SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[x] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
RJR Nabisco Holdings Corp.
(Name of Registrant as Specified In Its Charter)
RJR Nabisco Holdings Corp.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:<PAGE>
(5) Total fee paid:
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:<PAGE>
[RJR logo]
__________________________________________
__________________________________________
Presentation To Stockholders
Regarding The Revocation Of Consent Solicitation
By RJR Nabisco Holdings Corp.
In Opposition To The
Consent Solicitation
By Brooke Group Ltd.<PAGE>
[RJR logo] RJR NABISCO HOLDINGS CORP.
______________________________________________________________
Table Of Contents
Section I Overview
Section II Three Basic Criteria For A Spin-Off
Section III LeBow/Icahn Inflated Stock Price Claims
Section IV LeBow/Icahn Inflated Spin-Off Valuation
Section V The Non-Existent "LeBow Premium"
Section VI RN Operating Perspectives
Section VII LeBow/Icahn's Irrelevant Spin-off Examples
Section VIII Views of Prominent Tobacco Analysts
Section IX LeBow/Icahn's Real Agenda
Section X LeBow/Icahn's Proposed By-Law Amendments
Section XI Who Are LeBow And Icahn?
Section XII Conclusion <PAGE>
Section I
OVERVIEW
1<PAGE>
[RJR Logo] OVERVIEW
RJR NABISCO OPPOSES THE CONSENT SOLICITATION INITIATED BY
BENNETT LEBOW AND CARL ICAHN, AND IS SOLICITING REVOCATIONS OF
ANY CONSENTS GIVEN TO LEBOW AND ICAHN.
RJR NABISCO IS COMMITTED TO A SPIN-OFF OF NABISCO.
. Mike Harper, Steve Goldstone, all of the other
directors, and the managements of both the food and
tobacco businesses are all committed to a spin-off of
Nabisco -- the only question is TIMING.
. The Board has concluded that an attempt to complete a
spin-off at this time would be a grave mistake,
potentially exposing the Company and its stockholders
to serious injury in pursuit of highly speculative
gain.
. Philip Morris and Loews have also apparently decided
not to pursue their publicly discussed spin-off plans
at the present time.
. Many well-regarded security analysts share the view
that a spin-off of Nabisco at this time is a bad
idea.
THE REAL PRACTICAL RESULT OF CONSENTING TO THE LEBOW/ICAHN
PROPOSALS WOULD BE TO ENCOURAGE THEIR ATTEMPT TO TAKE CONTROL
OF RJR NABISCO.
. The Company believes that LeBow's agenda is to force
a combination of his own failing tobacco company,
Liggett, with RJR Nabisco's tobacco business. Last
year, LeBow sought such a combination on terms that
would give his Brooke Group subsidiary a profit of $1
billion.
. Only after the Board rejected LeBow's proposal did he
team up with Icahn in the consent solicitation/proxy
contest. LeBow has agreed to pay Icahn $50 million
if LeBow merges Liggett with the Company.
. In light of their past business histories, the
Company believes that control of the Company should
not be turned over to LeBow and Icahn.
2<PAGE>
[RJR Logo] OVERVIEW
THERE IS NO NEED TO SEND A MESSAGE TO THE BOARD BY CONSENTING
TO THE LEBOW/ICAHN PROPOSALS.
. The Board understands that a majority of stockholders
favor a spin-off and is working to achieve a spin-off
at a time when it is in the best interests of the
Company and its stockholders.
. The Board will not be pressured by LeBow and Icahn
into action that it believes is not in the best
interest of stockholders and will undermine
stockholder value.
MANAGEMENT'S FIRST PRIORITY IS TO INCREASE STOCKHOLDER VALUE,
BUT WITHOUT THE RISK TO THE COMPANY AND ITS STOCKHOLDERS
PRESENTED BY THE LEBOW/ICAHN PLAN.
. Management's plan focuses on the fundamentals of the
business: growing the profits of the food and
international businesses and stabilizing the domestic
tobacco business.
. The LeBow/Icahn proposals merely divert management's
attention from the business, and consenting to these
proposals would only prolong this diversion.
3<PAGE>
Section II
THREE BASIC CRITERIA
FOR A SPIN-OFF
4<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
FOR A SPIN-OFF TO BENEFIT THE COMPANY AND ITS SHAREHOLDERS, IT
MUST SATISFY THREE BASIC CRITERIA. THE LEBOW/ICAHN PLAN DOES
NOT SATISFY THESE THREE CRITERIA.
. The spin-off must avoid costly litigation delays and
protracted uncertainty.
. The spin-off must preserve the financial integrity of
both the tobacco and food businesses.
. The spin-off must be tax-free.
5<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION ONE: AVOID COSTLY LITIGATION DELAYS AND PROTRACTED
UNCERTAINTY
LEBOW HAS OVERSIMPLIFIED THE LEGAL ISSUES OF A SPIN-OFF AND
IGNORED THE CONSEQUENCES TO THE COMPANY OF ATTEMPTING A SPIN-
OFF NOW.
. The current tobacco litigation environment is hostile
to a spin-off.
- Tobacco plaintiffs' lawyers have stated that
they will seek to enjoin an immediate spin-off.
Such attempts to enjoin the spin-off could be
made in many different courts and would likely
result in protracted litigation. An injunction
in only one of the cases could tie up a spin-off
for years.
- Even if an injunction were not granted, the
Company believes that these plaintiffs' lawyers
could be expected to pursue claims attacking the
spin-off for years. This would place a cloud
over the validity of the transaction and depress
the value of the stocks of both Nabisco and the
Company.
- Litigation could involve claims directly against
the Company's stockholders.
. In In re Integra Realty Resources, an
institutional stockholder was named as a
representative defendant for a class action
against stockholders in an action alleging
that the spin-off of Integra's shares of
ShowBiz Pizza Time, Inc. was a fraudulent
conveyance.
6 <PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION ONE: AVOID COSTLY LITIGATION DELAYS AND PROTRACTED
UNCERTAINTY
. Risk that the LeBow/Icahn plan could be an
intentional fraudulent conveyance:
- LeBow/Icahn have ignored the applicability of
the law of intentional fraudulent conveyance
(which prohibits an immediate spin-off for the
purpose of protecting the food company and its
assets from potential liabilities of the tobacco
company) to their immediate spin-off plan.
- The Company believes that LeBow/Icahn's
statements that the intent of their proposal is
to alleviate "investors' concerns about
potential tobacco liabilities" are likely to
lead to claims that their proposed immediate
spin-off is an intentional fraudulent
conveyance.
- The "experts" cited by LeBow/Icahn only discuss
constructive fraudulent conveyance (which
requires a finding that the spin-off either be
made while the Company was insolvent or cause
the Company to become insolvent); they do not
address intentional fraudulent conveyance, which
does not depend on solvency.
. As the litigation environment improves, the Company
expects it will be able to consider a spin-off in
1998.
