-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WY+FssHa5gsUPt1V2UKRQcAmXy80Z6L/qllV6BM7qswXhHOLWpD2m5/jzi5CCf90 TQvZNe5twgLg29gvR7no+w== 0000950112-96-000547.txt : 19960223 0000950112-96-000547.hdr.sgml : 19960223 ACCESSION NUMBER: 0000950112-96-000547 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 46 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RJR NABISCO HOLDINGS CORP CENTRAL INDEX KEY: 0000847903 STANDARD INDUSTRIAL CLASSIFICATION: COOKIES & CRACKERS [2052] IRS NUMBER: 133490602 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10215 FILM NUMBER: 96524293 BUSINESS ADDRESS: STREET 1: 1301 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019-6013 BUSINESS PHONE: 2122585600 MAIL ADDRESS: STREET 1: 1301 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019-6013 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: COOKIES & CRACKERS [2052] IRS NUMBER: 560950247 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06388 FILM NUMBER: 96524294 BUSINESS ADDRESS: STREET 1: 1301 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122585600 MAIL ADDRESS: STREET 1: 1301 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: REYNOLDS R J INDUSTRIES INC DATE OF NAME CHANGE: 19860501 10-K 1 RJR NABISCO INC. [DRAFT FEBRUARY 20, 1996] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1995 ------------------- RJR NABISCO HOLDINGS CORP. (Exact name of registrant as specified in its charter) DELAWARE 1-10215 13-3490602 (State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.) incorporation or organization)
RJR NABISCO, INC. (Exact name of registrant as specified in its charter) DELAWARE 1-6388 56-0950247 (State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification 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 EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------------------------------------------ RJR NABISCO HOLDINGS CORP. Common Stock, par value $.01 per share New York Series B Depositary Shares New York Series C Depositary Shares New York RJR NABISCO, INC. 8.30% Senior Notes due April 15, 1999 New York 8% Notes due January 15, 2000 New York 8% Notes Due 2001 New York 8 5/8% Notes due 2002 New York 7 5/8% Notes due September 15, 2003 New York 8.75% Senior Notes due April 15, 2004 New York 8 3/4% Notes due 2005 New York 8 3/4% Notes due 2007 New York 9 1/4% Debentures due 2013 New York SUBSIDIARIES OF THE REGISTRANTS RJR NABISCO HOLDINGS CAPITAL TRUST I 10% Trust Originated Preferred Securities 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, 1996 WAS APPROXIMATELY $8.9 BILLION. CERTAIN 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, 1996: RJR NABISCO HOLDINGS CORP.: 272,973,182 SHARES OF COMMON STOCK, PAR VALUE, $.01 PER SHARE RJR NABISCO, INC.: 3,021.86513 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, 1996 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................................... 3 Tobacco........................................................... 3 Food.............................................................. 13 Other Matters..................................................... 18 (d) Financial Information about Foreign and Domestic Operations and Export Sales.................................................. 18 Item 2. Properties.................................................................. 18 Item 3. Legal Proceedings........................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders......................... 19 Executive Officers of the Registrants....................................... 20 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters....... 23 Item 6. Selected Financial Data..................................................... 24 Item 7. Management's Discussion and Analysis of Financial Condition and 26 Results of Operations..................................................... Item 8. Financial Statements and Supplementary Data................................. 41 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................................... 41 PART III Item 10. Directors and Executive Officers of the Registrants......................... 42 Item 11. Executive Compensation...................................................... 42 Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 42 Item 13. Certain Relationships and Related Transactions.............................. 42 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 43
PART I ITEM 1. BUSINESS (a) General Development of Business The operating subsidiaries of RJR Nabisco Holdings Corp. ("RJRN Holdings") and its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN") (collectively the "Registrants"), 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 Nabisco Holdings Corp. ("Nabisco Holdings") through its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), the largest manufacturer and marketer of cookies and crackers. Outside the United States, the tobacco operations are conducted by R. J. Reynolds Tobacco International, Inc. and beginning on January 1, 1996, R.J. Reynolds International (collectively "Reynolds International"), and the food operations are conducted by Nabisco International, Inc. ("Nabisco International") and Nabisco Ltd (formerly Nabisco Brands Ltd). RJRT's and Reynolds 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, certain European countries 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 16 to the consolidated financial statements, and the related notes thereto, of RJRN Holdings and RJRN as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 (the "Consolidated Financial Statements"). RJRN 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 RJRN, which was completed on April 28, 1989 (the "Acquisition"). As a result of the Acquisition, RJRN became an indirect, wholly owned subsidiary of RJRN Holdings. After a series of holding company mergers completed on December 17, 1992, RJRN became a direct, wholly owned subsidiary of RJRN Holdings. The business of RJRN Holdings is conducted through RJRN. RJRN was incorporated as a holding company in 1970. RJRT can trace its origins back to its formation 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 (which was sold in 1989), RJRN began to concentrate its focus on consumer products. This strategy led to the acquisition of Nabisco Holdings Corp. (formerly Nabisco Brands, Inc.) in 1985. In recent years subsidiaries of RJRN Holdings and RJRN have completed a number of acquisitions and have divested certain businesses. In 1995, these acquisitions included (i) certain trademark and other assets of Kraft Foods' U.S. and Canadian margarine and tablespreads business; (ii) certain trademarks and other assets of Primo Foods Limited, a Canadian manufacturer of dry pasta, canned tomatoes and pasta and pizza sauces; (iii) a 50% interest in Royal Beech-Nut (pty) Ltd., a South African subsidiary of Del Monte Royal Foods, Ltd; (iv) the assets of Avare and Gumz, two Brazilian milk product companies; (v) O.y. P.c. Rettig Ab, Finland's second largest tobacco company and (vi) a significant interest and management control of the Tanzania Tobacco Company. The 1995 divestitures included (i) the sale of the Ortega Mexican Food business and (ii) the sale of New York Style Bagel Chip business. In 1994, acquisitions included (i) the KNOX gelatin brand; (ii) an approximately 99% interest in Establecimiento Modelo Terrabusi S.A., Argentina's second largest biscuit and pasta maker; (iii) a 76% interest in the Yelets tobacco processing plant in Russia; (iv) a controlling interest in a cigarette manufacturer in the Krasnodar region of southern Russia; and (v) a 90% interest in Shimkent Confectionery Enterprises and a site for a new cigarette factory in Kazakhstan. 1 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 other decisions have been made with respect to any such acquisitions or divestitures. RJRN Holdings' and RJRN's credit agreement, dated as of April 28, 1995, as amended (the "1995 RJRN Credit Agreement"), and credit agreement, dated as of April 28, 1995, as amended (the "RJRN Commercial Paper Facility" and, together with the 1995 RJRN Credit Agreement, the "New RJRN Credit Agreements"), prohibit the sale of all or any substantial portion of certain assets of RJRN Holdings or its subsidiaries. On January 26, 1995, Nabisco Holdings completed the initial public offering of 51,750,000 shares of its Class A Common Stock at an initial offering price of $24.50 per share. Nabisco used all of the approximately $1.2 billion of net proceeds from the initial public offering to repay a portion of its initial borrowing under its credit agreement, dated as of December 6, 1994 (the "1994 Nabisco Credit Agreement"). RJRN owns 100% of the outstanding Class B Common Stock of Nabisco Holdings, which represents approximately 80.5% of the economic interest in Nabisco Holdings and approximately 97.6% of the total voting power of Nabisco Holdings' outstanding common stock. In connection with the offering, RJRN Holdings, RJRN and Nabisco Holdings entered into agreements to exchange certain services, to establish tax sharing arrangements and to provide RJRN with certain preemptive and registration rights with respect to Nabisco Holdings and Nabisco securities. In 1995, RJRN and Nabisco engaged in a series of related transactions that were designed, among other things, to enable Nabisco to obtain long term debt financing independent of RJRN and to repay its intercompany debt to RJRN. Specifically, on April 28, 1995, Nabisco Holdings and Nabisco entered into a credit agreement with various financial institutions (as amended, the "1995 Nabisco Credit Agreement") to replace the 1994 Nabisco Credit Agreement. Among other things, the 1995 Nabisco Credit Agreement was designed to permit Nabisco to prepay intercompany debt and incur long-term debt, to increase Nabisco's committed facility from $1.5 billion to $3.5 billion and to extend its term from 364 days to five years. On June 5, 1995, RJRN and Nabisco consummated offers to exchange approximately $1.8 billion aggregate principal amount of newly issued notes and debentures (the "New Notes") of Nabisco for the same amount of notes and debentures (the "Old Notes") issued by RJRN (the "Exchange Offers"). As part of the transaction, RJRN returned to Nabisco approximately $1.8 billion of intercompany notes that had been issued by Nabisco and were held by a non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange Offers have interest rates, principal amounts, maturities and redemption provisions identical to the corresponding Old Notes issued by RJRN. Nabisco subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay approximately $89 million of an intercompany note from Nabisco to Nabisco Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco Holdings used the payments it received to repay the balance of a $168 million intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN also obtained consents to certain indenture modifications from holders of the Old Notes and holders of approximately $3.58 billion of its other outstanding debt securities (the "Consent Solicitations"). During 1994, the percentage voting power of RJRN Holdings held by partnerships affiliated with KKR (the "KKR Partnerships") decreased substantially and in 1995 the KKR Partnerships divested their remaining interests in RJRN Holdings voting securities primarily in connection with the acquisition of Borden, Inc. by certain of the KKR Partnerships. (b) Financial Information about Industry Segments During 1995, 1994 and 1993, RJRN's industry segments were tobacco and food. For information relating to industry segments for the years ended December 31, 1995, 1994 and 1993, see Note 16 to the Consolidated Financial Statements. 2 (c) Narrative Description of Business TOBACCO The tobacco line of business is conducted by RJRT and Reynolds International, which manufacture, distribute and sell cigarettes. Cigarettes are manufactured in the United States by RJRT and in over 40 foreign countries and territories by Reynolds International and subsidiaries or licensees of RJRT and are sold throughout the United States and in more than 170 markets around the world. In 1995, approximately 58% of total tobacco segment net sales (after deducting excise taxes) and approximately 69% of total tobacco segment operating income (before amortization of trademarks and goodwill) 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, CAMEL, SALEM, MONARCH and VANTAGE. RJRT's other cigarette brands, including MORE, NOW, BEST VALUE, 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 1995 of 27%, a decrease of approximately 1 share point from 1994. During 1995, RJRT and the largest domestic cigarette manufacturer, Philip Morris Incorporated, together sold, on a shipment basis, approximately 72% of all cigarettes sold in the United States. In November 1994, RJRT confirmed press reports that it was developing ECLIPSE, a cigarette that primarily heats rather than burns tobacco and thereby substantially reduces second-hand smoke. The cigarette remains under development and RJRT continues to assess a possible market introduction of an ECLIPSE cigarette. 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 by building brand loyalty among current adult smokers and attracting adult smokers of competitive brands. In 1995, these efforts included the continuation and refinement of conversion, continuity and relationship-building programs such as the CAMEL Genuine Taste Mission, the expanded regional introduction of the SALEM Preferred line extension and the introduction of a line of cigarette brands from a new operating unit, Moonlight Tobacco. RJRT believes it is essential to compete in all segments of the cigarette market, and accordingly it offers a range of lower-priced brands including DORAL, MONARCH and BEST VALUE, intended to appeal to more cost-conscious adult smokers. For a discussion on competition in the tobacco business, see "Business--Tobacco-- Competition" in this Item 1. 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 13% of RJRT's sales, no RJRT customers accounted for more than 10% of sales for 1995. RJRT distributes its cigarettes primarily to public warehouses located throughout the United States that serve as local distribution centers for RJRT's customers. 3 RJRT's products are sold to adult smokers primarily through retail outlets. RJRT employs a decentralized marketing strategy that permits its sales force to be flexible in responding to local market dynamics by designing individual in-store programs to fit varying consumption patterns. RJRT uses 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 Reynolds International operates in over 170 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, Reynolds International believes that the American Blend segment, in which Reynolds International primarily competes, is growing significantly faster. Although Reynolds International is the second largest of two international cigarette producers that have significant positions in the American Blend segment, its share of sales in this segment is approximately one-third of the share of Philip Morris International Inc., the largest American Blend producer. Reynolds 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. Reynolds International is aggressively pursuing development opportunities throughout the world. Reynolds International markets nearly 100 brands of which WINSTON, CAMEL and SALEM, all American Blend cigarettes, are its international leaders. WINSTON, Reynolds 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 140 markets worldwide and is Reynolds International's second largest selling international brand. SALEM is the world's largest selling menthol cigarette and is particularly strong in Far East markets. Reynolds International also markets a number of local brands in various foreign markets. None of Reynolds International's customers accounted for more than 10% of sales in 1995. More than 20% of Reynolds International's 1995 volume was U.S.-made product, with the remainder manufactured outside the U.S. Reynolds International brands are manufactured in owned or joint-venture facilities in 19 locations outside the United States, and through licensing agreements in about 20 other countries. Reynolds International owned or joint-venture manufacturing locations include Canada, the Canary Islands, China, the Czech Republic, Finland, Germany, Hong Kong, Hungary, Indonesia, Kazakhstan, Malaysia, Poland, Portugal, Romania, Russia, Switzerland, Tanzania, Turkey, Ukraine and Vietnam. Certain of Reynolds International's foreign operations are subject to local regulations that set import quotas, restrict financing flexibility, affect repatriation of earnings or assets and limit advertising. 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 Reynolds International, to expand operations in such markets; however, there can be no assurance that the liberalizing trends will be maintained or extended or that Reynolds 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. Reynolds International uses a variety of tobacco leaf from both United States and international sources. RJRT and Reynolds International believe there is a sufficient supply of tobacco in the worldwide tobacco market to satisfy their current production requirements. 4 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 addition, Congress enacted the Omnibus Budget Reconciliation Act of 1993, which assesses financial penalties against manufacturers if cigarettes produced in the United States do not contain at least 75% (by weight) domestically grown flue cured and burley tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to replace this domestic content requirement with a tariff rate quota system that keys tariffs to import volumes. The tariff rate quotas have been established by the United States with overseas tobacco producers and became effective on September 13, 1995. Compliance with domestic content restrictions increased raw material costs slightly in 1994 but these costs were down slightly in 1995 during the period when the domestic content requirement was not applicable. COMPETITION Generally, the markets in which RJRT and Reynolds International conduct their businesses are highly competitive, with a number of large participants. Competition is conducted on the basis of brand recognition, brand loyalty, quality and price. For most of RJRT's and Reynolds International's brands, substantial advertising and promotional expenditures are required to maintain or improve a brand's market position or to introduce a new brand. 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 savings segment of the market. Generally, sales of cigarettes in the savings segment are not as profitable as those in other segments. 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. The federal excise tax per pack of 20 cigarettes was last increased in January 1993 to its current rate of 24 cents per pack. In addition, all states and the District of Columbia impose excise taxes at levels ranging from a low of 2.5 cents to a high of 81.5 cents per pack of cigarettes. Increases in these state excise taxes could also have an adverse effect on cigarette sales. In 1994, five states enacted excise tax increases ranging from 7.5 cents to 50 cents per pack. In 1995, the cigarette excise tax in four states was increased by amounts which ranged from 5 cents to 24 cents per pack. In one state, a temporary 10 cent tax, scheduled to expire in 1995, was extended through 1997. 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 5 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 parties from 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 February 1994, the Commissioner of the U.S. Food and Drug Administration (the "FDA"), which historically has refrained from asserting jurisdiction over cigarette products, stated that he intended to cause the FDA to work with the U.S. Congress to resolve the regulatory status of cigarettes under the Food, Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in this regard, and RJRT and other members of the United States cigarette industry were asked to provide voluntarily certain documents and other information to Congress. In August 1995, the Commissioner of the FDA, with the support of the Clinton Administration, announced that he was asserting jurisdiction over cigarettes and certain other tobacco products and issued a notice and request for comments on proposed regulations. The proposed regulations would prohibit or impose stringent limits on a broad range of sales and marketing practices, including bans on sampling, sponsorship by brand name, and distribution of non-tobacco items carrying brand names. The FDA's proposed rule would also limit advertising in print and on billboards to black and white text, impose new labeling language, and require cigarette manufacturers to fund a $150 million-a-year campaign to discourage minors from using tobacco products. RJRT and other cigarette manufacturers have submitted responses to the proposed rules. The purported purpose of the FDA's assertion of jurisdiction was to curb the use of tobacco products by underage youth. RJRT believes, however, that the assertion of jurisdiction and the scope of the proposed rules would materially restrict the availability of cigarettes and RJRT's ability to market its cigarette products to adult smokers. RJRT, together with the other four major domestic cigarette manufacturers and an advertising agency, filed suit on the day of the Commissioner's announcement in the U.S. District Court for the Middle District of North Carolina seeking to enjoin the FDA's assertion of jurisdiction (Coyne Beahm v. United States Food & Drug Administration). Similar suits have been filed in the same court by manufacturers of smokeless tobacco products, by operators of retail stores and by advertising interests. RJRT is unable to predict whether or when the FDA will adopt final rules asserting jurisdiction over cigarettes or the scope of such final rules if adopted, but such rules could have an adverse effect on cigarette sales and RJRT. It is also unable to predict the outcome of the litigation seeking to enjoin the FDA's rulemaking. In March 1994, the U.S. Occupational Safety and Health Administration ("OSHA") announced proposed regulations that would restrict smoking in the workplace to designated smoking rooms that are separately exhausted to the outside. Although RJRT cannot predict the form or timing of any regulations that may be finally adopted by OSHA, if the proposed regulations are adopted, RJRT expects that many employers who have not already done so would prohibit smoking in the workplace rather than make expenditures necessary to establish designated smoking areas to accommodate smokers. RJRT submitted comments on the proposed regulations during the comment period which closed in February 1996. Because many employers currently do not permit smoking in the workplace, RJRT cannot predict the effect of any regulations that may be adopted, but incremental restrictions on smokers could have an adverse effect on cigarette sales and RJRT. In July 1994, an amendment to a Florida statute became effective which allows the state of Florida to bring an action in its own name against the tobacco industry to recover amounts paid by the state under its Medicaid program to treat illnesses statistically associated with cigarette smoking. The amended statute does not require the state to identify the individual who received medical care, permits a lawsuit to be filed as a class action, and eliminates the comparative negligence and assumption of risk defenses. The Florida statute is being challenged on state and federal constitutional grounds in a 6 lawsuit brought by Philip Morris Companies Inc., Associated Industries of Florida, Publix Supermarkets, and National Association of Convenience Stores in June 1994. On June 26, 1995, the trial court judge granted in part the plaintiffs' motion for summary judgment finding portions of the statute unconstitutional. Both plaintiffs and defendants appealed this decision which the Florida supreme court accepted for direct appeal. Oral argument was heard on November 6, 1995. The Florida House and Senate passed a bill that would repeal the Florida statute retroactively which was vetoed by the Governor. The Florida House and Senate have indicated that they are considering action to override that veto. Similar legislation, without Florida's elimination of defenses, has been introduced in the Massachusetts and New Jersey legislatures. RJRT is unable to predict whether other states will enact similar legislation and whether lawsuits will be filed under these statutes or their outcome, if filed. A suit against the tobacco industry was filed under the Florida statute on February 21, 1995. See "Business--Tobacco--Litigation Affecting the Cigarette Industry" below in this Item 1. Legislation imposing various restrictions on public smoking has also been enacted in forty-eight states and many local jurisdictions, and many employers have initiated programs restricting or eliminating smoking in the workplace. Seventeen 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. Certain common carriers have imposed additional restrictions on passenger smoking. 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, which was struck down on grounds of constitutionality by the Supreme Court of Canada in 1995. In 1990, RJRT 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 1995, wholesalers, retailers and the tobacco industry including RJRT formed the Coalition for Responsible Tobacco Retailing and launched a new program (We Card) focused on stopping underage access to cigarettes. In 1992, the Alcohol, Drug Abuse and Mental Health Act was signed into law. This act requires states to adopt a minimum age of 18 for purchases of tobacco products and to establish a system to monitor, report and reduce the illegal sale of tobacco products to minors in order to continue receiving federal funding for mental health and drug abuse programs. In January, 1996, regulations implementing this legislation were announced by the Department of Health and Human Services. 7 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 yield content of cigarettes, as well as a warning statement. During the past three decades, various laws affecting the cigarette industry have 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 health warnings to be printed on cigarette packages and advertising on a rotating basis; (iii) increases type size and area of the warning required in 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 Low Birth Weight"; and (iv) "Surgeon General's Warning: Cigarette Smoke Contains Carbon Monoxide." Similar warnings are required on outdoor billboards. In 1990, the Fire Safe Cigarette Act of 1990 was enacted, which directed the Consumer Product Safety Commission to conduct and oversee research begun under the direction of the Cigarette and Little Cigar Fire Safety Act of 1984 to assess the practicability of developing a performance standard to reduce cigarette ignition propensity. The Commission presented a final report to Congress in 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 RJRT 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 (now the Secretary of Health and Human Services) and the Surgeon General have issued a number of other reports which purport to find the nicotine in cigarettes addictive and to link cigarette smoking and exposure to cigarette smoke 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. During the last Congress, the Clinton administration and federal legislators introduced bills that would have significantly increased the federal excise tax on cigarettes, eliminated the deductibility of the cost of tobacco advertising, banned smoking in public buildings and on any scheduled airline flight, and given the Food and Drug Administration authority to reduce and eliminate nicotine in tobacco products. This legislation was not enacted. It is not possible to determine what additional federal, state, local or foreign legislation or regulations relating to smoking or cigarettes will be enacted or to predict any resulting effect thereof on 8 RJRT, Reynolds International or the cigarette industry generally, but such legislation or regulations could have an adverse effect on RJRT, Reynolds 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 1995, 101 new actions were filed or served against RJRT and/or its affiliates or indemnitees and 22 such actions were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or indemnitees without trial. A total of 132 such actions in the United States and two against RJRT's Canadian subsidiary were pending on December 31, 1995. As of February 16, 1996, 144 active cases were pending against RJRT and/or its affiliates or indemnitees, 142 in the United States and two in Canada. The United States cases are in 22 states and are distributed as follows: 90 in Florida; 10 in Louisiana; 5 in Texas; 4 in each of Indiana, Kansas and Tennessee; 3 in each of Mississippi, California, Pennsylvania; 2 in each of Alabama, Colorado, Massachusetts and Minnesota; and one in each of Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, South Carolina and West Virginia. Of the 142 active cases in the United States, 116 are pending in state court and 26 in federal court. Five of the 142 active cases in the United States involve alleged non-smokers claiming injuries resulting from exposure to environmental tobacco smoke. Six cases, which are described more specifically below, purport to be class actions on behalf of thousands of individuals. Purported classes include individuals claiming to be addicted to cigarettes and flight attendants alleging personal injury from exposure to environmental tobacco smoke in their workplace. Four of the active cases were brought by state attorneys general seeking, inter alia, recovery of the cost of Medicare funds paid by their states for treatment of citizens allegedly suffering from tobacco related diseases or conditions. In addition, one case was brought by the State of Florida seeking similar rulings under a special state statute. 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, unfair trade practices, conspiracy, unjust enrichment, indemnity and common law public nuisance. Punitive damages, often in amounts ranging into the hundreds of 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 in which RJRT was not a defendant, 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, 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 Supreme 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 and, if so, in what form, or whether such legislation would be 9 intended by Congress to apply retroactively. The passage of such legislation could increase the number of cases filed against cigarette manufacturers, including RJRT. Set forth below are descriptions of the class action lawsuits, a suit in which plaintiffs seek to act as private attorneys general, actions brought by state attorneys general in Massachusetts, Minnesota, Mississippi and West Virginia, an action brought by the State of Florida and pending investigations relating to RJRT's tobacco business. In 1991, Broin v. Philip Morris Company, a purported class action against certain tobacco industry defendants, including RJRT, was brought by flight attendants claiming to represent a class of 60,000 individuals, alleging personal injury caused by exposure to environmental tobacco smoke in their workplace. In December 1994, the Florida state court certified a class consisting of "all non-smoking flight attendants who are or have been employed by airlines based in the United States and are suffering from diseases and disorders caused by their exposure to secondhand cigarette smoke in airline cabins." The defendants appeal of this certification to the Florida Third District Court of Appeal was denied on January 3, 1995. A motion for rehearing has been filed. In March 1994, Castano v. The American Tobacco Company, a purported class action, was filed in the United States District Court for the Eastern District of Louisiana against tobacco industry defendants, including RJRT, seeking certification of a class action on behalf of all United States residents who allegedly are or claim to be addicted, or are the legal survivors of persons who allegedly were addicted, to tobacco products manufactured by defendants. The complaint alleges that cigarette manufacturers manipulated the levels of nicotine in their tobacco products to induce addiction in smokers. Plaintiffs' motion for certification of the class was granted in part on February 17, 1995. The district court certified core liability issues (fraud, negligence, breach of warranty, both express and implied, intentional tort, strict liability and consumer protection statutes), and punitive damages. Not certified were issues of injury-in-fact, proximate cause, reliance, affirmative defenses, and compensatory damages. In July 1995, the Fifth Circuit Court of Appeals agreed to hear defendants' appeal of this class certification. A decision is expected in 1996. In March 1994, Lacey v. Lorillard Tobacco Company, a purported class action, was filed in Circuit Court, Fayette County, Alabama against three cigarette manufacturers, including RJRT. Plaintiff, who claims to represent all smokers who have smoked or are smoking cigarettes manufactured and sold by defendants in the state of Alabama, seeks compensatory and punitive damages not to exceed $48,500 per class member and injunctive relief arising from defendants' alleged failure to disclose additives used in their cigarettes. In April 1994, defendants removed the case to the United States District Court for the Northern District of Alabama. In May 1994, Engle v. R.J. Reynolds Tobacco Company, was filed in Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco manufacturers, including RJRT, and other members of the industry, by plaintiffs who allege injury and purport to represent a class of all United States citizens and residents who claim to be addicted, or who claim to be legal survivors of persons who allegedly were addicted, to tobacco products. On October 28, 1994, a state court judge in Miami granted plaintiffs' motion to certify the class. The defendants appealed that ruling to the Florida Third District Court of Appeal which, on January 31, 1996, decided to certify a class limited to Florida citizens or residents. The defendants are considering seeking a rehearing. In September 1994, Granier v. American Tobacco Company, a purported class action apparently patterned after the Castano case, was filed in the United States District Court for the Eastern District of Louisiana against tobacco industry defendants, including RJRT. Plaintiffs seek certification of a class action on behalf of all residents of the United States who have used and purportedly became addicted to tobacco products manufactured by defendants. The complaint alleges that cigarette manufacturers manipulated the levels of nicotine in tobacco products for the purpose of addicting 10 consumers. By agreement of the parties, all action in this case is stayed pending determination of the motion for class certification in the Castano case. In January 1995, a purported class action was filed in the Ontario Canada Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette manufacturers. The lawsuit, then captioned Le Tourneau, v. Imperial Tobacco Company, seeks certification of a class of persons who have allegedly become addicted to the nicotine in cigarettes or who had such alleged addiction heightened or maintained through the use of cigarettes, and who have allegedly suffered loss, injury, and damage in consequence, together with persons with Family Law Act claims in respect to the claims of such allegedly addicted persons, and the estates of such allegedly addicted persons. Theories of recovery pleaded include negligence, strict liability, failure to warn, deceit, negligent misrepresentation, breach of implied warranty and conspiracy. The relief sought consists of damages of one million dollars for each of the three named plaintiffs, punitive damages, funding of nicotine addiction rehabilitation centers, interest and costs. On June 2, 1995, the plaintiffs, on consent, were granted leave to file an amended statement of claim to remove Le Tourneau as representative plaintiff and add two additional representative plaintiffs. The case is now captioned Caputo v. Imperial Tobacco Limited. In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, the California Supreme Court ruled that the plantiffs' claim that an RJRT advertising campaign constitutes unfair competition under the California Business and Professions Code was not preempted by the Cigarette Act. The plantiffs are acting as private attorneys general. This opinion allows the plaintiffs to pursue their lawsuit which had been dismissed at the trial court level. The defendants' Petition for Certiorari to the United States Supreme Court was denied in December 1994. The case has been remanded to the trial court. In June 1994, in Moore v. The American Tobacco Company, RJRN and RJRT were named along with other industry members as defendants in an action brought by the Mississippi state attorney general on behalf of the state to recover state funds paid for health care and medical and other assistance to state citizens allegedly suffering from diseases and conditions allegedly related to tobacco use. This suit, which was brought in Chancery (non-jury) Court, Jackson County, Mississippi also seeks an injunction from "promoting" or "aiding and abetting" the sale of cigarettes to minors. Both actual and punitive damages are sought in unspecified amounts. Motions by the defendants to dismiss the case or to transfer it to circuit (jury) court were denied on February 21, 1995 and the case will proceed in Chancery Court. RJRN and other industry holding companies have been dismissed from the case. In August 1994, RJRT and other U.S. cigarette manufacturers were named as defendants in an action instituted on behalf of the state of Minnesota and of Blue Cross and Blue Shield of Minnesota to recover the costs of medical expenses paid by the state and by Blue Cross/Blue Shield that were incurred in the treatment of diseases allegedly caused by cigarette smoking. The suit, Minnesota v. Philip Morris, alleges consumer fraud, unlawful and deceptive trade practices, false advertising and restraint of trade, and it seeks injunctive relief and money damages, trebled for violations of the state antitrust law. Motions by the defendants to dismiss all claims of Blue Cross/Blue Shield and certain substantive claims of the State of Minnesota, and by plaintiffs to strike certain of the defendants' defenses, were denied on May 19, 1995. An intermediate appeals court declined to hear the defendants' appeal from the ruling denying the motion to dismiss all claims of Blue Cross/Blue Shield on the ground that it lacks standing to bring the action, but the Minnesota Supreme Court has agreed to do so. Oral argument was heard January 29, 1996 and a decision is pending. In September 1994, the Attorney General of West Virginia filed suit against RJRT, RJRN and twenty-one additional defendants in state court in West Virginia. The lawsuit, McGraw v. American Tobacco Company, is similar to those previously filed in Mississippi and Minnesota. It seeks recovery for medical expenses incurred by the state in the treatment of diseases statistically associated with cigarette smoking and requests an injunction against the promotion and sale of cigarettes and tobacco products to minors. The lawsuit also seeks a declaration that the state of West Virginia, as plaintiff, is 11 not subject to the defenses of statute of repose, statute of limitations, contributory negligence, comparative negligence, or assumption of the risk. On May 3, 1995, the judge granted defendants' motion to dismiss eight of the ten causes of action pleaded. The defendants have filed motions to dismiss the remaining two counts. On October 20, 1995, at a hearing on the defendants' joint motion to prohibit prosecution of the action due to plaintiff's unlawful retention of counsel under a contingent fee arrangement, in a ruling from the bench, the contingent fee agreement between the West Virginia Attorney General and private attorneys preparing the case was held to be void on the grounds that the Attorney General has no constitutional, legislative, or statutory authority for entering into such an agreement. On February 21, 1995, the state of Florida filed a suit under a special state statute against RJRT and RJRN, along with other industry members, their holding companies and other entities. The state is seeking Medicaid reimbursement under various theories of liability and injunctive relief to prevent the defendants from engaging in consumer fraud and to require that defendants: disclose and publish all research conducted directly or indirectly by the industry; fund a corrective public education campaign on the issues of smoking and health in Florida; prevent the distribution and sale of cigarettes to minors under the age of eighteen; fund clinical smoking cessation programs in the state of Florida; dissolve the Council for Tobacco Research and the Tobacco Institute or divest ownership, sponsorship, or membership in both; and disgorge all profits from sales of cigarettes in Florida. On defendants' motion, the case was stayed until July 7, 1995 and that stay has been extended pending appeals by the plaintiffs and the defendants in connection with the constitutional challenge to the Florida statute discussed above. See "Business--Tobacco-- Legislation and Other Matters Affecting the Cigarette Industry" in this Item 1. On November 28, 1995, RJRT and other domestic cigarette manufacturers filed petitions for declaratory judgment in Massachusetts (Federal Court) and Texas (State Court, Austin Texas) as to potential Medicaid reimbursement suits that had been threatened by the Attorneys General of those states. On January 22, 1996, a similar petition for declaratory judgement was filed in Maryland (State Court). On December 19, 1995, the Commonwealth of Massachusetts filed suit against cigarette manufacturers including RJRT and additional defendants including trade associations and wholesalers, seeking reimbursement of Medicaid and other costs incurred by the state in providing health care to citizens allegedly suffering from diseases or conditions purportedly caused by cigarette smoking. The complaint also seeks orders requiring the manufacturing defendants to disclose and disseminate prior research; fund a corrective campaign and smoking cessation program; disclose nicotine yields of their products; and pay restitution. 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 received a civil investigative demand dated January 11, 1994 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 tobacco-related 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 or 12 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. RJRN Holdings and RJRN believe that the ultimate outcome of all pending litigation matters should not have a material adverse effect on the financial position of either RJRN Holdings or RJRN; however, it is possible that the results of operations or cash flows of RJRN Holdings or RJRN in particular quarterly or annual periods or the financial condition of RJRN Holdings and RJRN 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 any possible loss in any particular quarterly or annual period or in the aggregate. FOOD The food line of business is conducted by operating subsidiaries of Nabisco Holdings. RJRN owns 100% of the outstanding Class B Common Stock of Nabisco Holdings, which represents approximately 80.5% of the economic interest in Nabisco Holdings and approximately 97.6% of the total voting power of Nabisco Holdings' outstanding common stock. Nabisco's businesses in the United States are comprised of the Nabisco Biscuit, Specialty Products, LifeSavers, Planters, Food Service and Fleischmann's companies (collectively, the "Domestic Food Group"). Nabisco's businesses outside the United States are conducted by Nabisco Ltd and Nabisco International (collectively, the "International Food Group"). Nabisco Ltd was recently shifted from the Domestic Food Group (formerly the North American Food Group) to the International Food Group. 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 1995. DOMESTIC FOOD GROUP OPERATIONS Nabisco Biscuit Company. Nabisco Biscuit Company is the largest manufacturer and marketer in the United States cookie and cracker industry with nine of the ten top selling brands, each of which had annual net sales of over $100 million in 1995. Overall, in 1995, Nabisco Biscuit had a 40.8% share of the domestic cookie category and a 55.3% share of the domestic cracker category, in the aggregate more than three times the share of its closest competitor. Leading Nabisco Biscuit cookie brands include OREO, CHIPS AHOY!, NEWTONS and SNACKWELL'S. Leading Nabisco Biscuit cracker brands include RITZ, PREMIUM, NABISCO HONEY MAID GRAHAMS, WHEAT THINS 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. Line extensions such as OREO DOUBLE STUF, FUDGE COVERED OREO and Reduced Fat OREO continue to increase the brand's appeal to targeted consumer groups. CHIPS AHOY! is the leader in the chocolate chip cookie segment with line extensions such as CHUNKY CHIPS AHOY! and CHEWY CHIPS AHOY! broadening its appeal and adding incremental sales. NEWTONS, the oldest Nabisco Biscuit cookie brand, is the fourth leading cookie brand in the United States. The introduction of FAT FREE FIG and APPLE NEWTONS in 1992, FAT FREE CRANBERRY, STRAWBERRY and RASPBERRY NEWTONS in 1993 and FAT FREE REDUCED CALORIE CRANBERRY and BLUEBERRY, as well as NEWTONS COBBLERS in 1995 have expanded the appeal of NEWTONS and added incremental sales. 13 Nabisco Biscuit's cracker business is led by RITZ, the largest selling cracker in the United States, as well as RITZ BITS, RITZ BITS SANDWICHES and REDUCED FAT RITZ successful product line extensions which, together with RITZ, accounted for 13.2% of cracker sales in the United States in 1995. In addition, PREMIUM, the oldest Nabisco cracker brand and the leader in the saltine cracker segment, is joined by NABISCO HONEY MAID GRAHAMS, WHEAT THINS and TRISCUIT to comprise, along with RITZ, five of the six largest selling cracker brands in the United States. 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, which is now the third largest cookie brand in the U.S. Nabisco Biscuit also acquired Stella D'oro, a leading producer of breadsticks, breakfast biscuits, specialty cakes, pastries and snacks. This line of specialty items gave Nabisco Biscuit access to new areas within supermarkets, further broadening Nabisco's cookie and cracker portfolio. Nabisco Biscuit's other cookie and cracker brands, which include NUTTER BUTTER, NILLA WAFERS, BARNUM'S ANIMAL CRACKERS, BETTER CHEDDARS, HARVEST CRISPS, CHICKEN IN A BISKIT and CHEESE NIPS, compete in consumer niche segments. Many are the first or second largest selling brands in their respective segments. In 1994, Nabisco entered the breakfast snack aisle with the launch of SNACKWELL'S cereal bars and granola bars and the repositioning of TOASTETTES toaster pastries. Nabisco Biscuit's products are manufactured in 14 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 modernizing certain of its facilities. Nabisco Biscuit also operates a flour mill in Toledo, Ohio which supplies over 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 10 major distribution warehouses and 129 shipping branches where shipments are consolidated for delivery to approximately 119,000 separate delivery points. Nabisco believes this sophisticated distribution and delivery system provides it with a significant service advantage over its competitors. Specialty Products Company. The Specialty Products Company manufactures and markets a broad range of food products, with sauces and condiments, pet snacks, hot cereals and dry mix desserts 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, CREAM OF WHEAT hot cereals and ROYAL desserts. In September 1995, Specialty Products exited the Mexican food category, with the sale of its Ortega Mexican food business. Specialty Products' primary entries in the sauce and condiment segments are A.1. and A.1. BOLD steak sauces, the leading lines of steak sauces, and GREY POUPON mustards, which include the leading Dijon mustard. Specialty Products also markets REGINA wine vinegar, the leader in its segment of the vinegar market. Specialty Products is the second largest 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 and BUTCHER'S CHOICE. Specialty Products participate in the dry mix dessert category with ROYAL and SNACKWELL'S brand gelatins and puddings. Specialty Products also participates in 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 14 molasses and syrup. Nabisco, through the Specialty Products Company, manufactures hot cereals, participating in the cook-on-stove and mix-in-bowl segments of the category. CREAM OF WHEAT, the leading wheat-based hot cereal, and CREAM OF RICE participate in the cook-on-stove segment and eight varieties of INSTANT CREAM OF WHEAT participate in the mix-in-bowl segment. Quaker Oats Company is the most significant participant in the hot cereal category. Specialty Products manufactures its products in four plants as well as in six facilities with which it has production agreements. Specialty Products sells to retail grocery chains through independent brokers and to drugstores, mass merchandisers and other major retail outlets through a direct sales force. The products are sold and distributed by Nabisco's Sales & Integrated Logistics Group. LifeSavers Company. The LifeSavers Company manufactures and markets non-chocolate candy and gum primarily for sale in the United States. LifeSavers' well-known brands include LIFE SAVERS candy, BREATH SAVERS sugar free mints, BUBBLE YUM bubble gum, FRUIT STRIPE gum, CARE*FREE sugarless gum, NOW & LATER fruit chewy taffy and GUMMI SAVERS fruit chewy candy. LIFE SAVERS is the largest selling non-chocolate candy brand in the United States, with a 1995 share of 4.9% of the non-chocolate 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' products are seasonally strongest in the fourth quarter. LifeSavers sells its products in the United States primarily to grocery stores, drug stores, mass merchandisers, convenience stores, membership club stores and food service, military and vending machine suppliers. The products are sold and distributed by Nabisco's Sales & Integrated Logistics Group. LifeSavers currently owns and operates four manufacturing facilities. Planters Company. The Planters Company produces and/or markets nuts and snacks largely for sale in the United States, primarily under the PLANTERS trademark. Planters is the clear leader in the packaged nut category, with a market share of seven 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 grocery stores, drug stores, mass merchandisers, convenience stores, membership club stores and food service, military and vending machine suppliers. The products are sold and distributed by Nabisco's Sales & Integrated Logistics Group. Planters currently owns and operates two manufacturing facilities. Food Service Company. The Food Service Company sells through non-grocery channels a variety of specially packaged food products of the Domestic Food Group, including cookies, crackers, hot cereals, sauces and condiments for the food service and vending machine industry. Food Service is also a leading regional supplier of premium frozen pies to in-store supermarket bakeries, wholesale clubs and food service accounts through Plush Pippin. The Food Service products are distributed by Nabisco's Sales & Integrated Logistics Group. Fleischmann's Company. The Fleischmann's Company manufactures and markets various margarines and spreads as well as no-fat egg products and non-fat chocolate yogurt. Fleischmann's is the second largest margarine producer in the United States. Fleischmann's participates in all segments of the margarine category, with the FLEISCHMANN'S, BLUE BONNET and MOVE OVER BUTTER brands. Fleischmann's Company strengthened its position in the margarine category in 1995, with the purchase of the Kraft margarine business which includes the PARKAY, TOUCH OF BUTTER and CHIFFON brands acquired from Kraft Foods, Inc. in October, 1995. Fleischmann's margarines are currently manufactured in two owned facilities and in six facilities 15 with which Fleischmann's has production agreements. Fleischmann's is the market leader in the healthy packaged egg category with EGG BEATERS and in 1995, introduced SNACKWELL'S Nonfat Chocolate Yogurt. Distribution for Fleischmann's is principally direct from plant to retailer warehouses through Nabisco's Sales & Integrated Logistics Group and with respect to the 1995 acquired products, for a temporary period through Kraft's distribution system. Sales & Integrated Logistics Group. The Sales & Integrated Logistics Group handles sales and distribution for the Specialty Products, LifeSavers, Planters and Fleischmann's Companies and distribution for the Food Service Company. It sells to retail grocery chains through independent brokers and a direct sales force, and to drug stores, mass merchandisers and other major retail outlets through its direct sales force. The products are distributed from twenty-one distribution centers located throughout the United States. INTERNATIONAL FOOD GROUP OPERATIONS Nabisco Ltd. Nabisco Ltd conducts Nabisco's Canadian operations through a biscuit division, a grocery division and a food service division. Excluding private label brands, the biscuit division produced nine of the top ten cookies and nine of the top ten crackers in Canada in 1995. Nabisco 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 Ltd also markets a variety of single-serve cookies, crackers and salty snacks under such brand names as MINI OREO, RITZ BITS SANDWICHES and CRISPERS. Nabisco Ltd's grocery division produces and markets canned fruits and vegetables, fruit juices and 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, vegetables, soups and fruit juices and drinks are marketed under the DEL MONTE trademark, pursuant to a license from the Del Monte Corporation, and under the AYLMER trademark. The grocery division also markets MILK-BONE pet snacks and MAGIC baking powder, each a leading brand in Canada. Nabisco Ltd's grocery division operated six manufacturing facilities in 1995, five of which were 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 five regional warehouses. In 1995, Nabisco Ltd acquired the PRIMO brand of dry pasta, canned tomatoes and other Italian food products which are manufactured in two facilities and sold and distributed by a direct store delivery system. In 1995, Nabisco Ltd re-entered the margarine and tablespread business with its acquisition of the PARKAY, TOUCH OF BUTTER and CHIFFON brands from Kraft Canada Inc. These products are currently manufactured and distributed under agreements with Kraft Canada. Nabisco Ltd's food service division sells a variety of specially packaged food products including cookies, crackers and 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 Ltd's other divisions. Nabisco International. Nabisco International is a leading producer of biscuits, powdered dessert and drink mixes, baking powder, pasta, milk products and other grocery items, industrial yeast and bakery ingredients. Nabisco International also exports a variety of Domestic Food Group products to markets in Europe and Asia from the United States and is one of the largest multinational packaged food businesses in Latin America. 16 Nabisco International manufactures and markets biscuits and crackers under the NABISCO brand, yeast, baking powder and bakery ingredients under the FLEISCHMANN'S and ROYAL brands, desserts 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 the Del Monte Corporation. Nabisco International's largest market is Brazil, where it operates 16 plants. Nabisco International is the market leader in powdered desserts in Spain and most of Latin America, in the yeast category in Brazil and certain other Latin American countries, in biscuits in Peru, Spain, Venezuela and Uruguay, and in canned vegetables in Venezuela. Nabisco International also maintains a strong position in the processed milk category in Brazil and expanded its market share through the 1995 acquisitions of Avare and Gumz. In Argentina, Nabisco International acquired 71% of Establecimiento Modelo Terrabusi S.A. in April 1994 and increased its interest in the Argentine biscuit and pasta company to approximately 99% in October and November 1994. Nabisco International has operations in 17 Latin American countries. Nabisco International significantly increased its presence in Europe through its 1993 and 1994 100% acquisition of Royal Brands S.A. in Spain and Royal Brands Portugal. Nabisco International's products in Spain include biscuits marketed under the ARTIACH and MARBU trademarks, powdered dessert mixes marketed under the ROYAL trademark and various other foods, including canned meats and juices. Nabisco International reentered the South African market through the acquisition of 50% of Royal Beech-Nut (Pty) Ltd., which it previously owned. Royal Beech-Nut markets baking powder and powdered dessert mixes under the ROYAL brand, chewing gum under the BEECHIES and CARE*FREE brands and candy under the LIFESAVERS and BEECH-NUT brands. 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. These raw materials 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 generally also affect Nabisco's competitors. Nabisco believes that all of the raw materials for its products are in plentiful supply and are readily available from a variety of independent suppliers. COMPETITION Generally, the markets in which the Domestic Food Group and the International Food Group conduct their business are highly competitive. Competition consists of large domestic and international companies, local and regional firms and generic and private label products of food retailers. Competition is conducted on the basis of brand recognition, brand loyalty, quality and price. Substantial advertising and promotional expenditures are required to maintain or improve a brand's market position or to introduce a new product. The trademarks under which the Domestic Food Group and the International Food Group market their products are generally registered in the United States and other countries in which such products are sold and are generally renewable indefinitely. Nabisco and certain of its subsidiaries have from time to time granted various parties exclusive licenses to use one or more of their trademarks in particular 17 locations. Nabisco does not believe that such licensing arrangements have a material effect on the conduct of its domestic or international business. OTHER MATTERS 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 Environmental Protection Agency 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. In April 1995, RJRN Holdings was named a potentially responsible party (a "PRP") with certain third parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to a superfund site at which a former subsidiary of RJRN had operations. Certain subsidiaries of the Registrants have also been named as PRPs with third parties or may have indemnification obligations under CERCLA with respect to an additional thirteen sites. RJRN Holdings' subsidiaries have been engaged in a continuing program to assure compliance with U.S., state and local 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 to estimate the cost of resolving these CERCLA matters, RJRN Holdings and RJRN do not expect such expenditures or other costs to have a material adverse effect on the financial condition of either RJRN Holdings or RJRN. EMPLOYEES At December 31, 1995, RJRN Holdings together with its subsidiaries had approximately 76,000 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, Confection and Tobacco Workers Union, which was ratified in September 1992 and which will expire in September 1996. Other unions represent the employees of a number of Nabisco's operations and several of Reynolds International's operations are unionized. RJRN believes that its relations with these employees and with their unions are good. (d) Financial Information about Foreign and Domestic Operations and Export Sales For information about foreign and domestic operations and export sales for the years 1993 through 1995, see "Geographic Data" in Note 16 to the Consolidated Financial Statements. ITEM 2. PROPERTIES For information pertaining to the RJRN Holdings' and RJRN's assets by lines of business and geographic areas as of December 31, 1995 and 1994, see Note 16 to the Consolidated Financial Statements. For information on properties, see Item 1. ITEM 3. LEGAL PROCEEDINGS In the fourth quarter of 1995, purported RJRN Holdings stockholders for themselves and derivatively for RJRN Holdings and Nabisco Holdings filed three putative class and derivative actions in the Court of Chancery of the State of Delaware in and for New Castle County against members of 18 RJRN Holdings Board of Directors. The actions were consolidated in December 1995. The plaintiffs allege, among other things, that the individual defendants breached their fiduciary duty and wasted corporate assets by undertaking the Exchange Offer and Consent Solicitations completed by RJRN and Nabisco in June 1995 and by amending, in August 1995, RJRN Holdings By-Law provisions concerning the calling of shareholder meetings and procedures for shareholder action by written consent. The plaintiffs allege that management took these and other actions to wrongfully obstruct a spin-off of Nabisco, to enrich the defendants at the expense of RJRN Holdings, its shareholders and Nabisco Holdings and to entrench the defendants in the management and control of RJRN Holdings. RJRN Holdings believes that these allegations are without merit and is defending the consolidated action vigorously. For information about other litigation and legal proceedings, see "Business--Tobacco--Litigation Affecting the Cigarette Industry" and "Other Matters--Environmental Matters" in Item 1. ------------------------ Litigation is subject to many uncertainties, and it is possible that some of the tobacco-related legal actions, proceedings or claims could be decided against 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 or 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. RJRN Holdings and RJRN believe that the ultimate outcome of all pending litigation matters should not have a material adverse effect on the financial position of either RJRN Holdings or RJRN; however, it is possible that the results of operations or cash flows of RJRN Holdings or RJRN in particular quarterly or annual periods or the financial condition of RJRN Holdings and RJRN 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 any possible loss in any particular quarterly or annual period or in the aggregate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In January, 1996, Brooke Group Ltd. commenced a solicitation of consents from the shareholders of RJRN Holdings to (i) a non-binding resolution seeking the immediate spin-off of the shares of Nabisco Holdings, and (ii) certain changes to the By-laws of RJRN Holdings which would allow holders of not less than 25% of its Common Stock to require a special meeting and would delete By- law provisions establishing certain administrative procedures for actions by written consent. The consent solicitation closed on February 15, 1996. A ministerial review of the validity of the consents by an independent inspector of elections had not been completed as of February 22, 1996. On February 20, 1996, however, Brooke Group Ltd. declared that it had received consents from holders of 50.4 percent of the voting stock with respect to a spin-off and 53.8 percent of such holders with respect to By-law changes. 19 EXECUTIVE OFFICERS OF THE REGISTRANTS EXECUTIVE OFFICERS OF RJRN HOLDINGS The executive officers of RJRN Holdings are Charles M. Harper (Chairman of the Board), Steven F. Goldstone (Chief Executive Officer and President), Gerald I. Angowitz (Senior Vice President, Human Resources and Administration), John J. Delucca (Senior Vice President and Treasurer), Robert S. Roath (Senior Vice President and Chief Financial Officer), Richard G. Russell (Senior Vice President and Controller), Robert F. Sharpe Jr. (Senior Vice President and General Counsel), and H. Colin McBride (Vice President, Assistant General Counsel and Secretary). Mr. Roath is married to Jo-Ann Ford who was, until December 31, 1995, Senior Vice President, Law and Secretary. The following table sets forth certain information regarding such officers.
YEAR FIRST ELECTED BUSINESS EXPERIENCE DURING THE PAST NAME AGE DIRECTOR FIVE YEARS AND OTHER INFORMATION ---- --- -------- ----------------------------------- Charles M. Harper 68 1993 Chairman since May 1993; Chief Executive Officer, May 1993-December 1995. For more than five years prior thereto, Chairman and, until 1992, Chief Executive Officer of ConAgra, Inc. Member of the Board of Directors of Nabisco Holdings, Nabisco, ConAgra, Inc., E.I. du Pont de Nemours and Company, Norwest Corp., Peter Kiewit Sons', Inc. and Valmont Industries, Inc. Steven F. Goldstone 50 1995 Chief Executive Officer since December 1995; President since October 1995; prior thereto General Counsel, March 1995-January 1996; previously Senior Partner with law firm of Davis, Polk & Wardwell until October 1995 and for more than five years prior thereto. Gerald I. Angowitz 46 -- Senior Vice President of Human Resources and Administration, March 1995-Present; prior thereto, Vice President of Human Resources, January 1994-March 1995; Vice President of Employee Benefits, January 1992-December 1993; Senior Director of Benefits Planning and Analysis, June 1991-December 1991; previously Principal of the consulting firm of Kwasha Lipton, 1989-1991. John J. Delucca 52 -- Senior Vice President and Treasurer, September 1993- Present; Treasurer of Nabisco Holdings, October 1994- February 1995; 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.
20
YEAR FIRST ELECTED BUSINESS EXPERIENCE DURING THE PAST NAME AGE DIRECTOR FIVE YEARS AND OTHER INFORMATION ---- --- -------- ----------------------------------- Robert S. Roath 53 -- Senior Vice President and Chief Financial Officer, May 1995-Present; prior thereto, Senior Vice President and Controller, 1991-May 1995; Vice President and Controller, 1990-1991; previously Vice President and Corporate Controller, Colgate-Palmolive Company, 1988-1990. Richard G. Russell 50 -- Senior Vice President and Controller, May 1995-Present; previously Partner at the accounting firm of Deloitte & Touche LLP for more than five years. Robert F. Sharpe Jr. 43 -- Senior Vice President and General Counsel, January 1996-Present; previously Vice President, Tyco International Ltd., July 1994-January 1996; Vice President, Assistant General Counsel and Secretary, RJRN Holdings and RJRN, 1989-July 1994. H. Colin McBride 50 -- Vice President, Assistant General Counsel and Secretary, December 1995-Present; previously Vice President and Assistant General Counsel for more than five years.
EXECUTIVE OFFICERS OF RJRN HOLDINGS OR ITS SUBSIDIARIES 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 certain executive officers of RJRN Holdings or its subsidiaries, other than those listed above.
YEAR FIRST ELECTED BUSINESS EXPERIENCE DURING THE PAST NAME AGE DIRECTOR FIVE YEARS AND OTHER INFORMATION ---- --- -------- ----------------------------------- H. John Greeniaus 51 1992 Vice Chairman since June 1995; President and Chief Executive Officer of Nabisco Holdings and of Nabisco since October 1994; prior thereto, Chairman and Chief Executive Officer of Nabisco, 1993-1994, and President and Chief Executive Officer of Nabisco, 1987-1993. Member of the Board of Directors of Nabisco Holdings and Nabisco. James W. Johnston 49 1992 Vice Chairman since June 1995; Chairman of RJRT since 1989, Chairman of R.J. Reynolds Tobacco Worldwide since October 1993 and Chairman of Reynolds International since October 1993; Chief Executive Officer of RJRT, 1989-July 1995. Member of the Board of Directors of Sealy Corporation and Wachovia Corporation.
21
YEAR FIRST ELECTED BUSINESS EXPERIENCE DURING THE PAST NAME AGE DIRECTOR FIVE YEARS AND OTHER INFORMATION ---- --- -------- ----------------------------------- Pierre de Labouchere 41 -- Chief Executive Officer and President of Reynolds International, December 1995-Present; prior thereto, President of Eastern Europe, Middle East and Africa Region, Reynolds International, 1994-December 1995; Regional Vice President--European and Special Markets, Reynolds International, 1991-1994; Vice President--Scandinavia and Tax-Free Europe, Reynolds International, 1987-1991. Andrew J. Schindler 51 -- President and Chief Executive Officer of RJRT since July 1995; previously President and Chief Operating Officer of RJRT, May 1994-June 1995; Executive Vice President--Operations, RJRT, 1991-1994; Senior Vice President-Operations, RJRT, 1989-1991. J. Thomas Pearson 54 -- Senior Vice President, Taxation, 1988-Present. Huntley R. Whitacre 53 -- Senior Vice President of Investor Relations, August 1995-Present; prior thereto, Vice President of Investor Relations for more than five years. Jason H. Wright 35 -- Senior Vice President of Worldwide Communications, February 1994-Present; prior thereto, Vice President of Worldwide Communications, 1993-1994; Vice President of Financial Communications, 1990-1993. Jeffrey A. Kuchar 41 -- Vice President and General Auditor, 1993-Present; prior thereto, Director of Finance and Business Development, Specialty Products Company, Nabisco, 1993; Director of Financial Planning, Specialty Products Company, Nabisco, 1992-1993; Assistant Corporate Controller, 1987-1991.
22 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of RJRN 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, 1996, there were approximately 65,000 record holders of the Common Stock. All of the common stock of RJRN is owned by RJRN Holdings. The Common Stock closing price on the NYSE for February 20, 1996 was $32 5/8. 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 ---- --- 1995: First Quarter*.................................. $ 32 1/2 $25 Second Quarter*................................. 31 1/4 25 1/4 Third Quarter................................... 33 1/4 26 3/8 Fourth Quarter.................................. 33 3/8 27 7/8 HIGH LOW ---- --- 1994: First Quarter*.................................. $ 40 5/8 $28 1/8 Second Quarter*................................. 35 27 1/2 Third Quarter*.................................. 35 5/8 28 1/8 Fourth Quarter*................................. 36 1/4 26 9/16 - ------------ * Adjusted to reflect a one-for-five reverse stock split The Board of Directors of RJRN Holdings declared an initial quarterly cash dividend of $.375 per share payable on April 1, 1995. During 1995, RJRN Holdings continued to pay such a quarterly cash dividend on the Common Stock, adjusted to take into account the one-for-five reverse split of the Common Stock described below. Cash dividends paid by RJRN to RJRN Holdings are set forth in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements. The operations of RJRN Holdings and RJRN are conducted through RJRN's subsidiaries and, therefore, RJRN Holdings and RJRN are dependent on the earnings and cash flow of RJRN's subsidiaries to satisfy their respective obligations and other cash needs. Certain Nabisco credit facilities limit the amount of dividends, distributions and advances by Nabisco Holdings and its subsidiaries to RJRN Holdings and its non-Nabisco subsidiaries. Moreover, the New RJRN Credit Agreements and certain policies adopted by the Board of Directors of RJRN Holdings limit the payment by RJRN Holdings of dividends on the Common Stock in excess of certain specific amounts. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Financial Condition" and "RJRN Holdings' Board of Directors Policies" and Note 11 to the Consolidated Financial Statements. RJRN Holdings does not believe that the provisions of the New RJRN Credit Agreements or its adopted policies concerning distributions to stockholders will limit its ability to pay its anticipated quarterly dividends. A one-for-five reverse split of the Common Stock of RJRN Holdings was approved by its stockholders on April 12, 1995. The reverse stock split resulted in a dividend and earnings per share five times higher with a corresponding reduction in the number of shares outstanding. RJRN Holdings has indicated that, under normal circumstances, it does not plan to issue additional equity securities for purposes of balance sheet improvement. 23 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data of RJR Nabisco Holdings Corp. ("RJRN Holdings") presented below as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 was derived from the consolidated financial statements of RJRN Holdings (the "Consolidated Financial Statements"), which have been audited by Deloitte & Touche LLP, independent auditors. In addition, the consolidated financial data of RJRN Holdings presented below as of December 31, 1993, 1992 and 1991 and for each of the years in the two year period ended December 31, 1992 was derived from the audited consolidated financial statements of RJRN Holdings as of December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, which are not presented herein. The data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included herein.
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- RESULTS OF OPERATIONS Net sales....................................... $16,008 $15,366 $15,104 $15,734 $14,989 ------- ------- ------- ------- ------- Cost of products sold........................... 7,468 6,977 6,640 6,326 6,088 Selling, advertising, administrative and general expenses.............................. 5,412 5,210 5,731 5,788 5,358 Amortization of trademarks and goodwill......... 636 629 625 616 609 Restructuring expense........................... 154 -- 730 106 -- ------- ------- ------- ------- ------- Operating income(1)........................... 2,338 2,550 1,378 2,898 2,934 Interest and debt expense....................... (899) (1,065) (1,209) (1,449) (2,217) Other income (expense), net(2).................. (173) (110) (58) 7 (69) ------- ------- ------- ------- ------- Income before income taxes.................... 1,266 1,375 111 1,456 648 Provision for income taxes...................... 580 611 114 680 280 ------- ------- ------- ------- ------- Income (loss) before minority interest in income of Nabisco........................... 686 764 (3) 776 368 Minority interest in income of Nabisco.......... (59) -- -- -- -- ------- ------- ------- ------- ------- Income (loss) before extraordinary item....... 627 764 (3) 776 368 Extraordinary item--loss on early extinguishments of debt, net of income taxes and minority interest......................... (16) (245) (142) (477) -- ------- ------- ------- ------- ------- Net income (loss)............................... 611 519 (145) 299 368 Preferred stock dividends(3).................... 110 131 68 31 173 ------- ------- ------- ------- ------- Net income (loss) applicable to common stock.... $ 501 $ 388 $ (213) $ 268 $ 195 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- PER SHARE DATA Income (loss) before extraordinary item per common and common equivalent share(4)(5)...... $ 1.58 $ 2.06 $ (0.26) $ 2.73 $ 1.10 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Dividends per share of Common Stock............. $ 1.50 -- -- -- -- Dividends per share of Series A Preferred Stock(4)...................................... -- $ 2.92 $ 3.34 $ 3.34 $ 0.49 Dividends per share of Series C Preferred Stock(4)...................................... $ 6.01 $ 3.94 -- -- -- BALANCE SHEET DATA (AT END OF PERIODS) Working capital(6).............................. $ 436 $(1,231) $ 202 $ 730 $ 165 Total assets.................................... 31,518 31,408 31,295 32,041 32,131 Total debt(6)................................... 9,847 11,149 12,448 14,218 14,531 RJRN Holdings' obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures(3)................................. 954 -- -- -- -- Stockholders' equity(3)(4)(7)................... 10,329 10,908 9,070 8,376 8,419
(Footnotes on following page) 24 (Footnotes from preceding page) - ------------ (1) The 1995 amount includes approximately $49 million for the consolidation and relocation of the international tobacco headquarter's operations and certain of its sales facilities. The 1992 amount includes a gain of $98 million on the sale of the ready-to-eat cold cereal business. (2) The 1995 amount includes approximately $103 million for fees and expenses incurred in connection with certain debt refinancings by RJRN, Nabisco Holdings and Nabisco. (3) On September 21, 1995, RJR Nabisco Holdings Capital Trust I (the "Trust") exchanged approximately $949 million of its preferred securities (the "Trust Preferred Securities"), representing undivided interests in 97% of the assets of the Trust, for 37,956,060 of the 50,000,000 Series B Depositary Shares (the "Series B Depositary Shares") outstanding, each representing one-tenth of a share of the 50,000 outstanding shares of RJRN Holdings' Series B Cumulative Preferred Stock, par $.01 per share (the "Series B Preferred Stock"). RJRN Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B Preferred Stock outstanding. The sole asset of the Trust is junior subordinated debentures of RJRN Holdings. Upon redemption of the junior subordinated debentures, which have a final maturity of December 31, 2044, the Trust Preferred Securities will be mandatorily redeemed. The outstanding junior subordinated debentures have an aggregate principal amount of approximately $978 million and an annual interest rate of 10%. (4) On November 8, 1991, RJRN 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 of which represented one-quarter of a share of Series A Preferred Stock. On May 6, 1994, RJRN Holdings issued 26,675,000 shares of Series C Conversion Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"), and sold 266,750,000 Series C Depositary Shares (the "Series C Depositary Shares"), each of which represented one-tenth of a share of Series C Preferred Stock. On November 15, 1994, each outstanding Series A Depositary Share converted into one share of RJRN Holdings' Common Stock. (5) The loss before extraordinary item per common and common equivalent share reported for the year ended December 31, 1993 would have increased by $.82 per share if the weighted average number of shares of Series A Depositary Shares outstanding during the period had been excluded from the earnings per share calculation. (6) Working capital at December 31, 1994 included $1.35 billion of borrowings under the 1994 Nabisco Credit Agreement, a substantial portion of which was used in connection with the refinancing of certain debt. On January 26, 1995, such borrowings were substantially reduced through the application of approximately $1.2 billion of net proceeds received from the initial public offering of 51,750,000 shares of Nabisco Holdings' Class A Common Stock. (7) RJRN Holdings' stockholders' equity at December 31 of each year from 1995 to 1991 includes non-cash expenses related to accumulated trademark and goodwill amortization of $4.280 billion, $3.644 billion, $3.015 billion, $2.390 billion and $1.774 billion respectively. See Notes to Consolidated Financial Statements. 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The operating subsidiaries of RJR Nabisco Holdings Corp. ("RJRN Holdings") and its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN"), comprise one of the largest tobacco and food companies in the world. In the United States, the tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of cigarettes, and the packaged food business is conducted by Nabisco Holdings Corp. ("Nabisco Holdings") through its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), the largest manufacturer and marketer of cookies and crackers (the "Domestic Food Group"). Outside the United States, the tobacco operations are conducted by R.J. Reynolds Tobacco International, Inc. and beginning on January 1, 1996, R.J. Reynolds International (collectively "Reynolds International"), and the food operations are conducted by Nabisco International, Inc. and Nabisco Ltd (collectively, the "International Food Group"). The following is a discussion and analysis of the consolidated financial condition and results of operations of RJRN Holdings. The discussion and analysis should be read in connection with the consolidated financial statements and the related notes thereto of RJRN Holdings as of December 31, 1995 and 1994 and for each of the years in the three year period ended December 31, 1995 (the "Consolidated Financial Statements"). RESULTS OF OPERATIONS Summarized financial data for RJRN Holdings is as follows:
% CHANGE FROM PRIOR YEAR ------------- 1995 1994 1993 1995 1994 ------- ------- ------- ---- ---- (DOLLARS IN MILLIONS) Net Sales: RJRT............................................. $ 4,480 $ 4,570 $ 4,949 (2 )% (8)% Reynolds International........................... 3,234 3,097 3,130 4 % (1)% ------- ------- ------- Total Tobacco.................................... 7,714 7,667 8,079 1 % (5)% ------- ------- ------- Domestic Food Group.............................. 6,020 5,729 5,491 5 % 4% International Food Group......................... 2,274 1,970 1,534 15 % 28% ------- ------- ------- Total Food....................................... 8,294 7,699 7,025 8 % 10% ------- ------- ------- $16,008 $15,366 $15,104 4 % 2% ------- ------- ------- ------- ------- ------- Operating Company Contribution(1): RJRT............................................. $ 1,420 $ 1,450 $ 1,173 (2 )% 24% Reynolds International........................... 643 755 644 (15 )% 17% ------- ------- ------- Total Tobacco.................................... 2,063 2,205 1,817 (6 )% 21% ------- ------- ------- Domestic Food Group.............................. 890 935 813 (5 )% 15% International Food Group......................... 239 177 136 35 % 30% ------- ------- ------- Total Food....................................... 1,129 1,112 949 2 % 17% Headquarters..................................... (64) (138) (33) 54 % --% ------- ------- ------- $ 3,128 $ 3,179 $ 2,733 (2 )% 16% ------- ------- ------- ------- ------- ------- Operating Income: RJRT............................................. $ 954 $ 1,085 $ 453 (12 )% 140% Reynolds International........................... 546 716 413 (24 )% 73% ------- ------- ------- Total Tobacco.................................... 1,500 1,801 866 (17 )% 108% ------- ------- ------- Domestic Food Group.............................. 687 730 478 (6 )% 53% International Food Group......................... 215 157 100 37 % 57% ------- ------- ------- Total Food....................................... 902 887 578 2 % 53% Headquarters..................................... (64) (138) (66) 54 % (109) % ------- ------- ------- $ 2,338 $ 2,550 $ 1,378 (8 )% 85% ------- ------- ------- ------- ------- -------
(Footnotes on following page) 26 INDUSTRY SEGMENTS The percentage contributions of each of RJRN Holdings' industry segments to net sales and operating company contribution during the last five years were as follows:
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Net Sales: Total Tobacco................................... 48 % 50 % 53 % 57 % 57 % Total Food...................................... 52 50 47 43 43 ---- ---- ---- ---- ---- 100 % 100 % 100 % 100 % 100 % ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Operating Company Contribution(1)(2): Total Tobacco................................... 65 % 66 % 66 % 74 % 75 % Total Food...................................... 35 34 34 26 25 ---- ---- ---- ---- ---- 100 % 100 % 100 % 100 % 100 % ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- ------------ (1) Operating company contribution represents operating income before amortization of trademarks and goodwill and exclusive of restructuring expenses. Restructuring expenses amounted to $154 million for 1995 (RJRT-$100 million, Reynolds International-$54 million) and $730 million for 1993 (RJRT-$355 million, Reynolds International-$189 million, Domestic Food Group-$132 million, International Food Group-$21 million and Headquarters-$33 million.) (2) Contributions by industry segments were computed without effects of Headquarters' expenses. TOBACCO The tobacco business is conducted by RJRT and Reynolds International. 1995 vs. 1994. The worldwide tobacco business reported net sales of $7.71 billion in 1995, an increase of 1% from the 1994 level of $7.67 billion. The net sales increase in 1995 resulted primarily from a higher proportion of domestic full price sales, higher selling prices worldwide and favorable foreign currency developments that more than offset the impact of an overall worldwide tobacco volume decline. Worldwide tobacco volume for 1995 decreased 2% from the prior year. Operating company contribution for the worldwide tobacco business of $2.06 billion in 1995 declined 6% from the 1994 level of $2.20 billion due to lower operating company contribution at both the domestic tobacco business and the international tobacco business. Operating income for the worldwide tobacco business in 1995 of $1.50 billion declined 17% from the 1994 level of $1.80 billion, reflecting the lower operating company contribution and a 1995 restructuring expense related to the domestic and international tobacco businesses of $100 million and $54 million, respectively. Net sales for RJRT amounted to $4.48 billion in 1995, a decline of 2% from the 1994 level of $4.57 billion. The decline in net sales in 1995 resulted primarily from an overall volume loss of 5% (approximately $320 million), partially offset by a higher proportion of full price sales (approximately $140 million) and higher selling prices in both the full price and savings segments (approximately $67 million). RJRT's volume declined slightly in the full price segment during 1995 despite an industry average increase of approximately 2% due to the pattern of wholesale purchases and the erosion of market share of certain brands during the first six months of 1995. However, RJRT's share of full price segment stablized during the third and fourth quarters of 1995. RJRT's volume in the savings segment declined by 13% during 1995 which exceeded industry average, reflecting an erosion of market share of certain brands in the segment due to RJRT's decision to be more selective in its participation in that segment. RJRT's full price volume as a percentage of total volume in 1995 and 1994 amounted to 63% and 60%, respectively. Comparable figures for the domestic cigarette market in 1995 and 1994 amounted to 70% and 67%, respectively. RJRT's operating company contribution was $1.42 billion in 1995, a 2% decline from the 1994 level of $1.45 billion, as lower manufacturing costs (approximately $67 million), the higher proportion 27 of full price sales (approximately $118 million), reduced merchandising costs (approximately $13 million), lower administrative expenses (approximately $14 million) and higher selling prices (approximately $67 million) were more than offset by the decline in overall volume (approximately $196 million) and an increase in marketing expenses (approximately $97 million). RJRT's operating income was $954 million in 1995, a decline of 12% from the 1994 level of $1.09 billion. The decline in operating income for 1995 reflected the lower RJRT operating company contribution and a restructuring expense in 1995 of $100 million. Reynolds International recorded net sales of $3.23 billion in 1995, an increase of 4% from the 1994 level of $3.10 billion. The increase in net sales for 1995 primarily resulted from favorable foreign currency developments (approximately $113 million) and higher pricing (approximately $42 million), offset in part by unfavorable mix (approximately $17 million). Overall volume increased by 1%. Reynolds International's operating company contribution of $643 million in 1995 decreased 15% from the 1994 level of $755 million primarily due to costs and expenses incurred in connection with the consolidation and relocation of its headquarter's operations and certain sales facilities (approximately $49 million), trade stock realignment (approximately $22 million), write-off of certain export receivables (approximately $16 million), higher administrative costs (approximately $19 million), higher promotional and selling expenses (approximately $25 million), higher manufacturing costs (approximately $13 million) and unfavorable mix (approximately $10 million), which were partially offset by higher pricing (approximately $42 million). The decline in operating income for 1995 reflected the lower Reynolds International operating company contribution and a restructuring expense in 1995 of $54 million. 1994 vs. 1993. Despite declines in net sales for both the domestic and international tobacco businesses, the worldwide tobacco business reported profit gains for 1994. RJRT's net sales decline resulted principally from overall lower pricing and volume which more than offset the impact of a higher proportion of sales from full price brands. Reynolds International's net sales decline was primarily attributable to a reduction in trade inventory levels and price repositioning in Canada and Puerto Rico which more than offset higher selling prices and volume. Overall, net sales from the worldwide tobacco business amounted to $7.67 billion in 1994, a decline of 5% from the 1993 level of $8.08 billion. Worldwide volume for 1994 was flat compared to 1993. Operating company contribution for the worldwide tobacco business grew to $2.21 billion in 1994 from $1.82 billion in 1993, an increase of 21% that resulted from improved margins in both the domestic and international businesses. Operating income for the worldwide tobacco business rose to $1.80 billion in 1994, an increase of 108% from the 1993 level of $866 million, as a result of the increase in operating company contribution discussed above and the 1993 restructuring expense of $544 million. Net sales for RJRT amounted to $4.57 billion in 1994, a decrease of 8% from the 1993 level of $4.95 billion. The decrease primarily reflects the impact of industry-wide price reductions on full price brands (approximately $500 million) which went into effect during the second half of 1993, lower volume in the savings segment (approximately $60 million) primarily due to RJRT's decision to be more selective in its participation in that segment and lower volume in the full price segment (approximately $300 million) primarily due to increased competitor activities during the second half of 1994. These factors more than offset the impact of a higher proportion of sales from full price brands (approximately $400 million), higher selling prices in the savings segment (approximately $60 million) and higher selling prices in the full price segment during the fourth quarter of 1994 as compared to the fourth quarter of 1993 (approximately $40 million). RJRT's full price volume as a percentage of total volume amounted to 60% in 1994 versus 56% in 1993. RJRT's operating company contribution was $1.45 billion in 1994, a 24% increase from the 1993 level of $1.17 billion, as reduced promotional and selling expenses (approximately $650 million) more than offset the decline in net sales. RJRT's operating income was $1.09 billion in 1994, an increase of 140% from the 1993 level of $453 million. The increase in operating income for 1994 from the prior year reflects the increase in RJRT's operating company contribution discussed above and the 1993 restructuring expense of $355 million. Reynolds International recorded net sales of $3.10 billion in 1994, a decrease of 1% from the 1993 level of $3.13 billion. The net sales decrease for 1994 primarily resulted from a reduction in trade 28 inventory levels (approximately $75 million), repositioning of prices in Canada and Puerto Rico to enhance brand competitiveness (approximately $60 million), and unfavorable foreign exchange developments, primarily in Europe and the Middle East (approximately $30 million), which were offset in part by higher selling prices throughout Reynolds International's markets (approximately $70 million) and an increase in volume in certain regions (approximately $60 million). Reynolds International's operating company contribution rose to $755 million in 1994, an increase of 17% compared to the 1993 level of $644 million. The increase in operating company contribution for 1994 was due to lower product costs in all regions (approximately $100 million), reduced promotional expenses (approximately $70 million), the higher selling prices (approximately $70 million) and higher volume (approximately $15 million), which more than offset price repositioning in Canada and Puerto Rico (approximately $50 million), the reduction in trade inventories (approximately $30 million), higher operating expenses to support expansion of business activity primarily in Eastern Europe (approximately $30 million) and unfavorable foreign exchange developments (approximately $20 million). Reynolds International's operating income was $716 million in 1994, an increase of 73% from the 1993 level of $413 million. The increase in operating income reflects the increase in Reynolds International's operating company contribution discussed above and the 1993 restructuring expense of $189 million. 1995 Governmental Activity Congress enacted legislation effective January 1, 1994 (the Omnibus Budget Reconciliation Act of 1993) that assesses financial penalties against manufacturers if cigarettes produced in the United States do not contain at least 75% (by weight) domestically grown flue cured and burley tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to replace this domestic content requirement with a tariff rate quota system that keys tariffs to import volumes. The tariff rate quotas have been established by the United States with overseas tobacco producers and became effective on September 13, 1995. Domestic content requirements and tariff rate quotas increased raw material costs slightly in 1994 but these costs were down slightly in 1995 during the period when the domestic content requirement was not applicable. In February 1994, the Commissioner of the U.S. Food and Drug Administration (the "FDA"), which historically has refrained from asserting jurisdiction over cigarette products, stated that he intended to cause the FDA to work with the U.S. Congress to resolve the regulatory status of cigarettes under the Food, Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in this regard, and RJRT and other members of the United States cigarette industry were asked to provide voluntarily certain documents and other information to Congress. In August 1995, the Commissioner of the FDA, with the support of the Clinton Administration, announced that he was asserting jurisdiction over cigarettes and certain other tobacco products and issued a notice and request for comments on proposed regulations. The proposed regulations would prohibit or impose stringent limits on a broad range of sales and marketing practices, including bans on sampling, sponsorship by brand name, and distribution of non-tobacco items carrying brand names. The FDA's proposed rule would also limit advertising in print and on billboards to black and white text, impose new labeling language, and require cigarette manufacturers to fund a $150 million-a-year campaign to discourage minors from using tobacco products. RJRT and other cigarette manufacturers have submitted responses to the proposed rules. The purported purpose of the FDA's assertion of jurisdiction was to curb the use of tobacco products by underage youth. RJRT believes that the assertion of jurisdiction and the scope of the proposed rules would materially restrict the availability of cigarettes and RJRT's ability to market its cigarette products to adult smokers. RJRT, together with the other four major domestic cigarette manufacturers and an advertising agency, filed suit on the day of the Commissioner's announcement in the U.S. District Court for the Middle District of North Carolina seeking to enjoin the FDA's assertion of jurisdiction (Coyne Beahm v. United States Food & Drug Administration). Similar suits have been filed in the same court by manufacturers of smokeless tobacco products, by operators of retail stores and by advertising interests. RJRT is unable to predict whether the FDA will adopt final rules asserting 29 jurisdiction over cigarettes or the scope of such final rules, if adopted. It is also unable to predict the outcome of the litigation seeking to enjoin the FDA's rulemaking. In March 1994, the U.S. Occupational Safety and Health Administration ("OSHA") announced proposed regulations that would restrict smoking in the workplace to designated smoking rooms that are separately exhausted to the outside. Although RJRT cannot predict the form or timing of any regulations that may be finally adopted by OSHA, if the proposed regulations are adopted, RJRT expects that many employers who have not already done so would prohibit smoking in the workplace rather than make expenditures necessary to establish designated smoking areas to accommodate smokers. RJRT submitted comments on the proposed regulations during the comment period which closed in February, 1996. Because many employers currently do not permit smoking in the workplace, RJRT cannot predict the effect of any regulations that may be adopted, but incremental restrictions on smokers could have an adverse effect on cigarette sales and RJRT. In July 1994, an amendment to a Florida statute became effective which allows the state of Florida to bring an action in its own name against the tobacco industry to recover amounts paid by the state under its Medicaid program to treat illnesses statistically associated with cigarette smoking. The amended statute does not require the state to identify the individual who received medical care, permits a lawsuit to be filed as a class action and eliminates the comparative negligence and assumption of risk defenses. The Florida statute is being challenged on state and federal constitutional grounds in a lawsuit brought by Philip Morris Companies Inc., Associated Industries of Florida, Publix Supermarkets, and National Association of Convenience Stores in June 1994. On June 26, 1995, the trial court judge granted in part the plaintiffs' motion for summary judgment finding portions of the act unconstitutional. Both plaintiffs and defendants appealed this decision which the Florida supreme court accepted for direct appeal. Oral argument was heard on November 6, 1995. The Florida House and Senate passed a bill that would repeal the Florida statute retroactively which was vetoed by the Governor. The Florida House and Senate have indicated that they are considering action to override that veto. Similar legislation, without Florida's elimination of defenses, has been introduced in the Massachusetts and New Jersey legislatures. RJRT is unable to predict whether other states will enact similar legislation and whether lawsuits will be filed under these statutes or their outcome, if filed. A suit against the tobacco industry under the Florida statute was filed on February 21, 1995. Various states and local jurisdictions have enacted legislation imposing restrictions on public smoking, increasing excise taxes and designating a portion of the increased cigarette excise taxes to fund anti-smoking programs, health care programs or cancer research. Many employers have also initiated programs restricting or eliminating smoking in the workplace. 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, Reynolds International or the cigarette industry generally, but such legislation or regulations could have an adverse effect on RJRT, Reynolds International or the cigarette industry generally. For a description of certain litigation affecting RJRT and its affiliates, see Item 1, "Business-- Tobacco-- Litigation Affecting the Cigarette Industry" and Note 12 to the Consolidated Financial Statements. FOOD The food business is conducted by the Domestic Food Group and the International Food Group. The Domestic Food Group is comprised of the Nabisco Biscuit, Specialty Products, LifeSavers, Planters, Food Service and Fleischmann's companies. 1995 vs. 1994. Nabisco Holdings reported net sales of $8.29 billion in 1995, an increase of 8% from the 1994 level of $7.70 billion, with the Domestic Food Group up 5% and the International Food Group up 15%. The Domestic Food Group's increase was primarily attributable to volume gains at 30 Nabisco Biscuit (approximately $228 million), reflecting new product introductions and product line extensions, volume gains at Food Service (approximately $37 million), volume gains at Fleischmann's (approximately $18 million) and the impact of the October, 1995 acquisition of the Parkay margarine brand (approximately $64 million), which were offset in part by volume declines at Planters (approximately $40 million) and the impact of the September, 1995 sale of the Ortega brand (approximately $39 million). The International Food Group's net sales increase for 1995 was primarily due to improved results in Brazil (approximately $120 million), reflecting a continuation of the country's economic recovery, the favorable impact of recent business acquisitions (approximately $112 million) and the favorable performance from businesses in Iberia, Canada and Venezuela (approximately $65 million), partially offset by lower net sales in Mexico (approximately $30 million) due to the devaluation of the peso. Nabisco Holdings' operating company contribution was $1.13 billion in 1995, an increase of 2% from the 1994 level of $1.11 billion, with the International Food Group higher by 35% and the Domestic Food Group lower by 5%. The 1995 period includes a net pre-tax gain of $11 million from the sale of the Ortega Mexican food ($18 million gain) and New York Style Bagel Chip ($7 million loss) businesses, and the favorable impact of recent business acquisitions (approximately $18 million). Excluding these items and the results of operations from the business disposals in both years, Nabisco Holdings' operating company contribution was $14 million lower than the 1994 level, with the International Food Group higher by 32% and the Domestic Food Group lower by 8%. The Domestic Food Group's adjusted operating company contribution decrease for 1995 (approximately $70 million) reflects investment spending behind new product initiatives and intense competitive conditions in biscuits and nuts. The International Food Group's adjusted operating company contribution increase for 1995 (approximately $56 million) was primarily due to the profit impact of increased sales in Brazil, Iberia, Canada and Venezuela (approximately $34 million). Nabisco Holdings' operating income was $902 million in 1995, an increase of 2% from the 1994 level of $887 million, as a result of the changes in operating company contribution discussed above. 1994 vs. 1993. Nabisco Holdings reported net sales of $7.70 billion in 1994, an increase of 10% from the 1993 level of $7.03 billion, with the Domestic Food Group up 4% and the International Food Group up 28%. The Domestic Food Group's increase was primarily attributable to significant volume gains at Nabisco Biscuit, reflecting the success of new product introductions and product line extensions in the U.S. biscuit market (approximately $215 million) and volume increases from Specialty Products (approximately $13 million). The International Food Group's increase was primarily the result of the favorable impact of recent acquisitions (approximately $345 million) and improved business conditions in Brazil (approximately $70 million) as a result of its second-half 1994 economic recovery. Nabisco Holdings' operating company contribution was $1.11 billion in 1994, an increase of 17% from the 1993 level of $949 million, with the Domestic Food Group up 15% and the International Food Group up 30%. The Domestic Food Group's increase for 1994 was primarily due to the increase in net sales (approximately $40 million) and savings from productivity programs (approximately $135 million), including previously established restructuring programs, which were offset in part by competitive pricing pressures (approximately $35 million) and the absence of a 1993 gain on the sale of certain assets (approximately $17 million). The International Food Group's increase in operating company contribution for 1994 was primarily due to recent acquisitions (approximately $40 million) and strong results in Canada (approximately $7 million), partially offset by unfavorable business results in Mexico (approximately $7 million). The devaluation of the Mexican peso was not material to earnings in 1994. Nabisco Holdings' operating income was $887 million in 1994, an increase of 53% from the 1993 level of $578 million, as a result of the increase in operating company contribution discussed above and the 1993 restructuring expense of $153 million. 31 RESTRUCTURING EXPENSE RJRN Holdings recorded a pre-tax restructuring expense of $154 million in the fourth quarter of 1995 ($104 million after tax) related to a program announced on October 13, 1995 to reorganize its worldwide tobacco operations. The 1995 restructuring program was primarily undertaken in order to streamline operations and improve profitability. The 1995 restructuring program was implemented in the latter part of 1995 and will be substantially completed during 1996. A significant portion of the 1995 restructuring program will be a cash expense. The major components of the 1995 restructuring program were workforce reductions totaling 1,260 employees (approximately $132 million), the rationalization and closing of facilities relating to the international tobacco operations (approximately $8 million) and equipment and lease abandonments at the domestic tobacco operations (approximately $14 million). At December 31, 1995, approximately $102 million of severance pay and benefits remained to be paid. Anticipated annual future cash savings from the plan are estimated to be in excess of approximately $70 million after tax. RJRN 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. The 1993 restructuring program was undertaken to respond to a changing consumer product business environment and to streamline operations and improve profitability. The 1993 program, which was implemented in the latter part of 1993 and substantially completed during 1995, consisted of workforce reductions, reassessment of raw material sourcing and production arrangements, contract termination costs, abandonment of leases and the rationalization and closing of manufacturing and sales facilities. Approximately 75% of the restructuring program required cash outlays. At December 31, 1995, approximately $21 million for severance pay and benefits remained to be paid. During 1994, a change in the estimated cost of the 1993 restructuring program resulted in a credit to income of $23 million related to changes in the number of workforce reductions and an increase in cost of $21 million associated with the rationalization and abandonment of manufacturing and sales facilities. The net adjustment during 1994 of the above changes was reflected in selling, advertising, administrative and general expenses. INTEREST AND DEBT EXPENSE 1995 vs. 1994. RJRN and Nabisco manage interest rate exposure by adjusting their mix of floating rate debt and fixed rate debt. As part of managing such interest rate exposure, RJRN and Nabisco enter into various interest rate arrangements from time to time. Following adoption of a policy change in 1994, RJRN canceled all of its financial interest rate arrangements with optionality. During 1994, as part of its current strategy to manage interest rate exposure, RJRN effectively neutralized the effects of any future changes in market interest rates on the remainder of its outstanding interest rate swaps, options, caps and other financial instruments through the purchase of offsetting positions. Net unrealized gains and losses on the remaining interest rate instruments at the time such instruments were neutralized are being amortized as additional interest expense during 1995, 1996 and 1997 of approximately $39 million, $28 million and $5 million, respectively. During 1995, Nabisco began managing its own interest rate exposure. As part of managing its interest rate exposure, Nabisco entered into interest rate swaps and caps to effectively fix a portion of its interest rate exposure on its floating rate debt. The impact of these agreements was not significant. Consolidated interest and debt expense amounted to $899 million in 1995, a decrease of 16% from 1994. The decline is primarily due to refinancings completed during 1994 and repayments of debt with the proceeds from the issuances of preferred stock during 1994 and Nabisco Holdings Class A Common Stock during the first quarter of 1995. These factors more than offset the impact of higher market interest rates. 1994 vs. 1993. Consolidated interest and debt expense of $1.06 billion in 1994 decreased 12% from 1993, primarily as a result of refinancings of debt during 1993 and 1994 and lower debt levels resulting primarily from the application of proceeds from the issuance of preferred stock. These factors more than offset the impact of higher market interest rates during 1994, including the effects thereof on RJRN's interest rate instruments described below. As mentioned above, RJRN entered into interest rate arrangements to manage its interest rate exposure. The impact on interest expense from the utilization of interest rate instruments by RJRN in 1994 resulted in additional interest expense of $22 million, which includes $45 million associated with the written instruments. The impact of interest rate instrument utilization in 1993 included gains which lowered interest expense by approximately $70 million. 32 OTHER INCOME (EXPENSE), NET Consolidated other income (expense), net for 1995 includes a pre-tax charge of approximately $103 million for fees and expenses incurred in connection with (i) the exchange of approximately $1.8 billion aggregate principal amount of newly issued notes and debentures (the "New Notes") of Nabisco for the same amount of notes and debentures (the "Old Notes") issued by RJRN (the "Exchange Offers") and (ii) the solicitation of consents by RJRN to certain indenture modifications from holders of the Old Notes and holders of approximately $3.58 billion of its other outstanding debt securities (the "Consent Solicitations"). The Exchange Offers, the Consent Solicitations and certain related transactions were designed, among other things, to enable Nabisco to obtain long-term debt financing independent of RJRN and to repay its intercompany debt to RJRN. INCOME TAXES 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 RJRN 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, RJRN Holdings' provision for income taxes was decreased by a $108 million credit primarily resulting from a change in the functional currency, for U.S. federal income tax purposes, relating to foreign branch operations. NET INCOME 1995 vs. 1994. RJRN Holdings reported net income of $611 million in 1995, $92 million higher than the $519 million reported in 1994. The increase in net income for 1995 primarily reflects the impact in 1995 of lower interest and debt expense and a lower amount of loss from early extinguishment of debt which more than offset the impact in 1995 of lower operating company contribution, the domestic and international tobacco restructuring expenses, the fees and expenses incurred in connection with the Exchange Offers and the Consent Solicitations and the minority interest in income of Nabisco. 1994 vs. 1993. RJRN Holdings' net income of $519 million in 1994 includes an after-tax extraordinary loss of $245 million related to the repurchase and redemption of debt during the year. Excluding the extraordinary loss in 1994, as well as a similar extraordinary item which resulted in a $142 million after-tax loss in 1993, RJRN Holdings would have reported net income of $764 million for 33 1994, an increase of $767 million from 1993. The increase resulted primarily from the improvement in operating company contribution by both the Tobacco and Food operations, the impact of lower interest expense and the 1993 restructuring expense of $730 million, offset in part by a $65 million charge related to the realignment of Headquarters' functions at the holding company discussed below. During the fourth quarter of 1994, RJRN Holdings approved and adopted a plan to realign Headquarters' functions, transferring certain responsibilities to the operating companies and significantly streamlining the holding company. The plan reflected expectations of a lower level of financings and other activities at the holding company as RJRN Holdings concludes the post-LBO period. The costs and expenses associated with this decision resulted in a charge of approximately $65 million before tax, a significant portion of which was a cash expense. The majority of the charge was related to accrued employee termination benefits for the 25% of Headquarters' employees terminated (approximately $40 million). This cost was incurred pursuant to a continuing plan for employee termination benefits that provided for the payment of specified amounts of severance and benefits to terminated employees. The remainder of the charge (approximately $25 million) was related to the abandonment of leases of certain corporate office facilities as a result of the realignment and streamlining and the reduced need for office space. The plan was implemented in the first quarter of 1995 and was substantially completed during 1995. At December 31, 1995, approximately $14 million of severance pay and benefits remained to be paid. RJRN Holdings' net income (loss) applicable to its common stock for 1995, 1994 and 1993 of $501 million, $388 million and ($213) million, respectively, includes a deduction for preferred stock dividends of $110 million, $131 million and $68 million, respectively. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121"). SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires that (i) long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and (ii) long-lived assets and certain identifiable intangibles to be disposed of generally be reported at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 is effective for financial statements for fiscal years beginning after December 15, 1995. The adoption of the SFAS No. 121 is not expected to materially effect the financial position or results of operations of RJRN Holdings and RJRN. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages all entities to adopt a fair value based method of accounting for stock-based compensation plans in which compensation cost is measured at the date the award is granted based on the value of the award and is recognized over the employee service period. However, SFAS No. 123 allows an entity to continue to use the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), with proforma disclosures of net income and earnings per share as if the fair value based method had been applied. APB No. 25 requires compensation expense to be recognized over the employee service period based on the excess, if any, of the quoted marked price of the stock at the date the award is granted or other measurement date, as applicable, over an amount an employee must pay to acquire the stock. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 15, 1995. RJRN Holdings and RJRN currently plan to continue to apply the methods prescribed by APB No. 25. 34 LIQUIDITY AND FINANCIAL CONDITION DECEMBER 31, 1995 Net cash flows from operating activities for 1995 were $1.67 billion, a decrease of $89 million from the 1994 level of $1.75 billion. The decrease in net cash flows from operating activities reflects lower income before extraordinary item which more than offsets the impact of lower working capital requirements and lower interest paid. The components of net cash flows from operating activities are as follows:
