

SECTION 2.09. Cancellation and Destruction of
Surrendered Receipts. All Receipts surrendered to the Depositary
or any Depositary's Agent shall be cancelled by the Depositary.
Except as prohibited by applicable law or regulation, the
Depositary is authorized to destroy such Receipts so cancelled.

<PAGE>

ARTICLE III

CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY

SECTION 3.01. Filing Proofs, Certificates and Other
Information. Any person presenting Stock for deposit or any
holder of a Receipt may be required from time to time to file
such proof of residence or other information, to execute such
certificates and to make such representations and warranties as
the Depositary or the Company may reasonably deem necessary or
proper. The Depositary or the Company may withhold or delay the
delivery of any Receipt, the transfer, redemption or exchange of
any Receipt, the withdrawal of the Stock represented by the
Series C Depositary Shares evidenced by any Receipt or the
distribution of any dividend or other distribution until such
proof or other information is filed, such certificates are
executed or such representations and warranties are made.

SECTION 3.02. Payment of Taxes or Other Governmental
Charges. If any tax or other governmental charge shall become
payable by or on behalf of the Depositary with respect to any
Receipt, the Series C Depositary Shares evidenced by such
Receipt, the Stock (or fractional interest therein) represented
by such Series C Depositary Shares or any transaction referred to
in Section 4.06, such tax (including transfer, issuance or
acquisition taxes, if any) or governmental charge shall be
payable by the holder of such Receipt. Until such payment is
made, transfer of any Receipt or any withdrawal of the Stock or
money or other property, if any, represented by the Series C
Depositary Shares evidenced by such Receipt may be refused, any
dividend or other distribution may be withheld and any part or
all of the Stock or other property represented by the Series C
Depositary Shares evidenced by such Receipt may be sold for the
account of the holder thereof (after attempting by reasonable
means to notify such holder prior to such sale). Any dividend or
other distribution so withheld and the proceeds of any such sale
may be applied to any payment of such tax or other governmental
charge, the holder of such Receipt remaining liable for any
deficiency. The Depositary shall act as the withholding agent
for any payments, distributions and exchanges made with respect
to the Series C Depositary Shares and Receipts, and the Stock,
Common Stock or other securities or assets represented thereby
(collectively, the "Securities"). The Depositary shall be
responsible with respect to the Securities for the timely
(i) collection and deposit of any required withholding or backup
withholding tax, and (ii) filing of any information returns or
other documents with federal (and other applicable) taxing
authorities. In the event the Depositary is required to pay any
such amounts, the Company shall reimburse the Depositary for
payment thereof upon the request of the Depositary and the
Depositary shall, upon the Company's request and as instructed by
the Company, pursue its rights against such holder at the
Company's expense.

<PAGE>

SECTION 3.03. Representations and Warranties as to
Stock. In the case of the initial deposit of the Stock, the
Company and, in the case of subsequent deposits thereof, each
person so depositing Stock under this Deposit Agreement shall be
deemed thereby to represent and warrant that such Stock and each
certificate therefor are valid, fully paid and nonassessable and
that the person making such deposit is duly authorized to do so.
Such representations and warranties shall survive the deposit of
the Stock and the issuance of Receipts.

ARTICLE IV

THE STOCK, NOTICES

SECTION 4.01. Cash Distributions. Whenever the
Depositary shall receive any cash dividend or other cash
distribution on the Stock, the Depositary shall, subject to
Sections 3.01 and 3.02, distribute to record holders of Receipts
on the record date fixed pursuant to Section 4.04 such amounts of
such sum as are, as nearly as practicable, in proportion to the
respective numbers of Series C Depositary Shares evidenced by the
Receipts held by such holders; provided, however, that in case
the Company or the Depositary shall be required to withhold and
does withhold from any cash dividend or other cash distribution
in respect of the Stock an amount on account of taxes or as
otherwise required pursuant to law, regulation or court process,
the amount made available for distribution or distributed in
respect of Series C Depositary Shares shall be reduced
accordingly. The Depositary shall distribute or make available
for distribution, as the case may be, only such amount, however,
as can be distributed without attributing to any owner of Series
C Depositary Shares a fraction of one cent and any balance not so
distributable shall be held by the Depositary (without liability
for interest thereon) and shall be added to and be treated as
part of the next sum received by the Depositary for distribution
to record holders of Receipts then outstanding.

SECTION 4.02. Distributions Other Than Cash. Whenever
the Depositary shall receive any distribution other than cash on
the Stock, the Depositary shall, subject to Sections 3.01 and
3.02, distribute to record holders of Receipts on the record date
fixed pursuant to Section 4.04 such amounts of the securities or
property received by it as are, as nearly as practicable, in
proportion to the respective numbers of Series C Depositary
Shares evidenced by the Receipts held by such holders, in any
manner that the Depositary and the Company may deem equitable and
practicable for accomplishing such distribution. If, in the
opinion of the Depositary after consultation with the Company,
such distribution cannot be made proportionately among such
record holders, or if for any other reason (including any
requirement that the Company or the Depositary withhold an amount
on account of taxes or as otherwise required pursuant to law,
regulation or court process), the Depositary deems, after

<PAGE>

consultation with the Company, such distribution not to be
feasible, the Depositary may, with the approval of the Company,
adopt such method as it deems equitable and practicable for the
purpose of effecting such distribution, including the sale (at
public or private sale) of the securities or property thus
received, or any part thereof, at such place or places and upon
such terms as it may deem proper. The net proceeds of any such
sale shall, subject to Sections 3.01 and 3.02, be distributed or
made available for distribution, as the case may be, by the
Depositary to record holders of Receipts as provided by Section
4.01 in the case of a distribution received in cash.

SECTION 4.03. Subscription Rights, Preferences or
Privileges. If the Company shall at any time offer or cause to
be offered to the persons in whose names Stock is registered on
the books of the Company any rights, preferences or privileges to
subscribe for or to purchase any securities or any rights,
preferences or privileges of any other nature, such rights,
preferences or privileges shall in each such instance be made
available by the Depositary to the record holders of Receipts if
the Company so directs in such manner as the Company shall
instruct (including by the issue to such record holders of
warrants representing such rights, preferences or privileges);
provided, however, that (a) if at the time of issue or offer of
any such rights, preferences or privileges the Company determines
that it is not lawful or feasible to make such rights,
preferences or privileges available to some or all holders of
Receipts (by the issue of warrants or otherwise) or (b) if and to
the extent instructed by holders of Receipts who do not desire to
exercise such rights, preferences or privileges, the Depositary
shall then, if so instructed by the Company, and if applicable
laws or the terms of such rights, preferences or privileges so
permit, sell such rights, preferences or privileges of such
holders at public or private sale, at such place or places and
upon such terms as it may deem proper. The net proceeds of any
such sale shall, subject to Sections 3.01 and 3.02, be
distributed by the Depositary to the record holders of Receipts
entitled thereto as provided by Section 4.01 in the case of a
distribution received in cash.

If registration under the Securities Act of the
securities to which any rights, preferences or privileges relate
is required in order for holders of Receipts to be offered or
sold such securities, the Company shall promptly file a
registration statement pursuant to the Securities Act with
respect to such rights, preferences or privileges and securities
and use its best efforts and take all steps available to it to
cause such registration statement to become effective
sufficiently in advance of the expiration of such rights,
preferences or privileges to enable such holders to exercise such
rights, preferences or privileges. In no event shall the
Depositary make available to the holders of Receipts any right,
preference or privilege to subscribe for or to purchase any
securities unless and until the Depositary has been notified by

<PAGE>

the Company that such registration statement has become effective
or that the offering and sale of such securities to such holders
are exempt from registration under the provisions of the
Securities Act.

If any other action under the law of any jurisdiction
or any governmental or administrative authorization, consent or
permit is required in order for such rights, preferences or
privileges to be made available to holders of Receipts, the
Company will use its best efforts to take such action or obtain
such authorization, consent or permit sufficiently in advance of
the expiration of such rights, preferences or privileges to
enable such holders to exercise such rights, preferences or
privileges.

SECTION 4.04. Notice of Dividends, Fixing of Record
Date for Holders of Receipts. Whenever any cash dividend or
other cash distribution shall become payable, any distribution
other than cash shall be made, or any rights, preferences or
privileges shall at any time be offered with respect to the
Stock, or whenever the Depositary shall receive notice of (i) any
meeting at which holders of Stock are entitled to vote or of
which holders of Stock are entitled to notice or any solicitation
of consents in respect of the Stock or (ii) any call or
conversion of any shares of Stock, the Depositary shall in each
such instance fix a record date (which shall be the same date as
the record date fixed by the Company with respect to the Stock)
for the determination of the holders of Receipts who shall be
entitled (i) to receive such dividend, distribution, rights,
preferences or privileges or the net proceeds of the sale
thereof, (ii) to receive notice of, and to give instructions for
the exercise of voting rights at, or the delivery of consents
with respect to, any such meeting or consent solicitation, as the
case may be, or (iii) to receive notice of any such call or
conversion.