- The industry has been involved in a wave of new
types of litigation, including class actions and
Medicare/Medicaid claims by attorneys general.
- A decision concerning the appeal of
certification of the Castano class is expected
in spring/summer 1996 and decisions clarifying
the status of state Medicare/Medicaid suits are
expected by late 1997/early 1998.
Decertification of a tobacco plaintiff class
action and a favorable decision on an attorney
general lawsuit would set precedents for future
actions, thereby reducing market uncertainty on
tobacco litigation.
7<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION ONE: AVOID COSTLY LITIGATION DELAYS AND PROTRACTED
UNCERTAINTY
- The litigation environment is improving
generally for mass tort and class action
lawsuits, as shown by state and congressional
tort reform. The Company believes that tobacco
companies are likely to benefit from the decline
of the class action/litigation tidal wave.
. Costly and distracting litigation could also be
pursued by purchasers of the Company's and RJRN's
securities that have relied upon the Company's
commitments that it would not spin off Nabisco.
8<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION ONE: AVOID COSTLY LITIGATION DELAYS AND PROTRACTED
UNCERTAINTY
. MANY INDUSTRY ANALYSTS AGREE WITH THE COMPANY THAT THERE
ARE SIGNIFICANT LITIGATION RISKS.(1)
- "The LeBow spin-off proposal is NOT likely to
enhance shareholder value yet burdens RN with
great risk. Prudently, existing management is
likely to add value by spinning off Nabisco in a
lower risk environment. Support existing
management. LeBow/Icahn discount the risk of
fraudulent conveyance, RN's commitment to
bondholders and a likely loss of RJR's tobacco
division's investment grade rating on a too
hasty spin-off." Martin Feldman in January 24,
1996 Smith Barney First Call Report.
- "We believe that the LeBow/Icahn proposals would
involve significantly greater degrees of risk.
The risk associated with fraudulent conveyance
is likely to diminish during the course of the
next two years as the legal environment provides
additional clarity. The risk of fraudulent
conveyance is one that has been considered by
existing management, by KKR (previous owners of
the company) and other tobacco companies. To
date, the fraudulent conveyance threat/risk has
provided a sufficient deterrent to prevent a
similar spin-off from occurring within other
tobacco companies. Plaintiffs in the
outstanding litigation have already threatened
to initiate fraudulent conveyance claims if
Nabisco is spun off." Martin Feldman in
December 13, 1995 Smith Barney report.
- "Risks remain in moving forward w/ spin-
off...Even though RJR Nabisco is confident that
it would ultimately be victorious if it moved
forward with a spin-off, there are significant
risks involved (which would likely weigh heavily
on both the board and on RJR Nabisco's
shareholders should they be asked to vote via a
consent solicitation). Specifically: 1) RJR
Nabisco would likely face multiple lawsuits; 2)
Many of which would likely be filed in
unfriendly jurisdictions; 3) There would likely
be many years of litigation; 4) It is possible
that RJR Nabisco would receive an unfavorable
legal judgment that would place significant
limitations on its ability to transfer funds to
shareholders. For example, a court could
potentially block RJR Nabisco's ability to pay
common dividends to shareholders until the
currently outstanding class-action lawsuits are
resolved (based on the theory that common
dividends and asset spin-offs are similar
shareholder distributions); and 6) [sic] RJR
Nabisco is confident in its corporate veil and
in its legal position to successfully move
forward with a spin-off. However, legal
decisions do not always go as planned (the
recent certification of tobacco class action
lawsuits), and the company and directors would
subject themselves to significant risk." David
Adelman in October 30, 1995 Dean Witter First
Call Report.
Note: (1) No permission has been sought or received
to quote from, or refer to, published
materials cited in this document.
9<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION ONE: AVOID COSTLY LITIGATION DELAYS AND
PROTRACTED UNCERTAINTY
- "Spin-off doesn't appear timely...First,
there is risk given current tobacco
litigation circumstances that a court could
not only enjoin RJR from distributing the
NA stock, but also indefinitely interfere
with cash dispositions related to other
business affairs (i.e., a dividend
increase)...Second, and probably more
importantly, shareholders apparently would
not be able to eliminate the exposure of
the distributed NA stock to potential
tobacco liability claims for an
indeterminate period even if a spin was not
enjoined. The exposure would apparently
travel with the asset and remain a risk
factor that is discounted until statutes of
limitations lapse...Even if there is value
to be freed, it doesn't seem likely that an
investor can count on capturing it in any
event until legal matters improve." Marc
Cohen in October 9, 1995 Goldman Sachs
report.
- "Significant hurdles complicating such a move
include the potential claims of fraudulent
conveyance, existing board resolutions
committing RJRN to not spin-off Nabisco prior to
1997, and certain covenants in its existing bank
credit agreement....Should RJRN spin-off
Nabisco, Fitch believes that the magnitude and
intensity of tobacco litigation against RJ
Reynolds could increase substantially as
potential judgment creditors attempt to preserve
their ability to recapture the value represented
by the Nabisco shares transferred out of the
company." Thomas Hoens in November 3, 1995 Fitch
Investors report.
10<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION TWO: PRESERVE FINANCIAL INTEGRITY OF THE FOOD AND
TOBACCO BUSINESSES
. The Company's public commitments:
- In the prospectus for the Nabisco public
offering, the TOPrS exchange offer, the
Company's debt exchange offer and numerous other
offerings, the RJR Board publicly committed not
to spin off Nabisco before December 31, 1996 and
not before December 31, 1998 if it would cause
RJRN or Nabisco debt to be below investment
grade.
- These commitments were made for the benefit of
stockholders. The restructuring that was
accomplished at the time the commitments were
made enabled the Company to reinstitute
dividends on its common stock and reduce its
debt cost of capital, thereby increasing the
Company's current cash flow and net income.
- The Company believes that it must honor its
prior commitments in order to retain the ability
to make credible commitments in the future to
enable it to effect transactions that may
enhance stockholder value.
- An immediate spin-off could result in lawsuits
from purchasers and sellers of the Company's and
RJRN's securities who have relied on the
Company's public commitments.
- LeBow/Icahn's willingness to have the Company
break its commitments should cause stockholders
to question the reliability of LeBow/Icahn's own
commitments to the Company and its stockholders.
11<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION TWO: PRESERVE FINANCIAL INTEGRITY OF THE FOOD AND
TOBACCO BUSINESSES
. The Company believes that the announcement of an
immediate spin-off would likely lead to the loss of
the Company's investment grade rating.
- A number of independent analysts agree:
. "A decision to spin off the remaining
investment in Nabisco would have obviously
negative implications for RJRN's
bondholders." Alexander Bing in a
Donaldson, Lufkin & Jenrette High Grade
Credit Research report, August 1995.
. "Separating Nabisco would most likely cause
RJR's tobacco division to lose its
investment grade rating. Currently, RJR
has a BBB- rating. This would likely fall
to junk level without Nabisco's assets."
