-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OHURGeR/rWDUpb0/pMP8mOdAeZB6PPtB9YDfmXoqeJZ96BqZarPYXu5HxFp0/vOG 7HSaz0ay7Z91pivlhQqkTw== 0000950112-94-000477.txt : 19940225 0000950112-94-000477.hdr.sgml : 19940225 ACCESSION NUMBER: 0000950112-94-000477 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RJR NABISCO HOLDINGS CORP CENTRAL INDEX KEY: 0000847903 STANDARD INDUSTRIAL CLASSIFICATION: 2052 IRS NUMBER: 133490602 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10215 FILM NUMBER: 94512141 BUSINESS ADDRESS: STREET 1: 1301 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019-6013 BUSINESS PHONE: 2122585600 FORMER COMPANY: FORMER CONFORMED NAME: RJR HOLDINGS CORP DATE OF NAME CHANGE: 19891116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RJR NABISCO INC CENTRAL INDEX KEY: 0000083612 STANDARD INDUSTRIAL CLASSIFICATION: 2052 IRS NUMBER: 560950247 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06388 FILM NUMBER: 94512142 BUSINESS ADDRESS: STREET 1: 1301 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122585600 FORMER COMPANY: FORMER CONFORMED NAME: REYNOLDS R J INDUSTRIES INC DATE OF NAME CHANGE: 19860501 10-K 1 RJR NABISCO FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 ------------------------ RJR NABISCO HOLDINGS CORP. (Exact name of registrant as specified in its charter) DELAWARE 1-10215 13-3490602 (State or other (Commission file (I.R.S. Employer Identification jurisdiction of number) No.) incorporation or organization)
RJR NABISCO, INC. (Exact name of registrant as specified in its charter) DELAWARE 1-6388 56-0950247 (State or other (Commission file (I.R.S. Employer Identification jurisdiction of number) No.) incorporation or organization)
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (212) 258-5600 (Address, including zip code, and telephone number, including area code, of the principal executive offices of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc.) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH NAME OF EACH EXCHANGE ON EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED TITLE OF EACH CLASS WHICH REGISTERED - -------------------------------------------------- ------------- ------------------------------------------- ------------- RJR NABISCO HOLDINGS CORP. 7 3/8% Sinking Fund Debentures, Due Common Stock, par value $.01 per share New York February 1, 2001 New York $.835 Depositary Shares New York 7 5/8% Notes due September 15, 2003 New York Series B Depositary Shares New York 8 5/8% Notes due 2002 New York RJR NABISCO, INC. 8% Notes due 2000 New York Subordinated Discount Debentures due 9 1/4% Debentures due 2013 New York May 15, 2001 New York 8 3/4% Notes due 2005 New York 15% Payment-in-Kind Subordinated Debentures due May 15, 2001 New York SUBSIDIARIES OF THE REGISTRANTS 13 1/2% Subordinated Debentures due May 15, 2001 New York Nabisco, Inc. 10 1/2% Senior Notes due 1998 New York 7 3/4% Sinking Fund Debentures Due May 1, 2001 New York 8.30% Senior Notes due April 15, 1999 New York 7 3/4% Sinking Fund Debentures Due 8.75% Senior Notes due April 15, 2004 New York November 1, 2003 New York Standard Brands Incorporated 7 3/4% Sinking Fund Debentures, due May 1, 2001 New York
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANTS' KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF RJR NABISCO HOLDINGS CORP. ON JANUARY 31, 1994 WAS APPROXIMATELY $4.9 BILLION. CERTAIN AFFILIATES OF KKR ASSOCIATES AND DIRECTORS OF RJR NABISCO HOLDINGS CORP. ARE CONSIDERED AFFILIATES FOR PURPOSES OF THIS CALCULATION BUT SHOULD NOT NECESSARILY BE DEEMED AFFILIATES FOR ANY OTHER PURPOSE. NONE OF THE VOTING STOCK OF RJR NABISCO, INC. IS HELD BY ANY NON-AFFILIATE. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS' CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: JANUARY 31, 1994: RJR NABISCO HOLDINGS CORP.: 1,138,110,712 SHARES OF COMMON STOCK, PAR VALUE, $.01 PER SHARE RJR NABISCO, INC.:2,566.07515 SHARES OF COMMON STOCK, PAR VALUE $1,000 PER SHARE ------------------------ RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF RJR NABISCO HOLDINGS CORP. TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF THE SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1994 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEX
PAGE ----------- PART I Item 1. Business....................................................................................... 1 (a) General Development of Business....................................................... 1 (b) Financial Information about Industry Segments......................................... 2 (c) Narrative Description of Business..................................................... 2 Tobacco........................................................................... 2 Food.............................................................................. 8 Other Matters..................................................................... 11 (d) Financial Information about Foreign and Domestic Operations 13 and Export Sales.................................................................. Item 2. Properties..................................................................................... 13 Item 3. Legal Proceedings.............................................................................. 13 Item 4. Submission of Matters to a Vote of Security Holders............................................ 13 Executive Officers of the Registrants.......................................................... 14 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters.......................... 16 Item 6. Selected Financial Data........................................................................ 17 Item 7. Management's Discussion and Analysis of Financial Condition and 19 Results of Operations........................................................................ Item 8. Financial Statements and Supplementary Data.................................................... 29 Item 9. Changes in and Disagreements with Accountants on Accounting and 29 Financial Disclosure......................................................................... PART III Item 10. Directors and Executive Officers of the Registrants............................................ 30 Item 11. Executive Compensation......................................................................... 30 Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 30 Item 13. Certain Relationships and Related Transactions................................................. 30 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 31
PART I ITEM 1. BUSINESS (a) General Development of Business RJR Nabisco Holdings Corp. ("Holdings") was organized as a Delaware corporation in 1988 at the direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), a Delaware limited partnership, to effect the acquisition of RJR Nabisco, Inc. ("RJRN"), which was completed on April 28, 1989 (the "Acquisition"). As a result of the Acquisition, RJRN became an indirect, wholly owned subsidiary of Holdings. After a series of holding company mergers completed on December 17, 1992, RJRN became a direct, wholly owned subsidiary of Holdings. The business of Holdings is conducted through RJRN. Holdings and RJRN are referred to herein collectively as the "Registrants". RJRN's operating subsidiaries comprise one of the largest tobacco and food companies in the world. In the United States, the tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of cigarettes, and the packaged food business is conducted by the Nabisco Foods Group ("NFG"), the largest manufacturer and marketer of cookies and crackers. Tobacco operations outside the United States are conducted by R. J. Reynolds Tobacco International, Inc. ("Tobacco International") and food operations outside the United States and Canada are conducted by Nabisco International, Inc. ("Nabisco International"). NFG and Nabisco International are sometimes referred to herein collectively as "Nabisco". Together, RJRT's and Tobacco International's tobacco products are sold around the world under a variety of brand names. Nabisco's food products are sold in the United States, Canada, Latin America and certain other international markets. For financial information with respect to RJRN's industry segments, lines of business and operations in various geographic locations, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 15 to the consolidated financial statements, and the related notes thereto, of Holdings and RJRN as of December 31, 1993 and 1992 and for each of the years in the three-year period ended December 31, 1993 (the "Consolidated Financial Statements"). RJRN was incorporated in 1970 and can trace its origins back to the formation of R. J. Reynolds Tobacco Company in 1875. Activities were confined to the tobacco industry until the 1960's, when diversification led to investments in transportation, energy and food. With the acquisition of Del Monte Corporation ("Del Monte") in 1979, RJRN began to concentrate its focus on consumer products. This strategy led to the acquisition of Nabisco Brands, Inc. in 1985. RJRN today conducts its tobacco line of business through RJRT and Tobacco International and its food line of business through NFG and Nabisco International. In recent years the Registrants have completed a number of acquisitions within these lines of business. These included the 1992 acquisitions of (i) the assets of New York Style Bagel Chip Company, Inc., the country's leading producer and marketer of bagel chips and pita chips; (ii) Plush Pippin Corporation, a leading regional supplier of frozen pies to in-store supermarket bakeries; (iii) Stella D'oro Biscuit Co., Inc., a New York based specialty bakery ("Stella D'oro") which manufactures breadsticks, breakfast biscuits, specialty cakes, pastries and snacks; and (iv) the Now & Later confection brand, a fruit chewy taffy product. In 1992, the Registrants also acquired Industrias Alimenticias Maguary S.A., Brazil's largest producer and marketer of packaged fruit-based beverages, Lance S.A. de C.V., one of Mexico's leading biscuit and pasta manufacturers, and six food and pet food businesses in Mexico in exchange for Nabisco International's previous minority interest in a joint venture operating those and other businesses in Mexico. During 1993, Nabisco International acquired a 50% interest in both Royal Brands, S.A. in Spain and Royal Brands Portugal, acquired approximately 95% of Cia. Arturo Field y la Estrella Ltda., S.A. in Peru and increased its equity interest in a partially owned business in Venezuela to 100%. In addition, Tobacco International acquired a 52% interest in a cigarette factory in St. Petersburg, Russia in 1992, and constructed a factory in Turkey and acquired a 70% interest in two cigarette factories in the Ukraine in 1993. 1 On January 4, 1993, the Registrants completed the sale of NFG's ready-to-eat cold cereal business to Kraft General Foods, Inc. and one of its affiliates, for an aggregate cash purchase price of approximately $456 million in cash, prior to post-closing adjustments. NFG acquired the Knox gelatin brand in January 1994 and has contractual arrangements pursuant to which it expects to acquire the remaining 50% of Royal Brands, S.A. and Royal Brands Portugal during 1994. RJRN will continue to assess its businesses to evaluate their consistency with strategic objectives. Although RJRN may acquire and/or divest additional businesses in the future, no decisions have been made with respect to any such acquisitions or divestitures. The Registrants' credit agreement, dated as of December 1, 1991, as amended (the "1991 Credit Agreement") and credit agreement, dated as of April 5, 1993, as amended (the "1993 Credit Agreement", and together with the 1991 Credit Agreement, the "Credit Agreements"), prohibit the sale of all or substantially all or any substantial portion of the businesses of certain subsidiaries of RJRN. (b) Financial Information about Industry Segments During 1993, the Registrants' industry segments were tobacco and food. For information relating to industry segments for the years ended December 31, 1993, 1992 and 1991, see Note 15 to the Consolidated Financial Statements. (c) Narrative Description of Business TOBACCO The tobacco line of business is conducted by RJRT and Tobacco International, which manufacture, distribute and sell cigarettes. Cigarettes are manufactured in the United States by RJRT and in over 30 foreign countries and territories by Tobacco International and subsidiaries or licensees of RJRT and are sold throughout the United States and in more than 160 markets around the world. In 1993, approximately 61% of total tobacco segment net sales (after deducting excise taxes) and approximately 65% of total tobacco segment operating income (before amortization of trademarks and goodwill and the effects of a restructuring expense) were attributable to domestic tobacco operations. DOMESTIC TOBACCO OPERATIONS The domestic tobacco business is conducted by RJRT, which is the second largest cigarette manufacturer in the United States. RJRT's largest selling cigarette brands in the United States include WINSTON, DORAL, SALEM, CAMEL, MONARCH and BEST VALUE. RJRT's other cigarette brands, including VANTAGE, MORE, NOW, STERLING, MAGNA and CENTURY, are marketed to meet a variety of smoker preferences. All RJRT brands are marketed in a variety of styles. Based on data collected for RJRT by an independent market research firm, RJRT had an overall share of retail consumer cigarette sales during 1993 of 29.8%, an increase of approximately one share point from 1992. During 1993, RJRT and the largest domestic cigarette manufacturer, Philip Morris U.S.A., together sold approximately 73% of all cigarettes sold in the United States. A primary long-term objective of RJRT is to increase earnings and cash flow through selective marketing investments in its key brands and continual improvements in its cost structure and operating efficiency. Marketing programs for full-price brands are designed to build brand awareness and add value to the brands in order to retain current adult smokers and attract adult smokers of competitive brands. In 1993, these efforts included expansion of continuity and relationship-building programs such as CAMEL Cash and the WINSTON Winners Club, and the introduction of line extensions such as CAMEL Special Lights and WINSTON Select Lights. RJRT believes it is essential to compete in all segments of the cigarette market, and accordingly offers a range of lower-priced brands including DORAL, MONARCH and BEST VALUE intended to appeal to more cost-conscious adult smokers. 2 For a discussion on competition in the tobacco business, see "Other Matters--Competition" in this Item 1 and "1993 Competitive Activity" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. RJRT's domestic manufacturing facilities, consisting principally of factories and leaf storage facilities, are located in or near Winston-Salem, North Carolina and are owned by RJRT. Cigarette production is conducted at the Tobaccoville cigarette manufacturing plant (approximately two million square feet) and the Whitaker Park cigarette manufacturing complex (approximately one and one-half million square feet). RJRT believes that its cigarette manufacturing facilities are among the most technologically advanced in the United States. RJRT also has significant research and development facilities in Winston-Salem, North Carolina. RJRT's cigarettes are sold in the United States primarily to chain stores, other large retail outlets and through distributors to other retail and wholesale outlets. Except for McLane Company, Inc., which represented approximately 10.9% of RJRT's sales, no RJRT customers accounted for more than 10% of sales for 1993. RJRT distributes its cigarettes primarily to public warehouses located throughout the United States that serve as local distribution centers for RJRT's customers. RJRT's products are sold to adult smokers primarily through retail outlets. RJRT employs a decentralized marketing strategy that permits RJRT's sales force to be more flexible in responding to local market dynamics by designing individual in-store programs to fit varying consumption patterns. RJRT utilizes print media, billboards, point-of-sale displays and other methods of advertising. Since 1971, television and radio advertising of cigarettes has been prohibited in the United States. INTERNATIONAL TOBACCO OPERATIONS Tobacco International operates in over 160 markets around the world. Although overall foreign cigarette sales (excluding China, in which production data indicates an approximate 2% per annum growth rate) have increased at a rate of only 1% per annum in recent years, Tobacco International believes that the American Blend segment, in which Tobacco International primarily competes is growing significantly faster. Although Tobacco International is the second largest of two international cigarette producers that have significant positions in the American Blend segment, its share of sales of this segment is approximately one-third of the share of Philip Morris International Inc., the largest American Blend producer. Tobacco International has strong brand presence in Western Europe and is well established in its other key markets in the Middle East/Africa, Asia and Canada. Tobacco International is aggressively pursuing development opportunities in Eastern Europe and the former Soviet Union. Tobacco International markets over 55 brands of which WINSTON, CAMEL and SALEM, all American Blend cigarettes, are its international leaders. WINSTON, Tobacco International's largest selling international brand, has a significant presence in Puerto Rico and has particular strength in the Western Europe and Middle East/Africa regions. CAMEL is sold in approximately 135 markets worldwide and is Tobacco International's second largest selling international brand. SALEM is the world's largest selling menthol cigarette and has particular strength in Far East markets. Tobacco International also markets a number of local brands in various foreign markets. None of Tobacco International's customers accounted for more than 10% of sales for 1993. Approximately 30% of Tobacco International's cigarette volume for 1993 was manufactured by RJRT in the United States for sale in foreign markets. The remainder was manufactured overseas, principally in owned manufacturing facilities or by licensees or joint ventures. Tobacco International operates two tobacco manufacturing facilities in Germany and one located in each of Canada, Hong Kong, Hungary, Malaysia, Poland, Puerto Rico and Switzerland. Tobacco International opened a factory in the People's Republic of China in 1988 as a part of the first cigarette manufacturing joint venture in that country, and in 1993 constructed a factory in Turkey and acquired a 70% interest in two 3 cigarette factories in the Ukraine. In addition, in 1992, Tobacco International acquired a 52% interest in a cigarette factory in St. Petersburg, Russia. Certain of Tobacco International's foreign operations are subject to local regulations that set import quotas, restrict financing flexibility and affect repatriation of earnings or assets. In recent years, certain trade barriers for cigarettes, particularly in Asia and Eastern Europe, have been liberalized. This may provide opportunities for all international cigarette manufacturers, including Tobacco International, to expand operations in such markets; however, there can be no assurance that the liberalizing trends will be maintained or extended or that Tobacco International will be successful in pursuing such opportunities. RAW MATERIALS In its domestic production of cigarettes, RJRT primarily uses domestic burley and flue cured leaf tobaccos purchased at domestic auction. RJRT also purchases oriental tobaccos, grown primarily in Turkey and Greece, and certain other non-domestic tobaccos. Tobacco International uses a variety of tobacco leaf from both United States and international sources. Tobacco leaf is an agricultural commodity subject in the United States to government production controls and price supports that can affect market prices substantially. The tobacco leaf price support program is subject to Congressional review and may be changed at any time in the future. In addition, Congress enacted legislation during 1993 (the Omnibus Budget Reconciliation Act of 1993), which stipulates that, effective January 1, 1994, financial penalties will be assessed against manufacturers if cigarettes produced in the United States do not contain at least 75% (by weight) domestically grown flue cured and burley tobaccos. Currently RJRT expects that compliance with the content regulation will increase its future raw material costs. RJRT and Tobacco International believe there is a sufficient supply of tobacco in the worldwide tobacco market to satisfy their current production requirements. LEGISLATION AND OTHER MATTERS AFFECTING THE CIGARETTE INDUSTRY The advertising, sale and use of cigarettes has been under attack by government and health officials in the United States and in other countries for many years, principally due to claims that cigarette smoking is harmful to health. This attack has resulted in a number of substantial restrictions on the marketing, advertising and use of cigarettes, diminishing social acceptability of smoking and activities by anti-smoking groups designed to inhibit cigarette sales, the form and content of cigarette advertising and the testing and introduction of new cigarette products. Together with manufacturers' price increases in recent years and substantial increases in state and federal excise taxes on cigarettes, this has had and will likely continue to have an adverse effect on cigarette sales. Cigarettes are subject to substantial excise taxes in the United States and to similar taxes in many foreign markets. In 1990, Congress enacted legislation to increase the federal excise tax per pack of 20 cigarettes to 20 cents from 16 cents on January 1, 1991 and provide for an increase in the federal excise tax on January 1, 1993 to 24 cents. In addition, all states and the District of Columbia impose excise taxes of levels ranging from a low of 2.5 cents to a high of 65 cents per pack on cigarettes, and increases in these state excise taxes could also have an adverse effect on cigarette sales. In 1993, thirteen states and the District of Columbia enacted excise tax increases ranging from less than 2 cents per pack to 41 cents per pack. In addition, the Clinton Administration and members of Congress have introduced bills in Congress that would significantly increase the federal excise tax on cigarettes, eliminate the deductibility of a portion of the cost of tobacco advertising, ban smoking in public buildings and workplaces, add additional health warnings on cigarette packaging and advertising and further restrict the marketing of tobacco products. In January 1993, the U.S. Environmental Protection Agency (the "EPA") released a report on the respiratory effects of environmental tobacco smoke ("ETS") which concludes that ETS is a known 4 human lung carcinogen in adults; and in children causes increased respiratory tract disease and middle ear disorders and increases the severity and frequency of asthma. RJRT has joined other segments of the tobacco and distribution industries in a lawsuit against the EPA seeking a determination that the EPA did not have the statutory authority to regulate ETS, and that, given the current body of scientific evidence and the EPA's failure to follow its own guidelines in making the determination, the EPA's classification of ETS was arbitrary and capricious. In September 1991, the U.S. Occupational Safety and Health Administration ("OSHA") issued a Request for Information relating to indoor air quality, including ETS, in occupational settings. OSHA has announced that it will commence formal rulemaking in 1994. While the Registrants cannot predict the outcome, some form of regulation of smoking in workplaces may result. Legislation imposing various restrictions on public smoking has also been enacted in nineteen states and many local jurisdictions, many employers have initiated programs restricting or eliminating smoking in the workplace and nine states have enacted legislation designating a portion of increased cigarette excise taxes to fund either anti-smoking programs, health care programs or cancer research. Federal law prohibits smoking on all domestic airline flights of six hours duration or less and the U.S. Interstate Commerce Commission has banned smoking on buses transporting passengers inter-state. A number of foreign countries have also taken steps to discourage cigarette smoking, to restrict or prohibit cigarette advertising and promotion and to increase taxes on cigarettes. Such restrictions are, in some cases, more onerous than restrictions imposed in the United States. In June 1988, Canada enacted a ban on cigarette advertising, the constitutionality of which is before the Supreme Court of Canada. On December 11, 1990, RJRN and other U.S. cigarette manufacturers, through The Tobacco Institute, announced a tobacco industry initiative to assist retailers in enforcing minimum age laws on the sale of cigarettes, to support the enactment of state laws requiring the adult supervision of cigarette vending machines in places frequented by minors, to seek the uniform establishment of 18 as the minimum age for the purchase of cigarettes in all states, to distribute informational materials to assist parents in combatting peer pressure on their children to smoke and to limit voluntarily certain cigarette advertising and promotional practices. In 1992, the Alcohol, Drug and Mental Health Act was signed into law. This Act contains a provision, effective January 1, 1994, that requires states to adopt a minimum age of 18 for purchase of tobacco products to receive federal funding for mental health and drug abuse programs. In 1964, the Report of the Advisory Committee to the Surgeon General of the U.S. Public Health Service concluded that cigarette smoking was a health hazard of sufficient importance to warrant appropriate remedial action. Since 1966, federal law has required a warning statement on cigarette packaging. Since 1971, television and radio advertising of cigarettes has been prohibited in the United States. Cigarette advertising in other media in the United States is required to include information with respect to the "tar" and nicotine content of cigarettes, as well as a warning statement. During the past three decades, various legislation affecting the cigarette industry has been enacted. In 1984, Congress enacted the Comprehensive Smoking Education Act (the "Smoking Education Act"). Among other things, the Smoking Education Act: (i) establishes an interagency committee on smoking and health that is charged with carrying out a program to inform the public of any dangers to human health presented by cigarette smoking; (ii) requires a series of four new health warnings to be printed on cigarette packages and advertising on a rotating basis; (iii) increases type size and area of the warning on cigarette advertisements; and (iv) requires that cigarette manufacturers provide annually, on a confidential basis, a list of ingredients used in the manufacture of cigarettes to the Secretary of Health and Human Services. The warnings currently required on cigarette packages and advertisements (other than billboards) are as follows: (i) "Surgeon General's Warning: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy"; (ii) "Surgeon General's Warning: Quitting Smoking Now Greatly Reduces Serious Risks To Your Health"; (iii) "Surgeon General's Warning: Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, and 5 Low Birth Weight"; and (iv) "Surgeon General's Warning: Cigarette Smoke Contains Carbon Monoxide." Similar warnings are required on outdoor billboards. In August 1990, the Fire Safe Cigarette Act of 1990 was enacted, which directed the Consumer Product Safety Commission to conduct and oversee research begun under direction of the Cigarette and Little Cigar Fire Safety Act of 1984 and to assess the practicability of developing a performance standard to reduce cigarette ignition propensity. The Commission presented a final report to Congress in August 1993 describing the results of the research. The Commission concluded that while "it is practicable to develop a performance standard to reduce cigarette ignition propensity, it is unclear that such a standard would effectively address the number of cigarette-ignited fires." The Commission further found that additional work would be required before the actual development of a performance standard. Nevertheless, the Commission reported that a test method developed by the National Institute of Standards and Technology was valid and reliable within reasonable limits and could be suitable for use in a performance standard. Although the Registrants cannot predict whether further legislation on this subject may be enacted, some form of regulation of cigarettes based on their propensity to ignite soft furnishings may result. Since the initial report in 1964, the Secretary of Health, Education and Welfare and the Surgeon General have issued a number of other reports which purport to link cigarette smoking with certain health hazards, including various types of cancer, coronary heart disease and chronic obstructive lung disease. These reports have recommended various governmental measures to reduce the incidence of smoking. In addition to the foregoing, legislation and regulations potentially detrimental to the cigarette industry, generally relating to the taxation of cigarettes and regulation of advertising, labeling, promotion, sale and smoking of cigarettes, have been proposed from time to time at various levels of the federal government. Various Congressional committees and subcommittees have approved legislation in recent years that (i) would subject cigarettes to regulation in various ways under the U.S. Department of Health and Human Services, (ii) would subject cigarettes generally to regulation under the Consumer Products Safety Act, (iii) could increase manufacturers' costs, (iv) would mandate anti-smoking education campaigns or establish anti-smoking programs, (v) would provide additional funding for federal and state anti-smoking activities, (vi) would require a new list of six health warnings on cigarette packages and advertising, expand the number or required size of the warnings and restrict the contents of cigarette advertising and promotional activities, (vii) would provide that neither the provisions of the Federal Cigarette Labeling and Advertising Act, as amended (the "Cigarette Act"), nor the Smoking Education Act should be interpreted to relieve any person from liability under common law or state statutory law and (viii) would permit state and local governments to restrict the sale and distribution of cigarettes and the placement of billboard and transit advertising of tobacco products. It is not possible to determine what additional federal, state or local legislation or regulations relating to smoking or cigarettes will be enacted or to predict any resulting effect thereof on RJRT, Tobacco International or the cigarette industry generally but such legislation or regulations could have an adverse effect on RJRT, Tobacco International or the cigarette industry generally. LITIGATION AFFECTING THE CIGARETTE INDUSTRY Various legal actions, proceedings and claims are pending or may be instituted against RJRT or its affiliates or indemnitees, including those claiming that lung cancer and other diseases have resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16 new actions were filed or served against RJRT and/or its affiliates or indemnitees and 18 such actions were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or indemnitees without trial. A total of 35 such actions in the United States, one in Puerto Rico and one against RJRT's Canadian subsidiary were pending on December 31, 1993. As of February 7, 1994, 35 active cases were pending against RJRT and/or its affiliates or indemnitees, 33 in the United States, one in Puerto Rico and one in Canada. Four of the 33 active cases in the United States involve alleged non-smokers claiming injuries resulting from exposure to environmental tobacco smoke. One of such cases is currently scheduled for trial on 6 September 5, 1994 and if tried, will be the first such case to reach trial. The United States cases are in 15 states and are distributed as follows: eight in Louisiana, eight in Texas, three in Mississippi, two in Indiana, two in New Jersey and one each in Alabama, Florida, Illinois, Kentucky, Maryland, Massachusetts, Minnesota, New York, Oregon and West Virginia. Of the 33 active cases in the United States, 24 are pending in state court and 9 in federal court. One of the active cases is alleged to be a class action on behalf of a purported class of 60,000 individuals. The plaintiffs in these actions seek recovery on a variety of legal theories, including strict liability in tort, design defect, negligence, breach of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive damages, often in amounts totalling many millions of dollars, are specifically pleaded in 20 cases in addition to compensatory and other damages. The defenses raised by RJRT and/or its affiliates, where applicable, include preemption by the Cigarette Act of some or all such claims arising after 1969; the lack of any defect in the product; assumption of the risk; comparative fault; lack of proximate cause; and statutes of limitations or repose. Juries have found for plaintiffs in two smoking and health cases, but in one such case, which has been appealed by both parties, no damages were awarded. The jury awarded $400,000 in the other case, Cipollone v. Liggett Group, Inc., et al., which award was overturned on appeal and the case was subsequently dismissed. On June 24, 1992, the United States Supreme Court in Cipollone held that claims that tobacco companies failed to adequately warn of the risks of smoking after 1969 and claims that their advertising and promotional practices undermined the effect of warnings after that date were preempted by the Cigarette Act. The Court also held that claims of breach of express warranty, fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's decision was announced through a plurality opinion, and further definition of how Cipollone will apply to other cases must await rulings in those cases. Certain legislation proposed in recent years in Congress, among other things, would eliminate any such preemptive effect on common law damage actions for personal injuries. RJRT is unable to predict whether such legislation will be enacted, if so, in what form, or whether such legislation would be intended by Congress to apply retroactively. The Supreme Court's Cipollone decision itself, or the passage of such legislation, could increase the number of cases filed against cigarette manufacturers, including RJRT. RJRT understands that a grand jury investigation being conducted in the Eastern District of New York is examining possible violations of criminal law in connection with activities relating to the Council for Tobacco Research-USA, Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this investigation. RJRT recently received a civil investigative demand from the U.S. Department of Justice requesting broad documentary information from RJRT. Although the request appears to focus on tobacco industry activities in connection with product development efforts, it also requests general information concerning contacts with competitors. RJRT is unable to predict the outcome of this investigation. Litigation is subject to many uncertainties, and it is possible that some of the legal actions, proceedings or claims could be decided against RJRT or its affiliates or indemnitees. Determinations of liability or adverse rulings against other cigarette manufacturers that are defendants in similar actions, even if such rulings are not final, could adversely affect the litigation against RJRT and its affiliates or indemnitees and increase the number of such claims. Although it is impossible to predict the outcome of such events or their effect on RJRT, a significant increase in litigation activities could have an adverse effect on RJRT. RJRT believes that it has a number of valid defenses to any such actions, including but not limited to those defenses based on preemption under the Cipollone decision, and RJRT intends to defend vigorously all such actions. 7 FOOD The food line of business conducted by NFG, which comprises the Nabisco Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty Products Company, the Fleischmann's Division, the Food Service Division and Nabisco Brands Ltd, and by Nabisco International. Food products are sold under trademarks owned or licensed by Nabisco and brand recognition is considered essential to their successful marketing. None of Nabisco's customers accounted for more than 10% of sales for 1993. NABISCO FOODS GROUP OPERATIONS Nabisco Biscuit Company. Nabisco Biscuit is the largest manufacturer and marketer in the United States cookie and cracker industry with the nine top selling brands, each of which had annual sales of over $100 million in 1993. Overall, in 1993, Nabisco Biscuit had a 39% share of the domestic cookie industry sales, more than double the share of its closest competitor, and a 55% share of the domestic cracker industry sales, more than three times the share of its closest competitor. Leading Nabisco Biscuit cookie brands include OREO, CHIPS AHOY! and NEWTONS. Leading Nabisco Biscuit cracker brands include RITZ, PREMIUM, WHEAT THINS, NABISCO GRAHAMS and TRISCUIT. OREO and CHIPS AHOY! are the two largest selling cookies in the United States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling cookie brand. CHIPS AHOY! is the leader in the chocolate chip cookie segment with recent line extensions such as CHUNKY CHIPS AHOY! broadening its appeal and adding incremental sales. NEWTONS, the oldest Nabisco Biscuit cookie brand, is the third leading cookie brand in the United States. The introduction of FAT FREE FIG and APPLE NEWTONS in 1992 and the addition of the FAT FREE CRANBERRY, RASPBERRY and STRAWBERRY NEWTONS in 1993 has expanded the appeal of NEWTONS and brought incremental sales to the franchise. Nabisco Biscuit's cracker division is led by RITZ, the largest selling cracker brand in the United States, which accounted for 12% of cracker sales in the United States in 1993. In addition, PREMIUM, the oldest Nabisco Biscuit cracker brand and the leader in the saltine cracker segment, is joined by WHEAT THINS, NABISCO GRAHAMS and TRISCUIT to comprise, along with RITZ, the five largest selling cracker brands in the United States. In 1991, Nabisco Biscuit introduced MR. PHIPPS PRETZEL CHIPS, the first such product of its kind. Nabisco Biscuit expanded the MR. PHIPPS franchise with the introduction of MR. PHIPPS TATER CRISPS in 1992, which deliver salty snack taste with only half the fat of potato chips, and the introduction of MR. PHIPPS TORTILLA CRISPS in 1993. In 1992, Nabisco Biscuit became the leading manufacturer and marketer of no fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S line. In 1993, the SNACKWELL'S brand recorded over $200 million in sales to become the sixth largest cookie/cracker brand in the United States. In October 1992, Nabisco Biscuit acquired STELLA D'ORO, a leading producer of breadsticks, breakfast biscuits, specialty cakes, pastries and snacks. This line of specialty items gives Nabisco Biscuit an entry to new users and usage occasions, further broadening NFG's cookie and cracker portfolio. Nabisco Biscuit's other cookie and cracker brands, which include NUTTER BUTTER, NILLA WAFERS, BARNUM'S ANIMALS CRACKERS, BETTER CHEDDARS, HARVEST CRISPS, CHICKEN IN A BISKIT, CHEESE NIPS and NEW YORK STYLE BAGEL and PITA CHIPS, 8 compete in consumer niche segments. Many are the first or second largest selling brands in their respective segments. Nabisco Biscuit's products are manufactured in 13 Nabisco Biscuit-owned bakeries and in 16 facilities with which Nabisco Biscuit has production agreements. These facilities are located throughout the United States. Nabisco Biscuit is in the process of implementing plans to modernize certain of its facilities. Nabisco Biscuit also operates a flour mill in Toledo, Ohio, which supplies 85% of its flour needs. Nabisco Biscuit's products are sold to major grocery and other large retail chains through Nabisco Biscuit's direct store delivery system. The system is supported by a distribution network utilizing ten major distribution warehouses and 130 shipping branches where shipments are consolidated for delivery to approximately 111,000 separate delivery points. NFG believes this sophisticated distribution and delivery system provides it with a significant service advantage over its competitors. LifeSavers Division. The LifeSavers Division manufactures and markets hard roll and bite-size candy and gum primarily for sale in the United States. LifeSavers' well-known brands include LIFE SAVERS hard roll and bite-size candy, BREATH SAVERS sugar free mints, BUBBLE YUM bubble gum, CARE*FREE sugarless gum, NOW & LATER fruit chewy taffy and LIFE SAVERS GUMMI SAVERS fruit chewy candy. On the basis of the most recent data available, LIFE SAVERS is the largest selling hard roll candy in the United States, with an approximately 25% share of the hard roll candy category, BREATH SAVERS is the largest selling sugar free breath mint in the United States and BUBBLE YUM is the largest selling chunk bubble gum in the United States. LifeSavers' confectionery products are seasonally strongest during the third and fourth quarters. LifeSavers sells its products in the United States primarily to large retail outlets, chain accounts and to other retail and wholesale outlets. These include grocery stores, drug/mass merchandisers, convenience stores, and food service and military suppliers. The products are distributed from 13 distribution centers located throughout the United States. LifeSavers currently owns and operates three manufacturing facilities for its products, one in Holland, Michigan, one in Brooklyn, New York and the other in Las Piedras, Puerto Rico. Sales, for the LifeSavers Division, as well as the Planters, Specialty Products and Fleischmann's Divisions, are handled through NFG's Sales and Integrated Logistics group, which utilize both direct sales and broker sales organizations. Planters Division. The Planters Division produces and/or markets nuts and snacks largely for sale in the United States, primarily under the PLANTERS trademark. On the basis of the most recent data available, PLANTERS nuts are the clear leader in the packaged nut category, with a market share of more than five times that of its nearest competitor. Planters' products are commodity oriented and are seasonally strongest in the fourth quarter. Planters sells its products in the United States primarily to large retail outlets, chain accounts and to other retail and wholesale outlets. These include grocery stores, drug/mass merchandisers, convenience stores, and food service and military suppliers. The products are distributed from the same 13 distribution centers utilized by the LifeSavers Division. Planters currently owns and operates three manufacturing facilities for its products, all located in the United States. Specialty Products Company. NFG's Specialty Products Company manufacturers and markets a broad range of food products, with sauces and condiments, pet snacks, ethnic foods and hot cereals representing the largest categories. Many of its products are first or second in their product categories. Well-known brand names include A.1. steak sauces, GREY POUPON mustards, MILK-BONE pet snacks, ORTEGA Mexican foods and CREAM OF WHEAT hot cereals. Specialty Products' primary entries in the sauce and condiment segments are A.1. steak sauces, the leading steak sauces, and GREY POUPON mustards, which include the leading Dijon mustard. 9 Specialty Products also markets REGINA wine vinegar, the leader in its segment of the vinegar market. A.1., GREY POUPON and REGINA products are manufactured in one facility. Specialty Products is the leading manufacturer of pet snacks in the United States with MILK-BONE dog biscuits. MILK-BONE products include MILK-BONE ORIGINAL BISCUITS, FLAVOR SNACKS, DOG TREATS, BUTCHER BONES and BUTCHER'S CHOICE. Pet snacks are produced at a single manufacturing facility. Specialty Products produces shelf-stable Mexican foods under its ORTEGA brand name. Specialty Products also participates in the dry mix dessert category with ROYAL gelatins and puddings and the non-dessert gelatin category with KNOX unflavored gelatins and has lines of regional products including COLLEGE INN broths, VERMONT MAID syrup, MY-T-FINE puddings, DAVIS baking powder and BRER RABBIT molasses and syrup. NFG, through its Specialty Products Company, is the second largest manufacturer in the hot cereal category, participating in both the cook-on-stove and mix-in-bowl segments of the category. The Quaker Oats Company, with over 60% of the hot cereal category volume sales, is the most significant participant in the hot cereal category. CREAM OF WHEAT, the leading wheat-based hot cereal, and CREAM OF RICE, participate in the cook-on-stove segment and at least seven varieties of INSTANT CREAM OF WHEAT participate in the mix-in-bowl segment. Hot cereals are manufactured in one facility. Specialty Products sells its products to retail grocery chains through independent brokers and to drug/mass merchandisers and other major retail outlets through a direct salesforce. The products are distributed from the same 13 distribution centers utilized by the LifeSavers Division. Fleischmann's Division. The Fleischmann's Division manufactures and markets various margarines and spreads as well as an egg substitute. Fleischmann's margarine business is the second largest margarine producer in the United States. Fleischmann's currently participates in all three segments of the margarine category, with FLEISCHMANN'S in the premium health segment, BLUE BONNET in the volume segment and MOVE OVER BUTTER in the premium blend segment. Fleischmann's margarines are currently manufactured in three facilities. Fleischmann's is also the market leader in the egg substitute category with EGG BEATERS. Distribution for the Fleischmann's Division is principally direct from plant to stores. Food Service Division. The Food Service Division of NFG sells a variety of specially packaged food products of the other groups of NFG through non-grocery channels, including cookies, crackers, cereals, sauces and condiments for the food service and vending machine industry. The Food Service Division is a leading regional supplier of premium frozen pies to in-store supermarket bakeries, wholesale clubs and food service accounts through the Plush Pippin Corporation. The Food Service Division provides NFG with an additional distribution method for its products. Nabisco Brands Ltd. Nabisco Brands Ltd conducts NFG's Canadian operations through a biscuit division, a grocery division and a food service division. The biscuit division produced nine of the top ten cookies and nine of the top ten crackers in Canada in 1993. Nabisco Brands Ltd's cookie and cracker brands in Canada include OREO, CHIPS AHOY!, FUDGEE-O, PEEK FREANS, DAD'S, DAVID, PREMIUM PLUS, RITZ, TRISCUIT and STONED WHEAT THINS. These products are manufactured in five bakeries in Canada and are sold through a direct store delivery system, utilizing 11 sales offices and distribution centers and a combination of public and private carriers. Nabisco Brands Ltd's grocery division produces and markets canned fruits and vegetables, fruit drinks and pet snacks. The grocery division is the leading canned fruit producer in Canada and is the second largest canned vegetable producer in Canada. Canned fruits and vegetables and fruit drinks are marketed under the DEL MONTE trademark, pursuant to a license from Del Monte, and under the AYLMER trademark. The grocery division also markets MILK-BONE pet snacks and MAGIC 10 baking powder, each leading brands in Canada. Excluding the facility sold in connection with the sale of Nabisco's ready-to eat cold cereal business, the division operated six manufacturing facilities in 1993, five of which are devoted to canned products, principally fruits and vegetables, and one of which produced pet snacks. The grocery division's products are sold directly to retail chains and are distributed through six regional warehouses. Nabisco Brands Ltd's food service division sells a variety of specially packaged food products including cookies, crackers, canned fruits and vegetables as well as condiments to non-grocery outlets. The food service division has its own sales and marketing organization and sources product from Nabisco Brands Ltd's other divisions. NABISCO INTERNATIONAL OPERATIONS Nabisco International is a leading producer of powdered dessert and drink mixes, biscuits, baking powder and other grocery items, industrial yeast and bakery ingredients in many of the 17 Latin American countries in which it has operations. Nabisco International also exports a variety of NFG products to markets in Europe and Asia from the United States. Nabisco International is one of the largest multinational packaged food businesses in Latin America. Nabisco International manufactures and markets yeast, baking powder and bakery ingredients under the FLEISCHMANN'S and ROYAL brands, biscuits and crackers under the NABISCO brand, dessert and drink mixes under the ROYAL brand, processed milk products under the GLORIA brand, and canned fruits and vegetables under the DEL MONTE brand pursuant to a license from Del Monte. Nabisco International's largest market is Brazil, where it operates 15 plants. Nabisco International is the market leader in powdered desserts in most of Latin America, the yeast category in Brazil, biscuits in Peru, Spain, Venezuela and Uruguay, and canned vegetables in Venezuela. Nabisco International also maintains a strong position in the processed milk category in Brazil. During 1993, Nabisco International significantly increased its presence in Europe through the acquisition of a 50% interest in each of Royal Brands S.A. in Spain and Royal Brands Portugal. Nabisco International has contractual arrangements pursuant to which it expects to acquire the remaining 50% of such businesses in 1994. Nabisco International's products in Spain now include biscuits marketed under the ARTIACH and MARBU trademarks, powder dessert mixes marketed under the ROYAL trademark and various other foods, including canned meats and juices. Nabisco International's grocery products are sold to retail outlets through its own sales forces and independent wholesalers and distributors. Industrial yeast and bakery products are sold to the bakery trade through Nabisco International's own sales forces and independent distributors. RAW MATERIALS Various agricultural commodities constitute the principal raw materials used by Nabisco in its food businesses. Other raw materials used by Nabisco are purchased on the commodities market and through supplier contracts. Prices of agricultural commodities tend to fluctuate due to various seasonal, climatic and economic factors, which factors generally also affect Nabisco's competitors. Nabisco believes that the raw materials for its products are in plentiful supply and all are readily available from a variety of independent suppliers. OTHER MATTERS COMPETITION Generally, the markets in which RJRN conducts its businesses are highly competitive, with a number of large participants. Competition is conducted on the basis of brand recognition, brand loyalty and price. For most of RJRN's brands substantial advertising and promotional expenditures are 11 required to maintain or improve a brand's position or to introduce a new brand. With respect to the tobacco industry, anti-smoking groups have undertaken activities designed to inhibit cigarette sales, the form and content of cigarette advertising and the testing and introduction of new cigarette products. Because television and radio advertising for cigarettes is prohibited in the United States and brand loyalty has tended to be higher in the cigarette industry than in other consumer product industries, established cigarette brands in the United States have a competitive advantage. RJRT has repositioned or introduced brands designed to appeal to adult smokers of the largest selling cigarette brand in the United States, but there can be no assurance that such efforts will be successful. In addition, increased selling prices and taxes on cigarettes have resulted in additional price sensitivity of cigarettes at the consumer level and in a proliferation of discounted brands in the growing savings segment of the market. Generally, sales of cigarettes in the savings segment are not as profitable as those in other segments. In April 1993, RJRT's largest competitor announced a shift in strategy designed to gain share of market while sacrificing short-term profits. The competitor's tactics included increased promotional spending and temporary price reductions on its largest cigarette brand, followed several months later by list price reductions on all its full-price and mid-price brands. RJRT defended its major full-price brands during the period of temporary price reductions and, to remain competitive in the marketplace, also reduced list prices on all its full-price and mid-price brands in August 1993. The cost of defensive price promotions and the impact of lower list prices were primarily responsible for the sharp drop in RJRT's 1993 operating company contribution. Although some improvement to the stability of the competitive environment has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any further improvement to the competitive environment will occur or whether such stability will continue. In addition, growth in lower price brands was slowed in the second half of 1993 due to net price reductions on full price brands. RJRT is unable to predict whether this trend will continue. ENVIRONMENTAL MATTERS The U.S. Government and various state and local governments have enacted or adopted laws and regulations concerning protection of the environment. The regulations promulgated by the EPA and other governmental agencies under various statutes have resulted in, and will likely continue to result in, substantial expenditures for pollution control, waste treatment, plant modification and similar activities. Certain subsidiaries of the Registrants have been named "potentially responsible parties" with third parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to approximately fifteen sites. RJRN has been engaged in a continuing program to assure compliance with such laws and regulations. Although it is difficult to identify precisely the portion of capital expenditures or other costs attributable to compliance with environmental laws and the Registrants can not reasonably estimate the cost of resolving the above mentioned CERCLA matters, the Registrants do not expect such expenditures or costs to have a material adverse effect on the financial condition of either of the Registrants. EMPLOYEES At December 31, 1993, the Registrants together with their subsidiaries had approximately 66,500 full time employees. None of RJRT's operations are unionized. Most of the unionized workers at Nabisco's operations are represented under a national contract with the Bakery, Confectionery and Tobacco Workers International Union, which was ratified in August 1992 and which will expire in August 1996. Other unions represent the employees of a number of Nabisco's operations. In addition, several of Tobacco International's operations are unionized. RJRN believes that its relations with its employees and with the unions in which its employees are members are good. 12 (d) Financial Information about Foreign and Domestic Operations and Export Sales For information about foreign and domestic operations and export sales for the years 1991 through 1993, see "Geographic Data" in Note 15 to the Consolidated Financial Statements. ITEM 2. PROPERTIES For information pertaining to the Registrants' assets by lines of business and geographic areas as of December 31, 1993 and 1992, see Note 15 to the Consolidated Financial Statements. For information on properties, see Item 1. ITEM 3. LEGAL PROCEEDINGS For information relating to litigation and legal proceedings, see "Other Matters-Environmental Matters" and "Litigation Affecting the Cigarette Industry" contained in Item 1 hereof. ------------------------------ The Registrants believe that the ultimate outcome of all pending litigation and legal proceedings should not have a material adverse effect on either of the Registrants' financial position; however, it is possible that the results of operations or cash flows of the Registrants in a particular quarterly or annual period could be materially affected by the ultimate outcome of certain pending litigation matters. Management is unable to derive a meaningful estimate of the amount or range of such possible loss in any particular quarterly or annual period or in the aggregate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 13 EXECUTIVE OFFICERS OF THE REGISTRANTS EXECUTIVE OFFICERS OF HOLDINGS The executive officers of Holdings are Charles M. Harper (Chairman of the Board and Chief Executive Officer), Lawrence R. Ricciardi (President and General Counsel), Eugene R. Croisant (Executive Vice President), Stephen R. Wilson (Executive Vice President and Chief Financial Officer), Robert S. Roath (Senior Vice President and Controller) and John J. Delucca (Senior Vice President and Treasurer). The following table sets forth certain information regarding such officers.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME AGE EMPLOYMENT HISTORY - -------------------------- --------- ------------------------------------------------------------------------------ Charles M. Harper 66 May 1993-Present, Chairman and Chief Executive Officer; prior thereto, Chairman and Chief Executive Officer, ConAgra, Inc., 1981-1993. Lawrence R. Ricciardi 53 May 1993-Present, President and General Counsel; prior thereto, Co-Chairman and Chief Executive Officer and General Counsel, March, 1993-May, 1993; Executive Vice President and General Counsel, 1989-1993; Executive Vice President and General Counsel, American Express Travel Related Services Co., Inc., 1985-1989. Eugene R. Croisant 56 1989-Present, Executive Vice President of Human Resources and Administration; prior thereto, Chief Operations Officer, Continental Bank Corporation, 1988-1989. Stephen R. Wilson 47 May 1993-Present, Executive Vice President and Chief Financial Officer; prior thereto, Senior Vice President, Corporate Development, 1990-1993; General Manager, North America, Franklin Mint, 1989-1990; President, Cadbury Beverages North America, 1987-1989. Robert S. Roath 51 1991-Present, Senior Vice President and Controller; prior thereto, Vice President and Controller, 1990-1991; Vice President and Corporate Controller, Colgate-Palmolive Company, 1988-1990. John J. Delucca 50 September 1993-Present, Senior Vice President and Treasurer; prior thereto, Managing Director and Chief Financial Officer, Hascoe Associates, 1991-1993; President and Chief Financial Officer, Lexington Group, 1990-1991; Senior Vice President, Finance and Managing Director, Trump Group, 1988-1990.
14 EXECUTIVE OFFICERS OF RJRN NOT LISTED ABOVE Set forth below are the names, ages, positions and offices held and a brief account of the business experience during the past five years of each executive officer of RJRN, other than those listed above.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME AGE EMPLOYMENT HISTORY - ------------------------------ ----------- --------------------------------------------------------------------------- H. John Greeniaus 49 May 1993-Present, Chairman and Chief Executive Officer, NFG; prior thereto, President, NFG, 1992-1993; President and Chief Executive Officer of Nabisco Brands, Inc., 1987-1991. Director since 1989. James W. Johnston 47 1989-Present, Chairman and Chief Executive Officer, R. J. Reynolds Tobacco Company; Chairman, R. J. Reynolds Tobacco International, Inc. since October 1993; prior thereto, Division Executive, Citibank, N.A., 1984-1989. Director since 1989. Anthony J. Butterworth 56 October 1993-Present, President and Chief Executive Officer, R.J. Reynolds Tobacco International, Inc.; prior thereto, Managing Director and Chief Executive Officer, London International Group plc, 1991-1993; Chief Operating Officer, London International Group plc, 1989-1991. H.F. Powell 61 January 1994-Present, Chairman and Chief Executive Officer, Nabisco International, Inc.; prior thereto, President, Nabisco International, Inc., 1993-1994; Executive Vice President, Nabisco International, Inc., 1989-1993. M.B. Oglesby, Jr. 51 1989-Present, Senior Vice President, Government Affairs; prior thereto, Deputy Chief of Staff to President Ronald Reagan, 1988-1989. J. Thomas Pearson 52 1988-Present, Senior Vice President, Taxation. Jeffrey A. Kuchar 39 November 1993-Present, Vice President and General Auditor; prior thereto, Director of Finance and Business Development, Specialty Products Company of NFG, 1993; Director of Financial Planning, Specialty Products Company of NFG, 1992-1993; Assistant Corporate Controller, 1987-1991. Robert F. Sharpe, Jr. 41 1989-Present, Vice President, Assistant General Counsel and Secretary; prior thereto, Assistant General Counsel, 1988-1989. Jason H. Wright 33 March 1993-Present, Vice President of Worldwide Communications; prior thereto, Vice President of Financial Communications, 1990-1993; Director of Corporate Communications, Aetna Life & Casualty, 1988-1990.
15 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of Holdings, par value $.01 per share (the "Common Stock"), is listed and traded on the New York Stock Exchange (the "NYSE"). Since completion of the Acquisition there has been no public trading market for the common stock of RJRN. As of January 31, 1994, there were approximately 51,000 record holders of the Common Stock. All of the common stock of RJRN is owned by Holdings. The Common Stock closing price on the NYSE for February 22, 1994 was $7 1/2. The following table sets forth, for the calendar periods indicated, the high and low sales prices per share for the Common Stock on the NYSE Composite Tape, as reported in the Wall Street Journal:
HIGH LOW --------- --------- 1993: First Quarter................................................... $ 9 1/4 $ 7 5/8 Second Quarter.................................................. 8 1/8 5 1/8 Third Quarter................................................... 5 7/8 4 1/2 Fourth Quarter.................................................. 7 3/8 4 3/8
HIGH LOW --------- --------- 1992: First Quarter................................................... $ 11 3/4 $ 8 3/4 Second Quarter.................................................. 10 3/8 8 3/8 Third Quarter................................................... 9 7/8 8 Fourth Quarter.................................................. 9 1/4 7 7/8
Holdings has never paid any cash dividends on shares of the Common Stock. Cash dividends paid by RJRN to Holdings are set forth in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements. The operations of the Registrants are conducted through RJRN's subsidiaries and, therefore, the Registrants are dependent on the earnings and cash flow of RJRN's subsidiaries to satisfy their respective debt obligations and other cash needs. The Credit Agreements, which contain restrictions on the payment of cash dividends or other distributions by Holdings in excess of certain specified amounts, and the indentures relating to certain of RJRN's debt securities, which contain restrictions on the payment of cash dividends or other distributions by RJRN to Holdings in excess of certain specified amounts, or for certain specified purposes, effectively limit the payment of dividends on the Common Stock. In addition, the declaration and payment of dividends is subject to the discretion of the board of directors of Holdings and to certain limitations under Delaware law. 16 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below as of December 31, 1993 and 1992 and for each of the years in the three-year period ended December 31, 1993 for Holdings was derived from the Consolidated Financial Statements, which have been audited by Deloitte & Touche, independent auditors. In addition, the consolidated financial data as of December 31, 1991, 1990 and 1989, for the year ended December 31, 1990 and for the period from February 9, 1989 through December 31, 1989 for Holdings and for the period from January 1, 1989 through February 8, 1989 for RJRN was derived from the consolidated financial statements of Holdings and RJRN as of December 31, 1991, 1990 and 1989, for the year ended December 31, 1990 and for each of the periods within the one-year period ended December 31, 1989, not presented herein, which has been audited by Deloitte & Touche, independent auditors. The data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included herein.