SECTION 4.05. Voting Rights. Upon receipt of notice
of any meeting at which the holders of Stock are entitled to vote
or any solicitation of consents in respect of the Stock, the
Depositary shall, as soon as practicable thereafter, mail to the
record holders of Receipts a notice, which shall be provided by
the Company and which shall contain (i) such information as is
contained in such notice of meeting or consent solicitation,
(ii) a statement that the holders of Receipts at the close of
business on a specified record date fixed pursuant to Section
4.04 will be entitled, subject to any applicable provision of
law, the Certificate of Incorporation or the Certificate of
Designation, to instruct the Depositary as to the exercise of the
voting rights or the delivery of consents with respect to the
amount of Stock represented by their respective Series C
Depositary Shares and (iii) a brief statement as to the manner in
which such instructions may be given. Upon the written request
of a holder of a Receipt on such record date, the Depositary
shall endeavor insofar as practicable to vote or cause to be

<PAGE>

voted or deliver a consent with respect to the amount of Stock
represented by the Series C Depositary Shares evidenced by such
Receipt in accordance with the instructions set forth in such
request. In the absence of specific instructions from the holder
of a Receipt, the Depositary will abstain from voting or
delivering consents to the extent of the Stock represented by the
Series C Depositary Shares evidenced by such Receipt.

SECTION 4.06. Changes Affecting Stock and
Reclassifications, Recapitalizations, etc. Upon any split-up,
consolidation or any other reclassification of Stock, or upon any
recapitalization, reorganization, merger, amalgamation or
consolidation affecting the Company or to which it is a party or
sale of all or substantially all of the Company's assets, the
Depositary shall, upon the instructions of the Company, treat any
shares of stock or other securities or property (including cash)
that shall be received by the Depositary in exchange for or upon
conversion of or in respect of the Stock as new deposited
property under this Deposit Agreement, and Receipts then
outstanding shall thenceforth represent the proportionate
interests of holders thereof in the new deposited property so
received in exchange for or upon conversion or in respect of such
Stock. In any such case the Depositary may, in its discretion,
with the approval of the Company, execute and deliver additional
Receipts, or may call for the surrender of all outstanding
Receipts to be exchanged for new Receipts specifically describing
such new deposited property.

ARTICLE V

THE DEPOSITARY AND THE COMPANY

SECTION 5.01. Maintenance of Offices, Agencies,
Transfer Books by the Depositary; the Registrar. Upon execution
of this Deposit Agreement in accordance with its terms, the
Depositary shall maintain at the Corporate Office facilities for
the execution and delivery, transfer, surrender and exchange,
split-up and combination of Receipts and the deposit and
withdrawal of Stock and at the offices of the Depositary's
Agents, if any, facilities for the delivery, transfer, surrender
and exchange, split-up, combination and redemption of Receipts
and the deposit and withdrawal of Stock, all in accordance with
the provisions of this Deposit Agreement.

The Depositary shall keep books at the Corporate Office
for the registration and transfer of Receipts, which books at all
reasonable times shall be open for inspection by the record
holders of Receipts as and to the extent provided by applicable
law. The Depositary shall consult with the Company upon receipt
of any request for inspection. The Depositary may close such
books, at any time or from time to time, when deemed expedient by
it in connection with the performance of its duties hereunder.

<PAGE>

The Depositary shall make available for inspection by
holders of Receipts at the Corporate Office and at such other
places as it may from time to time deem advisable during normal
business hours any reports and communications received from the
Company that are both received by the Depositary as the holder of
Stock and made generally available to the holders of Stock.

Promptly upon request from time to time by the Company
and at the Company's sole expense, the Depositary shall furnish
to it a list, as of a recent date, of the names, addresses and
holdings of Series C Depositary Shares of all persons in whose
names Receipts are registered on the books of the Depositary.

If the Receipts or the Series C Depositary Shares
evidenced thereby or the Stock represented by such Series C
Depositary Shares shall be listed on the New York Stock Exchange,
Inc., the Depositary may, with the approval of the Company,
appoint a Registrar for registry of such Receipts or Series C
Depositary Shares in accordance with the requirements of such
Exchange. Such Registrar (which may be the Depositary if so
permitted by the requirements of such Exchange) may be removed
and a substitute registrar appointed by the Depositary upon the
request or with the approval of the Company. If the Receipts,
such Series C Depositary Shares or such Stock are listed on one
or more other stock exchanges, the Depositary will, at the
request of the Company, arrange such facilities for the delivery,
transfer, surrender and exchange of such Receipts, such Series C
Depositary Shares or such Stock as may be required by law or
applicable stock exchange regulations.

SECTION 5.02. Liability of the Depositary, the
Depositary's Agents or the Company. Neither the Depositary nor
any Depositary's Agent nor the Company shall incur any liability
to any holder of any Receipt, if by reason of any provision of
any present or future law or regulation thereunder of the United
States of America or of any other governmental authority or, in
the case of the Depositary or the Depositary's Agent, by reason
of any provision, present or future, of the Certificate of
Incorporation or the Certificate of Designation or, in the case
of the Company, the Depositary or the Depositary's Agent, by
reason of any act of God or war or other circumstances beyond the
control of the relevant party, the Depositary, any Depositary's
Agent or the Company shall be prevented or forbidden from doing
or performing any act or thing that the terms of this Deposit
Agreement provide shall be done or performed; nor shall the
Depositary, any Depositary's Agent or the Company incur any
liability to any holder of a Receipt by reason of any
nonperformance or delay, caused as aforesaid, in the performance
of any act or thing that the terms of this Deposit Agreement
provide shall or may be done or performed, or by reason of any
exercise of, or failure to exercise, any discretion provided for
in this Deposit Agreement except, in case of any such exercise or
failure to exercise discretion not caused as aforesaid, if caused

<PAGE>

by the negligence, bad faith or willful misconduct of the party
charged with such exercise or failure to exercise.

SECTION 5.03. Obligations of the Depositary, the
Depositary's Agents and the Company. Neither the Depositary nor
any Depositary's Agent nor the Company nor the Registrar assumes
any obligation or shall be subject to any liability under this
Deposit Agreement or any Receipt to holders of Receipts other
than that each of them agrees to use good faith in the
performance of such duties as are specifically set forth in this
Deposit Agreement and other than for its negligence, bad faith or
wilful misconduct.

Neither the Depositary nor any Depositary's Agent nor
the Company nor the Registrar shall be under any obligation to
appear in, prosecute or defend any action, suit or other
proceeding with respect to Stock, Series C Depositary Shares or
Receipts or Common Stock that in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be
required.

Neither the Depositary nor any Depositary's Agent nor
the Company nor the Registrar shall be liable for any action or
any failure to act by it in reliance upon the advice of or
information from legal counsel, accountants, any person
presenting Stock for deposit, any holder of a Receipt or any
other person believed by it in good faith to be competent to give
such advice or information. The Depositary, any Depositary's
Agent, the Registrar and the Company may each rely and shall each
be protected in acting upon any written notice, request,
direction or other document believed by it to be genuine and to
have been signed or presented by the proper party or parties.

Notwithstanding the first paragraph of this Section
5.03, the Depositary shall not be responsible for any failure to
carry out any instruction to vote any of the deposited shares of
Stock or for the manner or effect of any such vote made, as long
as any such action or non-action is in good faith or in
accordance with this Deposit Agreement. The Depositary
undertakes, and any Registrar shall be required to undertake, to
perform such duties and only such duties as are specifically set
forth in this Deposit Agreement against the Depositary or any
Registrar. The Depositary will indemnify the Company against any
liability that may arise out of acts performed or omitted by the
Depositary or its agents due to its or their negligence, bad
faith or willful misconduct. The Depositary, its parent,
affiliate or subsidiaries and any Depositary's Agent may own,
buy, sell or deal in any class of securities of the Company and
its affiliates and in Receipts or Series C Depositary Shares or
become pecuniarily interested in any transaction in which the
Company or its affiliates may be interested or contract with or
lend money to or otherwise act as fully or as freely as if it
were not the Depositary or the Depositary's Agent hereunder. The

<PAGE>

Depositary may also act as transfer agent or registrar of any of
the securities of the Company and its affiliates or act in any
other capacity for the Company or its affiliates.

It is intended that neither the Depositary nor any
Depositary's Agent shall be deemed to be an "issuer" of the
securities under the federal securities laws or applicable state
securities laws, it being expressly understood and agreed that
the Depositary and any Depositary's Agent are acting only in a
ministerial capacity as Depositary for the Stock.

The Depositary agrees to comply with all information
reporting and withholding requirements applicable to it under law
or this Deposit Agreement in its capacity as Depositary.

The Depositary shall not lend the Series C Depositary
Shares.