Martin Feldman of Smith Barney in a January
18, 1996 First Call Report.
. "In the unlikely event that an early spin-
off of Nabisco is approved RJRN's
'BBB-' rating would suffer." Thomas Hoens
in a Fitch Investors Service Report,
November 3, 1995.
. A "near-term spinoff of [Nabisco] could see
it lose its investment-grade rating, which
would send its bond prices lower." Mark
Egan, in Reuters, Limited, November 8,
1995.
. "We believe that improved US and
international tobacco operating trends are
required to prevent a debt ratings
reduction upon a breakup." Anton Brenner
in an UBS Securities report, October 25,
1995.
. Even Gary Black, an analyst cited by the
LeBow/Icahn Group, states that he "agree[s]
that a standalone Tobacco would likely be
downgraded from BBB (low investment-grade)
to BB (speculative) if the spin-off was
completed at the end of this year,
particularly given the unresolved class
action issues." Gary D. Black and Jon F.
Rooney in Bernstein Research--Weekly Notes,
November 6, 1995.
12<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION TWO: PRESERVE FINANCIAL INTEGRITY OF THE FOOD AND
TOBACCO BUSINESSES
- The LeBow/Icahn credit analysis ignores the
fundamental issue that a smaller, pure tobacco
company requires significantly better coverage
ratios than a larger, diversified tobacco and
food company. A smaller, pure tobacco company
with RJR Nabisco's current credit statistics
likely would not be investment grade.
- The loss of the Company's investment grade
rating would increase the Company's cost of
capital, which would adversely affect its
borrowing ability, freedom of action in capital
markets and dividend policy.
13<PAGE>
[RJR logo] THREE BASIC CRITERIA FOR A SPIN-OFF
CRITERION THREE: TAX-FREE SPIN-OFF
. In order for a spin-off to qualify for tax-free
status, the IRS requires that it must serve a VALID
BUSINESS PURPOSE.
- The Company believes that an eventual spin-off
of Nabisco will be tax-free because the reasons
it has considered for the spin-off are similar
to reasons which in the past have been approved
by the IRS as valid corporate business purposes.
. Treasury Regulations state unequivocally that
increasing stockholder value is not a valid business
purpose for a tax-free spin-off.
- LEBOW/ICAHN HAVE REPEATEDLY INDICATED THAT THE
PRIMARY PURPOSE OF THEIR PROPOSED IMMEDIATE
SPIN-OFF IS TO INCREASE STOCKHOLDER VALUE OR TO
SPIN OFF NABISCO TO MAKE IT A MORE ATTRACTIVE
TAKEOVER CANDIDATE. SUCH STATEMENTS COULD
JEOPARDIZE THE TAX-FREE STATUS OF AN IMMEDIATE
SPIN-OFF.
. The Company's primary motivation for a spin-off is
not the increase in the respective stock prices of
the Company and Nabisco that could accompany such a
transaction. Indeed, the Company does not believe
that an immediate spin-off of Nabisco is likely to
result in stock valuation increases in the range
suggested by LeBow and Icahn.
14<PAGE>
Section III
LEBOW/ICAHN INFLATED STOCK PRICE CLAIMS
15<PAGE>
[RJR logo] LEBOW/ICAHN INFLATED STOCK PRICE CLAIMS
WELL RESPECTED ANALYSTS HAVE EXPRESSED THE VIEW THAT THE VALUE
OF A SPIN-OFF IS MUCH MORE MODEST THAN THAT SUGGESTED BY LEBOW/
ICAHN.
. DAVID ADELMAN, AN ANALYST WITH DEAN WITTER REYNOLDS:
reported his view that the incremental value of a
Nabisco spin-off was $2-4 per share.(1)
. MARC COHEN, AN ANALYST WITH GOLDMAN SACHS: reported
that "a spin-off of Nabisco may produce only a $2-3
increase in [the Company's] stock price."(2)
. FRED TAYLOR, AN ANALYST WITH SALOMON BROTHERS:
stated that "I'm not convinced that [the value of the
shares] would go up if tobacco gets a less than
investment grade rating and if you end up with a lot
of lawsuits to stop such a spin-off."(3)
Notes: (1) He indicated that he had assumed that the spun-
off Nabisco shares would trade at the same price
as the Nabisco shares that are currently
publicly traded and that, after the spin-off of
Nabisco, the shares of the Company would trade
at a somewhat lower trading multiple than the
current trading multiple, reflecting the value
of the Company's remaining tobacco business.
October 30, 1995 First Call Report.
(2) He further stated that he did not share the view
of some market participants that the Nabisco
shares held by the Company were "currently
discounted in the RN valuation equation as a
result of indirect tobacco litigation exposure"
and noted that in any event, contrary to the
assertion of LeBow/Icahn, a spin-off would not
remove any perceived tobacco taint. Mr. Cohen
assumed that after the spin-off the stand-alone
tobacco company would have a dividend of $1.50/
share, but could not support a substantial
increase in dividends without potentially
jeopardizing its investment grade rating and
without scaling back tobacco initiatives,
thereby increasing its vulnerability to
competitors. November 1, 1995 First Call
Report. The Company has from time to time
obtained investment banking services from
certain of the investment banks referred to in
this document, including Goldman Sachs which
among other things was the lead underwriter in
the initial public offering of the Nabisco
shares.
(3) Article in Knight-Ridder news service, November
1, 1995.
16<PAGE>
[RJR logo] LEBOW/ICAHN INFLATED STOCK PRICE CLAIMS
LEBOW/ICAHN HAVE TAKEN ANALYSTS' QUOTES OUT OF CONTEXT IN AN
ATTEMPT TO MISLEAD STOCKHOLDERS INTO THINKING THAT AN IMMEDIATE
SPIN-OFF WOULD RESULT IN SIGNIFICANT STOCK PRICE INCREASES.
. The $60.50 value that LeBow/Icahn attribute to Ronald
B. Morrow is Morrow's break-up valuation for RJR
Nabisco, not a spin-off valuation. Rodman & Renshaw
Research Report, dated September 26, 1995. In a
subsequent report, Morrow stated that he would not
expect an immediate spin-off to increase the
Company's stock price beyond the "mid-$30's." Rodman
& Renshaw Research Report, dated December 6, 1995.
. LeBow/Icahn also failed to tell you that Diana
Temple, another analyst they cite in support of a
significant stock price increase, has qualified her
view with the statement that "[w]e do not believe a
spin-off of tobacco is likely in 1996 because of
uncertainty on litigation." Salomon Brothers Inc
Research Report, dated December 6, 1995.