HOLDINGS RJRN -------------------------------------------------------- ----------- FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1993 1992 1991 1990 1989 --------- --------- --------- --------- ------------------------- 2/9 TO 12/31 1/1 TO 2/8 ------------ ----------- RESULTS OF OPERATIONS Net sales.................................. $ 15,104 $ 15,734 $ 14,989 $ 13,879 $ 12,114 $ 650 --------- --------- --------- --------- ------------ ----------- Cost of products sold...................... 6,640 6,326 6,088 5,652 5,241 332 Selling, advertising, administrative and general expenses......................... 5,731 5,788 5,358 4,801 4,276 295 Amortization of trademarks and goodwill.... 625 616 609 608 557 10 Restructuring expense...................... 730 106 -- -- -- -- --------- --------- --------- --------- ------------ ----------- Operating income(1)...................... 1,378 2,898 2,934 2,818 2,040 13 Interest expense........................... (1,190) (1,429) (2,113) (3,000) (2,893) (44) Amortization of debt issuance costs........ (19) (20) (104) (176) (447) -- Change in control costs.................... -- -- -- -- -- (247) Other income (expense), net................ (58) 7 (69) (44) 169 15 --------- --------- --------- --------- ------------ ----------- Income (loss) from continuing operations before income taxes.................... 111 1,456 648 (402) (1,131) (263) Provision (benefit) for income taxes....... 114 680 280 60 (156) (66) --------- --------- --------- --------- ------------ ----------- Income (loss) from continuing operations............................. (3) 776 368 (462) (975) (197) Income (loss) from operations of discontinued businesses, net of income taxes(2)................................. -- -- -- -- (1) 24 Extraordinary item--(loss) gain on early extinguishments of debt, net of income taxes.................................... (142) (477) -- 33 -- -- --------- --------- --------- --------- ------------ ----------- Net income (loss).......................... (145) 299 368 (429) (976) (173) Preferred stock dividends.................. 68 31 173 50 -- 4 --------- --------- --------- --------- ------------ ----------- Net income (loss) applicable to common stock.................................... $ (213) $ 268 $ 195 $ (479) $ (976) $ (177) --------- --------- --------- --------- ------------ ----------- --------- --------- --------- --------- ------------ ----------- PER SHARE DATA Income (loss) from continuing operations per common and common equivalent share... $ (0.05) $ 0.55 $ 0.22 $ (1.19) $ (3.21) $ (0.89) Dividends per share of Series A Preferred Stock(3)................................. 3.34 3.34 0.49 -- -- -- BALANCE SHEET DATA (AT END OF PERIODS) Working capital............................ $ 202 $ 730 $ 165 $ (1,089) $ 106 Total assets............................... 31,295 32,041 32,131 32,915 36,412 Total debt................................. 12,448 14,218 14,531 18,918 25,159 Redeemable preferred stock(4).............. -- -- -- 1,795 -- Stockholders' equity(5).................... 9,070 8,376 8,419 2,494 1,237
(Footnotes on following page) 17 (Footnotes for preceding page) - --------------- (1) The 1992 amount includes a gain of $98 million on the sale of Holdings' ready-to-eat cold cereal business. (2) The 1989 amount for Holdings included $237 million of interest expense allocated to discontinued operations. (3) On November 8, 1991, Holdings issued 52,500,000 shares of Series A Conversion Preferred Stock, par value $.01 per share ("Series A Preferred Stock") and sold 210,000,000 $.835 depositary shares (the "Series A Depositary Shares"). Each Series A Depositary Share represents a one-quarter ownership interest in a share of Series A Preferred Stock. Each share of Series A Preferred Stock bears cumulative cash dividends at a rate of $3.34 per annum and is payable quarterly in arrears on the 15th day of each February, May, August and November. Because Series A Preferred Stock mandatorily converts into Common Stock by November 15, 1994, dividends on shares of Series A Preferred Stock are reported similar to common equity dividends. (4) On December 16, 1991, an amendment to the Amended and Restated Certificate of Incorporation of Holdings was filed which deleted the provisions providing for the mandatory redemption of the redeemable preferred stock of Holdings on November 1, 2015. Accordingly, such securities were presented as a component of Holdings' stockholders' equity as of December 31, 1992 and 1991. Such securities were redeemed on December 6, 1993 (see Note 12 to the Consolidated Financial Statements). (5) Holdings' stockholders' equity at December 31 of each year from 1993 to 1989 includes non-cash expenses related to accumulated trademark and goodwill amortization of $3.015 billion, $2.390 billion, $1.774 billion, $1.165 billion and $557 million, respectively. (See Note 13 to the Consolidated Financial Statements.) See Notes to Consolidated Financial Statements. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RJR Nabisco, Inc.'s ("RJRN") operating subsidiaries comprise one of the largest tobacco and food companies in the world. In the United States, the tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of cigarettes, and the packaged food business is conducted by the Nabisco Foods Group ("NFG"), the largest manufacturer and marketer of cookies and crackers. Tobacco operations outside the United States are conducted by R.J. Reynolds Tobacco International, Inc. ("Tobacco International") and food operations outside the United States and Canada are conducted by Nabisco International, Inc. ("Nabisco International"). The following is a discussion and analysis of the consolidated financial condition and results of operations of RJR Nabisco Holdings Corp. ("Holdings"), the parent company of RJRN. The discussion and analysis should be read in connection with the historical financial information included in the Consolidated Financial Statements. RESULTS OF OPERATIONS Summarized financial data for Holdings is as follows:
% CHANGE FROM PRIOR YEAR ------------------------ 1993 1992 1991 1993 1992 --------- --------- --------- ----------- ----------- (DOLLARS IN MILLIONS) Net Sales: RJRT..................................................... $ 4,949 $ 6,165 $ 5,861 (20)% 5% Tobacco International.................................... 3,130 2,862 2,679 9% 7% --------- --------- --------- Total Tobacco............................................ 8,079 9,027 8,540 (11)% 6% Total Food............................................... 7,025 6,707 6,449 5% 4% --------- --------- --------- $ 15,104 $ 15,734 $ 14,989 (4)% 5% --------- --------- --------- --------- --------- --------- Operating Company Contribution(1): RJRT..................................................... $ 1,200 $ 2,112 $ 2,226 (43)% (5)% Tobacco International.................................... 644 575 500 12% 15% --------- --------- --------- Total Tobacco............................................ 1,844 2,687 2,726 (31)% (1)% Total Food............................................... 995 947 920 5% 3% Headquarters............................................. (106) (112) (103) 5% (9)% --------- --------- --------- $ 2,733 $ 3,522 $ 3,543 (22)% (1)% --------- --------- --------- --------- --------- --------- Operating Income: RJRT..................................................... $ 480 $ 1,704 $ 1,860 (72)% (8)% Tobacco International.................................... 413 537 462 (23)% 16% --------- --------- --------- Total Tobacco............................................ 893 2,241 2,322 (60)% (3)% Total Food............................................... 624 769 715 (19)% 8% Headquarters............................................. (139) (112) (103) (24)% (9)% --------- --------- --------- $ 1,378 $ 2,898 $ 2,934 (52)% (1)% --------- --------- --------- --------- --------- ---------
(Footnotes on following page) 19 INDUSTRY SEGMENTS The percentage contributions of each of Holdings' industry segments to net sales and operating company contribution during the last five years were as follows:
1993 1992 1991 1990 1989(3) ----------- ----------- ----------- ----------- ----------- Net Sales: Total Tobacco.......................................... 53% 57% 57% 58% 55% Total Food............................................. 47 43 43 42 45 ----- ----- ----- ----- ----- 100% 100% 100% 100% 100% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Operating Company Contribution(1)(2): Total Tobacco.......................................... 65% 74% 75% 77% 73% Total Food............................................. 35 26 25 23 27 ----- ----- ----- ----- ----- 100% 100% 100% 100% 100% ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
- --------------- (1) Operating income before amortization of trademarks and goodwill and exclusive of restructuring expenses (RJRT: 1993-$355 million, 1992-$43 million; Tobacco International: 1993-$189 million, 1992-$0; Total Food: 1993-$153 million, 1992-$63 million; Headquarters: 1993-$33 million, 1992- $0) and a 1992 gain ($98 million) on the sale of Holdings' ready-to-eat cold cereal business as discussed below. (2) Contributions by industry segments were computed without effects of Headquarters' expenses. (3) Includes predecessor period January 1, 1989 through February 8, 1989. TOBACCO Holdings' tobacco business is conducted by RJRT and Tobacco International. 1993 vs. 1992. Holdings' worldwide tobacco business experienced continued net sales growth in its international business that was more than offset by a significant sales decline in the domestic business, resulting in reported net sales of $8.08 billion in 1993, a decline of 11% from the 1992 level of $9.03 billion. Operating company contribution for the worldwide tobacco business of $1.84 billion in 1993 declined 31% from the 1992 level of $2.69 billion, reflecting sharp reductions for the domestic business which were partially offset by gains in the international business. Operating income for the worldwide tobacco business in 1993 of $893 million declined 60% from $2.24 billion in 1992, reflecting the lower operating company contribution and a $544 million restructuring expense in 1993 versus a restructuring expense of $43 million in 1992. The 1993 restructuring expense includes expenses to streamline both the domestic and international operations by the reduction of personnel in administration, manufacturing and sales functions, as well as rationalization of manufacturing and office facilities. Net sales for RJRT amounted to $4.95 billion in 1993, a decline of 20% from the 1992 level, reflecting the impact of industry-wide price reductions and price discounting on higher price brands, a higher proportion of sales from lower price brands and an overall volume decline of approximately 3.6%. The 1993 decrease in overall volume resulted from a decline in the full-price segment that more than offset growth in the lower price segment. The growth in lower price brands was slowed in the second half of 1993 by net price reductions on full-price brands. RJRT's operating company contribution was $1.20 billion in 1993, a 43% decline from the 1992 level of $2.11 billion, primarily due to the lower net sales and a higher proportion of sales from the lower margin segment, offset in part by lower operating expenses. RJRT's operating income was $480 million in 1993, a decline of 72% from $1.7 billion in 1992. The decline in operating income reflected the lower RJRT operating company contribution as well as a restructuring expense of $355 million in 1993 which is significantly higher than the $43 million restructuring expense recorded in 1992. Tobacco International recorded net sales of $3.13 billion in 1993, an increase of 9% from the 1992 level, due to higher volume in all regions of business, the expansion of markets through ventures in Eastern Europe and Turkey, contract sales to the Russian Republic, favorable pricing in certain regions 20 and a change in fiscal year end, which more than offset unfavorable currency developments in Western Europe. Tobacco International's operating company contribution rose to $644 million in 1993, an increase of 12% compared to the prior year due to higher volume and pricing which was offset in part by higher operating expenses and to a lesser extent foreign currency developments. Tobacco International's operating income was $413 million for 1993, a decline of 23% from the 1992 level. The decline in operating income reflects a restructuring expense of $189 million in 1993 that more than offset the increase in operating company contribution. 1993 Competitive Activity. During recent years, the lower price segment of the domestic cigarette market has grown significantly and the full price segment has declined. The shifting of smokers of full price brands to lower price brands adversely affects RJRT's earnings since lower price brands are generally less profitable than full price brands. Although the difference in profitability is often substantial, it varies greatly depending on marketing and promotion levels and the terms of sale. Accordingly, RJRT has in recent years experienced substantial increased volume in the lower price segment, but the earnings attributable to these sales have not been sufficient to offset decreased earnings from declining sales of RJRT's full price brands. In April 1993, RJRT's largest competitor announced a shift in strategy designed to gain share of market while sacrificing short-term profits. The competitor's tactics included increased promotional spending and temporary price reductions on its largest cigarette brand, followed several months later by list price reductions on all its full-price and mid-price brands. RJRT defended its major full-price brands during the period of temporary price reductions and, to remain competitive in the marketplace, also reduced list prices on all its full-price and mid-price brands in August 1993. The cost of defensive price promotions and the impact of lower list prices were primarily responsible for the sharp drop in RJRT's 1993 operating company contribution. Currently, the domestic cigarette market has consolidated list prices for cigarettes from four or more tiers into two tiers, with price competition being conducted principally through trade and retail promotion on a brand-by-brand basis. The resulting effects from increased list prices on lower price brands and reduced promotional spending by RJRT on its full price brands have not been sufficient to offset the effect of decreased list prices on RJRT's full price brands. This has resulted in lower aggregate profit margins for RJRT. These depressed margins are expected to continue until such time as the competitive environment improves and operating costs are further reduced. Although some improvement to the stability of the competitive environment has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any further improvement to the competitive environment will occur or whether such stability will continue. In addition, growth in lower price brands was slowed in the second half of 1993 due to net price reductions on full price brands. RJRT is unable to predict whether this trend will continue. RJRT's domestic cigarette volume of non-full price brands as a percentage of total domestic volume was 44% in 1993, 35% in 1992 and 25% in 1991 versus 37%, 30% and 25%, respectively, for the domestic cigarette market. 1993 Governmental Activity. Legislation recently enacted restricts the use of imported tobacco in cigarettes manufactured in the United States and is expected to increase RJRT's future raw material cost. In addition, the Clinton Administration and members of Congress have introduced bills in Congress that would significantly increase the federal excise tax on cigarettes, eliminate the deductibility of a portion of the cost of tobacco advertising, ban smoking in public buildings and workplaces, add additional health warnings on cigarette packaging and advertising and further restrict the marketing of tobacco products. It is not possible to determine what additional federal, state or local legislation or regulations relating to smoking or cigarettes will be enacted or to predict any resulting effect thereof on RJRT, Tobacco International or the cigarette industry generally but such legislation or regulations could have an adverse effect on RJRT, Tobacco International or the cigarette industry generally. 21 1992 vs. 1991. Net sales for RJRT rose 5% from 1991 to $6.17 billion in 1992 as higher unit selling prices and volume were offset in part by a higher proportion of sales from lower price brands. Overall volume for the 1992 year increased 3% from the prior year as a result of gains in the lower price segment more than offsetting a decline in the full price segment. RJRT's operating company contribution in 1992 was $2.11 billion, a 5% decline from the prior year. The decline in operating company contribution was primarily due to the higher proportion of sales of lower margin brands and higher marketing and selling expenditures, which when combined more than offset the effect of higher unit selling prices and volume. RJRT's operating income of $1.70 billion in 1992 declined 8% from the prior year as a result of the decline in operating company contribution as well as a $43 million charge incurred in connection with a restructuring plan, the purpose of which was to improve productivity by realigning operations in the sales, manufacturing, research and development, and administrative areas. Tobacco International recorded net sales of $2.86 billion in 1992, an increase of 7% from 1991. Excluding contract sales to the Russian Republic, for which there were major shipments in 1991, Tobacco International would have reported an increase in net sales in 1992 of 10%. The sales increase is a result of volume gains in Eastern Europe (where the company made several acquisitions), Asia and the Middle East, favorable currency developments and higher selling prices that more than offset lower volume in Western Europe. Operating company contribution and operating income for 1992 rose 15% and 16%, respectively, from the prior year to $575 million and $537 million. The increase in operating company contribution and operating income was due to higher volume, favorable currency developments and higher selling prices offset in part by a higher proportion of sales in the lower margin segment. For a description of certain litigation affecting RJRT and its affiliates, see Note 11 to the Consolidated Financial Statements. FOOD Holdings' food business is conducted by NFG, which comprises the Nabisco Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty Products Company, the Fleischmann's Division, the Food Service Division and Nabisco Brands Ltd, (collectively the "North American Group") and Nabisco International. 1993 vs. 1992. NFG reported net sales of $7.03 billion in 1993, an increase of 5% from 1992. Excluding the 1992 operating results of the ready-to-eat cold cereal business, which was sold at the end of that year, net sales in 1993 increased 9% from 1992, resulting from higher volume, sales from recently acquired businesses and modest price increases in both the North American Group and Nabisco International. The North American Group volume increase was primarily attributable to the success of new product introductions in the U.S., including the Snackwell's line of low fat/fat free cookies and crackers, Fat Free Newtons, Life Savers Gummi Savers candy and Planters' stand-up bag line of peanuts and snacks. Nabisco International's net sales increased as a result of the 1993 acquisitions in Spain and Peru and higher volume and prices from its Latin American businesses. NFG's operating company contribution of $995 million in 1993 was 5% higher than the 1992 amount. Excluding the 1992 operating results of the ready-to-eat cold cereal business, operating company contribution increased 14%, with the North American Group up 13% and Nabisco International up 18%. The North American Group increase was primarily due to the gain in net sales, savings from productivity programs, and contributions from the recently acquired businesses, offset in part by higher expenses for consumer marketing programs. Nabisco International increased operating company contribution through acquisitions and gains in net sales. 22 NFG's operating income was $624 million in 1993, a decrease of 19% from 1992, as a result of the $153 million restructuring expense in 1993, which was significantly higher than the restructuring expense of $63 million recorded in 1992, that more than offset the gain in operating company contribution. Excluding the 1992 operating results of the ready-to-eat cold cereal business and the related gain on its sale, as well as the restructuring expenses in both 1993 and 1992, NFG's operating income was up 16% as a result of the increase in operating company contribution. The 1993 restructuring expense primarily consists of expenses related to the reorganization and downsizing of manufacturing and sales functions which will reduce personnel costs, both domestically and internationally, in order to improve productivity and, to a lesser extent, the rationalization of facilities. 1992 vs. 1991. NFG reported net sales of $6.71 billion in 1992, an increase of 4% from 1991. The increase primarily results from higher volume and pricing in the Latin American subsidiaries and the addition of recently acquired businesses in Mexico and Brazil. Net sales for the North American Group were relatively flat, as higher unit selling prices and volume in U.S. cookie and selected grocery products, including new products and product varieties, were offset by lower sales in the balance of the food lines as a result of restrained consumer spending. NFG's operating company contribution increased 3% from 1991 to $947 million in 1992 as a result of the increase in net sales in Latin America. Operating company contribution in the North American Group was about even with last year reflecting the modest net sales performance in 1992. Margins in the North America Group were maintained in 1992 as a result of productivity gains offsetting the industry trends toward higher trade promotion spending. NFG's 1992 operating income, which included a restructuring expense of $63 million, as well as a gain of $98 million on the sale of the ready-to-eat cold cereal business, rose 8% from 1991 to $769 million as a result of the increase in 1992 operating company contribution. The $63 million charge was incurred in connection with a restructuring plan, the purpose of which was to reduce costs and improve productivity by realigning sales operations and implementing a voluntary separation program. RESTRUCTURING EXPENSE Holdings recorded a pre-tax restructuring expense of $730 million in the fourth quarter of 1993 ($467 million after-tax) related to a program announced on December 7, 1993. Such restructuring program was undertaken in response to a changing consumer product business environment and is expected to streamline operations and improve profitability. Implementation of the program, although begun in the latter part of 1993, will primarily occur in 1994. Approximately 75% of the restructuring program will require cash outlays which will occur primarily in 1994 and early 1995. As an offset to the cash outlays, Holdings expects annual after-tax cash savings of approximately $250 million. The cost of providing severance pay and benefits for the reduction of approximately 6,000 employees throughout the domestic and international food and tobacco businesses is approximately $400 million of the charge and is primarily a cash expense. The workforce reduction was undertaken in order to establish fundamental changes to the cost structure of the domestic tobacco business in the face of acute competitive activity in that business and to take advantage of cost savings opportunities in other businesses through process efficiency improvements. Legislation enacted during the third quarter of 1993 stipulates that, effective January 1, 1994, financial penalties will be assessed against manufacturers if cigarettes produced in the United States do not contain at least 75% (by weight) of domestically grown flue cured and burly tobaccos. As a result, the domestic and international tobacco businesses accrued approximately $70 million of related restructuring charges resulting from a reassessment of raw material sourcing and production arrangements. In addition, a shift in pricing strategy designed to gain share of market by RJRT's largest competitor has resulted in a redeployment of spending and changes in sales and distribution strategies resulting in a restructuring charge of approximately $80 million primarily related to contract termination costs. Abandonment of leases related to the above changes in the businesses results in approximately $60 million of restructuring charges. The remainder of the charge, approximately $120 million, represents 23 non-cash costs to rationalize and close manufacturing and sales facilities in both the tobacco and food businesses to facilitate cost improvements. INTEREST EXPENSE 1993 vs. 1992. Consolidated interest expense of $1.19 billion in 1993 decreased 17% from 1992, primarily as a result of the refinancings of debt that were completed during 1992 and 1993, lower debt levels from the application of net proceeds from the issuance of preferred stock in 1993 and lower effective interest rates and the impact of declining market interest rates in 1993. 1992 vs. 1991. Consolidated interest expense of $1.43 billion in 1992 decreased 32% from 1991, primarily due to the refinancings completed during 1991 and 1992, lower effective interest rates and the impact of declining market interest rates in 1992. INCOME TAXES Effective January 1, 1993, Holdings and RJRN adopted Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. SFAS No. 109 superseded Statement of Financial Accounting Standards No. 96, the method of accounting for income taxes previously followed by the Registrants. The adoption of SFAS No. 109 did not have a material impact on the financial statements of either Holdings or RJRN. Holdings' provision for income taxes for 1993 was increased by $96 million as a result of the enactment of certain federal tax legislation during the third quarter of 1993 which increased federal corporate income tax rates to 35% from 34%, retroactively to January 1, 1993. The components of this increase to Holdings' provision for income taxes included an $86 million non-cash charge resulting primarily from the remeasurement of the balance of deferred federal income taxes at the date of enactment of the new federal tax legislation for the change in the income tax rates, and a $10 million charge resulting from the increase in current federal income taxes accrued for the change in the income tax rates and other effects of the new tax legislation. Also during 1993, Holdings' provision for income taxes was decreased by a $108 million credit resulting from a remeasurement of the balance of deferred income taxes for a change in estimate of the basis of certain deferred tax amounts relating primarily to international operations. NET INCOME 1993 vs. 1992. Holdings reported a net loss of $145 million in 1993, a decrease of $444 million from 1992. Included in Holdings' 1993 net loss is an after-tax extraordinary loss of $142 million related to the repurchases of high cost debt during 1993 and an after-tax restructuring expense of $467 million. Excluding the extraordinary loss and restructuring expense recorded in 1993, Holdings would have reported net income of $464 million in 1993. Excluding a similar after-tax extraordinary loss and an after-tax restructuring expense of $477 million and $66 million, respectively, in 1992, as well as a 1992 after-tax gain on the sale of Holdings' ready-to-eat cold cereal business of $30 million, Holdings would have reported net income of $812 million in 1992. The decrease in net income in 1993 from 1992, after such exclusions, is due to the lower operating income offset in part by lower interest expense. 1992 vs. 1991. Holdings' net income of $299 million in 1992 includes an after-tax extraordinary loss of $477 million related to the repurchases of high cost debt during 1992. However, after excluding the extraordinary loss, Holdings would have reported net income of $776 million for 1992, an increase of $408 million over last year, primarily as a result of significantly lower interest expense. Net income in 1991 was reduced by $28 million of net charges included in "Other income (expense), net" as a result of the write-off of $109 million of unamortized debt issuance costs and the recognition of $144 million of 24 unrealized losses from interest rate hedges related to the refinancing of existing credit lines, partially offset by a $225 million credit for a change in estimated postretirement health care liabilities. Holdings' net income (loss) applicable to its common stock for 1993, 1992 and 1991 of $(213) million, $268 million and $195 million, respectively, includes a deduction for preferred stock dividends of $68 million, $31 million and $173 million, respectively. Effective January 1, 1993, RJRN adopted Statement of Financial Accounting Standards No. 112 ("SFAS No. 112"), Employers' Accounting for Postemployment Benefits. Under SFAS No. 112, RJRN is required to accrue the costs for preretirement postemployment benefits provided to former or inactive employees and recognize an obligation for these benefits. The adoption of SFAS No. 112 did not have a material impact on the financial statements of either Holdings or RJRN. 25 LIQUIDITY AND FINANCIAL CONDITION DECEMBER 31, 1993 Holdings continued to generate significant free cash flow in 1993, although at a lower level than in 1992. Free cash flow, which represents cash available for the repayment of debt and certain other corporate purposes before the consideration of any debt and equity financing transactions, acquisition expenditures and divestiture proceeds, was $1.0 billion for 1993 and $1.6 billion for 1992. The lower level of free cash flow for 1993 primarily reflects lower operating company contribution in the domestic tobacco business, higher capital expenditures for tobacco manufacturing facilities in Eastern Europe and Turkey and for Nabisco Biscuit facilities and higher taxes paid, offset in part by lower inventory levels in the domestic tobacco business, higher sales of receivables, and a decrease in interest paid. The components of free cash flow are as follows:
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 --------- --------- (DOLLARS IN MILLIONS) OPERATING INCOME........................................................................... $ 1,378 $ 2,898 Amortization of intangibles.............................................................. 625 616 Restructuring expense, net of a 1992 gain from the sale of the ready-to-eat cold cereal business............................................................................... 730 8 --------- --------- OPERATING COMPANY CONTRIBUTION............................................................. 2,733 3,522 Depreciation and other amortization...................................................... 524 530 Increase in operating working capital.................................................... (121) (196) Capital expenditures..................................................................... (615) (519) Change in other assets and liabilities................................................... (21) (298) --------- --------- OPERATING CASH FLOW*....................................................................... 2,500 3,039 Taxes paid............................................................................... (332) (116) Interest paid............................................................................ (912) (1,102) Dividends paid........................................................................... (241) (214) Other, net............................................................................... 19 31 --------- --------- FREE CASH FLOW............................................................................. $ 1,034 $ 1,638 --------- --------- --------- ---------
- --------------- * Operating cash flow, which is used as an internal measurement for evaluating business performance, includes, in addition to net cash flow from (used in) operating activities as recorded in the Consolidated Statement of Cash Flows, proceeds from the sale of capital assets less capital expenditures, and is adjusted to exclude income taxes paid and items of a financial nature (such as interest paid, interest income, and other miscellaneous financial income or expense items). --------------- In 1993, Holdings and RJRN continued to enter into a series of transactions designed to refinance long-term debt, lower debt levels and lower interest costs, thereby improving the consolidated debt cost and maturity structure. These transactions included the issuance of preferred stock and the repurchase and redemption of certain debt obligations with funds provided from the issuance of debt securities (including medium-term notes), borrowings under Holdings' and RJRN's credit agreement, dated as of December 1, 1991, as amended (the "1991 Credit Agreement"), and free cash flow, as well as RJRN's management of interest rate exposure through swaps, options, caps and other interest rate arrangements. As a result of these transactions and lower market interest rates during 1993, Holdings reduced the effective interest rate on its consolidated long-term debt from 8.7% at December 31, 1992 to 8.4% at December 31, 1993. Future effective interest rates may vary as a result of RJRN's ongoing management of interest rate exposure and changing market interest rates as well as refinancing activities and changes in the ratings assigned to RJRN's debt securities by independent rating agencies. One of Holdings' current financial objectives is to achieve a capitalization ratio of 43% over time. Holdings' capitalization ratio was 44.5% at December 31, 1993. The capitalization ratio, which is 26 intended to measure Holdings' long-term debt (including current maturities) as a percentage of total capital, is calculated by dividing (i) Holdings' long-term debt by (ii) the sum of Holdings' total equity, consolidated long-term debt, deferred income taxes and certain other long-term liabilities. Certain of Holdings' other current financial objectives, which are all based on income before extraordinary items excluding after-tax amortization of trademarks and goodwill and referred to below as cash net income, are to achieve a 20% return on year beginning common stockholders' equity, a 2.7 interest and preferred stock dividend coverage ratio and a trendline average annual earnings per share growth of 15% over time. The 20% return on year beginning common stockholders' equity objective, which is intended to measure the return to Holdings' common equity holders on the net assets employed in the business, is calculated by dividing (i) cash net income (after deducting preferred stock dividends) by (ii) total stockholders' equity at the beginning of the year exclusive of preferred stockholders' equity interest. For purposes of calculating the return on year beginning common stockholders' equity, Series A Preferred Stock and similar convertible preferred stock securities, if any, are considered common equity and the related dividends thereon are considered common dividends. The 2.7 interest and preferred stock dividend coverage ratio objective, which is intended to measure Holdings' ability to service its annual interest and preferred stock dividend payments, is calculated by dividing (i) operating income before amortization of trademarks and goodwill and depreciation by (ii) the sum of cash interest expense and preferred stock dividends. The trendline average annual earnings per share growth of 15% as adjusted for after-tax amortization of trademarks and goodwill, is intended to measure Holdings' ability to achieve a certain level of earnings per share growth over time. At December 31, 1993, Holdings had an outstanding total debt level (notes payable and long-term debt, including current maturities) and a total capital level (total debt and total stockholders' equity) of approximately $12.4 billion and $21.5 billion, respectively, each of which is lower than the corresponding amounts at December 31, 1992. Holdings' ratio of total debt to total stockholders' equity at December 31, 1993 improved to 1.4-to-1 versus 1.7-to-1 at December 31, 1992. RJRN's ratio of total debt to common equity at December 31, 1993 was 1.3-to-1, compared with 1.6-to-1 at December 31, 1992. Total current liabilities and long-term debt of RJRN's subsidiaries was approximately $3.4 billion at December 31, 1993 and 1992. Management believes that the improvement to Holdings' and its subsidiaries' financial structure since 1991 has enhanced its ability to take advantage of opportunities to further improve its capital and/or cost structure. Management expects that it will continue to consider opportunities as they arise. Such opportunities, if pursued, could involve further acquisitions from time to time of substantial amounts of securities of Holdings or its subsidiaries through open market purchases, redemptions, privately negotiated transactions, tender or exchange offers or otherwise and/or the issuance from time to time of additional securities by Holdings or its subsidiaries. Acquisitions of securities at prices above their book value, together with the accelerated amortization of deferred financing fees attributable to the acquired securities, would reduce reported net income, depending upon the extent of such acquisitions. Nonetheless, Holdings' and its subsidiaries' ability to take advantage of such opportunities is subject to restrictions in the 1991 Credit Agreements and Holdings' and RJRN's credit agreement, dated as of April 5, 1993, as amended (the "1993 Credit Agreement", and together with the 1991 Credit Agreement, the "Credit Agreements"), and in certain of their debt indentures. For a discussion of recent developments affecting the tobacco business and the potential effect on RJRT's cash flow, see "Results of Operations--Tobacco." In addition, management currently is reviewing and expects to continue to review various corporate transactions, including, but not limited to, joint ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and recapitalizations. Although Holdings has discussed and continues to discuss various transactions with third parties, no assurance may be given that any transaction will be announced or completed. It is likely that Holdings' tobacco and food businesses would be separated should certain of the foregoing transactions be consummated. 27 During 1993, RJRN issued $750 million principal amount of 8% Notes due 2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued medium-term notes maturing in the years 1995-1998 having an aggregate initial offering price of approximately $230 million. The net proceeds from the sale of debt securities and the sale of 50,000,000 depositary shares at $25 per share issued in connection with the issuance of Series B Cumulative Preferred Stock have been or will be used for general corporate purposes, which include refinancings of indebtedness, working capital, capital expenditures, acquisitions and repurchases and redemptions of securities. Pending such uses, proceeds may be used to repay indebtedness under RJRN's revolving credit facilities or for short-term liquid investments. A portion of the net proceeds collected from the sale of Holdings' ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216 million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 at a price of $1,065.63 for each $1,000 principal amount of such debentures, plus accrued and unpaid interest thereon. The 1991 Credit Agreement is a $6.5 billion revolving bank credit facility that provides for the issuance of up to $800 million of irrevocable letters of credit. Availability under the 1991 Credit Agreement is reduced by an amount equal to the stated amount of such letters of credit outstanding, by commercial paper borrowings in excess of $1 billion and by amounts borrowed under such facility. At December 31, 1993, approximately $456 million stated amount of letters of credit was outstanding and $328 million was borrowed under the 1991 Credit Agreement. Accordingly, the amount available under the 1991 Credit Agreement at December 31, 1993 was $5.72 billion. On April 5, 1993, Holdings and RJRN entered into the 1993 Credit Agreement, which matures on April 4, 1994 and provides a back-up line of credit to support commercial paper issuances of up to $1 billion. Availability thereunder is reduced by an amount equal to the aggregate amount of commercial paper outstanding. At December 31, 1993, approximately $913 million of commercial paper was outstanding. Accordingly, $87 million was available under the 1993 Credit Agreement at December 31, 1993. Holdings and RJRN expect to obtain bank consent to extend the maturity date of the 1993 Credit Agreement for an additional 364 days. The aggregate of consolidated indebtedness and interest rate arrangements subject to fluctuating interest rates approximated $5.5 billion at December 31, 1993. This represents an increase of $800 million from the year end 1992 level of $4.7 billion, primarily due to Holdings' on-going management of its interest rate exposure. As a result of the general decline in market interest rates compared with the high interest cost on certain of Holdings' consolidated debt obligations, the estimated fair value amount of Holdings' long-term debt reflected in its Consolidated Balance Sheets at December 31, 1993 and 1992 exceeded the carrying amount (book value) of such debt by approximately $400 million and $1.1 billion, respectively. For additional disclosures concerning the fair value of Holdings' consolidated indebtedness as well as the fair value of its interest rate arrangements at December 31, 1993 and 1992, see Notes 10 and 11 to the Consolidated Financial Statements. Capital expenditures were $615 million, $519 million and $459 million for 1993, 1992 and 1991, respectively. The current level of expenditures planned for 1994 is expected to be approximately $600 million (approximately 60% Food and 40% Tobacco), which will be funded primarily by cash flows from operating activities. Management expects that its capital expenditure program will continue at a level sufficient to support the strategic and operating needs of Holdings' businesses. Holdings has operations in many countries, utilizing 35 functional currencies in its foreign subsidiaries and branches. Significant foreign currency net investments are located in Germany, Canada, Hong Kong, Brazil and Spain. Changes in the strength of these countries' currencies relative to the U.S. dollar result in direct charges or credits to equity for non-hyperinflationary countries and direct charges or credits to the income statement for hyperinflationary countries. Translation gains or losses, resulting from foreign-denominated borrowings that are accounted for as hedges of certain 28 foreign currency net investments, also result in charges or credits to equity. Holdings also has significant exposure to foreign exchange sale and purchase transactions in currencies other than its functional currency. The exposures include the U.S. dollar, German mark, Japanese yen, Swiss franc, Hong Kong dollar, Singapore dollar and cross-rate exposure among the French franc, British pound, Italian lira and the German mark. Holdings manages these exposures to minimize the effects of foreign currency transactions on its cash flows. Certain financing agreements to which Holdings is a party and debt instruments of RJRN directly or indirectly restrict the payment of dividends by Holdings. The Credit Agreements, which contain restrictions on the payment of cash dividends or other distributions by Holdings in excess of certain specified amounts, and the indentures relating to certain of RJRN's debt securities, which contain restrictions on the payment of cash dividends or other distributions by RJRN to Holdings in excess of certain specified amounts, or for certain specified purposes, effectively limit the payment of dividends on the Common Stock. In addition, the declaration and payment of dividends is subject to the discretion of the board of directors of Holdings and to certain limitations under Delaware law. The Credit Agreements and the indentures under which certain debt securities of RJRN have been issued also impose certain operating and financial restrictions on Holdings and its subsidiaries. These restrictions limit the ability of Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell certain assets and certain subsidiaries' stock, engage in certain mergers or consolidations and make investments in unrestricted subsidiaries. As a result of the increased competitive conditions in the domestic cigarette market and in order to provide Holdings with additional flexibility under certain financial ratios contained in the Credit Agreements, Holdings obtained an amendment to such Credit Agreements during October 1993. Holdings and RJRN believe that they are currently in compliance with all covenants and restrictions in the Credit Agreements and their other indebtedness. On February 24, 1994, Holdings filed a Registration Statement on Form S-3 for a proposed offering of 300 million depositary shares, each representing a one-tenth ownership interest in a share of a newly created series of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share would mandatorily convert in three years into one share of Common Stock, subject to adjustment and subject to earlier conversion or redemption under certain circumstances. Any net proceeds of a PERCS offering may be used for general corporate purposes which may include refinancings of indebtedness, working capital, capital expenditures, acquisitions and repurchases or redemptions of securities. In addition, such proceeds may be used to facilitate one or more significant corporate transactions, such as a joint venture, merger, acquisition, divestiture, asset swap, spin-off and/or recapitalization, that would result in the separation of the tobacco and food businesses of Holdings. As of February 24, 1994, the specific uses of proceeds have not been determined. Pending such uses, any proceeds would be used to repay indebtedness under RJRN's revolving credit facilities or for short-term liquid investments. ENVIRONMENTAL MATTERS RJRN has been engaged in a continuing program to assure compliance with U.S. Government and various state and local government laws and regulations concerning the protection of the environment. Certain subsidiaries of the Registrants have been named "potentially responsible parties" with third parties under the Comprehensive Environmental Response, Compensation and Liability Act, ("CERCLA") with respect to approximately fifteen sites. Although it is difficult to identify precisely the portion of capital expenditures or other costs attributable to compliance with environmental laws and the Registrants can not reasonably estimate the cost of resolving the above-mentioned CERCLA matters, the Registrants do not expect such expenditures or costs to have a material adverse effect on the financial condition of either of the Registrants. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedules on page 34, for the required information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Item 10 is hereby incorporated by reference to Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1994. Reference is also made regarding the executive officers of the Registrants to "Executive Officers of the Registrants" following Item 4 of Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION Item 11 is hereby incorporated by reference to Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Item 12 is hereby incorporated by reference to Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1994. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Item 13 is hereby incorporated by reference to Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1994. 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report. 2. The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report. 3. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report. (b) Reports on Form 8-K filed in Fourth Quarter 1993 None. (c) Exhibits See Exhibit Index. (d) Financial Statement Schedules. See Index to Financial Statements and Financial Statement Schedules.
31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on February 24, 1994. RJR NABISCO HOLDINGS CORP. By: /s/ CHARLES M. HARPER .................................... (Charles M. Harper) Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 1994.
SIGNATURE TITLE - ---------------------------------------- ---------------------------------------- /s/ CHARLES M. HARPER Chairman of the Board and Chief ........................................ Executive Officer (principal executive (Charles M. Harper) officer) and Director /s/ STEPHEN R. WILSON Executive Vice President and Chief ........................................ Financial Officer (principal financial (Stephen R. Wilson) officer) /s/ ROBERT S. ROATH Senior Vice President and Controller ........................................ (principal accounting officer) (Robert S. Roath) * Director ........................................ (John T. Chain, Jr.) * Director ........................................ (Saul A. Fox) * Director ........................................ (Louis V. Gerstner, Jr.) * Director ........................................ (James H. Greene, Jr.) * Director ........................................ (H. John Greeniaus) * Director ........................................ (James W. Johnston) * Director ........................................ (Vernon E. Jordan, Jr.) * Director ........................................ (Henry R. Kravis) * Director ........................................ (John G. Medlin, Jr.) * Director ........................................ (Paul E. Raether) * Director ........................................ (Lawrence R. Ricciardi) * Director ........................................ (Rozanne L. Ridgway) * Director ........................................ (Clifton S. Robbins) * Director ........................................ (George R. Roberts) * Director ........................................ (Scott M. Stuart) * Director ........................................ (Michael T. Tokarz)
*By: /s/ ROBERT F. SHARPE, JR. ...................................... (Robert F. Sharpe, Jr.) Attorney-in-Fact 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on February 24, 1994. RJR NABISCO, INC. By: /s/ CHARLES M. HARPER ...................................... (Charles M. Harper) Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 1994.
SIGNATURE TITLE - ---------------------------------------- ---------------------------------------- /s/ CHARLES M. HARPER Chairman of the Board and Chief ........................................ Executive Officer (principal executive (Charles M. Harper) officer) and Director /s/ STEPHEN R. WILSON Executive Vice President and Chief ........................................ Financial Officer (principal financial (Stephen R. Wilson) officer) /s/ ROBERT S. ROATH Senior Vice President and Controller ........................................ (principal accounting officer) (Robert S. Roath) * Director ........................................ (John T. Chain, Jr.) * Director ........................................ (Saul A. Fox) * Director ........................................ (Louis V. Gerstner, Jr.) * Director ........................................ (James H. Greene, Jr.) * Director ........................................ (H. John Greeniaus) * Director ........................................ (James W. Johnston) * Director ........................................ (Vernon E. Jordan, Jr.) * Director ........................................ (Henry R. Kravis) * Director ........................................ (John G. Medlin, Jr.) * Director ........................................ (Paul E. Raether) * Director ........................................ (Lawrence R. Ricciardi) * Director ........................................ (Rozanne L. Ridgway) * Director ........................................ (Clifton S. Robbins) * Director ........................................ (George R. Roberts) * Director ........................................ (Scott M. Stuart) * Director ........................................ (Michael T. Tokarz)
*By: /s/ ROBERT F. SHARPE, JR. ....................................... (Robert F. Sharpe, Jr.) Attorney-in-Fact 33 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE -------------- FINANCIAL STATEMENTS Report of Deloitte & Touche, Independent Auditors............................................... F-1 Summary of Significant Accounting Policies...................................................... F-2 Consolidated Statements of Income and Retained Earnings--Years Ended December 31, 1993, 1992 and 1991......................................................................................... F-3 Consolidated Statements of Cash Flows--Years Ended December 31, 1993, 1992 and 1991................................................................................ F-4 Consolidated Balance Sheets--December 31, 1993 and 1992......................................... F-5 Notes to Consolidated Financial Statements...................................................... F-6-F-32
FINANCIAL STATEMENT SCHEDULES For the years ended December 31, 1993, 1992 and 1991: Schedule II --Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties......................................... S-1-S-2 Schedule III --Condensed Financial Information of Registrant................................ S-3-S-6 Schedule V --Property, Plant and Equipment................................................ S-7 Schedule VI --Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment.................................................................... S-8 Schedule VIII --Valuation and Qualifying Accounts............................................ S-9 Schedule IX --Short-Term Borrowings........................................................ S-10 Schedule X --Supplementary Income Statement Information................................... S-11
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are omitted because they are not required under the related instructions or are not applicable or the required information is shown in the financial statements or notes thereto. 34 REPORT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS RJR Nabisco Holdings Corp.: RJR Nabisco, Inc.: We have audited the accompanying consolidated balance sheets of RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN") as of December 31, 1993 and 1992, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules of Holdings and RJRN as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993 as listed in the accompanying Index to Financial Statements and Financial Statement Schedules. These financial statements and financial statement schedules are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Holdings and RJRN at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE New York, New York February 1, 1994 (except with respect to the subsequent event discussed in Note 17, as to which the date is February 24, 1994) F-1 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. CONSOLIDATED FINANCIAL STATEMENTS The Summary of Significant Accounting Policies below and the notes to consolidated financial statements on pages F-6 through F-32 are integral parts of the accompanying consolidated financial statements of RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN" and, collectively with Holdings, the "Registrants") (the "Consolidated Financial Statements"). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This Summary of Significant Accounting Policies is presented to assist in understanding the Consolidated Financial Statements included in this report. These policies conform to generally accepted accounting principles. Consolidation Consolidated Financial Statements include the accounts of each Registrant and its subsidiaries. Cash Equivalents Cash equivalents include all short-term, highly liquid investments that are readily convertible to known amounts of cash and so near maturity that they present an insignificant risk of changes in value because of changes in interest rates. Inventories Inventories are stated at the lower of cost or market. Various methods are used for determining cost. The cost of U.S. tobacco inventories is determined principally under the LIFO method. The cost of remaining inventories is determined under the FIFO, specific lot and weighted average methods. In accordance with recognized trade practice, stocks of tobacco, which must be cured for more than one year, are classified as current assets. Depreciation Property, plant and equipment are depreciated principally by the straight-line method. Trademarks and Goodwill Values assigned to trademarks are based on appraisal reports and are amortized on the straight-line method over a 40 year period. Goodwill is also amortized on the straight-line method over a 40 year period. Other Income (Expense), Net Interest income, gains and losses on foreign currency transactions and other financial items are included in "Other income (expense), net". Income Taxes Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, and are calculated for each Registrant on a separate return basis. Postretirement Benefits Other Than Pensions Postretirement benefits other than pensions are accounted for under the provisions of Statement of Financial Accounting Standards No. 106 ("SFAS No. 106"), Employers' Accounting for Postretirement Benefits Other Than Pensions. Postemployment Preretirement Benefits Postemployment preretirement benefits are accounted for under the provisions of Statement of Financial Accounting Standards No. 112 ("SFAS No. 112"), Employers' Accounting for Postemployment Benefits. Excise Taxes Excise taxes are excluded from "Net sales" and "Cost of products sold". Reclassifications and Restatements Certain reclassifications have been made to prior years' amounts to conform to the 1993 presentation. F-2 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ----------------------- ----------------------- --------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ------------ --------- ------------ --------- ---------- --------- NET SALES (NOTE 1)............................... $ 15,104 $ 15,104 $ 15,734 $ 15,734 $ 14,989 $ 14,989 ------------ --------- ------------ --------- ---------- --------- Costs and expenses (Note 1): Cost of products sold.......................... 6,640 6,640 6,326 6,326 6,088 6,088 Selling, advertising, administrative and general expenses............................. 5,731 5,723 5,788 5,776 5,358 5,345 Amortization of trademarks and goodwill........ 625 625 616 616 609 609 Restructuring expense.......................... 730 730 106 106 -- -- ------------ --------- ------------ --------- ---------- --------- OPERATING INCOME.......................... 1,378 1,386 2,898 2,910 2,934 2,947 Interest expense (Notes 8 and 10)................ (1,190) (1,167) (1,429) (1,340) (2,113) (2,030) Amortization of debt issuance costs.............. (19) (19) (20) (19) (104) (110) Other income (expense), net (Note 1)............. (58) (88) 7 (75) (69) (157) ------------ --------- ------------ --------- ---------- --------- Income before income taxes................ 111 112 1,456 1,476 648 650 Provision for income taxes (Note 3).............. 114 116 680 693 280 301 ------------ --------- ------------ --------- ---------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (3) (4) 776 783 368 349 Extraordinary item--loss on early extinguishments of debt, net of income taxes (Note 4).......... (142) (135) (477) (464) -- -- ------------ --------- ------------ --------- ---------- --------- NET INCOME (LOSS)......................... (145) (139) 299 319 368 349 Less preferred stock dividends................... 68 -- 31 -- 173 -- ------------ --------- ------------ --------- ---------- --------- Net income (loss) applicable to common stock................................. (213) (139) 268 319 195 349 Retained earnings (accumulated deficit) at beginning of period............................ (738) (320) (1,037) (639) (1,405) (988) Add preferred stock dividends charged to paid-in capital........................................ 68 -- 31 -- 173 -- ------------ --------- ------------ --------- ---------- --------- RETAINED EARNINGS (ACCUMULATED DEFICIT) AT END OF PERIOD (NOTE 13)............................... $ (883) $ (459) $ (738) $ (320) $ (1,037) $ (639) ------------ --------- ------------ --------- ---------- --------- ------------ --------- ------------ --------- ---------- --------- Net income (loss) per common and common equivalent share: Income (loss) before extraordinary item........ $ (.05) -- $ 0.55 -- $ 0.22 -- Extraordinary item............................. (.10) -- (0.35) -- -- -- ------------ --------- ------------ --------- ---------- --------- Net income (loss)......................... $ (.15) -- $ 0.20 -- $ 0.22 -- ------------ --------- ------------ --------- ---------- --------- ------------ --------- ------------ --------- ---------- --------- Dividends per share of Series A Preferred Stock (Note 12)...................................... $ 3.34 -- $ 3.34 -- $ 0.49 -- Average number of common and common equivalent shares outstanding (in thousands)(Note 2)...... 1,349,196 -- 1,363,549 -- 887,622 -- ------------ --------- ------------ --------- ---------- --------- ------------ --------- ------------ --------- ---------- ---------
See Notes to Consolidated Financial Statements. F-3 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 -------------------- -------------------- -------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN --------- --------- --------- --------- --------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES (NOTE 5).. $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981 --------- --------- --------- --------- --------- --------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Capital expenditures............................. (615) (615) (519) (519) (459) (459) Proceeds from dispositions of businesses......... 450 450 -- -- 98 98 Acquisition of businesses........................ (128) (128) (385) (385) -- -- Other, net....................................... 32 32 11 11 20 20 --------- --------- --------- --------- --------- --------- Net cash flows from (used in) investing activities................................... (261) (261) (893) (893) (341) (341) --------- --------- --------- --------- --------- --------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Proceeds from issuance of long-term debt......... 25,747 25,747 19,179 19,179 7,079 7,079 Repayments of long-term debt..................... (28,031) (27,483) (20,622) (20,371) (11,597) (11,597) Increase (decrease) in notes payable............. (24) (24) (25) (25) 46 46 Proceeds from issuance of common stock and exercise of warrants........................... 9 -- 1 -- 1,300 -- Proceeds from issuance of Series A Preferred Stock.......................................... -- -- -- -- 2,126 -- Proceeds from issuance of Series B Preferred Stock.......................................... 1,250 -- -- -- -- -- Financing and advisory fees paid................. (48) (9) (35) (33) (227) (81) Capital contributions from/issuance of common stock to parent................................ -- 1,214 -- -- -- 3,454 Dividends paid to parent......................... -- (48) -- (278) -- -- Preferred stock dividends paid................... (241) -- (214) -- (205) -- Repurchase of Preferred Stock.................... (105) -- -- -- -- -- Repurchases and cancellations of common stock, stock options and warrants..................... (1) -- (89) -- (4) -- Other, net--including intercompany transfers..... 62 (621) 62 (363) (12) (191) --------- --------- --------- --------- --------- --------- Net cash flows from (used in) financing activities................................... (1,382) (1,224) (1,743) (1,891) (1,494) (1,290) --------- --------- --------- --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents.................................. (10) (10) (6) (6) (25) (25) --------- --------- --------- --------- --------- --------- Net change in cash and cash equivalents........ 116 109 (335) (335) 111 325 Cash and cash equivalents at beginning of period... 99 96 434 431 323 106 --------- --------- --------- --------- --------- --------- Cash and cash equivalents at end of period......... $ 215 $ 205 $ 99 $ 96 $ 434 $ 431 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See Notes to Consolidated Financial Statements. F-4 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, 1993 1992 -------------------- -------------------- HOLDINGS RJRN HOLDINGS RJRN --------- --------- --------- --------- ASSETS Current assets: Cash and cash equivalents (Note 5)....................................... $ 215 $ 205 $ 99 $ 96 Accounts and notes receivable, net (Notes 1 and 5)....................... 856 847 1,356 1,333 Inventories (Note 6)..................................................... 2,700 2,700 2,776 2,776 Prepaid expenses and excise taxes........................................ 374 374 345 345 --------- --------- --------- --------- TOTAL CURRENT ASSETS................................................ 4,145 4,126 4,576 4,550 --------- --------- --------- --------- Property, plant and equipment--at cost..................................... 7,166 7,166 6,515 6,515 Less accumulated depreciation.............................................. (1,998) (1,998) (1,657) (1,657) --------- --------- --------- --------- Net property, plant and equipment (Note 7)............................... 5,168 5,168 4,858 4,858 --------- --------- --------- --------- Trademarks, net of accumulated amortization of $1,223 and $972, respectively............................................................. 8,727 8,727 8,959 8,959 Goodwill, net of accumulated amortization of $1,767 and $1,395, respectively............................................................. 12,851 12,851 13,062 13,062 Other assets and deferred charges.......................................... 404 400 586 581 --------- --------- --------- --------- $ 31,295 $ 31,272 $ 32,041 $ 32,010 --------- --------- --------- --------- --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (Note 8)................................................... $ 301 $ 301 $ 298 $ 298 Accounts payable......................................................... 515 515 401 401 Accrued liabilities (Note 9)............................................. 2,751 2,705 2,468 2,425 Current maturities of long-term debt (Note 10)........................... 142 142 379 351 Income taxes accrued (Note 3)............................................ 234 234 300 300 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES........................................... 3,943 3,897 3,846 3,775 --------- --------- --------- --------- Long-term debt (less current maturities) (Note 10)......................... 12,005 12,005 13,541 13,054 Other noncurrent liabilities............................................... 2,503 2,353 2,203 2,859 Deferred income taxes (Note 3)............................................. 3,774 3,701 4,075 3,978 Commitments and contingencies (Note 11).................................... Stockholders' equity (Notes 12, 13 and 17): Redeemable convertible preferred stock--4,032,968 shares issued and outstanding at December 31, 1992....................................... -- -- 101 -- ESOP convertible preferred stock--15,573,973 and 15,625,000 shares issued and outstanding at December 31, 1993 and 1992, respectively........... 249 -- 250 -- Series A convertible preferred stock--52,500,000 shares issued and outstanding at December 31, 1993 and 1992.............................. 2 -- 2 -- Series B preferred stock--50,000 shares issued and outstanding at December 31, 1993...................................................... 1,250 -- -- -- Common stock--1,138,011,292 and 1,134,648,542 shares issued and outstanding at December 31, 1993 and 1992, respectively............... 11 -- 11 -- Paid-in capital.......................................................... 8,778 9,877 9,048 8,711 Cumulative translation adjustments....................................... (102) (102) (47) (47) Retained earnings (accumulated deficit).................................. (883) (459) (738) (320) Receivable from ESOP..................................................... (211) -- (227) -- Loans receivable from employees.......................................... (18) -- (24) -- Unamortized value of restricted stock.................................... (6) -- -- -- --------- --------- --------- --------- TOTAL STOCKHOLDERS' EQUITY.......................................... 9,070 9,316 8,376 8,344 --------- --------- --------- --------- $ 31,295 $ 31,272 $ 32,041 $ 32,010 --------- --------- --------- --------- --------- --------- --------- ---------