YEAR ENDED DECEMBER 31, ---------------- 1995 1994 ------ ------ (DOLLARS IN MILLIONS) CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income.............................................................. $ 611 $ 519 ------ ------ Adjustments to reconcile net income to net cash flows from operating activities: Depreciation of property, plant and equipment......................... 482 454 Amortization (principally intangibles)................................ 689 698 Deferred income tax benefit........................................... (172) (11) Non-cash interest and debt expense.................................... 15 119 Extraordinary item--loss on early extinguishments of debt............. 29 377 Increase in accounts and notes receivable............................. (351) (69) Decrease in inventories............................................... 159 111 Increase in prepaid expenses and excise taxes......................... (61) (18) (Increase) decrease in other assets and deferred charges.............. 9 (55) Decrease in accounts payable and accrued liabilities.................. (2) (363) Increase in income taxes accrued...................................... 54 26 Increase (decrease) in other noncurrent liabilities................... 123 (37) Other, net............................................................ 80 3 ------ ------ Total adjustments................................................. 1,054 1,235 ------ ------ Net cash flows from operating activities.............................. $1,665 $1,754 ------ ------ ------ ------
35 Free cash flow, another measure used by management to evaluate liquidity and financial condition and 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, resulted in inflows of $348 million and $769 million for 1995 and 1994, respectively. The lower level of free cash flow in 1995 compared with 1994 primarily reflects lower operating company contribution, higher operating working capital requirements, capital expenditures, tax and dividend payments and the payment of fees and expenses for the Exchange Offers and the Consent Solicitations, which more than offset the impact of lower interest paid. The components of free cash flow are as follows:
YEAR ENDED DECEMBER 31, ----------------- 1995 1994 ------ ------ (DOLLARS IN MILLIONS) OPERATING INCOME......................................................... $2,338 $2,550 Amortization of intangibles............................................ 636 629 Restructuring expense.................................................. 154 -- ------ ------ OPERATING COMPANY CONTRIBUTION........................................... 3,128 3,179 Depreciation and other amortization.................................... 535 522 Increase in operating working capital.................................. (563) (414) Capital expenditures................................................... (744) (670) Change in other assets and liabilities................................. 125 12 ------ ------ OPERATING CASH FLOW*..................................................... 2,481 2,629 Taxes paid............................................................. (566) (496) Interest paid.......................................................... (788) (986) Dividends paid......................................................... (598) (395) Other, net............................................................. (181) 17 ------ ------ FREE CASH FLOW........................................................... $ 348 $ 769 ------ ------ ------ ------
- ------------ * Operating cash flow, which is used internally to evaluate business performance, includes, in addition to net cash flows 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). ------------ During 1995, RJRN Holdings, RJRN, Nabisco Holdings and Nabisco entered into a series of transactions designed to refinance long-term debt, lower debt levels, manage interest rate exposure and refinance certain preferred securities. At December 31, 1995, the effective interest rate on RJRN Holdings' consolidated long-term debt increased to 8.0% from 7.7% at December 31, 1994, primarily due to a lower proportion of consolidated indebtedness subject to floating interest rates and higher average market interest rates for 1995. Future effective interest rates may vary as a result of RJRN's and Nabisco's ongoing management of their respective interest rate exposure, changing market interest rates, refinancing activities and changes in the ratings assigned to RJRN's and Nabisco's debt securities by independent rating agencies. RJRN Holdings' total debt (notes payable and long-term debt, including current maturities) and total capital (total debt, obligations on redeemable preferred securities of subsidiary trust and total stockholders' equity) levels at December 31, 1995 amounted to approximately $9.8 billion and $21.1 billion, respectively, of which total debt and total capital were approximately $1.3 billion and $927 million lower, respectively, than the corresponding amounts at December 31, 1994. The lower debt and capital levels were primarily due to the application of approximately $1.2 billion of net proceeds from the Nabisco Holdings' initial public offering to repay debt. RJRN Holdings' ratio of total debt and obligations on redeemable preferred securities of subsidiary trust to total stockholders' equity at December 31, 1995 and 1994 was 1.0-to-1. 36 RJRN's ratio of total debt to common equity was 0.8-to-1.0 at December 31, 1995 compared with 1.0-to-1 at December 31, 1994. Currently, RJRN and its subsidiaries have four principal committed credit facilities. On April 28, 1995, RJRN Holdings and RJRN entered into a new $2.75 billion three year revolving bank credit agreement with various financial institutions (as amended, the "1995 RJRN Credit Agreement") and a new $750 million 364 day credit facility to support RJRN commercial paper (as amended, the "RJRN Commercial Paper Facility," and together with the 1995 RJRN Credit Agreement, the "New RJRN Credit Agreements"). Among other things, the New RJRN Credit Agreements were designed to remove restrictions on the ability of Nabisco Holdings and its subsidiaries to incur or prepay debt and allow RJRN to reduce the aggregate amount of commitments under its banking facilities from $6 billion to $3.5 billion by replacing its $5.0 billion revolving bank credit facility dated December 1, 1991 (as amended, the "1991 RJRN Credit Agreement"), and its $1.0 billion commercial paper facility dated as of April 5, 1993 (as amended and together with the 1991 RJRN Credit Agreement, the "Old RJRN Credit Agreements"). On April 28, 1995, Nabisco Holdings and Nabisco entered into a credit agreement with various financial institutions (as amended, the "1995 Nabisco Credit Agreement") to replace the credit agreement dated as of December 6, 1994 between Nabisco and various financial institutions (the "1994 Nabisco Credit Agreement"). Among other things, the 1995 Nabisco Credit Agreement was designed to permit Nabisco to prepay intercompany debt and incur long-term debt, to increase Nabisco's committed facility from $1.5 billion to $3.5 billion and to extend its term from 364 days to five years. On November 3, 1995, the 1995 Nabisco Credit Agreement was amended to, among other things, reduce the committed facility to $2.0 billion from $3.5 billion. Also on November 3, 1995, Nabisco Holdings and Nabisco entered into a 364 day credit facility (the "Nabisco Commercial Paper Facility," and together with the 1995 Nabisco Credit Agreement, the "1995 Nabisco Credit Agreements") for $1.5 billion primarily to support the issuance of Nabisco commercial paper borrowings. The 1995 RJRN Credit Agreement provides for the issuance of up to $800 million of irrevocable letters of credit. Availability is reduced by the aggregate amount of borrowings outstanding and letters of credit issued under the 1995 RJRN Credit Agreement and by the amount of outstanding RJRN commercial paper in excess of $750 million. At December 31, 1995, there were no borrowings outstanding and approximately $496 million stated amount of letters of credit issued under the 1995 RJRN Credit Agreement and approximately $224 million in RJRN commercial paper outstanding. Accordingly, the amount available under the 1995 RJRN Credit Agreement at December 31, 1995 was approximately $2.3 billion. The RJRN Commercial Paper Facility provides a 364 day back-up line of credit to support RJRN commercial paper issuances of up to $750 million. Availability is reduced by an amount equal to the aggregate amount of outstanding RJRN commercial paper. At December 31, 1995, there was approximately $224 million of RJRN commercial paper outstanding, leaving approximately $526 million available under the facility to support the issuance of additional RJRN commercial paper. The 1995 Nabisco Credit Agreement provides for the issuance of up to $300 million of irrevocable letters of credit. Availability is reduced by the aggregate amount of borrowings outstanding and letters of credit issued under the 1995 Nabisco Credit Agreement and by the amount of outstanding Nabisco commercial paper in excess of $1.5 billion. At December 31, 1995, there were no borrowings outstanding and no letters of credit issued under the 1995 Nabisco Credit Agreement and approximately $1.3 billion in Nabisco commercial paper outstanding. Accordingly, the amount available under the 1995 Nabisco Credit Agreement at December 31, 1995 was approximately $2.0 billion. The Nabisco Commercial Paper Facility is a 364 day facility that primarily supports Nabisco commercial paper issuances of up to $1.5 billion. Availability is reduced by an amount equal to the aggregate amount of outstanding Nabisco commercial paper. At December 31, 1995, there was 37 approximately $1.3 billion of Nabisco commercial paper outstanding, leaving approximately $200 million available under the facility to support the issuance of additional Nabisco commercial paper. On January 26, 1995, Nabisco Holdings completed the initial public offering of 51,750,000 shares of its Class A Common Stock, par value $.01 per share ("Class A Common Stock"), at an initial offering price of $24.50 per share. Nabisco used all of the approximately $1.2 billion of net proceeds from the initial public offering to repay a portion of its borrowings under the 1994 Nabisco Credit Agreement. The completion of Nabisco Holdings' initial public offering and the corresponding reduction in RJRN's proportionate economic interest in Nabisco Holdings from 100% to approximately 80.5% resulted in an adjustment of approximately $401 million to the carrying amount of RJRN's investment in Nabisco Holdings. Such adjustment was reflected as additional paid-in capital by RJRN Holdings and RJRN. On April 1, July 1 and October 1, 1995 and January 1, 1996, RJRN Holdings paid a quarterly dividend on its common stock, par value $.01 per share (the "Common Stock"), of $.375 per share. RJRN Holdings expects to continue to pay a quarterly cash dividend on the Common Stock equal to $.375 per share or $1.50 per share on an annualized basis. RJRN Holdings believes that its ability to pay these dividends will not be limited by the restrictions under the New RJRN Credit Agreements and the 1995 Nabisco Credit Agreements or by the policies of its Board of Directors described below. On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five reverse stock split and the corresponding reduction in the number of authorized shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates at which shares of ESOP Convertible Preferred Stock, par value $.01 per share, and Series C Conversion Preferred Stock, par value $.01 per share, will convert into shares of Common Stock have been proportionately adjusted. On June 5, 1995, RJRN and Nabisco consummated the Exchange Offers. As part of the transaction, RJRN returned to Nabisco approximately $1.8 billion of intercompany notes that had been issued by Nabisco and were held by a non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange Offers have interest rates, principal amounts, maturities and redemption provisions identical to the corresponding Old Notes issued by RJRN. Nabisco subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay approximately $89 million of an intercompany note from Nabisco to Nabisco Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco Holdings used the payments it received to repay the balance of a $168 million intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN consummated the Consent Solicitations. The Exchange Offers, the Consent Solicitations and certain related transactions were designed, among other things, to enable Nabisco to obtain long-term debt financing independent of RJRN and to repay its intercompany debt to RJRN. On June 5, 1995, RJRN applied the approximately $2.3 billion that it received from Nabisco and Nabisco Holdings in repayment of the intercompany notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement. RJRN used an additional approximately $330 million of borrowings under the 1995 RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN Credit Agreements and to pay certain expenses associated with the Exchange Offers, the Consent Solicitations and related transactions. On June 28, 1995 Nabisco issued $400 million principal amount of 6.70% Notes Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400 million principal amount of 7.55% Debentures Due 2015. On July 14, 1995, Nabisco issued $400 million principal amount of 7.05% Notes Due 2007. The net proceeds from the issuance of such debt securities were used to repay a portion of the borrowings under the 1995 Nabisco Credit Agreement. On July 1 and October 1, 1995 and January 1, 1996, Nabisco Holdings paid a quarterly dividend on its common stock of $.1375 per share. Nabisco Holdings expects to continue to pay a quarterly cash 38 dividend on its common stock equal to $.1375 per share or $.55 per share on an annualized basis (approximately $146 million). RJRN would receive approximately $117 million of the annualized Nabisco Holdings dividend. On July 17, 1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund Debentures Due March 15, 2017 at a price of $1,051.75 for each $1,000 principal amount of debentures, plus accrued interest. The aggregate redemption price and accrued interest on these debentures was approximately $442 million. The redemption resulted in an extraordinary loss of approximately $29 million ($16 million after tax and minority interest). On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8% Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due 2007 under a $1.0 billion debt shelf registration statement filed during 1995. Approximately $352 million of debt securities remains unissued under the shelf as of December 31, 1995. The net proceeds from the issuance of these securities have been or will be used to repay borrowings under the 1995 RJRN Credit Agreement, to retire RJRN commercial paper and for general corporate purposes. On September 21, 1995, RJRN Holdings issued approximately $978 million aggregate principal amount of its 10% Junior Subordinated Debentures due 2044 (the "Junior Subordinated Debentures") to a newly formed controlled affiliate, RJR Nabisco Holdings Capital Trust I (the "Trust"). The Trust, in turn, exchanged approximately $949 million of its preferred securities (the "Trust Preferred Securities"), representing undivided interests in 97% of the assets of the Trust, for 37,956,060 of the 50,000,000 Series B Depositary Shares (the "Series B Depositary Shares") outstanding, each representing one-tenth of a share of the 50,000 outstanding shares of RJRN Holdings' Series B Cumulative Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). RJRN Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B Preferred Stock outstanding. The sole asset of the Trust is the Junior Subordinated Debentures. Upon redemption of the Junior Subordinated Debentures, which have a final maturity of December 31, 2044, the Trust Preferred Securities will be mandatorily redeemed. The transaction resulted in a charge of approximately $5 million to RJRN Holdings' paid in capital as the fair value of the Trust Preferred Securities issued exceeded the book carrying value of the retired Series B Preferred Stock. On November 14, 1995, Nabisco filed a shelf registration statement with the Securities and Exchange Commission for $1.0 billion of debt. At December 31, 1995, RJRN had outstanding interest rate instruments with a notional principal amount of $0, net. At December 31, 1995, Nabisco had outstanding fixed interest rate swaps with an aggregate notional principal amount of $1.0 billion and expiration dates occurring within six months. Also at December 31, 1995, Nabisco had outstanding interest rate caps with an aggregate notional principal amount of $1.0 billion, all with future effective dates commencing within six months and with expiration dates one year thereafter. At December 31, 1995, the aggregate amount of consolidated indebtedness subject to floating interest rates approximated $642 million. This represents a decrease of $3.7 billion from the year end 1994 level of $4.3 billion, primarily due to the application of approximately $1.2 billion of the net proceeds from the Nabisco Holdings' initial public offering to repay a portion of Nabisco's borrowing under the 1994 Nabisco Credit Agreement, Nabisco's interest rate instruments entered into during 1995 and the issuance of $1.6 billion of fixed rate debt by Nabisco and $650 million of fixed rate debt by RJRN to refinance bank and commercial paper borrowings. As a result of the level of market interest rates at December 31, 1995 and 1994 compared with the interest rates associated with RJRN Holdings' consolidated debt obligations, the estimated fair value amounts of RJRN Holdings' long-term debt reflected in its Consolidated Balance Sheets is higher by $246 million and lower by $444 million than the carrying amounts (book values) of such debt at December 31, 1995 and 1994, respectively. For additional disclosures concerning the fair value of 39 RJRN Holdings' consolidated indebtedness as well as the fair value of its interest rate arrangements at December 31, 1995 and 1994, see Notes 11 and 12 to the Consolidated Financial Statements. The payment of dividends and the making of distributions by RJRN Holdings to its stockholders are subject to direct and indirect restrictions under certain financing agreements and debt instruments of RJRN Holdings and RJRN and their subsidiaries. The New RJRN Credit Agreements generally restrict cumulative common and preferred dividends and distributions by RJRN Holdings after April 28, 1995 to $1 billion, plus 50% of cumulative consolidated net income, as defined in the New RJRN Credit Agreements, after January 1, 1995, plus the aggregate cash proceeds of up to $250 million in any twelve month period from issuances of equity securities. The New RJRN Credit Agreements and certain other financing agreements also limit the ability of RJRN Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell or dispose of certain assets and certain subsidiaries' stock, issue certain equity securities and engage in certain mergers or consolidations. Among other things, the 1995 Nabisco Credit Agreements generally restrict common and preferred dividends and distributions after April 28, 1995 by Nabisco Holdings to its stockholders, including RJRN, to $300 million plus 50% of Nabisco Holdings' cumulative consolidated net income, as defined in the 1995 Nabisco Credit Agreements, after January 1, 1995. In general, loans and advances by Nabisco Holdings and its subsidiaries to RJRN are effectively subject to a $100 million limit and may only be extended to RJRN's foreign subsidaries. The 1995 Nabisco Credit Agreements also limit the ability of Nabisco Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell or dispose of certain assets and certain subsidiaries' stock and engage in certain mergers or consolidations. These restrictions have not had and are not expected to have a material effect on the ability of Nabisco Holdings to pay its anticipated dividends, or on the ability of RJRN to meet its obligations. Management of RJRN Holdings and its subsidiaries are continuing to review various strategic transactions, including but not limited to, acquisitions, divestitures, mergers and joint ventures. No assurance may be given that any such transactions will be announced or completed. RJRN Holdings has indicated that, under normal circumstances, it does not plan to issue additional equity securities for purposes of balance sheet improvement. Capital expenditures were $744 million, $670 million and $615 million for 1995, 1994 and 1993, respectively. The current level of expenditures planned for 1996 is expected to be in the range of approximately $700 million to $750 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 RJRN Holdings' operating subsidiaries. RJRN Holdings' subsidiaries have operations in many countries, utilizing many different functional currencies in its foreign subsidiaries and branches. Significant foreign currency net investments are located in Germany, Canada, Hong Kong, Brazil, Argentina 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 foreign currency net investments, also result in charges or credits to equity. RJRN Holdings' subsidiaries also have 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. These exposures are managed to minimize the effects of foreign currency transactions on its cash flows. 40 RJRN HOLDINGS' BOARD OF DIRECTORS POLICIES In November 1994, the Board of Directors of RJRN Holdings adopted a policy stating that RJRN Holdings will limit, until December 31, 1998, the aggregate amount of cash dividends on its capital stock. Under this policy, during that period RJRN Holdings will not pay any extraordinary cash dividends and will limit the aggregate amount of its cash dividends, cash distributions and repurchases for cash of capital stock and subordinated debt to an amount equal to the sum of $500 million plus (i) 65% of RJRN Holdings' cumulative consolidated net income before extraordinary gains or losses and restructuring charges subsequent to December 31, 1994 and (ii) net cash proceeds of up to $250 million in any year from the sale of capital stock of RJRN Holdings or its subsidiaries (other than proceeds from the Nabisco Holdings initial public offering) to the extent used to repay, purchase or redeem debt or preferred stock. Also in November 1994, the Board of Directors of RJRN Holdings adopted a policy providing that RJRN Holdings will not declare a dividend or distribution to its stockholders of the shares of capital stock of a subsidiary before December 31, 1996. RJRN Holdings has also adopted a policy setting forth its intention not to make such a distribution prior to December 31, 1998 if that distribution would cause the ratings of the senior indebtedness of RJRN to be reduced from investment grade to non-investment grade or if, after giving effect to such distribution, any publicly-held senior indebtedness of the distributed company would not be rated investment grade. The Board of Directors of RJRN Holdings is committed to effecting a spin-off of Nabisco Holdings at the appropriate time. There is no assurance that any such distribution will take place. Additional policies provide that an amount equal to the net cash proceeds from any issuance and sale of equity by RJRN Holdings or from any sale outside the ordinary course of business of material assets owned or used by subsidiaries in the tobacco business, in each case before December 31, 1998, will be used either to repay, purchase or redeem consolidated indebtedness or to acquire properties, assets or businesses to be used in existing or new lines of business and that an amount equal to the net cash proceeds of any secondary sale of shares of Nabisco Holdings before December 31, 1998 will be used to repay, purchase or redeem consolidated debt. No assurance can be given that RJRN Holdings will issue or sell any equity or sell any material assets outside the ordinary course of business. 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 Environmental Protection Agency 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. In April 1995, RJRN Holdings was named a potentially responsible party (a "PRP") with certain third parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to a superfund site at which a former subsidiary of RJRN had operations. Certain subsidiaries of RJRN Holdings and RJRN have also been named as PRPs with third parties or may have indemnification obligations under CERCLA with respect to an additional thirteen sites. RJRN Holdings' and RJRN's subsidiaries have been engaged in a continuing program to assure compliance with U.S., state and local 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 to estimate the cost of resolving these CERCLA matters, RJRN Holdings and RJRN do not expect such expenditures or other costs to have a material adverse effect on the financial condition of either RJRN Holdings or RJRN. ------------------------- The foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements which reflect Management's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including, but not limited to, the effects on financial performance and future events, competitive pricing for products, success of new product innovations and acquisitions, local economic conditions and the effects of currency fluctuations in countries in which RJRN Holdings and its subsidiaries do business, domestic and foreign government regulation, ratings of RJRN Holdings' or its subsidiaries' securities and, in the case of the tobacco business, litigation. For additional information concerning factors affecting future events and policies and RJRN Holdings' performance, see Part I, Items 1 through 3 and Part II Item 5 of this report. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedules on page 47 for the required information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Item 10 is hereby incorporated by reference to RJRN Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1996. 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 RJRN Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Item 12 is hereby incorporated by reference to RJRN Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Item 13 is hereby incorporated by reference to RJRN Holdings' Definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 1996. 42 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 1995 None. (c) Exhibits See Exhibit Index. (d) Financial Statement Schedules. See Index to Financial Statements and Financial Statement Schedules.
43 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 22, 1996. RJR NABISCO HOLDINGS CORP. By: /s/ STEVEN F. GOLDSTONE ................................ (Steven F. Goldstone) President 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 22, 1996. SIGNATURE TITLE --------- ----- /s/ CHARLES M. HARPER Chairman of the Board and ................................ Director (Charles M. Harper) President and Chief Executive /s/ STEVEN F. GOLDSTONE Officer (principal executive ................................ officer) (Steven F. Goldstone) Senior Vice President and Chief /s/ ROBERT S. ROATH Financial Officer (principal ................................ financial officer) (Robert S. Roath) /s/ RICHARD G. RUSSELL Senior Vice President and ................................ Controller (principal (Richard G. Russell) accounting officer) * Director ................................ (John T. Chain, Jr.) * Director ................................ (Julius L. Chambers) * Director ................................ (John L. Clendenin) * Director ................................ (H. John Greeniaus) * Director ................................ (Ray J. Groves) * Director ................................ (James W. Johnston) * Director ................................ (John G. Medlin, Jr.) * Director ................................ (Rozanne L. Ridgway) *By: /s/ ROBERT F. SHARPE, JR. ............................. (Robert F. Sharpe, Jr.) Attorney-in-Fact 44 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 22, 1996. RJR NABISCO, INC. By: /s/ STEVEN F. GOLDSTONE ................................ (Steven F. Goldstone) President 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 22, 1996. SIGNATURE TITLE --------- ----- /s/ CHARLES M. HARPER Chairman of the Board and ................................ Director (Charles M. Harper) President and Chief Executive /s/ STEVEN F.GOLDSTONE Officer (principal executive ................................ officer) (Steven F. Goldstone) Senior Vice President and Chief /s/ ROBERT S. ROATH Financial Officer (principal ................................ financial officer) (Robert S. Roath) /s/ RICHARD G. RUSSELL Senior Vice President and ................................ Controller (principal (Richard G. Russell) accounting officer) * Director ................................ (John T. Chain, Jr.) * Director ................................ (Julius L. Chambers) * Director ................................ (John L. Clendenin) * Director ................................ (H. John Greeniaus) * Director ................................ (Ray J. Groves) * Director ................................ (James W. Johnston) * Director ................................ (John G. Medlin, Jr.) * Director ................................ (Rozanne L. Ridgway) *By: /s/ ROBERT F. SHARPE, JR. .............................. (Robert F. Sharpe, Jr.) Attorney-in-Fact 45 [THIS PAGE INTENTIONALLY LEFT BLANK] 46 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ----------- FINANCIAL STATEMENTS Report of Deloitte & Touche LLP, Independent Auditors........................ F-1 Consolidated Statements of Income and Retained Earnings--Years Ended December 31, 1995, 1994 and 1993.................................................... F-2 Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1994 and 1993.............................................................. F-3 Consolidated Balance Sheets--December 31, 1995 and 1994...................... F-4 Notes to Consolidated Financial Statements................................... F-5-F-45 FINANCIAL STATEMENT SCHEDULES For the years ended December 31, 1995, 1994 and 1993: Schedule I --Condensed Financial Information of Registrants................... S-1-S-8 Schedule II --Valuation and Qualifying Accounts................................ S-9
47 REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS RJR Nabisco Holdings Corp.: RJR Nabisco, Inc.: We have audited the accompanying consolidated balance sheets of RJR Nabisco Holdings Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN") as of December 31, 1995 and 1994, 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, 1995. Our audits also included the financial statement schedules of RJRN Holdings and RJRN as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995 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 misstatement. 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 RJRN Holdings and RJRN at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 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 LLP New York, New York January 29, 1996 (February 16, 1996 as to Note 12) F-1 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, 1995 1994 1993 ----------------------- --------------------- --------------------- RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN ---------- ---------- -------- ---------- -------- ---------- NET SALES (NOTE 2)............... $ 16,008 $ 16,008 $ 15,366 $ 15,366 $ 15,104 $ 15,104 ---------- ---------- -------- ---------- -------- ---------- Costs and expenses (Note 2): Cost of products sold........... 7,468 7,468 6,977 6,977 6,640 6,640 Selling, advertising, administrative and general expenses...................... 5,412 5,412 5,210 5,198 5,731 5,723 Amortization of trademarks and goodwill...................... 636 636 629 629 625 625 Restructuring expense .......... 154 154 -- -- 730 730 ---------- ---------- -------- ---------- -------- ---------- OPERATING INCOME............ 2,338 2,338 2,550 2,562 1,378 1,386 Interest and debt expense (Notes 9 and 11)...................... (899) (872) (1,065) (1,065) (1,209) (1,186) Other income (expense), net (Note 2)............................. (173) (175) (110) (121) (58) (88) ---------- ---------- -------- ---------- -------- ---------- Income before income taxes..................... 1,266 1,291 1,375 1,376 111 112 Provision for income taxes (Note 4)............................. 580 594 611 614 114 116 ---------- ---------- -------- ---------- -------- ---------- INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME OF NABISCO......... 686 697 764 762 (3) (4) Minority interest in income of Nabisco........................ (59) (59) -- -- -- -- ---------- ---------- -------- ---------- -------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............... 627 638 764 762 (3) (4) Extraordinary item--loss on early extinguishments of debt, net of income taxes and minority interest (Note 5).............. (16) (16) (245) (245) (142) (135) ---------- ---------- -------- ---------- -------- ---------- NET INCOME (LOSS)........... 611 622 519 517 (145) (139) Less preferred stock dividends... 110 -- 131 -- 68 -- ---------- ---------- -------- ---------- -------- ---------- Net income (loss) applicable to common stock......... 501 622 388 517 (213) (139) Retained earnings (accumulated deficit) at beginning of period......................... (364) 16 (883) (459) (738) (320) Common stock and other dividends...................... (569) -- (262) -- (178) -- Dividends paid to parent and charged to retained earnings... -- (267) -- (42) -- -- Amounts reclassified to paid-in capital........................ 432 -- 393 -- 246 -- ---------- ---------- -------- ---------- -------- ---------- RETAINED EARNINGS (ACCUMULATED DEFICIT) AT END OF PERIOD (NOTE 14)............................ $ -- $ 371 $ (364) $ 16 $ (883) $ (459) ---------- ---------- -------- ---------- -------- ---------- ---------- ---------- -------- ---------- -------- ---------- Net income (loss) per common and common equivalent share (Note 3): Income (loss) before extraordinary item............ $ 1.58 -- $ 2.06 -- $ (0.26) -- Extraordinary item.............. (0.05) -- (0.79) -- (0.53) -- ---------- ---------- -------- ---------- -------- ---------- Net income (loss)........... $ 1.53 -- $ 1.27 -- $ (0.79) -- ---------- ---------- -------- ---------- -------- ---------- ---------- ---------- -------- ---------- -------- ---------- Dividends per share of Common Stock (Note 13)................ $ 1.50 -- -- -- -- -- Dividends per share of Series A Preferred Stock (Note 13)...... -- -- $ 2.92 -- $ 3.34 -- Dividends per share of Series C Preferred Stock (Note 13)...... $ 6.01 -- $ 3.94 -- -- -- Average number of common and common equivalent shares outstanding (in thousands) (Note 3)....................... 326,643 -- 307,625 -- 269,839 -- ---------- ---------- -------- ---------- -------- ---------- ---------- ---------- -------- ---------- -------- ----------
See Notes to Consolidated Financial Statements. F-2 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, 1995 1994 1993 ----------------- ------------------ ------------------ RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------- -------- -------- -------- -------- NET CASH FLOWS FROM OPERATING ACTIVITIES (NOTE 6)................................. $ 1,665 $ 1,699 $ 1,754 $ 1,719 $ 1,769 $ 1,604 -------- ------- -------- -------- -------- -------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Capital expenditures..................... (744 ) (744) (670) (670) (615) (615) Divestitures of businesses............... 162 162 -- -- 450 450 Acquisitions of businesses............... (429 ) (429) (510) (510) (128) (128) Net proceeds from issuance of subsidiary common stock............................ 1,201 1,201 -- -- -- -- Other, net............................... 75 75 39 39 32 32 -------- ------- -------- -------- -------- -------- Net cash flows from (used in) investing activities............................ 265 265 (1,141) (1,141) (261) (261) -------- ------- -------- -------- -------- -------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Net borrowings (repayments) under credit agreements............................. (3,100 ) (3,100) 2,911 2,911 (2,614) (2,614) Net proceeds from the issuance (repayments) of commercial paper....... 644 644 (49) (49) 342 342 Proceeds from issuance of other long-term debt................................... 2,324 2,324 16 16 1,965 1,965 Repayments of other long-term debt....... (1,285 ) (1,285) (4,666) (4,666) (1,977) (1,429) Increase (decrease) in notes payable..... (44 ) (44) 18 18 (24) (24) Proceeds from issuance of Common Stock... 13 -- 54 -- 9 -- Proceeds from issuance of Series B Preferred Stock......................... -- -- -- -- 1,250 -- Proceeds from issuance of Series C Preferred Stock......................... -- -- 1,734 -- -- -- Dividends paid on Common Stock........... (307 ) -- -- -- -- -- Dividends paid on Nabisco Holdings' common stock........................... (15 ) (15) -- -- -- -- Dividends paid on Series A Preferred Stock................................... -- -- (175) -- (175) -- Dividends paid on Series B Preferred Stock................................... (97 ) -- (116) -- (33) -- Dividends paid on Series C Preferred Stock................................... (160 ) -- (85) -- -- -- Dividends paid on ESOP Preferred Stock... (19 ) -- (19) -- (20) -- Dividends paid on redeemable Convertible Preferred Stock......................... -- -- -- -- (13) -- Repurchase of preferred stock............ -- -- (3) -- (105) -- Repurchases and cancellations of common stock and stock options................ (2 ) -- (1) -- (1) -- Retirements of ESOP preferred stock...... (5 ) -- (4) -- (1) -- Financing and advisory fees paid......... (114 ) (114) (60) (6) (48) (9) Capital contributions from/issuance of common stock to parent................. -- -- -- 1,680 -- 1,214 Dividends paid to parent................. -- (267) -- (42) -- (48) Other, net--including intercompany transfers............................... 44 (288) 46 (230) 63 (621) -------- ------- -------- -------- -------- -------- Net cash flows used in financing activities............................ (2,123 ) (2,145) (399) (368) (1,382) (1,224) -------- ------- -------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents..................... 4 4 (6) (6) (10) (10) -------- ------- -------- -------- -------- -------- Net change in cash and cash equivalents........................... (189 ) (177) 208 204 116 109 Cash and cash equivalents at beginning of period................................... 423 409 215 205 99 96 -------- ------- -------- -------- -------- -------- Cash and cash equivalents at end of period................................... $ 234 $ 232 $ 423 $ 409 $ 215 $ 205 -------- ------- -------- -------- -------- -------- -------- ------- -------- -------- -------- --------
See Notes to Consolidated Financial Statements. F-3 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, 1995 1994 ----------------- ----------------- RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------- -------- ------- ASSETS Current assets: Cash and cash equivalents (Note 6)............................ $ 234 $ 232 $ 423 $ 409 Accounts and notes receivable, net (Note 6)................... 1,334 1,327 934 934 Inventories (Note 7).......................................... 2,489 2,489 2,580 2,580 Prepaid expenses and excise taxes............................. 503 503 426 426 -------- ------- -------- ------- TOTAL CURRENT ASSETS...................................... 4,560 4,551 4,363 4,349 -------- ------- -------- ------- Property, plant and equipment--at cost......................... 8,386 8,386 7,767 7,767 Less accumulated depreciation.................................. (2,696) (2,696) (2,333) (2,333) -------- ------- -------- ------- Net property, plant and equipment (Note 8).................... 5,690 5,690 5,434 5,434 -------- ------- -------- ------- Trademarks, net of accumulated amortization of $1,745 and $1,491, respectively.......................................... 8,265 8,265 8,506 8,506 Goodwill, net of accumulated amortization of $2,502 and $2,124, respectively.................................................. 12,536 12,536 12,681 12,681 Other assets and deferred charges.............................. 467 466 424 423 -------- ------- -------- ------- $ 31,518 $31,508 $ 31,408 $31,393 -------- ------- -------- ------- -------- ------- -------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (Note 9)........................................ $ 268 $ 268 $ 296 $ 296 Accounts payable.............................................. 755 755 548 548 Accrued liabilities (Note 10)................................. 2,649 2,490 2,532 2,488 Current maturities of long-term debt (Note 11)................ 150 150 1,970 1,970 Income taxes accrued (Note 4)................................. 302 302 248 248 -------- ------- -------- ------- TOTAL CURRENT LIABILITIES................................. 4,124 3,965 5,594 5,550 -------- ------- -------- ------- Long-term debt (less current maturities) (Note 11)............. 9,429 9,429 8,883 8,883 Other noncurrent liabilities................................... 3,016 2,365 2,235 1,836 Deferred income taxes (Note 4)................................. 3,666 3,596 3,788 3,714 Commitments and contingencies (Note 12) RJRN Holdings' obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures (Note 11)* 954 -- -- -- Stockholders' equity (Notes 13 and 14): ESOP convertible preferred stock--14,990,677 and 15,315,130 shares issued and outstanding at December 31, 1995 and 1994, respectively................................................ 240 -- 245 -- Series B preferred stock--12,044 and 50,000 shares issued and outstanding at December 31, 1995 and 1994, respectively...... 301 -- 1,250 -- Series C convertible preferred stock--26,675,000 shares issued and outstanding at December 31, 1995 and 1994............... 3 -- 3 -- Common stock--272,807,942 and 272,331,377 shares issued and outstanding at December 31, 1995 and 1994, respectively...... 3 -- 3 -- Paid-in capital............................................... 10,110 11,958 10,157 11,558 Cumulative translation adjustments............................ (176) (176) (164) (164) Retained earnings (accumulated deficit)....................... -- 371 (364) 16 Receivable from ESOP.......................................... (137) -- (186) -- Loans receivable from employees............................... (7) -- (14) -- Unamortized value of restricted stock......................... (8) -- (22) -- -------- ------- -------- ------- TOTAL STOCKHOLDERS' EQUITY................................ 10,329 12,153 10,908 11,410 -------- ------- -------- ------- $ 31,518 $31,508 $ 31,408 $31,393 -------- ------- -------- ------- -------- ------- -------- -------
- ------------ * The sole asset of the subsidiary trust is the junior subordinated debentures of RJRN Holdings. Upon redemption of the junior subordinated debentures, which have a final maturity of December 31, 2044, the preferred securities will be mandatorily redeemed. The outstanding junior subordinated debentures have an aggregate principal amount of approximately $978 million and an annual interest rate of 10%. See Notes to Consolidated Financial Statements. F-4 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This Summary of Significant Accounting Policies is presented to assist in understanding the consolidated financial statements of RJR Nabisco Holdings Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN") (the "Consolidated Financial Statements") included in this report. These policies conform to generally accepted accounting principles. Consolidation Consolidated Financial Statements include the accounts of RJRN Holdings and RJRN and their 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 (three months or less) 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 over the estimated useful lives of the assets as follows: 13-25 years for land improvements, 20-50 years for buildings and leasehold improvements and 3-20 years for machinery and equipment. Trademarks and Goodwill Values assigned to trademarks 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. In evaluating the value and future benefits of trademarks and goodwill, the recoverability from operating income is measured. Under this approach, the carrying value of goodwill and trademarks would be reduced if it is probable that management's best estimate of future operating income before amortization of trademarks and goodwill from related operations, on an undiscounted basis, will be less than the carrying amount of trademarks and goodwill over the remaining amortization period. Other Income (Expense), Net Interest income, gains and losses on foreign currency transactions and other items of a financial nature are included in "Other income (expense), net". Income Taxes Income taxes are calculated for RJRN on a separate return basis. Excise Taxes Excise taxes are excluded from "Net sales" and "Cost of products sold". F-5 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Reclassifications and Restatements Certain prior years' amounts have been reclassified to conform to the 1995 presentation. In addition, financial data of the prior years has been restated and financial data of the current year presented to give effect to the one-for-five reverse stock split discussed in Note 3 to the Consolidated Financial Statements. Advertising Advertising costs are generally expensed as incurred. Interest Rate Arrangements When 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 and may change as market interest rates change. If an arrangement is terminated or effectively terminated prior to maturity, then the realized or unrealized gain or loss is effectively 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 or effectively 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 or other interest rate arrangement is recognized immediately. In addition, for written options and other financial instruments (or components thereof) having a risk profile substantially similar to written options, changes in market value result in the current recognition of any related gains or losses. Foreign Currency Arrangements Forward foreign exchange contracts and other hedging arrangements entered into generally mature at the time the hedged foreign currency transactions are settled. Gains or losses on forward foreign exchange 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 underlying hedged foreign currency transaction does not occur, gains and losses are recognized immediately. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Note 12 to the Consolidated Financial Statements for discussion of significant commitments and contingencies. New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121"). SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires that (i) long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the F-6 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) carrying amount of an asset may not be recoverable and (ii) long-lived assets and certain identifiable intangibles to be disposed of generally be reported at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 is effective for financial statements for fiscal years beginning after December 15, 1995. The adoption of the SFAS No. 121 is not expected to materially effect the financial position or results of operations of RJRN Holdings and RJRN. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages all entities to adopt a fair value based method of accounting for stock-based compensation plans in which compensation cost is measured at the date the award is granted based on the value of the award and is recognized over the employee service period. However, SFAS No. 123 allows an entity to continue to use the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), with proforma disclosures of net income and earnings per share as if the fair value based method had been applied. APB No. 25 requires compensation expense to be recognized over the employee service period based on the excess, if any, of the quoted marked price of the stock at the date the award is granted or other measurement date, as applicable, over an amount an employee must pay to acquire the stock. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 15, 1995. RJRN Holdings and RJRN currently plan to continue to apply the methods prescribed by APB No. 25. NOTE 2--OPERATIONS Net sales and cost of products sold exclude excise taxes of $3.832 billion, $3.578 billion and $3.757 billion for 1995, 1994 and 1993, respectively. Consolidated other income (expense), net for 1995 includes a pre-tax charge of approximately $103 million for fees and expenses incurred in connection with (i) the exchange of approximately $1.8 billion aggregate principal amount of newly issued notes and debentures (the "New Notes") of Nabisco, Inc. ("Nabisco") for the same amount of notes and debentures (the "Old Notes") issued by RJRN (the "Exchange Offers") and (ii) the solicitation of consents by RJRN to certain indenture modifications from holders of the Old Notes and holders of approximately $3.58 billion of its other outstanding debt securities (the "Consent Solicitations"). The Exchange Offers, the Consent Solicitations and certain related transactions were designed, among other things, to enable Nabisco to obtain long-term debt financing independent of RJRN and to repay its intercompany debt to RJRN. RJRN Holdings recorded a pre-tax restructuring expense of $154 million in the fourth quarter of 1995 ($104 million after tax) related to a program announced on October 13, 1995 to reorganize its worldwide tobacco operations. The 1995 restructuring program was primarily undertaken in order to streamline operations and improve profitability. The 1995 restructuring program was implemented in the latter part of 1995 and will be substantially completed during 1996. A significant portion of the 1995 restructuring program will be a cash expense. The major components of the 1995 restructuring program were work force reductions totaling 1,260 employees (approximately $132 million), the rationalization and closing of facilities relating to the international tobacco operations (approximately $8 million) and equipment and lease abandonments at the domestic tobacco operations (approximately F-7 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--OPERATIONS--(CONTINUED) $14 million). At December 31, 1995, approximately $102 million of severance pay and benefits remained to be paid. Anticipated annual future cash savings from the plan are estimated to be in excess of approximately $70 million after tax. During the fourth quarter of 1994, RJRN Holdings approved and adopted a plan to realign Headquarters' functions, transferring certain responsibilities to the operating companies and significantly streamlining the holding company. The plan reflected expectations of a lower level of financings and other activities at the holding company as RJRN Holdings concludes the post-LBO period. The costs and expenses associated with this decision resulted in a charge of approximately $65 million before tax, a significant portion of which was a cash expense. The majority of the charge was related to accrued employee termination benefits for the 25% of Headquarters' employees terminated (approximately $40 million). This cost was incurred pursuant to a continuing plan for employee termination benefits that provided for the payment of specified amounts of severance and benefits to terminated employees. The remainder of the charge (approximately $25 million) was related to the abandonment of leases of certain corporate office facilities as a result of the realignment and streamlining and the reduced need for office space. The plan was implemented in the first quarter of 1995 and was substantially completed during 1995. At December 31, 1995, approximately $14 million of severance pay and benefits remained to be paid. RJRN 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. The 1993 restructuring program was undertaken to respond to a changing consumer product business environment and to streamline operations and improve profitability. The 1993 program, which was implemented in the latter part of 1993 and substantially completed during 1995, consisted of workforce reductions, reassessment of raw material sourcing and production arrangements, contract termination costs, abandonment of leases and the rationalization and closing of manufacturing and sales facilities. Approximately 75% of the restructuring program required cash outlays. At December 31, 1995, approximately $21 million for severance pay and benefits remained to be paid. During 1994, a change in the estimated cost of the 1993 restructuring program resulted in a credit to income of $23 million related to changes in the number of workforce reductions and an increase in cost of $21 million associated with the rationalization and abandonment of manufacturing and sales facilities. The net adjustment during 1994 of the above changes was reflected in selling, advertising, administrative and general expenses. NOTE 3--EARNINGS PER SHARE Earnings per share is based on income applicable to the consolidated group, including the portion of income of Nabisco Holdings Corp. ("Nabisco Holdings") applicable to the consolidated group based on RJRN's approximately 80.5% economic ownership interest in Nabisco Holdings and Nabisco Holdings' primary earnings per share. Earnings per share is also based on the weighted average number of shares of RJRN Holdings' common stock, par value $.01 per share (the "Common Stock"), $.835 Depositary Shares ("Series A Depositary Shares") and Series C Depositary Shares ("Series C Depositary Shares") outstanding during the period and Common Stock assumed to be outstanding to reflect the effect of dilutive options. RJRN 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 F-8 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--EARNINGS PER SHARE--(CONTINUED) converted. Accordingly, RJRN Holdings' earnings per share and fully diluted earnings per share are the same. The net loss per common and common equivalent share reported for the year ended December 31, 1993 would have increased by $.91 per share if the weighted average number of shares of Series A Depositary Shares outstanding during the period had been excluded from the earnings per share calculation. Net income per common and common equivalent share, including the average number of common and common equivalent shares outstanding, reflects a one-for-five reverse stock split approved by the RJRN Holdings' stockholders on April 12, 1995. NOTE 4--INCOME TAXES The provision for income taxes consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ----------------- ---------------- ---------------- RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ---- -------- ---- -------- ---- Current: Federal................................ $525 $540 $401 $466 $295 $366 Foreign and other...................... 227 227 221 221 169 169 -------- ---- -------- ---- -------- ---- 752 767 622 687 464 535 -------- ---- -------- ---- -------- ---- Deferred: Federal................................ (190) (191) (40) (102) (298) (367) Foreign and other...................... 18 18 29 29 (52) (52 ) -------- ---- -------- ---- -------- ---- (172) (173) (11) (73 ) (350) (419) -------- ---- -------- ---- -------- ---- Provision for income taxes............... $580 $594 $611 $614 $114 $116 -------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
F-9 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--INCOME TAXES--(CONTINUED) The components of the deferred income tax liability disclosed on the Consolidated Balance Sheet at December 31, 1995 and 1994 included the following:
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------ ------------------ RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------ -------- ------ Deferred tax assets: Pension liabilities............................ $ (101) $ (101) $ (88) $ (88) Other postretirement liabilities............... (338) (338) (326) (326) Restructuring and other accrued liabilities.... (142) (142) (226) (226) -------- ------ -------- ------ Total deferred tax assets................ (581) (581) (640) (640) -------- ------ -------- ------ Deferred tax liabilities: Property and equipment......................... 1,008 1,008 1,049 1,049 Trademarks..................................... 2,765 2,765 2,784 2,784 Other.......................................... 427 357 531 457 -------- ------ -------- ------ Total deferred tax liabilities........... 4,200 4,130 4,364 4,290 -------- ------ -------- ------ Net deferred tax liabilities before valuation allowance.............................. 3,619 3,549 3,724 3,650 Valuation allowance............................ 47 47 64 64 -------- ------ -------- ------ Net deferred income taxes...................... $3,666 $3,596 $3,788 $3,714 -------- ------ -------- ------ -------- ------ -------- ------
Pre-tax income (loss) for domestic and foreign operations is shown in the following table:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------------ ------------------ ------------------ RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------ -------- ------ -------- ------ Domestic (includes U.S. exports)....... $ 782 $ 807 $ 867 $ 868 $ (169) $ (168) Foreign................................ 484 484 508 508 280 280 -------- ------ -------- ------ -------- ------ Pre-tax income......................... $1,266 $1,291 $1,375 $1,376 $ 111 $ 112 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
F-10 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--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, 1995 1994 1993 ----------------- ---------------- ------------------ RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------ -------- ----- -------- ------- Income taxes computed at statutory U.S. federal income tax rates....... $443 $ 452 $ 481 $ 481 $ 39 $ 39 State taxes, net of federal benefit........................... 52 52 54 54 23 23 Goodwill amortization............... 125 125 124 124 125 125 Federal rate change impact on deferred income taxes............... -- -- -- -- 86 86 Decrease in deferred tax amounts, primarily for a change in the functional currency relating to foreign branch operations......... -- -- -- -- (108) (108) Taxes on foreign operations at rates different than statutory U.S. federal rate...................... (4) (4) (6) (6) (14) (14) FSC income exclusion................ (15) (15) (14) (14) (14) (14) Other items, net.................... (21) (16) (28) (25) (23) (21) -------- ------ -------- ----- -------- ------- Provision for income taxes.......... $580 $ 594 $ 611 $ 614 $ 114 $ 116 -------- ------ -------- ----- -------- ------- -------- ------ -------- ----- -------- ------- Effective tax rate.................. 45.8% 46.0% 44.5% 44.7% 102.7% 103.8% -------- ------ -------- ----- -------- ------- -------- ------ -------- ----- -------- -------
At December 31, 1995, there was $1.752 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. 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 RJRN 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, RJRN Holdings' provision for income taxes was decreased by a $108 million credit primarily resulting from a change in the functional currency, for U.S. federal income tax purposes, relating to foreign branch operations. F-11 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--INCOME TAXES--(CONTINUED) 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 federal tax purposes. NOTE 5--EXTRAORDINARY ITEM Early extinguishment of debt resulted in the following extraordinary losses:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 --------------- ---------------- ---------------- RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ---- -------- ----- -------- ----- Cash paid in excess of net carrying amount (book value) of debt extinguished....................... $(21) $(21) $ (348) $(348) $ (206) $(196) Write-off of debt issuance costs.................. (8) (8 ) (29) (29) (12) (12) -------- ---- -------- ----- -------- ----- Extraordinary item--loss on early extinguishment of debt before income taxes..................... (29) (29 ) (377) (377) (218) (208) Benefit for income taxes.......................... 10 10 132 132 76 73 -------- ---- -------- ----- -------- ----- Extraordinary item--loss on early estinguishment of debt, net of income taxes, before minority interest........................................ (19) (19 ) (245) (245) (142) (135) Minority interest................................. (3) (3 ) -- -- -- -- -------- ---- -------- ----- -------- ----- Extraordinary item--loss on early extinguishment of debt, net of income taxes and minority interest........................................ $(16) $(16) $ (245) $(245) $ (142) $(135) -------- ---- -------- ----- -------- ----- -------- ---- -------- ----- -------- -----
See Note 11 to the Consolidated Financial Statements for further discussion of early extinguishments of debt. F-12 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--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, 1995 1994 1993 ------------------ ------------------ ------------------ RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ------ -------- ------ -------- ------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income (loss)..................... $ 611 $ 622 $ 519 $ 517 $ (145) $ (139) -------- ------ -------- ------ -------- ------ Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation of property, plant and equipment......................... 482 482 454 454 448 448 Amortization (principally intangibles)............................ 689 689 698 698 701 701 Deferred income tax benefit......... (172) (173) (11) (73) (350) (419) Non-cash interest and debt expense........................... 15 15 119 119 295 273 Extraordinary item--loss on early extinguishments of debt................. 29 29 377 377 218 208 (Increase) decrease in accounts and notes receivable.................. (351) (344) (69) (61) 75 84 Decrease in inventories............. 159 159 111 111 80 80 Increase in prepaid expenses and excise taxes...................... (61) (61) (18) (18) (37) (37) (Increase) decrease in other assets and deferred charges.............. 9 9 (55) (57) (4) 43 Increase (decrease) in accounts payable and accrued liabilities... (2) (22) (363) (363) 308 312 Increase (decrease) in income taxes accrued........................... 54 54 26 51 (53) 54 Increase (decrease) in other noncurrent liabilities............ 123 122 (37) (37) 215 24 Other, net.......................... 80 118 3 1 18 (28) -------- ------ -------- ------ -------- ------ Total adjustments............... 1,054 1,077 1,235 1,202 1,914 1,743 -------- ------ -------- ------ -------- ------ Net cash flows from operating activities........................ $1,665 $1,699 $1,754 $1,719 $1,769 $1,604 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Cash payments for income taxes and interest were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ---------------- ---------------- ------------------ RJRN RJRN RJRN HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN -------- ---- -------- ---- -------- ------ Income taxes paid, net of refunds.......... $583 $583 $496 $496 $ 408 $ 408 Interest paid.............................. $788 $784 $986 $986 $ 912 $ 912
F-13 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED) Cash equivalents at December 31, 1995 and 1994, valued at cost (which approximates market value), totaled $115 million and $364 million, respectively, and consisted principally of domestic and Eurodollar time deposits and certificates of deposit. At December 31, 1995 and 1994, cash of $17 million and $60 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 subsidiaries' 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. During 1995, the arrangement was further amended to October 1996 for only domestic trade accounts receivable generated by Nabisco. 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 1995, 1994 and 1993, total proceeds of approximately $8.0 billion, $7.9 billion and $8.2 billion, respectively, were received in connection with this arrangement. The amount of total proceeds received applicable to Nabisco's domestic trade accounts receivable generated during 1995, 1994 and 1993 were approximately $5.5 billion, $5.3 billion and $4.9 billion, respectively. At December 31, 1995 and 1994, the accounts receivable balance has been reduced by approximately $418 million and $391 million, respectively, due to the receivables sold. For information regarding certain non-cash financing activities, see Notes 11 and 13 to the Consolidated Financial Statements. NOTE 7--INVENTORIES The major classes of inventory are shown in the table below:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Finished products........................................ $ 755 $ 771 Leaf tobacco............................................. 1,152 1,299 Raw materials............................................ 231 206 Other.................................................... 351 304 ------------ ------------ $2,489 $2,580 ------------ ------------ ------------ ------------
At December 31, 1995 and 1994, approximately $1.0 billion and $1.2 billion, respectively, of domestic tobacco inventories was valued under the LIFO method. The current cost of LIFO inventories at December 31, 1995 and 1994 was greater than the amount at which these inventories were carried on the Consolidated Balance Sheets by $146 million and $141 million, respectively. For the years ended December 31, 1995, 1994 and 1993, net income was increased by $29 million, $10 million and $6 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-14 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--PROPERTY, PLANT AND EQUIPMENT Components of property, plant and equipment were as follows:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Land and land improvements............................... $ 319 $ 323 Buildings and leasehold improvements..................... 1,899 1,856 Machinery and equipment.................................. 5,615 5,056 Construction-in-process.................................. 553 532 ------------ ------------ 8,386 7,767 Less accumulated depreciation............................ (2,696) (2,333) ------------ ------------ Net property, plant and equipment.................... $ 5,690 $ 5,434 ------------ ------------ ------------ ------------
NOTE 9--NOTES PAYABLE Notes payable consisted of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Notes payable to banks................................... $ 268 $ 296 ------------ ------------ ------------ ------------
Weighted average interest rate for notes payable consisted of the following: Notes payable to banks................................... 5.05% 9.77% --- --- --- ---
NOTE 10--ACCRUED LIABILITIES Accrued liabilities consisted of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Marketing and advertising................................ $ 532 $ 553 Payroll and employee benefits............................ 424 380 Excise taxes............................................. 277 260 Accrued interest......................................... 254 189 Other.................................................... 1,162 1,150 ------------ ------------ $2,649 $2,532 ------------ ------------ ------------ ------------
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE Interest and debt expense consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Cash interest..................................... $884 $ 946 $ 914 Non-cash interest and debt expense................ 15 119 295 ----- ------ ------ $899 $1,065 $1,209 ----- ------ ------ ----- ------ ------
F-15 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) Long-term debt consisted of the following:
DECEMBER 31, 1995 DECEMBER 31, 1994 ---------------------- ------------------- DUE DUE DUE DUE WITHIN AFTER WITHIN AFTER ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR -------- ----------- -------- -------- Nabisco Holdings Long-term Debt: 7.75% debentures with annual sinking fund payments through 2003....................................... $ 3 $ 38 $ -- $ -- 6.11-8.3% Notes due 1996 through 2015................ 5 2,937 -- -- 1994 Nabisco Credit Agreement........................ -- -- 1,350 -- 1995 Nabisco Credit Agreement, variable interest (varies with prime rate and LIBOR--weighted average interest rate of 6.0% at December 31, 1995), due April 28, 2000(2).................................. -- -- -- -- Nabisco commercial paper, variable interest (varies with LIBOR - weighted average interest rate of 6.0% at December 31, 1995)(3)........................... -- 1,289 -- -- Other indebtedness................................... 16 91 13 139 -------- ----------- -------- -------- Total Nabisco Holdings long-term debt............ 24 4,355 1,363 139 -------- ----------- -------- -------- RJRN Long-term Debt: 8.625% debentures with annual sinking fund payments through 2017 (net of $59 million of such debentures held by RJRN on December 31, 1994 for future sinking fund requirements)......................... -- 32 400 634 5.56-9.25% Notes, due 1996 through 2013.............. 117 4,121 200 4,932 5.375-10% foreign currency debt, due 2000 to 2001.... -- 548 -- 500 1991 RJRN Credit Agreement........................... -- -- -- 1,750 1995 RJRN Credit Agreement, variable interest (varies with prime rate and LIBOR--weighted average interest rate of 6.09% at December 31, 1995), due December 31, 1997(4)............................... -- -- -- -- RJRN commercial paper, variable interest (varies with LIBOR - weighted average interest rate of 6.27% at December 31, 1995)(5)................................ -- 224 -- 864 Other indebtedness................................... 9 149 7 64 -------- ----------- -------- -------- Total RJRN long-term debt........................ 126 5,074 607 8,744 -------- ----------- -------- -------- Total long-term debt............................. $150 $ 9,429 $1,970 $8,883 -------- ----------- -------- -------- -------- ----------- -------- --------
- ------------ (1) The payment of debt through December 31, 2000 is due as follows (in millions): 1997--$61; 1998--$31; 1999--$1,944 and 2000--$1,319. (2) Nabisco maintains a revolving credit facility of $2.0 billion (as amended, the "1995 Nabisco Credit Agreement"), of which $2.0 billion is unused at December 31, 1995. Availability of the unused portion is reduced by the aggregate amount of letters of credit issued under the 1995 Nabisco Credit Agreement and by the amount of outstanding Nabisco commercial paper in excess of $1.5 billion. At December 31, 1995, there were no letters of credit issued under the 1995 Nabisco Credit Agreement. A commitment fee of .15% per annum is payable on the total facility. (3) Nabisco maintains a 364-day revolving credit facility primarily to support Nabisco commercial paper issuances of up to $1.5 billion (the "Nabisco Commercial Paper Facility"). Availability is reduced F-16 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) by an amount equal to the aggregate amount of outstanding Nabisco commercial paper. A commitment fee of .1% per annum is payable on the total facility. (4) RJRN maintains a revolving credit facility of $2.75 billion (as amended, the "1995 RJRN Credit Agreement"), of which $2.75 billion was unused at December 31, 1995. Availability of the unused portion is reduced by $496 million for the extension of irrevocable letters of credit issued under the 1995 RJRN Credit Agreement and by the amount of outstanding RJRN commercial paper in excess of $750 million. A commitment fee of .225% per annum is payable on the total facility. (5) RJRN maintains a 364-day back-up line of credit to support RJRN commercial paper issuances of up to $750 million (as amended, the "RJRN Commercial Paper Facility"), which expires in April 1996. Availability is reduced by an amount equal to the aggregate amount of outstanding RJRN commercial paper. A commitment fee of .175% per annum is payable on the total facility. ------------------- Based on RJRN's and Nabisco's intention and ability to continue to refinance, for more than one year, the amount of their respective commercial paper borrowings in the commercial paper market or with additional borrowings under their respective credit agreements, domestic commercial paper borrowings have been included under "Long-term debt." 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% Payment-in-Kind Debentures due May 15, 2001 (the "15% Subordinated Debentures"), $82 million aggregate principal amount of its 13 1/2% Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated Debentures") and $768 million aggregate principal amount (approximately $671 million accreted amount) of its Subordinated Discount Debentures due May 15, 2001 (the "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 RJRN's revolving credit facility (as amended, the "1991 RJRN Credit Agreement"). The remaining portion of a participation in an employee stock ownership plan established by RJRN Holdings (the "ESOP") was repurchased on January 15, 1993 for cash, plus accrued and unpaid interest thereon. RJRN Holdings redeemed on May 1, 1993, 100% of the aggregate principal amount of its outstanding Senior Converting Debentures due 2009 (the "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 these debt securities and the Series B Preferred Stock Offering (as hereinafter defined) were used for general corporate purposes, which included refinancings of indebtedness, working capital, capital expenditures, acquisitions and repurchases and redemptions of securities. Pending such uses, proceeds were used to repay indebtedness under the 1991 RJRN Credit Agreement or for short-term liquid investments. A portion of the net proceeds collected from the sale of RJRN Holdings' ready-to-eat cold cereal business during 1992 was used on February 5, 1993 to redeem $216 million principal amount of F-17 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) 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 May 15, 1994, RJRN redeemed substantially all of its approximately $2 billion in outstanding subordinated debentures. The subordinated debentures redeemed consisted of the Subordinated Discount Debentures, the 15% Subordinated Debentures and the 13 1/2% Subordinated Debentures at redemption prices of 107 1/2%, 107 1/2% and 106 3/4%, respectively, plus accrued interest. Approximately $1.2 billion principal or accreted amount of such debentures was refinanced with proceeds of debt securities maturing after 1998 that were issued during 1993. Such proceeds had been used to temporarily reduce indebtedness under the 1991 RJRN Credit Agreement. In addition, the redemption of such debentures was funded with approximately $900 million of net proceeds from the sale of 266,750,000 Series C Depositary Shares completed on May 6, 1994 in connection with the issuance of 26,675,000 shares of Series C Conversion Preferred Stock, par value $.01 per share ("Series C Preferred Stock"). On November 30, 1994, RJRN redeemed $1.5 billion of 10 1/2% Senior Notes due 1998 (the "10 1/2% Senior Notes"); $373.5 million of 8 3/8% Sinking Fund Debentures due 2017 and approximately $24.8 million of 7 3/8% Sinking Fund Debentures due 2001. On December 2, 1994, RJRN redeemed $100 million of the 13 1/2% Subordinated Debentures. The redemption price for the 10 1/2% Senior Notes was equal to $1,071 plus accrued interest for each $1,000 principal amount of notes. The redemption price for the 8 3/8% Sinking Fund Debentures due 2017 was equal to $1,054.44 plus accrued interest for each $1,000 principal amount of debentures. The redemption price for the 7 3/8% Sinking Fund Debentures due 2001 was equal to $1,005.60 plus accrued interest for each $1,000 principal amount of debentures. The redemption price for the 13 1/2% Subordinated Debentures was equal to $1,067.50 plus accrued interest for each $1,000 principal amount of debentures. These redemptions were funded with borrowings under the 1991 RJRN Credit Agreement, internally generated cash flow, and, in the case of the 8 3/8% Sinking Fund Debentures due 2017, proceeds from RJRN Holdings' Series C Preferred Stock Offering (as hereinafter defined). On December 7, 1994, Nabisco borrowed $1.35 billion under its credit agreement dated as of December 6, 1994 (the "1994 Nabisco Credit Agreement") to repay a portion of Nabisco's intercompany indebtedness to RJRN. RJRN used the proceeds of the repayment to reduce borrowings under the 1991 RJRN Credit Agreement. On January 26, 1995, Nabisco Holdings completed the initial public offering of 51,750,000 shares of its Class A Common Stock, par value $.01 per share ("Class A Common Stock"), at an initial offering price of $24.50 per share. Nabisco used all of the approximately $1.2 billion of net proceeds from the initial public offering to repay a portion of its borrowings under the 1994 Nabisco Credit Agreement. On April 28, 1995, RJRN entered into the 1995 RJRN Credit Agreement and the RJRN Commercial Paper Facility (together with the 1995 RJRN Credit Agreement, the "New RJRN Credit Agreements"). Among other things, the New RJRN Credit Agreements were designed to remove restrictions on the ability of Nabisco Holdings and its subsidiaries to incur or prepay debt and to allow RJRN to reduce the aggregate amount of commitments under its banking facilities from $6 billion to $3.5 billion by replacing its 1991 RJRN Credit Agreement and its $1.0 billion commercial paper F-18 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) facility dated as of April 5, 1993 (as amended and together with the 1991 RJRN Credit Agreement, the "Old RJRN Credit Agreements"). On April 28, 1995, Nabisco Holdings and Nabisco entered into the 1995 Nabisco Credit Agreement with various financial institutions to replace the 1994 Nabisco Credit Agreement. Among other things, the 1995 Nabisco Credit Agreement was designed to permit Nabisco to prepay intercompany debt and incur long-term debt, to increase Nabisco's committed facility from $1.5 billion to $3.5 billion and to extend its term from 364 days to five years. On November 3, 1995, the 1995 Nabisco Credit Agreement was amended to, among other things, reduce the committed facility to $2.0 billion from $3.5 billion. Also on November 3, 1995, Nabisco Holdings and Nabisco entered into a 364 day credit facility (the "Nabisco Commercial Paper Facility" and together with the 1995 Nabisco Credit Agreement, the "1995 Nabisco Credit Agreements") for $1.5 billion primarily to support the issuance of commercial paper borrowings. On June 5, 1995, RJRN and Nabisco consummated the Exchange Offers. As part of the transaction, RJRN returned to Nabisco approximately $1.8 billion of intercompany notes that had been issued by Nabisco and were held by a non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange Offers have interest rates, principal amounts, maturities and redemption provisions identical to the corresponding Old Notes issued by RJRN. Nabisco subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay approximately $89 million of an intercompany note from Nabisco to Nabisco Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco Holdings used the payments it received to repay the balance of a $168 million intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN consummated the Consent Solicitations. The Exchange Offers, the Consent Solicitations and certain related transactions were designed, among other things, to enable Nabisco to obtain long-term debt financing independent of RJRN and to repay its intercompany debt to RJRN. On June 5, 1995, RJRN applied the approximately $2.3 billion that it received from Nabisco and Nabisco Holdings in repayment of the intercompany notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement. RJRN used an additional approximately $330 million of borrowings under the 1995 RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN Credit Agreements and to pay certain expenses associated with the Exchange Offers, the Consent Solicitations and the related transactions. On June 28, 1995, Nabisco issued $400 million principal amount of 6.70% Notes Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400 million principal amount of 7.55% Debentures Due 2015. On July 14, 1995, Nabisco issued $400 million principal amount of 7.05% Notes Due 2007. The net proceeds from the issuance of such debt securities were used to repay a portion of the borrowings under the 1995 Nabisco Credit Agreement. On July 17, 1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund Debentures Due March 15, 2017 at a price of $1,051.75 for each $1,000 principal amount of debentures, plus accrued interest. The aggregate redemption price and accrued interest on these debentures was approximately $442 million. The redemption resulted in an extraordinary loss of approximately $29 million ($16 million after tax and minority interest). F-19 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8% Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due 2007 under a $1.0 billion debt shelf registration statement. Approximately $352 million of debt securities remains unissued under the shelf as of December 31, 1995. The net proceeds from the issuance of these securities have been or will be used to repay borrowings under the 1995 RJRN Credit Agreement, to retire RJRN commercial paper and for general corporate purposes. On September 21, 1995, RJRN Holdings issued approximately $978 million aggregate principal amount of its 10% Junior Subordinated Debentures due 2044 (the "Junior Subordinated Debentures") to a newly formed controlled affiliate, RJR Nabisco Holdings Capital Trust I (the "Trust"). The Trust, in turn, exchanged approximately $949 million of its preferred securities (the "Trust Preferred Securities"), representing undivided interests in 97% of the assets of the Trust, for 37,956,060 of the 50,000,000 Series B Depositary Shares (the "Series B Depositary Shares") outstanding, each representing one-tenth of a share of the 50,000 outstanding shares of RJRN Holdings' Series B Cumulative Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). RJRN Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B Preferred Stock outstanding. The transaction resulted in a charge of approximately $5 million to RJRN Holdings' paid-in capital as the fair value of the Trust Preferred Securities issued, which was the book carrying value assigned to these securities, exceeded the book carrying value of the retired Series B Preferred Stock. The difference between the assigned value of the Trust Preferred Securities and its redemption value will be amortized to interest expense over its term. The sole asset of the Trust is the Junior Subordinated Debentures. Upon maturity or redemption of the Junior Subordinated Debentures, which have a final maturity of December 31, 2044, the Trust Preferred Securities will be mandatorily redeemed. The Junior Subordinated Debentures are redeemable at the option of RJRN Holdings, in whole or in part, on or after August 19, 1998, at a redemption price equivalent to $25 per Junior Subordinated Debenture to be redeemed, plus accrued and unpaid interest thereon, to the redemption date. Upon the repayment of the Junior Subordinated Debentures, whether at maturity, upon redemption or otherwise, the proceeds thereof will be promptly applied to redeem the Trust Preferred Securities. Holders of Trust Preferred Securities have no right to require the Trust to redeem the Trust Preferred Securities at the option of the holders. Cash distributions on the Trust Preferred Securities are cumulative at an annual rate of 10% of the liquidation amount of $25 per security and are payable quarterly in arrears, but only to the extent that interest payments are made on the Junior Subordinated Debentures. Cash distributions in arrears for more than one quarter will bear interest at 10% of the liquidation amount per security compounded quarterly. On November 14, 1995, Nabisco filed a shelf registration statement with the Securities and Exchange Commission for $1.0 billion of debt. At December 31, 1995, RJRN had outstanding interest rate instruments with a notional principal amount of $0, net. (See Note 12 to the Consolidated Financial Statements for additional disclosures regarding interest rate arrangements). At December 31, 1995, Nabisco had outstanding fixed interest rate swaps with an aggregate notional principal amount of $1.0 billion and expiration dates occurring within six months. Also at December 31, 1995, Nabisco had outstanding interest rate caps with an aggregate notional principal amount of $1.0 billion, all with future effective dates commencing within six months and with expiration dates one year thereafter. (See Note 12 to the Consolidated Financial Statements for additional disclosures regarding interest rate arrangements). F-20 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) The estimated fair value of RJRN Holdings' consolidated long-term debt as of December 31, 1995 and 1994 was approximately $10.1 billion and $10.7 billion, respectively, based on available market quotes, discounted cash flows and book values, as appropriate. The estimated fair value is higher by $246 million and lower by $444 million than the carrying amounts (book values) of RJRN Holdings' long-term debt at December 31, 1995 and 1994, respectively, as a result of the level of market interest rates at December 31, 1995 and 1994 compared with the interest rates associated with RJRN 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 RJRN Holdings' consolidated long-term debt as of December 31, 1995 and 1994 is not necessarily indicative of the amounts that RJRN Holdings could realize in a current market exchange. The payment of dividends and the making of distributions by RJRN Holdings to its stockholders are subject to direct and indirect restrictions under certain financing agreements and debt instruments of RJRN Holdings and RJRN and their subsidiaries. The New RJRN Credit Agreements generally restrict cumulative common and preferred dividends and distributions by RJRN Holdings after April 28, 1995 to $1 billion, plus 50% of cumulative consolidated net income, as defined in the New RJRN Credit Agreements, after January 1, 1995, plus the aggregate cash proceeds of up to $250 million in any twelve month period from issuances of equity securities. The New RJRN Credit Agreements and certain other financing agreements also limit the ability of RJRN Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell or dispose of certain assets and certain subsidiaries' stock, issue certain equity securities and engage in certain mergers or consolidations. Among other things, the 1995 Nabisco Credit Agreements generally restrict common and preferred dividends and distributions after April 28, 1995 by Nabisco Holdings to its stockholders, including RJRN, to $300 million plus 50% of Nabisco Holdings' cumulative consolidated net income, as defined in the 1995 Nabisco Credit Agreement, after January 1, 1995. In general, loans and advances by Nabisco Holdings and its subsidiaries to RJRN are effectively subject to a $100 million limit and may only be extended to RJRN's foreign subsidiaries. The 1995 Nabisco Credit Agreements also limit the ability of Nabisco Holdings and its subsidiaries to incur indebtedness, engage in transactions with stockholders and affiliates, create liens, sell or dispose of certain assets and certain subsidiaries' stock and engage in certain mergers or consolidations. These restrictions have not had and are not expected to have a material effect on the ability of Nabisco Holdings to pay its anticipated dividends, or on the ability of RJRN to meet its obligations. In November 1994, the Board of Directors of RJRN Holdings adopted a policy stating that RJRN Holdings will limit, until December 31, 1998, the aggregate amount of cash dividends on its capital stock. Under this policy, during that period RJRN Holdings will not pay any extraordinary cash dividends and will limit the aggregate amount of its cash dividends, cash distributions and repurchases for cash of capital stock and subordinated debt to an amount equal to the sum of $500 million plus (i) 65% of RJRN Holdings' cumulative consolidated net income before extraordinary gains or losses and restructuring charges subsequent to December 31, 1994 and (ii) net cash proceeds of up to $250 million in any year from the sale of capital stock of RJRN Holdings or its subsidiaries (other than F-21 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED) proceeds from the Nabisco Holdings initial public offering) to the extent used to repay, purchase or redeem debt or preferred stock. Also in November 1994, the Board of Directors of RJRN Holdings adopted a policy providing that RJRN Holdings will not declare a dividend or distribution to its stockholders of the shares of capital stock of a subsidiary before December 31, 1996. RJRN Holdings has also adopted a policy setting forth its intention not to make such a distribution prior to December 31, 1998 if that distribution would cause the ratings of the senior indebtedness of RJRN to be reduced from investment grade to non-investment grade or if, after giving effect to such distribution, any publicly-held senior indebtedness of the distributed company would not be rated investment grade. The Board of Directors of RJRN Holdings is committed to effecting a spin-off of Nabisco Holdings at the appropriate time. There is no assurance that any such distribution will take place. Additional policies provide that an amount equal to the net cash proceeds from any issuance and sale of equity by RJRN Holdings or from any sale outside the ordinary course of business of material assets owned or used by subsidiaries in the tobacco business, in each case before December 31, 1998, will be used either to repay, purchase or redeem consolidated indebtedness or to acquire properties, assets or businesses to be used in existing or new lines of business and that an amount equal to the net cash proceeds of any secondary sale of shares of Nabisco Holdings before December 31, 1998 will be used to repay, purchase or redeem consolidated debt. No assurance can be given that RJRN Holdings will issue or sell any equity or sell any material assets outside the ordinary course of business. NOTE 12--COMMITMENTS AND CONTINGENCIES TOBACCO-RELATED LITIGATION Various legal actions, proceedings and claims are pending or may be instituted against R.J. Reynolds Tobacco Company ("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 1995, 101 new actions were filed or served against RJRT and/or its affiliates or indemnitees and 22 such actions were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or indemnitees without trial. A total of 132 such actions in the United States and two against RJRT's Canadian subsidiary were pending on December 31, 1995. As of February 16, 1996, 144 active cases were pending against RJRT and/or its affiliates or indemnitees, 142 in the United States and two in Canada. The United States cases are in 22 states and are distributed as follows: 90 in Florida; 10 in Louisiana; 5 in Texas; 4 in each of Indiana, Kansas and Tennessee; 3 in each of Mississippi, California and Pennsylvania; 2 in each of Alabama, Colorado, Massachusetts and Minnesota; and one in each of Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, South Carolina and West Virginia. Of the 142 active cases in the United States, 116 are pending in state court and 26 in federal court. Five of the 142 active cases in the United States involve alleged non-smokers claiming injuries resulting from exposure to environmental tobacco smoke. Six cases, which are described more specifically below, purport to be class actions on behalf of thousands of individuals. Purported classes include individuals claiming to be addicted to cigarettes and flight attendants alleging personal injury from exposure to environmental tobacco smoke in their workplace. Four of the active cases were brought by state attorneys general seeking, inter alia, recovery of the cost of Medicare funds paid by their states for F-22 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) treatment of citizens allegedly suffering from tobacco related diseases or conditions. In addition, one case was brought by the State of Florida seeking similar rulings under a special state statute. 