SCHEDULE 14A
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:
X Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / 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.
X $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:
(5) Total fee paid:
/ / 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>
[LOGO]
RJR NABISCO HOLDINGS CORP.
1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of RJR Nabisco Holdings Corp. The meeting will be held at (local time) on
April __, 1996 at .
PLEASE NOTE THAT ATTENDANCE AT THE ANNUAL MEETING WILL BE LIMITED TO
STOCKHOLDERS AS OF THE RECORD DATE AND TO GUESTS OF THE COMPANY. ADMITTANCE
TICKETS WILL BE REQUIRED.
If you are a stockholder and plan to attend, you MUST request an admittance
ticket by writing to the Office of the Secretary at the address shown above. If
your shares are not registered in your own name, evidence of your stock
ownership, which you can obtain from your bank, stockbroker, etc., must
accompany your letter. An admittance ticket will be held in your name at the
door.
We anticipate that a large number of stockholders will attend the meeting.
As seating is limited, we suggest you arrive by , when the auditorium will
be opened. If the auditorium is filled, there will be an additional area outside
the auditorium from which the proceedings may be viewed.
Please give careful attention to these proxy materials and to the Company's
annual report, which will be sent to you under separate cover later this month.
It is important that your shares be represented and voted at the Annual Meeting
regardless of the size of your holdings. Accordingly, whether or not you plan to
attend the Annual Meeting, please complete, sign, date and return the
accompanying proxy card in the enclosed envelope in order to make certain that
your shares will be represented at the Annual Meeting.
Sincerely,
CHARLES M. HARPER STEVEN F. GOLDSTONE
Chairman of the Board Chief Executive Officer and President
<PAGE>
[LOGO]
RJR NABISCO HOLDINGS CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April __, 1996
To the Stockholders:
The Annual Meeting of Stockholders of RJR Nabisco Holdings Corp., a Delaware
corporation (the "Company"), will be held at
at , local
time, on April __ , 1996 for the following purposes:
1. To elect ten Directors to serve until the 1997 Annual Meeting of
stockholders and until their respective successors are duly elected
and qualified;
2. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company's 1996 fiscal year;
3. To act on nine stockholder proposals if presented by their proponents;
and
4. To transact such other business as may be properly brought before the
meeting and any adjournments or postponements thereof.
Only holders of record of the Company's Common Stock, Series C Conversion
Preferred Stock and ESOP Convertible Preferred Stock as of the close of business
on February 29, 1996 are entitled to notice of and to vote at the Annual Meeting
and any adjournments or postponements thereof. A list of such stockholders may
be examined for any purpose germane to the meeting at
during the ten-day period preceding the meeting.
H. COLIN MCBRIDE
Vice President and Secretary
New York, New York
, 1996
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING WHITE PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE>
RJR NABISCO HOLDINGS CORP.
1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
PROXY STATEMENT
This Proxy Statement and enclosed form of proxy are being furnished
commencing on or about , 1996 in connection with the solicitation by
the Board of Directors (the "Board") of RJR Nabisco Holdings Corp., a Delaware
corporation (the "Company"), of proxies in the enclosed form for use at the
annual meeting of stockholders (the "Annual Meeting") to be held on April __,
1996 for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. Any proxy given pursuant to this solicitation and received in time
for the meeting will be voted as specified in such proxy. If no instructions are
given, proxies will be voted FOR the election of the nominees listed below under
the caption "Election of Directors--Information Concerning the Nominees," FOR
the ratification of the appointment of Deloitte & Touche as independent auditors
for the Company's 1996 fiscal year, AGAINST the nine stockholder proposals and
in the discretion of the proxies named on the proxy card with respect to any
other matters properly brought before the Annual Meeting and any adjournments
thereof. Any proxy may be revoked by written notice received by the Secretary of
the Company at any time prior to the voting thereof by submitting a subsequent
proxy or by attending the meeting and voting in person.
A proxy card is enclosed for your use. THE BOARD URGES YOU TO COMPLETE,
SIGN, DATE AND RETURN THE WHITE PROXY CARD IN THE ACCOMPANYING ENVELOPE, which
is postage-paid if mailed in the United States.
Only holders of record of the Company's voting securities as of the close of
business on February 29, 1996 (the "Record Date") are entitled to notice of and
to vote at the Annual Meeting and any adjournments or postponements thereof. As
of the Record Date, the following shares of voting securities were outstanding:
shares of Common Stock, par value $.01 per share ("Common Stock"),
26,675,000 shares of Series C Conversion Preferred Stock, par value $.01 per
share ("PERCS"), and shares of ESOP Convertible Preferred Stock, par value
$.01 per share and stated value of $16 per share ("ESOP Preferred Stock"). All
of the shares of PERCS are held by First Chicago Trust Company of New York as
Depositary for the holders of the Series C Depositary Shares ("Series C
Depositary Shares"). Each Series C Depositary Share represents one-tenth of a
share of PERCS.
The Common Stock, the ESOP Preferred Stock and the PERCS vote as a single
class on all matters properly brought before the Annual Meeting. Holders of
Common Stock are entitled to one (1) vote per share, and holders of ESOP
Preferred Stock and PERCS are entitled to one-fifth (1/5) of a vote per share.
Consequently, holders of Series C Depositary Shares are entitled to one-fiftieth
(1/50) of a vote per share.
The presence of the holders of a majority of the outstanding shares of
Common Stock, PERCS and ESOP Preferred Stock, represented at the Annual Meeting
in person or by proxy, will constitute a quorum. Shares represented by proxies
that are marked "abstain" will be counted as shares present for purposes of
determining the presence of a quorum on all matters. Proxies relating to "street
name" shares that are voted by brokers on some but not all of the matters will
be treated as shares present for purposes of determining the presence of a
quorum on all matters, but they will not be treated as shares entitled to vote
at the Annual Meeting on those matters as to which authority to vote is withheld
by the broker (the "Broker Non-Votes"). The ten nominees receiving the highest
vote totals will be elected as Directors of the Company. Accordingly,
abstentions and Broker Non-Votes will not affect the outcome of the election.
All other matters to be voted on will be decided by a majority vote of the
shares represented at the Annual Meeting and entitled to vote. On any such
matter, an abstention will have the same effect as a negative vote, but, because
shares held by brokers will not be considered entitled to vote
1
<PAGE>
on matters as to which the brokers withhold authority, a Broker Non-Vote will
have no effect on the vote.
The rules of the Securities and Exchange Commission (the "SEC") require the
Company to furnish its 1995 annual report to its stockholders at least 20 days
before its Annual Meeting. THE 1995 ANNUAL REPORT WILL BE FURNISHED TO YOU ON OR
BEFORE , 1996. However, if you are a stockholder of record and have the
same address as another stockholder of record, you may wish to authorize the
Company to discontinue sending more than one annual report to the same address.
You can eliminate such duplicate mailings by marking the appropriate box on the
proxy card for any account for which you do not wish to receive annual reports.
You will, however, continue to receive proxy statements and proxy cards to vote
the shares for all of your accounts.
BACKGROUND
On November 20, 1995, Brooke Group Ltd. ("Brooke Group"), a company
controlled by Bennett S. LeBow, notified the Company of its intention to propose
a slate of nine candidates--five of whom are directors or officers of entities
controlled by Mr. LeBow--(the "LeBow/Icahn Slate") for election at the Annual
Meeting. This notice followed various other proposals and measures by Brooke
Group, Mr. LeBow and Carl C. Icahn (collectively, the "LeBow/Icahn Group") with
respect to the Company, which the Board believes are not in the best interests
of the Company or its stockholders.
In May 1995, Mr. LeBow approached Charles M. Harper who at that time served
as the Company's Chairman and Chief Executive Officer, to propose a transaction
pursuant to which, in connection with a spin-off of Nabisco Holdings Corp.
("Nabisco"), Liggett Group Inc. ("Liggett"), the tobacco subsidiary of Brooke
Group, would merge with the Company. The proposal contemplated that Brooke Group
would receive 20% of the common stock and $350 million of preferred stock of the
merged company, and the right to appoint all of the members of the merged
company's board of directors, in exchange for Liggett, a company which in 1994
had net income of less than $16 million and had at December 31, 1994
approximately $184 million in debt. At that time, the Company rejected this
proposal as not in the best interests of the Company or its stockholders.
Beginning in July 1995, Messrs. LeBow and Icahn acquired an aggregate of
over 4.7% of the Company's Common Stock. In January 1996, the LeBow/Icahn Group
launched a consent solicitation (the "LeBow/Icahn Solicitation") seeking
approval by the Company's stockholders of (i) a proposal recommending an
immediate spin-off of Nabisco and (ii) a proposal to amend the Company's by-laws
(the "By-Laws") to reinstate a provision providing that special meetings of the
Company's stockholders shall be called by the Chairman or the Secretary if
requested in writing by holders of not less than 25% of the Common Stock and to
delete a newly added provision establishing procedures governing action by
written consent of stockholders without a meeting.* Although the Board is
committed to effecting a spin-off of Nabisco at a time when it is in the best
interests of the Company and its stockholders, for the reasons stated in the
Company's Revocation of Consent Statement and its related solicitation
materials, the Company continues to oppose and seek revocations of consents to
the LeBow/Icahn Solicitation.
The Company believes that the LeBow/Icahn Solicitation and the nomination of
the LeBow/Icahn Slate are all part of an attempt by Messrs. LeBow and Icahn to
seize control of the Company and force it to merge with Mr. LeBow's Liggett
tobacco company. The LeBow/Icahn Group commenced the LeBow/Icahn Solicitation
only after the Company rejected Mr. LeBow's proposal to merge Liggett with the
Company in May. In addition, Messrs. LeBow and Icahn have entered into a
partnership arrangement (the "LeBow/Icahn Arrangement") which contemplates,
among other things, that if the
- - ------------
* Brooke Group announced a "cutoff date" for the LeBow/Icahn Solicitation of
February 15, 1996.
2
<PAGE>
LeBow/Icahn Slate gains control of the Board and Liggett is sold to or merged
with the Company, Mr. Icahn will receive a payment of $50 million from an
affiliate of Mr. LeBow.
The Board believes that it is contrary to the interests of the Company and
its stockholders to elect any of the LeBow/Icahn Slate. THE BOARD RECOMMENDS
THAT STOCKHOLDERS VOTE FOR THE BOARD'S NOMINEES SET FORTH BELOW.
ITEM 1--ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
At the upcoming Annual Meeting, a board of ten Directors will be elected to
hold office until the next Annual Meeting of stockholders and until their
successors have been elected and qualified. Directors are elected by a plurality
of the votes cast. Although management does not anticipate that any of the
persons named below will be unable or unwilling to stand for election, in the
event of such an occurrence, proxies may be voted for a substitute designated by
the Board. All of the Board's nominees are incumbent Directors of the Company
and its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN"), and all of them
were elected to their present terms by the stockholders in April 1995 except Mr.
Groves and Mr. Goldstone, who were elected by the Board in April and December
1995, respectively.
Background information about the Board's nominees for election is set forth
below. See "Security Ownership of Management" and Appendix I for additional
information about the nominees, including their ownership, purchase and sale of
securities issued by the Company and its subsidiaries.
<TABLE><CAPTION>
YEAR BUSINESS EXPERIENCE DURING PAST FIVE
FIRST YEARS
NAME AGE ELECTED AND OTHER INFORMATION
- - ------------------------- --- ------- --------------------------------------
<S> <C> <C> <C>
John T. Chain, Jr........ 61 1994 Special Assistant to the Chairman of
Burlington Northern Santa Fe
Corporation since November 1995;
Executive Vice President of
Burlington Northern from 1991 to
November 1995. For more than five
years prior thereto, General
(Commander-in-Chief, Strategic Air
Command) in the United States Air
Force. Member of the Board of
Nabisco, Nabisco, Inc., Northrop
Grumman Corporation and Thomas Group
Inc.
Julius L. Chambers....... 59 1994 Chancellor of North Carolina Central
University since 1993. For more than
five years prior thereto,
Director-Counsel of the NAACP Legal
Defense and Educational Fund, Inc.
Member of the Board of First Union
National Bank (Durham, NC).
John L. Clendenin........ 61 1994 Chairman of the Board and Chief
Executive Officer of BellSouth
Corporation for more than five
years. Member of the Board of
BellSouth Corporation, Coca-Cola
Enterprises Inc., Equifax Inc.,
Springs Industries, Inc., The Kroger
Company, The New York Stock
Exchange, Inc. and Wachovia
Corporation.
Steven F. Goldstone...... 50 1995 Chief Executive Officer of the Company
since December 1995; President since
October 1995; General Counsel from
March to December 1995. Until
October 1995 and for more than five
years prior thereto, Partner at
Davis Polk & Wardwell, a New York
law firm.1
</TABLE>
3
<PAGE>
<TABLE><CAPTION>
YEAR BUSINESS EXPERIENCE DURING PAST FIVE
FIRST YEARS
NAME AGE ELECTED AND OTHER INFORMATION
- - ------------------------- --- ------- --------------------------------------
<S> <C> <C> <C>
H. John Greeniaus........ 51 1992 Vice Chairman of the Company since
June 1995; President and Chief
Executive Officer of Nabisco and
Nabisco, Inc. since October 1994;
Chairman and Chief Executive Officer
of Nabisco, Inc. from 1993 to 1994
and President and Chief Executive
Officer of Nabisco, Inc. from 1987
to 1993. Member of the Board of
Nabisco and Nabisco, Inc.
Ray J. Groves............ 60 1995 Chairman of Legg Mason Merchant
Banking, Inc. since February 1995;
previously Chairman and Chief
Executive Officer of Ernst & Young
LLP until September 1994 and for
more than five years prior thereto.
Member of the Board of Consolidated
Natural Gas Company and Marsh &
McLennan Companies, Inc.
Charles M. Harper........ 68 1993 Chairman of the Company since May
1993; Chief Executive Officer from May
1993 to December 1995. For more than
five years prior thereto, Chairman
and, until 1992, Chief Executive
Officer of ConAgra, Inc. Member of
the Board of Nabisco, Nabisco, Inc.,
ConAgra, Inc., E.I. du Pont de
Nemours and Company, Norwest Corp.,
Peter Kiewit Sons', Inc. and Valmont
Industries, Inc.
James W. Johnston........ 49 1992 Vice Chairman of the Company since
June 1995; Chairman of R.J. Reynolds
Tobacco Company ("RJRT") since 1989;
Chairman of R.J. Reynolds Tobacco
Worldwide since October 1993; Chief
Executive Officer of RJRT from 1989
to July 1995. Member of the Board of
Sealy Corporation and Wachovia
Corporation.
John G. Medlin, Jr....... 62 1989 Chairman of Wachovia Corporation2 for
more than five years and Chief
Executive Officer of Wachovia until
December 1993. Member of the Board
of Nabisco, Nabisco, Inc., Wachovia
Corporation, BellSouth Corporation,
Burlington Industries, Inc., Media
General, Inc., National Services
Industries, Inc. and USAir Group,
Inc.
Rozanne L. Ridgway....... 60 1989 Co-Chair of the Atlantic Council of
the United States since January 1993
and President of the Council from
1989 to 1992. Assistant Secretary of
State for European and Canadian
Affairs from 1985 to 1989. Member of
the Board of Bell Atlantic
Corporation, The Boeing Company,
Citicorp, Emerson Electric Co.,
Minnesota Mining and Manufacturing
Company, Sara Lee Corporation and
Union Carbide Corp.
</TABLE>
- - ------------
(1) Davis Polk & Wardwell has, from time to time, provided legal services to the
Company and its subsidiaries during the past several years for which the law
firm has been paid usual and customary fees.
(2) An affiliate of Wachovia Corporation is the trustee for the RJRN Defined
Contribution Master Trust (the "Master Trust"), the record owner of all of
the outstanding shares of ESOP Preferred Stock. Affiliates of Wachovia
Corporation have also extended loans, made lending commitments and provided
other financial services to the Company and its subsidiaries. Such services
were
(Footnotes continued on following page)
4
<PAGE>
(Footnotes continued from preceding page)
provided in the ordinary course of business and on substantially the same
terms and conditions, including interest rates and collateral, as those
prevailing at those times for comparable transactions with other persons.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF EACH
NOMINEE FOR DIRECTOR NAMED ABOVE.
MEETINGS AND COMMITTEES OF THE BOARD
The Board met 12 times during the 1995 fiscal year. During 1995, all then
incumbent Directors attended at least 75% of the meetings of the Board and the
Board committees on which they served.
The standing committees of the Board are the Executive Committee, the Audit
Committee and the Compensation Committee. During part of 1995, the Board also
maintained the JFEW Special Committee. The Board does not have a nominating
committee; its customary functions are performed by the entire Board.
Executive Committee. The Executive Committee has authority to act for the
Board on most matters during intervals between Board meetings. The Executive
Committee, whose current members are Messrs. Chain, Goldstone, Harper and
Medlin, met two times during the 1995 fiscal year.
Audit Committee. The Audit Committee reviews the adequacy of the Company's
internal system of accounting controls, confers with the independent auditors
and the internal auditors concerning their examination of the books and records
of the Company and its subsidiaries, reviews actions taken to ensure compliance
with the Company's Code of Conduct, recommends to the Board the appointment of
independent auditors and considers other appropriate matters regarding the
financial affairs of the Company and its subsidiaries. The Audit Committee,
whose current members are Messrs. Chambers and Groves and Ms. Ridgway, held five
meetings during the 1995 fiscal year.
Compensation Committee. The Compensation Committee makes recommendations to
the Board with respect to compensation and grants of stock options to management
employees. In addition, the Compensation Committee administers plans and
programs relating to employee benefits, incentives and compensation. The
Compensation Committee, whose current members are Messrs. Chain, Clendenin and
Medlin, met six times during the 1995 fiscal year.
JFEW Special Committee. The JFEW Special Committee was established in
October 1993 in connection with the settlement of a stockholder derivative suit
entitled Jewish Foundation for Education of Women v. Kohlberg Kravis Roberts &
Co. et al. The purpose of the JFEW Special Committee was to monitor the
performance of services by Kohlberg Kravis Roberts & Co. ("KKR") for the Company
pursuant to the Retainer Agreement dated November 2, 1993 between KKR and the
Company (the "Retainer Agreement"). The JFEW Special Committee, whose members in
1995 were Mr. Medlin and Ms. Ridgway, met three times during the 1995 fiscal
year before disbanding on June 13, 1995 following termination of the Retainer
Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of [FEBRUARY 29],
1996, regarding the beneficial ownership of (i) Common Stock and (ii) Nabisco's
Class A Common Stock, par value $.01 per share (the "Nabisco Stock"), by each
director of the Company, by each of the five most highly compensated executive
officers of the Company and by all directors and executive officers of the
Company as a group. All of these individuals have the opportunity to become the
beneficial owners of additional shares of Common Stock through restricted stock
programs or as a result of stock options vesting or becoming exercisable. See
Executive Compensation--Stock-Based Awards and "Director's Compensation."
Otherwise, except as noted, the persons named in the table below do not own,
5
<PAGE>
beneficially or of record, any other securities of the Company or its
subsidiaries and have sole voting and investment power for all securities for
which they are shown as beneficial owner.
<TABLE><CAPTION>
NUMBER OF SHARES OF
NUMBER OF SHARES OF NABISCO CLASS A PERCENT OF NABISCO
COMMON STOCK PERCENT OF COMMON STOCK CLASS A
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK BENEFICIALLY OWNED(1)(3) COMMON STOCK
- - ------------------------------- --------------------- ------------ ------------------------ ------------------
<S> <C> <C> <C> <C>
John T. Chain, Jr.(2).......... 8,859 * 1,000 *
Julius L. Chambers(2).......... 6,888 * 0 *
John L. Clendenin(2)........... 7,312 * 500 *
Steven F. Goldstone(4)......... 16,532 * 0 *
H. John Greeniaus(2)........... 126,390 * 10,101 *
Ray J. Groves(2)............... 7,466 * 0 *
Charles M. Harper(2)........... 524,955 [] 71,429 0.1380%
James W. Johnston(2)(5)........ 114,463 * 1,000 *
John G. Medlin, Jr.(2)......... 7,725 * 1,000 *
Rozanne L. Ridgway(2).......... 6,859 * 0 *
Andrew J. Schindler(2)......... 28,976 * 0 *
All Directors and Executive
Officers as a Group(2)........ 1,310,998 [] 91,600 0.1763%
</TABLE>
- - ------------
* Less than 0.1%
(1) For purposes of this table, a person or group of persons is deemed to be the
"beneficial owner" of any shares that such person has the right to acquire
within 60 days. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named above on a given date,
any security that such person or persons has the right to acquire within 60
days is deemed to be outstanding, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) The number of shares of Common Stock beneficially owned includes (i) 6,859
shares subject to currently exercisable options granted to each of Messrs.