17<PAGE>
Section IV
LEBOW/ICAHN INFLATED SPIN-OFF VALUATION
18<PAGE>
[RJR logo] LEBOW/ICAHN INFLATED SPIN-OFF VALUATION
THE LEBOW/ICAHN SPIN-OFF VALUATION CONTAINS SEVERAL FUNDAMENTAL
FLAWS AND SIGNIFICANTLY OVERSTATES THE VALUE CREATION POTENTIAL
OF A SPIN-OFF. THEIR "PIE-IN-THE-SKY" VALUATION (WHICH
CONCLUDES THAT RJR TOBACCO AND NABISCO "COULD" TRADE FOR $22
AND $25 PER RN SHARE, RESPECTIVELY, OR $47 IN TOTAL) EXCEEDS
EVEN THE MOST OPTIMISTIC VALUATION OF AN IMMEDIATE SPIN-OFF OF
THE INDEPENDENT ANALYSTS THEY CITE.
. There are a number of conceptual flaws in their
methodology, including those discussed on the following
pages:
- The 5.5x and 7.5x tobacco multiples LeBow/Icahn have
chosen to apply to each business are not justified by
the "comparables" they have identified.
- LeBow/Icahn do not adequately explain why $5-6
billion of value would be created by a spin-off.
. With respect to their $47 valuation, LeBow said: "we
really believe it and so do most of the other
analysts."(1) THIS IS NOT TRUE. LEBOW/ICAHN HAVE NOT
CITED ONE INDEPENDENT TOBACCO ANALYST THAT AGREES WITH
THEIR PIE-IN-THE-SKY VALUATION OF AN IMMEDIATE SPIN-OFF.
Note: (1) Business Insiders interview, January 18,
1996.
19<PAGE>
[RJR logo] LEBOW/ICAHN INFLATED SPIN-OFF VALUATION
THE MULTIPLES LEBOW/ICAHN HAVE CHOSEN TO APPLY TO EACH BUSINESS
HAVE BEEN PULLED FROM THIN AIR AND ARE NOT JUSTIFIED BY THE
"COMPARABLES" THEY HAVE IDENTIFIED.
. For example, LeBow/Icahn base their Tobacco valuation of
$22 (a 79% premium over the "imbedded" $12 valuation of
Tobacco in RJR Nabisco's stock price as of 1/17/96 based
on Nabisco and RN stock prices as of that date) on
seemingly arbitrary multiples of 5.5x and 7.5x LTM EBITDA
for the domestic and international businesses,
respectively.
- They do not explain how either of these multiples
bears any relation to the multiples of the
"comparable" companies they have identified.
- They implicitly assume that the equity market will
value RJR Tobacco at a higher multiple than is
ascribed to all of RJR Nabisco today. In other
words, LeBow/Icahn seem to believe that a spin-off
would cause stockholders to ascribe a higher multiple
to RJR's Tobacco earnings without Nabisco than with
it. This contradicts their own analysis that food
stocks trade at substantially higher multiples than
tobacco stocks.
- None of their "comparable" companies are truly
comparable to RJR Tobacco. All of the companies with
a U.S. cigarette business are highly diversified, and
their multiples reflect the benefit of the other,
higher-multiple businesses. Because the U.S.
business accounts for approximately two-thirds of RJR
Tobacco's earnings, the other so-called "comparable"
companies are irrelevant to a valuation of RJR
Tobacco.
. In order to accept the LeBow/Icahn analysis, one must
assume that the standalone tobacco company would trade at
multiples to earnings very similar to the multiples at
which the Company trades today, despite (i) having greater
proportional exposure to tobacco liabilities, (ii)
removing a $6 billion food company from its assets, and
(iii) the fact that the standalone tobacco company would
likely have a junk credit rating.
20<PAGE>
[RJR logo] LEBOW/ICAHN INFLATED SPIN-OFF VALUATION
LACK OF EVIDENCE SUPPORTING THE CREATION OF $5-6 BILLION OF
VALUE
THE COMPANY BELIEVES THAT IT IS NOT LIKELY THAT SIGNIFICANT
"HIDDEN VALUE" WOULD BE RELEASED BY A SPIN-OFF.
. LeBow/Icahn do not adequately explain why the mere act of
separating these businesses would create $5 to $6 billion
of value. LeBow/Icahn offer the following arguments:
- Argument: "Management Benefits"
Fact: Each of the Company's businesses is operated
largely independently today. The Company believes
that it is unlikely that the management benefits of
separating the companies will translate into a
significant increase in share price.
- Argument: "Valuation Benefits" -- Nabisco would be
freed from the tobacco issues of RJR Nabisco.
Fact: Nabisco's publicly traded shares do not trade
at any kind of "tobacco issue" discount. Potential
tobacco litigants have no direct claims against
Nabisco's properties or against the currently
publicly traded shares, regardless of whether Nabisco
is spun off.(1)
- Argument: "Information Benefits" -- Analysts would
better understand the businesses.
- Fact: Although this is frequently cited as a key
source of value creation in spin-offs, in RJR
Nabisco's case, the food and tobacco businesses
already have separate reporting. It is ridiculous to
suggest that following a spin-off total RJR Nabisco
stockholder value will skyrocket because analysts
have greater access to information about the food or
tobacco businesses.
Note: (1) The potential fraudulent conveyance claims
against stockholders would be made to seek
recovery from the Company's stockholders of the
Nabisco stock received in the LeBow/Icahn
immediate spin-off. Such claims would not seek
recovery of the Nabisco stock currently held by
Nabisco's public stockholders which was sold by
the Company to such holders.
21<PAGE>
Section V
THE NON-EXISTENT "LEBOW PREMIUM"
22<PAGE>
[RJR logo] THE NON-EXISTENT "LEBOW PREMIUM"
LEBOW/ICAHN CLAIM THAT THEIR INVOLVEMENT WITH THE COMPANY HAS
RESULTED IN A SIGNIFICANT INCREASE IN THE COMPANY'S STOCK PRICE
-- THE SO-CALLED "LEBOW PREMIUM." THE FACTS DO NOT NECESSARILY
SUPPORT THEIR ASSERTION.
. The only benefit resulting from their involvement is
the spotlight it has put on the Company's strategic
plan and performance. The Company believes that the
current stock price results from its ability to seize
this opportunity to convey a clear and positive
strategic message.
. RJR Nabisco has clearly identified for the investment
community its business plans and the criteria which
must be met to undertake a spin-off of Nabisco.
. The Company's stock price has benefited from an
improving market for tobacco companies generally.
. Tobacco companies with strong brands, like RJR
Nabisco and Philip Morris, have been able to
maintain, if not strengthen, market share relative to
generic manufacturers/distributors.
. The naming of Steve Goldstone as CEO has been
favorably received by investors and has had a
positive impact on the stock price. On the day his
appointment was announced, the Company's stock price
increased from $29.375 to $30.25. Goldstone's focus
on stockholder value and his reinvestment and payout
policies continue to enhance the stock price.