See Notes to Consolidated Financial Statements. F-5 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--OPERATIONS Net sales and cost of products sold exclude excise taxes of $3.757 billion, $3.560 billion and $3.715 billion for 1993, 1992 and 1991, respectively. Operating income in the fourth quarter of 1993 was reduced by a $730 million restructuring expense for a program initiated at the domestic tobacco operations ($355 million), the international tobacco operations ($189 million), the food operations ($153 million) and Headquarters ($33 million). Such restructuring program was undertaken in response to a changing consumer product business environment and is expected to streamline operations and improve profitability. Implementation of the program, although begun in the latter part of 1993, will primarily occur in 1994. Approximately 75% of the restructuring program will require cash outlays which will occur primarily in 1994 and early 1995. As an offset to the cash outlays, Holdings expects annual after-tax cash savings of approximately $250 million. The cost of providing severance pay and benefits for the reduction of approximately 6,000 employees throughout the domestic and international food and tobacco businesses is approximately $400 million of the charge and is primarily a cash expense. The workforce reduction was undertaken in order to establish fundamental changes to the cost structure of the domestic tobacco business in the face of acute competitive activity in that business and to take advantage of cost savings opportunities in other businesses through process efficiency improvements. Legislation enacted during the third quarter of 1993 stipulates that, effective January 1, 1994, financial penalties will be assessed against manufacturers if cigarettes produced in the United States do not contain at least 75% (by weight) of domestically grown flue cured and burly tobaccos. As a result, the domestic and international tobacco businesses accrued approximately $70 million of related restructuring charges resulting from a reassessment of raw material sourcing and production arrangements. In addition, a shift in pricing strategy designed to gain share of market by RJRT's largest competitor has resulted in a redeployment of spending and changes in sales and distribution strategies resulting in a restructuring charge of approximately $80 million primarily related to contract termination costs. Abandonment of leases related to the above changes in the businesses results in approximately $60 million of restructuring charges. The remainder of the charge, approximately $120 million, represents non-cash costs to rationalize and close manufacturing and sales facilities in both the tobacco and food businesses to facilitate cost improvements. During the fourth quarter of 1992, operating income was reduced by a net charge of $8 million as a result of a $106 million restructuring expense recorded at the tobacco operations ($43 million) and the food operations ($63 million), partially offset by a $98 million gain recognized from the sale of Holdings' ready-to-eat cold cereal business for $456 million in cash, prior to post-closing adjustments. The restructuring expense was incurred in connection with a restructuring plan at the tobacco operations, the purpose of which was to improve productivity by realigning operations in the sales, manufacturing, research and development, and administrative areas and a restructuring plan at the food operations, the purpose of which was to reduce costs and improve productivity by realigning sales operations and implementing a previously announced voluntary separation program. The receivable established at December 31, 1992 for the sale of the ready-to-eat cold cereal business was collected on January 4, 1993, except for certain escrow amounts which were subsequently collected. During the fourth quarter of 1991, net income was reduced by $28 million of net charges included in "Other income (expense), net" as a result of the write-off of $109 million of unamortized debt issuance costs and the recognition of $144 million of unrealized losses from interest rate hedges related F-6 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--OPERATIONS--(CONTINUED) to the refinancing of the bank credit agreement of RJR Nabisco Capital Corp. ("Capital") dated as of January 31, 1989 (as amended, the "1989 Credit Agreement") and the repayment of the $2.25 billion bank credit facility (as amended, the "1990 Credit Agreement"), partially offset by a $225 million credit for a change in estimated postretirement health care liabilities. NOTE 2--EARNINGS PER SHARE Earnings per share is based on the weighted average number of shares of common stock and Series A Depositary Shares (hereinafter defined) outstanding during the period and common stock assumed to be outstanding to reflect the effect of dilutive warrants and options. Holdings' other potentially dilutive securities are not included in the earnings per share calculation because the effect of excluding interest and dividends on such securities for the period would exceed the earnings allocable to the common stock into which such securities would be converted. Accordingly, Holdings' earnings per share and fully diluted earnings per share are the same. NOTE 3--INCOME TAXES The provision for income taxes consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------------------ ------------------------ ------------------------ HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ----------- ----------- ----------- ----------- ----------- ----------- Current: Federal.......................................... $ 295 $ 366 $ 165 $ 115 $ 53 $ 20 Foreign and other................................ 169 169 216 216 206 202 ----------- ----------- ----------- ----------- ----------- ----------- 464 535 381 331 259 222 ----------- ----------- ----------- ----------- ----------- ----------- Deferred: Federal.......................................... (298) (367) 300 363 17 75 Foreign and other................................ (52) (52) (1) (1) 4 4 ----------- ----------- ----------- ----------- ----------- ----------- (350) (419) 299 362 21 79 ----------- ----------- ----------- ----------- ----------- ----------- Provision for income taxes......................... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
F-7 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--INCOME TAXES--(CONTINUED) The components of the deferred income tax liability disclosed on the Consolidated Balance Sheet at December 31, 1993 included the following:
DECEMBER 31, 1993 ---------------------- HOLDINGS RJRN ----------- --------- Deferred tax assets: Pension liabilities.............................................................. $ (123) $ (123) Other postretirement liabilities................................................. (342) (342) Restructure and other accrued liabilities........................................ (325) (325) ----------- --------- Total deferred tax assets................................................ (790) (790) ----------- --------- Deferred tax liabilities: Property and equipment........................................................... 1,154 1,154 Trademarks....................................................................... 2,913 2,913 Other............................................................................ 465 392 ----------- --------- Total deferred tax liabilities........................................... 4,532 4,459 ----------- --------- Net deferred tax liabilities before valuation allowance............... 3,742 3,669 Valuation allowance.............................................................. 32 32 ----------- --------- Net deferred income taxes........................................................ $ 3,774 $ 3,701 ----------- --------- ----------- ---------
Pre-tax income (loss) before extraordinary item for domestic and foreign operations is shown in the following table:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ---------------------- ---------------------- ---------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ----------- --------- ----------- --------- ----------- --------- Domestic (includes U.S. exports)................... $ (169) $ (168) $ 1,052 $ 1,072 $ 285 $ 287 Foreign............................................ 280 280 404 404 363 363 ----------- --------- ----------- --------- ----------- --------- Pre-tax income..................................... $ 111 $ 112 $ 1,456 $ 1,476 $ 648 $ 650 ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
F-8 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--INCOME TAXES--(CONTINUED) The differences between the provision for income taxes and income taxes computed at statutory U.S. federal income tax rates are explained as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ---------------------- ---------------------- ---------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ----------- --------- ----------- --------- ----------- --------- Income taxes computed at statutory U.S. federal income tax rates...... $ 39 $ 39 $ 495 $ 502 $ 220 $ 221 State taxes, net of federal ben- efit............................... 23 23 54 54 60 57 Goodwill amortization................ 125 125 122 122 121 121 March 1991 Exchange Offer............ -- -- -- -- (104) (104) Asset sale........................... -- -- 33 33 -- -- Federal rate change impact on deferred income taxes.............. 86 86 -- -- -- -- Change in estimate of the basis of certain deferred tax amounts....... (108) (108) -- -- -- -- Taxes on foreign operations at rates different than statutory U.S. federal rate....................... (14) (14) 15 15 7 7 FSC income exclusion................. (14) (14) (10) (10) (5) (5) Other items, net..................... (23) (21) (29) (23) (19) 4 ----------- --------- ----------- --------- ----------- --------- Provision for income taxes........... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301 ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- Effective tax rate................... 102.7% 103.8% 46.7% 47.0% 43.2% 46.3% ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
At December 31, 1993, there was $1.242 billion of accumulated and undistributed income of foreign subsidiaries. These earnings are intended by management to be reinvested abroad indefinitely. Accordingly, no applicable U.S. federal deferred income taxes or foreign withholding taxes have been provided nor is a determination of the amount of unrecognized U.S. federal deferred income taxes practicable. At December 31, 1993, Holdings had cumulative minimum tax credit carryforwards for U.S. federal tax purposes of $64 million. Effective January 1, 1993, Holdings and RJRN adopted SFAS No. 109. SFAS No. 109 superseded Statement of Financial Accounting Standards No. 96, the method of accounting for income taxes previously followed by the Registrants. The adoption of SFAS No. 109 did not have a material impact on the financial statements of either Holdings or RJRN. Holdings' provision for income taxes for 1993 was increased by $96 million as a result of the enactment of certain federal tax legislation during the third quarter of 1993 which increased federal corporate income tax rates to 35% from 34%, retroactively to January 1, 1993. The components of this F-9 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--INCOME TAXES--(CONTINUED) increase to Holdings' provision for income taxes included an $86 million non-cash charge resulting primarily from the remeasurement of the balance of deferred federal income taxes at the date of enactment of the new federal tax legislation for the change in the income tax rates, and a $10 million charge resulting from the increase in current federal income taxes accrued for the change in the income tax rates and other effects of the new tax legislation. Also during 1993, Holdings' provision for income taxes was decreased by a $108 million credit resulting from a remeasurement of the balance of deferred income taxes for a change in estimate of the basis of certain deferred tax amounts relating primarily to international operations. During 1993, $101 million of previously recognized deferred income tax benefits for operating loss carryforwards ($36 million), minimum tax credit carryforwards ($44 million) and other carryforward items ($21 million) were realized for U.S. federal tax purposes. NOTE 4--EXTRAORDINARY ITEM The extinguishments of debt of Holdings and RJRN resulted in the following extraordinary losses:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1993 1992 ---------------------- ---------------------- HOLDINGS RJRN HOLDINGS RJRN ----------- --------- ----------- --------- Cash paid in excess of net carrying amount (book value) of debentures extinguished........................................................... $ (206) $ (196) $ (636) $ (616) Write-off of debt issuance costs......................................... (12) (12) (40) (40) ----------- --------- ----------- --------- Extraordinary item--loss on early extinguishments of debt before income taxes.................................................................. (218) (208) (676) (656) Benefit for income taxes................................................. 76 73 199 192 ----------- --------- ----------- --------- Extraordinary item--loss on early extinguishments of debt, net of income taxes.................................................................. $ (142) $ (135) $ (477) $ (464) ----------- --------- ----------- --------- ----------- --------- ----------- ---------
F-10 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION A reconciliation of net income (loss) to net cash flows from operating activities follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ---------------------- ---------------------- ---------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ----------- --------- ----------- --------- ----------- --------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income (loss)............................... $ (145) $ (139) $ 299 $ 319 $ 368 $ 349 ----------- --------- ----------- --------- ----------- --------- Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation of property, plant and equipment.................................... 448 448 455 455 441 441 Amortization (principally intangibles)....... 701 701 691 691 683 683 Deferred income tax provision (benefit)...... (350) (419) 299 362 21 79 Non-cash interest expense.................... 276 254 434 356 787 703 Amortization of debt issuance costs.......... 19 19 20 19 104 110 Extraordinary item--loss on early extinguishments of debt.................... 218 208 676 656 -- -- Gain on sale of ready-to-eat cold cereal business................................... -- -- (98) (98) -- -- (Increase) decrease in accounts and notes receivable................................. 75 84 (180) (180) (161) (139) (Increase) decrease in inventories........... 80 80 (102) (102) (23) (23) (Increase) decrease in prepaid expenses and excise taxes............................... (37) (37) (53) (53) 5 5 (Increase) decrease in other assets and deferred charges........................... (4) 43 (186) (185) 54 57 Increase (decrease) in accounts payable and accrued liabilities........................ 308 312 70 84 (279) (290) Increase (decrease) in income taxes accrued.................................... (53) 54 38 128 (90) (125) Increase (decrease) in other noncurrent liabilities................................ 215 24 (110) (96) 10 15 Other, net................................... 18 (28) 54 99 51 116 ----------- --------- ----------- --------- ----------- --------- Total adjustments....................... 1,914 1,743 2,008 2,136 1,603 1,632 ----------- --------- ----------- --------- ----------- --------- Net cash flows from operating activities..... $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981 ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
Cash payments for income taxes and interest were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------------------ ---------------------- ---------------------- HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ----------- ----------- ----------- --------- ----------- --------- Income taxes paid, net of refunds................... $ 408 $ 408 $ 116 $ 116 $ 368 $ 368 Interest paid....................................... $ 912 $ 912 $ 1,102 $ 1,102 $ 1,397 $ 1,397
F-11 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED) Cash equivalents at December 31, 1993 and 1992, valued at cost (which approximates market value), totaled $215 million and $99 million, respectively, and consisted principally of domestic and Eurodollar time deposits and certificates of deposit. At December 31, 1993 and 1992, cash of $62 million and $63 million, respectively, was held in escrow as collateral for letters of credit issued in connection with certain foreign currency debt. On February 7, 1990, RJRN entered into an arrangement in which it agreed to sell for cash substantially all of its domestic trade accounts receivable generated during a five-year period to a financial institution. Pursuant to amendments entered into in 1992, the length of the receivable program was extended an additional year. The accounts receivable have been and will continue to be sold with limited recourse at purchase prices reflecting the rate applicable to the cost to the financial institution of funding its purchases of accounts receivable and certain administrative costs. During 1993, 1992 and 1991, total proceeds of approximately $8.2 billion, $8.5 billion and $8.7 billion, respectively, were received by RJRN in connection with this arrangement. At December 31, 1993 and 1992, the accounts receivable balance has been reduced by approximately $437 million and $352 million, respectively, due to the receivables sold. For information regarding certain non-cash financing activities, see Notes 10 and 12 to the Consolidated Financial Statements. NOTE 6--INVENTORIES The major classes of inventory are shown in the table below:
DECEMBER 31, DECEMBER 31, 1993 1992 ------------- ------------- Finished products....................................................... $ 771 $ 730 Leaf tobacco............................................................ 1,458 1,501 Raw materials........................................................... 208 222 Other................................................................... 263 323 ------------- ------------- $ 2,700 $ 2,776 ------------- ------------- ------------- -------------
At December 31, 1993 and 1992, approximately $1.4 billion of inventory was valued under the LIFO method. The current cost of LIFO inventories at December 31, 1993 and 1992 was greater than the amount at which these inventories were carried on the Consolidated Balance Sheets by $284 million and $277 million, respectively. For the years ended December 31, 1993, 1992 and 1991, net income was increased by $6 million, $4 million, and $9 million, respectively, as a result of LIFO inventory liquidations. The LIFO liquidations resulted from programs to reduce leaf durations consistent with forecasts of future operating requirements. F-12 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--PROPERTY, PLANT AND EQUIPMENT Components of property, plant and equipment were as follows:
DECEMBER 31, DECEMBER 31, 1993 1992 ------------- ------------- Land and land improvements.............................................. $ 308 $ 277 Buildings and leasehold improvements.................................... 1,771 1,682 Machinery and equipment................................................. 4,624 4,086 Construction-in-process................................................. 463 470 ------------- ------------- 7,166 6,515 Less accumulated depreciation........................................... (1,998) (1,657) ------------- ------------- Net property, plant and equipment.................................. $ 5,168 $ 4,858 ------------- ------------- ------------- -------------
NOTE 8--NOTES PAYABLE Notes payable consisted of the following:
DECEMBER 31, DECEMBER 31, 1993 1992 --------------- --------------- Notes payable to foreign banks.......................................... $ 301 $ 280 Foreign commercial paper................................................ -- 18 --------- --------- $ 301 $ 298 --------- --------- --------- ---------
NOTE 9--ACCRUED LIABILITIES Accrued liabilities consisted of the following:
DECEMBER 31, DECEMBER 31, 1993 1992 ------------- ------------- Marketing and advertising............................................... $ 643 $ 645 Payroll and employee benefits........................................... 325 291 Excise taxes............................................................ 226 322 Accrued interest........................................................ 260 236 Restructuring........................................................... 377 124 Other................................................................... 920 850 ------------- ------------- $ 2,751 $ 2,468 ------------- ------------- ------------- -------------
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE Interest expense consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- ------------- ------------- Cash interest................................................. $ 914 $ 995 $ 1,326 Non-cash interest............................................. 276 434 787 ------------- ------------- ------------- $ 1,190 $ 1,429 $ 2,113 ------------- ------------- ------------- ------------- ------------- -------------
F-13 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED) Long-term debt consisted of the following:
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------------ ---------------------- DUE DUE DUE DUE WITHIN AFTER WITHIN AFTER ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR ----------- ----------- ----------- --------- RJRN Debt: 7 3/8-9 3/8% Debentures with annual sinking fund payments through 2017 (net of $160 million and $162 million of such debentures held by RJRN on December 31, 1993 and 1992, respectively, for future sinking fund requirements, and $137 million of such debentures held by Holdings on December 31, 1992)............... $ -- $ 1,464 $ 216 $ 1,572 5.09-10.5% Notes, due 1995 through 2013............................ -- 6,631 100 4,655 5.375-10%, Foreign Currency Debt, due 1994 to 2001................. 123 472 -- 605 1991 Credit Agreement, variable interest (varies with prime rate and LIBOR--weighted average interest rate of 3.94% at December 31, 1993), due December 31, 1996(2)............................. -- 328 -- 2,831 Commercial paper(3)................................................ -- 913 -- 571 Other indebtedness................................................. 19 247 35 239 Subordinated Debentures: 15% Subordinated Debentures, net of discount of $18 million and $27 million at December 31, 1993 and 1992, respectively, effective interest rate of 15.88%, interest payable-in-kind or cash, at the option of RJRN, until May 15, 1994, cash payment thereafter, sinking fund requirements beginning 1999, due 2001.............. -- 280 -- 423 Subordinated Discount Debentures, net of discount of $133 million and $495 million at December 31, 1993 and 1992, respectively, effective interest rate of 15.88%, interest payable-in-kind until May 15, 1994, cash payment thereafter, sinking fund requirements beginning 1999, due 2001........................... -- 1,393 -- 1,799 Other Subordinated Debentures, fixed rate of 13 1/2%, due 2001..... -- 277 -- 359 ----------- ----------- ----------- --------- RJRN(4)....................................................... 142 12,005 351 13,054
F-14 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------------ ---------------------- DUE DUE DUE DUE WITHIN AFTER WITHIN AFTER ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR ----------- ----------- ----------- --------- Holdings Debt: Converting Debentures, fixed rate of 17 3/8%, interest payable-in-kind or cash at Holdings' option through May 1, 1999, cash payment thereafter, convertible into Holdings' Common Stock on April 30, 1993, otherwise due 2009........................... -- -- -- 413 11.68% ESOP participation.......................................... -- -- 28 74 ----------- ----------- ----------- --------- Holdings...................................................... $ 142 $ 12,005 $ 379 $ 13,541 ----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
- --------------- (1) The payment of debt through December 31, 1998 is due as follows (in millions): 1995--$617; 1996--$465; 1997--$70 and 1998--$1,714. (2) RJRN maintains a revolving credit facility of $6.5 billion of which $6.2 billion was unused at December 31, 1993. At December 31, 1993, availability of the unused portion is reduced by $456 million for the extension of irrevocable letters of credit which support the principal and interest on certain existing foreign debt of RJRN and its subsidiaries. A commitment fee of 1/4% per annum is payable on the unused portion of the facility. (3) RJRN maintains a back-up line of credit to support commercial paper issuances of up to $1 billion. Commercial paper outstanding in excess of $1 billion is supported by the 1991 Credit Agreement. (4) As a result of RJRN's management of its interest rate exposure through swaps, options, caps, and other interest rate arrangements, the effective interest rate on certain debt may differ from that disclosed in the table. ------------------------ During 1991, Holdings entered into the following refinancing transactions: (i) the repayment on March 11, 1991 of the aggregate principal amount outstanding of a subordinated promissory note held by a limited partnership affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR") plus accrued and unpaid interest thereon for a total of approximately $468 million in cash from borrowings under the revolving credit portion of the 1989 Credit Agreement, (ii) the issuance by Capital on April 25, 1991 of $1.5 billion principal amount of 10 1/2% Senior Notes due 1998 (the "10 1/2% Senior Notes") (the "Senior Note Offering") and the repayment of a portion of the amount outstanding under the 1990 Credit Agreement with a portion of the net proceeds from the Senior Note Offering equal to approximately $731 million in cash, (iii) the redemption on June 3, 1991 of 100% of the aggregate principal amount of all outstanding Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings Group, Inc. ("Group") equal to approximately $1.86 billion plus accrued and unpaid interest thereon to the redemption date with (a) an additional portion of the net proceeds from the Senior Note Offering and (b) the entire net proceeds from the issuance by Holdings on April 18, 1991 of 115,000,000 shares of common stock of Holdings, par value $.01 per share (the "Common Stock") at $11.25 per share, (iv) open market purchases of certain of Capital's debentures totalling approximately $128 million with the remaining net proceeds from the Senior Note Offering, (v) the exchange by Holdings of 3.8 shares of Common Stock for each of the 67,997,769 shares of Cumulative Convertible Preferred Stock (the "Preferred Stock") exchanged pursuant to an exchange offer commenced on November 7, 1991 and completed on December 7, 1991, (vi) the issuance by Holdings on November 8, 1991 of 52,500,000 shares of Series A Conversion Preferred Stock, par value .01 per share ("Series A Preferred Stock") of Holdings and the sale of 210,000,000 $.835 depositary shares ("Series A Depositary F-15 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED) Shares") at $10.125 per Series A Depositary Share in connection with such issuance (the "Series A Preferred Stock Offering"), (vii) the repayment of the aggregate amount outstanding under the 1990 Credit Agreement, the repayment of a portion of the amount outstanding under the 1989 Credit Agreement and the redemption of certain notes of RJRN with the net proceeds from the Series A Preferred Stock Offering equal to approximately $2.1 billion and (viii) the repayment by Capital on December 19, 1991 of the aggregate amount outstanding under the working capital facility, revolving credit facility and term loan portions of the 1989 Credit Agreement with approximately $3.3 billion in cash from borrowings under a $6.5 billion bank credit facility (as amended, the "1991 Credit Agreement"). On May 15, 1992, Capital merged with and into its wholly-owned subsidiary, RJRN. As a result of the merger, Group became the direct parent of RJRN and RJRN assumed all of the obligations of Capital under the 1991 Credit Agreement and with respect to the following debt securities: Subordinated Discount Debentures due May 15, 2001 (the "Subordinated Discount Debentures"); 15% Payment-in-Kind Subordinated Debentures due May 15, 2001 (the "15% Subordinated Debentures"); 13 1/2% Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated Debentures" and, collectively with the Subordinated Discount Debentures and the 15% Subordinated Debentures, the "Subordinated Debentures"); 10 1/2% Senior Notes; 8.30% Senior Notes due April 15, 1999 (the "8.30% Senior Notes"); and 8.75% Senior Notes due April 15, 2004 (the "8.75% Senior Notes" and, collectively with the 8.30% Senior Notes, the "1992 Senior Notes"). Prior to this merger, RJRN had guaranteed all of Capital's obligations with respect to such indebtedness, and the financial statements of RJRN had reflected such indebtedness and all debt related costs. On December 17, 1992, Group merged with and into its wholly-owned subsidiary, RJRN. Also during 1992, Holdings entered into the following refinancing transactions: (i) the redemption on February 15, 1992 of $250 million principal amount of Capital's Subordinated Floating Rate Notes due 1999 (the "Subordinated Floating Rate Notes") at a price of $1,005 for each $1,000 principal amount of Subordinated Floating Rate Notes plus accrued and unpaid interest thereon, (ii) the early extinguishments by Capital of approximately $1 billion aggregate principal amount of certain of Capital's subordinated debentures in a privately negotiated transaction (the "1992 Capital Debenture Repurchase") for approximately $995 million in cash, consisting of $165 million aggregate principal amount of its 15% Subordinated Debentures, $85 million aggregate principal amount of its 13 1/2% Subordinated Debentures and $750 million aggregate principal amount (approximately $550 million accreted amount) of its Subordinated Discount Debentures, (iii) the issuance by Capital on April 9, 1992 of $600 million principal amount of 8.30% Senior Notes and $600 million principal amount of 8.75% Senior Notes and the application of substantially all of the net proceeds from the issuance of the 1992 Senior Notes to repay a portion of the funds temporarily drawn under the 1991 Credit Agreement for the redemption of the Subordinated Floating Rate Notes and for the 1992 Capital Debenture Repurchase, (iv) the retirement on May 15, 1992 of $225 million aggregate principal amount of Capital's Subordinated Extendible Reset Debentures due May 15, 1991 (the "Subordinated Reset Debentures") at a price of $1,010 for each $1,000 principal amount of Subordinated Reset Debentures plus accrued and unpaid interest thereon with the remaining proceeds available from the 1992 Senior Notes plus temporary borrowings under the 1991 Credit Agreement, which were repaid with proceeds of medium-term notes and (v) the additional repurchases during 1992 for approximately $1.822 billion in cash of certain of RJRN's subordinated debentures consisting of $690 million aggregate principal amount of its 15% Subordinated Debentures, $81 million aggregate principal amount of its 13 1/2% F-16 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED) Subordinated Debentures and $941 million aggregate principal amount (approximately $728 million accreted amount) of its Subordinated Discount Debentures. The principal or accreted amount of the debentures in item (v) was refinanced with proceeds of debt securities maturing in the years 1999-2004. The purchase of most of such amount had been temporarily funded with borrowings under the 1991 Credit Agreement. Also during 1992, Holdings repurchased $126 million aggregate principal amount (approximately $209 million including accrued interest) of its Senior Converting Debentures due 2009 (the "Converting Debentures") for $229 million in cash, and RJRN repurchased $229 million aggregate principal amount of various other debentures for $240 million in cash. The funds for the repurchase of Converting Debentures and various other debentures of RJRN and for a portion of the purchase price of the Subordinated Debentures in item (v) were provided from the issuance of medium-term notes maturing in the years 1995-1997, borrowings under the 1991 Credit Agreement and cash flow from operations. During 1993, RJRN repurchased for approximately $1.0 billion in cash certain of its subordinated debentures consisting of $153 million aggregate principal amount of its 15% Subordinated Debentures, $82 million aggregate principal amount of its 13 1/2% Subordinated Debentures and $768 million aggregate principal amount (approximately $671 million accreted amount) of its Subordinated Discount Debentures. The principal or accreted amounts of such debentures was refinanced from proceeds of debt securities maturing after 1998, including debt securities issued during 1993. The purchase of most of such amount had been temporarily funded with borrowings under the 1991 Credit Agreement. The remaining portion of the ESOP participation was repurchased on January 15, 1993 for cash, plus accrued and unpaid interest thereon. Holdings redeemed on May 1, 1993, 100% of the aggregate principal amount of its outstanding Converting Debentures at a price of $1,000 for each $1,000 principal amount of Converting Debentures, plus accrued and unpaid interest thereon, for the period from February 9, 1989 through April 30, 1993, of $937.54 for each $1,000 principal amount of Converting Debentures. During 1993, RJRN issued $750 million principal amount of 8% Notes due 2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued medium-term notes maturing in the years 1995-1998 having an aggregate initial offering price of approximately $230 million. The net proceeds from the sale of debt securities and the Series B Preferred Stock Offering (as hereinafter defined) have been or will be used for general corporate purposes, which include refinancings of indebtedness, working capital, capital expenditures, acquisitions and repurchases and redemptions of securities. Pending such uses, proceeds may be used to repay indebtedness under RJRN's revolving credit facilities or for short-term liquid investments. A portion of the net proceeds collected from the sale of Holdings' ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216 million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 (the "9 3/8% Debenture") at a price of $1,065.63 for each $1,000 principal amount of 9 3/8% Debentures, plus accrued and unpaid interest thereon. On April 5, 1993, the Registrants entered into a credit agreement (as amended, the "1993 Credit Agreement" and together with the 1991 Credit Agreement, the "Credit Agreements"), which matures on April 4, 1994 and provides a back-up line of credit to support commercial paper issuances of up to $1 billion. Availability thereunder is reduced by an amount equal to the aggregate amount of commercial F-17 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED) paper outstanding. At December 31, 1993, approximately $913 million of commercial paper was outstanding. Accordingly, $87 million was available under the 1993 Credit Agreement at December 31, 1993. Holdings and RJRN expect to obtain bank consent to extend the maturity date of the 1993 Credit Agreement for an additional 364 days. Based on RJRN's intention and ability to continue to refinance, for more than one year, the amount of its commercial paper borrowings outstanding either in the commercial paper market or with additional borrowings under the 1991 Credit Agreement, the commercial paper borrowings have been included under "Long-term debt". As permitted by the governing indenture, RJRN intends to pay in cash the May 15, 1994 interest payment due on its 15% Subordinated Debentures. Accordingly, the interest accrued thereon as of December 31, 1993 has been included in "Accrued liabilities". Certain financing agreements to which Holdings is a party and debt instruments of RJRN directly or indirectly restrict the payment of dividends by Holdings. The Credit Agreements, which contain restrictions on the payment of cash dividends or other distributions by Holdings in excess of certain specified amounts, and the indentures relating to certain of RJRN's debt securities, which contain restrictions on the payment of cash dividends or other distributions by RJRN to Holdings in excess of certain specified amounts, or for certain specified purposes, effectively limit the payment of dividends on the Common Stock. In addition, the declaration and payment of dividends is subject to the discretion of the board of directors of Holdings and to certain limitations under Delaware law. The Credit Agreements and the indentures under which certain debt securities of RJRN have been issued also impose certain operating and financial restrictions on Holdings and its subsidiaries. These restrictions limit the ability of Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell certain assets and certain subsidiaries' stock, engage in certain mergers or consolidations and make investments in unrestricted subsidiaries. The estimated fair value of Holdings' consolidated long-term debt as of December 31, 1993 and 1992 was approximately $12.4 billion and $14.9 billion, respectively, based on available market quotes, discounted cash flows and book values, as appropriate. The estimated fair value exceeded the carrying amount of Holdings' long-term debt by approximately $400 million and $1.1 billion at December 31, 1993 and 1992, respectively, as a result of the general decline in market interest rates compared with the higher interest cost on certain of Holdings' debt obligations. Considerable judgment was required in interpreting market data to develop the estimates of fair value. In addition, the use of different market assumptions and/or estimation methodologies may have had a material effect on the estimated fair value amounts. Accordingly, the estimated fair value of Holdings' consolidated long-term debt as of December 31, 1993 and 1992 is not necessarily indicative of the amounts that Holdings could realize in a current market exchange. NOTE 11--COMMITMENTS AND CONTINGENCIES Various legal actions, proceedings and claims are pending or may be instituted against R. J. Reynolds Tobacco Company ("RJRT") or its affiliates or indemnities, including those claiming that lung cancer and other diseases have resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16 new actions were filed or served against RJRT and/or its affiliates or indemnities and 18 such actions were dismissed or otherwise resolved in favor of RJRT and/or its F-18 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED) affiliates or indemnities. A total of 35 such actions in the United States, one in Puerto Rico and one against RJRT's Canadian subsidiary were pending on December 31, 1993. As of February 7, 1994, 35 active cases were pending against RJRT and/or its affiliates or indemnities, 33 in the United States, one in Puerto Rico and one in Canada. Four of the 33 active cases in the United States involve alleged non-smokers claiming injuries resulting from exposure to environmental tobacco smoke. One of such cases is currently scheduled for trial on September 5, 1994 and if tried, will be the first such case to reach trial. One of the active cases is alleged to be a class action on behalf of a purported class of 60,000 individuals. The plaintiffs in these actions seek recovery on a variety of legal theories, including strict liability in tort, design defect, negligence, breach of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive damages, often in amounts totalling many millions of dollars, are specifically pleaded in 20 cases in addition to compensatory and other damages. The defenses raised by RJRT and/or its affiliates, where applicable, include preemption by the Federal Cigarette Labeling and Advertising Act, as amended (the "Cigarette Act") of some or all such claims arising after 1969; the lack of any defect in the product; assumption of the risk; comparative fault; lack of proximate cause; and statutes of limitations or repose. Juries have found for plaintiffs in two smoking and health cases, but in one such case, which has been appealed by both parties, no damages were awarded. The jury awarded plaintiffs $400,000 in the other such case, Cipollone v. Liggett Group, Inc., et. al., which award was overturned on appeal and the case was subsequently dismissed. On June 24, 1992, the United States Supreme Court in Cipollone held that claims that tobacco companies failed to adequately warn of the risks of smoking after 1969 and claims that their advertising and promotional practices undermined the effect of warnings after that date were preempted by the Cigarette Act. The Court also held that claims of breach of express warranty, fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's decision was announced through a plurality opinion, and further definition of how Cipollone will apply to other cases must await rulings in those cases. Certain legislation proposed in recent years in Congress, among other things, would eliminate any such preemptive effect on common law damage actions for personal injuries. RJRT is unable to predict whether such legislation will be enacted, if so, in what form, or whether such legislation would be intended by Congress to apply retroactively. The Supreme Court's Cipollone decision itself, or the passage of such legislation, could increase the number of cases filed against cigarette manufacturers, including RJRT. RJRT understands that a grand jury investigation being conducted in the Eastern District of New York is examining possible violations of criminal law in connection with activities relating to the Council for Tobacco Research-USA, Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this investigation. RJRT recently received a civil investigative demand from the U.S. Department of Justice requesting broad documentary information from RJRT. Although the request appears to focus on tobacco industry activities in connection with product development efforts, it also requests general information concerning contacts with competitors. RJRT is unable to predict the outcome of this investigation. Litigation is subject to many uncertainties, and it is possible that some of the legal actions, proceedings or claims could be decided against RJRT or its affiliates or indemnities. Determinations of F-19 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED) liability or adverse rulings against other cigarette manufacturers that are defendants in similar actions, even if such rulings are not final, could adversely affect the litigation against RJRT and its affiliates or indemnities and increase the number of such claims. Although it is impossible to predict the outcome of such events or their effect on RJRT, a significant increase in litigation activities could have an adverse effect on RJRT. RJRT believes that it has a number of valid defenses to any such actions, including but not limited to those defenses based on preemption under the Cipollone decision, and RJRT intends to defend vigorously all such actions. The Registrants believe that the ultimate outcome of all pending litigation matters should not have a material adverse effect on either of the Registrants' financial position; however, it is possible that the results of operations or cash flows of the Registrants in a particular quarterly or annual period could be materially affected by the ultimate outcome of certain pending litigation matters. Management is unable to derive a meaningful estimate of the amount or range of such possible loss in any particular quarterly or annual period or in the aggregate. COMMITMENTS At December 31, 1993, other commitments totalled approximately $556 million, principally for minimum operating lease commitments, the purchase of machinery and equipment and other contractual arrangements. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT CONCENTRATIONS OF CREDIT RISK Certain financial instruments with off-balance sheet risk have been entered into by the RJRN to manage its interest rate and foreign currency exposures. Interest Rate Arrangements At December 31, 1993 and 1992, RJRN had outstanding interest rate swaps, options, caps and other interest rate arrangements with financial institutions having a total notional principal amount of $5.7 billion and $5.2 billion, respectively. The arrangements at December 31, 1993 mature as follows: 1994--$2.7 billion; 1995--$1.1 billion; 1996--$1.1 billion; 1997--$450 million and 1998 $350 million, respectively. The estimated fair value of these arrangements as of December 31, 1993 and 1992 was favorable by approximately $37 million and unfavorable by approximately $1 million, respectively, based on calculations from independent third parties for similar arrangements. Because interest rate swaps and purchased options and other interest rate arrangements effectively hedge interest rate exposures, the differential to be paid or received is accrued and recognized in interest expense as market interest rates change. If an arrangement is terminated prior to maturity, then the realized gain or loss is recognized over the remaining original life of the agreement if the hedged item remains outstanding, or immediately, if the underlying hedged instrument does not remain outstanding. If the arrangement is not terminated prior to maturity, but the underlying hedged instrument is no longer outstanding, then the unrealized gain or loss on the related interest rate swap, option, cap or other interest rate arrangement is recognized immediately. In addition, for written options and other similar interest rate arrangements that are entered into to manage interest rate exposure, changes in market value of such instruments would result in the current recognition of any related gains or losses. F-20 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED) Foreign Currency Arrangements At December 31, 1993 and 1992, RJRN had outstanding forward foreign exchange contracts with banks to purchase or sell an aggregate notional principal amount of $476 million and $566 million, respectively. The estimated fair value of these arrangements as of December 31, 1993 and 1992 was favorable by approximately $3 million and $4 million, respectively, based on calculations from independent third parties for similar arrangements. The forward foreign exchange contracts and other hedging arrangements entered into by RJRN generally mature at the time the hedged foreign currency transactions are settled. Gains or losses on forward foreign currency transactions are determined by changes in market rates and are generally included at settlement in the basis of the underlying hedged transaction. To the extent that the foreign currency transaction does not occur, gains and losses are recognized immediately. The above interest rate and foreign currency arrangements entered into by RJRN involve, to varying degrees, elements of market risk as a result of potential changes in future interest and foreign currency exchange rates. To the extent that the financial instruments entered into remain outstanding as effective hedges of existing interest rate and foreign currency exposure, the impact of such potential changes in future interest and foreign currency exchange rates on the financial instruments entered into would offset the related impact on the items being hedged. Also, RJRN may be exposed to credit losses in the event of non-performance by the counterparties to these financial instruments. However, RJRN continually monitors its positions and the credit rating of its counterparties and therefore, does not anticipate any non-performance. There are no significant concentrations of credit risk with any individual counterparties or groups of counterparties as a result of any financial instruments entered into including those financial instruments discussed above. F-21 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL The changes in Common Stock and paid-in capital are shown as follows:
1993 1992 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT -------------- ----------- -------------- ----------- (DOLLARS IN MILLIONS) Common Stock--$0.01 par value--authorized 1,500,000,000 shares at December 31, 1993: Balance at beginning of year..................... 1,134,648,542 $ 11 1,121,658,569 $ 11 Shares issued during the period.................. 3,692,911 -- 13,117,248 -- Management shares repurchased and cancelled...................................... (330,161) -- (127,275) -- -------------- ----------- -------------- ----------- Balance at end of year....................... 1,138,011,292 $ 11 1,134,648,542 $ 11 -------------- ----------- -------------- ----------- -------------- ----------- -------------- ----------- Paid-in capital: Balance at beginning of year..................... $ 9,048 $ 9,352 Shares issued during the period, net of stock issuance costs................................. (16) (8) Tax benefits recorded on shares issued to management and ESOP shares allocated........... 3 4 Issuance of Series A Preferred Stock............. -- -- Management shares and stock options repurchased and cancelled.................................. (2) (6) Preferred stock dividends........................ (246) (207) Warrants repurchased and cancelled............... -- (87) Other............................................ (9) -- ----------- ----------- Balance at end of year....................... $ 8,778 $ 9,048 ----------- ----------- ----------- -----------
1991 --------------------------- SHARES AMOUNT -------------- ---------- Common Stock--$0.01 par value--authorized 1,500,000,000 shares at December 31, 1993: Balance at beginning of year..................... 580,023,513 $ 6 Shares issued during the period.................. 542,135,431 5 Management shares repurchased and cancelled...................................... (500,375) -- ------------- ----------- Balance at end of year....................... 1,121,658,569 $ 11 -------------- ----------- -------------- ----------- Paid-in capital: Balance at beginning of year..................... $ 3,860 Shares issued during the period, net of stock issuance costs................................. 3,630 Tax benefits recorded on shares issued to management and ESOP shares allocated........... 4 Issuance of Series A Preferred Stock............. 2,060 Management shares and stock options repurchased and cancelled.................................. (4) Preferred stock dividends........................ (198) Warrants repurchased and cancelled............... -- Other............................................ -- ------------ Balance at end of year....................... $ 9,352 ------------ ------------
The changes in stock options are shown as follows:
1993 1992 1991 ------------------------- -------------------------- ----------- OPTIONS PRICE OPTIONS PRICE OPTIONS ----------- ------------ ----------- ------------- ----------- Balance at beginning of year: Stock Option Plan................................ 25,355,948 $ 5.00-10.45 25,814,648 $ 5.00- 5.75 25,638,520 Long Term Incentive Plan......................... 19,654,600 7.50-11.56 12,990,600 7.50-11.63 Options granted to management investors and directors: Stock Option Plan................................ 2,400 5.00 2,176,828 Long Term Incentive Plan......................... 49,213,100 4.52- 9.13 7,004,000 8.25-10.125 13,041,800 Management options exercised: Stock Option Plan................................ (1,116,046) 5.00 Management options repurchased and cancelled: Stock Option Plan................................ (999,790) 5.00- 8.55 (461,100) 5.00-10.45 (2,000,700) Long Term Incentive Plan......................... (4,235,066) 5.56-10.00 (340,000) 7.50-11.63 (51,200) ----------- ----------- ----------- Balance at end of year: Stock Option Plan................................ 23,240,112 5.00-10.45 25,355,948 5.00-10.45 25,814,648 Long Term Incentive Plan......................... 64,632,634 4.52-11.56 19,654,600 7.50-11.56 12,990,600 ----------- ----------- ----------- 87,872,746 4.52-11.56 45,010,548 5.00-11.56 38,805,248 ----------- ----------- ----------- ----------- ----------- -----------
PRICE ------------ Balance at beginning of year: Stock Option Plan................................ $ 5.00 Long Term Incentive Plan......................... Options granted to management investors and directors: Stock Option Plan................................ 5.75 Long Term Incentive Plan......................... 7.50-11.63 Management options exercised: Stock Option Plan................................ Management options repurchased and cancelled: Stock Option Plan................................ 5.00- 5.75 Long Term Incentive Plan......................... 7.50 Balance at end of year: Stock Option Plan................................ 5.00- 5.75 Long Term Incentive Plan......................... 7.50-11.63 5.00-11.63
At December 31, 1993, options were exercisable as to 20,018,041 shares, compared with 15,590,909 shares at December 31, 1992, and 11,310,162 shares at December 31, 1991. As of December 31, 1993, options for 66,777,008 shares of Common Stock were available for future grant. F-22 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) To provide an incentive to attract and retain key employees responsible for the management and administration of the business affairs of Holdings and its subsidiaries, on June 15, 1989 the board of directors of Holdings adopted the Stock Option Plan for Directors and Key Employees of RJR Holdings Corp. and Subsidiaries (the "Stock Option Plan") pursuant to which options to purchase Common Stock may be granted. On June 16, 1989, the Stock Option Plan was approved by the written consent of the holders of a majority of the Common Stock. Any director or key employee of Holdings or any subsidiary of Holdings is eligible to be granted options under the Stock Option Plan. A maximum of 30,000,000 shares of Common Stock (which may be adjusted in the event of certain capital changes) may be issued under the Stock Option Plan. The options to key employees granted to key employees under the Stock Option Plan generally vest over a five year period and the options granted to directors under the Stock Option Plan are immediately fully vested. The exercise price of such options is generally the fair market value of the Common Stock on the date of grant. On August 1, 1990, the board of directors of Holdings adopted the 1990 Long Term Incentive Plan (the "1990 LTIP") which was approved on such date by the written consent of the holders of a majority of the Common Stock. The 1990 LTIP authorizes grants of incentive awards ("Grants") in the form of "incentive stock options" under Section 422 of the Code, other stock options, stock appreciation rights, restricted stock, purchase stock, dividend equivalent rights, performance units, performance shares or other stock-based grants. Awards under the 1990 LTIP may be granted to key employees of, or other persons having a unique relationship to, Holdings and its subsidiaries. Directors who are not also employees of Holdings and its subsidiaries are ineligible for Grants. A maximum of 105,000,000 shares of Common Stock (which may be adjusted in the event of certain capital changes) may be issued under the 1990 LTIP pursuant to Grants. The 1990 LTIP also limits the amount of shares which may be issued pursuant to "incentive stock options" and the amount of shares subject to Grants which may be issued to any one participant. As of December 31, 1993, purchase stock, stock options other than incentive stock options, restricted stock, performance shares and other stock-based grants have been granted under the 1990 LTIP. The options granted before 1993 under the 1990 LTIP generally will vest over a three year period ending December 31, 1995. Prior to January 1, 1993, such options had vested over a six to eight year period. Options granted in 1993 vest over a three year period beginning from the date of grant. The exercise prices of such options are between $4.50 and $11.56 per share. In connection with the purchase stock grants awarded during 1993, 1992 and 1991, 622,222 shares, 495,000 shares and 2,681,000 shares, respectively, of Common Stock were purchased and options to purchase four shares were granted for every share of such Common Stock purchased. In addition, arrangements were made enabling purchasers to borrow on a secured basis from Holdings the price of the stock purchased, as well as the taxes due on any taxable income recognized in connection with such purchases. The current annual interest rate on such arrangements, which was set in July 1993 at the then applicable federal rate for long-term loans, is 6.37%. These borrowings plus accrued interest and taxes must generally be repaid within two years following termination of active employment. During 1993, 1,484,840 shares of Common Stock were awarded in connection with restricted stock grants. These shares are subject to restrictions that will lapse on December 31, 1994. Performance shares were also granted under the 1990 LTIP during 1993, pursuant to which participants are granted a designated number of performance shares that may be earned over a three year performance period commencing January 1, 1993. Pay outs of awards at the end of the performance period, which are denominated in shares of Common Stock, but which may be paid at Holdings' option in either Common Stock or cash, are currently based on Holdings' cumulative cash-earnings per share during such performance period. During 1993, 3,307,500 performance shares were awarded. The maximum aggregate number of shares of Common Stock that F-23 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) may be paid at the end of the performance period is 4,961,250. Commitments to make other stock-based awards were made in 1993 under the 1990 LTIP to individuals who previously acquired certain purchase stock under the 1990 LTIP. Under this program, such individuals may receive grants of Common Stock or cash at the Company's election on either three or four annual grant dates beginning July 1994 and ending either July 1, 1996 or July 1, 1997. The fair market value of Common Stock to be awarded on each grant date is equal to the excess, if any, of (i) 33% or 25%, respectively, of the maximum amount the individual could have borrowed to acquire purchase stock, over (ii) the then fair market value of the same percentage of such individual's purchase stock. The grant is increased by the amount of presumed borrowing costs and the amount necessary to hold the individual harmless from income taxes due as a result of the grant. No grant will be made on a grant date if, on such grant date, the amount determined under clause (ii) above equals or exceeds the amount determined in clause (i) above. In addition to the shares purchased under the 1990 LTIP, approximately 550,000 shares of Common Stock were sold during 1991 to certain management investors. No such sales occurred in 1992 or 1993. Unlike the shares sold under the 1990 LTIP, a portion of these shares remain subject to significant restrictions on transferability. The Preferred Stock, together with the Series A Preferred Stock, Series B Preferred Stock and ESOP Convertible Preferred Stock, stated value $16.00 per share and par value $.01 per share, of Holdings (the "ESOP Preferred Stock") (150,000,000 aggregate preferred shares authorized at December 31, 1993 and 1992) are senior to the Common Stock as to dividends and preferences in liquidation. On December 6, 1993, the outstanding Preferred Stock was redeemed at a redemption price of $27.0125 per share plus accrued and unpaid dividends thereon. Also during 1993, 123,523 shares of Preferred Stock were converted into 342,976 shares of Common Stock. During 1992, 379 shares of Preferred Stock were converted into 1,051 shares of Common Stock. During 1991, 884 shares of Preferred Stock were converted into 2,450 shares of Common Stock and 67,997,769 shares of Preferred Stock were exchanged for 258,391,523 shares of Common Stock in connection with the December 1991 Exchange Offer. The Preferred Stock, stated value $25 per share at par value $.01 per share, paid cash dividends at a rate of 11.5% of stated value per annum, payable quarterly in arrears commencing January 15, 1991. The Preferred Stock was convertible after May 1, 1991 into shares of Common Stock at a conversion price of $9 of stated value per share of Common Stock. Each Series A Depositary Share represents a one-quarter ownership interest in a share of Series A Preferred Stock of Holdings. Each share of Series A Preferred Stock bears cumulative cash dividends at a rate of $3.34 per annum and is payable quarterly in arrears commencing February 18, 1992. Each share of Series A Preferred Stock will mandatorily convert into four shares of Common Stock by November 15, 1994, subject to adjustment in certain events. In addition, each share of Series A Preferred Stock may be convertible upon the occurrence of certain other events, including the option by Holdings to redeem, in whole or in part, at any time at an initial optional redemption price of $64.82 per share, to be paid in shares of Common Stock, plus accrued and unpaid dividends. The initial optional redemption price declines by $.009218 on each day following the issuance of the Series A Preferred Stock to $55.36 on September 15, 1994 and $54.80 thereafter. Holders of Series A Preferred Stock have voting rights with respect to certain matters submitted to a vote of the holders of the Common F-24 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) Stock. Because Series A Preferred Stock mandatorily converts into Common Stock, dividends on shares of Series A Preferred Stock are reported similar to common equity dividends. On August 18, 1993, Holdings issued 50,000 shares of Series B Cumulative Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), and sold 50,000,000 depositary shares ("Series B Depositary Shares") at $25 per Series B Depositary Share ($1.250 billion) in connection with such issuance (the "Series B Preferred Stock Offering"). Each share of Series B Preferred Stock bears cumulative cash dividends at a rate of $2,312.50 per annum, or $2.3125 per Series B Depositary Share, and is payable quarterly in arrears commencing December 1, 1993. Each Series B Depositary Share represents .001 ownership interest in a share of Series B Preferred Stock of Holdings. At Holdings' option, on or after August 19, 1998, Holdings may redeem shares of the Series B Preferred Stock (and the Depositary will redeem the number of Series B Depositary Shares representing the shares of Series B Preferred Stock) at a redemption price equivalent to $25 per Series B Depositary Share, plus accrued and unpaid dividends thereon. On August 1, 1991, Holdings issued 2,983,904 shares of Common Stock in exchange for certain debentures of RJRN aggregating approximately $32.3 million in principal amount. On April 10, 1991, an employee stock ownership plan established by Holdings borrowed $250 million from Holdings (the "ESOP Loan") to purchase 15,625,000 shares of ESOP Preferred Stock. The ESOP Loan, which was renegotiated in 1993, has a final maturity in 2006 and bears interest at the rate of 8.2% per annum. The ESOP Preferred Stock is convertible as of December 31, 1993 into 15,573,973 shares of Common Stock, subject to adjustment in certain events, and bears cumulative dividends at a rate of 7.8125% of stated value per annum at least until April 10, 1999, payable semi-annually in arrears commencing January 2, 1992, when, as and if declared by the board of directors of Holdings. The ESOP Preferred Stock is redeemable at the option of Holdings, in whole or in part, at any time on or after April 10, 1999, at an initial optional redemption price of $16.250 per share. The initial optional redemption price declines thereafter on an annual basis in the amount of $.125 a year to $16 per share on April 10, 2001, plus accrued and unpaid dividends. Holders of ESOP Preferred Stock have voting rights with respect to certain matters submitted to a vote of the holders of the Common Stock. Effective January 1, 1992, RJRN's matching contributions to eligible employees under its Capital Investment Plan are being made in the form of ESOP Preferred Stock. RJRN's matching contribution obligation in respect of each participating employee is equal to $.50 for every pre-tax dollar contributed by the employee, up to 6% of the employee's pay. The shares of ESOP Preferred Stock are allocated at either the floor value of $16 a share or the fair market value of Common Stock, whichever is higher. During 1993 and 1992, approximately $29 million and $29 million, respectively, was contributed to the ESOP by RJRN or Holdings and approximately $20 million and $24 million, respectively, of ESOP dividends were used to service the ESOP's debt to Holdings. On February 9, 1989, 15,254,238 warrants were issued to purchase 15,254,238 shares of Common Stock. Such warrants were initially exercisable at an exercise price of $5.00 per share, subject to adjustment in certain events, at any time prior to February 9, 1999. On November 8, 1991, the exercise price for the warrants and the number of shares of Common Stock issuable upon exercise thereof were adjusted to $4.9164 and 1.017, respectively. During the third quarter of 1992, Holdings repurchased from a limited partnership of which KKR Associates, an affiliate of KKR, is the sole general partner and certain affiliates of Merrill Lynch & Co., Inc. 6,182,586 warrants of the 15,254,238 warrants issued F-25 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) on February 9, 1989 for approximately $36 million in cash. During October 1992, Holdings repurchased from the same parties the remaining 9,071,652 warrants for approximately $51 million in cash. Each of these warrants allowed the holder to purchase 1.017 shares of Common Stock for an exercise price of $4.9164 at any time on or prior to February 8, 1999. Warrants to purchase 45,529,024 shares of Common Stock were issued in connection with the sale of the 15% Subordinated Debentures and the Subordinated Discount Debentures. Such warrants were initially exercisable at an exercise price of $0.07 per share, subject to adjustment in certain events, and expired January 31, 1992. On November 8, 1991, the exercise price for the warrants and the number of shares of Common Stock issuable upon exercise thereof were adjusted to $0.0688 and 1.017, respectively. During 1992, 12,370,936 warrants were exercised at $0.0688 per share. During 1991, 29,695,730 warrants were exercised at $0.07 per share and 3,361,323 warrants were exercised at $0.0688 per share. See Note 10 for transactions involving the exchange of capital stock for long-term debt. NOTE 13--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS Retained earnings (accumulated deficit) at December 31, 1993, 1992 and 1991 includes non-cash expenses related to accumulated trademark and goodwill amortization of $3.015 billion, $2.390 billion and $1.774 billion, respectively. The changes in cumulative translation adjustments are shown as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- --------------- --------------- Balance at beginning of period...................................... $ (47) $ 11 $ 35 Translation and other adjustments................................. (55) (58) (24) ------------- -------------- --------------- Balance at end of period............................................ $ (102) $ (47) $ 11 ------------- -------------- --------------- ------------- -------------- ---------------
NOTE 14--RETIREMENT BENEFITS RJRN sponsors a number of non-contributory defined benefit pension plans covering most U.S. and certain foreign employees. Plans covering regular full-time employees in the tobacco operations as well as the majority of salaried employees in the corporate groups and food operations to provide pension benefits that are based on credits, determined by age, earned throughout an employee's service and final average compensation before retirement. Plan benefits are offered as lump sum or annuity options. Plans covering hourly as well as certain salaried employees in the corporate groups and food operations provide pension benefits that are based on the employee's length of service and final average compensation before retirement. RJRN's policy is to fund the cost of current service benefits and past service cost over periods not exceeding 30 years to the extent that such costs are currently tax deductible. Additionally, RJRN participates in several multi-employer and other defined contribution plans, which provide benefits to certain of RJRN's union employees. Employees in foreign countries who are not F-26 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--RETIREMENT BENEFITS--(CONTINUED) U.S. citizens are covered by various post-employment benefit arrangements, some of which are considered to be defined benefit plans for accounting purposes. A summary of the components of pension expense for RJRN-sponsored plans follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- ------------- ------------- Defined benefit pension plans: Service cost--benefits earned during the period........................ $ 76 $ 84 $ 71 Interest cost on projected benefit obligation.......................... 255 251 239 Less actual return on plan assets...................................... (262) (259) (504) Net amortization and deferral.......................................... (4) (4) 252 ------------- ------------- ------------- Total............................................................. 65 72 58 Multi-employer and other contribution plans.............................. 32 31 33 ------------- ------------- ------------- Total pension expense............................................. $ 97 $ 103 $ 91 ------------- ------------- ------------- ------------- ------------- -------------
The principal plans used the following actuarial assumptions for accounting purposes:
DECEMBER 31, DECEMBER 31, 1993 1992 --------------- --------------- Weighted average discount rate............................ 7.5% 8.5% Rate of increase in compensation levels................... 5.0% 5.0% Expected long-term rate of return on assets............... 9.5% 10.0%
F-27 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--RETIREMENT BENEFITS--(CONTINUED) The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets at December 31, 1993 and 1992 for RJRN's defined benefit pension plans.