Chain, Chambers and Clendenin and Ms. Ridgway; 6,466 shares and 859 shares
subject to currently exercisable options granted to Messrs. Groves and
Medlin, respectively; 462,500 and 690,070 shares subject to currently
exercisable options granted to Mr. Harper and all directors and executive
officers as a group, respectively; and (ii) 354, 233, 356, 353, and 3,806
shares of Common Stock currently issuable on conversion of shares of ESOP
Preferred Stock owned by, respectively, Messrs. Greeniaus, Harper, Johnston,
Schindler and all directors and executive officers as a group.
(3) No director or officer of the Company holds any options exercisable within
60 days to acquire shares of Nabisco Stock.
(4) Mr. Goldstone is also the holder of 200,000 performance stock units each
equal in value to one share of Common Stock which will be paid to Mr.
Goldstone only if (i) Mr. Goldstone remains employed by the Company through
December 31, 1998 (unless he is terminated by the Company without cause or
he voluntarily terminates employment with good reason) and (ii) the market
price for Common Stock averages $43.75 or more for any consecutive 30-day
period ending on or prior to December 31, 1998.
(5) The outstanding shares of Common Stock shown as beneficially owned by Mr.
Johnston include 12,000 shares held in trust for the benefit of Mr.
Johnston's children as to which Mr. Johnston disclaims beneficial ownership.
Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the
Company's officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file initial statements
of beneficial ownership (Form 3) and statements of changes in beneficial
ownership (Forms 4 or 5) of Common Stock and other equity securities of the
Company with the SEC and The New York Stock Exchange, Inc. Officers, directors
and greater than ten-percent stockholders are required by SEC regulation to
furnish the Company with copies of all such forms they file.
Based solely on a review of the copies of the forms that it has received,
and on written representations from certain reporting persons that no additional
forms were required, the Company believes that its officers, directors and
greater than ten-percent beneficial owners complied with all of these filing
requirements in 1995, except as follows. On September 8, 1994, Mr. M. B.
Oglesby, Jr., the former Senior Vice President for Government Relations of RJR
Nabisco Washington, Inc., sold 7,444 shares of Common Stock. In four
transactions during November and December 1994, Mr. Chambers acquired a total of
21.91 shares of Common Stock and, through a dividend reinvestment plan, an
additional 7.31
6
<PAGE>
shares during 1995. The required Form 4 filings for these transactions, which
have been restated to account for the Company's 1 for 5 reverse stock split in
April 1995, were not made in a timely fashion. The Form 4s were filed on May 11,
1995 (for Mr. Oglesby) and February 8, 1996 (for Mr. Chambers), in each case,
promptly after the failure to file was discovered.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of February 29, 1996,
regarding the beneficial ownership of persons known to the Company to be the
beneficial owners of more than five percent of any class of the Company's voting
securities. The information was obtained from Company records and information
supplied by the stockholders, including information on Schedules 13D and 13G and
Forms 3, 4 and 5 provided to the SEC. Except as otherwise noted, the persons
named in the table below have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE><CAPTION>
NUMBER OF SHARES
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- - ----------------- --------------------------------------------- ------------------ ----------------
<S> <C> <C> <C>
Common Stock FMR Corp.(1)................................. 31,226,154 11.45%
82 Devonshire Street
Boston, MA 02109
Common Stock Sanford C. Bernstein & Co., Inc.(2).......... 16,826,736 6.20%
767 Fifth Avenue
New York, NY 10153
Series C Brinson Partners, Inc.(3).................... 1,745,310 6.54%
Conversion 209 South LaSalle
Preferred Stock Chicago, IL 60604-1295
Series C The Prudential Insurance Company
Conversion of America(4)............................... 1,716,515 6.40%
Preferred Stock Prudential Plaza
Newark, NJ 07102-3777
Series C Wellington Management Company(5)............. 1,481,140 5.55%
Conversion 75 State Street
Preferred Stock Boston, MA 02109
ESOP Convertible Wachovia Bank of North Carolina, N.A.(6)..... 15,003,379 100.00%
Preferred Stock Box 3075, Trust Operations
Winston-Salem, NC 27102
</TABLE>
- - ------------
(1) According to Amendment No. 2 to Schedule 13G dated February 14, 1996 jointly
filed by FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson, FMR Corp.
is a parent holding company, and Mr. Johnson and Ms. Johnson are
respectively the Chairman and a Director of FMR Corp. and may be deemed to
be members of a controlling group with respect to FMR Corp. The Schedule 13G
indicates that the 31,226,154 shares of Common Stock shown as beneficially
owned by FMR Corp., Mr. Johnson and Ms. Johnson as of December 31, 1995
consist of (i) 29,120,882 shares which are beneficially owned by Fidelity
Management & Research Company ("Fidelity"), a registered investment adviser
and wholly owned subsidiary of FMR Corp., as a result of acting as
investment adviser to various registered investment companies that own such
shares (the "Fidelity Funds"); (ii) 2,065,332 shares which are beneficially
owned by Fidelity Management Trust Company ("Fidelity Trust"), a bank and a
wholly owned subsidiary of FMR Corp., as a result of serving as investment
manager for certain institutional accounts; and (iii) 39,940 shares which
are beneficially owned by Fidelity International Limited ("Fidelity
International"), a provider of investment advisory and management services
to a number of non-U.S. investment companies and certain institutional
investors, of which Mr. Johnson is also Chairman and a member of a
controlling group, but which is managed independently from FMR Corp., and
Fidelity. Each of FMR Corp. and Fidelity International disclaim beneficial
ownership of shares beneficially owned
(Footnotes continued on following page)
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(Footnotes continued from preceding page)
by the other. According to the Schedule 13G, FMR Corp. and Fidelity Trust
also beneficially own 874,880 shares and 194,380 shares, respectively, of
Series C Preferred Stock as a result of (i) the Fidelity Funds owning
8,748,800 Series C Depositary Shares and (ii) the institutional accounts
managed by Fidelity Trust owning 1,943,800 Series C Depositary Shares.
According to the Schedule 13G, (a) each of FMR Corp. and Mr. Johnson has
sole investment power, but neither has sole voting power, over the shares
owned by the Fidelity Funds; (b) each of FMR Corp. and Mr. Johnson has sole
investment power over all of, sole voting power over some of and no voting
power over the remainder of, the shares owned by the institutional accounts
managed by Fidelity Trust; and (c) each of Fidelity International and Mr.
Johnson has sole investment power and sole voting power over all of the
shares beneficially owned by Fidelity International.
(2) According to the Schedule 13G dated February 7, 1996 filed by Sanford C.
Bernstein & Co., Inc. ("Bernstein"), Bernstein, a registered investment
adviser, beneficially owned an aggregate of 16,826,736 shares of Common
Stock as of December 31, 1995 as a result of acting as investment adviser to
various clients. According to the Schedule 13G, Berstein had sole voting
power over 8,698,250 shares, shared voting power over 1,879,406 shares and
sole investment power over all 16,826,736 shares.
(3) According to the Schedule 13G dated February 10, 1995 jointly filed by
Brinson Partners, Inc. ("Brinson Partners"), Brinson Trust Company ("Brinson
Trust") and Brinson Holdings, Inc. ("Brinson Holdings"), as of December 31,
1994, (i) Brinson Partners, a registered investment adviser and wholly owned
subsidiary of Brinson Holdings, beneficially owned 1,238,560 shares of
Series C Preferred Stock as a result of its beneficial ownership of
12,385,600 Series C Depositary Shares and (ii) Brinson Trust, a bank and
wholly owned subsidiary of Brinson Partners, beneficially owned 506,750
shares of Series C Preferred Stock as a result of its beneficial ownership
of 5,067,500 Series C Depositary Shares.
(4) According to a Schedule 13G dated February 14, 1996 filed by The Prudential
Insurance Company of America ("Prudential"), Prudential, a mutual insurance
company, broker-dealer and investment adviser, beneficially owned an
aggregate of 1,716,515 shares of Series C Preferred Stock as of
December 31, 1995 as a result of having direct or indirect voting and/or
investment discretion over 17,165,150 Series C Depositary Shares which were
held for the benefit of its clients. According to the Schedule 13G,
Prudential had shared voting and investment power over 17,143,200 of such
shares.
(5) According to the Schedule 13G dated February 13, 1996 filed by Wellington
Management Company ("Wellington"), Wellington, a registered investment
adviser, beneficially owned an aggregate of 1,481,140 shares of Series C
Preferred Stock as of December 31, 1995 as a result of its ownership of
14,811,400 Series C Depositary Shares. According to the Schedule 13G,
Wellington had shared voting power with respect to 14,071,400 of the shares
and shared investment power over all 14,811,400 shares.
(6) Wachovia Bank of North Carolina, N.A. ("Wachovia") holds such shares in its
capacity as Trustee of the Master Trust. Under the terms of the Master
Trust, Wachovia is required to vote shares of ESOP Preferred Stock allocated
to participants' accounts in accordance with instructions received from such
participants and to vote allocated shares of ESOP Preferred Stock for which
it has not received instructions and unallocated shares in the same ratio as
shares with respect to which instructions have been received. Wachovia has
no investment power with respect to shares of ESOP Preferred Stock.
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ITEM 2--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to stockholder ratification, the Board has appointed the firm of
Deloitte & Touche LLP ("Deloitte & Touche") as independent auditors for the
fiscal year ending December 31, 1996 and until their successors are selected.
The appointment was made upon the recommendation of the Audit Committee, which
is comprised of Directors who are not employees of the Company or its
subsidiaries.
A representative of Deloitte & Touche is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so and will be available to answer appropriate questions.
THE BOARD CONSIDERS DELOITTE & TOUCHE TO BE WELL QUALIFIED AND RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF ITS APPOINTMENT AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE UPCOMING FISCAL YEAR.
STOCKHOLDER PROPOSALS
Certain stockholders have submitted the nine proposals set forth below. The
Company will furnish, orally or in writing as requested, the names, addresses
and claimed share ownership positions of the proponents of these stockholder
proposals promptly upon written or oral request directed to the Secretary of the
Company. The following proposals have been carefully considered by the Board,
which has concluded that their adoption would not be in the best interests of
the Company or its stockholders. For the reasons stated after each proposal and
its supporting statement, the Board recommends a vote AGAINST each proposal.
Proposals of stockholders intended to be presented at the next Annual
Meeting must be received by the Secretary of the Company no later than
[ ], 1996 [120 CALENDAR DAYS IN ADVANCE OF THE MAILING DATE FOR THIS
YEAR'S PROXY STATEMENT] at the Company's principal executive offices: RJR
Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019-6013.
ITEM 3--STOCKHOLDER PROPOSAL ON EQUAL EMPLOYMENT
OPPORTUNITY REPORTING
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"In 1994 corporations spent more than $2.2 billion on legal fees and related
discrimination settlements. The Equal Employment Opportunity Commission (EEOC)
reported that over 155,000 discrimination complaints were filed in 1994. The
high cost of legal expenses, the potential loss of government contracts and the
financial consequences of a damaged corporate image from discrimination
allegations is placing this issue high upon a priority list for shareholders.
Companies must better reflect the marketplace, the customer, trading partners,
and the diverse workforce through all levels of its organization.
"CEOs from 28 major companies have cited changing demographics of the labor
force, the diverse national consumer market, and rapid globalization of the
marketplace as reasons for expanding diversity. Over 100 major employers
publicly report on work diversity and EEO-1 information. Corporate publications
available to their shareholders such as: Capital Cities/ABC's Commitment Report
for shareholders, Kmart Corporation's Reflections of America, U.S. Air's
Affirming Workplace Diversity, Amoco's Diverse Work Force and Sears' Corporate
Responsibility Report, just to name a few, are disclosing EEO statistics for
public review.
"Many California corporations provide this data voluntarily, including all
of the regulated utilities and most of the major banks. Southern California
Edison, for example, has informed the Glass Ceiling Commission that it supports
public reporting of this kind.
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"The bi-partisan Glass Ceiling Commission was established to study and make
recommendations on the Glass Ceiling by 1995. Concerned investors have closely
watched the development of this study. Secretary of Labor, Robert Reich, and a
21 member Glass Ceiling Commission released a report called "Good For Business:
Making Full Use of the Nation's Human Capital." This report is an important
analysis for shareholders because it shows that in the U.S. we select from less
than 1/2 the total talent in our workforce. For example, women and minorities
who represent over 57% of the workforce represent only 3% of the executive
management positions. This is a serious deficiency in our ability to select the
most talented people for our top management positions. It affects our
competitive position if we stifle this gifted portion of our workforce.
"Through this resolution, we are asking our company to report to
shareholders the progress we have made and the obstacles we still have to
overcome.
"Be it resolved: A report shall be prepared at reasonable cost, by September
1996, excluding confidential information and shall focus on the following areas:
"1. A copy of the consolidated EEO-1 report for 1993, 1994, 1995
available to shareholders upon request.
"2. Report the number of discrimination complaints and lawsuits
concerning race, gender and the physically challenged. The cost to the
company and shareholders from discrimination lawsuits and alternatives to
resolve the issue.
"3. Report any federal audit, corporate management review, and letter of
compliance with corrective measures enacted to protect the company's
government contracts and legal penalties.
"4. Report to shareholders on the race, ethnicity and gender among top
management.
"5. A description of any policies and programs utilizing the purchase of
goods and services from minority-and/or female-owned business enterprises."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Company's corporate policy set forth in the RJR Nabisco Code of Conduct
is to provide equal employment opportunity in all personnel matters. The Company
and its subsidiaries strive to maintain a workplace that is free of
discrimination on the basis of race, color, religion, gender, age, sexual
orientation, national origin, disability or veteran status. The Company is proud
of the progress it and its subsidiaries have made in recent years in building a
varied and diverse workforce and is fully committed to continuing to advance the
goals of equal opportunity and diversity in the workplace.
The Company's and its subsidiaries' current efforts in this area include
diversity awareness training for employees; recruiting, developing and advancing
women, minorities and people with disabilities; work and family programs;
internal diversity councils and employee networking groups; and HIV/AIDS
awareness and education.
As federal contractors, the Company's subsidiaries prepare annual
Affirmative Action Plans which analyze the workforce by department and job group
according to race and gender, and which establish goals in those areas where the
Company and its subsidiaries strive to increase the representation of minorities
and women. Affirmative Action Plans are also developed annually for people with
disabilities and Vietnam Era and disabled veterans. The Company's subsidiaries
actively monitor the progress and effectiveness of all of their Affirmative
Action Plans throughout the year. Female and minority workforce representation
is studied and analyzed, not only for the current year, but also in comparison
to past years for the purpose of identifying important trends. The Company's and
its subsidiaries' commitment to increasing the representation of women and
minority employees is further supported by a wide range of corporate
sponsorships and contributions.
The proponent proposes to make three years of EEO-1 reports available to any
of the Company's more than 60,000 employees and more than 400,000 stockholders.
These reports, which contain data on
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the race and gender composition of the Company's and its subsidiaries' U.S.
workforces, require substantial time and effort to produce and consist of
several hundred pages of data. Making three years of these reports available on
demand would prove very burdensome to the Company.
The proponent has also asked the Company to generate additional reports and
paperwork. The Board believes that the production and distribution of additional
reports would not serve to advance either the Company's or its subsidiaries'
business performance or the goal of equal employment opportunity and, further,
that the resources and costs involved would far exceed any benefit to
stockholders.
Given our existing equal opportunity policies and programs and our
continuing efforts to improve them, the significance the Company and its
subsidiaries already place on locating and fostering minority and women-owned
business enterprises, and the fact that the Company annually submits detailed
statistical information on equal employment opportunity to the federal
government, the Board believes that this proposal is both unnecessary and
inappropriate.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 4--STOCKHOLDER PROPOSAL ON USING PROFITS TO
DISCOURAGE UNDERAGE SMOKING
Two stockholders have submitted the following proposal, which will be voted
upon at the Annual Meeting if presented by its proponents:
"WHEREAS tobacco is a 'gateway drug' for teenagers;
"-- An estimated 62 percent of all smokers began using tobacco by age 15;
"-- 3,000 minors begin smoking daily; nearly 1,000 of them will eventually
die as a result. Currently, more than 4 million children and adolescents smoke
cigarettes, and 1 million adolescent boys currently use smokeless tobacco.
Smoking by young people is rising sharply. Between 1991 and 1994, the percentage
of eighth graders smoking increased 30 percent; the percentage of tenth graders
smoking increased 22 percent;
"-- Tobacco products are among the most heavily advertised products in the
country. In 1993, the tobacco industry spent $6.2 billion advertising and
promoting cigarettes and smokeless tobacco. Tobacco advertising expenditures
have increased more than 1,500 percent between 1970 (the year before television
and radio advertising was banned) and 1992;
"-- In 1989 the Surgeon General concluded tobacco advertising and promotion
do appear to stimulate cigarette consumption;
"-- An estimated 3% of all sales of cigarettes and smokeless tobacco are to
underage smokers;
"-- The Centers [sic] for Disease Control has reported that 85 percent of
underage smokers who purchase their own cigarettes purchase on [sic] of the
three most heavily advertised brands: Marlboro, Camel, and Newport. This
contrasts to only one-third of adults who smoke;
"-- Although prohibited by the industry's own Code of Conduct, most people
would agree that cigarette advertisements associate smoking with happiness,
sophistication, good health, youthful vigor, sports and leisure activities,
sexual attraction and independence -- all themes that strongly appeal to teens
and young adults;
"-- We believe industry-sponsored initiatives to stop youth from smoking
have been ineffective and self-serving in light of other efforts by cigarette
companies and the industry to gut efforts to enforce efforts to keep teens from
smoking;
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"-- 1995 rules proposed by the FDA to curtail teen smoking include a
requirement of tobacco companies to contribute to a $150 million advertising
campaign, including TV commercials, to stop young people from smoking;
"RESOLVED that shareholders request the Board to devise effective strategies
to cease profiting from underage smoking and to strengthen efforts to eliminate
underage smoking. In implementing this proposed resolution, shareholders ask the
Board to consider:
"1. That the 3% of our cigarette/tobacco profits realized from sales to
minors be contributed to a third party such as the American Heart
Association or the American Cancer Society.
"2. This third party would use the funds to run a national anti-smoking
advertising campaign aimed at discouraging minors from smoking.
"3. The goal of the campaign would be to achieve a substantial reduction
in the number of underage smokers.
"4. The campaign would be evaluated after three years to determine its
effectiveness."
The proponents have submitted the following statement in support of their
proposal:
"Increasingly, institutional investors are concerned that companies in which
they hold stocks are realizing profits generated from tobacco sales to minors.
However, instead of divesting from such companies, they are using their
influence to keep youth from smoking in other ways, such as support for this
shareholder resolution. Please support this effort by voting "yes" on this
resolution."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
While RJRT strongly disagrees with the proponents' statements, it shares
with the proponents its firm and longstanding belief that "Kids should not
smoke." RJRT stands behind that position by offering programs that supplement
other private and governmental youth non-smoking efforts in schools, at retail
outlets and in the home. These programs were developed with guidance from child
educators, psychologists and retailers, and reflect the many studies which show
that the key factor affecting youth smoking is the influence of peers and family
and that restricting the accessibility of cigarettes helps reduce youth smoking.