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, unfair trade practices, conspiracy, unjust enrichment, indemnity and common law public nuisance. Punitive damages, often in amounts ranging into the hundreds of 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 in which RJRT was not a defendant, 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., 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 Supreme 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 and, if so, in what form, or whether such legislation would be intended by Congress to apply retroactively. The passage of such legislation could increase the number of cases filed against cigarette manufacturers, including RJRT. Set forth below are descriptions of the class action lawsuits, a suit in which plaintiffs seek to act as private attorneys general, actions brought by state attorneys general in Massachusetts, Minnesota, Mississippi and West Virginia, an action brought by the State of Florida and pending investigations relating to RJRT's tobacco business. In 1991, Broin v. Philip Morris Company, a purported class action against certain tobacco industry defendants, including RJRT, was brought by flight attendants claiming to represent a class of 60,000 individuals, alleging personal injury caused by exposure to environmental tobacco smoke in their workplace. In December 1994, the Florida state court certified a class consisting of "all non-smoking flight attendants who are or have been employed by airlines based in the United States and are suffering from diseases and disorders caused by their exposure to secondhand cigarette smoke in airline cabins." The defendants appeal of this certification to the Florida Third District Court of Appeal was denied on January 3, 1995. A motion for rehearing has been filed. In March 1994, Castano v. The American Tobacco Company, a purported class action, was filed in the United States District Court for the Eastern District of Louisiana against tobacco industry defendants, including RJRT, seeking certification of a class action on behalf of all United States F-23 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) residents who allegedly are or claim to be addicted, or are the legal survivors of persons who allegedly were addicted, to tobacco products manufactured by defendants. The complaint alleges that cigarette manufacturers manipulated the levels of nicotine in their tobacco products to induce addiction in smokers. Plaintiffs' motion for certification of the class was granted in part on February 17, 1995. The district court certified core liability issues (fraud, negligence, breach of warranty, both express and implied, intentional tort, strict liability and consumer protection statutes), and punitive damages. Not certified were issues of injury-in-fact, proximate cause, reliance, affirmative defenses, and compensatory damages. In July 1995, the Fifth Circuit Court of Appeals agreed to hear defendants, appeal of this class certification. A decision is expected in 1996. In March 1994, Lacey v. Lorillard Tobacco Company, a purported class action, was filed in Circuit Court, Fayette County, Alabama against three cigarette manufacturers, including RJRT. Plaintiff, who claims to represent all smokers who have smoked or are smoking cigarettes manufactured and sold by defendants in the state of Alabama, seeks compensatory and punitive damages not to exceed $48,500 per class member and injunctive relief arising from defendants' alleged failure to disclose additives used in their cigarettes. In April 1994, defendants removed the case to the United States District Court for the Northern District of Alabama. In May 1994, Engle v. R.J. Reynolds Tobacco Company, was filed in Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco manufacturers, including RJRT, and other members of the industry, by plaintiffs who allege injury and purport to represent a class of all United States citizens and residents who claim to be addicted, or who claim to be legal survivors of persons who allegedly were addicted, to tobacco products. On October 28, 1994, a state court judge in Miami granted plaintiffs' motion to certify the class. The defendants appealed that ruling to the Florida Third District Court of Appeal which, on January 31, 1996, decided to certify a class limited to Florida citizens or residents. The defendants are considering seeking a rehearing. In September 1994, Granier v. American Tobacco Company, a purported class action apparently patterned after the Castano case, was filed in the United States District Court for the Eastern District of Louisiana against tobacco industry defendants, including RJRT. Plaintiffs seek certification of a class action on behalf of all residents of the United States who have used and purportedly became addicted to tobacco products manufactured by defendants. The complaint alleges that cigarette manufacturers manipulated the levels of nicotine in tobacco products for the purpose of addicting consumers. By agreement of the parties, all action in this case is stayed pending determination of the motion for class certification in the Castano case. F-24 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) In January 1995, a purported class action was filed in the Ontario Canada Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette manufacturers. The lawsuit, then captioned Le Tourneau v. Imperial Tobacco Company seeks certification of a class of persons who have allegedly become addicted to the nicotine in cigarettes or who had such alleged addiction heightened or maintained through the use of cigarettes, and who have allegedly suffered loss, injury, and damage in consequence, together with persons with Family Law Act claims in respect to the claims of such allegedly addicted persons, and the estates of such allegedly addicted persons. Theories of recovery pleaded include negligence, strict liability, failure to warn, deceit, negligent misrepresentation, implied warranty and conspiracy. The relief sought consists of damages of one million dollars for each of the three named plaintiffs, punitive damages, funding of nicotine addiction rehabilitation centers, interest and costs. On June 2, 1995, the plaintiffs, on consent, were granted leave to file an amended statement of claim to remove Le Tourneau as representative plaintiff and add two additional representative plaintiffs. The case is now captioned Caputo v. Imperial Tobacco Limited. In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, the California Supreme Court ruled that the plantiffs' claim that an RJRT advertising campaign constitutes unfair competition under the California Business and Professions Code was not preempted by the Cigarette Act. The plantiffs are acting as private attorneys general. This opinion allows the plaintiffs to pursue their lawsuit which had been dismissed at the trial court level. The defendants' Petition for Certiorari to the United States Supreme Court was denied in December 1994. The case has been remanded to the trial court. In June 1994, in Moore v. The American Tobacco Company, RJRN and RJRT were named along with other industry members as defendants in an action brought by the Mississippi state attorney general on behalf of the state to recover state funds paid for health care and medical and other assistance to state citizens allegedly suffering from diseases and conditions allegedly related to tobacco use. This suit, which was brought in Chancery (non-jury) Court, Jackson County, Mississippi also seeks an injunction from "promoting" or "aiding and abetting" the sale of cigarettes to minors. Both actual and punitive damages are sought in unspecified amounts. Motions by the defendants to dismiss the case or to transfer it to circuit (jury) court were denied on February 21, 1995 and the case will proceed in Chancery Court. RJRN and other industry holding companies have been dismissed from the case. In August 1994, RJRT and other U.S. cigarette manufacturers were named as defendants in an action instituted on behalf of the state of Minnesota and of Blue Cross and Blue Shield of Minnesota to recover the costs of medical expenses paid by the state and by Blue Cross/Blue Shield that were incurred in the treatment of diseases allegedly caused by cigarette smoking. The suit, Minnesota v. Philip Morris, alleges consumer fraud, unlawful and deceptive trade practices, false advertising and restraint of trade, and it seeks injunctive relief and money damages, trebled for violations of the state antitrust law. Motions by the defendants to dismiss all claims of Blue Cross/Blue Shield and certain substantive claims of the State of Minnesota, and by plaintiffs to strike certain of the defendants' defenses, were denied on May 19, 1995. An intermediate appeals court declined to hear the defendants' appeal from the ruling denying the motion to dismiss all claims of Blue Cross/Blue Shield on the ground that it lacks standing to bring the action, but the Minnesota Supreme Court has agreed to do so. Oral argument was heard January 29, 1996 and a decision is pending. In September 1994, the Attorney General of West Virginia filed suit against RJRT, RJRN and twenty-one additional defendants in state court in West Virginia. The lawsuit, McGraw v. American F-25 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) Tobacco Company, is similar to those previously filed in Mississippi and Minnesota. It seeks recovery for medical expenses incurred by the state in the treatment of diseases statistically associated with cigarette smoking and requests an injunction against the promotion and sale of cigarettes and tobacco products to minors. The lawsuit also seeks a declaration that the state of West Virginia, as plaintiff, is not subject to the defenses of statute of repose, statute of limitations, contributory negligence, comparative negligence, or assumption of the risk. On May 3, 1995, the judge granted defendants' motion to dismiss eight of the ten causes of action pleaded. The defendants have filed motions to dismiss the remaining two counts. On October 20, 1995, at a hearing on the defendants' joint motion to prohibit prosecution of the action due to plaintiff's unlawful retention of counsel under a contingent fee arrangement, in a ruling from the bench, the contingent fee agreement between the West Virginia Attorney General and private attorneys preparing the case was held to be void on the grounds that the Attorney General has no constitutional, legislative, or statutory authority for entering into such an agreement. On February 21, 1995, the state of Florida filed a suit against RJRT and RJRN, along with other industry members, their holding companies and other entities. The state is seeking Medicaid reimbursement under various theories of liability and injunctive relief to prevent the defendants from engaging in consumer fraud and to require that defendants: disclose and publish all research conducted directly or indirectly by the industry; fund a corrective public education campaign on the issues of smoking and health in Florida; prevent the distribution and sale of cigarettes to minors under the age of eighteen; fund clinical smoking cessation programs in the state of Florida; dissolve the Council for Tobacco Research and the Tobacco Institute or divest ownership, sponsorship, or membership in both; and disgorge all profits from sales of cigarettes in Florida. On defendants' motion, the case was stayed until July 7, 1995 and that stay has been extended pending appeals by the plaintiffs and the defendants in connection with the constitutional challenge to the Florida statute discussed below. The suit by the state of Florida was brought under a statute which was amended effective July 1994 to allow the state to bring an action in its own name against the tobacco industry to recover amounts paid by the state under its Medicaid program to treat illnesses statistically associated with cigarette smoking. The amended statute does not require the state to identify the individual who received medical care, permits a lawsuit to be filed as a class action and eliminates the comparative negligence and assumption of risk defenses. The Florida statute was challenged on state and federal constitutional grounds in a lawsuit brought by Philip Morris Companies Inc., Associated Industries of Florida, Publix Supermarkets and National Association of Convenience Stores in June 1994. On June 26, 1995 the trial court judge granted in part the plaintiffs' motion for summary judgment finding portions of the statute unconstitutional. Both plaintiffs and defendants appealed this decision which the Florida Supreme Court accepted for a direct appeal. Oral argument was heard on November 6, 1995. The Florida House and Senate passed a bill that would repeal the Florida statute retroactively which, on June 15, 1995, was vetoed by the Governor. The Florida House and Senate have indicated that they are considering action to override that veto. Similar legislation, without Florida's elimination of defenses, has been introduced in the Massachusetts and New Jersey legislatures. RJRT is unable to predict whether legislation will be enacted in these states, whether other states will introduce and enact similar legislation, whether lawsuits will be filed under statutes, if enacted, or the outcome of any such lawsuits, if filed. F-26 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) On November 28, 1995, RJRT and other domestic cigarette manufacturers filed petitions for declaratory judgment in Massachusetts (Federal Court) and Texas (State Court, Austin Texas) as to potential Medicaid reimbursement suits that had been threatened by the Attorneys General of those states. On January 22, 1996, a similar petition for declaratory judgement was filed in Maryland (State Court). On December 19, 1995, the Commonwealth of Massachusetts filed suit against cigarette manufacturers including RJRT and additional defendants including trade associations and wholesalers, seeking reimbursement of Medicaid and other costs incurred by the state in providing health care to citizens allegedly suffering from diseases or conditions purportedly caused by cigarette smoking. The complaint also seeks orders requiring the manufacturing defendants to disclose and disseminate prior research; fund a corrective campaign and smoking cessation program; disclose nicotine yields of their products; and pay restitution. 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 received a civil investigative demand dated January 11, 1994 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 tobacco-related 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 or 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. RJRN Holdings and RJRN believe that the ultimate outcome of all pending litigation matters should not have a material adverse effect on the financial position of either RJRN Holdings or RJRN; however, it is possible that the results of operations or cash flows of RJRN Holdings or RJRN in particular quarterly or annual periods or the financial condition of RJRN Holdings and RJRN 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 any possible loss in any particular quarterly or annual period or in the aggregate. F-27 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) COMMITMENTS At December 31, 1995, other commitments totalled approximately $777 million, principally for minimum operating lease commitments, the purchase of leaf tobacco inventories, 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 RJRN and Nabisco to manage their interest rate and foreign currency exposures. RJRN and Nabisco have each adopted policies to utilize interest rate instruments that will adjust the mix of floating rate debt and fixed rate debt on a one for one basis. Interest Rate Arrangements During 1995, Nabisco began managing its own interest rate exposure by adjusting its mix of floating rate debt and fixed rate debt. As part of managing its interest rate exposure, Nabisco entered into interest rate swaps and caps during 1995 to effectively fix a portion of its interest rate exposure on its floating rate debt. The impact of these arrangements was not significant. At December 31, 1995, Nabisco had outstanding fixed interest rate swaps with an aggregate notional principal amount of $1.0 billion and expiration dates within six months. Also at December 31, 1995, Nabisco had outstanding interest rate caps with an aggregate notional principal amount of $1.0 billion, all with future effective dates commencing within six months and with expiration dates one year thereafter. RJRN also manages its interest rate exposure by adjusting its mix of floating rate debt and fixed rate debt. During 1994, RJRN cancelled all of its financial interest rate arrangments with optionality. Such cancelled instruments increased 1994 interest expense by $45 million. Also during 1994, as part of its current strategy to manage interest rate exposure, RJRN effectively neutralized the effects of any future changes in market interest rates on the remainder of its outstanding interest rate swaps, options, caps and other financial instruments through the purchase of offsetting positions. Net unrealized gains and losses on the remaining interest rate instruments at the time such instruments were neutralized are currently being amortized to interest expense through 1997. As a result of the 1994 activity, the net notional principal amount of outstanding interest rate instruments has been $0. The impact to interest expense from the utilization of interest rate instruments by RJRN has resulted in additional interest expense during 1995 and 1994 of approximately $39 million and $22 million (which included the $45 million stated above), respectively, and lower interest expense during 1993 of approximately $70 million. In addition, additional interest expense will be recorded during 1996 and 1997 of approximately $28 million and $5 million, respectively, in connection with the 1994 activity. At December 31, 1995, RJRN had outstanding interest rate swaps, options, caps and other interest rate arrangements with F-28 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) financial institutions having a total gross notional principal amount of $2.8 billion and a net notional amount of $0. These arrangements entered into by RJRN mature as follows:
GROSS NOTIONAL PRINCIPAL AMOUNT ------------------------------------------ TYPE OF INSTRUMENT 1996 1997 1998 TOTAL ------------------ ------ ------ ------ ------ (AMOUNTS IN MILLIONS) Variable rate pay swaps......................... $ 600 $ 750 $ 50 $1,400 Fixed rate pay swaps............................ 600 750 50 1,400 ------ ------ ------ ------ $1,200 $1,500 $ 100 $2,800 ------ ------ ------ ------ ------ ------ ------ ------
Foreign Currency Arrangements RJRN Holdings' subsidiaries have operations in many countries, utilizing many different functional currencies in its foreign subsidiaries and branches. Significant foreign currency net investments are located in Germany, Canada, Hong Kong, Brazil, Argentina 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 foreign currency net investments, also result in charges or credits to equity. RJRN Holdings' subsidiaries also have 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, Spanish peseta and cross-rate exposure among the French franc, British pound, Italian lira and the German mark. These exposures are managed to minimize the effects of foreign currency transactions on its cash flows. At December 31, 1995 and 1994, RJRN had outstanding forward foreign exchange contracts with banks to purchase or sell an aggregate notional principal amount of $959 million and $713 million, respectively. The weighted average maturity of the arrangements outstanding at December 31, 1995 approximated four months. Such contracts were primarily entered into to hedge future commitments. The purpose of RJRN's foreign currency hedging activities is to protect RJRN from risk that the eventual dollar cash flows resulting from transactions with international parties will be adversely affected by changes in exchange rates. At December 31, 1995 and 1994, Nabisco had outstanding forward foreign exchange contracts with banks to purchase or sell an aggregate notional principal amount of $142 million and $94 million, respectively. Such contracts were primarily entered into to hedge future commitments. The purpose of Nabisco's foreign currency hedging activities is to protect Nabisco from risk that the eventual dollar cash flows resulting from transactions with international parties will be adversely affected by changes in exchange rates. The above interest rate and foreign currency arrangements entered into by RJRN and Nabisco 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 F-29 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED) 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 and Nabisco may be exposed to credit losses in the event of non-performance by the counterparties to these financial instruments. However, RJRN and Nabisco continually monitor their positions and the credit ratings of their counterparties and therefore, do 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. SUMMARY FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION At December 31, 1995 and 1994, the carrying amounts and estimated fair values of financial instruments entered into by RJRN and Nabisco were as follows:
DECEMBER 31, 1995 DECEMBER 31, 1994 ---------------------------- ---------------------------- ASSETS/(LIABILITIES) ASSETS/(LIABILITIES) ---------------------------- ---------------------------- RJRN FINANCIAL INSTRUMENTS CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE -------------------------- -------------- ---------- -------------- ---------- (AMOUNTS IN MILLIONS) Interest rate swaps: Variable rate pay swaps................... $ (1) $ - $ - $ (76) -------------- ---------- -------------- ---------- Fixed rate pay swaps...................... $ (11) $ (44) $ - $ 4 -------------- ---------- -------------- ---------- Forward foreign exchange contracts.......... $ 2 $ 9 $ (1) $ (4) -------------- ---------- -------------- ---------- NABISCO FINANCIAL INSTRUMENTS - -------------------------------------------- Interest rate swaps: Fixed rate pay swaps...................... $ - $ (2) $ - $ - -------------- ---------- -------------- ---------- Interest rate caps.......................... $ 3 $ 1 $ - $ - -------------- ---------- -------------- ---------- Forward foreign exchange contracts.......... $ - $ - $ - $ - -------------- ---------- -------------- ----------
F-30 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL The changes in Common Stock and paid-in capital are shown as follows:
1995 1994 ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------- ----------- ------- (DOLLARS IN MILLIONS) Common Stock--$0.01 par value--authorized 440,000,000 shares at December 31, 1995: Balance at beginning of year.................................... 272,331,377 $ 3 227,602,258 $ 2 Shares issued during the period................................. 543,787 -- 2,781,575 -- Conversion of Series A Preferred Stock.......................... -- -- 42,000,000 1 Shares repurchased and cancelled..................................................... (67,222) -- (52,456) -- ----------- ------- ----------- ------- Balance at end of year...................................... 272,807,942 $ 3 272,331,377 $ 3 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Paid-in capital: Balance at beginning of year.................................... $10,157 $ 8,787 Shares issued during the period, net of stock issuance costs.... 13 1,754 Tax benefits recorded on shares issued to management, dividends on restricted stock and dividends on ESOP shares allocated.... 4 9 Shares and stock options repurchased and cancelled.............. (2) (1) Fees and other expenses......................................... (30) -- Gain on sale of subsidiary common stock......................... 401 -- Amounts reclassified from retained earnings..................... (432) (393) Other........................................................... (1) 1 ------- ------- Balance at end of year...................................... $10,110 $10,157 ------- ------- ------- ------- 1993 ----------------------- SHARES AMOUNT ----------- ------- Common Stock--$0.01 par value--authorized 440,000,000 shares at December 31, 1995: Balance at beginning of year.................................... 226,929,708 $ 2 Shares issued during the period................................. 738,582 -- Conversion of Series A Preferred Stock.......................... -- -- Shares repurchased and cancelled................................ (66,032) -- ----------- ------- Balance at end of year...................................... 227,602,258 $ 2 ----------- ------- ----------- ------- Paid-in capital: Balance at beginning of year.................................... $ 9,057 Shares issued during the period, net of stock issuance costs.... (16) Tax benefits recorded on shares issued to management, dividends on restricted stock and dividends on ESOP shares allocated.... 3 Management shares and stock options repurchased and cancelled... (2) Fees and other expenses......................................... -- Gain on sale of subsidiary common stock......................... -- Amounts reclassified from retained earnings..................... (246) Other........................................................... (9) ------- Balance at end of year...................................... $ 8,787 ------- -------
At December 31, 1995, RJRN Holdings' outstanding classes of capital stock consisted of the following: the Common Stock, the Series B Preferred Stock, the Series C Preferred Stock and the ESOP Convertible Preferred Stock, stated value of $16.00 per share and par value of $.01 per share (the "ESOP Preferred Stock"). In addition, RJRN Holdings had its Cumulative Convertible Preferred Stock, stated value of $25 per share and par value of $.01 per share (the "Cumulative Convertible Preferred Stock"), outstanding until the fourth quarter of 1993 and its Series A Conversion Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), outstanding until the fourth quarter of 1994. All of the classes of preferred stock of RJRN Holdings rank senior to the Common Stock as to dividends and preferences in liquidation. RJRN Holdings' charter authorized 150,000,000 preferred shares at December 31, 1995 and 1994. On November 1, 1990, RJRN Holdings issued and/or registered 72,032,000 shares of the Cumulative Convertible Preferred Stock. The Cumulative Convertible Preferred Stock paid cash dividends at a rate of 11.5% of stated value per annum, payable quarterly in arrears commencing January 15, 1991. The Cumulative Convertible Preferred Stock was convertible after May 1, 1991 into shares of Common Stock at a conversion price of $45 of stated value per share of Common Stock. Holders of the Cumulative Convertible Preferred Stock converted 379 shares of the stock into 210 shares of Common Stock during 1992 and another 123,523 shares into 68,595 shares of Common Stock during 1993. On December 6, 1993, the outstanding Cumulative Convertible Preferred Stock was redeemed at a redemption price of $27.0125 per share plus accrued and unpaid dividends. F-31 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) On April 10, 1991, the ESOP borrowed $250 million from RJRN 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% of its stated value per annum. At December 31, 1995, the ESOP Preferred Stock is convertible into 2,998,135 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 RJRN Holdings. The ESOP Preferred Stock is redeemable at the option of RJRN Holdings, in whole or in part, at any time on or after April 10, 1999, at an initial optional redemption price of $16.25 per share. 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 one-fifth of a share of Common Stock, whichever is higher. During 1995, 1994 and 1993, approximately $23 million, $22 million and $29 million, respectively, was contributed to the ESOP by RJRN or RJRN Holdings and approximately $19 million, $19 million and $20 million, respectively, of ESOP dividends were used to service the ESOP's debt to RJRN Holdings. On November 8, 1991, RJRN Holdings issued 52,500,000 shares of Series A Preferred Stock and sold 210,000,000 Series A Depositary Shares, each of which represented one-quarter of a share of Series A Preferred Stock. Each share of Series A Preferred Stock paid cash dividends at a rate of $3.34 per annum, payable quarterly in arrears commencing February 18, 1992. On November 15, 1994, the 210,000,000 Series A Depository Shares converted automatically into 42,000,000 shares of Common Stock. On August 18, 1993, RJRN Holdings issued 50,000 shares of Series B Preferred Stock, and sold 50,000,000 Series B Depositary Shares at $25 per Series B Depositary Share ($1.25 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 RJRN Holdings. At RJRN Holdings' option, on or after August 19, 1998, RJRN 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. RJRN Holdings' ability to redeem the Series B Preferred Stock is subject to certain restrictions in its credit agreements. On September 21, 1995, RJRN Holdings retired approximately 76% of the outstanding Series B Preferred Stock in connection with the exchange of approximately $949 million amount of Trust Preferred Securities for 37,956,060 of the 50,000,000 Series B Depositary Shares. (See Note 11 to the Consolidated Financial Statements.) On May 6, 1994, RJRN Holdings completed the issuance of 26,675,000 shares of Series C Preferred Stock in connection with the sale of 266,750,000 Series C Depositary Shares at $6.50 per F-32 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) depositary share. Approximately $900 million of the net proceeds from the sale of the Series C Depositary Shares was applied to the redemption of RJRN's subordinated debentures on May 15, 1994. The remaining proceeds from the sale of the Series C Depositary Shares were used to repay indebtedness under the 1991 RJRN Credit Agreement and for short-term liquid investments until they were applied to redeem certain of RJRN's sinking fund debentures. Each share of Series C Preferred Stock bears cumulative cash dividends at a rate of $6.012 per annum, or $.6012 per Series C Depositary Share, payable quarterly in arrears. Each Series C Depositary Share represents a one-tenth ownership interest in a share of Series C Preferred Stock of RJRN Holdings. Each share of Series C Preferred Stock will mandatorily convert into two shares of Common Stock on May 15, 1997, subject to adjustment in certain events, plus accrued and unpaid dividends thereon. In addition, at RJRN Holdings' option, RJRN Holdings may redeem shares of the Series C Preferred Stock (and the Depositary will redeem the number of Series C Depositary Shares representing such shares of Series C Preferred Stock) at a redemption price to be paid in shares of Common Stock (or, following certain circumstances, other consideration), plus accrued and unpaid dividends. The optional redemption price declines from $112.286 per share by $.01656 per share on each day following May 6, 1994 to $95.246 per share on March 15, 1997 and is $94.25 thereafter. The completion on January 26, 1995 of the Nabisco Holdings' initial public offering of 51,750,000 shares of its Class A Common Stock and the corresponding reduction in RJRN's proportionate economic interest in Nabisco Holdings from 100% to approximately 80.5% resulted in an adjustment of approximately $401 million to the carrying amount of RJRN's investment in Nabisco Holdings. Such adjustment was reflected as additional paid-in capital by RJRN Holdings and RJRN. On April 1, July 1 and October 1, 1995 and January 1, 1996, RJRN Holdings paid a quarterly dividend on the Common Stock of $.375 per share. RJRN Holdings expects to continue to pay at least a quarterly cash dividend on the Common Stock equal to $.375 per share or $1.50 per share on an annualized basis. On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five reverse stock split and the corresponding reduction in the number of authorized shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates at which shares of ESOP Preferred Stock and Series C Preferred Stock convert into shares of Common Stock were proportionately adjusted. On July 1 and October 1, 1995 and January 1, 1996, Nabisco Holdings paid a quarterly dividend on its common stock of $.1375 per share. Nabisco Holdings expects to continue to pay a quarterly cash dividend on its common stock equal to at least $.1375 per share or $.55 per share on an annualized basis (approximately $146 million). RJRN would receive approximately $117 million of the annualized Nabisco Holdings dividend. F-33 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) The changes in stock options are shown as follows:
1995 1994 1993 ---------------------------- ---------------------------- ---------- OPTIONS PRICE OPTIONS PRICE OPTIONS ----------- ------------ ----------- ------------ ---------- Balance at beginning of year: Stock Option Plan...................... 3,754,672 $25.00-52.25 4,648,022 $25.00-52.25 5,071,189 Long Term Incentive Plan............... 12,411,651 22.60-57.80 12,926,527 22.60-57.80 3,930,920 Options granted: Stock Option Plan...................... 14,400 30.00 32,160 34.40 -- Long Term Incentive Plan............... 12,823,060 26.88-32.25 355,400 27.50-37.20 9,842,620 Options exercised: Stock Option Plan...................... (153,960) 25.00 (918,947) 25.00-28.75 (223,209) Long Term Incentive Plan............... (14,137) 22.82-29.69 (7,171) 27.80 -- Options repurchased and cancelled: Stock Option Plan...................... (2,340,491) 25.00-34.38 (6,563) 25.00-56.25 (199,958) Long Term Incentive Plan............... (11,639,260) 22.82-54.69 (863,105) 27.80-50.65 (847,013) ----------- ----------- ---------- Balance at end of year: Stock Option Plan...................... 1,274,621 25.00-52.25 3,754,672 25.00-52.25 4,648,022 Long Term Incentive Plan............... 13,581,314 22.60-57.80 12,411,651 22.60-57.80 12,926,527 ----------- ----------- ---------- 14,855,935 22.60-57.80 16,166,323 22.60-57.80 17,574,549 ----------- ----------- ---------- ----------- ----------- ---------- PRICE ------------ Balance at beginning of year: Stock Option Plan...................... $25.00-52.25 Long Term Incentive Plan............... 37.50-57.80 Options granted: Stock Option Plan...................... -- Long Term Incentive Plan............... 22.60-45.65 Options exercised: Stock Option Plan...................... 25.00 Long Term Incentive Plan............... -- Options repurchased and cancelled: Stock Option Plan...................... 25.00-42.75 Long Term Incentive Plan............... 27.80-50.00 Balance at end of year: Stock Option Plan...................... 25.00-52.25 Long Term Incentive Plan............... 22.60-57.80 22.60-57.80
At December 31, 1995, options were exercisable as to 3,437,549 shares, compared with 8,794,841 shares at December 31, 1994, and 4,003,608 shares at December 31, 1993. As of December 31, 1995, options for 7,374,069 shares of Common Stock were available for future grant. To provide an incentive to attract and retain key employees responsible for the management and administration of the business affairs of RJRN Holdings and its subsidiaries, on June 15, 1989 the board of directors of RJRN Holdings adopted the Stock Option Plan for Directors and Key Employees of RJR Nabisco 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. Non-employee directors or key employees of RJRN Holdings or any subsidiary of RJRN Holdings are eligible to be granted options under the Stock Option Plan. A maximum of 6,000,000 shares of Common Stock (which may be adjusted in the event of certain capital changes) may be issued under the Stock Option Plan. The options to key employees granted under the Stock Option Plan generally vest over a three year period and the exercise price of such options is generally the fair market value of the Common Stock on the date of grant. On March 1, 1994, the Stock Option Plan was amended to satisfy the requirements of a nondiscretionary formula plan for stock option grants to directors. Each eligible director is, upon becoming a director, granted an option under the Stock Option Plan to purchase 6,000 shares of Common Stock. The options have an exercise price equal to the fair market value of the Common Stock on the date of grant. They cannot be exercised for six months following the date of grant but, thereafter, are exercisable for ten years from the date of grant. In addition, each eligible director receives an annual grant of stock options which is made on the date of the director's election or re-election to the Board of Directors. The annual grant is intended to deliver a predetermined value, and the number of shares of Common Stock subject to the option is determined based on an internal valuation methodology. In 1995 and 1994, each eligible director received a stock option to purchase 1,400 shares and 1,180 shares, respectively, of Common Stock. The annually granted stock options have a ten year term and vest over three years (33% on the first and second anniversaries of the date of grant and 34% on the third anniversary). F-34 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) On August 1, 1990, the board of directors of RJRN 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 Internal Revenue 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, RJRN Holdings and its subsidiaries. Directors who are not also employees of RJRN Holdings and its subsidiaries are ineligible for Grants. A maximum of 21,000,000 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, 1995, purchase stock, stock options other than incentive stock options, restricted stock, performance shares, performance units and other stock-based grants have been granted under the 1990 LTIP. The options granted before July 1, 1993 under the 1990 LTIP generally will vest over a three year period ending each December 31. Options granted on and after July 1, 1993, vest over a three year period beginning from the date of grant. The exercise prices of outstanding LTIP options are between $22.60 and $57.80 per share. On April 27, 1995, employees of RJRN, RJRT and R.J. Reynolds Tobacco International, Inc. ("Reynolds International") with outstanding stock options under the LTIP and the Stock Option Plan were permitted to elect to surrender 100% of their outstanding LTIP and Stock Option Plan stock options (less the stock options permitted to be exchanged for Nabisco LTIP options, as described below) in exchange for a new grant of options under the LTIP. Options to purchase 8,389,656 shares of Common Stock were surrendered and 8,389,656 were reissued pursuant to this program. These options have an exercise price of $27.00 and are 100% vested but not exercisable for three years. On April 27, 1995 and on June 13, 1995, certain key employees were granted premium options to purchase shares of Common Stock. These options have an exercise price that is 10% above the fair market value on the date of the grant ($29.70 and $28.88, respectively) and vest over a three year period. In connection with the purchase stock grants awarded during 1995, 1994 and 1993, 16,529 shares, 0 shares and 124,444 shares, respectively, of Common Stock were purchased and options to purchase a specified number of shares were granted upon the optionee purchasing a stated dollar amount of Common Stock. In addition, an arrangement was made in 1995 to enable a purchaser to borrow on a secured basis from RJRN Holdings the price of the stock purchased. The current annual interest rate on the 1995 arrangement, which was set in December 1995 at the then applicable federal rate for long-term loans, is 6.26%. These borrowings plus accrued interest and taxes must generally be repaid within two years following termination of active employment. During 1995 and 1994, 30,000 shares and 884,100 shares, respectively, of Common Stock were awarded in connection with restricted stock grants made. These shares are subject to restrictions that will lapse 3 years from the date of grant (or earlier under certain circumstances). Other stock-based awards were made in 1995 and 1994 under the 1990 LTIP to individuals who previously acquired certain purchase stock under the 1990 LTIP. Under this program, such individuals 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 F-35 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED) 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 connection with the initial public offering of shares of Nabisco Holdings in January 1995, the board of directors of Nabisco Holdings adopted the Nabisco Holdings Corp. 1994 Long Term Incentive Plan (the "Nabisco LTIP") which is substantially similar to the LTIP except that stock-based awards are denominated in shares of Class A Common Stock of Nabisco Holdings. On January 19, 1995, January 27, 1995 and March 31, 1995, employees of Nabisco with outstanding stock options under the LTIP and the Stock Option Plan were permitted to elect to surrender 100% of their outstanding LTIP and the Stock Option Plan stock options in exchange for the grant of options under the Nabisco LTIP. Charles M. Harper, as chairman of the board of directors of Nabisco Holdings, was permitted to surrender 50% of his outstanding LTIP options on January 19, 1995 in exchange for Nabisco LTIP options. Options to purchase a total of 5,119,884 shares of Common Stock were surrendered pursuant to this program. Also on March 31, 1995 and for one employee on June 16, 1995, employees of RJRN with outstanding stock options under the LTIP and the Stock Option Plan were permitted to elect to surrender 20% of their outstanding LTIP and Stock Option Plan stock options in exchange for the grant of options under the Nabisco LTIP. Options to purchase a total of 103,319 shares of Common Stock were surrendered pursuant to this program. Also on January 19, 1995, RJRN Holdings purchased one-half of Mr. Harper's restricted LTIP purchase shares (62,222 shares) at the then fair market value ($28.125 per share), and he used the proceeds to acquire similarly restricted shares of Class A Common Stock of Nabisco Holdings. NOTE 14--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS Retained earnings (accumulated deficit) at December 31, 1995, 1994 and 1993 includes non-cash expenses related to accumulated trademark and goodwill amortization of $4.280 billion, $3.644 billion and $3.015 billion, respectively. The changes in cumulative translation adjustments are shown as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Balance at beginning of period......................... $ (164) $ (102) $ (47) Translation and other adjustments.................... (12) (62) (55) ------ ------ ------ Balance at end of period............................... $ (176) $ (164) $ (102) ------ ------ ------ ------ ------ ------
NOTE 15--RETIREMENT BENEFITS RJRN and its subsidiaries sponsor 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 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 F-36 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--RETIREMENT BENEFITS--(CONTINUED) 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 and its subsidiaries participate in several (i) multi-employer plans, which provide benefits to certain union employees, and (ii) defined contribution plans, which provide benefits to certain employees in foreign countries. Employees in foreign countries who are not 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, 1995 1994 1993 ------------ ------------ ------------ Defined benefit pension plans: Service cost--benefits earned during the period......... $ 69 $ 97 $ 76 Interest cost on projected benefit obligation........... 265 256 255 Less actual return on plan assets....................... (555) (17) (388) Net amortization and deferral........................... 308 (245) 122 ------ ------ ------ Total............................................... 87 91 65 Multi-employer and other defined contribution plans....... 39 36 32 ------ ------ ------ Total pension expense............................... $ 126 $ 127 $ 97 ------ ------ ------ ------ ------ ------
The principal plans used the following actuarial assumptions for accounting purposes:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Weighted average discount rate................. 7.00% 8.75% Rate of increase in compensation levels........ 5.00% 5.00% Expected long-term rate of return on assets.... 9.50% 9.50%
F-37 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--RETIREMENT BENEFITS--(CONTINUED) The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets at December 31, 1995 and 1994 for RJRN's defined benefit pension plans.
U.S. PLANS FOREIGN PLANS ------------------------------------------------------------------------ -------------------------------- DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------------------------- ----------------------------------- -------------------------------- 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..... $ 216 $2,823 $ 2,318 $ 89 $ 154 $ 231 Non-vested benefits..... 16 23 26 2 6 30 ----- ----- ----- --- --- --- Accumulated benefit obligation.. 232 2,846 2,344 91 160 261 Effect of future salary increases... 29 355 252 8 46 51 ----- ----- ----- --- --- --- Projected benefit obligation.. 261 3,201 2,596 99 206 312 Plan assets at fair market value......... 254 2,704 2,542 40 178 127 ----- ----- ----- --- --- --- Plan assets in excess of (less than) projected benefit obligation.... (7) (497) (54) (59) (28) (185) Unrecognized net (gain) loss.......... 6 157 (256) (6) 13 31 Unrecognized prior service cost.......... 1 (15) (30) (6) (6) 21 ----- ----- ----- --- --- --- Net pension liabilities recognized in the Consolidated Balance Sheets........ $ 0 $ (355) $ (340) $(71) $ (21) $(133) ----- ----- ----- --- --- --- ----- ----- ----- --- --- --- DECEMBER 31, 1994 -------------------------------- PLANS WHOSE PLANS WHOSE ASSETS EXCEEDED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEEDED ASSETS --------------- --------------- Actuarial present value of: Vested benefits..... $ 143 $ 187 Non-vested benefits..... 5 25 --- --- Accumulated benefit obligation.. 148 212 Effect of future salary increases... 39 40 --- --- Projected benefit obligation.. 187 252 Plan assets at fair market value......... 170 106 --- --- Plan assets in excess of (less than) projected benefit obligation.... (17) (146) Unrecognized net (gain) loss.......... 6 29 Unrecognized prior service cost.......... (7) 23 --- --- Net pension liabilities recognized in the Consolidated Balance Sheets........ $ (18) $ (94) --- --- --- ---
- ------------ (1) Of the net pension liability, $(292) million and $2 million were related to qualified plans at December 31, 1995 and 1994, respectively. At December 31, 1995, approximately 97 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 Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("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 than pensions and as a result, SFAS No. 106 did not have a material impact on the financial statements of either RJRN Holdings or RJRN. F-38 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--RETIREMENT BENEFITS--(CONTINUED) Net postretirement health and life insurance benefit cost consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Service cost--benefits earned during the period........ $ 18 $ 17 $ 16 Interest cost on accumulated postretirement benefit obligation........................................... 62 62 60 --- --- --- Net postretirement health care and life insurance costs.............................................. $ 80 $ 79 $ 76 --- --- --- --- --- ---
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, 1995 1994 ------------ ------------ Actuarial present value of accumulated postretirement benefit obligation: Retirees......................................................... $ 696 $638 Fully eligible active plan participants.......................... 124 95 Other active plan participants................................... 255 216 Unrecognized actuarial amounts..................................... (62) 49 ------------ ----- Accrued postretirement health care and life insurance costs........ $1,013 $998 ------------ ----- ------------ -----
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8% in 1995 and 7% in 1996 gradually declining to 5% by the year 2000 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, 1995 and the aggregate of the service and interest cost components of the net postretirement benefit cost for the year then ended by approximately $54.5 million and $4.7 million, respectively. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7% and 8.75% as of December 31, 1995 and 1994, respectively. Effective January 1, 1993, RJRN adopted Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("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 RJRN Holdings or RJRN. F-39 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 16--SEGMENT INFORMATION Industry Segment Data RJRN is engaged principally in the manufacture, distribution and sale of tobacco products, cookies, crackers and other food products. Cigarettes are manufactured in the United States by RJRT and in over 40 foreign countries and territories by Reynolds International and subsidiaries or licensees of RJRT and are sold throughout the United States and in more than 170 markets around the world including Western Europe, the Middle East, Africa, Asia and Canada. RJRN, through its 80.5% owned subsidiary Nabisco Holdings, also manufactures and markets cookies, crackers, non-chocolate candy and gum products, nuts and snacks, various margarines and spreads and other specialty products under several brand names in the United States, Canada, Europe, Asia and Latin America. See the Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere herein, for further discussion of RJRN's operations. Summarized financial information for these operations is shown in the following tables.
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Net sales: Tobacco.............................................. $ 7,714 $ 7,667 $ 8,079 Food................................................. 8,294 7,699 7,025 ------------ ------------ ------------ Consolidated net sales............................. $ 16,008 $ 15,366 $ 15,104 ------------ ------------ ------------ ------------ ------------ ------------ Operating income: Tobacco(1)(2)........................................ $ 1,500 $ 1,801 $ 866 Food(1)(2)........................................... 902 887 578 Headquarters (2)..................................... (64) (138) (66) ------------ ------------ ------------ Consolidated operating income...................... $ 2,338 $ 2,550 $ 1,378 ------------ ------------ ------------ ------------ ------------ ------------ Capital expenditures: Tobacco.............................................. $ 231 $ 215 $ 224 Food................................................. 513 455 391 ------------ ------------ ------------ Consolidated capital expenditures.................. $ 744 $ 670 $ 615 ------------ ------------ ------------ ------------ ------------ ------------ Depreciation expense: Tobacco.............................................. $ 236 $ 228 $ 237 Food................................................. 244 218 206 Headquarters......................................... 2 8 5 ------------ ------------ ------------ Consolidated depreciation expense.................. $ 482 $ 454 $ 448 ------------ ------------ ------------ ------------ ------------ ------------
Assets: DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- Tobacco............................................. $19,226 $19,420 Food................................................ 12,239 11,803 Headquarters(3)..................................... 53 185 -------- -------- Consolidated assets............................... $31,518 $31,408 -------- -------- -------- --------
- ------------ (1) Includes amortization of trademarks and goodwill for Tobacco and Food for the year ended December 31, 1995, of $409 million and $227 million, respectively; for the year ended December 31, 1994, of $404 million and $225 million, respectively; and for the year ended December 31, 1993, of $407 million and $218 million, respectively. (Footnotes continued on following page) F-40 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 16--SEGMENT INFORMATION--(CONTINUED) (Footnotes continued from preceding page) (2) The 1995 and 1993 amounts include the effects of a restructuring expense at Tobacco (1995-- $154 million; 1993--$544 million), Food (1993--$153 million) and Headquarters (1993--$33) (See Note 2 to the Consolidated Financial Statements). (3) Cash and cash equivalents for the domestic tobacco operations are included in Headquarters' assets. Geographic Data The following tables show certain financial information relating to RJRN's continuing operations in various geographic areas.
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Net sales: United States (including U.S. export sales).......... $ 11,295 $ 11,144 $ 11,570 Europe............................................... 2,184 1,934 1,671 Other geographic areas............................... 3,261 3,039 2,794 Less transfers between geographic areas(1)........... (732) (751) (931) ------------ ------------ ------------ Consolidated net sales............................. $ 16,008 $ 15,366 $ 15,104 ------------ ------------ ------------ ------------ ------------ ------------ Operating income:(2) United States........................................ $ 1,749 $ 2,090 $ 1,211 Europe............................................... 299 272 40 Other geographic areas............................... 354 326 193 Headquarters......................................... (64) (138) (66) ------------ ------------ ------------ Consolidated operating income(3)................... $ 2,338 $ 2,550 $ 1,378 ------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- Assets: United States......................................... $25,606 $26,447 Europe................................................ 2,663 2,141 Other geographic areas................................ 3,171 2,749 Headquarters.......................................... 78 71 -------- -------- Consolidated assets................................. $31,518 $31,408 -------- -------- -------- -------- Liabilities of RJRN Holdings' operations located in foreign countries..................................... $ 2,100 $ 1,725 -------- -------- -------- --------
- ------------ (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 1995 and 1993 amounts include the effects of restructuring expenses of $154 million and $730 million, respectively (see Note 2 to the Consolidated Financial Statements). (3) Includes amortization of trademarks and goodwill of $636 million, $629 million and $625 million for the 1995, 1994 and 1993 periods, respectively. F-41 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP. The food segment of RJRN Holdings is conducted through the operating subsidiaries of Nabisco Holdings. Nabisco Holdings' domestic operations consist of Nabisco Biscuit, Specialty Products, LifeSavers, Planters, Food Service and Fleischmann's Companies (the "Domestic Food Group"). Nabisco Holdings' operations outside the United States consists of Nabisco International, Inc. and Nabisco Ltd (collectively, the "International Food Group"). Consolidated condensed financial information of Nabisco Holdings at December 31, 1995 and 1994, and for each of the years in the three year period ended December 31, 1995 is as follows: NABISCO HOLDINGS CORP. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ NET SALES Domestic Food Group................................... $6,020 $5,729 $5,491 International Food Group.............................. 2,274 1,970 1,534 ------ ------ ------ 8,294 7,699 7,025 ------ ------ ------ Costs and expenses: Costs of products sold................................ 4,776 4,295 3,831 Selling, advertising, administrative and general expenses............................................ 2,389 2,292 2,245 Amortization of trademarks and goodwill................. 227 225 218 Restructuring expense................................... -- -- 153 ------ ------ ------ OPERATING INCOME.................................... 902 887 578 Interest expense........................................ (349) (376) (416) Other income (expense), net............................. (17) (20) (19) ------ ------ ------ Income before income taxes.......................... 536 491 143 Provision for income taxes.............................. 222 224 51 ------ ------ ------ INCOME BEFORE EXTRAORDINARY ITEM.................... 314 267 92 Extraordinary item--loss on early extinguishment of debt, net of income taxes............................. (19) -- -- ------ ------ ------ NET INCOME.......................................... $ 295 $ 267 $ 92 ------ ------ ------ ------ ------ ------
F-42 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP.--(CONTINUED) CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ NET CASH FLOWS FROM OPERATING ACTIVITIES............... $ 657 $ 499 $ 539 ------------ ------------ ------ CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Capital expenditures................................. (513) (455) (391) Acquisitions of businesses........................... (291) (449) (128) Divestitures of businesses........................... 162 -- 463 Other, net........................................... 14 18 15 ------------ ------------ ------ Net cash flows used in investing activities...... (628) (886) (41) ------------ ------------ ------ CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Increase (decrease) in notes payable................. 27 (52) -- Repayment of intercompany debt, net.................. (2,361) -- -- Net proceeds from the issuance of commercial paper... 1,284 -- -- Proceeds from issuance of other long-term debt....... 1,587 1,353 8 Changes in intercorporate indebtedness, net.......... -- 570 (265) Repayments of other long-term debt................... (1,817) (12) (35) Net proceeds from issuance of common stock........... 1,201 -- -- Dividends paid on common stock....................... (73) -- -- Dividends and distributions to parent................ -- (1,338) -- Other................................................ -- -- (130) ------------ ------------ ------ Net cash flows from (used in) financing activities..................................... (152) 521 (422) ------------ ------------ ------ Effect of exchange rate changes on cash and cash equivalents.......................................... (1) (1) (2) ------------ ------------ ------ Net change in cash and cash equivalents.......... $ (124) $ 133 $ 74 Cash and cash equivalents at beginning of period....... 245 112 38 ------------ ------------ ------ Cash and cash equivalents at end of period............. $ 121 $ 245 $ 112 ------------ ------------ ------ ------------ ------------ ------
F-43 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP.--(CONTINUED) CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................................ $ 121 $ 245 Accounts and notes receivable, net............................... 523 346 Deferred income taxes............................................ 64 83 Inventories...................................................... 865 783 Prepaid expenses................................................. 51 42 ------------ ------------ TOTAL CURRENT ASSETS........................................... 1,624 1,499 ------------ ------------ Property, plant and equipment, net................................. 3,132 2,873 Trademarks, net.................................................... 3,977 4,088 Goodwill, net...................................................... 3,477 3,380 Other assets and deferred charges.................................. 93 46 ------------ ------------ TOTAL ASSETS................................................... $ 12,303 $ 11,886 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.................................................... $ 76 $ 37 Accounts payable................................................. 511 356 Accrued liabilities.............................................. 882 783 Intercompany payable with RJRN................................... -- 78 1994 Nabisco Credit Agreement.................................... -- 1,350 Current maturities of long-term debt*............................ 24 310 Income taxes accrued............................................. 131 48 ------------ ------------ TOTAL CURRENT LIABILITIES...................................... 1,624 2,962 ------------ ------------ Long-term debt (less current maturities)*.......................... 4,355 3,943 Other noncurrent liabilities....................................... 724 772 Deferred income taxes.............................................. 1,356 1,329 Stockholders' equity............................................... 4,244 2,880 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 12,303 $ 11,886 ------------ ------------ ------------ ------------
- -------------- * The 1994 amounts for current and non-current maturities of long-term debt include intercompany indebtedness with RJRN or one of its subsidiaries of approximately $297 million and $3.8 billion, respectively. F-44 RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations and per share data for RJRN Holdings for the quarterly periods of 1995 and 1994: (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH ------ ------ ------ ------ 1995 Net sales................................................. $3,540 $4,081 $4,063 $4,324 Operating income.......................................... 620 644 641 433 Income before extraordinary item.......................... 198 153 232 44 Net income................................................ 198 153 216 44 Per share data: (1) Income before extraordinary item........................ $ .51 $ .37 $ .61 $ .10 Net income.............................................. .51 .37 .56 .10 Common Stock dividends declared......................... -- .375 .375 .375 Market price of Common Stock............................ --high................................................ 32 1/2 31 1/4 33 1/4 33 3/8 --low................................................. 25 25 1/4 26 3/8 27 7/8
FIRST SECOND THIRD FOURTH ------ ------ ------ ------ 1994 Net sales................................................. $3,572 $3,784 $3,966 $4,044 Operating income.......................................... 632 675 678 565 Income before extraordinary item.......................... 194 192 216 162 Net income................................................ 195 46 216 62 Per share data: (1) Income before extraordinary item........................ $ .12 $ .11 $ .11 $ .08 Net income.............................................. .12 .01 .11 .02 Market price of Common Stock............................ --high................................................ 40 5/8 35 35 5/8 36 1/4 26 --low................................................. 28 1/8 27 1/2 28 1/8 9/16
- ------------ (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. ---------------------------- F-45 SCHEDULE I RJR NABISCO HOLDINGS CORP. SCHEDULE I--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, 1995 1994 1993 ------------ ------------ ------------ Administrative expenses................................ $ -- $ (12) $ (8) Interest and debt expense.............................. (29) -- (23) Other income (expense), net............................ 2 11 30 ------------ ------------ ------------ Loss before income taxes......................... (27) (1) (1) Benefit for income taxes............................... (15) (3) (2) ------------ ------------ ------------ Income (loss) before equity in income (loss) from subsidiaries................................... (12) 2 1 Equity in income (loss) from subsidiaries, net of income taxes......................................... 639 762 (4) ------------ ------------ ------------ Income (loss) before extraordinary item.......... 627 764 (3) Extraordinary item--loss on early extinguishments of debt, net of income taxes (including equity in extraordinary losses from subsidiaries of $16 and $135 for 1995 and 1993, respectively)................ (16) (245) (142) ------------ ------------ ------------ Net income (loss)................................ 611 519 (145) Less preferred stock dividends......................... 110 131 68 ------------ ------------ ------------ Net income (loss) applicable to common stock..... 501 388 (213) Retained earnings (accumulated deficit) at beginning of period............................................... (364) (883) (738) Common stock and other dividends....................... (569) (262) (178) Amounts reclassified to paid-in capital................ 432 393 246 ------------ ------------ ------------ Retained earnings (accumulated deficit) at end of period............................................... $ -- $ (364) $ (883) ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Condensed Financial Information. S-1 SCHEDULE I RJR NABISCO HOLDINGS CORP. SCHEDULE I--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, 1995 1994 1993 ------------ ------------ ------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income (loss).................................... $ 611 $ 519 $ (145) ------------ ------------ ------------ Adjustments to reconcile net income (loss) to net cash flows from (used in) operating activities: Deferred income tax provision...................... 1 62 69 Non-cash interest and debt expense................. -- -- 22 Extraordinary item--loss on early extinguishments of debt.......................................... -- -- 10 Equity in (income) loss from subsidiaries, net of income taxes.............................. (623) (517) 139 Other, net......................................... (23) (29) 70 ------------ ------------ ------------ Total adjustments.............................. (645) (484) 310 ------------ ------------ ------------ Net cash flows from (used in) operating activities....................................... (34) 35 165 ------------ ------------ ------------ CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Dividends received from subsidiary................... 267 42 48 Investment in subsidiary............................. -- (1,680) (1,214) ------------ ------------ ------------ Net cash flows from (used in) investing activities....................................... 267 (1,638) (1,166) ------------ ------------ ------------ CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE A): Repayments of long-term debt......................... -- -- (548) Proceeds from issuance of Common Stock............... 13 54 9 Proceeds from issuance of Series B Preferred Stock... -- -- 1,250 Proceeds from issuance of Series C Preferred Stock... -- 1,734 -- Dividends paid on Common Stock....................... (307) -- -- Dividends paid on Series A Preferred Stock........... -- (175) (175) Dividends paid on Series B Preferred Stock........... (97) (116) (33) Dividends paid on Series C Preferred Stock........... (160) (85) -- Dividends paid on ESOP Preferred Stock............... (19) (19) (20) Dividends paid on redeemable Convertible Preferred Stock.............................................. -- -- (13) Repurchase of preferred stock........................ -- (3) (105) Repurchases and cancellations of common stock and stock options...................................... (2) (1) (1) Retirement of ESOP preferred stock................... (5) (4) (1) Financing and advisory fees paid..................... -- (54) (39) Other, net--including intercompany transfers......... 332 276 684 ------------ ------------ ------------ Net cash flows from (used in) financing activities....................................... (245) 1,607 1,008 ------------ ------------ ------------ Net change in cash and cash equivalents............ (12) 4 7 Cash and cash equivalents at beginning of period....... 14 10 3 ------------ ------------ ------------ Cash and cash equivalents at end of period............. $ 2 $ 14 $ 10 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Condensed Financial Information. S-2 SCHEDULE I RJR NABISCO HOLDINGS CORP. SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................................ $ 2 $ 14 Accounts and notes receivable, net............................... 7 -- ------------ ------------ TOTAL CURRENT ASSETS....................................... 9 14 ------------ ------------ Investment in subsidiary........................................... 12,182 11,410 Other assets and deferred charges.................................. 1 1 ------------ ------------ $ 12,192 $ 11,425 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities......................... $ 159 $ 44 ------------ ------------ TOTAL CURRENT LIABILITIES.................................. 159 44 ------------ ------------ Intercompany payable, net.......................................... 651 399 Deferred income taxes.............................................. 70 74 Junior Subordinated Debentures (Note B)............................ 983 -- Commitments and contingencies (Note C) Stockholders' equity (Note D): ESOP convertible preferred stock--14,990,677 and 15,315,130 shares issued and outstanding at December 31, 1995 and 1994, respectively................................................... 240 245 Series B preferred stock--12,044 and 50,000 shares issued and outstanding at December 31, 1995 and 1994, respectively........ 301 1,250 Series C convertible preferred stock--26,675,000 shares issued and outstanding at December 31, 1995 and 1994.................. 3 3 Common stock--272,807,942 and 272,331,377 shares issued and outstanding at December 31, 1995 and 1994, respectively........ 3 3 Paid-in capital.................................................. 10,110 10,157 Cumulative translation adjustments............................... (176) (164) Retained earnings (accumulated deficit).......................... -- (364) Receivable from ESOP............................................. (137) (186) Loans receivable from employees.................................. (7) (14) Unamortized value of restricted stock............................ (8) (22) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY................................. 10,329 10,908 ------------ ------------ $ 12,192 $ 11,425 ------------ ------------ ------------ ------------
See Notes to Condensed Financial Information. S-3 SCHEDULE I RJR NABISCO HOLDINGS CORP. SCHEDULE I -- 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 11 and 13 to the Consolidated Financial Statements. NOTE B--JUNIOR SUBORDINATED DEBENTURES On September 21, 1995, RJRN Holdings issued approximately $978 million aggregate principal amount of its Junior Subordinated Debentures to the Trust. The Trust, in turn, exchanged approximately $949 million of its Trust Preferred Securities for 37,956,060 of the 50,000,000 Series B Depositary Shares outstanding, each representing one-tenth of a share of the 50,000 outstanding shares of Series B Preferred Stock. RJRN Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B Preferred Stock outstanding. See Note 11 to the Consolidated Financial Statements for additional information regarding this transaction. The obligations of RJRN Holdings under the Junior Subordinated Debentures are unsecured obligations and will be subordinate and junior in right of payment to all senior indebtedness of RJRN Holdings, but senior to all future stock issuances and to any future guarantee entered into by RJRN Holdings in respect of its capital stock. As of December 31, 1995, RJRN Holdings had no senior indebtedness other than its guarantee of RJRN's obligations under the New RJRN Credit Agreements. The payment of distributions out of moneys held by the Trust and payments on liquidation of the Trust and the redemption of Trust Preferred Securities are guaranteed by RJRN Holdings on a subordinated basis. RJRN Holdings' guarantee is subordinate and junior in right of payment to any senior indebtedness of RJRN Holdings and to the Junior Subordinated Debentures, and senior to all capital stock now or hereafter issued by RJRN Holdings and to any guarantee now or hereafter entered into by RJRN Holdings in respect of its capital stock. Interest on the Junior Subordinated Debentures is payable quarterly in arrears. RJRN Holdings has the right to extend the interest payment period under certain circumstances. RJRN Holdings has the right to redeem the Junior Subordinated Debentures, in whole or in part, on or after August 19, 1998, upon not less than 30 nor more than 60 days notice. Certain covenants of RJRN Holdings applicable to the Junior Subordinated Debentures limit the ability of RJRN Holdings to declare or pay any dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to any of its common or preferred stock, or make any guarantee payment, if RJRN Holdings is in default of any of its payments or guarantees with respect to the Junior Subordinated Debentures. NOTE C--COMMITMENTS AND CONTINGENCIES RJRN Holdings has guaranteed the indebtedness of RJRN under the New RJRN Credit Agreements. For disclosure of additional contingent liabilities, see Note 12 to the Consolidated Financial Statements. NOTE D--STOCKHOLDERS' EQUITY RJRN Holdings' stockholders approved a one-for-five reverse split of the Common Stock on April 12, 1995. For additional information, see Note 13 to the Consolidated Financial Statements. S-4 SCHEDULE I RJR NABISCO, INC. SCHEDULE I--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, 1995 1994 1993 ------------ ------------ ------------ Administrative expenses................................ $ 1 $ (99) $ (7) Restructuring expense.................................. -- -- (33) Interest and debt expense.............................. (614) (1,009) (1,105) Other income (expense), net............................ 922 1,153 1,391 ------------ ------------ ------------ Income before income taxes....................... 309 45 246 Provision (benefit) for income taxes................... 80 (17) 40 ------------ ------------ ------------ Income before equity in income (loss) from subsidiaries......................................... 229 62 206 Equity in income (loss) from subsidiaries, net of income taxes......................................... 409 700 (210) ------------ ------------ ------------ Income (loss) before extraordinary item.......... 638 762 (4) Extraordinary item-loss on early extinguishments of debt net of income taxes (including equity in extraordinary losses from subsidiary of $16 million for 1995............................................. (16) (245) (135) ------------ ------------ ------------ Net income (loss)...................................... 622 517 (139) Retained earnings (accumulated deficit) at beginning of period............................................... 16 (459) (320) Dividends paid to parent and charged to retained earnings ............................................ (267) (42) -- ------------ ------------ ------------ Retained earnings (accumulated deficit) at end of period............................................... $ 371 $ 16 $ (459) ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Condensed Financial Information. S-5 SCHEDULE I RJR NABISCO, INC. SCHEDULE I--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, 1995 1994 1993 ------------ ----------------- ------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income (loss)................................. $ 622 $ 517 $ (139) ------------ ------- ------------ Adjustments to reconcile net income (loss) to net cash flows from (used in) operating activities: Deferred income tax provision (benefit)......... (146) (56) (154) Non-cash interest and debt expense.............. 13 117 264 Extraordinary item-loss on early extinguishments of debt....................................... 29 377 208 Equity in (income) loss from subsidiaries, net of income taxes........................... (409) (700) 210 Other, net...................................... (301) (375) (107) ------------ ------- ------------ Total adjustments........................... (814) (637) 421 ------------ ------- ------------ Net cash flows from (used in) operating activities.................................... (192) (120) 282 ------------ ------- ------------ CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Capital expenditures.............................. -- (1) (1) ------------ ------- ------------ Net cash flows used in investing activities..... -- (1) (1) ------------ ------- ------------ CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE A): Net borrowings (repayments) under the credit agreements.................................... (1,750) 1,561 (2,614) Net proceeds from the issuance (repayment) of commercial paper................................ (640) (49) 342 Proceeds from issuance of other long-term debt.... 666 -- 1,942 Repayments of long-term debt...................... (800) (4,648) (1,376) Financing and advisory fees paid.................. (29) (6) (9) Dividends paid to parent.......................... (267) (42) (48) Other, net--including intercompany transfers...... 2,977 3,294 1,518 ------------ ------- ------------ Net cash flows from (used in) financing activities.................................... 157 110 (245) ------------ ------- ------------ Net change in cash and cash equivalents......... (35) (11) 36 Cash and cash equivalents at beginning of period.... 40 51 15 ------------ ------- ------------ Cash and cash equivalents at end of period.......... $ 5 $ 40 $ 51 ------------ ------- ------------ ------------ ------- ------------
See Notes to Condensed Financial Information. S-6 SCHEDULE I RJR NABISCO, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................................ $ 5 $ 40 Accounts and notes receivable.................................... 81 13 Prepaid expenses................................................. 2 2 ------------ ------------ TOTAL CURRENT ASSETS....................................... 88 55 ------------ ------------ Intercompany receivable, net....................................... 11,944 12,875 Investment in subsidiaries......................................... 5,962 8,794 Property, plant and equipment, net................................. 8 11 Other assets and deferred charges.................................. 86 147 ------------ ------------ $ 18,088 $ 21,882 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued liabilities......................... $ 264 $ 346 Current maturities of long-term debt............................. 117 600 Income taxes accrued............................................. 36 74 ------------ ------------ TOTAL CURRENT LIABILITIES.................................. 417 1,020 ------------ ------------ Long-term debt (less current maturities)........................... 4,945 8,683 Other noncurrent liabilities....................................... 16 62 Deferred income taxes.............................................. 557 707 Commitments and contingencies (Note B)............................. Stockholder's equity: Paid-in capital.................................................. 11,958 11,558 Cumulative translation adjustments............................... (176) (164) Retained earnings................................................ 371 16 ------------ ------------ TOTAL STOCKHOLDER'S EQUITY................................. 12,153 11,410 ------------ ------------ $ 18,088 $ 21,882 ------------ ------------ ------------ ------------
See Notes to Condensed Financial Information. S-7 SCHEDULE I RJR NABISCO, INC. SCHEDULE I -- 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 11 and 13 to the Consolidated Financial Statements. NOTE B--COMMITMENTS AND CONTINGENCIES For disclosure of contingent liabilities, see Note 12 to the Consolidated Financial Statements. S-8 SCHEDULE II RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (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, 1995: For discounts and doubtful accounts...... $ 63 $ 8 $ -- $(23) $ 48 Other assets............................. 53 33 2 (45) 43 ----- --- --- ----- ----- $116 $ 41 $ 2 $(68) $ 91 ----- --- --- ----- ----- ----- --- --- ----- ----- Year ended December 31, 1994: For discounts and doubtful accounts...... $ 59 $ 16 $ 1 $(13) $ 63 Other assets............................. 46 34 8 (35) 53 ----- --- --- ----- ----- $105 $ 50 $ 9 $(48) $116 ----- --- --- ----- ----- ----- --- --- ----- ----- 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 ----- --- --- ----- ----- ----- --- --- ----- -----
- ------------ (A) Miscellaneous adjustments. (B) Principally charges against the accounts. (C) Excludes valuation allowance accounts for deferred tax assets. S-9 EXHIBIT INDEX EXHIBIT 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, filed August 16, 1993 (incorporated by reference to Exhibit 3.1(f) o the Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended December 31, 1993, File Nos. 1-10215 and 1-6388, filed on February 24, 1994 (the "1993 Form 10-K"). 3.1(g) Certificate of Designation of Series C Conversion Preferred Stock (incorporated by reference to Exhibit 4.1(h) to the Registration Statement on Form S-3 of RJR Nabisco Holdings Corp., Registration No. 33-52381 filed on February 2, 1994, as amended ("Form S-3 Registration No. 33-52381"). 3.1(h) Certificate of Elimination of Cumulative Convertible Preferred Stock of RJR Nabisco Holdings Corp., filed July 7, 1994 (incorporated by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended June 30, 1994 (the "June 1994 Form 10-Q")). 3.1(i) Certificate of Retirement of Series A Conversion Preferred Stock of RJR Nabisco Holdings Corp., filed effective November 21, 1994 (incorporated by reference to Exhibit 3.1(j) of the Registrants' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File Nos. 1-10215 and 1-6388, filed on February 23, 1995 (the "1994 Form 10-K").
3.1(j) A composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., as amended to November 21, 1994 (incorporated by reference to Exhibit 3.1(j) of the 1994 Form 10-K). 3.1(k) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp. filed April 12, 1995 (incorporated by reference to Exhibit 3.1 of the Registrants' report on Form 10-Q for the quarter ended March 31, 1995 (the "March 1995 10-Q"). 3.1(l) Composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp. as amended to and including April 12, 1995 (incorporated by reference to Exhibit 3.1(a) of the March 1995 10-Q). 3.1(m)* Certificate of Retirement of certain shares of Series B Cumulative Preferred Stock, filed October 11, 1995. 3.2 Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended, effective January 20, 1994 (incorporated by reference to Exhibit 3.2 to the 1993 Form 10-K). 3.2(a) Amended and Restated By-laws of RJR Nabisco Holdings Corp., as amended effective August 21, 1995 (incorporated by reference to Exhibit 3.1 to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995, filed October 31, 1995 (the "September 1995 10-Q")). 3.2(b) Amended and Restated By-laws of RJR Nabisco, Inc., as amended effective August 8, 1995 (incorporated by reference to Exhibit 3.2 of the September 1995 10-Q). 3.2(c)* RJR Nabisco Holdings Corp. By-Laws as Amended Effective October 11, 1995. 3.2(d)* RJR Nabisco Holdings Corp. By-Laws as Amended Effective December 5, 1995. 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")). 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) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of RJR Nabisco, Inc., filed May 13, 1994 (incorporated by reference to the June 30, 1994 Form 10-Q). 3.3(d) A composite of the Certificate of Incorporation of RJR Nabisco, Inc., as amended to May 13, 1994 (incorporated by reference to Exhibit 3.3(d) of the 1994 Form 10-K). 3.4 Amended and Restated By-laws of RJR Nabisco, Inc., as amended, effective January 20, 1994 (incorporated by reference to Exhibit 3.4 of the 1993 Form 10-K). 3.4(a)* RJR Nabisco, Inc. By-Laws as Amended Effective October 11, 1995.
3.4(b)* RJR Nabisco, Inc. By-Laws as Amended Effective December 5, 1995. 4.1 Amended and Restated Indenture, dated as of July 24, 1995, between RJR Nabisco, Inc. and Citibank, N.A., dated as of July 24, 1995 (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended June 30, 1995 (the "Second Quarter 1995 10-Q")). 4.2 Indenture (the "TOPrS Indenture"), dated as of September 21, 1995, between RJR Nabisco Holdings Corp. and the Bank of New York (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of RJR Nabisco Holdings Corp. and RJR Nabisco Holdings Capital Trust I, Registration Nos. 33-60415 and 33-60415-01, filed June 20, 1995 (the "TOPrS Registration Statement")). 4.3 Form of First Supplemental Indenture to the TOPrS Indenture (incorporated by reference to Exhibit 4.2 to the TOPrS Registration Statement). 4.4 Form of Amended and Restated Declaration of Trust of RJR Nabisco Holdings Capital Trust I (incorporated by reference to Exhibit 4.5 to the TOPrS Registration Statement). 4.5 Form of Preferred Security of RJR Nabisco Holdings Capital Trust I (included in Exhibit 4.4 above). 4.6 Form of Junior Subordinated Debenture (included in Exhibit 4.2 above). 4.7 Form of Guarantee Agreement with respect to Preferred Securities between RJR Nabisco Holdings Corp. and the Bank of New York as the Guarantee Trustee (incorporated by reference to Exhibit 4.8 to the TOPrS Registration Statement). 4.8 Indenture, dated as of June 5, 1995, between Nabisco, Inc. and Citibank, N.A., (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Nabisco, Inc., Registration No. 33-90224, filed March 29, 1995). 4.9 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 Credit Agreement (the "Three Year Credit Agreement"), dated as of April 28, 1995, among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and various lending institutions (incorporated by reference to Exhibit 10.1 to the Second Quarter 1995 10-Q). 10.2 Credit Agreement (the "364 Day Credit Agreement"), dated as of April 28, 1995, among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and various lending institutions (incorporated by reference to Exhibit 10.2 to the Second Quarter 1995 10-Q). 10.3 Agreement and Waiver to the Three Year Credit Agreement and the 364 Day Credit Agreement, dated as of July 27, 1995 (incorporated by reference to Exhibit 10.5 to the Second Quarter 1995 10-Q). 10.4 First Amendment, dated as of September 12, 1995, to the Three Year Credit Agreement and the 364 Day Credit Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended September 30, 1995). 10.5 Credit Agreement (the "Nabisco Credit Agreement"), dated as of April 28, 1995, among Nabisco Holdings Corp., Nabisco, Inc. and various lending institutions (incorporated by reference to Exhibit 4.3 to Amendment No. 1 filed June 16, 1995 to the Registration Statement on Form S-3 of Nabisco, Inc., Registration No. 33-93214, filed June 7, 1995).
10.6 First Amendment to the Nabisco Credit Agreement, dated as of July 24, 1995 (incorporated by reference to Exhibit 10.4 to the Second Quarter 1995 10-Q). *10.7 Second Amendment, dated as of November 3, 1995, to the Nabisco Credit Agreement. *10.8 Credit Agreement (the "Nabisco Commercial Paper Facility"), dated as of November 3, 1995, among Nabisco Holdings Corp., Nabisco, Inc. and various lending institutions. 10.9 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")). 10.10 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")). 10.11 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). 10.12 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). 10.13 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). 10.14 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). 10.15 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). 10.16 Special Addendum, dated December 20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K). 10.17 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). 10.18(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). 10.18(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). 10.19 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). 10.19(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). 10.20 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). 10.21(a) Amendment to Supplemental Benefits Plan, dated November 23, 1988 (incorporated by reference to Exhibit 10(k)(ii) to the 1988 Form 10-K).
10.21(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). 10.22 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). 10.22(a) Amendment to Additional Benefits Plan, dated October 28, 1988 (incorporated by reference to Exhibit 10(l)(ii) to the 1988 Form 10-K). 10.22(b) Amendment to Additional Benefits Plan, dated November 23, 1988 (incorporated by reference to Exhibit 10(1)(iii) to the 1988 Form 10-K). 10.22(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). 10.23 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). 10.24(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). 10.24(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). 10.24(c) Amendment to Supplemental Executive Retirement Plan, dated April 10, 1993 (incorporated by reference to the 1993 Form 10-K). 10.25 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")). 10.26 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). 10.27 Non-Qualified Stock Option Agreement, dated December 31, 1993, between RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference to the 1993 Form 10-K). 10.27(a) Non-Qualified Stock Option Agreement, dated December 31, 1994, between RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference to Exhibit 10.18(a) of 1994 Form 10-K). 10.28 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")). 10.29 Amendment No. 1 dated March 8, 1994 to Employment Agreement dated May 27, 1993 by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Charles M. Harper dated as of March 1, 1994 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended March 31, 1994 filed May 12, 1994 (the "March 1994 Form 10-Q"). 10.30 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). 10.31* First 1995 Amendment (dated February 15, 1995) to Employment Agreement dated May 27, 1993 between RJR Nabisco Holdings Corp. and Charles M. Harper.
10.32* Second 1995 Amendment (dated April 13, 1995) to Employment Agreement dated May 27, 1993 between RJR Nabisco Holdings Corp. and Charles M. Harper. 10.33* Restated and Amended Employment Agreement (dated December 5, 1995) by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Charles M. Harper. 10.34* Amendment dated April 13, 1995 to Non-Qualified Stock Option Agreements dated May 31, 1993, December 31, 1993, and December 31, 1994 between RJR Nabisco Holdings Corp. and Charles M. Harper. 10.35* Non-Qualified Stock Option Agreement dated January 19, 1995 between Nabisco Holdings Corp. and Charles M. Harper. 10.36* Non-Qualified Stock Option Agreement dated June 13, 1995 between RJR Nabisco Holdings Corp. and Charles M. Harper. 10.37* Non-Qualified Stock Option Agreement dated December 31, 1995 between RJR Nabisco Holdings Corp. and Charles M. Harper. 10.38* Engagement Agreement (dated March 3, 1995) between RJR Nabisco Holdings Corp. and Steven F. Goldstone. 10.39* Employment Agreement (dated October 1, 1995) by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Steven F. Goldstone. 10.40* Amended and Restated Employment Agreement (dated December 5, 1995) by and among RJR Nabisco Holdings Corp., and RJR Nabisco, Inc. and Steven F. Goldstone. 10.41* Non-Qualified Stock Option Agreement (dated December 5, 1995) between RJR Nabisco Holdings Corp. and Steven. F. Goldstone. 10.42* Contingent Performance Share Agreement (dated December 5, 1995) between RJR Nabisco Holdings Corp. and Steven F. Goldstone. 10.43* Secured Promissory Note (dated December 5, 1995) of Steven F. Goldstone in favor of RJR Nabisco Holdings Corp. 10.44* Amendment dated December 5, 1995 to Employment Agreement between RJR Nabisco Holdings Corp. and Andrew J. Schindler. 10.45* Participation Agreement--RJR Nabisco, Inc. Supplemental Executive Retirement Plan for Andrew J. Schindler dated December 28, 1995. 10.46* 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). *10.46(a) Letter Agreement dated July 26, 1995, regarding Amended and Restated Employment Agreement with James W. Johnston. *10.46(b) Letter Agreement dated December 21, 1995, regarding Amended and Restated Employment Agreement with James W. Johnston. 10.47 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). 10.48 Consulting Agreement, dated February 14, 1995, among RJR Nabisco Holdings Corp., Nabisco Holdings Corp. and Eugene R. Croisant (incorporated by reference to Exhibit 10.32 of 1994 Form 10-K). 10.49 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). 10.50 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).
10.51 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"). 10.52 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). 10.53 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). 10.54 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). 10.54(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1991 Grant) (incorporated by reference to Exhibit 10.33(a) to the 1993 Form 10-K). 10.55 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). 10.56 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). 10.56 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). 10.58 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). 10.59 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 (incorporated by reference to Exhibit 10.38 to the 1993 Form 10-K). 10.60 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). 10.61 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). 10.62 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). 10.63 Restricted Stock Program under the 1990 Long Term Incentive Plan (incorporated by reference to Exhibit 10.42 to the 1993 Form 10-K). 10.64 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).
10.65 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) (incorporated by reference to Exhibit 10.44 to the 1993 Form 10-K). 10.66 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) (incorporated by reference to Exhibit 10.45 to the 1993 Form 10-K). 10.67 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). 10.68 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). 10.68(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992 Grant) (incorporated by reference to Exhibit 10.47(a) to the 1993 Form 10-K). 10.69 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). 10.70 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). 10.71 Restated and Amended Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. dated as of October 4, 1994 (incorporated by reference to Exhibit 10.55 of 1994 Form 10-K). 10.72 Performance Unit Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the March 1994 Form 10-Q). 10.73 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein (1994 Grant--3 Year Period) (incorporated by reference to Exhibit 10.4 to the March 1994 Form 10-Q). 10.74 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein (1994 Grant--3 Year Period) (incorporated by reference to Exhibit 10.5 to the March 1994 10-Q). 10.75* Amendment to Non-Qualified Stock Option Agreements dated prior to October 11, 1995. 10.76* Restated and Amended RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan dated as of December 5, 1995. 10.77* Form of Non-Qualified Stock Option Agreement dated April 27, 1995 between RJR Nabisco Holdings Corp. and the grantee named therein (Reissued options). 10.78* Form of Non-Qualified Stock Option Agreement dated April 27, 1995 between RJR Nabisco Holdings Corp. and the grantee named therein (Premium options). 10.79* Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the grantee named therein. 10.80* Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein (1995 Grant--3 Year Period). 10.81* Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein (1995 Grant--1 Year Period). 10.82* Amendment dated July 10, 1995 to Executive Equity Program Agreement under the 1990 Long Term Incentive Plan between RJR Nabisco Holdings Corp. and the grantee named therein.
10.83* Form of Employment Agreement dated October 11, 1995. 10.84* Form of Employment Agreement dated November 1, 1995. 10.85* Restated and Amended Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. dated as of December 5, 1995. 10.86* Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp., and Director named therein (Election version). 10.87* Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp., and Director named therein (Annual version). *11. RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended December 31, 1995, 1994, 1993. *12.1 RJR Nabisco Holdings Corp. 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, 1995. *12.2 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, 1995. *21. Subsdiaries of the Registrants. *23. Consent of Independent Auditors. *24. Powers of Attorney. *27.1 Financial Data Schedule of RJR Nabisco Holdings Corp. *27.2 Financial Data Schedule of RJR Nabisco, Inc.