23<PAGE>
[RJR logo] THE NON-EXISTENT "LEBOW PREMIUM"
. Martin Feldman of Smith Barney agrees:
- "LeBow/Icahn remind shareholders that RN
was trading at $26.75 before their
involvement. They fail to point out that
RN's share price jumped almost $1.00 on the
appointment of the new CEO Steve Goldstone
on Dec. 4. They fail to make clear that
even once the market was informed that both
LeBow and Icahn had Hart Scott Rodino
clearance, the stock price fell from a high
of $33 to $28.50 on December 1, 1995.
In our opinion the recent appreciation in
the RN price is largely due to the market
considering stronger EPS growth in 1996,
the appointment of Steve Goldstone as CEO
and his sensitivity to enhancing
shareholder value as well as strong demand
for RN stock. Remember, LeBow/Icahn have
bought 4.8% of RN in this period. We do
not ascribe more than one third of the
recent price appreciation to LeBow/Icahn."
January 24, 1996 First Call Report.
. LeBow/Icahn have not offered pay a premium to
purchase your stock. They have simply asserted that
stockholders should trust the judgment of Lebow and
Icahn over that of the Board.
24<PAGE>
[RJR logo] THE NON-EXISTENT "LEBOW PREMIUM"
. THE TOBACCO SECTOR, PARTICULARLY COMPANIES WITH STRONG
BRAND NAMES SUCH AS RJR NABISCO AND PHILIP MORRIS, HAS
EXPERIENCED STOCK PRICE APPRECIATION IN THE LAST FIVE
MONTHS.
<TABLE>
PRICE ON
--------------------
8/28/95 1/17/96 % CHANGE IN PRICE
------- ------- -----------------
<S> <C> <C> <C>
RJR Nabisco $26.75 $33.00 23.4%
Philip Morris 74.50 91.00 22.2
Loews 65.56 78.75 20.1
S&P 400 659.69 706.99 7.2
</TABLE>
25<PAGE>
Section VI
RN OPERATING PERSPECTIVES
26<PAGE>
[RJR logo] RN OPERATING PERSPECTIVES
LEBOW/ICAHN'S ARGUMENTS IGNORE THE COMPANY'S RECENT HISTORY.
The LBO. For the past 6 years, the Company has been
coping with the adverse effects of more than $29
billion of debt incurred in the 1989 LBO -- the
largest debt-financed buyout in U.S. history. The
Company has reduced its debt significantly and
increased its stockholders' equity to over $10
billion currently, and now has a strong platform to
pursue value-enhancing opportunities.
Price War. In the face of this debt-reduction
effort, the Company's domestic tobacco business
suffered, along with the rest of the industry, from
the 1993 price war.
KKR. After the LBO, KKR had been the principal
stockholder of the Company. In late 1994 and through
March of 1995, KKR reduced its ownership, in the
process doubling the size of the Company's public
float. The exit of KKR clearly had a negative impact
on the Company's stock performance in 1995.
27<PAGE>
[RJR logo] RN OPERATING PERSPECTIVES
DECISIVE STEPS HAVE BEEN TAKEN TO IMPROVE THE PERFORMANCE OF
THE COMPANY'S BUSINESSES.
. New Senior Management -- Incentivized to Increase the
Value of the Stock. The appointment of Steve
Goldstone as the Company's new CEO has been very well
received by investors. Goldstone's top priority is
to increase the value of RJR Nabisco's stock, and his
compensation is closely tied to that goal. He will
receive 200,000 shares of restricted stock if the
stock price is $43.75 or higher in three years. If
the stock is below $43.75, none of this stock vests.
. New Operating Executives. New executives have been
named to run the Company's international tobacco
business, the Nabisco Biscuit Company and the
marketing of domestic tobacco.
28<PAGE>
[RJR logo] RN OPERATING PERSPECTIVES
THE COMPANY'S OPERATING RESULTS HAVE IMPROVED.
. Favorable Outlook for 1996. Over the 1989-1994
period, the Company's international tobacco business
enjoyed a 19% compounded annual growth rate in
operating profits and Nabisco enjoyed a 16%
compounded annual growth rate in operating profits --
the fastest growth of the major U.S. food companies.
Notwithstanding the Company's performance in 1995,
the fundamentals of the Company's businesses remain
strong, and important improvements in results are
expected in the latter part of 1996.
. International Tobacco. The international tobacco
business experienced renewed growth in volume and
profits in the fourth quarter of 1995, and the
Company expects strong favorable trends throughout
1996.
. Domestic Tobacco. The domestic tobacco business has
put in place new programs to help stabilize full-
price market shares, and results for several quarters
have confirmed the better trends. Camel remains the
fastest growing full-price tobacco product, with
Doral among the fastest growing savings brands. New
initiatives are being developed to improve trends for
Winston and Salem.
. Nabisco. Nabisco continues to have outstanding
results with new products. Together with an improved
climate, higher selling prices, the benefits of
acquisitions, and more aggressive cost controls,
Nabisco management expects that its results in 1996
will be among the strongest in the food industry.
29<PAGE>
Section VII
LEBOW/ICAHN'S IRRELEVANT SPIN-OFF EXAMPLES
30<PAGE>
[RJR logo] LEBOW/ICAHN'S IRRELEVANT SPIN-OFF EXAMPLES
LEBOW/ICAHN'S ARGUMENT THAT LEBOW IS ABLE TO DO A SPIN-OFF
BECAUSE BROOKE SPUN OFF SKYBOX AND MAI IS INVALID.
. The SkyBox and MAI spin-offs by LeBow's Brooke Group are
not comparable to a spin-off of a major, solvent food
company by a major, solvent tobacco and food holding
company. Lebow/Icahn's attempt to compare these
transactions to a spin-off of Nabisco simply clouds the
issues.
. BOTH OF THESE TRANSACTIONS OCCURRED PRIOR TO THE
CERTIFICATION OF A TOBACCO CLASS ACTION IN CASTANO AND THE
INSTITUTION OF STATE MEDICARE/MEDICAID LAWSUITS.
POTENTIAL TOBACCO LIABILITY AS IT RELATED TO THE ISSUE OF
THE SOLVENCY OF BROOKE GROUP IN THE LITIGATION SURROUNDING
THE SKYBOX SPIN-OFF WAS NEVER EVEN DISCUSSED BY THE COURT
WHICH EXAMINED THE TRANSACTION.
. SkyBox Spin-off:
- The purpose of the SkyBox distribution was to reduce
Brooke Group's liability with respect to its
Contingent Value Rights ("CVRs"). The CVRs were
issued as consideration to Brooke stockholders in
connection with Brooke's acquisition of Brooke
Partners, L.P. The liability on the CVRs would be
reduced by the amount of any distributions on Brooke
Common Stock.
- The Board of Directors of Brooke concluded that
Brooke would receive "reasonably equivalent value"
with respect to the SkyBox spin-off through the
reduction in liability of the CVRs, and that the
SkyBox spin-off was not a fraudulent transfer.
LeBow/Icahn are not suggesting that the Company would
receive "reasonably equivalent value" if it spun off
Nabisco.