In comparison, numerous studies find that advertising and promotion play
essentially no role in young people's decision to smoke. Currently, across the
country, RJRT's programs have reached more than 3,300,000 middle- and
junior-high school students in more than 800 cities and towns, some 50,000
retailers, and significant numbers of parents who wish to talk to their children
about not smoking.
Developed with educators and community leaders and launched in 1991, RJRT's
"Right Decisions, Right Now" program has educated and encouraged children ages
12-15 years old--the ages in which experimentation begins for many things,
including smoking--to make appropriate lifestyle decisions independent of
potentially negative peer pressure and peer influence. The program includes:
. Wall posters, challenging the peer-influenced reasons for smoking,
distributed to junior- and middle-high schools.
. An in-class curriculum series on decision-making.
. Brochures on handling peer pressure.
. Public service announcements featuring young role models like Will Smith,
star of "The Fresh Prince of Bel-Air," Joey Lawrence, star of "Blossom,"
Kellie Martin of "Life Goes On," and Melissa Joan Hart of "Clarissa
Explains It All."
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Launched in 1992, RJRT's "Support The Law" comprehensive program has helped
retailers, store managers and clerks comply with the minimum age laws by
generating increased awareness of and greater appreciation for addressing these
laws. The program includes:
. Brochures and videos explaining the importance of legal age laws and
educating retailers and sales clerks on the appropriate steps for
complying with the law.
. Employee reminder signs to assist clerks in customer ID procedures.
. "Support The Law" store signs that confirm to customers that the store
supports the minimum age law.
. Publicity provided for the program by Actor Danny Glover through personal
appearances, print ads, and public service announcements. Mr. Glover also
travels across the country speaking to youths about lifestyle choices
urging kids not to smoke.
. Beginning in 1994, "Support The Law" materials have been incorporated in
the U.S. Junior Chamber of Commerce retailer compliance program JAYS
(Jaycees Against Youth Smoking).
For some time RJRT has distributed "Tobacco: Helping Your Child Say No. A
Parent's Package to Helping Young People Make the Right Decisions" and "How to
Talk to Your Kids About Not Smoking Even If You Do" materials to thousands of
adults who have requested them.
The Company has supported minimum age requirements in all 50 states and also
supported recent minimum age enforcement measures enacted by the Department of
Health and Human Services
In Summary, RJRT already has effective programs offered throughout the
United States to combat youth smoking, and the Company does not believe that a
proposal to provide major funding to anti-tobacco groups would represent a wise
use of Company profits.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 5--STOCKHOLDER PROPOSAL ON INFANTS AND TOBACCO
Two stockholders have submitted the following proposal, which will be voted
upon at the Annual Meeting if presented by its proponents:
"WHEREAS one of the warnings on cigarette packs sold in the United States of
America states: "Smoking by Pregnant Women May Result in Fetal Injury, Premature
Birth, and Low Birth Weight;
"-- This concern was echoed last year at the Annual Meeting of our largest
competitor when its Chairman and Chief Executive Officer stated: 'It would be
sensible for mothers who are pregnant not to smoke,' and 'I think it would be
sensible for pregnant women not to smoke;'
"-- A recent analysis of the harm to fetuses and to newborns caused by
cigarettes indicates that cigarettes cause up to 141,000 abortions, 61,000 cases
of low birthweight, 4,800 prenatal deaths, and 2,200 deaths from the Sudden
Infant Death Syndrome (SIDS) each year in this country;
"-- Moreover, cigarettes impair fertility and reduce a woman's capacity to
nurse;
"-- Out of concern for protecting the unborn from harm, the manufacturer of
Accutane, another product known to be toxic to the fetus, conducts an extensive
educational campaign designed to inform both physicians and potential consumers
about the importance of women not using Accutane if they are or might become
pregnant;
"RESOLVED shareholders request the Board to devise effective strategies to
prevent harm to infants from tobacco smoke both before and after their birth."
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The proponents have submitted the following statement in support of their
proposal:
"In the process of creating this policy, shareholders recommend that
management evaluate the effectiveness of this program on reducing the use of the
company's cigarette brands by women who are or who might become pregnant and to
report to requesting shareholders on progress being made in this regard by
January 1, 1999.
"The cigarette is a major cause of fetal and neonatal harm. The manufacturer
of another product that causes harm in pregnancy takes conscientious steps to
reduce the chance of harm happening. Cigarettes continue to cause serious injury
in pregnancy and in the neonatal period despite a warning on cigarette packs. It
is time for the Company to take the actions necessary to reduce this harm by
developing and implementing a program to reduce the use of its brands of
cigarettes by women who are pregnant or who might become pregnant."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
A specific warning relating to smoking by pregnant women appears on
cigarette packs and in advertisements in rotation with three other government
prescribed warnings. This warning and the others are part of a comprehensive
federal program designed by Congress to adequately inform the public of any
relationship between smoking and health. The warnings are clearly written and
easy to understand. The warnings constantly reinforce the widespread, if not
universal, awareness of health risks associated with smoking, including health
risks associated with smoking and pregnancy. RJRT strictly complies with
health-warning requirements.
The widespread awareness of smokers and nonsmokers of health risks
associated with smoking and pregnancy; the awareness of physicians frequently
reinforced by articles in medical journals; the education campaigns conducted by
public and private health organizations; and information from government
agencies that is widely publicized on this issue--all stand in sharp contrast to
the Accutane example referenced in the proposal. In that case, a prescription
drug was approved in 1982 by the Food and Drug Administration (the "FDA") for
the limited specific use of treating only severe recalcitrant cystic acne that
was potentially disfiguring and for which other treatments were ineffective. The
manufacturer included warnings that the drug must not be used by women who were
or could become pregnant because of the high risk of severe birth defects.
Nevertheless, within a few years, there were calls to ban the use of the drug
among women of childbearing age due to births of malformed babies to women who
used the drug. The FDA believed that some patients and doctors ignored the
risks, not being fully aware of the extremely high frequency and the severity of
the defects. The manufacturer and the FDA reached an agreement for an
unprecedented program to restrict prescription of the drug solely to its limited
specific use, to exclude the possibility of pregnancy before taking the drug,
and to ensure that effective contraception was used by women of childbearing age
while using the drug. This example is far removed from the risks associated with
smoking and pregnancy, which are well-known, well-appreciated and broadly
disclosed through U.S. Government warnings on packaging.
RJRT believes that women should consult their doctors throughout their
pregnancy and follow their doctors' advice. Likewise, parents should consult
their babies' doctors and their own doctors with regard to proper care for
newborns.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 6--STOCKHOLDER PROPOSAL ON RATING AND CURBING NICOTINE
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"WHEREAS the federal Food and Drug Administration has proposed regulating
cigarettes and smokeless tobacco products as drugs;
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"-- Virtually every major health organization in the United States of
America as well as throughout the world has concluded that cigarette smoking and
smokeless tobacco-use are addictive;
"-- An estimated 40 million people smoke in the United States; a vast
majority of these are addicted to tobacco use. Each day 3,000 young people begin
to smoke. Of these one half will become addicted and of these, half will die of
smoking;
"-- Most who smoke want to stop but find this difficult to do so;
"-- It has been recognized by the medical profession as well as many in the
tobacco industry that the addictive ingredient in tobacco is nicotine;
"-- The FDA reported that nicotine content in cigarettes has increased for
all brand categories including regular, low nicotine and ultra low brands from
1982 to 1992;
"-- Our company is being sued in a national class action suit alleging that
we intentionally addict consumers through the design, manufacture and marketing
of our brands and that our tobacco products have caused serious health problems
to the class members;
"-- A successful lawsuit may affect adversely and seriously the price of our
stock;
"-- Certain tobacco companies have developed new nicotine analogs that
reduce certain adverse health effects of nicotine while maintaining
pharmacological effects which could be beneficial to smokers who want to quit;
"-- A 'smokeless cigarette' has also been developed that eliminates many
toxic agents in cigarette smoke;
"-- Scientists have recommended that nicotine levels in tobacco products be
slowly reduced to a level that cannot induce addiction among young non-smokers;
"-- The technology is available to our company for it to reduce nicotine
content in its tobacco products;
"-- A panel of experts recently concluded that the current Federal Trade
Commission's rating for nicotine in cigarettes does not provide adequate
information for smokers about how much nicotine they actually receive from
smoking;
"RESOLVED that shareholders request the Board to take steps to preserve the
health of its tobacco-using customers. We suggest the following steps:
"1. Develop and publicize nicotine ratings for each of our cigarette
brands and to [sic] make this available in accurate information to our
customers about how much nicotine they consume when smoking.
"2. Determine the nicotine level in cigarettes at which nicotine
addiction cannot be induced or maintained. With this information, the
Company shall implement a program that would gradually reduce levels of
nicotine in our brands over an appropriate time period to a level that is
not addictive. This effort to reduce nicotine availability would be
undertaken in collaboration with independent health experts.
"3. Develop and market new nicotine or nicotine-like products that have
minimal toxic agents that can be used by our consumers in lieu of cigarette
smoking, and market these products as drugs or medical devices to help adult
smokers quit tobacco use."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
Nicotine yields of cigarettes based on the Federal Trade Commission ("FTC")
test method have been reported by or to the FTC for many years. In addition,
cigarette advertisements are required to list the advertised cigarette's "tar"
and nicotine yield based on the FTC test method. RJRT believes the
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FTC test method remains an accurate, uniform, reliable and understandable method
for determining the relative yields of "tar," nicotine and carbon monoxide in
cigarette smoke. The FTC test method was not intended to duplicate the
conditions of actual human smoking since no standard method can take into
account the wide range in human smoking behavior. Changes to the standard
conditions, such as changes to puff volume, frequency or duration, will result
in changes to smoke yields. However, the relative rankings of cigarette yields
would remain essentially constant if any change to the method was applied
uniformly across the brands. The FTC recognized and considered these factors
when the method was adopted.
While the FDA claims that the nicotine content in cigarettes has increased
for all brand categories from 1982 to 1992, RJRT believes the FDA's analysis and
conclusions are misleading. RJRT believes that the sales-weighted smoke yields
of "tar" and nicotine used by the FDA were incorrectly calculated and, more
importantly, that the FDA has chosen to ignore the long history of "tar" and
nicotine reduction by U.S. cigarette manufacturers. In the mid-1950's
sales-weighted average "tar" was 38 milligrams and sales-weighted average
nicotine was 2.3 milligrams. By 1979, these sales-weighted yields had decreased
to 14.8 and 1.1 milligrams for "tar" and nicotine respectively. RJRT's
calculations for 1993 (the most recent industry data submitted to the FTC and
provided by the FTC to Congress in 1995) show a sales-weighted "tar" of 12.4
milligrams and sales-weighted nicotine of 0.9 milligrams. Sales weighted "tar"
and smoke nicotine are significantly lower than in the past.
With regard to the proponent's statements on the "addictive" properties of
nicotine, RJRT has clearly stated its position on cigarette smoking and
"addiction" in peer-reviewed scientific literature and in other statements. In
RJRT's opinion, cigarette smoking does not meet the classic definition of
"addiction" and 45 million American smokers should not be labeled as "addicts."
Calling cigarette smoking "addictive" ignores significant differences between
cigarettes and addicting drugs.
There is no accurate empirical evidence establishing that any specific
cigarette yield of nicotine causes "addiction." In 1994, Drs. Neal Benowitz and
Jack Henningfield published a letter in the New England Journal of Medicine
proposing the establishment of a "nicotine threshold for addiction." The
nicotine content for the cigarette proposed in that letter would be lower than
any cigarette currently on the market. In fact, the proposed cigarette described
is lower in nicotine content than a denicotinized cigarette test marketed by
Philip Morris that was unacceptable to consumers. RJRT believes that the
Benowitz/Henningfield proposal, which has been criticized by others, is based on
unsupported assumptions and would not be commercially feasible. Numerous RJRT
cigarette brands are on the market today with varying yields of "tar" and
nicotine to meet the tastes of adult smokers ranging from Camel unfiltered
cigarettes with 22 milligrams "tar" and 1.4 milligrams nicotine to NOW (box
style) cigarettes with less than 0.5 milligrams of "tar" and less than 0.05
milligrams of nicotine (based on the most recent industry data submitted to the
FTC and provided by the FTC to Congress in 1995).
The proponents propose that RJRT develop "new nicotine or nicotine-like"
products and market these products as smoking cessation devices. Many such
products are currently on the market and are regulated by the FDA as drugs or
medical devices. RJRT has not been in that business because it is in the tobacco
business--not the smoking cessation device business. RJRT has been manufacturing
and marketing cigarettes for smoking pleasure and enjoyment since 1913. RJRT
believes that the FDA does not have jurisdiction over cigarettes as currently
marketed. RJRT believes that its focus should remain on the development and
marketing of cigarettes for adult smokers' pleasure and enjoyment.
In summary, while no standard method can account for the wide range in
smoking behavior, the FTC method does provide an accurate and reliable method
for determining the relative nicotine yields in cigarette smoke. The FDA's
assertion that nicotine yields have increased is misleading. In fact, over the
years both "tar" and nicotine yields have been reduced by more than 60%.
Cigarette smoking does not meet the classic definition of "addiction" and there
is no accurate evidence establishing that any specific yield of nicotine causes
"addiction." RJRT's focus should remain on developing and marketing cigarettes
for adult smokers' enjoyment.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
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ITEM 7--STOCKHOLDER PROPOSAL TO "ACCOMPLISH A SEPARATION OF
THE CORPORATION'S NON-TOBACCO BUSINESS FROM ALL ITS TOBACCO BUSINESSES
NO LATER THAN JANUARY 1, 1997"
Two stockholders have submitted the following proposal, which will be voted
upon at the Annual Meeting if presented by its proponents:
"WHEREAS, according to The Wall Street Journal (11/01/95), 'RJR Nabisco
Holdings Corp. conceded that a majority of investors are in favor of a spinoff
of its Nabisco unit.' The article quoted our CEO, Charles M. Harper as declaring
this spinoff would occur 'as soon as [it] can be completed in a matter [sic]
that the board determines is in the best interests of the shareholders and is
consistent with the corporation's commitments;
"-- The decision of our Company not to acquire 20% of Borden Inc., and to
sell 19% of our Nabisco food division to the public was seen by The Wall Street
Journal as the first step in dividing RJR into completely separate food and
tobacco companies (10/31/94);
"-- Many institutional investors believe our Company would produce better
financial returns if our tobacco business would be separated from our other
businesses. A shareholder resolution calling for this in 1995 received
significant support;
"-- Many institutional investors believe management of our Company is not
pursuing this spinoff within a reasonable time frame;
"-- For the second quarter, 1995, despite an 11 percent rise in earnings,
weak performance continued in our Company's domestic and international tobacco
segments;
"-- Some institutional investors have been uneasy about cigarette companies'
potential legal liability for the health problems of smokers, and think that
such problems have depressed the share price of tobacco companies' stock (The
New York Times 9/22/94);
"-- A consumer boycott of RJR Nabisco's products has been launched by
INFACT, a consumer activist group. It successfully brought infant formula
companies to change their practices and General Electric to sell a good portion
of its nuclear weapons business. Among INFACT's demands to end the boycott
include the Company's need to stop marketing to youth, stop influencing public
policy and pay its just share of health care costs associated with tobacco use;
"-- With the stock of the Company depressed in the past year from previous
years' highs, the threat of a consumer boycott does not auger [sic] well for any
rapid rebound;
"-- Increased litigation coming from States and private insurers indicate
new and ominous challenges that might undermine the value of the stock. The
stock value might be increased if the tobacco division(s) would be separated
from the other divisions;
"-- Spinoffs and break ups like the one that drove up AT&T's stock by 11% in
one day 'produced a gold mine in the past two and a half years for divesting
companies and investors' (The Wall Street Journal 09/30/95);
"RESOLVED: that the shareholders ask management to take the necessary steps
to accomplish a separation of the Corporation's non-tobacco business from all
its tobacco businesses no later than January 1, 1997."
The proponents have submitted the following statement in support of their
proposal:
"On October 31, 1995, our CEO Charles M. Harper declared: 'Based on
discussions with shareholders, we know that a majority are in favor of a spinoff
just as soon as it can be reasonably
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accomplished.' Support for this resolution will indicate to management
shareholders concern that this be accomplished as soon as possible."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The proposal presents essentially the same issues recently considered by the
Company's stockholders. The LeBow/Icahn Group recently commenced the LeBow/Icahn
Solicitation which, among other things, advocates an immediate spin-off of
Nabisco (the "LeBow/Icahn Immediate Spin-off Proposal"). The Company believes
that the proponents' and the LeBow/Icahn Group's proposals present the same
substantive issues. The Company also believes that there is no meaningful
difference between the timing of the spin-off advocated by the proponents and
the immediate spin-off called for by the LeBow/Icahn Group because there are
only eight months between the Annual Meeting and the proposal's deadline to
complete the spin-off no later than January 1, 1997. In the Company's view, the
LeBow/Icahn Solicitation is providing a full opportunity for both the Company
and its stockholders to present their views on the issues underlying the
proposal. Accordingly, the Company does not support the proposal for the same
basic reasons that it opposes the LeBow/Icahn Immediate Spin-off Proposal, as
outlined below.
The Board is already committed to effecting a spin-off of Nabisco. The Board
has been and continues to be committed to a spin-off of Nabisco. Management also
believes that a majority of our stockholders agree that a spin-off of Nabisco is
an attractive option. The Board's commitment to a spin-off of Nabisco is
premised on the fact that, in order for such a spin-off to be advisable, it must
be both in the best interests of the Company and its stockholders and consistent
with the Company's public commitments.
The Company has taken significant steps to prepare itself for, and to
preserve its ability to effect, a possible spin-off of Nabisco. When the time
comes, the Company will be in a position to move quickly to effect the spin-off.
This is not the time to effect a spin-off of Nabisco. For a spin-off to be
in the best interests of stockholders, it must (i) be accomplished in a manner
that avoids long litigation delays and the resulting uncertainty, (ii) preserve
the financial integrity of both our food and tobacco businesses, and (iii) be
tax free. In consultation with its independent financial, tax and legal
advisors, the Board has carefully considered a spin-off of Nabisco for more than
a year and has studied all of its ramifications. The Board has concluded that
committing at this time to spin off Nabisco by January 1, 1997 would not be in
the best interests of the Company or its stockholders.
Potential litigation by tobacco claimants. The Board believes that, in the
face of the current status of litigation against tobacco companies, an
announcement that the Company is taking steps to effect a spin-off by January 1,
1997 could cause great damage to the Company and its stockholders.
The Company believes that such an announcement would aggravate the current
tobacco litigation situation because plaintiffs' lawyers who have mounted class
actions and other lawsuits against tobacco companies would likely seek an
injunction to prevent an immediate spin-off. A spokesman for a consortium of
nearly 60 plaintiffs' law firms involved in the Castano class action has
confirmed that "[i]f they want a spin-off, they will absolutely be hit with an
injunction."1 Any such injunctive proceeding would likely result in protracted
litigation. Even if an injunction were not granted, given the current litigation
environment, the Company believes that these plaintiffs' lawyers can be expected
to pursue claims attacking such a spin-off for years, placing a cloud over the
validity of the transaction and depressing the value of the stock of both the
Company and Nabisco. Such litigation would not only be
- - ------------
1 From an article by Glenn Collins in The New York Times, November 4, 1995,
quoting John P. Coale. No permission has been sought or received to quote
from, or refer to, published materials cited in this Proxy Statement.
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damaging to the Company and the spun-off food company, but could also involve
claims directly against the Company's stockholders.2
Many independent analysts agree with the Company that there are significant
litigation risks associated with a near-term spin-off. For example:
. In an October 9, 1995 report, Marc Cohen, an analyst with Goldman, Sachs &
Co. ("Goldman, Sachs"), asserted that a "[s]pin-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."3
. In a December 13, 1995 report, Martin Feldman, an analyst with Smith
Barney Inc. ("Smith Barney"), stated that, "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."
A decision concerning the appeal of the certification of a leading federal
class action (the Castano case) is expected in spring/summer of 1996 and
decisions clarifying the status of state actions seeking reimbursement for
Medicare/Medicaid expenditures are expected by late 1997 or early 1998.