- --------------- * Filed herewith. EX-3.1(M) 2 Exhibit 3.1(m) CERTIFICATE OF RETIREMENT OF CERTAIN SHARES OF SERIES B CUMULATIVE PREFERRED STOCK OF RJR NABISCO HOLDINGS CORP. (PURSUANT TO SECTION 243 OF THE DELAWARE GENERAL CORPORATION LAW) In accordance with Section 243 of the General Corporation Law of the State of Delaware, RJR Nabisco Holdings Corp., a Delaware corporation (the "Corporation"), does hereby certify that the following resolutions respecting its Series B Cumulative Preferred Stock were duly adopted by the Corporation's Board of Directors: RESOLVED, that, following the exchange of 37,956.060 (Thirty-Seven Thousand Nine Hundred Fifty-Six and Sixty One-Thousandths) shares of the Corporation's Series B Cumulative Preferred Stock (the "Series B Cumulative Preferred Stock") for the Corporation's 10% Junior Subordinated Debentures due 2044 on September 21, 1995 (the "Exchange Date"), such shares of Series B Cumulative Preferred Stock will be retired and the reissuance of any such shares of Series B Cumulative Preferred Stock as part of such series of Preferred Stock will be prohibited under the Corporation's Amended and Restated Certificate of Incorporation; and RESOLVED, that, upon such retirement of 37,956.060 shares of Series B Cumulative Preferred Stock effective on the Exchange Date, the officers of the Corporation are hereby authorized, empowered and directed to file with the Secretary of State of the State of Delaware a certificate pursuant to Section 243 of the General Corporation Law of the State of Delaware setting forth these resolutions in order to reduce accordingly the number of authorized shares of Series B Cumulative Preferred Stock. IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has caused this Certificate to be signed by Jo-Ann Ford, its Senior Vice President & Secretary, and attested by Suzanne P. Jenney, its Assistant Secretary, this 11th day of October, 1995. By: /s/ Jo-Ann Ford ----------------------- Jo-Ann Ford Senior Vice President & President ATTEST: /s/ Suzanne P. Jenney - ----------------------- Suzanne P. Jenney Assistant Secretary EX-3.2(C) 3 Exhibit 3.2(c) RJR NABISCO HOLDINGS CORP. BY-LAWS As Amended Effective October 11, 1995 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, shall be called by the Chairman or the Secretary if directed by the Board of Directors, and may not be called by or at the request of any other person. 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 or her 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. 2 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 3 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. Section 9. Record Date for Action by Written Consent; Inspectors and ---------------------------------------------------------- Effectiveness. -------------- (a) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of 4 Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent - setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, to the attention of the Secretary of the Corporation. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. (b) In the event of the delivery, in the manner provided by Section 9(a), to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with Section 9(a) represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall 5 not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (c) Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated written consent delivered in accordance with Section 9(a), a written consent or consents signed by a sufficient number of stockholders to take such action are delivered to the Corporation in the manner prescribed in Section 9(a). 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 6 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 two 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 7 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 Corporation, two Vice Chairmen, 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 have full executive power and authority with respect to the Corporation. Each Vice Chairman and the President shall have such powers and authority as the Chairman may determine. If the Chairman is absent or incapacitated, 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 or her authority as the officer shall deem appropriate, subject to such limitation as the officer shall specify, and may revoke such authority at any time. 8 Section 2. Stockholder Consents and Proxies. The Chairman, each -------------------------------- Vice 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. 9 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. 10 EX-3.2(D) 4 Exhibit 3.2(d) RJR NABISCO HOLDINGS CORP. BY-LAWS As Amended Effective December 5, 1995 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 or the Chief Executive Officer for any purpose, shall be called by the Chairman, the Chief Executive Officer or the Secretary if directed by the Board of Directors, and may not be called by or at the request of any other person. 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, ---------------------------------------- at the Chairman's request, the Chief Executive Officer, shall act as chairman at all meetings of stockholders. The Secretary of the Corporation or, in his or her 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 or she 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. 2 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 3 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 or her 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 or her 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 or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. Section 9. Record Date for Action by Written Consent; Inspectors and ---------------------------------------------------------- Effectiveness. ------------- (a) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing 4 without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, to the attention of the Secretary of the Corporation. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. (b) In the event of the delivery, in the manner provided by Section 9(a), to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in 5 accordance with Section 9(a) represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (c) Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated written consent delivered in accordance with Section 9(a), a written consent or consents signed by a sufficient number of stockholders to take such action are delivered to the Corporation in the manner prescribed in Section 9(a). 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 or her successor shall be elected and shall qualify. A Director may be removed with or without cause by the stockholders. 6 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 or the Chief Executive Officer and shall be called by the Chairman, the Chief Executive Officer 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 Chief Executive Officer, if such officer is a member of the Board of Directors, or the Chairman, if the Chief Executive Officer is not a member of the Board of Directors, and at least two 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 7 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 she 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, the Chief Executive Officer, one or more Vice Chairmen, 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 Chief Executive Officer may appoint Senior Vice Presidents, Vice Presidents or Assistant Officers at his or her discretion. The Chairman shall be an employee of the Corporation. There shall be an office of the Chief Executive Officer, which shall consist of the Chief Executive Officer, such Vice Chairmen and such other officers as shall be designated by the Chief Executive Officer. Subject to such limitations as may be imposed by the Board of Directors, the Chief Executive Officer shall have full executive power and authority with respect to the Corporation. Each Vice Chairman and the President shall have such powers and authority as the Chief Executive Officer may determine. If the Chief Executive Officer is absent or 8 incapacitated, the President or, in the President's absence or incapacitation, the Chairman or such other person as shall be designated by the Chairman shall have all the power and authority of the Chief Executive Officer. 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 Chief Executive Officer 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 or her 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 Chief -------------------------------- Executive Officer, each Vice 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 or her 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 or she was or is a party or is threatened to be made a party by reason of his or her current or former position with the 9 Corporation or by reason of the fact that he or she 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. 10 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 is to be given in writing by mail, addressed to such Director or stockholder at his or her 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 or the Chief Executive Officer 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. 11 EX-3.4(A) 5 Exhibit 3.4(a) RJR NABISCO, INC. BY-LAWS As Amended Effective October 11, 1995 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 without notice 2 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 two 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 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 number of shares of any series of stock or authorized the increase or decrease of the shares of any series. 3 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 Corporation, two Vice Chairmen, 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; 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 have full executive power and authority with respect to the Corporation. Each Vice Chairman and the President shall have such powers and authority as the Chairman may determine. If the Chairman is absent or incapacitated, 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, each Vice --------------------------------- 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 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 4 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-3.4(B) 6 Exhibit 3.4(b) RJR NABISCO, INC. BY-LAWS As Amended Effective December 5, 1995 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 or the Chief Executive Officer for any purpose and shall be called by the Chairman, the Chief Executive Officer 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 or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her 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 or her 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 or the Chief Executive Officer and shall be called by the Chairman, the Chief Executive 2 Officer 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 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 Chief Executive Officer, if such officer is a member of the Board of Directors, or the Chairman, if the Chief Executive Officer is not a member of the Board of Directors, and at least two 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 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 3 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 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 she 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, the Chief Executive Officer, one or more Vice Chairmen, 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 Chief Executive Officer may appoint Senior Vice Presidents, Vice Presidents or Assistant Officers at his or her discretion. The Chairman shall be an employee of the Corporation. There shall be an office of the Chief Executive Officer, which shall consist of the Chief Executive Officer, such Vice Chairmen and such other officers as shall be designated by the Chief Executive Officer. Subject to such limitations as may be imposed by the Board of Directors, the Chief Executive Officer shall have full executive power and authority with respect to the Corporation. Each Vice Chairman and the President shall have such powers and authority as the Chief Executive Officer may determine. If the Chief Executive Officer is absent or incapacitated, the President or, in the President's absence or incapacitation, the Chairman or such other person as shall be designated by the Chairman shall have all the power and authority of the Chief Executive Officer. 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 4 the Corporation may be suspended by the Chief Executive Officer 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 or her 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 Chief --------------------------------- Executive Officer, each Vice 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 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 or her 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 or she was or is a party or is threatened to be made a party by reason of his or her current or former position with the Corporation or by reason of the fact that he or she 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. 5 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 or her 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. 6 EX-10.7 7 Exhibit 10.7 SECOND AMENDMENT TO NABISCO CREDIT AGREEMENT -------------------------------------------- SECOND AMENDMENT (this "Amendment"), dated as of November 3, 1995, among NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), NABISCO, INC., a New Jersey corporation (the "Borrower") and the various lending institutions (the "Banks") party to the Credit Agreement referred to below. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Holdings, the Borrower and the Banks are parties to a Credit Agreement, dated as of April 28, 1995 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, Holdings, the Borrower and the Banks wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to the Credit Agreement. ---------------------------------- 1. Section 1.14 of the Credit Agreement is hereby amended by deleting the word "and" at the end of clause (i) appearing therein and inserting a comma in lieu thereof and inserting the following immediately after the end of clause (ii) appearing therein: "and (iii) in the event that such Replaced Bank is a party to the 364 DF Credit Agreement, the Borrower shall also take the actions specified in Section 1.14 of the 364 DF Credit Agreement and replace such Bank as a Bank thereunder." 2. Section 6 of the Credit Agreement is hereby amended by inserting the phrase ", subject to the exceptions set forth in Section 5.02," immediately following the phrase "Section 6" appearing in the preamble of said Section. 3. Section 8.04(a) of the Credit Agreement is hereby amended by inserting the phrase ", to the extent that the aggregate outstanding principal amount of Indebtedness permitted pursuant to this clause (a)(i) shall not exceed $500,000,000" immediately after the phrase "Replacement Receivables Facility" appearing therein. 4. Section 8.07 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 8.07: "8.07 Consolidated Net Worth. Holdings will not permit ---------------------- Consolidated Net Worth at any time to be less than an amount equal to the sum of (x) $3,750,000,000 plus (y) the sum of 25% of Consolidated Net Income, if positive, for each prior fiscal year of Holdings, if any, ending after January 1, 1996.". 5. Section 8.08 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 8.08: "8.08 Fixed Charge Coverage Ratio. Holdings will not permit the --------------------------- ratio of (i) Adjusted Operating Income to (ii) Consolidated Fixed Charges for any Test Period to be less than 1.15 to 1.00.". 6. Section 8.09 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 8.09: "8.09 Leverage Ratio. Holdings will not permit the ratio of (i) -------------- Adjusted Consolidated Debt to (ii) Adjusted Operating Income for any Test Period to be more than 3.70 to 1.00.". 7. Section 8.10 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 8.10: "8.10 Cash Interest Coverage Ratio. Holdings will not permit the ---------------------------- ratio of (i) Adjusted Operating Income to (ii) Consolidated Cash Interest Expense for any Test Period to be less than 3.00 to 1.00.". 8. Section 9.04(a) of the Credit Agreement is hereby amended by inserting the following clause immediately after the phrase "(determined without regard to whether any notice or lapse of time is required" contained therein: ", provided that the existence of any Event of Default under this Section 9.04(a)(ii) with respect to Indebtedness outstanding under the 364 DF Credit Agreement shall be determined after giving effect to any notice or lapse of time provided to the Borrower in the 364 DF Credit Agreement". -2- 9. Section 10 of the Credit Agreement shall be amended by (a) deleting the definitions "Applicable Facility Fee Percentage", "Commercial Paper Outstandings" and "Cumulative Consolidated Net Income" contained therein in their entirety and (b) inserting the following definitions in appropriate alphabetical order: "Applicable Facility Fee Percentage" shall mean, at any time during a period set forth the percentage set forth below opposite such period below: Applicable Facility Period Fee Percentage ------ -------------- NIG Period .225% Minimum Investment .175% Grade Period Increased Investment Grade .150% Period Maximum Investment .125% Grade Period "Commercial Paper Outstandings" shall mean, at any time during a CP Period, an amount equal to (I) the sum of (x) the face amount of all commercial paper previously issued by Holdings and/or any of its Subsidiaries at a discount and outstanding at such time plus (y) the ---- principal amount of all commercial paper previously issued by Holdings and/or any of its Subsidiaries on an interest bearing basis and outstanding at such time, in each case that will be refinanced, if necessary, pursuant to a CP Refinancing Borrowing less (II) the Commercial Paper Outstandings at such time as defined in the 364 DF Credit Agreement, provided that the -------- Commercial Paper Outstandings that may be refinanced pursuant to CP Refinancing Borrowings shall not exceed at any time an amount equal to (i) $1,500,000,000 less (ii) the then aggregate principal amount of all Loans made pursuant to CP Refinancing Borrowings. "Consolidated Net Income" shall mean, for any period, for any Person the consolidated net income of such Person and its Subsidiaries, determined in accordance with GAAP, for such period. "Cumulative Consolidated Net Income" shall mean, at any time for any determination thereof, the sum of (i) Consolidated Net Income of Holdings for the period (taken as one accounting period) commencing January 1, 1995 and ending on the last day of the last fiscal quarter of Holdings then ended plus (ii) all losses -3- from debt retirement deducted in determining the Consolidated Net Income of Holdings for the period referred to in clause (i) above. "364 DF Credit Agreement" shall mean the Credit Agreement, dated as of November 3, 1995, among Holdings, the Borrower and the lending institutions party thereto relating to initial commitments aggregating $1,500,000,000, as the same may be modified, supplemented or amended from time to time. 10. Section 10 of the Credit Agreement shall be further amended by deleting the phrase "one rating level" appearing in the definition "Maximum Investment Grade Rating" and inserting in lieu thereof the phrase "at least one or more levels". 11. Section 10 of the Credit Agreement shall be further amended by deleting the following phrase appearing in the definition "Replacement Receivables Facility" in its entirety: "(i) the aggregate amount of available credit to Hanover under such facility does not exceed the aggregate amount available to Hanover under the Hanover Facility or the Replacement Receivables Facility, as the case may be, being replaced or refinanced and (ii)". 12. Section 12.04(b)(A) of the Credit Agreement is hereby amended by (a) inserting the phrase "(I) in the event of an assignment relating to this Agreement only," immediately prior to the amount "$10,000,000" contained in the first sentence thereof, (b) inserting the following phrase immediately after the word "zero" appearing at the end of the first sentence thereof: "and (II) in the event of an assignment relating this Agreement and the 364 DF Credit Agreement, $5,000,000, provided, that the aggregate amount of -------- such assignment under this Agreement and the 364 DF Credit Agreement is at least $10,000,000, except to the extent that after giving effect to any such assignment the assigning Bank shall have reduced its Commitment hereunder to zero"; and (c) inserting the following phrase immediately prior to the phrase "by (I)" appearing in the third sentence thereof: "(provided, that in the event of simultaneous assignments relating to this Agreement and the 364 DF Credit Agreement, the fees for such assignment shall total $2,500)". -4- 13. Section 12.07(a) of the Credit Agreement is hereby amended by inserting "(i)" immediately after the phrase "provided further that" and -------- ------- inserting the following at the end of said Section: "and (ii) in the event that the Indebtedness and related receivables under the Hanover Facility or under any Replacement Receivables Facility are no longer given off-balance sheet treatment, any such Indebtedness, the interest expense or discount thereon and related receivables under the Hanover Facility or any Replacement Receivables Facility shall continue to receive off-balance sheet treatment for purposes of determining compliance with Section 8." II. Miscellaneous Provisions ------------------------ 1. In order to induce the Banks to enter into this Amendment, each Credit Party hereby (i) makes each of the representations, warranties and agree- ments contained in Section 6 of the Credit Agreement and (ii) represents and warrants that there exists no Default or Event of Default, in each case on the Amendment Date (as defined below), both before and after giving effect to this Amendment. 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings and the Payments Administrator. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Amendment Date") when (i) the Borrower shall have given notice to the Payments Administrator pursuant to Section 3.02 of the Credit Agreement of a reduction in the Total Unutilized Commitment such that, after giving effect thereto, the Total Commitment shall equal an amount not greater than $2,000,000,000 and (ii) each of the Credit Parties and each of the Banks shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of facsimile transmission) the same to White & Case, 1155 Avenue of the Americas, New York, New York 10036, Attention: Eric F. Leicht, Esq. -5- (Facsimile No.: (212) 354-8113). After transmitting its executed signature page as provided above, each of the Banks shall deliver executed hard copies of this Amendment to White & Case, 1155 Avenue of the Americas, New York, New York 10036, Attention: Eric F. Leicht, Esq. 6. From and after the Amendment Date, all references to the Credit Agreement in the Credit Agreement and the other Credit Documents shall be deemed to be references to such Credit Agreement as modified hereby. * * * -6- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. NABISCO HOLDINGS CORP. By /s/ Frank Suozzi ----------------------------------------- Title: Vice President & Treasurer NABISCO, INC. By /s/ Frank Suozzi ------------------------------------------ Title: Vice President & Treasurer SENIOR MANAGING AGENTS BANKERS TRUST COMPANY By /s/ Mary Kay Coyle -------------------------------- Title: Managing Director THE CHASE MANHATTAN BANK, N.A. By /s/ Patricia B. Bril ---------------------------------- Title: Managing Director CHEMICAL BANK By /s/ Robert Gaynor ---------------------------------- Title: Vice President CITIBANK, N.A. By /s/ Steven R. Victorin -------------------------------- Title: Attorney in Fact THE FUJI BANK, LIMITED By /s/ Katsunori Nozawa -------------------------------- Title: Vice President & Manager MANAGING AGENTS ABN AMRO BANK N.V. NEW YORK BRANCH By /s/ Frances Logan --------------------------------- Title: Vice President By /s/ Janet T. Marple --------------------------------- Title: Assistant Vice President BANK OF AMERICA NT & SA By /s/ David Noda --------------------------------- Title: Vice President THE BANK OF NEW YORK By /s/ Russel Gorman --------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By /s/ Terry K. Fryett ------------------------------ Title: Authorized Signatory BANQUE PARIBAS By /s/ Mary T. Finnegan --------------------------------- Title: Group Vice President By /s/ John J. McCormick III --------------------------------- Title: Assistant Vice President CIBC, INC. By /s/ Judy Domkowski ------------------------------ Title: Authorized Signatory CREDIT LYONNAIS - CAYMAN ISLAND BRANCH By /s/ Mark Campellone ------------------------------ Title: Authorized Signature CREDIT LYONNAIS - NEW YORK BRANCH By /s/ Mark Campellone -------------------------------- Title: Vice President THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK BRANCH By /s/ Bertram H. Tang --------------------------------- Title: Assistant Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCHES By /s/ Robert M. Wood, Jr. ------------------------------- Title: Vice President By /s/ James Fox ------------------------------- Title: Assistant Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED - NEW YORK BRANCH By /s/ Junri Oda ---------------------------------- Title: Senior Vice President & Senior Manager MIDLAND BANK PLC By /s/ Mark J. Rakov --------------------------------- Title: Authorized Signatory THE MITSUBISHI BANK, LIMITED-NEW YORK BRANCH By /s/ Paula Mueller ------------------------------ Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Adam J. Silver ------------------------------ Title: Associate THE SAKURA BANK, LTD. By /s/ Masahiro Nakajo -------------------------------- Title: Senior Vice President & Manager THE SANWA BANK LIMITED By /s/ Stephen Small -------------------------------- Title: Vice President & Area Manager SOCIETE GENERALE By /s/ Robert Petersen --------------------------------- Title: Vice President THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By /s/ Yoshinori Kawamura --------------------------------- Title: Joint General Manager THE TOKAI BANK, LIMITED By /s/ Stuart M. Schulman ---------------------------------- Title: Senior Vice President LEAD MANAGERS BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By /s/ Charles Dougherty --------------------------------- Title: Vice President By /s/ Julia M. Welch ---------------------------------- Title: Assistant Vice President THE BANK OF TOKYO TRUST COMPANY By /s/ Michael C. Irwin --------------------------------- Title: Vice President THE LTCB TRUST COMPANY By /s/ Rene O. LeBlanc -------------------------------------- Title: Senior Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ Patricia Loret de Mola -------------------------------------- Title: Senior Vice President THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By /s/ Gerard Machado -------------------------------------- Title: Vice President & Manager NATIONSBANK, N.A. By /s/ James T. Gilland -------------------------------------- Title: Senior Vice President ROYAL BANK OF CANADA By /s/ David A. Barsalou -------------------------------------- Title: Senior Manager WACHOVIA BANK OF GEORGIA, N.A. By /s/ Samuel P. Moss -------------------------------------- Title: Senior Vice President MANAGERS BAYERISCHE VEREINSBANK AG NEW YORK BRANCH By /s/ Marianne Weinzinger -------------------------------------- Title: Vice President By /s/ Walter H. Eckmeier -------------------------------------- Title: Vice President CREDIT SUISSE By /s/ Edward E. Barr -------------------------------------- Title: Associate By /s/ Michael C. Mast -------------------------------------- Title: Member of Senior Management WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ Alan S. Bookspan -------------------------------------- Title: Vice President By /s/ Robert G. Carino -------------------------------------- Title: Vice President YASUDA TRUST & BANKING COMPANY, LIMITED By /s/ Rohn M. Laudenschlager -------------------------------------- Title: Senior Vice President CO-MANAGERS ASAHI BANK By /s/ Tomohiko Kareko -------------------------------------- Title: Senior Deputy General Manager COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND" By /s/ Johannes F. Breukhoven -------------------------------------- Title: Vice President By /s/ Ian Reece -------------------------------------- Title: Vice President & Manager TORONTO DOMINION (NEW YORK), INC. By /s/ Reg Waylen -------------------------------------- Title: Director UNION BANK OF SWITZERLAND NEW YORK BRANCH By /s/ Peter B. Yearley -------------------------------------- Title: Vice President By /s/ James P. Kelleher -------------------------------------- Title: Assistant Vice President OTHER BANKS ARAB BANK PLC - GRAND CAYMAN BRANCH By /s/ Peter Boyadjian -------------------------------------- Title: Senior Vice President BANCA CASSA DI RISPARMIO DI TORINO S.P.A. By /s/ J. Slade Carter, Jr. -------------------------------------- Title: Vice President By /s/ Robert P. DeSantes -------------------------------------- Title: Vice President & Head of Corporate Banking BANCO DI ROMA S.P.A. By /s/ Ralph L. Riehle -------------------------------------- Title: First Vice President By /s/ Luca Balestra -------------------------------------- Title: Assistant Vice President BANCO CENTRAL HISPANOAMERICANO, S.A. By /s/ Francisco Alcon -------------------------------------- Title: Executive Vice President & General Manager BAYERISCHE LANDESBANK GIROZENTRALE By /s/ Bert von Stuelpnagel -------------------------------------- Title: Executive Vice President & Manager By /s/ Peter Obermann -------------------------------------- Title: Senior Vice President FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ Grace Vallacchi -------------------------------------- Title: Vice President By /s/ Wendell Jones -------------------------------------- Title: Vice President THE HOKKAIDO TAKUSHOKU BANK, LTD. By /s/ Hiromoto Ishizuka -------------------------------------- Title: Vice President KREDIETBANK N.V. By /s/ Armen Karozichian -------------------------------------- Title: Vice President By /s/ Robert Snauffer -------------------------------------- Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By /s/ Stephen K. Hunter -------------------------------------- Title: Senior Vice President By /s/ Stephanie Hoevermann -------------------------------------- Title: Vice President THE NORINCHUKIN BANK By /s/ Kenichi Yoshikubo -------------------------------------- Title: Joint General Manager THE NORTHERN TRUST COMPANY By /s/ Lawson E. Whiting -------------------------------------- Title: Commercial Banking Officer THE ROYAL BANK OF SCOTLAND PLC By /s/ David Dougan -------------------------------------- Title: Vice President SWISS BANK CORPORATION NEW YORK BRANCH By /s/ William S. Lutkins -------------------------------------- Title: Associate Director Credit Risk Management By /s/ H. Clark Worthley -------------------------------------- Title: Associate Director THE TOYO TRUST & BANKING CO., LTD. - NEW YORK BRANCH By /s/ Hiroyuki Fukuro -------------------------------------- Title: Vice President VIA BANQUE By /s/ Jean-Louis Simon -------------------------------------- Title: DGA By /s/ Frederic Fournier -------------------------------------- Title: S.S. Directeur THE CHUO TRUST & BANKING CO., LTD. - NEW YORK AGENCY By /s/ Kunio Kimura -------------------------------------- Title: Deputy General Manager CREDITO ITALIANO, S.P.A. By /s/ Harmon P. Butler -------------------------------------- Title: First Vice President By /s/ Saiyed A. Abbas -------------------------------------- Title: Assistant Vice President GULF INTERNATIONAL BANK B.S.C. By /s/ Haytham F. Khalil -------------------------------------- Title: Assistant Vice President By /s/ Abdel-Fattah Tahoun -------------------------------------- Title: Senior Vice President THE NIPPON CREDIT BANK, LTD., By /s/ Hideaki Mori -------------------------------------- Title: Vice President & Manager STANDARD CHARTERED BANK By /s/ Brian S. Taylor -------------------------------------- Title: Assistant Vice President UNITED STATES NATIONAL BANK OF OREGON By /s/ Douglas A. Rich -------------------------------------- Title: Vice President SUMITOMO BANK OF CALIFORNIA By /s/ Shuji Ito -------------------------------------- Division Manager EX-10.8 8 Exhibit 10.8 ======================================================================= CREDIT AGREEMENT AMONG NABISCO HOLDINGS CORP., NABISCO, INC. AND BANKERS TRUST COMPANY, THE CHASE MANHATTAN BANK, N.A., CHEMICAL BANK, CITIBANK, N.A. AND THE FUJI BANK, LIMITED, AS SENIOR MANAGING AGENTS AND VARIOUS LENDING INSTITUTIONS --------------------------------- Dated as of November 3, 1995 --------------------------------- $1,500,000,000 ======================================================================= TABLE OF CONTENTS ----------------- Page ---- SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . 1 1.01 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings . 2 1.03 Notice of Borrowing of Revolving Loans . . . . . . . . . . . . . 2 1.04 Competitive Bid Borrowings . . . . . . . . . . . . . . . . . . . 3 1.05 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . 5 1.06 Notes; Register . . . . . . . . . . . . . . . . . . . . . . . . 6 1.07 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.08 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . 7 1.09 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.10 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . 8 1.11 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . 9 1.12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.13 Change of Lending Office . . . . . . . . . . . . . . . . . . . . 12 1.14 Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . 12 1.15 Notice of Certain Costs . . . . . . . . . . . . . . . . . . . . 13 1.16 Commitment Increases . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 2. Fees; Commitments . . . . . . . . . . . . . . . . . . . . . . 14 2.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.02 Voluntary Reduction of Commitments . . . . . . . . . . . . . . . 15 2.03 Mandatory Reduction of Commitments, etc. . . . . . . . . . . . . 15 SECTION 3. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . 15 3.02 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . 16 3.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . 16 3.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4. Conditions Precedent to the Effective Date . . . . . . . . . . 19 4.01 Execution of Agreement . . . . . . . . . . . . . . . . . . . . . 19 4.02 Notes; Effectiveness of Second Amendment . . . . . . . . . . . . 19 4.03 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . 19 4.04 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . 19 Page ---- 4.05 Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . 19 4.06 Organizational Documentation, etc. . . . . . . . . . . . . . . . 19 4.07 Adverse Change, etc. . . . . . . . . . . . . . . . . . . . . . . 20 4.08 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.09 Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 5. Conditions Precedent to Loans . . . . . . . . . . . . . . . . . 20 5.01 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.02 No Default; Representations and Warranties . . . . . . . . . . . 20 5.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 6. Representations, Warranties and Agreements . . . . . . . . . . 21 6.01 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . 21 6.02 Corporate Power and Authority . . . . . . . . . . . . . . . . . 21 6.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.05 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . 22 6.06 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . 22 6.07 Investment Company Act . . . . . . . . . . . . . . . . . . . . . 23 6.08 True and Complete Disclosure . . . . . . . . . . . . . . . . . . 23 6.09 Financial Condition; Financial Statements . . . . . . . . . . . 23 6.10 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . 23 6.11 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . 24 6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.13 Patents, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.14 Pollution and Other Regulations . . . . . . . . . . . . . . . . 24 6.15 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . 25 7.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . 25 7.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . 27 7.03 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.04 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 27 7.05 Consolidated Corporate Franchises . . . . . . . . . . . . . . . 27 7.06 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . 28 7.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.08 Good Repair . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7.09 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . 29 7.10 Commercial Paper and Competitive Bid Loan Outstandings . . . . . 29 SECTION 8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 29 8.01 Changes in Business . . . . . . . . . . . . . . . . . . . . . . 29 8.02 Consolidation, Merger, Sale of Assets, etc. . . . . . . . . . . 30 8.03 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.04 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (ii) Page ---- 8.05 Limitation on Restricted Payments . . . . . . . . . . . . . . . 33 8.06 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 34 8.07 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . 34 8.08 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . 34 8.09 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.10 Cash Interest Coverage Ratio . . . . . . . . . . . . . . . . . . 34 SECTION 9. Events of Default . . . . . . . . . . . . . . . . . . . . . . 34 9.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.02 Representations, etc. . . . . . . . . . . . . . . . . . . . . . 34 9.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 9.04 Default Under Other Agreements . . . . . . . . . . . . . . . . . 35 9.05 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . 36 9.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9.07 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9.08 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 11. The Senior Managing Agents . . . . . . . . . . . . . . . . . . 57 11.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 57 11.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 57 11.03 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . 57 11.04 Reliance by Senior Managing Agents . . . . . . . . . . . . . . 58 11.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 58 11.06 Non-Reliance on Senior Managing Agents and Other Banks . . . . 59 11.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 59 11.08 Senior Managing Agents in Their Individual Capacities . . . . . 60 11.09 Successor Senior Managing Agents . . . . . . . . . . . . . . . 60 SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 60 12.01 Payment of Expenses, etc. . . . . . . . . . . . . . . . . . . . 60 12.02 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . 61 12.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 12.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . 62 12.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . 64 12.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . 65 12.07 Calculations; Computations . . . . . . . . . . . . . . . . . . 65 12.08 Governing Law; Submission to Jurisdiction; Venue . . . . . . . 66 12.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.10 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . 67 12.11 Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . 67 12.12 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.13 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . 67 12.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 68 (iii) Page ---- 12.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 68 SECTION 13. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 13.01 The Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . 68 13.02 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 69 13.03 Nature of Liability . . . . . . . . . . . . . . . . . . . . . . 69 13.04 Independent Obligation . . . . . . . . . . . . . . . . . . . . 69 13.05 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 70 13.06 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 13.07 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . 70 13.08 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 13.09 Limitation on Enforcement . . . . . . . . . . . . . . . . . . . 71 ANNEX I -- List of Banks and Commitments ANNEX II -- Bank Addresses ANNEX III -- Schedule of Material Subsidiaries ANNEX IV -- Certain Litigation ANNEX V -- Specified Permitted Existing Debt EXHIBIT A -- Form of Note EXHIBIT B-1 -- Form of Opinion of General Counsel of the Borrower EXHIBIT B-2 -- Form of Opinion of White & Case, Special Counsel to the Banks EXHIBIT C-1 -- Notice of Assignment EXHIBIT C-2 -- Form of Assignment Agreement EXHIBIT C-3 -- Agreement of Commitment Increase EXHIBIT D -- Form of Confidentiality Agreement (iv) CREDIT AGREEMENT, dated as of November 3, 1995, among NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), NABISCO, INC., a New Jersey cor- poration (the "Borrower"), and the lending institutions listed from time to time on Annex I hereto (each, a "Bank" and, collectively, the "Banks"). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 10 are used herein as so defined. W I T N E S S E T H : - - - - - - - - - - WHEREAS, subject to and upon the terms and conditions herein set forth, the Banks are willing to make available the credit facility provided for herein. NOW, THEREFORE, IT IS AGREED: SECTION 1. Amount and Terms of Credit. -------------------------- 1.01 Commitments. (a) Subject to and upon the terms and conditions ----------- herein set forth, each Bank severally agrees to make a loan or loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower, which Revolving Loans: (i)shall be made at any time and from time to time on and after the Effective Date and prior to the Commitment Expiry Date; (ii)may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Reference Rate Loans or Eurodollar Loans, provided that all Revolving Loans made by all Banks pursuant to the -------- same Borrowing shall, unless otherwise specifically provided herein, con- sist entirely of Revolving Loans of the same Type; (iii)may be repaid and reborrowed in accordance with the provi- sions hereof; and (iv)shall not exceed for any Bank at any time of incurrence thereof and after giving effect thereto and the use of the proceeds thereof that aggregate principal amount which, when added to the product of (x) such Bank's Percentage and (y) the sum of (I) the aggregate outstanding principal amount of all Competitive Bid Loans then outstanding and (II) Commercial Paper Outstandings at such time, equals the Commitment of such Bank at such time. (b) Subject to and upon the terms and conditions herein set forth, each Bank severally agrees that the Borrower may incur a loan or loans (each, a "Competitive Bid Loan" and, collectively, the "Competitive Bid Loans") pursuant to a Competitive Bid Borrowing from time to time on and after the Effective Date and prior to the date which is the third Business Day preceding the date which is 14 days prior to the Commitment Expiry Date, provided, that after giving -------- effect to any Competitive Bid Borrowing and the use of the proceeds thereof, the aggregate outstanding principal amount of Competitive Bid Loans when combined with the aggregate outstanding principal amount of all Revolving Loans then outstanding and the aggregate Commercial Paper Outstandings at such time shall not exceed the Total Commitment at such time. Within the foregoing limits and subject to the conditions set out in Section 1.04, Competitive Bid Loans may be repaid and reborrowed in accordance with the provisions hereof. 1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. -------------------------------------------------------------- The aggregate principal amount of each Borrowing of Revolving Loans shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred on any date; provided that at no time shall there be outstanding more than eight -------- Borrowings of Eurodollar Loans under this Agreement. 1.03 Notice of Borrowing of Revolving Loans. (a) Whenever the Bor- -------------------------------------- rower desires to incur Revolving Loans hereunder, it shall give the Payments Administrator at the Payments Administrator's Office (x) prior to 11:00 A.M. (New York time) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Revolving Loans constituting Eurodollar Loans and (y) prior to 11:00 A.M. (New York time) prior written notice (or telephonic notice promptly confirmed in writing) on the date of each Borrowing of Revolving Loans constituting Reference Rate Loans. E- ach such notice (each, a "Notice of Borrowing") shall be irrevocable and shall specify: (i) the aggregate principal amount of the Revolving Loans to be made pursuant to such Borrowing; (ii) the date of Borrowing (which shall be a Business Day); and (iii) whether the respective Borrowing shall consist of Reference Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto. The Payments Administrator shall promptly give each Bank written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing of Revolving Loans, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. (b) Without in any way limiting the obligation of the Borrower to confirm in writing any notice it may give hereunder by telephone, the Payments Administrator may act prior to receipt of written confirmation without liability upon the basis of such telephonic notice, believed by the Payments Administrator in good faith to be from the Chairman, Chief Financial Officer or Treasurer of the Borrower, or from any other person designated in writing to the Payments Administrator by the Chief Financial Officer or -2- Treasurer of the Borrower as a person entitled to give telephonic notices under this Agreement on behalf of the Borrower. In each such case the Borrower hereby waives the right to dispute the Payments Administrator's record of the terms of any such telephonic notice. 1.04 Competitive Bid Borrowings. (a) Whenever the Borrower desires -------------------------- to incur a Competitive Bid Borrowing, it shall deliver to the Payments Administrator at the Payments Administrator's Office, prior to 11:00 A.M. (New York time) (x) at least four Business Days prior to the date of such proposed Competitive Bid Borrowing, in the case of a Spread Borrowing, and (y) at least one Business Day prior to the date of such proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing, a written notice (a "Notice of Competitive Bid Borrowing"), which notice shall specify in each case (i) the date (which shall be a Business Day) and the aggregate amount of the proposed Competitive Bid Borrowing, (ii) the maturity date for repayment of each and every Competitive Bid Loan to be made as part of such Competitive Bid Borrowing (which maturity date may be (A) one, two, three or six months after the date of such Competitive Bid Borrowing in the case of a Spread Borrowing, and (B) between 7 and 180 days, inclusive, after the date of such Competitive Bid Borrowing in the case of an Absolute Rate Borrowing, provided that in no event -------- shall the maturity date of any Competitive Bid Borrowing be later than the third Business Day preceding the Commitment Expiry Date), (iii) the interest payment date or dates relating thereto, (iv) whether the proposed Competitive Bid Borrowing is to be an Absolute Rate Borrowing or a Spread Borrowing, and if a Spread Borrowing, the Interest Rate Basis, and (v) any other terms to be applic- able to such Competitive Bid Borrowing. The Payments Administrator shall promptly notify each Bidder Bank of each such request for a Competitive Bid Borrowing received by it from the Borrower by telecopying to each such Bidder Bank a copy of the related Notice of Competitive Bid Borrowing. (b) Each Bidder Bank shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Loans to the Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest (which shall be a specified Spread over or under the Interest Rate Basis in the case of a Spread Borrowing or an Absolute Rate in the case of an Absolute Rate Borrowing) specified by such Bank in its sole discretion and determined by such Bank independently of each other Bank, by notifying the Payments Administrator (which shall give prompt notice thereof to the Borrower) before 10:00 A.M. (New York time) on the date (the "Reply Date") which is (x) in the case of an Absolute Rate Borrowing, the date of such proposed Competitive Bid Borrowing and (y) in the case of a Spread Borrowing, three Business Days before the date of such proposed Competitive Bid Borrowing, of the minimum amount and maximum amount of each Competitive Bid Loan which such Bank would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to Section 1.01(b), exceed such Bank's Commitment), the rate or rates of interest therefor and such Bank's lending office with respect to such Competitive Bid Loan, provided that -------- -3- if the Payments Administrator in its capacity as a Bank shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 9:30 A.M. (New York time) on the Reply Date. Any Bidder Bank not giving the Payments Administrator the notice specified in the preceding sentence shall not be obligated to, and shall not, make any Competitive Bid Loan as part of such Competitive Bid Borrowing. (c) The Borrower shall, in turn, before 11:00 A.M. (New York time) (x) on the Reply Date in the case of a proposed Absolute Rate Borrowing and (y) on the Business Day following the Reply Date in the case of a proposed Spread Borrowing, either: (i) cancel such Competitive Bid Borrowing by giving the Payments Administrator notice to such effect, or (ii) accept one or more of the offers made by any Bidder Bank or Banks by giving notice (in writing or by telephone confirmed in writing) to the Payments Administrator of the amount of each Competitive Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Payments Administrator on behalf of such Bidder Bank for such Competitive Bid Borrowing) to be made by each Bidder Bank as part of such Competitive Bid Borrowing, and reject any remaining offers made by Banks by giving the Payments Administrator notice to that effect, provided that (x) acceptance of -------- offers may only be made on the basis of ascending Absolute Rates (in the case of an Absolute Rate Borrowing) or Spreads (in the case of a Spread Borrowing), commencing with the lowest rate so offered and (y) if offers are made by two or more Bidder Banks at the same rate and acceptance of all such equal offers would result in a greater principal amount of Competitive Bid Loans being accepted than the aggregate principal amount requested by the Borrower, the Borrower shall then have the right to accept one or more such equal offers in their entirety and reject the other equal offer or offers or to allocate acceptance among all such equal offers (but giving effect to the minimum and maximum amounts specified for each such offer), as the Borrower may elect in its sole discretion, provided further that in no ---------------- event shall the aggregate principal amount of the Competitive Bid Loans accepted by the Borrower as part of a Competitive Bid Borrowing exceed the amount specified by the Borrower in the related Notice of Competitive Bid Borrowing. (d) If the Borrower notifies the Payments Administrator that such Competitive Bid Borrowing is cancelled, the Payments Administrator shall give prompt notice thereof to the Bidder Banks and such Competitive Bid Borrowing shall not be made. -4- (e) If the Borrower accepts one or more of the offers made by any Bidder Bank or Banks, the Payments Administrator shall in turn promptly notify (x) each Bidder Bank that has made an offer of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Bidder Bank have been accepted by the Borrower and (y) each Bidder Bank that is to make a Competitive Bid Loan as part of such Competitive Bid Borrowing of the amount of each Competitive Bid Loan to be made by such Bidder Bank. (f) On the last Business Day of each calendar quarter, the Payments Administrator shall notify the Banks of the aggregate principal amount of Competitive Bid Loans outstanding at such time. 1.05 Disbursement of Funds. (a) No later than 1:00 P.M. (New York --------------------- time) on the date of each Borrowing, each Bank will make available its pro rata --- ---- portion, if any, of each Borrowing requested to be made on such date in the manner provided below. (b) Each Bank shall make available all amounts it is to fund under any Borrowing in U.S. dollars and immediately available funds to the Payments Administrator at the Payments Administrator's Office and the Payments Adminis- trator will make available to the Borrower by depositing to its account at the Payments Administrator's Office the aggregate of the amounts so made available in U.S. dollars and the type of funds received. Unless the Payments Admin- istrator shall have been notified by any Bank prior to the date of any such Borrowing that such Bank does not intend to make available to the Payments Administrator its portion of the Borrowing or Borrowings to be made on such date, the Payments Administrator may assume that such Bank has made such amount available to the Payments Administrator on such date of Borrowing, and the Payments Administrator, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Payments Administrator by such Bank and the Payments Administrator has made available same to the Borrower, the Payments Administrator shall be entitled to recover such corresponding amount from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Payments Administrator's demand therefor, the Payments Administrator shall promptly notify the Borrower, and the Borrower shall immediately pay such corre- sponding amount to the Payments Administrator. The Payments Administrator shall also be entitled to recover from such Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Payments Administrator to the Borrower to the date such corresponding amount is recovered by the Payments Administrator, at a rate per annum equal to (x) if paid by such Bank, the overnight Federal Funds Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 1.09, for the respective Loans. -5- (c) Nothing in this Section 1.05 shall be deemed to relieve any Bank from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. 1.06 Notes; Register. (a) The Borrower's obligation to pay the --------------- principal of, and interest on, the Revolving Loans made by each Bank shall, except as provided in Sections 1.14 and 12.04, be evidenced by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit A with blanks appropriately completed in conformity herewith (each, a "Note" and, collectively, the "Notes"). (b) The Note issued to each Bank shall: (i) be payable to the order of such Bank and be dated the Effective Date; (ii) be in a stated principal amount equal to the Commitment of such Bank and be payable in the principal amount of the Revolving Loans evidenced thereby; (iii) mature on the Maturity Date; and (iv) bear interest as provided in the appropriate clause of Section 1.09 in respect of the Reference Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby. (c) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of its Note endorse on the reverse side thereof the outstanding principal amount of Revolving Loans evidenced thereby. Failure to make any such notation or any error in any such notation shall not affect the Borrower's obligations in respect of such Revolving Loans. (d) The Payments Administrator shall maintain at the Payments Administrator's Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Revolving Loans and Competitive Bid Loans owing to each Bank from time to time, together with the maturity and interest rates applicable to each such Competitive Bid Loan and other terms applicable thereto (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.07 Conversions. The Borrower shall have the option to convert on ----------- any Business Day all or a portion equal to at least the Minimum Borrowing Amount of the outstanding principal amount of Revolving Loans of one Type into a Borrowing or Borrowings of another Type, provided that: (i) no partial -------- conversion of Eurodollar Loans shall reduce the outstanding principal amount of Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount; (ii) Reference Rate Loans may only be converted into Eurodollar Loans if no Event of Default is in existence on the date of the conversion; and (iii) Borrowings resulting from conversions pursuant to this Section 1.07 shall be limited in number as provided in Section 1.02. Each such conversion shall -6- be effected by the Borrower by giving the Payments Administrator at the Payments Administrator's Office prior to 11:00 A.M. (New York time) at least three Business Days' (or one Business Day's in the case of a conversion into Reference Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a "Notice of Conversion") specifying the Revolving Loans to be so converted, the Type of Revolving Loans to be converted into and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Payments Administrator shall give each Bank notice as promptly as practicable of any such proposed conversion affecting any of its Revolving Loans. 1.08 Pro Rata Borrowings. All Borrowings of Revolving Loans under ------------------- this Agreement shall be loaned by the Banks pro rata on the basis of their --- ---- Percentages; provided, that the Borrower may make a Borrowing from an existing -------- Bank or a New Bank which agrees to a commitment increase pursuant to Section 1.16 on a non-pro-rata basis in an amount equal to such Bank's or New Bank's Percentage of the Total Commitment (after giving effect to any such commitment increase). It is understood that no Bank shall be responsible for any default by any other Bank in its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to fulfill its commitments hereunder. 1.09 Interest. (a) The unpaid principal amount of each Reference -------- Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Reference Rate in effect from time to time. (b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Eurodollar Margin plus the relevant Eurodollar Rate. (c) The unpaid principal amount of each Competitive Bid Loan shall bear interest from the date the proceeds thereof are made available to the Borrower until maturity (whether by acceleration or otherwise) at the rate or rates per annum specified by a Bidder Bank or Banks, as the case may be, pursuant to Section 1.04(b) and accepted by the Borrower pursuant to Section 1.04(c). (d) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall bear interest at a rate per annum equal to 2% in excess of the Reference Rate in effect from time to time; provided that -------- each Eurodollar Loan and Competitive Bid Loan shall bear interest after maturity (whether by acceleration or otherwise) until the end of the Interest Period then applicable thereto at a rate per annum equal to 2% in excess of the rate of interest applicable thereto at maturity. -7- (e) Interest on each Loan shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable: (i) in respect of each Reference Rate Loan, quarterly in arrears on the 15th day of each January, April, July and October; (ii) in respect of any Competitive Bid Loan, at such times as specified in the Notice of Competitive Bid Borrowing relating thereto; (iii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period; (iv) in respect of each Loan (other than a Reference Rate Loan), on any prepayment (on the amount prepaid); and (v) in respect of each Loan, at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (f) All computations of interest hereunder shall be made in accordance with Section 12.07(b). (g) The Payments Administrator, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower and the Banks thereof. 1.10 Interest Periods. At the time the Borrower gives a Notice of ---------------- Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 11:00 A.M. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Payments Administrator written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Reference Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period relating to a Borrowing of Eurodollar Loans or a Spread Borrowing priced by reference to the Eurodollar Rate begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; -8- (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period in respect of -------- a Eurodollar Loan or a Spread Borrowing priced by reference to the Eurodollar Rate would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; and (iv) no Interest Period in respect of Eurodollar Loans shall extend beyond the Maturity Date. Notwithstanding the foregoing, if an Event of Default is in existence at the time any Interest Period in respect of any Eurodollar Loans is to expire, such Eurodollar Loans may not be continued as Eurodollar Loans but instead shall be automatically converted on the last day of such Interest Period into Reference Rate Loans. If upon the expiration of any Interest Period in respect of Eurodollar Loans, the Borrower has failed to elect a new Interest Period to be applicable thereto as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Reference Rate Loans effective as of the expiration date of such current Interest Period. 1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in --------------------------------- the case of clause (i) below, the Majority SMA or (y) in the case of clauses (ii) and (iii) below, any Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising on or after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans or Competitive Bid Loans because of (x) any change since the date of this Agreement (or, in the case of any such cost or reduction with respect to any Competitive Bid Loan, since the date of the making of such Competitive Bid Loan) in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the compu- -9- tation of the Eurodollar Rate) and/or (y) other circumstances affecting the interbank Eurodollar market; or (iii) at any time, that the making or continuance of any Loan (other than Reference Rate Loans) has become unlawful by compliance by such Bank in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or, in the case of a Eurodollar Loan, has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or the Majority SMA, in the case of clause (i) above) shall on such date give notice (if by telephone confirmed in writing) to the Borrower and to the Payments Administrator of such determination (which notice the Payments Administrator shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Payments Administrator notifies the Borrower and the Banks that the circumstances giving rise to such notice by the Majority SMA no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by such Bank shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.11(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan or Competitive Bid Loan is affected by the circumstances described in Section 1.11(a)(ii) (for Eurodollar Loans only) or (iii), the Borrower may (and in the case of a Eurodollar Loan or Competitive Bid Loan affected pursuant to Section 1.11(a)(iii) shall) either (x) if the affected Eurodollar Loan or Competitive Bid Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Payments Administrator telephonic notice (confirmed promptly in writing) thereof as promptly as practicable after the Borrower was notified by a Bank pursuant to Section 1.11(a)(ii) or (iii), (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' notice to the Payments Administrator, require the affected Bank to convert each such Eurodollar Loan into a Reference Rate Loan or (z) if the affected -10- Competitive Bid Loan is then outstanding, prepay such Competitive Bid Loan in full, provided that if more than one Bank is affected in a similar manner at any -------- time, then all such similarly affected Banks must be treated the same pursuant to this Section 1.11(b). (c) If after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by a Bank or its parent with any request or directive made or adopted after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or its parents' capital or assets as a consequence of such Bank's commitments or obligations hereunder to a level below that which such Bank or its parent could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Bank's or its parent's policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Bank (with a copy to the Payments Administrator), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank or its parent for such reduction. Each Bank, upon determining in good faith that any additional amounts will be payable pursuant to this Section 1.11(c), will give prompt written notice thereof to the Borrower, which notice shall set forth in reasonable detail the basis of the calculation of such addi- tional amounts, although the failure to give any such notice shall not, subject to Section 1.15, release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 1.11(c) upon receipt of such notice. 1.12 Compensation. The Borrower shall compensate each Bank, upon its ------------ written request (which request shall set forth in reasonable detail the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans or Competitive Bid Loans but excluding any loss of anticipated profit with respect to such Loans) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Payments Administrator) a Borrowing of Eurodollar Loans or Competitive Bid Loans accepted by the Borrower in accordance with Section 1.04(c)(ii) does not occur on a date specified therefor in a Notice of Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.11); (ii) if any repayment or conversion of any of its Eurodollar Loans or any repayment of Competitive Bid Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans or Competitive Bid Loans when required by the terms of this Agreement or (y) an -11- election made pursuant to Section 1.11(b). Calculation of all amounts payable to a Bank under this Section 1.12 in respect of Eurodollar Loans shall be made as though that Bank had actually funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Loan, having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Bank to a domestic office of that Bank in the United States of America; provided, however, that each Bank may fund each of its -------- ------- Eurodollar Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 1.12. 1.13 Change of Lending Office. Each Bank agrees that, upon the ------------------------ occurrence of any event giving rise to the operation of Section 1.11(a)(ii) or (iii) or 3.04 with respect to such Bank, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans affected by such event; provided, that such designation is made on such terms that such Bank and its - -------- lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.13 shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in Section 1.11 or 3.04. 1.14 Replacement of Banks. If (x) any Bank becomes a Defaulting Bank -------------------- or otherwise defaults in its obligations to make Loans, (y) any Bank refuses to give timely consent to proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks or (z) any Bank is owed increased costs under Section 1.11 or Section 3.04 which in the judgment of the Borrower are material in amount and which are not otherwise requested generally by the other Banks, the Borrower shall have the right, if no Event of Default then exists and, in the case of a Bank described in clause (z) above, such Bank has not withdrawn its request for such compensation or changed its applicable lending office with the effect of eliminating or substantially decreasing (to a level which in the judgment of the Borrower is not material) such increased cost, to replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees (collectively, the "Replacement Bank") reasonably acceptable to the Majority SMA, provided that (i) at the time of any -------- replacement pursuant to this Section 1.14, the Replacement Bank shall enter into one or more Assignment Agreements pursuant to which the Replacement Bank shall acquire all of the Commitment and outstanding Loans of the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (a) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Bank and (b) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 2.01, (ii) all obligations of the Borrower owing to the Replaced Bank (other than those specifically described in clause (i) above in respect of which the -12- assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement and (iii) in the event that such Replaced Bank is a party to the Nabisco Credit Agreement, the Borrower shall also take the actions specified in Section 1.14 of the Nabisco Credit Agreement and replace such Bank as a Bank thereunder. Upon the execution of the respective assignment documentation, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note executed by the Borrower, the Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Bank. 1.15 Notice of Certain Costs. Notwithstanding anything in this ----------------------- Agreement to the contrary, to the extent any notice required by Section 1.11 is given by any Bank more than 180 days after the occurrence of the event giving rise to the additional cost, reduction in amounts or other additional amounts of the type described in such Section, such Bank shall not be entitled to compensa- tion under Section 1.11 for any such amounts incurred or accruing prior to the giving of such notice to the Borrower. 1.16 Commitment Increases. (a) The Banks hereby acknowledge and -------------------- agree that the Borrower may at any time prior to the Commitment Expiry Date, but no more than once during any calendar quarter, increase the Total Commitment under this Agreement, in incremental amounts of $10,000,000, by an aggregate amount not in excess of $500,000,000 for all such increases by either requesting a Bank or Banks to increase its Commitment or Commitments (provided that no Bank shall be required to agree to any such increase) or by requesting a financial institution that is an Eligible Transferee to become a party to this Agreement (such institution, a "New Bank"), provided that (i) no Event of Default has -------- occurred and is continuing at the time of any such increase, (ii) the Credit Rating shall be either an Increased Investment Grade Rating or a Maximum Investment Grade Rating at the time of any such increase, (iii) the Borrower shall deliver a notice of such increase to the Payments Administrator describing (x) the amount of such increase and the Total Commitment after giving effect to such increase and (y) the Bank(s) or New Bank(s) agreeing to such increase and the amount of each such entity's Commitment after giving effect to such increase, and (iv) the Borrower and each such Bank or New Bank shall deliver an Agreement of Commitment Increase to the Payments Administrator. Any such Total Commitment increase will become effective upon (A) in the case of New Banks only, the payment to the Payments Administrator of a nonrefundable fee of $2,500 and (B) in all cases, the recording by the Payments Administrator of such addition to the Total Commitment in the Register, the Payments Administrator hereby agreeing to effect such recordation no later than three Business Days after its receipt of an Agreement of Commitment Increase. Upon the effective- ness of any additional Commitment pursuant to this Section 1.16, (x) the New Bank, if any, will become a "Bank" for all purposes of this -13- Agreement and the other Credit Documents with a Commitment as so recorded by the Payments Administrator in the Register and (y) the Borrower shall issue to the respective Bank or New Bank a new Note. The Payments Administrator will prepare on the last Business Day of each calendar quarter during which an increase has become effective pursuant to this Section 1.16 a new Annex I hereto giving effect to all such increases effected during such quarter and will promptly provide same to the Borrower and each of the Banks. (b) If the Total Commitment is increased pursuant to Section 1.16(a) at a time when Loans are outstanding, then the Borrower shall take all such actions as appropriate to repay and reborrow Loans (but without any obligation to repay Eurodollar Loans other than on the last day of an Interest Period applicable thereto and without regard to the provisions of the first sentence of Section 1.08), so that, as soon as practicable, the outstanding principal amount of the Loans of each Non-Defaulting Bank equals such Bank's Percentage of the aggregate outstanding principal amount of all Loans of all Non-Defaulting Banks. SECTION 2. Fees; Commitments. ----------------- 2.01 Fees. (a) The Borrower agrees to pay the Payments ---- Administrator a facility fee (the "Facility Fee") for the account of each Non- Defaulting Bank for the period from and including the Effective Date to but not including the Termination Date computed for each day at a rate equal to the Facility Fee Percentage for such day multiplied by the then Commitment of such Bank (or if after the date the Total Commitment has terminated, on the then aggregate outstanding principal amount of Loans made by such Bank). Such Facility Fee shall be due and payable quarterly in arrears on the 15th day of each January, April, July and October and on the Termination Date. (b) The Borrower agrees to pay to the Payments Administrator a utilization fee (the "Utilization Fee") for the account of the Banks pro rata on --- ---- the basis of their respective Adjusted Percentages, computed for each day during a Utilization Period at a rate equal to the Applicable Utilization Fee Percentage for such day multiplied by the daily average Total Adjusted Utilization Amount for such Utilization Period. Such Utilization Fee shall be due and payable in arrears on the 15th day of the month following the end of each Utilization Period and on the Termination Date. (c) The Borrower shall pay the Payments Administrator for the account of each Senior Managing Agent and each Bank the fees specified in the accepted commitment letter, or related fee letter, executed by such Senior Managing Agent or such Bank, as the case may be, when and as due. -14- (d) All computations of Fees shall be made in accordance with Section 12.07(b). 2.02 Voluntary Reduction of Commitments. Upon at least three ---------------------------------- Business Days' prior written notice (or telephonic notice confirmed in writing) to the Payments Administrator at the Payments Administrator's Office (which notice the Payments Administrator shall promptly transmit to each of the Banks), the Borrower shall have the right, without premium or penalty, to terminate the Total Unutilized Commitment, in part or in whole (or, to the extent that at such time there are no Loans outstanding, to terminate the Total Commitment, in whole); provided, that (x) any such termination shall apply to proportionately -------- and permanently reduce the Commitment of each of the Banks and (y) any partial reduction pursuant to this Section 2.02 shall be in the amount of at least $50,000,000. 2.03 Mandatory Reduction of Commitments, etc. (a) The Total ---------------------------------------- Commitment (and the Commitment of each Bank) shall be terminated on the Expiration Date unless the Effective Date has occurred on or before such date. (b) On the date which is the earlier of (x) 30 days after any date on which a Change of Control occurs and (y) the date on which any Indebtedness of the Borrower in excess of $100,000,000 individually or $250,000,000 in the aggregate is required to be repurchased as a result of any such Change of Control, the Total Commitment shall be reduced to zero. (c) The Total Commitment shall terminate on the Commitment Expiry Date. SECTION 3. Payments. -------- 3.01 Voluntary Prepayments. The Borrower shall have the right to --------------------- prepay Revolving Loans in whole or in part from time to time on the following terms and conditions: (i) the Borrower shall give the Payments Administrator at the Payments Administrator's Office written notice (or telephonic notice promptly confirmed in writing) of its intent to make such prepayment, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made, which notice shall be given by the Borrower no later than 11:00 A.M. (New York time) one Business Day prior to such prepayment and shall promptly be transmitted by the Payments Administrator to each of the Banks; (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $25,000,000, provided that no partial -------- prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Revolving Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for Eurodollar Loans; and (iii) each prepayment in respect of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans, provided --- ---- -------- -15- that at the Borrower's election in connection with any prepayment pursuant to this Section 3.01, such prepayment shall not be applied to any Revolving Loan of a Defaulting Bank at any time when the aggregate amount of Revolving Loans of any Non-Defaulting Bank exceeds such Non-Defaulting Bank's Percentage of all Revolving Loans then outstanding. The Borrower shall not have the right to voluntarily prepay any Competitive Bid Loans. 3.02 Mandatory Prepayments. --------------------- (A) Requirements. If on any date prior to the Commitment Expiry Date ------------ the sum of the outstanding principal amount of Revolving Loans made by Non- Defaulting Banks and Competitive Bid Loans and the aggregate amount of Commercial Paper Outstandings (all the foregoing, collectively, the "Aggregate Outstandings") exceeds the Adjusted Total Commitment as then in effect, the Borrower shall repay on such date the principal of the Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Revolving Loans, the Aggregate Outstandings exceed the Adjusted Total Commitment then in effect, the Borrower shall repay on such date the principal of Competitive Bid Loans in an aggregate amount equal to such excess, provided that no Competitive Bid Loan shall be prepaid pursuant to this sentence - -------- unless the Bank that made same consents to such prepayment. (B) Application. With respect to each prepayment of Loans required ----------- by this Section 3.02, the Borrower may designate the Types of Loans which are to be prepaid and the specific Borrowing(s) pursuant to which made, provided -------- that: (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Revolving Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for Eurodollar Loans, such Borrowing shall immediately be converted into Reference Rate Loans; (ii) each prepayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans; and (iii) notwithstanding the provisions of the pre- - --- ---- ceding clause (ii), no prepayment made pursuant to Section 3.02(A) of Revolving Loans shall be applied to the Revolving Loans of any Defaulting Bank. In the absence of a designation by the Borrower as described in the preceding sentence, the Payments Administrator shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.12. 3.03 Method and Place of Payment. (a) Except as otherwise --------------------------- specifically provided herein, all payments under this Agreement shall be made to the Payments Administrator for the ratable account of the Banks entitled thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in lawful money of the United States of America at the Payments Administrator's Office, it being understood that written, telex or facsimile transmission notice by the Borrower to the Payments Administrator to make a payment from the funds in the Borrower's account at the Payments Administrator's Office shall constitute the making of such -16- payment to the extent of such funds held in such account. The Payments Administrator will thereafter cause to be distributed on the same day (if pay- ment was actually received by the Payments Administrator prior to 2:00 P.M. (New York time) on such day) like funds relating to the payment of principal or interest or Fees ratably to the Banks entitled thereto. If and to the extent that any such distribution shall not be so made by the Payments Administrator in full on the same day (if payment was actually received by the Payments Adminis- trator prior to 2:00 P.M. (New York time) on such day), the Payments Administra- tor shall pay to each Bank its ratable amount thereof and each such Bank shall be entitled to receive from the Payments Administrator, upon demand, interest on such amount at the overnight Federal Funds Rate for each day from the date such amount is paid to the Payments Administrator until the date the Payments Admin- istrator pays such amount to such Bank. (b) Any payments under this Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 3.04 Net Payments. (a) All payments made by the Borrower hereunder ------------ will be made without setoff or counterclaim. The Borrower will pay, prior to the date on which penalties attach thereto, all present and future income, stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of a Loan and/or the recording, registration, notarization or other formalization thereof and/or any payments of principal, interest or other amounts made on or in respect of a Loan (all such taxes, levies, costs and charges being herein collectively called "Taxes"; provided that Taxes shall not include taxes imposed on or measured by the - -------- overall net income of that Bank (or any alternative tax imposed generally by any relevant jurisdiction in lieu of a tax on net income) by the United States of America or any political subdivision or taxing authority thereof or therein, taxes imposed under Section 884 of the Code or taxes on or measured by the overall net income (or any alternative tax imposed generally by any relevant jurisdiction in lieu of a tax on net income) of that Bank or any foreign office, branch or subsidiary of that Bank by any foreign country or subdivision thereof in which that Bank or that office, branch or subsidiary is doing business). The Borrower shall also pay such additional amounts equal to increases in taxes payable by that Bank described in the foregoing proviso which increases are attributable to payments made by the Borrower described in the immediately preceding sentence of this Section. Promptly after the date on which payment of any such Tax is due pursuant to applicable law, the Borrower will, at the request of that Bank, furnish to that Bank evidence, in form and substance satisfactory to that Bank, that the Borrower has met its obligation under this Section 3.04. The Borrower will indemnify each Bank against, and reimburse each Bank on demand for, -17- any Taxes, as determined by that Bank in its good faith and reasonable discretion. Such Bank shall provide the Borrower with appropriate receipts for any payments or reimbursements made by the Borrower pursuant to this Section 3.04. (b) Each Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to provide to the Borrower on or prior to the Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.14 or Section 12.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer and such Bank is in compliance with the provisions of this Section 3.04(b)), on the date of such assignment or transfer to such Bank, two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or succes- sor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement or any Note. Each Bank that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, but that is not a corporation (as such term is defined in Section 7701(a)(3) of the Code) for such purposes, agrees to provide to the Borrower on or prior to the Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.14 or Section 12.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer and such Bank is in compliance with the provisions of this Section 3.04(b)), on the date of such assignment to such Bank, two accurate and complete original signed copies of Internal Revenue Service Form W- 9 (or successor form). In addition, each such Bank agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from United States withholding tax with respect to payments under this Agreement or any Note, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such form. Notwithstanding anything to the contrary contained in Section 3.04(a), (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or other similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States federal income tax purposes and which has not provided to the Borrower such forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 3.04(a) to pay a Bank in respect of income or similar taxes imposed by the United States or any additional amounts with respect thereto if such Bank has not provided to the Borrower the Internal Revenue Service forms required to be provided to the Borrower pursuant to this Section 3.04(b). -18- SECTION 4. Conditions Precedent to the Effective Date. This ------------------------------------------ Agreement shall become effective on the date (the "Effective Date") on which the following conditions shall have been satisfied: 4.01 Execution of Agreement. Each of Holdings, the Borrower and each ---------------------- of the Banks shall have signed a copy of this Agreement (whether the same or different copies) and shall have delivered same to the Payments Administrator or, in the case of the Banks, shall have given to the Payments Administrator telephonic (confirmed in writing), written, telex or facsimile notice (actually received) at such office that the same has been signed and mailed to it. 4.02 Notes; Effectiveness of Second Amendment. On the Effective ---------------------------------------- Date, (i) there shall have been delivered to the Payments Administrator for the account of each Bank the appropriate Note executed by the Borrower in the amount, maturity and as otherwise provided herein, and (ii) the Second Amendment shall have become effective. 4.03 Officers' Certificate. On the Effective Date, the Payments --------------------- Administrator shall have received certificates dated such date signed by an appropriate officer of each of Holdings and the Borrower stating that all of the applicable conditions set forth in Sections 4.02, 4.07 and 4.09 exist as of such date. 4.04 Opinions of Counsel. On the Effective Date, the Payments ------------------- Administrator shall have received an opinion, or opinions, in form and substance satisfactory to each Senior Managing Agent, addressed to each of the Banks and dated the Effective Date, from (i) James A. Kirkman III, Esq., General Counsel of Holdings and the Borrower, which opinion shall cover the matters contained in Exhibit B-1 hereto and (ii) White & Case, special counsel to the Banks, which opinion shall cover the matters contained in Exhibit B-2 hereto. 4.05 Corporate Proceedings. On the Effective Date, all corporate and --------------------- legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to each Senior Managing Agent, and the Payments Administrator shall have received all information and copies of all certificates, documents and papers, including records of corporate proceedings and governmental approvals, if any, which any Senior Managing Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. 4.06 Organizational Documentation, etc. On the Effective Date, the ---------------------------------- Banks shall have received copies of the Certificate of Incorporation and By-Laws of each Credit -19- Party, certified as true and complete by an appropriate corporate officer or governmental authority. 4.07 Adverse Change, etc. On the Effective Date, (x) nothing shall -------------------- have occurred which has a material adverse effect on the ability of either Credit Party to perform its obligations to the Banks and (y) there shall have been no material adverse change in the operations, business, property, assets or financial condition of Holdings and its Subsidiaries taken as a whole from that of Holdings and its Subsidiaries taken as a whole on December 31, 1994. None of the Pro Forma Events shall be deemed such a material adverse change. 4.08 Litigation. On the Effective Date, except as set forth in ---------- Annex IV hereto, there shall be no actions, suits or proceedings pending or threatened with respect to Holdings or any of its Subsidiaries that (i) are reasonably likely to have a material adverse effect on the business, properties, assets, operations, financial condition or prospects of Holdings and its Subsid- iaries taken as a whole or (ii) are reasonably likely to have a material adverse effect on the rights or remedies of the Banks or on the ability of either Credit Party to perform its obligations to the Banks hereunder or under any other Credit Document to which it is a party. 4.09 Fees, etc. On the Effective Date, the Borrower shall have paid ---------- to each Senior Managing Agent and each Bank all costs, fees and expenses payable to the Senior Managing Agents or the Banks, to the extent then due. SECTION 5. Conditions Precedent to Loans. The obligation of each ----------------------------- Bank to make any Loans is subject, at the time of the making of each such Loan, to the satisfaction of the following conditions at such time: 5.01 Effectiveness. The Effective Date shall have occurred. ------------- 5.02 No Default; Representations and Warranties. At the time of the ------------------------------------------ making of each Loan and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in the other Credit Documents (other than, in the case of a CP Refinancing Borrowing, in Section 6.04 and the last sentence of Section 6.09) shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loan. 5.03 Notice of Borrowing. Prior to the making of each Revolving ------------------- Loan, the Payments Administrator shall have received a Notice of Borrowing meeting the requirements of Section 1.03(a). Prior to the making of each Competitive Bid Loan, the Payments Administrator shall have received a Notice of Competitive Bid Borrowing meeting the requirements of Section 1.04(a). -20- The acceptance of the benefits of each Loan shall constitute a representation and warranty by each Credit Party to each of the Banks that all of the applicable conditions specified above in Section 5 exist as of that time. All of the certificates, legal opinions and other documents and papers referred to in Section 4, unless otherwise specified, shall be delivered to the Payments Administrator at the Payments Administrator's Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks and shall be satisfactory in form and substance to each Senior Managing Agent. SECTION 6. Representations, Warranties and Agreements. In order to ------------------------------------------ induce the Banks to enter into this Agreement and to make the Loans as provided for herein, each of Holdings and the Borrower makes the following representations and warranties to and agreements with the Banks, all of which shall survive the execution and delivery of this Agreement and the making of the Loans (with the making of each Loan being deemed to constitute a representation and warranty that the matters specified in this Section 6, subject to the exceptions set forth in Section 5.02, are true and correct in all material respects on and as of the date hereof and as of the date of each such Loan unless such representation and warranty expressly indicates that it is being made as of any specific date): 6.01 Corporate Status. Each of Holdings and each of its Material ---------------- Subsidiaries (i) is a duly organized and validly existing corporation or other entity in good standing under the laws of the jurisdiction of its organization and has the corporate or other organizational power and authority to own its property and assets and to transact the business in which it is engaged and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified would have a material adverse effect on the operations, bus- iness, properties, assets or financial condition of Holdings and its Subsidiaries taken as a whole. 6.02 Corporate Power and Authority. Each Credit Party has the ----------------------------- corporate power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Credit Documents to which it is a party. Each Credit Party has duly executed and delivered each Credit Document to which it is a party and each such Credit Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms. 6.03 No Violation. Neither the execution, delivery and performance ------------ by either Credit Party of the Credit Documents to which it is a party (including, without limitation, the incurrence of Loans by the Borrower hereunder) nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any applicable provision of any law, statute, rule, regulation, order, -21- writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of Holdings or any of its Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of trust, agreement or other instrument to which Holdings or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of Holdings or any of its Subsidiaries. 6.04 Litigation. Except as set forth on Annex IV, there are no ---------- actions, suits or proceedings pending or threatened with respect to Holdings or any of its Subsidiaries (i) that are reasonably likely to have a material adverse effect on the business, properties, assets, operations, financial condition or prospects of Holdings and its Subsidiaries taken as a whole or (ii) that are reasonably likely to have a material adverse effect on the rights or remedies of the Banks or on the ability of either Credit Party to perform its obligations to them hereunder and under the other Credit Documents to which it is a party. 6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all ----------------------------------- Loans shall be utilized by the Borrower for general corporate purposes of Holdings and/or its Subsidiaries (including, without limitation, the refinancing of Indebtedness and financing acquisitions permitted hereunder). The proceeds of CP Refinancing Borrowings may only be utilized to pay when due Commercial Paper Outstandings. (b) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. At the time of the making of each Loan, not more than 25% of the value of the assets of the Borrower or Holdings and its Subsidiaries on a consolidated basis subject to the restrictions contained in Sections 8.02 and 8.03 will constitute Margin Stock. Notwithstanding the foregoing provisions of this Section 6.05, no proceeds of any Loan will be utilized to purchase any Margin Stock in a transaction, or as part of a series of transactions, the result of which is the ownership by Holdings and/or its Subsidiaries (including, without limitation, the Borrower) of 5% or more of the capital stock of a corporation unless the Board of Directors of such corporation has approved such transaction prior to any public announcement of the purchase, or the intent to purchase, any such Margin Stock. 6.06 Governmental Approvals. No order, consent, approval, license, ---------------------- authorization or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery -22- and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document. 6.07 Investment Company Act. Neither Holdings nor any of its ---------------------- Subsidiaries is an "investment company" or a company "controlled" by an "invest- ment company," within the meaning of the Investment Company Act of 1940, as amended. 6.08 True and Complete Disclosure. All factual information (taken as ---------------------------- a whole) heretofore or contemporaneously furnished by or on behalf of either Credit Party or any of its Subsidiaries in writing to any Senior Managing Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such Persons in writing to any Bank will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. The projections and pro forma financial information contained in such materials were based on good faith estimates and assumptions believed by such Persons to be reasonable at the time made, it being recognized by the Banks that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. 6.09 Financial Condition; Financial Statements. The consolidated ----------------------------------------- balance sheet of each of Holdings and its Subsidiaries and the Borrower and its Subsidiaries at December 31, 1994 and the related consolidated statements of income and cash flows for the fiscal years ended as of said dates, which statements have been examined by Deloitte & Touche, independent certified public accountants, who delivered an unqualified opinion in respect thereof, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial position of each of Holdings and the Borrower, as the case may be, at the dates of said statements and the results of operations for the periods covered thereby. All such financial statements have been prepared in accordance with GAAP consistently applied except to the extent provided in the notes to said financial statements. There has been no material adverse change in the operations, business, property, assets or financial condition of Holdings and its Subsidiaries taken as a whole or of the Borrower and its Sub- sidiaries taken as a whole from that of Holdings and its Subsidiaries or the Borrower and its Subsidiaries, as the case may be, on December 31, 1994. 6.10 Tax Returns and Payments. Each of Holdings and its Subsidiaries ------------------------ has filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, other than those not yet delinquent, those contested in good faith and those for which RJRN is indemnifying the Borrower pursuant to the Tax Sharing -23- Agreement. Holdings and each of its Subsidiaries have paid, or have provided adequate reserves (in the good faith judgment of the management of Holdings) for the payment of, all federal, state and foreign income taxes applicable for all prior fiscal years and for the current fiscal year to the date hereof. 6.11 Compliance with ERISA. Each Plan is in substantial compliance --------------------- with ERISA and the Code; no Reportable Event has occurred with respect to any Plan; no Plan is insolvent or in reorganization, no Plan has an Unfunded Current Liability, and no Plan has an accumulated or waived funding deficiency or permitted decreases in its funding standard account within the meaning of Section 412 of the Code; none of Holdings, any of its Subsidiaries or any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code; no proceedings have been instituted to terminate any Plan; no condition exists which presents a material risk to Holdings or any of its Subsidiaries of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code, except to the extent that all events described in the preceding clauses of this Section 6.11 and then in existence would not, in the aggregate, be likely to have a material adverse effect on the business, operations or financial condition of Holdings and its Subsidiaries taken as a whole. With respect to Plans that are multiemployer plans (within the meaning of Section 3(37) of ERISA) and Plans which are not currently maintained or contributed to by Holdings, any of its Subsidiaries or any ERISA Affiliate, the representations and warranties in this Section are made to the best knowledge of Holdings. 6.12 Subsidiaries. Annex III hereto lists each Material Subsidiary ------------ of Holdings (and the direct and indirect ownership interest of Holdings therein), in each case existing on the Effective Date. All ownership percentages referred to in Annex III are calculated without regard to directors' or nominees' qualifying shares. 6.13 Patents, etc. Holdings and each of its Subsidiaries have ------------- obtained all material patents, trademarks, servicemarks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted. 6.14 Pollution and Other Regulations. Holdings and each of its ------------------------------- Subsidiaries are in material compliance with all material laws and regulations relating to pollution and environmental control, equal employment opportunity and employee safety in all domestic jurisdictions in which Holdings and each of its Subsidiaries is presently doing business, and Holdings will comply and cause each of its Subsidiaries to comply with all such laws and regulations which may be imposed in the future in jurisdictions in which Holdings or such Subsidiary may then be doing business other than in each case those the non-compliance -24- with which would not have a material adverse effect on the business, assets, properties or financial condition of Holdings and its Subsidiaries taken as a whole. 6.15 Properties. Holdings and each of its Subsidiaries have good ---------- title to all properties owned by Holdings or such Subsidiary and a valid leasehold interest in all properties leased by Holdings or such Subsidiary, in each case, that are necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted, free and clear of all Liens, other than as permitted by this Agreement. SECTION 7. Affirmative Covenants. Holdings hereby covenants and --------------------- agrees that on the Effective Date and thereafter, for so long as this Agreement is in effect and until the Commitments have terminated and the Loans, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 7.01 Information Covenants. Holdings will furnish to each Bank: --------------------- (a) Annual Financial Statements. As soon as available and in any --------------------------- event within 100 days after the close of each fiscal year of Holdings, to the extent prepared to comply with SEC requirements, a copy of the SEC Form 10-Ks filed by Holdings and the Borrower with the SEC for such fiscal year, or, if no such Form 10-K was so filed by Holdings and the Borrower for such fiscal year, the consolidated balance sheet of Holdings and its Subsidiaries and of the Borrower and its Subsidiaries, as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for such fiscal year, setting forth comparative consolidated figures as of the end of and for the preceding fiscal year, and examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit or as to the status of Holdings or the Borrower or any of their respective Subsidiaries as a going concern, together in any event with a certificate of such accounting firm stating that in the course of its regular audit of the business of Holdings and the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. (b) Quarterly Financial Statements. As soon as available and in any ------------------------------ event within 55 days after the close of each of the first three quarterly accounting periods in each fiscal year of Holdings, to the extent prepared to comply with SEC requirements, a copy of the SEC Form 10-Qs filed by Holdings and the Borrower with the SEC for each such quarterly period, or, if no such Form 10-Q was so filed by Holdings and the Borrower with respect to any such quarterly period, the consol- -25- idated balance sheet of Holdings and its Subsidiaries and of the Borrower and its Subsidiaries, as at the end of such quarterly period and the related consolidated statements of income for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and the related consolidated statement of cash flows for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative consolidated figures as of the end of and for the related periods in the prior fiscal year or, in the case of such consolidated balance sheet, for the last day of the prior fiscal year, all of which shall be certified by the Chief Financial Officer, Controller, Chief Accounting Officer or other Authorized Officer of Holdings or the Borrower, as the case may be, subject to changes resulting from audit and normal year-end audit adjustments. (c) Officer's Certificates. At the time of the delivery of the ---------------------- financial statements provided for in Section 7.01(a) and (b), a certificate of the Chief Financial Officer, Controller, Chief Accounting Officer or other Authorized Officer of Holdings to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate shall set forth the calculations required to establish whether Holdings and its Subsid- iaries were in compliance with the provisions of Sections 8.03(e), 8.04(h), 8.05, 8.07, 8.08, 8.09 and 8.10 as at the end of such fiscal period or year, as the case may be. (d) Notice of Default or Litigation. Promptly, and in any event ------------------------------- within three Business Days after any senior financial or legal officer of either Credit Party obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or Event of Default which notice shall specify the nature thereof, the period of existence thereof and what action Holdings proposes to take with respect thereto and (y) any litigation or governmental proceeding pending against or affecting Holdings or any of its Subsidiaries which is likely to have a material adverse effect on the business, properties, assets, financial condition or prospects of Holdings and its Subsidiaries taken as a whole or the ability of either Credit Party to perform its obligations hereunder or under any other Credit Document. (e) Credit Rating Changes. Promptly after any senior financial or --------------------- legal officer of either Credit Party obtains knowledge thereof, notice of any change in the Applicable Credit Rating assigned by either Rating Agency. (f) Other Information. Promptly upon transmission thereof, copies of ----------------- any filings and registrations with, and reports to, the Securities and Exchange Commission or any successor thereto (the "SEC") by Holdings, the Borrower or any of their respective Subsidiaries (other than amendments to any registration -26- statement (to the extent such registration statement, in the form it becomes effective, is delivered to the Banks), exhibits to any registration statement and any registration statements on Form S-8) and copies of all financial statements, proxy statements, notices and reports that Holdings, the Borrower or any of their respective Subsidiaries shall send to analysts or the holders of any publicly issued debt of Holdings and/or any of its Subsidiaries in their capacity as such holders (in each case to the extent not theretofore delivered to the Banks pursuant to this Agreement) and, with reasonable promptness, such other information or documents (financial or otherwise) as any Senior Managing Agent on its own behalf or on behalf of the Required Banks may reasonably request from time to time. 7.02 Books, Records and Inspections. Holdings will, and will cause ------------------------------ each of its Subsidiaries to, permit, upon reasonable notice to the Chief Financial Officer, Controller or any other Authorized Officer of the Borrower, officers and designated representatives of any Senior Managing Agent or the Required Banks to visit and inspect any of the properties or assets of Holdings and any of its Subsidiaries in whomsoever's possession, and to examine the books of account of Holdings and any of its Subsidiaries and discuss the affairs, finances and accounts of Holdings and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as any Senior Managing Agent or the Required Banks may desire. 7.03 Insurance. Holdings will, and will cause each of its --------- Subsidiaries to, at all times be covered by or maintain in full force and effect insurance in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice. 7.04 Payment of Taxes. Holdings will pay and discharge, and will ---------------- cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which material penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of Holdings or any of its Subsidiaries, provided that neither Holdings nor any Subsidiary shall be required to pay any - -------- such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves (in the good faith judgment of the management of Holdings) with respect thereto in accordance with GAAP. 7.05 Consolidated Corporate Franchises. Holdings will do, and will --------------------------------- cause each of its Material Subsidiaries to do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence, rights and authority, provided that any transaction permitted by Section 8.02 will not -------- constitute a breach of this Section 7.05. -27- 7.06 Compliance with Statutes, etc. Holdings will, and will cause ------------------------------ each Subsidiary to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls) other than those the non-compliance with which would not have a material adverse effect on the business, properties, assets or financial condition of Holdings and its Subsidiaries taken as a whole or on the ability of either Credit Party to perform its obligations under any Credit Document to which it is a party. 7.07 ERISA. As soon as possible and, in any event, within 10 days ----- after Holdings or any of its Subsidiaries knows or has reason to know of the occurrence of any of the following, Holdings will deliver to each of the Banks a certificate of the Chief Financial Officer, Treasurer or Controller of Holdings setting forth details as to such occurrence and the action, if any, which Holdings, such Subsidiary or an ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by Holdings, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant (other than notices relating to an individual participant's benefits) or the Plan administrator with respect thereto: that a Reportable Event has occurred, that an accumulated funding deficiency has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan, that a Plan which has an Unfunded Current Liability has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, that a Plan has an Unfunded Current Liability giving rise to a lien under ERISA or the Code, that proceedings may be or have been instituted to terminate a Plan which has an Unfunded Current Liability, that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or that Holdings, any of its Subsidiaries or any ERISA Affiliate will or may incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect to a Plan under Section 4971 or 4975 of the Code or Section 409 or 502(i) or 502(l) of ERISA. Upon request of a Bank, Holdings will deliver to such Bank a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, copies of any notices received by Holdings or any of its Subsidiaries shall be delivered to the Banks no later than 10 days after the later of the date such notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants (other than notices relating to an individual participant's benefits) or received by Holdings or such Subsidiary. -28- 7.08 Good Repair. Holdings will, and will cause each of its Subsidi- ----------- aries to, ensure that its properties and equipment used or useful in its business in whomsoever's possession they may be, are kept in good repair, working order and condition, normal wear and tear excepted, and that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner customary for companies in similar businesses. 7.09 End of Fiscal Years; Fiscal Quarters. Holdings will, for ------------------------------------ financial reporting purposes, cause (i) each of its and the Borrower's fiscal years to end on December 31 of each year, (ii) each of its and the Borrower's fiscal quarters to end on March 31, June 30, September 30 and December 31 of each year and (iii) each of the Subsidiaries of the Borrower to maintain the accounting periods maintained by such Subsidiary on the Effective Date, consistent with the past practice and procedures of each such Subsidiary, provided that any of the foregoing fiscal or reporting periods may be changed if - -------- (x) Holdings gives the Banks 30 days' prior written notice of such proposed change and (y) prior to effecting such change Holdings and the Majority SMA shall have agreed upon adjustments, if any, to Sections 8.03(e), 8.04(h), 8.05, 8.07, 8.08, 8.09 and 8.10 (and the definitions used therein) the sole purpose of which shall be to give effect to the proposed change in fiscal or accounting periods (it being understood and agreed that to the extent that Holdings and the Majority SMA cannot agree on appropriate adjustments to such Sections (or that no adjustments are necessary), the proposed change may not be effected). 