U.S. PLANS FOREIGN PLANS ------------------------------------------------------------------------ ---------------------------------- DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1993 ---------------------------------- ------------------------------------ ---------------------------------- PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS BENEFITS ASSETS(1) BENEFITS ASSETS(1) BENEFITS EXCEEDED ASSETS --------------- ----------------- --------------- ------------------- ----------------- --------------- Actuarial present value of: Vested benefits...... $ 2,252 $ 272 $ 2,133 $ 80 $ 148 $ 186 Non-vested benefits.... 225 5 118 4 6 23 ------ ----- ------ --- ----- ----- Accumulated benefit obligation.. 2,477 277 2,251 84 154 209 Effect of future salary increases... 296 29 366 5 42 31 ------ ----- ------ --- ----- ----- Projected benefit obligation.. 2,773 306 2,617 89 196 240 Plan assets at fair market value......... 2,529 204 2,449 35 172 109 ------ ----- ------ --- ----- ----- Plan assets in excess of (less than) projected benefit obligation.... (244) (102) (168) (54) (24) (131) Unrecognized net (gain) loss... (68) 3 (121) (19) 17 26 Unrecognized prior service cost.......... (31) (10) (32) (13) (8) 14 ------ ----- ------ --- ----- ----- Net pension liabilities recognized in the Consolidated Balance Sheets.. $ (343) $ (109) $ (321) $ (86) $ (15) $ (91) ------ ----- ------ --- ----- ----- ------ ----- ------ --- ----- -----
DECEMBER 31, 1992 ---------------------------------- PLANS WHOSE PLANS WHOSE ASSETS EXCEEDED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEEDED ASSETS ----------------- --------------- Actuarial present value of: Vested benefits...... $ 159 $ 155 Non-vested benefits.... 6 21 ----- ----- Accumulated benefit obligation.. 165 176 Effect of future salary increases... 46 33 ----- ----- Projected benefit obligation.. 211 209 Plan assets at fair market value......... 196 88 ----- ----- Plan assets in excess of (less than) projected benefit obligation.... (15) (121) Unrecognized net (gain) loss... 11 20 Unrecognized prior service cost.......... (11) 11 ----- ----- Net pension liabilities recognized in the Consolidated Balance Sheets.. $ (15) $ (90) ----- ----- ----- -----
- --------------- (1) Of the net pension liability amounts at December 31, 1993 and 1992, $34 million and $12 million, respectively, were related to qualified plans. At December 31, 1993, approximately 99 percent of the plans' assets were invested in listed stocks and bonds and other highly liquid investments. The balance consisted of various income producing investments. In addition to providing pension benefits, RJRN provides certain health care and life insurance benefits for retired employees and their dependents. Substantially all of its regular full-time employees, including certain employees in foreign countries, may become eligible for those benefits if they reach retirement age while working for RJRN. Effective January 1, 1992, RJRN adopted SFAS No. 106. Under SFAS No. 106, RJRN is required to accrue the costs for retirees' health and other postretirement benefits other than pensions and recognize the unfunded and unrecognized accumulated benefit obligation for these benefits. RJRN had previously accrued a liability for postretirement benefits other F-28 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--RETIREMENT BENEFITS--(CONTINUED) than pensions and as a result, SFAS No. 106 did not have a material impact on RJRN's financial statements. Net postretirement health and life insurance benefit cost for 1993 consists of the following:
1993 1992 ----------- ----------- Service cost--benefits earned during the period..................................................... $ 16 $ 12 Interest cost on accumulated postretirement benefit obligation...................................... 60 58 ----- ----- Net postretirement health care cost............................................................... $ 76 $ 70 ----- ----- ----- -----
Net postretirement health and life insurance benefit costs representing accretion on the liability balance of $89 million was charged to operations for the year ended December 31, 1991. The reduction in expense in 1992 reflects the reduction of recorded liabilities by approximately $225 million at December 31, 1991 as disclosed in Note 1 to the Consolidated Financial Statements. RJRN's postretirement health and life insurance benefit plans currently are not funded. The status of the plans was as follows:
DECEMBER 31, DECEMBER 31, 1993 1992 --------------- --------------- Actuarial present value of accumulated postretirement benefit obligation: Retirees.......................................................................... $ 693 $ 598 Fully eligible active plan participants........................................... 88 135 Other active plan participants.................................................... 263 226 Unrecognized actuarial amounts...................................................... (58) -- ------ ------ Accrued postretirement health care costs............................................ $ 986 $ 959 ------ ------ ------ ------
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8% in 1993, 9% in 1994 and 10.7% in 1995 gradually declining to 6.0% by the year 2002 and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 1993 and net postretirement health care cost by approximately 7% and 8.5%, respectively. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 8.5% as of December 31, 1993 and 1992, respectively. Effective January 1, 1993, RJRN adopted SFAS No. 112. Under SFAS No. 112, RJRN is required to accrue the costs for preretirement postemployment benefits provided to former or inactive employees and recognize an obligation for these benefits. The adoption of SFAS No. 112 did not have a material impact on the financial statements of either Holdings or RJRN. F-29 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--SEGMENT INFORMATION Industry Segment Data Holdings classifies its continuing operations into two industry segments which are described in Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere herein. Summarized financial information for these operations is shown in the following tables.
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- ------------- ------------- Net sales: Tobacco........................................................... $ 8,079 $ 9,027 $ 8,540 Food.............................................................. 7,025 6,707 6,449 ------------- ------------- ------------- Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989 ------------- ------------- ------------- ------------- ------------- ------------- Operating income: Tobacco(1)(2)..................................................... $ 893 $ 2,241 $ 2,322 Food(1)(2)........................................................ 624 769 715 Headquarters (2).................................................. (139) (112) (103) ------------- ------------- ------------- Consolidated operating income.................................. $ 1,378 $ 2,898 $ 2,934 ------------- ------------- ------------- ------------- ------------- ------------- Capital expenditures: Tobacco........................................................... $ 224 $ 189 $ 200 Food.............................................................. 391 330 254 Headquarters...................................................... -- -- 5 ------------- ------------- ------------- Consolidated capital expenditures.............................. $ 615 $ 519 $ 459 ------------- ------------- ------------- ------------- ------------- ------------- Depreciation expense: Tobacco........................................................... $ 237 $ 252 $ 242 Food.............................................................. 207 197 194 Headquarters...................................................... 4 6 5 ------------- ------------- ------------- Consolidated depreciation expense.............................. $ 448 $ 455 $ 441 ------------- ------------- ------------- ------------- ------------- -------------
Assets: DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------ ------------------ Tobacco............................................................. $ 19,904 $ 20,592 Food................................................................ 11,270 11,165 Headquarters(3)..................................................... 121 284 ---------- ---------- Consolidated assets.............................................. $ 31,295 $ 32,041 ---------- ---------- ---------- ----------
- --------------- (1) Includes amortization of trademarks and goodwill for Tobacco and Food, respectively, for the year ended December 31, 1993, of $407 million and $218 million; for the year ended December 31, 1992, of $404 million and $212 million and for the year ended December 31, 1991, of $404 million and $205 million. (2) The 1993 and 1992 amounts include the effects of the restructuring expense at Tobacco (1993-- $544 million; 1992--$43 million), Food (1993--$153 million; 1992--$63 million) and Headquarters (1993--$33 million; 1992--$0), as applicable, and the sale of Holdings' ready-to-eat cold cereal business (See Note 1 to the Consolidated Financial Statements). (3) Cash and cash equivalents for the domestic operating companies are included in Headquarters' assets. F-30 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--SEGMENT INFORMATION--(CONTINUED) Geographic Data The following tables show certain financial information relating to Holdings' continuing operations in various geographic areas.
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- ------------- ------------- Net sales: United States (including U.S. export sales)....................... $ 11,570 $ 13,182 $ 12,548 Europe............................................................ 1,671 1,109 1,037 Other geographic areas............................................ 2,794 1,855 1,675 Less transfers between geographic areas(1)........................ (931) (412) (271) ------------- ------------- ------------- Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989 ------------- ------------- ------------- ------------- ------------- ------------- Operating income:(2) United States..................................................... $ 1,284 $ 2,634 $ 2,692 Europe............................................................ 40 138 117 Other geographic areas............................................ 193 238 228 Headquarters...................................................... (139) (112) (103) ------------- ------------- ------------- Consolidated operating income(3)............................... $ 1,378 $ 2,898 $ 2,934 ------------- ------------- ------------- ------------- ------------- -------------
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------ ------------------ Assets: United States....................................................... $ 27,143 $ 28,553 Europe.............................................................. 1,820 1,360 Other geographic areas.............................................. 2,211 1,844 Headquarters........................................................ 121 284 ---------- ---------- Consolidated assets.............................................. $ 31,295 $ 32,041 ---------- ---------- ---------- ---------- Liabilities of Holdings' continuing operations located in foreign countries............................................................. $ 1,689 $ 1,352 ---------- ---------- ---------- ----------
- --------------- (1) Transfers between geographic areas (which consist principally of tobacco transferred principally from the United States to Europe) are generally made at fair market value. (2) The 1993 and 1992 amounts include the effects of the restructuring expense of $730 million and $106 million, respectively, and a gain on the sale of Holdings' ready-to-eat cold cereal business ($98 million) (see Note 1 to the Consolidated Financial Statements). (3) Includes amortization of trademarks and goodwill of $625 million, $616 million and $609 million for the 1993, 1992 and 1991 periods, respectively. F-31 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for Holdings for the quarterly periods of 1993 and 1992:
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH --------- --------- --------- --------- 1993 Net sales................................................................ $ 3,736 $ 3,719 $ 3,598 $ 4,051 Operating income (loss).................................................. 683 582 431 (318) Income (loss) before extraordinary item.................................. 210 142 74 (429) Net income (loss)........................................................ 163 77 76 (461) Income (loss) before extraordinary item per common share(1).............. 0.15 0.10 0.04 (0.34) Net income (loss) per common share(1).................................... 0.12 0.05 0.04 (0.36)
FIRST SECOND THIRD FOURTH --------- --------- --------- --------- 1992 Net sales................................................................ $ 3,643 $ 3,983 $ 4,021 $ 4,087 Operating income......................................................... 664 768 763 703 Income before extraordinary item......................................... 144 209 252 171 Net income (loss)........................................................ (15) 87 182 45 Income before extraordinary item per common share(1)..................... 0.10 0.15 0.18 0.12 Net income (loss) per common share(1).................................... (0.02) 0.06 0.13 0.03
- --------------- (1) Earnings per share is computed independently for each of the periods presented; therefore, the sum of the earnings per share amounts for the quarters may not equal the total for the year. In addition, assuming that the transactions discussed in Notes 10 and 12 to the Consolidated Financial Statements had occurred on January 1, 1993 or January 1, 1992, as applicable, and the net proceeds thereof were used to redeem or to repay outstanding indebtedness, the impact on earnings per share would be anti-dilutive for the reported periods. NOTE 17--SUBSEQUENT EVENT On February 24, 1994, Holdings filed a Registration Statement on Form S-3 for a proposed offering of 300 million depositary shares, each representing a one-tenth ownership interest in a share of a newly created series of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share would mandatorily convert in three years into one share of Common Stock, subject to adjustment and subject to earlier conversion or redemption under certain circumstances. Any net proceeds of a PERCS offering may be used for general corporate purposes which may include refinancings of indebtedness, working capital, capital expenditures, acquisitions and repurchases or redemptions of securities. In addition, such proceeds may be used to facilitate one or more significant corporate transactions, such as a joint venture, merger, acquisition, divestiture, asset swap, spin-off and/or recapitalization, that would result in the separation of the tobacco and food businesses of Holdings. As of February 24, 1994, the specific uses of proceeds have not been determined. Pending such uses, any proceeds would be used to repay indebtedness under RJRN's revolving credit facilities or for short-term liquid investments. ------------------------------------ F-32 SCHEDULE II RJR NABISCO HOLDINGS CORP. SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEAR ENDED DECEMBER 31, 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------- ---------------------------- -------------- ----------------------------- ---------------------------- BALANCE AT BALANCE AT BEGINNING OF PERIOD DEDUCTIONS END OF PERIOD ---------------------------- ----------------------------- ---------------------------- NAME OF DEBTOR NOT AMOUNTS AMOUNTS NOT (EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT - ------------------------- ----------- --------------- -------------- -------------- ------------- ----------- --------------- H. J. Greeniaus.......... $ -- $ 1,787,839.91 $ 203,218.59 $ 18,189.65 $ $ -- $ 1,972,868.85 G. R. Thoman............. -- 1,712,600.00 176,238.90 -- -- 1,888,838.90 J. W. Johnston........... -- 1,520,430.30 138,906.54 -- -- 1,659,336.84 L. R. Ricciardi.......... -- 1,182,556.90 108,038.42 -- -- 1,290,595.32 D. F. Sisel.............. -- 929,151.85 84,887.33 -- -- 1,014,039.18 E. R. Croisant........... -- 919,713.07 83,873.95 81,733.22 -- 921,853.80 J. C. Schroer............ -- 1,032,497.53 83,198.35 193,842.08 -- 921,853.80 D. J. Anderson........... -- 825,608.47 75,452.76 -- -- 901,061.23 A. J. Schindler.......... -- 790,359.86 71,094.44 -- -- 861,454.30 C. W. Ehmann............. -- 675,499.50 54,673.94 -- -- 730,173.44 J. W. Farrelly........... -- 637,500.00 49,524.12 -- -- 687,024.12 B. J. Wood............... -- 506,810.10 46,302.18 -- -- 553,112.28 K. D. Langner(A)......... -- 596,126.88 44,211.82 112,197.26 -- 528,141.44 M. B. Oglesby, Jr........ -- 475,858.69 43,489.11 -- -- 519,347.80 S. R. Wilson............. -- 416,113.74 38,029.29 -- -- 454,143.03 J. C. Mitchell........... -- 388,143.68 35,617.06 6,000.00 -- 417,760.74 T. C. Griscom............ -- 337,873.40 30,868.12 -- -- 368,741.52 D. Conant................ -- 327,687.43 26,536.71 -- -- 354,224.14 H. J. Lees............... -- 306,011.01 27,966.00 -- -- 333,977.01 Y. W. Ford, Jr........... -- 295,639.23 27,009.60 -- -- 322,648.83 R. R. Gordon, Jr......... -- 295,639.23 27,009.60 -- -- 322,648.83 C. M. Sayeau............. -- 295,639.23 27,009.60 -- -- 322,648.83 W. W. Juchatz............ -- 293,376.20 29,272.62 -- -- 322,648.82 J. R. Chambers........... -- 286,693.64 26,200.76 -- -- 312,894.40 J. F. Manfredi........... -- 285,786.57 26,117.74 -- -- 311,904.31 D.N. Iauco............... -- 253,405.05 23,151.09 -- -- 276,556.14 E. J. Lang(A)............ -- 270,445.18 21,673.94 33,208.57 -- 258,910.55 R. S. Roath.............. -- 337,506.73 27,508.47 110,000.00 -- 255,015.20 P. Brown................. -- 218,458.29 17,691.14 -- -- 236,149.43 J. Willard............... -- 211,170.88 19,292.58 -- -- 230,463.46 D. L. Clark.............. -- 388,068.18 33,416.97 202,325.00 -- 219,160.15 S. Heath................. -- 194,423.04 17,766.77 -- -- 212,189.81 T. G. McBrady............ -- 193,726.48 17,704.43 -- -- 211,430.91 R. F. Sharpe, Jr......... -- 159,987.36 15,164.87 -- -- 175,152.23 M. G. DiNapoli........... -- 146,224.48 13,363.77 -- -- 159,588.25 J. A. Kuchar............. -- 146,217.84 13,363.16 -- -- 159,581.00 N. G. Jungmann........... -- 145,242.47 13,273.88 -- -- 158,516.35 J. T. Pearson............ -- 310,638.41 19,059.78 182,225.00 -- 147,473.19 S. Brown................. -- 129,375.00 10,206.81 -- -- 139,581.81 R. J. Hall............... -- 123,750.00 10,159.83 -- -- 133,909.83 J. Ford.................. -- 218,458.29 13,550.37 100,000.00 -- 132,008.66 A. H. Newton............. -- 94,049.99 8,595.44 -- -- 102,645.43 R. J. Verdon(A).......... -- 93,824.92 7,225.42 14,737.57 -- 86,312.77 K. E. Glover............. -- 146,457.86 3,860.17 121,104.10 -- 29,213.93 C. E. Becker............. -- 198,583.45 7,254.66 189,784.88 -- 16,053.23 D. B. Kalis.............. -- 486,346.55 22,823.58 509,170.13 -- -- W. B. McKnight, Jr....... -- 457,875.65 7,880.45 465,756.10 -- -- B. Thomas................ -- 267,400.65 4,600.74 272,001.39 -- -- C. A. Bachelder.......... -- 258,976.54 5,200.50 264,177.04 -- -- L. H. Kleinberg.......... -- 210,000.00 10,233.30 220,233.30 -- -- T. A. McKiernan.......... -- 155,837.92 5,122.82 160,960.74 -- -- J. Condon................ -- 210,950.00 4,733.72 215,683.72 -- -- J. A. Kirkman III........ -- 193,591.27 4,528.05 198,119.32 -- -- E. R. Marram............. -- 844,683.50 38,122.55 882,806.05 -- -- K. M. von der Heyden..... -- 1,520,430.30 119,492.02 1,639,922.32 -- -- L. V. Gerstner, Jr....... -- 2,534,050.51 208,005.40 2,742,055.91 -- --
- --------------- (A) Loan is denominated in a foreign currency. Rate fluctuations are included in the "Amounts Collected" column. The amounts presented represent loans to employees in connection with the 1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial Statements. S-1 SCHEDULE II RJR NABISCO HOLDINGS CORP. SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEAR ENDED DECEMBER 31, 1992
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------- --------------------------- -------------- ----------------------------- ----------- BALANCE AT BALANCE AT END OF BEGINNING OF PERIOD DEDUCTIONS PERIOD --------------------------- ----------------------------- ----------- NAME OF DEBTOR NOT AMOUNTS AMOUNTS (EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT - ----------------------------- ----------- -------------- -------------- ------------ --------------- ----------- L. V. Gerstner, Jr........... $ -- $ 2,341,287.00 $ 192,763.51 $ -- $ -- $ -- H. J. Greeniaus.............. -- 1,696,855.01 115,658.10 24,673.20 -- -- G. R. Thoman................. -- -- 1,712,600.00 -- -- -- J. W. Johnston............... -- 1,404,772.20 115,658.10 -- -- -- K. M. von der Heyden......... -- 1,404,772.20 115,658.10 -- -- -- L. R. Ricciardi.............. -- 1,343,278.61 100,401.51 261,123.22 -- -- J. C. Schroer................ -- 953,901.45 78,596.08 -- -- -- D. F. Sisel.................. -- 858,471.90 70,679.95 -- -- -- E. R. Croisant............... -- 966,388.85 68,324.22 115,000.00 -- -- E. R. Marram................. -- 780,429.00 64,254.50 -- -- -- D. J. Anderson............... -- 762,761.35 62,847.12 -- -- -- A. J. Schindler.............. -- 629,281.58 161,078.30 -- -- -- C. W. Ehmann................. -- -- 675,499.50 -- -- -- J. W. Farrelly............... -- -- 637,500.00 -- -- -- K. D. Langner................ -- 555,613.44 40,513.44 -- -- -- B. J. Wood................... -- 468,257.40 38,552.70 -- -- -- D. B. Kalis.................. -- 449,322.02 37,024.53 -- -- -- M. B. Oglesby, Jr............ -- 439,635.02 36,223.67 -- -- -- W. B. McKnight, Jr........... -- 423,022.71 34,852.94 -- -- -- S. R. Wilson................. -- 384,437.46 31,676.28 -- -- -- J. C. Mitchell............... -- 358,598.29 29,545.39 -- -- -- D. L. Clark.................. -- 358,528.56 29,539.62 -- -- -- T. C. Griscom................ -- 312,171.60 25,701.80 -- -- -- R. S. Roath.................. -- 384,515.70 28,632.89 75,641.86 -- -- D. Conant.................... -- -- 327,687.43 -- -- -- J. T. Pearson................ -- 286,991.69 23,646.72 -- -- -- H. J. Lees................... -- 282,717.64 23,293.37 -- -- -- Y. W. Ford, Jr............... -- 273,150.15 22,489.08 -- -- -- R. R. Gordon, Jr............. -- 273,150.15 22,489.08 -- -- -- C. M. Sayeau................. -- 273,150.15 22,489.08 -- -- -- W. W. Juchatz................ -- 333,992.36 22,489.08 63,105.24 -- -- J. R. Chambers............... -- 264,870.43 21,823.21 -- -- -- J. F. Manfredi............... -- 264,032.63 21,753.94 -- -- -- E. J. Lang................... -- 251,468.30 18,976.88 -- -- -- B. Thomas.................... -- 247,788.00 19,612.65 -- -- -- C. A. Bachelder.............. -- 239,262.45 19,714.09 -- -- -- D. N. Iauco.................. -- 234,128.70 19,276.35 -- -- -- J. Ford...................... -- -- 218,458.29 -- -- -- P. Brown..................... -- -- 218,458.29 -- -- -- J. Willard................... -- 195,107.25 16,063.63 -- -- -- J. Condon.................... -- -- 210,950.00 -- -- -- L. H. Kleinberg.............. -- 218,520.12 17,291.64 25,811.76 -- -- C. E. Becker................. -- 183,466.25 15,117.20 -- -- -- S. Heath..................... -- 179,625.99 14,797.05 -- -- -- T. G. McBrady................ -- 178,980.16 14,746.32 -- -- -- J. A. Kirkman III............ -- 178,855.27 14,736.00 -- -- -- R. F. Sharpe, Jr............. -- 182,905.47 13,611.18 36,529.29 -- -- T. A. McKiernan.............. -- 143,974.95 11,862.97 -- -- -- K. E. Glover................. -- 135,308.70 11,149.16 -- -- -- M. G. DiNapoli............... -- 135,093.14 11,131.34 -- -- -- J. A. Kuchar................. -- 135,087.00 11,130.84 -- -- -- N. G. Jungmann............... -- 134,186.11 11,056.36 -- -- -- S. Brown..................... -- -- 129,375.00 -- -- -- R. J. Hall................... -- -- 123,750.00 -- -- -- R. J. Verdon................. -- 217,284.30 3,454.24 126,913.62 -- -- F. W. Zuckerman.............. -- -- 200,000.00 200,000.00 -- -- COLUMN A NAME OF DEBTOR NOT (EMPLOYEES) CURRENT - ----------------------------- -------------- L. V. Gerstner, Jr........... $ 2,534,050.51 H. J. Greeniaus.............. 1,787,839.91 G. R. Thoman................. 1,712,600.00 J. W. Johnston............... 1,520,430.30 K. M. von der Heyden......... 1,520,430.30 L. R. Ricciardi.............. 1,182.556.90 J. C. Schroer................ 1,032,497.53 D. F. Sisel.................. 929,151.85 E. R. Croisant............... 919,713.07 E. R. Marram................. 844,683.50 D. J. Anderson............... 825,608.47 A. J. Schindler.............. 790,359.86 C. W. Ehmann................. 675,499.50 J. W. Farrelly............... 637,500.00 K. D. Langner................ 596,126.88 B. J. Wood................... 506,810.10 D. B. Kalis.................. 486,346.55 M. B. Oglesby, Jr............ 475,858.69 W. B. McKnight, Jr........... 457,875.65 S. R. Wilson................. 416,113.74 J. C. Mitchell............... 388,143.68 D. L. Clark.................. 388,068.18 T. C. Griscom................ 337,873.40 R. S. Roath.................. 337,506.73 D. Conant.................... 327,687.43 J. T. Pearson................ 310,638.41 H. J. Lees................... 306,011.01 Y. W. Ford, Jr............... 295,639.23 R. R. Gordon, Jr............. 295,639.23 C. M. Sayeau................. 295,639.23 W. W. Juchatz................ 293,376.20 J. R. Chambers............... 286,693.64 J. F. Manfredi............... 285,786.57 E. J. Lang................... 270,445.18 B. Thomas.................... 267,400.65 C. A. Bachelder.............. 258,976.54 D. N. Iauco.................. 253,405.05 J. Ford...................... 218,458.29 P. Brown..................... 218,458.29 J. Willard................... 211,170.88 J. Condon.................... 210,950.00 L. H. Kleinberg.............. 210,000.00 C. E. Becker................. 198,583.45 S. Heath..................... 194,423.04 T. G. McBrady................ 193,726.48 J. A. Kirkman III............ 193,591.27 R. F. Sharpe, Jr............. 159,987.36 T. A. McKiernan.............. 155,837.92 K. E. Glover................. 146,457.86 M. G. DiNapoli............... 146,224.48 J. A. Kuchar................. 146,217.84 N. G. Jungmann............... 145,242.47 S. Brown..................... 129,375.00 R. J. Hall................... 123,750.00 R. J. Verdon................. 93,824.92 F. W. Zuckerman.............. -- - ----------------------------
The amounts presented represent loans to employees in connection with the 1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial Statements. S-2 SCHEDULE III RJR NABISCO HOLDINGS CORP. SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------- ------------- ------------- Administrative expenses............................................. $ (8) $ (12) $ (13) Interest expense and amortization of debt issuance costs............ (23) (90) (77) Other income (expense), net......................................... 30 82 88 ------------- ------------- ------------- Income (loss) before income taxes............................ (1) (20) (2) Provision (benefit) for income taxes................................ (2) (13) (21) ------------- ------------- ------------- 1 (7) 19 Equity in income (loss) of subsidiary, net of income taxes.......... (4) 783 349 ------------- ------------- ------------- Income (loss) before extraordinary item...................... (3) 776 368 Extraordinary item--loss on early extinguishments of debt, net of income taxes (including extraordinary losses of $135 and $464 from subsidiary for 1993 and 1992, respectively)....................... (142) (477) -- ------------- ------------- ------------- Net income (loss)............................................ (145) 299 368 Less preferred stock dividends...................................... 68 31 173 ------------- ------------- ------------- Net income (loss) applicable to common stock................. (213) 268 195 Retained earnings (accumulated deficit) at beginning of period...... (738) (1,037) (1,405) Add preferred stock dividends charged to paid-in capital............ 68 31 173 ------------- ------------- ------------- Retained earnings (accumulated deficit) at end of period............ $ (883) $ (738) $ (1,037) ------------- ------------- ------------- ------------- ------------- -------------
See Notes to Condensed Financial Information. S-3 SCHEDULE III RJR NABISCO HOLDINGS CORP. SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1992 1991 ------------------ ------------- ------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income (loss).............................................. $ (145) $ 299 $ 368 ---------- ------------- ------------- Adjustments to reconcile net income (loss) to net cash flows from (used in) operating activities: Deferred income tax provision (benefit)..................... 69 (63) (58) Non-cash interest expense and amortization of debt issuance costs............................................................ 22 79 77 Extraordinary item--loss on early extinguishments of debt... 10 20 -- Equity in (income) loss of subsidiary, net of income taxes....................................... 139 (319) (349) Other, net.................................................. 70 (164) (48) ---------- ------------- ------------- Total adjustments...................................... 310 (447) (378) ---------- ------------- ------------- Net cash flows from (used in) operating activities.......... 165 (148) (10) ---------- ------------- ------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Dividends received from subsidiary............................. 48 278 -- Investment in subsidiary....................................... (1,214) -- (3,454) ---------- ------------- ------------- Net cash flows from (used in) investing activities.......... (1,166) 278 (3,454) ---------- ------------- ------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE A): Repayments of long-term debt................................... (548) (251) -- Proceeds from issuance of common stock and exercised warrants..................................................... 9 1 1,300 Proceeds from issuance of Series A Preferred Stock............. -- -- 2,126 Proceeds from issuance of Series B Preferred Stock............. 1,250 -- -- Preferred stock dividends paid................................. (241) (214) (205) Financing and advisory fees paid............................... (39) (2) (146) Repurchase of Preferred Stock.................................. (105) -- -- Repurchases and cancellations of common stock, stock options and warrants................................................. (1) (89) (4) Other, net--including intercompany transfers................... 683 425 179 ---------- ------------- ------------- Net cash flows from (used in) financing activities.......... 1,008 (130) 3,250 ---------- ------------- ------------- Net change in cash and cash equivalents..................... 7 -- (214) Cash and cash equivalents at beginning of period................. 3 3 217 ---------- ------------- ------------- Cash and cash equivalents at end of period....................... $ 10 $ 3 $ 3 ---------- ------------- ------------- ---------- ------------- -------------
See Notes to Condensed Financial Information. S-4 SCHEDULE III RJR NABISCO HOLDINGS CORP. SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------- ------------------ ASSETS Current assets: Cash and cash equivalents.............................................. $ 10 $ 3 Accounts and notes receivable.......................................... 9 23 --------- ---------- TOTAL CURRENT ASSETS........................................... 19 26 --------- ---------- Intercompany receivable (payable), net................................... (150) 607 Investment in subsidiary................................................. 9,316 8,344 Other assets and deferred charges........................................ 4 54 --------- ---------- $ 9,189 $ 9,031 --------- ---------- --------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities............................... $ 46 $ 43 Current maturities of long-term debt................................... -- 28 --------- ---------- TOTAL CURRENT LIABILITIES...................................... 46 71 --------- ---------- Long-term debt (less current maturities) (Note B)........................ -- 487 Deferred income taxes.................................................... 73 97 Commitments and contingencies (Note C)................................... Stockholders' equity: Redeemable convertible preferred stock--4,032,968 shares issued and outstanding at December 31, 1992.................................... -- 101 ESOP convertible preferred stock--15,573,973 and 15,625,000 shares issued and outstanding at December 31, 1993 and 1992, respectively........................................................ 249 250 Series A convertible preferred stock--52,500,000 shares issued and outstanding at December 31, 1993 and 1992........................... 2 2 Series B preferred stock--50,000 shares issued and outstanding at December 31, 1993................................................... 1,250 -- Common stock--1,138,011,292 and 1,134,648,542 shares issued and outstanding at December 31, 1993 and 1992, respectively............. 11 11 Paid-in capital........................................................ 8,778 9,048 Cumulative translation adjustments..................................... (102) (47) Retained earnings (accumulated deficit)................................ (883) (738) Receivable from ESOP................................................... (211) (227) Loans receivable from employees........................................ (18) (24) Unamortized value of restricted stock.................................. (6) -- --------- ---------- TOTAL STOCKHOLDERS' EQUITY..................................... 9,070 8,376 --------- ---------- $ 9,189 $ 9,031 --------- ---------- --------- ----------
See Notes to Condensed Financial Information. S-5 SCHEDULE III RJR NABISCO HOLDINGS CORP. SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION NOTE A--SUPPLEMENTAL CASH FLOWS INFORMATION For information regarding certain non-cash financing activities, see Notes 10 and 12 to the Consolidated Financial Statements. NOTE B--LONG-TERM DEBT See Note 10 to the Consolidated Financial Statements for information relating to the Converting Debentures. NOTE C--COMMITMENTS AND CONTINGENCIES Holdings has guaranteed the indebtedness of RJRN under the Credit Agreements and certain debentures. The guaranties are secured by a pledge of the capital stock of RJRN owned by Holdings. For a discussion of certain restrictive covenants associated with these debt obligations, see Note 10 to the Consolidated Financial Statements. For disclosure of additional contingent liabilities, see Note 11 to the Consolidated Financial Statements. S-6 SCHEDULE V RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - ------------------------------------------------------------------------------------------------------------------- BALANCE AT BALANCE AT BEGINNING ADDITIONS AT OTHER CHANGES END OF CLASSIFICATION OF PERIOD COST RETIREMENTS ADD (DEDUCT) PERIOD - ------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1993: Land and land improvements............... $ 277 $ 6 $ (7) $ 32 $ 308 Buildings and leasehold improvements.......................... 1,682 22 (46) 113 1,771 Machinery and equipment.................. 4,086 133 (110) 515 4,624 Construction-in-process.................. 470 462 (6) (463) 463 ----------- ---------- ------------- ---------- ----------- $ 6,515 $ 623 $ (169) $ 197 $ 7,166 ----------- ---------- ------------- ---------- ----------- ----------- ---------- ------------- ---------- ----------- Year ended December 31, 1992: Land and land improvements............... $ 270 $ 2 $ (1) $ 6 $ 277 Buildings and leasehold improvements.......................... 1,644 4 (12) 46 1,682 Machinery and equipment.................. 3,781 64 (105) 346 4,086 Construction-in-process.................. 405 449 (1) (383) 470 ----------- ---------- ------------- ---------- ----------- $ 6,100 $ 519 $ (119) $ 15 $ 6,515 ----------- ---------- ------------- ---------- ----------- ----------- ---------- ------------- ---------- ----------- Year ended December 31, 1991: Land and land improvements............... $ 264 $ 1 $ (6) $ 11 $ 270 Buildings and leasehold improvements..... 1,604 8 (12) 44 1,644 Machinery and equipment.................. 3,510 76 (118) 313 3,781 Construction-in-process.................. 403 374 -- (372) 405 ----------- ---------- ------------- ---------- ----------- $ 5,781 $ 459 $ (136) $ (4) $ 6,100 ----------- ---------- ------------- ---------- ----------- ----------- ---------- ------------- ---------- -----------
- --------------- Property, plant and equipment are depreciated principally by the straight-line method. Annual depreciation rates for new assets range principally from 5% to 7% for land improvements; 2% to 33% for buildings and leasehold improvements; and 5% to 33% for machinery and equipment. Correspondingly higher depreciation rates are applicable with respect to assets in service at February 9, 1989, the date of the acquisition by Holdings and its affiliates of RJRN. S-7 SCHEDULE VI RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------------------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER CHANGES ADD END OF CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD - -------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1993: Land and land improvements.............. $ 20 $ 5 $ -- $ -- $ 25 Buildings and leasehold improvements.... 269 68 (15) (3) 319 Machinery and equipment................. 1,368 375 (60) (29) 1,654 ----------- ------------- ------------- ------------- ----------- $ 1,657 $ 448 $ (75) $ (32) $ 1,998 ----------- ------------- ------------- ------------- ----------- ----------- ------------- ------------- ------------- ----------- Year ended December 31, 1992: Land and land improvements.............. $ 15 $ 5 $ -- $ -- $ 20 Buildings and leasehold improvements......................... 205 73 (8) (1) 269 Machinery and equipment................. 1,064 377 (45) (28) 1,368 ----------- ------------- ------------- ------------- ----------- $ 1,284 $ 455 $ (53) $ (29) $ 1,657 ----------- ------------- ------------- ------------- ----------- ----------- ------------- ------------- ------------- ----------- Year ended December 31, 1991: Land and land improvements.............. $ 10 $ 5 $ -- $ -- $ 15 Buildings and leasehold improvements.... 142 64 (2) 1 205 Machinery and equipment................. 763 372 (53) (18) 1,064 ----------- ------------- ------------- ------------- ----------- $ 915 $ 441 $ (55) $ (17) $ 1,284 ----------- ------------- ------------- ------------- ----------- ----------- ------------- ------------- ------------- -----------
S-8 SCHEDULE VIII RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------------------------------------------------------------------------------------------------------------- ADDITIONS ---------------------------- (1) (2) CHARGED CHARGED BALANCE AT TO COSTS TO OTHER BALANCE AT BEGINNING AND ACCOUNTS DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES (A) (B) PERIOD(C) - --------------------------------------------------------------------------------------------------------------------------------- Those valuation and qualifying accounts which are deducted in the balance sheet from the assets to which they apply: Year ended December 31, 1993: For discounts and doubtful accounts................. $ 84 $ 23 $ 8 $ (56) $ 59 Other assets........................................ 38 26 -- (18) 46 ------------- ------------- ------------- -------------- ------------ $ 122 $ 49 $ 8 $ (74) $ 105 ------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------- -------------- ------------ Year ended December 31, 1992: For discounts and doubtful accounts................. $ 99 $ 15 $ 3 $ (33) $ 84 Other assets........................................ 30 25 -- (17) 38 ------------- ------------- ------------- -------------- ------------ $ 129 $ 40 $ 3 $ (50) $ 122 ------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------- -------------- ------------ Year ended December 31, 1991: For discounts and doubtful accounts................. $ 70 $ 61 $ 2 $ (34) $ 99 Other assets........................................ 31 15 1 (17) 30 ------------- ------------- ------------- -------------- ------------ $ 101 $ 76 $ 3 $ (51) $ 129 ------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------- -------------- ------------
- --------------- (A) Miscellaneous adjustments. (B) Principally charges against the accounts. (C) Excludes valuation allowance accounts for deferred tax assets. S-9 SCHEDULE IX RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE IX--SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - ---------------------------------------------------------------------------------------------------------------- WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE DURING CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE THE SHORT-TERM BORROWINGS PERIOD(A) RATE(C) PERIOD PERIOD(B) PERIOD(C) - ---------------------------------------------------------------------------------------------------------------- Year ended December 31, 1993: Banks.................................... $ 301 6.11% $ 712 $ 365 8.37% Commercial paper holders(D).............. -- --% 58 33 5.84% Year ended December 31, 1992: Banks.................................... $ 280 9.45% $ 632 $ 333 9.74% Commercial paper holders(D).............. 18 6.90% 79 60 7.40% Year ended December 31, 1991: Banks.................................... $ 319 9.86% $ 639 $ 396 9.26% Commercial paper holders(D).............. 50 9.54% 63 19 9.52%
- --------------- (A) Varying maturity dates with no provision for extension at maturity. (B) Primarily daily average balance of total short-term debt. (C) Short-term interest expense as a percentage of the average balance of interest bearing short-term debt. The weighted average interest rates include nominal borrowing rates in high inflationary countries, primarily Latin America. (D) Commercial paper interest rates reflect nominal Canadian borrowing costs.
S-10 SCHEDULE X RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
COLUMN A COLUMN B - --------------------------------------------------------------------------------------------------------------------- ITEM CHARGED TO COSTS AND EXPENSES - --------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 --------- --------- --------- Maintenance and repairs.............................................................. $ 316 $ 302 $ 291 --------- --------- --------- --------- --------- --------- Advertising costs.................................................................... $ 544 $ 564 $ 657 --------- --------- --------- --------- --------- --------- Amortization of trademarks........................................................... $ 253 $ 253 $ 252 --------- --------- --------- --------- --------- --------- Amortization of goodwill............................................................. $ 372 $ 363 $ 357 --------- --------- --------- --------- --------- ---------
S-11 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- 3.1 Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed October 1, 1990 (incorporated by reference to Exhibit 3.1 to Amendment No. 4, filed on October 2, 1990, to the Registration Statement on Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-36070, filed on July 25, 1990, as amended (the "Form S-4, Registration No. 33-36070")). 3.1(a) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed January 29, 1991 (incorporated by reference to Exhibit 3.1(a) to Amendment No. 3, filed on January 31, 1991, to the Registration Statement on Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-38227). 3.1(b) Certificate of Designation of ESOP Convertible Preferred Stock, filed April 10, 1991 (incorporated by reference to Exhibit 3.1(b) to Amendment No. 2, filed on April 11, 1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp., Registration No. 33-39532, filed on March 20, 1991). 3.1(c) Certificate of Designation of Series A Conversion Preferred Stock, filed November 7, 1991 (incorporated by reference to Exhibit 3.1(c) to Amendment No. 3, filed on November 1, 1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp., Registration No. 33-43137, filed October 2, 1991 (the "Form S-1, Registration No. 33- 43137")). 3.1(d) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed December 16, 1991 (incorporated by reference to Exhibit 3.1(d) of the Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the fiscal year ended December 31, 1991, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991 Form 10-K")). 3.1(e) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed April 6, 1993 (incorporated by reference to Exhibit 3.3 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended March 31, 1993, filed April 30, 1993 (the "March 1993 Form 10-Q")). *3.1(f) Certificate of Designation of Series B Cumulative Preferred Stock. *3.1(g) A composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., as amended to August 16, 1993. *3.2 Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended, effective January 20, 1994. 3.3 Restated Certificate of Incorporation of RJR Nabisco, Inc. (incorporated by reference to Exhibit 3.9 to Amendment No. 2, filed on May 12, 1989, to the Registration Statement on Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc. and RJR Nabisco, Inc., Registration No. 33-27891, filed on April 4, 1989 (the "Form S-1, Registration No. 33-27891")). 3.3(a) Certificate of Amendment of the Certificate of Incorporation of RJR Nabisco, Inc., filed September 22, 1989 (incorporated by reference to Exhibit 3.7(b) to the Registration Statement on Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc. and RJR Nabisco, Inc., Registration No. 33-31937, filed on November 3, 1989, as amended (the "Form S-1, Registration No. 33-31937")).
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- 3.3(b) Certificate of Change of Location of Registered Office and of Registered Agent of RJR Nabisco, Inc., filed July 5, 1990 (incorporated by reference to Exhibit 3.7(b) of the Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the year ended December 31, 1990, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1990 Form 10-K")). 3.3(c) A composite of the Certificate of Incorporation of RJR Nabisco, Inc., as amended to July 5, 1990 (incorporated by reference to Exhibit 3.7(c) of the 1990 Form 10-K). *3.4 Amended and Restated By-laws of RJR Nabisco, Inc., as amended, effective January 20, 1994. 4.1 Credit Agreement dated as of December 1, 1991 among RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco Capital Corp., RJR Nabisco, Inc. and the lending institutions party thereto (the "Credit Agreement") (incorporated by reference to Exhibit 4.1 of the 1991 Form 10-K). 4.1(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992 (incorporated by reference to Exhibit 4.1(a) of the Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended December 31, 1992, File Nos. 1-10215 and 1-6388 (the "1992 Form 10-K")). 4.1(b) Second Amendment to Credit Agreement, dated as of March 4, 1993 (incorporated by reference to Exhibit 4.2 of the March 1993 Form 10-Q). 4.1(c) Third Amendment to Credit Agreement, dated as of October 12, 1993 (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended September 30, 1993, filed October 29, 1993 (the "September 1993 Form 10-Q")). 4.2 Credit Agreement dated as of April 15, 1993 among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and the lending institutions party thereto (incorporated by reference to Exhibit 4.3 of the March 1993 Form 10-Q). 4.2(a) First Amendment to Credit Agreement dated as of October 12, 1993 (incorporated by reference to Exhibit 10.1 of the September 1993 Form 10-Q). 4.3 The Registrants agree to furnish copies of any instrument defining the rights of holders of long-term debt of the Registrants and their consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrants and their consolidated subsidiaries to the Commission upon request. 10.1 Registration Rights Agreement, dated as of February 9, 1989, among RJR Holdings Corp., RJR Associates, L.P., KKR Partners II, L.P., Drexel Burnham Lambert Incorporated and Merrill Lynch & Co. (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 of RJR Holdings Corp., Registration No. 33-29401, filed on June 20, 1989, as amended (the "Form S-1, Registration No. 33-29401")). 10.2 Retirement Plan for Directors of RJR Nabisco, Inc. as amended and restated on January 1, 1989 (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1988, file number 1-6388, filed on March 9, 1989, as amended through April 14, 1989 (the "1988 Form 10-K")). 10.3 Retirement Trust Agreement, made as of October 12, 1988, between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of RJR Holdings Corp. and RJR Holdings Group, Inc., Registration No. 33-27894, filed April 5, 1989, as amended (the "Form S-4, Registration No. 33-27894")).
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- 10.4 Agreement Containing Consent Order to Cease and Desist, dated January 30, 1989, among KKR Associates, the general partners of KKR Associates, Kohlberg Kravis Roberts & Co., L.P., the general partners of Kohlberg Kravis Roberts & Co., L.P., RJR Associates, L.P., RJR Holdings Corp., RJR Holdings Group, Inc., RJR Acquisition Corporation and the Federal Trade Commission (incorporated by reference to Exhibit 10.2 to the Form S-4, Registration No. 33-27894). 10.5 Form of Employment Agreement containing Change of Control provision (incorporated by reference to Exhibit 10.8 to the Form S-4, Registration No. 33-27894). 10.6 Special Addendum to Form of Employment Agreement filed as Exhibit 10.22, dated December 20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K). 10.7 Form of Agreement containing Gross-Up provisions, dated January 27, 1989 (incorporated by reference to Exhibit 10(d)(iii) to the 1988 Form 10-K). 10.8 Trust Agreement between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A., Trustee, dated January 27, 1989 (incorporated by reference to Exhibit 10(d)(iv) to the 1988 Form 10-K). 10.9 Form of Employment Agreement Without Change of Control provision (incorporated by reference to Exhibit 10.16 to the Form S-4, Registration No. 33-27894). 10.10 Special Addendum, dated December 20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K). 10.11 Master Trust Agreement, as amended and restated as of October 12, 1988, between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit 10.18 to the Form S-4, Registration No. 33-27894). 10.11(a) Amendment No. 1 to Master Trust Agreement, dated January 27, 1989 (incorporated by reference to Exhibit 10(g)(ii) to the 1988 Form 10-K). 10.11(b) Amendment No. 2 to Master Trust Agreement, dated January 27, 1989 (incorporated by reference to Exhibit 10(g)(iii) to the 1988 Form 10-K). 10.12 Excess Benefit Master Trust Agreement, as amended and restated as of October 12, 1988, between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit 10.21 to the Form S-4, Registration No. 33-27894). 10.12(a) Amendment No. 1 to Excess Benefit Master Trust Agreement, dated January 27, 1989 (incorporated by reference to Exhibit 10(h)(ii) to the 1988 Form 10-K). 10.13 Supplemental Benefits Plan of RJR Nabisco, Inc. and Participating Companies, as amended on October 12, 1988 (incorporated by reference to Exhibit 10.25 to the Form S-4, Registration No. 33-27894). 10.13(a) Amendment to Supplemental Benefits Plan, dated November 23, 1988 (incorporated by reference to Exhibit 10(k)(ii) to the 1988 Form 10-K). 10.13(b) Amendment No. 2 to Supplemental Benefits Plan, dated January 27, 1989 (incorporated by reference to Exhibit 10(k)(iii) to the 1988 Form 10-K). 10.14 Additional Benefits Plan of RJR Nabisco, Inc. and Participating Companies, effective October 12, 1988 (incorporated by reference to Exhibit 10.28 to the Form S-4, Registration No. 33-27894). 10.14(a) Amendment to Additional Benefits Plan, dated October 28, 1988 (incorporated by reference to Exhibit 10(l)(ii) to the 1988 Form 10-K). 10.14(b) Amendment to Additional Benefits Plan, dated November 23, 1988 (incorporated by reference to Exhibit 10(1)(iii) to the 1988 Form 10-K). 10.14(c) Amendment to Additional Benefits Plan No. 3, dated January 27, 1989 (incorporated by reference to Exhibit 10(1)(iv) to the 1988 Form 10-K).
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- 10.15 RJR Nabisco, Inc. Supplemental Executive Retirement Plan, as amended on July 21, 1988 (incorporated by reference to Exhibit 10.32 to the Form S-4, Registration No. 33-27894). 10.15(a) Amendment to Supplemental Executive Retirement Plan, dated November 23, 1988 (incorporated by reference to Exhibit 10(m)(ii) to the 1988 Form 10-K). 10.15(b) Amendment No. 2 to Supplemental Executive Retirement Plan, dated January 27, 1989 (incorporated by reference to Exhibit 10(m)(iii) to the 1988 Form 10-K). *10.15(c) Amendment to Supplemental Executive Retirement Plan, dated April 10, 1993. 10.16 Stock Option Plan for Directors and Key Employees of RJR Holdings Corp. and Subsidiaries, dated as of July 21, 1989 (incorporated by reference to Exhibit 10.71 to the Form S-1, Registration No. 33-29401). 10.17 Form of Common Stock Subscription Agreement between RJR Holdings Corp. and the purchaser named therein (incorporated by reference to Exhibit A to Post-Effective Amendment No. 2, filed on August 21, 1989, to the Form S-1, Registration No. 33-29401 (the "Post-Effective Amendment No. 2 to the Form S-1, Registration No. 33-29401")). 10.18 Form of Non-Qualified Stock Option Agreement between RJR Holdings Corp. and the optionee named therein (incorporated by reference to Exhibit B to Post-Effective Amendment No. 2 to the Form S-1, Registration No. 33-29401). *10.19 Form of Non-Qualified Stock Option Agreement, dated December 31, 1993, between RJR Nabisco Holdings Corp. and Charles M. Harper. 10.20 Employment Agreement, dated May 27, 1993, by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Charles M. Harper (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended June 30, 1993, filed August 3, 1993 (the "June 1993 Form 10-Q")). 10.21 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference to Exhibit 10.2 of the June 1993 Form 10-Q). 10.22 Employment Agreement, dated July 19, 1993, by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Lawrence R. Ricciardi (incorporated by reference to Exhibit 10.3 of the June 1993 Form 10-Q). 10.23 Letter Agreement, dated July 27, 1989, between RJR Holdings Corp. and Lawrence R. Ricciardi (incorporated by reference to Exhibit 10.71 to the Form S-1, Registration No. 33-31937). *10.24 Letter Agreement, dated Janaury 20, 1994, between RJR Nabisco Holdings Corp. and Lawrence R. Ricciardi. 10.25 Amended and Restated Employment Agreement, dated as of September 1, 1993, by and among R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Mr. James W. Johnston (incorporated by reference to Exhibit 10.2 to the September 1993 Form 10-Q). 10.26 Letter Agreement, dated March 30, 1993, between RJR Nabisco, Inc. and Eugene R. Croisant (incorporated by reference to Exhibit 10.4 to the March 1993 Form 10-Q). 10.27 Equity Securities Purchase Agreement dated as of July 15, 1990 between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.4 to the Form S-4, Registration No. 33-36070). 10.28 Registration Rights Agreement (Common Stock), dated as of July 15, 1990, between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.5 to the Form S-4, Registration No. 33-36070).
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- 10.29 Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the March 1993 Form 10-Q). 10.30 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and purchaser named therein (1991 Grant) (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 of RJR Nabisco Holdings Corp., Registration No. 33-39791, filed on April 5, 1991 (the "Form S-8, Registration No. 33-39791"). 10.31 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior executive optionee named therein (1991 Grant) (incorporated by reference to Exhibit 4.4(a) to Form S-8, Registration No. 33-39791). 10.32 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the executive or management optionee named therein (1991 Grant) (incorporated by reference to Exhibit 4.4(b) to Form S-8, Registration No. 33-39791). 10.33 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco Holdings Corp. (1991 Grant) (incorporated by reference to Exhibit 4.5 to Form S-8, Registration No. 33-39791). *10.33(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1991 Grant). 10.34 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and the purchaser named therein (1992 Grant) (incorporated by reference to Exhibit 10.34 of the 1991 Form 10-K). 10.35 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior executive optionee named therein (1992 Grant/cycle) (incorporated by reference to Exhibit 10.35 of the 1991 Form 10-K). 10.36 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior executive optionee named therein (1992 Grant/5-year) (incorporated by reference to Exhibit 10.36 of the 1991 Form 10-K). 10.37 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the executive or management optionee named therein (1992 Grant) (incorporated by reference to Exhibit 10.37 of the 1991 Form 10-K). *10.38 Form of Restated Non-Qualified Stock Option Agreement under the 1990 Long Term Incentive Plan, between RJR Nabisco Holdings Corp. and the optionee named therein. 10.39 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the optionee name therein (1993 Grant) (incorporated by reference to Exhibit 10.39 of the 1992 Form 10-K). 10.40 Performance Share Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (incorporated by reference to Exhibit 10.40 of the 1992 Form 10-K). 10.41 Form of Performance Share Agreement between RJR Nabisco Holdings Corp. and the grantee named therein (1993 Grant) (incorporated by reference to Exhibit 10.41 of the 1992 Form 10-K). *10.42 Restricted Stock Program under the 1990 Long Term Incentive Plan. 10.43 Form of Restricted Stock Agreement under the 1990 Long Term Incentive Plan between RJR Nabisco Holdings Corp. and the grantee named therein (1993 Grant) (incorporated by reference to Exhibit 10.1 the March 1993 Form 10-Q). *10.44 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan, between RJR Nabisco Holdings Corp. and the grantee named therein (3 year).
EXHIBIT SEQUENTIAL NO. PAGE NO. - ------------ --------------- *10.45 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan, between RJR Nabisco Holdings Corp. and the grantee named therein (4 year). 10.46 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the Consultant named therein (1991 Grant) (incorporated by reference to Exhibit 10.42 of the 1992 Form 10-K). 10.47 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco Holdings Corp. (1992 Grant) (incorporated by reference to Exhibit 10.38 of the 1991 Form 10-K). *10.47(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992 Grant). 10.48 Registration Rights Agreement (Preferred Stock), dated as of July 15, 1990, between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.6 to the Form S-4, Registration No. 33-36070). 10.49 Preferred Stock Exchange Agreement dated as of October 1, 1990 between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.8 to the Form S-4, Registration No. 33-36070). *11. RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended December 31, 1993, 1992 and 1991. *12. RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges/Deficiency in the Coverage of Fixed Charges by Earnings before Fixed Charges for each of the periods within the five year period ended December 31, 1993. *21. Subsidiaries of the Registrants. *23. Consent of Independent Auditors. *24. Powers of Attorney.