Decertification of such a tobacco plaintiff class action and a favorable
decision on a state Medicare/Medicaid lawsuit would set precedents for future
actions, thereby reducing market uncertainty about tobacco litigation.
By waiting for the current tobacco litigation situation to clarify, the
Company believes that the likelihood of litigation challenging the spin-off can
be reduced.
Preserving the financial integrity of the food and tobacco businesses. Last
year, the Board publicly committed not to spin off Nabisco prior to December 31,
1996, and not to spin off Nabisco prior to December 31, 1998 if the spin-off
would cause the senior debt of either RJRN or Nabisco to be rated below
investment grade. The Company has stated these commitments in numerous publicly
filed and publicly disclosed documents over the past year, including offering
documents for the sale of securities of the Company, RJRN and Nabisco.
- - ------------
2 Fraudulent conveyance claims have been made against a defendant class of
stockholders seeking to require the stockholders to repay amounts that they
received in a spin-off transaction or leveraged buy-out. For example, in In re
Integra Realty Resources, Inc., an institutional stockholder has been named as
a representative defendant for a class action against stockholders in an
action in which a spin-off of Integra's shares in ShowBiz Pizza Time, Inc. is
alleged to be a fraudulent conveyance. 179 B.R. 264 (Bankr. D. Colo. 1995).
The Company is not aware, however, of any adjudicated case in which public
stockholders, who were neither insiders nor controlling stockholders of the
conveying entity, have been held liable on such a claim.
3 The Company has, from time to time, obtained investment banking services from
certain of the investment banks referred to in this Proxy Statement, including
Goldman, Sachs which, among other things, was the lead underwriter in the
initial public offering of the Nabisco shares.
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After consultation with major credit rating agencies, the Company made these
public commitments for the benefit of its stockholders. These commitments
allowed the Company to successfully complete major restructuring initiatives
during 1995, namely (i) Nabisco's initial public offering, which established an
independent value for Nabisco's equity and enabled the Company to start paying a
regular quarterly cash dividend of $1.50 per share on an annualized basis; and
(ii) a reallocation of debt between RJRN and Nabisco which allowed Nabisco to
obtain long-term debt financing independent of RJRN. The Company believes that
these transactions have benefited stockholders by enabling them to receive a
cash return on their investment and permitting the Company to reduce its
aggregate cost of capital. Importantly, these public commitments and
transactions also have laid the groundwork for a spin-off of Nabisco at such
time as the spin-off can be achieved in a manner that is in the best interests
of the Company and its stockholders.
The Board believes that abrogating these public commitments would be
improper and clearly not in the best interests of the Company's stockholders.
First, the Board believes that, as a general matter, boards of directors of
major public corporations should honor their commitments. Second, based on
discussions that the Company has had with credit rating agencies, the Company
believes that the announcement that the Company is taking steps to effect a
spin-off prior to January 1, 1997 would likely have an adverse effect on the
Company's and RJRN's credit ratings. Indeed, independent analysts have expressed
concerns about the possible credit rating downgrade accompanying a near-term
spin-off of Nabisco, including Martin Feldman, an analyst with Smith Barney, who
said that "[s]eparating Nabisco would most likely cause RJR's tobacco division
to lose its investment grade rating [which]. . . would likely fall to junk level
without Nabisco's assets,"4 and Gary Black, an analyst with Sanford C. Bernstein
& Co., Inc., who stated 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."5 Third, 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.
Finally, although its commitments are not contained in written contracts, the
Company also believes that an announcement of a spin-off of Nabisco prior to
January 1, 1997 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.
Lack of consensus as to the "upside" that might result from a
spin-off. Furthermore, although the Board believes that a spin-off of Nabisco
could result in an increase in the Company's stock price, it is appropriate to
question the "upside" that might be realized by the Company's stockholders in
return for the risks described above. The LeBow/Icahn Group has portrayed a
spin-off of Nabisco as having the potential to increase the value of the
Company's shares significantly. A number of independent analysts, however, have
stated that an immediate spin-off of Nabisco would likely result only in a small
increase in the value of the Company's shares. For example, on November 1, 1995,
in an article from the Knight-Ridder news service, Fred Taylor, an analyst with
Salomon Brothers, was quoted as saying "I am 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." Given the
uncertainty about the potential "upside" associated with a near-term spin-off,
stockholders should consider whether now is the right time to spin-off Nabisco
in light of the above-outlined risks which the Company and its stockholders
currently face.
There is no need to send a message to the Board that stockholders advocate a
spin-off of Nabisco. Finally, it is important to note that the Board is aware
of, and in agreement with, the majority of stockholders who support a spin-off
of Nabisco at a time when it can be effected in a manner that is in the best
interests of stockholders. In fact, the Board is working to achieve that goal.
There is no need for stockholders to vote for the proposal as a message of
general stockholder support for a future spin-off.
- - ------------
4 Martin Feldman in a January 18, 1996 "First Call Report".
5 Gary D. Black and Jon F. Rooney in Bernstein Research--Weekly Notes, November
6, 1995.
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The Board agrees with this message and will continue to work to spin-off Nabisco
when it makes financial sense to both the Company and its stockholders.
In sum, after more than a year of consultation with independent financial,
tax and legal advisors, the Board has determined that making a commitment to
separate the stockholders' equity interest in our food and tobacco companies by
January 1, 1997, as the proponents advocate, would be ill-advised. Although the
Company is committed to effecting a spin-off of its remaining interest in
Nabisco at a time when the spin-off can be consummated in a manner that is in
the best interests of the Company and its stockholders, we do not believe that
pursuing a spin-off by the inflexible deadline advocated by the proponents would
serve such interests.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 8--STOCKHOLDER PROPOSAL ON EXECUTIVE OFFICER
COMPENSATION
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"RESOLVED, that the shareholders recommend that the Board refrain from
granting any bonuses, stock options, performance accelerated awards or options,
deferred compensation, or any other form of monetary or stock award, except base
salary, to the top five officers of our Corporation as listed in the Proxy
Statement, until such time as our stock price reaches $50 per share."
The proponent has submitted the following statement in support of his
proposal:
"The recent statements made by certain corporate raiders have put a sharp
spotlight on the fact that for many shareholders, RJR Nabisco's stock market
performance has been lackluster at best. For many long-term holders such as the
writer, this investment has proved painful and disappointing. Shareholders
received an annual report in 1994 entitled "Dear Shareholder" which set forth
all the ways in which management was working to increase shareholder value. In
1995, shareholders received an annual report describing how a "new" RJR Nabisco
was beginning to emerge. Management extolled the virtues of a one for five stock
split (reminiscent to this writer of some of the maneuvers engaged in by penny
stocks) telling shareholders that this would have a positive impact on the price
of our stock--it did not! The travails of the tobacco industry cannot be an
excuse for poor performance--after all, Philip Morris' stock price recently
soared to over $90 per share. The fact is, that notwithstanding the good
intentions of our management, their performance has not resulted in any
substantial increase in stock price.
"It is recommended that the top five salaried officers of our Corporation,
as listed in the Proxy Statement, not receive compensation other than their
salaries, until such time as our stock price reaches $50 per share (our stock
price equated to over $56 per share in 1991). Granting any form of bonus, at
this point in time, would be a reward for poor performance. Directors serving on
the Compensation Committee of our board have a duty to protect the interests of
the shareholders and to ensure that shareholder money is not used to reward
undeserving performance. Granting additional stock options to the top five
executives would be an unconscionable windfall, which would inappropriately
reward these individuals at a time when our stock is selling at bargain-basement
prices. If our stock had been selling in the $50-$60 range, we probably would
have avoided the interest of noted corporate raiders. Many individuals have
become interested in our stock because they know it is "cheap" and that
management has stumbled in its many efforts to significantly enhance shareholder
value.
"The top five salaried officers of our Company should not be unduly rewarded
by our Compensation Committee until such time as our stock price reaches $50 per
share. We do not need any more
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"Dear Shareholder" annual reports or glossy descriptions of the "new" RJR
Nabisco. Our disappointing stock price is evidence that the market disagrees
with management's decisions. We need performance, performance and more
performance!"
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
As noted below in the report of the Compensation Committee of the Board, the
Company believes that the most important considerations in determining executive
compensation are: (1) compensation opportunities must enable the Company to
attract and retain individuals with the high caliber of talent and skills which
are critical to the Company's success and (2) a substantial portion of each
executive officer's compensation must be tied to quantifiable measures of the
Company's financial results from operations and stock price performance. The
Company also believes that simplistic formulas will not benefit the Company as
much as careful and thoughtful identification of goals, which, when achieved,
will greatly benefit the Company and its stockholders. Accordingly, in
determining its incentive compensation opportunities and goals, the Company
considers a variety of quantitative and qualitative factors.
The Board believes that it would not be in the stockholders' best interests
to adopt a rudimentary and inflexible formula for granting incentive
compensation to executive officers. The Company seeks to tailor its employees'
performance goals to the specific responsibilities of each executive officer and
to the current needs of the Company. As the rigid structures put forth in the
proposal would divorce the compensation of its employees from the achievement of
the Company's performance goals, the Board believes that the proposal is not in
the best interests of the Company and its stockholders.
A significant portion of executives' long-term compensation is already tied
to stock price performance. The proposed resolution unwisely bases executive
compensation on that one economic performance standard to the exclusion of other
criteria important to a company's performance. The stock price of a publicly
traded company is subject to various economic, industry and market forces which
are often beyond management's control. These divergent forces can and do cause
significant price changes, up and down, among various stocks, stock groups, and
the stock market as a whole.
The Company believes that it is essential to use performance standards in
addition to that of the Company's stock price. During an economic downturn (as
during all economic cycles), expanding market share, creating new products,
improving cost-effectiveness and stabilizing finances are all vital components
of a company's health. The Company believes that achievement of performance
standards in these areas will result in increased long-term value to its
stockholders. In the Board's view, severing the link between the compensation of
executive officers and the achievement of these standards, as this proposal
advocates, would be detrimental to stockholder interests.
The Company believes that approval of the proposed resolution would hamper
its ability to retain competent and committed executives and employees. The
adoption of a rigid, inflexible rule like the proposed resolution could harm
stockholders by making the retention of qualified executives and employees
difficult if not impossible. The Company prides itself on the quality and
experience of its executives and employees. In the Board's view, the Company's
ability to attract and retain highly qualified and experienced executives and
employees is closely tied to its flexible executive compensation policies.
Compensation is a key factor in attracting such individuals to manage and work
for the Company. In short, approval of the proposed resolution could severely
restrict the Company's ability to attract and retain highly-qualified executives
and employees, thus impeding the Company's ability to succeed within its highly
competitive industry.
The Company believes that it has an appropriate system to develop and
administer its executive compensation policies and practices. In the Company's
view, the existing policies and measurements are consistent with the practice of
comparable corporate employers and effectively identify executive and corporate
goals and create appropriate incentives and rewards for achieving these goals.
Establishing a program based on the narrow criterion called for in the proposal
would adversely affect the Company's
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compensation programs and make it substantially more difficult, if not
impossible, to attract and retain the best executive talent. This would harm
both the Company and its stockholders.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 9--STOCKHOLDER PROPOSAL TO USE STOCK TO COMPENSATE
DIRECTORS
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"RESOLVED that the shareholders recommend that the Board take the necessary
steps to ensure that from here forward all non-employee directors should receive
a minimum of fifty percent of their total compensation in the form of company
stock which cannot be sold for three years."
The proponent has submitted the following statement in support of his
proposal:
"A significant equity ownership by outside directors is probably the best
motivator for facilitating identification with shareholders.
"Traditionally, outside directors, sometimes selected by management, were
routinely compensated with a fixed fee, regardless of corporate performance. In
today's competitive global economy, outside directors must exercise a critical
oversight of management's performance in furthering corporate profitability. All
to [sic] often, outside director's oversight has been marked by complacency,
cronyism, and inertia.
"Corporate America has too many examples of management squandering company
assets on an extended series of strategic errors. Meanwhile, boards of directors
stood by and passively allowed the ineptitude to continue, well after disaster
struck. They fiddled while Rome was burning.
"When compensation is in company stock, there is a greater likelihood that
outside directors will be more vigilant in protecting their own, as well as
corporate, and shareholder interests.
"What is being recommended in this proposal is neither novel or untried. A
number of corporations have already established versions of such practices,
namely, Scott Paper, The Travelers, Hartford Steam Boiler, and Alexander &
Alexander.
"Harvard Business School did a series of studies comparing highly successful
to poorly performing companies. They found that outside directors in the better
performing companies had significantly larger holdings of company stock than
outside directors in the more mediocre and poorly performing companies.
"It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to a company's
profitability, as paying them exclusively in stock. However, it is our
contention that stock options are rewarding on the upside but offer no penalties
on the downside. There are few strategies that are more likely to cement outside
directors with shareholder interests and company profitability than one which
results in their sharing the same bottom line.
"I urge your support. Vote for this resolution."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
Since the Company's inception, the Company has required that each Director
be a stockholder of the Company. In the Company's view, because all of the
Company's non-employee Directors currently own a substantial amount of shares
and/or options exercisable for shares in the Company, this proposal seeks to
address a problem which is nonexistent. As shown under the heading "Security
Ownership of Management" earlier in the Proxy Statement, the Company's
non-employee Directors own or hold
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currently exercisable options representing a total of more than 40,000 shares of
Common Stock. As a result of these meaningful equity holdings in the Company,
the interests of the non-employee Directors are already closely aligned with
those of the stockholders.
Grants of stock options are an integral component of the Company's
compensation package for non-employee Directors. As outlined later in the Proxy
Statement under the heading entitled "Director's Compensation," each
non-employee Director, upon becoming a Director, receives an option to purchase
6,000 shares of the Company's Common Stock. These one-time stock option grants
have an exercise price equal to the fair market value on the grant date, have a
six-month vesting period and are thereafter exercisable for ten years from the
grant date. In addition, each non-employee Director receives an annual grant of
stock options which is made on the date of the Director's election or re-
election to the Board. These annually granted stock options have a fifteen-year
term and vest over three years (33% on the first and second anniversaries of the
date of grant and 34% on the third anniversary).
The Company believes that approval of this proposal would damage the
Company's ability to retain key non-employee Directors. The adoption of such an
inflexible rule regarding compensation of non-employee Directors could severely
restrict the Company's ability to compete with other firms in attracting and
retaining highly-qualified non-employee Directors, thereby hindering its ability
to recruit or enhance stockholder value.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 10--STOCKHOLDER PROPOSAL ON NON-EMPLOYEE DIRECTOR PENSIONS
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"RESOLVED, that the shareholders assembled in person and by proxy, recommend
(i) that all future non-employee directors not be granted pension benefits and
(ii) current non-employee directors voluntarily relinquish their pension
benefits."
The proponent has submitted the following statement in support of his
proposal:
"Aside from the usual reasons, presented in the past, regarding 'double
dipping', that is outside (non-employee) directors who are in almost all cases
amply rewarded with their pension at their primary place of employment, and in
many instances serving as outside pensioned directors with other companies,
there are other more cogent reasons that render this policy as unacceptable.
"Traditionally, pensions have been granted in both the private and public
sectors for long term service. The service component usually represents a
significant number of hours per week. The practice of offering pensions for
consultants is a rarity. Outside directors' service could logically fit the
definition of consultants and pensions for this type of service is an abuse of
the term.
"But more importantly, outside directors, although retained by corporate
management, namely the C.E.O., are in reality representatives of shareholders.
Their purpose is to serve as an impartial group to which management is
accountable. Although outside directors are certainly entitled to compensation
for their time and expertise, pensions have the pernicious effect of
compromising their impartiality. In essence, pensions are management's grants to
outside directors to insure their unquestioning loyalty and acquiescence to
whatever policy management initiates, and at times, serving their own self
interests. Thus, pensions become another device to enhance and entrench
management's controls over corporate policies while being accountable only to
themselves. I am a founding member of the Investors Rights Association of
America and I feel this practice perpetuates a culture of corporate management
'cronyism' that can easily be at odds with shareholder and company interest.
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"A final note in rebuttal to management's contention that many companies
offer their outside directors pensions, so they can attract and retain persons
of the highest quality. Since there are also companies that do not offer their
outside directors pensions, can management demonstrate that those companies that
offer pensions have a better performance record then [sic] their non-pensioned
peers? In addition, do we have any evidence of a significant improvement in
corporate profitability with the advent of pensions for outside directors?
"I urge your support. Vote for this resolution."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Company's director retirement programs are in line with the majority of
its peer companies and removal of this benefit would place the Company at a
significant disadvantage to its competitors in recruiting outside directors.
Given the public policy pressures already exerted on the Directors, the Company
cannot afford to eliminate incentives to serve on the Board.
Publicly held companies compensate their non-employee directors by various
methods, including annual retainers, board and committee meeting fees,
discounted company products and services, stock options, deferred compensation
and medical, dental, life insurance and retirement or pension plans. Among a
peer group of companies from both the food and tobacco industries, 70% provide
retirement programs for their non-employee directors.*
In light of the significant duties and responsibilities of the Company's
non-employee Directors, the Company believes that its total compensation package
for non-employee Directors, which includes the Directors Retirement Plan, is in
the best interests of stockholders.
The Company believes that its non-employee Directors play a key role in
furthering the interests of stockholders. Directors are responsible for
overseeing the business affairs of the Company and have legal fiduciary duties
in exercising those responsibilities. Non-employee Directors invest a
considerable amount of time in representing stockholders, remaining informed and
formulating and monitoring the strategic business plans of the Company. In
addition, non-employee Directors undertake considerable legal risk of being
challenged in fulfilling their responsibilities.
Pension benefits are a significant component of a Director's total overall
compensation. Having a fair compensation package benefits the Company by
enabling it to engage and retain experienced and knowledgeable Directors. Since
potential Directors are often sought by numerous companies, a company's
compensation program is often a factor in a candidate's decision to join a board
of directors. The Directors Retirement Plan is designed to give capable persons
an incentive to join the Board and then to remain on the Board for a sufficient
time to gain more experience and knowledge of the Company's businesses.
Withdrawal of the Directors Retirement Plan would place the Company at a
distinct competitive disadvantage in today's marketplace.
It should be noted that outside Directors of the Company are not, as the
proponent asserts, "retained by corporate management, namely the C.E.O." Rather,
Directors are nominated by the Board, a majority of which consists of
non-employee Directors, and elected by shareholders. Likewise, Directors'
retirement benefits are not "management's grants to non-employee directors" but,
rather, are reviewed and approved by the Board.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
- - ------------
* An October 5, 1995 study by Frederic W. Cook & Co., Inc., an independent
consulting firm retained by the Company, surveyed the non-employee director
compensation programs and practices of 23 of the Company's peer group
companies. The peer group consisted of companies from both the food and
tobacco industries, including Anheuser-Busch, Coca-Cola, Philip Morris and
Quaker Oats. Among the peer group, 70% provide retirement programs for their
non-employee directors.
25
<PAGE>
ITEM 11--STOCKHOLDER PROPOSAL ON GOLDEN PARACHUTES
A stockholder has submitted the following proposal, which will be voted upon
at the Annual Meeting if presented by its proponent:
"RESOLVED, that the shareholders recommend that the Board adopt a policy
against entering into future agreements with officers and directors of this
corporation which provide compensation contingent on a change of control of the
corporation, unless such compensation agreements are submitted to a vote of the
shareholders and approved by a majority of shares present and voting on the
issue."
The proponent has submitted the following statement in support of his
proposal:
"Lucrative severance contracts awarded to senior corporate executives which
provide compensation contingent on a change of control, usually through a merger
or acquisition of the corporation, are known as "golden parachutes". These
contracts are awarded without shareholder approval.
"The practice of providing these large cash awards to a small group of
senior corporate managers without shareholder approval has been a subject of
public outcry. In 1988, the U.S. Senate in emphasizing the potential conflict of
interest between management and shareholders created by these agreements voted
ninety eight to one to require shareholder approval of golden parachutes which
exceed three times annual compensation.
"Although final action was not taken, it is clear to me that the
overwhelming vote in favor of the measure reflects public sentiment against
golden parachutes. A shareholder vote would allow the corporation's owners to
decide for themselves whether golden parachutes are in their best interests.