- CVR holders who held no Brooke common stock received
only $0.36 per CVR, in contrast to the $14.45 per CVR
they would have received had LeBow not distributed
SkyBox shares as a dividend.
31<PAGE>
[RJR logo] LEBOW/ICAHN'S IRRELEVANT SPIN-OFF EXAMPLES
LEBOW/ICAHN'S ARGUMENT THAT LEBOW IS ABLE TO DO A SPIN-OFF
BECAUSE BROOKE SPUN OFF SKYBOX AND MAI IS INVALID.
. MAI Spin-off:
- MAI had emerged from bankruptcy shortly before its
spin-off from Brooke. Its financial condition cannot
be compared with that of Nabisco.
- The MAI spin-off represented a distribution of
approximately 5% of Brooke's assets. (SkyBox had
constituted only 10% of Brooke's assets.) These
small spin-offs by Brooke cannot be compared with a
spin-off of Nabisco by RJR Nabisco, which would
represent a distribution of nearly 38% of the
Company's assets (as of September 30, 1995).
LEBOW/ICAHN'S EXAMPLE OF A COMPLETED TRANSFER OF ASSETS BY THE
COMPANY IS IRRELEVANT.
. Each of the transactions described by LeBow/Icahn as
part of the $4.2 billion transfer of assets completed
by the Company without incurring litigation was made
"for value" and therefore did not involve questions
of fraudulent conveyance. Stockholders should not be
misled by LeBow/Icahn's irrelevant examples.
32<PAGE>
Section VIII
VIEWS OF PROMINENT TOBACCO ANALYSTS
33<PAGE>
[RJR logo] VIEWS OF PROMINENT TOBACCO ANALYSTS
WELL REGARDED TOBACCO ANALYSTS SHARE THE RJR BOARD'S VIEWS OF
AN IMMEDIATE SPIN-OFF.
. MARC COHEN, AN ANALYST WITH GOLDMAN SACHS:
- Cautioned, "Be wary of simple solutions to
complex problems." October 9, 1995 First Call
Report.
. MARTIN FELDMAN, AN ANALYST WITH SMITH BARNEY:
- "Recently, shareholders have received consent
solicitations from the LeBow/Icahn group asking
for their votes in support of an immediate spin-
off of Nabisco. We believe that shareholders
should not respond to these solicitations.
Although we feel an eventual spin-off of Nabisco
is likely and may benefit RN shareholders, at
the present time we feel the risks are too great
due to the following reasons:
1) The risk of a claim of fraudulent
conveyance is extremely high. The
plaintiffs in the tobacco liability suits
are likely to file an injunction against
the spin-off, stating that by spinning off
Nabisco, it is depleting its assets that
may be needed as payment for existing
claims.
2) RJR made a commitment to its bondholders
promising it would not spin off its 80.5%
stake in Nabisco before the end of 1996.
Any action which contradicts this
commitment may result in additional suits
against RN.
3) Separating Nabisco would most likely cause
RJR's tobacco division to lose its
investment grade rating. Currently, RJR
has a BBB-rating. This would likely fall
to junk level without Nabisco's assets."
January 18, 1996 First Call Report
(emphasis added).
- "We strongly support the RN boards view that to
enhance shareholder value, the NA disposal
should be timed to minimize the possibility of
fraudulent conveyance accusations and/or a
downgrade of RNs corporate debt rating."
December 13, 1995 First Call Report.
- "LeBow/Icahn proposal[s] to RN shareholders are
emotive and without merit." January 24, 1996
First Call Report.
- Calls LeBow proposal "an imprudent and hasty
Nabisco spin-off." December 13, 1995 report.
34<PAGE>
[RJR logo] VIEWS OF PROMINENT TOBACCO ANALYSTS
WELL REGARDED TOBACCO ANALYSTS SHARE THE RJR BOARD'S VIEWS OF
AN IMMEDIATE SPIN-OFF.
. ANTON BRENNER, AN ANALYST WITH UBS SECURITIES:
- "We do not believe it would be a good idea to
spin off Nabisco Foods to shareholders at the
present time, as is advocated by Bennett Lebow,
CEO of Brooke Group Ltd., and Carl Icahn, who
together reportedly own just under 5% of RJR
common stock..." December 11, 1995 Report.
- "The two raiders bring little to the party in
our estimation. RN in our view intends to spin-
off Nabisco in any case, as indicated by the
effective separation of the debt and many of the
corporate activities of the two companies. In
addition, we suspect that the valuation of the
tobacco stub might be less if Messrs. LeBow and
Icahn had access to RN's tobacco free cash flow
of $1-$2 billion than otherwise." September 20,
1995 First Call Report.
35<PAGE>
Section IX
LEBOW/ICAHN'S REAL AGENDA
36<PAGE>
[RJR logo] LEBOW/ICAHN'S REAL AGENDA
THE COMPANY BELIEVES THAT LEBOW/ICAHN'S REAL MOTIVE IS TO TAKE
CONTROL OF THE COMPANY AND CAUSE THE COMPANY TO ACQUIRE LEBOW'S
LIGGETT TOBACCO BUSINESS AT AN INFLATED VALUE.
. The LeBow/Icahn consent solicitation was announced
only after the Board rejected LeBow's attempt to
merge his failing tobacco business, Liggett, with
RJR, at a huge profit to LeBow's Brooke Group.
. LeBow proposed to value Liggett at many times its
real value:
<TABLE>
SUMMARY OF LIGGETT'S MAY 12 MERGER PROPOSAL
- -------------------------------------------------------------------------------
($MM)
BROOKE CONTRIBUTES BROOKE RECEIVES
- --------------------------------------------- --------------------------------
Liggett Group Inc. (Fiscal Year Ended December 31, 1994)
Income Statement:<F1> Balance Sheet: I. 20% of Combined RJR
Tobacco/Liggett
Value Estimates
<S> <C> <S> <C> <S> <C>
Sales $466 Cash $0
20% RJR $769
EBITDA 42 Total Debt 190 Tobacco<F3>
20% Liggett 0-18
Net Income 16 Stockholders' (154)
Equity --------
$769-787
Cash Net Income 20 II. Preferred Stock 350
------------------------------------------- --------------------------------
Value Estimate: $0-90<F2> Value Estimate: $1,119-1,137
---------------------------------------------------------------
NET BENEFIT TO BROOKE: $1,047-1,119
(IMPLIED COST TO RN STOCKHOLDERS OF $3.18-3.40/SHARE)<F4>
---------------------------------------------------------------
<FN>
Notes: <F1> Net income before extraordinary item. Cash net income
equals net income plus amortization.
<F2> Calculated as the range of a 4.0x multiple of last twelve
months EBITDA (less net debt) and a 4.5x multiple of 1994
cash net income. Includes no assumption regarding
earnings contribution of Russian investments other than
that already included in public financials.
<F3> Implied mathematical equity value of RJR Tobacco as of May
12, 1995.