Neither the Depositary (or its officers, directors,
employees or agents) nor any Depositary's Agent nor the Registrar
makes any representation or has any responsibility as to the
validity of the Registration Statement pursuant to which the
Series C Depositary Shares are registered under the Securities
Act, the Stock, the Series C Depositary Shares or the Receipts
(except its countersignature thereon), or any instruments
referred to therein or herein, or as to the correctness of any
statement made therein or herein; provided, however, that the
Depositary is responsible for its representations in this Deposit
Agreement.

The Depositary assumes no responsibility for the
correctness of the description that appears in the Receipts,
which can be taken as a statement of the Company summarizing
certain provisions of this Deposit Agreement. Notwithstanding
any other provision herein or in the Receipts, the Depositary
makes no warranties or representations as to the validity,
genuineness or sufficiency of any Stock at any time deposited
with the Depositary hereunder or of the Series C Depositary
Shares, as to the validity or sufficiency of this Deposit
Agreement, as to the value of the Series C Depositary Shares or
as to any right, title or interest of the record holders of
Receipts in and to the Series C Depositary Shares, except that
the Depositary hereby represents and warrants as follows: (i)
the Depositary has been duly organized and is validly existing
and in good standing under the laws of the State of New York,
with full power, authority and legal right under such law to
execute, deliver and carry out the terms of this Deposit
Agreement; (ii) this Deposit Agreement has been duly authorized,
executed and delivered by the Depositary; and (iii) this Deposit
Agreement constitutes a valid and binding obligation of the
Depositary, enforceable against the Depositary in accordance with
its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting enforcement of creditors' rights generally and except

<PAGE>

as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding
in equity or at law). The Depositary shall not be accountable
for the use or application by the Company of the Series C
Depositary Shares or the Receipts or the proceeds thereof.

SECTION 5.04. Resignation and Removal of the
Depositary, Appointment of Successor Depositary. The Depositary
may at any time resign as Depositary hereunder by notice of its
election to do so delivered to the Company, such resignation to
take effect upon the appointment of a successor depositary and
its acceptance of such appointment as hereinafter provided.

The Depositary may at any time be removed by the
Company by notice of such removal delivered to the Depositary,
such removal to take effect upon the appointment of a successor
depositary and its acceptance of such appointment as hereinafter
provided.

In case at any time the Depositary acting hereunder
shall resign or be removed, the Company shall, within 45 days
after the delivery of the notice of resignation or removal, as
the case may be, appoint a successor depositary, which shall be a
bank or trust company, or an affiliate of a bank or trust
company, having its principal office in the United States of
America and having a combined capital and surplus of at least
$50,000,000. If a successor Depositary shall not have been
appointed in 45 days, the resigning Depositary may petition a
court of competent jurisdiction to appoint a successor deposi-
tary. Every successor depositary shall execute and deliver to
its predecessor and to the Company an instrument in writing
accepting its appointment hereunder, and thereupon such successor
depositary, without any further act or deed, shall become fully
vested with all the rights, powers, duties and obligations of its
predecessor and for all purposes shall be the Depositary under
this Deposit Agreement, and such predecessor, upon payment of all
sums due it and on the written request of the Company, shall
promptly execute and deliver an instrument transferring to such
successor all rights and powers of such predecessor hereunder,
shall duly assign, transfer and deliver all rights, title and
interest in the Stock and any moneys or property held hereunder
to such successor and shall deliver to such successor a list of
the record holders of all outstanding Receipts. Any successor
depositary shall promptly mail notice of its appointment to the
record holders of Receipts.

Any corporation into or with which the Depositary may
be merged, consolidated or converted shall be the successor of
such Depositary without the execution or filing of any document
or any further act. Such successor depositary may execute the
Receipts either in the name of the predecessor depositary or in
the name of the successor depositary.

<PAGE>

SECTION 5.05. Corporate Notices and Reports. The
Company agrees that it will deliver to the Depositary, and the
Depositary will, promptly after receipt thereof, transmit to the
record holders of Receipts, in each case at the address recorded
in the Depositary's books, copies of all notices and reports
(including financial statements) required by law, by the rules of
any national securities exchange upon which the Stock, the Series
C Depositary Shares or the Receipts are listed or by the
Certificate of Incorporation and the Certificate of Designation
to be furnished by the Company to holders of Stock. Such
transmission will be at the Company's expense and the Company
will provide the Depositary with such number of copies of such
documents as the Depositary may reasonably request. In addition,
the Depositary will transmit to the record holders of Receipts at
the Company's expense such other documents as may be requested by
the Company. The Depositary will make available for inspection
by holders of Receipts at the Corporate Office and at such other
places as it may from time to time deem advisable during normal
business hours any such notices and reports received from the
Company.

SECTION 5.06. Deposit of Stock by the Company.
Neither the Company nor any company controlled by the Company
will at any time deposit any Stock if such Stock is required to
be registered under the provisions of the Securities Act and no
registration statement is at such time in effect as to such
Stock.

SECTION 5.07. Indemnification by the Company. The
Company agrees to indemnify the Depositary, any Depositary's
Agent and any Registrar against, and hold each of them harmless
from, any liability, costs and expenses (including reasonable
attorneys' fees) that may arise out of or in connection with its
acting as Depositary, Depositary's Agent or Registrar,
respectively, under this Deposit Agreement and the Receipts,
except for any liability arising out of negligence, bad faith or
willful misconduct on the part of any such person or persons.

SECTION 5.08. Fees, Charges and Expenses. No fees,
charges and expenses of the Depositary or any Depositary's Agent
hereunder or of any Registrar shall be payable by any person
other than the Company, except for any taxes and other
governmental charges and except as provided in this Deposit
Agreement. If the Depositary incurs fees, charges or expenses
for which it is not otherwise liable hereunder at the election of
a holder of a Receipt or other person, such holder or other
person will be liable for such fees, charges and expenses. All
other fees, charges and expenses of the Depositary and any
Depositary's Agent hereunder and of any Registrar (including, in
each case, fees and expenses of counsel) incident to the
performance of their respective obligations hereunder will be
paid from time to time upon consultation and agreement between
the Depositary and the Company as to the amount and nature of
such fees, charges and expenses.

<PAGE>

ARTICLE VI

AMENDMENT AND TERMINATION

SECTION 6.01. Amendment. The form of the Receipts and
any provision of this Deposit Agreement may at any time and from
time to time be amended by agreement between the Company and the
Depositary in any respect that they may deem necessary or
desirable. Any amendment that shall impose any fees, taxes or
charges (other than fees and charges provided for herein or in
the Receipts), or that shall otherwise prejudice any substantial
existing right of holders of Receipts, shall not become effective
as to outstanding Receipts until the expiration of 30 days after
notice of such amendment shall have been given to the record
holders of outstanding Receipts. Every holder of an outstanding
Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Receipt, to consent and agree
to such amendment and to be bound by this Deposit Agreement as
amended thereby. In no event shall any amendment impair the
right, subject to the provisions of Sections 2.03, 2.06 and 2.07
and Article III, of any owner of any Series C Depositary Shares
to surrender the Receipt evidencing such Series C Depositary
Shares with instructions to the Depositary to deliver to the
holder the Stock and all money and other property, if any,
represented thereby, except in order to comply with mandatory
provisions of applicable law.

SECTION 6.02. Termination. This Deposit Agreement may
be terminated by the Company or the Depositary only after
(a) (i) all outstanding Series C Depositary Shares shall have
been redeemed or converted pursuant to Section 2.03 or (ii) there
shall have been made a final distribution in respect of the Stock
in connection with any liquidation, dissolution or winding up of
the Company and such distribution shall have been distributed to
the holders of Series C Depositary Shares pursuant to Section
4.01 or 4.02 as applicable and (b) reasonable notice has been
given to any remaining holders of Receipts.

If any Receipts shall remain outstanding after the date
of termination of this Deposit Agreement, the Depositary
thereafter shall discontinue the transfer of Receipts, shall
suspend the distribution of dividends to the holders thereof and
shall not give any further notices (other than notice of such
termination) or perform any further acts under this Deposit
Agreement, except that the Depositary shall continue to collect
dividends and other distributions pertaining to Stock, shall sell
rights, preferences or privileges as provided in this Deposit
Agreement and shall continue to deliver the Stock and any money
and other property represented by Receipts upon surrender thereof
by the holders thereof. At any time after the expiration of two
years from the date of termination, the Depositary may sell Stock
then held hereunder at public or private sale, at such places and
upon such terms as it deems proper and may thereafter hold the

<PAGE>

net proceeds of any such sale, together with any money and other
property held by it hereunder, without liability for interest,
for the benefit, pro rata in accordance with their holdings, of
the holders of Receipts that have not theretofore been
surrendered. After making such sale, the Depositary shall be
discharged from all obligations under this Deposit Agreement
except to account for such net proceeds and money and other
property.