"I am a founding member of the Investors Rights Association of America and
it is clear to me that requiring a shareholder vote is necessary to address the
conflicts of interest between management and shareholders that arise in the
awarding of golden parachutes.
"I urge your support. Vote for this resolution."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Board believes that employee compensation arrangements which provide
reasonable benefits contingent upon a change in control serve the best interests
of the Company and its stockholders and are an integral and appropriate element
of a sound compensation program for its officers and directors. Requiring
stockholder approval of these agreements decreases the Company's flexibility to
implement these arrangements while providing no corresponding benefit to
stockholders.
The Company's existing employment (change-in-control) arrangements are
designed to minimize, rather than create, any conflict of interest that
executives might be deemed to have in the event of a takeover bid for the
Company. By providing financial security against possible job loss following a
takeover, these arrangements help management to assess a takeover bid
objectively, without fear of personal financial loss, and to advise the Board
whether the bid is in the best interests of the Company and its stockholders.
As a lengthy period may elapse from the time a change in control is proposed
until it is completed, the Company and its stockholders would be disadvantaged
if it were to lose key employees during that time. The existing employment
arrangements are an incentive for key managers to protect stockholder interests
and to remain with the Company while the Company is facing the threat of a
contest for control. These arrangements will NOT prevent a business combination
that would increase stockholder value.
The Board believes that the best interests of stockholders will be served if
it has the flexibility to implement employment arrangements with
change-in-control payment features under circumstances when it believes that
such arrangements would be in the best interests of the Company and its
stockholders. This flexibility would be severely hampered if the Company were
required to submit such arrangements to stockholders for approval, a cumbersome
and time consuming process. Retaining this flexibility is important to enable
the Company to attract and retain highly qualified officers and directors.
26
<PAGE>
In addition, the Company believes that requiring stockholder approval of
change-in-control provisions would involve an immediate and direct economic cost
to stockholders for several reasons. First, in the Board's view, requiring
stockholder approval of such arrangements would disadvantage the Company in the
highly competitive market for talented executives. Because such a requirement
subjects the ultimate adoption of change-in-control arrangements to uncertainty
and significant delay, the Company believes that some talented executives might
decline opportunities to join the Company. Moreover, the Company believes that
requiring stockholder approval of change-in-control arrangements might
ultimately raise the total current cost of executive compensation to the
stockholders. Those executives who choose to join the Company, despite the
stockholder approval requirement, might seek more value in direct benefits in
order to compensate for the uncertainty and delay created by the stockholder
approval requirement. The Company, therefore, believes that the stockholder
approval requirement would unnecessarily increase the cost of compensating new
executives.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
EXECUTIVE COMPENSATION
SUMMARY
The following pages describe the components of the total compensation of the
five most highly compensated executive officers (as defined under SEC rules) of
the Company at the end of the last completed fiscal year. The principal
components of such individuals' current cash compensation are the annual base
salary and bonus included in the Summary Compensation Table. The bonus amounts
represent amounts that the Compensation Committee and the Board approved for
each named individual based on Company performance during 1995. The long-term
compensation shown in the Summary Compensation Table was provided under the
Company's 1990 Long Term Incentive Plan (the "LTIP") which provides for various
types of awards such as stock options, restricted stock, performance share
awards and performance unit awards, as described below. Also described below is
the future compensation such individuals can receive under the Company's
retirement plans or, following termination of employment under certain
circumstances, under private employment agreements in effect during 1995.
SUMMARY COMPENSATION TABLE
The following table presents certain specific information regarding the 1995
compensation of the five most highly compensated executive officers of the
Company at the end of the last fiscal year. Mr. Goldstone served as
(non-employee) General Counsel from March 3, 1995 until September 30, 1995.
Effective October 1, 1995, Mr. Goldstone became employed as President and
General Counsel of the Company. As of December 5, 1995, Mr. Harper relinquished
the position of Chief Executive Officer of the Company and Mr. Goldstone became
its President and Chief Executive Officer. Mr. Harper continues to be employed
as Chairman of the Company.
27
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------------------------------
NAME & --------------------------------------- RESTRICTED RN STOCK NA STOCK LONG-TERM
PRINCIPAL OTHER ANNUAL STOCK OPTIONS OPTIONS INCENTIVE
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) AWARD(S)($)(2) (# SHARES) (# SHARES) PAYOUTS($)(3)
- - ---------------- ---- --------- ----------- --------------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STEVEN F. 1995 $ 762,821(5) $ 610,000 $ 14,770(6) $ 0 400,000 0 $ 0
GOLDSTONE.......
President & CEO
CHARLES M. 1995 $ 600,000 $ 2,410,000 $ 384,685(7) $ 0 280,000 1,090,550 (8) $ 0
HARPER.......... 1994 $ 600,000 $ 2,410,000 $ 7,534,241 $ 0 150,000 (8) -- $ 0
Chairman 1993 $ 700,000 $ 1,750,000 $ 472,830 $ 0 1,750,000 (8) -- $ 0
H. JOHN 1995 $ 837,500 $ 693,000 $ 1,896,714(9) $ 0 200,000 880,606 (10) $ 699,627
GREENIAUS....... 1994 $ 700,000 $ 983,430 $ 2,045,752 $ 0 0 -- $ 254,490
President & 1993 $ 601,042 $ 579,000 $ 71,398 $600,000 100,000 (10) -- $ 0
CEO, Nabisco,
Inc.
JAMES W. 1995 $ 837,500 $ 420,000 $ 1,365,804(11) $ 0 684,000 (12) 0 $ 697,857
JOHNSTON........ 1994 $ 700,000 $ 1,725,000 $ 3,902,147 $ 0 0 -- $ 255,104
Chairman, RJRT 1993 $ 612,083 $ 225,000 $ 123,435 $826,461 100,000 (12) -- $ 0
World Wide
ANDREW J. 1995 $ 440,481 $ 389,000 $ 231,118(13) $ 0 207,800 (14) 0 $ 409,225
SCHINDLER....... 1994 $ 322,314 $ 617,000 $ 198,703 $ 0 0 -- $ 144,090
President & 1993 $ 261,538 $ 175,000 $ 47,254 $360,000 35,000 (14) -- $ 0
CEO, RJ
Reynolds
Tobacco Co.
<CAPTION>
NAME & ALL
PRINCIPAL OTHER
POSITION COMPENSATION(4)
- - ---------------- ---------------
<S> <C>
STEVEN F. $ 6,375
GOLDSTONE.......
President & CEO
CHARLES M. $ 90,300
HARPER.......... $ 2,120,391
Chairman $ 423,417
H. JOHN $ 54,628
GREENIAUS....... $ 24,990
President & $ 34,808
CEO, Nabisco,
Inc.
JAMES W. $ 113,688
JOHNSTON........ $ 57,878
Chairman, RJRT $ 70,065
World Wide
ANDREW J. $ 31,724
SCHINDLER....... $ 10,613
President & $ 14,367
CEO, RJ
Reynolds
Tobacco Co.
</TABLE>
- - ------------
(1) Except as otherwise noted in this footnote, the bonus amounts shown in the
table for all of the named executive officers other than Mr. Goldstone
reflect annual bonus payments that were based solely on Company performance
during 1995 as determined using performance objectives established early in
1995. The amount shown for Mr. Goldstone was based largely (but not
exclusively) on the same performance objectives. The amount shown also
includes a special bonus amount of $300,000 paid in February 1995 to Mr.
Greeniaus in recognition of his critical role in the preparation for and
successful implementation of the initial public offering of Nabisco Stock,
and the increased scope of his responsibilities resulting therefrom.
(2) As of December 31, 1995, restrictions had lapsed on the restricted stock
awards made to the named executive officers.
(3) The amounts shown in the table represent long-term incentive payouts under
the Executive Equity Program of the LTIP and the 1993 Performance Share
Program of the LTIP. Performance Share awards, denominated in shares of
Common Stock, were granted in 1993. The number of shares earned was based
on cumulative operating company contribution for the performance period
1993-1995. The Performance Share payout was made in cash in February 1996.
The Executive Equity Program applies to individuals who previously acquired
purchase stock under the LTIP (as described under "Stock-Based Awards"
below). The named executive officers who participate in the program receive
cash grants on four annual grant dates (three, for Mr. Schindler) beginning
July 1994 and ending July 1997 (1996, for Mr. Schindler). The amount
awarded on each grant date is equal to the excess, if any, of (i) 25% (33%,
for Mr. Schindler) 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 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.
(4) The amounts shown in the table reflect Company contributions made on behalf
of the named individuals under the Company's qualified and non-qualified
defined contribution plans, as follows:
<TABLE><CAPTION>
COMPANY MATCHING CONTRIBUTION COMPANY CONTRIBUTION
NAME (QUALIFIED PLAN) (NON-QUALIFIED PLAN)
- - -------------------------------------- ----------------------------- --------------------
<S> <C> <C>
Mr. Goldstone......................... $ 4,500 $ 1,875
Mr. Harper............................ $ 4,500 $ 85,800
Mr. Greeniaus......................... $ 4,500 $ 50,128
Mr. Johnston.......................... $ 4,500 $ 72,375
Mr. Schindler......................... $ 4,500 $ 27,224
</TABLE>
(Footnotes continued on following page)
28
<PAGE>
(Footnotes continued from preceding page)
The amount shown in the table for Mr. Johnston also includes $36,813, which was
the 1995 premium for the insurance policies referred to in footnote (11).
(5) The amount shown in the table includes consulting fees earned by Mr.
Goldstone during his tenure as non-employee general counsel ($531,250) and
salary amounts received as an employee ($231,571).
(6) The amount shown in the table reflects amounts attributable to Mr.
Goldstone's participation in the Company's executive perquisite program,
which provides him with supplemental insurance and an annual allowance
($13,027 for the portion of the year during which he was an employee) which
may be used to reimburse miscellaneous expenses and, to the extent not so
used, is paid to him in cash. The supplemental insurance consists of
medical, dental, business travel accident and, to the extent elected, life,
spousal life, automobile and personal liability insurance.
(7) The amount shown in the table for Mr. Harper includes certain income tax
liabilities related to his life insurance arrangements which were
reimbursed by the Company to Mr. Harper. The amount shown in the table also
reflects amounts not paid to Mr. Harper but nonetheless allocable to his
personal use of company facilities and aircraft ($138,492) and amounts
attributable to Mr. Harper's participation in the Company's executive
perquisite program, which provides him with supplemental insurance, a
leased automobile and an annual allowance ($61,713) which may be used to
reimburse miscellaneous expenses and, to the extent not so used, is paid to
him in cash. The supplemental insurance consists of medical, dental,
business travel accident and, to the extent elected, life, spousal life,
automobile and personal liability insurance.
(8) In January 1995, in connection with the initial public offering of Nabisco
Stock, Mr. Harper received an option to purchase Nabisco Stock in exchange
for the cancellation of all of his then outstanding options to purchase
Common Stock (comprised of (i) options identified in the RN stock option
column for 1994 covering 75,000 shares and (ii) options identified in the
RN stock option column for 1993 covering 875,000 shares). The Nabisco Stock
option is described in the table captioned "Option Grants in the Last
Fiscal Year".
(9) Most of the amount shown in the table for Mr. Greeniaus reflects tax
payments made from a grantor trust established by RJRN in 1989 to hold
executives harmless from certain federal tax liabilities relating to the
leveraged buyout in 1989. The amount shown in the table also includes
certain income tax liabilities related to the funding of his retirement
plan benefit (described under "Retirement Plans") and to his participation
in the Executive Equity Program (described in footnote (3)), which
liabilities were reimbursed by the Company to Mr. Greeniaus. The amount
shown in the table also reflects amounts not paid to Mr. Greeniaus but,
nonetheless, allocable to his personal use of company aircraft, and amounts
attributable to his participation in the Company's executive perquisite
program, which provides him with supplemental insurance, a leased
automobile and an annual allowance ($54,134) which may be used to reimburse
miscellaneous expenses and, to the extent not so used, is paid to him in
cash. The supplemental insurance consists of medical, dental, business
travel accident and, to the extent elected, life, spousal life, automobile
and personal liability insurance.
(10) The amount shown in the table includes an option to purchase 555,606 shares
of Nabisco Stock granted to Mr. Greeniaus in January 1995, in exchange for
the cancellation of all of his then outstanding options to purchase Common
Stock (including all of his options identified in the RN stock option
column for 1993). The Nabisco Stock option is described in the table
captioned "Option Grants in the Last Fiscal Year".
(11) The amount shown in the table for Mr. Johnston includes certain income tax
liabilities related to (i) the funding of his retirement plan benefit
(described under "Retirement Plans"), (ii) his life insurance arrangements
and (iii) his participation in the Executive Equity Program (described in
footnote (3)), which liabilities were reimbursed by Holdings to Mr.
Johnston. The amount shown also reflects amounts not paid to Mr. Johnston
but nonetheless allocable to his personal use of company aircraft ($36,150)
and amounts attributable to Mr. Johnston's participation in the Company's
executive perquisite program, which provides him with supplemental
insurance, a leased automobile and an annual allowance ($47,500) which may
be used to reimburse miscellaneous expenses and, to the extent not so used,
is paid to him in cash. The supplemental insurance
(Footnotes continued on following page)
29
<PAGE>
(Footnotes continued from preceding page)
consists of medical, dental, business travel accident and, to the extent
elected, life, spousal life, automobile and personal liability insurance.
(12) The amount shown in the table includes an option to purchase 484,000 shares
of Common Stock that was granted to Mr. Johnston in exchange for the
cancellation of all of his then outstanding stock options (including the
option covering 100,000 shares identified in the RN stock option column
for 1993).
(13) The amount shown in the table for Mr. Schindler includes certain income tax
liabilities related to his participation in the Executive Equity Program
(described in footnote (3)), which liabilities were reimbursed by the
Company to Mr. Schindler. The amount shown in the table also reflects Mr.
Schindler's participation in RJRN's executive perquisite program, which
provides him with supplemental insurance, a leased automobile and an annual
allowance ($47,500) which may be used to reimburse miscellaneous expenses
and, to the extent not so used, is paid to him in cash. The supplemental
insurance consists of medical, dental, business travel accident and, to the
extent elected life, spousal life, automobile and personal liability
insurance.
(14) The amount shown in the table includes an option to purchase 147,800 shares
of Common Stock that was granted to Mr. Schindler in exchange for the
cancellation of all of his then outstanding stock options (including the
option covering 35,000 shares identified in the RN stock option column for
1993).
STOCK-BASED AWARDS
The Company believes that significant purchases of Common Stock by its
executives through the commitment of personal financial resources is critical to
the Company's philosophy of encouraging executives to act as owner-managers.
Accordingly, the Company maintains the LTIP to encourage executives to purchase
Common Stock. The Company has issued stock options and other stock-based awards
under the LTIP to the named executive officers and to other key employees.
Certain options granted to all of the named executive officers were conditioned
on the purchase by them of Common Stock.
In connection with the purchase of Common Stock under the LTIP, executives
were permitted to borrow on a secured basis from the Company the purchase price
for the shares of the purchased stock. In addition, purchasers were entitled to
borrow money from the Company on substantially the same terms to pay taxes, if
any, due on any taxable income recognized in connection with such purchases. For
Mr. Goldstone, the current annual interest rate is 6.26% (the applicable federal
rate for long-term loans as of December 1995). For all of the other named
executive officers with outstanding indebtedness, the current annual interest
rate, which was set in July 1993 at the then applicable federal rate for long
term loans, is 6.37%. The indebtedness, plus accrued interest and taxes, must be
repaid upon the earlier of sale of the shares or termination of plan
participation. As of February 1, 1996, the named executive officers of the
Company with outstanding indebtedness in connection with such loans were: Mr.
Goldstone, $[500,002]; Mr. Greeniaus $1,647,748; Mr. Johnston $995,895; and Mr.
Schindler $473,841. Messrs. Greeniaus, Johnston and Schindler have repaid a
portion of their indebtedness since January 1, 1995. The largest amount of
indebtedness since January 1, 1995 for each of these individuals was Mr.
Greeniaus $1,895,989; Mr. Johnston $1,266,472; and Mr. Schindler $631,219.
The following table identifies the grants of stock options made to the named
executive officers in 1995. For Messrs. Harper and Greeniaus, the table also
includes options to purchase shares of Nabisco Stock granted pursuant to a
long-term incentive plan maintained by Nabisco including, as identified in
footnotes to the table, options granted in exchange for the cancellation of
outstanding options to purchase Common Stock under the LTIP. For Messrs.
Johnston and Schindler, the table includes stock options that were granted in
exchange for the cancellation of stock options covering an equal number of
shares.
30
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR (1995)
<TABLE><CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR (1) ($/SHARE) DATE VALUE (2)
- - --------------------------- ------------------ ---------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
S. F. Goldstone............ 100,000 RN(3) 0.8% $ 28.125 8/8/10 $ 689,000
100,000 RN(3) 0.8% $ 32.250 10/11/10 $ 790,000
200,000 RN(3) 1.5% $ 30.250 12/5/10 $ 1,482,000
C. M. Harper............... 150,000 RN(6) 1.2% $ 30.750 12/31/10 $ 1,129,500
130,000 RN(4)(5) 1.0% $ 28.875 6/13/10 $ 919,100
1,090,550 NA(7) 12.1% $ 24.500 1/19/10 $11,559,830
H. J. Greeniaus............ 200,000 RN(3) 1.5% $ 28.125 8/8/10 $ 1,378,000
555,606 NA(7) 4.3% $ 24.500 1/19/10 $ 5,889,424
325,000 NA(8) 3.6% $ 24.500 1/19/10 $ 3,445,000
J. W. Johnston............. 200,000 RN(3)(4) 1.5% $ 29.700 4/27/10 $ 1,260,000
484,000 RN(5)(9) 3.7% $ 27.000 4/27/10 $ 3,199,240
A. J. Schindler............ 60,000 RN(3)(4) 0.5% $ 29.700 4/27/10 $ 378,000
147,800 RN(5)(9) 1.1% $ 27.000 4/27/10 $ 976,958
</TABLE>
- - ------------
(1) The percentages shown in this column opposite grants of options to purchase
Common Stock represent the percentage of all options to purchase Common
Stock and the percentages shown in this column opposite grants of options to
purchase Nabisco Stock represent the percentage of all options to purchase
Nabisco Stock under the long-term incentive plan maintained by Nabisco.
(2) The grant date present values shown in the table were determined pursuant to
the Black-Scholes option valuation model, using the following assumptions:
stock price volatility of .3283 and .2205 for the Company and Nabisco,
respectively; dividend yield of 5.14% and 1.9% for the Company and Nabisco
respectively; interest rate 6.95%; and, for each option, its full 15 year
term. There were no adjustments made for non-transferability or risk of
forfeiture. The actual value, if any, that an executive officer may realize
from his or her stock options (assuming that they are exercised) will depend
solely on the gain in stock price over the exercise price when the shares
are sold.
(3) These stock options become vested and exercisable over three years in
accordance with the following schedule: 33% on each of the first and second
anniversaries of the date of grant and 34% on the third anniversary of the
date of grant. The stock options have terms of 15 years from the date of
grant but are subject to earlier cancellation in certain circumstances.
(4) The exercise price of these stock options is equal to 110% of the fair
market value of Common Stock on the date of grant.
(5) These stock options are vested, but will not become exercisable until the
third anniversary of the date of grant. The stock options have terms of 15
years from the date of grant, but are subject to earlier cancellation in
certain circumstances.
(6) This stock option was granted to Mr. Harper on December 31, 1995 pursuant to
the terms of his employment agreement. The exercise price of the stock
option is equal to the fair market value of Common Stock on the date of
grant. The stock option becomes vested and exercisable over two years in
accordance with the following schedule: one-half on each May 31, beginning
May 31, 1996. The stock option has a term of 15 years from the date of
grant, but is subject to earlier cancellation in certain circumstances.