- --------------- *Filed herewith. EX-3.1(F) 2 RJR NABISCO HOLDINGS CORP. CERTIFICATE OF DESIGNATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- SERIES B CUMULATIVE PREFERRED STOCK RJR Nabisco Holdings Corp. (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, HEREBY CERTIFIES that pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware the following resolution was duly adopted by the Board of Directors of the Corporation, pursuant to authority conferred upon the Board of Directors by the provisions of the Amended and Restated Certificate of Incorporation, as amended, of the Corporation (the "Certificate of Incorporation"): WHEREAS, the Board of Directors by Section 141(c) of the General Corporation Law of the State of Delaware, by the Certificate of Incorporation, by Article II, Section 4 of the By-Laws of the Corporation and by the resolutions of the Board of Directors of the Corporation dated August 11, 1993 is authorized, within the limitations and restrictions stated in the Certificate of Incorporation, to fix, by resolution or resolutions for each series of Preferred Stock (the "Preferred Stock"), the number of shares constituting such series and the designations and powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limiting the generality of the foregoing, such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors under the General Corporation Law of the State of Delaware; and WHEREAS, the Board of Directors of the Corporation on August 11, 1993 adopted resolutions authorizing a new series of Preferred Stock to be designated as Series B Cumulative Preferred Stock; and WHEREAS, it is the desire of the Board of Directors to fix the number of shares constituting a series of Preferred Stock and the designations and powers, preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions of such series as set forth below. 2 NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series of Preferred Stock on the terms and with the provisions herein set forth: 1. Designation. The designation of the series of Preferred Stock authorized by this resolution shall be "Series B Cumulative Preferred Stock" (the "Series B Preferred Stock") consisting of 50,000 shares. The stated value of the Series B Preferred Stock shall be $25,000 per share, which value does not represent a determination by the Board of Directors for the purposes of the capital accounts. 2. Rank. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution and winding up, rank prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation and on a parity with the Cumulative Convertible Preferred Stock, par value $0.01 per share and stated value $25.00 per share (the "Cumulative Convertible Preferred Stock"), the ESOP Convertible Preferred Stock, par value $0.01 per share and stated value $16.00 per share (the "ESOP Convertible Preferred Stock"), and the Series A Conversion Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), of the Corporation. All equity securities of the Corporation to which the Series B Preferred Stock ranks prior, including the Common Stock, are collectively referred to herein as the "Junior Securities," all equity securities of the Corporation with which the Series B Preferred Stock ranks on a parity, including the Cumulative Convertible Preferred Stock, the ESOP Convertible Preferred Stock and the Series A Preferred Stock, are collectively referred to herein as the "Parity Securities" and all equity securities of the Corporation (other than convertible debt securities) to which the Series B Preferred Stock ranks junior, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, are collectively referred to herein as the "Senior Securities." The Series B Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. 3. Dividends. (i) The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate per annum of 9 1/4% of the stated value ($25,000) per share and no more, payable in arrears on the first business day of each March, June, September and December, commencing December 1, 1993 (each of such dates being a "Dividend Payment Date"). If any Dividend Payment Date shall be or be declared a national or New York State holiday or if banking institutions in the State of New York shall be closed because of a banking moratorium or otherwise on such date, then the Dividend Payment Date shall be on the next succeeding day on which such banks shall be open. Each such dividend shall be payable to holders of record as they appear on the stock books of the 3 Corporation at the close of business on each record date, which shall be the 15th day immediately preceding each such Dividend Payment Date (each of such dates being a "Dividend Payment Record Date"). Each of such quarterly dividends shall be fully cumulative and shall accrue (whether or not declared) on a daily basis, without interest, from the previous Dividend Payment Date, except that the first dividend shall accrue, without interest, from the date of initial issuance of the Series B Preferred Stock. Accrued and unpaid dividends shall not bear interest. Dividends will cease to accrue in respect of the Series B Preferred Stock on the date of their earlier redemption pursuant to paragraph (4), unless the Corporation shall default in providing funds for the payment of the redemption price of the shares called for redemption pursuant to paragraphs (4) and (5). Dividends payable on the Series B Preferred Stock for the first dividend period and any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. (ii) No full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment on the Series B Preferred Stock through the most recent Dividend Payment Date. If any dividends are not paid or set apart in full, as aforesaid, upon the shares of the Series B Preferred Stock and any Parity Securities, all dividends declared upon shares on the Series B Preferred Stock and any Parity Securities shall be declared pro rata so that the amount of dividends declared per share on the Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other. Unless full cumulative dividends, if any, accrued on all outstanding shares of the Series B Preferred Stock have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment through the most recent Dividend Payment Date, no dividend shall be declared or paid or set apart for payment or other distribution declared or made on any Junior Securities (other than a dividend or distribution paid in shares of, or warrants, rights or options exercisable for or convertible into, any Junior Securities), nor shall any Junior Securities be redeemed, purchased or otherwise retired for any consideration, nor may any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such securities, by the Corporation (other than redemptions and purchases pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its subsidiaries' directors, officers and key employees), except by conversion into or exchange for Junior Securities. Holders of the shares of the Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in 4 excess of full cumulative dividends as provided in paragraph 3(i). (iii) Subject to the foregoing provisions of this paragraph (3), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities or Parity Securities, and may redeem, purchase, or otherwise retire any Junior Securities, and the holders of the shares of the Series B Preferred Stock shall not be entitled to share therein. (iv) Any dividend payment made on shares of the Series B Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of the Series B Preferred Stock. (v) All dividends paid with respect to shares of the Series B Preferred Stock pursuant to this paragraph (3) shall be paid pro rata to the holders entitled thereto. (vi) Holders of shares of the Series B Preferred Stock shall be entitled to receive the dividends provided for in this paragraph (3) in preference to and in priority over any dividends upon any of the Junior Securities. 4. Redemption. (i) The shares of the Series B Preferred Stock shall not be redeemable prior to August 18, 1998. On and after August 18, 1998, the Corporation, at its option, may redeem shares of the Series B Preferred Stock, as a whole or in part, at any time or from time to time, at a redemption price per share of $25,000, plus, in each case, an amount equal to accrued and unpaid dividends thereon to the date fixed for redemption, without interest, to the extent the Corporation shall have funds legally available for such payment. (ii) So long as any shares of the Series B Preferred Stock are outstanding, any repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Parity Securities) must be made on a pro rata basis with the Series B Preferred Stock so that the total redemption prices of the shares redeemed of Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that the total redemption prices of all shares outstanding on the applicable date of Series B Preferred Stock and such Parity Securities bear to each other, unless prior to or concurrently with such repurchase, redemption or other retirement, as the case may be, all accrued and unpaid dividends on shares of the Series B Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including accrued dividends not paid by reason of the terms and conditions 5 of paragraph (3)(i) or paragraph (3)(ii) hereof) shall have been or be paid. (iii) The holders of shares of Series B Preferred Stock at the close of business on a Dividend Payment Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the call for redemption thereof (except that holders of shares called for redemption on a date occurring between such Record Date and the Dividend Payment Date shall not be entitled to receive such dividend on such Dividend Payment Date) or the Corporation's default in payment of the dividend due on such Dividend Payment Date. (iv) Shares of Series B Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock. 5. Procedure for Redemption. (i) In the event that fewer than all the outstanding shares of Series B Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other means determined by the Board of Directors in its sole discretion to be equitable, except the Corporation may redeem all shares held by any holders of a number of shares not to exceed 100, including all shares held by holders who, after giving effect to such redemption, would hold less than 100 shares, as may be specified by the Corporation. (ii) In the event the Corporation shall redeem shares of Series B Preferred Stock, written notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Series B Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to mail said notice or except as to the holder whose notice was defective. Each such notice shall state: (a) the redemption date; (b) the number of shares of Series B Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (c) the redemption price including an amount equal to any accrued and unpaid dividends to the redemption date; (d) the place or places where certificates for such shares are to be surrendered for 6 payment of the redemption price; and (e) that dividends on the shares to be redeemed will cease to accrue on such redemption date (unless the Corporation shall default in providing funds for the payment of the redemption price of the shares called for redemption at the time and place specified in such notice). (iii) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing funds for the payment of the redemption price of the shares called for redemption), notwithstanding that the certificates evidencing any shares of Series B Preferred Stock so called for redemption shall not have been surrendered, dividends on the shares of Series B Preferred Stock so called for redemption shall cease to accrue and shall be redeemed and, upon the taking of any action required by applicable law, said shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock, undesignated as to series, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price and any accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid plus an amount equal to any accrued and unpaid dividends, without interest. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (iv) The Corporation's obligation to provide funds for the payment of the redemption price (including an amount equal to any accrued and unpaid dividends to the redemption date) of the shares called for redemption shall be deemed fulfilled if, on or before a redemption date, the Corporation shall deposit, with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City and having a capital and surplus of at least $50,000,000, such funds sufficient to pay the redemption price (including an amount equal to any accrued and unpaid dividends to the redemption date) of the shares called for redemption, in trust for the account of the holders of the shares to be redeemed (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such funds be delivered upon redemption of the shares of Series B Preferred Stock so called for redemption. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so deposited and unclaimed at the end of two years from such redemption date shall be repaid and released to the Corporation, after which the holder or holders of such shares of Series B Preferred Stock so called for redemption shall look only to the Corporation for delivery of such funds. 7 6. Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after payment or provision for payment of any Senior Securities, an amount per share of Series B Preferred Stock in cash equal to the sum of $25,000 plus an amount equal to all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities in connection with such liquidation, dissolution or winding up. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series B Preferred Stock and any Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series B Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. Except as provided in this paragraph (6)(i), holders of Series B Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (ii) For the purposes of this paragraph (6), neither the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other corporations nor the consolidation or merger of one or more corporations with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up. 7. Voting Rights. (i) The holders of record of shares of Series B Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (7) or as otherwise provided by law. (ii) (a) If at any time or times dividends payable on all series of Preferred Stock, including the Series B Preferred Stock, shall be in arrears and unpaid for the six quarterly periods, then the number of directors constituting the Board of Directors, without further action, shall be increased by two (2) and the holders of shares of Series B Preferred Stock shall have the right, together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), to elect the directors of the Corporation to fill such newly created directorships, the remaining directors to be elected by the other class or classes of stock entitled to vote therefor, at each meeting of stockholders held for the purpose of electing 8 directors; provided, that in no event shall such holders have the right to elect more than 25% of the total number of directors of the Corporation; provided, further, that, notwithstanding the foregoing proviso, such holders shall have the right to elect not less than one director pursuant to this paragraph (7)(ii)(a). (b) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Series B Preferred Stock together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. Such voting right shall continue until such time as all cumulative dividends accumulated on all outstanding series of Preferred Stock shall have been paid in full or declared and set aside for payment in full, at which time such voting right of such holders shall terminate, subject to revesting in the event of each and every subsequent failure of the Corporation to pay dividends for the requisite number of quarters as described above. (c) At any time when such voting right shall have vested in the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) and if such right shall not already have been initially exercised, a proper officer of the Corporation shall, upon the written request of 10% of the holders of record of shares of such series of Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of holders of shares of such series of Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the shares of such series of Preferred Stock then outstanding may designate in writing a holder of shares of such series of Preferred Stock to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph (7)(ii)(c). Any holder of shares of such series of Preferred Stock that would be entitled to vote at such meeting shall have access to the stock 9 books of the Corporation for such series of Preferred Stock for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called during a period within 90 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of at least a majority of the then outstanding shares of such series of Preferred Stock shall be required and be sufficient to constitute a quorum of such series for the election of directors by such series. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of shares of such series of Preferred Stock shall not prevent the election of directors other than those to be elected by the holders of stock of such series of Preferred Stock and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of shares of such series of Preferred Stock and (y) in the absence of a quorum of the holders of shares of such series of Preferred Stock, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of shares of such series of Preferred Stock may be entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (e) The term of office of all directors elected by the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) pursuant to paragraph (7)(ii)(a) in office at any time when the aforesaid voting rights are vested in the holders of shares of such series of Preferred Stock shall terminate upon the election of their successors at any meeting of stockholders for the purpose of electing directors. Upon any termination of the aforesaid voting rights in accordance with paragraph (7)(ii)(b), the term of office of all directors elected by the holders of shares of such series of Preferred Stock pursuant to paragraph (7)(ii)(a) then in office shall thereupon terminate and upon such termination the number of directors constituting the Board of Directors shall, without further action, be reduced by two (2) (or such other lesser number by which the number of directors constituting the Board of Directors shall have been increased pursuant to paragraph (7)(ii)(a) hereof), subject always to the increase of the number of directors pursuant to paragraph (7)(ii)(a) in case of the future right of the holders of shares of such series of Preferred Stock to elect directors as provided herein. 10 (f) In case of any vacancy occurring among the directors elected pursuant to paragraph (7)(ii)(a), the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant. If all directors so elected by the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) shall cease to serve as directors before their terms shall expire, the holders of shares of such series of Preferred Stock then outstanding may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of the directors whose places shall be vacant. (iii) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Parity Securities. (iv) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66- 2/3% of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Senior Securities or designate a new series of Senior Securities from an existing class of Preferred Stock. (v) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66- 2/3% of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, amend the Certificate of Incorporation or this 11 Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting power of holders of shares of Series B Preferred Stock. (vi) Except as set forth in paragraph (7)(iii) and paragraph (7)(iv) above, the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, the creation of any indebtedness of any kind of the Corporation, or the increase or decrease in the amount of authorized capital stock of any class, including Preferred Stock, shall not require the consent of the holders of Series B Preferred Stock and shall not be deemed to affect materially and adversely the rights, preferences, privileges or voting power of holders of shares of Series B Preferred Stock. (vii) When voting together as one class with the holders of any other series of Preferred Stock, the holders of Series B Preferred Stock shall be entitled to 1,000 votes per share. 8. Increase in Shares. The number of shares of Series B Preferred Stock may, to the extent of the Corporation's authorized and unissued Preferred Stock, be increased by further resolution duly adopted by the Board of Directors and the filing of a certificate of increase with the Secretary of State of the State of Delaware. 12 9. Limitations. Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this resolution (as such resolution may be amended from time to time) or otherwise in the Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has caused this Certificate of Designation to be made under the seal of the Corporation signed by Robert F. Sharpe, Jr., its Vice President and Secretary, and attested by Suzanne P. Jenney, its Assistant Secretary, this __th day of August, 1993. RJR NABISCO HOLDINGS CORP. By:________________________________ Robert F. Sharpe, Jr. Vice President and Secretary [SEAL] Attested: By:_________________________ Suzanne P. Jenney Assistant Secretary EX-3.1(G) 3 [Composite, as amended to and including August 16, 1993] AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF RJR NABISCO HOLDINGS CORP. (Originally incorporated as RJR Holdings Corp. on October 25, 1988) ARTICLE FIRST The name of the Corporation is RJR Nabisco Holdings Corp. ARTICLE SECOND The registered office and registered agent of the Corporation is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, Delaware 19901. ARTICLE THIRD The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE FOURTH The total number of shares of capital stock that the Corporation is authorized to issue is 2,350,000,000 shares of which 2,200,000,000 shares are Common Stock, par value $.01 each, and 150,000,000 shares of which are shares of preferred stock, par value $.01 each (hereinafter referred to as "Preferred Stock"). The Preferred Stock may be issued from time to time in one or more series with such distinctive designations as may be stated in resolution or resolutions providing for the issue of such stock from time to time adopted by the Board of Directors or a duly authorized committee thereof. The resolution or resolutions providing for the issue of shares of a particular series shall fix, subject to applicable laws and the provisions of this ARTICLE FOURTH, for each such series the number of shares constituting such series and the designations and powers, 2 preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limiting the generality of the foregoing, such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors or a duly authorized committee thereof under the General Corporation Law of the State of Delaware. The number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware or any corresponding provision hereinafter enacted. The following is a statement of the number, designation, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Cumulative Convertible Preferred Stock of the Corporation: (1) Designation. The designation of the series of Preferred Stock authorized by this resolution shall be "Cumulative Convertible Preferred Stock" (the "Cumulative Convertible Preferred Stock") consisting of 75,000,000 shares. The stated value of the Cumulative Convertible Preferred Stock shall be $25.00 per share, which value does not represent a determination by the Board of Directors for the purposes of the capital accounts. (2) Rank. The Cumulative Convertible Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation. (All equity securities of the Corporation to which the Cumulative Convertible Preferred Stock ranks prior, including the Common Stock, are collectively referred to herein as the "Junior Securities", all equity securities of the Corporation with which the Cumulative Convertible Preferred Stock ranks on a parity are collectively referred to herein as the "Parity Securities" and all equity securities of the Corporation (other than convertible debt securities) to which the Cumulative Convertible Preferred Stock ranks junior, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, are collectively referred to herein as the "Senior Securities.") The Cumulative Convertible Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (3) Dividends. (i) The holders of the shares of Cumulative Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out 3 of funds legally available for the payment of dividends, cumulative dividends at the rate of 11.5% of the stated value ($2.875) per share per annum, and no more. Such dividends shall be payable in quarterly payments on January 15, April 15, July 15 and October 15 of each year commencing with January 15, 1991 (each of such dates being a "dividend payment date"), in preference to dividends on the Junior Securities. Such dividends shall be paid to the holders of record at the close of business on the tenth business day immediately preceding each dividend payment date (each of such dates being a "dividend payment record date"). Each of such quarterly dividends shall be fully cumulative and shall accrue (whether or not declared), without interest, from the previous dividend payment date, except that with respect to the first dividend, such dividend shall accrue from the date of initial issuance; provided, however, that, in the event of an exchange transaction before the initial dividend payment date whereby outstanding shares of Cumulative Convertible Preferred Stock are exchanged by the Corporation for new shares of Cumulative Convertible Preferred Stock, dividends shall accrue on shares of Cumulative Convertible Preferred Stock issued in the exchange transaction from the date of initial issuance of the shares of Cumulative Convertible Preferred Stock for which such new shares of Cumulative Convertible Preferred Stock are being exchanged. Dividends payable for the first dividend period and any partial dividend period shall be calculated on the basis of a 360-day year and the actual number of days elapsed in the period for which payable. (ii) All dividends paid with respect to shares of the Cumulative Convertible Preferred Stock pursuant to paragraph (3)(i) shall be paid pro rata to the holders entitled thereto. (iii) No full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment on the Cumulative Convertible Preferred Stock for all dividend payment periods terminating on or prior to the date of payment, or setting apart for payment, of such full dividends on such Parity Securities. If any dividends are not paid in full, as aforesaid, upon the shares of the Cumulative Convertible Preferred Stock and any other Parity Securities, all dividends declared upon shares of the Cumulative Convertible Preferred Stock and any other Parity Securities shall be declared pro rata so that the amount of dividends declared per share of the Cumulative Convertible Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Cumulative Convertible Preferred Stock and such Parity Securities bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Cumulative Convertible Preferred Stock or any other Parity Securities which may be in 4 arrears. Any dividend not paid pursuant to paragraph (3)(i) hereof or this paragraph (3)(iii) shall be fully cumulative and shall accrue (whether or not declared), without interest, as set forth in paragraph (3)(i) hereof. (iv) (a) Holders of shares of the Cumulative Convertible Preferred Stock shall be entitled to receive the dividends provided for in paragraph (3)(i) hereof in preference to and in priority over any dividends upon any of the Junior Securities. (b) So long as any shares of the Cumulative Convertible Preferred Stock are outstanding, the Board of Directors shall not declare, and the Corporation shall not pay or set apart for payment any dividend on any of the Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the repurchase, redemption or other retirement of, any of the Junior Securities or Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Junior Securities or Parity Securities (other than purchases or redemptions pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its subsidiaries' directors, officers and key employees and other than the repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities made pursuant to the requirements of paragraph (5)(iii) hereof and other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any of the Junior Securities or Parity Securities), or make any distribution in respect of the Junior Securities, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property (other than distributions or dividends in Junior Securities to the holders of Junior Securities), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Securities or Parity Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities or Parity Securities (other than purchases or redemptions pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its subsidiaries' directors, officers and key employees and other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any of the Junior Securities or Parity Securities) unless prior to or concurrently with such declaration, payment, setting apart for payment, repurchase, redemption or other retirement or distribution, as the case may be, all accrued and unpaid dividends on shares of the Cumulative Convertible Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including accrued dividends not paid by 5 reason of the terms and conditions of paragraph (3)(i) or paragraph (3)(iii) hereof) shall have been or be paid. (v) Subject to the foregoing provisions of this paragraph (3), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities or Parity Securities, and may repurchase, redeem or otherwise retire any of the Junior Securities or Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Junior Securities or Parity Securities, and the holders of the shares of the Cumulative Convertible Preferred Stock shall not be entitled to share therein. (4) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of Cumulative Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to $25.00 for each share outstanding, plus an amount in cash equal to all accrued but unpaid dividends thereon to the date of liquidation, dissolution or winding up before any payment shall be made or any assets distributed to the holders of any of the Junior Securities. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Cumulative Convertible Preferred Stock and any Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Cumulative Convertible Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. Except as provided in this paragraph (4)(i), holders of Cumulative Convertible Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (ii) For the purposes of this paragraph (4), neither the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other corporations nor the consolidation or merger of one or more corporations with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up. (5) Redemption. (i) The Corporation may redeem at its option the Cumulative Convertible Preferred Stock, at any time in whole or from time to time in part after the date that is three years after the Expiration Date (as hereinafter defined), at the redemption price per share set forth below, together with 6 accrued and unpaid dividends thereon to the date of redemption, without interest, to the extent the Corporation shall have funds legally available for such payment. If redeemed during the 12 month period beginning on the anniversary of the Expiration Date in each of the years set forth below, the redemption price per share shall be as follows: Year Redemption Price Per Share ---- -------------------------- 1993 $27.0125 1994 26.7250 1995 26.4375 1996 26.1500 1997 25.8625 1998 25.5750 1999 25.2875 2000 and thereafter 25.0000 As used herein, the term "Expiration Date" shall mean the earlier to occur of (i) the expiration date of the Corporation's offer to exchange Senior Converting Debentures Due 2009 of the Corporation (the "Converting Debentures") and (ii) the expiration date of the Corporation's offer to exchange Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings Group, Inc., in each case for consideration including shares of Cumulative Convertible Preferred Stock (each an "Exchange Offer"); provided, however, that until an expiration date of one of the Exchange Offers, "Expiration Date" shall mean the date of initial issuance of the Cumulative Convertible Preferred Stock. (ii) So long as any shares of the Cumulative Convertible Preferred Stock are outstanding, any repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Parity Securities) must be made on a pro rata basis with the Cumulative Convertible Preferred Stock so that the total redemption prices of the shares redeemed of Cumulative Convertible Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that the total redemption prices of all shares outstanding on the applicable date of Cumulative Convertible Preferred Stock and such Parity Securities bear to each other, unless prior to or concurrently with such repurchase, redemption or other retirement, as the case may be, all accrued and unpaid dividends on shares of the Cumulative Convertible Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including accrued dividends not paid by reason of the terms and conditions of paragraph (3)(i) or paragraph (3)(iii) hereof) shall have been or be paid. 7 (iii) Shares of Cumulative Convertible Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged or converted, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock; provided, however, that shares of Cumulative Convertible Preferred Stock acquired in an exchange transaction for outstanding shares of Cumulative Convertible Preferred Stock concluded before the initial dividend payment date shall continue to have the status of authorized and unissued shares of the series of the Cumulative Convertible Preferred Stock and may be reissued immediately as part of such series of Preferred Stock in connection with such exchange or otherwise. (6) Procedure for Redemption. (i) In the event that fewer than all the outstanding shares of Cumulative Convertible Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected pro rata, except that in any redemption of fewer than all the outstanding shares of Cumulative Convertible Preferred Stock, the Corporation may redeem all shares held by any holders of a number of shares not to exceed 100, including all shares held by holders who, after giving effect to such redemption, would hold less than 100 shares, as may be specified by the Corporation. (ii) In the event the Corporation shall redeem shares of Cumulative Convertible Preferred Stock, written notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Cumulative Convertible Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (a) the redemption date; (b) the number of shares of Cumulative Convertible Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (c) the redemption price; (d) that shares of Cumulative Convertible Preferred Stock called for redemption may be converted in accordance with, and subject to the terms of, paragraph (7) hereof at any time prior to the date fixed for redemption (unless the Corporation shall default in payment of the redemption price, in which case such right shall not terminate at such date); (e) the place or places where certificates for such shares are to be surrendered for payment of 8 the redemption price; and (f) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (iii) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price of the shares called for redemption) dividends on the shares of Cumulative Convertible Preferred Stock so called for redemption shall cease to accrue and said shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock, undesignated as to series, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price and any accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid plus any accrued and unpaid dividends, without interest. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (7) Conversion. (i) Upon the terms and in the manner set forth in this paragraph (7) and subject to the provisions for adjustment contained in paragraph (7)(vii), each share of the Cumulative Convertible Preferred Stock shall be convertible, at the option of the holder thereof at any time after the date that is 180 days after the Expiration Date or such earlier date as provided in paragraph (7)(ii), upon surrender to the Corporation of the certificates for the shares to be converted, into a number of fully paid and nonassessable shares of Common Stock equal to the aggregate stated value of the Cumulative Convertible Preferred Stock to be converted divided by a conversion price (the "Conversion Price") of $9.00; provided, however, that the right to convert shares of Cumulative Convertible Preferred Stock that have been called for redemption pursuant to paragraph (5) and paragraph (6) shall terminate at the close of business on the dated fixed for redemption, unless the Corporation shall default in making payment of the amount payable upon such redemption. (ii) If, prior to the date that is 180 days after the Expiration Date, there occurs a sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation or a consolidation or merger of the Corporation with or into another corporation, in which the shares of Common Stock are converted into cash, assets or securities, the time when the conversion rights of holders of shares of Cumulative Convertible Preferred Stock become effective shall be accelerated and such conversion rights shall be effective at and 9 after a time at least 20 business days prior to the consummation of such transaction. (iii) In order to convert shares of the Cumulative Convertible Preferred Stock, the holder thereof shall (a) deliver a properly completed and duly executed written notice of election to convert specifying the number (in whole shares) of the shares of the Cumulative Convertible Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued to the Corporation at its principal office or at the office of the agency which may be maintained for such purpose (the "Conversion Agent"), (b) surrender the certificate for such shares of Cumulative Convertible Preferred Stock to the Corporation or the Conversion Agent, accompanied, if so required by the Corporation or the Conversion Agent, by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation or the Conversion Agent duly executed by the holder or his attorney duly authorized in writing, and (c) pay any transfer or similar tax required by paragraph (7)(ix). (iv) (a) Conversion shall be deemed to have been effected at the close of business on the date (the "Conversion Date") on which the Corporation or the Conversion Agent shall have received the notice of election to convert, the surrendered certificate, any required payments and all other required documents. Immediately upon conversion, the rights of the holders of converted shares of Cumulative Convertible Preferred Stock shall cease and the persons entitled to receive the shares of Common Stock upon the conversion of such shares of Cumulative Convertible Preferred Stock shall be treated for all purposes as having become the beneficial owners of such shares of Common Stock; provided, however, that such persons shall be entitled to receive when paid dividends accrued on such shares of Cumulative Convertible Preferred Stock to the last preceding dividend payment date and unpaid as of the date of such conversion. Conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record of the Common Stock at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice and any required payments received by the Corporation. (b) As promptly as practicable after the Conversion Date, the Corporation shall deliver or cause to be delivered at the office or agency of the Conversion Agent, to or upon the written order of the holder of the surrendered shares of Cumulative Convertible Preferred Stock, a certificate or certificates representing the number of fully paid and 10 nonassessable shares of Common Stock into which such shares of Cumulative Convertible Preferred Stock have been converted in accordance with the provisions of this paragraph (7), and any cash payable in respect of fractional shares as provided in paragraph (7)(v). (c) Upon the surrender of a certificate representing shares of Cumulative Convertible Preferred Stock that is converted in part, the Corporation shall issue or cause to be issued for the holder a new certificate representing shares of Cumulative Convertible Preferred Stock equal in number to the unconverted portion of the shares of Cumulative Convertible Preferred Stock represented by the certificate so surrendered. (v) (a) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of any shares of Cumulative Convertible Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a share of Cumulative Convertible Preferred Stock, the Corporation shall either (A) pay to the holder of such share (a "Fractional Shareholder") an amount in cash (computed to the nearest cent) equal to the current market price (as defined in paragraph (7)(vii)(e) below) thereof on the business day next preceding the day of conversion or (B) follow the procedures set forth in paragraph 7(v)(b). If more than one share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate stated value of the shares of Convertible Preferred Stock so surrendered. (b) The Corporation may, in lieu of paying cash to Fractional Shareholders as provided in paragraph (7)(v)(a), issue, in full payment of the Corporation's obligation with respect to such fractional interests, shares of Common Stock equal to the aggregate of such fractional interests of such Fractional Shareholder and other Fractional Shareholders (aggregated over a reasonable period of time, but not in any event more than 20 business days, and rounded upwards to the nearest whole share) to an agent (the "Transfer Agent") appointed by the Corporation for such Fractional Shareholders (and which may be the Conversion Agent), for sale promptly by the Transfer Agent on behalf of the Fractional Shareholders. The Transfer Agent will remit promptly to such Fractional Shareholders their proportionate interest in the net proceeds (following the deduction of applicable transaction costs and computed to the nearest cent) from such sale. (vi) The holders of shares of Cumulative Convertible Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares (except that holders of shares called for redemption 11 on a redemption date occurring between such record date and the dividend payment date shall not be entitled to receive such dividend on such dividend payment date but instead will receive accrued and unpaid dividends to such redemption date) on the corresponding dividend payment date notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such dividend payment date. (vii) The Conversion Price shall be subject to adjustment as follows: (a) If the Corporation shall (v) declare or pay a dividend on its outstanding Common Stock in shares of Common Stock or make a distribution to all holders of its Common Stock in shares of Common Stock, (w) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (x) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (y) issue by reclassification of its shares of Common Stock other securities of the Corporation, then the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any shares of Cumulative Convertible Preferred Stock thereafter converted shall be entitled to receive the number and kind of shares of Common Stock or other securities that the holder would have owned or have been entitled to receive after the happening of any of the events described above had such shares of Cumulative Convertible Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (7)(vii)(a) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. Such adjustment shall be made successively. (b) If the Corporation shall issue to all holders of its Common Stock rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock at a price per share that is lower than the then current market price per share of Common Stock (as defined in paragraph (7)(vii)(e) below) at the record date mentioned below, the Conversion Price shall be adjusted in accordance with the following formula: 12 ( N x P ) ----- O + ( M ) AC = C x ------------- O + N where AC = the adjusted Conversion Price. C = the current Conversion Price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the current market price per share of Common Stock on the record date. The adjustment shall be made successively whenever any such rights, options, warrants or convertible or exchangeable securities are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options, warrants or convertible or exchangeable securities. Upon the expiration of any such rights, options, warrants or convertible or exchangeable securities, if any thereof shall not have been exercised, then the Conversion Price shall be increased by the amount of the initial adjustment of the Conversion Price pursuant to this paragraph (7)(vii) in respect of such expired rights, options, warrants or convertible or exchangeable securities. (c) In case the Corporation shall distribute to all holders of its outstanding Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidences of its indebtedness or assets (excluding ordinary cash dividends, which may be an initial cash dividend, payable out of consolidated earnings or earned surplus (both of which to be calculated for these purposes excluding charges for amortization of goodwill and other intangibles) and dividends or distributions referred to in paragraphs (7)(vii)(a) and (b) above) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in paragraph (7)(vii)(b) above) (any of the foregoing being hereinafter in this paragraph (7)(iii) called the "Securities or Assets"), then in each such case, unless the Corporation elects to reserve shares or other units of such Securities or Assets for distribution to the holders of the Cumulative Convertible Preferred Stock upon the conversion of the shares of Cumulative Convertible Preferred Stock so that any such holder converting shares of Cumulative Convertible Preferred Stock will receive upon such conversion, in addition to the 13 shares of the Common Stock to which such holder is entitled, the amount and kind of such Securities or Assets which such holder would have received if such holder had, immediately prior to the record date for the distribution of the Securities or Assets, converted its shares of Cumulative Convertible Preferred Stock into Common Stock, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the current market price per share (as defined in paragraph (7)(viii)(e) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall, if made in good faith, be conclusive) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and of which the denominator shall be the current market price per share of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution, except as provided in paragraph (7)(vii)(i) below. (d) If the Corporation shall, after the date hereof, sell and issue any shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding (i) shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock issued in any of the transactions described in paragraphs (a) and (b) above; (ii) stock options and shares of Common Stock issued to, or issuable upon the exercise of stock options granted to or to be granted to, employees or directors of the Corporation or its subsidiaries; (iii) shares of Common Stock issuable upon exercise of warrants previously issued; (iv) shares issued upon conversion of the Converting Debentures; and (v) shares issued upon conversion of shares of Cumulative Convertible Preferred Stock), at a price per share (determined, in the case of rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total amount received or receivable by the Corporation in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Corporation upon exercise or conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) that is lower than the then current market price per share of Common Stock (as defined in paragraph (7)(vii)(e) below) immediately prior to such sale and issuance, then in each case the Conversion Price shall be adjusted in accordance with the following formula: 14 ( N x P ) ----- O + ( M ) AC = C x ------------- O + N where AC = the adjusted Conversion Price. C = the current Conversion Price. O = the number of shares of Common Stock outstanding on the issue date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the current market price per share of Common Stock on the issue date. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance, and the consideration received or receivable by the Corporation therefor shall be deemed to be the consideration received or receivable by the Corporation (plus any discounts or commissions in connection therewith) for such rights, options, warrants or convertible or exchangeable securities, plus the consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be paid for the shares of Common Stock purchasable thereby. In case the Corporation shall (i) sell and issue shares of Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent or (ii) sell and issue shares of Common Stock together with one or more other securities as part of a unit at a price per unit, then in determining the "price per share" and the "consideration received or receivable by the Corporation" for purposes of the first sentence and the immediately preceding sentence of this paragraph (7)(vii)(d), the Board of Directors shall determine, in its discretion, the fair value of said property or the shares of Common Stock then being sold as part of such unit, as the case may be, and such determinations, if made in good faith, shall be binding. The adjustment shall be made successively whenever any such shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock are issued for less than the current market price, subject to the exceptions noted above, and shall become effective immediately after the issue date. 15 Notwithstanding the foregoing, no adjustments of any kind under this paragraph (7)(vii)(d) shall be made with respect to the sale and issuance by the Corporation of any shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock in connection with either (1) an underwritten public offering or (2) any transaction as to which the Corporation has received a written opinion of a nationally recognized investment bank stating that the transaction is fair to the Corporation from a financial point of view. (e) For the purposes of any computation under paragraphs (7)(vii)(b), (c) and (d) and for the purposes of paragraph (7)(v)(a), the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days commencing on the 30th trading day prior to the date in question. The closing price for each day shall be (x) if the Common Stock is listed or admitted to trading on a national securities exchange, the closing price on the New York Stock Exchange Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges) or, if such a composite tape shall not be in use or shall not report transactions in the Common Stock, the last reported sales price regular way on the principal national securities exchange on which the Common Stock is listed admitted to trading (which shall be the national securities exchange on which the greatest number of shares of Common Stock has been traded during such 20 consecutive trading days), or, if there is no transaction on any such day in any such situation, the mean of the bid and asked prices on such day or, (y) if the Common Stock is not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or a similar source selected from time to time by the Corporation for the purpose. In the event such closing prices are unavailable, the current market price shall be deemed to be the fair market value as determined in good faith by the Board of Directors, on the basis of such relevant factors as it in good faith considers, in the reasonable judgment of the Board of Directors, appropriate. (f) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% of such price; provided, however, that any adjustments which by reason of this paragraph (7)(vii)(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (7)(vii) shall be made to the nearest one- hundredth of a cent or to the nearest one-hundredth of a share, as the case may be. 16 (g) If the Corporation is a party to a consolidation or merger transaction, the shares of Cumulative Convertible Preferred Stock will thereafter no longer be convertible into shares of Common Stock of the Corporation, but instead will be convertible into the kind and amount of securities or assets which the holder of such shares of Cumulative Convertible Preferred Stock would have owned immediately after the consolidation or merger if such holder had converted the shares of Cumulative Convertible Preferred Stock immediately before the effective date of such transaction. If this paragraph (7)(vii)(g) applies, then no adjustment in respect of the same transaction shall be made pursuant to the other provisions of this paragraph (7). (h) For the purposes of this paragraph (7)(vii) and paragraph (7)(x), the term "shares of Common Stock" shall mean (x) the class of stock designated as the Common Stock of the Corporation at the date hereof or (y) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to paragraphs (7)(vii)(a), (c) or (g) above, the holders of Cumulative Convertible Preferred Stock shall become entitled to receive any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of Cumulative Convertible Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Cumulative Convertible Preferred Stock contained in this paragraph (7)(vii). (i) Notwithstanding the foregoing, in any case in which this paragraph (7)(vii) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the holder of any share of Cumulative Convertible Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (7)(v). (viii) Whenever the Conversion Price is adjusted as herein provided, the Chief Financial Officer of the Corporation shall compute the adjusted Conversion Price in accordance with the foregoing provisions and shall prepare a certificate setting forth such adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, which certificate shall be conclusive evidence of the correctness of the adjustment. A copy of such certificate shall be filed promptly with the Conversion Agent. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such 17 adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of Cumulative Convertible Preferred Stock at his last address as shown on the stock books of the Corporation. (ix) The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the conversion of shares of Cumulative Convertible Preferred Stock pursuant to this paragraph (7); provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of Cumulative Convertible Preferred Stock converted or to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (x) (a) The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its issued Common Stock held in its treasury, or both, for the purpose of effecting the conversion of the Cumulative Convertible Preferred Stock, the full number of shares of Common Stock then deliverable upon the conversion of all outstanding shares of the Cumulative Convertible Preferred Stock. (b) Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the Common Stock issuable upon conversion of the Cumulative Convertible Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. (8) Voting Rights. (i) The holders of record of shares of Cumulative Convertible Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (8) or as otherwise provided by law. (ii) (a) If at any time or times dividends payable on Cumulative Convertible Preferred Stock shall be in arrears and unpaid for the six (6) preceding quarters, then the number of directors constituting the Board of Directors, without further action, shall be increased by two (2) and the holders of Cumulative Convertible Preferred Stock shall have the exclusive right, voting separately as a class, to elect the directors of the Corporation to fill such newly created directorships, the 18 remaining directors to be elected by the other class or classes of stock entitled to vote therefor, at each meeting of stockholders held for the purpose of electing directors; provided, that in no event shall the holders of Cumulative Convertible Preferred Stock have the right to elect more than twenty-five percent (25%) of the total number of directors of the Corporation, provided, further, that, notwithstanding the foregoing proviso, holders of Cumulative Convertible Preferred Stock shall have the right to elect not less than one (1) director pursuant to this paragraph (8)(ii)(a). (b) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of Cumulative Convertible Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings or by the written consent of the holders of Cumulative Convertible Preferred Stock pursuant to Section 228 of the General Corporation Law of the State of Delaware. Such voting right shall continue until such time as all cumulative dividends accumulated on all outstanding Cumulative Convertible Preferred Stock shall have been paid in full or declared and set aside for payment in full, at which time such voting right of the holders of Cumulative Convertible Preferred Stock shall terminate, subject to revesting in the event of each and every subsequent failure of the Corporation to pay dividends for the requisite number of quarters as described above. (c) At any time when such voting right shall have vested in the holders of Cumulative Convertible Preferred Stock and if such right shall not already have been initially exercised, a proper officer of the Corporation shall, upon the written request of 10% of the holders of record of Cumulative Convertible Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of holders of Cumulative Convertible Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the shares of Cumulative Convertible Preferred Stock then outstanding may designate in writing a holder of Cumulative Convertible Preferred Stock to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same 19 place as is elsewhere provided in this paragraph (8)(ii)(c). Any holder of Cumulative Convertible Preferred Stock that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called during a period within 90 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of Cumulative Convertible Preferred Stock shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of at least a majority of the then outstanding shares of Cumulative Convertible Preferred Stock shall be required and be sufficient to constitute a quorum of such class for the election of directors by such class. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of Cumulative Convertible Preferred Stock shall not prevent the election of directors other than those to be elected by the holders of stock of such class and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of Cumulative Convertible Preferred Stock and (y) in the absence of a quorum of the holders of shares of Cumulative Convertible Preferred Stock, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of shares of Cumulative Convertible Preferred Stock may be entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (e) The term of office of all directors elected by the holders of Cumulative Convertible Preferred Stock pursuant to paragraph (8)(ii)(a) in office at any time when the aforesaid voting rights are vested in the holders of Cumulative Convertible Preferred Stock shall terminate upon the election of their successors at any meeting of stockholders for the purpose of electing directors. Upon any termination of the aforesaid voting rights in accordance with paragraph (8)(ii)(b), the term of office of all directors elected by the holders of Cumulative Convertible Preferred Stock pursuant to paragraph (8)(ii)(a) then in office shall thereupon terminate and upon such termination the number of directors constituting the Board of Directors shall, without further action, be reduced by two (2) (or such other lesser number by which the number of directors constituting the Board of Directors shall have been increased pursuant to paragraph (8)(ii)(a) hereof), subject always to the increase of the number of directors pursuant to paragraph (8)(ii)(a) in case of the future right of the holders of Cumulative Convertible Preferred Stock to elect directors as provided herein. 20 (f) In case of any vacancy occurring among the directors so elected, the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant. If all directors so elected by the holders of Cumulative Convertible Preferred Stock shall cease to serve as directors before their terms shall expire, the holders of Cumulative Convertible Preferred Stock then outstanding may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of the directors whose places shall be vacant. (iii) So long as any shares of the Cumulative Convertible Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Cumulative Convertible Preferred Stock has been given pursuant to paragraph (5) and paragraph (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of Cumulative Convertible Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Parity Securities. (iv) So long as any shares of the Cumulative Convertible Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Cumulative Convertible Preferred Stock has been given pursuant to paragraph (5) and paragraph (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Cumulative Convertible Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Senior Securities. (v) (a) Except as set forth in paragraph (8)(iii) and paragraph (8)(iv) above, the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, (b) the creation of any indebtedness of any kind of the Corporation, or (c) the increase or decrease in the amount of authorized capital stock of any class, including Preferred Stock, shall not require the consent of the holders of Cumulative Convertible Preferred Stock and shall not be deemed to affect materially and adversely the rights, preferences, privileges or voting rights of shares of Cumulative Convertible Preferred Stock. 21 (vi) So long as any shares of the Cumulative Convertible Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Cumulative Convertible Preferred Stock has been given pursuant to paragraph (5) and paragraph (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Cumulative Convertible Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, amend the Certificate of Incorporation or this Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting rights of shares of Cumulative Convertible Preferred Stock. (9) Transactions with Affiliates. So long as any shares of the Cumulative Convertible Preferred Stock are outstanding, the Corporation and its subsidiaries shall not engage in, directly or indirectly, any purchase, sale or other acquisition or disposition of a material amount of assets of the Corporation and its subsidiaries, taken as a whole, with any Affiliate (as hereinafter defined) of the Corporation (other than a wholly owned subsidiary of the Corporation) except on terms that are not less favorable to the Corporation than those which would have been obtainable at the time of such transaction from a person who is not such an Affiliate; provided, however, that any purchase, sale or other acquisition or disposition of a material amount of assets of the Corporation with any Affiliate of the Corporation shall be deemed to be on terms that are not less favorable to the Corporation than those which would have been obtainable at the time of the transaction from a person who is not such an Affiliate if the Corporation receives a written opinion of a nationally recognized investment bank stating that the transaction is fair to the Corporation from a financial point of view. "Affiliate" as applied to any person, means any other person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, that person. For the purposes of this definition, "control" (including the terms "controlled by" and "under common control with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or otherwise. (10) Limitations. Except as may otherwise be required by law, the shares of Cumulative Convertible Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those 22 specifically set forth in this resolution (as such resolution may be amended from time to time) or otherwise in the Certificate of Incorporation of the Corporation. The following is a statement of the number, designation, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the ESOP Convertible Preferred Stock of the Corporation: (1) Designation; Issuance. (i) The designation of the series of Preferred Stock authorized by this resolution shall be "ESOP Convertible Preferred Stock" (the "ESOP Convertible Preferred Stock") consisting of 15,625,000 shares. The stated value of the ESOP Convertible Preferred Stock shall be $16.00 per share, which value does not represent a determination by the Board of Directors for the purposes of the capital accounts. (ii) Shares of ESOP Convertible Preferred Stock shall be issued only to a trustee acting on behalf of an employee stock ownership plan or other employee benefit plan of the Corporation. In the event of any transfer of shares of ESOP Convertible Preferred Stock except for (a) any transfer to any such plan trustee or (b) any transfer to, or with respect to, a participant in any such plan to, or with respect to, whom ESOP Convertible Preferred Stock is distributed by any such plan trustee in satisfaction of the distribution requirements of any such plan or any investment elections provided to participants pursuant to any such plan, unless the Corporation shall have otherwise previously consented to such transfer, the shares of ESOP Convertible Preferred Stock so transferred, upon such transfer and without any further action by the Corporation or the holder, shall be automatically converted into shares of Common Stock (as defined in paragraph (2) hereof) on the terms otherwise provided for the conversion of shares of ESOP Convertible Preferred Stock into shares of Common Stock pursuant to paragraph (7) hereof and no such transferee shall have any of the powers (including voting powers), preferences and relative, participating, optional or special rights ascribed to shares of ESOP Convertible Preferred Stock hereunder but, rather, only the powers (including voting powers) and rights pertaining to the Common Stock into which such shares of ESOP Convertible Preferred Stock shall be so converted. Certificates representing shares of ESOP Convertible Preferred Stock shall be legended to reflect such restrictions on transfer. Notwithstanding the foregoing provisions of this paragraph (1)(ii), shares of ESOP Convertible Preferred Stock (a) shall be redeemable by the Corporation upon the terms and conditions provided by paragraphs (5), (6) and (9) hereof and (b) may be converted into shares of Common Stock as provided by paragraph (7) hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law. 23 (2) Rank. The ESOP Convertible Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation and on a parity with the Cumulative Convertible Preferred Stock, par value $0.01 per share, stated value $25.00 per share, of the Corporation (the "Cumulative Convertible Preferred Stock"). All equity securities of the Corporation to which the ESOP Convertible Preferred Stock ranks prior, including the Common Stock, are collectively referred to herein as the "Junior Securities," all equity securities of the Corporation with which the ESOP Convertible Preferred Stock ranks on a parity, including Cumulative Convertible Preferred Stock, are collectively referred to herein as the "Parity Securities" and all equity securities of the Corporation (other than convertible debt securities) to which the ESOP Convertible Preferred Stock ranks junior, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, are collectively referred to herein as the "Senior Securities." The ESOP Convertible Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (3) Dividends. (i)(a) Subject to paragraph (3)(i)(b), the holders of the shares of ESOP Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends initially at the rate of 7.8125% of the stated value ($1.25) per share per annum (the "Dividend Rate"), and no more. Subject to paragraph (3)(i)(b), such dividends shall be payable in semi-annual payments, one half on January 2, (or, at the option of the Corporation, the preceding December 27) and one half on July 2 of each year commencing with January 2, 1992 (or, at the option of the Corporation, December 27, 1991) (each of such dates being a "Dividend Payment Date"), in preference to dividends on the Junior Securities. Subject to paragraph (3)(i)(b), such dividends shall be paid to the holders of record at the close of business on the tenth business day immediately preceding each Dividend Payment Date (each of such dates being a "Dividend Payment Record Date"). Subject to paragraph (3)(i)(b), each of such semi-annual dividends shall be fully cumulative and shall accrue (whether or not declared), without interest, from the previous Dividend Payment Date, except that with respect to the first dividend, such dividend shall accrue from the date of initial issuance. Dividends payable for the first dividend period and any partial dividend period (excluding for this purpose dividends paid on December 27 in lieu of January 2) shall be calculated on the basis of a 360-day year of twelve 30-day months. (b) Notwithstanding anything to the contrary in paragraph (3)(i)(a), in the event that after the eighth (8th) anniversary of the initial date of issuance, for at least twenty (20) trading days within any period of thirty (30) consecutive 24 trading days (such thirty (30) day period being hereinafter referred to as the "Adjustment Period"), the closing price on the New York Stock Exchange Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges) or, if such a composite tape shall not be in use or shall not report transactions in the Common Stock, the last reported sales price regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of Common Stock has been traded during such Adjustment Period) or, if there is no transaction on any such day in any such situation, the mean of the bid and asked prices on such day or, if the Common Stock is not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices as reported by the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or a similar source selected from time to time by the Corporation for the purpose, of the Common Stock equals or exceeds one hundred percent (100%) of the Conversion Price (as defined in paragraph (7) hereof) (giving effect to any adjustments required by paragraph (7) hereof), the Corporation may elect, in its sole discretion, to cease to pay dividends on the ESOP Convertible Preferred Stock on the Dividend Payment Dates at the Dividend Rate. Notice of the Corporation's election to discontinue paying dividends on the ESOP Convertible Preferred Stock at the Dividend Rate shall be given within ten (10) trading days of the conclusion of the Adjustment Period. Upon the Corporation giving notice of its election as set forth above, the Dividend Rate shall cease to be effective as the applicable rate for subsequent ESOP Convertible Preferred Stock dividend periods commencing the next succeeding regular Dividend Payment Date (the "Adjustment Date") provided that following the payment of the dividend due pursuant to paragraph (3)(i)(a) on such date there shall be no cumulative dividends on the ESOP Convertible Preferred Stock remaining accrued and unpaid. Notice shall be given by first class mail, postage prepaid, to each holder of record as of the conclusion of the Adjustment Period of the shares at such holder's address as the same appears on the stock register of the Corporation. Commencing on the Adjustment Date, dividends, if any, on the ESOP Convertible Preferred Stock will be payable, when, as and if declared, in amounts equal to such dividends as may be declared and paid on the Common Stock, if any, multiplied by the number of shares of Common Stock issuable upon the conversion of the ESOP Convertible Preferred Stock on the record date or record dates for such Common Stock dividends (calculated quarterly if dividends are then paid quarterly on the Common Stock, without interest), and no more. After the Adjustment Date, dividends, if any, on the ESOP Convertible Preferred Stock will paid be on the next succeeding Common Stock dividend payment date and thereafter 25 semi-annually on the same date as Common Stock dividends are paid; provided, however, that the dividends payable in respect of the first ESOP Convertible Preferred Stock dividend payment period following the Adjustment Date shall be adjusted as set forth in paragraph (3)(a) to the extent that the number of days in such dividend payment period is less than the number of days in the corresponding Common Stock quarterly dividend payment period. The record dates for such ESOP Convertible Preferred Stock dividends shall be the same date as may be established as the record date for the corresponding Common Stock dividend. Notwithstanding the foregoing, in the event that a Common Stock dividend is paid in respect of the initial quarterly period comprising any semi-annual dividend payment period for the ESOP Convertible Preferred Stock but no dividend is declared and paid in respect of the Common Stock for the second quarterly period comprising any such semi-annual dividend payment period for the ESOP Convertible Preferred Stock, a dividend equal to the dividend paid on the Common Stock for the initial quarterly period and no more shall be paid on the ESOP Convertible Preferred Stock on the date 90 days from the date that the last dividend was paid on the Common Stock (or, if such date is not a business day, on the next succeeding business day) and the record date for such dividend on the ESOP Convertible Preferred Stock shall be the date 90 days from the record date in respect of such last dividend paid on the Common Stock (or, if such date is not a business day, on the next succeeding business day). In the event that no dividends are paid on the Common Stock in respect of the two calendar quarters comprising an ESOP Convertible Preferred Stock dividend payment period, no dividends will be payable or paid on the ESOP Convertible Preferred Stock in respect of such period. Notwithstanding anything to the contrary contained herein, no dividends shall be payable pursuant to this paragraph (3)(i)(b) to the extent that the corresponding Common Stock dividend is paid other than in cash. (ii) All dividends paid with respect to shares of the ESOP Convertible Preferred Stock pursuant to paragraph (3)(i) hereof shall be paid pro rata to the holders entitled thereto. (iii) Prior to the Adjustment Date, no full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full dividends calculated in accordance with paragraph (3)(i) have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment on the ESOP Convertible Preferred Stock for all dividend periods terminating on or prior to the date of payment, or setting apart for payment, of such full dividends on such Parity Securities. Prior to the Adjustment Date, if any dividends are not paid in full as aforesaid upon the shares of the ESOP Convertible Preferred Stock and any other Parity Securities, all dividends declared upon shares of the ESOP Convertible Preferred Stock and any other Parity Securities shall be declared pro rata so that 26 the amount of dividends declared per share of the ESOP Convertible Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the ESOP Convertible Preferred Stock and such Parity Securities bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the ESOP Convertible Preferred Stock or any other Parity Securities which may be in arrears. Any dividend not paid pursuant to paragraph (3)(i)(a) hereof or this paragraph (3)(iii) shall be fully cumulative and shall accrue (whether or not declared), without interest, as set forth in paragraph (3)(i)(a) hereof. On and after the Adjustment Date, dividends on the ESOP Convertible Preferred Stock shall cease to be cumulative. (iv) (a) Holders of shares of the ESOP Convertible Preferred Stock shall be entitled to receive the dividends provided for in paragraph (3)(i) hereof in preference to and in priority over any dividends upon any of the Junior Securities. (b) So long as any shares of the ESOP Convertible Preferred Stock are outstanding, the Board of Directors shall not declare, and the Corporation shall not pay or set apart for payment any dividend on any of the Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the repurchase, redemption or other retirement of, any of the Junior Securities or Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Junior Securities or Parity Securities (other than purchases or redemptions pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its subsidiaries' directors, officers and key employees and purchases and redemptions pursuant to employee benefit plans and other than the repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities made pursuant to the requirements of paragraph (5)(ii) hereof and other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any of the Junior Securities or Parity Securities), or make any distribution in respect of the Junior Securities, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property (other than distributions or dividends in Junior Securities to the holders of Junior Securities), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Securities or Parity Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities or Parity Securities (other than purchases or redemptions pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its 27 subsidiaries' directors, officers and key employees and purchases and redemptions pursuant to employee benefit plans and other than the repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities made pursuant to the requirements of paragraph (5)(ii) hereof and other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any of the Junior Securities or Parity Securities) unless prior to or concurrently with such declaration, payment, setting apart for payment, repurchase, redemption or other retirement or distribution, as the case may be, any and all accrued and unpaid dividends on shares of the ESOP Convertible Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including any and all accrued dividends not paid by reason of the terms and conditions of paragraph (3)(i)(a) or paragraph (3)(iii) hereof but excluding any and all accrued dividends not yet payable by reason of the terms and conditions of paragraph (3)(i)(b) hereof) shall have been or be paid. (v) Subject to the foregoing provisions of this paragraph (3) and paragraph (7)(vi)(c), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities or Parity Securities, and may repurchase, redeem or otherwise retire any of the Junior Securities or Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Junior Securities or Parity Securities, and the holders of the shares of the ESOP Convertible Preferred Stock shall not be entitled to share therein. (4) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of ESOP Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to $16.00 for each share outstanding, plus an amount in cash equal to any and all accrued but unpaid dividends thereon to the date of liquidation, dissolution or winding up before any payment shall be made or any assets distributed to the holders of any of the Junior Securities; provided, however, that for the purposes of this paragraph (4)(i), to the extent that after the Adjustment Date dividends have been declared and paid on the Common Stock and the corresponding dividend has not yet been paid on the ESOP Convertible Preferred Stock, the amount to be paid in respect of the ESOP Convertible Preferred Stock in accordance with paragraph (3)(i)(b) in light of the declaration and payment of such dividend on the Common Stock shall be deemed to be an accrued but unpaid dividend. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the ESOP Convertible Preferred Stock and any Parity Securities, then the holders of all such 28 shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of ESOP Convertible Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. Except as provided in this paragraph (4)(i), holders of ESOP Convertible Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (ii) For the purposes of this paragraph (4), neither the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other corporations nor the consolidation or merger of one or more corporations with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up. (5) Redemption. (i) The Corporation may redeem at its option the ESOP Convertible Preferred Stock, at any time in whole or from time to time in part after the eighth (8th) anniversary of the initial date of issuance or on or before said date if permitted by paragraphs (5)(iv) through (5)(viii) or paragraph (9) at the redemption price per share set forth below, together with accrued and unpaid dividends thereon to the date of redemption (or, if pursuant to paragraphs (5)(iv), (5)(v), (5)(vii) and (5)(viii), at the redemption price set forth therein), without interest, to the extent the Corporation shall have funds legally available for such payment. For the purposes of this paragraph (5)(i), to the extent that after the Adjustment Date dividends have been declared and paid on the Common Stock and the corresponding dividend has not yet been paid on the ESOP Convertible Preferred Stock, the amount to be paid in respect of the ESOP Convertible Preferred Stock in accordance with paragraph (3)(i)(b) in light of the declaration and payment of such dividend on the Common Stock shall be deemed to be an accrued but unpaid dividend. If redeemed during the 12 month period beginning on April 10 in each of the years set forth below, the redemption price per share shall be as follows: 29 Year Redemption Price Per Share ---- -------------------------- 1991 . . . . . . . . $ 17.250 1992 . . . . . . . . 17.125 1993 . . . . . . . . 17.000 1994 . . . . . . . . 16.875 1995 . . . . . . . . 16.750 1996 . . . . . . . . 16.625 1997 . . . . . . . . 16.500 1998 . . . . . . . . 16.375 1999 . . . . . . . . 16.250 2000 . . . . . . . . 16.125 2001 and thereafter . 16.000 (ii) So long as any shares of the ESOP Convertible Preferred Stock are outstanding, any repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Parity Securities) must be made on a pro rata basis with the ESOP Convertible Preferred Stock so that the total redemption prices of the shares redeemed of ESOP Convertible Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that the total redemption prices of all shares outstanding on the applicable date of ESOP Convertible Preferred Stock and such Parity Securities bear to each other, unless prior to or concurrently with such repurchase, redemption or other retirement, as the case may be, any and all accrued and unpaid dividends on shares of the ESOP Convertible Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including any and all accrued dividends not paid by reason of the terms and conditions of paragraph (3)(i) or paragraph (3)(iii) hereof) shall have been or be paid. (iii) Shares of ESOP Convertible Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged or converted, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock. (iv) In the event of a change in the federal tax law or regulations of the United States of America or of an interpretation or application of such law or regulations or of a determination by a court of competent jurisdiction, which in any case has the effect of precluding the Corporation from claiming (other than for purposes of calculating any alternative minimum tax) any of the tax deductions for dividends paid on the ESOP 30 Convertible Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date shares of ESOP Convertible Preferred Stock are initially issued, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in paragraph (5)(i) hereof, elect to redeem any or all of the ESOP Convertible Preferred Stock for (a) the amount payable in respect of such shares upon liquidation of the Corporation pursuant to paragraph (4) hereof, if such election is made within one year of the occurrence of such event or (b) the amount payable in respect of such shares as set forth in paragraph (5)(i) hereof, if such election is made after one year from the occurrence of such event. (v) In the event that the Corporation certifies to the holders of the ESOP Convertible Preferred Stock that the Corporation has determined in good faith that either the RJR Nabisco Capital Accumulation Plan, as amended as of March 15, 1991, as the same may be further amended, or any successor plan (the "Plan") is not qualified within the meaning of Section 401(a) of the Code or the RJR Nabisco Employee Stock Ownership Program forming a part thereof, as the same may be amended, or any successor program (the "Program"), is not an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of the Code, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in paragraph (5)(i) hereof, elect to redeem any or all of the ESOP Convertible Preferred Stock for (a) the amount payable in respect of such shares upon liquidation of the Corporation pursuant to paragraph (4) hereof, if such election is made within one year of the occurrence of such event or (b) the amount payable in respect of such shares as set forth in paragraph (5)(i) hereof, if such election is made after one year from the occurrence of such event. (vi) In the event that the Plan or the Program is, or contributions thereto are, expressly terminated by the Corporation, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in paragraph (5)(i) hereof, elect to redeem any or all the ESOP Convertible Preferred Stock for the amount payable in respect of such shares as set forth in paragraph (5)(i) hereof. (vii) In the event and to the extent that redemption of shares of ESOP Convertible Preferred Stock is necessary or appropriate to provide for the distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, the Program, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in paragraph (5)(i) hereof, elect to redeem any or all ESOP Convertible Preferred Stock for the amount payable in respect of such shares upon liquidation of the Corporation pursuant to paragraph (4) hereof. 31 (viii) In the event and to the extent that shares of ESOP Convertible Preferred Stock are transferred to a participant in the Plan, the Corporation may, in its sole discretion and notwithstanding anything to the contrary in paragraph (5)(i) hereof, elect to redeem such shares of ESOP Convertible Preferred Stock for the amount payable in respect of such shares upon liquidation of the Corporation pursuant to paragraph (4) hereof. (ix) In the event and to the extent that the Corporation is required under Section 409(h)(1)(B) of the Code or any successor provision of law to redeem shares of ESOP Convertible Preferred Stock, the Corporation shall, notwithstanding anything to the contrary contained in paragraph (5)(i) hereof, redeem such shares of ESOP Convertible Preferred Stock for the amount equal to the greater of (i) the value as of the applicable valuation date (as determined under the Program) of the shares of Common Stock into which such shares of ESOP Convertible Preferred Stock are convertible as of such date or (ii) the amount payable in respect of such shares of upon liquidation of the Corporation pursuant to paragraph (4) hereof. (x) Notwithstanding anything to the contrary contained herein, subject to the final sentence of this paragraph (5)(x), if there is, or if as a result of any redemption pursuant to paragraph (5)(ix) hereof there would be, a default or event of default under any debt instrument or agreement of the Corporation or any of its subsidiaries or any other material obligation of the Company or any of its subsidiaries, or an impairment of capital or violation of the General Corporation Law of the State of Delaware (collectively, an "Event"), then any such redemption shall be deferred until the first business day that such redemption may occur without any such Event existing or resulting. If at any time consummation of any redemptions to be made by the Corporation pursuant to paragraph (5)(ix) would result in an Event, then the Corporation shall make redemptions of shares of ESOP Convertible Preferred Stock pro rata (on the basis of the proportion of the number of shares of ESOP Convertible Preferred Stock which each holder shall have specified to be redeemed for the maximum number of shares of ESOP Convertible Preferred Stock permitted without resulting in an Event; provided, however, that the provisions of the first sentence of this paragraph (5)(x) shall apply in respect of all shares of ESOP Convertible Preferred Stock not redeemed. Until all of such ESOP Convertible Preferred Stock is redeemed and paid for by the Corporation, the shares of ESOP Convertible Preferred Stock which are required to be redeemed under Section 409(h)(1)(B) of the Code or any successor provision of law which are not redeemed in accordance with this paragraph (5)(x) shall have priority, on a pro rata basis, over other redemptions by the Corporation pursuant to this paragraph (5). Notwithstanding the terms of this paragraph (5)(x) or paragraph (5)(ix), to the extent the deferral provided for by this paragraph (5)(x) would not be permitted by the Code or the Employee Retirement Income 32 Security Act of 1974, as amended ("ERISA"), or any successor provision of law, the provisions of paragraph (5)(ix) shall, to the extent permitted by the Code and ERISA, be of no force or effect where an Event would occur without regard to such deferral. (xi) The Corporation, at its option, may make payment of the redemption price required to be paid upon redemption of shares of ESOP Convertible Preferred Stock (other than pursuant to paragraph (9)(iv)) in cash or in shares of Common Stock, or in securities of comparable value that constitute "qualifying employer securities" with respect to a holder of ESOP Convertible Preferred Stock within the meaning of Section 409(1) of the Code and Section 407(d)(5) of ERISA or any successor provisions of law ("Qualifying Employer Securities") or in any combination of such shares, Qualifying Employer Securities and cash, any such shares and Qualifying Employer Securities to be valued for such purpose at their Fair Market Value (as defined in paragraph (7)(vi)(e) hereof) as of the date of redemption. (6) Procedure for Redemption. (i) In the event that fewer than all the outstanding shares of ESOP Convertible Preferred Stock are to be redeemed other than pursuant to paragraph (5)(vii), (5)(viii) or (5)(ix) or paragraph (9)(iv), the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected pro rata, except that in any redemption of fewer than all the outstanding shares of ESOP Convertible Preferred Stock, the Corporation may redeem all shares held by any holders of a number of shares not to exceed 100, including all shares held by holders who, after giving effect to such redemption, would hold less than 100 shares, as may be specified by the Corporation. (ii) In the event the Corporation shall redeem shares of ESOP Convertible Preferred Stock other than pursuant to paragraph 5(vii), 5(viii) or (5)(ix) or paragraph (9)(iv), subject to applicable law, written notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 20 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of ESOP Convertible Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (a) the redemption date; (b) the number of shares of ESOP Convertible Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (c) the redemption price; (d) that shares of ESOP Convertible Preferred Stock called for redemption may be 33 converted in accordance with, and subject to the terms of, paragraph (7) hereof at any time prior to the date fixed for redemption (unless the Corporation shall default in payment of the redemption price, in which case such right shall not terminate at such date); (e) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (f) the method and form of payment of the redemption price; and (g) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (iii) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing cash, Qualifying Employer Securities or shares of Common Stock for the payment of the redemption price of the shares called for redemption) dividends on the shares of ESOP Convertible Preferred Stock so called for redemption, to the extent theretofore accruing, shall cease to accrue and said shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock, undesignated as to series, and all rights of the holders thereof as holders of the ESOP Convertible Preferred Stock (except the right to receive from the Corporation the redemption price and any and all accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid together with payment of any and all accrued and unpaid dividends, without interest. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (7) Conversion. (i) Upon the terms and in the manner set forth in this paragraph (7) and subject to the provisions for adjustment contained in paragraph (7)(vi), each share of the ESOP Convertible Preferred Stock shall be convertible, at the option of the holder thereof at any time, upon surrender to the Corporation of the certificates for the shares to be converted, into a number of fully paid and nonassessable shares of Common Stock equal to the aggregate stated value of the ESOP Convertible Preferred Stock to be converted divided by a conversion price (the "Conversion Price") of $16.00; provided, however, that the right to convert shares of ESOP Convertible Preferred Stock that have been called for redemption pursuant to paragraphs (5), (6) and (9)(iii) shall terminate at the close of business on the date fixed for redemption, unless the Corporation shall default in making payment of the amount payable upon such redemption and provided, further, that the right to convert shares of ESOP Convertible Preferred Stock as to which a notice of redemption has been delivered pursuant to paragraph (9)(iv) shall terminate 34 at the close of business on the fifth (5th) business day prior to the consummation of the transaction described in paragraph (9)(ii), unless the Corporation or the successor of the Corporation shall default in making payment of the amount payable upon such redemption. (ii) In order to convert shares of the ESOP Convertible Preferred Stock, the holder thereof shall (a) deliver a properly completed and duly executed written notice of election to convert specifying the number of the shares of the ESOP Convertible Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued to the Corporation at its principal office or at the office of any agency which may be maintained for such purpose (the "Conversion Agent"), (b) surrender the certificate for such shares of ESOP Convertible Preferred Stock to the Corporation or the Conversion Agent, accompanied, if so required by the Corporation or the Conversion Agent, by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation or the Conversion Agent duly executed by the holder or his attorney duly authorized in writing, and (c) pay any transfer or similar tax required by paragraph (7)(viii). (iii) (a) Conversion shall be deemed to have been effected at the close of business on the date (the "Conversion Date") on which the Corporation or the Conversion Agent shall have received the notice of election to convert, the surrendered certificate, any required payments and all other required documents. Immediately upon conversion, the rights of the holders of converted shares of ESOP Convertible Preferred Stock shall cease and the persons entitled to receive the shares of Common Stock upon the conversion of such shares of ESOP Convertible Preferred Stock shall be treated for all purposes as having become the record owners of such shares of Common Stock but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record on any date prior to the Conversion Date. Conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record of the Common Stock at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice and any required payments received by the Corporation. (b) As promptly as practicable after the Conversion Date, the Corporation shall deliver or cause to be delivered at the office or agency of the Conversion Agent, to or upon the written order of the holder of the surrendered shares of ESOP Convertible Preferred Stock, a certificate or certificates 35 representing the number of fully paid and nonassessable shares of Common Stock into which such shares of ESOP Convertible Preferred Stock have been converted in accordance with the provisions of this paragraph (7), and any cash payable in respect of fractional shares as provided in paragraph (7)(iv). (c) Upon the surrender of a certificate representing shares of ESOP Convertible Preferred Stock that is converted in part, the Corporation shall issue or cause to be issued for the holder a new certificate representing shares of ESOP Convertible Preferred Stock equal in number to the unconverted portion of the shares of ESOP Convertible Preferred Stock represented by the certificate so surrendered. (iv) (a) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of any shares of ESOP Convertible Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a share of ESOP Convertible Preferred Stock, the Corporation shall either (A) pay to the holder of such share (a "Fractional Shareholder") an amount in cash (computed to the nearest cent) equal to the Fair Market Value thereof (as defined in paragraph (7)(vi)(e)) on the business day next preceding the Conversion Date or (B) follow the procedures set forth in paragraph (7)(iv)(b). If more than one share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate stated value of the shares of ESOP Convertible Preferred Stock so surrendered. (b) The Corporation may, in lieu of paying cash to Fractional Shareholders as provided in paragraph (7)(iv)(a), issue, in full payment of the Corporation's obligation with respect to such fractional interests, shares of Common Stock equal to the aggregate of such fractional interests of such Fractional Shareholder and other Fractional Shareholders (aggregated over a reasonable period of time, but not in any event more than 20 business days, and rounded upwards to the nearest whole share) to an agent (which, without limiting the generality of the foregoing, may be the trustee under the Plan or Program, the Corporation or the Conversion Agent) (the "Transfer Agent") appointed by the Corporation for such Fractional Shareholders for sale promptly by the Transfer Agent on behalf of the Fractional Shareholders. The Transfer Agent will remit promptly to such Fractional Shareholders their proportionate interest in the net proceeds (following the deduction of applicable transaction costs and computed to the nearest cent) from such sale. (v) The holders of shares of ESOP Convertible Preferred Stock at the close of business on a record date for an ESOP Convertible Preferred Stock dividend (including a Dividend 36 Payment Record Date) shall be entitled to receive the dividend payable on such shares (except that holders of shares called for redemption on a redemption date occurring between such record date and the corresponding dividend payment date (including a corresponding Dividend Payment Date) shall not be entitled to receive such dividend on such dividend payment date (including a Dividend Payment Date) but instead will receive accrued and unpaid dividends to such redemption date) on the corresponding dividend payment date (including a Dividend Payment Date) notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such dividend payment date (including a Dividend Payment Date). (vi) The Conversion Price shall be subject to adjustment as follows: (a) If the Corporation shall (v) declare or pay a dividend on its outstanding Common Stock in shares of Common Stock or make a distribution to all holders of its Common Stock in shares of Common Stock, (w) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (x) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (y) issue by reclassification of its shares of Common Stock other securities of the Corporation, then the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any shares of ESOP Convertible Preferred Stock thereafter converted shall be entitled to receive the number and kind of shares of Common Stock or other securities that the holder would have owned or have been entitled to receive after the happening of any of the events described above had such shares of ESOP Convertible Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (7)(vi)(a) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. Such adjustment shall be made successively. (b) If the Corporation shall issue to all holders of its Common Stock rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock at a price per share that is lower than the then Fair Market Value per share of Common Stock (as defined in paragraph (7)(vi)(e) below) at the record date mentioned below, the Conversion Price shall be adjusted in accordance with the following formula: 37 ( N x P ) ----- O + ( M ) AC = C x ------------- O + N where AC = the adjusted Conversion Price. C = the current Conversion Price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the Fair Market Value per share of Common Stock on the record date. The adjustment shall be made successively whenever any such rights, options, warrants or convertible or exchangeable securities are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options, warrants or convertible or exchangeable securities. Upon the expiration of any such rights, options, warrants or convertible or exchangeable securities, if any thereof shall not have been exercised, then the Conversion Price shall be increased by the amount of the initial adjustment of the Conversion Price pursuant to this paragraph (7)(vi)(b) in respect of such expired rights, options, warrants or convertible or exchangeable securities. (c) In case the Corporation shall distribute to all holders of its outstanding Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidences of its indebtedness or assets (excluding ordinary cash dividends, which may be an initial cash dividend, payable out of consolidated earnings or earned surplus (both of which to be calculated for these purposes excluding charges for amortization of goodwill and other intangibles) and dividends or distributions referred to in paragraphs (7)(vi)(a) and (b) above and, after the Adjustment Date, excluding all cash dividends) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in paragraph (7)(vi)(b) above) (any of the foregoing being hereinafter in this paragraph (7)(vi)(c) called the "Securities or Assets"), then in each such case, unless the Corporation elects to reserve shares or other units of such Securities or Assets for distribution to the holders of the ESOP Convertible Preferred Stock upon the conversion of the shares of ESOP Convertible Preferred Stock so that any such holder converting shares of ESOP Convertible Preferred Stock will 38 receive upon such conversion, in addition to the shares of the Common Stock to which such holder is entitled, the amount and kind of such Securities or Assets which such holder would have received if such holder had, immediately prior to the record date for the distribution of the Securities or Assets, converted its shares of ESOP Convertible Preferred Stock into Common Stock, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Fair Market Value per share (as defined in paragraph (7)(vi)(e) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall, if made in good faith, be conclusive, final and binding) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and of which the denominator shall be the Fair Market Value per share of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution, except as provided in paragraph (7)(vi)(h) below. (d) If the Corporation shall, after the date hereof, sell and issue any shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding (i) shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock issued in any of the transactions described in paragraphs (7)(vi)(a) and (7)(vi)(b) above; (ii) stock options and shares of Common Stock issued to, or issuable upon the exercise of stock options granted to or to be granted to, employees or directors of the Corporation or its subsidiaries; (iii) shares of Common Stock issuable upon exercise of warrants previously issued; (iv) shares issued upon conversion of the Senior Converting Debentures Due 2009 of the Corporation; and (v) shares issued upon conversion of shares of ESOP Convertible Preferred Stock), at a price per share (determined, in the case of rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total amount received or receivable by the Corporation in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Corporation upon exercise or conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) that is lower than the then Fair Market Value per share of Common Stock immediately 39 prior to such sale and issuance, then in each case the Conversion Price shall be adjusted in accordance with the following formula: ( N x P ) ----- O + ( M ) AC = C x ------------- O + N where AC = the adjusted Conversion Price. C = the current Conversion Price. O = the number of shares of Common Stock outstanding on the issue date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the Fair Market Value per share of Common Stock on the issue date. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance, and the consideration received or receivable by the Corporation therefor shall be deemed to be the consideration received or receivable by the Corporation (plus any discounts or commissions in connection therewith) for such rights, options, warrants or convertible or exchangeable securities, plus the consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be paid for the shares of Common Stock purchasable thereby. In case the Corporation shall (i) sell and issue shares of Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent or (ii) sell and issue shares of Common Stock together with one or more other securities as part of a unit at a price per unit, then in determining the "price per share" and the "consideration received or receivable by the Corporation" for purposes of the first sentence and the immediately preceding sentence of this paragraph (7)(vii)(d), the Board of Directors shall determine, in its discretion, the fair market value of said property or the shares of Common Stock then being sold as part of such unit, as the case may be, and such determinations, if made in good faith, shall be conclusive, final and binding. The adjustment shall be made successively whenever any such shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase 40 shares of Common Stock are issued for less than the Fair Market Value, subject to the exceptions noted above, and shall become effective immediately after the issue date. Notwithstanding the foregoing, no adjustments of any kind under this paragraph (7)(vi)(d) shall be made with respect to the sale and issuance by the Corporation of any shares of Common Stock, rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock in connection with either (1) an underwritten public offering or (2) any transaction as to which the Corporation has received a written opinion of a nationally recognized investment bank stating that the transaction is fair to the Corporation from a financial point of view. (e) For the purposes of any computation under paragraphs (7)(vi)(b), (c) and (d) and for the purposes of paragraphs (5)(xi), (7)(iv)(a) and (9)(iii), the Fair Market Value as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer that are traded shall at any date shall be deemed to be the average of the daily closing prices for the twenty (20) consecutive trading days commencing on the thirtieth (30th) trading day prior to the date in question. The closing price for each day shall be (x) if the shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer are listed or admitted to trading on a national securities exchange, the closing price on the New York Stock Exchange Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges) or, if such a composite tape shall not be in use or shall not report transactions in such securities, the last reported sales price regular way on the principal national securities exchange on which such securities are listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of stock or the greatest aggregate principal amount of debt securities has been traded during such twenty (20) consecutive trading days), or, if there is no transaction on any such day in any such situation, the mean of the bid and asked prices on such day, or (y) if such securities are not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices as reported by NASDAQ or a similar source selected from time to time by the Corporation for the purpose. In the event such closing prices are unavailable, the Fair Market Value shall be deemed to be, subject to applicable law, the fair market value as determined in good faith by the Board of Directors, on the basis of such relevant factors as it in good faith considers, in the reasonable judgment of the Board of Directors, appropriate. (f) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or 41 decrease of at least 1% of such price; provided, however, that any adjustments which by reason of this paragraph (7)(vi)(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (7)(vi) shall be made to the nearest one-hundredth of a cent or to the nearest one-hundredth of a share, as the case may be. (g) For the purposes of this paragraph (7)(vi) and paragraph (7)(ix), the term "shares of Common Stock" shall mean (x) the class of stock designated as the Common Stock of the Corporation at the date hereof or (y) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to paragraphs (7)(vi)(a) or (c) above, the holders of ESOP Convertible Preferred Stock shall become entitled to receive any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of ESOP Convertible Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of ESOP Convertible Preferred Stock contained in this paragraph (7)(vi). (h) Notwithstanding the foregoing, in any case in which this paragraph (7)(vi) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the holder of any share of ESOP Convertible Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (7)(iv). (i) If the Corporation shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Corporation or any rights or warrants to purchase or acquire any such security, which transaction does not result in an adjustment to the Conversion Price pursuant to the foregoing provisions of this paragraph (7)(vi), the Board of Directors of the Corporation may consider whether such action is of such a nature that an adjustment to the Conversion Price should equitably be made in respect of such transaction. If in such case the Board of Directors of the Corporation determines that an adjustment to the Conversion Price should be made, an adjustment shall be made effective as of such date as is determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Conversion Price should be made pursuant to the foregoing provisions of this paragraph (7)(vi)(i), and, if so, as to what adjustment should be 42 made and when, shall be conclusive, final and binding on the Corporation and all stockholders of the Corporation. The Corporation shall be entitled to make such additional adjustments in the Conversion Price, in addition to those required by the foregoing provisions of this paragraph (7)(vi), as shall be necessary in order that any dividend or distribution in shares of capital stock of the Corporation, subdivision, reclassification or combination of shares of stock of the Corporation or any recapitalization of the Corporation shall not be taxable to holders of the Common Stock. (vii) Whenever the Conversion Price is adjusted as herein provided, the Chief Financial Officer, Treasurer or Controller of the Corporation shall compute the adjusted Conversion Price in accordance with the foregoing provisions and shall prepare a certificate setting forth such adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment. A copy of such certificate shall be filed promptly with any Conversion Agent. Promptly after delivery of any such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of ESOP Convertible Preferred Stock at his last address as shown on the stock books of the Corporation. (viii) The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the conversion of shares of ESOP Convertible Preferred Stock; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of ESOP Convertible Preferred Stock converted or to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (ix) (a) The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its issued Common Stock held in its treasury, or both, for the purpose of effecting the conversion of the ESOP Convertible Preferred Stock, the full number of shares of Common Stock then deliverable upon the conversion of all outstanding shares of the ESOP Convertible Preferred Stock. 43 (b) Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the Common Stock issuable upon conversion of the ESOP Convertible Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. (8) Voting Rights. (i) The holders of record of shares of ESOP Convertible Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (8) or as otherwise provided by law. The holders of ESOP Convertible Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of Common Stock of the Corporation, voting together with the holders of Common Stock as one class; provided, however, that the ESOP Convertible Preferred Stock shall not be entitled to vote on any increase or decrease in the number of authorized shares of any class or classes of stock. Each share of the ESOP Convertible Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of ESOP Convertible Preferred Stock could be converted on the record date for determining the stockholders entitled to vote, rounded to the nearest one-tenth of a vote; it being understood that whenever the Conversion Price is adjusted as provided in paragraph (7) hereof, the voting rights of the ESOP Convertible Preferred Stock shall also be similarly adjusted. (ii) So long as any shares of the ESOP Convertible Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of ESOP Convertible Preferred Stock has been given pursuant to paragraphs (5) and (6) or paragraph (9)(iii) and cash, Qualifying Employer Securities or shares of Common Stock have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of ESOP Convertible Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, amend the Certificate of Incorporation or this Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting rights of shares of ESOP Convertible Preferred Stock. (iii) (a) The creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, (b) the creation of any indebtedness of any kind of the Corporation, or (c) subject to paragraph (8)(i), the increase or decrease in the amount of authorized capital stock of any class, including Preferred Stock, shall not require the consent 44 of the holders of ESOP Convertible Preferred Stock and shall not be deemed to affect materially and adversely the rights, preferences, privileges or voting rights of shares of ESOP Convertible Preferred Stock. (9) Consolidation, Merger, etc. (i) In the event that the Corporation shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into shares of any successor or resulting company (including the Corporation) that constitute Qualifying Employer Securities that are common stock or common equity with respect to a holder of ESOP Convertible Preferred Stock within the meaning of Section 409(1) of the Code and Section 407(d)(5) of ERISA, or any successor provision of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, then, in such event, the shares of ESOP Convertible Preferred Stock of such holder shall be converted into or exchanged for and shall become preferred shares of such successor or resulting company, having in respect of such company insofar as possible (taking into account, without limitation, any requirements relating to the listing of such preferred shares on any national securities exchange or the qualification of such preferred shares for trading in any over-the-counter market) the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by paragraphs (5) and (6) hereof and this paragraph (9)), and the qualifications, limitations or restrictions thereon, that the ESOP Convertible Preferred Stock had immediately prior to such transaction; provided, however, that after such transaction each share of stock into which the ESOP Convertible Preferred Stock is so converted or for which it is exchanged shall be convertible, pursuant to the terms and conditions provided by paragraph (7) hereof, into the number and kind of Qualifying Employer Securities receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Convertible Preferred Stock could have been converted pursuant to paragraph (7) hereof immediately prior to such transaction and provided, further, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, then such election shall be deemed to be solely for Qualifying Employer Securities (together, if applicable, with a cash payment in lieu of fractional shares) with the effect provided above on the basis of the number and kind of Qualifying Employer Securities receivable by a holder of the number of shares of Common Stock into which the shares of ESOP Convertible Preferred Stock could have been converted pursuant to paragraph (7) hereof immediately prior to such transaction (it being understood that if the kind or amount of Qualifying Employer Securities receivable in respect of each share of Common Stock 45 upon such transaction is not the same for each such share, then the kind and amount of Qualifying Employer Securities deemed to be receivable in respect of each share of Common Stock for purposes of this proviso shall be the kind and amount so receivable per share of Common Stock by a plurality of such shares). The rights of the ESOP Convertible Preferred Stock as preferred shares of such successor resulting company shall successively be subject to adjustments pursuant to paragraph (7) hereof after any such transaction as nearly equivalent to the adjustments provided for by such paragraph prior to such transaction. (ii) In the event that the Corporation shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other shares or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of Qualifying Employer Securities that are common stock or common equity (as referred to in paragraph (9)(i)) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of ESOP Convertible Preferred Stock shall, without any action on the part of the Corporation or any holder thereof but subject to paragraph (9)(iii) and (9)(iv), be automatically converted immediately prior to the consummation of such merger, consolidation or similar transaction into shares of Common Stock at the conversion rate then in effect so that each share of ESOP Convertible Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of shares, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Convertible Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of shares, securities, cash or other property receivable upon such transaction (provided that, if the kind or amount of shares, securities, cash or other property receivable upon such transaction is not the same for each non- electing share, then the kind and amount of shares, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of non-electing shares). (iii) In the event the Corporation shall enter into any agreement providing for any consolidation or merger or similar transaction described in paragraph (9)(ii), then the Corporation shall as soon as practicable thereafter (and in any event at least ten (10) business days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of ESOP Convertible Preferred Stock and 46 the Corporation shall have the right to elect, to the extent permitted by applicable law, by written notice to the holders, to redeem such ESOP Convertible Preferred Stock upon consummation of such transaction (if and when such transaction is consummated), out of funds legally available therefor, in lieu of any cash or other securities which such holder would otherwise be entitled to receive under paragraph (9)(ii) hereof, for the amount payable in respect of shares of ESOP Convertible Preferred Stock upon a redemption by the Corporation pursuant to paragraph (5)(i) hereof, which amount may be paid in cash or in shares of Common Stock or common stock of the successor of the Corporation or in Qualifying Employer Securities of the Corporation or the successor of the Corporation or in any combination thereof, any such shares and Qualifying Employer Securities to be valued for such purpose at their Fair Market Value (as defined in paragraph (7)(vi)(e). No such notice of redemption shall be effective unless given to the holders prior to the close of business of the tenth (10th) business day prior to consummation of such transaction, unless the holders shall waive such prior notice, but any notice or redemption so given prior to such time may be withdrawn by notice of withdrawal given to the holders prior to the close of business on the tenth (10th) business day prior to consummation of such transaction. (iv) In the event the Corporation shall enter into any agreement providing for any consolidation or merger or similar transaction described in paragraph (9)(ii) and the Corporation shall not elect pursuant to paragraph (9)(iii) to redeem the ESOP Convertible Preferred Stock, to the extent permitted by applicable law, each such holder shall have the right to elect, by written notice to the Corporation, to receive, upon consummation of such transaction (if and when such transaction is consummated), out of funds legally available therefor, from the Corporation or the successor of the Corporation, in redemption of such ESOP Convertible Preferred Stock, in lieu of any cash or other securities which such holder would otherwise be entitled to receive under paragraph (9)(ii) hereof, a cash payment equal to the amount payable in respect of shares of ESOP Convertible Preferred Stock upon a redemption by the Corporation pursuant to paragraph (5)(i) hereof. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business of the fifth (5th) business day prior to consummation of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice or redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the fifth (5th) business day prior to consummation of such transaction. (10) Limitations. Except as may otherwise be required by law, the shares of ESOP Convertible Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth 47 in this resolution (as such resolution may be amended from time to time) or otherwise in the Certificate of Incorporation of the Corporation. The following is a statement of the number, designation, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Series A Conversion Preferred Stock of the Corporation: (1) Designation. The designation of the series of Preferred Stock authorized by this resolution shall be "Series A Conversion Preferred Stock" (the "Series A Preferred Stock") consisting of 52,500,000 shares. (2) Rank. The Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, dissolution and winding up, rank prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation and on a parity with the Cumulative Convertible Preferred Stock, par value $0.01 per share and stated value $25.00 per share (the "Cumulative Convertible Preferred Stock"), and the ESOP Convertible Preferred Stock, par value $0.01 per share and stated value $16.00 per share (the "ESOP Convertible Preferred Stock"), of the Corporation. All equity securities of the Corporation to which the Series A Preferred Stock ranks prior, including the Common Stock, are collectively referred to herein as the "Junior Securities," all equity securities of the Corporation with which the Series A Preferred Stock ranks on a parity, including the Cumulative Convertible Preferred Stock and the ESOP Convertible Preferred Stock, are collectively referred to herein as the "Parity Securities" and all equity securities of the Corporation (other than convertible debt securities) to which the Series A Preferred Stock ranks junior, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, are collectively referred to herein as the "Senior Securities." The Series A Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (3) Dividends. (i) The holders of outstanding shares of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends accruing at the per share rate of $.835 per quarter and no more, payable in arrears on each February 15, May 15, August 15 and November 15, respectively (each such date being hereinafter referred to as a "Dividend Payment Date"), commencing on February 17, 1992. If any Dividend Payment Date shall be or be declared a national or New York State holiday or if banking institutions in the State of New York shall be closed because of a banking moratorium or otherwise on such date, then the Dividend Payment Date shall be on the next succeeding day on which such banks shall be open. Each such 48 dividend will be payable to holders of record as they appear on the stock books of the Corporation on such record dates, not less than 10 nor more than 50 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends on the Series A Preferred Stock shall accrue (whether or not declared) on a daily basis from the previous Dividend Payment Date, except that the first dividend shall accrue from the date of issuance of the Series A Preferred Stock. Accrued and unpaid dividends shall not bear interest. Dividends will cease to accrue in respect of the Series A Preferred Stock on the Mandatory Conversion Date (as defined in paragraph (4)(a)) or on the date of their earlier redemption or on the Settlement Date (as defined in paragraph (4)(h)(v)), in the event of their earlier conversion, unless the Corporation shall default in delivering the shares of Common Stock and cash, if any, payable by the Corporation upon such redemption or conversion pursuant to paragraph (4). Dividends (or cash amounts equal to accrued and unpaid dividends) payable on the Series A Preferred Stock for any period shorter than a quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. (ii) No full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment on the Series A Preferred Stock through the most recent Dividend Payment Date. If any dividends are not paid or set apart in full, as aforesaid, upon the shares of the Series A Preferred Stock and any Parity Securities, all dividends declared upon the Series A Preferred Stock and any Parity Securities shall be declared pro rata so that the amount of dividends declared per share on the Series A Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such Parity Securities bear to each other. Unless full cumulative dividends, if any, accrued on all outstanding shares of the Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment through the most recent Dividend Payment Date, no dividend shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other Junior Securities (other than a dividend or distribution paid in shares of, or warrants, rights or options exercisable for or convertible into, Common Stock or any other Junior Securities), nor shall any Common Stock nor any other Junior Securities be redeemed, purchased or otherwise retired for any consideration, nor may any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such securities, by the Corporation (other than redemptions and purchases pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its subsidiaries' directors, officers and key 49 employees), except by conversion into or exchange for Junior Securities. Holders of the shares of the Series A Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends as provided in paragraph 3(a). (iii) Subject to the foregoing provisions of this paragraph (3) and paragraph (4)(d)(ii), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities or Parity Securities, and may redeem, purchase or otherwise retire any Junior Securities, and the holders of the shares of the Series A Preferred Stock shall not be entitled to share therein. (iv) Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of the Series A Preferred Stock. (v) All dividends paid with respect to shares of the Series A Preferred Stock pursuant to this paragraph (3) shall be paid pro rata to the holders entitled thereto. (vi) Holders of shares of the Series A Preferred Stock shall be entitled to receive the dividends provided for in this paragraph (3) in preference to and in priority over any dividends upon any of the Junior Securities. (4) Redemptions or Conversions. (i) Automatic --------- Conversion on Mandatory Conversion Date. Unless earlier called - --------------------------------------- for redemption in accordance with the provisions hereof, on November 15, 1994 (the "Mandatory Conversion Date"), each outstanding share of the Series A Preferred Stock shall automatically convert into: (a) subject to paragraph (4)(d)(iv), shares of Common Stock at the Common Equivalent Rate (determined as provided in paragraph (4)(d)) in effect on the Mandatory Conversion Date; and (b) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of Series A Preferred Stock to and including the Mandatory Conversion Date, whether or not declared, out of funds legally available for the payment of dividends (and dividends shall cease to accrue on such share as of the Mandatory Conversion Date). The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock and its issued Common Stock held in its treasury for the purpose of effecting any 50 conversion of the Series A Preferred Stock pursuant to this paragraph (4)(a), the full number of shares of Common Stock then deliverable upon any such conversion of all outstanding shares of Series A Preferred Stock. (ii) Automatic Conversion Upon the Occurrence of ------------------------------------------- Certain Events. Immediately prior to the effectiveness of a - -------------- merger or consolidation of the Corporation (other than a merger or consolidation of the Corporation with or into a wholly owned subsidiary of the Corporation) that results in the conversion or exchange of Common Stock into, or the right to receive, other securities or other property (whether of the Corporation or any other entity) (any such merger or consolidation is referred to herein as a "Merger or Consolidation"), each outstanding share of the Series A Preferred Stock shall automatically convert into: (a) subject to paragraph (4)(d)(iv), shares of Common Stock at the Common Equivalent Rate in effect immediately prior to such Merger or Consolidation; plus (b) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of the Series A Preferred Stock to and including the Settlement Date, whether or not declared, out of funds legally available for the payment of dividends (and dividends shall cease to accrue on such share as of the Settlement Date); plus (c) the right to receive an amount of cash initially equal to $10.02, declining by $.009218 on each day following the date of issuance of the Series A Preferred Stock (computed on the basis of a 360-day year of twelve 30-day months) to $.56 on September 15, 1994, and equal to zero thereafter, in each case determined with reference to the Settlement Date, out of funds legally available therefor, unless sooner redeemed. At the option of the Corporation, it may deliver on the Settlement Date in lieu of some or all of the cash consideration described in clauses (ii) and (iii) above, a number of shares of Common Stock to be determined by dividing the amount of cash consideration that the Corporation has elected to pay in Common Stock by the Current Market Price (as defined in paragraph (4)(d)(vi)) of the Common Stock determined as of the second Trading Date (as defined paragraph (4)(h)(vi)) immediately preceding the Notice Date (as defined in paragraph (4)(h)(iv)). Notwithstanding the foregoing, if there shall have occurred an adjustment pursuant to paragraph (4)(d)(iv) as a result of a merger or consolidation prior to the Settlement Date relating to the exercise of any such option by the Corporation (or its successor), the Corporation shall deliver on such Settlement 51 Date, in lieu of shares of Common Stock as described in the preceding sentences, the kind of securities or other property received by holders of Common Stock as a result of such merger or consolidation, in the same relative proportions (if more than one kind of securities or other property was so received) as exist in the Common Equivalent Rate on such Settlement Date, with an aggregate market price (determined, for any security or other property, to the extent possible, in the manner that the Current Market Price is determined for the Common Stock, and otherwise determined by the Board of Directors of the Corporation, whose determination shall be conclusive), as of the second Trading Date immediately preceding the Notice Date, equal to the amount of cash consideration that the Corporation has elected to pay in such securities or other property. (iii) Right to Call for Redemption. At any time and ---------------------------- from time to time prior to the Mandatory Conversion Date, the Corporation shall have the right to call, in whole or in part, the outstanding shares of the Series A Preferred Stock for redemption (subject to the notice provisions set forth in paragraph (4)(i)). Upon the redemption date, the Corporation shall deliver to the holders thereof in exchange for each such share called for redemption, (i) a number of shares of Common Stock equal to the Call Price (as defined in paragraph (4)(h)(ii)) in effect on the redemption date divided by the Current Market Price of the Common Stock determined as of the second Trading Date immediately preceding the Notice Date and (ii) an amount in cash equal to all accrued and unpaid dividends on such share of Series A Preferred Stock to and including the redemption date (and dividends shall cease to accrue on such share as of such date), whether or not declared, out of funds legally available for the payment of dividends; provided that if there shall have occurred an adjustment pursuant to paragraph (4)(d)(iv) as a result of a merger or consolidation prior to the redemption date, the Corporation shall deliver on the redemption date to the holders of shares of Series A Preferred Stock in exchange for each share thereof called for redemption, in lieu of shares of Common Stock as described in paragraph (4)(c)(i), the kind of securities or other property received by holders of Common Stock as a result of such merger or consolidation, in the same relative proportions (if more than one kind of securities or other property was so received) as exist in the Common Equivalent Rate on the redemption date, with an aggregate market price (determined, for any security or other property, to the extent possible, in the manner that the Current Market Price is determined for the Common Stock, and otherwise determined by the Board of Directors of the Corporation, whose determination shall be conclusive), as of the second Trading Date immediately preceding the Notice Date, equal to the Call Price in effect on the redemption date. If fewer than all the outstanding shares of Series A Preferred Stock are to be called for redemption, shares to be redeemed shall be selected by the Corporation from outstanding shares of Series A Preferred Stock not previously 52 redeemed by lot or pro rata (as nearly as may be practicable without creating fractional shares) or by any other method determined by the Board of Directors of the Corporation in its sole discretion to be equitable. (iv) Common Equivalent Rate; Adjustments. The Common ----------------------------------- Equivalent Rate to be used to determine the number of shares of Common Stock to be delivered on the conversion of the Series A Preferred Stock into shares of Common Stock pursuant to paragraph (4)(a) or (b) shall be initially four shares of Common Stock for each share of Series A Preferred Stock; provided, however, that -------- ------- such Common Equivalent Rate shall be subject to adjustment from time to time as provided below in this paragraph (4)(d). All adjustments to the Common Equivalent Rate shall be calculated to the nearest 1/100th of a share of Common Stock. Such rate in effect at any time is herein called the "Common Equivalent Rate." (a) If the Corporation shall either: (A) pay a dividend or make a distribution with respect to Common Stock in shares of Common Stock, (B) subdivide or split its outstanding shares of Common Stock into a greater number of shares, (C) combine its outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of its shares of Common Stock any shares of common stock of the Corporation, then, in any such event, the Common Equivalent Rate in effect immediately prior thereto shall be adjusted so that the holder of a share of the Series A Preferred Stock shall be entitled to receive on the conversion of such share of the Series A Preferred Stock, the number of shares of common stock of the Corporation which such holder would have owned or been entitled to receive after the happening of any of the events described above had such share of the Series A Preferred Stock been converted at the Common Equivalent Rate in effect immediately prior to such event or any record date with respect thereto. Such adjustment shall become effective at the opening of business on the business day next following the record date for determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution, and shall become effective immediately after the effective date in case of a subdivision, split, combination or reclassification; and any shares of Common Stock issuable in 53 payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii) and (iii) below. Such adjustment shall be made successively. (b) If the Corporation shall, after the date hereof, issue rights or warrants to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price of the Common Stock (determined pursuant to paragraph (4)(d)(vi)) on the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Common Equivalent Rate shall be adjusted by multiplying the Common Equivalent Rate in effect immediately prior to the date of issuance of such rights or warrants by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such Current Market Price (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Current Market Price). Such adjustment shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Common Equivalent Rate shall be readjusted to the Common Equivalent Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. Such adjustment shall be made successively. (c) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock of evidence of its indebtedness or other assets (including shares of capital stock of the Corporation (other than Common Stock) but excluding any distributions and dividends referred to in clause (i) above or any cash dividends), or 54 shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in clause (ii) above), then in each such case, unless the Corporation elects to reserve shares or other units of such securities or assets for distribution to the holders of the Series A Preferred Stock upon the redemption or conversion of the shares of Series A Preferred Stock so that any holder of Series A Preferred Stock will receive upon such redemption or conversion, in addition to the shares of the Common Stock to which such holder is entitled, the kind and amount of such securities or assets which such holder would have received if such shares of Series A Preferred Stock had been converted into shares of Common Stock immediately prior to the record date for the distribution of the securities or assets, the Common Equivalent Rate shall be adjusted by multiplying the Common Equivalent Rate in effect on the record date mentioned below by a fraction, of which the numerator shall be the Current Market Price of the Common Stock (determined pursuant to paragraph (4)(d)(vi)) on the record date for the determination of stockholders entitled to receive such dividend or distribution, and of which the denominator shall be such Current Market Price per share of Common Stock less the fair value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) as of such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock. Such adjustment shall become effective on the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such dividend or distribution. (d) If there shall occur a merger or consolidation of the Corporation with or into a wholly owned subsidiary of the Corporation that results in the conversion or exchange of the Common Stock into, or the right to receive, other securities or other property (whether of the Corporation or any other entity), then the Series A Preferred Stock will thereafter no longer be subject to conversion into shares of Common Stock pursuant to paragraph (4)(a) and (b), but instead will be subject to conversion into the kind and amount of securities or other property which the holder of such shares of Series A Preferred Stock would have owned immediately after such merger or consolidation if such shares of Series A Preferred Stock had been converted into shares of Common Stock immediately before the effective time of such merger or consolidation. If this paragraph (4)(d)(iv) applies, then no adjustment in respect of the same merger or consolidation shall be made pursuant to the other provisions of this paragraph (4)(d). In the event that at any time, as a result of an adjustment made pursuant to this paragraph (4)(d)(iv), the Series A 55 Preferred Stock shall become subject to conversion into any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of Series A Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Series A Preferred Stock contained in this paragraph (4)(d). (e) Anything in this paragraph (4) notwithstanding, the Corporation shall be entitled to make such upward adjustments in the Common Equivalent Rate, in addition to those required by this paragraph (4), as the Corporation in its sole discretion may determine to be advisable, in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Corporation to its stockholders shall not be taxable. If the Corporation determines that an adjustment to the Common Equivalent Rate should be made, an adjustment shall be made effective as of such date as is determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Common Equivalent Rate should be made pursuant to the foregoing provisions of this paragraph 4(d)(v), and, if so, as to what adjustment should be made and when, shall be conclusive, final and binding on the Corporation and all stockholders of the Corporation. (f) As used in this paragraph (4), the "Current Market Price" of the Common Stock on any date shall be the average of the daily Closing Prices (as defined in paragraph 4(h)(iii)) for the five consecutive Trading Dates ending on and including the date of determination of the Current Market Price; provided, however, that if the Closing Price for the Trading Date next following such five-day period (the "next-day closing price") is less than 95% of such average, then the Current Market Price per share of Common Stock on such date of determination shall be the next-day closing price; and provided, further, that, if any event that results in an adjustment of the Common Equivalent Rate occurs during such five-day period or, for the purposes of calculating the Current Market Price in connection with any redemption or conversion of Series A Preferred Stock or any determination of an amount in cash payable in lieu of a fraction of a share of Common Stock, if any event that results in an adjustment of the Common Equivalent Rate occurs during the period beginning on the first day of such five-day period and ending on the applicable redemption or 56 conversion date, the Current Market Price as determined pursuant to the foregoing will be appropriately adjusted to reflect the occurrence of such event. (g) In any case in which paragraph (4)(d) shall require that an adjustment as a result of any event become effective at the opening of business on the business day next following a record date and the date fixed for conversion pursuant to paragraph (4)(a) and (b) occurs after such record date, but before the occurrence of such event the Corporation may in its sole discretion elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any converted shares of the Series A Preferred Stock the additional shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (4)(f). (h) Before taking any action which would cause an adjustment to the Common Equivalent Rate that would cause the Corporation to issue shares of Common Stock for consideration below the then par value (if any) of the Common Stock upon conversion of the Series A Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Common Equivalent Rate. (v) Notice of Adjustments. Whenever the Common --------------------- Equivalent Rate is adjusted as herein provided, the Corporation shall: (a) forthwith compute the adjusted Common Equivalent Rate in accordance with this paragraph (4) and prepare a certificate signed by the Chief Financial Officer, any Vice President, the Treasurer or Controller of the Corporation setting forth the adjusted Common Equivalent Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and file such certificate forthwith with the transfer agent or agents for the Series A Preferred Stock and the Common Stock; and (b) mail a notice stating that the Common Equivalent Rate has been adjusted, the facts requiring such adjustment and the facts upon which such adjustment is based and setting forth the adjusted Common Equivalent Rate to the holders of record of the outstanding shares of the Series A Preferred Stock at or prior to the time the Corporation 57 mails an interim statement to its stockholders covering the fiscal quarter during which the facts requiring such adjustment occurred, but in any event within 45 days of the end of such fiscal quarter. (vi) No Fractional Shares. (i) No fractional shares -------------------- or scrip representing fractional shares of Common Stock shall be issued upon the redemption or conversion of any shares of Series A Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a share of Series A Preferred Stock, the Corporation shall either (A) pay to the holder of such share (a "Fractional Shareholder") an amount in cash (computed to the nearest cent) equal to the same fraction of the Current Market Price of the Common Stock determined as of the second Trading Date immediately preceding the relevant Notice Date or (B) follow the procedures set forth in paragraph (f)(ii). If more than one share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. (ii) The Corporation may, in lieu of paying cash to Fractional Shareholders as provided in paragraph (f)(i), issue, in full payment of the Corporation's obligation with respect to such fractional interests, shares of Common Stock equal to the aggregate of such fractional interests of such Fractional Shareholder and other Fractional Shareholders (aggregated over a reasonable period of time, but not in any event more than 20 business days, and rounded upwards to the nearest whole share) to an agent (the "Transfer Agent") appointed by the Corporation for such Fractional Shareholders for sale promptly by the Transfer Agent on behalf of the Fractional Shareholders. The Transfer Agent will remit promptly to such Fractional Shareholders their proportionate interest in the net proceeds (following the deduction of applicable transaction costs and computed to the nearest cent) from such sale. . (vii) Cancellation. Shares of Series A Preferred ------------ Stock that have been issued and reacquired in any manner, including shares purchased, exchanged, redeemed or converted, shall not be reissued as part of the Series A Preferred Stock and shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock. (viii) Definitions. As used in this paragraph (4): ----------- (a) the term "business day" shall mean any day other than a Saturday, Sunday, or a day on which banking 58 institutions in the State of New York are authorized or obligated by law or executive order to close; (b) the term "Call Price" shall mean the per share price (payable in shares of Common Stock) at which the Corporation may redeem shares of Series A Preferred Stock, which shall be initially equal to $64.82, declining by $.009218 on each day following the date of issuance of the Series A Preferred Stock (computed on the basis of a 360-day year of twelve 30-day months) to $55.36 on September 15, 1994 and equal to $54.80 thereafter, if not sooner redeemed; (c) the term "Closing Price" on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the New York Stock Exchange Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges), or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of Common Stock has been traded during the five consecutive Trading Dates ending on and including the date of determination of the Current Market Price), or, if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices of the Common Stock on the over-the-counter market on the day in question as reported by the National Association of Securities Dealers Automated Quotation System, or a similarly generally accepted reporting service, or if not so available as determined in good faith by the Board of Directors, on the basis of such relevant factors as it in good faith considers, in the reasonable judgment of the Board of Directors, appropriate; (d) the term "Notice Date" with respect to any notice given by the Corporation in connection with a redemption or conversion of any of the Series A Preferred Stock shall be the commencement of the mailing of such notice to the holders of the Series A Preferred Stock in accordance with paragraph (4)(i); (e) the term "Settlement Date" shall mean the business day immediately prior to the effective date of a Merger or Consolidation; (f) the term "Trading Date" shall mean a date on which the New York Stock Exchange (or any successor to such Exchange) is open for the transaction of business. 