<F4> Based on shares outstanding of 329.5MM. No value
attributed to possible synergies from a business
combination of RJR Tobacco and Liggett.
</FN>
37<PAGE>
[RJR logo] LEBOW/ICAHN'S REAL AGENDA
THE COMPANY BELIEVES THAT LEBOW/ICAHN'S REAL MOTIVE IS TO TAKE
CONTROL OF THE COMPANY AND CAUSE THE COMPANY TO ACQUIRE LEBOW'S
LIGGETT TOBACCO BUSINESS AT AN INFLATED VALUE.
- The arrangements between LeBow and Icahn provide that
Icahn will be paid $50 million if LeBow merges
Liggett with RJR.
- Consenting to the LeBow/Icahn proposal will encourage
them to pursue control of the Company.
- LeBow's proposal is consistent with his past record
of self-dealing. Your Board of Directors will not
accede to any demand -- whether made during or after
the consent solicitation -- that the Company
"greenmail" LeBow or Icahn, whether by buying Liggett
at an inflated value or in any other form of
greenmail.
. Many tobacco analysts also question what LeBow/
Icahn's real agenda is in pursuing an immediate spin-
off.
- "Although Mr. LeBow seeks control of RN's
tobacco operation, it is unclear what value his
proposal would provide to RN's shareholders
(other than spinning off Nabisco, which the
company could do by itself). Combining the two
tobacco companies, for instance, would provide
almost no operational or cost-savings benefit to
RJR Nabisco." Analyst David Adelman of Dean
Witter in an August 31, 1995 Report.
- We propose that LeBow has [four] motives: (1)
to become a significant shareholder in RJR
Nabisco by selling Brooke and/or Liggett to RJR
Nabisco; (2) to create value at RJR Nabisco by
spinning off its Nabisco stake; (3) to enrich
himself personally by somehow gaining control of
the combined tobacco entity; and (4) to unload a
marginal tobacco operation." Analyst David
Adelman of Dean Witter in an August 31, 1995
Report.
- "The slate . . . seems on its face to be one
that would give LeBow total control of the
company and underlines our suspicion that this
whole procedure is one to allow LeBow to add
value to his Liggett asset." Analyst Ronald
Morrow of Rodman & Renshaw in a November 21,
1995 Report.
38 <PAGE>
[RJR logo] LEBOW/ICAHN'S REAL AGENDA
- "LeBow's interest is still linked to the desire
to rid himself of the Liggett investment.
Several years ago he tried the same pressure
tactics with American Brands in an attempt to
induce it to combine Liggett with the American
Tobacco brands. However, the loss of share at
Liggett is certainly not conducive to generating
any interest from any of the major cigarette
manufacturers." Analyst Ronald Morrow of Rodman
& Renshaw in a September 6, 1995 Report.
- "[I]n this analyst's opinion, Messrs. LeBow and
Icahn probably possess agendas going far beyond
the limited strategy of unlocking shareholder
value by no more than spinning off Nabisco.
This is indicated by the past actions of both
when in control of corporate entities, as well
as the tenuous status of Bennett LeBow's current
tobacco holdings. It is unlikely that outside
shareholders would benefit from whatever
strategies are employed by these two investors."
Analyst Roy Burry of Oppenheimer & Co., Inc. in
a November 15, 1995 Report.
- "We might add that shareholder concerns
regarding future dividend increases might be
even greater should the dissident shareholders
actually gain control of the company in a proxy
fight. Whatever Mr. LeBow's and Mr. Icahn's
actual intentions, the suspicion remains that it
is RJR's ample cash flow, not simply the lure of
a potential spin-off, that is attracting them."
Anton Brenner of UBS Securities in a December
11, 1995 Report.
39<PAGE>
[RJR logo] LEBOW/ICAHN'S REAL AGENDA
LEBOW HAS INFORMED THE COMPANY THAT HE INTENDS TO ELECT A SLATE
OF DIRECTORS TO THE COMPANY'S BOARD.
. LeBow has proposed a slate of nine directors -- five
of whom are officers or directors of entities
controlled by LeBow -- to run for election to the
Company's Board at the 1996 annual meeting.
. There is no guarantee that LeBow's hand-picked
director nominees would effect an immediate spin-off
of Nabisco. However, if his nominees are elected to
the Board, LeBow will control the Company.
. Questions for stockholders:
- Are LeBow's candidates prepared to ignore the
conclusions reached by the Company's current
board, after consultation with independent tax,
legal and financial advisors, that an immediate
spin-off of the Company's food business would
endanger the interests of stockholders?
- Do LeBow's candidates understand that
distributing Nabisco stock to RJR Nabisco
stockholders immediately could expose those
stockholders -- and not just the Company -- to a
tangle of litigation that could go on for years?
- Would LeBow's candidates be inclined to buy
Liggett from LeBow or otherwise permit LeBow and
Icahn to benefit from "insider" transactions at
the expense of the Company's existing
stockholders?
- LeBow and Icahn have promised not to seek
greenmail only during the consent solicitation.
Would LeBow's hand-picked directors oppose any
attempt by LeBow or Icahn to take greenmail from
the Company after the consent solicitation?
. CONSENTING TO THE LEBOW/ICAHN PROPOSALS SIMPLY
ENCOURAGES LEBOW TO RUN A SLATE AND FURTHERS HIS
SCHEME TO SEIZE CONTROL OF THE COMPANY IN ORDER TO
SELL HIS FAILING TOBACCO BUSINESS AT AN INFLATED
VALUE. SINCE THERE IS NO NEED TO SEND THE BOARD A
MESSAGE CONCERNING THE DESIRABILITY OF A SPIN-OFF,
STOCKHOLDERS ARE URGED TO DISCOURAGE LEBOW FROM
PURSUING HIS SECRET AGENDA BY REFUSING TO SIGN OR
RETURN ANY OF THE LEBOW/ICAHN BLUE CONSENT CARDS.
40<PAGE>
Section X
LEBOW/ICAHN'S PROPOSED BY-LAW AMENDMENTS
41<PAGE>
[RJR logo] LEBOW/ICAHN'S PROPOSED BY-LAW AMENDMENTS
THE SPECIAL MEETING BY-LAW
. The Company believes that LeBow/Icahn's purpose in
seeking this amendment is to get control of the
Company without support from a majority of the
outstanding voting stock.
- At a special meeting, a plurality of voting
shares (which theoretically can be one share
more than 25% of the outstanding voting shares)
can effect corporate action.
- In contrast, action by written consent can be
taken only with the support of 50% or more of
the Company's outstanding voting shares.
- The Company believes that this is part of LeBow/
Icahn's plan to seize control and cause the
Company to acquire Liggett at an enormous profit
to LeBow and Icahn.
. The Company believes that it is not in the best
interests of stockholders to permit a small,
dissident group of stockholders to force the Company
to take corporate action without the support of a
majority vote of the Company's voting stock.