(7) These stock options relate to shares of Nabisco Stock and were granted
pursuant to a long-term incentive plan maintained by Nabisco. They were
granted in exchange for the cancellation of outstanding options to purchase
Common Stock under the Company's long term incentive plan. These stock
options are vested, but will not become exercisable until the third
anniversary of the date of grant. The stock options have terms of 15 years
from the date of grant, but are subject to earlier cancellation in certain
circumstances.
(Footnotes continued on following page)
31
<PAGE>
(Footnotes continued from preceding page)
(8) This stock option relates to shares of Nabisco Stock and was granted
pursuant to a long-term incentive plan maintained by Nabisco. The stock
option becomes vested over three years in accordance with the following
schedule: 33% on each of the first and second anniversaries of the date of
grant and 34% on the third anniversary of the date of grant, but may not be
exercised until the third anniversary of the date of grant. The stock option
has a term of 15 years from the date of grant, but is subject to earlier
cancellation in certain circumstances.
(9) These stock options were granted in exchange for the cancellation of an
equal number of outstanding stock options.
In April 1995, the Company permitted optionholders to exchange all of their
outstanding stock options for an equal number of new stock options.
Optionholders who desired to participate in the exchange were required to
surrender all of their outstanding stock options, including options for which
the then fair market value of Common Stock exceeded the exercise price ("in the
money" options). The following table provides certain information regarding the
exchange for those executive officers of the Company who elected to participate
in the exchange. Of the executive officers identified in the Summary
Compensation Table, only Messrs. Johnston and Schindler participated in the
exchange. The exchange is discussed further in the Compensation Committee Report
beginning on page .
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE><CAPTION>
NUMBER OF
SECURITIES
UNDERLYING MARKET PRICE OF EXERCISE PRICE AT
OPTIONS/SARS STOCK AT TIME OF TIME OF NEW EXERCISE LENGTH OF ORIGINAL OPTION TERM
REPRICED OR REPRICING OR REPRICING OR PRICE ($) REMAINING AT DATE OF REPRICING OR
DATE AMENDED (#) AMENDMENT($) AMENDMENT ($) (1) AMENDMENT
------- ------------ ---------------- ----------------- ------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
James W.
Johnston........... 4/27/95 484,000 $27.00 $ 25.00 -$37.50 $27.00 4 yrs. 0 mons. to 13 yrs. 2 mons.
Chairman, RJRT WW
Andrew J.
Schindler.......... 4/27/95 147,800 $27.00 $ 25.00 -$50.00 $27.00 4 yrs. 0 mons. to 13 yrs. 2 mons.
Pres. & CEO, RJRT
Pierre de
Labouchere......... 4/27/95 23,600 $27.00 $ 25.00 -$50.00 $27.00 4 yrs. 0 mons. to 13 yrs. 2 mons.
Pres & CEO, RJRTI
Robert S. Roath.... 4/27/95 92,000 $27.00 $ 27.815-$37.50 $27.00 10 yrs. 0 mons. to 13 yrs. 2 mons.
SVP & CFO
Gerald I.
Angowitz........... 4/27/95 15,680 $27.00 $ 27.815-$50.00 $27.00 10 yrs. 8 mons. to 13 yrs. 2 mons.
SVP, HR & Admin
Huntley R.
Whitacre........... 4/27/95 29,440 $27.00 $ 25.00 -$50.00 $27.00 4 yrs. 0 mons. to 13 yrs. 2 mons.
SVP, Investor Rel
Jason H. Wright.... 4/27/95 26,000 $27.00 $ 27.815-$50.00 $27.00 10 yrs. 0 mons. to 13 yrs. 2 mons.
SVP, WW Comm
H. Colin McBride... 4/27/95 31,200 $27.00 $ 25.00 -$50.00 $27.00 4 yrs. 0 mons. to 13 yrs. 2 mons.
VP, AGC & Secy
Jo-Ann Ford........ 4/27/95 37,983 $27.00 $ 27.815-$50.00 $27.00 10 yrs. 0 mons. to 13 yrs. 2 mons.
SVP Law & Secy
</TABLE>
- - ------------
(1) The new exercise price is equal to the fair market value of Common Stock on
the date of grant.
The following table provides information relating to the number and value of
shares of Common Stock subject to options held by the named executive officers
as of December 31, 1995. There were no stock option exercises during 1995 by any
of the named individuals.
32
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUE (1995)
<TABLE><CAPTION>
VALUE OF UNEXERCISED,
TOTAL NO. UNEXERCISED IN-THE-MONEY
OPTIONS HELD OPTIONS HELD AT FY- END ($)
SHARES AT FY-END (#) (1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME TYPE ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
S. F. Goldstone...... RN 0 $0 0 400,000 $ 0 $ 362,500
C. M. Harper......... RN 0 $0 462,500 617,500 $ 1,131,250 $ 1,456,250
NA 0 $0 0 1,090,550 $ 0 $ 8,860,719
H. J. Greeniaus...... RN 0 $0 0 200,000 $ 0 $ 525,000
NA 0 $0 0 880,606 $ 0 $ 7,154,924
J. W. Johnston....... RN 0 $0 0 684,000 $ 0 $ 2,025,000
A. J. Schindler...... RN 0 $0 0 207,800 $ 0 $ 617,250
</TABLE>
- - ------------
(1) Calculated based on the excess of the fair market value on December 31, 1995
of Common Stock ($30.75) or Nabisco Stock ($32.625), as appropriate, over
the option exercise price.
LONG TERM INCENTIVE AWARDS
The following table describes performance stock units that were granted to
Mr. Goldstone in 1995 in accordance with his employment agreement. The table
also describes cash-denominated performance unit awards that were granted to the
other named executive officers in 1995 pursuant to the LTIP. Participants were
granted a designated number of performance units, which may be earned upon
completion of a three-year performance period. Payouts of awards at the end of
the performance period are based on cumulative cash net income before the
after-tax amortization of trademarks and goodwill during the performance period
for the Company and its subsidiaries, for worldwide tobacco or for domestic
tobacco, as appropriate.
LONG TERM INCENTIVE PLANS
AWARDS IN LAST FISCAL YEAR (1995)
<TABLE><CAPTION>
AWARDS
----------------------------------------
NO. OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
SHARES/UNITS OR OTHER PERIOD UNTIL -------------------------------------
NAME OTHER RIGHTS (#) MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- - ------------------------- ---------------- -------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PERFORMANCE STOCK UNITS
S. F. Goldstone(1)..... 200,000 12/31/98 0 200,000 200,000
PERFORMANCE UNIT AWARDS
C. M. Harper(2).......... 2,029,000 12/31/97 0 $2,029,000 $3,043,500
H. J. Greeniaus.......... 0 n/a
J. W. Johnston(3)........ 3,000,000 12/31/97 0 $3,000,000 $4,500,000
A. J. Schindler(4)....... 2,000,000 12/31/97 0 $2,000,000 $3,000,000
</TABLE>
- - ------------
(1) Each performance stock unit granted to Mr. Goldstone is equal in value to
one share of Common Stock and will be paid to Mr. Goldstone only if (i) Mr.
Goldstone remains employed by the Company through December 31, 1998 (unless
he is terminated by the Company without cause or he voluntarily terminates
employment with good reason) and (ii) the market price for Common Stock
averages $43.75 or more for any consecutive 30-day period ending on or prior
to December 31, 1998.
(2) The payout for Mr. Harper is based on cumulative cash net income during the
performance period for the Company. If targeted results are achieved, the
performance units will have the targeted
(Footnotes continued on following page)
33
<PAGE>
(Footnotes continued from preceding page)
value. The performance units will have no value unless the actual
performance exceeds 86.2% of the target, and they will have the maximum
value if the actual performance equals or exceeds 114.7% of the target.
(3) The payout for Mr. Johnston is based on cumulative cash net income during
the performance period for worldwide tobacco operations. If targeted results
are achieved, the performance units will have the targeted value. The
performance units will have no value unless the actual performance exceeds
88% of the target, and they will have the maximum value if the actual
performance equals or exceeds 112.5% of the target.
(4) The payout for Mr. Schindler is based on cumulative cash net income during
the performance period for domestic tobacco operations. If targeted results
are achieved, the performance units will have the targeted value. The
performance units will have no value unless the actual performance exceeds
89.3% of the target, and they will have the maximum value if the actual
performance equals or exceeds 108% of the target.
RETIREMENT PLANS
The named executive officers participate in noncontributory defined benefit
retirement plans maintained by the Company or its subsidiaries. Mr. Goldstone,
Mr. Greeniaus, Mr. Johnston and Mr. Schindler also participate in a Supplemental
Executive Retirement Plan. Mr. Harper's employment agreement provides him with a
vested supplemental pension substantially similar to the Supplemental Executive
Retirement Plan, except that Mr. Harper will be credited with 6 years of service
in addition to his actual service with the Company. Benefits under the
Supplemental Executive Retirement Plan are payable only after a participant's
retirement at a specified retirement age.
The following table shows the estimated annual benefits payable upon
retirement under the Supplemental Executive Retirement Plan and, in Mr. Harper's
case, pursuant to his employment agreement, as described in the preceding
paragraph. The retirement benefits shown are computed without regard to the
Social Security offset and are based upon retirement at age 60 and the payment
of a single-life annuity to the employee.
ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS OF SERVICE
---------------------------------------
AVERAGE FINAL COMPENSATION 10 OR FEWER 15 20 OR MORE
- - -------------------------- ----------- ---------- ----------
$ 800,000 $ 266,666 $ 300,000 $ 400,000
$ 900,000 $ 300,000 $ 337,500 $ 450,000
$1,000,000 $ 333,333 $ 375,000 $ 500,000
$1,200,000 $ 400,000 $ 450,000 $ 600,000
$1,600,000 $ 533,333 $ 600,000 $ 800,000
$2,000,000 $ 666,666 $ 750,000 $1,000,000
$2,400,000 $ 800,000 $ 900,000 $1,200,000
$2,800,000 $ 933,333 $1,050,000 $1,400,000
$3,200,000 $ 1,066,666 $1,200,000 $1,600,000
$3,600,000 $ 1,200,000 $1,350,000 $1,800,000
$4,000,000 $ 1,333,333 $1,500,000 $2,000,000
For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of base salary, bonus in the year earned (target
bonus, for Mr. Goldstone) and pre-tax contributions to plans maintained under
sections 401(k) and 125 of the Code, and is determined by considering the 36
consecutive months that yield the highest average compensation during the
participant's last 60 months of service. If the participant has fewer than 36
months of service, all months are considered. Average Final Compensation as of
December 31, 1995 for the named individuals was: Mr. Goldstone: ; Mr.
Harper: $3,000,000; Mr. Greeniaus: ; Mr. Johnston: ; and Mr.
34
<PAGE>
Schindler: . The following are estimated years of credited service at age
60 (rounded to the nearest year) for the participants listed above (giving
effect to individual arrangements): Mr. Goldstone: 24 years; Mr. Greeniaus: 28
years; Mr. Johnston: 30 years and Mr. Schindler: 20 years. Mr. Harper's
estimated years of credited service at the end of the term of his employment
agreement will be [10] years
In 1994, the Company purchased annuity contracts to fund retirement benefits
for certain participants in the Supplemental Executive Retirement Plan
(including Messrs. Greeniaus and Johnston) and for Mr. Harper under his
retirement arrangement. The annuity contracts fund the participants' after-tax
vested benefits, reduced by their vested benefit under the Company's qualified
pension plan. In 1995, the Company purchased annuity contracts to fund the
retirement benefits accrued in 1994 for Messrs. Greeniaus and Johnston. The
benefits funded by the purchase of annuity contracts will not be available to
the individuals until they retire.
AGREEMENTS WITH CERTAIN OFFICERS
Effective December 5, 1995, the Company and RJRN entered into an employment
agreement with Mr. Goldstone pursuant to which Mr. Goldstone became employed as
Chief Executive Officer of, and continued to serve as President of, the Company
and RJRN. Pursuant to the employment agreement, Mr. Goldstone is entitled to
receive an annual base salary of at least $1.1 million per year and a target
bonus of at least 70% of his base salary. The employment agreement also provides
that Mr. Goldstone will participate in the Supplemental Executive Retirement
Plan ("SERP") and is eligible for retiree medical coverage (for which purpose he
is deemed to be at least age 55), under which programs he is credited with 13.5
years of service in addition to his actual service with the Company. Mr.
Goldstone's after-tax benefit under the SERP is required to be funded on a
current basis, but will be forfeited if his employment terminates for "cause" or
without "good reason" (each as summarized below), in either case prior to the
earlier of October, 1998 or a change of control (as summarized below, a "Change
of Control"). Mr. Goldstone is to be reimbursed for taxes incurred as a result
of funding this arrangement.
The employment agreement provides that if the Company or RJRN terminates Mr.
Goldstone's employment without "cause" or if Mr. Goldstone terminates his
employment for "good reason", then Mr. Goldstone will receive compensation
continuance and additional retirement credits, welfare benefits and certain
perquisites (collectively, "Continued Benefits") for three years. Compensation
continuance will be based on Mr. Goldstone's then current base salary and target
annual bonus. "Cause" includes willful gross misconduct or malfeasance, or
substantial and continuing willful refusal by Mr. Goldstone to perform his
duties, in each case having a material adverse effect on the Company or RJRN, or
certain criminal conduct. "Good reason" includes a reduction in Mr. Goldstone's
duties or positions, a reduction in Mr. Goldstone's initial salary and annual
bonus opportunity, relocation, a material breach of the contract by RJRN or the
Company, or following a Change of Control a reduction in compensation programs
or benefits.
Upon a Change of Control, or if Mr. Goldstone's employment is terminated
during the 24-month period following a Change of Control, the employment
agreement provides for compensation and benefits consistent with the provisions
applicable to other headquarters employees as described below. A Change of
Control includes certain acquisitions of 30% or more of the combined voting
power of the Company securities, certain changes in the composition of the
Holdings Board, certain mergers or consolidations of the Company or the
disposition of substantially all the assets of the Company.
In 1993, the Company and RJRN entered into a four year employment agreement
with Mr. Harper pursuant to which Mr. Harper became employed as Chairman of the
Boards of Directors of the Company and RJRN and Chief Executive Officer of the
Company and RJRN. Pursuant to the employment agreement, Mr. Harper was entitled
to receive an annual base salary plus bonus of at least $3.0 million per year,
including annual base salary of at least $1.2 million. In order to enable the
35
<PAGE>
Company to preserve its federal income tax deduction for the salary and annual
bonus paid to Mr. Harper, Mr. Harper agreed, in March 1994 and February 1995, to
amend the employment agreement as it related to his salary and annual bonus for
1994 and 1995, respectively. The amendments reduced his base salary for those
years to $600,000, increased his target bonus to reflect the salary reduction
and made his annual bonus contingent on company operating performance.
The employment agreement provided that Mr. Harper will receive a
supplemental pension and certain life insurance, both of which are vested and
funded. The employment agreement (as amended through April 1995) also provided
that if the Company or RJRN terminated Mr. Harper's employment without "cause"
or if Mr. Harper terminated his employment for "good reason" (each as summarized
below) then Mr. Harper would receive compensation continuance and Continued
Benefits for three years. Compensation continuance would be based on Mr.
Harper's then current base salary and the highest annual bonus previously paid
to, or accrued for, him. In the event that a "parachute" excise tax would be
imposed on any payments to Mr. Harper, Mr. Harper would also be reimbursed for
the amount of the excise tax on such payments as well as any incremental income
taxes payable on the reimbursed amount ("tax reimbursement payments").
The 1993 employment agreement required the Company to grant options to
purchase 150,000 shares of Common Stock to Mr. Harper on each December 31 on
which he remains employed by RJRN, through December 31, 1996. The exercise price
for the options is equal to the fair market value of such shares on the business
day immediately preceding the date of grant. The options are exercisable for 15
years from the date of grant; provided, that if Mr. Harper's employment
terminates for "cause", the options would expire immediately. The options become
vested and exercisable in equal annual installments on each May 31 after the
date of grant through May 31, 1997. Certain of the options become fully vested
upon Mr. Harper's retirement. Mr. Harper is currently eligible to retire.
In December 1995, Mr. Harper's employment agreement with the Company and
RJRN was amended and restated to reflect the fact that from and after December
5, 1995 Mr. Harper will continue to be employed only as Chairman of the Board of
the Company and RJRN and to extend the term of the agreement through December 5,
1998. The amended and restated employment agreement otherwise substantially
maintains the terms of the prior employment agreement except that Mr. Harper's
annual base salary beginning January 1996 was reduced to $500,000, and his
annual bonus opportunity is not guaranteed and will be subject to determination
by the Board. Under the amended and restated employment agreement, Mr. Harper is
no longer entitled to three years of compensation continuance in the event of
termination without "cause" or for "good reason"; instead, the duration of his
compensation continuance will be reduced to the remainder of the term of the
amended and restated agreement. "Good reason" includes an involuntary reduction
in Mr. Harper's duties or positions, an involuntary reduction in Mr. Harper's
salary or the failure to provide him with an annual bonus opportunity,
relocation, a material breach of the contract by RJRN or the Company, or
following a Change of Control a reduction in compensation programs or benefits.
"Cause" includes willful gross misconduct or malfeasance, or substantial and
continuing willful refusal by Mr. Harper to perform his duties, in each case
having a material adverse effect on the Company or RJRN, or certain criminal
conduct. In addition, certain Change of Control provisions have been
incorporated into the employment agreement consistent with the Change of Control
provisions applicable to other headquarters employees and Mr. Harper will be
entitled to certain other benefits upon a Change of Control under the LTIP, all
as described below.
Effective December 14, 1995, the Company, RJRN and Nabisco entered into an
employment agreement with Mr. Greeniaus amending and restating prior agreements
and pursuant to which Mr. Greeniaus agreed to serve as Vice Chairman of the
Company and RJRN and to continue to serve as President and Chief Executive
Officer of Nabisco. Pursuant to the employment agreement, Mr. Greeniaus is
entitled to receive an annual base salary of at least $850,000 per year and is
eligible for an annual target bonus opportunity of at least 70% of his base
salary for the relevant year. Mr. Greeniaus
36
<PAGE>
has vested retirement benefits under the SERP and certain other plans which are
funded in respect of his service through 1994. Upon the earlier of Mr.
Greeniaus' retirement or the termination of his employment other than for
"cause" or without "good reason" (each as summarized below), Nabisco will
provide additional funding for accruals under the SERP through the earlier of
such dates, subject to certain tax reimbursements. Under the employment
agreement, Nabisco also provides Mr. Greeniaus with life insurance, on a
tax-reimbursed basis, with a face amount of $3 million and credits Mr. Greeniaus
with a minimum age of 55 for purposes of retiree medical coverage.
The employment agreement provides that if Mr. Greeniaus' employment is
terminated without "cause" or if Mr. Greeniaus terminates his employment for
"good reason", then Mr. Greeniaus will receive compensation and Continued
Benefits for three years, during which time he is obligated to provide certain
consulting services to Nabisco. Compensation continuance will be based on the
total of Mr. Greeniaus' then current base salary and the most recent annual
bonus paid to, or accrued for him (or the current target level, if higher), less
certain amounts otherwise payable to him. "Cause" includes criminal dishonesty,
misconduct materially damaging to Nabisco, RJRN or the Company, or deliberate
and continuing willful refusal by Mr. Greeniaus to perform his duties. "Good
reason" includes a reduction in Mr. Greeniaus' responsibilities, a reduction in
his salary and annual bonus opportunity, relocation, or divestiture of Nabisco
by the Company following which Mr. Greeniaus no longer serves as Nabisco's Chief
Executive Officer and is not offered comparable employment with the Company.
Upon a change of control of Nabisco (as defined in the employment
agreement), all stock options granted to Mr. Greeniaus under the LTIP and the
Nabisco Long Term Incentive Plan will become fully vested and a pro-rata portion
of performance units and performance shares granted to him thereunder will vest.
In addition, upon a Change of Control, Mr. Greeniaus will be entitled to certain
benefits under the LTIP as described below. In the event that a "parachute"
excise tax would be imposed on any payments to Mr. Greeniaus, he will be
entitled to tax reimbursement payments.