7.10 Commercial Paper and Competitive Bid Loan Outstandings. On the ------------------------------------------------------ date of the delivery by the Borrower of any Notice of Borrowing or Notice of Competitive Bid Borrowing at any time when the Borrower shall have knowledge that a mandatory prepayment is required pursuant to Section 3.02(A) of this Agreement and, in any event, on the last Business Day of each fiscal quarter of the Borrower, the Borrower will furnish to the Payments Administrator (with an information copy to each of the other Senior Managing Agents) a statement setting forth the aggregate amount of Commercial Paper Outstandings and the aggregate outstanding principal amount of Competitive Bid Loans at such time. SECTION 8. Negative Covenants. Holdings hereby covenants and agrees ------------------ that on the Effective Date and thereafter, for so long as this Agreement is in effect and until the Commitments have terminated and the Loans, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 8.01 Changes in Business. Except as otherwise permitted by Section ------------------- 8.02, Holdings and its Subsidiaries, taken as a whole, will not substantively alter the character -29- of their business from that conducted by Holdings and its Subsidiaries taken as a whole at the Effective Date. 8.02 Consolidation, Merger, Sale of Assets, etc. Holdings will not, ------------------------------------------- and will not permit any Subsidiary to, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, sell or otherwise dispose of all or a substantial part of its property or assets or agree to do any of the foregoing at any future time, except that: (a) so long as no Event of Default would result therefrom, the Borrower may merge or consolidate with Holdings or any Wholly-Owned Subsidiary of Holdings, provided that the surviving corporation, if not the -------- Borrower, executes and delivers agreements assuming the obligations of the Borrower under this Agreement and the Notes, which assumption agreements and all related actions and documentation shall be in form and substance satisfactory to the Senior Managing Agents; and (b) any Subsidiary of Holdings may be merged or consolidated with or into, or be liquidated into, any Person (other than Holdings, unless the Borrower has merged into or consolidated with Holdings) and any such Subsidiary may convey, lease, sell or transfer all or any part of its business, properties and assets to any such Person, provided that if any -------- such transaction involves a Material Subsidiary, after giving effect to such transaction, no Event of Default would result therefrom. Notwithstanding anything to the contrary contained in this Section 8.02, no Restricted Sale shall be permitted. 8.03 Liens. Holdings will not, and will not permit any of its ----- Subsidiaries to, (x) create, incur, assume or suffer to exist any Lien in respect of Indebtedness upon any property or assets of any kind (real or personal, tangible or intangible) of Holdings or any such Subsidiary whether now owned or hereafter acquired or (y) assign any right to receive income as security for the payment of Indebtedness, except: (a) (i) Liens and assignments under the Hanover Facility or under any Replacement Receivables Facility, and (ii) other Liens existing on the Effective Date securing Indebtedness outstanding on April 28, 1995 in an aggregate principal amount not exceeding $150,000,000 and Liens securing extensions, renewals or refinancings of any of the Indebtedness referred to in this clause (a)(ii) to the extent that any such Indebtedness (x) is not increased from that outstanding at the time of any such extension, renewal or refinancing and (y) is not secured by Liens on any additional assets; -30- (b) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business and which are within the general parameters customary in the industry, securing obligations under Permitted Commodities Agreements; (c) Liens securing reimbursement obligations of the Borrower and its Subsidiaries with respect to trade letters of credit incurred in the ordinary course of business, which are to be repaid in full not more than one year after the date originally incurred to finance the purchase of goods by the Borrower or any of its Subsidiaries, provided that such Liens -------- shall attach only to documents or other property relating to such letters of credit and the products and proceeds thereof; (d) Liens (x) arising pursuant to purchase money mortgages securing Indebtedness (and any extensions, renewals or refinancings of such Indebtedness to the extent not increasing the outstanding principal amount thereof), representing the purchase price (or financing of the purchase price within 180 days after the respective purchase) of assets acquired after the Effective Date, provided that (i) any such Liens attach only to -------- the assets so purchased and (ii) the Indebtedness (including any such permitted extensions, renewals or refinancings) secured by any such Lien does not exceed 100%, nor is less than 70%, of the purchase price of the property being purchased and (y) existing on specific tangible assets at the time acquired by Holdings or any of its Subsidiaries or on assets of a Person at the time such Person first becomes a Subsidiary (together with Liens securing any extensions, renewals or refinancings of the Indebtedness secured thereby to the extent not increasing the outstanding principal amount thereof), provided that (i) any such Liens were not created at the -------- time of or in contemplation of the acquisition of such assets or Person by Holdings and/or its Subsidiaries, (ii) in the case of any such acquisition of a Person, any such Lien attaches only to a specific tangible asset of such Person and not assets of such Person generally and (iii) the Indebtedness secured by any such Lien does not exceed 100% of the fair market value of the asset to which such Lien attaches, determined at the time of the acquisition of such asset or at the time such Person first becomes a Subsidiary, as the case may be; and (e) Liens and assignments not otherwise permitted by the foregoing clauses (a) through (d) securing any Indebtedness of Holdings and/or its Subsidiaries, provided that the aggregate principal amount of Indebtedness -------- on a consolidated basis secured by Liens permitted by this clause (e) shall not exceed an amount equal to 7-1/2% of Consolidated Net Worth at any time. 8.04 Indebtedness. Holdings will not permit any of its Subsidiaries ------------ (other than the Borrower) to, contract, create, incur, assume or suffer to exist any Indebtedness, except: -31- (a) (i) Indebtedness under the Hanover Facility or any Replacement Receivables Facility to the extent that the aggregate outstanding principal amount of Indebtedness permitted pursuant to this clause (a)(i) shall not exceed $500,000,000 and (ii) other Specified Permitted Existing Debt and any extensions, renewals or refinancings of any of the Indebtedness referred to in this clause (a)(ii), either by the original obligor thereunder or by another Subsidiary to the extent that such Indebtedness is not increased from that outstanding at the time of any such extension, renewal or refinancing; (b) Obligations under letters of credit described in Section 8.03(c); (c) Indebtedness in respect of Permitted Currency Agreements and Permitted Commodities Agreements; (d) Obligations of Subsidiaries of the Borrower under letters of credit incurred in the ordinary course of business in connection with the purchase of products or goods for use in the day-to-day operations of the Borrower and its Subsidiaries consistent with the Borrower's past practices or then current industry practices; (e) Indebtedness secured by Liens permitted by Section 8.03(d); (f) (i) Indebtedness owing by any such Subsidiary to Holdings or any Wholly-Owned Subsidiary of Holdings and (ii) Indebtedness of any such Subsidiary (x) consisting of Contingent Obligations in respect of, or (y) constituting reimbursement obligations under letters of credit issued in support of, obligations of any Subsidiary of Holdings (other than the Borrower) to the extent such other obligations are permitted by this Agreement; (g) Indebtedness of any such Subsidiary in any manner guaranteeing or intended to guarantee, whether directly or indirectly, any leases, dividends or other monetary obligations of any Person in which such Subsidiary has an ownership interest, provided that the aggregate maximum -------- stated or determinable amount (or, if not stated or determinable, the maximum reasonably anticipated liability in respect of such Indebtedness as determined in good faith by such Subsidiary) of all Indebtedness permitted pursuant to this clause (g) shall not exceed at any time an amount in excess of $150,000,000; and (h) Indebtedness not otherwise permitted by the foregoing clauses (a) through (g), provided that the aggregate outstanding principal amount of -------- Indebtedness on a consolidated basis incurred pursuant to this clause (h) shall not exceed an amount equal to 7-1/2% of Consolidated Net Worth at any time. -32- 8.05 Limitation on Restricted Payments. Neither Holdings nor the --------------------------------- Borrower will (A) declare or pay any dividends (other than dividends payable solely in its capital stock) or return any capital to its stockholders or authorize or make any other distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for consideration, any shares of any class of its capital stock now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock of Holdings or the Borrower now or hereafter outstanding (or any options or warrants or stock appreciation rights issued by Holdings or the Borrower with respect to its capital stock) (all of the foregoing, "Dividends"), or (B) purchase or otherwise acquire for consideration any shares of any class of the capital stock of any RJRN Entity (now or hereafter outstanding) (or any options or warrants or stock appreciation rights issued by any RJRN Entity with respect to its capital stock) or permit any of its Subsidiaries to do any of the foregoing or (C) make any loan or advance to, or investment in, any RJRN Entity, or permit any of its Subsidiaries to do any of the foregoing (all of clauses (A), (B) and (C), collectively, "Restricted Payments"), provided that, except -------- with respect to the following clauses (i) and (v), so long as no Event of Default then exists: (i) each of Holdings and the Borrower may (x) pay cash in lieu of issuing fractions of shares of its common stock at a time when it issues shares of its common stock upon the exercise of any warrants or options or upon the conversion or redemption of any convertible or redeemable preferred or preference stock and (y) repurchase its common stock and preferred stock (and/or options or warrants in respect thereof) pursuant to, and in accordance with the terms of, management and/or employee stock plans; (ii) Holdings may declare and pay, or otherwise effect, any other Dividend and the Borrower may declare and pay, or otherwise effect, any other Dividend to Persons other than Holdings, provided that the aggregate -------- amount of any such Dividend at the time declared, when added to all Dividends theretofore declared pursuant to this clause (ii) after April 28, 1995, shall not exceed an amount equal to the sum of (x) $300,000,000 plus (y) 50% of Cumulative Consolidated Net Income determined at the time of the declaration thereof, provided that such Dividend is paid within 45 days of -------- the making of such declaration; (iii) the Borrower and any of its Subsidiaries may make additional loans and advances to one or more RJRN Entities that is a Foreign Subsidiary, provided that the aggregate principal amount of such loans and -------- advances made pursuant to this clause (iii) shall not exceed $100,000,000 at any time; -33- (iv) the Borrower may pay Dividends to Holdings; and (v) each of Holdings and the Borrower may issue and exchange shares of any class or series of its common stock now or hereafter outstanding for shares of any other class or series of its common stock at the time outstanding. 8.06 Transactions with Affiliates. Holdings will not, and will not ---------------------------- permit any Subsidiary to, enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate (other than a Nabisco Entity) other than on terms and conditions substantially as favorable to Holdings or such Subsidiary as would be obtainable by Holdings or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate; provided, that the foregoing restrictions shall -------- not apply to: (i) customary fees paid to members of the Board of Directors of Holdings and of its Subsidiaries and (ii) the RJRN Agreements. 8.07 Consolidated Net Worth. Holdings will not permit Consolidated ---------------------- Net Worth at any time to be less than an amount equal to the sum of (x) $3,750,000,000 plus (y) the sum of 25% of Consolidated Net Income, if positive, for each prior fiscal year of Holdings, if any, ending after January 1, 1996. 8.08 Fixed Charge Coverage Ratio. Holdings will not permit the ratio --------------------------- of (i) Adjusted Operating Income to (ii) Consolidated Fixed Charges for any Test Period to be less than 1.15 to 1.00. 8.09 Leverage Ratio. Holdings will not permit the ratio of (i) -------------- Adjusted Consolidated Debt to (ii) Adjusted Operating Income for any Test Period to be more than 3.70 to 1.00. 8.10 Cash Interest Coverage Ratio. Holdings will not permit the ---------------------------- ratio of (i) Adjusted Operating Income to (ii) Consolidated Cash Interest Expense for any Test Period to be less than 3.00 to 1.00. SECTION 9. Events of Default. Upon the occurrence of any of the ----------------- following specified events (each, an "Event of Default"): 9.01 Payments. The Borrower shall (i) default in the payment when -------- due of any principal of the Loans or (ii) default, and such default shall continue for five or more days, in the payment when due of any interest on the Loans or any Fees or any other amounts owing hereunder or under any Note; or 9.02 Representations, etc. Any representation, warranty or statement --------------------- made or deemed made by either Credit Party herein or in any other Credit Document or in any -34- statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 9.03 Covenants. Either Credit Party shall (a) default in the due --------- performance or observance by it of any term, covenant or agreement contained in Section 7.10 or 8, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 9.01, 9.02 or clause (a) of this Section 9.03) contained in this Agreement and such default shall continue unremedied for a period of at least 30 days after notice to the Borrower by any Senior Managing Agent or the Required Banks; or 9.04 Default Under Other Agreements. (a) Holdings or any of its ------------------------------ Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) in excess of $75,000,000 individually or $150,000,000 in the aggregate, for Holdings and its Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice or lapse of time is required, provided that the existence of any Event of Default under this Section -------- 9.04(a)(ii) with respect to Indebtedness outstanding under the Nabisco Credit Agreement shall be determined after giving effect to any notice or lapse of time provided to the Borrower in the Nabisco Credit Agreement), any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (unless such required prepayment or mandatory prepayment results from a default or an event of the type that constitutes an Event of Default), prior to the stated maturity thereof, provided that to the extent Holdings or any of its -------- Subsidiaries incurs (including pursuant to a committed facility not borrowed thereunder but with commitments aggregating) or issues Indebtedness in an aggregate principal amount of at least $100,000,000 at any time that contains any default covering any action, failure to act and/or other circumstances of or affecting any Affiliate of Holdings (other than the Borrower and its Subsidiaries) not included as Events of Default hereunder (other than any of the foregoing relating solely to Holdings and its Subsidiaries), then this Section 9.04 shall be deemed to be automatically amended to include such defaults effective as of the date of the incurrence or issuance of such Indebtedness (it being agreed that the Borrower and Holdings will cooperate with the Senior Managing Agents to obtain an amendment to this Agreement, in form and substance satisfactory to the Majority SMA, formalizing the inclusion of such defaults under this Agreement); or -35- 9.05 Bankruptcy, etc. Holdings or any of its Material Subsidiaries ---------------- (each, a "Designated Party") shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against a Designated Party and the petition is not controverted within 10 days after service of notice of such case on such Designated Party, or is not dismissed within 60 days after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of a Designated Party; or a Designated Party commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to a Designated Party; or there is commenced against a Designated Party any such proceeding which remains undismissed for a period of 60 days; or a Designated Party is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or a Designated Party suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or a Designated Party makes a general assignment for the benefit of creditors; or any corporate action is taken by a Designated Party for the purpose of effecting any of the foregoing; or 9.06 ERISA. (a) A single-employer plan (as defined in Section 4001 ----- of ERISA) maintained or contributed to by Holdings or any of its Subsidiaries or any ERISA Affiliate shall fail to maintain the minimum funding standard required by Section 412 of the Code for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or shall provide security to induce the issuance of such waiver or extension, (b) any Plan is or shall have been terminated or the subject of termination proceedings under ERISA or an event has occurred entitling the PBGC to terminate a Plan under Section 4042(a) of ERISA, (c) any Plan shall have an Unfunded Current Liability, (d) Holdings or any of its Subsidiaries or any ERISA Affiliate has incurred or is likely to incur a material liability to or on account of a termination of or a withdrawal from a Plan under Section 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA, (e) Holdings or any of its Subsidiaries has incurred, after the Effective Date, liabilities (after giving effect to any reserves applicable thereto and maintained on the Effective Date) pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) which provide benefits to retired employees (other than as required by Section 601 of ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA) (except in each case solely as a result of a change in estimate or adjustment of liabilities existing on the Effective Date upon the adoption or implementation of Financial Accounting Statement 106), or (f) Holdings or any of its Subsidiaries or any ERISA Affiliate has incurred a liability under Section 409, 502(i) or 502(l) of ERISA or Section 4971 or 4975 of the Code; and there shall result from any such event or events described in the preceding clauses of this Section 9.06 the imposition of a Lien upon the -36- assets of Holdings or any of its Subsidiaries, the granting of a security interest, or a liability or a material risk of incurring a liability, which Lien, security interest or liability would have a material adverse effect upon the business, operations or financial condition of Holdings and its Subsidiaries taken as a whole; or 9.07 Judgments. One or more judgments or decrees shall be entered --------- against Holdings or any of its Material Subsidiaries involving a liability of $75,000,000 or more in the case of any one such judgment or decree and $150,000,000 or more in the aggregate for all such judgments and decrees for Holdings and its Material Subsidiaries (to the extent not paid or fully covered by insurance) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; or 9.08 Guaranty. The Guaranty or any provision thereof shall cease to -------- be in full force or effect, or the Guarantor or any Person acting by or on behalf of the Guarantor shall deny or disaffirm the Guarantor's obligations under the Guaranty or the Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Guaranty; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, any Senior Managing Agent shall, upon the written request of the Required Banks, by written notice to Holdings and the Borrower, take any or all of the following actions, without prejudice to the rights of any Senior Managing Agent or any Bank to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement (provided that -------- if an Event of Default specified in Section 9.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by any Senior Managing Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Bank shall forthwith terminate immediately and any Facility Fee and Utilization Fee theretofore accrued shall forthwith become due and payable without any other notice of any kind and (ii) declare the principal of and any accrued interest in respect of all Loans and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Holdings and the Borrower. Notwithstanding anything contained in the foregoing paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to the preceding paragraph, the Borrower shall pay all arrears of interest and all pay- ments on account of principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Defaults (other than non-payment of the principal of and accrued -37- interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 12.11, then Non- Defaulting Banks holding at least 66-2/3% of the Adjusted Total Commitment (which Banks shall include in any event the Majority SMA), by written notice to Holdings and the Borrower, may at their option rescind and annul the acceleration and its consequences; but such action shall not affect any subse- quent Event of Default or Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind the Banks to a decision which may be made at the election of the aforesaid percentage of the Banks and are not intended to benefit the Borrower and do not grant the Borrower the right to require the Banks to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. SECTION 10. Definitions. As used herein, the following terms shall ----------- have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Absolute Rate" shall mean an interest rate (rounded to the nearest .0001) expressed as a decimal. "Absolute Rate Borrowing" shall mean a Competitive Bid Borrowing with respect to which the Borrower has requested that the Banks offer to make Competitive Bid Loans at Absolute Rates. "Adjusted Consolidated Debt" shall mean the sum (without duplication) of (i) notes payable, (ii) the current maturities of long-term debt, (iii) long- term debt and (iv) all other amounts representing liabilities with respect to pay-in-kind interest to the extent included in "Other Liabilities," all as determined for Holdings and its Subsidiaries in accordance with GAAP, it being understood that determinations of the amounts specified in clauses (i), (ii), (iii) and (iv) shall be made on a consistent basis with the methodology utilized by Holdings to determine such amounts on the Effective Date. "Adjusted Operating Income" shall mean for any period (x) the consolidated operating income of Holdings and its Subsidiaries for such period plus (y) the sum of the consolidated depreciation expense and consolidated amortization expense of Holdings and its Subsidiaries for such period, all as determined in accordance with GAAP, it being understood that the determination of the amount specified in clauses (x) and (y) shall be made on a consistent basis with the methodology utilized by Holdings to determine such amount on the Effective Date, provided that (i) for the purposes of Section 8.08 only, for any -------- Test Period during which Consolidated Fixed Charges includes cash taxes paid as a result of any extraordinary sale of assets, Adjusted Operating Income shall include a portion of the gross cash proceeds received by Holdings and/or its Subsidiaries as a result of such extraordinary sale of assets equal to the percentage of such gross cash proceeds determined by dividing the cash taxes paid during such Test Period as a result of such sale by the -38- aggregate cash taxes payable as a result of such sale and (ii) for the purposes only of Section 8.09, for any Test Period during which any acquisition of any Person or business occurs, Adjusted Operating Income shall give pro forma effect --- ----- to such acquisition as if it occurred on the first day of such Test Period. "Adjusted Percentage" shall mean (x) at a time when no Bank Default exists, for each Bank such Bank's Percentage and (y) at a time when a Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii) for each Bank that is a Non-Defaulting Bank, the percentage determined by dividing such Bank's Commitment at such time by the Adjusted Total Commitment at such time, it being understood that all references herein to Commitments at a time when the Total Commitment has been terminated shall be references to the Commitments in effect immediately prior to such termination. "Adjusted Total Commitment" shall mean at any time the Total Commitment less the aggregate Commitments of all Defaulting Banks. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 20% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Outstandings" shall have the meaning provided in Section 3.02(A). "Agreement" shall mean this Credit Agreement, as the same may be from time to time modified, amended and/or supplemented. "Agreement of Commitment Increase" shall mean an agreement in the form of Exhibit C-3, appropriately completed. "Applicable Credit Rating" shall mean the highest rating level (a rating level being, e.g., each of BBB-, BBB and BBB+, in the case of S&P) ---- assigned by each Rating Agency to any of the Long Term Debt Issues of Holdings or the Borrower. "Applicable Eurodollar Margin" shall mean, (x) at any time prior to the Commitment Expiry Date, .275% and (y) at any time on and after the Commitment Expiry Date in respect of each Interest Period commencing during a period set forth below, the percentage set forth below opposite such period below: -39- Applicable ----------- Period Eurodollar Margin ------ ----------------- NIG Period .625% Minimum Investment .375% Grade Period Increased Investment Grade .275% Period Maximum Investment .225% Grade Period "Applicable Utilization Fee Percentage" shall mean, at any time during a period set forth below, the percentage set forth opposite such period below: Applicable ----------- Period Utilization Fee Percentage ------ -------------------------- NIG Period .250% Minimum Investment .125% Grade Period Increased Investment Grade 0% Period Maximum Investment 0% Grade Period "Assignment Agreement" shall have the meaning provided in Section 12.04(b)(A). "Authorized Officer" shall mean any senior officer of Holdings or the Borrower, as the case may be, designated as such in writing to the Senior Managing Agents by Holdings or the Borrower, in each case to the extent acceptable to the Majority SMA. "Bank" shall have the meaning provided in the first paragraph of this Agreement. "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing or (ii) a Bank having notified any Senior Managing Agent and/or the Borrower that it does not intend to comply with its -40- obligations under Section 1.01(a), in the case of either (i) or (ii) as a result of the appointment of a receiver or conservator with respect to such Bank at the direction or request of any regulatory agency or authority. "Bankruptcy Code" shall have the meaning provided in Section 9.05. "Base Rate" shall mean, for any day, the average of the publicly announced prime rates, base rates and/or reference rates on such date of BTCo, Chase, Chemical and Citibank. "Bidder Bank" shall mean each Bank that has notified in writing (and has not withdrawn such notice) the Payments Administrator that it desires to participate generally in the bidding arrangements relating to Competitive Bid Borrowings. "Borrower" shall have the meaning provided in the first paragraph of this Agreement and shall also include any Person which is the surviving corporation after giving effect to any transaction permitted by Section 8.02 involving the Borrower. "Borrowing" shall mean and include (i) the incurrence of one Type of Revolving Loan by the Borrower from all of the Banks on a pro rata basis on a --- ---- given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period, provided that Reference Rate Loans -------- incurred pursuant to Section 1.11(b) shall be considered part of any related Borrowing of Eurodollar Loans and (ii) a Competitive Bid Borrowing. "BTCo" shall mean Bankers Trust Company and any successor corporation thereto by merger, consolidation or otherwise. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking insti- tutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "Capital Lease," as applied to any Person, shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person. -41- "Capitalized Lease Obligations" shall mean all obligations under Capital Leases of Holdings or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Change of Control" shall mean and include (a) at any time Continuing Directors shall not constitute a majority of the Board of Directors of Holdings or the Borrower; and/or (b) any Person or group (as such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than RJRN, Holdings and its Subsidiaries, shall acquire, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 and 13d-5 under the Exchange Act) of 30% or more, on a fully diluted basis, of the economic or voting interest in Holdings' capital stock; and/or (c) Holdings shall own less than 80% on a fully diluted basis of (x) the economic interest of the common stock of the Borrower or (y) the voting interest of the capital stock of the Borrower. "Chase" shall mean The Chase Manhattan Bank, N.A. and any successor corporation thereto by merger, consolidation or otherwise. "Chemical" shall mean Chemical Bank and any successor corporation thereto by merger, consolidation or otherwise. "Citibank" shall mean Citibank, N.A. and any successor corporation thereto by merger, consolidation or otherwise. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Commercial Paper Outstandings" shall mean, at any time, an amount equal to the lesser of (i) the sum of (x) the face amount of all commercial paper previously issued by Holdings and/or any of its Subsidiaries at a discount and outstanding at such time plus (y) the principal amount of all commercial ---- paper previously issued by Holdings and/or any of its Subsidiaries on an interest bearing basis and outstanding at such time, and (ii) the remainder, if any, of (x) the Total Commitment at such time less (y) the then aggregate principal amount of all Loans outstanding at such time. "Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Annex I hereto, as the same may be increased from time to time pursuant to Section 1.16 and/or reduced from time to time pursuant to Section 2.02, 2.03, 9 and/or 12.04(b)(A). -42- "Commitment Expiry Date" shall mean the date which is 364 days after the Effective Date. "Commodities Agreement" shall mean any forward contract, futures contract, option contract or similar agreement or arrangement, in each case intended to protect the Persons entering into same from fluctuations in the price of, or shortage of supply of, commodities. "Competitive Bid Borrowing" shall mean a Borrowing of Competitive Bid Loans pursuant to Section 1.04 with respect to which the Borrower has requested that the Banks offer to make Competitive Bid Loans at Absolute Rates. "Competitive Bid Loans" shall have the meaning provided in Section 1.01(b). "Consolidated Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases but excluding any amount representing capitalized interest) by Holdings and its Subsidiaries during that period that, in conformity with GAAP, are or are required to be included as additions during such period to property, plant or equipment reflected in the consolidated balance sheet of Holdings and its Subsidiaries, provided that Consolidated Capital Expenditures shall in any event -------- exclude (x) additions to property, plant and equipment reflected on the consolidated balance sheet of Holdings and its Subsidiaries that result from the acquisition of any Person (including through the purchase of the capital stock or ownership interests of such Person or through merger or consolidation) and (y) expenditures made in connection with the replacement, substitution or restoration of assets (i) to the extent financed from insurance proceeds paid on account of the loss of or damage to the assets being replaced or restored or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced. "Consolidated Cash Interest Expense" shall mean, for any period, (i) consolidated interest expense of Holdings and its Subsidiaries, but excluding, however, to the extent included in consolidated interest expense, (x) non-cash interest expense and (y) amortization of debt issuance cost plus (ii) cash dividends paid on all preferred stock of Holdings and its Subsidiaries (except to the extent paid to Holdings or a Wholly-Owned Subsidiary of Holdings) during such period, it being understood that the determination of the amounts specified in clauses (i)(x) and (i)(y) shall be made on a consistent basis with the methodology utilized by Holdings to determine such amounts on the Effective Date. "Consolidated Fixed Charges" shall mean, for any period, the sum, without duplication, of the amounts for such period of (i) Consolidated Cash Interest Expense, (ii) -43- cash taxes paid during such period, and (iii) Consolidated Capital Expenditures, all as determined on a consolidated basis for Holdings and its Subsidiaries in accordance with GAAP, it being understood that the determination of the amounts specified in clause (iii) shall be made on a consistent basis with the method- ology utilized by Holdings to determine such amount on the Effective Date. "Consolidated Net Income" shall mean, for any period, for any Person the consolidated net income of such Person and its Subsidiaries, determined in accordance with GAAP, for such period. "Consolidated Net Worth" shall mean, as at any date of determination, the stockholders' equity of Holdings as determined in accordance with GAAP and as would be reflected on a consolidated balance sheet of Holdings prepared as of such date, it being understood that the determination of such amounts shall be made on a consistent basis with the methodology utilized by Holdings to determine such amount on the Effective Date. "Contingent Obligations" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other monetary obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property con- stituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof, provided -------- however that the term Contingent Obligation shall not include endorsements of - ------- instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the lesser of (x) the maximum stated or determinable amount of such Contingent Obligation and (y) the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Continuing Director" shall mean, at any date, an individual (x) who is a member of the Board of Directors of Holdings or the Borrower, as the case may be, on the date of this Agreement, (y) who, as at such date, has been a member of such Board of Directors for at least the twelve preceding months, or (z) who has been nominated to be a -44- member of such Board of Directors by a majority of the other Continuing Directors then in office. "Corporate Agreement" shall mean the Corporate Agreement, dated as of January 26, 1995, between Holdings and RJRN. "CP Refinancing Borrowing" shall mean any Borrowing of Revolving Loans, any of the proceeds of which are to be utilized to repay Commercial Paper Outstandings, to the extent such Borrowing is identified as such by the Borrower in the Notice of Borrowing given in respect of such Borrowing. "Credit Documents" shall mean this Agreement and the Notes. "Credit Party" shall mean each of Holdings and the Borrower. "Credit Rating" shall mean (i) the Applicable Credit Rating assigned by each Rating Agency, if such Applicable Credit Ratings are the same or (ii) if the Applicable Credit Ratings assigned by the Rating Agencies differ, the higher of the Applicable Credit Ratings assigned by the Rating Agencies, provided that -------- in the event the Applicable Credit Rating of any Rating Agency shall be more than one rating level above the Applicable Credit Rating of the other Rating Agency, the Credit Rating shall be one level below the higher Applicable Credit Rating. "Cumulative Consolidated Net Income" shall mean, at any time for any determination thereof, the sum of (i) Consolidated Net Income of Holdings for the period (taken as one accounting period) commencing January 1, 1995 and ending on the last day of the last fiscal quarter of Holdings then ended plus (ii) all losses from debt retirement deducted in determining Consolidated Net Income of Holdings for the period referred to in clause (i) above. "Currency Agreement" shall mean any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement designed to protect the Persons entering into same against fluctuations in currency values. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. "Designated Party" shall have the meaning provided in Section 9.05. -45- "Dividends" shall have the meaning provided in Section 8.05. "Effective Date" shall have the meaning provided in Section 4. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D), provided that Eligible Transferee shall not include any Person -------- (or any Affiliate thereof) who competes with Holdings and its Subsidiaries in the cookie, cracker, snack food or candy business. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with Holdings, a Subsidiary or a Credit Party would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Eurodollar Loans" shall mean each Revolving Loan bearing interest at the rates provided in Section 1.09(b). "Eurodollar Rate" shall mean with respect to each Interest Period for a Eurodollar Loan (or for a Spread Borrowing priced by reference to the Eurodollar Rate), (i) the arithmetic average (rounded to the nearest 1/100 of 1%) of the offered quotation to first-class banks in the interbank Eurodollar market by each Reference Bank for dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of such Reference Bank for which an interest rate is then being determined with matur- ities comparable to the Interest Period to be applicable to such Eurodollar Loan (or in the case of such Spread Borrowing, the arithmetic average of the offered rates for deposits in U.S. dollars for the applicable Interest Period (or the period closest to such applicable Interest Period) which appear on the Reuters Screen LIBO Page), determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period, divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), provided, that if one or more of the Reference Banks fails to provide the - -------- Payments Administrator with its aforesaid rate for an Interest Period applicable to Eurodollar Loans, then the Eurodollar -46- Rate for such Interest Period shall be determined based on the rate or rates provided to the Payments Administrator by the other Reference Bank or Banks. "Event of Default" shall have the meaning provided in Section 9. "Exchange Agreement" shall mean the Exchange Agreement, dated as of April 26, 1995, among Holdings, the Borrower and RJRN. "Expiration Date" shall mean December 31, 1995. "Facility Fee" shall have the meaning provided in Section 2.01(a). "Facility Fee Percentage" shall mean .100%. "Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Payments Administrator from three Federal Funds brokers of recognized standing selected by the Payments Administrator. "Fees" shall mean all amounts payable pursuant to, or referred to in, Section 2.01. "Foreign Subsidiary" shall mean each Subsidiary of RJRN (other than any Nabisco Entity) doing business primarily outside the United States or any state or territory thereof. "Fuji" shall mean The Fuji Bank, Limited and any successor corporation thereto by merger, consolidation or otherwise. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time; it being understood and agreed that determinations in accordance with GAAP for purposes of Section 8, including defined terms as used therein, shall be made pursuant to Section 12.07(a). "Guarantor" for purposes of Section 13 of this Agreement shall mean Holdings, to the extent not merged or consolidated with the Borrower in accordance with Section 8.02. -47- "Guaranty" shall mean the guaranty of Holdings set forth in Section 13, as the same may be supplemented, amended or modified from time to time. "Hanover" shall mean one or more special purpose, Wholly-Owned Subsidiaries of the Borrower engaged exclusively in the business of purchasing and financing domestic trade accounts receivable generated by the Borrower and its Subsidiaries. "Hanover Facility" shall mean a receivables purchase facility among Hanover, Corporate Asset Funding Company, Inc., CIESCO L.P., Citibank, N.A. and/or Citicorp North America, Inc. governed by documentation (including the receivables purchase agreements between Hanover and the Borrower) in effect on the Effective Date as such documentation may be amended from time to time (other than to the extent any such amendment changes the non-recourse nature of such facility in respect of the Borrower). References to the Hanover Facility shall include any liquidity facility relating to the receivables purchase facility referred to in the preceding sentence. "Hedging Agreements" shall mean and include Commodities Agreements, Currency Agreements and Interest Rate Agreements. "Holdings" shall have the meaning provided in the first paragraph of this Agreement and shall also include any Person which is the surviving corporation after giving effect to any transaction permitted by Section 8.02 involving Holdings. "Increased Investment Grade Period" shall mean any period during which the Credit Rating at all times is the Increased Investment Grade Rating. "Increased Investment Grade Rating" shall mean the rating assigned by each Rating Agency which is one rating level above the Minimum Investment Grade Rating, it being understood that as of the date of this Agreement the "Increased Investment Grade Rating" of S&P is BBB and the "Increased Investment Grade Rating" of Moody's is Baa2. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such Indebtedness has been assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or ser- vices whether or not delivered or accepted, i.e., take-or-pay and similar ---- obligations, (vii) all obligations of such Person under Hedging Agreements, (viii) all Contingent Obligations of such -48- Person, and (ix) the outstanding unreimbursed purchase price paid to Hanover in respect of the purchase of receivables from it pursuant to the Hanover Facility, provided that Indebtedness shall not include (x) trade payables and accrued - -------- expenses, in each case arising in the ordinary course of business and (y) any obligation of the Borrower or any Subsidiary thereof to purchase products, services and produce utilized in its business pursuant to the RJRN Agreements or agreements entered into in the ordinary course of business on a basis consistent with Holdings' past practices or then current industry practices, and provided -------- further, that (a) for the purposes of Section 9.04, the amount of Indebtedness - ------- represented by any Hedging Agreement shall be at any time the unrealized net loss position, if any, of the Borrower and/or its Subsidiaries thereunder on a marked to market basis determined no more than one month prior to such time and (b) for the purposes of determining the Indebtedness permitted to be secured by Section 8.03(e) or outstanding under Section 8.04(h), the amount of Indebtedness included in such determination that is attributable to all Hedging Agreements secured or permitted thereunder, as the case may be, shall be the Net Termination Value, if any, of all such Hedging Agreements. "Interest Period" shall mean with respect to (i) any Revolving Loan constituting a Eurodollar Loan, the interest period applicable thereto as determined pursuant to Section 1.10 and (ii) any Competitive Bid Loan, the period from the date of the making thereof to the maturity date thereof as specified in the respective Notice of Competitive Bid Borrowing. "Interest Rate Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate futures contract, interest rate option contract or other similar agreement or arrangement. "Interest Rate Basis" shall mean the Eurodollar Rate and/or such other basis for determining an interest rate as the Borrower and the Payments Administrator may agree upon from time to time. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement (other than customary negative pledge clauses) to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" shall mean any Competitive Bid Loan or Revolving Loan. "Long Term Debt Issues" shall mean, with respect to each of Holdings and the Borrower, each issuance of long-term senior debt of such Person which ranks on a parity, as to payment and security, with the Guaranty or the Loans, as the case may be. -49- "Majority SMA" shall mean, at any time, at least one-half in number of the Senior Managing Agents. "Margin Stock" shall have the meaning provided in Regulation U. "Material Subsidiary" shall mean and include, at any time, the Borrower and each other Subsidiary of Holdings to the extent that (x) the aggre- gate consolidated book value of the assets of such Subsidiary is equal to or more than $300,000,000 or (y) the revenues of such Subsidiary during its then most recently ended fiscal year were equal to or more than $200,000,000. "Maturity Date" shall mean the date which is the third anniversary of the Commitment Expiry Date. "Maximum Investment Grade Period" shall mean any period during which the Credit Rating is, or is at any level above, the Maximum Investment Grade Rating. "Maximum Investment Grade Rating" shall mean the rating assigned by each Rating Agency which is at least one or more levels above the Increased Investment Grade Rating, it being understood that as of the date of this Agreement the lowest "Maximum Investment Grade Rating" of S&P is BBB+ and the lowest "Maximum Investment Grade Rating" of Moody's is Baa1. "Minimum Borrowing Amount" shall mean $25,000,000. "Minimum Investment Grade Period" shall mean any period during which the Credit Rating is at all times the Minimum Investment Grade Rating. "Minimum Investment Grade Rating" shall mean the lowest rating level established as investment grade by each Rating Agency, it being understood that as of the date of this Agreement the "Minimum Investment Grade Rating" of S&P is BBB- and the "Minimum Investment Grade Rating" of Moody's is Baa3. "Moody's" shall mean Moody's Investors Service, Inc., or any successor corporation thereto. "Nabisco Biscuit Division" shall mean the portion of the business of Holdings and its Subsidiaries engaged in the manufacture and sale of crackers and cookies in the United States. "Nabisco Credit Agreement" shall mean the Credit Agreement, dated as of April 28, 1995, among Holdings, the Borrower, various lending institutions party thereto -50- and the Senior Managing Agents, as the same may be amended, modified or supplemented from time to time. "Nabisco Entity" shall mean Holdings and its Subsidiaries. "Net Termination Value" shall mean at any time, with respect to all Hedging Agreements for which a Net Termination Value is being determined, the excess, if positive, of (i) the aggregate of the unrealized net loss position of the Borrower and/or its Subsidiaries under each of such Hedging Agreements on a marked to market basis determined no more than one month prior to such time less (ii) the aggregate of the unrealized net gain position of the Borrower and/or its Subsidiaries under each of such Hedging Agreements on a marked to market basis determined no more than one month prior to such time. "NIG Period" shall mean any period during which the Credit Rating is at all times below the Minimum Investment Grade Rating. "Non-Defaulting Bank" shall mean and include each Bank other than a Defaulting Bank. "Note" shall have the meaning provided in Section 1.06(a). "Notice of Borrowing" shall have the meaning provided in Section 1.03. "Notice of Competitive Bid Borrowing" shall have the meaning provided in Section 1.04. "Notice of Conversion" shall have the meaning provided in Section 1.07. "Obligations" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to any Senior Managing Agent, the Payments Administrator or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Payments Administrator" shall mean Citibank, provided that if -------- Citibank shall cease to constitute a Senior Managing Agent hereunder, the remaining Senior Managing Agents shall have the option to appoint one of such remaining Senior Managing Agents as the Payments Administrator. "Payments Administrator's Office" shall mean the office of the Payments Administrator located at 399 Park Avenue, New York, New York 10043, or such other office in New York City as the Payments Administrator may hereafter designate in writing as such to the other parties hereto. -51- "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Percentage" shall mean at any time for each Bank, the percentage obtained by dividing such Bank's Commitment by the Total Commitment, provided -------- that at any time when the Total Commitment shall have been terminated each Bank's Percentage shall be the percentage obtained by dividing such Bank's outstanding Revolving Loans by the aggregate outstanding Revolving Loans. "Permitted Commodities Agreement" shall mean any Commodities Agreement entered into in the ordinary course of business by any Subsidiary of the Borrower to the extent consistent with the practices of the Borrower and its Subsidiaries prior to the Effective Date or with then current practices in the industry. "Permitted Currency Agreement" shall mean any Currency Agreement entered into in the ordinary course of business by any Subsidiary of the Borrower to the extent consistent with the practices of the Borrower and its Subsidiaries prior to the Effective Date or with then current practices in the industry, provided that no domestic Subsidiary (other than domestic Subsidiaries -------- of the Borrower all or substantially all of the business and operations of which are conducted outside the United States) may be an obligor under or a guarantor of any such Currency Agreements entered into after the Effective Date. "Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any multiemployer or single-employer plan as defined in Section 4001 of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribution of), or at any time during the five calendar years preceding the date of this Agreement was maintained or contributed to by (or to which there was an obligation to contribution of), the Borrower, a Subsidiary or an ERISA Affiliate. "Pro Forma Events" shall mean, with respect to the financial statements of the Credit Parties, the transactions and events in the Refinancing leading to the adjustments set forth in the pro forma balance sheets referred to in Section 6.09 of the Nabisco Credit Agreement. "Rating Agency" shall mean each of S&P and Moody's. "Reference Banks" shall mean BTCo, Chase, Chemical and Citibank. -52- "Reference Rate" shall mean, at any time, the higher of (x) the rate which is 1/2 of 1% in excess of the Federal Funds Rate and (y) the Base Rate as in effect from time to time. "Reference Rate Loan" shall mean each Revolving Loan bearing interest at the rates provided in Section 1.09(a). "Refinancing" shall have the meaning provided such term in the Nabisco Credit Agreement. "Register" shall have the meaning provided in Section 1.06(d). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "Replacement Receivables Facility" shall mean any receivables purchase facility that replaces or refinances the Hanover Facility or any prior Replacement Receivables Facility, together with any liquidity facility relating thereto, to the extent the Liens created thereunder, and under any related purchase agreements between Hanover, on the one hand, and the Borrower on the other hand, do not attach to any assets not subject to the Liens created under the Hanover Facility or the Replacement Receivables Facility, as the case may be, being replaced or refinanced. References to the Replacement Receivables Facility shall include any liquidity facility relating to the receivables purchase facility referred to in the preceding sentence. "Reply Date" shall have the meaning provided in Section 1.04(b). "Reportable Event" shall mean an event described in Section 4043(b) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "Required Banks" shall mean at any time either (A) (i) the Majority SMA plus (ii) Non-Defaulting Banks (including any of the Senior Managing Agents) holding more than 50% of the Adjusted Total Commitment (or, if the Total Commitment has been terminated, of the aggregate principal amount of Loans held by Non-Defaulting Banks), or (B) Non-Defaulting Banks holding more than 66-2/3% of the Adjusted Total Commitment (or, -53- if the Total Commitment has been terminated, of the aggregate principal amount of Loans held by Non-Defaulting Banks). "Restricted Payments" shall have the meaning provided in Section 8.05. "Restricted Sales" shall mean and include the sale or other disposition, whether such sale or disposition is of capital stock or assets, by Holdings or any of its Subsidiaries to any Person other than the Borrower or a Wholly-Owned Subsidiary of the Borrower in one or more transactions of all or substantially all or any substantial portion of the assets (other than (i) inventory and equipment to the extent sold or disposed of in the ordinary course of business and (ii) receivables pursuant to the Hanover Facility or under any Replacement Receivables Facility) of the Nabisco Biscuit Division as constituted on the Effective Date, provided that Restricted Sales shall not include any -------- issuance by Holdings or the Borrower of its capital stock. "Revolving Loan" shall have the meaning provided in Section 1.01(a). "RJRN" shall mean RJR Nabisco, Inc., a Delaware corporation. "RJRN Agreements" shall mean, collectively, the Corporate Agreement, the Services Agreement, the Tax Sharing Agreement and the Exchange Agreement. "RJRN Entity" shall mean RJRN Holdings and each Subsidiary of RJRN other than Holdings and any of its Subsidiaries. "RJRN Holdings" shall mean RJR Nabisco Holdings Corp., a Delaware corporation. "S&P" shall mean Standard & Poor's Ratings Group, or any successor corporation thereto. "SEC" shall have the meaning provided in Section 7.01(e). "SEC Regulation D" shall mean Regulation D as promulgated under the Securities Act of 1933, as amended, as the same may be in effect from time to time. "Second Amendment" shall mean the Second Amendment, dated as of November 3, 1995, to the Nabisco Credit Agreement. "Senior Managing Agent" shall mean and include BTCo, Chase, Chemical, Citibank and Fuji, and any successor to any thereof appointed pursuant to Section 11.09. -54- "Services Agreement" shall mean the Intercompany Services and Operating Agreement, dated as of January 26, 1995, between Holdings and RJRN. "Specified Permitted Existing Debt" shall mean the Indebtedness existing as of April 28, 1995 as described in Annex IV and such other Indebtedness of Subsidiaries of the Borrower existing as of April 28, 1995 and not so listed in an aggregate principal amount not to exceed $10,000,000. "Spread" shall mean a percentage per annum (rounded to the nearest .0001%) in excess of, or less than, an Interest Rate Basis. "Spread Borrowing" shall mean a Competitive Bid Borrowing with respect to which the Borrower has requested the Banks to make Competitive Bid Loans at a Spread over or under a specified Interest Rate Basis. "Subsidiary" of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to "Subsidiary" shall mean a Subsidiary of Holdings. "Tax Sharing Agreement" shall mean the agreement, dated as of January 26, 1995, as amended on March 23, 1995, between Holdings and RJRN. "Taxes" shall have the meaning provided in Section 3.04(a). "Termination Date" shall mean the first date after the Effective Date on which the Total Commitment is zero and there are no outstanding Loans. "Test Period" shall mean for any determination under Section 8.08, 8.09 or 8.10 the four consecutive fiscal quarters of Holdings then last ended. "Total Adjusted Utilization Amount" at any time shall mean the Total Utilization Amount at such time less the aggregate principal amount of all Loans made by Defaulting Banks outstanding at such time. "Total Commitment" shall mean the sum of the Commitments of each Bank. -55- "Total Unutilized Commitment" shall mean the excess of (x) the Total Commitment over (y) the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and Competitive Bid Loans and (ii) at any time on or prior to the Commitment Expiry Date, the Commercial Paper Outstandings. "Total Utilization Amount" shall mean at any time the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and Competitive Bid Loans plus (ii) at any time on or prior to the Commitment Expiry Date, the Commercial Paper Outstandings. "Type" shall mean any type of Loan determined with respect to the interest option applicable thereto, i.e., a Reference Rate Loan or Eurodollar ---- Loan. "UCC" shall mean the Uniform Commercial Code. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under such Plan as of the close of its most recent plan year, determined in accordance with Statement of Financial Accounting Standards No. 35, based upon the actuarial assumptions used by such Plan's actuary in the most recent annual valuation of such Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code. "Utilization Fee" shall have the meaning provided in Section 2.01(b). "Utilization Period" shall mean each calendar quarter (or portion thereof) ending on or prior to the Termination Date to the extent that during such period the average daily Total Utilization Amount exceeds (x) at all times on or prior to the Commitment Expiry Date, 50% of the average daily Total Commitment and (y) at all times thereafter, 50% of the Total Commitment on the Commitment Expiry Date. "Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of such Person to the extent all of the capital stock or other ownership interests in such Subsidiary, other than directors' or nominees' qualifying shares, is directly or indirectly owned by such Person. Establecimiento Modelo Terrabusi SAIC, an Argentine corporation, shall be deemed a Wholly-Owned Subsidiary of the Credit Parties so long as at least 95% of its capital stock is owned, directly or indirectly, by the Borrower. "Written" or "in writing" shall mean any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable. -56- SECTION 11. The Senior Managing Agents. -------------------------- 11.01 Appointment. Each Bank hereby irrevocably designates and ----------- appoints BTCo, Chase, Chemical, Citibank and Fuji as Senior Managing Agents (such term to include any of the Senior Managing Agents acting as Payments Administrator) of such Bank to act as specified herein and in the other Credit Documents, and each such Bank hereby irrevocably authorizes BTCo, Chase, Chemical, Citibank, Fuji, as the Senior Managing Agents for such Bank, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the respective Senior Managing Agents by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. Each Senior Managing Agent agrees to act as such upon the express conditions contained in this Section 11. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Senior Managing Agent shall have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibil- ities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against any Senior Managing Agent. The provisions of this Section 11 are solely for the benefit of the Senior Managing Agents and the Banks, and no Credit Party shall have any rights as a third party beneficiary of any of the provisions hereof, provided that Holdings shall have the rights -------- granted to it pursuant to Section 11.09. In performing its functions and duties under this Agreement, each Senior Managing Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for either Credit Party. 11.02 Delegation of Duties. Each Senior Managing Agent may execute -------------------- any of its duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Senior Managing Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 11.03. 11.03 Exculpatory Provisions. No Senior Managing Agent nor any of ---------------------- its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by Holdings, any Subsidiary or any of their respective officers contained in this Agreement, any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Senior Managing Agent under or in connection with, this Agreement or any other Credit Document or for any failure of Holdings or any Subsidiary or any of their respective -57- officers to perform its obligations hereunder or thereunder. No Senior Managing Agent shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of Holdings or any Subsidiary. No Senior Managing Agent shall be responsible to any Bank for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by any Senior Managing Agent to the Banks or by or on behalf of the Borrower to any Senior Managing Agent or any Bank or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default. 11.04 Reliance by Senior Managing Agents. Each Senior Managing Agent ---------------------------------- shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile transmission, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Credit Parties), independent accountants and other experts selected by such Senior Managing Agent. Each Senior Managing Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Senior Managing Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Banks (or to the extent specifically provided in Section 12.11, all the Banks), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks. 11.05 Notice of Default. No Senior Managing Agent shall be deemed to ----------------- have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Senior Managing Agent has received notice from a Bank or the Borrower or Holdings referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that any Senior Managing Agent receives such a notice, such Senior Managing Agent shall give prompt notice thereof to the Banks. Each Senior Managing Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks, provided that, -------- unless and until a Senior Managing Agent shall have received such -58- directions, such Senior Managing Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 11.06 Non-Reliance on Senior Managing Agents and Other Banks. Each ------------------------------------------------------ Bank expressly acknowledges that no Senior Managing Agent nor any of its offi- cers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Senior Managing Agent hereafter taken, including any review of the affairs of Holdings or any Subsidiary, shall be deemed to constitute any representation or warranty by any Senior Managing Agent to any Bank. Each Bank represents to each Senior Managing Agent that it has, independently and without reliance upon any Senior Managing Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of Holdings and its Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon any Senior Managing Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of Holdings and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Payments Administrator hereunder, no Senior Managing Agent shall have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, assets, property, financial and other conditions, prospects or creditworthiness of Holdings or any Subsidiary which may come into the possession of such Senior Managing Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 11.07 Indemnification. The Banks agree to indemnify each Senior --------------- Managing Agent in its capacity as such ratably according to their aggregate Commitments (or, if the Total Commitment has been terminated, their aggregate Commitments as in effect immediately prior to such termination), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against such Senior Managing Agent in its capacity as such in any way relating to or arising out of this Agreement or any other Credit Document, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by any Senior Managing Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by -59- Holdings or any of its Subsidiaries, provided that no Bank shall be liable to -------- any Senior Managing Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such Senior Managing Agent's gross negligence or willful misconduct. If any indemnity furnished to any Senior Managing Agent for any purpose shall, in the opinion of such Senior Managing Agent, be insufficient or become impaired, such Senior Managing Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section 11.07 shall survive the payment of all Obligations. 11.08 Senior Managing Agents in Their Individual Capacities. Each ----------------------------------------------------- Senior Managing Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with Holdings and its Subsidiaries as though such Senior Managing Agent were not a Senior Managing Agent hereunder. With respect to the Loans made by it and all Obligations owing to it, each Senior Managing Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not a Senior Managing Agent, and the terms "Bank" and "Banks" shall include each Senior Managing Agent in its individual capacity. 11.09 Successor Senior Managing Agents. Any Senior Managing Agent -------------------------------- may resign as a Senior Managing Agent upon 20 days' notice to the Banks, provided that prior to, and as a condition of, the last remaining Senior - -------- Managing Agent so resigning, the Required Banks shall appoint from among the Banks a successor Senior Managing Agent for the Banks subject to prior approval by Holdings (such approval not to be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Senior Managing Agents, and the term "Senior Managing Agents" shall include such successor agent effective upon its appointment, and the resigning Senior Managing Agent's rights, powers and duties as a Senior Managing Agent shall be terminated, without any other or further act or deed on the part of such former Senior Managing Agent or any of the parties to this Agreement. After any retiring Senior Managing Agent's resignation hereunder as a Senior Managing Agent, the provisions of this Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Senior Managing Agent under this Agreement. SECTION 12. Miscellaneous. ------------- 12.01 Payment of Expenses, etc. The Borrower agrees to: (i) pay all ------------------------- reasonable out-of-pocket costs and expenses of (x) the Senior Managing Agents, whether or not the transactions herein contemplated are consummated, in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case but -60- of no other counsel) and (y) each Senior Managing Agent and each of the Banks in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each Senior Managing Agent and for each of the Banks); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify each Bank, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Bank is a party thereto) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such los- ses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 12.02 Right of Setoff. In addition to any rights now or hereafter --------------- granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to either Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of either Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations of such Credit Party purchased by such Bank pursuant to Section 12.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 12.03 Notices. Except as otherwise expressly provided herein, all ------- notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered, if to a Credit Party, at the address specified opposite its signature below; if to any Bank, at its address specified for such Bank on Annex II hereto; or, at such other address as shall be designated by any party in a written notice to the other -61- parties hereto. All such notices and communications shall be telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 12.04 Benefit of Agreement. (a) This Agreement shall be binding -------------------- upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that no Credit Party may assign or -------- transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under Section 8.02, without the prior written consent of the Banks, and provided -------- further, that the rights of each Bank to transfer, assign or grant participa- - ------- tions in its rights and/or obligations hereunder shall be limited as set forth below in this Section 12.04, provided that nothing in this Section 12.04 shall -------- prevent or prohibit any Bank from pledging its rights under this Agreement and/or its Loans and/or Note hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign pursuant to an Assignment ----------- Agreement substantially in the form of Exhibit C-2 hereto (each, an "Assignment Agreement") all or a portion of its rights and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or (y) one or more other Eligible Transferees, provided that any such assignment -------- pursuant to clause (y) above shall be in the aggregate amount of at least (I) in the event of an assignment relating to this Agreement only, $10,000,000, except to the extent that after giving effect to any such assignment the assigning Bank shall have reduced its Commitment to zero and (II) in the event of an assignment relating to this Agreement and the Nabisco Credit Agreement, $5,000,000, provided that the aggregate amount of -------- such assignment under this Agreement and the Nabisco Credit Agreement is at least $10,000,000, except to the extent that after giving effect to any such assignment the assigning Bank shall have reduced its Commitment hereunder to zero. Any assignment to another Bank pursuant to this clause (b)(A) will become effective upon the payment to the Payments Administrator by (I) either the assigning or the assignee Bank or (II) in the case of an assignment pursuant to Section 1.14, the Replacement Bank, of a nonrefundable assignment fee of $2,500 and the recording by the Payments Administrator of such assignment, and the resultant effects thereof on the Commitments of the assigning Bank and the assignee Bank, in the Register, the Payments Administrator hereby agreeing to effect such recordation no later than five Business Days after its receipt of a written notification by the assigning Bank and the assignee Bank of the proposed assignment, provided that the Payments Administrator shall not be required to, and -------- shall not, so record any assignment in -62- the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with Section 12.11 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Assignments pursuant to this clause (b)(A) to any Person not theretofore a Bank hereunder will only be effective if the Payments Administrator shall have received a written notice in the form of Exhibit C-1 hereto from the assigning Bank and the assignee Bank and payment of a nonrefundable assignment fee of $2,500 to the Payments Administrator (provided, that in -------- the event of simultaneous assignments relating to this Agreement and the Nabisco Credit Agreement, the fees for such assignments shall total $2,500) by (I) either the assigning or the assignee Bank or (II) in the case of an assignment pursuant to Section 1.14, the Replacement Bank. No later than five Business Days after its receipt of such written notice, the Payments Administrator will record such assignment, and the resultant effects thereof on the Commitment of the assigning Bank, in the Register, at which time such assignment shall become effective, provided that the Payments -------- Administrator shall not be required to, and shall not, so record any assignment in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with Section 12.11 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment pursuant to this clause (b)(A), (x) the assignee will become a "Bank" for all purposes of this Agreement and the other Credit Documents with a Commitment as so recorded by the Payments Administrator in the Register, and to the extent of such assignment, the assigning Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned and (y) if such assignment occurs after the Effective Date, the Borrower shall issue new Notes (in exchange for the Note of the assigning Bank) to the assigning Bank (to the extent such Bank's Commitment is not reduced to zero as a result of such assignment) and to the assignee Bank, in each case to the extent requested by the assigning Bank or assignee Bank, as the case may be, in conformity with the requirements of Section 1.06 to the extent needed to reflect the revised Commitments of such Banks. The Payments Administrator will prepare on the last Business Day of each calendar quarter during which an assignment has become effective pursuant to this clause (b)(A) a new Annex I giving effect to all such assignments effected during such quarter and will promptly provide same to the Borrower and each of the Banks. (B) Participations. Each Bank may transfer, grant or assign -------------- participations in all or any part of such Bank's interests and obligations hereunder pursuant to this -63- clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall -------- remain a "Bank" for all purposes of this Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating or (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or Fees applicable to any of the Loans or Commitments or postpone the payment of any thereof or (z) release the Guaranty. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against the granting Bank in respect of such partici- pation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation, provided that -------- such participant shall be entitled to receive additional amounts under Sections 1.11, 1.12 and 3.04 on the same basis as if it were a Bank. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.14 and such participant shall have executed a confidentiality agreement in the form of Exhibit D hereto. (c) Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Bank hereunder or any grant of participations therein shall be permitted if such transfer, assign- ment or grant would require the Borrower or the Guarantor to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any State. (d) Each Bank initially party to this Agreement hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement repre- sent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding -------- clauses (a) through (c), the disposition of any promissory notes or other evid- ences of or interests in Indebtedness held by such Bank shall at all times be within its exclusive control. 12.05 No Waiver; Remedies Cumulative. No failure or delay on the ------------------------------ part of any Senior Managing Agent, Payments Administrator or any Bank in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between either Credit Party and any Senior Managing Agent or any Bank shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further -64- exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which any Senior Managing Agent or any Bank would otherwise have. No notice to or demand on either Credit Party in any case shall entitle either Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Senior Managing Agents or the Banks to any other or further action in any circumstances without notice or demand. 12.06 Payments Pro Rata. (a) The Payments Administrator agrees that ----------------- promptly after its receipt of each payment from or on behalf of either Credit Party in respect of any Obligations of such Credit Party, it shall, except as otherwise provided in this Agreement (or to the extent waived by any Bank), distribute such payment to the Banks pro rata based upon their respective --- ---- shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligations then owed and due to such Bank bears to the total of such Obligations then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations to such Banks in such amount as shall result in a proportional participation by all of the Banks in such amount, provided that if all or any portion of such -------- excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 12.07 Calculations; Computations. (a) The financial statements to -------------------------- be furnished to the Banks pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Banks), provided that, except as otherwise specifically -------- provided herein, all computations determining compliance with Section 8, including definitions used therein, shall utilize accounting principles and pol- icies in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements delivered to the Banks pursuant to Section 6.09, provided that in the event GAAP shall be modified from -------- that in effect at the time of the preparation of such financial statements, the Borrower shall be entitled to utilize GAAP, as so modified, for purposes of such computations to the extent that (x) the Borrower gives the Banks 30 days' prior written notice of such proposed modification and (y) prior thereto -65- the Borrower and the Majority SMA shall have agreed upon adjustments, if any, to Sections 8.03(e), 8.04(h), 8.05, 8.07, 8.08, 8.09 and 8.10 (and the definitions used therein) the sole purpose of which shall be to give effect to such proposed change (it being understood and agreed that to the extent that the Borrower and the Majority SMA cannot agree on appropriate adjustments to such Sections (or that no adjustments are necessary), the proposed change may not be effected), and provided further, (i) that if at any time the computations determining ---------------- compliance with Section 8 utilize accounting principles different from those utilized in the financial statements furnished to the Banks, such financial statements shall be accompanied by reconciliation work-sheets and (ii) in the event that the Indebtedness and related receivables under the Hanover Facility or under any Replacement Receivables Facility are no longer given off-balance sheet treatment, any such Indebtedness, the interest expense or discount thereon and related receivables under the Hanover Facility or any Replacement Receivables Facility shall continue to receive off-balance sheet treatment for purposes of determining compliance with Section 8. (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days. 12.08 Governing Law; Submission to Jurisdiction; Venue. (a) THIS ------------------------------------------------ AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Credit Party hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the respective Credit Party at its address for notices pursuant to Section 12.03, such service to become effective 30 days after such mailing. Each Credit Party hereby irrevocably appoints Nabisco International, Inc., located at 345 Park Avenue, New York, New York 10154 as its agent for service of process in respect of any such action or proceeding. Nothing herein shall affect the right of any Senior Managing Agent or any Bank to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against either Credit Party in any other jurisdiction. (b) Each Credit Party hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in the preceding clause (a) and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. -66- 12.09 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with Holdings and the Payments Administrator. 12.10 Headings Descriptive. The headings of the several sections and -------------------- subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.11 Amendment or Waiver. Except for deemed amendments provided for ------------------- in Section 9.04, neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Banks, provided that (x) no such change, waiver, discharge or -------- termination shall, without the consent of each Bank (other than a Defaulting Bank) with Obligations being directly affected thereby, (i) extend the scheduled final maturity of any Loan or Note, or any portion thereof, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or Fees or reduce the principal amount thereof, or increase the Commitment of any Bank over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of the Commitment of any Bank), (ii) release the Guaranty, (iii) amend, modify or waive any provision of this Section, or Section 1.11, 1.12, 3.04, 9.01, 11.07, 12.01, 12.02, 12.04, 12.06, 12.07(b) or 12.14, (iv) reduce any percentage specified in, or otherwise modify, the definition of Required Banks or (v) consent to the assignment or transfer by either Credit Party of any of its rights and obligations under this Agreement; and (y) the financial covenants set forth in Sections 8.03(e), 8.04(h), 8.05, 8.07, 8.08, 8.09 and 8.10 (and the defined terms used therein) may be adjusted with the consent of Holdings, the Borrower and the Majority SMA to the extent provided in Sections 7.09 and 12.07(a). No provision of Section 11 may be amended or modified without the consent of any Senior Managing Agent adversely affected thereby. 12.12 Survival. All indemnities set forth herein including, without -------- limitation, in Section 1.11, 1.12, 3.04, 11.07 or 12.01 shall survive the execution and delivery of this Agreement and the making of the Loans, the repayment of the Obligations and the termination of the Total Commitment. 12.13 Domicile of Loans. Subject to Section 12.04, each Bank may ----------------- transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Bank, provided that the Borrower shall not be -------- responsible for costs arising under Section 1.11, 1.12 or 3.04 resulting from any such transfer (other than a transfer -67- pursuant to Section 1.13) to the extent not otherwise applicable to such Bank prior to such transfer. 12.14 Confidentiality. Subject to Section 12.04, each Bank shall --------------- hold all non-public information furnished by or on behalf of Holdings or the Borrower in connection with such Bank's evaluation of whether to become a Bank hereunder or obtained pursuant to the requirements of this Agreement, which has been identified as such by Holdings ("Confidential Information"), in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by any bona fide transferee or participant (which shall be an Eligible Transferee) in connection with the contemplated transfer of any Loans or participations therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process or to such Bank's attorneys, affiliates or independent auditors, provided that, unless specifically prohibited by applicable law or court order, - -------- each Bank shall notify Holdings of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Bank by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information, and provided further, that in no event shall any Bank be obligated ---------------- or required to return any materials furnished by Holdings or any Subsidiary. Each Bank agrees that it will not provide to prospective assignees, transferees or participants any of the Confidential Information unless such Person has executed a Confidentiality Agreement in the form of Exhibit D. 12.15 Waiver of Jury Trial. Each of the parties to this Agreement -------------------- hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby. SECTION 13. Guaranty. -------- 13.01 The Guaranty. In order to induce the Banks to enter into this ------------ Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by the Guarantor from the proceeds of the Loans, the Guarantor hereby agrees with the Banks as follows: the Guarantor hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all indebtedness of the Borrower to the Banks. If any or all of the indebtedness of the Borrower to the Banks becomes due and payable hereunder, the Guarantor unconditionally promises to pay such indebtedness to the Banks, or order, on demand, together with any and all expenses which may be incurred by the Senior Managing Agents or the Banks in collecting any of the indebtedness. The word "indebtedness" is used in this Section 13 in its most -68- comprehensive sense and includes any and all advances, debts, obligations and liabilities of the Borrower arising in connection with this Agreement and any other Credit Document, in each case, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involuntarily, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such indebtedness is from time to time reduced, or extinguished and thereafter increased or incurred, whether the Borrower may be liable individually or jointly with others, whether or not recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether or not such indebtedness may be or hereafter become otherwise unenforceable. 13.02 Bankruptcy. Additionally, the Guarantor unconditionally and ---------- irrevocably guarantees the payment of any and all indebtedness of the Borrower to the Banks whether or not due or payable by the Borrower upon the occurrence in respect of the Borrower of any of the events specified in Section 9.05, and unconditionally promises to pay such indebtedness to the Banks, or order, on demand, in lawful money of the United States. 13.03 Nature of Liability. The liability of the Guarantor hereunder ------------------- is exclusive and independent of any security for or other guaranty of the indebtedness of the Borrower whether executed by the Guarantor, any other guarantor or by any other party, and the liability of the Guarantor hereunder shall not be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Senior Managing Agents or the Banks on the indebtedness which the Senior Managing Agents or such Banks repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and the Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 13.04 Independent Obligation. The obligations of the Guarantor ---------------------- hereunder are independent of the obligations of any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against the Guarantor whether or not action is brought against any other guarantor or the Borrower and whether or not any other guarantor or the Borrower be joined in any such action or actions. The Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to the Guarantor. -69- 13.05 Authorization. The Guarantor authorizes the Senior Managing ------------- Agents and the Banks without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the indebtedness or any part thereof in accordance with this Agreement, including any increase or decrease of the rate of interest thereon, (b) take and hold security from any guarantor or any other party for the payment of this guaranty or the indebtedness and exchange, enforce, waive and release any such security, (c) apply such security and direct the order or manner of sale thereof as the Senior Managing Agents and the Banks in their discretion may determine and (d) release or substitute any one or more endorsers, guarantors, the Borrower or other obligors. 13.06 Reliance. It is not necessary for the Senior Managing Agents -------- or the Banks to inquire into the capacity or powers of the Borrower or its Subsidiaries or the officers, directors, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 13.07 Subordination. Any indebtedness of the Borrower now or ------------- hereafter held by the Guarantor is hereby subordinated to the indebtedness of the Borrower to the Senior Managing Agents and the Banks; and such indebtedness of the Borrower to the Guarantor, if any Senior Managing Agent, after an Event of Default has occurred, so requests, shall be collected, enforced and received by the Guarantor as trustee for the Banks and be paid over to the Banks on account of the indebtedness of the Borrower to the Banks, but without affecting or impairing in any manner the liability of the Guarantor under the other provisions of this Guaranty. Prior to the transfer by the Guarantor of any note or negotiable instrument evidencing any indebtedness of the Borrower to the Guarantor, the Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. 13.08 Waiver. (a) The Guarantor waives any right (except as shall ------ be required by applicable statute and cannot be waived) to require the Senior Managing Agents or the Banks to (a) proceed against the Borrower, any other guarantor or any other party, (b) proceed against or exhaust any security held from the Borrower, any other guarantor or any other party or (c) pursue any other remedy in the Senior Managing Agents' or the Banks' power whatsoever. The Guarantor waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of the indebtedness, including, without limitation, any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the indebtedness or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the -70- indebtedness. The Senior Managing Agents and the Banks may, at their election, foreclose on any security held by the Senior Managing Agents or the Banks by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Senior Managing Agents and the Banks may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of the Guarantor hereunder except to the extent the indebtedness has been paid. The Guarantor waives any defense arising out of any such election by the Senior Managing Agents and the Banks, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrower or any other party or any security. Until all indebtedness of the Borrower to the Banks shall have been paid in full, the Guarantor shall not have any right of subrogation, and waives any right to enforce any remedy which the Senior Managing Agents and the Banks now have or may hereafter have against the Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Senior Managing Agents and the Banks. (b) The Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. The Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the indebtedness and the nature, scope and extent of the risks which the Guarantor assumes and incurs hereunder, and agrees that the Senior Managing Agents and the Banks shall have no duty to advise the Guarantor of information known to them regarding such cir- cumstances or risks. 13.09 Limitation on Enforcement. The Banks agree that this Guaranty ------------------------- may be enforced only by the action of a Senior Managing Agent acting upon the instructions of the Required Banks and that no Bank shall have any right individually to seek to enforce or to enforce this Guaranty, it being understood and agreed that such rights and remedies may be exercised by each Senior Managing Agent for the benefit of the Banks upon the terms of this Agreement. * * * -71- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. Address: - -------- Parsippany Plaza I NABISCO HOLDINGS CORP. 7 Campus Drive P.O. Box 311 Parsippany, NJ 07054-0311 By /s/ Frank Suozzi Attention: Frank Suozzi ----------------------------------- Telephone: (201) 682-7300 Title: Vice President & Treasurer Telecopy: (201) 539-9150 Parsippany Plaza I NABISCO, INC. 7 Campus Drive P.O. Box 311 Parsippany, NJ 07054-0311 By /s/ Frank Suozzi Attention: Frank Suozzi ----------------------------------- Telephone: (201) 682-7300 Title: Vice President & Treasurer Telecopy: (201) 539-9150 SENIOR MANAGING AGENTS BANKERS TRUST COMPANY By /s/ Mary Kay Coyle ---------------------------------- Title: Managing Director THE CHASE MANHATTAN BANK, N.A. By /s/ Patricia B. Bril ---------------------------------- Title: Managing Director CHEMICAL BANK By /s/ Robert Gaynor ---------------------------------- Title: Vice President CITIBANK, N.A. By /s/ Steven R. Victorin ---------------------------------- Title: Attorney in Fact THE FUJI BANK LIMITED By /s/ Katsunori Nozawa ----------------------------------- Title: Vice President & Manager MANAGING AGENTS ABN AMRO BANK N.V. NEW YORK BRANCH By /s/ Frances Logan --------------------------------- Title: Vice President By /s/ Janet T. Marple --------------------------------- Title: Assistant Vice President BANK OF AMERICA NT & SA By /s/ David Noda --------------------------------- Title: Vice President THE BANK OF NEW YORK By /s/ Russell Gorman --------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By /s/ Terry K. Fryett --------------------------------- Title: Authorized Signatory BANQUE PARIBAS By /s/ Mary T. Finnegan --------------------------------- Title: Group Vice President By /s/ John J. McCormick III --------------------------------- Title: Assistant Vice President CIBC, INC. By /s/ Judy Domkowski --------------------------------- Title: Authorized Signatory CREDIT LYONNAIS - CAYMAN ISLAND BRANCH By /s/ Mark Campellone --------------------------------- Title: Authorized Signature CREDIT LYONNAIS - NEW YORK BRANCH By /s/ Mark Campellone --------------------------------- Title: Vice President THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK BRANCH By /s/ Bertram H. Tang --------------------------------- Title: Assistant Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCHES By /s/ Robert M. Wood, Jr. --------------------------------- Title: Vice President By /s/ James Fox --------------------------------- Title: Assistant Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED - NEW YORK BRANCH By /s/ Junri Oda --------------------------------- Title: Senior Vice President & Senior Manager MIDLAND BANK PLC By /s/ Mark J. Rakov --------------------------------- Title: Authorized Signatory THE MITSUBISHI BANK, LIMITED-NEW YORK BRANCH By /s/ Paula Mueller --------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Adam J. Silver --------------------------------- Title: Associate THE SAKURA BANK, LTD. By /s/ Masahiro Nakajo --------------------------------- Title: Senior Vice President & Manager THE SANWA BANK LIMITED By /s/ Yasuhiro Maeda --------------------------------- Title: Vice President & Area Manager SOCIETE GENERALE By /s/ Robert Petersen ---------------------------------- Title: Vice President THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By /s/ Yoshinori Kawamura ---------------------------------- Title: Joint General Manager THE TOKAI BANK, LIMITED By /s/ Stuart M. Schulman ---------------------------------- Title: Senior Vice President LEAD MANAGERS BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By /s/ Charles Dougherty ---------------------------------- Title: Vice President By /s/ Julia M. Welch ---------------------------------- Title: Assistant Vice President THE BANK OF TOKYO TRUST COMPANY By /s/ Michael C. Irwin ---------------------------------- Title: Vice President THE LTCB TRUST COMPANY By /s/ Rene O. LeBlanc ----------------------------------- Title: Senior Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ Patricia Loret de Mola ----------------------------------- Title: Senior Vice President THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By /s/ Gerard Machado ------------------------------------ Title: Vice President & Manager NATIONSBANK, N.A. By /s/ James T. Gilland ------------------------------------ Title: Senior Vice President ROYAL BANK OF CANADA By /s/ David A. Barsalou ------------------------------------- Title: Senior Manager WACHOVIA BANK OF GEORGIA, N.A. By /s/ Samuel P. Moss ------------------------------------- Title: Senior Vice President MANAGERS BAYERISCHE VEREINSBANK AG NEW YORK BRANCH By /s/ Marianne Weinzinger -------------------------------------- Title: Vice President By /s/ Walter H. Eckmeier -------------------------------------- Title: Vice President CREDIT SUISSE By /s/ Edward E. Barr -------------------------------------- Title: Associate By /s/ Michael C. Mast -------------------------------------- Title: Member of Senior Management WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ Alan S. Bookspan -------------------------------------- Title: Vice President By /s/ Robert G. Carino -------------------------------------- Title: Vice President YASUDA TRUST & BANKING COMPANY, LIMITED By /s/ Rohn M. Laudenschlager -------------------------------------- Title: Senior Vice President CO-MANAGERS ASAHI BANK By /s/ Tomohiko Kareko -------------------------------------- Title: Senior Deputy General Manager COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND" By /s/ Dana W. Hemenway -------------------------------------- Title: Vice President By /s/ Ian Reece -------------------------------------- Title: Vice President & Manager TORONTO DOMINION (NEW YORK), INC. By /s/ Reg Waylen -------------------------------------- Title: Director UNION BANK OF SWITZERLAND NEW YORK BRANCH By /s/ Peter B. Yearley -------------------------------------- Title: Vice President By /s/ James P. Kelleher -------------------------------------- Title: Assistant Vice President OTHER BANKS ARAB BANK PLC - GRAND CAYMAN BRANCH By /s/ Peter Boyadjian -------------------------------------- Title: Senior Vice President BANCA CASSA DI RISPARMIO DI TORINO S.P.A. By /s/ J. Slade Carter, Jr. -------------------------------------- Title: Vice President By /s/ Robert P. DeSantes -------------------------------------- Title: Vice President & Head of Corporate Banking BANCA DI ROMA S.P.A. By /s/ Ralph L. Riehle -------------------------------------- Title: First Vice President By /s/ Luca Balestra -------------------------------------- Title: Assistant Vice President BANCO CENTRAL HISPANOAMERICANO, S.A. By /s/ Francisco Alcon -------------------------------------- Title: Executive Vice President & General Manager BAYERISCHE LANDESBANK GIROZENTRALE By /s/ Bert yon Stuelpnagel -------------------------------------- Title: Executive Vice President & Manager By /s/ Peter Obermann -------------------------------------- Title: Senior Vice President FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ Grace Vallacchi -------------------------------------- Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By /s/ Robert S. Wurster -------------------------------------- Title: First Vice President By /s/ Wendell Jones -------------------------------------- Title: Vice President KREDIETBANK N.V. By /s/ Armen Karozichian -------------------------------------- Title: Vice President By /s/ Robert Snauffer -------------------------------------- Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By /s/ Stephen K. Hunter -------------------------------------- Title: Senior Vice President By /s/ Stephanie Hoevermann -------------------------------------- Title: Vice President THE NORINCHUKIN BANK By /s/ Kenichi Yoshikubo -------------------------------------- Title: Joint General Manager THE NORTHERN TRUST COMPANY By /s/ Lawson E. Whiting -------------------------------------- Title: Commercial Banking Officer THE ROYAL BANK OF SCOTLAND PLC By /s/ David Dougan -------------------------------------- Title: Vice President SWISS BANK CORPORATION NEW YORK BRANCH By /s/ William S. Lutkins -------------------------------------- Title: Associate Director Credit Risk Management By /s/ H. Clark Worthley -------------------------------------- Title: Associate Director THE TOYO TRUST & BANKING CO., LTD. - NEW YORK BRANCH By /s/ Hiroyuki Fukuro -------------------------------------- Title: Vice President VIA BANQUE By /s/ Jean-Louis Simon -------------------------------------- Title: DGA By /s/ Frederic Fournier -------------------------------------- Title: S.S. Directeur THE CHUO TRUST & BANKING CO., LTD. - NEW YORK AGENCY By /s/ Kunio Kimura -------------------------------------- Title: Deputy General Manager CREDITO ITALIANO, S.P.A. By /s/ Harmon P. Butler -------------------------------------- Title: First Vice President By /s/ Saiyed A. Abbas -------------------------------------- Title: Assistant Vice President GULF INTERNATIONAL BANK B.S.C. By /s/ Haytham F. Khalil -------------------------------------- Title: Assistant Vice President By /s/ Abdel-Fattah Tahoun -------------------------------------- Title: Senior Vice President THE NIPPON CREDIT BANK, LTD. By /s/ Hideaki Mori -------------------------------------- Title: Vice President & Manager STANDARD CHARTERED BANK By /s/ Brian S. Taylor -------------------------------------- Title: Assistant Vice President UNITED STATES NATIONAL BANK OF OREGON By /s/ Douglas A. Rich -------------------------------------- Title: Vice President SUMITOMO BANK OF CALIFORNIA By /s/ Shuji Ito ---------------------------------- Title: Vice President & Assistant Division Manager ANNEX I LIST OF BANKS AND COMMITMENTS Bank Commitment Senior Managing Agents ---------------------- Bankers Trust Company 46,242,857.14 The Chase Manhattan Bank, N.A. 50,528,571.43 Chemical Bank 50,528,571.43 Citibank, N.A. 45,171,428.59 The Fuji Bank, Limited 50,528,571.43 Managing Agents --------------- ABN AMRO Bank N.V. 37,875,000.00 New York Branch Bank of America NT & SA 37,875,000.00 The Bank of New York 37,875,000.00 The Bank of Nova Scotia 37,875,000.00 Banque Paribas 37,875,000.00 CIBC, Inc. 37,875,000.00 Credit Lyonnais, 37,875,000.00 New York Branch and Cayman Island Branch Dai-Ichi Kangyo Bank, Limted, 37,875,000.00 New York Branch Deutsche Bank AG, 37,875,000.00 New York Branch and/or Cayman Islands Branches ANNEX I Page 2 The Industrial Bank of Japan, Limited 41,687,717.77 New York Branch Midland Bank PLC 37,875,000.00 The Mitsubishi Bank, Limited, 37,875,000.00 New York Branch Morgan Guaranty Trust Company 37,875,000.00 of New York The Sakura Bank, Ltd. 37,875,000.00 The Sanwa Bank Limited 37,875,000.00 Societe Generale 37,875,000.00 The Sumitomo Bank, Limited 43,232,142.86 New York Branch The Tokai Bank, Limited 37,875,000.00 Lead Managers ------------- Banca Commerciale Italiana, 27,053,571.43 New York Branch Bank of Tokyo Trust Company 27,053,571.43 LTCB Trust Company 27,053,571.43 The Mitsubishi Trust and Banking 27,053,571.43 Corporation The Mitsui Trust and Banking 27,053,571.43 Company, Limited - New York Branch NationsBank, N.A. 27,053,571.43 ANNEX I Page 3 Royal Bank of Canada 27,053,571.43 Wachovia Bank of Georgia, N.A. 24,910,714.29 Managers -------- Bayerische Vereinsbank AG, 21,428,571.43 New York Branch Credit Suisse 21,428,571.43 Westdeutsche Landesbank Girozentrale, 21,428,571.43 New York Branch Yasuda Trust and Banking 21,428,571.43 Company, Limited Co-Managers ----------- Asahi Bank 16,071,428.57 Cooperatieve Centrale Raiffeisen-Boerenleenbank 16,071,428.57 B.A., "Rabobank Nederland" Toronto Dominion (New York), Inc. 20,241,413.64 Union Bank of Switzerland 16,071,428.57 New York Branch Other ----- Arab Bank PLC-Grand Cayman Branch 10,714,285.71 Banca Cassa di Risparmio 10,714,285.71 di Torino S.p.A. Banca di Roma S.p.A. 10,714,285.71 ANNEX I Page 4 Banco Central Hispanoamericano S.A. 10,714,285.71 Bayerische Landesbank Girozentrale 10,714,285.71 First Fidelity Bank, 10,714,285.71 National Association Istituto Bancario San Paolo 12,064,459.93 di Torino S.p.A. Kredietbank, N.V. 10,714,285.71 Norddeutsche Landesbank Girozentrale, 10,714,285.71 New York Branch and/or Cayman Islands Branch The Norinchukin Bank 16,274,265.80 The Northern Trust Company 10,714,285.71 Royal Bank of Scotland PLC 10,714,285.71 Swiss Bank Corporation, 10,714,285.71 New York Branch The Toyo Trust & Banking Co., Ltd., 10,714,285.71 New York Branch Via Banque 6,428,571.43 The Chuo Trust & Banking Co., Ltd., 5,357,142.86 New York Agency Credito Italiano S.p.A. 5,357,142.86 Gulf International Bank B.S.C. 5,357,142.86 The Nippon Credit Bank, Ltd. 5,357,142.86 Standard Chartered Bank 5,357,142.86 ANNEX I Page 5 United States National 5,357,142.86 Bank of Oregon Sumitomo Bank of California 2,142,857.14 ANNEX II BANK ADDRESSES Senior Managing Agents ---------------------- BANKERS TRUST COMPANY 130 Liberty Street 1 Bankers Trust Plaza, 33rd Floor New York, NY 10006 Attn.: Ms. Mary Kay Coyle Tel: (212) 250-9094 Fax: (212) 250-7218 THE CHASE MANHATTAN BANK, N.A. One Chase Plaza, 5th Floor New York, NY 10081 Attn.: Ms. Patricia Bril Tel: (212) 552-6233 Fax: (212) 552-1457 CHEMICAL BANK 270 Park Avenue, 9th Floor New York, NY 10017 Attn.: Ms. Nancy Mistretta Tel: (212) 270-4732 Fax: (212) 270-6041 CITIBANK, N.A. 399 Park Avenue New York, NY 10043 Attn.: Ms. Jolie Eisner Tel: (212) 559-3498 Fax: (212) 793-7712 THE FUJI BANK, LIMITED New York Branch Two World Trade Center, 79th Floor New York, NY 10048 Attn.: Mr. Vincent Ingato Tel: (212) 898-2051 Fax: (212) 912-0516 ANNEX II Page 2 Managing Agents --------------- ABN AMRO BANK N.V. New York Branch 500 Park Avenue New York, NY 10022 Attn.: Mr. Thomas T. Rogers Tel: (212) 446-4122 Fax: (212) 832-7129 BANK OF AMERICA NT & SA 335 Madison Avenue, 5th floor New York, New York 10017 Attn.: Mr. David Noda Tel: (212) 503-7948 Fax: (212) 503-7771 THE BANK OF NEW YORK One Wall Street, 22nd Floor New York, NY 10286 Attn.: Mr. Vincent P. O'Leary Tel: (212) 635-6801 Fax: (212) 635-6999 THE BANK OF NOVA SCOTIA One Liberty Plaza, 26th Floor New York, NY 10006 Attn.: Mr. Terry K. Fryett Tel: (212) 225-5035 Fax: (212) 225-5090 BANQUE PARIBAS 787 Seventh Avenue, 37th Floor New York, NY 10019 Attn.: Mr. Stanley P. Berkman Tel: (212) 841-2247 Fax: (212) 841-2333 ANNEX II Page 3 CIBC, INC. 425 Lexington Avenue, 6th Floor New York, NY 10017 Attn.: Ms. Judy Domkowski Tel: (212) 856-3509 Fax: (212) 856-3991 CREDIT LYONNAIS New York Branch and Cayman Island Branch 1301 Avenue of the Americas New York, NY 10019 Attn.: Ms. Andrea Griffis Tel: (212) 261-7325 Fax: (212) 459-3179 THE DAI-ICHI KANGYO BANK, LIMITED New York Branch One World Trade Center, 48th Floor New York, NY 10048 Attn.: Mr. Timothy White Tel: (212) 432-6629 Fax: (212) 524-0579 DEUTSCHE BANK AG New York Branch and/or Cayman Islands Branches 31 West 52nd Street New York, NY 10019 Attn.: Mr. Robert B. Landis Tel: (212) 474-8214 Fax: (212) 474-8212 THE INDUSTRIAL BANK OF JAPAN, LIMITED New York Branch 245 Park Avenue New York, NY 10167-0037 Attn.: Mr. Mikihide Katsumata Tel: (212) 309-6452 Fax: (212) 682-2870 ANNEX II Page 4 MIDLAND BANK PLC 140 Broadway, 4th Floor New York, NY 10005 Attn.: Mr. Mark Rakov Tel: (212) 658-5113 Fax: (212) 658-5109 THE MITSUBISHI BANK, LIMITED New York Branch Two World Financial Center 225 Liberty Street New York, NY 10281 Attn.: Mr. J. Bruce Meredith Tel: (212) 667-2883 Fax: (212) 667-3562 MORGAN GUARANTY TRUST COMPANY OF NEW YORK 60 Wall Street, 22nd Floor New York, NY 10260 Attn.: Ms. Deborah Brodheim Tel: (212) 648-8063 Fax: (212) 648-5018 THE SAKURA BANK, LTD. 277 Park Avenue, 45th Floor New York, NY 10172 Attn.: Mr. Stephen A. Santora Tel: (212) 756-6813 Fax: (212) 888-7651 THE SANWA BANK LIMITED 55 East 52nd Street New York, NY 10055 Attn.: Mr. Stephen C. Small Tel: (212) 339-6201 Fax: (212) 754-1304 SOCIETE GENERALE 1221 Avenue of the Americas New York, NY 10020 Attn.: Ms. Jan Wertlieb Tel: (212) 278-6881 Fax: (212) 278-7430 ANNEX II Page 5 THE SUMITOMO BANK, LIMITED New York Branch 277 Park Avenue New York, NY 10172 Attn.: Mr. Harry Oashi Tel: (212) 224-4130 Fax: (212) 224-5188 THE TOKAI BANK, LIMITED 55 East 52nd Street New York, NY 10055 Attn.: Mr. Stuart M. Schulman Tel: (212) 339-1117 Fax: (212) 754-2170 Lead Managers ------------- BANCA COMMERCIALE ITALIANA New York Branch One William Street New York, NY 10004 Attn.: Mr. Charles Dougherty Tel: (212) 607-3656 Fax: (212) 809-2124 THE BANK OF TOKYO TRUST COMPANY 1251 Avenue of the Americas New York, NY 10116-3138 Attn.: Mr. Michael C. Irwin Tel: (212) 782-4316 Fax: (212) 782-6445 LTCB TRUST COMPANY 165 Broadway New York, NY 10006 Attn.: Mr. Rene LeBlanc Tel: (212) 335-4591 Fax: (212) 608-2371 ANNEX II Page 6 THE MITSUBISHI TRUST AND BANKING CORPORATION 520 Madison Avenue 25th Floor New York, NY 10022 Attn.: Ms. Bea Kossodo Tel: (212) 891-8363 Fax: (212) 593-4691 THE MITSUI TRUST AND BANKING COMPANY, LIMITED New York Branch One World Financial Center 21st Floor 200 Liberty Street New York, NY 10281 Attn.: Mr. Garard Machado Tel: (212) 341-0369 Fax: (212) 945-4170 or 4171 NATIONSBANK, N.A. 767 Fifth Avenue 23rd Floor New York, NY 10153 Attn.: Mr. James T. Gilland Tel: (212) 407-5330 Fax: (212) 751-6909 ROYAL BANK OF CANADA Financial Square, 24th Floor New York, NY 10005-3531 Attn.: Mr. David A. Barsalou Tel: (212) 428-6418 Fax: (212) 428-6459 WACHOVIA BANK OF GEORGIA, N.A. 191 Peachtree Street N.E. MC370 Atlanta, GA 30303 Attn.: Ms. Jane C. Deaver Tel: (404) 332-5219 Fax: (404) 332-6898 ANNEX II Page 7 Managers -------- BAYERISCHE VEREINSBANK AG New York Branch 335 Madison Avenue, 19th Floor New York, NY 10017 Attn.: Ms. Marianne Weinzinger Tel: (212) 210-0352 Fax: (212) 880-9724 CREDIT SUISSE 12 East 49th Street Corporate Banking Tower 49 New York, NY 10017 Attn.: Mr. Edward E. Barr Tel: (212) 238-5415 Fax: (212) 238-5439 WESTDEUTSCHE LANDESBANK GIROZENTRALE New York Branch 1211 Avenue of the Americas 23rd Floor New York, NY 10036 Attn.: Mr. Alan Bookspan Tel: (212) 852-6023 Fax: (212) 852-6307 YASUDA TRUST AND BANKING COMPANY, LIMITED 666 Fifth Avenue Suite 801 New York, NY 10103 Attn.: Mr. Neil T. Chau Tel: (212) 373-5711 Fax: (212) 373-5796 ANNEX II Page 8 Co-Managers ----------- ASAHI BANK One World Trade Center Suite 6011 New York, NY 10048 Attn.: Mr. Doug Price Tel: (212) 912-7037 Fax: (212) 432-1135 COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK "RABOBANK NEDERLAND" 245 Park Avenue 36th Floor New York, NY 10167 Attn.: Mr. Johannes Breukhoven Tel: (212) 916-7886 Fax: (212) 916-7837 TORONTO DOMINION (NEW YORK), INC. 31 West 52nd Street New York, NY 10019-6101 Attn.: Mr. W. Reg Waylen Tel: (212) 468-0564 Fax: (212) 262-1926 UNION BANK OF SWITZERLAND New York Branch 299 Park Avenue New York, NY 10171 Attn.: Mr. Peter Yearley Tel: (212) 821-3339 Fax: (212) 821-3383 ANNEX II Page 9 Other Banks ----------- ARAB BANK PLC, Grand Cayman Branch 520 Madison Avenue, 2nd Floor New York, NY 10022-4237 Attn.: Mr. Peter Boyadjian Tel: (212) 715-9702 Fax: (212) 593-4632 BANCA CASSA DI RISPARMIO DI TORINO S.P.A. 500 Park Avenue New York, NY 10022 Attn.: J. Slade Carter Tel: (212) 980-4862 Fax: (212) 980-0809 BANCA DI ROMA S.P.A. 34 East 51st Street New York, NY 10022 Attn.: Mr. Ralph L. Riehle Tel: (212) 407-1772 Fax: (212) 407-1740 BANCO CENTRAL HISPANOAMERICANO, S.A 245 Park Avenue New York, NY 10176 Attn.: Mr. John Estruch Tel: (212) 557-8370 Fax: (212) 557-8349 BAYERISCHE LANDESBANK GIROZENTRALE 560 Lexington Avenue New York, NY 10022 Attn.: Ms. Joanne Cicino Tel: (212) 310-9834 Fax: (212) 310-9868 ANNEX II Page 10 FIRST FIDELITY BANK, NATIONAL ASSOCIATION 550 Broad Street - 5th Floor Newark, NJ 07102 Attn.: Ms. Grace Vallacchi Tel: (201) 565-3381 Fax: (201) 565-6681 ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. 245 Park Avenue - 35th Floor New York, NY 10167 Attn.: Mr. Wendell Jones Tel: (212) 692-3140 Fax: (212) 599-5303 KREDIETBANK N.V. 125 West 55th Street 10th Floor New York, NY 10019 Attn.: Ms. Diane Grimmig Tel: (212) 541-0600 Fax: (212) 956-5580 NORDDEUTSCHE LANDESBANK GIROZENTRALE New York Branch and/or Cayman Islands Branch 1270 Avenue of the Americas New York, NY 10020 Attn.: Ms. Stephanie Hoevermann Tel: (212) 332-8606 Fax: (212) 332-8660 THE NORINCHUKIN BANK New York Branch 245 Park Avenue 29th Floor New York, NY 10167 Attn.: Masashi Ishikawa Tel: (212) 949-7188 Fax: (212) 986-9293 ANNEX II Page 11 THE NORTHERN TRUST COMPANY 50 South LaSalle Streeet (B-11) Chicago, IL 60675 Attn.: Mr. Michael Bryan Tel: (312) 444-3541 Fax: (312) 444-3508 THE ROYAL BANK OF SCOTLAND PLC Wall Street Plaza 88 Pine Street, 26th Floor New York, NY 10005-1801 Attn.: Mr. David Dougan Tel: (212) 269-1700 Fax: (212) 480-0791 SWISS BANK CORPORATION New York Branch 222 Broadway, 4th Floor New York, NY 10038 Attn.: Mr. William Lutkins Tel: (212) 574-3093 Fax: (212) 574-4395 THE TOYO TRUST & BANKING CO., LTD. New York Branch 437 Madison Avenue New York, NY 10022 Attn.: Mr. Yamauchi Tel: (212) 371-3535 Fax: (212) 371-4963 VIA BANQUE 10 Rue Volney Paris, France 75022 Attn.: Mr. Jean Louis Simon Tel: 33-14-926-2626 Fax: 33-14-926-2926 ANNEX II Page 12 THE CHUO TRUST & BANKING CO., LTD. - NEW YORK AGENCY 2 World Trade Center Suite 8322 New York, NY 10048 Attn.: Mr. Eric Seeley Tel: (212) 938-0214 Fax: (212) 466-1140 CREDITO ITALIANO S.P.A. 375 Park Avenue New York, NY 10152 Attn.: Mr. Saiyed A. Abbas Tel: (212) 546-9630 Fax: (212) 546-9675 GULF INTERNATIONAL BANK B.S.C. 380 Madison Avenue 21st Floor New York, NY 10017 Attn.: Mr. Haytham F. Khalil Tel: (212) 922-2322 Fax: (212) 922-2339 THE NIPPON CREDIT BANK, LTD. 245 Park Avenue, 30th Floor New York, NY 10167 Attn.: Mr. Yashide Yahiro Tel: (212) 984-1236 Fax: (212) 490-3895 STANDARD CHARTERED BANK 160 Water Street 2nd Floor New York, NY 10038-4995 Attn.: Mr. Brian Taylor Tel: (212) 612-0225 Fax: (212) 612-0242 ANNEX II Page 13 THE UNITED STATES NATIONAL BANK OF OREGON 555 S.W. Oak Street Suite 400 PL-4 Portland, OR 97204 Attn.: Mr. Chris J. Karlin Tel: (503) 275-4940 Fax: (503) 275-4267 SUMITOMO BANK OF CALIFORNIA 320 California Street San Francisco, CA 94104 Attn.: Mr. Shuji Ito Tel: (415) 445-8109 Fax: (415) 421-7813 NABISCO ANNEX III MATERIAL SUBSIDIARIES --------------------- 1. Nabisco Iberis, S. L. 2. Establecimoemto Modelo Terrabusi SAIC 3. Nabisco Ltd 4. Produto alimenticios Fleischmann e Royal Ltds 5. Nabisco Brands Company 6. Nabisco Group Ltd. 7. Various intermediate holding companies between the Borrower and the four companies above. NABISCO ANNEX IV CERTAIN LITIGATION ------------------- As described on page 36 of the Annual Report on Form 10-K of Nabisco Holdings Corp. for the fiscal year ended December 31, 1994 that was filed with the Securities and Exchange Commission.
NABISCO ANNEX V EXISTING SUBSIDIARY DEBT ------------------------- (In Millions) O/S BAL 12/31/94 ------------------ DOMESTIC DEBT ------------- GUARANTEES OF INDEBTEDNESS -------------------------- J. B. Williams 6% IRB 02/01/2004 $4.0 Julius Wile 8 5/8 IRB 08/01/2010 2.7 ----------------- TOTAL DOMESTIC SUBSIDIARY DEBT $6.7 TOTAL INTL SUBSIDIARY DEBT (See attached schedule) $80.1 ----------------- INTERCO DEBT: NAB SUBS TO RN (See attached schedule) $337.8 ----------------- TOTAL NABISCO INDEBTEDNESS $424.6 ================= "Balance as of 3/31/95 may be repaid in consummation of the Refinancings.