59 (ix) Notice of Redemption or Conversion. The ---------------------------------- Corporation will provide notice of any redemption or conversion (including any potential conversion upon the effectiveness of a Merger or Consolidation) of shares of Series A Preferred Stock to holders of record of the Series A Preferred Stock to be called or converted not less than 30 nor more than 60 days prior to the date fixed for such redemption or conversion, as the case may be; provided, however, that if the timing of the effectiveness of a Merger or Consolidation makes it impracticable to provide at least 30 days' notice, the Corporation shall provide such notice as soon as practicable prior to such effectiveness. Such notice shall be provided by mailing notice of such redemption or conversion first class postage prepaid, to each holder of record of the Series A Preferred Stock to be redeemed or converted, at such holder's address as it appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption or conversion of any shares of Series A Preferred Stock to be redeemed or converted except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state, as appropriate, the following: (a) the redemption or conversion date; (b) that all outstanding shares of Series A Preferred Stock are to be redeemed or converted or, in the case of a call for redemption pursuant to paragraph 4(c) of fewer than all outstanding shares of Series A Preferred Stock pursuant to paragraph (4)(c), the number of such shares held by such holder to be redeemed; (c) in the case of a call for redemption pursuant to paragraph (4)(c), the Call Price, the number of shares of Common Stock deliverable upon redemption of each share of Series A Preferred Stock to be redeemed and the Current Market Price used to calculate such number of shares of Common Stock subject to any subsequent adjustments pursuant to paragraph 4(d); (d) whether the Corporation is exercising any option to deliver shares of Common Stock in lieu of cash (in the case of a conversion pursuant to paragraph (4)(b)), the Current Market Price to be used to calculate the number of such shares of Common Stock and, if the Corporation is exercising such option in respect of less than all the cash that is deliverable by the Corporation upon such conversion, the portion of such cash in lieu of which Common Stock will be delivered; (e) the place or places where certificates for such shares are to be surrendered for redemption or conversion; and 60 (f) that dividends on the shares of Series A Preferred Stock to be redeemed or converted will cease to accrue on such redemption or conversion date or, in the case of a conversion pursuant to paragraph (4)(b), on the related Settlement Date, unless the Corporation shall default in delivering the shares of Common Stock and cash, if any, payable by the Corporation pursuant to this paragraph (4), at the time and place specified in such notice. (x) Deposit of Shares and Funds. The Corporation's --------------------------- obligation to deliver shares of Common Stock and provide funds in accordance with this paragraph (4) shall be deemed fulfilled if, on or before a redemption or conversion date, the Corporation shall deposit, with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City and having a capital and surplus of at least $50,000,000, such number of shares of Common Stock as are required to be delivered by the Corporation pursuant to this paragraph (4) upon the occurrence of the related redemption or conversion (including any payment of fractional share amounts pursuant to paragraph (4)(f)(i)), together with funds (or, in the case of a conversion pursuant to paragraph 4(b), shares of Common Stock and/or funds) sufficient to pay all accrued and unpaid dividends on the shares to be redeemed or converted as required by this paragraph (4), in trust for the account of the holders of the shares to be redeemed or converted (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such shares and funds be delivered upon redemption or conversion of the shares of Series A Preferred Stock so called for redemption or converted. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any shares of Common Stock or funds so deposited and unclaimed at the end of two years from such redemption or conversion date shall be repaid and released to the Corporation, after which the holder or holders of such shares of Series A Preferred Stock so called for redemption or converted shall look only to the Corporation for delivery of such shares of Common Stock or funds. (xi) Surrender of Certificates; Status. Each holder --------------------------------- of shares of Series A Preferred Stock to be redeemed or converted shall surrender the certificates evidencing such shares (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state) to the Corporation at the place designated in the notice of such redemption or conversion and shall thereupon be entitled to receive certificates evidencing shares of Common Stock and to receive any funds payable pursuant to this paragraph 4 following such surrender and following the date of such redemption or conversion. In case fewer than all the shares represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Corporation representing the unredeemed shares. If such notice of redemption 61 or conversion shall have been given, and if on the date fixed for redemption or conversion shares of Common Stock and funds necessary for the redemption or conversion shall have been either set aside by the Corporation separate and apart from its other funds or assets in trust for the account of the holders of the shares to be redeemed or converted (and so as to be and continue to be available therefor) or deposited with a bank or trust company or affiliate thereof as provided in paragraph 4(j), then, notwithstanding that the certificates evidencing any shares of Series A Preferred Stock so called for redemption or subject to conversion shall not have been surrendered, the shares represented thereby so called for redemption or subject to conversion shall be deemed no longer outstanding, dividends with respect to the shares so called for redemption or subject to conversion shall cease to accrue after the date fixed for redemption or conversion or, in the case of a conversion pursuant to paragraph (4)(b), on the related Settlement Date, and all rights with respect to the shares so called for redemption or subject to conversion shall forthwith after such date cease and terminate, except for the right of the holders to receive the shares of Common Stock and funds, if any, payable pursuant to this paragraph 4 without interest upon surrender of their certificates therefor. (xii) Dividend Payments. The holders of shares of ----------------- Series A Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the call or conversion thereof (except that holders of shares called for redemption or to be converted on a date occurring between such record date and the Dividend Payment Date shall not be entitled to receive such dividend on such Dividend Payment Date but instead will receive accrued and unpaid dividends to such date or the related Settlement Date, as the case may be) or the Corporation's default in payment of the dividend due on such Dividend Payment Date. (xiii) Payment of Taxes. The Corporation will pay any ---------------- and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the redemption or conversion of shares of Series A Preferred Stock pursuant to this paragraph (4); provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of Series A Preferred Stock redeemed or converted or to be redeemed or converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. 62 (5) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after payment or provision for payment of any Senior Securities, an amount per share of Series A Preferred Stock in cash equal to the sum of (i) $40.50 plus (ii) all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series A Preferred Stock and any Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. Except as provided in this paragraph (5)(a), holders of Series A Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (ii) For the purposes of this paragraph (5), neither the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other corporations nor the consolidation or merger of one or more corporations with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up. (6) Voting Rights. (i) The holders of record of shares of Series A Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (6) or as otherwise provided by law. The holders of shares of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of Common Stock, voting together with the holders of Common Stock (and any other capital stock of the Corporation entitled to vote together with the Common Stock) as one class; provided, however, that the holders of Series A Preferred Stock shall not be entitled to vote on any increase or decrease in the number of authorized shares of any class or classes of stock. Each share of the Series A Preferred Stock shall be entitled to a number of votes equal to one-quarter of the Common Equivalent Rate, rounded to the nearest one-tenth of a vote; it being understood that whenever the Common Equivalent Rate is adjusted as provided in paragraph 4(d) hereof, the voting rights of the Series A Preferred Stock shall also be similarly adjusted. 63 (ii) (a) If at any time or times dividends payable on all series of Preferred Stock, including the Series A Preferred Stock, shall be in arrears and unpaid for six quarterly periods, then the number of directors constituting the Board of Directors, without further action, shall be increased by two (2) and the holders of shares of Series A Preferred Stock shall have the right, together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), to elect the directors of the Corporation to fill such newly created directorships, the remaining directors to be elected by the other class or classes of stock entitled to vote therefor, at each meeting of stockholders held for the purpose of electing directors; provided, that in no event shall such holders have the right to elect more than 25% of the total number of directors of the Corporation; provided, further, that, notwithstanding the foregoing proviso, such holders shall have the right to elect not less than one director pursuant to this paragraph (6)(b)(i). While holders of shares of such series of Preferred Stock are entitled to elect two directors, they shall not be entitled to participate with the holders of Common Stock in the election of any other directors, but shall continue to be entitled to vote with the holders of Common Stock upon each other matter coming before any meeting of the stockholders. (b) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Series A Preferred Stock together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. Such voting right shall continue until such time as all cumulative dividends accumulated on all outstanding series of Preferred Stock shall have been paid in full or declared and set aside for payment in full, at which time such voting right of such holders shall terminate, subject to revesting in the event of each and every subsequent failure of the Corporation to pay dividends for the requisite number of quarters as described above. (c) At any time when such voting right shall have vested in the holders of shares of Series A Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) and if such right shall not already have been initially exercised, a proper officer of 64 the Corporation shall, upon the written request of 10% of the holders of record of shares of such series of Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of holders of shares of such series of Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the shares of such series of Preferred Stock then outstanding may designate in writing a holder of shares of such series of Preferred Stock to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph (6)(b)(iii). Any holder of shares of such series of Preferred Stock that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for such series of Preferred Stock for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called during a period within 90 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of shares of Series A Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of at least a majority of the then outstanding shares of such series of Preferred Stock shall be required and be sufficient to constitute a quorum of such series for the election of directors by such series. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of shares of such series of Preferred Stock shall not prevent the election of directors other than those to be elected by the holders of stock of such series and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of shares of such series of Preferred 65 Stock and (y) in the absence of a quorum of the holders of shares of such series of Preferred Stock, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of shares of such series of Preferred Stock may be entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (e) The term of office of all directors elected by the holders of shares of Series A Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) pursuant to paragraph (6)(b)(i) in office at any time when the aforesaid voting rights are vested in the holders of shares of such series of Preferred Stock shall terminate upon the election of their successors at any meeting of stockholders for the purpose of electing directors. Upon any termination of the aforesaid voting rights in accordance with paragraph (6)(b)(ii), the term of office of all directors elected by the holders of shares of such series of Preferred Stock pursuant to paragraph (6)(b)(i) then in office shall thereupon terminate and upon such termination the number of directors constituting the Board of Directors shall, without further action, be reduced by two (2) (or such other lesser number by which the number of directors constituting the Board of Directors shall have been increased pursuant to paragraph (6)(b)(i) hereof), subject always to the increase of the number of directors pursuant to paragraph (6)(b)(i) in case of the future right of the holders of shares of such series of Preferred Stock to elect directors as provided herein. (f) In case of any vacancy occurring among the directors elected pursuant to paragraph (6)(b)(i), the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant. If all directors so elected by the holders of shares of Series A Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) shall cease to serve as directors before their terms shall expire, the holders of shares of such series of Preferred Stock then outstanding may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of the directors whose places shall be vacant. (iii) So long as any shares of the Series A Preferred Stock are outstanding (except when notice of the redemption or conversion of all outstanding shares of Series A Preferred Stock has been given pursuant to paragraph (4)(i) and shares of Common Stock and any necessary funds have been deposited in trust for 66 such redemption or conversion pursuant to paragraph (4)(j)), the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of Series A Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Parity Securities. (iv) So long as any shares of the Series A Preferred Stock are outstanding (except when notice of the redemption or conversion of all outstanding shares of Series A Preferred Stock has been given pursuant to paragraph (4)(i) and shares of Common Stock and any necessary funds have been deposited in trust for such redemption or conversion pursuant to paragraph (4)(j)), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Series A Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Senior Securities. (v) So long as any shares of the Series A Preferred Stock are outstanding (except when notice of the redemption or conversion of all outstanding shares of Series A Preferred Stock has been given pursuant to paragraph (4)(i) and shares of Common Stock and any necessary funds have been deposited in trust for such redemption or conversion pursuant to paragraph (4)(j)), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Series A Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, amend the Certificate of Incorporation or this Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting rights of holders of shares of Preferred Stock. (vi) (i) Except as set forth in paragraphs (6)(c) and (6)(d) above, the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, (ii) the creation of any indebtedness of any kind of the Corporation, or (iii) the increase or decrease in the amount of authorized capital stock of any class, including Preferred Stock, shall not require the consent of the holders of Series A Preferred Stock and shall not be deemed to affect materially and adversely the rights, preferences, privileges or voting rights of holders of shares of Series A Preferred Stock. 67 (7) Increase in Shares. The number of shares of Series A Preferred Stock may, to the extent of the Corporation's authorized and unissued Preferred Stock, be increased by further resolution duly adopted by the Board of Directors and the filing of a certificate of increase with the Secretary of State of the State of Delaware. (8) Limitations. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this resolution (as such resolution may be amended from time to time) or otherwise in the Certificate of Incorporation of the Corporation. The following is a statement of the number, designation, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Series B Preferred Stock of the Corporation: 1. Designation. The designation of the series of Preferred Stock authorized by this resolution shall be "Series B Cumulative Preferred Stock" (the "Series B Preferred Stock") consisting of 50,000 shares. The stated value of the Series B Preferred Stock shall be $25,000 per share, which value does not represent a determination by the Board of Directors for the purposes of the capital accounts. 2. Rank. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution and winding up, rank prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation and on a parity with the Cumulative Convertible Preferred Stock, par value $0.01 per share and stated value $25.00 per share (the "Cumulative Convertible Preferred Stock"), the ESOP Convertible Preferred Stock, par value $0.01 per share and stated value $16.00 per share (the "ESOP Convertible Preferred Stock"), and the Series A Conversion Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), of the Corporation. All equity securities of the Corporation to which the Series B Preferred Stock ranks prior, including the Common Stock, are collectively referred to herein as the "Junior Securities," all equity securities of the Corporation with which the Series B Preferred Stock ranks on a parity, including the Cumulative Convertible Preferred Stock, the ESOP Convertible Preferred Stock and the Series A Preferred Stock, are collectively referred to herein as the "Parity Securities" and all equity securities of the Corporation (other than convertible debt securities) to which the Series B Preferred Stock ranks junior, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, are collectively referred to herein as the "Senior Securities." The Series B Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. 68 3. Dividends. (i) The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate per annum of 9 1/4% of the stated value ($25,000) per share and no more, payable in arrears on the first business day of each March, June, September and December, commencing December 1, 1993 (each of such dates being a "Dividend Payment Date"). If any Dividend Payment Date shall be or be declared a national or New York State holiday or if banking institutions in the State of New York shall be closed because of a banking moratorium or otherwise on such date, then the Dividend Payment Date shall be on the next succeeding day on which such banks shall be open. Each such dividend shall be payable to holders of record as they appear on the stock books of the Corporation at the close of business on each record date, which shall be the 15th day immediately preceding each such Dividend Payment Date (each of such dates being a "Dividend Payment Record Date"). Each of such quarterly dividends shall be fully cumulative and shall accrue (whether or not declared) on a daily basis, without interest, from the previous Dividend Payment Date, except that the first dividend shall accrue, without interest, from the date of initial issuance of the Series B Preferred Stock. Accrued and unpaid dividends shall not bear interest. Dividends will cease to accrue in respect of the Series B Preferred Stock on the date of their earlier redemption pursuant to paragraph (4), unless the Corporation shall default in providing funds for the payment of the redemption price of the shares called for redemption pursuant to paragraphs (4) and (5). Dividends payable on the Series B Preferred Stock for the first dividend period and any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. (ii) No full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment on the Series B Preferred Stock through the most recent Dividend Payment Date. If any dividends are not paid or set apart in full, as aforesaid, upon the shares of the Series B Preferred Stock and any Parity Securities, all dividends declared upon shares on the Series B Preferred Stock and any Parity Securities shall be declared pro rata so that the amount of dividends declared per share on the Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other. Unless full cumulative dividends, if any, accrued on all outstanding shares of the Series B Preferred Stock have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment through the most recent Dividend Payment Date, no dividend shall be declared or paid or set apart for payment or other distribution declared or made on any Junior Securities (other than a dividend or distribution paid in shares of, or 69 warrants, rights or options exercisable for or convertible into, any Junior Securities), nor shall any Junior Securities be redeemed, purchased or otherwise retired for any consideration, nor may any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such securities, by the Corporation (other than redemptions and purchases pursuant to or in accordance with employee stock subscription agreements entered into between the Corporation and certain of its or its subsidiaries' directors, officers and key employees), except by conversion into or exchange for Junior Securities. Holders of the shares of the Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends as provided in paragraph 3(i). (iii) Subject to the foregoing provisions of this paragraph (3), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities or Parity Securities, and may redeem, purchase, or otherwise retire any Junior Securities, and the holders of the shares of the Series B Preferred Stock shall not be entitled to share therein. (iv) Any dividend payment made on shares of the Series B Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of the Series B Preferred Stock. (v) All dividends paid with respect to shares of the Series B Preferred Stock pursuant to this paragraph (3) shall be paid pro rata to the holders entitled thereto. (vi) Holders of shares of the Series B Preferred Stock shall be entitled to receive the dividends provided for in this paragraph (3) in preference to and in priority over any dividends upon any of the Junior Securities. 4. Redemption. (i) The shares of the Series B Preferred Stock shall not be redeemable prior to August 18, 1998. On and after August 18, 1998, the Corporation, at its option, may redeem shares of the Series B Preferred Stock, as a whole or in part, at any time or from time to time, at a redemption price per share of $25,000, plus, in each case, an amount equal to accrued and unpaid dividends thereon to the date fixed for redemption, without interest, to the extent the Corporation shall have funds legally available for such payment. (ii) So long as any shares of the Series B Preferred Stock are outstanding, any repurchase, redemption or other retirement of any Parity Securities or any warrants, rights or options exercisable for or convertible into any of the Parity Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Parity Securities) must be made on a pro rata basis with the Series B Preferred Stock so that the total redemption prices of the shares redeemed of Series 70 B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that the total redemption prices of all shares outstanding on the applicable date of Series B Preferred Stock and such Parity Securities bear to each other, unless prior to or concurrently with such repurchase, redemption or other retirement, as the case may be, all accrued and unpaid dividends on shares of the Series B Preferred Stock not paid on the dates provided for in paragraph (3)(i) hereof (including accrued dividends not paid by reason of the terms and conditions of paragraph (3)(i) or paragraph (3)(ii) hereof) shall have been or be paid. (iii) The holders of shares of Series B Preferred Stock at the close of business on a Dividend Payment Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the call for redemption thereof (except that holders of shares called for redemption on a date occurring between such Record Date and the Dividend Payment Date shall not be entitled to receive such dividend on such Dividend Payment Date) or the Corporation's default in payment of the dividend due on such Dividend Payment Date. (iv) Shares of Series B Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock. 5. Procedure for Redemption. (i) In the event that fewer than all the outstanding shares of Series B Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other means determined by the Board of Directors in its sole discretion to be equitable, except the Corporation may redeem all shares held by any holders of a number of shares not to exceed 100, including all shares held by holders who, after giving effect to such redemption, would hold less than 100 shares, as may be specified by the Corporation. (ii) In the event the Corporation shall redeem shares of Series B Preferred Stock, written notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Series B Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to mail said notice or except as to the holder whose notice was defective. Each such notice shall 71 state: (a) the redemption date; (b) the number of shares of Series B Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (c) the redemption price including an amount equal to any accrued and unpaid dividends to the redemption date; (d) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (e) that dividends on the shares to be redeemed will cease to accrue on such redemption date (unless the Corporation shall default in providing funds for the payment of the redemption price of the shares called for redemption at the time and place specified in such notice). (iii) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing funds for the payment of the redemption price of the shares called for redemption), notwithstanding that the certificates evidencing any shares of Series B Preferred Stock so called for redemption shall not have been surrendered, dividends on the shares of Series B Preferred Stock so called for redemption shall cease to accrue and shall be redeemed and, upon the taking of any action required by applicable law, said shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock, undesignated as to series, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price and any accrued and unpaid dividends) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid plus an amount equal to any accrued and unpaid dividends, without interest. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (iv) The Corporation's obligation to provide funds for the payment of the redemption price (including an amount equal to any accrued and unpaid dividends to the redemption date) of the shares called for redemption shall be deemed fulfilled if, on or before a redemption date, the Corporation shall deposit, with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City and having a capital and surplus of at least $50,000,000, such funds sufficient to pay the redemption price (including an amount equal to any accrued and unpaid dividends to the redemption date) of the shares called for redemption, in trust for the account of the holders of the shares to be redeemed (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such funds be delivered upon redemption of the shares of Series B Preferred Stock so called for redemption. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so deposited and unclaimed at the end of two years from 72 such redemption date shall be repaid and released to the Corporation, after which the holder or holders of such shares of Series B Preferred Stock so called for redemption shall look only to the Corporation for delivery of such funds. 6. Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after payment or provision for payment of any Senior Securities, an amount per share of Series B Preferred Stock in cash equal to the sum of $25,000 plus an amount equal to all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities in connection with such liquidation, dissolution or winding up. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series B Preferred Stock and any Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series B Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. Except as provided in this paragraph (6)(i), holders of Series B Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (ii) For the purposes of this paragraph (6), neither the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other corporations nor the consolidation or merger of one or more corporations with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up. 7. Voting Rights. (i) The holders of record of shares of Series B Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (7) or as otherwise provided by law. (ii) (a) If at any time or times dividends payable on all series of Preferred Stock, including the Series B Preferred Stock, shall be in arrears and unpaid for the six quarterly periods, then the number of directors constituting the Board of Directors, without further action, shall be increased by two (2) and the holders of shares of Series B Preferred Stock shall have the right, together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), to elect the directors of the Corporation to fill such newly created 73 directorships, the remaining directors to be elected by the other class or classes of stock entitled to vote therefor, at each meeting of stockholders held for the purpose of electing directors; provided, that in no event shall such holders have the right to elect more than 25% of the total number of directors of the Corporation; provided, further, that, notwithstanding the foregoing proviso, such holders shall have the right to elect not less than one director pursuant to this paragraph (7)(ii)(a). (b) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Series B Preferred Stock together with the holders of all other outstanding series of the Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock), called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. Such voting right shall continue until such time as all cumulative dividends accumulated on all outstanding series of Preferred Stock shall have been paid in full or declared and set aside for payment in full, at which time such voting right of such holders shall terminate, subject to revesting in the event of each and every subsequent failure of the Corporation to pay dividends for the requisite number of quarters as described above. (c) At any time when such voting right shall have vested in the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) and if such right shall not already have been initially exercised, a proper officer of the Corporation shall, upon the written request of 10% of the holders of record of shares of such series of Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of holders of shares of such series of Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the shares of such series of Preferred Stock then outstanding may designate in writing a holder of shares of such series of Preferred Stock to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph (7)(ii)(c). Any holder of shares of such series of Preferred Stock that would be 74 entitled to vote at such meeting shall have access to the stock books of the Corporation for such series of Preferred Stock for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called during a period within 90 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than the Cumulative Convertible Preferred Stock) shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of at least a majority of the then outstanding shares of such series of Preferred Stock shall be required and be sufficient to constitute a quorum of such series for the election of directors by such series. At any such meeting or adjournment thereof (x) the absence of a quorum of the holders of shares of such series of Preferred Stock shall not prevent the election of directors other than those to be elected by the holders of stock of such series of Preferred Stock and the absence of a quorum or quorums of the holders of capital stock entitled to elect such other directors shall not prevent the election of directors to be elected by the holders of shares of such series of Preferred Stock and (y) in the absence of a quorum of the holders of shares of such series of Preferred Stock, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting for the election of directors which the holders of shares of such series of Preferred Stock may be entitled to elect, from time to time, without notice (except as required by law) other than announcement at the meeting, until a quorum shall be present. (e) The term of office of all directors elected by the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) pursuant to paragraph (7)(ii)(a) in office at any time when the aforesaid voting rights are vested in the holders of shares of such series of Preferred Stock shall terminate upon the election of their successors at any meeting of stockholders for the purpose of electing directors. Upon any termination of the aforesaid voting rights in accordance with paragraph (7)(ii)(b), the term of office of all directors elected by the holders of shares of such series of Preferred Stock pursuant to paragraph (7)(ii)(a) then in office shall thereupon terminate and upon such termination the number of directors constituting the Board of Directors shall, without further action, be reduced by two (2) (or such other lesser number by which the number of directors constituting the Board of Directors shall have been increased pursuant to paragraph (7)(ii)(a) hereof), subject always to the increase of the number of directors pursuant to paragraph (7)(ii)(a) in case of the future right of the holders of shares of such series of Preferred Stock to elect directors as provided herein. 75 (f) In case of any vacancy occurring among the directors elected pursuant to paragraph (7)(ii)(a), the remaining director who shall have been so elected may appoint a successor to hold office for the unexpired term of the director whose place shall be vacant. If all directors so elected by the holders of shares of Series B Preferred Stock together with all other series of Preferred Stock entitled to vote thereon (other than Cumulative Convertible Preferred Stock) shall cease to serve as directors before their terms shall expire, the holders of shares of such series of Preferred Stock then outstanding may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of the directors whose places shall be vacant. (iii) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Parity Securities. (iv) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66- 2/3% of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, authorize any new class of Senior Securities or designate a new series of Senior Securities from an existing class of Preferred Stock. (v) So long as any shares of the Series B Preferred Stock are outstanding (except when notice of the redemption of all outstanding shares of Series B Preferred Stock has been given pursuant to paragraphs (5) and (6) and funds have been deposited in trust for such redemption), the Corporation shall not, without the affirmative vote or consent of the holders of at least 66- 2/3% of the shares of Series B Preferred Stock and any other series of Preferred Stock entitled to vote thereon at the time outstanding voting or consenting, as the case may be, together as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, amend the Certificate of Incorporation or this Certificate of Designation so as to affect materially and 76 adversely the specified rights, preferences, privileges or voting power of holders of shares of Series B Preferred Stock. (vi) Except as set forth in paragraph (7)(iii) and paragraph (7)(iv) above, the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, the creation of any indebtedness of any kind of the Corporation, or the increase or decrease in the amount of authorized capital stock of any class, including Preferred Stock, shall not require the consent of the holders of Series B Preferred Stock and shall not be deemed to affect materially and adversely the rights, preferences, privileges or voting power of holders of shares of Series B Preferred Stock. (vii) When voting together as one class with the holders of any other series of Preferred Stock, the holders of Series B Preferred Stock shall be entitled to 1,000 votes per share. 8. Increase in Shares. The number of shares of Series B Preferred Stock may, to the extent of the Corporation's authorized and unissued Preferred Stock, be increased by further resolution duly adopted by the Board of Directors and the filing of a certificate of increase with the Secretary of State of the State of Delaware. 9. Limitations. Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this resolution (as such resolution may be amended from time to time) or otherwise in the Certificate of Incorporation of the Corporation. ARTICLE FIFTH The Board of Directors of the Corporation, acting by majority vote, may alter, amend or repeal the By-Laws of the Corporation. ARTICLE SIXTH Except as otherwise provided by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 77 ARTICLE SEVENTH So long as the Corporation's Senior Converting Debentures Due 2009 are outstanding, the Corporation and its Subsidiaries shall not engage in, directly or indirectly, any purchase, sale, or other acquisition or disposition of a material amount of assets of the Corporation and its Subsidiaries, taken as a whole, with any Affiliate of the Corporation (other than a wholly owned subsidiary of the Corporation) except on terms that are not less favorable to the Corporation than those which would have been obtainable at the time of such transaction from a person who is not such an Affiliate, without the approval of the holders of a majority of shares of the common stock of the Corporation issued and then outstanding not held by Affiliates of the Corporation; provided, however, than any purchase, sale or other acquisition or disposition of a material amount of assets of the Corporation with any Affiliate of the Corporation shall be deemed to be on terms that are not less favorable to the Corporation than those which would have been obtainable at the time of the transaction from a person who is not an Affiliate if the Corporation receives a written opinion from a nationally recognized investment bank stating that the transaction is fair to the Corporation from a financial point of view. For the purposes of this Article SEVENTH and Article EIGHTH, the terms "Affiliate" and "Subsidiary" shall have the meanings set forth in the indenture relating to the Senior Converting Debentures Due 2009. ARTICLE EIGHTH If Senior Converting Debentures shall have been converted into not less than a number of shares of common stock of the Corporation equal to 12 1/2% of the fully diluted common stock of the Corporation at the Conversion Date (as defined in the indenture pursuant to which the Senior Converting Debentures have been issued), the Corporation shall not, without approval of the holders of a majority of shares of the common stock of the Corporation issued and then outstanding not held by Affiliates of the Corporation, engage in any transaction subject to Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 13e-3"), during the period from the fourth anniversary of the effective time of the merger of RJR Acquisition Corporation with and into RJR Nabisco, Inc. (the "Effective Time") to the fifth anniversary of the Effective Time. For the purposes of this Article EIGHTH only, it is assumed that the common stock of the Corporation is subject to the application of Rule 13e-3. 78 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation, having been duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 242 and Section 245 of the General Corporation Law of the State of Delaware, has been executed this day of , 199 . - ---- ----------- -- RJR NABISCO HOLDINGS CORP. By: -------------------------- Robert F. Sharpe, Jr. Vice President and Secretary [CORPORATE SEAL] Attest: By: ------------------------ Suzanne P. Jenney Assistant Secretary EX-3.2 4 RJR NABISCO HOLDINGS CORP. BY-LAWS As Amended Effective January 20, 1994 ARTICLE I MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of stockholders of the ----------------- Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine. Section 2. Annual and Special Meetings. Annual meetings of --------------------------- stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of stockholders may be called by the Chairman for any purpose and shall be called by the Chairman or the Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the common stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting. Section 3. Notice. Except as otherwise provided by law or by the ------ Certificate of Incorporation, written notice shall be given to each stockholder entitled to vote at least 10 and not more than 60 days before each meeting of stockholders, such notice to include the time, date and place of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Section 4. Quorum. At any meeting of stockholders, the holders of ------ record, present in person or by proxy, of a majority of the Corporation's stock issued and outstanding and entitled to vote shall constitute a quorum for the transaction of business, except as otherwise provided by law or by the Certificate of Incorporation. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present. Section 5. Conduct of Meeting and Order of Business. The Chairman ---------------------------------------- or, in his absence, the President, shall act as chairman at all meetings of stockholders. The Secretary of the Corporation or, in his absence, an Assistant Secretary shall act as secretary at all meetings of stockholders. The chairman of the meeting shall have the right and authority to determine and maintain the rules, regulations and procedures for the proper conduct of the meeting, including but not limited to restricting entry to the meeting after it has commenced, maintaining order and the safety of those in attendance, opening and closing the polls for voting, dismissing business not properly submitted, and limiting time allowed for discussion of the business of the meeting. Business to be conducted at annual meetings of stockholders shall be limited to that properly submitted to the meeting either by or at the direction of the Board of Directors or by any stockholder of the Corporation who shall be entitled to vote at such meeting and who complies with the notice requirements set forth in Section 6 of this Article I. If the chairman of the meeting shall determine that any business was not properly submitted in accordance with the terms of Section 6 of this Article I, he shall declare to the meeting that such business was not properly submitted and would not be transacted at that meeting. Section 6. Advance Notice of Stockholder Proposals. In order to --------------------------------------- properly submit any business to an annual meeting of stockholders, a stockholder must give timely notice in writing to the Secretary of the Corporation. To be considered timely, a stockholder's notice must be delivered either in person or by United States certified mail, postage prepaid, and received at the principal executive offices of the Corporation (a) not less than 120 days nor more than 150 days before the first anniversary date of the Corporation's proxy statement in connection with the last annual meeting of stockholders or (b) if no annual meeting was held in the previous year or the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, not less than a reasonable time, as determined by the Board of Directors, prior to the date of the applicable annual meeting. Nomination of persons for election to the Board of Directors may be made by the Board of Directors or any committee designated by the Board of Directors or by any stockholder entitled to vote for the election of directors at the applicable meeting of stockholders. However, nominations other than those made by the Board of Directors or its designated committee must comply with the procedures set forth in this Section 6, and no person shall be eligible for election as a director unless nominated in accordance with the terms of this Section 6. A stockholder may nominate a person or persons for election to the Board of Directors by giving written notice to the Secretary of the Corporation in accordance with the procedures set forth above. In addition to the timeliness requirements set forth above for notice to the Corporation by a stockholder of business to be submitted at an annual meeting of stockholders, with respect to any special meeting of stockholders called for the election of directors, written notice must be delivered in the manner specified above and not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. The Secretary of the Corporation shall deliver any stockholder proposals and nominations received in a timely manner for review by the Board of Directors or a committee designated by the Board of Directors. A stockholder's notice to submit business to an annual meeting of stockholders shall set forth (i) the name and address of the stockholder, (ii) the class and number of shares of stock beneficially owned by such stockholder, (iii) the name in which such shares are registered on the stock transfer books of the Corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) any material interest of the stockholder in the business to be submitted and (vi) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the Corporation. In addition to the information required above to be given by a stockholder who intends to submit business to a meeting of stockholders, if the business to be submitted is the nomination of a person or persons for election to the Board of Directors then such stockholder's notice must also set forth, as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, business address and, if known, residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of stock of the Corporation which are beneficially owned by such person, (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is otherwise required by the rules and regulations of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended, (e) the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected and (f) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. Any person nominated for election as director by the Board of Directors or any committee designated by the Board of Directors shall, upon the request of the Board of Directors or such committee, furnish to the Secretary of the Corporation all such information pertaining to such person that is required to be set forth in a stockholder's notice of nomination. Notwithstanding the foregoing provisions of this Section 6, a stockholder who seeks to have any proposal included in the Corporation's proxy statement shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended. Section 7. Voting. Except as otherwise provided by law or by the ------ Certificate of Incorporation, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation's stock issued and outstanding and entitled to vote. A proxy shall be executed in writing by the stockholder or by his duly authorized attorney-in-fact and shall be delivered to the secretary of the meeting at or prior to the time designated by the chairman of the meeting. No stockholder may designate more than four persons to act on his behalf at a meeting of stockholders. Section 8. Inspectors of Election. Prior to any meeting of ---------------------- stockholders, the Board of Directors shall appoint one or more inspectors to act at the meeting and make a written report thereof in accordance with the Delaware General Corporation Law. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his ability. ARTICLE II DIRECTORS --------- Section 1. Number, Election and Removal of Directors. The number ----------------------------------------- of Directors that shall constitute the Board of Directors shall be not less than one nor more than seventeen. The first Board of Directors shall consist of three Directors. Thereafter, within the limits specified above, the number of Directors shall be determined by the Board of Directors or by the stockholders. The Directors shall be elected by the stockholders at their annual meeting and shall serve until the next annual meeting of stockholders and until their successors are elected and shall qualify. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders, and any Director so chosen shall serve until the next annual meeting of stockholders and until his successor shall be elected and shall qualify. A Director may be removed with or without cause by the stockholders. Section 2. Meetings. Regular meetings of the Board of Directors -------- shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman and shall be called by the Chairman or the Secretary if directed by the Board of Directors. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of stockholders. Notice need not be given of regular or special meetings of the Board of Directors. Section 3. Quorum. One-third of the total number of Directors ------ shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Section 4. Executive Committee. The Board of Directors, by ------------------- resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee consisting of the Chairman and at least three other Directors. Meetings of the Executive Committee shall be held without notice at such dates, times and places as shall be determined by the Executive Committee. The Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation that are permitted by law to be exercised by a committee of the Board of Directors, including the power to declare dividends, to authorize the issuance of stock and to adopt a certificate of ownership and merger of parent corporation and subsidiary or subsidiaries; provided, however, that the Executive Committee shall not have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation with respect to the Corporation, recommending to the stockholders the sale, lease or exchange of all or substantially all the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, amending the By-Laws of the Corporation or adopting a certificate of ownership and merger of the Corporation (other than a certificate of ownership and merger of parent corporation and subsidiary or subsidiaries). The majority of the members of the Executive Committee shall constitute a quorum. Minutes shall be kept of the proceedings of the Executive Committee, which shall be reported at meetings of the Board of Directors. The Executive Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors of the Corporation, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series. Section 5. Other Committees of Directors. The Board of Directors ----------------------------- may, by resolution adopted by a majority of the Board of Directors, designate one or more other committees to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member. ARTICLE III OFFICERS -------- Section 1. Description and Terms. The officers of the Corporation --------------------- shall be the Chairman, who shall be the Chief Executive Officer of the Company, a President, a Secretary, a Treasurer and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and serve at the pleasure of the Board of Directors; provided that the Chairman may appoint Senior Vice Presidents, Vice Presidents or Assistant Officers at his discretion. Subject to such limitations as may be imposed by the Board of Directors, the Chairman shall, acting singly have full executive power and authority with respect to the Company. The President shall have all the power and authority reserved to the office of President under Delaware Law as well as such additional powers and authority as the Chairman may determine. In addition, in the absence or incapacitation of the Chairman, the President shall have all the power and authority of the Chairman. Other officers shall have the usual powers and shall perform all the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the Chairman with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. Subject to such limitations as the Board of Directors may provide, each officer may further delegate to any other officer or any employee or agent of the Corporation such portions of their authority as the officer shall deem appropriate, subject to such limitation as the officer shall specify, and may revoke such authority at any time. Section 2. Stockholder Consents and Proxies. The Chairman, the -------------------------------- President, the Secretary and the Treasurer, or any one of them, shall have the power and authority on behalf of the Corporation to execute any stockholders' consents or proxies and to attend and act and vote in person or by proxy at any meetings of stockholders of any corporation in which the Corporation may own stock, and at any such meetings shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock which as the owner thereof the Corporation might have possessed and executed if present. The Board of Directors by resolution from time to time may confer like powers upon any other officer. ARTICLE IV INDEMNIFICATION --------------- To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he was or is a party or is threatened to be made a party by reason of his current or former position with the Corporation or by reason of the fact that he is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE V GENERAL PROVISIONS ------------------ Section 1. Notices. Whenever any statute, the Certificate of ------- Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice to be given in writing by mail, addressed to such Director or stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or facsimile transmission or be delivered personally or by telephone. Section 2. Fiscal Year. The fiscal year of the Corporation shall ----------- be fixed by the Board of Directors. Section 3. Certificates of Stock. Certificates representing --------------------- shares of the Corporation shall be signed by the Chairman and by the Secretary or an Assistant Secretary. Any and all signatures on such certificates, including signatures of officers, transfer agents and registrars, may be facsimile. EX-3.4 5 RJR NABISCO, INC. BY-LAWS As Amended Effective January 20, 1994 ARTICLE I MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of the stockholders of the ------------------ Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine. Section 2. Annual and Special Meetings. Annual meetings of ---------------------------- stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the Chairman for any purpose and shall be called by the Chairman or the Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the common stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting. Section 3. Notice. Except as otherwise provided by law or by the ------- Certificate of Incorporation, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder. Section 4. Quorum. At any meeting of stockholders, the holders of ------- record, present in person or by proxy, of a majority of the Corporation's issued and outstanding common stock shall constitute a quorum for the transaction of business, except as otherwise provided by law or by the Certificate of Incorporation. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present. Section 5. Voting. Except as otherwise provided by law or by the ------- Certificate of Incorporation, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation's issued and outstanding common stock. The date and time of the opening and closing of the polls for each matter upon which stockholders will vote shall be announced at the meeting. Section 6. Inspectors of Election. Prior to any meeting of the ----------------------- stockholders, the Board of Directors shall appoint one or more inspectors to act at the meeting and make a written report thereof in accordance with the Delaware General Corporation Law. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his ability. ARTICLE II DIRECTORS --------- Section 1. Number, Election and Removal of Directors. The number ------------------------------------------ of Directors that shall constitute the Board of Directors shall be not less than one nor more than seventeen. The first Board of Directors shall consist of three Directors. Thereafter, within the limits specified above, the number of Directors shall be determined by the Board of Directors or by the stockholders. The Directors shall be elected by the stockholders at their annual meeting and shall serve until the next annual meeting of the stockholders and until their successors are elected and shall qualify. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders, and any Director so chosen shall serve until the next annual meeting of the stockholders and until his successor shall be elected and shall qualify. A Director may be removed with or without cause by the stockholders. Section 2. Meetings. Regular meetings of the Board of Directors --------- shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman and shall be called by the Chairman or the Secretary if directed by the Board of Directors. A meeting of the Board of Directors may be held 2 without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular or special meetings of the Board of Directors. Section 3. Quorum. One-third of the total number of Directors ------- shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Section 4. Executive Committee. The Board of Directors, by -------------------- resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee consisting of the Chairman and at least three other Directors. Meetings of the Executive Committee shall be held without notice as such dates, times and places as shall be determined by the Executive Committee. The Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation that are permitted by law to be exercised by a committee of the Board of Directors, including the power to declare dividends, to authorize the issuance of stock and to adopt a certificate of ownership and merger of parent corporation and subsidiary or subsidiaries; provided, however, that the Executive Committee shall not have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation with respect to the Corporation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, amending the By-Laws of the Corporation or adopting a certificate of ownership and merger of the Corporation (other than a certificate of ownership and merger of parent corporation and subsidiary or subsidiaries). The majority of the members of the Executive Committee shall constitute a quorum. Minutes shall be kept of the proceedings of the Executive Committee, which shall be reported at meetings of the Board of Directors. The Executive Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors of the Corporation, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the 3 number of shares of any series of stock or authorized the increase or decrease of the shares of any series. Section 5. Other Committees of Directors. The Board of Directors ------------------------------ may, by resolution adopted by a majority of the Board of Directors, designate one or more other committees to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member. ARTICLE III OFFICERS -------- Section 1. Description and Terms. The officers of the Corporation --------------------- shall be the Chairman, who shall be the Chief Executive Officer of the Company, a President, a Secretary, a Treasurer and other such additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and serve at the pleasure of the Board; provided that the Chairman may appoint Senior Vice Presidents, Vice Presidents or Assistant officers at his discretion. Subject to such limitations as may be imposed by the Board of Directors, the Chairman has full executive power and authority with respect to the Company. The President shall have all of the power and authority reserved to the office of President under Delaware Law as well as such additional powers and authority as the Chairman may determine. In addition, in the absence or incapacitation of the Chairman, the President shall have all the power and authority of the Chairman. Other officers shall have the usual powers and shall perform all the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the Chairman with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. Subject to such limitations as the Board of Directors may provide, each officer may further delegate to any other officer or any employee or agent of the Corporation such portions of his authority as the officer shall deem appropriate, subject to such limitation as the officer shall specify, and may revoke such authority at any time. Section 2. Stockholder Consents and Proxies. The Chairman, the --------------------------------- President, the Treasurer and the Secretary, or any one of them, shall have the 4 power and authority on behalf of the Corporation to execute any stockholders' consents or proxies and to attend and act and vote in person or by proxy at any meetings of the stockholders of any corporation in which the Corporation may own stock, and at any such meetings shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock which as the owner thereof the Corporation might have possessed and executed if present. The Board of Directors, by resolutions from time to time, may confer like powers upon any other officer. ARTICLE IV INDEMNIFICATION --------------- To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he was or is a party or is threatened to be made a party by reason of his current or former position with the Corporation or by reason of the fact that he is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE V GENERAL PROVISIONS ------------------ Section 1. Notices. Whenever any statute, the Certificate of -------- Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notices may be given in writing by mail, addressed to such Director or stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or facsimile transmission or be delivered personally or by telephone. Section 2. Fiscal Year. The fiscal year of the Corporation shall ------------ be fixed by the Board of Directors. 5 EX-10.15(C) 6 FOURTH AMENDMENT TO THE RJR NABISCO, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, RJR Nabisco, Inc. has in effect the RJR Nabisco, Inc. Supplemental Executive Retirement Plan ("Plan"); and WHEREAS, in accordance with resolutions authorized by the RJR Employee Benefits Committee on April 20, 1993, --------- this Amendment has been authorized and adopted; and WHEREAS, the Compensation Committee on August 9, 1989 delegated the authority to amend employee plans to the RJR Employee Benefits committee; and WHEREAS, the amendments herein do not violate the prohibitions of section 11(g) of the Plan; NOW, THEREFORE, the Plan is hereby amended January 1, 1991, unless otherwise specified herein, as follows: 1. Effective January 1, 1993, Section 2.3 of the Plan is hereby amended in its entirety to read as follows: "2.3. Final Average Compensation means the Participating -------------------------- Executive's average annual compensation determined in the same manner as "final Average Earnings" is determined under the Retirement Plan for Employees of RJR Nabisco, Inc.; except that the limitations of Internal Revenue Code Section 401(a)(17) shall not be imposed." 2. Section 2.8 of the Plan is hereby amended by replacing the reference therein to "the Organization, Compensation and Nominating Committee" with "the Compensation Committee." 3. Section 2.14 of the Plan is hereby amended to read as follows: "2.14 Participating Company means Nabisco, Inc., --------------------- Nabisco International, Inc., R. J. Reynolds Tobacco Company, R. J. Reynolds Tobacco International, Inc., and any other Affiliated Company which is designated by the Chief Executive Officer as a Participating Company in this Plan." 4. Section 2.19 of the Plan is hereby amended to correct the reference in the last sentence thereof from "Final Average Coverage Compensation" to "Final Average Covered Compensation." 5. Effective April 1, 1991, Section 3(a) is hereby amended by changing the reference therein from "salary grade 23 or higher" to "salary level D or higher." 6. Section 5 of the Plan is hereby amended by clarifying the reference to "Section 4" in the first sentence thereof so that it reads "Section 4(a), (b), or (c)." 7. Section 6 of the Plan is hereby amended by changing the first sentence thereof to read as follows: "A Participating Executive whose retirement is postponed beyond his Normal Retirement Age with the written consent of the Chief Executive Officer (or in the case of the Chief Executive Officer, the Committee), may not commence to receive an Executive Plan Benefit until the first day of the month next following his actual retirement date." END OF AMENDMENT EX-10.19 7 Name of the Optionee: Number of Shares for Which Option may be Exercised: Charles M. Harper 750,000 Grant Date: December 31, 1993 RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN NON-QUALIFIED STOCK OPTION AGREEMENT WITNESSETH: ARTICLE I GRANT OF OPTION SECTION 1.1 Grant of Option. ---------------- Pursuant to the provisions of the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (the "Plan"), and for good and valuable consideration, on and as of the date hereof (the "Grant date") RJR Nabisco Holdings Corp. ("Holdings"), in consideration of Optionee's agreement to purchase the Purchased Stock set forth in the Employment Agreement dated May 27, 1993 by and among Holdings, RJR Nabisco, Inc. and the Optionee (the "Employment Agreement"), irrevocably grants (the "Grant") to the Optionee above named the option to purchase any part or all of an aggregate of the number of shares set forth on the first page hereof of its Common Stock upon the terms and conditions set forth in this Agreement and has directed the undersigned officer to execute this Agreement. A copy of the Plan is attached hereto as Exhibit A and made a part of this Agreement with the same effect as if set forth in the Agreement itself. A copy of the Employment Agreement is attached hereto as Exhibit B and made a part of this Agreement with the same effect as if set forth in the Agreement itself. All capitalized terms used below shall have the meaning set forth in the Plan or the Employment Agreement, as the case may be, unless the context requires a different meaning. SECTION 1.2 Exercise Price. -------------- The exercise price of the shares of Common Stock covered by the Option shall be $6.563 per share without commission or other charge. SECTION 1.3 Consideration to Holdings. ------------------------- In consideration of the granting of this Option by Holdings, the Optionee agrees to render faithful and efficient services to the Corporation, with such duties and responsibilities the Corporation shall from time to time prescribe, consistent with the terms of the Employment Agreement. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Corporation or shall interfere with or restrict in any way the rights of the Corporation, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with or without cause, subject to the terms of the Employment Agreement. SECTION 1.4 Adjustments in Option. ---------------------- Subject to Section 8 of the Plan, in the event that the outstanding shares of the Common Stock subject to the Option are, from time to time, changes into or exchanged for a different number or kind of shares of Holdings or other securities of Holdings or another corporation by reason of a merger, consideration, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, or in the event of an extraordinary transaction involving the Holdings capital stock or assets or the capital stock or assets of an affiliated corporation, an appropriate and equitable adjustment shall be made in the number and kind of shares or other consideration as to which the option, or portions thereof then unexercised, shall be exercisable. ARTICLE II PERIOD OF EXERCISABILITY SECTION 2.1 Commencement of Exercisability. ------------------------------- The Option shall become exercisable as follows: Percentage of Total Shares As Date Option Becomes Exercisable to Which Option is Exercisable - ------------------------------- ------------------------------ Grant Date through May 30, 1994 0% May 31, 1994 - May 30, 1995 25% May 31, 1995 - May 30, 1996 50% May 31, 1996 - May 30, 1997 75% May 31, 1997 - thereafter 100% (a) Notwithstanding the foregoing, the Option shall immediately become exercisable as to all shares following the termination of employment of the Optionee for any reason other than a termination of employment by Holdings for Cause or a termination of employment by executive without Good Reason. (b) The Optionee shall be deemed to have a "Permanent Disability" if he becomes totally and permanently disable (as defined in the Company's Long Term Disability Plan applicable to senior executive officers as in effect on the date hereof), or if the Board of Directors or any committee thereof so determines. (c) "Retirement" shall mean retirement on or after May 31, 1997, or earlier with the consent of the Committee. (d) "Termination of employment" as used herein means termination from active employment; it does not mean termination of payment or benefits at the end of salary continuation or other form of severance or pay in lieu of salary. SECTION 2.2 Expiration of Option. --------------------- The option may not be exercised to any extent by Optionee and shall expire or terminate after the first to occur to the following events: (a) The fifteenth anniversary of the Grant date; or (b) The first anniversary of the date of the Optionee's termination of employment for any reason, other than by reason of Retirement or for Cause; or (c) The third anniversary of the date of Optionee's termination of employment by reason of Retirement or Permanent Disability. (d) Immediately upon the Optionee's termination of employment for Cause; or (e) If applicable, the date the Option is terminated pursuant to the Employment Agreement. ARTICLE III EXERCISE OF OPTION SECTION 31.1 Person Eligible to Exercise. ---------------------------- During the lifetime of the Optionee, only the Optionee may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the option becomes unexercisable and expires under Section 2.2, be exercised by his personal representative or by any person empowered to do so under the Optionee's will or under the then applicable laws of descent and distribution. SECTION 3.2 Partial Exercise. ----------------- Any exercisable portion of the option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable and expires under Section 2.2; provided, however, that any partial exercise shall be for whole shares only. SECTION 3.3 Manner of Exercise. ------------------- The Option, or any exercisable portion thereof, may be exercised solely by delivering to the Corporate Secretary of Holdings (the "Secretary") or his office all of the following prior to the time when the Option or such portion becomes unexercisable under Section 2.2: (a) Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee; (b) Full payment by; (i) tender to Holdings of cash for the full purchase price of the shares with respect to which such Option or portion thereof is exercised; (ii) The unsecured, demand borrowing by Optionee from Holdings on an open account maintained solely for this purpose in the amount of the full exercise price together with the instruction from Optionee to sell the shares exercised on the open market through a duly registered broker-dealer with which Holdings makes an arrangement for the sale of such shares under the Plan. This method is known as the "broker-dealer exercise method" and is subject to the terms and conditions set forth herein, in the Plan and in guidelines established by the Committee. The option shall be deemed to be exercised simultaneously with the sale of the shares by the broker-dealer. If the shares purchased upon the exercise of an Option or a portion thereof cannot be sold for a price equal to or greater than the full exercise price plus direct costs of the sales, then there is no exercise of the Option. Election of this method authorizes Holdings to deliver shares to the broker- dealer and authorizes the broker-dealer to sell said shares on the open market. The broker-dealer will remit proceeds of the sale to Holdings which will remit net proceeds of the sale to Holdings which will remit net proceeds to Optionee after repayment of the borrowing, deduction of costs, if any, and withholding of taxes. Optionee's borrowing from Holdings on an open account shall be a personal obligation of Optionee which shall bear interest at the published Applicable Federal Rate (AFR) for short-term loans and shall be payable upon demand by Holdings. Such borrowing may be authorized by telephone or other telecommunications acceptable to Holdings. Upon such borrowing and the exercise of the Option or portion thereof, title to the shares shall pass to the Optionee whose election hereunder shall constitute instruction to Holdings to register the shares in the name of the broker-dealer or its nominee. Holdings reserves the right to discontinue this broker-dealer exercise method at any time for any reason whatsoever. Optionee agrees that if this broker-dealer exercise method under this Paragraph 3.3(b)(ii) hereof is used, Optionee promises unconditionally to pay Holdings the full balance in his open account at any time upon demand. Optionee also agrees to pay interest on the account balance at the AFR for short-term loans from and after demand. (c) Full payment to Holdings of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and (d) In the event the Option or portion thereof shall be exercised pursuant to Section 3.