Upon the termination of this Deposit Agreement, the
Company shall be discharged from all obligations under this
Deposit Agreement except for its obligations to the Depositary,
any Depositary's Agent and any Registrar under Sections 5.07 and
5.08. In the event this Deposit Agreement is terminated, the
Company hereby agrees to use its best efforts to list the
underlying Stock on the New York Stock Exchange, Inc. or any
other national securities exchange on which the Common Stock is
listed.

ARTICLE VII
MISCELLANEOUS

SECTION 7.01. Counterparts. This Deposit Agreement
may be executed by the Company and the Depositary in separate
counterparts, each of which counterparts, when so executed and
delivered, shall be deemed an original, but all such counterparts
taken together shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page to this
Deposit Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Deposit Agreement.
Copies of this Deposit Agreement shall be filed with the
Depositary and the Depositary's Agents and shall be open to
inspection at all reasonable times during normal business hours
at the Corporate Office and the respective offices of the
Depositary's Agents, if any, by any holder of a Receipt.

SECTION 7.02. Exclusive Benefits of Parties. This
Deposit Agreement is for the exclusive benefit of the parties
hereto, and their respective successors hereunder, and shall not
be deemed to give any legal or equitable right, remedy or claim
to any other person whatsoever.

SECTION 7.03. Invalidity of Provisions. In case any
one or more of the provisions contained in this Deposit Agreement
or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or
therein shall in no way be affected, prejudiced or disturbed
thereby.

SECTION 7.04. Notices. Any notices to be given to the
Company hereunder or under the Receipts shall be in writing and
shall be deemed to have been duly given if personally delivered

<PAGE>

or sent by mail, or by telegram or telex or telecopier confirmed
by letter, addressed to the Company at 1301 Avenue of the
Americas, New York, New York 10019, Attention: Corporate
Secretary, or at any other place to which the Company may have
transferred its principal executive office.

Any notices to be given to the Depositary hereunder or
under the Receipts shall be in writing and shall be deemed to
have been duly given if personally delivered or sent by mail, or
by telegram or telex or telecopier confirmed by letter, addressed
to the Depositary at the Corporate Office.

Any notices given to any record holder of a Receipt
hereunder or under the Receipts shall be in writing and shall be
deemed to have been duly given if personally delivered or sent by
mail, or by telegram or telex or telecopier confirmed by letter,
addressed to such record holder at the address of such record
holder as it appears on the books of the Depositary or, if such
holder shall have timely filed with the Depositary a written
request that notices intended for such holder be mailed to some
other address, at the address designated in such request.

Delivery of a notice sent by mail, or by telegram or
telex or telecopier shall be deemed to be effected at the time
when a duly addressed letter containing the same (or a duly
addressed letter confirming an earlier notice in the case of a
telegram or telex or telecopier message) is deposited, postage
prepaid, in a post office letter box. The Depositary or the
Company may, however, act upon any telegram or telex or
telecopier message received by it from the other or from any
holder of a Receipt, notwithstanding that such telegram or telex
or telecopier message shall not subsequently be confirmed by
letter as aforesaid.

SECTION 7.05. Depositary's Agents. The Depositary may
from time to time appoint Depositary's Agents to act in any
respect for the Depositary for the purposes of this Deposit
Agreement and may at any time appoint additional Depositary's
Agents and vary or terminate the appointment of such Depositary's
Agents. The Depositary will notify the Company prior to any such
action.

SECTION 7.06. Holders of Receipts Are Parties.
Notwithstanding that holders of Receipts have not executed and
delivered this Deposit Agreement or any counterpart thereof, the
holders of Receipts from time to time shall be deemed to be
parties to this Deposit Agreement and shall be bound by all of
the terms and conditions hereof and of the Receipts by acceptance
of delivery of Receipts.

SECTION 7.07. Governing Law. This Deposit Agreement
and the Receipts and all rights hereunder and thereunder and
provisions hereof and thereof shall be governed by, and construed

<PAGE>

in accordance with, the law of the State of New York without
giving effect to principles of conflict of laws.

SECTION 7.08. Headings. The headings of articles and
sections in this Deposit Agreement and in the form of the Receipt
set forth in Exhibit A hereto have been inserted for convenience
only and are not to be regarded as a part of this Deposit
Agreement or to have any bearing upon the meaning or
interpretation of any provision contained herein or in the
Receipts.

IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. and
First Chicago Trust Company of New York have duly executed this
agreement as of the day and year first above set forth and all
holders of Receipts shall become parties hereto by and upon
acceptance by them of delivery of Receipts issued in accordance
with the terms hereof.

RJR NABISCO HOLDINGS CORP.

Attest:

By: _______________________ By: ____________________________
Authorized Officer

[NAME OF DEPOSITARY]

Attest:

By: _______________________ By: ____________________________
Authorized Signatory

<PAGE>

EXHIBIT A

DEPOSITARY RECEIPT
FOR
Series C DEPOSITARY SHARES,
EACH REPRESENTING [Insert Fraction] OF A SHARE OF
Series C Conversion PREFERRED STOCK
($.01 par value)
OF
RJR NABISCO HOLDINGS CORP.
(Incorporated under the Laws of the State of Delaware)

No. __________ ______ Series C Depositary Shares (each
Series C Depositary Share represents [Insert
Fraction] of a share of Series C Conversion
Preferred Stock ($.01 par value))

1. First Chicago Trust Company of New York, a New York
State trust company, as Depositary (the "Depositary"), hereby
certifies that _________________ is the registered owner of ____
Depositary Shares (the "Series C Depositary Shares"), each
Series C Depositary Share representing [Insert Fraction] of a
share of Series C Conversion Preferred Stock, $.01 par value (the
"Stock"), of RJR Nabisco Holdings Corp., a corporation duly
organized and existing under the laws of the State of Delaware
(the "Company"), deposited with the Depositary, and the same
proportionate interest in any and all other property received by
the Depositary in respect of such share of Stock and held by the
Depositary under the Deposit Agreement. Subject to the terms of
the Deposit Agreement, each owner of a Series C Depositary Share
is entitled, proportionately, to all the rights, preferences and
privileges of the Stock represented thereby, including the
dividend, voting, liquidation and other rights contained in the
Certificate of Designation of Series C Conversion Preferred Stock
establishing the rights, preferences, privileges and limitations
of the Stock (the "Certificate of Designation"), copies of which
are on file at the Depositary's office located at the time of the
execution of the Deposit Agreement (as defined below) at 14 Wall
Street, Suite 4680, New York, New York 10005 (such office or the
corporate trust office of the Depositary in the Borough of
Manhattan, New York, New York, at which its business in respect
of matters governed by the Deposit Agreement is administered at
any later time, being at the relevant time, the "Corporate
Office").

2. The Deposit Agreement. Depositary Receipts (the
"Receipts"), of which this Receipt is one, are made available
upon the terms and conditions set forth in the Deposit Agreement,
dated as of ___________, 1994 (the "Deposit Agreement"), between
the Company and the Depositary. The Deposit Agreement (copies of
which are on file at the Corporate Office and at the office of
any Depositary's Agent) sets forth the rights of holders of
Receipts and the rights and duties of the Depositary. The
statements made on the face and the reverse of this Receipt are

<PAGE>

A-2

summaries of certain provisions of the Deposit Agreement and are
subject to the detailed provisions thereof, to which reference is
hereby made. In the event of any conflict between the provisions
of this Receipt and the provisions of the Deposit Agreement, the
provisions of the Deposit Agreement will govern. Unless
otherwise expressly herein provided, all defined terms used
herein shall have the meanings ascribed thereto in the Deposit
Agreement.