NABISCO INTERNATIONAL CREDIT FACILITIES IN MILLIONS (totals may not add exactly due to rounding) 13-Apr-95 USD EQUIV O/S COMPANY NAME LENDER CUR 4th Qtr. 94 FACILITY TYPE F & R PERU, S.A. BANCO DE CREDITO USD $1.4 S/T BANK LINE F & R PERU, S.A. CITIBANK USD $3.6 S/T BANK LINE FLEISCHMANN ARGENTINA BANCO ROBERTS ARA $0.1 S/T BANK LINE FLEISCHMANN ARGENTINA BANK OF BOSTON ARA $0.3 S/T BANK LINE FLEISCHMANN E ROYAL BANCO DO BRASIL BCZ $1.7 S/T BANK LINE FLEISCHMANN E ROYAL BANK OF BOSTON BCZ $1.3 CAPITALIZED LEASES FLEISCHMANN E ROYAL BANK OF TOKYO BCZ $1.1 S/T BANK LINE FLEISCHMANN E ROYAL CHEMICAL BANK BCZ $0.4 CAPITALIZED LEASES FLEISCHMANN E ROYAL CITIBANK BCZ $0.3 CAPITALIZED LEASES FLEISCHMANN E ROYAL CITIBANK BCZ $0.7 S/T BANK LINE FLEISCHMANN E ROYAL DEUTSCHE BCZ $0.9 S/T BANK LINE FLEISCHMANN E ROYAL IBM LEASING CO. BCZ $2.2 CAPITALIZED LEASES FLEISCHMANN E ROYAL MITSUBISHI BANK BCZ $0.3 S/T BANK LINE FLEISCHMANN E ROYAL SUMITOMO BANK BCZ $1.1 S/T BANK LINE FLEISCHMANN E ROYAL UNIBANCO BCZ $3.0 S/T BANK LINE FLEISCHMANN E ROYAL VOTORANTIM BCZ $0.7 S/T BANK LINE FLEISCHMANN URUGUAYA BANK OF BOSTON UYP $2.5 S/T BANK LINE IRACEMA BAMERINDUS BCZ $1.2 S/T BANK LINE IRACEMA NACIONAL BCZ $1.1 S/T BANK LINE LANCE S.A. DE C.V. BANCO SERFIN MEX $1.5 S/T BANK LINE LANCE S.A. DE C.V. BANK OF AMERICA USD $4.5 S/T BANK LINE LANDERS Y CIA S.A. BANCO DE BOGOTA COP $0.2 S/T BANK LINE LANDERS Y CIA S.A. BANCO UNION COLOMBIANO COP $0.3 S/T BANK LINE MEX HOLDINGS II S.A. DE C.V. DEUTSCHE BANK AG USD $21.6 LONG TERM DEBT MEX HOLDINGS II S.A. DE C.V. INVERSIONES WESTMINSTER MEX $0.9 S/T BANK LINE NABISCO BRANDS, LTD CANADA UFE ASSURANCE CO. CAD2 $0.1 LONG TERM DEBT NABISCO I. I. ECUADOR BANCO CONTINENTAL USD $0.6 S/T BANK LINE NABISCO I. I. ECUADOR BANCO PICHINCHA USD $3.6 S/T BANK UNE NABISCO I. I. ECUADOR BANCO POPULAR USD $2.8 S/T BANK LINE PASBINC - TRIN. ROYAL BANK OF TRIN. & T. TTD $0.1 S/T BANK UNE TERRABUSI-ARGENTINA VARIOUS LENDERS ARA $20.0 LONG TERM DEBT WEST INDIES YEAST CO. MUTUAL SECURITY BANK LIMITED JMD $0.1 LONG TERM DEBT CANADA SHORT TERM LINES FUNGIBLE SHORT TERM LINES GRAND TOTALS: $80.1
OFFSHORE NOTES PAYABLE TO RJRN ENTITIES --------------------------------------- (In Millions)
MATURITY TOTAL AT BORROWER ISSUER/LENDER FACILITY TYPE DATE 3/31/95* __________________________________________________________________________________________________________________________________ Nabisco Argentina SA, RJ Reynolds Oversea Finance Co. Term Intercompany 4/14/96 80.7 Nabisco Investments S.A. RJ Reynolds Oversea Finance Co. Term Intercompany 4/14/96 41.2 Nabisco Espana, S.L. RJRT SA Term Intercompany 5/25/96 87.2** Nabisco Espana, S.L. RJRT BV Revolving intercompany 6/30/95 40.7 Nabisco International S.A. RJ Reynolds Oversea Finance Co. Revolving intercompany 5/27/95 47.0 Produtos Alimenticos Fleischman (R) Royal Ltda RJ Reynolds Oversea Finance Co. Medium Term Notes 9/22/01 10.9 Produtos Alimenticos Fleischman (R) Royal Ltda RJ Reynolds Oversea Finance Co. Medium Term Note 4/23/97 16.0 Produtos Alimenticos Fleischman (R) Royal Ltda RJ Reynolds Oversea Finance Co. Medium Term Notes 12/30/02 12.0 Produtos Alimenticos Fleischman (R) Royal Ltda RJ Reynolds Oversea Finance Co. Medium Term Notes 12/30/02 2.1 ------ 337.8 ======
* Total includes accrued interest. **Denominated in Spanish Pesetas. EXHIBIT A --------- FORM OF NOTE ------------ $________________ New York, New York ____________, 1995 FOR VALUE RECEIVED, NABISCO, INC., a New Jersey corporation (the "Borrower"), hereby promises to pay to the order of _________________________ (the "Bank"), in lawful money of the United States of America in immediately available funds, at the Payments Administrator's Office (as defined in the Agreement referred to below) initially located at _______________, New York, New York _____, on the Maturity Date (as defined in the Agreement) the principal sum of _______________ DOLLARS or, if less, the then unpaid principal amount of all Revolving Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower also promises to pay interest on the unpaid principal amount of each Revolving Loan in like money at said office from the date such Revolving Loan is made until paid at the rates and at the times provided in Section 1.09 of the Agreement referred to below. This Note is one of the Notes referred to in the Credit Agreement, dated as of November 3, 1995, among Nabisco Holdings Corp., the Borrower, the financial institutions from time to time party thereto (including the Bank) and Bankers Trust Company, The Chase Manhattan Bank, N.A., Chemical Bank, Citibank, N.A., and The Fuji Bank, Limited, as Senior Managing Agents (as from time to time in effect, the "Agreement"), and is entitled to the benefits thereof. This Note is also entitled to the benefits of the Guaranty (as defined in the Agreement). As provided in the Agreement, this Note is subject to voluntary and mandatory prepayment, in whole or in part. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. EXHIBIT A Page 2 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. NABISCO, INC. By_____________________________ Title: EXHIBIT B-1 ----------- [FORM OF OPINION OF JAMES A. KIRKMAN III, ESQ.] To: The Senior Managing Agents and various lending institutions (collectively, the "Banks") party to the Credit Agreement referred to below. re Credit Agreement, dated as of November 3, 1995 (the "Credit Agreement"), among Nabisco Holdings Corp. ("Holdings"), Nabisco, Inc. (the "Borrower"), the Senior Managing Agents and the Bank ---------------------------------------------------------- Ladies and Gentlemen: I am General Counsel of Holdings and the Borrower (the "Nabisco Corporations") and in such capacity, I have acted as counsel to the Nabisco Corporations in connection with the Credit Agreement. I or attorneys on my staff or on the legal staffs of Holdings' subsidiaries are familiar with the organization and operations of the Nabisco Corporations and the Material Subsidiaries identified by name on Annex III to the Credit Agreement (collectively, the "Corporations") and, except for federal, state, local and foreign tax matters, their legal affairs are encompassed by my duties as General Counsel for the Nabisco Corporations. This opinion is being delivered to you pursuant to Section 4.04(i) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement unless otherwise defined herein. I or attorneys on my staff have reviewed the Credit Documents. In addition, in connection with this opinion, I or attorneys on my staff have examined the originals or certified, conformed or reproduction copies of records, agreements, instruments and other documents, and have made such other investigations, as I have deemed necessary in connection with the opinions expressed herein. For the purposes of this opinion, I or attorneys on my staff have assumed, with your permission, the genuineness of all signatures (other than those of the Corporations) and the authenticity and regularity of all documents examined by me or them and that the parties to the Credit Documents other than the Corporations have the corporate power and authority to enter into and perform each of the Credit Documents and that each of the Credit Documents has been or will be duly authorized, executed and delivered by each such other party. EXHIBIT B-1 Page 2 As to questions of fact relevant to this opinion, I have relied upon certificates of officers and representatives of the Corporations or of public officials. Based upon and subject to the foregoing, and subject to the qualifications and exceptions set forth herein, I am of the opinion that: 1. Each of the Corporations (i) is a duly incorporated and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified would have a material adverse effect on the operations, business, properties, assets, or financial condition of Holdings and its Subsidiaries taken as a whole. 2. With respect to the qualification of the Corporations located outside the United States to carry on the business conducted by them in such jurisdictions, I have made no independent examination but, relying on my knowledge of the procedure of such Corporations in main- taining their own legal staffs or retaining local attorneys in such jurisdictions to supervise the important legal aspects of their busi- ness, I have no reason to believe that such Corporations are not properly qualified to conduct their foreign operations. 3. Each Nabisco Corporation has the corporate power and authority to execute and deliver each of the Credit Documents to which it is a party and to perform its obligations thereunder. Each Nabisco Corporation has duly authorized each Credit Document to which it is a party and has duly executed and delivered each such Credit Document. Each such Credit Document constitutes the legal, valid and binding obligation of each Nabisco Corporation, enforceable against it in accordance with its terms. 4. Neither the execution or delivery by any Nabisco Corporation of the Credit Documents to which it is a party, nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein, (a) will contravene any applicable provision of any law, statute, rule or regulation of any State of the United States or the United States (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System) or any order, writ, injunction or decree of any court or governmental instrumentality of any such State or the United States, (b) will conflict with, or result in EXHIBIT B-1 Page 3 any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any material Lien upon any of the property or assets of Holdings or any of its Subsidiaries pursuant to the terms of any material indenture, mort- gage, deed of trust, agreement, or other material instrument to which Holdings or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (c) will violate any provision of the Articles or Certificate of Incorporation or By-Laws of any Corporation. 5. To the best of my knowledge and the knowledge of attorneys on my staff and except as set forth in Annex IV to the Credit Agreement, there are no actions, suits or proceedings pending or threatened with respect to Holdings or any of its Subsidiaries (a) that are reasonably likely to have a material adverse effect on the business, properties, assets, operations or financial condition of Holdings and its Subsidiaries taken as a whole, or (b) that could reasonably be expected to have a material adverse effect on the rights or remedies of the Banks or on the ability of any Nabisco Corporation to perform its obligations to the Banks under the Credit Documents. 6. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof in the States in which the Corporations conduct business, is required to be obtained or made by any Corporation to authorize or is required in connection with (i) the execution, delivery and perform- ance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document. 7. No Corporation is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8. All governmental and third party approvals in connection with the transactions contemplated by the Credit Documents and otherwise referred to in the Credit Documents have been obtained and remain in effect. My opinion in paragraph 3 above as to the enforceability of the agreements referred to therein is subject to bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors' rights generally, general principles of equity, whether such enforceability is considered in a proceeding in EXHIBIT B-1 Page 4 equity or at law, and to the discretion of the court before which any proceeding therefor may be brought. My opinion in paragraph 4 above as to compliance with certain laws, statutes, rules or regulations is based upon a review of those laws, statutes, rules and regulations which, in my experience, are normally applicable to transactions of the type contem- plated by the Credit Documents. I have not been requested to render and, with your permission, I express no opinion as to the applicability to the obligations of any Nabisco Corporation under the Credit Agreement of Section 548 of the Bankruptcy Code and Article 10 of the New York Debtor & Creditor Law relating to fraudulent transfers and obligations. I understand, without independent verification, that the Banks have satisfied themselves on the basis of, among other things, the financial information furnished to the Banks and their knowledge of the credit facilities available to the Nabisco Corporations, that none of the Nabisco Corporations is insolvent or will be rendered insolvent by the transactions contemplated by the Credit Agreement and that, after giving effect to such transactions, none of the Nabisco Corporations will be left with unreasonably small capital with which to engage in its anticipated business and that none of the Nabisco Corporations will have intended to incur, or will have believed it has incurred, debts beyond its ability to pay as such debts mature. This opinion is rendered only to the Senior Managing Agents and the Banks (collectively, the "Addressed Parties") and is solely for their benefit in connection with the above transactions. This opinion may not be relied upon by any Addressed Party for any other purpose, or relied upon by any other person, firm or corporation for any purpose, without my prior written consent. Very truly yours, EXHIBIT B-2 ----------- [FORM OF OPINION OF WHITE & CASE] To: The Senior Managing Agents and various lending institutions (collectively, the "Banks") party to the Credit Agreement referred to below. re Credit Agreement, dated as of November 3, 1995 (the "Credit Agreement"), among Nabisco Holdings Corp. ("Holdings"), Nabisco, Inc. (the "Borrower"), the Senior Managing Agents and the Banks ---------------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to the Banks party to the Credit Agreement in connection with the execution and delivery of the Credit Agreement. This opinion is delivered to you pursuant to Section 4.04(ii) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement unless otherwise defined herein. In connection with this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinions hereinafter expressed. In stating our opinion, we have assumed the genuineness of all signatures on original or certified copies, the authenticity of documents submitted to us as originals and the conformity to original or certified copies of all copies submitted to us as certified or reproduction copies. We have also assumed, for purposes of the opinions expressed herein, that the parties to the Credit Agreement have the corporate power and authority to enter into and perform the Credit Agreement and that the Credit Agreement has been duly authorized, executed and delivered by each such party. Based upon the foregoing, and subject to the limitations set forth herein, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of each of Holdings and the Borrower, enforceable in accordance with its terms except to the extent that enforcement may be limited by applicable bankruptcy, insolvency, EXHIBIT B-2 Page 2 reorganization or other similar laws affecting creditors' rights generally and by equity principles (regardless of whether enforcement is sought in equity or at law). We have not been requested to render and, with your permission, we express no opinion as to the applicability to the obligations of Holdings or the Borrower under the Credit Agreement of Section 548 of the Bankruptcy Code and Article 10 of the New York Debtor & Creditor Law relating to fraudulent transfers and obligations. We understand, without independent verification, that the Banks have satisfied themselves on the basis of, among other things, the financial information furnished to the Banks and their knowledge of the credit facilities available to Holdings and the Borrower, that neither Holdings nor the Borrower is insolvent or will be rendered insolvent by the transactions contemplated by the Credit Agreement and that, after giving effect to such transactions, neither Holdings nor the Borrower will be left with unreasonably small capital with which to engage in its anticipated business and that neither Holdings nor the Borrower will have intended to incur, or will have believed it has incurred, debts beyond its ability to pay as such debts mature. This opinion is limited to the federal law of the United States of America and the law of the State of New York. Very truly yours, EXHIBIT C-1 ----------- NOTICE OF ASSIGNMENT -------------------- [DATE] Citibank, N.A., as Payments Administrator ______________________________ New York, New York __________ Attention: _____________________ re: Credit Agreement, dated as of November 3, 1995, among Nabisco Holdings Corp., Nabisco, Inc., various financial institutions from time to time party thereto and the Senior Managing Agents (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement") ------------------------------------------------- 1. Reference is made to the above-referenced Credit Agreement. All terms defined in the Credit Agreement shall have the same meanings when used herein. 2. [NAME OF ASSIGNOR] ("Assignor") has sold to [NAME OF ASSIGNEE] ("Assignee") an assignment in the aggregate amount of $________. 3. The Assignee hereby elects to become party to, and be bound by each of the provisions of, the Credit Agreement as a "Bank" with [a Commitment] [outstanding Loans] equal to the amount set forth in clause 2 above. 4. Assignee hereby confirms that it has executed and returned to the Borrower a confidentiality agreement in the form set forth as Exhibit D to the Credit Agreement. 5. Assignee hereby makes, as to itself, the representations set forth in Section 12.04(d) of the Credit Agreement, and agrees, to the extent not a U.S. Person, to deliver the required forms to the Borrower. EXHIBIT C-1 Page 2 6. The Assignee's address for purposes of notices under the Credit Agreement is: [INSERT ADDRESS] -------------------------------------- --------------------------------------- --------------------------------------- Very truly yours, [NAME OF ASSIGNOR] By________________________ Title: [NAME OF ASSIGNEE] By________________________ Title: EXHIBIT C-2 ----------- FORM OF ASSIGNMENT AGREEMENT ---------------------------- ASSIGNMENT AGREEMENT (the "Assignment Agreement"), dated as of ___________, 19__, between ________________ ("Assignor") and ________________ ("Assignee"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Assignor is a party to a Credit Agreement, dated as of November 3, 1995 (as amended to the date hereof, the "Credit Agreement"), among Nabisco Holdings Corp. ("Holdings"), Nabisco, Inc. (the "Borrower"), various financial institutions (including Assignor) and the Senior Managing Agents; WHEREAS, Assignor has [a Commitment of $_____ under the Credit Agreement pursuant to which it has made outstanding Loans of $__________]1/ [made outstanding Loans under the Credit Agreement of $____ - ]2/; - - - WHEREAS, Assignor and Assignee wish Assignor to assign to Assignee, among other things, its rights under the Credit Agreement with respect to a portion of its [Commitment and of its]3/ outstanding Loans; - and WHEREAS, Assignor and Assignee wish Assignee to assume the obligations of Assignor under the Credit Agreement to the extent of the rights so assigned; - -------------------- 1/ Insert only in Assignment and Assumption Agreements executed prior to - - the Commitment Expiry Date. 2/ Insert only in Assignment and Assumption Agreements executed after the - - Commitment Expiry Date. 3/ Insert only in Assignment and Assumption Agreements executed prior to - - the Commitment Expiry Date. EXHIBIT C-2 Page 2 NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. Assignment. Assignor hereby assigns to Assignee, without ---------- recourse, or representation or warranty (other than as expressly provided herein) and subject to Section 4(b) hereof, that percentage listed on Annex I hereto as the "Assignee's Share" ("Assignee's Share") of all of Assignor's rights, title and interest arising under the Credit Agreement indicated in Item 5 of Annex I hereto, including, without limitation, all or a portion of the Assignor's Commitment, if any, and all rights and obligations with respect to Assignee's Share of the Loans heretofore made by the Assignor under the Credit Agreement. The dollar amount of Assignee's Share of Assignor's Commitment and outstanding Loans is set forth in Item 5(c) of Annex I hereto. 2. Assumption. Assignee hereby assumes from Assignor all of ---------- Assignor's obligations arising under the Credit Agreement relating to Assignee's Share of [Assignor's Commitment and of]4/ the Loans. It is - the intent of the parties hereto that Assignor shall be released from all of its obligations under the Credit Agreement relating to Assignee's Share pursuant to Section 12.04(b)(A) of the Credit Agreement. 3. Assignments; Participations. Assignee may assign all or any --------------------------- part of the rights granted to it hereunder, provided that such assignment -------- complies with the provisions of Sections 12.04(b)(A) and 12.04(c) of the Credit Agreement. Assignee may sell or grant participations in all or any part of the rights granted to it hereunder in accordance with the provisions of Sections 12.04(b)(B) and 12.04(c) of the Credit Agreement. 4. Payment of Interest and Fees to Assignee. (a) Interest is ---------------------------------------- payable by the Borrower in respect of Assignee's Share of the Loans at the rates set forth in Section 1.09 of the Credit Agreement, the Facility Fee is payable by the Borrower in respect of the Assignee's Share of the daily average Commitment of the Assignor (or after the termination of the Total Commitment, of the Loans) at the rate set forth in Section 2.01(a) of the Credit Agreement and Utilization Fees are payable by the Borrower, under certain circumstances, at the rate set forth in Section 2.01(b) of the Credit Agreement, in each case, subject to the - -------------------- 4/ Insert only in Assignment and Assumption Agreements - - executed prior to the Commitment Expiry Date. EXHIBIT C-2 Page 3 terms and conditions set forth in the Credit Agreement (Facility Fees and Utilization Fees being hereinafter referred to as the "Fees").5/ - (b) Notwithstanding anything to the contrary contained in this Assignment Agreement, if and when Assignor receives or collects any payment of interest on any Loan attributable to Assignee's Share or any payment of Fees attributable to Assignee's Share which, in any such case, are required to be paid to Assignee pursuant to clause (a) above, Assignor shall dis- tribute to Assignee such payment but only to the extent such interest or Fee accrued after the Assignment Effective Date (as hereinafter defined). (c) Notwithstanding anything to the contrary contained in this Assignment Agreement, if and when Assignee receives or collects any payment of interest on any Loan or any payment of Fees which, in any such case, is required to be paid to Assignor pursuant to clause (a) above, Assignee shall distribute to Assignor such payment. 5. Payments on Assignment Effective Date. In consideration of ------------------------------------- the assignment by Assignor to Assignee of Assignee's Share of Assignor's Commitment and/or Loans as set forth above, [(a)] Assignee agrees to pay to Assignor on or prior to the Assignment Effective Date an amount specified by Assignor in writing on or prior to the Assignment Effective Date which represents Assignee's Share of the principal amount of the respective Loans made by Assignor pursuant to the Credit Agreement and outstanding on the Assignment Effective Date [and (b) Assignor agrees to pay to Assignee within three Business Days after the Assignment Effective Date the Assignment Facility Fee specified in Annex I hereto].6/ - 6. Effectiveness. (a) This Assignment Agreement shall become ------------- effective on the date (the "Assignment Effective Date") on which (i) Assignor and Assignee shall have signed a copy hereof (whether the same or different copies) and, in the case of - -------------------- 5/ In the event that the Assignor and Assignee agree that - - the rate of interest or Fees payable to the Assignee shall be lower than the rate or rates paid by the Borrower, with the Assignor being entitled to any excess, appropriate modifications may be made to Section 4(a) hereof. Any such modified Section 4(a) hereof must provide, however, that the Borrower and the Payments Administrator shall direct the entire amount of such interest or Fees to the Assignee, and that such fee sharing arrangement shall be effectuated through payments between the Assignee and the Assignor. 6/ Include the bracketed language in Section 5 hereof if - - an Assignment Facility Fee is to be paid. EXHIBIT C-2 Page 4 Assignee, shall have delivered same to Assignor, (ii) Assignee shall have paid to Assignor the amount set forth in Section 5[(a)] hereof and (iii) Assignor and Assignee shall have executed and delivered to the Payments Administrator a written notice of the assignment contained herein in the form of Exhibit C-1 to the Credit Agreement to the extent required by Section 12.04(b)(A) thereof and the Payments Administrator shall have recorded the assignment contained herein in the Register. (b) It is agreed that all interest on any Loan attributable to Assignee's Share and all Fees attributable to Assignee's Share, which, in each case, accrues on and after the Assignment Effective Date shall be paid directly to the Assignee. 7. Amendment of Credit Agreement. In accordance with the ----------------------------- requirements of Section 12.04(b)(A) of the Credit Agreement, on the Assignment Effective Date the Credit Agreement shall be amended by deeming the signature of Assignee herein as a signature to the Credit Agreement. For purposes of Section 12.04(b)(A) of the Credit Agreement, the Assignee shall be deemed a "Bank" for all purposes under the Credit Agreement, and shall be subject to and shall benefit from all of the rights and obligations of a Bank under the Credit Agreement and the address of the Assignee for notice purposes shall be as set forth opposite its signature below. 8. Representations and Warranties. Each of the Assignor and the ------------------------------ Assignee represents and warrants to the other party as follows: (a) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Assignment Agreement; (b) the making and performance by it of this Assignment Agreement and all documents required to be executed and delivered by it hereunder do not and will not violate any law or regulation of the jurisdiction of its incorporation or any other law or regulation applicable to it; (c) this Assignment Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms; and (d) all consents, licenses, approvals, authorizations, exemptions, registrations, filings, opinions and declarations from or with any agency, department, administrative authority, statutory corporation or judicial entity necessary for the EXHIBIT C-2 Page 5 validity or enforceability of its obligations under this Assignment Agreement have been obtained, and no governmental authorizations other than any already obtained are required in connection with its execution, delivery and performance of this Assignment Agreement. 9. Expenses. The Assignor and the Assignee agree that each -------- party shall bear its own expenses in connection with the preparation and execution of this Assignment Agreement. 10. Foreign Withholding. If the Assignee is organized under the ------------------- laws of any jurisdiction other than the United States or any state or other political subdivision thereof (a) it represents and warrants to the Payments Administrator and the Borrower that under applicable law and treaties no taxes will be required to be withheld by the Payments Administrator or the Borrower with respect to any payments to be made to Assignee in respect of the Loans and (b) it agrees that it will (i) furnish the Payments Administrator and the Borrower, concurrently with the execution of this Assignment Agreement, either U.S. Internal Revenue Service Form 4224, U.S. Internal Revenue Service Form 1001 or U.S. Internal Revenue Service Form W-9 (wherein Assignee claims entitlement to complete exemption from U.S. federal withholding tax on all payments under the Credit Agreement) and, upon the expiration or obsolescence of any pre- viously delivered form, with a new U.S. Internal Revenue Service Form 4224, Form 1001 or Form W-9 and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and com- pleted by Assignee and (ii) comply from time to time with all applicable U.S. laws and regulations with regard to the aforementioned withholding tax exemption. 11. Miscellaneous. (a) Assignor shall not be responsible to ------------- Assignee for the execution (by any party other than the Assignor), effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of any of the Credit Documents or for any representations, warranties, recitals or statements made therein or in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents made or furnished or made available by Assignor to Assignee or by or on behalf of either Credit Party to Assignor or Assignee in connection with the Credit Documents and the transactions contemplated thereby. Assignor shall not be required to ascertain or inquire as to the performance or observance of any of the terms, condi- tions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Default or Event of Default. EXHIBIT C-2 Page 6 (b) Assignee represents and warrants that it has made its own independent investigation of the financial condition and affairs of each Credit Party in connection with the making of the Loans and the assignment to Assignee hereunder of Assignee's Share of [Assignor's Commitment and of]7/ Assignor's Loans and has made and shall continue to make its own - appraisal of the creditworthiness of each Credit Party. Assignor shall have no duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of Assignee or to provide Assignee with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter and shall further have no responsibility with respect to the accuracy of, or the completeness of, any information provided to Assignee, whether by Assignor or by or on behalf of each Credit Party. (c) THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (d) No term or provision of this Assignment Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by both parties. (e) This Assignment Agreement may be executed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same instrument. (f) The Assignor may at any time or from time to time grant to others assignments or participations in its Commitment or the Loans but not in the portions thereof assigned to Assignee pursuant to this Assignment Agreement. The Assignor represents and warrants that it has not at any time prior to the Assignment Effective Date encumbered or assigned the portion of its Commitment or Loans being assigned hereunder. (g) All payments hereunder or in connection herewith shall be made in U.S. Dollars and in immediately available funds, if payable to the Assignor, to the account of the Assignor at its office as designated in Annex I hereto, and, if payable to the Assignee, to the account of the As- signee, as designated in Annex I hereto. - -------------------- 7/ Insert only in Assignment and Assumption Agreements executed prior to - - the Commitment Expiry Date. EXHIBIT C-2 Page 7 (h) This Assignment Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither of the parties hereto may assign or transfer any of its rights or obligations under this Assignment Agreement without the prior consent of the other party. The preceding sentence shall not limit the right of the Assignee to assign all or part of Assignee's Share of [Assignor's Commitment and/or] outstanding Loans assigned under this Assignment Agreement in the manner contemplated by the Credit Agreement, subject to the provisions of Section 3 hereof. (i) All representations and warranties made herein and indemnities provided for herein shall survive the consummation of the transaction contemplated hereby. (j) The Assignor shall promptly provide the Assignee with copies of the documents received in connection with the transactions contemplated by the Credit Documents and this Assignment Agreement. * * * EXHIBIT C-2 Page 8 IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement as of the date first above written. [NAME OF ASSIGNOR] By_________________________ Title: [NAME OF ASSIGNEE] By__________________________ Title: ANNEX I to Assignment Agreement -------------------- 1. Borrower: Nabisco, Inc. -------- 2. Date of Credit Agreement: As of November 3, 1995 ------------------------ 3. Assignee: -------- 4. Date of Assignment Agreement: ________________, 19__ ---------------------------- 5. Amount of Assignment: -------------------- [Commitment Loans ---------- ----- a. Assignor's outstanding [Commitment/]Loans............... $__________ $_________ b. Assignee's Share................... __________% _________% c. Amount of Assignee's Share..... $__________]1/$_______ - [6. Assignment Facility Fee: (__% of Assignee's [Commitment][Loan] ----------------------- Amount) $___] 7. Notice and Payment Instructions: ------------------------------- Assignor: ________________________________ ________________________________ ________________________________ Attention: Assignee: ________________________________ ________________________________ ________________________________ Attention: - -------------------- 1/ Insert only in Assignment and Assumption Agreements executed prior to - - the Commitment Expiry Date. ANNEX I Page 2 Accepted and Agreed: [NAME OF ASSIGNOR] By___________________________ Title: [NAME OF ASSIGNEE] By___________________________ Title: EXHIBIT C-3 ----------- FORM OF AGREEMENT OF COMMITMENT INCREASE ---------------------------------------- AGREEMENT OF COMMITMENT INCREASE (the "Agreement"), dated as of ___________, 19__, between Nabisco, Inc. (the "Borrower") and ________________ (the "[New] Bank"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrower [is a] [and the Bank are] party to a Credit Agreement, dated as of November 3, 1995 (as amended to the date hereof, the "Credit Agreement"), among Nabisco Holdings Corp. ("Holdings"), the Borrower, various financial institutions from time to time party thereto [(including the Bank)] and the Senior Managing Agents; [WHEREAS, the Borrower has requested the Bank to increase its Commitment of $________ under the Credit Agreement to $________; and WHEREAS, the Bank, pursuant to the terms and conditions hereof, desires to increase its Commitment of $________ under the Credit Agreement to $________;] [WHEREAS, the Borrower has requested the New Bank to become a party to the Credit Agreement with a Commitment of $________ thereunder; and WHEREAS, New Bank wishes to become party to, and be bound by each of the provisions of, the Credit Agreement as a "Bank" with a Commitment equal to the amount set forth in the previous recital;] NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. Commitment. [The New Bank hereby agrees to become party to, ---------- and be bound by, each of the provisions of the Credit Agreement with a Commitment equal to $__________. Upon the Agreement Effective Date (as defined below), the New Bank shall become a "Bank" for all purposes of the Credit Agreement and the other Credit Documents EXHIBIT C-3 Page 2 with the Commitment, and the information contained in Annex I hereto, as so recorded by the Payments Administrator in the Register.] [From and after the Agreement Effective Date (as defined below), the Bank hereby agrees to increase its Commitment of $__________ under the Credit Agreement to $__________.] 2. Note. Upon the Agreement Effective Date (as defined below), ---- the Borrower hereby agrees to execute a Note in favor of the [Bank] [New Bank] in an aggregate principal amount equal to the [Bank's] [New Bank's] Commitment of $_________[, and upon receipt of such Note the Bank shall deliver the Note currently in its possession to the Borrower marked "cancelled"]. 3. Assignments; Participations. The [Bank] [New Bank] may --------------------------- assign all or any part of the rights granted to it hereunder, provided that -------- such assignment complies with the provisions of Sections 12.04(b)(A) and 12.04(c) of the Credit Agreement. The [Bank] [New Bank] may sell or grant participations in all or any part of the rights granted to it hereunder in accordance with the provisions of Sections 12.04(b)(B) and 12.04(c) of the Credit Agreement. [4. Payment of Interest and Fees to New Bank. Interest is ---------------------------------------- payable by the Borrower in respect of New Bank's pro rata share of the --- ---- Loans at the rates set forth in Section 1.09 of the Credit Agreement, the Facility Fee is payable by the Borrower in respect of the New Bank's daily average Commitment (or after termination of the Total Commitment, of its pro rata share of the outstanding Loans) at the rate set forth in Section - --- ---- 2.01(a) of the Credit Agreement and Utilization Fees are payable by the Borrower, under certain circumstances, at the rate set forth in Section 2.01(b) of the Credit Agreement, in each case, subject to the terms and conditions set forth in the Credit Agreement (Facility Fees and Utilization Fees being hereinafter referred to as the "Fees").] 5. Effectiveness. [(a)] This Agreement shall become effective ------------- on the date (the "Agreement Effective Date") on which (i) Borrower and the [Bank] [New Bank] shall have signed a copy hereof (whether the same or different copies) and delivered same to the Payments Administrator, [and] (ii) [the New Bank shall have paid a nonrefundable fee of $2,500 to the Payments Administrator as required by Section 1.16 of the Credit Agreement and (iii)] the Payments Administrator shall have recorded the [Bank's] [New Bank's] Commitment in the Register. [(b) By its execution of this Agreement, the New Bank shall be deemed a "Bank" for all purposes under the Credit Agreement, and shall be subject to and shall benefit from all of the rights and obligations of a Bank under the Credit Agreement and the EXHIBIT C-3 Page 3 address of the New Bank for notice purposes shall be as set forth opposite its signature below.] 6. Representations and Warranties. (i) Each of the Borrower and ------------------------------ the [Bank] [New Bank] represents and warrants to the other party as follows: (a) it has full power and authority, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement; (b) the making and performance by it of this Agreement and all documents required to be executed and delivered by it hereunder do not and will not violate any law or regulation of the jurisdiction of its incorporation or any other law or regulation applicable to it; (c) this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms; and (d) all consents, licenses, approvals, authorizations, exemptions, registrations, filings, opinions and declarations from or with any agency, department, administrative authority, statutory corporation or judicial entity necessary for the validity or enforce- ability of its obligations under this Agreement have been obtained, and no governmental authorizations other than any already obtained are required in connection with its execution, delivery and performance of this Agreement. (ii) [New Bank represents and warrants as follows: (a) it has made its own independent investigation of the financial condition and affairs of each Credit Party in connection with the making of the Loans and its agreement to make a Commitment hereunder and has made and shall continue to make its own appraisal of the credit- worthiness of each Credit Party; and (b) it is an Eligible Transferee which makes loans in the ordinary course of its business, and it will make or acquire Loans for its own account in the ordinary course of such business, provided, that -------- subject to Section 12.04(a) through (c) of the Credit Agreement, the disposition of any promissory notes or other EXHIBIT C-3 Page 4 evidences of or interests in Indebtedness held by the New Bank shall at all times be within its exclusive control. (iii)] The Borrower represents and warrants as follows: (a) no Event of Default has occurred and is continuing on the date hereof; and (b) the Credit Rating of the Borrower is [an Increased Investment Grade Rating] [a Maximum Investment Grade Rating] on the date hereof. 7. Expenses. The Borrower and the [Bank] [New Bank] agree that -------- each party shall bear its own expenses in connection with the preparation and execution of this Agreement. [8. Foreign Withholding. If the New Bank is organized under the ------------------- laws of any jurisdiction other than the United States or any state or other political subdivision thereof (a) it represents and warrants to the Payments Administrator and the Borrower that under applicable law and treaties no taxes will be required to be withheld by the Payments Administrator or the Borrower with respect to any payments to be made to New Bank in respect of the Loans and (b) it agrees that it will (i) furnish the Payments Administrator and the Borrower, concurrently with the execution of this Agreement, either U.S. Internal Revenue Service Form 4224, U.S. Internal Revenue Service Form 1001 or U.S. Internal Revenue Service Form W-9 (wherein New Bank claims entitlement to complete exemption from U.S. federal withholding tax on all payments under the Credit Agreement) and, upon the expiration or obsolescence of any previously delivered form, with a new U.S. Internal Revenue Service Form 4224, Form 1001 or Form W-9 and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by New Bank and (ii) comply from time to time with all applicable U.S. laws and regulations with regard to the aforementioned withholding tax exemption.] 9. Miscellaneous. ------------- (a) THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (b) No term or provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by both parties. EXHIBIT C-3 Page 5 (c) This Agreement may be executed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same instrument. (d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither of the parties hereto may assign or transfer any of its rights or obligations under this Agreement without the prior consent of the other party. The preceding sentence shall not limit the right of the [Bank] [New Bank] to assign all or part of its Commitment and outstanding Loans in the manner contemplated by the Credit Agreement, subject to the provisions of Section 3 hereof. (e) All representations and warranties made herein and indemnities provided for herein shall survive the consummation of the transaction contemplated hereby. [(f) The Borrower shall promptly provide the New Bank with copies of the documents received in connection with the transactions contemplated by the Credit Documents and this Agreement.] * * * EXHIBIT C-3 Page 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NABISCO, INC. By_________________________ Title: [NAME OF [BANK] [NEW BANK]] By__________________________ Title: Acknowledged this ____day of _______, 199_: CITIBANK, N.A., as Payments Administrator By ___________________________________________________ ANNEX I ------- 1. Borrower: Nabisco, Inc. -------- 2. Date of Credit Agreement: As of November , 1995. ------------------------ -- 3. Name of [New] Bank: ------------------ 4. Date of Agreement of Commitment Increase: ________________, 19__. ---------------------------------------- 5. Commitment: $___________ ---------- 6. Notice: ------ ________________________________ ________________________________ ________________________________ Attention: 7. Payment Instructions: -------------------- ________________________________ ________________________________ ________________________________ Attention: Reference: EXHIBIT D --------- FORM OF CONFIDENTIALITY AGREEMENT --------------------------------- [DATE] [Insert Name and Address of the New Bank, Prospective Assignee or Holder of a Participation] Ladies and Gentlemen: In connection with the financing of the credit facilities (the "Nabisco Facilities"), Nabisco Holdings Corp. ("Holdings") may from time to time provide to you information (the "Confidential Information") regarding, among other things, Holdings, Nabisco, Inc. ("Nabisco") and the Nabisco Facilities. As used herein, the term "Material" means any information concerning Holdings and/or its subsidiaries which is furnished by or on behalf of Holdings (including, without limitation, the Confidential Information), provided that the term "Material" does not include information which was or becomes generally available to the public or becomes available on a non-confidential basis, in each case other than from a source which is bound by a confidentiality agreement with Holdings. We are prepared to provide you with Materials as necessary or pursuant to the information provisions under the credit agreements (the "Credit Agreements"), among Holdings, Nabisco and various financial institutions from time to time party thereto. Pursuant to Section 12.14 of the Credit Agreements, you, as a prospective assignee or holder of a participation in the Loans (as defined in the Credit Agreements) are required to enter into this Confidentiality Agreement (the "Agreement") before receiving the Confidential Information and the other Materials. Such Materials will be made available to you upon your execution of this Agreement. In consideration thereof, you agree that the Confidential Information and the other Materials will be kept confidential, in accordance with your customary procedure for handling confidential information and in accordance with safe and sound banking practices, and not be used by you except in connection with the Nabisco Facilities and the financing thereof discussed above. EXHIBIT D Page 2 You and your affiliates, directors, officers, employees and representatives agree to be bound by the terms of this Agreement. This Agreement shall inure to the benefit of Holdings. In this connection, we acknowledge that you may make disclosure of the Confidential Information and the Materials to your attorneys and independent auditors. In addition, you may make disclosure as required or requested by any governmental agency or representative thereof or pursuant to legal process, and we acknowledge that you are subject to bank regulatory agencies and may be required to provide the Confidential Information and the Materials to, or otherwise make them available for review by, the representatives of such agencies, provided that, unless -------- specifically prohibited by applicable law or court order, you shall notify Holdings of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of your financial condition by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. You also agree to request confidential treatment of the Confidential Information and the Materials to the extent permitted by law. Please indicate your agreement to the foregoing at the place provided below. Very truly yours, [Insert Name of Lender] By___________________________ Title: The foregoing is agreed to as of the date of this letter. By___________________________ Title: EX-10.31 9 Exhibit 10.31 1995 AMENDMENT TO EMPLOYMENT AGREEMENT This is an amendment, dated as entered below, to the Employment Agreement (the "Agreement") which was made the 271h day of May 1993 by and among RJR Nabisco Holdings Corp., a Delaware corporation ("Holdings"), RJR Nabisco, Inc., a Delaware corporation and an indirect subsidiary of Holdings (the "Company") and Charles M. Harper ("Executive"). RECITALS -------- In consideration of Executive being given the opportunity to receive an increased amount of compensation for the fiscal year ending December 31, 1995, and Holdings and the Company being able to provide more effective incentives to the performance of Executive, it is agreed by and between the parties as follows: a) Section 3.1 of the Agreement shall be amended in its entirety for the fiscal year ending December 31, 1995, as follows: "3.1 Salary. The Company shall pay executive a Base ------ Salary at the rate of $600,000 per annum for the period ending December 31, 1995." Nothing in this Amendment shall cause Section 3.1 of the Agreement to be amended for the fiscal years ending December 31, 1996 or 1997, or to remove the obligation of the Company to increase the Base Salary rate 6% each January 1 of such years compounded annually from a base of $1,200,000 in 1993. b) Sections 3.2(a), (b) and (c) of the Agreement shall be amended in their entirety as follows: "3.2 Annual Bonus. In addition to his Base Salary, ------------ executive shall be entitled for the fiscal year ending December 31, 1995, to be granted Performance Units pursuant to the Performance Unit Agreement appended hereto as Attachment 1. The value of Performance Units shall be determined by Cash Net Income for 1995, as specified in the Performance Unit Agreement and attachments thereto. For this purpose, "Cash Net Income" means Cash Net Income from continuing operations, determined without regard to the effect of any unanticipated major financial or corporate event or any change in accounting standards that may be required or permitted by the Financial Accounting Standards Board. This award shall be in lieu of any award under the Company's Annual Incentive Award Plan for the fiscal year ending December 31, 1995. Nothing in this Amendment shall cause Sections 3.2(a), (b) or (c) of the Agreement to be amended for the fiscal year ending December 31, 1996 or 1997. RJR NABISCO HOLDINGS CORP. BY /s/ ---------------------------- Executive Vice President RJR NABISCO HOLDINGS CORP. BY /s/ ---------------------------- Executive Vice President BY /s/ Charles M. Harper ---------------------------- Executive Vice President Date: 2-15-95 -------- EX-10.32 10 Exhibit 10.32 SECOND 1995 AMENDMENT TO EMPLOYMENT AGREEMENT This is a Second 1995 Amendment, dated as entered below, to the Employment Agreement (the "Agreement") which was made the 27th of May 1993 by and among RJR Nabisco Holdings Corp., ("Holdings"), a Delaware corporation, RJR Nabisco. Inc. (the "Company"), a Delaware corporation, and Charles M. Harper ("Executive .... Nothing in this Second 1995 Amendment shall affect the validity of the previous 1995 Amendment to the Agreement made February 15, 1995. Recitals -------- In consideration of Executive being given the added security of increased severance in the event of Executive's termination without Cause, and Holdings and the Company being able to provide further incentives to the performance of Executive through this additional security, it is agreed by and among the parties as follows: a) Subsection 6.1 is amended to delete the term "Expiration Date" wherever it appears and to substitute in each instance in its place "the third anniversary of the date his employment terminated." b) Section 10 is amended to (i) delete the reference to "Mr. Paul E. Raether" and insert in its place "Mr. Gerald I. Angowitz", and (ii) delete the reference to and address of Alvin H. Brown, Esq. RJR Nabisco Holdings Corp. BY /s/ ---------------------------- RJR NABISCO HOLDINGS CORP. BY /s/ ---------------------------- BY /s/ Charles M. Harper ---------------------------- Date: 4/13/95 -------- EX-10.33 11 Exhibit 10.33 AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, dated as of the 5th day of December, 1995, by and among RJR Nabisco Holdings Corp., a Delaware corporation ("Holdings"), RJR Nabisco, Inc., a Delaware corporation and a direct subsidiary of Holdings (the "Company") and Charles M. Harper ("Executive") amends and restates that certain agreement by and among Holdings, the Company and Executive made the 27th day of May, 1993, as amended February 15, 1995, and April 13, 1995, (the "Initial Agreement"). This Agreement reflects the fact that Executive has ceased to serve as Chief Executive Officer of Holdings and the Company and will continue to serve in the executive positions of Chairman of the Boards of Holdings and the Company, This Agreement will (i) following a Change of Control (as defined in Exhibit E), supersede the Executive's participation in the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence Recognition Program (the "Headquarters Program") and (ii) be in lieu of Executive's participation in the RJR Nabisco Holdings Corp. 1995 Employee Protection Program (the "1995 Program"), but will in no event provide lesser benefits to Executive in the event of the termination of Executive's employment following a Change of Control than would otherwise be available under the 1995 Program. RECITALS -------- In order to induce Executive to continue in his current position as Chairman of the Boards of Holdings and the Company, Holdings and the Company desire to provide Executive with compensation and other benefits under the conditions set forth in this Agreement. Executive is willing to continue employment as Chairman of the Boards of Holdings and the Company, and to perform services for Holdings and the Company, on the terms and conditions hereinafter set forth. It is therefore hereby agreed by and between the parties as follows: 1. Employment. ----------- 1.1 Subject to the terms and conditions of this Agreement, Holdings agrees to employ Executive during the term hereof as Chairman of the Boards of Holdings and the Company. In such capacities, Executive shall have the customary powers, responsibilities and authorities of a chairman of the board of corporations of the size, type and nature of Holdings and the Company, respectively, as such powers, responsibilities and authorities have existed and continue to exist on the date hereof at Holdings and the Company. Executive's principal office shall be at the principal executive offices of Holdings and the Company in New York, New York, as well as Omaha, Nebraska, and Executive shall commute between such offices of Holdings and the Company as he reasonably determines. 2 1.2 Holdings and the Company shall, throughout the term hereof, cause the election of Executive as Chairman of the Board of Directors of Holdings (the "Holdings Board") and the Board of Directors of the Company (the "Board") (and sometimes, collectively, the "Boards"). 1.3 Subject to the terms.and conditions set forth herein, Executive agrees to continue to serve in the executive positions of Chairman of the Boards of Holdings and the Company and shall devote his working time and efforts, to the best of his ability, experience and talent, to the performance of the services, duties and responsibilities in connection therewith including, without limitation, consideration of strategic issues relating to Holdings and the Company and consultation with and advice to the Chief Executive Officer of Holdings and the Company with respect to such issues. Nothing in this Agreement shall preclude Executive from engaging, consistent with his duties and responsibilities hereunder, in charitable and community affairs, from managing his personal investments, from continuing to serve on the boards of directors listed on Exhibit A or from serving (subject to approval of the Holdings Board) as a member of boards of directors of other companies. 2. Term of Employment. ------------------- Executive's employment with Holdings and the Company commenced on May 31, 1993, (the "Commencement Date") and, unless terminated or extended in accordance herewith or 3 as otherwise provided herein, shall continue through December 5, 1998 (the "Expiration Date"). 3. Compensation. ------------ 3.1 Salary. Except as set forth below, while Executive is employed ------ by Holdings and the Company the Company shall pay Executive a base salary ("Base Salary"). Effective January 1, 1996, the annual rate of Base Salary shall be FIVE HUNDRED THOUSAND DOLLARS ($500,000) per annum. Base Salary shall be payable in accordance with the ordinary payroll practices of the Company. Except as may otherwise be agreed in writing by the parties, Executive's rate of Base Salary shall be increased on January 1 of each of 1997 and 1998 to the greater of an amount equal to $500,000 plus 6% per year, compounded annually, from January 1, 1996, or the amount specified by the Holdings Board. Notwithstanding the foregoing, for the fiscal year ending December 31, 1995, the Executive's Base Salary is payable at the annual rate of $600,000 per annum. 3.2 Annual Bonus. (a) Except as set forth in Section 3.2(c), in ------------ addition to his Base Salary, Executive shall be entitled while employed by Holdings and the Company to be granted an annual incentive bonus (any annual bonus paid or accrued hereunder, a "Bonus") in respect of each fiscal year of the Company ("Fiscal Year") as determined by the Holdings Board in its sole discretion. As provided in the Company' s Annual Incentive Award Plan ("AIAP") and subject to Section 6(e) of the AIAP, with respect to the 4 Fiscal Year in which Executive's "Retirement Date" (as provided in Section 5 herein) occurs if Executive shall be a Participant in the AIAP with respect to such Fiscal Year, Executive shall receive a Bonus scored at target and prorated for the number of months Executive was actively employed by Holdings and the Company during such Fiscal Year. (b) The Bonus for each Fiscal Year shall be paid in cash when bonuses are paid generally to other senior executives of the Company for such Fiscal Year, but no later than May 1 of the next Fiscal Year. However, payment shall be deferred if, no later than March 1 of the Fiscal Year to which such Bonus relates, Executive shall deliver notice to the Company of his intent to defer payment of the Bonus for such Fiscal Year to a later date, on terms mutually agreeable to Executive and Company. (c) For the Fiscal Year ending December 31, 1995, Sections 3.2(a) and (b) shall have no force or effect and the right of Executive to any bonus payments hereunder shall be governed by this Section 3.2(c). In addition to Base Salary, for the. fiscal year ending December 31, 1995 Executive has been granted Performance Units under the Company's 1990 Long Term Incentive Plan ("LTIP") pursuant to the Performance Unit Agreement dated February 15, 1995, between the Company and Executive, the form of which is attached hereto as Exhibit D (the "Performance Unit Agreement"). The value of such Performance Units shall be 5 determined by Cash Net Income for 1995, as specified in the Performance Unit Agreement and attachments thereto; provided that following a Change of Control, the Committee (as defined in the LTIP) shall not exercise its discretion under Sections 2 and 3 of the Performance Unit Agreement or otherwise to reduce the Payment Value per unit below the Initial Grant Value (all as defined in the Performance Unit Agreement). For purposes of this Section 3.2(c), "Cash Net Income" means Cash Net Income from continuing operations, determined without regard to the effect of any unanticipated major financial or corporate event or any change in accounting standards that may be required or permitted by the Financial Accounting Standards Board. Such Performance Units shall be in lieu of any award under the AIAP for the Fiscal Year ending December 31, 1995. Nothing in this Section 3.2(c) shall affect the provisions of Sections 3.2(a) or (b) hereof for any Fiscal Year other than the Fiscal Year ending December 31, 1995. 3.3 Compensation Plans and Proprams. Executive shall participate ------------------------------- while employed by Holdings and the Company in any compensation plan or program, whether annual or long term, maintained by Holdings or the Company on terms comparable to those applicable to other senior management of Holdings or the Company. 3.4 Special Bonus Payments. Upon a Change of Control, the Company ---------------------- shall pay to Executive a special cash bonus payment equal to the sum of (a) Executive's AIAP 6 Vested Amount as of such Change of Control, Executive's PS Vested Amount as of such Change of Control, and Executive's PU Vested Amount as of such Change of Control (all as defined in Exhibit E); (b) any additional premium amounts required under Exhibit F hereto; and (c) any additional funding amounts required to fully fund the SERP Benefit (as defined in Section 5) accrued to the date of such Change of Control under Section 5 hereof. Notwithstanding the foregoing, in the event that following a Change of Control any performance period relating to any award under the AIAP or of Performance Units or Performance Shares under the LTIP (as such terms are defined therein) within which such Change of Control occurred is completed prior to Executive's termination of employment with Holdings and the Company, upon such completion Executive shall be entitled to payment in respect of each such award of an amount, if any, equal to the excess of the value of such award based on actual performance for such performance period over the AIAP Vested Amount, PU Vested Amount or PS Vested Amount, as the case may be, previously paid to Executive upon such Change of Control in respect of such AIAP award, Performance Units or Performance Shares. 4. Employee Benefits. ----------------- 4.1 Employee Benefit Plans and programs. The Company and Holdings ------------------------------------ shall provide Executive until Executive's termination of employment with Holdings and the Company coverage under all employee benefit programs, plans 7 and practices (commensurate with the positions of Chairman of the Boards of Holdings and the Company and to the extent possible under any employee benefit plan), in accordance with the terms thereof, which Holdings and the Company make available to their senior executive officers, including, but not limited to (a) retirement, pension and profit sharing (other than the SERP, as defined in Section 5) and (b) medical, dental, hospitalization, short and long term disability, accidental death and dismemberment and travel accident coverage. It is understood that the provisions of Section 4.1(c) of the Initial Agreement relating to life insurance have been amended and restated by the letter agreement dated June 20, 1995, attached as Exhibit C hereto, which letter agreement is incorporated herein by this reference. 4.2 Vacation and Fringe Benefits. Executive shall be entitled to the ---------------------------- number of vacation days customarily accorded senior executives of the Company. In addition, Executive shall be entitled to the perquisites and fringe benefits accorded from time to time to senior executives of the Company as well as the other perquisites and benefits currently accorded Executive by Holdings and the Company, including but not limited to, a car and driver, use of a Company aircraft for commuting between Executive's residences and the various offices of Holdings and the Company and use of a Company or Holdings provided apartment in New York, New York. Such apartment and its furnishings 8 shall be subject to the reasonable approval of Executive. Holdings or the Company shall pay to Executive an additional amount such that after payment by Executive of all applicable Federal, State and local taxes (computed at the maximum marginal rates) Executive retains a sufficient amount to pay all such taxes incurred by Executive as a result of the provision of a car and driver and the use of a Company aircraft and of a Company or Holdings-provided apartment as provided herein. 4.3 Directors and Officers Liability. The Company and Holdings shall -------------------------------- indemnify Executive and provide Executive with Directors and Officers Liability coverage and shall maintain the indemnification and directors' and officers' liability insurance coverage, at levels of coverage and protection no less favorable than was provided by the Company or Holdings as of May 1, 1993, for any director or officer of Holdings or the Company. The Directors and Officers coverage and indemnification provided herein shall continue, as to Executive, throughout the period of any applicable statute of limitations or through the continuation of any period during which any applicable statute of limitations may be tolled. 5. Supplemental Pension. The obligations under Section 5 of the -------------------- Initial Agreement to provide to Executive a pension benefit (the "SERP Benefit") in lieu of the pension benefit to which Executive would otherwise be entitled under the Company's Supplemental Executive Retirement Plan 9 ("SERP") has been funded for the estimated SERP Benefit accrued through the Expiration Date of this Agreement by the purchase of annuities held in the Excess Benefit Master Trust Agreement by and between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A., dated February 5, 1988, as amended through January 27, 1989, (the "1988 Secular Trust"). Such annuities are to be delivered to Executive upon his Retirement Date. Executive's "Retirement Date" for purposes of delivery of the foregoing annuities under this Section 5 shall be the date of his termination of employment with the Company for any reason. It is understood that extensions in the Expiration Date of this Agreement, in the interest rate assumptions, in tax rates, in Executive's tax status as determined by state or local taxing authorities, and in other actuarial factors or considerations as of Executive's Retirement Date may affect the adequacy of such funding of the SERP Benefit. Periodically, upon any extensions in the Expiration Date, and in all events immediately prior to or promptly following the Retirement Date, an actuarial calculation shall be performed to determine if any additional funding through the purchase of an annuity on a tax grossed up-basis (as described in the SERP acknowledgment executed by Executive and attached hereto as Exhibit F (the "Acknowledgment")) is required as of the Retirement Date to deliver the full benefit to which Executive is entitled pursuant to Section 5 of the Initial Agreement, Exhibit B thereto and hereto and the 10 Acknowledgment, all of which are incorporated herein by this reference, as such benefit may be increased pursuant to Section 6.1(a)(v) if applicable. If such additional funding is required, the Company shall promptly (i) purchase such additional annuities and (ii) pay to Executive an additional amount such that after payment by Executive of all applicable Federal, State and local taxes (computed at the maximum marginal rates) Executive retains a sufficient amount to pay all such taxes incurred by Executive as a result of the purchase of such additional annuities. Nothing herein shall adversely affect the validity of the Acknowledgment. 6. Termination of Employment. ------------------------- 6.1 Termination Not For Cause or For Good Reason. (a) The Company and -------------------------------------------- Holdings may terminate Executive's employment at any time for any reason, and Executive may terminate his employment at any time for any reason. If Executive's employment is terminated by the Company or Holdings other than for Cause (as hereinafter defined) prior to the Expiration Date or if Executive terminates his employment for Good Reason (as hereinafter defined) prior to the Expiration Date, the Company shall pay to Executive (x) if such termination is prior to, or more than twenty-four months after a Change of Control, compensation until the Expiration Date (or, if earlier, until his date of death), payable monthly at a monthly rate equal to the amounts set forth in clauses (i) and (ii) below, or (y) if such 11 termination occurs during the twenty-four month period following a Change of Control and prior to the Expiration Date, then upon such termination a lump sum payment, discounted to its present value, based on a notional payment period equal to the number of months, including partial months, in the period beginning on the date of such termination of employment and ending on the Expiration Date (the "Balance of the Term"), assuming equal monthly payments and a discount rate equal to the product of (I) the Treasury bond yield for instruments having a term approximately equal to the Balance of the Term as published in the New York Times on the first of the month in which the termination occurs and (II) 100% minus the aggregate applicable Federal, state and local taxes then imposed on Executive's employment income computed at the maximum applicable marginal rates, in cash in an amount equal to the sum of the amounts set forth in clauses (i) and (ii) below times the number of whole and partial months in the Balance of the Term: (i) Executive's Base Salary at its then current monthly rate (or following a Change of Control, if higher, the rate in effect immediately prior to such Change of Control); and (ii) the product of (x) the highest annual Bonus paid or accrued by the Company to or for Executive since the commencement of his employment on May 27, 1993 times (y) a fraction (A) the numerator of which is one (1) and (B) the denominator of which is twelve (12). In addition, Executive shall be entitled to receive: (iii) Executive's full Base Salary through the date of termination at the rate in effect at the time notice of termination is given, AIAP Vested Amount 12 as of the date of termination, and, except as set forth below, all other amounts to which Executive is entitled under any compensation or benefit plan of the Company including, but not limited to, the AIAP and LTIP, and all unpaid amounts, as of the date of such termination, in respect of any bonus, including any Bonus for any Fiscal Year ending before such termination which would have been payable had the Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, at the times such payments are due under the terms of such plans or, in the event such termination occurs during the twenty-four month period following a Change of Control, upon such termination; (iv) any payment deferred by Executive, together with any applicable interest or other accruals thereon; (v) the benefits under Section 5 hereof shall be paid out in accordance with their terms; provided, however, that Executive shall,for -------- ------- employed purposes of Section 5, be deemed to have remained employed by the Company and Holdings for the lesser of (i) the period equal to the Balance of the Term or (ii) the period between his date of termination and his date of death, at the compensation level in effect on the date of termination or if such termination occurs during the twenty-four month period following a Change of Control, at the compensation level in effect immediately prior to such Change of Control if higher; (vi) continued coverage under Holdings' and the Company's employee benefit programs, plans and practices described in Section 4.1 and 4.2 hereof (other than the use of a Company or Holdings- provided apartment or Company aircraft) for a period equal to the Balance of the Term, or Holdings or the Company will provide for equivalent coverage (on an after-tax basis), subject to any applicable coordination of benefits rules; provided that (A) in the case of any plan meeting the requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), in the event of a termination of employment prior to or more than twenty-four months following a Change of Control, such coverage shall be provided only to the extent consistent with such requirements and (B) in the event of such termination during the twenty-four month period following a Change of Control, such 13 coverage shall not be less favorable in the aggregate than that in effect immediately prior to such Change of Control; (vii) such payments under applicable plans or programs, including but not limited to those described in Section 3.3 and 4.3 and payment for accrued vacation, as may be determined pursuant to the terms of such plans or programs and this Agreement; (viii) the immediate right to exercise all Options granted pursuant to Section 7.1 and the immediate lapse of transfer restrictions on the Purchased Stock as described in Section 7.2; (ix) if Executive's termination occurs prior to March 1, 1996 and prior to a Change of Control, any applicable additional benefits and protections provided under the Headquarters Program; (x) if Executive's termination occurs during the twenty-four month period following a Change of Control, all cash payments to be made hereunder upon a termination of employment shall be made not later than 15 business days following the date of termination, and in addition Executive shall receive, to the extent not already provided herein: (A) a lump sum cash payment equal to the sum of Executive's AIAP Vested Amount, PS Vested Amount and PU Vested Amount (each as defined in Exhibit (E)) all as of the date of termination; (B) a lump sum cash payment equal to the value of the annual credit under the RJR Nabisco. Inc. Flexible Perquisites Program (the "Perquisites Program") to which Executive was entitled immediately prior to such termination or, if higher, to which Executive was entitled immediately prior to the Change of Control, in each case multiplied by a fraction, the numerator of which is the number of whole and partial months in the Balance of the Term and the denominator of which is twelve reducedby such credits as would otherwise be applied to the continued benefits under Section 6.1(a) (vi) above; (C) use of the automobile assigned to Executive immediately prior to the Change of Control for a period equal to the Balance of the Term and, at the end of such period, the transfer 14 of ownership of such automobile to Executive plus such amount in cash that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed in connection with such transfer; (D) in addition to and upon the expiration of the benefits provided pursuant to Section 6.1(a) (vi) above, MedChoice Retiree Medical benefits as in effect at the time of such expiration for other retirees and as amended from time to time thereafter at the minimum level of Company subsidy or, if greater, the subsidy level based on all years of service (actual and imputed) credited for purposes of the SERP Benefit; and (E) if the Company fails to provide any of the benefits under Section 6.1(a) (vi) or Section 6.1(a)(x) (D) above, reimbursement for the actual cost of Executive's obtaining comparable benefits within 15 business days after the date Executive gives the Company written notice that he incurred such costs plus such additional amount that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum applicable marginal rates, is equal to all such taxes, so computed, imposed with respect to such reimbursement. (b) For purposes of this Agreement, "Good Reason" shall mean any of the following (without Executive's express prior written consent): (i) (A) The assignment to Executive of duties materially inconsistent with Executive's position (including duties, responsibilities, status, titles or offices as set forth in Section 1 hereof); (B) any elimination or reduction of Executive's duties or responsibilities; or (C) any removal of Executive from or any failure to elect or reelect Executive to the positions of Chairman of Holdings and the Company (including the failure to elect Executive to the positions of Chairman of the ultimate controlling entity in connection with any merger, acquisition or other extraordinary corporate transaction that includes Holdings or the Company), except in connection with the termination of Executive's employment for Cause, Permanent Disability (as hereinafter defined) or as a result of Executive's death or by Executive 15 other than for Good Reason or except as a result of a change in the By-laws of Holdings or the Company which change is not approved by the Holdings Board provided Executive is promptly restored to such position or positions; (ii) A reduction in Executive's Base Salary from the level required hereunder at the time in question, as the same may be or may be required to be increased from time to time during the term or pursuant to the terms of this Agreement, or the failure to provide Executive with an annual incentive bonus opportunity pursuant to Section 3.2; (iii) The failure by the Company or Holdings to obtain the specific assumption of this Agreement by any successor or assign of Holdings or the Company or any person acquiring substantially all of the Company's or Holdings' assets; (iv) Any material breach by the Company or Holdings of any provision of this Agreement or any agreements entered into pursuant thereto; (v) Requiring Executive to be based at any office or location other than those described in Section 1 above, except for travel reasonably required in the performance of the Executive's responsibilities; or (vi) During the twenty-four month period following a Change of Control, (A) the failure to continue in effect any compensation plan in which Executive participates at the time of the Change of Control, including but not limited to the LTIP, the AIAP, the Perquisites Program, or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of his participation relative to other participants, as existed at the time of the Change of Control; or (B) the failure to continue to provide Executive with benefits at least as favorable in the aggregate as those enjoyedby him under any of the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or 16 savings plans in which he was participating at the time of the Change of Control, the taking of any action which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by him at the time of the Change of Control, or the failure to provide him with the number of paid vacation days to which he was entitled on the basis of the Company's practice with respect to him as in effect at the time of the Change of Control. (c) (i) Anything in this Agreement to the contrary notwithstanding, in the event that it is determined that any payment or distribution by Holdings or the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, other than any payment pursuant to this Section 6.1(c), (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive from Holdings or the Company, within 15 days following the determination described in Section 6.1(c)(ii) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by Executive of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), 17 including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, Executive retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (ii) All determinations required to be made under this Section 6.1(c), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by Ernst & Young, Winston-Salem, North Carolina, or such other national accounting firm as the Company or Holdings may designate prior to a Change of Control, which shall provide detailed supporting calculations to the Company and the Executive within 15 business days of the date of termination of Executive's employment. Except as hereinafter provided, any determination by Ernst & Young, Winston-Salem, North Carolina, or such other national accounting firm as the Company or Holdings may designate prior to a Change of Control, shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with 18 the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by Holdings or the Company to or for the benefit of the Executive. In the event that the Executive discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to Holdings or the Company. (d) Except as provided in this Agreement, if Executive is a participant in the LTIP or any other stock award plan of the Company, Holdings, or any of their affiliates and has outstanding awards thereunder, the treatment of such awards shall be governed by the terms of such applicable plans and awards. 6.2 Permanent Disability. If prior to the Expiration Date -------------------- the Executive becomes totally and permanently disabled (as defined in the Company's Long-Term Disability Plan applicable to senior executive officers ("LTD Plan") as in effect on May 27, 1993 ("Permanent Disability")) Holdings or the Company or Executive may terminate his employment on written notice thereof and (a) Executive shall continue to receive until the Expiration Date (or, if earlier, the end of his Permanent Disability or his death) amounts equal to no less than 50% of Executive's then annual Base Salary (or, if higher, 50% of $500,000 plus 6% per year, compounded annually, from January 1, 1996, to the January 1 immediately preceding such termination); provided, however, that any such payments shall be reduced but not below zero, by any benefits payable during such period to Executive under the LTD Plan; 19 (b) the benefits under Section 5 hereof shall be paid out in accordance with their terms; (c) all unpaid amounts, as of the date of such termination, in respect of any bonus, including any bonus for any Fiscal Year ending before such termination which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, shall be paid; (d) any payment deferred by Executive, together with any applicable interest or other accruals thereon shall be paid; (e) Executive shall continue to be covered under Holdings' and the Company's employee benefit programs, plans and practices described in Section 4.1 (in the case of any plan meeting the requirements of Section 401(a) of the Code, only to the extent consistent with such requirements) hereof until the Expiration Date (or, if earlier, the end of his Permanent Disability or his death) or Holdings or the Company will provide for equivalent coverage on an after-tax basis; provided that if Executive is provided with similar coverage by a successor employer, any such coverage by Holdings or the Company shall cease; (f) Executive shall have such rights to payments under applicable plans or programs, including but not limited to those described in Sections 3.3 and 4.3, as may be determined pursuant to the terms of such plans or programs and this Agreement; and (g) all Options granted pursuant to Section 7.1 shall become immediately exercisable, and the transfer restrictions on the Purchased Stock as described in Section 7.2 shall thereupon lapse. 6.3 Death. In the event of Executive's death prior to the ----- Expiration Date, (i) the Executive's estate or designated beneficiaries shall receive payment of Executive's then annual Base Salary (or, if higher, 50% of 20 $500,000 plus 6% per year, compounded annually, from January 1, 1993, to the January 1 immediately preceding such termination) for a period of three months after the date of death; (ii) Executive's estate or designated beneficiary shall receive a bonus equal to the highest annual bonus paid or accrued to or for Executive since the commencement of his employment on May 27, 1993, or if higher the bonus opportunity for the Fiscal Year in which such termination occurs (computed in the same manner as under Section 6.1(a)(ii) hereof) multiplied by a fraction, the numerator of which is the number of days during which Executive was employed by the company in the Fiscal Year in which death occurred, and the denominator of which is 365; (iii) all unpaid amounts, as of the date of such termination, in respect of any bonus, including any Bonus for any Fiscal Year ending before such termination which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, shall be paid; (iv) any payment deferred by Executive, together with any applicable interest or other accruals thereon shall be paid; (v) the benefits under Section 5 hereof shall be paid out in accordance with the terms of that Section; (vi) any death benefits provided under the employee benefit programs, plans and practices described in Section 4.1 hereof shall be payable in accordance with their terms; (vii) Executive's estate or designated beneficiary shall have such other rights to 21 payments under applicable plans or programs, including but not limited to those described in Sections 3.2(c) (for 1995 or thereafter, as may be agreed), 3.3, 4.1, 4.2 and 4.3, as may be determined pursuant to the terms of such plans or programs and this Agreement; and (viii) all Options granted pursuant to Section 7.1 shall become immediately exercisable, and the transfer restrictions on the Purchased Shares as described in Section 7.2 shall thereupon lapse. 6.4 Voluntary Resignation; Discharqe for Cause. If ------------------------------------------ Executive resigns voluntarily, other than for Good Reason or Permanent Disability, or the Company and Holdings terminate the employment of Executive at any time for Cause, the transfer restrictions on the Purchased Shares as described in Section 7.2 shall thereupon lapse and the Company's and Holdings' obligations under this Agreement to make any further payments to Executive shall thereupon cease and terminate except with respect to obligations pursuant to Section 5 hereof, the terms of any applicable plans, including those described in Sections 3.2(c) (for 1995, and thereafter as may be agreed), 3.3, 4.1, 4.2 and 4.3 hereof and all unpaid amounts, as of the date of such termination, in respect of any bonus, including any Bonus for any Fiscal Year ending prior to such termination which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, and any payment deferred by Executive, together with any applicable interest or other 22 accruals thereon. The term "Cause" shall be limited to (a) action by Executive involving willful malfeasance in connection with his employment having a material adverse effect on Holdings or the Company, (b) any action by Executive involving willful gross misconduct having a material adverse effect on Holdings or the Company (other than an effect that could not reasonably constitute grounds for dismissal under the circumstances), (c) violation by the Executive of the restrictions placed upon transfer of Shares (as defined hereinafter) by Section 7.2 hereof, (d) substantial and continuing willful refusal by Executive in breach of this Agreement to perform his duties hereunder, which refusal has a material adverse effect on Holdings or the Company or (e) Executive being convicted of (i) a felony under the laws of the United States or any state or (ii) a felony under the laws of any other country or political subdivision thereof involving moral turpitude; provided that no action or refusal to perform shall be deemed willful if done in the reasonable belief that such action or refusal was in the best interests of the Company or Holdings. Termination of Executive pursuant to Section 6.4 shall be communicated by a Notice of Termination given within one year after.the Holdings Board both (i) had knowledge of conduct or an event allegedly constituting Cause and (ii) had reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean delivery to Executive of a copy of a resolution duly 23 adopted by the affirmative vote of not less than three-quarters of the entire membership of Holdings Board at a meeting of the Holdings Board called and held for the purposes (after reasonable notice to the Executive ("Preliminary Notice") and reasonable opportunity for Executive, together with the Executive's counsel, to be heard before the Holdings Board prior to such vote), finding that in the good faith opinion of the Holdings Board, Executive was guilty of conduct set forth in the second sentence of this Section 6.4 and specifying the particulars thereof in detail. Upon the receipt of the Preliminary Notice, Executive shall have 14 days in which to appear with counsel or take such other action as he desires on his behalf, and such 14-day period is hereby agreed to by the parties as a reasonable opportunity for Executive to be heard. The Holdings Board shall no later than 30 days after the receipt of the Preliminary Notice by Executive communicate its findings to Executive. A failure by the Holdings Board to make its findings of Cause or to communicate its conclusions within such 30-day period shall be deemed to be a finding that Executive was not guilty of the conduct described in the second sentence of this Section 6.4. Where the Holdings Board has made such findings that, based upon conduct described in clause (a), (b), (c) or (d) above, Cause exists the Executive shall have 30 days in which to cure such conduct, to the extent such cure is possible. Any termination of Executive's employment (other 24 than by death or Permanent Disability) within 30 days after the date that the Preliminary Notice has been given to Executive shall be deemed to be a termination for Cause; provided, however, that if during such period Executive voluntarily terminates other than for Good Reason or the Company terminates Executive other than for Cause, and either (A) Executive cured his conduct, as permitted in the preceding sentence of this Section 6.4, or (B) Executive is found (or is deemed to be found) not guilty of the conduct described in the second sentence of this Section 6.4, such termination shall not be deemed to be for Cause. 7. Stock and Option Arrangements. ----------------------------- 7.1 Options. Subject to the terms and conditions ------- hereinafter set forth, in consideration of Executive's entering into this Agreement, Holdings has caused the actions described in paragraphs (a), (b) and (c) below to be authorized and taken and shall cause the actions described in paragraph (d) below to be taken: (a) the granting to Executive on the Commencement Date of an option or options (the "Initial Options") to purchase an aggregate of 8,000,000 shares of Common Stock, par value $.01 per share, of Holdings (the "Common Stock") (subsequently adjusted as described in paragraph (c) below) at an exercise price equal to the lower of the closing price, as reported on the New York Stock Exchange (the "NYSE"), on the day immediately prior to the signing of the Initial Agreement or on Friday, May 21, 1993; provided that the exercise price of the Initial Options was not permitted to be less than 50% of the Fair Market Value (as defined in the LTIP) of the Common Stock on the date such Initial Options were granted. The Initial Options shall be vested and exercisable in four equal annual installments on 25 May 31, 1994, May 31, 1995, May 31, 1996 and May 31, 1997; (b) the granting to Executive on each of December 31, 1993 and December 31, 1994 of options (the "1993 and 1994 Options") to purchase an aggregate on each such date of 750,000 shares of Common Stock (subsequently adjusted as described in paragraph (c) below) at an exercise price equal to the Fair Market Value (as defined in the Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries, as amended (the "Stock Option Plan")) of such shares as of the business day immediately preceding the date of grant; (c) the cancellation on January 19, 1995 of one-half of the Initial Options and one-half of the 1993 and 1994 Options in exchange for an equivalent number of options to purchase shares of Nabisco Holdings Corp. ("Nabisco") Class A common stock (the "Nabisco Options"), which Nabisco Options are fully vested and have a 15 year term from the date of grant and the adjustment of the Initial Options and the 1993 and 1994 Options to reflect the 1 for 5 reverse stock split as of April 13, 1995, and to make certain other changes in the terms of such Options as of April 13, 1995, and October 11, 1995; and (d) the granting to Executive on each of December 31, 1995 and December 31, 1996 on which Executive remains employed by the Company of an Option or Options (the "Additional Options" and, together with the Initial Options, the 1993 and 1994 Options and the Nabisco Options, the "Options") to purchase an aggregate on each such date of 150,000 shares of Common Stock at an exercise price equal to the Fair Market Value (as defined in the Stock Option Plan) of such shares as of the business day immediately preceding the date of grant, pursuant to the terms of the Stock Option Plan and non-qualified stock option agreements containing terms and conditions substantially similar to those applicable to the Initial Options as the same have been amended as described above, and having the vesting provisions set forth in paragraph (e) below; provided that the exercise price of the Additional Options shall not be less than 50% of such Fair Market Value of the Common Stock on the date each such Additional Option is granted; and provided further that the number and type of securities represented by such Additional Options 26 will be subject to adjustment as if Section 1.4 of the Option Agreement had been applicable thereto. (e) The 1993 and 1994 Options and each respective grant of the Additional Options shall be vested and exercisable as follows: ================================================================================ Percentage of Total Shares as to Which Date Option Becomes Option is Vested And Grant Date Vested and Exercisable Excercisable ---------- ---------------------- -------------------- December 31, 1993 May 31, 1994 25% ---------------------------------------------------------------------------- May 31, 1995 50% ---------------------------------------------------------------------------- May 31, 1996 75% ---------------------------------------------------------------------------- May 31, 1997 100% ---------------------------------------------------------------------------- December 31, 1994 May 31, 1995 33 1/3 ---------------------------------------------------------------------------- May 31, 1996 66 2/3 ---------------------------------------------------------------------------- May 31, 1997 100% ---------------------------------------------------------------------------- December 31, 1995 May 31, 1996 50% ---------------------------------------------------------------------------- May 31, 1997 100% ---------------------------------------------------------------------------- December 31, 1996 May 31, 1997 100% ================================================================================ (f) As provided in the April 13, 1995, amendment to Executive's outstanding stock option awards, upon Executive's "Retirement Date" (as provided in Section 5 herein) all Options subject to said April 13, 1995, amendment shall become 100% vested and exercisable. 7.2 Purchased Stock and Transfer Restrictions. ----------------------------------------- (a) In consideration for Holdings' and the Company's entering into this Agreement, subject to the terms and conditions hereinafter set forth, Executive purchased from Holdings 662,222 shares of Common Stock at a price of $5.625 per share, the closing price of such shares, as reported on the NYSE, on Friday, May 21, 1993, one-half of which shares were repurchased by Holdings in December, 1994, subject to the proceeds of such repurchase being applied by Executive 27 to the acquisition of shares of Nabisco Class A Common Stock ("Nabisco Shares") in the initial Public Offering of such Nabisco Shares, (such purchased Common Stock of Holdings and such purchased Nabisco Shares, the "Purchased Stock"). All of the Purchased Stock is subject to the transfer restrictions set forth below. Executive agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of such shares of Purchased Stock (any such act being herein referred to as a "transfer") so long as Executive remains employed by Holdings or any of its subsidiaries, except for such transfers as may be permitted by the Holdings Board or the Board of Directors of Nabisco, as the case may be, and that any transfers made, whether permitted to be made during such period or made thereafter, will be made fully in compliance with applicable securities and other laws. No transfer of any such shares in violation hereof shall be made or recorded on the books of Holdings and any such transfer shall be void and of no effect. (b) The certificate or certificates representing the Purchased Stock shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE EMPLOYMENT AGREEMENT BETWEEN RJR NABISCO HOLDINGS CORP. ("HOLDINGS") AND THE PERSON NAMED ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF HOLDINGS)." 28 Holdings agrees that, upon request after the termination of Executive's employment by Holdings and all of its subsidiaries, it shall cause such certificates representing shares of Common Stock and shall use its reasonable best efforts to cause such certificates representing Nabisco Shares to be exchanged for certificates that do not bear such legend. (c) Executive agrees and acknowledges that in connection with any transfer of shares of Purchased Stock or shares of Common Stock or Nabisco Shares issued upon exercise of any Options (collectively, the "Shares"), whether during the term hereof or thereafter, he shall provide Holdings or Nabisco, as the case may be, with such customary certificates, opinions and other documents as Holdings or Nabisco may reasonably request to assure that Executive has complied fully with applicable securities and other laws, to the extent such compliance is within the control of Executive. (d) The provisions of this Section 7.2 shall apply, to the full extent set forth herein with respect to the Purchased Stock or the Shares as the case may be, and to any and all shares of capital stock of Holdings or Nabisco or any capital stock, partnership units or any other securities or evidence of indebtedness or assets (other than cash dividends) which may be issued in respect of, in exchange for, upon conversion of or in substitution of, the Purchased Stock or other Shares, by reason of any stock 29 dividend, split, reverse split, combination, recapitalization, liquidation, reclassification, merger, consolidation or otherwise. 8. Expenses. The Executive is authorized to incur reasonable expense in --------- carrying out his duties and responsibilities under this Agreement, including expenses for travel and similar items related to such duties and responsibilities. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of an itemized account of such expenditures. 9. No Obligation to Mitigate Damages. The Executive shall not be ---------------------------------- required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise nor will (a) any payments under any Section hereof be subject to offset in respect of any claims which the Company may have against Executive or (b) except as otherwise provided in Section 6.1(a)(vi) or Section 6.2(e), the amount of any payment or benefit provided for in Section 6 be reduced by any compensation earned as a result of Executive's employment with another employer. 10. Notices. All notices or communications hereunder shall be in -------- writing, addressed as follows: To the Company or Holdings: Mr. Gerald I. Angowitz c/o RJR Nabisco Holdings Corp. 1301 Avenue of the Americas New York, New York 10019 Fax: 212-969-9012 30 To the Executive: Mr. Charles M. Harper Suite 1500 One Central Park Plaza Omaha, Nebraska 68102 Fax: 402-595-7116 With a copy to: Bruce C. Rohde, Esq. McGrath, North, Mullin & Katz, P.C. Suite 1400 One Central Park Plaza Omaha, Nebraska 68102 Fax: 402-633-1504 Any such notice or communication shall be sent both via fax and certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in a notice duly delivered as described above), and the actual date of fax shall determine the time at which notice was given. 11. Separability; Leqal Fees; Arbitration. If any provision of this --------------------------------------- Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. In addition, the Company shall reimburse Executive for reasonable legal fees incurred in connection with entering into this Agreement and shall also pay to Executive as incurred all legal and accounting fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement or any other 31 compensation-related plan, agreement or arrangement of the Company, unless Executive's claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. Any good faith controversy or claim arising out of or relating to this Agreement or the breach of this Agreement (other than Section 14 hereof) that cannot be resolved by Executive and the Company, including any dispute as to the calculation of Executive's benefits or any payments hereunder shall be submitted to arbitration in Winston-Salem, North Carolina in accordance with Delaware law and the procedures of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"). The determination of the JAMS arbitrator shall be conclusive and binding on the Company and Executive and judgment may be entered on the arbitrators award in any court having jurisdiction. 12. Assignment. This contract shall be binding upon and inure to the ----------- benefit of the heirs and representatives of Executive and the assigns and successors of Holdings and the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession) or by Holdings or the Company, except that Holdings or the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Holdings or the Company. 32 13. Amendment/Termination. ---------------------- (a) The Agreement may only be amended at any time by mutual written agreement of the parties hereto. (b) Company and Holdings represent and warrant they will make appropriate adjustments and amendments to the number of shares of Purchased Stock and the number of shares subject to, and the exercise price of, Options (including, in the case of Options, in the event of a spinoff or distribution of assets or stock of Holdings or an affiliated entity, substituting or replacing the shares issuable upon the exercise of Options) should extraordinary events or transactions occur involving the Company, Holdings, or an affiliated corporation. 14. Nondisclosure of Confidential Information; Non-Competition. ----------------------------------------------------------- (a) Executive shall not, without the prior written consent of Holdings or the Company, divulge, disclose or make accessible to any other person, firm, partnership or corporation or other entity any Confidential Information pertaining to the business of Holdings or the Company except (i) while employed by Holdings or the Company in the business of and for the benefit of Holdings or the Company or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of Holdings or the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make 33 accessible such information. For purposes of this Section 14(a), "Confidential Information" shall mean non-public information concerning Holdings' or the Company's financial data, strategic business plans, product development (or other proprietary product data), customer lists, marketing plans and other proprietary information, except for specific items which have become publicly available information or otherwise known to the public other than through a breach by Executive of his fiduciary duty or any confidentiality agreement, or information known to the Executive prior to the date of this Agreement. Confidential Information does not include information the disclosure of which cannot reasonably be expected to adversely affect the business of Holdings or the Company. (b) During the period commencing on the date hereof and ending (i) in the case of a termination described in Section 6.1 hereof, three years after the date of termination and (ii) in case of a termination described in Section 6.4 hereof, two years after the date of termination, Executive covenants and agrees that he will not be an executive officer, board member, owner, partner, consultant or employee of a food or tobacco company with annual revenues over $1 billion, if such food or tobacco company is engaged in a "major business" of Holdings or the Company. A "major business" for this purpose is each major business segment of the Company and its subsidiaries on the date hereof that produces products constituting over 5% of the 34 annual revenues of Holdings and its subsidiaries. For purposes of this Section 14, Executive shall be deemed not a shareholder of a company that would otherwise be a competing entity if Executive's record and beneficial ownership of the capital stock of such company amount to not more than one percent of the outstanding capital stock of any such company subject to the periodic and other reporting requirements of Section 13 or Section 15(d) or the Securities Exchange Act of 1934, as amended. Executive, Holdings, and Company agree this covenant not to compete is a reasonable covenant under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction, such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so amended. Notwithstanding any provision herein to the contrary, Holdings and Company recognize that Executive is a substantial stockholder and former Chairman and Chief Executive Officer of ConAgra, Inc. ("ConAgra") and Executive intends to continue as a Board member of ConAgra. In the event that Executive no longer serves in any capacity with Holdings or the Company or any successor to either entity, Holdings and the Company will not object to his serving on the Board of ConAgra. The parties also recognize that Holdings and Company do not compete on the date of this Agreement in businesses with ConAgra which have competitive 35 sales which exceed the thresholds contained in Sec. 8 of the Clayton Act (15 USC Sec. 19). Accordingly, Company and Holdings do not object to Executive serving on the Board of ConAgra during and after the termination of this Agreement and will make no objection to such service. Executive, Company and Holdings and their advisers shall take all reasonable actions to support the position stated herein. (c) Executive agrees that any breach of the covenants contained in this Section 14 would irreparably injure Holdings and the Company. Accordingly, Holdings or the Company may, in addition to pursuing any other remedies they may have in law or in equity, obtain an injunction against Executive from any court having jurisdiction over the matter, restraining any further violation of this Agreement by Executive. 15. Beneficiaries/References. Executive shall be entitled to select ------------------------- (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice hereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. Any reference to the masculine gender in this Agreement shall include, where appropriate, the feminine. 36 16. Survivorship. The respective rights and obligations of the parties ------------- hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this Section are in addition to the survivorship provisions of any other section of this Agreement. 17. Representations and Warranties. Holdings and the Company each ------------------------------- represent and warrant that (a), respectively, they are fully authorized and empowered to enter into this Agreement, (b) the execution of this Agreement and the performance of their respective obligations under this Agreement will not violate or result in a breach of the terms of any material agreement to which Holdings and/or the Company is a party or by which it is bound, (c) no approval by any governmental authority or body is required for them to enter into this Agreement or perform their obligations hereunder, other than the Securities and Exchange Commission if so required in connection with the registration or sale of any securities hereunder, and (d) this Agreement is valid, binding and enforceable against Holdings and the Company in accordance with its terms, except to the extent affected or limited by applicable bankruptcy laws or other statutes governing the rights of creditors and any regulations or interpretations thereof. Executive represents and warrants that his execution of this Agreement and his performance of his duties and responsibilities under 37 this Agreement will not violate or result in a breach of the terms of any material agreement to which he is a party or by which he is bound. 18. Governing Law. This Agreement shall be construed, interpreted, and -------------- governed in accordance with laws of Delaware, without reference to rules relating to conflicts of law. 19. Withholding. The Company and Holdings shall be entitled to withhold ------------ for payment any amount of withholding required by law. 20. Interest on Late Payments. To the extent that any payments required -------------------------- to be made hereunder upon or following a Change of Control are not made within the period specified therefor, the Company and Holdings shall be liable for interest on such delayed payments at the rate of 150% of the prime rate compounded monthly, as posted by the Morgan Guaranty Trust Company of New York from time to time. 21. Actuarial Calculations. All required actuarial calculations of ----------------------- payments to be made hereunder and of annuities to be purchased pursuant to Section 5 hereof shall be made by Watson Wyatt Worldwide, New York, New York, or such other national actuarial firm as the Company or Holdings may designate prior to a Change of Control. 22. Funding. Except as otherwise provided herein, all benefits -------- hereunder are unfunded and will be paid out of the general assets of the Company or Holdings. Notwithstanding the foregoing, the Company or Holdings may choose to 38 maintain a rabbi trust or trusts for the purpose of paying certain of the benefits hereunder or under other plans and programs of the Company or Holdings and, if so, Executive shall be entitled to payments therefrom, if any, as and to the extent provided in such rabbi trust or trusts. 23. Counterparts. This Agreement may be executed in two or more ------------- counterparts, each of which will be deemed an original. RJR NABISCO HOLDINGS CORP. By: /s/ ------------------------------- RJR NABISCO, INC. By: /s/ ---------------------------------- /s/ Charles M. Harper ---------------------------------- CHARLES M. HARPER 39 EXHIBIT "A" ConAgra, Inc. Valmont Industries, Inc. Norwest Corp. Peter Kiewit Sons', Inc. E.I. DuPont de Nemours and Co. EXHIBIT "B" ESTIMATED SUPPLEMENTAL PENSION ANNUAL BENEFIT --------------------------------------------- AVERAGE FINAL YEARS OF SERVICE COMPENSATION 6 10 15 - ------------ - -- -- $ 800,000 213,332 266,666 300,000 - ----------------------------------------------------------- $ 900,000 240,000 300,000 337,500 - ----------------------------------------------------------- $1,000,000 266,666 333,333 375,000 - ----------------------------------------------------------- $1,200,000 320,000 400,000 450,000 - ----------------------------------------------------------- $1,600,000 426,666 533,333 600,000 - ----------------------------------------------------------- $2,000,000 533,332 666,666 750,000 - ----------------------------------------------------------- $2,400,000 640,000 800,000 900,000 - ----------------------------------------------------------- $2,800,000 746,664 933,333 1,050,000 - ----------------------------------------------------------- $3,200,000 853,332 1,066,666 1,200,000 - ----------------------------------------------------------- $3,600,000 960,000 1,200,000 1,350,000 - ----------------------------------------------------------- $4,000,000 1,066,666 1,333,333 1,500,000 - ----------------------------------------------------------- EXHIBIT "C" [RJR NABISCO LETTERHEAD] June 20, 1995 Charles M. Harper Chairman and Chief Executive Officer RJR Nabisco, Inc. 1301 Avenue of the Americas New York, NY 10019 RE: Employment Agreement; Life insurance Provision Dear Mike: This letter agreement replaces in its entirety the side letter agreement dated March 8, 1994 concerning the Company's obligation, under Section 4.1(c) of your Employment Agreement dated May 27, 1993, to provide you with "life insurance in the amount of $5,000,000." As you know, the Company previously made an advance premium deposit with Northwestern Mutual Life Insurance Company (NML), which at that time represented the present value of the balance of eight annual premiums to provide the insurance under Section 4.1(c) of your May 27, 1993 Employment Agreement. The Compensation Committee of the Board of Directors at its April 10, 1995 meeting agreed to allow the conversion of this whole life insurance policy to a joint life/second to die policy with your wife, Joan F. Harper, as the second life insured by the policy. In order to achieve increasing the face amount of the policy to $10,000,000 without increased cost, the Company will agree to the transfer of the advanced premium deposit from NML to Massachusetts Mutual Life Insurance Company (Mass. Mutual) from which future premium payments will be made. The deposit with Mass. Mutual is calculated to pay the premium for the remaining 6 premiums due on the policy pursuant to Section 4. l(c) of your May 27, 1993 Employment Agreement. If, and only if, the full sum of the deposit with Mass. Mutual is used to pay premiums to Mass. Mutual, and additional premiums are required by Mass. Mutual at any time during your lifetime to keep $8,000,000 of face value of the policy in force, the Company will pay such additional premiums. You shall be responsible for any premium amounts needed to keep the face value of the policy in excess of $8,000,000. Notwithstanding the foregoing, you further agree that should you withdraw any of the advance RJR Nabisco, Inc. 1301 Avenue of the Americas New York, New York 10019-6013 (212) 258-5600 premium deposit from Mass Mutual, the Company shall have no obligation to replace any part of the deposit, and should such withdrawal cause any diminution in the coverage or a cancellation of the policy, the Company shall have no obligation to cure the diminution in coverage or cancellation. If this correctly states our agreement on the Company's obligation to provide life insurance coverage to you under Section 4.1 (c) of your Employment Agreement, please sign a copy of this letter where indicated. Sincerely, /s/ Gerald I. Angowitz ---------------------- Gerald I. Angowitz Senior Vice President, Human Resources & Administration Understood and Agreed: /s/ Charles M. Harper - --------------------------- Charles M. Harper 6/20/95 - --------------------------- Date EXHIBIT "D" Performance Unit 1995 Special - One Year RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN PERFORMANCE UNIT PROGRAM AMENDED AND RESTATED PERFORMANCE UNIT AGREEMENT DATE OF GRANT: FEBRUARY 15, 1995 ----------------- WITNESETH: 1. Grant. Pursuant to the provisions of the 1990 Long Term Incentive ------ Plan and the Performance Unit Program thereunder (collectively, the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to C.M. Harper (the "Grantee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, 2,410 Performance Units. A copy of the Plan is attached and made a part of this agreement with the same effect as if set forth in the Agreement itself. The Initial Grant Value of each Performance Unit shall be one thousand dollars. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Adjustment Of Value of Performance Units. For the Performance Period ----------------------------------------- commencing on January 1, 1995 and ending December 31, 1995, the Committee has determined that the Performance Measure shall be cash net income of the Company during such Performance Period. The value of each Performance Unit shall be as determined in the grid attached as Exhibit A may be reduced by the Committee in its discretion. The Grantee specifically agrees that this award of Performance Units is in lieu of any award under the Annual Incentive Award Plan for the fiscal year ending December 31, 1995. 3. Payment of Performance Units. Unless deferred pursuant to the ----------------------------- provisions of the Plan, units so earned will be paid only in cash as soon as practicable following the close of the Company's books at the end of the Performance Period. Payment Value for tax and other calculations shall be determined in accordance with the provisions of the Plan and Exhibit A and the discretion of the Committee to reduce the Payment Value. Except as provided in the Plan, no units will be earned or paid unless the Grantee has been a full-time employee of the Company throughout the Performance Period. 4. Deferral. Deferral of a payment of Performance Units shall be --------- pursuant to the provisions of the Plan; provided, however, in no event, may a deferred award be paid within six months of the date of deferral. 5. Transferability. Other than as specifically provided in the Plan ---------------- with regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee. 6. No Riqht to Employment. Neither the execution and delivery of this ----------------------- Agreement nor the granting of the Performance Units evidenced hereby shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Grantee for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Grantee'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. 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. 8. Grantee. In consideration of the grant, the Grantee specifically -------- agrees that the Committee shall have the exclusive 2 power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By --------------------------- Authorized Signatory - --------------------------------- GRANTEE Grantee's Taxpayer Identification Number: Date: - --------------------------------- ---------------------- Grantee's Home Address: - --------------------------------- - --------------------------------- - --------------------------------- 3 Exhibit D - continued 1995 Performance Unit Program C.M. Harper AIAP Target = $2,410,000 Grant = 2,410 Units Value CNI Perf. Award Per Available Rating Value Unit --------- ------ ---------- --------- $1,390 150 $3,615,000 $1,500 $1,376 145 $3,494,500 $1,450 $1,362 140 $3,374,000 $1,400 $1,348 135 $3,253,500 $1,350 $1,334 130 $3,133,000 $1,300 $1,320 125 $3,012,500 $1,250 $1,306 120 $2,892,000 $1,200 $1,292 115 $2,771,500 $1,150 $1,278 110 $2,651,000 $1,100 $1,264 105 $2,530,500 $1,050 Plan $1,250 100 $2,410,000 $1,000 $1,225 100 $2,410,000 $1,000 $1,200 100 $2,410,000 $1,000 $1,175 100 $2,410,000 $1,000 $1,150 100 $2,410,000 $1,000 $1,125 100 $2,410,000 $1,000 $1,100 100 $2,410,000 $1,000 $1,100 0 $0 $0 Each unit valued at $1,000 upon Grant Cash Net Income = millions Assumes $600,000 annual base salary earnings 4 EXHIBIT "E" AIAP Vested Amount means, as of a Change of Control or as of the date ------------------ Executive's employment terminates, as the case may be, an amount equal to (a) in the case of any bonus opportunity under the AIAP, the value of Executive's target award under the AIAP for the relevant period in which such Change of Control or such termination occurs, as the case may be, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending on the Change of Control or such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change in Control in the year in which such Change of Control occurs, for purposes of computing the AIAP Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target award shall be that in effect immediately preceding such Change of Control, or (b) in the case of any annual bonus opportunity in the form of Performance Units, the PU Vested Amount as of the date of such termination. Change of Control means the first to occur of the following events ----------------- provided such event occurs prior to October 11, 1996 or such later date as the Boards may specify from time to time: (a) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plan(s) sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (b) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Holdings' shareholders, was approved by a vote of at least three- quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee of Holdings for director), but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Holdings Board, shall be, for purposes of this paragraph (b), considered as though such person were a member of the Incumbent Board; (c) the approval by the shareholders of Holdings of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (c) occurs, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of the Program. PS vested Amount means with respect to any award of ---------------- Performance Shares (as defined in the LTIP) Executive holds as of 2 a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the adjusted value of (i) the number of Performance Shares subject to such award, multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of such Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period, (ii) adjusted by applying target performance with respect to such award; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PS Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and target performance with respect to such Performance Shares shall be that in effect immediately preceding the Change of Control. PU Vested Amount means, for any award of Performance Units (as defined ---------------- in the LTIP) Executive holds as of a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the target value of the number of Performance Units subject to such award multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control and the denominator of which is the number of months in such performance period; provided that 3 in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PU Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target value of such Performance Units shall be that in effect immediately preceding the Change of Control. 4 EXHIBIT F ACKNOWLEDGMENT WHEREAS, I am vested in certain supplemental retirement benefits under (i) the RIR Nabisco, Inc., Supplemental Executive Retirement Plan, as amended by ancillary agreements, if any, (SERP), (ii) the RJR Nabisco, Inc., Supplemental Retirement Plan (SUPP) and (iii) the RIR Nabisco, Inc., Additional Benefits Plan (ABP) (collectively, the "Plans") to which funds are dedicated in a Master Trust Agreement dated January 1, 1987, as amended through January 27, 1989 (the "Rabbi Trust"); and WHEREAS, to provide me with greater security and financial flexibility in the aforementioned benefits, an annuity will be purchased for my benefit from funds in the Rabbi Trust upon the execution of this Acknowledgment, and such annuity shall be transferred to the Excess Benefit Master Trust dated February 5, 1988, as amended through January 27, 1989 (the "Secular Trust"); and WHEREAS, the Company desires to deliver said annuity to me with the federal, state and local income taxes on the present value of the annuity paid by the Company or the aforementioned Trusts, the amount of the annuity being reduced to reflect such tax payments; and NOW, THEREFORE, I hereby agree as follows: 1. The annuity transferred, represents the cash value of my accrued benefit as of December 31, 1993 under the SERP, SUPP and ABP delivered on an after-tax basis based on tax rates currently applicable to me (the "Benefit"). 2. Any additional taxes due as a result of the transfer of the annuity in any tax year prior to my Retirement Date shall be paid by the Company or the Trusts. My "Retirement Date" is fixed by the terms of my individual SERP arrangement with the Company, and shall be deemed to include the date of my death if death occurs before retirement. 3. The annuity will be delivered to me from the Secular Trust on my Retirement Date. The annuity delivered at my Retirement Date will have a lump sum cash-out option. 4. The value of the Benefit including earnings thereon will be an offset to the after-tax benefits determined at my Retirement Date under the Plans. 5. If an annuity instead of a lump sum is elected at retirement, a portion of the annuity payments to be made during retirement may be taxable to me, and I will be responsible for the payment of any taxes on such payments. IN WITNESS THEREOF, I have executed this Acknowledgment as of 2/3/94 - ------------------------ Date /s/ Charles M. Harper ------------------------ Printed Name: CHARLES M. HARPER EX-10.34 12 Exhibit 10.34 AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENTS DATED MAY 31, 1993, DECEMBER 31, 1993 AND DECEMBER 31, 1994 The Stock Option Agreements issued pursuant to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan and dated May 31, 1993, December 31, 1993 and December 31, 1994, respectively, (collectively, "the Agreements") by and between Charles M. Hatper (the "Optionee"), and RJR Nabisco Holdings Corp. (the "Company") are hereby amended to provide that the Option under the Agreement shall immediately become fully exercisable in the event of the Optionee's retirement pursuant to the terms of Section 5 of the Optionee's Employment agreement dated the 27th day of May 1993 by and among the Company, RJR Nabisco, Inc. and the Optionee. In addition, pursuant to the action of the Company on January 20, 1994 making all vested options exercisable for 15 years after the Grant Date for any termination of employment except for a termination of employment for Cause, Section 2.2 of the applicable Agreements is hereby amended to remove the special expiration periods for termination of employment due to a termination without Cause or a termination by reason of retirement or permanent disability. RJR Nabisco Holdings Corp. By: /s/ ----------------------------- Authorized Signatory /s/ Charles M. Harper - ---------------------- Charles M. Harper Dated: 4/13/95 EX-10.35 13 Exhibit 10.35 Conversion - CMH N Option 1995 NABISCO HOLDINGS CORP. 1994 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT --------------------- DATE OF GRANT: JANUARY 19, 1995 ---------------- W I T N E S S E T H: 1. Grant of Option. Subject to (i) the surrender of one half(50%) of ---------------- the unexercised Options issued to Optionee under the Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries and the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (collectively, the "RJR Plans") (ii) the terms and conditions in this Stock Option Agreement and (iii) the provisions of the Nabisco Holdings Corp. 1994 Long Term Incentive Plan (the "Plan"), Nabisco Holdings Corp. (the "Company") on the above date has granted to Charles M. Harper (the "Optionee"), the right and option to exercise from the Company a total of 1,090,550 shares of Common Stock, no par value, of the Company, at the exercise price of $24.50 per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------ (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of 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) Notwithstanding provisions for regular exercise, if more than 80% of the aggregate value of all classes of Company common stock is owned, directly or indirectly, by RJR Nabisco Holdings Corp. on the date of exercise then the Company may, in its absolute discretion, make a cash payment to the Optionee equal to the product of (x) and (y), where (x) is the excess of the fair market value of Company common stock on the date of exercise over the exercise price, and (y) is the number of shares subject to the Option(s) being exercised. Such cash payment shall be in lieu of delivery of shares. (c) Subject to Section 2(d) herein, this Option shall be fully vested on the Date of Grant. To the extent that any of the Option is not exercised, it shall be not expire, but -2- shall continue to be vested at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (d) This Option shall not be exercised prior to 36 months after the Date of Grant. 3. Rights in Event of Termination of Employment. --------------------------------------------- Unless optionee is Terminated for Cause (as defined in Section 11 herein) and subject to Section 4 herein, the Option shall remain fully exercisable as to all shares after termination from active employment. 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 month containing 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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 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 7. Adjustments in Option --------------------- In the event that the outstanding shares of the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested person -3- 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, the ------------------------ Optionee's employment shall be deemed to have been terminated for "Cause" only as such term is defined in his Employment Agreement by and among RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. (the "Employment Agreement"). For purposes of this Stock Option Agreement, the references to "Shares" in the aforementioned definition shall be deemed to include any shares of Nabisco Holdings Corp. which are subject to the Transfer Restrictions of the Employment Agreement. 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 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. -4- 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. d) OPTIONEE UNDERSTANDS THAT BY EXECUTING THIS STOCK OPTION AGREEMENT, (A) HE IS SURRENDERING FOR CANCELLATION ONE HALF (50%) OF HIS UNEXERCISED OPTIONS, WHETHER EXERCISABLE OR NOT, ISSUED PRIOR TO THE DATE OF GRANT OF THIS AGREEMENT UNDER (i) THE STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES OF RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES AND (ii) THE RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN (COLLECTIVELY, THE "RJR PLANS") AND (B) ALL STOCK OPTION AGREEMENTS ISSUED PRIOR TO THE DATE OF --- GRANT OF THIS AGREEMENT UNDER THE RJR PLANS ARE AMENDED ACCORDINGLY TO REDUCE THE AMOUNT OF SHARES UNDER SAID AGREEMENTS BY ONE HALF (50%). 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. NABISCO HOLDINGS CORP. By /s/ ----------------------- Authorized Signatory /s/ - ------------------------------- Optionee Optionee's Taxpayer Identitfication Number: ###-##-#### Optionee's Home Address: 6105 Lamplighter Drive Omaha, NE 68152 -5- EX-10.36 14 Exhibit 10.36 RN Option P-PS 1995 RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT ---------------------------- DATE OF GRANT: JUNE 13, 1995 -------------- W I T N E S S E T H: 1. Grant of Option. Pursuant to the provisions of the 1990 Long Term --------------- Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to CHARLES M. HARPER (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of 130,000 shares of Common Stock, no par value, of the Company, at the exercise price of $28.875 per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------ (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of 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) Subject to Section 2(c) herein, this Option shall be fully vested on the Date of Grant. To the extent that any of the Option is not exercised, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercised prior to April 27, 1998. 3. Rights in Event of Termination of Employment. -------------------------------------------- Unless Optionee is Terminated for Cause (as defined in Section 11 herein) and subject to Section 4 herein, the Option shall remain fully exercisable as to all shares after termination from active employment. 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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 2 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. In the event that the outstanding shares of ---------------------- the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 8. Application of Laws. The granting and the exercise of this Option ------------------- and the obligations of the Company to sell and deliver shares hereunder 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" only as such term is defined in his Employment agreement by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and the Optionee (the "Employment Agreement"). 3 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 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 /s/ ------------------------ Authorized Signatory /s/ - ------------------------- Optionee Optionee's Taxpayer Identification Number: ###-##-#### - -------------------------- Optionee's Home Address: 6105 Lamplighter Drive - ------------------------- Omaha, NE 68152 - ------------------------- 4 EX-10.37 15 Exhibit 10.37 Name of the Optionee: Number of Shares for Which Option may be Exercised: Charles M. Harper 150,000 Grant Date: December 31, 1995 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, as amended and restated as of December 5, 1995, 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 incorporated by reference 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 incorporated by reference 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 $30.75 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. --------------------- a) In the event of any change in the outstanding Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization or merger, Change of Control, or similar event, the Committee may adjust appropriately the number of Shares subject to the Plan and available for or covered by Grants and Share prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. b) In the event of a Change of Control (as defined the Plan) the Option shall be governed by the terms of the Plan. 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, 1996 0% May 31, 1996 - May 30, 1997 50% 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 including Retirement, Death or Disability (all as defined in the Employment Agreement); provided, however, the Option 2 shall not become exercisable as to all shares following a termination of employment by Holdings for Cause or a termination of employment by the Optionee without Good Reason. (b) "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) Immediately upon the Optionee's termination of employment for Cause; or (c) 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. 3 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 4 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. 5 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. 6 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. 7 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 8 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 /s/ -------------------------- /s/ Charles M. Harper - ------------------------- Charles M. Harper Optionee's Taxpayer Identification Number: ###-##-#### - -------------------------- Optionee's Address: Suite 1500 One Central Park Plaza Omaha, Nebraska 68102 Dated: December 31, 1995 9 EX-10.38 16 Exhibit 10.38 ENGAGEMENT AGREEMENT This ENGAGEMENT AGREEMENT, made as of the 3rd day of March, 1995, between RJR Nabisco Holdings Corp. ("RJR") (the "Company"), and Steven F. Goldstone ("Counsel"), a partner with the law firm of Davis Polk & Wardwell ("DPW"). RECITALS -------- WHEREAS, Counsel has experience and insight into the business and various projects of the Company; and WHEREAS, the Company desires Counsel to perform the duties of General Counsel to the Company in connection with the business of the Company, and Counsel is willing to provide such services. NOW, THEREFORE, in consideration of the promises contained in this Engagement Agreement, the Company, and Counsel agree as follows: 1. Legal Services -------------- Counsel agrees to act as General Counsel to the Company in connection with legal matters concerning the worldwide business of the Company and its affiliates and various projects relating thereto. Any and all services Counsel provides to the Company shall only be in his capacity as General Counsel to the Company. Counsel will he notified of such requests as they are assigned by the Chairman of RJR. Except as provided hereinafter, Counsel shall he available to render services upon request for each Contract Period (as defined hereinafter) during the Tern of this Engagement Agreement. Counsel shall, during the Term of this Engagement Agreement, keep his location, address and telephone number consistently updated with the Company so that he may be reached at any time. Counsel may remain a partner with DPW during the Term of this Engagement Agreement, but shall provide no services to the Company in his capacity as a partner with DPW. Therefore, it is recognized that Counsel shall have other commitments, but he shall, nevertheless, give first priority to the services requested by the Company. Notwithstanding the foregoing, the Company and Counsel acknowledge that DPW may be retained from time to time as outside counsel for legal matters involving the Company. However, in all such engagements during the pendency of this Engagement Agreement, Counsel shall be serving in the capacity of General Counsel to the Company and not in the capacity of outside counsel as a partner with DPW. 2. Fees ---- a) The fee hereunder shall be an annual retainer of $850,000, to be adjusted as appropriate pursuant to paragrah 2(d) below. b) Except as provided in paragraph 2(c), as consideration for personal services Counsel will render under Paragraph 1 and for Counsel's availability to provide such services each Contract Period, the Company agrees to pay to Counsel a fee at the quarterly rate of $212,500 ($850,000 per year) which shall be paid in advance at the beginning of each calendar quarter during each Contract Period. c) Payment for the partial calendar quarter March 3, 1995 to March 31, 1995 shall be $106,250 and shall be payable upon execution of this Engagement Agreement. d) The fees and required availability of Counsel shall be reviewed on or before September 1, 1995 by the Company and Counsel to determine, based on the experience of the parties, whether this Engagement Agreement should be amended to increase or decrease the fees and the availability of Counsel. 3. Term ---- (a) The Term of this Engagement Agreement shall be two consecutive 12 month periods ("Contract Periods") commencing March 3, 1995. (b) Any party may cancel this Engagement Agreement by giving 30 days written notice. 2 4. Billing and Reimbursement of Expenses ------------------------------------- (a) The Company will reimburse Counsel for authorized travel, living and other business expenses incurred by Counsel for services which Counsel performs at the Company's request. Counsel will make quarterly billings to the Company for any travel, living and other business expenses reimbursable to Counsel hereunder. Travel by air shall be at the first class rate. (b) The Company will, as necessary from time to time, provide Counsel when on site at a Company facility with the use of the Company office space and secretarial support services. (c) In connection with Counsel's performance of services, the Company shall provide Counsel with the same liability, indemnification and Business Travel Accident insurance programs it affords its officers. For purposes of Business Travel Accident insurance, the retainer stated in paragraph 2(a) shall be considered "base salary." (d) The Company shall ensure that at all times during the term of this Engagement Agreement Counsel is a "named insured" under its (i) Directors and Officers Liability Insurance and (ii) Employee Professional Liability Coverage. 5. Independent Contractor ---------------------- Counsel is an independent contractor in all respects. Except as otherwise specifically provided herein, Counsel shall not be entitled to any employee benefits afforded by the Company to its employees or employees of its affiliates by reason of the services performed under this Engagement Agreement. The Company shall not deduct from the fees paid under this Engagement Agreement any taxes, payments for unemployment compensation, social security or other similar required payments. Such taxes and required payments shall be the sole responsibility of Counsel. The Company specifically waives any and all legal claims it may have now, or have in the future, against DPW for the actions of Counsel arising out of the services performed under this Engagement Agreement, and shall indemnify DPW for all costs, including liabilities arising out of, or any legal fees or expenses incurred, in connection with any litigation brought against DPW based upon the actions of Counsel arising out of the services performed under this Engagement Agreement. 3 6. Non-Disclosure -------------- Any information disclosed to Counsel by the Company or any of its affiliates shall be regarded as confidential, and shall be subject to attorney-client privilege. Such information will be used solely in connection with work performed by Counsel for the Company, and Counsel shall not disclose such information to any third party unrelated to the Company at any time during the term of this Engagement Agreement or thereafter without the prior written approval of the Company. 7. Miscellaneous ------------- (a) This is an agreement for the personal services of Counsel. Counsel's rights and obligations hereunder may not be assigned by Counsel without prior written consent of the Company. (b) This Engagement Agreement constitutes the entire agreement of the parties, and any amendments hereto shall be in writing, signed by all parties hereto. (e) This Engagement Agreement shall be governed by the laws of the State of New York. (d) No benefit or promise hereunder shall be secured by any specific assets of the Company. Counsel shall have only the right of an unsecured general creditor in seeking satisfaction of such benefits or promises. No benefit or promise hereunder may be assigned or anticipated in any way. IN WITNESS WHEREOF, the parties have executed this Engagement Agreement as of the date first written above. RJR Nabisco Holdings Corp. By /s/ ------------------------------------ Chairman and Chief Executive Officer /s/ Steven F. Goldstone ------------------------------------- Steven F. Goldstone 4 EX-10.39 17 Exhibit 10.39 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT by and among RJR Nabisco Holdings Corp., a Delaware corporation ("Holdings"), RJR Nabisco, Inc., a Delaware corporation and a direct subsidiary of Holdings (the "Company") and Steven F. Goldstone ("Executive") is effective as of October 1, 1995. This Agreement will (i) following a Change of Control (as defined in Exhibit A), supersede the Executive's participation in the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence Recognition Program (the "Headquarters Program") and (ii) be in lieu of Executive's participation in the RJR Nabisco Holdings Corp. 1995 Employee Protection Program (the "1995 Program"), but will in no event provide lesser benefits to Executive in the event of the termination of Executive's employment following a Change of Control than would otherwise be available under the 1995 Program. RECITALS --------- In order to induce Executive to leave his current position and to accept the position of President, General Counsel and member of the Office of the Chairman of Holdings and the Company, Holdings and the Company desire to provide Executive with compensation and other benefits under the conditions set forth in this Agreement. Executive is willing to accept such employment and perform services for Holdings and the Company on the terms and conditions hereinafter set forth. It is therefore hereby agreed by and between the parties as follows: 1. Employment. ---------- 1.1 Subject to the terms and conditions of this Agreement, Holdings agrees to employ Executive during the term hereof as President, General Counsel and member of the Office of Chairman of Holdings and the Company. Executive shall have the customary powers, responsibilities and authorities of presidents of corporations of the size, type and nature of Holdings and Company, and specifically, he shall have responsibility for all of Holdings' and the Company's staff functions, including finance, human resources, administration and communications, in addition to responsibility for Holdings' and the Company's legal affairs as General Counsel. Executive's principal office shall be at the principal executive offices of Holdings and the Company in New York, New York. 1.2 Holdings and the Company shall, throughout the term hereof, cause the election and retention of Executive as President of Holdings and the Company. 2 1.3 Subject to the terms and conditions set forth herein, Executive hereby accepts employment as President, General Counsel and member of the Office of the Chairman of Holdings and the Company and shall devote his full working time and efforts, to the best of his ability, experience and talent, to the performance of the services, duties and responsibilities in connection therewith. Nothing in this Agreement shall preclude the Executive from engaging, consistent with his duties and responsibilities hereunder, in charitable and community affairs, from managing his personal investments, from continuing to serve on the boards of directors of any Affiliate (as hereinafter defined) of Holdings or the Company or from serving, subject to approval of the Holdings Board (as defined in Exhibit A), as a member of boards of directors of other companies. The term "Affiliate" shall mean any direct or indirect subsidiary of Holdings or the Company or any successor thereto. For purposes of this Agreement, the term "available to Senior Executive Officers" shall mean that something is available to the senior executive officers of Holdings or the Company or generally available to all chief executive officers of the major operating companies of Holdings; provided, however, such term shall not include the Chairman and Chief Executive Officer of Holdings or the Company. 3 1.4 This Agreement supersedes and revokes in their entirety any and all prior employment or service agreements with Holdings or the Company, and in particular, that certain Engagement Agreement with Holdings dated March 3, 1995. 2. Term of Employment. ------------------ Executive's term of employment under this Agreement shall continue in accordance with the terms hereof until a termination of Executive's employment. 3. Compensation. ------------ 3.1 Salary. The Company shall pay Executive a base salary ("Base ------ Salary") at the rate of $850,000 per annum. Base Salary shall be payable in accordance with the ordinary payroll practices of the Company. Executive's rate of Base Salary shall be reviewed for possible increases by the Chairman and Chief Executive Officer of the Company at least annually and, once approved by the Board (as defined in Exhibit A), such higher amount shall constitute Executive's Base Salary. 3.2 Annual Bonus. ------------- (a) In addition to his Base Salary, Executive shall be entitled, while he remains employed hereunder, to receive an annual bonus under the Company's Annual Incentive Award Plan in effect on the date of this Agreement, as amended from time to time, a copy of which has been given to 4 Executive, or under any successor plan thereto available to Senior Executive Officers ("AIAP"), in accordance with the terms thereof. Such AIAP, in any event, will provide an annual target bonus opportunity to Executive no less favorable than sixty percent (60%) of his Base Salary paid or accrued with respect to the related year, subject to the attainment of the performance goals established from time to time under such AIAP. (b) For the fiscal year ending December 31, 1995, Executive shall be deemed to have participated in the AIAP from March 3, 1995. (c) For fiscal years beginning on and after January 1, 1996, Executive may be granted Performance Units under the Company's 1990 Long Term Incentive Plan or a successor plan (the "LTIP") in lieu of a cash bonus. If such grants are made, each Performance Unit Agreement under the LTIP to which Executive is a party shall specifically provide that following a Change of Control the Committee responsible for exercising any discretion with respect to the award shall not exercise such discretion so as to reduce the "Payment Value" of such award below the award's "Initial Grant Value" (as such terms are customarily defined in Performance Unit Agreements awarded to Senior Executive Officers of the Company under the LTIP prior to the date hereof). 5 3.3 Compensation Plans and Programs. Executive shall participate ------------------------------- in any compensation plan or program, whether annual or long term, maintained by Holdings or the Company on terms no less favorable than those available to Senior Executive Officers eligible to participate therein. 3.4 Special Bonus Payments. Upon a Change of Control, the ---------------------- Company shall pay to Executive a special cash bonus payment equal to the sum of (a) Executive's AIAP Vested Amount as of such Change of Control, Executive's PS Vested Amount as of such Change of Control, and Executive's PU Vested Amount as of such Change of Control (all as defined in Exhibit A); and (b) any additional funding amounts required to fully fund the Benefit (as defined in Section 5) accrued to the date of such Change of Control under Section 5 hereof. Notwithstanding the foregoing, in the event that following a Change of Control any performance period relating to any award under the AIAP or of Performance Units or Performance Shares under the LTIP within which such Change of Control occurred is completed prior to Executive's termination of employment, upon such completion Executive shall be entitled to payment in respect of each such award of an amount, if any, equal to the excess of the value of such award based on actual performance for such performance period over the AIAP Vested Amount, PU Vested Amount or PS Vested Amount, as the 6 case may be, previously paid to Executive upon such Change of Control in respect of such AIAP award, Performance Units or Performance Shares. 4. Employee Benefits. ----------------- 4.1 Employee Benefit Plans and Programs. The Company and ----------------------------------- Holdings shall provide Executive during the term of his employment hereunder coverage under all employee benefit programs, plans and practices (commensurate with his position in the Company and to the extent possible under any employee benefit plan), in accordance with the terms thereof, which Holdings and the Company make available to Senior Executive Officers, including, but not limited to (a) retirement, pension and profit sharing (including the SERP, as defined in Section 5, subject to the provisions of Section 5) and (b) medical, dental, hospitalization, short and long term disability, accidental death and dismemberment and travel accident coverage. 4.2 Vacation and Fringe Benefits. Executive shall be entitled ---------------------------- to the number of vacation days customarily available to Senior Executive Officers of the Company. In addition, Executive shall be entitled to the perquisites and fringe benefits from time to time available to Senior Executive Officers. 7 4.3 Directors and Officers Liability Coverage. Executive shall ----------------------------------------- be entitled to the same level of coverage (as determined from time to time by the Boards (as defined in Exhibit A)) under such directors' and officers' liability insurance policies, if any, or other arrangements as are available to Senior Executive Officers and directors of Holdings and the Company, to the fullest extent permitted by the existing By-laws of Holdings and the Company. In any event, Holdings and the Company shall indemnify and hold Executive harmless, to the fullest extent permitted by the laws of the States of Holdings' and the Company's incorporations, from and against all costs, charges and expenses (including reasonable attorneys' fees) whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or proceeding to which he or his legal representatives may be made a party by reason of his being or having been a director or officer of Holdings or the Company or any of their Affiliates. This Section 4.3 shall survive the termination of this Agreement for any reason. 4.4 Retiree Medical. Upon retirement under Section 5 herein, --------------- Executive shall be eligible for retiree medical coverage based on (i) the greater of his actual age or a minimum deemed age of 55 and (ii) the number of years of 8 actual and imputed Service with which Executive is credited as Service under the provisions of Executive's individual SERP arrangement as described in Section 5. 5. Supplemental Pension. -------------------- (a) Executive shall become a participant in the Company's Supplemental Executive Retirement Program ("SERP") upon the execution of this Agreement and shall accrue a benefit (the "Benefit") under the SERP formula resulting from his years of actual Service plus 13.5 additional years of imputed Service. "Average Final Compensation" (as used in the SERP) shall for the foregoing calculation, or any other SERP calculation made before October 1, 1998, be an amount equal to the sum of the amounts described under Section 6.1(a)(i) and Section 6.1(a)(ii) (without reduction for actual performance). Executive's Benefit shall be forfeited if he voluntarily leaves employment without Good Reason as defined in Section 6.1(b) or is terminated by the Company for Cause (as defined in Section 6.4) in either case prior to the earlier of (i) October 1, 1998 or (ii) a Change of Control. If Executive forfeits the accrued Benefit as described in this 5(a), the cash value of any annuity securing such Benefit (as described in Section 5(b) below) at the time of such forfeiture, net of all taxes imposed on the surrender thereof (computed at the maximum marginal rates), shall be 9 returned by the trustee of the secular trust referred to below to the Company. (b) (i) To provide Executive with greater security and financial flexibility, not later than April 30, 1996 the present value of the after-tax equivalent of the accrued Benefit shall be secured by the Company's purchase and delivery to a secular trust for Executive's benefit of an annuity contract having a lump-sum cash-out option which is the same type of annuity previously purchased for SERP participants. Executive shall make a timely election under Section 83(b) (an "83(b) election") of the Internal Revenue Code of 1986, as amended (the "Code") to be taxed on such transfer and the Company shall pay to Executive an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive on such transfer. (ii) For fiscal year 1996 and for each fiscal year or portion thereof thereafter, during which Executive is actively employed or with respect to which notional period Executive receives Compensation Continuance (as defined in Section 6.1(a)), the Company shall purchase and deliver to a secular trust for Executive's benefit an annuity for the incremental accrued Benefit in respect of that year not 10 already secured by such annuities until such time as, and to ensure that, Executive's maximum Benefit under the SERP has been fully secured by such purchases and deliveries of annuities. In the event of a Change of Control, sufficient funds shall be transferred by the Company to a rabbi trust of which Executive is a beneficiary in order to purchase for Executive an annuity covering (i) the Benefit accrued to the Change of Control to the extent not then fully secured by annuities and (ii) the incremental Benefit to be accrued in respect of the three year period following termination of employment in the event Executive becomes entitled to Compensation Continuance (as defined in Section 6.1) after such Change of Control. In connection with the Company's purchase and delivery to a secular trust for Executive's benefit of any such additional annuities under this subparagraph (ii) prior to Executive's Retirement Date, Executive shall make a timely 83(b) election if such purchase and delivery occur prior to the Benefit becoming non-forfeitable pursuant to Section 5(a). In addition, upon (x) each such purchase and transfer of additional annuities giving rise to taxes payable by Executive and (y) the imposition on Executive of any other Federal, state or local taxes in connection with the maintenance of such secular trust, the Company or a trust established for such purpose 11 shall pay to Executive an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive. (iii) The present value of the after- tax benefits due the Executive under the SERP determined at Executive's Retirement Date under the SERP will be offset by the after-tax value as of Executive's Retirement Date of any annuities previously purchased hereunder including earnings thereon. If an annuity instead of a lump sum is elected at retirement, a portion of the annuity payments to be made during retirement may be taxable to Executive, and Executive will be responsible for the payment of any taxes on such payments. The event of the Executive's retirement on the Retirement Date, or the delivery of the Benefit on such date, shall be a termination of employment, but shall not automatically be a termination under Section 6.1(a) entitling Executive to Compensation Continuance under this Agreement. (c) The Company shall, no later than Executive's Retirement Date, purchase and transfer to Executive such additional annuities as shall be necessary to fully fund any additional Benefit accrued to Executive's Retirement Date and any such annuities, to the extent then held in a secular 12 trust, will be delivered to Executive from such secular trust. The Company shall pay to Executive at the time of such transfer an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive on such transfer. (d) Executive's "Retirement Date" shall be the attainment of age 60 or, if later, the last day of any Compensation Period (as described in Section 6.1(a)). Executive's Retirement Date shall be deemed to include the date of Executive's death if death occurs before retirement. Any annuity delivered to Executive hereunder shall have a lump sum cash-out option. Executive agrees that a pre-condition to any funding of a Benefit under this Section 5 is the Executive's execution at such time of funding acknowledgment waivers reasonably requested by the Company, and Executive's agreement to place all annuities purchased for Executive in a secular trust designated by the Company until Executive's Retirement Date. 6. Termination of Employment. -------------------------- 6.1 Termination Not For Cause or For Good Reason. --------------------------------------------- (a) The Company and Holdings may terminate Executive's employment at any time for any reason, and 13 Executive may terminate his employment at any time for Good Reason. If Executive's employment is terminated by the Company or Holdings other than for Cause (as hereinafter defined)prior to or more than twenty-four months after a Change of Control or for any reason (other than death or disability) during the twenty-four month period following a Change of Control or Executive terminates his employment for Good Reason (as hereinafter defined), the Company shall pay to Executive as additional compensation ("Compensation Continuance") (x) if such termination is prior to, or more than twenty-four months after, a Change of Control, compensation until the third anniversary (the "Compensation Period") of the date his employment terminated (or, if earlier, until his date of death), payable monthly at an annual rate equal to the amounts set forth in clauses (i) and (ii) below, or (y) if such termination occurs during the twenty- four month period following a Change of Control, then upon such termination a lump sum payment, discounted to its present value, based on a notional payment period of 3 years assuming equal monthly payments and a discount rate equal to the product of (i) the three-year Treasury bond yield as published in the New York Times on the first of the month in which the termination occurs and (ii) 100% minus the aggregate applicable Federal, state and local taxes then 14 imposed on Executive's employment income computed at the maximum applicable marginal rates, in cash in an amount equal to three (3) times the sum of the amounts set forth in clauses (i) and (ii) below: (i) his Base Salary at its then current annual rate or following a Change of Control, if higher, the rate in effect immediately prior to such Change of Control; and (ii) his target bonus at its then current percentage or following a Change of Control, if higher, the percentage in effect immediately prior to such Change of Control; and computed in the case of any such bonus opportunity in the form of Performance Units based on the Initial Grant Value (as defined in Section 3.2(c)) of such Performance Units. In addition, Executive, if he is entitled to Compensation Continuance, shall be entitled to receive: (iii) Executive's full Base Salary through the date of termination at the rate in effect at the time notice of termination is given, AIAP Vested Amount as of the date of termination, and, except as set forth below, all other amounts to which Executive is entitled under any compensation or benefit plan of the Company including, but not limited to, the AIAP and LTIP, and all unpaid amounts, as of the date of such termination, in respect of any bonus, including any bonus for any Fiscal Year ending before such termination which would have been payable had the Executive remained in employment until the date such bonus would otherwise have been paid, at the times such payments are due under the terms of such plans or, following a Change of Control, upon such termination; (iv) any payment deferred by Executive, together with any applicable interest or other accruals thereon; (v) the benefits under Section 5 hereof shall be paid out in accordance with their terms; provided, --------- however,that Executive shall, for purposes of -------- 15 Section 5, be deemed to have remained employed by the Company and Holdings for the period ending on the third anniversary of the date his employment terminated; (vi) continued coverage under Holdings' and the Company's employee benefit programs, plans and practices described in Section 4.1 and 4.2 hereof until the third anniversary of the date his employment terminated, or Holdings or the Company will provide for equivalent coverage (on an after- tax basis), subject to any applicable coordination of benefits rules; provided that (A) in the case of any plan meeting the requirements of Section 401(a) of the Code, prior to a Change of Control, such coverage shall be provided only to the extent consistent with such requirements and (B) in the event of such a termination following a Change of Control, the level of such coverage shall not be less than that in effect immediately prior to such Change of Control; (vii) such payments under applicable plans or programs, including but not limited to those described in Section 3.3 and 4.3 and payment for accrued vacation, as may be determined pursuant to the terms of such plans or programs and this Agreement; (viii) outplacement counseling services at Company expense; provided however, this expense shall not exceed 18% of annualized Base Pay in any calendar year; (ix) for the first six (6) months after termination, the reasonable cost of one secretary and a fully functional office, such office location to be determined by Executive as long as the office is not to be located on the premises of the Company; (x) if Executive's termination occurs prior to March 1, 1996, any applicable additional benefits and protections provided under the Headquarters Program; (xi) if Executive's termination occurs during the twenty-four month period following a Change of Control, all cash payments to be made hereunder upon a termination of employment shall be made not 16 later than 15 business days following the date of termination, and in addition Executive shall receive: (A) a lump sum cash payment equal to the sum of Executive's AIAP Vested Amount, PS Vested Amount and PU Vested Amount all as of the date of termination; (B) a lump sum cash payment equal to three times the value of the annual credit under the RJR Nabisco. Inc. Flexible Perquisites Program (the "Perquisites Program") to which Executive was entitled immediately prior to such termination or, if higher, to which Executive was entitled immediately prior to the Change of Control, reduced by such credits as would otherwise be applied to the continued benefits under Section 6.1(a)(vi) above; (C) use of the automobile assigned to Executive immediately prior to the Change of Control until the third anniversary of the date of termination and, at the end of such period, the transfer of ownership of such automobile to Executive plus such amount in cash that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed in connection with such transfer; (D) in addition to and upon the expiration of the benefits provided pursuant to Section 6.1(a) (vi) above, MedChoice Retiree Medical benefits as may be in effect at the time of such expiration for other retirees and as amended from time to time thereafter at the minimum level of Company subsidy or, if greater, the subsidy level based on his years of actual and imputed service under the SERP; and (E) if the Company fails to provide any of the benefits under Section 6.1(a) (vi) or Section 6.1(a)(xi) (D) above, reimbursement for the actual cost of Executive's obtaining comparable benefits within 15 business days after the date Executive gives the Company written notice that he incurred such costs plus such additional amount that after 17 payment of all applicable Federal, state and local taxes thereon, computed at the maximum applicable marginal rates, is equal to all such taxes, so computed, imposed with respect to such reimbursement. (b) For purposes of this Agreement, "Good Reason" shall mean any of the following (without Executive's express prior written consent): (i) (A) The assignment to Executive of duties materially inconsistent with Executive's position (including duties, responsibilities, status, titles or offices as set forth in Section 1 hereof); (B) any elimination or reduction of Executive's duties or responsibilities as set forth in Section 1; or (C) any removal of Executive from or any failure to elect or reelect Executive to the position of President of Holdings and the Company (including the failure to elect Executive to the positions of President of the ultimate controlling entity in connection with any merger, acquisition or other extraordinary corporate transaction that includes Holdings or the Company), except in connection with the termination of Executive's employment for Cause, Permanent Disability (as hereinafter defined) or as a result of Executive's death or by Executive other than for Good Reason; (ii) A reduction in Executive's Base Salary or annual target bonus opportunity as in effect at the commencement of employment hereunder or as the same may be increased from time to time during the term or pursuant to the terms of this Agreement; (iii) The failure by the Company or Holdings to obtain the specific assumption of this Agreement by any successor or assign of Holdings or the Company or any person acquiring substantially all of the Company's or Holdings' assets; (iv) Any material breach by the Company or Holdings of any provision of this Agreement or any agreements entered into pursuant thereto; 18 (v) Requiring Executive to be based at any office or location other than that described in Section 1 above, except for travel reasonably required in the performance of the Executive's responsibilities, or (vi) (A) During the twenty-four month period following a Change of Control, the failure to continue in effect any compensation plan in which Executive participates at the time of the Change of Control, including but not limited to the LTIP, the AIAP, the Perquisites Program, or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of his participation relative to other participants, as existed at the time of the Change of Control; or (B) the failure to continue to provide Executive with benefits at least as favorable in the aggregate as those enjoyed by him under any of the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change of Control, the taking of any action which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by him at the time of the Change of Control, or the failure to provide him with the number of paid vacation days to which he was entitled on the basis of the Company's practice with respect to him as in effect at the time of the Change of Control. (c) (i) Anything in this Agreement to the contrary notwithstanding, in the event that it is determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid 19 or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive from the Company, within 15 days following the determination described in Section 6.1(c)(ii) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by Executive of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, Executive retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (ii) All determinations required to be made under this Section 6.1(c), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by Ernst & Young, Winston-Salem, North Carolina, or such other 20 accounting firm as the Company or Holdings may designate prior to a Change of Control, which shall provide detailed supporting calculations to the Company and the Executive within 15 business days of the date of termination of Executive's employment. Except as hereinafter provided, any determination by Ernst & Young, Winston-Salem, North Carolina, or such other accounting firm as the Company or Holdings may designate prior to a Change of Control, shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. In the event that the Executive discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company. 21 (d) Except as provided in this Agreement, if Executive is a participant in the LTIP or any other stock award plan of the Company, Holdings, or any of their affiliates and has outstanding awards thereunder, the treatment of such awards shall be governed by the terms of such applicable plans and awards. 6.2 Permanent Disability. The event of the Executive -------------------- becoming eligible for benefits under the Company's Long Term Disability Plan is not a termination under Section 6.1(a) entitling Executive to Compensation Continuance under this Agreement. If, however, Executive becomes eligible for benefits under the Company's Long Term Disability Plan during his Compensation Period, the amount of Compensation Continuance shall be reduced during the Compensation Period by the amount of disability benefits payable to the Executive. All other provisions of this Agreement shall remain in effect notwithstanding the Executive's disability including, without limitation, obligations pursuant to Section 5 hereof, the terms of any applicable plans, including, but not limited to, those described in Sections 3.3, 4.1, 4.2, 4.3 and 4.4 hereof, and all unpaid amounts, as of the date of such disability, in respect of any bonus, including any bonus payable for any fiscal year ending prior to such disability, and any payment deferred by Executive, 22 together with any applicable interest or other accruals thereon. If the Executive is still disabled upon reaching his Retirement Date under the SERP, he shall be retired under the SERP with an offset for any disability payments made to the Executive after such retirement. 6.3 Death. In the event of Executive's death while actively ----- employed, the Company's and Holdings' obligations under this Agreement shall cease and terminate except with respect to obligations pursuant to Section 5 hereof, the terms of any applicable plans, including, but not limited to, those described in Sections 3.3, 4.1, 4.2, 4.3 and 4.4 hereof, and all unpaid amounts, as of the date of death, in respect of any bonus, including any bonus, for any fiscal year ending prior to death which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid shall be paid and any payment deferred by Executive, together with any applicable interest or other accruals thereon shall be paid. In the event of Executive's death subsequent to commencement of his Compensation Period hereunder, the balance of Compensation Continuance will be paid to his beneficiary in a lump sum. "Beneficiary" shall mean the Executive's designated beneficiary under his Executive Program life 23 insurance. with the SERP. Any survivor benefit shall be paid in accordance with the SERP. 6.4 Voluntary Resignation; Discharge for Cause. ------------------------------------------ If Executive resigns voluntarily, other than for Good Reason or Permanent Disability, or the Company and Holdings terminate the employment of Executive prior to, or more than twenty-four months after, a Change of Control for Cause, the Company's and Holdings' obligations under this Agreement to make any further payments to Executive shall thereupon cease and terminate except with respect to accrued and nonforfeeitable obligations pursuant to Section 5 hereof, the terms of any applicable plans, including those described in Sections 3.3, 4.1, and 4.3 hereof and all unpaid amounts, as of the date of such termination, in respect of any bonus, including any bonus for any fiscal year ending prior to such termination which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid, and any payment deferred by Executive, together with any applicable interest or other accruals thereon. The term "Cause" shall be limited to (a) action by Executive involving willful malfeasance in connection with his employment having a material adverse effect on Holdings or the Company, (b) any action by Executive involving willful gross misconduct having a 24 material adverse effect on Holdings or the Company (other than an effect that could not reasonably constitute grounds for dismissal under the circumstances), (c) substantial and continuing refusal by Executive in willful breach of this Agreement to perform the duties ordinarily performed by an Executive occupying his positions, which refusal has a material adverse effect on Holdings or the Company or (d) Executive being convicted of (i) a felony under the laws of the United States or any state or (ii) a felony under the laws of any other country or political subdivision thereof involving moral turpitude. Termination of Executive pursuant to this Section 6.4 shall be communicated by a Notice of Termination given within one year after Holdings Board both (i) had knowledge of conduct or an event allegedly constituting Cause and (ii) had reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of not less than three- quarters of the entire membership of Holdings Board at a meeting of the Holdings Board called and held for the purposes after reasonable notice to the Executive ("Preliminary Notice") and reasonable opportunity for Executive, together with the Executive's counsel, to be heard before the Holdings Board 25 prior to such vote), finding that, in the good faith opinion of the Holdings Board, Executive was guilty of conduct set forth in the second sentence of this Section 6.4 and specifying the particulars thereof in detail. Upon the receipt of the Preliminary Notice, Executive shall have 14 days in which to appear with counsel or take such other action as he desires on his behalf, and such 14-day period is hereby agreed to by the parties as a reasonable opportunity for Executive to be heard. The Holdings Board shall no later than 30 days after the receipt of the Preliminary Notice by Executive communicate its findings to Executive. A failure by the Holdings Board to make its findings of Cause or to communicate its conclusions within such 30-day period shall be deemed to be a finding that Executive was not guilty of the conduct described in the second sentence of this Section 6.4. Where the Holdings Board has made such findings that, based upon conduct described in clause (a), (b) or (c) above, Cause exists the Executive shall have 30 days in which to cure such conduct, to the extent such cure is possible. Any termination of Executive's employment (other than by death or Permanent Disability) within 30 days after the date that the Preliminary Notice has been given to Executive shall be deemed to be a termination for Cause; provided, however, that if during such period Executive voluntarily terminates other 26 than for Good Reason or the Company terminates Executive other than for Cause, and either (A) Executive cured his conduct, as permitted in the preceding sentence of this Section 6.4, or (B) Executive is found (or is deemed to be found) not guilty of the conduct described in the second sentence of this Section 6.4, such termination shall not deemed to be for Cause. 7. Stock Arrangements. Except as otherwise provided in Section 3.4 ------------------- and Section 6, awards under the LTIP shall be governed by the provisions of the individual grant agreements made under the LTIP. 8. Expenses. The Executive is authorized to incur reasonable expense -------- in carrying out his duties and responsibilities under this Agreement, including expenses for travel and similar items related to such duties and responsibilities. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of an itemized account of such expenditures. 9. No Obligation to mitigate Damaqes. The Executive shall not be --------------------------------- required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise nor will (a) any payments under Section 6 hereof be subject to offset in respect of any claims which the Company may have against Executive or (b) 27 the amount of any payment or benefit provided for in Section 6 be reduced by any compensation earned as a result of Executive's employment with another employer. 10. Notices. All notices or communications hereunder shall be in ------- writing, addressed as follows: To the Company or Holdings: Mr. Gerald I. Angowitz c/o RJR Nabisco Holdings Corp. 1301 Avenue of the Americas New York, New York 10019 To the Executive: Mr. Steven F. Goldstone 205 Silver Spring Road Ridgefield, CT 06877 Any such notice or communication shall be sent certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in a notice duly delivered as described above), and the actual date of mailing shall determine the time at which notice was given. 11. Separability; Legal Fees; Arbitration. If any provision of this ------------------------------------- Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. In addition, the Company shall reimburse Executive for 28 reasonable legal fees incurred in connection with entering into this Agreement and shall also pay to Executive as incurred all legal and accounting fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement or any other compensation-related plan, agreement or arrangement of the Company, unless Executive's claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. Any good faith controversy or claim arising out of or relating to this Agreement or the breach of this Agreement (other than Section 14 hereof) that cannot be resolved by Executive and the Company, including any dispute as to the calculation of Executive's benefits or any payments hereunder shall be submitted to arbitration in New York City in accordance with New York law and the procedures of the American Arbitration Association. The determination of the arbitrator(s) shall be conclusive and binding on the Company and Executive and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction. 12. Assignment. This contract shall be binding upon and inure to the ---------- benefit of the heirs and representatives of Executive and the assigns and successors of Holdings and the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by 29 Executive (except by will or by operation of the laws of intestate succession) or by Holdings or the Company, except that Holdings or the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Holdings or the Company. 13. Amendment/Termination. ---------------------- (a) The Agreement may only be amended at any time by mutual written agreement of the parties hereto. (b) Company and Holdings represent and warrant they will make appropriate adjustments and amendments to the number of shares subject to, and the exercise price of, options to purchase Holdings common stock granted under the LTIP ("Options") (including, in the event of a spinoff or distribution of assets or stock of Holdings or an affiliated entity, substituting or replacing the shares issuable upon the exercise of Options) should extraordinary events or transactions occur involving the Company, Holdings, or an affiliated corporation. 14. Nondisclosure of Confidential Information; Non-Competition. ----------------------------------------------------------- (a) Executive shall not, without the prior written consent of Holdings or the Company, divulge, disclose or make accessible to any other person, firm, partnership or 30 corporation or other entity any Confidential Information pertaining to the business of Holdings or the Company except (i) while employed by Holdings or the Company in the business of and for the benefit of Holdings or the Company or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of Holdings or the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. For purposes of this Section 14(a), "Confidential Information" shall mean non-public information concerning Holdings' or the Company's financial data, strategic business plans, product development (or other proprietary product data), customer lists, marketing plans and other proprietary information, except for specific items which have become publicly available information or otherwise known to the public other than through a breach by Executive of his fiduciary duty or any confidentiality agreement, or information known to the Executive prior to the date of this Agreement. Confidential Information does not include information the disclosure of which cannot reasonably be expected to adversely affect the business of Holdings or the Company. 31 (b) During the period commencing on the date hereof and ending (i) in the case of a termination described in Section 6.1 hereof, three years after the date of termination; and (ii) in case of a termination described in Section 6.4 hereof, two years after the date of termination, Executive covenants and agrees that he will not be an executive officer, board member, owner, partner, consultant or employee of a food or tobacco company with revenues over $1 billion, if such food or tobacco company is engaged in a "major business" of Holdings or the Company. A "major business" for this purpose is each major business segment of the Company and its subsidiaries on the date hereof that produces products constituting over 5% of the revenues of Holdings and its subsidiaries. For purposes of this Section 14, Executive shall be deemed not a shareholder of a company that would otherwise be a competing entity if Executive's record and beneficial ownership of the capital stock of such company amount to not more than one percent of the outstanding capital stock of any such company subject to the periodic and other reporting requirements of Section 13 or Section 15(d) or the Securities Exchange Act of 1934, as amended. Executive, Holdings, and Company agree this covenant not to compete is a reasonable covenant under the circumstances, and further agree that if in the opinion of 32 any court of competent jurisdiction, such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so amended. (c) Executive agrees that any breach of the covenants contained in this Section 14 would irreparably injure Holdings and the Company. Accordingly, Holdings or the Company may, in addition to pursuing any other remedies they may have in law or in equity, obtain an injunction against Executive from any court having jurisdiction over the matter, restraining any further violation of this Agreement by Executive. 15. Beneficiaries/References. Executive shall be entitled to select ------------------------ (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice hereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. Any reference to the 33 masculine gender in this Agreement shall include, where appropriate, the feminine. 16. Survivorship. The respective rights and obligations of the parties ------------ hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this Section are in addition to the survivorship provisions of any other section of this Agreement. 17. Representations and Warranties. Holdings and the Company each ------------------------------ represent and warrant that (a), respectively, they are fully authorized and empowered to enter into this Agreement, (b) the execution of this Agreement and the performance of their respective obligations under this Agreement will not violate or result in a breach of the terms of any material agreement to which Holdings and/or the Company is a party or by which it is bound, (c) no approval by any governmental authority or body is required for them to enter into this Agreement or perform their obligations hereunder, and (d) this Agreement is valid, binding and enforceable against Holdings and the Company in accordance with its terms, except to the extent affected or limited by applicable bankruptcy laws or other statutes governing the rights of creditors and any regulations or interpretations 34 thereof. Executive represents and warrants that his execution of this Agreement and his performance of his duties and responsibilities under this Agreement will not violate or result in a breach of the terms of any material agreement to which he is a party or by which he is bound. 18. Governing Law. This Agreement shall be construed, interpreted, ------------- and governed in accordance with laws of New York, without reference to rules relating to conflicts of law. 19. Withholding. The Company and Holdings shall be entitled to ----------- withhold for payment any amount of withholding required by law. 20. Interest on Late Payments. To the extent that any payments ------------------------- required to be made hereunder following a Change of Control are not made within the period specified therefor, the Company and Holdings shall be liable for interest on such delayed payments at the rate of 150% of the prime rate compounded monthly, as posted by the Morgan Guaranty Trust Company of New York from time to time. 21. Actuarial Calculations. All required actuarial calculations of ---------------------- payments to be made hereunder and of annuities to be purchased pursuant to Section 5 hereof shall be made by Watson Wyatt Worldwide, New York, New York, or 35 such other actuarial firm as the Company or Holdings may designate prior to a Change of Control. 22. Funding. Except as otherwise provided herein, all benefits ------- hereunder are unfunded and will be paid out of the general assets of the Company or Holdings. Notwithstanding the foregoing, the Company or Holdings may choose to maintain a rabbi trust or other trusts for the purpose of paying certain of the benefits hereunder or under other plans and programs of the Company or Holdings and, if so, Executive shall be entitled to payments therefrom, if any, as and to the extent provided in such rabbi trust or other trusts. 23. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which will be deemed an original. RJR NABISCO HOLDINGS CORP. By: /s/ Charles M. Harper ----------------------------------- Chairman and Chief Executive Officer RJR NABISCO, INC. By: By: /s/ Charles M. Harper ----------------------------------- Chairman and Chief Executive Officer /s/ Steven F. Goldstone ----------------------------------- STEVEN F. GOLDSTONE 36 EXHIBIT "A" AIAP Vested Amount means, as of a Change of Control or as of the date ------------------ Executive's employment terminates, as the case may be, an amount equal to (a in the case of any bonus opportunity under the AIAP, the value of Executive's target award under the AIAP for the relevant period in which such Change of Control or such termination occurs, as the case may be, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending on the Change of Control or such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change in Control in the year in which such Change of Control occurs, for purposes of computing the AIAP Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target award shall be that in effect immediately preceding such Change of Control, or (b) in the case of any annual bonus opportunity in the form of Performance Units, the PU Vested Amount as of the date of such termination. Board means the Board of Directors of the Company. ----- Boards means, collectively, the Board and the Holdings Board. ------ Change of Control means the first to occur of the following events ----------------- provided such event occurs prior to October 11, 1996 or such later date as the Boards may specify from time to time: (a) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plan(s) sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (b) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Holdings' shareholders, was approved by a vote of at least three- quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; (c) the approval by the shareholders of Holdings of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, 2 exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (c) occurs, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of the Program. Holdings Board means the Board of Directors of Holdings. -------------- PS Vested Amount means with respect to any award of Performance ---------------- Shares (as defined in the LTIP) Executive holds as of a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the adjusted value of (i) the number of Performance Shares subject to such award, multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of such Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period, (ii) adjusted by applying target performance with respect to such award; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PS Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and target performance with respect to such Performance Shares shall be that in effect immediately preceding the Change of Control. 3 PU Vested Amount means, for any award of Performance Units (as ---------------- defined in the LTIP) Executive holds as of a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the target value of the number of Performance Units subject to such award multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PU Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target value of such Performance Units shall be that in effect immediately preceding the Change of Control. 4 EX-10.40 18 Exhibit 10.40 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT by and among RJR Nabisco Holdings Corp., a Delaware corporation ("Holdings"), RJR Nabisco, Inc., a Delaware corporation and a direct subsidiary of Holdings (the "Company") and Steven F. Goldstone ("Executive") is effective as of December 5, 1995, and supersedes and revokes the prior Employment Agreement with Executive dated as of October 1, 1995. This Agreement will (i) following a Change of Control (as defined in Exhibit A), supersede the Executive's participation in the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence Recognition Program (the "Headquarters Program") and (ii) be in lieu of Executive's participation in the RJR Nabisco Holdings Corp. 1995 Employee Protection Program (the "1995 Program"), but will in no event provide lesser benefits to Executive in the .event of the termination of Executive's employment following a Change of Control than would otherwise be available under the 1995 Program. RECITALS -------- In order to induce Executive to accept the positions of Chief Executive Officer and member of the Office of the Chief Executive Officer of Holdings and the Company and to continue in the office of President of Holdings and the Company, Holdings and the Company desire to provide Executive with compensation and other benefits under the conditions set forth in this Agreement. Executive is willing to accept such employment and perform services for Holdings and the Company on the terms and conditions hereinafter set forth. It is therefore hereby agreed by and between the parties as follows: 1. Employment. ----------- 1.1 Subject to the terms and conditions of this Agreement, Holdings agrees to employ Executive during the term hereof as Chief Executive Officer, President, and member of the Office of Chairman of Holdings and the Company. Executive shall have the customary powers, responsibilities and authorities of Chief Executive Officers of corporations of the size, type and nature of Holdings and Company, and specifically, he shall have responsibility for all of Holdings' and the Company's staff functions, including finance, human resources, administration and communications, in addition to responsibility for Holdings. Executive's principal office shall be at the principal executive offices of Holdings and the Company in New York, New York. 1.2 Holdings and the Company shall, throughout the term hereof, cause the election and retention of Executive as Chief Executive Officer, President and a member of the Boards of Directors of Holdings and the Company. 1.3 Subject to the terms and conditions set forth herein, Executive hereby (i) accepts employment as Chief Executive Officer, President and member of the Office of the 2 Chief Executive Officer of Holdings and the Company and shall devote his full working time and efforts, to the best of his ability, experience and talent, to the performance of the services, duties and responsibilities in connection therewith and (ii) agrees to be a member of the Boards of Directors of Holdings and the Company. Nothing in this Agreement shall preclude the Executive from engaging, consistent with his duties and responsibilities hereunder, in charitable and community affairs, from managing his personal investments, from continuing to serve on the boards of directors of any Affiliate (as hereinafter defined) of Holdings or the Company or from serving, subject to approval of the Holdings Board (as defined in Exhibit A), as a member of boards of directors of other companies. The term "Affiliate" shall mean any direct or indirect subsidiary of Holdings or the Company or any successor thereto. For purposes of this Agreement, the term "available to Senior Executive Officers" shall mean that something is available to the senior executive officers of Holdings or the Company or generally available to all chief executive officers of the major operating companies of Holdings. 1.4 This Agreement supersedes and revokes in their entirety any and all prior employment or service agreements with Holdings or the Company, and in particular, the Engagement Agreement with Holdings dated March 3, 1995, and the Employment Agreement dated as of October 1, 1995. 3 2. Term of Employment. ------------------ Executive's term of employment under this Agreement shall continue in accordance with the terms hereof until a termination of Executive's employment. 3. Compensation. ------------ 3.1 Salary. The Company shall pay Executive a base salary ------ ("Base Salary") at the rate of $1,100,000 per annum. Base Salary shall be payable in accordance with the ordinary payroll practices of the Company. Executive's rate of Base Salary shall be reviewed for possible increases by the Chairman of the Company at least annually and, once approved by the Board (as defined in Exhibit A), such higher amount shall constitute Executive's Base Salary. 3.2 Annual Bonus. ------------ (a) In addition to his Base Salary, Executive shall be entitled, while he remains employed hereunder, to receive an annual bonus under the Company's Annual Incentive Award Plan in effect on the date of this Agreement, as amended from time to time, a copy of which has been given to Executive, or under any successor plan thereto available to Senior Executive Officers ("AIAP"), in accordance with the terms thereof. Such AIAP, in any event, will provide an annual target bonus opportunity to Executive no less favorable than seventy percent (70%) of his Base Salary paid or accrued with respect to the related year, subject to the attainment of the performance goals established from time to time under such AIAP. 4 (b) For the fiscal year ending December 31, 1995, Executive shall be deemed to have participated in the AIAP from March 3, 1995, with a target bonus opportunity of 70% of $850,000. (c) For fiscal years beginning on and after January 1, 1996, Executive may be granted Performance Units under the Company's 1990 Long Term Incentive Plan or a successor plan (the "LTIP") in lieu of a cash bonus under the AIAP pursuant to Section 3.2(a). If such grants are made, each Performance Unit Agreement under the LTIP to which Executive is a party shall specifically provide that following a Change of Control the Committee responsible for exercising any discretion with respect to any such award shall not exercise such discretion so as to reduce the "Payment Value" of such award below the award's "Initial Grant Value" (as such terms are customarily defined in Performance Unit Agreements awarded to Senior Executive Officers of the Company under the LTIP prior to the date hereof). 3.3 Compensation Plans and Programs. Executive shall ------------------------------- participate in any compensation plan or program, whether annual or long term, maintained by Holdings or the Company on terms no less favorable than those available to Senior Executive Officers eligible to participate therein. 3.4 Special Bonus Payments. Upon a Change of Control, the ---------------------- Company shall pay to Executive a special cash 5 bonus payment equal to the sum of (a) Executive's AIAP Vested Amount as of such Change of Control, Executive's PS Vested Amount as of such Change of Control, and Executive's PU Vested Amount as of such Change of Control (all as defined in Exhibit A); and (b) any additional funding amounts required to fully fund the Benefit (as defined in Section 5) accrued to the date of such Change of Control under Section 5 hereof. Notwithstanding the foregoing, in the event that following a Change of Control any performance period relating to any award under the AIAP or of Performance Units or Performance Shares under the LTIP within which such Change of Control occurred is completed prior to Executive's termination of employment, upon such completion Executive shall be entitled to payment in respect of each such award of an amount, if any, equal to the excess of the value of such award based on actual performance for such performance period over the AIAP Vested Amount, PU Vested Amount or PS Vested Amount, as the case may be, previously paid to Executive upon such Change of Control in respect of such AIAP award, Performance Units or Performance Shares. 4. Employee Benefits. ----------------- 4.1 Employee Benefit Plans and Programs. The Company and ----------------------------------- Holdings shall provide Executive during the term of his employment hereunder coverage under all employee benefit programs, plans and practices (commensurate with his 6 position in the Company and to the extent possible under any employee benefit plan), in accordance with the terms thereof, which Holdings and the Company make available to Senior Executive Officers, including, but not limited to (a) retirement, pension and profit sharing (including the SERP, as defined in Section 5, subject to the provisions of Section 5) and (b) medical, dental, hospitalization, short and long term disability, accidental death and dismemberment and travel accident coverage. 4.2 Vacation and Fringe Benefits. Executive shall be ---------------------------- entitled to the number of vacation days customarily available to Senior Executive Officers of the Company. In addition, Executive shall be entitled to the perquisites and fringe benefits from time to time available to Senior -Executive Officers. 4.3 Directors and Officers Liability Coverage. Executive ----------------------------------------- shall be entitled to the same level of coverage (as determined from time to time by the Boards (as defined in Exhibit A)) under such directors' and officers' liability insurance policies, if any, or other arrangements as are available to Senior Executive Officers and directors of Holdings and the Company, to the fullest extent permitted by the existing By-laws of Holdings and the Company. In any event, Holdings and the Company shall indemnify and hold Executive harmless, to the fullest extent permitted by the 7 laws of the States of Holdings' and the Company's incorporations, from and against all costs, charges and expenses (including reasonable attorneys' fees) whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or proceeding to which he or his legal representatives may be made a party by reason of his being or having been a director or officer of Holdings or the Company or any of their Affiliates. This Section 4.3 shall survive the termination of this Agreement for any reason. 4.4 Retiree Medical. Upon retirement under Section 5 herein, --------------- Executive shall be eligible for retiree medical coverage based on (i) the greater of his actual age or a minimum deemed age of 55 and (ii) the number of years of actual and imputed Service with which Executive is credited as Service under the provisions of Executive's individual SERP arrangement as described in Section 5. 5. Supplemental Pension. -------------------- (a) Executive is a participant in the Company's Supplemental Executive Retirement Program ("SERP"). Executive shall accrue a benefit (the "Benefit") under the SERP formula resulting from (i) his years of actual Service plus (ii) 13.5 additional years of imputed Service plus (iii) additional years of imputed service for the period, if any, with respect to which Executive receives Compensation 8 Continuance (as defined in Section 6.1(a)). "Average Final Compensation" (as used in the SERP) shall for the foregoing calculation, or any other SERP calculation made before October 1, 1998, be an amount equal to the sum of the amounts described under Section 6.1(a)(i) and Section 6.1(a)(ii) (without reduction for actual performance). Executive's Benefit shall be forfeited if he voluntarily leaves employment without Good Reason as defined in Section 6.1(b) or is terminated by the Company for Cause (as defined in Section 6.4) in either case prior to the earlier of (i) October 1, 1998 or (ii) a Change of Control. If Executive forfeits the accrued Benefit as described in this 5(a), the cash value of any annuity securing such Benefit (as described in Section 5(b) below) at the time of such forfeiture, net of all taxes imposed on the surrender thereof (computed at the maximum marginal rates), shall be returned by the-trustee of the secular trust referred to below to the Company. (b) (i) To provide Executive with greater security and financial flexibility, not later than April 30, 1996 the present value of the after-tax equivalent of the accrued Benefit as of the date of delivery of the annuity contract as described herein shall be secured by the Company's purchase and delivery to a secular trust for Executive's benefit of an annuity contract having a lump-sum cash-out option which is the same type of annuity previously purchased for SERP 9 participants. Executive shall make a timely election under Section 83(b) (an "83(b) election") of the Internal Revenue Code of 1986, as amended (the "Code") to be taxed on such transfer and the Company shall pay to Executive at the time of such election an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive on such transfer. (ii) For fiscal year 1996 and for each fiscal year or portion thereof thereafter, during which Executive is actively employed or with respect to which period Executive receives Compensation Continuance, the Company shall purchase and deliver to such secular trust for Executive's benefit an annuity for the incremental accrued Benefit in respect of that year not already secured by the prior purchase and delivery of such annuities until such time as, and to ensure that, Executive's maximum Benefit under the SERP has been fully secured by such purchases and deliveries of annuities. In connection with the Company's purchase and delivery to a secular trust for Executive's benefit of any such additional annuities under this subparagraph (ii) prior to Executive's Retirement Date, Executive shall make a timely 83(b) election if such purchase and delivery occur prior to the Benefit becoming non-forfeitable pursuant to Section 5(a). In 10 addition, upon (x) each such purchase and transfer of additional annuities giving rise to taxes payable by Executive and (y) the imposition on Executive of any other Federal, state or local taxes in connection with the maintenance of such secular trust, the Company or a trust established for such purpose shall pay to Executive an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive (iii) The present value of the after-tax benefits due the Executive under the SERP determined at Executive's Retirement Date under the SERP will be offset by the after-tax value as of Executive's Retirement Date of any annuities previously purchased hereunder including earnings thereon. If an annuity instead. of a lump sum is elected at retirement, a portion of the annuity payments to be made during retirement may be taxable to Executive, and Executive will be responsible for the payment of any taxes on such payments. The event of the Executive's retirement on the Retirement Date, or the delivery of the Benefit on such date, shall be a termination of employment, but shall not automatically be a termination under Section 6.1(a) entitling Executive to Compensation Continuance under this Agreement. 11 (c) The Company shall, no later than Executive's Retirement Date, purchase and transfer to Executive such additional annuities as shall be necessary to fully fund any additional Benefit accrued to Executive's Retirement Date and any annuities, to the extent then held in a secular trust for Executive's benefit, will be delivered to Executive from such secular trust. The Company shall pay to Executive at the time of such transfer an additional amount such that after payment by Executive of all applicable Federal, state and local taxes thereon (computed at the maximum marginal rates) there is retained a sufficient amount to pay all such taxes incurred by Executive on such transfer. (d) Subject to the following provisions of this Section 5(d), Executive's "Retirement Date" shall be the attainment of age 60 or, if later, the last day of any Compensation Period (as described in Section 6.1(a)). Executive's Retirement Date shall be deemed to include the date of Executive's death if death occurs before retirement. Any annuity delivered to Executive hereunder shall have a lump sum cash-out option. Executive agrees that a pre-condition to any funding prior to a Change of Control of a Benefit under this Section 5 is the Executive's execution at such time of funding acknowledgment waivers reasonably requested by the Company, and Executive's agreement to place all annuities purchased for Executive in a secular trust designated by the Company until Executive's 12 Retirement Date. If Executive's employment is terminated by the Company or Holdings other than for Cause (as hereinafter defined) or by Executive for Good Reason (as hereinafter defined) prior to or more than twenty-four months after a Change of Control, the Benefit shall be payable at the end of Compensation Continuance (the last day of which shall become his Retirement Date) and shall be calculated as a lump sum amount equal to the present value of the Benefit as of such Retirement Date after reduction thereof under the SERP formula to reflect the payment of such Benefit prior to age 60. If Executive's employment is terminated for any reason during the twenty-four month period following a Change of Control, the Benefit shall be payable upon such termination (which date shall become his Retirement Date) and shall be calculated as a lump sum amount equal to the present value of the Benefit as of the third anniversary of such termination (the "Calculation Date") assuming payment of the Benefit commenced on the Calculation Date after reduction thereof under the SERP formula in effect immediately prior to the Change of Control to reflect the commencement of payment of such Benefit prior to age 60 but without any actuarial reduction for acceleration of such payment from the Calculation Date to the Retirement Date. 13 6. Termination of Employment. ------------------------- 6.1 Termination Not For Cause or For Good Reason. -------------------------------------------- (a) The Company and Holdings may terminate Executive's employment at any time for any reason, and Executive may terminate his employment at any time for any reason. If Executive's employment is terminated by the Company or Holdings other than for Cause (as hereinafter defined) or Executive terminates his employment for Good Reason (as hereinafter defined), the Company shall pay to Executive as additional compensation ("Compensation Continuance") (x) if such termination is prior to, or more than twenty-four months after, a Change of Control, compensation until the third anniversary (the "Compensation Period") of the date his employment terminated (or, if earlier, until his date of death), payable monthly at an annual rate equal to the amounts set forth in clauses (i) and (ii) below, or (y) if such termination occurs during the twenty-four month period following a Change of Control, then upon such termination a lump sum payment, discounted to its present value, based on a notional payment period of 3 years assuming equal monthly payments and a discount rate equal to the product of (i) the three-year Treasury bond yield as published in the New York Times on the first of the month in which the termination occurs and (ii) 100% minus the 14 aggregate applicable Federal, state and local taxes then imposed on Executive's employment income computed at the maximum applicable marginal rates, in cash in an amount equal to three (3) times the sum of the amounts set forth in clauses (i) and (ii) below: (i) his Base Salary at its then current annual rate or following a Change of Control, if higher, the rate in effect immediately prior to such Change of Control; and (ii) his target bonus at its then current percentage or following a Change of Control, if higher, the percentage in effect immediately prior to such Change of Control; and computed in the case of any such bonus opportunity in the form of Performance Units based on the Initial Grant Value (as defined in Section 3.2(c)) of such Performance Units In addition, Executive, if he is entitled to Compensation Continuance, shall be entitled to receive: (iii) Executive's full Base Salary through the date of termination at the rate in effect at the time notice of termination is given, AIAP Vested Amount as of the date of termination, and, except as set forth below, all other amounts to which Executive is entitled under any compensation or benefit plan of the Company including, but not limited to, the AIAP and LTIP, and all unpaid amounts, as of the date of such termination, in respect of any bonus, including any bonus for any Fiscal Year ending before such termination which would have been payable had the Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, at the times such payments are due under the terms of such plans or, in the event such termination occurs during the twenty-four month period following a Change of Control, upon such termination; (iv) any payment deferred by Executive, together with any applicable interest or other accruals thereon; 15 (v) the benefits under Section 5 hereof shall be paid out in accordance with their terms; provided, however, that ----------------- Executive shall, for purposes of Section 5, be deemed to have remained employed by the Company and Holdings for the period ending on the third anniversary of the date his employment terminated at the compensation level in effect on the date of termination or, if such termination occurs during the twenty-four month period following a Change of Control, at the compensation level in effect immediately prior to such Change of Control if higher; (vi) continued coverage under Holdings' and the Company's employee benefit programs, plans and practices described in Section 4.1 and 4.2 hereof until the third anniversary of the date his employment terminated, or Holdings or the Company will provide for equivalent coverage (on an after- tax basis), subject to any applicable coordination of benefits rules; provided that (A) in the case of any plan meeting the requirements of Section 401(a) of the Code, prior to a Change of Control, such coverage shall be provided only to the extent consistent with such requirements and (B) in the event of such a termination during the twenty-four month period following a Change of Control, such coverage shall not be less favorable in the aggregate than that in effect immediately prior to such Change of Control; (vii) such payments under applicable plans or programs, including but not limited to those described in Section 3.3 and 4.3 and payment for accrued vacation, as may be determined pursuant to the terms of such plans or programs and this Agreement; (viii) outplacement counseling services at Company expense; provided however, this expense shall not exceed 18% of annualized Base Pay in any calendar year; (ix) for the first six (6) months after termination, the reasonable cost of one secretary and a fully functional office, such office location to be determined by Executive as long as the office is not to be located on the premises of the Company; (x) if Executive's termination occurs prior to March 1, 1996, and prior to a Change of Control, any 16 applicable additional benefits and protections provided under the Headquarters Program; (xi) if Executive's termination occurs during the twenty-four month period following a Change of Control, all cash payments to be made hereunder upon a termination of employment shall be made not later than 15 business days following the date of termination, and in addition Executive shall receive, to the extent not already provided herein,: (A) a lump sum cash payment equal to the sum of Executive's AIAP Vested Amount, PS Vested Amount and PU Vested Amount all as of the date of termination; (B) a lump sum cash payment equal to three times the value of the annual credit under the RJR Nabisco. Inc. Flexible Perquisites Program (the "Perquisites Program") to which Executive was entitled immediately prior to such termination or, if higher, to which Executive was entitled immediately prior to the Change of Control, reduced by such credits as would otherwise be applied to the continued benefits under Section 6.1(a)(vi) above; (C) use of the automobile assigned to Executive immediately prior to the Change of Control until the third anniversary of the date of termination and, at the end of such period, the transfer of.ownership of such automobile to Executive plus such amount in cash that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed in connection with such transfer; (D) in addition to and upon the expiration of the benefits provided pursuant to Section 6.1(a) (vi) above, MedChoice Retiree Medical benefits as may be in effect at the time of such expiration for other retirees and as amended from time to time thereafter at the minimum level of Company subsidy or, if greater, the subsidy level based on all his years of service (actual and imputed) credited for purposes of the Benefit; and 17 (E) if the Company fails to provide any of the benefits under Section 6.1(a) (vi) or Section 6.1(a) (xi) (D) above, reimbursement for the actual cost of Executive's obtaining comparable benefits within 15 business days after the date Executive gives the Company written notice that he incurred such costs plus such additional amount that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum applicable marginal rates, is equal to all such taxes, so computed, imposed with respect to such reimbursement. (b) For purposes of this Agreement, "Good Reason" shall mean any of the following (without Executive's express prior written consent): (i) (A) The assignment to Executive of duties materially inconsistent with Executive's position (including duties, responsibilities, status, titles or offices as set forth in Section 1 hereof); (B) any elimination or reduction of Executive's duties or responsibilities as set forth in Section 1; or (C) any removal of Executive from or any failure to elect or reelect Executive to the position of Chief Executive Officer of Holdings and the Company (including the failure to elect Executive to the position of Chief Executive Officer of the ultimate controlling entity in connection with any merger, acquisition or other extraordinary corporate transaction that includes Holdings or the Company), except in connection with the termination of Executive's employment for Cause, Permanent Disability (as hereinafter defined) or as a result of Executive's death or by Executive other than for Good Reason; (ii) A reduction in Executive's Base Salary or annual target bonus opportunity from the level required hereunder at the time in question, as the same may be increased from time to time during the term or pursuant to the terms of this Agreement; (iii) The failure by the Company or Holdings to obtain the specific assumption of this Agreement by any successor or assign of Holdings or the Company or any person acquiring substantially all of the Company's or Holdings' assets; 18 (iv) Any material breach by the Company or Holdings of any provision of this Agreement or any agreements entered into pursuant thereto; (v) Requiring Executive to be based at any office or location other than that described in Section 1 above, except for travel reasonably required in the performance of the Executive's responsibilities, or (vi) During the twenty-four month period following a Change of Control, (A) the failure to continue in effect any compensation plan in which Executive participates at the time of the Change of Control, including but not limited to the LTIP, the AIAP, the Perquisites Program, or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of his participation relative to other participants, as existed at the time of the Change of Control; or (B) the failure to continue to provide Executive with benefits at least as favorable in the aggregate as those enjoyed by him under any of the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change of Control, the taking of any action which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by him at the time of the Change of Control, or the failure to provide him with the number of paid vacation days to which he was entitled on the basis of the Company's practice with respect to him as in effect at the time of the Change of Control. (c) (i) Anything in this Agreement to the contrary notwithstanding, in the event that it is determined that any payment or distribution by Holdings 19 or the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, other than any payment pursuant to this Section 6.1(c), (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive from Holdings or the Company, within 15 days following the determination described in Section 6.1 (c)(ii) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by Executive of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, Executive retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (ii) All determinations required to be made under this Section 6.1(c), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by Ernst & 20 Young, Winston-Salem, North Carolina, or such other national accounting firm as the Company or Holdings may designate prior to a Change of Control, which shall provide detailed supporting calculations to the Company and the Executive within 15 business days of the date of termination of Executive's employment. Except as hereinafter provided, any determination by Ernst & Young, Winston-Salem, North Carolina, or such other national accounting firm as the Company or Holdings may designate prior to a Change of Control, shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by Holdings or the Company to or for the benefit of the Executive. In the event that the Executive discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to Holdings or the Company. 21 (d) Except as provided in this Agreement, if Executive is a participant in the LTIP or any other stock award plan of the Company, Holdings, or any of their affiliates and has outstanding awards thereunder, the treatment of such awards shall be governed by the terms of such applicable plans and awards. 6.2 Permanent Disability. The event of the Executive -------------------- becoming eligible for benefits under the Company's Long Term Disability Plan is not a termination under Section 6.1(a) entitling Executive to Compensation Continuance under this Agreement. If, however, Executive becomes eligible for benefits under the Company's Long Term Disability Plan during his Compensation Period, the amount of Compensation Continuance shall be reduced during the Compensation Period by the amount of disability benefits payable to the Executive. All other provisions of this Agreement shall remain in effect notwithstanding the Executive's disability including, without limitation, obligations pursuant to Section 5 hereof, the terms of any applicable plans, including, but not limited to, those described in Sections 3.3, 4.1, 4.2, 4.3 and 4.4 hereof, and all unpaid amounts, as of the date of such disability, in respect of any bonus, including any bonus payable for any fiscal year ending prior to such disability and including any bonus under Section 3.4, and any payment deferred by Executive, 22 together with any applicable interest or other accruals thereon. If the Executive is still disabled upon reaching his Retirement Date under the SERP, he shall be retired under the SERP with an offset for any disability payments made to the Executive after such retirement. 6.3 Death. In the event of Executive's death while actively ----- employed, the Company's and Holdings' obligations under this Agreement shall cease and terminate except with respect to obligations pursuant to Section 5 hereof, the terms of any applicable plans, including, but not limited to, those described in Sections 3.3, 4.1, 4.2, 4.3 and 4.4 hereof, all unpaid amounts, as of the date of death, in respect of any bonus, including any bonus for any fiscal year ending prior to death which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid, and, including any bonus under Section 3.4, and any payment deferred by Executive, together with any applicable interest or other accruals thereon. In the event of Executive's death subsequent to commencement of his Compensation Period hereunder, the balance of Compensation Continuance will be paid to his beneficiary in a lump sum. "Beneficiary" shall mean the Executive's designated beneficiary under his Executive Program life insurance. Any survivor benefit shall be paid in accordance with the SERP. 23 6.4 Voluntary Resignation; Discharge for Cause. If Executive ------------------------------------------ resigns voluntarily, other than for Good Reason or Permanent Disability, or the Company and Holdings terminate the employment of Executive for Cause, the Company's and Holdings' obligations under this Agreement to make any further payments to Executive shall thereupon cease and terminate except with respect to accrued and nonforfeitable obligations pursuant to Section 5 hereof, the terms of any applicable plans, including those described in Sections 3.3, 4.1, and 4.3 hereof all unpaid amounts, as of the date of such termination, in respect of any bonus, including any bonus for any fiscal year ending prior to such termination which would have been payable had Executive remained in employment until the date such bonus would otherwise have been paid and including any bonus under Section 3.4, and any payment deferred by Executive, together with any applicable interest or other accruals thereon. The term "Cause" shall be limited to (a) action by Executive involving willful malfeasance in connection with his employment having a material adverse effect on Holdings or the Company, (b) any action by Executive involving willful gross misconduct having a material adverse effect on Holdings or the Company (other than an effect that could not reasonably constitute grounds for dismissal under the circumstances), (c) substantial and continuing willful refusal by Executive in breach of this Agreement to perform the duties ordinarily performed by an 24 Executive occupying his positions, which refusal has a material adverse effect on Holdings or the Company or (d) Executive being convicted of (i) a felony under the laws of the United States or any state or (ii) a felony under the laws of any other country or political subdivision thereof involving moral turpitude; provided that no action or refusal to perform shall be deemed willful if done in the reasonable belief that such action or refusal was in the best interests of the Company or Holdings. Termination of Executive pursuant to this Section 6.4 shall be communicated by a Notice of Termination given within one year after the Holdings Board both (i) had knowledge of conduct or an event allegedly constituting Cause and (ii) had reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of-not less than three-quarters of the entire membership of Holdings Board at a meeting of the Holdings Board called and held for the purposes (after reasonable notice to the Executive ("Preliminary Notice") and reasonable opportunity for Executive, together with the Executive's counsel, to be heard before the Holdings Board prior to such vote), finding that, in the good faith opinion of the Holdings Board, Executive was guilty of conduct set forth in the second sentence of this Section 6.4 and specifying the particulars 25 thereof in detail. Upon the receipt of the Preliminary Notice, Executive shall have 14 days in which to appear with counsel or take such other action as he desires on his behalf, and such 14-day period is hereby agreed to by the parties as a reasonable opportunity for Executive to be heard. The Holdings Board shall no later than 30 days after the receipt of the Preliminary Notice by Executive communicate its findings to Executive. A failure by the Holdings Board to make its findings of Cause or to communicate its conclusions within such 30-day period shall be deemed to be a finding that Executive was not guilty of the conduct described in the second sentence of this Section 6.4. Where the Holdings Board has made such findings that, based upon conduct described in clause (a), (b) or (c) above, Cause exists the Executive shall have 30 days in which to cure such conduct, to the extent such cure is possible. Any termination of Executive's employment (other than by death or Permanent Disability) within 30 days after the date that the Preliminary Notice has been given to Executive shall be deemed to be a termination for Cause; provided, however, that if during such period Executive voluntarily terminates other than for Good Reason or the Company terminates Executive other than for Cause, and either (A) Executive cured his conduct, as permitted in the preceding sentence of this Section 6.4, or (B) Executive is found (or is deemed to be found) not guilty of the conduct described in the second 26 sentence of this Section 6.4, such termination shall not be deemed to be for Cause. 