In September 1993, Mr. Johnston entered into an employment agreement with
the Company, RJRN, RJRT and R.J. Reynolds Tobacco International, Inc. ("RJRTI"),
as supplemented in July 1995 and December 1995. Under his employment agreement,
Mr. Johnston is entitled to receive an annual base salary of at least $700,000
and is eligible for an annual target bonus opportunity of at least 70% of base
salary. Mr. Johnston's revised employment agreement provides that if his
employment is terminated without cause or if he terminates employment for "good
reason" (which includes a reduction in Mr. Johnston's duties or positions, a
reduction in Mr. Johnston's base salary or annual bonus opportunity, relocation,
the disposal of a significant segment of the Company's tobacco operation or any
termination prior to May 15, 1996) he will receive compensation and Continued
Benefits for three years, based on his then current annual base salary and
targeted annual bonus. Cause includes willful gross misconduct or malfeasance,
or substantial and continuing refusal by Mr. Johnston to perform his duties, or
certain criminal conduct. Mr. Johnston may elect to receive the discounted
present value of his severance in a lump sum. Mr. Johnston is not entitled to
severance if he voluntarily resigns or if he is terminated for cause. In the
event of a change of control (as defined in the succeeding sentence), Mr.
Johnston would receive three annual lump-sum payments equal in the aggregate to
the salary and bonus that would have been payable to him had his termination
occurred upon such change of control; provided, however, that any amounts
payable upon subsequent termination of employment shall be offset by amounts
paid in connection with such change of control. For purposes of the preceding
sentence, a change of control would occur if, following a corporate transaction,
a party other than KKR Associates and/or its affiliates obtains control of the
Company, RJRT or RJRTI; provided, that Mr. Johnston is not thereafter chief
executive officer of the surviving entity with responsibility for all tobacco
operations. Pursuant to the employment agreement, Mr. Johnston is provided with
$1 million of term life insurance and $1 million of whole life insurance while
actively employed. Mr. Johnston will continue to be provided with his whole life
insurance following termination of employment (other than for cause) until age
70. Mr. Johnston is reimbursed for taxes payable as a result of this
arrangement. Mr. Johnston's employment agreement provides for his participation
in the SERP, credits him
37
<PAGE>
thereunder with 8 years of service in addition to his actual current and prior
service with subsidiaries of the Company and contains provisions regarding the
funding. An early retirement reduction will be taken if Mr. Johnston terminates
employment without good reason prior to attaining age 52. In the event that a
"parachute" excise tax would be imposed on any payments to Mr. Johnston, Mr.
Johnston would also be entitled to tax reimbursement payments. In addition, upon
a Change of Control, Mr. Johnston will be entitled to certain benefits under the
LTIP as described below.
In October 1988, RJRN entered into an agreement with Mr. Schindler which was
supplemented in December 1988 and December 1995, providing that if Mr.
Schindler's employment is terminated other than for "cause" or, following a
Change of Control, for "good reason", he will be entitled to an amount equal to
two times his annual salary and target bonus, payable over three years;
Continued Benefits and continued vesting of stock options for such three year
period; and pro-rated vesting of any restricted stock. Mr. Schindler also
participates in the SERP and his SERP benefit will be funded upon his
retirement. "Cause" includes, generally, criminal conduct, deliberate refusal to
perform employment duties or deliberate misconduct materially damaging to RJRN.
"Good reason" includes a material reduction in duties, reduction in pay grade or
bonus opportunity, reduction in compensation programs or benefits, relocation or
material breach of any arrangement by the Company or RJRN. In the event that a
"parachute" excise tax would be imposed on any payments to Mr. Schindler, Mr.
Schindler would also be entitled to tax reimbursement payments. In addition,
upon a Change of Control, Mr. Schindler will be entitled to certain benefits
under the LTIP as described below.
In July 1994, in connection with the exploration of alternative corporate
structures and the uncertain prospects for corporate headquarters employees, the
Company adopted the Continuing Excellence Recognition Program (the "1994
Program") for corporate headquarters employees. Under the 1994 Program which was
implemented in 1995 in connection with the reorganization of certain functions
formerly performed by corporate headquarters employees, headquarters employees
whose employment is terminated prior to March 1, 1996 without cause or who
retire prior to March 1, 1996 are entitled to additional periods of salary and
benefit continuance (except that employees with contractual severance
arrangements are entitled to their contractually determined benefits), a
pro-rated and supplemental annual bonus, pro-rated performance shares and
performance units under the LTIP, accelerated Executive Equity Awards under the
LTIP and certain other termination-related benefits including tax reimbursement
payments.
In April 1995, the LTIP and the Annual Incentive Award Plan (the "Annual
Plan") were amended to provide that in the event of a Change of Control, (1) all
outstanding stock options, stock appreciation rights and restricted stock under
the LTIP, will vest and, consistent with the approach under the 1994 Program,
outstanding performance shares and performance units (excluding Mr. Goldstone's
200,000 performance stock units) will vest pro-rata and the remaining Executive
Equity Program awards will be accelerated on a tax reimbursed basis and (2) all
awards under the Annual Plan will vest pro-rata.
In October 1995, the 1994 Program was extended (as extended, the "Change of
Control Program") to provide similar benefits, generally on a lump sum basis, to
certain corporate headquarters employees whose employment is terminated
following a Change of Control and to provide for certain other payments upon a
Change of Control. The Change of Control Program will expire October 1996,
subject to its renewal in the discretion of the Board and the Committee. Under
the Change of Control Program, upon a Change of Control all outstanding stock
options under the LTIP and a predecessor plan (whether held by headquarters
employees or others) will be cashed-out at the higher of the difference between
the option price and the market price or the value of the options using a Black-
Scholes methodology, except that options held by executive officers will not be
subject to such cash-out unless they have been held for at least six months. In
addition, upon a Change of Control, the vested pro-rata portion of performance
shares and performance units held by headquarters employees under the LTIP and
the vested pro-rata portion of such employees' annual bonuses under the Annual
Plan will be paid in a lump sum. Under the Change of Control Program, if a
covered headquarters employee's
38
<PAGE>
employment is terminated without cause during the twenty-four month period
following a Change of Control, such employee's severance will consist generally
of a lump sum payment equal to the present value of the salary continuance under
the 1994 Program; pro-rated annual bonus, performance shares and performance
units; and continued benefits for the severance period (except to the extent
certain Continued Benefits continue to be provided by RJRN). As under the 1994
Program, if a "parachute" excise tax would be imposed on any payments to
participants in the Change of Control Program, such participants will be
entitled to tax reimbursement payments.
DIRECTOR'S COMPENSATION
Directors who are not employees of the Company or its subsidiaries are
compensated at the rate of $60,000 per year. The Company provides directors who
are not employees of the Company or its subsidiaries with life insurance having
a death benefit of $100,000, participation in charitable giving programs
(pursuant to which directors with at least three years of service may direct
that up to $1 million be contributed to eligible charitable institutions
following the director's death) and supplemental insurance programs. Each
director who is not an employee of the Company or its subsidiaries is, upon
becoming a director, granted an option pursuant to a stock option plan to
purchase 6,000 shares of Common Stock. The options have an exercise price equal
to the fair market value of the Common Stock on the date of grant. They cannot
be exercised for six months following the date of grant but, thereafter, are
exercisable for ten years from the date of grant. In addition, each director who
is not an employee of the Company or its subsidiaries receives an annual grant
of stock options which is made on the date of the director's election or
re-election to the Board. The annual grant is intended to deliver a
predetermined value, and the number of shares of Common Stock subject to the
option is determined based on an internal valuation methodology. In 1995, each
eligible director received a stock option to purchase 1,400 shares of Common
Stock. The annually granted stock options have a 15 year term and vest over
three years (33% on the first and second anniversaries of the date of grant and
34% on the third anniversary). No additional compensation is paid to Directors
who are employees of the Company subsidiaries in their capacity as Directors.
Directors who have never been employees of the Company or its subsidiaries
participate in the Directors Retirement Plan. The Directors Retirement Plan
provides each eligible director with a monthly allowance equal to the monthly
directors' fee in effect on the date the director's service terminates. The
maximum benefits payable under the Directors Retirement Plan are (a) for those
directors with ten or more years of service, 180 monthly payments; (b) for those
directors with less than ten but more than five years of service, monthly
payments equal to 180 multiplied by a fraction, the numerator of which is equal
to the years of service of such director and the denominator of which is 10; or
(c) for directors with less than five years of service, 48 monthly payments. For
purposes of computing years of service, partial service counts as a full year.
The Directors Retirement Plan also provides that upon a "change in control,"
which occurred in 1989, the Directors Retirement Plan cannot be amended or
terminated.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee currently consists of Messrs. Chain, Clendenin, and
Medlin. During the 1995 fiscal year, other members of the Compensation Committee
were Mr. Groves (no meetings were held during his tenure) and Messrs. Paul E.
Raether (who is no longer a director) and Scott M. Stuart (who is no longer a
director). Mr. Raether was an officer of the Company from February 1989 through
February 1991, and Mr. Stuart was an officer of the Company from November 1988
through February 1991. KKR, of which Messrs. Raether and Stuart are general
partners, rendered management, consulting and financial services to the Company
and its subsidiaries pursuant to the terms of a retainer agreement between KKR
and the Company, which was terminated effective June 30, 1995. Pursuant to the
retainer agreement, a fee of $3.5 million plus expenses was approved by the JFEW
Special Committee (whose members were Ms. Ridgway and Mr. Medlin) and paid for
such services performed in 1995.
39
<PAGE>
Mr. Johnston is a member of the Management Resources and Compensation
Committee of the Board of Wachovia Corporation. Mr. Medlin, who is a member of
the Compensation Committee of the Board, is Chairman of Wachovia Corporation.
COMPARISON OF CUMULATIVE TOTAL RETURNS
RJR NABISCO HOLDINGS CORP., S&P 500 INDEX, AND S&P FOOD/TOBACCO INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
200.00 [] 199.48
191.11 S&P 500 INDEX
[]
180.00
/\ 178.55
160.00 153.33 S&P FOOD/TOBACCO
[] INDEX
144.17 143.77 146.87 148.74
/\ /\ () ()
140.00
134.53
125.00 () 127.14
() /\
120.00 119.43
/\
113.43
[] [] 113.33
100.00 RN COMMON STOCK
97.78
[]
80.00
2/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
</TABLE>
[] RJR NABISCO HOLDINGS /\ S&P FOOD/TOBACCO INDEX () S&P500
CORP. COMMON STOCK INDEX
- - ------------
.. The S & P Food/Tobacco Index is a weighted average of the separate S & P Food
and Tobacco Indices based upon the percentage of operating income from the
Company's business units. For the year ended December 31, 1995, 65% of the
Company's total company operating income came from Tobacco operations and 35%
came from Food operations.
.. Total returns assume $100 invested on February 1, 1991 in Common Stock, the S
& P 500 Index, and the S & P Food/Tobacco Index with reinvestment of
dividends. Common Stock was first issued to the public under a registration
statement which was effective January 31, 1991. February 1, 1991 was the first
trading day for Common Stock.
COMPENSATION COMMITTEE REPORT
This report has been submitted to the stockholders by the Compensation
Committee (the "Committee") of the Board and reflects the executive compensation
policies and practices of the Company and its subsidiaries during 1995. The
Committee is principally responsible for executive compensation and administers
the Company's executive compensation programs and plans. The Committee reports
regularly to the Board, and the Board is periodically asked to ratify Committee
actions. During 1995, the Committee consisted of Directors who were not
employees of the Company or any of its subsidiaries, and who, therefore, were
not eligible to participate in any of the Company's executive compensation
programs or plans.
40
<PAGE>
EXECUTIVE COMPENSATION PRINCIPLES AND POLICIES
In determining the amounts, composition, and terms and conditions of the
compensation for executive officers of the Company, the Committee is guided by
two principles: (1) compensation opportunities must enable the Company to
attract and retain individuals with the high caliber of talent and skills which
are critical to the Company's success and (2) a substantial portion of each
executive officer's compensation must be tied to quantifiable measures of the
Company's financial results from operations and stock price performance. These
principles are reflected in the actions discussed below relating to salaries,
annual incentives and long-term incentives.
In line with the second principle stated above, some components of the
executive compensation program rely heavily on the value of Common Stock. The
initial public offering of Nabisco Stock in January 1995 presented an
opportunity to focus the stock-based incentive of executive officers who have an
impact on the operations of Nabisco and, thereby, on the Company. Accordingly,
certain employees of the Company were permitted to surrender a portion of their
outstanding options and receive in exchange options to purchase Nabisco Stock.
Nabisco employees (including Mr. Greeniaus) were permitted to surrender all of
their outstanding options and receive in exchange options to purchase Nabisco
Stock. During 1995, the Common Stock was subject to a combination of unusual
adverse circumstances which included a hostile anti-tobacco climate, various
litigation involving the Company, and a sell-off of Common Stock by the major
owner. The impact of these events depressed the value of the Common Stock and
had the potential to undermine the effectiveness of the Company's stock-based
incentives to retain current key executives and attract new ones. Accordingly,
the Committee undertook actions in 1995 intended to overcome these deficiencies.
These are also discussed in greater detail below. In addition, in recognition of
the continuing organizational uncertainty facing the Company's key executives
and managers and the need to take strong steps to retain them, the Committee
refined a continuing excellence recognition program it adopted in 1994 by
providing for the cash-out of certain Long-Term Incentive Plan awards in the
event of a change-of-control of the Company and for lump-sum payment of
severance amounts in the event of termination of employment following a
change-of-control of the Company. These severance payment arrangements are
discussed in detail on page .
As noted in previous reports, changes made to the Internal Revenue Code in
1993 limit the ability of publicly-traded companies to secure a tax deduction
for certain compensation paid to certain individuals named in the summary
compensation table. The Committee has taken actions to limit the impact of this
change in tax law. For example, the annual bonus program is structured so as to
retain the tax deduction for bonus awards. The Committee will continue to seek
ways to limit the impact of this change; however, the Committee has not (and
should not) compromised the Company's ability to attract and retain the
executive talent required to compete successfully on a global basis.
Accordingly, achieving the desired flexibility in the design and delivery of
compensation may periodically result in some compensation that is not deductible
for federal income tax purposes.
MAJOR COMPENSATION COMPONENTS
The compensation program for executive officers is composed of annual
compensation, long-term compensation and benefits. In determining appropriate
compensation levels, the Committee relies on outside consultants who provide
surveys and other data regarding the compensation practices of other companies
that are representative of the size and type of company with which the Company
competes for executive talent. Accordingly, this is a broader and more diverse
group of companies than those used for the peer company index in the Performance
Graph mandated by the Securities and Exchange Commission which appears on page
.
41
<PAGE>
ANNUAL COMPENSATION
The annual compensation for each of the named executive officers is composed
of salary and an annual incentive opportunity. In general, salaries paid to
executive officers reflect the median of competitive practices as reflected in
salary survey data used by the Committee for comparison purposes. A senior
executive receives an increase in salary only when performance warrants and the
Committee determines that either a change in an individual's responsibilities or
market conditions warrant such an action. During 1995, several of the named
executive officers received salary increases to reflect their performance and/or
expanded responsibilities. The amounts of such increases were determined
pursuant to salary survey data and individual merit.
Annual compensation levels (salary plus target annual incentive award) are
set to reflect the 75th percentile of the compensation practices of competitive
companies. For the named executive officers (other than Mr. Goldstone), 1995
performance objectives were established early in 1995, and the annual incentive
awards were determined essentially as prescribed by the Company's Annual
Incentive Award Program. This bonus amount shown in the summary compensation
table reflects performance ratings for the financial performance of the
businesses for which the individual is responsible or performs services as
determined using performance grids. The key measure of financial performance was
cash net income and, in some cases, market share.
In February 1995, the Committee awarded Mr. Greeniaus a special bonus of
$300,000 in recognition of his important contributions to the initial success of
the public offering of Nabisco Stock.
LONG-TERM COMPENSATION
The Committee has relied on various forms of stock-based grants and
multi-year incentive opportunities to motivate executives to maintain a longer
term perspective. As noted above, due to several external occurrences depressing
the price of Common Stock, the effectiveness of the stock-based awards under the
executive compensation program had been diminished. This was particularly true
of the stock option component because optionholders were holding options with
exercise prices that were higher than the market price of the underlying shares.
To address this issue, the Committee adopted, and the Board ratified, a
repositioning of the outstanding stock options held by employees of the Company
and its subsidiaries. This action consisted of permitting each affected optionee
to elect to receive a new stock option in exchange for forfeiting all
outstanding stock options, including stock options with an exercise price below
the then fair market value of Common Stock. This new option grant covered the
aggregate number of shares represented by the forfeited options. The exercise
price per share for each of the new options is equal to the market value of
Common Stock on April 27, 1995, the date each new option was granted. The
details of this transaction for each affected executive officer are shown in the
table appearing on page . Messrs. Goldstone, Harper and Greeniaus did not
participate in this repositioning.
In addition, the Committee granted long-term incentive awards during 1995
that reflect the typical competitive practice of making annual long-term
incentive grants to executive officers. In recognition of the responsibilities
and roles of certain individuals, the Committee also made one-time stock option
grants with an exercise price that was 10% higher than the market price of
Common Stock on the date they were granted. As noted above, following the
initial public offering of Nabisco, certain Company optionholders were given the
opportunity to exchange a stated percentage of their options to purchase Common
Stock for options to purchase Nabisco Stock on a mathematical equivalent basis.
The resulting Nabisco stock options are reflected in the appropriate tables
preceding this report.
As indicated in the table on page , the Committee granted performance
unit awards to all the named executive officers other than Messrs. Goldstone and
Greeniaus in 1995. These cash-denominated awards provide for potential payments
if certain pre-established 1995-97 cash net income goals are achieved. In
determining the size of the stock option and performance unit grants, the
Committee generally targets the 75th percentile of combined competitive stock
options and other long-
42
<PAGE>
term incentive opportunities. In making grants of performance units and stock
options, the Committee does not take into account whether an executive has
exercised or continues to hold previously granted stock options.
CHIEF EXECUTIVE OFFICERS' COMPENSATION
Mr. Harper's compensation is determined, in great part, by the terms of his
employment agreement with the Company, which was unanimously approved by the
Board. The level of compensation provided under his agreement reflects an amount
necessary to acquire and retain the services of an individual with the skills,
experience and stature of Mr. Harper, and is commensurate with the compensation
provided to the Company's prior chief executive officer.
Under his employment agreement, for 1995 Mr. Harper was entitled to an
annual salary of at least $1,335,600, plus a guaranteed bonus sufficient to
provide Mr. Harper with a minimum annual combined salary and bonus of $3
million. However, Mr. Harper and the Committee agreed to a reduction of his
annual salary to $600,000, and Mr. Harper released his right to a guaranteed
bonus in exchange for an increase in his target annual incentive award to
reflect the salary reduction. This was similar to an arrangement made in 1994.
This action not only reduced the amount of Mr. Harper's compensation that was
guaranteed, it should also ensure that the Company may deduct, for federal
income tax purposes, all of Mr. Harper's 1995 salary and annual incentive award.
Mr. Harper's 1995 annual incentive payment was based on a performance
schedule adopted by the Committee in early 1995, using the Company's annual cash
net income as the performance measure. In view of Mr. Harper's agreement to
forego his guaranteed minimum annual combined salary and bonus, the performance
schedule used to determine his annual incentive award included a broader range
of earnings than for other executive officers at which the target award is
payable, but the maximum award opportunity (expressed as a percentage of the
target award) was lower than for other executive officers. The Company's 1995
performance was within the range of results at which Mr. Harper earned his
target award. The Committee felt that Mr. Harper's award was appropriate because
of his role in initiating and directing a number of successful activities
undertaken by the Company in 1995 which are expected to generate significant
ongoing cost savings and corporate opportunities. These include: the
introduction of dividend payments on the Company's common stock; the initial
public offering of 19.5% of Nabisco; the subsequent restructuring of the debt of
the Company and Nabisco (providing maximum flexibility for any further
separation of the Company and Nabisco and expected to generate significant
annual savings the restructuring of domestic and international tobacco
operations, including the consolidation of international headquarters in Geneva
(expected to generate significant annual savings); and the stabilization in 1995
of the aggregate domestic market share for full-price brands.