3. Redemptions and Conversions of Stock. Whenever the
Company shall elect to redeem or be required to convert shares of
Stock into shares of Common Stock, par value $.01 per share
("Common Stock"), it shall (unless otherwise agreed in writing
with the Depositary) give the Depositary in its capacity as
Depositary not less than 35 nor more than 60 days' prior notice
of the proposed date of the mailing of a notice of redemption or
conversion of Series C Depositary Shares to holders of Receipts
to be effected in connection with a redemption or conversion of
Stock and of the number of such shares of Stock held by the
Depositary to be redeemed or converted as provided herein, unless
such notice involves a potential automatic conversion pursuant to
paragraph (4)(b) of the Certificate of Designation, in which case
the Company shall use its best efforts to give the Depositary at
least four business days' prior notice of the proposed date of
such automatic conversion, and shall give the Depositary at least
one business day's prior notice of the proposed date of the
mailing of the notice of such conversion. On the date of any
such redemption or conversion of Stock, provided that the Company
shall then have deposited with the Depositary the shares of
Common Stock and any funds required pursuant to the Certificate
of Designation for the Stock deposited with the Depositary to be
redeemed or converted, the Depositary shall redeem or convert
(using the shares of Common Stock and funds, if any, deposited
with it) the number of Series C Depositary Shares representing
such redeemed or converted Stock. The Depositary shall, as
directed by the Company, mail, first class postage prepaid,
notice of the redemption or conversion of Stock and the proposed
simultaneous redemption or conversion of Series C Depositary
Shares representing the Stock to be redeemed or converted, not
less than 30 and not more than 60 days prior to the date fixed
for redemption or conversion (the "redemption or conversion
date") of such Stock and Series C Depositary Shares, provided,
however, that if the timing of a potential automatic conversion
pursuant to paragraph (4)(b) of the Certificate of Designation
makes it impossible to provide at least 30 days' notice, the
Depositary shall provide, as directed by the Company, such notice
as soon as practicable prior to such conversion. Such notice
shall be mailed to the holders of record on the record date fixed
for such redemption or conversion as provided in paragraph 14
below of the Receipts evidencing Series C Depositary Shares to be
redeemed. In case fewer than all the outstanding Series C
Depositary Shares are to be redeemed or converted, the Series C
Depositary Shares to be redeemed or converted shall be selected
by lot or pro rata (as nearly as may be practicable without

<PAGE>

A-3

creating fractional shares) or by any other equitable method
determined by the Company. Notice having been mailed as
aforesaid, from and after the redemption or conversion date
(unless the Company shall have failed to redeem or convert the
shares of Stock to be redeemed or converted by it, as set forth
in the Company's notice provided for above), the Series C
Depositary Shares called for redemption or conversion shall be
deemed no longer to be outstanding and all rights of the holders
of Receipts evidencing such Series C Depositary Shares (except
the right to receive the shares of Common Stock and any cash upon
redemption or conversion) shall, to the extent of such Series C
Depositary Shares, cease and terminate. Upon surrender in
accordance with said notice of the Receipts evidencing such
Series C Depositary Shares (properly endorsed or assigned for
transfer, if the Depositary shall so require), such Series C
Depositary Shares shall be redeemed or converted (as nearly as
may be practicable without creating fractional shares) into
shares of Common Stock at a conversion rate equal to [Insert
fraction] of the number of shares of Common Stock delivered in
respect of the shares of Stock represented by such Depositary
Shares pursuant to the Certificate of Designation. The foregoing
shall be subject further to the terms and conditions of the
Certificate of Designation. If fewer than all of the Series C
Depositary Shares evidenced by this Receipt are called for
redemption, the Depositary will deliver to the holder of this
Receipt upon its surrender to the Depositary, a new Receipt
evidencing the Series C Depositary Shares evidenced by such prior
Receipt and not called for redemption, together with shares of
Common Stock for the Depositary Shares called for redemption.

4. Surrender of Receipts and Withdrawal of Stock.
Upon surrender of this Receipt to the Depositary at the Corporate
Office, or at such other offices as the Depositary may designate,
and subject to the provisions of the Deposit Agreement, the
holder hereof is entitled to withdraw, and to obtain delivery, to
or upon the order of such holder, of any or all of the Stock (but
only in whole shares of Stock) and all money and other property,
if any, at the time represented by the Series C Depositary Shares
evidenced by this Receipt, but holders of such shares of Stock
will not thereafter be entitled to deposit such shares of Stock
hereunder or to receive Series C Depositary Shares therefor. If
the Receipt or Receipts delivered by the holder to the Depositary
in connection with such withdrawal shall evidence a number of
Series C Depositary Shares in excess of the number of Series C
Depositary Shares representing the whole number of shares of
Stock to be withdrawn, the Depositary shall, in addition to such
whole number of shares of Stock and such money and other
property, if any, to be withdrawn, deliver, to or upon the order
of such holder, a new Receipt or Receipts evidencing such excess
number of Series C Depositary Shares.

5. Transfers, Split-ups, Combinations. Subject to
paragraphs 6, 7 and 8 below, this Receipt is transferable on the
books of the Depositary upon surrender of this Receipt to the

<PAGE>

A-4

Depositary, properly endorsed or accompanied by a properly
executed instrument of transfer or endorsement, and upon such
transfer the Depositary shall sign and deliver a Receipt to or
upon the order of the person entitled thereto, all as provided in
and subject to the Deposit Agreement. This Receipt may be split
into other Receipts or combined with other Receipts into one
Receipt evidencing the same aggregate number of Series C
Depositary Shares evidenced by the Receipt or Receipts
surrendered; provided, however, that the Depositary shall not
issue any Receipt evidencing a fractional Series C Depositary
Share.

6. Conditions to Signing and Delivery, Transfer, etc.,
of Receipts. Prior to the execution and delivery, transfer,
split-up, combination, surrender or exchange of this Receipt, the
Depositary, any of the Depositary's Agents or the Company may
require any or all of the following: (i) payment to it of a sum
sufficient for the payment (or, in the event that the Depositary
or the Company shall have made such payment, the reimbursement to
it) of any tax or other governmental charge with respect thereto
(including any such tax or charge with respect to Stock being
deposited or withdrawn or with respect to Common Stock or other
securities or property of the Company being issued upon
redemption or conversion); (ii) the production of proof
satisfactory to it as to the identity and genuineness of any
signature; and (iii) compliance with such regulations, if any, as
the Depositary or the Company may establish not inconsistent with
the Deposit Agreement. Any person presenting Stock for deposit,
or any holder of this Receipt, may be required to file such proof
of information, to execute such certificates and to make such
representations and warranties as the Depositary or the Company
may reasonably deem necessary or proper. The Depositary or the
Company may withhold or delay the delivery of this Receipt, the
transfer, redemption or exchange of this Receipt, the withdrawal
of the Stock represented by the Series C Depositary Shares
evidenced by this Receipt or the distribution of any dividend or
other distribution until such proof or other information is
filed, such certificates are executed or such representations and
warranties are made.

7. Suspension of Delivery, Transfer, etc. The deposit
of Stock may be refused, the delivery of this Receipt against
Stock may be suspended, or the transfer, split-up, combination,
surrender or exchange of this Receipt may be suspended (i) during
any period when the register of stockholders of the Company is
closed, (ii) if any such action is deemed necessary or advisable
by the Depositary, any of the Depositary's Agents or the Company
at any time or from time to time because of any requirement of
law or of any government or governmental body or commission, or
under any provision of the Deposit Agreement, or (iii) with the
approval of the Company, for any other reason. Except with
respect to a conversion of Depositary Shares which may occur
pursuant to paragraph (4)(b) of the Certificate of Designation,
the Depositary shall not be required (a) to issue, transfer or

<PAGE>

A-5

exchange any Receipts for a period beginning at the opening of
business 15 days next preceding any selection of Series C
Depositary Shares and Stock to be redeemed and ending at the
close of business on the day of the mailing of notice of
redemption of Series C Depositary Shares or (b) to transfer or
exchange for another Receipt any Receipt evidencing Series C
Depositary Shares called or being called for redemption in whole
or in part, except as provided in the last sentence of paragraph
3.

8. Payment of Taxes or Other Governmental Charges. If
any tax or other governmental charge shall become payable by or
on behalf of the Depositary with respect to this Receipt, the
Series C Depositary Shares evidenced by this Receipt, the Stock
(or any fractional interest therein) represented by such Series C
Depositary Shares or any transaction referred to in Section 4.06
of the Deposit Agreement, such tax (including transfer, issuance
or acquisition taxes, if any) or governmental charge shall be
payable by the holder hereof. Until such payment is made,
transfer of this Receipt or any withdrawal of the Stock or money
or other property, if any, represented by the Series C Depositary
Shares evidenced by this Receipt may be refused, any dividend or
other distribution may be withheld and any part or all of the
Stock or other property represented by the Series C Depositary
Shares evidenced by this Receipt may be sold for the account of
the holder hereof (after attempting by reasonable means to notify
such holder prior to such sale). Any dividend or other
distribution so withheld and the proceeds of any such sale may be
applied to any payment of such tax or other governmental charge,
the holder of this Receipt remaining liable for any deficiency.

9. Amendment. The form of the Receipts and any
provision of the Deposit Agreement may at any time and from time
to time be amended by agreement between the Company and the
Depositary in any respect that they may deem necessary or
desirable. Any amendment that shall impose any fees, taxes or
charges (other than fees and charges provided for herein or in
the Deposit Agreement), or that shall otherwise prejudice any
substantial existing right of holders of Receipts, shall not
become effective as to outstanding Receipts until the expiration
of 30 days after notice of such amendment shall have been given
to the record holders of outstanding Receipts. The holder of
this Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold this Receipt, to consent
and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event shall any amendment
impair the right, subject to the provisions of paragraphs 3, 4, 7
and 8 hereof and of Sections 2.03, 2.06 and 2.07 and Article III
of the Deposit Agreement, of the owner of the Series C Depositary
Shares evidenced by this Receipt to surrender this Receipt with
instructions to the Depositary to deliver to the holder the Stock
and all money and other property, if any, represented thereby,
except in order to comply with mandatory provisions of applicable
law.