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option. (e) This Option shall not be exercisable prior to six months after the Date of Grant. SECTION 3.4 Conditions of Issuance of Stock Certificates. --------------------------------------------- The shares of Common Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by Holdings. Such shares shall be duly and validly issued, fully paid and nonassessable. Holdings shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of Common Stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall deem necessary; and (c) The obtaining of approval or other clearance from any state of federal governmental agency which the Committee shall determine to be necessary; and (d) The payment to Holdings of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience. SECTION 3.5 Rights as Stockholder. ---------------------- The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of Holdings in respect of any shares purchasable upon the exercise of the Option or any portion thereof unless and until certificates representing such shares shall have been issued by Holdings to such holder. ARTICLE IV MISCELLANEOUS SECTION 4.1 Administration. --------------- The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, Holdings and all other interested persons, subject to the terms of the Employment Agreement. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement. SECTION 4.2 Option Not Transferable. ------------------------ Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or obligations of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.2 shall not prevent transfers by will or by, the applicable laws of descent and distribution. SECTION 4.3 Shares to Be reserved; Other Covenants. --------------------------------------- .1 Holdings shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement; and .2 Holdings shall take all actions necessary to satisfy the conditions set forth in clauses (a), (b) and (c) of Section 3.4 hereof so that such conditions shall remain satisfied so long as any of the Options remain outstanding. SECTION 4.4 Notices. -------- Any notice to be given under the terms of this Agreement to Holdings shall be addressed to Holdings in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address appearing beneath his signature on the final page of this Agreement. By a notice given pursuant to this Section 4.4, either party may hereafter designate different address for notices to be given to him. Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has previously informed Holdings of his status and address by written notice under this Section 4.4. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. SECTION 4.5 Termination for Cause. ---------------------- For purposes of this Agreement, an Optionee's employment shall be deemed to have been terminated for "Cause" only as such term is defined in the Employment Agreement. SECTION 4.6 Titles. ------- Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. SECTION 4.7 Applicability of Plan and the Employment ---------------------------------------- Agreement. - ---------- The Option and the shares of Common Stock issued to the Optionee upon exercise of this Option shall be subject to all of the terms and provisions of the Plan and the Employment Agreement, to the extent applicable to this Option and such shares. In the event of any conflict between the Plan, this Agreement and/or the Employment Agreement, the terms of the Employment Agreement shall control. Notwithstanding anything to the contrary contained herein, this Agreement shall be null and void and of no effect unless the Optionee has purchased the Purchased Stock pursuant to the Employment Agreement, unless such purchase is not consummated for reasons beyond the control of Optionee. SECTION 4.8 Amendment. ---------- This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement. SECTION 4.9 Pronouns. --------- The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. SECTION 4.10 GOVERNING LAW. -------------- THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. SECTION 4.11 Jurisdiction. ------------- Any suit, action or proceeding against the Optionee with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any court of competent jurisdiction in the State of Delaware or New York, as "Holdings may elect in its sole discretion, and the Optionee hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. By the execution and delivery of this Agreement, the Optionee appoints The Prentice-Hall Corporation at its office at 15 Columbus Circle, New York, NY 10023-7773 as his agent upon which process may be served in any such suit, action or proceeding. Service of process upon such agent, together with notice of such service given to the Optionee in the manner provided in section 4.4, hereof, shall be deemed in every respect effective service of process upon him in any suit, action or proceeding. Nothing herein shall in any way be deemed to limit the ability of Holdings to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over the Optionee, in such other manner permitted by applicable law or to obtain jurisdiction over the Optionee, in such other jurisdictions, and in such manner, as may be permitted by applicable law. The Optionee hereby irrevocably waives any objections which he may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court of competent jurisdiction in the State of Delaware or New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. Holdings hereby submits to the jurisdiction of such courts for the purpose of any such suit, action or proceeding. SECTION 4.12 Taxes. ------ Any taxes required by federal, state, or local laws to be withheld by the Company (i) on exercise by the Optionee of the Option for Common Stock, or (ii) at the time an election, if any, is made by the Optionee pursuant to Section 83(b) of the internal Revenue Code, as amended, shall be paid to the Company before delivery of the Common Stock is made to the Optionee. When the Option is exercised under the broker-dealer exercise method, the full amount of any taxes required to be withheld by the Company on exercise of stock options shall be deducted by the Company from the proceeds. SECTION 4.13 Signatures. ----------- This Agreement may be executed by Holdings by manual or facsimile signature of any duly authorized officer of Holdings. SECTION 4.14 Counterparts. ------------- This Agreement may be executed in two or more counterparts. IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. RJR NABISCO HOLDINGS, CORP. By_________________________________ _____________________________ Charles M. Harper Optionee's Taxpayer Identification Number: _____________________________ Optionee's Address: Suite 1500 One Central Park Plaza Omaha, Nebraska 68102 Dated: EX-10.24 8 RJR NABISCO Date: January 20, 1994 To: L. R. Ricciardi From: C. M. Harper Subject: Spousal SERP Benefit This is to follow up our conversation the other day concerning the SERP benefit that your spouse would receive if you were to die while employed by the Company after August 14, 1995, the date upon which you may first retire with CEO consent (as previously given to you). During our discussion, you correctly pointed out that if you were to die while employed by the Company after August 14, 1995, your spouse would receive a SERP benefit roughly one-half the size of the benefit that you would have received had you retired on August 14, 1995. Thus, you might be compelled to retire on that date in order to secure the higher SERP benefit, and this may be contrary to the desires of both the Company and you that you continue working for the Company. In order to remove this potential obstacle to your continued service with the Company beyond August 14, 1995, I have been authorized by the Compensation Committee of the Board to confirm to you that if you should die while employed by the Company after that date, your spouse will receive the same lump-sum SERP benefit that you would have received had you retired rather than dies on the date of your death. Of course, the lump sum could be used by your spouse to purchase an immediate annuity if she so elects. This benefit will be grossed- up for taxes as your benefit would have been had you retired. Larry, I trust this addresses the concerns you expressed regarding your SERP benefit. If you concur, please sign this memo next to your printed name above, thereby constituting this as an Agreement between you and the Company. EX-10.33(A) 9 AMENDMENT AND EXCHANGE OF SECURED PROMISSORY NOTE The undersigned promises to pay the currently outstanding balance under previously executed Secured Promissory Notes to RJR Nabisco Holdings Corp. pursuant to the terms of any and all such Notes, except that interest on the unpaid balance of all indebtedness shall accrue from July 1, 1993 at the applicable Federal rate (6.37%). ________________________ Employee ________________________ Printed Name Date: July 1, 1993 -------------------- As an incentive to Employee's continued employment with the Company or an affiliate thereof, and as the holder of the above referenced promissory notes, the Company agrees to the above amendment; and further agrees that partial sales of Stock pledged under the Notes will be applied to pay the loan balance without accelerating that date upon which the entire loan balance becomes due and payable; provided, however, until the principal amount and accrued interest on the Loan are repaid in full, such stock shall only be sold by the Company, acting on behalf of Employee, for the purpose of repaying the loan balance. RJR Nabisco Holdings Corp. By:______________________ Date: July 1, 1993 -------------------- EX-10.38 10 Option 1991/1992 LTIP Amend. I RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN RESTATED STOCK OPTION AGREEMENT ___________________________ W I T N E S S E T H : 1. Restated Option. --------------- Pursuant to the provisions of the 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the Grant Date, or Dates, as applicable, listed in Attachment 1 hereto has previously granted to FIRSTNAME LASTNAME (the "Optionee") the right and option to exercise from the Company a number of shares of Common Stock of the Company at the exercise price, or prices, as applicable, as listed in Attachment 1. This restatement amends the vesting and exercisability provisions of the prior Stock Option Agreement, or Agreements, as applicable, (the "Prior Agreements"), but it does not alter the original Grant Dates or Grant Prices of the Prior Agreements listed in Attachment 1 which dates and prices shall remain in effect now as then. A copy of the Plan is made a part of this restated Agreement with the same effect as if set forth in the Agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. Except as specifically set forth herein, the Prior Agreements are null and void. 2. Exercise of Option. ------------------- (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of shares to be purchased. The notice of exercise shall be accompanied by: (i) tender to the Company of cash for the full purchase price of the shares with respect to which such Option or portion thereof is exercised; or -- (ii) the unsecured, demand borrowing by the Optionee from the Company on an open account maintained solely for this purpose in the amount of the full exercise price together with the instruction from the Optionee to sell the shares exercised on the open market through a duly registered broker-dealer with which the Company makes an arrangement for the sale of such shares under the Plan. This method is known as the "broker-dealer exercise method" and is subject to the terms and conditions set forth herein, in the Plan and in guidelines established by the Committee. The Option shall be deemed to be exercised simultaneously with the sale of the shares by the broker-dealer. If the shares purchased upon the exercise of an Option or a portion thereof cannot be sold for a price equal to or greater than the full exercise price plus direct costs of the sales, then there is no exercise of the Option. Election of this method authorizes the Company to deliver shares to the broker-dealer and authorizes the broker-dealer to sell said shares on the open market. The broker-dealer will remit proceeds of the sale to the Company which will remit net proceeds to the Optionee after repayment of the borrowing, deduction of costs, if any, and withholding of taxes. The Optionee's borrowing from the Company on an open account shall be a personal obligation of the Optionee which shall bear interest at the published Applicable Federal Rate (AFR) for short-term loans and shall be payable upon demand by the Company. Such borrowing may be authorized by telephone or other telecommunications acceptable to the Company. Upon such borrowing and the exercise of the Option or portion thereof, title to the shares shall pass to the Optionee whose election hereunder shall constitute instruction to the Company to register the shares in the name of the broker-dealer or its nominee. The Company reserves the right to discontinue this broker-dealer exercise method at any time for any reason whatsoever. The Optionee agrees that if this broker-dealer exercise method under this paragraph is used, the Optionee promises unconditionally to pay the Company the full balance in his open account at any time upon demand. Optionee also agrees to pay interest on the account balance at the AFR for short-term loans from and after demand. (b) The Option, or Options, as applicable, listed in Attachment 1 shall be, or become, exercisable as follows: Percentage of shares Date Option(s) Become(s) Exercisable As to which Option(s) Exercisable - ------------------------------------ --------------------------------- On or after January 1, 1993 As stated in the Prior Agreements On or after December 31, 1993 33% of Total number listed in ----- Attachment 1 On or after December 31, 1994 66% of Total number listed in ----- Attachment 1 On or after December 31, 1995 100% of Total number listed in ------ Attachment 1 Attachment 1 shall only be valid if the signature of a authorized signatory of the Company is affixed thereto. -2- To the extent that any of the above installments is not exercised when it becomes exercisable, it shall be not expire, but shall continue to be exercisable at any time thereafter until the Option(s) shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) The Option(s) are not exercisable prior to six months after the Date of Grant. 3. Rights in Event of Termination of Employment. --------------------------------------------- (a) Unless otherwise provided in a written employment or termination agreement between the Optionee and the Company, the Option shall not become exercisable as to any additional shares following the Termination of Employment of the Optionee for any reason other than a Termination of Employment because of death, Permanent Disability or Retirement of the Optionee. In the event of Termination of Employment because of death, Permanent Disability or Retirement, the Option shall immediately become exercisable as to all shares. (b) The Optionee shall be deemed to have a "Permanent Disability" if he becomes totally and permanently disabled (as defined in RJR Nabisco, Inc's Long Term Disability Plan applicable to senior executive officers as in effect on the date hereof), or if the Board of Directors or any committee thereof so determines. (c) "Retirement" as used herein means retirement at age 65 or over, or early retirement at age 55 or over with the approval of the Company, which approval may either be specific to the Option(s) hereunder or a general approval in writing from the Chief Executive Officer of the Company to retire at or after age 55. (d) "Termination of Employment" as used herein means termination from active employment; it does not mean termination of payment or benefits at the end of salary continuation or (other form of severance or pay in lieu of salary). 4. Expiration of Option. The Option shall expire or terminate and ---------------------- may not be exercised to any extent by the Optionee after the first to occur of the following events: (a) The fifteenth anniversary of the Date of Grant, or such earlier time as the Company may determine is necessary or appropriate in light of applicable foreign tax laws; or (b) The third anniversary of the date of the Optionee's Termination of Employment by reason of death, Permanent Disability or Retirement; or -3- (c) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein); or (d) Ninety days after Termination of Employment of the Optionee for a reason other than for Cause, death, Permanent Disability or Retirement; provided, however, there shall be no exercise prior to December 31, 1993, and if Termination of Employment occurs prior to December 31, 1993, the option shall expire March 31, 1994. 5. Transferability. Other than as specifically provided with --------------- regard to the death of the Optionee, this option agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Optionee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Optionee. 6. No Right to Employment. Neither the execution and delivery of ---------------------- this agreement nor the granting of the Option evidenced by this agreement shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Optionee for any specific period or shall prevent the Company or its subsidiaries from terminating the Optionee's employment at any time with or without "Cause" (as defined in Section 11 herein). 7. Adjustments in Option. --------------------- a) In the event that the outstanding shares of the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination or division of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. b) In its absolute discretion, and on such terms and conditions as it deems appropriate, coincident with or after the grant of any Option, the Committee may provide that such Option cannot be exercised after the merger or consolidation of the Company with or into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of another corporation, the acquisition by another person of 80% or more of the Company's outstanding shares of voting stock or the recapitalization, reclassification, liquidation or dissolution of the Company, and if the Committee so provides, it may, in its absolute discretion and on such terms and conditions as it deems appropriate, also provide, either by the terms of such Option or by a resolution adopted prior to the occurrence of such merger, consolidation, exchange, acquisition, recapitalization, reclassification, liquidation or dissolution, that , for some period of time -4- prior to such event, such Option shall be exercisable as to all shares subject thereto; provided, however, that the Committee may also provide, in its absolute discretion, that even if the Option shall remain exercisable after any such event, from and after such event, any such Options shall be exercisable only for the kind and amount of securities and/or other property, or the cash equivalent thereof, receivable as a result of such event by the holder of a number of shares of stock for which such Option could have been exercised immediately prior to such event. 8. Application of Laws. The granting and the exercise of this ------------------- Option and the obligations of the Company to sell and deliver shares hereunder and to remit cash under the broker-dealer exercise method shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required. 9. Taxes. Any taxes required by federal, state, or local laws to ----- be withheld by the Company (i) on exercise by the Optionee of the Option for Common Stock, or (ii) at the time an election, if any, is made by the Optionee pursuant to Section 83(b) of the Internal Revenue Code, as amended, shall be paid to the Company before delivery of the Common Stock is made to the Optionee. When the Option is exercised under the broker-dealer exercise method, the full amount of any taxes required to be withheld by the Company on exercise of stock options shall be deducted by the Company from the proceeds. 10. Notices. Any notices required to be given hereunder to the ------- Company shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019-6013, and any notice required to be given hereunder to the Optionee shall be sent to the Optionee's address as shown on the records of the Company. 11. Termination For "Cause." For purposes of this Agreement, an ------------------------ Optionee's employment shall be deemed to have been terminated for "Cause" if the termination results from the Optionee's: (a) criminal conduct, (b) deliberate continual refusal to perform employment duties on substantially a full time basis, (c) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee more senior than the Optionee, or (d) deliberate misconduct which could be materially damaging to the Company or any of its business operations without a reasonable good faith belief by the Optionee that such conduct was in the best interests of the Company. A termination of Optionee's employment shall not be deemed for Cause hereunder unless the senior personnel executive of the Company shall confirm that any such termination is for Cause as defined hereunder. Any voluntary termination by the Optionee in anticipation of an involuntary termination of the Optionee's employment for Cause shall be deemed to be a termination of Optionee's employment for Cause. 12. Administration and Interpretation. In consideration of the ---------------------------------- grant, the Optionee specifically agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and -5- Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. 13. Other Provisions. ------------------ a) Titles are provided herein for convenience only and are not to serve as a basis for interpretation of the Agreement. b) This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement. c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Optionee have executed this Agreement as of the date of Grant first above written. RJR NABISCO HOLDINGS CORP. By ------------------------ Authorized Signatory - ------------------------------------- Optionee Optionee's Taxpayer Identification Number: - -------------------------------- Optionee's Home Address: - -------------------------------- - -------------------------------- - -------------------------------- -6- EX-10.42 11 RJR NABISCO HOLDINGS CORP. RESTRICTED STOCK PROGRAM [Effective March 1, 1993] 1. Relationship to 1990 Long-Term Incentive Plan --------------------------------------------- The Restricted Stock Program (the "Program") sets forth the terms and conditions under which restricted shares of RJR Nabisco Holdings Corp. (the "Company") Common Stock may be granted under the 1990 Long-Term Incentive Plan ("LTIP"). No grant may be made inconsistent with the LTIP. 2. Definitions ----------- For the purpose of the Program, the following terms shall have the meaning shown: (a) Date of Grant. The date on which the Committee awards a Grant ------------- to a Participant for the applicable Performance Period, which generally will be within 90 days following the commencement of such period. Participants may have different Dates of Grant for the same Performance Period. (b) Grant. An award made by the Committee in the form of shares ----- of Restricted Stock. (c) Termination For Cause. For purposes of the Plan, a --------------------- Participant's employment shall be deemed to have been terminated for "Cause" if the termination results from the Participant's: (a) criminal conduct, (b) deliberate and continual refusal to perform employment duties on substantially a full time basis, (c) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee more senior than the Participant, or (d) deliberate misconduct which could be materially damaging to the Company or any of its business operations without a reasonable good faith belief by the Participant that such conduct was in the best interests of the Company and its subsidiaries taken as a whole. A termination of the Participant's employment shall not be deemed for Cause hereunder unless the senior personnel executive of the Company shall confirm that any such termination is for Cause as defined hereunder. Any voluntary termination by the Participant in anticipation of an involuntary termination of the Participant's employment for Cause shall be deemed to be a termination of the Participant's employment for Cause. (d) Performance Period. A period of two, three or four ------------------ consecutive calendar years or until a specified date as determined by the Committee. (e) Restricted Shares. Common Stock granted to a Participant ----------------- under the Program, certificates for which are issued as of the Date of Grant and held in custody by the Company and subsequently deliverable to the Participant only when the restrictions applicable to the Grant lapse. Prior to lapse of restrictions, Restricted Shares may not be sold, transferred, tendered, assigned, pledged or otherwise encumbered; part or all of a Grant may be irrevocably forfeited in accordance with the terms of the Program. 3. Performance Periods and Grants ------------------------------ (a) One new Performance Period may be established commencing each year with a duration of two, three or four calendar years or until a specified date. (b) For each Performance Period the Committee may select and make Grants of Restricted Shares to Participants, as it shall determine, at any time during the first six months of such period. (c) Grants made by the Committee shall be subject to the provisions of the Program and to such other terms and conditions, not inconsistent with the Program and the LTIP, as are set forth in a Restricted Stock Agreement entered into by the Company and the Participant. A Participant may be required to execute and deliver to the Company an irrevocable stock power endorsed in blank as a condition of receiving a Grant. (d) The Committee at any time may make other grants of Restricted Shares which are not covered by this Program and which may be subject to different terms and conditions otherwise consistent with the LTIP. 4. Lapse of Restrictions; Forfeitures ---------------------------------- All restrictions on Restricted Shares granted for a Performance Period shall lapse 45 to 60 days following the end of such Performance Period, such date to be established by the Committee, provided, that the Participant's employment has not terminated prior to the end of the Performance Period. If a Participant terminates employment within one year of the Date of Grant for any reason whatsoever, including death, disability or retirement, all Restricted Shares covered by such Grant shall be irrevocably forfeited and such Participant shall have no rights or claims thereto. The following provisions shall apply to a Participant who terminates employment at least one year after the Date of Grant but prior to the end of a Performance Period: (a) If a Participant's employment terminates because of death, Disability (as defined in the Company's Long Term Disability Plan), or retirement at his Normal Retirement Date established by an applicable Company retirement program, all restrictions shall lapse on the Restricted Shares covered by such Grant and such shares shall be issuable to the participant or his estate as soon as practicable. (b) If a Participant's employment terminates prior to the end of a Performance Period due to (a) involuntary termination by action of the Company, other than termination for Cause, or (b) retirement prior to normal retirement date under a retirement plan of the Company, restrictions may, in the sole discretion of the Chief Executive Officer of the Company, lapse on a pro rata basis. Except as may otherwise be specifically provided in a Participant's employment or separation agreement, if any, for each Grant, the pro rata number of such unrestricted shares shall be determined by multiplying the number of shares in the grant by a fraction, the numerator of which is the number of months such Participant was actively employed during the Performance Period (including the month during which employment terminated) and the denominator of which is the total number of months in the Performance Period. If the Participant elects to retire prior to his Normal Retirement Date, or prior to any earlier retirement date established by previous agreement with the Company, all shares will be forfeited unless such retirement is pursuant to the written consent of the Chief Executive Officer of the Company. In the case of the Chief Executive Officer consent shall be determined by the Committee. (c) If a participant voluntarily terminates employment prior to the end of a Performance Period, or is involuntarily terminated for Cause, all Restricted Shares covered by all his Grants shall be forfeited. 5. Dividend and Voting Rights -------------------------- A participant shall become a shareholder of record of Restricted Shares commencing with the Date of Grant and continuing until the date such shares are forfeited or disposed of by the Participant following distribution. He shall be entitled to vote such shares and currently receive dividends on such shares so long as he is shareholder of record on the applicable record date for a shareholder vote or a dividend payment, regardless of whether or not restrictions have lapsed. 6. Delivery of Stock Certificates ------------------------------ As soon as practicable following the date restrictions lapse on Restricted Shares, one or more certificates for shares of Common Stock shall be issued to the Participant, or if the Participant so elects, jointly in the name of the Participant and the Participant's spouse, and thereafter delivered to the Participant. Any distribution made with respect to a Participant who has died shall be issued to his estate. 7. Tax Withholding --------------- Any taxes required to be withheld by Federal, state or local law upon delivery of Common Stock to a Participant without restrictions shall be paid by the Participant at or before the time of delivery. Alternatively, to the extent it would not result in adverse consequences to a Participant by reason of Rule 16b-3 of the Securities Exchange Act of 1934, the Company may elect to convert to cash such number of shares as are necessary to satisfy such withholding requirements. The Company shall effect any such cash conversion based on the fair market value (average of high and low trade) of a share of Common Stock on the New York Stock Exchange on the date restrictions lapse or the subsequent trading day, with such shares reverting to the Company. 8. Amendment or Termination ------------------------ The Committee shall have the power to amend, suspend or terminate the Program at any time except that no action can be taken that would not be permitted by the LTIP or that would materially adversely affect the rights of Participants with respect to outstanding Grants. 9. Adjustments ----------- In the event that a stock dividend, stock split, or other subdivision, consolidation reclassification or change of the shares of Common Stock takes place, the outstanding Restricted Shares shall be automatically adjusted accordingly, consistent with the terms of the LTIP. In the event of a merger, acquisition or other change which may have a significant effect upon the Company or its subsidiaries, the Committee shall adopt appropriate changes in Performance Measures as needed to achieve the Program's objectives consistent with the LTIP. 10. Miscellaneous ------------- (a) Except as determined by the Committee, no person shall have any right to receive a Grant. Participation in the Program does not give a Participant the right to be retained as an employee of the Company. (b) The Company, the Board of Directors, the Committee, the officers and other employees of the Company shall not be liable for any action taken in good faith in interpreting and administering the Program. (c) Restricted Shares granted under the Program are subject to the requirement that, if at any time the Committee determines, in its sole discretion, that the listing, registration, or qualification of shares of Common Stock issuable pursuant to the Program, is required by any securities exchange or under any state or Federal law, or the consent of approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issue of shares of Common Stock, no distribution under the Program shall be made in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (d) The Program shall be governed by and subject to the laws of the State of Delaware. 11. Finality of Determination ------------------------- The Committee shall have the power to interpret the Program and all interpretations, determinations and actions by the Committee shall be final, conclusive and binding upon all parties. 12. Effective Date -------------- The Program shall become effective as of March 1, 1993. EX-10.44 12 EEP 3 year RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN EXECUTIVE EQUITY PROGRAM __________________________ DATE OF AGREEMENT July 1, 1993 ----------------- WITNESSETH: ----------- 1) General ------- Pursuant to the terms of the 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the date above has agreed, subject to the eligibility provisions and other contingencies described herein, to make certain awards to: NAME (the "Executive") 2) Grants To Be Made ----------------- The Executive, if eligible pursuant to Section 3 of this Agreement, shall, on the Grant Dates specified below, receive a grant of Common Stock of the Company ("Shares") with a fair market value on the Grant Date equal to the amount, if any, by which (x) exceeds (y) where, (x) is a percentage, as stated below, of the Executive's Hypothetical Loan Balance (as defined in Section 4) on the Grant Date; and (y) is the fair market value on the Grant Date of the percentage described below of the Executive's Purchase Shares pledged under a Promissory Note to the Company. Grant (x) (y) Date Percent of Hypothetical Loan Percent of LTIP Purchase - ---- ---------------------------- ------------------------- Balance Shares ------- ------ July 1, 1994 33% 33% July 1, 1995 50% 33% July 1, 1996 100% 34% Each grant described above shall be increased by the number of Shares having a fair market value on the Grant Date equal to the amount needed (i) to cover the stock transfer fees as calculated by the Company in both the sale of Shares granted by this Agreement and the Shares described in (y) above and (ii) to hold the Executive harmless from Federal, State and Local income taxes as calculated by the Company due as a result of the grant, if any, pursuant to this Agreement. The Shares when and if granted shall be freely transferable after the Grant Date. 3) Eligibility For Grant --------------------- The Executive shall be eligible for a grant on the Grant Dates specified in Section 2 if, and only if, the Executive was actively employed on July 1, 1993 and on the Grant Date Executive is in any one of the following --- categories: a) Actively employed by the Company b) Terminated by the Company without Cause as defined herein c) Deceased, disabled, or retired and consent of the Chief Executive --- Officer of the Company to continue grants is given. 4) Definitions ----------- a) Capitalized terms, unless otherwise defined herein, shall have the meaning described in the 1990 Long Term Incentive Plan. b) Hypothetical Loan Balance. The Hypothetical Loan Balance ------------------------- ("HLB") shall be calculated in the exclusive discretion of the Company, and the Company's calculation shall be final, conclusive, and binding on the Company and the Executive. In determining the HLB, it shall be assumed that the Executive took all Company loans available on the date he acquired Purchase Shares under the Plan. Any payments applied to the HLB as the result of the sale of Purchase Shares or the application of grants under this Agreement will reduce the HLB, whereas payments which are not so derived will not reduce the HLB. Furthermore, in determining the declining value of the HLB with each successive grant under this Agreement, it shall be assumed that the full value of (i) the amount, if any, by which (x) exceeds (y) in Section 2 and (ii) the full value of (y) in Section 2 are applied against the HLB. The Executive's HLB as of July 1, 1993 is described in Attachment 1 hereto. c) Cause. For purposes of this Agreement, an Executive's ----- employment shall be deemed to have been terminated for "Cause" if the termination results from the Executive's: (a) criminal conduct, (b) deliberate and continual refusal to perform employment duties on substantially a full time basis, (c) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee more senior than the Executive, or (d) deliberate misconduct which could be materially damaging to the Company or any of its business operations without a reasonable good faith belief by the Executive that such conduct was in the best interests of the Company. A termination of the Executive's employment shall not be deemed for Cause hereunder unless the senior personnel executive of the Company shall confirm that any such termination is for Cause as defined hereunder. Any voluntary termination by the Executive in anticipation of an involuntary termination of the Executive's employment for Cause shall be deemed to be a termination of Executive's employment for Cause. 5) Transferability. --------------- Other than as specifically provided in the Plan with regard to the death of the executive, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Executive, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Executive. 6) No Right to Employment. ---------------------- Neither the execution and delivery of this Agreement nor the granting of the Shares hereby shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Executive for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Executive's employment at any time with or without Cause. "Termination of employment" under the Plan and this Agreement means termination from active employment; it does not mean the termination of pay and benefits at the end of salary continuation (or other form of severance pay or pay in lieu of salary). 7) Change in Common Stock or Corporate Structure. ---------------------------------------------- (a) If at any time the number or nature of outstanding shares of Common Stock of the Company shall be increased or changed as the result of any stock dividend, subdivision or reclassification of shares, the number or nature of shares of Common Stock to be granted to the Executive on any Grant Date after such an event shall be increased or changed in the same proportion or manner as the outstanding number of shares of Common Stock is increased or changed, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock in the Executive's grants after such an event shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased. (b) In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be an adjustment to the Executive's future grants after such an event, and in place of the shares to be awarded, a stock equivalent shall be determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock to which the Executive's grants are equivalent. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Committee shall determine the appropriate change in grants after such an event; provided, however, such change shall not be to the detriment of the Executive. 8) Notices ------- Any notices required to be given hereunder to the Company shall be addressed to The Secretary, RJR Nabisco Holdings, Inc., 1301 Avenue of the Americas, New York, NY 10019-6013 and any notice required to be given hereunder to the Grantee shall be sent to the Grantee's address as shown on the records of the Company. 9) Executive. --------- In consideration of the potential grants under this Agreement, the Executive specifically agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. The Committee in its exclusive discretion may substitute cash or any other award equal in value to the awarded amount calculated under Section 2. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Executive, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Executive have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By___________________________ Authorized Signatory ___________________________ Executive Grantee's Taxpayer Identification Number: ___________________________ Grantee's Home Address: ___________________________ ___________________________ ___________________________ EX-10.45 13 EEP 4 year RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN EXECUTIVE EQUITY PROGRAM __________________________ DATE OF AGREEMENT July 1, 1993 ----------------- WITNESSETH: ----------- 1) General ------- Pursuant to the terms of the 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the date above has agreed, subject to the eligibility provisions and other contingencies described herein, to make certain awards to: NAME (the "Executive") 2) Grants To Be Made ----------------- The Executive, if eligible pursuant to Section 3 of this Agreement, shall, on the Grant Dates specified below, receive a grant of Common Stock of the Company ("Shares") with a fair market value on the Grant Date equal to the amount, if any, by which (x) exceeds (y) where, (x) is a percentage, as stated below, of the Executive's Hypothetical Loan Balance (as defined in Section 4) on the Grant Date; and (y) is the fair market value on the Grant Date of the percentage described below of the Executive's Purchase Shares pledged under a Promissory Note to the Company. Grant (x) (y) Date Percent of Hypothetical Loan Percent of LTIP ---- ---------------------------- --------------- Balance Purchase Shares ------- --------------- July 1, 1994 25% 25% July 1, 1995 33% 25% July 1, 1996 50% 25% July 1, 1997 100% 25% Each grant described above shall be increased by the number of Shares having a fair market value on the Grant date equal to the amount needed (i) to cover the stock transfer fees as calculated by the Company in both the sale of Shares granted by this Agreement and the Shares described in (y) above and (ii) to hold the Executive harmless from Federal, State and Local income taxes as calculated by the Company due as a result of the grant, if any, pursuant to this Agreement. The Shares when and if granted shall be freely transferable after the Grant Date. 3) Eligibility For Grant --------------------- The Executive shall be eligible for a grant on the Grant Dates specified in Section 2 if, and only if, the Executive was actively employed on July 1, 1993 and on the Grant Date Executive is in any one of the following --- categories: a) Actively employed by the Company b) Terminated by the Company without Cause as defined herein c) Deceased, disabled, or retired and consent of the Chief Executive --- Officer of the Company to continue grants is given. 4) Definitions ----------- a) Capitalized terms, unless otherwise defined herein, shall have the meaning described in the 1990 Long Term Incentive Plan. b) Hypothetical Loan Balance. The Hypothetical Loan Balance ------------------------- ("HLB") shall be calculated in the exclusive discretion of the Company, and the Company's calculation shall be final, conclusive, and binding on the Company and the Executive. In determining the HLB, it shall be assumed that the Executive took all Company loans available on the date he acquired Purchase Shares under the Plan. Any payments applied to the HLB as the result of the sale of Purchase Shares or the application of grants under this Agreement will reduce the HLB, whereas payments which are not so derived will not reduce the HLB. Furthermore, in determining the declining value of the HLB with each successive grant under this Agreement, it shall be assumed that the full value of (i) the amount, if any, by which (x) exceeds (y) in Section 2 and (ii) the full value of (y) in Section 2 are applied against the HLB. The Executive's HLB as of July 1, 1993 is described in Attachment 1 hereto. c) Cause. For purposes of this Agreement, an Executive's ----- employment shall be deemed to have been terminated for "Cause" if the termination results from the Executive's: (a) criminal conduct, (b) deliberate and continual refusal to perform employment duties on substantially a full time basis, (c) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee more senior than the Executive, or (d) deliberate misconduct which could be materially damaging to the Company or any of its business operations without a reasonable good faith belief by the Executive that such conduct was in the best interests of the Company. A termination of the Executive's employment shall not be deemed for Cause hereunder unless the senior personnel executive of the Company shall confirm that any such termination is for Cause as defined hereunder. Any voluntary termination by the Executive in anticipation of an involuntary termination of the Executive's employment for Cause shall be deemed to be a termination of Executive's employment for Cause. 5) Transferability. --------------- Other than as specifically provided in the Plan with regard to the death of the executive, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Executive, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Executive. 6) No Right to Employment. ---------------------- Neither the execution and delivery of this Agreement nor the granting of the Shares hereby shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Executive for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Executive's employment at any time with or without Cause. "Termination of employment" under the Plan and this Agreement means termination from active employment; it does not mean the termination of pay and benefits at the end of salary continuation (or other form of severance pay or pay in lieu of salary). 7) Change in Common Stock or Corporate Structure. ---------------------------------------------- a) If at any time the number or nature of outstanding shares of Common Stock of the Company shall be increased or changed as the result of any stock dividend, subdivision or reclassification of shares, the number or nature of shares of Common Stock to be granted to the Executive on any Grant Date after such an event shall be increased or changed in the same proportion or manner as the outstanding number of shares of Common Stock is increased or changed, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock in the Executive's grants after such an event shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased. b) In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be an adjustment to the Executive's future grants after such an event, and in place of the shares to be awarded, a stock equivalent shall be determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock to which the Executive's grants are equivalent. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Committee shall determine the appropriate change in grants after such an event; provided, however, such change shall not be to the detriment of the Executive. 8) Notices ------- Any notices required to be given hereunder to the Company shall be addressed to The Secretary, RJR Nabisco Holdings, Inc., 1301 Avenue of the Americas, New York, NY 10019-6013 and any notice required to be given hereunder to the Grantee shall be sent to the Grantee's address as shown on the records of the Company. 9) Executive. --------- In consideration of the potential grants under this Agreement, the Executive specifically agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. The Committee in its exclusive discretion may substitute cash or any other award equal in value to the awarded amount calculated under Section 2. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Executive, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Executive have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By___________________________ Authorized Signatory ___________________________ Executive Grantee's Taxpayer Identification Number: ___________________________ Grantee's Home Address: ___________________________ ___________________________ ___________________________ EX-10.47(A) 14 AMENDMENT AND EXCHANGE OF SECURED PROMISSORY NOTE The undersigned promises to pay the currently outstanding balance under previously executed Secured Promissory Notes to RJR Nabisco Holdings Corp. pursuant to the terms of any and all such Notes, except that interest on the unpaid balance of all indebtedness shall accrue from July 1, 1993 at the applicable Federal rate (6.37%). ________________________ Employee ________________________ Printed Name Date: July 1, 1993 -------------------- As an incentive to Employee's continued employment with the Company or an affiliate thereof, and as the holder of the above referenced promissory notes, the Company agrees to the above amendment; and further agrees that partial sales of Stock pledged under the Notes will be applied to pay the loan balance without accelerating that date upon which the entire loan balance becomes due and payable; provided, however, until the principal amount and accrued interest on the Loan are repaid in full, such stock shall only be sold by the Company, acting on behalf of Employee, for the purpose of repaying the loan balance. RJR Nabisco Holdings Corp. By:______________________ Date: July 1, 1993 -------------------- EX-11 15 EXHIBIT 11 RJR NABISCO HOLDINGS CORP. COMPUTATIONS OF EARNINGS PER SHARE (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993(A) 1992(A) 1991(A) ------------------------ ------------------------ ----------------------- FULLY FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED ---------- ------------ ---------- ------------ --------- ------------ Average number of common and common equivalent shares outstanding during the period (in thousands): Common stock issued and outstanding at beginning of period.................... 1,344,649 1,344,649 1,331,659 1,331,659 580,024 580,024 Less: shares related to unamortized value of restricted stock.................... -- -- (120) (120) (344) (344) ---------- ------------ ---------- ------------ --------- ------------ 1,344,649 1,344,649 1,331,539 1,331,539 579,680 579,680 Average number of shares of common stock issued during the period............... 3,541 3,541 11,835 11,836 227,764 227,764 Average number of shares related to value of restricted stock earned during the period................................. 1,006 1,006 60 60 112 112 Average number of stock warrants and options outstanding during the period................................. -- 6,217 20,115 20,167 49,821 52,816 Average number of shares issuable on conversion of redeemable convertible preferred stock........................ -- 10,498 -- 11,203 -- 187,769 Average number of shares issuable on conversion of senior converting debentures............................. -- 5,548 -- 20,203 -- 25,453 ESOP convertible preferred stock......... -- 15,610 -- 15,625 -- 11,290 Average number of Series A Depositary Shares issued during the period(B)..... -- -- -- -- 30,245 30,245 ---------- ------------ ---------- ------------ --------- ------------ Average number of common and common equivalent shares outstanding during the period (in thousands).............. 1,349,196 1,387,069 1,363,549 1,410,633 887,622 1,115,129 ---------- ------------ ---------- ------------ --------- ------------ ---------- ------------ ---------- ------------ --------- ------------ Net income (loss) applicable to common stock: Income (loss) before extraordinary item................................... $ (3) $ (3) $ 776 $ 776 $ 368 $ 368 Interest on senior converting debentures (net of income taxes).................. -- 17 -- 51 -- 55 Preferred stock dividends................ (68) (43) (31) -- (173) -- Income tax benefit on ESOP convertible preferred stock dividends.............. -- (1) -- (6) -- (5) ---------- ------------ ---------- ------------ --------- ------------ Income (loss) before extraordinary item applicable to common stock............. (71) (30) 745 821 195 418 Extraordinary item--(loss) gain on early extinguishments of debt, net of income taxes.................................. (142) (142) (477) (477) -- -- ---------- ------------ ---------- ------------ --------- ------------ Net income (loss) applicable to common stock.................................. $ (213) $ (172) $ 268 $ 344 $ 195 $ 418 ---------- ------------ ---------- ------------ --------- ------------ ---------- ------------ ---------- ------------ --------- ------------ Net income (loss) per common and common equivalent share: Income (loss) before extraordinary item..................................... $ (0.05) $ (0.02) $ 0.55 $ 0.58 $ 0.22 $ 0.37 Extraordinary item....................... (0.10) (0.10) (0.35) (0.34) -- -- ---------- ------------ ---------- ------------ --------- ------------ Net income (loss)........................ $ (0.15) $ (0.12) $ 0.20 $ 0.24 $ 0.22 $ 0.37 ---------- ------------ ---------- ------------ --------- ------------ ---------- ------------ ---------- ------------ --------- ------------
- --------------- (A) The calculations of fully diluted earnings per share are antidilutive; therefore, primary earnings per share are used for financial statement purposes. (B) Each Series A Depositary Share represents a one-quarter ownership interest in a share of Series A Preferred Stock of Holdings. EX-12 16 EXHIBIT 12 RJR NABISCO, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES/ DEFICIENCY IN THE COVERAGE OF FIXED CHARGES BY EARNINGS BEFORE FIXED CHARGES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, FEBRUARY 9, 1989 JANUARY 1, 1989 ------------------------------------------ THROUGH THROUGH 1993 1992 1991 1990 DECEMBER 31, 1989 FEBRUARY 8, 1989 --------- --------- --------- --------- ------------------- ----------------- Earnings before fixed charges: Income (loss) from continuing operations.............................. $ (4) $ 783 $ 349 $ (283) $ (816) $ (197) Provision for income taxes.............. 116 693 301 152 (74) (66) --------- --------- --------- --------- -------- ------- Income (loss) before income taxes....... 112 1,476 650 (131) (890) (263) Interest expense........................ 1,167 1,340 2,030 2,724 2,655 44 Amortization of debt issuance costs..... 19 19 110 175 444 -- Interest portion of rental expense...... 52 49 56 49 41 11 --------- --------- --------- --------- -------- ------- Earnings before fixed charges(a).......... $ 1,350 $ 2,884 $ 2,846 $ 2,817 $ 2,250 $ (208) --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- -------- ------- Fixed charges: Interest expense........................ $ 1,167 $ 1,340 $ 2,030 $ 2,724 $ 2,655 $ 44 Amortization of debt issuance costs..... 19 19 110 175 444 -- Interest portion of rental expense...... 52 49 56 49 41 11 Capitalized interest.................... 9 5 10 12 12 3 --------- --------- --------- --------- -------- ------- Total fixed charges.................. $ 1,247 $ 1,413 $ 2,206 $ 2,960 $ 3,152 $ 58 --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- -------- ------- Deficiency in the coverage of fixed charges by earnings before fixed charges................................. $ -- $ -- $ -- $ (143) $ (902) $ (266) --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- -------- ------- Ratio of earnings to fixed charges........ 1.1 2.0 1.3 -- -- -- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- -------- -------
- --------------- (a) Includes non-cash amortization of trademarks and goodwill for each of the years in the four-year period ended December 31, 1993 and each of the periods within the one-year period ended December 31, 1989 of $625 million, $616 million, $609 million, $608 million, $557 million and $10 million, respectively. EX-21 17 RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- RJR Nabisco Holdings Corp. Oct 25, 1988 Delaware RJR Nabisco, Inc. Mar 04, 1970 Delaware Airco IHC, Inc. Mar 22, 1989 Delaware Andalucia A.V.V. Nov 28, 1988 Aruba Arjay Equipment Corporation Nov 08, 1968 Delaware Arjay Holdings, Inc. May 07, 1984 Delaware Associated Biscuits * Mar 29, 1898 England Batavia Inc. Jul 31, 1951 New Jersey Beech-Nut LifeSavers (Panama) S.A. Jul 12, 1963 Panama Bisco Services B.V. Dec 22, 1988 Netherlands Camel Racing Inc. Jun 22, 1989 Canada Cartera e Inversiones S.A. * Mar 05, 1979 Peru CGM-Cooperation GmbH Jan 15, 1990 Germany China-American Cigarette Company Limited (50%)*** May 29, 1984 China Colophon Company Limited * Jul 09, 1981 Bermuda Comercial La Favorita, C.A. Aug 14, 1991 Venezuela Comercial Benut, S.A. de C.V. ** Mar 16, 1977 Mexico Compania Nacional de Galletas Nabisco La Favorita C.A. Jun 06, 1938 Venezuela Compania Venezolana de Conservas C.A. Jul 25, 1969 Venezuela Compania Venezolana de Conservas Covenco II, C.A. Aug 20, 1991 Venezuela Covenco Holding C.A. Nov 26, 1991 Venezuela * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 1 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Dely, S.A. Dec 18, 1960 Guatemala Distribuidora Pan Americana, S.A. Oct 22, 1974 Panama Exhold Limited Oct 03, 1989 Liberia Expefo, Inc. Mar 09, 1965 Delaware Export "A" Inc. Mar 31, 1989 Canada F.& R. Peru, S.A. Jan 28, 1972 Peru Fleischmann Argentina S.A. * Dec 13, 1990 Argentina Fleischmann Corporation, The Nov 02, 1929 Delaware Fleischmann Ecuatoriana S.A. Sep 16, 1977 Ecuador Fleischmann International, Inc. Nov 20, 1944 Delaware Fleischmann Peruana Inc. Sep 01, 1939 Delaware Fleischmann Uruguaya S.A. Mar 09, 1961 Uruguay Freezer Queen Foods (Canada) Limited Nov 03, 1967 Ontario, Canada Fulmer Corporation Limited May 15, 1981 Bahamas Fulmer Two S.A. * Jul 01, 1991 Panama Gelatinas Ecuatorianas S.A. (66.7%) Nov 21, 1978 Ecuador GEM: Global Event Management, Ltd. Jun 27, 1991 England Global Events Management, Inc. Sep 05, 1991 Delaware Golden Sociedad Anonima Apr 01, 1966 Costa Rica Grapple Company Limited Sep 02, 1985 Bahamas Grupo Gamesa, S.A. de C.V. (1%) Jul 29, 1981 Mexico Hanover Servicing, Inc. Jan 12, 1990 Delaware Haus Neuerburg GmbH Feb 25, 1977 Germany Hervin Company, The May 28, 1965 Oregon Hervin Holdings, Inc. Mar 29, 1988 Delaware Hickey & Nicholson Tobacco Company, Ltd., The * Apr 30, 1906 Prince Edward Is. Huntley & Palmer Foods Pensions Limited ? 1967 England * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 2 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Industria de Colores y Sabores S.A. * Jun 21, 1967 Colombia Industria de Laticinios Gloria Ltda. Jan 18, 1978 Brazil Industrias Alimenticias Maguary S.A. ? Brazil Industrias Nabisco Cristal, S.A. (60%) Dec 10, 1965 Nicaragua International Standard Brands (Sharjah) Limited* Sep 05, 1979 Sharjah Iracema Industrias de Caju S.A. Aug 08, 1978 Brazil ISMA (60%) Mar 24, 1993 Russia Jack's Snacks Limited ** May 08, 1972 New Zealand Jati Industrias de Caju S.A. Sep 24, 1984 Brazil Jupiter Produtos Alimenticios Ltda. Mar 02, 1962 Brazil Lance, S.A. de C.V. Dec 28, 1982 Mexico Landers Centro Americana Fabricantes de Molinos Marca "Corona", S.A. de C.V. (95%) ** Jan 09, 1979 Honduras Landers Y Cia, S.A. Oct 01, 1951 Colombia Leite Gloria do Nordeste S.A. May 16, 1968 Brazil Life Savers Manufacturing, Inc. Apr 21, 1976 Delaware Litografia A. Romero, S.A. (.001%) Feb 22, 1978 Canary Is. LMS Investments, Ltd. Oct 21, 1988 Cayman Is. Lowney, Inc. Jan 01, 1983 Federal, Canada Mahachai Holding Co. Ltd. (49%) Jan 07, 1986 Thailand Marcas Alimenticias Internacionales S.A. Mar 07, 1979 Panama MEX Holdings, Ltd. Nov 27, 1991 Delaware MEX Holdings II, S.A. de C.V. Jan 29, 1992 Mexico Mexican Foods Limited (50%) ** Apr 11, 1972 New Zealand Mont Pelrin Inc. May 05, 1954 New Jersey NAB New Zealand Holding One, Inc. * Dec 21, 1988 New York NAB New Zealand Two IHC, Inc. * Dec 21, 1988 New York * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 3 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Nabisco * Dec 24, 1908 England Nabisco Brands Holdings Denmark Limited ? 1989 Liberia Nabisco Brands, Inc. Apr 21, 1981 Delaware Nabisco Brands Ltd Dec 31, 1992 Federal, Canada Nabisco Brands Nominees Limited Aug 22, 1983 England Nabisco Brands Trading Ltd. * Mar 25, 1987 Delaware Nabisco Brands (U.K.) Limited Apr 05, 1982 Delaware Nabisco Brazil, Inc. May 10, 1990 Delaware Nabisco Caribbean Export, Inc. Jun 13, 1984 Delaware Nabisco Cereals * Mar 15, 1956 England Nabisco/Cetus Food Biotechnology Research Partnership (80%) *** Mar 01, 1984 Delaware Nabisco de Puerto Rico, Inc. Sep 21, 1951 New York Nabisco Ecuador, S.A. Nov 17, 1982 Ecuador Nabisco England IHC, Inc. Mar 29, 1989 Delaware Nabisco Enterprises IHC, Inc. Mar 22, 1989 Delaware Nabisco Foods, Inc. Dec 30, 1991 New Jersey Nabisco Foreign Administration, Inc. Mar 22, 1989 Delaware Nabisco Group Ltd. Apr 05, 1982 Nevada Nabisco Group Pensions Investments Ltd. Jun 07, 1962 England Nabisco Group Pensions Limited Sep 13, 1977 England Nabisco Holding I B.V. * Dec 22, 1988 Netherlands Nabisco Holding II B.V. * Dec 22, 1988 Netherlands Nabisco Holdings IHC, Inc. Mar 22, 1989 Delaware Nabisco, Inc. Feb 03, 1898 New Jersey Nabisco, Inc. Foreign Sales Corporation Dec 17, 1991 US Virgin Is. * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 4 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Nabisco International, Inc. Jul 29, 1947 Delaware Nabisco International Limited Dec 11, 1987 Nevada Nabisco International, S.A. Nov 26, 1953 Panama Nabisco Music Publishers, Inc. Mar 24, 1986 Delaware Nabisco Music Ventures, Inc. Mar 24, 1986 Delaware Nabisco (New Zealand) Limited **** Mar 30, 1990 New Zealand Nabisco Pension Trust Limited Aug 31, 1956 England Nabisco Royal Argentina Inc. Sep 29, 1934 Delaware Nabisco Royal Colombiana Inc. Jan 03, 1938 Delaware Nabisco Royal Inc. Sep 03, 1932 Delaware Nabisco S.A. de C.V. (99%) Jun 15, 1992 Mexico Nabisco (Thailand) Limited (50+%) ** Jan 07, 1986 Thailand Nabisco Trading A.G. Aug 02, 1960 Switzerland Nabisco Trading Ltd.* Feb 20, 1986 England Nabisco Venezuela, C.A. Nov 26, 1991 Venezuela National Biscuit Company **** Jan 17, 1971 Delaware New York Style Bagel Chip Company, Inc. Apr 13, 1992 Delaware Northern Brands International, Inc. Dec 10, 1992 Delaware Nova Zembla Inc. Aug 19, 1975 New Jersey N.V. R. J. Reynolds International S.A.** May 06, 1987 Belgium N.V. R. J. Reynolds Tobacco Belgium S.A.** Sep 09, 1988 Belgium Outdoor Traders International S.r.L. (35%) Jan 17, 1991 Italy Plush Pippin Corporation Aug 06, 1986 Washington Plush Pippin Restaurants, Inc. Aug 29, 1974 Oregon Precis One Hundred Limited Feb 12, 1982 England Productos Alimenticios Royal Limitada Mar 22, 1978 Chile Productos Confitados Salvavidas de Guatemala, S.A. Jul 03, 1974 Guatemala Productos Royal de Honduras, Sociedad Anonima Jul 22, 1982 Honduras Productos Royal S.A.* Dec 27, 1977 Argentina Produtos Alimenticios Fleischmann e Royal Ltda. Nov 28, 1964 Brazil Produtos Alimenticios Fleischmann Ltda. Dec 29, 1978 Brazil * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 5 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- R. J. Reynolds Berhad (60%) Jan 29, 1970 Malaysia R. J. Reynolds (Canary Islands) S.A. (55%) Apr , 1987 Canary Is. R. J. Reynolds (Cyprus) Limited Feb 20, 1990 Cyprus R. J. Reynolds Espana, S.L. (50+%) ? ? R. J. Reynolds Europe, Inc. Apr 24, 1992 Delaware R. J. Reynolds Finance S.A. Sep 17, 1982 Switzerland R. J. Reynolds, Inc. Oct 09, 1985 Delaware R. J. Reynolds International, Inc. Dec 13, 1985 Delaware R. J. Reynolds Italia S.r.L. Feb 09, 1989 Italy R. J. Reynolds (Korea) Ltd. Mar 09, 1989 Korea R. J. Reynolds/M.C. Tobacco Company, Limited (70%) Jul 01, 1982 Japan R. J. Reynolds Overseas Finance Co. N.V. Oct 21, 1977 Neth. Antilles R. J. Reynolds (Portugal) Empresa Comercial de Tabaco Ltda. (50%) Jul 20, 1980 Portugal R. J. Reynolds Reklam Ve Pazarlama A.S. Mar 22, 1990 Turkey R. J. Reynolds Scandinavia A.B. Apr 12, 1969 Sweden R.J. Reynolds (SEA) SDN BHD Aug 29, 1992 Malaysia R. J. Reynolds (Thailand) Inc. Aug 06, 1992 Delaware R. J. Reynolds Tobacco Australia Inc. ** Jul 20, 1981 Delaware R. J. Reynolds Tobacco B.V. Sep 24, 1973 Netherlands R. J. Reynolds Tobacco Company Apr 04, 1899 New Jersey R. J. Reynolds Tobacco Company Aug 08, 1969 Delaware R. J. Reynolds Tobacco Company (Hong Kong), Limited Apr 07, 1970 Hong Kong R. J. Reynolds Tobacco Company S.A.E. Apr 27, 1971 Spain R. J. Reynolds Tobacco Company Sdn. Bhd. Oct 10, 1973 Malaysia R. J. Reynolds Tobacco Company (Taiwan), Inc. Apr 14, 1988 Delaware R. J. Reynolds Tobacco (Czechoslovakia) Spol. s.r.o. Apr 12, 1991 Czech. R. J. Reynolds Tobacco Dagmersellen A.G. Mar 03, 1966 Switzerland R. J. Reynolds Tobacco Espana S.A. Jul 20, 1982 Spain R. J. Reynolds Tobacco Foreign Sales Corporation Dec 19, 1984 US Virgin Is. R. J. Reynolds Tobacco France S.A. Aug 21, 1976 France R. J. Reynolds Tobacco GmbH Nov 30, 1957 Germany R. J. Reynolds Tobacco (Hellas) A.E.B.E. Sep 24, 1981 Greece R .J. Reynolds Tobacco (Hungary) Kft Jun 18, 1991 Hungary R. J. Reynolds Tobacco (Hungary) LLC Feb 27, 1991 Hungary * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 6 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- R. J. Reynolds Tobacco International (Asia Pacific), Inc. Nov 27, 1978 Delaware R. J. Reynolds Tobacco International (Hong Kong) Limited Jul 28, 1987 Hong Kong R. J. Reynolds Tobacco International, Inc. Jan 12, 1976 Delaware R. J. Reynolds Tobacco International (Korea) Inc. Jan 17, 1991 Delaware R. J. Reynolds Tobacco International (Mexico) Inc. Jun 24, 1981 Delaware R. J. Reynolds Tobacco International S.A. Nov 03, 1966 Switzerland R. J. Reynolds Tobacco - Kremenchug Jun 01, 1993 Ukraine R. J. Reynolds Tobacco Limited * Jun 18, 1975 New Zealand R. J. Reynolds Tobacco (Poland) S.o.o. Jan 07, 1991 Poland R. J. Reynolds Tobacco Rt Jul 28, 1992 Hungary R. J. Reynolds Tobacco (UK) Limited Nov 18, 1980 England R. J. Reynolds Trading Company Sdn. Bhd. Nov 06, 1987 Malaysia R. J. Reynolds Tutun Sanayi A.S. Feb , 1992 Turkey Ritz Biscuit Company Limited **** Sep 28, 1989 England RJI Corporation Nov 06, 1970 Delaware RJR Comercial Ltda. * Aug 18, 1977 Brazil RJR Distribuidora Comercial, S.A. Jun , 1989 Spain RJR Group, Inc., The Dec 13, 1985 Delaware RJR Industries, Inc. Dec 29, 1975 Delaware RJR Industries (U.K.) Limited ** Jun 01, 1982 England RJR-Macdonald Inc. Sep 12, 1978 Canada RJR Nabisco & Company *** Mar 20, 1992 Cyprus RJR Nabisco China Limited Dec 28, 1979 Hong Kong RJR Nabisco (Cyprus) Limited Mar 29, 1990 Cyprus RJR-Nabisco Industries, Inc. Dec 13, 1985 Delaware RJR Nabisco Investments, Inc. Mar 22, 1989 Delaware RJR Nabisco (Philippines) Inc. Apr 22, 1992 Philippines RJR Nabisco Russia Dec 05, 1991 Russia RJR Nabisco Securities Ltd. May 29, 1987 Canada RJR Nabisco Washington, Inc. Dec 13, 1985 Delaware RJR-PETRO (52%) *** May 07, 1992 Russia RJR Sales Co. Feb 18, 1993 Delaware RJR Technical Company May 16, 1991 Delaware RJR Tobacco Company, Inc. Dec 30, 1982 N. Carolina RJR Tobacco Consolidated IHC, Inc. Mar 22, 1989 Delaware RJR Tobacco Holdings IHC, Inc. Mar 22, 1989 Delaware RJR Trade Promotion Co. Feb 18, 1993 Delaware RJRN Policy Institute, Inc. Dec 13, 1985 Delaware * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 7 **** Nameholder SUB-CURR RJR NABISCO HOLDINGS CORP. -------------------------- Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Rodrigues Pinto Gelatinas Ltda. Jan 23, 1943 Brazil Royal Holding C.A. Nov 26, 1991 Venezuela Royal Productos Alimenticios, C.A. Jul 26, 1971 Venezuela Royal Productos Alimenticios II, C.A. Aug 20, 1991 Venezuela Salem Servicing, Inc. Jan 12, 1990 Delaware Salvavidas S. de R.L. de C.V. ** Mar 30, 1967 Mexico Saria Inc. Mar 09, 1956 New Jersey Smiths Foods * Jul 26, 1922 England Sociedade Brasileira Beneficiadora de Cha' Ltda. (60%) Feb 24, 1958 Brazil Sports Marketing Enterprises, Inc. **** Apr 14, 1988 N. Carolina STAR Cooperation GmbH Jan 29, 1960 Germany S*T*A*R* France S.A.R.L. Mar 01, 1990 France Stella D'oro Biscuit Co., Inc. Jan 02, 1948 New York Tecnologica Venezolana de Alimentos Tevalca, C.A. Nov 28, 1985 Venezuela Tecnologica Venezolana de Alimentos Tevalca II, C.A. Aug 20, 1991 Venezuela Tevalca Holding C.A. Nov 26, 1991 Venezuela Transnational Services, Inc. Jan 06, 1988 Delaware 20th Century Denmark Limited Mar 06, 1990 Liberia Vantage Arts Inc. Jun 22, 1989 Canada WBI (International) S.A. ? 1989 Switzerland West Indies Yeast Company Ltd. (72%) Nov 29, 1965 Jamaica Worldwide Brands, Inc. Oct 18, 1983 Delaware Worldwide Brands International (Hong Kong) Inc. Jan 19, 1988 Hong Kong Worldwide Brands (Malaysia) Sdn. Bhd. Mar 30, 1991 Malaysia Yili-Nabisco Biscuit & Food Company Limited (51%) *** Jan 29, 1985 China * Inactive ** In Liquidation December 31, 1993 *** Partnership Page 8 **** Nameholder SUB-CURR EX-23 18 EXHIBIT 23 CONSENT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement Nos. 33-39791, 33-39725, 33-40400, 33-40395, 33-40396, 33-66084 and 33-40702 of RJR Nabisco Holdings Corp. on Form S-8 and Registration Statement No. 33-55716 of RJR Nabisco, Inc. on Form S-3, of our report dated February 1, 1994 (except with respect to the subsequent event discussed in Note 17, as to which the date is February 24, 1994), appearing in this Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the year ended December 31, 1993. DELOITTE & TOUCHE New York, New York February 24, 1994 EX-24 19 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of each of RJR NABISCO HOLDINGS CORP. and RJR NABISCO, INC., each a Delaware corporation (the "Companies"), do hereby make, constitute and appoint Jo-Ann Ford, Lawrence R. Ricciardi and Robert F. Sharpe, Jr., and each of them, attorneys-in-fact and agents of the undersigned with full power and authority of substitution and resubstitution, in any and all capacities, to execute for and on behalf of the undersigned the ANNUAL REPORT ON FORM 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc., for the fiscal year ended December 31, 1993, and any and all amendments or supplements to the foregoing Annual Report and any other documents and instruments incidental thereto, and to deliver and file the same, with all exhibits thereto, and all documents and instruments in connection therewith, with the Securities and Exchange Commission, and with each exchange on which any class of securities of the Companies is registered, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing that said attorneys-in-fact and agents, and each of them, deem advisable or necessary to enable the Companies to effectuate the intents and purposes hereof, and the undersigned hereby fully ratify and confirm all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed his or her name, this 21st day of February, 1994. /s/ Charles M. Harper Chairman of the Board and Chief -------------------------- Executive Officer, Director Charles M. Harper /s/ Stephen R. Wilson Executive Vice President and Chief -------------------------- Financial Officer Stephen R. Wilson /s/ Robert S. Roath Senior Vice President and Controller -------------------------- Robert S. Roath /s/ John T. Chain, Jr. Director -------------------------- John T. Chain, Jr. /s/ Saul A. Fox Director -------------------------- Saul A. Fox /s/ Louis V. Gerstner, Jr. Director -------------------------- Louis V. Gerstner, Jr. /s/ James H. Greene, Jr. Director -------------------------- James H. Greene, Jr. /s/ H. John Greeniaus Director -------------------------- H. John Greeniaus /s/ James W. Johnston Director -------------------------- James W. Johnston /s/ Vernon E. Jordan, Jr. Director -------------------------- Vernon E. Jordan, Jr. /s/ Henry R. Kravis Director -------------------------- Henry R. Kravis /s/ John G. Medlin, Jr. Director -------------------------- John G. Medlin, Jr. /s/ Paul E. Raether Director -------------------------- Paul E. Raether /s/ Lawrence R. Ricciardi Director -------------------------- Lawrence R. Ricciardi /s/ Rozanne L. Ridgway Director -------------------------- Rozanne L. Ridgway /s/ Clifton S. Robbins Director -------------------------- Clifton S. Robbins /s/ George R. Roberts Director -------------------------- George R. Roberts /s/ Scott M. Stuart Director -------------------------- Scott M. Stuart /s/ Michael T. Tokarz Director -------------------------- Michael T. Tokarz -----END PRIVACY-ENHANCED MESSAGE-----