On June 13, 1995, the Committee granted Mr. Harper a stock option covering
130,000 shares of Common Stock at an exercise price of $28.875, which was 10%
higher than the market price of Common Stock on that date. In addition, pursuant
to his employment agreement, on December 31, 1995, Mr. Harper received a stock
option covering 150,000 shares of Common Stock at an exercise price of $30.75
per share, the fair market value on the date of grant. On December 5, 1995, the
Company entered into an amendment and restatement of Mr. Harper's employment
agreement to reflect his new role as Chairman. The amended and restated
employment agreement, which is described on page , provides for the same
change-of-control protections provided to other executive officers of the
Company (as described on page ).
Mr. Goldstone served as (non-employee) General Counsel of the Company from
March 3, 1995 until September 30, 1995. Effective October 1, 1995, Mr. Goldstone
became employed as President and General Counsel of the Company. On December 5,
1995, Mr. Goldstone was elected President and Chief Executive Officer of the
Company. At the same time, the Company and Mr. Goldstone entered into an
employment agreement which was approved by the Committee and subsequently
ratified by the Board. The terms and conditions of this contract are discussed
in detail beginning on page , and
43
<PAGE>
they include a minimum annual salary of $1,100,000 and a target annual incentive
compensation opportunity of 70% of his annual salary, along with participation
in on-going long-term incentive program grants at a level appropriate for his
position and responsibilities. In recognition of his promotion to chief
executive officer, Mr. Goldstone was granted a stock option to purchase 200,000
shares of Common Stock with an exercise price of $30.25 (the market value of
Common Stock on the date of grant). The stock option grant was contingent upon
his purchasing $500,000 worth of Common Stock in the open market. Mr. Goldstone
was also granted 200,000 performance stock units with vesting contingent on both
(i) Mr. Goldstone's continued employment with the Company through December 31,
1998 (unless termination of employment is initiated by the Company "without
cause" or by Mr. Goldstone for "good reason") and (ii) the market price of the
Common Stock averaging $43.75 per share or more for any consecutive 30-day
period ending on or prior to December 31, 1998.
Mr. Goldstone's bonus award for 1995 reflects the level of attainment of
cash net income achieved by the Company for 1995 (which was less than the target
level) based on his annual salary at year-end pro-rated for the portion of 1995
he served the Company on a full-time basis. On August 8, 1995, in connection
with his consulting arrangement, Mr. Goldstone was granted a stock option
covering 100,000 shares of Common Stock with an exercise price of $28.125, the
market price of Common Stock on the date of grant. Mr. Goldstone was also
granted a stock option covering 100,000 shares of Common Stock at an exercise
price of $32.25, the market price on October 11, 1995, the date he became
President of the Company and on which the option was granted.
SUMMARY
The Committee is convinced that the Company's executive compensation program
must continually provide compensation potential of such significance that
individuals of exceptional talent and skills are encouraged to join and remain
with the Company. By ensuring that such persons are managing the Company's
operations, the long-term interests of stockholders are best served. This focus
on stockholder interests is reinforced by the heavy stock-based component in the
executive compensation program. The actions taken by the Committee for 1995 were
consistent with this focus and the principles outlined above.
John T. Chain, Jr. (Chairman)
John L. Clendenin
John G. Medlin, Jr.
44
<PAGE>
CERTAIN LEGAL PROCEEDINGS
In the fourth quarter of 1995, purported Company stockholders filed, on
their own behalf and derivatively on behalf of the Company and Nabisco, three
putative class and derivative actions in the Court of Chancery of the State of
Delaware in and for New Castle County against members of the Company's Board and
the Company and Nabisco, as nominal defendants. The actions were consolidated in
December 1995. The plaintiffs allege, among other things, that the individual
defendants breached their fiduciary duty and wasted corporate assets by
undertaking the debt exchange offer and consent solicitation completed by RJRN
and Nabisco, Inc. in June 1995 and by amending Company By-Law provisions
concerning the right to call stockholder meetings and procedures for stockholder
action by written consent in August 1995. The plaintiffs allege that management
took these and other actions to wrongfully obstruct a spin-off of Nabisco, to
enrich the defendants at the expense of the Company, its stockholders and
Nabisco and to entrench the defendants in the management and control of the
Company. The Company believes that these allegations are without merit and
intends to defend the actions vigorously.
COST AND METHOD OF SOLICITATION
The Company will bear the cost of this solicitation. While no precise
estimate of this cost can be made at the present time, the Company currently
estimates that it will spend a total of approximately $ for its
solicitation of proxies, including the fees and expenses of its outside
advisors, but excluding the salaries and wages of regular employees and officers
and the normal expenses of an uncontested proxy solicitation for the election of
directors. As of , 1996, the Company has incurred proxy solicitation
expenses of approximately $ . In addition to soliciting proxies by mail,
directors, officers and regular corporate headquarters employees of the Company
may solicit proxies in person or by telephone or telecopy. The Company will pay
for the cost of these solicitations, but these individuals will receive no
additional compensation for these solicitation services. The Company has also
retained MacKenzie Partners, Inc. ("MacKenzie") and D.F. King & Co., Inc.
("King") to participate in the solicitations of proxies and revocations. The
Company has agreed to pay a fee of $ and $ to MacKenzie and
King, respectively, to reimburse each of the proxy solicitors for its
out-of-pocket expenses and to indemnify each of them against certain liabilities
and expenses. The Company estimates that approximately employees of
MacKenzie and employees of King will be involved in the solicitation of
proxies on behalf of the Company. The Company will also reimburse brokers,
fiduciaries, custodians and other nominees, as well as persons holding stock for
others who have the right to give voting instructions, for out-of-pocket
expenses incurred in forwarding this proxy statement and related materials to,
and obtaining instructions or authorizations relating to such materials from,
beneficial owners of the Company's capital stock.
45
<PAGE>
OTHER MATTERS
The Board has no knowledge of any other matters to be presented at the
meeting other than those described herein. If any other matters should properly
come before the meeting, it is the intention of the persons designated in the
proxy to vote thereon according to their best judgment.
YOUR VOTE IS VERY IMPORTANT. YOUR BOARD URGES YOU TO MARK, DATE, SIGN AND
RETURN THE ENCLOSED WHITE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS
SOON AS POSSIBLE.
RJR NABISCO HOLDINGS CORP.
New York, New York
, 1996
If you have any questions or need assistance in voting your shares, please
contact MacKenzie Partners, Inc. or D.F. King & Co., Inc. at their toll free
numbers: 1-800- or 1-800- , respectively.
46
<PAGE>
APPENDIX I
SUPPLEMENTAL DIRECTOR INFORMATION
Set forth below is (a) the name and business address of each of the
participants and their associates (except the Company) in the solicitation made
pursuant to this Proxy Statement, and (b) the dates, types and amounts of each
participant's purchases and sales of the Company's debt and equity securities
within the past two years. Except for the Company, the only participants are the
Company's Directors.
<TABLE><CAPTION>
NAME AND DATE OF PURCHASE(P) TYPE AND
BUSINESS ADDRESS(1) TRANSACTION OR SALE(S) AMOUNT(2)
- - ---------------------------------------------- ----------------- ----------- -------------
<S> <C> <C> <C>
John T. Chain, Jr............................. February 2, 1994 P 2,000 shares
Special Assistant to the Chairman
Burlington Northern Santa Fe Corporation
2680 Continental Plaza
777 Main Street
Forth Worth, Texas 76102-5384
Julius L. Chambers............................ Nov.-Dec. 1994 P 21.91 shares
Chancellor 1995 P 7.31 shares
North Carolina Central University
P.O. Box 19617
1801 Fayetteville Street
113 Hoey Building
Durham, North Carolina 27707
John L. Clendenin.............................
Chairman & Chief Executive Officer
BellSouth Corporation
Suite 2000
1155 Peachtree Street, N.E.
Atlanta, Georgia 30309-3610
Steven F. Goldstone........................... December 6, 1995 P 16,529 shares
President & Chief Executive Officer
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, New York 10019-6013
H. John Greeniaus.............................
President & Chief Executive Officer
Nabisco, Inc.
7 Campus Drive
Parsippany, New Jersey 07054
Ray J. Groves................................. April 7, 1995 P 1,000 shares
Chairman
Legg Mason Merchant Banking, Inc.
787 Seventh Avenue
New York, New York 10019
Charles M. Harper............................. January 19, 1995 S 62,222 shares(3)
Chairman
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, New York 10019-6013
James W. Johnston............................. July 5, 1994 S 9,000 shares(4)
Chairman January 4, 1995 S 12,868 shares(4)
R.J. Reynolds Tobacco Worldwide
401 North Main Street
Winston-Salem, North Carolina 27102
John G. Medlin, Jr............................
Chairman
Wachovia Corporation
301 North Main Street
Winston-Salem, North Carolina 27150
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND DATE OF PURCHASE(P) TYPE AND
BUSINESS ADDRESS(1) TRANSACTION OR SALE(S) AMOUNT(2)
- - ---------------------------------------------- ----------------- ----------- -------------
<S> <C> <C> <C>
Rozanne L. Ridgway............................
Co-Chair
Atlantic Council of the U.S.
910 Seventeenth Street, N.W.
Washington, DC 20006
</TABLE>
- - ------------
(1) The companies named in the table above, to the extent that the participants
are officers of such companies, are deemed to be associates of such
participants. The addresses of such associates are as given above.
(2) Except as noted, all of the Company securities purchased and sold were
shares of Common Stock.
(3) Mr. Harper used the proceeds from this sale to purchase 71,429 shares of
Class A Common Stock of Nabisco Holdings Corp.
(4) Sales of restricted stock were made by the Company on behalf of Mr. Johnson
in order to satisfy the Company's tax withholding obligation, as mandated by
the terms of the restricted stock agreements between the Company and Mr.
Johnson.
Except as set forth in the Proxy Statement or this Appendix, to the best of
the Company's knowledge, none of the directors or, in the case of clause (a)
only, any of their associates (a) owns of record or has direct or indirect
beneficial ownership of any securities issued by the Company or any of its
subsidiaries; (b) has purchased or sold any securities issued by the Company
within the past two years; (c) has incurred any outstanding indebtedness to
acquire or hold securities issued by the Company; or (d) has been a party to any
contract, arrangement or understanding with respect to any securities of the
Company during the past year.
Except as set forth in the Proxy Statement or this Appendix, to the best of
the Company's knowledge, (a) none of the participants or any of their associates
has any arrangement or understanding with respect to any future employment or
any future transactions with the Company or any of its affiliates, and (b) none
of the participants, executive officers of the Company, any person known to the
Company to own beneficially or of record more than five percent of any class of
Company voting securities, or any of their associates has entered into any
transaction or series of similar transactions with the Company or any of its
subsidiaries since the beginning of the Company's last fiscal year in which such
person had or will have a direct or indirect material interest, and no such
transactions are currently proposed.
I-2
<PAGE>
P R O X Y
RJR NABISCO HOLDINGS CORP.
ANNUAL MEETING OF STOCKHOLDERS-- April __, 1996
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Charles M. Harper, Steven F.
Goldstone and H. Colin McBride, and each of them, his true and lawful agents and
proxies with full power of substitution in each, to represent the undersigned at
the Annual Meeting of Stockholders of RJR Nabisco Holdings Corp., to be held at
, on April __, 1996 at , and at any
adjournments or postponements thereof, and to vote all the shares of stock of
the Company which the undersigned may be entitled to vote on all matters coming
before said meeting.
Election of Directors, Nominees:
J.T. Chain, Jr.; J.L. Chambers; J.L. Clendenin; S.F. Goldstone; H.J. Greeniaus;
R.J. Groves; C.M. Harper; J.W. Johnston; J.G. Medlin, Jr.; and R.L. Ridgway.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSALS 3, 4, 5, 6, 7, 8, 9, 10 AND
11. PLEASE MARK THIS PROXY CARD, FILL IN THE DATE AND SIGN ON THE REVERSE SIDE
AND RETURN PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF
MAILED IN THE UNITED STATES.
Change of address:
- - ---------------------------
- - ---------------------------
(If you have written in the above space, please mark the
corresponding box on the reverse side of this card.)
<PAGE>
/ / Please mark your votes as in this example.
The proxies are directed to vote as specified below and in their discretion
on all other matters. If no direction is made, this signed Proxy will be voted
for the election of all directors, for proposal 2 and AGAINST proposals 3, 4, 5,
6, 7, 8, 9, 10 and 11.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors (see reverse) FOR / / WITHHELD / /
For, except withhold from the following
nominee(s):
2. Ratify the appointment of Deloitte & Touche FOR / / AGAINST / / ABSTAIN / /
as Independent Auditors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3, 4, 5, 6, 7, 8, 9, 10 AND 11.
3. Stockholder proposal on equal employment FOR / / AGAINST / / ABSTAIN / /
opportunity reporting
4. Stockholder proposal on using profits to FOR / / AGAINST / / ABSTAIN / /
discourage underage smoking
5. Stockholder proposal on infants and tobacco FOR / / AGAINST / / ABSTAIN / /
6. Stockholder proposal on rating and curbing FOR / / AGAINST / / ABSTAIN / /
nicotine
7. Stockholder proposal to "accomplish a FOR / / AGAINST / / ABSTAIN / /
separation of the corporation's non-tobacco
business from all its tobacco businesses no
later than January 1, 1997"
8. Stockholder proposal on executive officer FOR / / AGAINST / / ABSTAIN / /
compensation
9. Stockholder proposal to use stock to FOR / / AGAINST / / ABSTAIN / /
compensate directors
10. Stockholder proposal on non-employee director FOR / / AGAINST / / ABSTAIN / /
pensions
11. Stockholder proposal on golden parachutes FOR / / AGAINST / / ABSTAIN / /
</TABLE>
Change of Address on Reverse Side / /
Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
--------------------------------------
--------------------------------------
Signature(s) Date
<PAGE>
P R O X Y [PERCS]
RJR NABISCO HOLDINGS CORP.
ANNUAL MEETING OF STOCKHOLDERS-- April __, 1996
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS CHARLES M. HARPER, STEVEN F.
GOLDSTONE AND H. COLIN MCBRIDE, AND EACH OF THEM, HIS TRUE AND LAWFUL AGENTS AND
PROXIES WITH FULL POWER OF SUBSTITUTION IN EACH, TO REPRESENT THE UNDERSIGNED AT
THE ANNUAL MEETING OF STOCKHOLDERS OF RJR NABISCO HOLDINGS CORP., TO BE HELD AT
, ON April __, 1996 AT , AND AT
ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, AND TO VOTE ALL THE SHARES OF STOCK
OF THE COMPANY WHICH THE UNDERSIGNED MAY BE ENTITLED TO VOTE ON ALL MATTERS
COMING BEFORE SAID MEETING.
THE UNDERSIGNED IS ACTING PURSUANT TO INSTRUCTIONS FROM THE HOLDERS OF
SERIES C DEPOSITARY SHARES, EACH REPRESENTING ONE-TENTH OF A SHARE OF SERIES C
CONVERSION PREFERRED STOCK (PERCS), AND EVIDENCED BY DEPOSITARY RECEIPTS ISSUED
UNDER THE DEPOSIT AGREEMENT, DATED AS OF MAY 6, 1994, BETWEEN RJR NABISCO
HOLDINGS CORP. AND THE UNDERSIGNED.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL DIRECTORS, FOR PROPOSAL 2 AND AGAINST PROPOSALS
3, 4, 5, 6, 7, 8, 9, 10 AND 11, AND IN THE DISCRETION OF THE PROXIES ON ALL
OTHER MATTERS. PLEASE MARK THIS PROXY CARD, FILL IN THE DATE AND SIGN AND RETURN
PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE
UNITED STATES.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors
FOR WITHHELD
J.T. Chain, Jr.
--------------------- ---------------------
J.L. Chambers
--------------------- ---------------------
J.L. Clendenin
--------------------- ---------------------
S.F. Goldstone
--------------------- ---------------------
H.J. Greeniaus
--------------------- ---------------------
R.J. Groves
--------------------- ---------------------
C.M. Harper
--------------------- ---------------------
J.W. Johnston
--------------------- ---------------------
J.G. Medlin, Jr.
--------------------- ---------------------
R.L. Ridgway
--------------------- ---------------------
2. Ratify the appointment of Deloitte & Touche as Independent Auditors
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3, 4, 5, 6, 7, 8, 9,
10 AND 11.
3. Stockholder proposal on equal employment opportunity reporting
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
[ continued on reverse ]
<PAGE>
4. Stockholder proposal on using profits to discourage underage smoking
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
5. Stockholder proposal on infants and tobacco
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
6. Stockholder proposal on rating and curbing nicotine
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
7. Stockholder proposal to "accomplish a separation of the corporation's
non-tobacco business from all its tobacco businesses no later than
January 1, 1997"
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
8. Stockholder proposal on executive officer compensation
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
9. Stockholder proposal to use stock to compensate directors
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
10. Stockholder proposal on non-employee director pensions
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
11. Stockholder proposal on golden parachutes
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such.
--------------------------------
Signature(s) Date
First Chicago Trust Company of New York as
Depositary under a Deposit Agreement dated
5/6/94 between RJR Nabisco Holdings Corp.
and First Chicago Trust Company of New York
14 Wall Street
New York, NY 10005
Holder of record of 26,675,000 shares
of Series C Conversion Preferred Stock
<PAGE>
P R O X Y [ ESOP]
RJR NABISCO HOLDINGS CORP.
ANNUAL MEETING OF STOCKHOLDERS-- April __, 1996
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Charles M. Harper, Steven F.
Goldstone and H. Colin McBride, and each of them, his true and lawful agents and
proxies with full power of substitution in each, to represent the undersigned at
the Annual Meeting of Stockholders of RJR Nabisco Holdings Corp., to be held at
, on April __, 1996 at , and
at any adjournments or postponements thereof, and to vote all the shares of
stock of the Company which the undersigned may be entitled to vote on all
matters coming before said meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL DIRECTORS, FOR PROPOSAL 2 AND AGAINST PROPOSALS
3, 4, 5, 6, 7, 8, 9, 10 AND 11, AND IN THE DISCRETION OF THE PROXIES ON ALL
OTHER MATTERS. PLEASE MARK THIS PROXY CARD, FILL IN THE DATE AND SIGN AND RETURN
PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE
UNITED STATES.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors
FOR WITHHELD
J.T. Chain, Jr.
---------------------- ----------------------
J.L. Chambers
---------------------- ----------------------
J.L. Clendenin
---------------------- ----------------------
S.F. Goldstone
---------------------- ----------------------
H.J. Greeniaus
---------------------- ----------------------
R.J. Groves
---------------------- ----------------------
C.M. Harper
---------------------- ----------------------
J.W. Johnston
---------------------- ----------------------
J.G. Medlin, Jr.
---------------------- ----------------------
R.L. Ridgway
---------------------- ----------------------
2. Ratify the appointment of Deloitte & Touche as Independent Auditors
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3, 4, 5, 6, 7, 8, 9,
10 AND 11.
3. Stockholder proposal on equal employment opportunity reporting
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
[ continued on reverse ]
<PAGE>
4. Stockholder proposal on using profits to discourage underage smoking
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
5. Stockholder proposal on infants and tobacco
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
6. Stockholder proposal on rating and curbing nicotine
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
7. Stockholder proposal to "accomplish a separation of the corporation's
non-tobacco business from all its tobacco businesses no later than
January 1, 1997"
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
8. Stockholder proposal on executive officer compensation
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
9. Stockholder proposal to use stock to compensate directors
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
10. Stockholder proposal on non-employee director pensions
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
11. Stockholder proposal on golden parachutes
FOR AGAINST ABSTAIN
- - ---------------------- ---------------------- ----------------------
Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such.
---------------------------------
Signature(s) Date
Bull & Co.
Wachovia Bank of North Carolina, N.A.
Box 3075, Trust Operations
Winston-Salem, NC 27102
Holder of record of 15,003,379 shares
of ESOP Convertible Preferred Stock