<PAGE>

A-6

10. Fees, Charges and Expenses. The Company will pay
all fees, charges and expenses of the Depositary, except for
taxes (including transfer taxes, if any) and other governmental
charges and such charges as are expressly provided in the Deposit
Agreement to be at the expense of persons depositing Stock,
holders of Receipts or other persons.

11. Title to Receipts. It is a condition of this
Receipt, and every successive holder hereof by accepting or
holding the same consents and agrees, that title to this Receipt
(and to the Series C Depositary Shares evidenced hereby), when
properly endorsed or accompanied by a properly executed
instrument of transfer or endorsement, is transferable by
delivery with the same effect as in the case of a negotiable
instrument; provided, however, that until this Receipt shall be
transferred on the books of the Depositary as provided in Section
2.04 of the Deposit Agreement, the Depositary may,
notwithstanding any notice to the contrary, treat the record
holder hereof at such time as the absolute owner hereof for the
purpose of determining the person entitled to distribution of
dividends or other distributions or to any notice provided for in
the Deposit Agreement and for all other purposes.

12. Cash Dividends and Distributions. Whenever the
Depositary receives any cash dividend or other cash distribution
on the Stock, the Depositary will, subject to the provisions of
the Deposit Agreement, make such distribution to record holders
of Receipts as nearly as practicable in proportion to the
respective numbers of Series C Depositary Shares evidenced by the
Receipts held by such holders; provided, however, that in the
event the Company or the Depositary shall be required to withhold
and does withhold from any cash dividend or other cash
distribution in respect of the Stock an amount on account of
taxes or as otherwise required by law, regulation or court
process, the amount made available for distribution or
distributed in respect of Series C Depositary Shares shall be
reduced accordingly. The Depositary shall distribute or make
available for distribution, as the case may be, only such amount,
however, as can be distributed without attributing to any owner
of Series C Depositary Shares a fraction of one cent and any
balance not so distributable shall be held by the Depositary
(without liability for interest thereon) and shall be added to
and be treated as part of the next sum received by the Depositary
for distribution to record holders of Receipts then outstanding.

13. Subscription Rights, Preferences or Privileges.
If the Company shall at any time offer or cause to be offered to
the persons in whose name Stock is registered on the books of the
Company any rights, preferences or privileges to subscribe for or
to purchase any securities or any rights, preferences or
privileges of any other nature, such rights, preferences or
privileges shall in each such instance, subject to the provisions
of the Deposit Agreement, be made available by the Depositary to

<PAGE>

A-7

the record holders of Receipts if the Company so directs in such
manner as the Company shall instruct.

14. Notice of Dividends, Fixing of Record Date.
Whenever any cash dividend or other cash distribution shall
become payable, any distribution other than cash shall be made,
or any rights, preferences or privileges shall at any time be
offered with respect to the Stock, or whenever the Depositary
shall receive notice of (i) any meeting at which holders of Stock
are entitled to vote or of which holders of Stock are entitled to
notice or any solicitation of consents in respect of the Stock or
(ii) any call or conversion of any shares of Stock, the
Depositary shall in each such instance fix a record date (which
shall be the same date as the record date fixed by the Company
with respect to the Stock) for the determination of the holders
of Receipts who shall be entitled (i) to receive such dividend,
distribution, rights, preferences or privileges or the net
proceeds of the sale thereof, (ii) to receive notice of, and to
give instructions for the exercise of voting rights at, or the
delivery of consents with respect to, any such meeting or consent
solicitation, as the case may be, or (iii) to receive notice of
any such call or conversion.

15. Voting Rights. Upon receipt of notice of any
meeting at which the holders of Stock are entitled to vote or any
solicitation of consents in respect of the Stock, the Depositary
shall, as soon as practicable thereafter, mail to the record
holders of Receipts a notice, which shall contain (i) such
information as is contained in such notice of meeting or consent
solicitation, (ii) a statement that the holders of Receipts at
the close of business on a specified record date determined as
provided in paragraph 14 will be entitled, subject to any
applicable provision of law, the Certificate of Incorporation or
the Certificate of Designation, to instruct the Depositary as to
the exercise of the voting rights or the delivery of consents
with respect to the amount of Stock represented by their
respective Series C Depositary Shares, and (iii) a brief
statement as to the manner in which such instructions may be
given. Upon the written request of a holder of a Receipt on such
record date, the Depositary shall endeavor insofar as practicable
to vote or cause to be voted or deliver a consent with respect to
the amount of Stock represented by the Series C Depositary Shares
evidenced by such Receipt in accordance with the instructions set
forth in such request. In the absence of specific instructions
from the holder of a Receipt, the Depositary will abstain from
voting or delivering consents to the extent of the Stock
represented by the Series C Depositary Shares evidenced by such
Receipt.

16. Reports, Inspection of Transfer Books. The
Depositary shall make available for inspection by holders of
Receipts at the Corporate Office and at such other places as it
may from time to time deem advisable during normal business hours
any reports and communications received from the Company that are

<PAGE>

A-8

both received by the Depositary as the holder of Stock and made
generally available to the holders of Stock by the Company. The
Depositary shall keep books at the Corporate Office for the
registration and transfer of Receipts, which books at all
reasonable times during normal business hours will be open for
inspection by the record holders of Receipts as and to the extent
provided by applicable law.

17. Liability of the Depositary, the Depositary's
Agent and the Company. Neither the Depositary nor any
Depositary's Agent nor the Company shall incur any liability to
any holder of any Receipt, if by reason of any provision of any
present or future law or regulation thereunder of any govern-
mental authority or, in the case of the Depositary or the
Depositary's Agent, by reason of any provision, present or
future, of the Certificate of Incorporation or the Certificate of
Designation or, in the case of the Company, the Depositary or the
Depositary's Agent, by reason of any act of God or war or other
circumstances beyond the control of the relevant party, the
Depositary, any Depositary's Agent or the Company shall be
prevented or forbidden from doing or performing any act or thing
that the terms of the Deposit Agreement provide shall be done or
performed; nor shall the Depositary, any Depositary's Agent or
the Company incur any liability to any holder of a Receipt by
reason of any nonperformance or delay, caused as aforesaid, in
the performance of any act or thing that the terms of the Deposit
Agreement provide shall or may be done or performed, or by reason
of any exercise of, or failure to exercise, any discretion
provided for in the Deposit Agreement.

18. Obligations of the Depositary, the Depositary's
Agents and the Company. Neither the Depositary nor any
Depositary's Agent nor the Company assumes any obligation or
shall be subject to any liability hereunder or under the Deposit
Agreement to holders of Receipts other than that each of them
agrees to use good faith in the performance of such duties as are
specifically set forth in the Deposit Agreement.

Neither the Depositary nor any Depositary's Agent nor
the Company shall be under any obligation to appear in, prosecute
or defend any action, suit or other proceeding with respect to
Stock, Series C Depositary Shares or Receipts or Common Stock
that in its opinion may involve it in expense or liability,
unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required.

Neither the Depositary nor any Depositary's Agent nor
the Company shall be liable for any action or any failure to act
by it in reliance upon the advice of or information from legal
counsel, accountants, any person presenting Stock for deposit,
any holder of a Receipt or any other person believed by it in
good faith to be competent to give such advice or information.

<PAGE>

A-9

19. Termination of Deposit Agreement. The Deposit
Agreement may be terminated by the Company or the Depositary only
after (a) (i) all outstanding Series C Depositary Shares shall
have been redeemed or converted pursuant to Section 2.03 or (ii)
there shall have been made a final distribution in respect of the
Stock in connection with any liquidation, dissolution or winding
up of the Company and such distribution shall have been
distributed to the holders of Series C Depositary Shares pursuant
to Section 4.01 or 4.02 of the Deposit Agreement, as applicable
and (b) reasonable notice has been given to any remaining holders
of Receipts. Upon the termination of the Deposit Agreement, the
Company shall be discharged from all obligations thereunder
except for its obligations to the Depositary, any Depositary's
Agent and any Registrar under Sections 5.07 and 5.08 of the
Deposit Agreement.

If any Receipts remain outstanding after the date of
termination, the Depositary thereafter shall discontinue all
functions and be discharged from all obligations as provided in
the Deposit Agreement, except as specifically provided therein.

20. Governing Law. The Deposit Agreement and this
Receipt and all rights thereunder and hereunder and provisions
thereof and hereof shall be governed by, and construed in
accordance with, the law of the State of New York without giving
effect to principles of conflict of laws.

This Receipt shall not be entitled to any benefits
under the Deposit Agreement or be valid or obligatory for any
purpose unless this Receipt shall have been executed manually or,
if a Registrar for the Receipts (other than the Depositary) shall
have been appointed, by facsimile by the Depositary by the
signature of a duly authorized signatory and, if executed by
facsimile signature of the Depositary, shall have been counter-
signed manually by such Registrar by the signature of a duly
authorized signatory.