. Many Fortune 100 companies agree: their charters and
by-laws do not permit stockholders to act by written
consent or permit a minority group of stockholders to
call special meetings.
42<PAGE>
[RJR logo] LEBOW/ICAHN'S PROPOSED BY-LAW AMENDMENTS
THE SPECIAL MEETING BY-LAW
. RJR Nabisco's Charter and By-laws are already far
more "stockholder friendly": they permit stockholder
action at any time by written consent. Moreover,
unlike many Fortune 100 companies, the Company's
Board is not classified.
- The Company believes that stockholders should
not be denied the opportunity to take action of
their own initiative and that management should
not be insulated from stockholders. Thus,
unlike many Fortune 100 companies, the Company
allows a majority of stockholders to effect
corporate action at any time through written
consents.
- Voting against the LeBow/Icahn special meeting
proposal does not in any way restrict the
ability of a majority of stockholders to act
through written consents.
. The Board retained its ability to call special
meetings to enable it to respond to, and protect, its
stockholders from changing corporate circumstances.
. The Board adopted the By-law which LeBow and Icahn
propose to rescind only after it had received and
rejected LeBow's proposal to sell Liggett to the
Company at an inflated value. The By-law limits
LeBow's ability to coerce the Company into an
acquisition of Liggett without support from a true
majority of the Company's voting stock.
43<PAGE>
[RJR logo] LEBOW/ICAHN'S PROPOSED BY-LAW AMENDMENTS
THE ADMINISTRATIVE PROCEDURES BY-LAW: LEBOW/ICAHN'S OBJECTION
TO THIS BY-LAW IS A COMPLETE "RED HERRING."
. The By-law merely grants stockholders and
participants in a solicitation contest the
opportunity to understand the administrative
procedures to be followed in a consent solicitation,
thereby ensuring a fair and orderly process.
. LeBow/Icahn's only stated objection is that the By-
law permits the Board 20 days to set a record date.
In fact, the Board set the record date as January 12,
1996, the very date requested by LeBow/Icahn.
44<PAGE>
Section XI
WHO ARE LEBOW AND ICAHN?
45<PAGE>
[RJR logo] WHO ARE LEBOW AND ICAHN?
BENNETT LEBOW
. LeBow has been publicly denounced for "emptying
companies he controls of their cash and assets.
Brooke has poured millions of dollars into the LeBow
family coffers through its purchase of assets
controlled by Mr. LeBow. And it has financed his
high-flying lifestyle with loans and unsecured credit
lines amounting to millions of dollars." See article
by Stephanie Strom, in The New York Times, August 30,
1995.
. LeBow received loans or lines of credit from Brooke
Group of $5,000,000, $6,515,000, and $1,475,000 in
1991, 1992, and 1993.
. In 1993, a stockholder sued LeBow for obtaining
improper funds from Brooke Group. LeBow settled the
suit only by agreeing to make payments to Brooke
Group, to waive his right to $6,250,000 in preferred
dividends and to cap increases of his annual salary
over the next four years.
. Brooke Group was labelled by Fortune magazine as the
"Least Admired" company in America in 1994, and
ranked in the bottom three companies in all eight
attributes of reputation in the survey. See Tricia
Welsh in Fortune, February 7, 1994.
. LeBow sought to profit at RJR's expense by merging
Liggett into RJR at an enormous profit to LeBow.
. Only after the Board turned that deal down did he
team up with Icahn to pursue their consent
solicitation/proxy contest.
46<PAGE>
[RJR logo] WHO ARE LEBOW AND ICAHN?
CARL ICAHN
. A well-known corporate raider
. Has taken greenmail on many occasions:
- Saxon Industries, Inc. in 1980
- Hammermill Paper Co. in 1981, after explicitly
pledging not to take greenmail
- Viacom International, Inc. in 1986
. Led Trans World Airlines, Inc. into bankruptcy
. Potential personal gains from this consent
solicitation:
- Stands to gain 20% of any profits on the
Company's Common Stock held by one of Lebow's
affiliates
- Gets $50 million if Lebow merges Liggett with
RJR Nabisco
47<PAGE>
[RJR logo] WHO ARE LEBOW AND ICAHN?
QUESTIONS FOR STOCKHOLDERS:
. Given the background of LeBow and Icahn, and their
apparent willingness to use the spin-off valuations of
independent analysts out of context, can you really rely
on their assessment of the value of an immediate spin-off?
. The current Board has a fiduciary duty to protect your
interests. LeBow and Icahn do not. Whom do you trust
more?
. LeBow and Icahn are ready to break the Company's public
commitments about the timing for a spin-off. How much
faith do you have in the pledges which LeBow and Icahn
have given to you?
. In light of their prior business activities, and the
agreements which they have made between each other, do you
believe that LeBow and Icahn have told you their true
motives for making their consent solicitation?
48<PAGE>
Section XII
CONCLUSION
49<PAGE>
[RJR logo] CONCLUSION
THE BOARD OF DIRECTORS OF RJR NABISCO UNANIMOUSLY OPPOSES THE
LEBOW/ICAHN SOLICITATION.
. Your Board and your management team are committed to
improving stockholder value as their highest
priority.
. As part of that commitment, your Board and your
management are committed to effecting a spin-off as
soon as it is prudent and likely to be in the best
interest of the Company and its stockholders.
. In the opinion of the Company's management, trying to
effect a hasty spin-off today would permanently
impair stockholder value and create more problems
than it solves.
. By withholding consent, stockholders will be sending
a message that they support the Company's current
commitment to effect a spin-off in a prudent manner
and not in the reckless manner suggested by LeBow and
Icahn.
. By withholding consent, stockholders will also be
sending a message to LeBow and Icahn that the
stockholders of RJR Nabisco are not vulnerable
targets of opportunity and that they are not willing
to play into the hands of LeBow and Icahn by
supporting an agenda which could lead to their
gaining control of the Company, which we believe has
been their ultimate objective all along.
. By withholding consent, stockholders will be
supporting management's priority focus on improving
the fundamentals of the business and stockholder
value, as well as the Company's commitment to effect
a spin-off at a time when it is in the best interest
of the Company and its stockholders.
IN VIEW OF THEIR PAST HISTORY OF SELF-DEALING (LEBOW),
GREENMAIL (ICAHN) AND BANKRUPT COMPANIES (BOTH) AND THEIR
EXPRESS INTENTION TO CAUSE THE COMPANY TO VIOLATE ITS
COMMITMENTS, THE COMPANY BELIEVES THAT NO STOCKHOLDER
SHOULD SUPPORT ANY OF THE LEBOW/ICAHN PROPOSALS, AND THAT
STOCKHOLDERS WITH FIDUCIARY RESPONSIBILITIES SHOULD BE
ESPECIALLY WARY OF SUPPORTING LEBOW AND ICAHN.
50<PAGE>
[RJR logo]
</TABLE>