THE DEPOSITARY IS NOT RESPONSIBLE FOR THE VALIDITY OF
ANY DEPOSITED STOCK. THE DEPOSITARY ASSUMES NO RESPONSIBILITY
FOR THE CORRECTNESS OF THE FOREGOING DESCRIPTION WHICH CAN BE
TAKEN AS A STATEMENT OF THE COMPANY SUMMARIZING CERTAIN
PROVISIONS OF THE DEPOSIT AGREEMENT. UNLESS EXPRESSLY SET FORTH
IN THE DEPOSIT AGREEMENT, THE DEPOSITARY MAKES NO WARRANTIES OR
REPRESENTATIONS AS TO THE VALIDITY, GENUINENESS OR SUFFICIENCY OF
ANY STOCK AT ANY TIME DEPOSITED WITH THE DEPOSITARY UNDER THE
DEPOSIT AGREEMENT OR OF THE Series C DEPOSITARY SHARES OR THE
RECEIPTS (EXCEPT FOR ITS COUNTERSIGNATURE THEREON), AS TO THE
VALIDITY OR SUFFICIENCY OF THE DEPOSIT AGREEMENT, AS TO THE VALUE
OF THE Series C DEPOSITARY SHARES OR AS TO ANY RIGHT, TITLE OR
INTEREST OF THE RECORD HOLDERS OF THE DEPOSITARY RECEIPTS IN AND
TO THE Series C DEPOSITARY SHARES.

The Company will furnish to any holder of a Receipt
without charge, upon request addressed to its executive office or

<PAGE>

A-10

the office of its transfer agent, a full statement of the
designation, relative rights, preferences and limitations of the
shares of each authorized class, and of each series of preferred
stock authorized to be issued, so far as the same may have been
fixed, and a statement of the authority of the Board of Directors
of the Company to designate and fix the relative rights,
preferences and limitations of other series.

Dated:

[NAME OF DEPOSITARY]

By __________________________
Authorized Signatory

<PAGE>

[FORM OF ASSIGNMENT]

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto _______________________ the within
Receipt and all rights and interests represented by the Series C
Depositary Shares evidenced thereby, and hereby irrevocably
constitutes and appoints _______________________ his attorney, to
transfer the same on the books of the within-named Depositary,
with full power of substitution in the premises.

Dated: Signature: _________________________
NOTE: The signature to this
assignment must
correspond with the name
as written upon the face
of the Receipt in every
particular, without
alteration or
enlargement, or any
change whatever.

Signature Guarantee:

_________________________

Exhibit 5.1

February 24, 1994

RJR Nabisco Holdings Corp.
1301 Avenue of the Americas
New York, New York 10019

Ladies and Gentlemen:

I have acted as counsel for RJR Nabisco Holdings

Corp., a Delaware corporation (the "Company"), in connection

with the Registration Statement on Form S-3 (the "Registration

Statement") of the Company, filed with the Securities and

Exchange Commission (the "Commission") under the Securities

Act of 1933, as amended (the "Securities Act"), relating to

the issuance by the Company of up to 345 million shares of the

Company's Series C Depositary Shares (the "Depositary

Shares"), each representing one-tenth of a share of Series C

Conversion Preferred Stock, par value $.01 per share (the

"Preferred Stock"), to be deposited under the Deposit

Agreement (the "Deposit Agreement") between the Company and

First Chicago Trust Company of New York (the "Depositary"), a

form of which has been filed with the Commission as an exhibit

to the Registration Statement. Each share of Preferred Stock

(and thereby each Depositary Share) is subject to conversion

into shares of the Company's Common Stock, par value $.01 per

share (the "Common Stock").

The Preferred Stock will be issued pursuant to the

provisions of the Amended and Restated Certificate of

Incorporation of the Company, as amended (the "Charter"),

which has been incorporated by reference as an exhibit to the

Registration Statement, and the certificate of designation for

the Preferred Stock (the "Certificate of Designation"), a form

<PAGE>

which has been filed with the Commission as an exhibit to the

Registration Statement. This opinion is being given pursuant

to the requirements for the Registration Statement.

I have examined the Registration Statement and the

exhibits thereto, the Charter, and the forms of the

Certificate of Designation and the Deposit Agreement. I have

also examined originals or copies, certified or otherwise

identified to my satisfaction, of such other documents,

evidences of corporate action and other instruments and have

made such other investigations of law and fact, as I have

deemed necessary or appropriate for the purpose of this

opinion. As to questions of fact relevant to this opinion, I

have relied upon certificates or written statements from

officers and other appropriate representatives of the Company

and its subsidiaries or public officials. In all such

examinations I have assumed the genuineness of all signatures,

the authority to sign, and the authenticity of all documents

submitted to me as originals. I have also assumed the

conformity with the originals of all documents submitted to me

as copies.

Based upon and subject to the foregoing, and to the

qualifications hereinafter specified, I am of the opinion

that, assuming effectiveness of the Registration Statement

under the Securities Act:

1. When shares of the Preferred Stock have been
authorized for issuance by the board of directors of the
Company, the Certificate of Designation therefor has been
filed with the Secretary of State of the State of
Delaware in accordance with Section 103 of the General
Corporation Law of the State of Delaware and such shares
are issued and delivered in accordance with the Deposit
Agreement, and upon payment for and delivery of the
Depositary Shares as contemplated by the Registration
Statement, the Preferred Stock will have been duly
authorized and will be validly issued, fully paid and
nonassessable.

2. The shares of Common Stock initially issuable
upon the mandatory conversion of the Preferred Stock,
when authorized and reserved for issuance by the board of
directors of the Company, will have been duly authorized
and reserved for

<PAGE>

issuance upon such conversion and, when issued upon such
conversion, will be validly issued, fully paid and
nonassessable.

3. Assuming the due authorization, execution and
delivery of the Deposit Agreement by the Company and the
Depositary, each Depositary Share, when issued in
accordance with the Deposit Agreement against the deposit
of validly issued, fully paid and nonassessable shares of
Preferred Stock, will represent an interest in one-tenth
of a validly issued, fully paid and nonassessable share
of Preferred Stock and, assuming the due execution and
delivery of the depositary receipts by the Depositary
pursuant to the Deposit Agreement and upon payment for
and delivery of the Depositary Shares as contemplated by
the Registration Statement, the depositary receipts will
entitle the holders thereof to the benefits provided
therein and in the Deposit Agreement.

The opinions set forth herein relate solely to the

laws of the State of New York, the General Corporation Law of

the State of Delaware and the federal laws of the United

States.

I hereby consent to the filing of this opinion as an

exhibit to the Registration Statement and to the use of my

name under the heading "Legal Matters" in the prospectus

forming a part of the Registration Statement.

Very truly yours,

Jo-Ann Ford
Vice President & Assistant
General Counsel

[LETTERHEAD OF SIMPSON THACHER & BARTLETT] DRAFT

February 24, 1994

RJR Nabisco Holdings Corp.
1301 Avenue of the Americas
New York, New York 10019

Ladies and Gentlemen:

We have acted as your counsel in connection with the Registration

Statement on Form S-3 (the "Registration Statement"), of RJR Nabisco Holdings

Corp., a Delaware corporation (the "Company"), to be filed with the Securities

and Exchange Commission under the Securities Act of 1933, as amended, relating

to the issuance by the Company of up to 345,000,000 shares of the Company's

Depositary Shares (the "Depositary Shares"), each representing one-tenth of a

share of Series C Conversion Preferred Stock, par value $.01 per share (the

"Preferred Stock"). Each share of Preferred Stock has a liquidation preference

in excess of the par value thereof.

You have requested our opinion under the Delaware General Corporation

Law (the "GCL") whether prior to a liquidation, dissolution or winding up of

the Company, (i) there will exist any restriction upon the surplus of the

Company available for the payment of dividends on stock of the Company solely

by reason of the fact that the liquidation preference of the Preferred Stock

<PAGE>

RJR Nabisco Holdings Corp. -2- February 24, 1994

will exceed the par value of such shares, and (ii) any remedy would be

available to holders of the Preferred Stock before or after payment of any

dividend solely by reason of the fact that payment of such dividend would

reduce or reduces the surplus of the Company to an amount less than the amount

of such excess.

We have examined and have relied upon the Amended and Restated

Certificate of Incorporation of the Company, as amended, and the form of

Certificate of Designation for the Preferred Stock of the Company, each to be

filed with the Commission as an exhibit to the Registration Statement (the

"Certificate of Designation"). In addition, we have examined, and have relied

as to matters of fact upon, originals or copies, certified or otherwise

identified to our satisfaction, of such corporate records, agreements,

documents and other instruments and such certificates or comparable documents

of public officials and of officers and representatives of the Company, and

have made such other and further investigations, as we deemed relevant and

necessary as a basis for the opinions hereinafter set forth. We have assumed

that the Certificate of Designation will not be altered or amended in any

respect material to our opinion as stated herein.

In such examination, we have assumed the genuineness of all

signatures, the legal capacity of natural persons, the authenticity of all

documents submitted to us as originals, the conformity to original documents of

all documents submitted to us as certified or photostatic copies, and the

authenticity of the originals of such latter documents.

<PAGE>

RJR Nabisco Holdings Corp. -3- February 24, 1994

Section 170 of the GCL authorizes a Delaware corporation to pay

dividends out of its surplus. Surplus is defined by Section 154 of the GCL as

the amount by which the net assets of a corporation exceed its capital. Both

net assets, as defined in Section 154, and capital, as defined in and

determined in accordance with Sections 154 and 244 of the GCL, are determined

without reference to the amount of any liquidation preference of any class of

the corporation's stock. Accordingly, the authorization in Section 170 of the

GCL for payment of dividends out of surplus is not in any way limited or

restricted solely by reason of the fact that a series or class of stock of a

corporation, such as the Preferred Stock, has a liquidation preference in

excess of the par value of such stock.

We are aware of no controlling decision of any court of the State of

Delaware that addresses the question presented for our consideration, but we

believe that such courts would adopt the reasoning set forth herein should the

question be litigated. We note in addition that our opinion as stated herein

is supported by the discussion of the Court in Baily et al. v. Tubize Rayon
----------------------------

Corporation, 56 F. Supp. 418, 423 (D. Del. 1944) (applying Delaware law).
- -----------

Based upon the foregoing, and subject to the qualifications and

limitations stated herein, we hereby advise you that in our opinion, prior to a

liquidation, dissolution or winding up of the Company, (1) there will be no

restriction upon the surplus of the Company available for the payment of

dividends on stock of the Company solely by reason of the fact that the

liquidation preference of the Preferred Stock exceeds the par value of such

stock; and (2) no remedy would be available to holders of the Preferred Stock

<PAGE>

RJR Nabisco Holdings Corp. -4- February 24, 1994

either before or after payment of any dividend solely by reason of the fact

that payment of such dividend would reduce or reduces the surplus of the

Company to an amount less than the difference between the liquidation

preference of the Preferred Stock and the par value of such stock.

We wish to advise you that the section of the Prospectus included as

part of the Registration Statement entitled "Federal Income Tax Considerations"

accurately reflects our opinion concerning those matters therein set forth as

to which an opinion is specifically attributed to us.

We are members of the Bar of the State of New York and we express no

opinion herein other than with respect to the GCL.

We hereby consent to the use of this opinion as an exhibit to the

Registration Statement and to the reference to this firm under the caption

"Legal Matters" in the Registration Statement.

Very truly yours,

SIMPSON THACHER & BARTLETT

EXHIBIT 12.5

RJR NABISCO HOLDINGS CORP.
COMPUTATIONS OF DEFICIENCY IN THE COVERAGE OF FIXED CHARGES AND
PREFERRED DIVIDENDS BY EARNINGS BEFORE FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)

<TABLE> <CAPTION>
YEAR ENDED
DECEMBER 31, 1993
------------------------
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Earnings before fixed charges:
Income (loss) from continuing operations........................................... $ (3) $ 50
Provision for income taxes......................................................... 114 142
----------- -----------
Income from continuing operations before income taxes.............................. 111 192
Interest expense................................................................... 1,190 1,130
Amortization of debt issuance costs................................................ 19 19
Interest portion of rental expense................................................. 52 52
----------- -----------
Earnings before fixed charges***..................................................... $ 1,372 $ 1,393
----------- -----------
----------- -----------
Combined fixed charges and preferred stock dividends:
Interest expense................................................................... $ 1,190 $ 1,130
Amortization of debt issuance costs................................................ 19 19
Interest portion of rental expense................................................. 52 52
Capitalized interest............................................................... 9 9
Preferred stock dividends.......................................................... 366* 634**
----------- -----------
Combined fixed charges and preferred stock dividends............................ $ 1,636 $ 1,844
----------- -----------
----------- -----------
Deficiency in the coverage of fixed charges and preferred dividends by earnings
before fixed charges and preferred dividends***...................................... $ 264 $ 451
----------- -----------
----------- -----------
</TABLE>

- ---------------

* Represents dividends of $14 million on ESOP Preferred Stock and pre-tax
equivalent amount on dividends of $175 million on the Series A PERCS, $43
million on the Series B Preferred Stock, and $11 million on the Redeemable
Convertible Preferred Stock.

** Represents dividends of $14 million on ESOP Preferred Stock and pre-tax
equivalent amount on dividends of $175 million on the Series A PERCS, $174
million on the Series C PERCS, $43 million on the Series B Preferred Stock,
and $11 million on the Redeemable Convertible Preferred Stock.

*** Earnings before fixed charges and the resulting calculation of deficiency in
the coverage of fixed charges and preferred dividends by earnings before
fixed charges and preferred dividends includes amortization of trademarks
and goodwill in the amount of $625 million.

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to (1) the use in this Registration Statement of RJR Nabisco
Holdings Corp. ("Holdings") on Form S-3 (the "Registration Statement") of our
report dated February 1, 1994 (except with respect to the subsequent event
discussed in Note 17, as to which the date is February 24, 1994), appearing in
the Prospectus, which is part of this Registration Statement, and (2) the
incorporation by reference in the Registration Statement of our report dated
February 1, 1994 (except with respect to the subsequent event discussed in Note
17, as to which the date is February 24, 1994), appearing in the Annual Report
on Form 10-K of Holdings and RJR Nabisco, Inc. for the year ended December 31,
1993.

We also consent to the reference to us under the headings "Summary
Historical and Pro Forma Consolidated Data", "Selected Historical Consolidated
Financial Data" and "Experts" in such Prospectus.

DELOITTE & TOUCHE
New York, New York
February 24, 1994

POWER OF ATTORNEY
-----------------

KNOW ALL MEN BY THESE PRESENTS, that each of the
undersigned, being a director or officer, or both, of RJR
NABISCO HOLDINGS CORP., a Delaware corporation (the
"Company"), do hereby make, constitute and appoint Jo-Ann
Ford, Lawrence R. Ricciardi and Robert F. Sharpe, Jr., and
each of them, attorneys-in-fact and agents of the
undersigned with full power and authority of substitution
and resubstitution, in any and all capacities, to execute
for and on behalf of the undersigned the REGISTRATION
STATEMENT ON FORM S-3 relating to the sale of shares of
preferred stock of the Company and any and all pre-effective
and post-effective amendments or supplements to the
foregoing Registration Statement and any other documents and
instruments incidental thereto, and to deliver and file the
same, with all exhibits thereto, and all documents and
instruments in connection therewith, with the Securities and
Exchange Commission, and with each exchange on which any
class of securities of the Company is registered, granting
unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every
act and thing that said attorneys-in-fact and agents, and
each of them, deem advisable or necessary to enable the
Company to effectuate the intents and purposes hereof, and
the undersigned hereby fully ratify and confirm all that
said attorneys-in-fact and agents, or any of them, or their
or his or her substitute or substitutes, shall do or cause
to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has
subscribed his or her name, this 21st day of February,
1994.

/s/ Charles M. Harper Chairman of the Board and Chief
-------------------------- Executive Officer, Director
Charles M. Harper

/s/ Stephen R. Wilson Executive Vice President and Chief
-------------------------- Financial Officer
Stephen R. Wilson

/s/ Robert S. Roath Senior Vice President and Controller
--------------------------
Robert S. Roath

<PAGE>
Page 2

/s/ John T. Chain, Jr. Director
--------------------------
John T. Chain, Jr.

/s/ Saul A. Fox Director
--------------------------
Saul A. Fox

/s/ Louis V. Gerstner, Jr. Director
--------------------------
Louis V. Gerstner, Jr.

/s/ James H. Greene, Jr. Director
--------------------------
James H. Greene, Jr.

/s/ H. John Greeniaus Director
--------------------------
H. John Greeniaus

/s/ James W. Johnston Director
--------------------------
James W. Johnston

/s/ Vernon E. Jordan, Jr. Director
--------------------------
Vernon E. Jordan, Jr.

/s/ Henry R. Kravis Director
--------------------------
Henry R. Kravis

/s/ John G. Medlin, Jr. Director
--------------------------
John G. Medlin, Jr.

/s/ Paul E. Raether Director
--------------------------
Paul E. Raether

/s/ Lawrence R. Ricciardi Director
--------------------------
Lawrence R. Ricciardi

/s/ Rozanne L. Ridgway Director
--------------------------
Rozanne L. Ridgway

/s/ Clifton S. Robbins Director
--------------------------
Clifton S. Robbins

/s/ George R. Roberts Director
--------------------------
George R. Roberts

/s/ Scott M. Stuart Director
--------------------------
Scott M. Stuart

/s/ Michael T. Tokarz Director
--------------------------
Michael T. Tokarz