7. Stock Arrangements. Except as otherwise provided in ------------------ Section 3.4, Section 6 and Section 13, awards under the LTIP shall be governed by the provisions of the individual grant agreements made under the LTIP. 8. Expenses. The Executive is authorized to incur reasonable -------- expense in carrying out his duties and responsibilities under this Agreement, including expenses for travel and similar items related to such duties and responsibilities. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of an itemized account of such expenditures. 9. No Obligation to Mitigate Damages. The Executive shall --------------------------------- not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise nor will (a) any payments hereunder be subject to offset in respect of any claims which the Company may have against Executive or (b) except as provided in Section 6.1(a)(vi), the amount of any payment or benefit provided for in Section 6 be reduced by any compensation earned as a result of Executive's employment with another employer. 10. Notices. All notices or communications hereunder shall ------- be in writing, addressed as follows: 27 To the Company or Holdings: Mr. Gerald I. Angowitz c/o RJR Nabisco Holdings Corp. 1301 Avenue of the Americas New York, New York 10019 To the Executive: Mr. Steven F. Goldstone 205 Silver Spring Road Ridgefield, CT 06877 Any such notice or communication shall be sent certified or registered mail,return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in a notice duly delivered as described above), and the actual date of mailing shall determine the time at which notice was given. 11. Separability; Legal Fees; Arbitration. If any provision ------------------------------------- of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. In addition, the Company shall reimburse Executive for reasonable legal fees incurred in connection with entering into this Agreement and shall also pay to Executive as incurred all legal and accounting fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement or any other compensation-related plan, agreement or arrangement of the Company, unless 28 Executive's claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. Any good faith controversy or claim arising out of or relating to this Agreement or the breach of this Agreement (other than Section 14 hereof) that cannot be resolved by Executive and the Company, including any dispute as to the calculation of Executive's benefits or any payments hereunder shall be submitted to arbitration in New York City in accordance with New York law and the procedures of the American Arbitration Association. The determination of the arbitrator(s) shall be conclusive and binding on the Company and Executive and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction. 12. Assignment. This contract shall be binding upon and ---------- inure to the benefit of the heirs and representatives of Executive and the assigns and successors of Holdings and the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession) or by Holdings or the Company, except that Holdings or the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Holdings or the Company. 29 13. Amendment/Termination. --------------------- (a) The Agreement may only be amended at any time by mutual written agreement of the parties hereto. (b) Company and Holdings represent and warrant they will make appropriate adjustments and amendments to the numben of shares subject to, and the exercise price of, options to purchase Holdings common stock granted under the LTIP ("Options") (including, in the event of a spinoff or distribution of assets or stock of Holdings or an affiliated entity, substituting or replacing the shares issuable upon the exercise of Options) should extraordinary events or transactions occur involving the Company, Holdings, or an affiliated corporation. 14. Nondisclosure of Confidential Information; ------------------------------------------ Non-Competition. --------------- (a) Executive shall not, without the prior written consent of Holdings or the Company, divulge, disclose or make accessible to any other person, firm, partnership or corporation or other entity any Confidential Information pertaining to the business of Holdings or the Company except (i) while employed by Holdings or the Company in the business of and for the benefit of Holdings or the Company or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of Holdings or the Company, or by any 30 administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. For purposes of this Section 14(a), "Confidential Information" shall mean non-public information concerning Holdings' or the Company's financial data, strategic business plans, product development (or other proprietary product data), customer lists, marketing plans and other proprietary information, except for specific items which have become publicly available information or otherwise known to the public other than through a breach by Executive of his fiduciary duty or any confidentiality agreement, or information known to the Executive prior to the date of this Agreement. Confidential Information does not include information the disclosure of which cannot reasonably be expected to adversely affect the business of Holdings or the Company. (b) During the period commencing on the date hereof and ending (i) in the case of a termination described in Section 6.1 hereof, three years after the date of termination and (ii) in case of a termination described in Section 6.4 hereof, two years after the date of termination, Executive covenants and agrees that he will not be an executive officer, board member, owner, partner, consultant or employee of a food or tobacco company with annual revenues 31 over $1 billion, if such food or tobacco company is engaged in a "major business" of Holdings or the Company. A "major business" for this purpose is each major business segment of the Company and its subsidiaries on the date hereof that produces products constituting over 5% of the annual revenues of Holdings and its subsidiaries. For purposes of this Section 14, Executive shall be deemed not a shareholder of a company that would otherwise be a competing entity if Executive's record and beneficial ownership of the capital stock of such company amount to not more than one percent of the outstanding capital stock of any such company subject to the periodic and other reporting requirements of Section 13 or Section 15(d) or the Securities Exchange Act of 1934, as amended. Executive, Holdings, and Company agree this covenant not to compete is a reasonable covenant under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction, such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so amended. (c) Executive agrees that any breach of the covenants contained in this Section 14 would irreparably injure Holdings and the Company. Accordingly, Holdings or 32 the Company may, in addition to pursuing any other remedies they may have in law or in equity, obtain an injunction against Executive from any court having jurisdiction over the matter; restraining any further violation of this Agreement by Executive. 15. Beneficiaries/References. Executive shall be entitled to select ------------------------ (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice hereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. Any reference to the masculine gender in this Agreement shall include, where appropriate, the feminine. 16. Survivorship. The respective rights and obligations of the ------------ parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this Section are in addition to the survivorship provisions of any other section of this Agreement. 33 17. Representations and Warranties. Holdings and the Company each ------------------------------ represent and warrant that (a), respectively, they are fully authorized and empowered to enter into this Agreement, (b) the execution of this Agreement and the performance of their respective obligations under this Agreement will not violate or result in a breach of the terms of any material agreement to which Holdings and/or the Company is a party or by which it is bound, (c) no approval by any governmental authority or body is required for them to enter into this Agreement or perform their obligations hereunder, and (d) this Agreement is valid, binding and enforceable against Holdings and the Company in accordance with its terms, except to the extent affected or limited by applicable bankruptcy laws or other statutes governing the rights of creditors and any regulations or interpretations thereof. Executive represents and warrants that his execution of this Agreement and his performance of his duties and responsibilities under this Agreement will not violate or result in a breach of the terms of any material agreement to which he is a party or by which he is bound. 18. Governing Law. This Agreement shall be construed, interpreted, ------------- and governed in accordance with laws of New York, without reference to rules relating to conflicts of law. 34 19. Withholding. The Company and Holdings shall be entitled to ----------- withhold for payment any amount of withholding required by law. 20. Interest on Late Payments. To the extent that any payments ------------------------- required to be made hereunder upon or following a Change of Control are not made within the period specified therefor, the Company and Holdings shall be liable for interest on such delayed payments at the rate of 150% of the prime rate compounded monthly, as posted by the Morgan Guaranty Trust Company of New York from time to time. 21. Actuarial Calculations. All required actuarial calculations of ---------------------- payments to be made hereunder and of annuities to be purchased pursuant to Section 5 hereof shall be made by Watson Wyatt Worldwide, New York, New York, or such other national actuarial firm as the Company or Holdings may designate prior to a Change of Control. 22. Funding. Except as otherwise provided herein, all benefits ------- hereunder are unfunded and will be paid out of the general assets of the Company or Holdings. Notwithstanding the foregoing, the Company or Holdings may choose to maintain a rabbi trust or other trusts for the purpose of paying certain of the benefits hereunder or under other plans and programs of the Company or Holdings and, if so, Executive shall be entitled to payments therefrom, if any, as and to the extent provided in such rabbi trust or other trusts. 35 23. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which will be deemed an original. RJR NABISCO HOLDINGS CORP. By: /s/ Charles M. Harper ------------------------------ Chairman RJR NABICO, INC. By: /s/ Charles M. Harper ------------------------------- Chairman By: /s/ Steven F. Goldstone ------------------------------- STEVEN F. GOLDSTONE 36 EXHIBIT "A" AIAP Vested Amount means, as of a Change of Control or as of the ------------------ date Executive's employment terminates, as the case may be, an amount equal to (a) in the case of any bonus opportunity under the AIAP, the value of Executive's target award under the AIAP for the relevant period in which such Change of Control or such termination occurs, as the case may be, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending on the Change of Control or such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change in Control in the year in which such Change of Control occurs, for purposes of computing the AIAP Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target award shall be that in effect immediately preceding such Change of Control, or (b) in the case of any annual bonus opportunity in the form of Performance Units, the PU Vested Amount as of the date of such termination. Board means the Board of Directors of the Company. ----- Boards means, collectively, the Board and the Holdings Board. ------ Change of Control means the first to occur of the following ----------------- events provided such event occurs prior to October 11, 1996 or such later date as the Boards may specify from time to time: (a) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14 (d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plan(s) sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (b) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Holdings' shareholders, was approved by a vote of at least three- quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee of Holdings for director), but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Holdings Board, shall be, for purposes of this paragraph (b), considered as though such person were a member of the Incumbent Board; (c) the approval by the shareholders of Holdings of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in 2 the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (c) occurs, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of the Program. Holdings Board means the Board of Directors of Holdings. -------------- PS Vested Amount means with respect to any award of Performance ---------------- Shares (as defined in the LTIP) Executive holds as of a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the adjusted value of (i) the number of Performance Shares subject to such award, multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of such Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period, (ii) adjusted by applying target performance with respect to such award; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PS Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such 3 Change of Control and target performance with respect to such Performance Shares shall be that in effect immediately preceding the Change of Control. PU Vested Amount means, for any award of Performance Units (as ---------------- defined in the LTIP) Executive holds as of a Change of Control or as of the date Executive's employment terminates, as the case may be, an amount equal to the target value of the number of Performance Units subject to such award multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PU Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following such Change of Control and the target value of such Performance Units shall be that in effect immediately preceding the Change of Control. 4 EX-10.41 19 Exhibit 10.41 RN Option R 1995 Post Split RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT ------------------------ DATE OF GRANT: DECEMBER 5, 1995 ---------------- W I T N E S S E T H: 1. Grant of Option. Pursuant to the provisions of the RJR Nabisco --------------- Holdings Corp. 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to STEVEN F. GOLDSTONE (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of 200,000 shares of Common Stock of the Company, at the exercise price of $30.25 per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. Optionee's grant is conditioned upon the acquisition of $500,002.25 worth of Purchase Stock at the composite closing price on the Date of Grant of the Option, and the Grant shall be revoked if Optionee has not acquired said Purchase Stock within 10 days of the Date of Grant. 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) This Option shall be exercisable in three installments. The first installment shall be exercisable on the 5th of December following Date of Grant for 33% of the number of shares of Common Stock subject to this option. Thereafter, on each subsequent December 5th an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercised prior to six months after the Date of Grant. 2 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 specifically states that the Option shall become fully exercisable as to all Shares. (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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 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). 3 7. Adjustments in Option. In the event that the outstanding shares of --------------------- the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 8. Application of Laws. The granting and the exercise of this Option ------------------- and the obligations of the Company to sell and deliver shares hereunder 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" only as such term is defined in his Employment Agreement by and among the Optionee, RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. as amended and restated from time to time. 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 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. 4 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 /s/ ------------------------ Authorized Signatory /s/ Steven F. Goldstone - ----------------------------- Optionee Optionee's Taxpayer Identification Number: ###-##-#### - ---------------------- Optionee's Home Address: 205 Silver Spring Road - ---------------------------- Ridgefield, CT 06877 - ---------------------------- - ---------------------------- 5 EX-10.42 20 Exhibit 10.42 Contingent Performance Shares 1995 RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN CONTINGENT PERFORMANCE SHARE AGREEMENT DATE OF GRANT: DECEMBER 5, 1995 ---------------- W I T N E S S E T H: 1. Grant. Pursuant to the provisions of the RJR Nabisco Holdings Corp. ----- 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to STEVEN F. GOLDSTONE (the "Grantee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, a total of 200,000 Contingent Performance Shares. A copy of the Plan is attached and made a part of this agreement with the same effect as if set forth in the Agreement itself. The initial grant value of each Contingent Performance Share shall be the composite closing price of the Common Stock of the Company on the Date of Grant. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Performance Objective. For the three-year performance period --------------------- commencing on December 31, 1995 and ending December 31, 1998 (the "Performance Period"), the Committee has determined that the Performance Objective shall be the following: the average composite closing price of Common Stock of the Company must equal or exceed $43.75 for any period of 30 consecutive calendar days during the Performance Period as reported in the Wall Street Journal for days that Common Stock of the Company is traded on the New York Stock Exchange. In the event that the Common Stock of the Company is reduced in value as the result of the spin-off of a subsidiary ("Spin-off Company"), the Performance Objective shall be the following: the combined average composite closing price of the Common Stock of the Company and the Spin-off Company must equal or exceed $43.75 for any period of 30 consecutive calendar days during the Performance Period as reported in the Wall Street Journal for days that the Common Stock of the Company and the Spin-off Company are traded on the New York Stock Exchange. 3. Vesting and Payment of Contingent Performance Shares. Should the ---------------------------------------------------- Performance Objective be achieved during the Performance Period either before or after a Change of Control (as defined in the Plan), the Contingent Performance Shares shall vest completely and shall be payable to Grantee, if he is still actively employed on December 31, 1998, as soon as practicable after December 31, 1998. Notwithstanding the foregoing should the Performance Objective be achieved during the Performance Period either before or after a Change of Control and during such Performance Period Grantee terminates for Good Reason or is terminated by the Company without Cause, the Performance Shares shall vest completely and shall be payable at the later of (i) the achievement of the Performance Objective or (ii) such qualifying termination. Unless otherwise determined by the Committee, Contingent Performance Shares so earned will be paid in Common Stock. Payment value for tax and other calculations shall be based on the composite closing price of Common Stock on the date the Performance Shares become payable. 4. Deferral. Deferral of a payment of Contingent Performance Shares -------- shall be pursuant to the provisions of the Plan; provided, however, deferral for this Grant, unless otherwise determined by the Committee, shall only be by means of a Common Stock credit, and in no event, may a deferred award be paid within six months of the date of deferral. 5. Transferability. Other than as specifically provided in the Plan --------------- with regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee. 6. No Right to Employment. Neither the execution and delivery of this ---------------------- Agreement nor the granting of the Performance Shares evidenced hereby shall constitute any agreement or understanding express or implied, on the part of the Company or its subsidiaries to employ the Grantee for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Grantee'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. In the event that the --------------------------------------------- outstanding share of the Common Stock subject to the Contingent Performance Shares 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, reclassified stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Contingent Performance Shares shall be payable, subject to paragraph 2 hereof. Any adjusment made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons. 2 8. 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 Grantee shall be sent to the Grantee's address as shown on the records of the Company. 9. Grantee. In consideration of the grant, the Grantee specifically ------- agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By /s/ ----------------------- Authorized Signatory /s/ Steven F. Goldstone - ------------------------------- GRANTEE Grantee's Taxpayer Identification Number: ###-##-#### - ---------------------------------- Grantee's Home Address: 205 Silver Spring Road - -------------------------------- Ridgefield, CT 06877 - -------------------------------- - -------------------------------- 3 EX-10.43 21 Exhibit 10.43 LTIP-95 Name of Employee: Steven F. Goldstone Principal of Loan: $500,002.25 Loan Date: December 5, 1995 Number of Shares Purchased: 16,529 SECURED PROMISSORY NOTE FOR VALUE RECEIVED, the person named above (the "Employee"), hereby promises to pay to the order of RJR NABISCO HOLDINGS CORP., a Delaware corporation (the "Company"), at its office located at 1301 Avenue of the Americas, New York, New York 10019, or at such other place as the holder may hereafter designate, the respective principal amount of the loan (the "Loan") specified above plus accrued interest on the Repayment Date (as defined below) or on such other dates specified in paragraphs 4 and 5 as the case may be. 1. Interest. -------- Except as otherwise provided in paragraphs 4 and 5, interest shall accrue from and including the loan date specified above (the "Loan Date") at the lower of (i) the applicable Federal rate for long-term loans on the Loan Date determined in accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended, (the "Code") or (ii) 9%, and interest on the unpaid principal amount of the Loan shall be compounded semi-annually but shall not be payable until the Repayment Date or such earlier date on which the Loan is repaid. 2. Stock Purchase; Use of Proceeds. ------------------------------- The Employee hereby represents and convenants that the proceeds of the Loan shall be used exclusively by the Employee to pay for the above specified number of shares (the "Stock") of Common Stock of the Company, to be purchased by the Employee on the Loan Date from the RJR Nabisco Holdings Corp. 1990 Long-Term Incentive Plan. 3. Pledge. ------ (a) In consideration of the principal amount of the Loan loaned to the Employee by the Company, payment of which, less tax amounts retained by the Company pursuant to paragraph 6, is hereby acknowledged, the Employee hereby grants a security interest to the Company in the Stock, duly endorsed in blank and herewith delivered to the Company, together with any other securities (including, without limitation, any notes, bonds, debentures or other indebtedness, any shares of preferred or common stock and any instruments evidencing such indebtedness or shares) or other non- cash property distributed on or with respect to the Stock or such other securities (collectively, the "Distributed Property") and any proceeds from the sale or other disposition of all or any portion of the Stock or the Distributed Property. The Employee agrees that the Company shall hold the Stock and any Distributed -1- Property, which upon receipt by the Employee shall be pledged and delivered to the Company as security for the repayment of the principal amount of and interest on the Loan, and shall not encumber or dispose of the Stock or any Distributed Property except in accordance with the provisions of Paragraph 4 hereof. (b The Employee represents that there are no restrictions upon the transfer of the Stock and that the Company has the right to transfer such Stock free of any other encumbrances and without obtaining the consent of other stockholders. The Employee agrees that the Stock may not be sold, tendered, assigned, transferred, pledged or otherwise encumbered to any person or party other than the Company prior to the repayment of the principal amount of and interest on the Loan. (c) Immediately and without further notice, whenever the Loan becomes immediately due and payable under Paragraph 4 or Paragraph 5, the Company or its nominee shall have, with respect to the Stock and any Distributed Property, the right to exercise all other corporate rights and all conversion, exchange, subscription or other rights, privileges or options pertaining thereto as if it were the absolute owner thereof, including, without limitation, the right to exchange any or all of the Stock and any Distributed Property upon the merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof, or upon the exercise by such issuer of any right, privilege, or option pertaining to any of the Stock and any Distributed Property, and, in connection therewith, to deliver any of the Stock and any Distributed Property to any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it; but the Company shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. (d) Unless the Loan shall have become immediately due and payable, the Employee shall be entitled to receive for his own use cash dividends paid on the Stock. After the Loan becomes due and payable, the Company may require any cash dividends subsequently paid to be delivered to the Company as additional security hereunder or applied toward the satisfaction of the obligations. (e) The Employee shall be the stockholder of record of the Stock and shall have all voting rights as such. (f) If the Company shall be reorganized, or consolidated or merged with another corporation, any stock, securities or other property exchangeable for the Stock pursuant to such reorganization, consolidation or merger shall be deposited with the Company and shall become subject to the restrictions and conditions hereof to the same extent as if it had been the original property pledged hereby. -2- 4. Repayment and When Loan Is Due and Payable. ------------------------------------------ (a) Except as otherwise provided in paragraphs 4(a)(ii) and 5, the Loan shall become due and payable, and the Employee shall repay the principal amount of and interest on the Loan on the date on which proceeds from the sale of Stock are received or the date that is the thirtieth (30th) anniversary of the Loan Date, whichever is earlier (the "Repayment Date"). Except as provided in paragraph 5, until the principal amount of and accrued interest on the Loan are repaid in full, Stock shall only be sold by the Company, acting on behalf of the Employee, on instructions from the Employee, and: (i) if the proceeds from the sale of the Stock are greater than the ------- principal amount of and accrued interest on the Loan, the Company shall remit the difference, less applicable taxes, to the Employee; or (ii) If the proceeds from the first sale of any of the Stock are less ---- than the principal amount of and accrued interest on the Loan, payment of the balance is due, and must be made with interest as determined under subsection (i) or (ii) of Paragraph 1 by the earlier of the thirtieth (30th) anniversary of the Loan Date or the 730th day after such sale of the Stock. If the Employee fails to repay the balance due plus interest by such time, the balance of the principal amount of and accrued interest on the Loan, will be immediately due and payable and will thereafter accrue interest at the highest of 1) 120% of the published applicable Federal rate on the Repayment Date, 2) 120% of the published applicable Federal rate on the 730th day after the sale of the Stock, or 3) the published applicable Federal rate on the Loan Date, which interest shall be compounded semi-annually. (b) In the event of the Employee's termination of employment with the Company, he shall, as of the date of termination, be deemed to have instructed the Company to sell the Stock, pursuant to Paragraph (a) above; provided, however Company shall sell such number of shares of the Stock as the Company believes is necessary to yield proceeds sufficient to pay the principal, accrued interest on the Loan, and related taxes, and shall deliver the balance of the shares of the Stock, if any, plus the balance of the proceeds from the sale of the shares of the Stock, if any, to the Employee or the Employee's estate. If the proceeds of the sale are less than the principal amount of and the accrued interest on the Loan, the obligations of sub-Paragraph 4(a)(ii) shall be the responsibility of the Employee or the Employee's estate. (c) Upon receipt of instructions from the Employee to sell the Stock, the Company shall use its reasonable best efforts to sell such Stock in the market or otherwise as promptly as practicable. Notwithstanding anything to the contrary contained herein, the Employee acknowledges and agrees that the Company shall have no liability with respect to any such sale or purchase or the price obtained in connection therewith and the Employee agrees to indemnify and hold the Company harmless from any claims relating thereto. -3- 5. Default. ------- In the event that the Employee defaults in the performance of any of the terms of this Note, or in the payment when due of the principal of and accrued interest on the Loan, the Company shall have the rights and remedies provided in the Uniform Commercial Code then in force in the State of Delaware and, in this connection, the Company may, upon five days' notice to the Employee, sent by registered mail, and without liability for any diminution in price which may have occurred, sell any Stock and any Distributed Property pledged hereby and not previously sold in such manner and for such price as the Company may determine. At any bona fide public sale the Company shall be free to purchase all or any part of such Stock or Distributed Property. Out of the proceeds of any sale the Company may retain an amount equal to the principal of and accrued interest on the Loan, plus the amount of the expenses of the sale and any taxes due, and shall pay any balance of such proceeds to the Employee. In the event that the proceeds of any sale are insufficient to cover the principal of and accrued interest on the Loan plus the expenses of the sale and any taxes due, the Employee shall remain liable for any deficiency. 6. Taxes. ----- Any taxes of the Employee required to be paid or withheld by the Company by federal, state or local laws in relation to the ownership of the Stock, the grant or sale of the Stock, or the Loan, or otherwise in connection therewith shall be paid to the Company by the Employee, or retained from the proceeds of the Loan by the Company, on the date the Stock is granted. 7. Notices. ------- Any notices required to be given hereunder to the Company shall be addressed to the Treasurer, RJR Nabisco Inc., 1301 Avenue of the Americas, New York, New York, 10019 and any notice required to be given hereunder to the Employee shall be sent to the Employee's address as shown on the records of the Company. 8. No Employment. ------------- Nothing contained herein or in any other agreement entered into by the Company and the Employee contemporaneously with the execution of this Note, (i) obligates the Company or any of its parents or subsidiaries to employ the Employee in any capacity whatsoever or (ii) prohibits or restricts the Company or any of its parents or subsidiaries from terminating the employment, if any, of the Employee at any time or for any reason whatsoever, with or without cause, and the Employee hereby acknowledges and agrees that neither the Company nor any of its parents or subsidiaries has made any representations or promises whatsoever to the Employee concerning the Employee's employment or continued employment by the Company or any of its parents or subsidiaries. The provisions of this Note shall be interpreted independently of any other agreement, understanding or course of dealing between the Employee, on the one hand, and the Company and any of its parents and subsidiaries, on the other. -4- 9. Binding Effect. -------------- The provisions of this Note shall be binding upon and accrue to the benefit of the Employee and the Company and their respective heirs, legal representatives, successors and assigns. 10. Waiver. ------ The Employee and all guarantors and endorsers of this Note severally irrevocably waive diligence, demand, presentment, notice of nonpayment and protest, and assent to extensions of the time of payment, surrender or other indulgence, without notice. Any waiver by the Company of any default under this Note or any other breach by the Employee of any provision of this Note shall be in writing and shall not operate as a waiver of any future default or breach by the Employee. 11. Amendment. --------- This Note may be amended only by a written instrument signed by the Company and the Employee. 12. Applicable Law: Jurisdiction. ---------------------------- The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Note, without reference to rules relating to conflicts of law. Any suit, action or proceeding against the Employee with respect to this Note, or any judgment entered by any court in respect of any hereof, may be brought in any court of competent jurisdiction in the States of Delaware or New York, as the Company may elect in its sole discretion, and the Employee hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. By the execution and delivery of this Note, the Employee appoints The Prentice-Hall Corporation System, Inc., 375 Hudson Street, 11th Floor, New York, New York, 10014, 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 Employee in the manner provided in Paragraph 13 below shall be deemed in every respect effect service of process upon him in any suit, action or proceeding. Nothing herein shall in any way be deemed to limit the ability of the Company to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over the Employee, in such other jurisdictions, and in such manner, as may be permitted by applicable law. The Employee hereby irrevocably waives any objections which he many now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Note brought in any court of competent jurisdiction in the States 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. No suit, action or proceeding against the Company with respect to this Note may be brought in any court, domestic or foreign, or before any similar domestic or -5- foreign authority other than in a court of competent jurisdiction in the States of Delaware or New York, and the Employee hereby irrevocably waives any right which he may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. /s/ --------------------------------- Employee -6- EX-10.44 22 Exhibit 10.44 [RJR NABISCO LETTERHEAD] December 5, 1995 Andrew J. Schindler Dear Andy: In addition to your other contractual arrangements with the Company and its affiliates, in the event of a Change of Control of RJR Nabisco Holdings Corp. (as such Change of Control is defined in the RJR Nabisco Holdings Corp. 1990 Long-Term Incentive Plan), the following shall occur: 1) The Company shall hold you harmless from any golden parachute tax imposed by any federal, state or local taxing authority as a result of any of the payments made from the Company. In the event that it is determined that any payment or distribution by the Company to or for you (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive from the Company an additional payment ("Excise Tax Adjustment Payment") in an Amount such that after payment by you of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, you retain an Amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. You agree to cooperate fully with the Company in any protester appeal by the Company in the event of the imposition of golden parachute tax. 2) If you are terminated without Cause following such Change of Control, the Company shall pay to you as incurred all legal and accounting fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, in seeking to obtain or enforce any right or benefit provided by any compensation-related plan, agreement or arrangement of the Company) unless your claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. 3) During the twenty-four month period following a Change of Control, you shall be entitled to terminate your employment for Good Reason and receive the severance arrangements under your contractual arrangements with the RJR Nabisco, Inc. 1301 Avenue of the Americas New York, New York 10019-6013 (212) 258-5600 Company as if you had been terminated by the Company without Cause. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, any of the following occurring following a Change of Control: (A) A material reduction in your duties, a material diminution in your position or a material adverse change in your reporting relationship from those in effect immediately prior to the Change of Control; (B) A reduction in your pay grade or bonus opportunity as in effect immediately prior to the Change of Control or as the same may thereafter be increased from time to time during the term of this Agreement; (C) The failure to continue in effect any compensation plan in which you participate at the time of the Change of Control, including but not limited to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan ("LTIP") and the RJR Nabisco, Inc. Annual Incentive Award Plan (the "AIAP"), or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing you with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue your participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (D) The taking of any action which would directly or indirectly materially reduce any of the benefits to be provided under the Retirement or Savings Plans of the Company (unless such reduction is required by law) or deprive you of any material fringe benefit enjoyed by you at the time of the Change of Control, or the failure to provide you with the number of paid vacation days to which you are entitled on the basis of the Company's practice with respect to you as in effect at the time of the Change of Control; (E) Any purported termination of your employment which is not effected pursuant to a written notice of termination given to you not less than thirty (30) or more than sixty (60) days prior to the date of termination; provided further that for purposes of this Agreement, no such purported termination shall be effective; (F) Any material breach by Holdings or the Company of any provision of this Agreement or any other of your contractual arrangements with the Company; or -2- (G) Requiring you to be based at any office or location more than 35 miles from the office or location at which you were based immediately prior to such Change of Control, except for travel reasonably required in the performance of your responsibilities. Please indicate your acceptance of the terms of this Agreement by signing this letter below and returning it to Jerry Angowitz. A copy will be provided to you. RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. By: /s/ Steven F. Goldstone ---------------------------- Steven F. Goldstone Chief Executive Officer Agreed: - ----------------------- Andrew J. Schindler - ----------------------- Date -3- EX-10.45 23 Exhibit 10.45 [RJR NABISCO LETTERHEAD] December 28, 1995 Andrew J. Schindler Re: Participation Agreement- RJR Nabisco, Inc. Supplemental Executive Retirement Plan Dear Andy: You have been approved as a Participant in the RJR Nabisco, Inc. Supplemental Executive Retirement Plan ("SERP") as modified by this Participation Agreement. The SERP has been designed to facilitate succession planning at the executive level. Part of this planning process involves establishing in advance a retirement date for Participants on a basis that is mutually agreeable. The SERP provides a total retirement income that will exceed what you would otherwise be entitled to receive at such retirement date solely under the regular pension plan. In consideration of your participation, it is agreed that your Normal Retirement Age under the SERP shall be the first day of the month next following your 60th birthday, unless you become eligible to retire earlier under the SERP (a "Retirement Date") pursuant to the provisions of SERP Sections 3 (Eligibility) and 5 (Early Retirement); provided however, your Normal Retirement Age or other Retirement Date shall in any event not occur until the end of any period of Compensation Continuance under your Employment Agreement. In the event of a Change of Control (as defined in the RJR Nabisco Holdings Corp. Long-Term Incentive Plan), your benefit will be funded in a Rabbi Trust. At the earlier of (i) your Normal Retirement Age or (ii) other Retirement Date, an annuity shall be purchased from the Rabbi Trust and delivered to you. Please affirm your agreement to the terms of this letter by signing and returning to Jerry Angowitz the attached copy of this letter. Very truly yours, RJR NABISCO, INC. By: /s/ -------------------- Chief Executive Officer Agreed: /s/ Andrew J. Schindler - ------------------------- Andrew J. Schindler EX-10.46.(A) 24 Exhibit 10.46(a) [RJR NABISCO LETTERHEAD] July 26, 1995 Mr. James W. Johnston R. J. Reynolds Tobacco Company 401 North Main Street Winston-Salem, NC 27102 Re: Amended and Restated Employment Agreement Effective as of September 1, 1993 by and among R.J. Reynolds Tobacco Company (the "Company"), R.J. Reynolds Tobacco International, Inc. ("International"), RJR Nabisco Holdings Corp. ("Holdings"), RJR Nabisco, Inc. ("RJR") (the foregoing corporations being jointly, severally and collectively referred to as "Nabisco") and James W. Johnston ("Executive") Dear Jim: Reference is made to the above captioned agreement ("Agreement"). Nabisco acknowledges that it has advised you (the "Executive" under the Agreement) that it intends to appoint a new CEO of the Company while retaining Executive as Non-Executive Chairman of its worldwide tobacco operations with International reporting directly to Executive but with the domestic tobacco operations reporting to a new CEO of the Company. Executive would become Vice Chairman of RJR and of Holdings. Nabisco acknowledges that such reordering of Executive's responsibilities would constitute "Good Reason" for Executive to terminate his employment under the Agreement pursuant to Sections 6.1(d)(i), (vi) and (vii) thereof. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In order to induce Executive not to terminate the Agreement forthwith, Nabisco agrees as follows: Notwithstanding anything to the contrary contained in the Agreement and without prejudice to Executive's other rights and options under the Agreement, termination of Executive's employment under the Agreement by Executive or Nabisco for any reason at any time prior to March 31, 1996 shall be treated for all purposes under the Agreement, and under any plan, entitlement, option, incentive, or benefit, including, without limitation under SERP or LTIP, as a termination by Executive of his employment under the Mr. James W. Johnston July 26, 1995 Page 2 Agreement for Good Reason. After March 31, 1996 the reordering of responsibilities as described above shall not constitute "Good Reason" for Executive to terminate his employment under Section 6.1(d)(i), (vi) and (vii) of the Agreement; provided, however, this waiver shall not be deemed a waiver of or an estoppel to his right to terminate for any other reason constituting Good Reason, including, without limitation, as a result of a change in Executive's responsibilities constituting Good Reason under the Agreement other than as described in the introductory paragraph hereof. If the foregoing accurately reflects our agreement, please acknowledge same beneath the words "Accepted and Agreed to" at the foot hereof whereupon this will constitute a binding agreement between us amending the Agreement as herein specifically set forth. In all other respects the Agreement is hereby ratified and affirmed. R.J. Reynolds Tobacco Company By: ---------------------------- Assistant Secretary R.J. Reynolds Tobacco International, Inc. By: ----------------------------- Assistant Secretary RJR Nabisco Holdings Corp. By: ----------------------------- Chairman and Chief Executive Officer RJR Nabisco, Inc. By: ----------------------------- Chairman and Chief Executive Officer Accepted and Agreed to: By: /s/ James W. Johnston ------------------------- James W. Johnston EX-10.46.(B) 25 Exhibit 10.46(b) [RJR NABISCO LETTERHEAD] December 21, 1995 Mr. James W. Johnston, Chairman R. J. Reynolds Tobacco Company 401 North Main Street Winston-Salem, NC 27102 Re: 1) Amended and Restated Employment Agreement Effective as of September 1, 1993 by and among R.J. Reynolds Tobacco Company (the "Company"), R.J. Reynolds Tobacco International, Inc. ("International"), RJR Nabisco Holdings Corp. ("Holdings"), RJR Nabisco, Inc. ("RJR") (the foregoing corporations being jointly, severally and collectively referred to as "Nabisco") and James W. Johnston ("Executive") 2) Letter Agreement dated July 26, 1995 between the above- captioned parties. Dear Jim: Reference is made to the above captioned agreement dated September 1, 1993 ("Agreement") and the letter agreement dated July 26, 1995 (Letter Agreement"). In the Letter Agreement, Nabisco acknowledged to you (the "Executive") that certain actions it was taking at that time could constitute Good Reason for Executive to terminate his employment under the Agreement pursuant to Sections 6.1(d)(i), (vi) and (vii) thereof. All capitalized terms not defined herein shall have the meanings ascribed to them in the Agreement. Nabisco desires to extend the period described in the Letter Agreement in addition to other inducements to Executive not to terminate the Agreement prior to December 31, 1995, and therefore, Nabisco agrees as follows: Notwithstanding anything to the contrary contained in the Agreement and the Letter Agreement and without prejudice to Executive's other rights and options under the Agreement and the Letter Agreement, termination of Executive's employment under the Agreement and the Letter Agreement by Executive or Nabisco for any reason at any time prior to May 15, 1996 shall be treated for all purposes under the Agreement, and under any plan, entitlement, option, incentive or benefit, including, without limitation, under SERP or LTIP, as a termination by Executive of his employment under the Agreement for Good Reason. After May 15, 1996 the reordering of responsibilities as described in the Letter Agreement dated July 26, 1995 shall not constitute "Good Reason" for Executive to terminate his employment under Sections 6.1(d)(i), (vi) and (vii) of the Agreement; Mr. James W. Johnston December 21, 1995 Page 2 provided, however, this waiver shall not be deemed a waiver of or an estoppel to his right to terminate for any other reason constituting Good Reason, including, without limitation, as a result of a change in Executive's responsibilities constituting Good Reason under the Agreement other than as described in the introductory paragraph of the Letter Agreement. Notwithstanding anything to the contrary contained in the Agreement and the Letter Agreement, in connection with the above referenced termination, for SERP benefit calculations, if a termination occurs on or before May 15, 1996 the amount of Average Final Compensation (as defined in the SERP) shall include, from the AIAP element of Average Final Compensation, actual performance for AIAP Plan year 1994 and target performance for both AIAP Plan years 1995 and 1996. If the foregoing accurately reflects our agreement, please acknowledge same beneath the words "Accepted and Agreed to" at the foot hereof whereupon this will constitute a binding agreement between us amending the Agreement and the Letter Agreement as herein specifically set forth. In all other respects the Agreement and the Letter Agreement is hereby ratified and affirmed. R.J. Reynolds Tobacco Company By: ---------------------------- Assistant Secretary R.J. Reynolds Tobacco International, Inc. By: ----------------------------- Assistant Secretary RJR Nabisco Holdings Corp. By: ----------------------------- Chief Executive Officer RJR Nabisco, Inc. By: ----------------------------- Chief Executive Officer Accepted and Agreed to: By: /s/ James W. Johnston -------------------------- James W. Johnston EX-10.75 26 Exhibit 10.75 Amendment To Non-Qualified Stock Option Agreements dated prior to October 11, 1995 All the Stock Option Agreements issued to the undersigned Executive pursuant to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (the "LTIP") and, if applicable, the Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. are, except to the extent provided by the Committee with respect to a Change of Control (as defined in the LTIP) occurring after October 11, 1996 or such later date as the Committee may from time to time designate by resolution, amended as of October 11, 1995 by adding the following to any section dealing with the adjustment of options in the event of a corporate transaction: If, and only if, a Change of Control occurs after April 11, 1996 the Optionee shall receive in cash in respect of each option and in exchange for the cancellation of such option, the higher of(i) or (ii) where (i) is the excess, if any, of the Fair Market Value (as defined in Paragraph 2(i) of the LTIP) over the option price of such option multiplied by the number of Shares (as defined in Paragraph 2 (f) of the LTIP) subject to such option and (ii) is the value of such option using the Black-Scholes method of valuing such option based on the following assumptions: Fair Market Value (as so defined in the LTIP), a risk free factor equal to the average rate for zero coupon United States government issues with a remaining term equal to the expected term of the option, a dividend yield calculated by dividing the annual dividend by the Fair Market Value, and volatility of 35.6% (the 4-1/2 year weighted average volatility of the Shares). RJR NABISCO HOLDINGS CORP. By: /s/ ----------------------- Authorized Signatory - --------------------------- Andrew J. Schindler Dated: October 11, 1995 EX-10.76 27 Exhibit 10.76 PLAN DOCUMENT ------------- RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN (As Amended and Restated effective December 5, 1995) 1. Purpose of Plan --------------- The RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (the "Plan") is designed: (a) to promote the long term financial interests and growth of RJR Nabisco Holdings Corp. and subsidiaries (the "Corporation") by attracting and retaining management personnel with the training, experience and ability to enable them to make a substantial contribution to the success of the Corporation's business; (b) to motivate management personnel by means of growth-related incentives to achieve long range goals; and (c) to further the identity of interests of participants with those of the stockholders of the Corporation through opportunities for increased stock, or stock-based, ownership in the Corporation. 2. Definitions ----------- As used in the Plan, the following words shall have the following meanings: (a) "RJRN" means RJR Nabisco Holdings Corp.; (b) "Grant" means an award made to a Participant pursuant to the Plan and described in Paragraph 5, including, without limitation, an award of an Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend Equivalent Right, Restricted Stock, Purchase Stock, Performance Units, Performance Shares or Other Stock-Based Grant, or any combination of the foregoing; (c) "Grant Agreement" means an agreement between RJRN and a Participant that sets forth the terms, conditions and limitations applicable to a Grant; -1- (d) "Board of Directors" means the Board of Directors of RJRN; (e) "Committee" means the Compensation Committee of the Board of Directors; (f) "Common Stock" or "Share" means common stock of RJRN which may be authorized but unissued, or issued and reacquired; (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended; (h) "Key Employee" means a person, including an officer, in the regular full-time employment of RJRN or one of its Subsidiaries who, in the opinion of the Committee, is, or is expected, to be primarily responsible for the management, growth or protection of some part or all of the business of the Corporation; (i) "Fair Market Value" means such value of a Share as reported for stock exchange transactions and/or determined in accordance with any applicable resolutions or regulations of the Committee in effect at the relevant time; (j) "Participant" means a Key Employee, or other person having a unique relationship with RJRN or one of its Subsidiaries, to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan; provided, however, a non-employee director of RJRN or one of its Subsidiaries may not be a Participant; (k) "Subsidiary" means any corporation other than RJRN in an unbroken chain of corporations beginning with RJRN if each of the corporations other than the last corporation in the unbroken chain owns 50% or more of the voting stock in one of the other corporations in such chain. 3. Administration of Plan ---------------------- (a) The Plan shall be administered by the Committee. None of the members of the Committee shall be eligible to be selected for Grants under the Plan, or have been so eligible for selection within one year prior thereto; provided, however, that the members of the Committee shall qualify to administer the Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section 16(b) of the Exchange Act. The Committee may adopt its own rules of procedure, and the action of a majority of the Committee, taken at a meeting or taken without a meeting by a writing signed by such majority, shall constitute action by the Committee. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it -2- out and to make changes in such rules. Any such interpretations, rules, and administration shall be consistent with the basic purposes of the Plan. (b) The Committee may delegate to the Chief Executive Officer and to other senior officers of the Corporation its duties under the Plan subject to such conditions and limitations as the Committee shall prescribe except that only the Committee may designate and make Grants to Participants who are subject to Section 16 of the Exchange Act. (c) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, RJRN, and the officers and directors of RJRN shall be entitled to rely upon the advise, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Participants, RJRN and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee shall be fully protected by RJRN with respect to any such action, determination or interpretation. 4. Eligibility ----------- The Committee may from time to time make Grants under the Plan to such Key Employees, or other persons having a unique relationship with RJRN or any of its Subsidiaries, and in such form and having such terms, conditions and limitations as the Committee may determine. No Grants may be made under this Plan to non-employee directors of RJRN or any of its Subsidiaries. Grants may be granted singly, in combination or in tandem. The terms, conditions and limitations of each Grant under the Plan shall be set forth in a Grant Agreement, in a form approved by the Committee, consistent, however, with the terms of the Plan; provided, however, such Grant Agreement shall contain provisions dealing with the treatment of Grants in the event of the termination, death or disability of a Participant, and may also include provisions concerning the treatment of Grants in the event of a change of control of RJRN. 5. Grants ------ From time to time, the Committee will determine the forms and amounts of Grants for Participants. Such Grants may take the following forms in the Committee's sole discretion: (a) Incentive Stock Options - These are stock options within the ----------------------- meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to purchase -3- Common Stock. In addition to other restrictions contained in the Plan, an option granted under this Section 5(a), (i) may not be exercised more than 10 years after the date it is granted, (ii) may not have an option price less than the Fair Market Value of Common Stock on the date the option is granted, (iii) must otherwise comply with Code Section 422, and (iv) must be designated as an "Incentive Stock Option" by the Committee. The maximum aggregate Fair Market Value of Common Stock (determined at the time of each Grant) with respect to which any Participant may first exercise Incentive Stock Options under this Plan and any Incentive Stock Options granted to the Participant for such year under any plans of RJRN or any Subsidiary in any calendar year is $100,000. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan, the Grant Agreement, and of any applicable guidelines of the Committee in effect at the time. (b) Other Stock Options - These are options to purchase Common Stock ------------------- which are not designated by the Committee as "Incentive Stock Options". At the time of the Grant the Committee shall determine, and shall have contained in the Grant Agreement or other Plan rules, the option exercise period, the option price, and such other conditions or restrictions on the grant or exercise of the option as the Committee deems appropriate, which may include the requirement that the grant of options is predicated on the acquisition of Purchase Shares under Section 5(e) by the Optionee. In addition to other restrictions contained in the Plan, an option granted under this Section 5(b), (i) may not be exercised more than 15 years after the date it is granted, (ii) may not have an option exercise price less than 50% of the Fair Market Value of Common Stock on the date the option is granted, and (iii) may not be exercisable within 6 months of the date of Grant except in the event of death or disability of a Participant. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan and of any applicable guidelines of the Committee in effect at the time. Payment of the option price may also be made by tender of an amount equal to the full exercise price which has been borrowed from RJRN or one of its Subsidiaries if the Participant also authorizes the concurrent sale of the exercised Common Stock by a broker (through an arrangement established by RJRN, or one of its Subsidiaries, for Participants) and repays the borrowing, all in accordance with any applicable guidelines of the Committee. Notwithstanding the foregoing, the date that any holder of a stock option granted hereunder without related Stock Appreciation Rights becomes subject to the provisions of Section 16(b) of the Exchange Act, such individual's right to exercise such option pursuant to the preceding sentence may be converted into a Stock Appreciation Right having a base value equal to the exercise price of such option and exercisable during the same period as such option, except as provided by law and subject to any applicable guidelines of the Committee. To the extent any such Stock Appreciation Right is subsequently exercised, the related option will be cancelled. -4- (c) Stock Appreciation Rights - These are rights that on exercise ------------------------- entitle the holder to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value on the date of Grant (the "base value") multiplied by (iii) the number of rights exercised in cash, stock or a combination thereof as determined by the Committee. Stock Appreciation Rights granted under the Plan may, but need not be, granted in conjunction with an option under Paragraphs 5(a) or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may impose such conditions or restrictions on the exercise of Stock Appreciation Rights as it deems appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights any time. No Stock Appreciation Right granted under this Plan may be exercised less than 6 months or more than 15 years after the date it is granted except in the event of death or disability of a Participant. To the extent that any Stock Appreciation Right that shall have become exercisable, but shall not have been exercised or cancelled or, by reason of any termination of employment, shall have become non-exercisable, it shall be deemed to have been exercised automatically, without any notice of exercise, on the last day of which it is exercisable, provided that any conditions or limitations on its exercise are satisfied (other than (i) notice of exercise and (ii) exercise or election to exercise during the period prescribed) and the Stock Appreciation Right shall then have value. Such exercise shall be deemed to specify that, the holder elects to receive cash and that such exercise of a Stock Appreciation Right shall be effective as of the time of automatic exercise. Except as provided in Paragraph 5(b) with respect to the conversion under certain circumstances of a right to exercise Other Stock Options into a Stock Appreciation Right, Stock Appreciation Rights will be granted for no consideration. (d) Restricted Stock - Restricted Stock is Common Stock delivered to a ---------------- Participant with or without payment of consideration with restrictions or conditions on the Participant's right to transfer or sell such stock; provided that the price of any Restricted Stock delivered for consideration and not as bonus stock may not be less than 50% of the Fair Market Value of Common Stock on the date such Restricted Stock is granted or the price of such Restricted Stock may be the par value. If a Participant irrevocably elects in writing in the calendar year preceding a Grant of Restricted Stock, dividends paid on the Restricted Stock granted may be paid in shares of Restricted Stock equal to the cash dividend paid on Common Stock. The number of shares of Restricted Stock and the restrictions or conditions on such shares shall be as the Committee determines, in the Grant Agreement or by other Plan rules, and the certificate for the Restricted Stock shall bear evidence of the restrictions or conditions. No Restricted Stock may have a restriction period of less than 6 months. (e) Purchase Stock - Purchase Stock are shares of Common Stock offered -------------- to a Participant at such price as determined by the Committee, the acquisition of which will make him eligible to receive under the Plan, including, but not limited to, Stock Options; provided, however, that the price of such Purchase Shares may not be less than 50% of -5- the Fair Market Value of the Common Stock on the date such shares of Purchase Stock are offered. (f) Dividend Equivalent Rights - These are rights to receive cash -------------------------- payments from RJRN at the same time and in the same amount as any cash dividends paid on an equal number of shares of Common Stock to shareholders of record during the period such rights are effective. The Committee, in the Grant Agreement or by other Plan rules, may impose such restrictions and conditions on the Dividend Equivalent Rights, including the date such rights will terminate, as it deems appropriate, and may terminate, amend, or suspend such Dividend Equivalent Rights at any time. (g) performance Units - These are rights to receive at a specified ----------------- future date, payment in cash of an amount equal to all or a portion of the value of a unit granted by the Committee. At the time of the Grant, in the Grant Agreement or by other Plan rules, the Committee must determine the base value of the unit, the performance factors applicable to the determination of the ultimate payment value of the unit and the period over which Corporation performance will be measured. These factors must include a minimum performance standard for the Corporation below which no payment will be made and a maximum performance level above which no increased payment will be made. The term over which Corporation performance will be measured shall be not less than six months. (h) Performance Shares - These are rights to receive at a specified ------------------ future date, payment in cash or Common Stock, as determined by the Committee, of an amount equal to all or a portion of the Fair Market Value for all days that the Common Stock is traded during the last forty-five (45) days of the specified period of performance of a specified number of shares of Common Stock at the end of a specified period based on Corporation performance during the period. At the time of the Grant, the Committee, in the Grant Agreement or by Plan rules, will determine the factors which will govern the portion of the rights so payable and the period over which Corporation performance will be measured. The factors will be based on Corporation performance and must include a minimum performance standard for the Corporation below which no payment will be made and a maximum performance level above which no increased payment will be made. The term over which Corporation performance will be measured shall be not less than six months. Performance Shares will be granted for no consideration. (i) Other Stock-Based Grants - The Committee may make other Grants ------------------------ under the Plan pursuant to which shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future be acquired, or Grants denominated in stock units, including ones valued using measures other than market value. Other Stock- Based Grants may be granted with or without consideration; provided, however, that the price of any such Grant made for consideration that provides -6- for the acquisition of shares of Common Stock or other equity securities of the Corporation may not be less than 50% of the Fair Market Value of the Common Stock or such other equity securities on the date of grant of such Grant. Such Other Stock-Based Grants may be made alone, in addition to or in tandem with any Grant of any type made under the Plan and must be consistent with the purposes of the Plan. 6. Limitations and Conditions -------------------------- (a) The number of Shares available for Grants under this Plan shall be 21 million shares of the authorized Common Stock as of the effective date of the Plan. The number of Shares subject to Grants under this Plan to any one Participant shall not be more than 2 million shares. No more than 1% of the authorized Common Stock as of the effective date of the Plan may be granted as Incentive Stock Options as described in Paragraph 5(a). Shares related to Grants that are forfeited, terminated, cancelled, expire unexercised, settled in cash in lieu of stock or in such manner that all or some of the Shares covered by a Grant are not issued to a Participant, shall immediately become available for Grants. (b) No Grants shall be made under the Plan beyond ten years after the effective date of the Plan, but the terms of Grants made on or before the expiration thereof may extend beyond such expiration. At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. (c) RJRN shall not be obligated to deliver any Shares until they have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which outstanding shares of the same class at the time are listed nor until there has been compliance with such laws or regulations as RJRN may deem applicable. RJRN shall use its best efforts to effect such listing and compliance. No fractional Shares shall be delivered. (d) Nothing contained herein shall affect the right of the Corporation to terminate any Participant's employment at any time or for any reason. (e) Deferrals of Grant payouts may be provided for, at the sole discretion of the Committee, in the Grant Agreements. (f) Except as otherwise prescribed by the Committee, the amounts of the Grants for any employee of a Subsidiary, along with interest, dividend, and other expenses accrued on deferred Grants shall be charged to the Participant's employer during the period for which the Grant is made. If the Participant is employed by more than one -7- Subsidiary or by both RJRN and a Subsidiary during the period for which the Grant is made, the Participant's Grant and related expenses will be allocated between the companies employing the Participant in a manner prescribed by the Committee. (g) Other than as specifically provided with regard to the death of a Participant, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. (h) Participants shall not be, and shall not have any of the rights or privileges of, stockholders of RJRN in respect of any Shares purchaseable in connection with any Grant unless and until certificates representing any such Shares have been issued by RJRN to such Participants. (i) No election as to benefits or exercise of Stock Options, Stock Appreciation Rights, or other rights may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant. (j) Except to the extent otherwise provided in any other retirement or benefit plan, any grant under this Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of RJRN or its Subsidiaries and shall not affect any benefits under any other benefit plan of any kind or subsequently in effect under which the availability or amount of benefits is related to level of compensation. This Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. (k) Unless the Committee determines otherwise, no benefit or promise under the Plan shall be secured by any specific assets of RJRN or any of its Subsidiaries, nor shall any assets of RJRN or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of RJRN's obligations under the Plan. 7. Transfers and Leaves of Absence ------------------------------- For purposes of the Plan: (a) a transfer of a Participant's employment without an intervening period of separation from RJRN to a Subsidiary or vice versa, or from one Subsidiary to another, shall not be deemed a termination of employment, and (b) a Participant who is granted in writing a leave of absence shall be deemed to have remained in the employ of the Corporation during such leave of absence. -8- 8. ADJUSTMENTS ----------- (a) In the event of any change in the outstanding Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization or merger, change of control, or similar event, the Committee may adjust appropriately the number of Shares subject to the Plan and available for or covered by Grants and Share prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. (b) In the event of a Change of Control (as defined in paragraph 8(c) hereof): (i) Stock options granted pursuant to paragraphs 5(a) or 5(b) hereof shall become fully vested and exercisable; provided; however, that the Committee may elect to make a cash payment to Participants in cancellation of such options in such amount as the Committee in its sole discretion shall determine, which amount shall not be less than the product of (x) and (y), where (x) is the excess of the Fair Market Value on the date of exercise over the exercise price, and (y) is the number of Shares subject to the stock options being cancelled; and further provided that no stock option grant shall be exercised less than 6 months after the date it is granted, except as provided in paragraph 5(b); (ii) Stock Appreciation Rights granted pursuant to paragraph 5(c) hereof shall become fully vested and exercisable; provided; however, that no Stock Appreciation Right may be exercised less than 6 months after the date it is granted, except as provided in paragraph 5(c); (iii) Restricted Stock granted pursuant to paragraph 5(d) hereof shall have all restrictions removed; provided; however, that no restricted stock shall become freely transferable less than 6 months after the date it is granted; (iv) Performance Units granted pursuant to paragraph 5(g) hereof whose performance period ends after the date of the Change of Control shall become vested as to a percentage of performance units granted equal to the number of months (including partial months) in the performance period before the date of the Change of Control, divided by the total number of months in the performance period. The value of the performance units shall be equal to the greater of the target value of the units or the value derived from the actual performance as of the date of the Change of Control; -9- (v) Performance Shares granted pursuant to paragraph 5(h) hereof whose performance period ends after the date of the Change of Control shall become vested pro rata as to the number of performance shares granted equal to the number of months (including partial months) in the performance period before the date of Change of Control, divided by the total number of months in the performance period. The prorated number of shares derived from the preceding calculation shall be further adjusted by applying the higher of target or actual performance to the date of Change of Control; (vi) All remaining Executive Equity Program awards which have not been made on the date of Change of Control shall be made to the promissory note holder together with any tax gross-up to the grantee for any federal, state or local tax. Assuming that all previous awards and elective sales of pledged stock have been applied to reduce the promissory note loan balance, it is intended that any grant made as a result of a Change of Control shall fully extinguish the loan balance and satisfy the promissory note; and (vii) The Committee shall have authority to revise the terms of any such Grant or any other Grant as it, in its discretion, deems appropriate; provided; however, that the Committee may not make revisions that are adverse to the Participant without the Participant's consent unless such revision is provided for or contemplated in the terms of the Grant. (c) For purposes of the Plan, a "Change of Control" shall mean the first to occur of the following events or such later date as the Corporation may specify from time to time: (i) an individual, corporation, parmership, group, associate or other entity or "person", as such term is defined inn Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Acf'), other than Holdings or any employee benefit plans sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13 d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of Holdings' outstanding securities ordinarily having the fight to vote at elections of directors. (ii) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Holdings' - 10- shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee of Holdings for director), but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Holdings Board, shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; (iii) the approval by the shareholders of Holdings of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (iii) occur, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of the Program. 9. Amendment and Termination ------------------------- The Committee shall have the authority to make such amendments to any terms and conditions applicable to outstanding Grants as are consistent with this Plan provided that, except for adjustments under Paragraph 8 hereof, no such action shall modify such Grant in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Grant. The Board of Directors may amend, suspend or terminate the Plan except that no such action, other than an action under Section 8 hereof, may be taken which would, without shareholder approval, increase the aggregate number of Shares available for Grants under the Plan, decrease the price of outstanding Options or Stock Appreciation Rights, change the requirements relating to the Committee or extend the term of the Plan. -11- 10. Foreign Options and Rights -------------------------- (a) The Committee may make Grants to Key Employees who are subject to the tax laws of nations other than the United States, which Grants may have terms and conditions that differ from the terms thereof as provided elsewhere in the Plan for the purpose of complying with the foreign tax laws. Grants of Options may have terms and conditions that differ from Incentive Stock Options and Other Stock Options for the purposes of complying with the foreign tax laws. (b) The terms and conditions of Options granted under Paragraph 10(a) may differ from the terms and conditions which the Plan would require to be imposed upon Incentive Stock Options and Other Stock Options if the Committee determines that the Grants are desirable to promote the purposes of the Plan for the Key Employees identified in Paragraph 10(a); provided that the Committee may not grant such Options or Stock Appreciation Rights that do not comply with the limitations of Paragraph 6. 11. Withholding Taxes ----------------- The Corporation shall have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Corporation to deliver shares upon the exercise of an Option or Stock Appreciation Right, upon payment of Performance units or shares, upon delivery of Restricted Stock or upon exercise, settlement or payment of any Other Stock-Based Grant that the Participant pay to the Corporation such amount as may be requested by the Corporation for the purpose of satisfying any liability for such withholding taxes. Any Grant Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Grant Agreement, to pay a portion or all of such withholding taxes in shares of Common Stock. 12. Effective Date and Termination Dates ------------------------------------ The Plan shall be effective on and as of the date of its approval by the stockholders of RJRN and shall terminate ten years later, subject to earlier termination by the Board of Directors pursuant to Paragraph 9. - 12 - EX-10.77 28 Exhibit 10.77 Conversion - 100% RN Option 1995 U.K. RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT -------------------------- DATE OF GRANT: APRIL 27, 1995 -------------- W I T N E S S E T H : 1. Grant of Option. Subject to (i) the surrender of all of the unexercised --------------- Options issued to Optionee under the Stock Option Plan for Directors and Key Employees of R JR Nabisco Holdings Corp. and Subsidiaries and the R jR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (collectively, the "R JR Plans"), (ii) the terms and conditions in this Stock Option Agreement and (iii) the provisions of the RJR Nabisco 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to [Firstname] [Lastname] (the "Optionee"), the right and option to exercise from the Company a total of [Shares] shares of Common Stock, of the Company, at the exercise price of $27.00 per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------- (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of 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) Subject to Section 2(c) herein, this Option shall be fully vested on the Date of Grant. To the extent that any of the Option is not exercised, it shall be not expire, but shall continue to be vested at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercised prior to 36 months after the Date of Grant. 3. Rights in Event of Termination Of Employment. --------------------------------------------- Unless optionee is Terminated for Cause (as defined in Section 11 herein) and subject to Section 4 herein, the Option shall remain fully vested as to all shares after termination from active employment. -2- 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 seventh anniversary of the month containing 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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 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". 7. Adjustments in Option. ---------------------- In the event that the outstanding shares of the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 8. Application of Laws. The granting and the exercise of this Option and ------------------- the obligations of the Company to sell and deliver shares hereunder 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 -3- 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 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 -4- TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. d) OPTIONEE UNDERSTANDS THAT BY EXECUTING THIS STOCK OPTION AGREEMENT, (A) OPTIONEE IS SURRENDERING FOR CANCELLATION ALL UNEXERCISED OPTIONS, WHETHER EXERCISABLE OR NOT, ISSUED PRIOR TO TIlE DATE OF GRANT OF THIS AGREEMENT UNDER (i) THE STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES OF RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES AND (ii) THE RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN (COLLECTIVELY, THE "RJR PLANS") AND (B) ALL STOCK OFFION AGREEMENTS ISSUED PRIOR TO THE DATE OF GRANT OF THIS AGREEMENT UNDER THE RJR PLANS ARE NULL AND VOID. 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: - ------------------------ - ------------------------ - ------------------------ -5- EX-10.78 29 Exhibit 10.78 RN Option P - PS 1995 RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT --------------------------- DATE OF GRANT: APRIL 27, 1995 -------------- W I T N E S S E T H : 1. Grant of Option. Pursuant to the provisions of the 1990 Long Term --------------- Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to [NAME] (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of [STOCK_OPTIONS] shares of Common Stock, no par value, of the Company, at the exercise price of $29.70 per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------ (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of 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) This Option shall be exercisable in three installments. The first installment shall be exercisable on the 27th of April following Date of Grant for 33% of the number of shares of Common Stock subject to this option. Thereafter, on each subsequent April 27th an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercised prior to six months after the Date of Grant. 3. Termination of Employment. ------------------------- (a) The Option shall not become exercisable as to any additional shares following the Termination of Employment of the Optionee for any reason 2 including a Termination of Employment because of Permanent Disability or Retirement of the Optionee. Notwithstanding the foregoing, in the event of Termination of Employment because of death, the Option shall immediately become exercisable as to all shares. (b) "Termination of Employment" as used herein means termination from active employment; it does not mean termination of payment of severance 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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 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. In the event that the outstanding shares of --------------------- the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 3 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 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. 4 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: - ------------------------------- - ------------------------------- - ------------------------------- 5 EX-10.79 30 Exhibit 10.79 RN Option R 1995 Post Split RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN STOCK OPTION AGREEMENT ----------------------------- DATE OF GRANT: W I T N E S S E T H : 1. Grant of Option. Pursuant to the provisions of the 1990 Long Term Incentive Plan (the "Plan"), RjR Nabisco Holdings Corp. (the "Company") on the above date has granted to (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, THE right and option to exercise from the Company a total of shares of Common Stock of the Company, at the exercise price of $ per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------- (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of 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) This Option shall be exercisable in three installments. The first installment shall be exercisable on the first anniversary following Date of Grant for 33% of the number of shares of Common Stock subject to this option. Thereafter, on each subsequent anniversary date an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercised 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, 2 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 specifically states that the Option shall become fully exercisable as to all Shares. (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) Immediately upon the Optionee's Termination of Employment for Cause (as defined in Section 11 herein). 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. ---------------------- 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 3 of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 8. Application of Laws. The granting and the exercise of this Option ------------------- and the obligations of the Company to sell and deliver shares hereunder 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 oftheOption 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, RIR 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 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 4 for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretlye 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: - ------------------------------- - ------------------------------- - ------------------------------- 5 EX-10.80 31 Exhibit 10.80 R Performance Unit 1995 RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN PERFORMANCE UNIT PROGRAM PERFORMANCE UNIT AGREEMENT DATE OF GRANT: FEBRUARY 6, 1995 ---------------- W I T N E S S E T H : 1. Grant. Pursuant to the provisions of the 1990 Long Term Incentive Plan ----- and the Performance Unit Program thereunder (collectively, the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to [AutoMergeField] [AutoMergeField1] (the "Grantee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, a target of [Performance] Performance Units. A copy of the Plan is attached and made a part of this agreement with the same effect as if set forth in the Agreement itself. The Initial Grant Value of each Performance Unit shall be one dollar. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Adjustment of Value of performance Units. For the three-year Performance ---------------------------------------- Period commencing on January 1, 1995, the Committee has determined that the Performance Measure shall be as determined in the attached grid during such Performance Period. The value of each Performance Unit shall be as determined in the attached grid; provided, however, the Payment Value may be reduced by the Committee in its discretion. 3. Payment of performance Units. Unless deferred pursuant to the provisions ---------------------------- of the Plan, or as otherwise determined by the Committee, units so earned will be paid only in cash as soon as practicable following the close of the Company's books at the end of the Performance Period. Payment Value for tax and other calculations shall be determined in accordance with the provisions of the Plan, Exhibit A and the discretion of the Committee to reduce the Payment Value. Except as provided in the Plan, no units will be earned or paid unless the Grantee has been a full-time employee of the Company throughout the Performance Period. 4. Deferral. Deferrat of a payment of performance Units shall be pursuant -------- to the provisions of the Plan; provided, however, in no event, may a deferred award be paid within six months of the date of deferral. 5. Transferability. Other than as specifically provided in the Plan with --------------- regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee. 6. No Right to Employment. Neither the execution and delivery of this ---------------------- Agreement nor the granting of the Performance Units evidenced hereby shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Grantee for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Grantee'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. 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. 8. Grantee. In consideration of the grant, the Grantee specifically agrees ------- that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By. ----------------------- Authorized Signatory - ---------------------------------------- GRANTEE Grantee's Taxpayer Identification Number: Date: ------------------------- - --------------------------------------- Grantee's Home Address: - --------------------------------------- - --------------------------------------- - --------------------------------------- EX-10.81 32 Exhibit 10.81 Performance Unit 1995 Special - One Year RJR NABISCO HOLDINGS CORP. 1990 LONG TERM INCENTIVE PLAN PERFORMANCE UNIT PROGRAM PERFORMANCE UNIT AGREEMENT DATE OF GRANT: March 31, 1995 W I T N E S S E T H : 1. Grant. Pursuant to the provisions of the 1990 Long Term Incentive Plan ----- and the Performance Unit Program thereunder (collectively, the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to (the "Grantee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, Performance Units. A copy of the Plan is attached and made a pan of this agreement with the same effect as if set forth in the Agreement itself. The Initial Grant Value of each Performance Unit shall be one thousand dollars. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Adjustment of Value of Performance Units. For the Performance Period ---------------------------------------- commencing on January 1, 1995 and ending December 31, 1995, the Committee has determined that the Performance Measure shall be as determined in the grid attached as Exhibit A; provided, however, the Payment Value determined in Exhibit A may be reduced by the Committee in its discretion. The Grantee specifically agrees that this award of Performance Units is in lieu of any award under the Annual Incentive Award Plan for the fiscal year ending December 31, 1995, and no other Performance Unit award made in 1995 shall be applicable for such purpose. 3. Payment of Performance Units. Unless deferred pursuant to the provisions ---------------------------- of the Plan, or as otherwise determined by the Committee, units earned will be paid only in cash as soon as practicable following the close of the Company's books at the end of the Performance Period. Payment Value for tax and other calculations shall be determined in accordance with the provisions of the Plan, Exhibit A and the discretion of the Committee to reduce the Payment Value. Except as provided in the Plan, no units will be earned or paid unless the Grantee has been a full-time employee of the Company throughout the Performance Period. 4. Deferral. Deferral of a payment of performance Units shall be pursuant --------- to the provisions of the Plan; provided, however, in no event, may a deferred award be paid within six months of the date of deferral. 5. Transferability. Other than as specifically provided in the Plan with --------------- regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee. 6. No Right to Employment. Neither the execution and delivery of this ---------------------- Agreement nor the granting of the Performance Units evidenced hereby shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Grantee for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Grantee'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. 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. 8. Grantee. In consideration of the grant, the Grantee specifically agrees ------- that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretation and determinations made by the Committee shall be final, conclusive, and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Agreement as of the Date of Grant first above written. RJR NABISCO HOLDINGS CORP. By ------------------------- Authorized Signatory - ---------------------------------------- GRANTEE Grantee's Taxpayer Identification Number: Date: - ---------------------------------------- ---------------------- Grantee's Home Address: - ---------------------------------------- - ---------------------------------------- - ---------------------------------------- EX-10.82 33 Exhibit 10.82 ["RJR NABISCO" LETTERHEAD] November 22, 1995 Andrew J. Schindler Re: Executive Equity Program (EEP) Dear Andy: As you know, in July of 1995 you were asked to make a special election whereby you agreed not to sell any of your LTIP purchase shares and whereby all EEP cash grants would be applied to your LTIP Purchase Share Loan balance. A copy of your election is attached. The Board of Directors has also amended the Long-Term Incentive Plan (the "LTIP") to provide that upon a Change of Control (as defined in the LTIP) all remaining Executive Equity Grants would be made at once together with any tax gross-up for any federal, state and local taxes. Therefore, taking together the promise made by the Company in your July 1995 EEP election and the EEP provisions of the LTIP, the following commitment is reaffirmed to you by the Company: In the event of a Change of Control (i) all remaining Executive Equity Program ("EEP") grants shall be made to the promissory note holder together with any gross-up for any federal state or local tax and (ii) after application of the sale proceeds of LTIP Purchase Shares under the EEP, the loan deficit, if any, shall be considered fully satisfied. RJR NABISCO HOLDINGS CORP. RJR NABISCO, INC. By: /s/ Gerald I. Angowit ------------------------- Gerald I. Angowit Senior Vice President, Human Resources & Administration RJR Nabisco, Inc. 1301 Avenue of the Americas New York, New York 10019-6013 (212) 258-5600 Revised Executive Grant Election for 1995 and 1996 LTIP Purchase Shares -------------------- 1. Do not sell any of my LTIP Purxhase Shares in the 1995 or 1996 EEP Transactions until such time as I am no longer treated as a SEC Section 16 reporting executive with respect to Company stock. Any prior election for the 1995 EEP Transaction relating to my LTIP Purchase Shares is null and void. and --- EEP Cash Grants --------------- 2. Apply any 1995 and 1996 EEP Cash Grants against my loan balance (net of taxes). Any prior elecetion for the 1995 EEP Transaction relating to my EEP Cash Grant is null and void. I undertand that by signing below, I am making the foregoing election which will apply to the 1995 and 1996 EEP Transaction, and that I am precluded from making any other elections in those transactions. I am making this election on the condition that the Company agrees that if any loan deficit amount results from the fact that I did not sell my LTIP Purchase Shares and apply the proceeds to the loan in the EEP 1995 or 1996 Transactions, the Company will hold me harmless from such loan deficit amount and any resultant additional tax liability. My EEP Cash Grant calculation at each EEP Transaction shall not be in anyway reduced by reason of my making the foregoing election. I further understand that my LTIP Purchase Shares will ultimately be sold as soon as practicable after I am no longer treated as a SEC Section 16 reporting executive with respect to Company stock. The loan deficit amount, if any, described above will be calculated at that time. Name: Andrew J. Schindler Signature:/s/ Andrew J. Schindler -------------------- ----------------------- SSN: ###-##-#### Date: 7/10/95 ------------------- ----------------------- EX-10.83 34 Exhibit 10.83 I October 11, 1995 [FirstName] [LastName] Dear [AName]: RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc. (the "Company") consider it essential to the best interests of Holdings' stockholders to foster the continuous employment of key management personnel of the Company. In furtherance of the foregoing interests of Holdings and its stockholders, Holdings and the Company have previously committed, in a series of letters to you, the most recent of which is dated January 20, 1995 (the "1995 Letter" and, collectively, the "Letters") and in a protection program for headquarters employees established on July 1, 1994 and implemented as of January 31, 1995 as the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence Recognition Program (the "Headquarters Program"), to provide to you certain payments and benefits in the event of your involuntary separation of employment with the Company other than for cause. In light of the success of the 1995 Letter and the Headquarters Program in retaining and motivating headquarters employees, the Board of Directors of Holdings (the "Holdings Board") and the Board of Directors of the Company (the "Board") (and sometimes, collectively, the "Boards") have determined that further appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key management personnel, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible change of control of Holdings. The Boards have also determined that it is in the best interest of Holdings and its stockholders to ensure your continued availability to Holdings in the event of a change of control. In order to induce you to remain in the employ of the Company, Holdings and the Company agree that you shall receive (i) certain payments and benefits as set forth in this letter agreement (the "Agreement") in the event your employment with the Company is terminated under the circumstances described below and (ii) certain other payments, as set forth in this Agreement, upon a Change of Control (as defined in Section 2 below). This Agreement, when executed by you, will (1) supersede and replace the 1995 Letter and, following a Change of Control, the Headquarters Program and (2) will be in lieu of your participation in the RJR Nabisco, Inc. Salary and Benefit Continuation Program (the "SBC Program") and the RJR Nabisco Holdings Corp. 1995 Employee Protection Program (the "1995 Program") but will in no event provide lesser benefits to you in the event of the termination of your employment than would otherwise have been available under the provisions of the SBC Program or the 1995 Program as applicable. As a precondition to payment of the benefits provided herein, you will be required to sign the relevant release of claims against Holdings and/or the Company, as the case may be, in the form attached hereto as Exhibit A. 1. Term of Agreement. This Agreement shall be effective as of the date ----------------- hereof and shall continue in effect as long as you are employed by the Company or any of its affiliates or successors. 2. Change of Control. For purposes of this Agreement, the term "Change ----------------- of Control" shall mean the firsl to occur of the following events provided such event occurs prior to October 11, 1996 or such later date as the Boards may specify from time to time: (a) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plan(s) sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power , the Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (b) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination 2 for election by the Holdings' shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; (c) the approval by the shareholders of the Company of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (c) occurs, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of this Agreement. 3. Termination of Employment. (a) Definitions. ------------------------- ------------ (i) Disability. You shall be deemed to be Disabled if you become ---------- totally and permanently disabled (as defined in the Company's Long Term Disability Plan applicable to senior executive officers as in effect on the date hereof) or, prior to a Change of Control, if the Board or any committee thereof so determines. (ii) Retirement. "Retirement" shall mean your retirement on or after ---------- attaining age 55 and with ten or more years of service with the Company or any affiliate of the Company. 3 (iii) Cause. (A) Prior to a Change of Control, termination for ----- "Cause" shall mean termination of your employment resulting from your (I) criminal conduct, (II) deliberate and continual refusal to perform employment duties on substantially a full time basis, (III) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee senior to you or (IV) deliberate misconduct which could be materially damaging to Holdings or the Company without a reasonable good faith belief by the Employee that such conduct was in the best interests of Holdings or the Company. A termination of employment shall not be deemed for Cause hereunder unless the senior personnel executive of Holdings or the Company shall confirm that any such termination-is for Cause as defined above. (B) Following a Change of Control, termination for "Cause" shall mean termination of your employment resulting from (I) your willful and continued failure substantially to perform your duties with Holdings or the Company (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by you for Good Reason) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (II) the willful engaging by you in conduct which is demonstrably and materially injurious to Holdings or the Company, monetarily or otherwise or (III) your conviction of (x) a felony under the laws of the United States or any state or (y) a felony under the laws of any other country or political sub-division thereof involving moral turpitude. For purposes of this clause (a)(iii)(B), no act or failure to act, on your part shall be deemed "willful" unless done or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of Holdings or the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause under this Clause (a)(iii)(B) unless and until there shall have been delivered affirmative vote (which cannot be delegated) of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set 4 forth above in subclauses (I), (II) or (III) above, specifying the particulars thereof in detail. (iv) Good Reason. During the twenty-four month period following ----------- a Change of Control, you shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, any of the following occurring following a Change of Control: (A) A material reduction in your duties, a material diminution in your position or a material adverse change in your reporting relationship from those in effect immediately prior to the Change of Control; (B) A reduction in your pay grade or bonus opportunity as in effect immediately prior to the Change of Control or as the same may thereafter be increased from time to time during the term of this Agreement; (C) The failure to continue in effect any compensation plan in which you participate at the time of the Change of Control, including but not limited to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan ("LTIP") and the RJR Nabisco, Inc. Annual Incentive Award Plan (the "AIAP"), or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing you with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue your participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (D) The taking of any action which would directly or indirectly materially reduce any of the benefits to be provided under Section 6(c) or deprive you of any material fringe benefit enjoyed by you at the time of the Change of Control, or the failure to provide you with the number of paid vacation days to which you are entitled on the basis of the Company's practice with respect to 5 you as in effect at the time of the Change of Control; (E) Any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (b) below; provided further that for purposes of this Agreement, no such purported termination shall be effective; (F) Any material breach by Holdings or the Company of any provision of this Agreement including, but not limited to any provision of Section 6, or any agreements entered into pursuant hereto; or (G) Requiring you to be based at any office or location more than 50 miles from the office or location at which you were based immediately prior to such Change of Control, except for travel reasonably required in the performance of your responsibilities. (b) Notice of Termination. After a Change of Control, any --------------------- purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, after a Change of Control a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (c) Date of Termination, Etc. Following a Change of Control, ------------------------ "Date of Termination" shall mean (i) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), (ii) if your employment is terminated by reason of your death, the date of your death, and (iii) if your employment is terminated by reason of your Retirement, for Cause, for Good Reason or for any other reason (other than Disability or death), the date specified in the Notice of Termination (which in the case of a termination for Cause following a Change of Control shall not be less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given). 6 4. Compensation Upon Termination. ------------------------------ Upon termination of your employment, subject to your execution of a release of claims against Holdings and/or the Company (in the relevant form set forth in Exhibit A if such termination is without Cause or for Good Reason after a Change of Control), you shall be entitled to the following benefits: (a) If your employment shall be terminated by the Company for Cause, or by you other than following a Change of Control for Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and any amounts to be paid to you pursuant to the Company's retirement and other benefit plans of the Company then in effect, and Holdings and/or the Company shall have no further obligations to you under this Agreement. (b) If your employment shall be terminated by reason of your voluntary Retirement, Disability or death, the Company shall pay you or your estate, as the case may be, your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given or the time of your death, as the case may be. Benefits to you, your beneficiaries or your estate, as the case may be, shall be determined in accordance with the Company's retirement, benefit, disability and insurance plans and programs in effect at the time of such termination. (c) If, other than during the twenty-four month period following a Change of Control, your employment shall be involuntarily terminated by the Company other than for Cause, you shall be entitled to the payments and benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and, except as set forth below, all other amounts to which you are entitled under any compensation or benefit plan of the Company including, but not limited to, the AIAP and LTIP at the times such payments are due under the terms of such plans; (ii) The Company shall pay to you in seventy-two equal semi-monthly installments an amount 7 equal to two times the sum of (x) your annual base salary as in effect immediately prior to such termination and (y) the amount of your target award under the AIAP as in effect at the time of such termination; (iii) The Company shall provide you with the benefits under the RJR Nabisco, Inc. Flexible Perquisites Program (the "Perquisites Program") for the thirty-six month period following such termination; (iv) The Company shall provide you with the opportunity to participate in the medical and dental plans as provided under the SELECT Omnibus Welfare Plan as in effect for active employees other than the Short and Long Term Disability Plans (or similar coverage as may be provided for active employees), the core life, optional life, and accidental death and dismemberment insurance coverage provided under the SELECT Omnibus Insurance Plan as in effect for active employees (or similar coverage as may be provided for active employees), and the Executive Medical Plan as in effect for active employees until the end of the 36 month period after such termination, subject to any applicable coordination of benefits rules. (v) You shall be paid for any unused vacation for the year of termination, for vacation accrued to your Date of Termination for the following calendar year, and/or any accumulated vacation (if applicable) from previous years, all in accordance with the normal practice of the Company. (vi) You shall be entitled to outplacement assistance pursuant to the Company's normal practice for the 12-month period following your Date of Termination at an out-of-pocket cost to the Company not to exceed 18% of annualized Base Pay. (vii) You shall continue to participate in the Retirement Plans and Savings Plans, as defined in Exhibit B, for purposes of benefit accrual and employer matching contribution, as applicable, for 36 months. 8 (viii) If you are at least age 55 with at least ten years of service including any period of severance, you shall be eligible for MedChoice Retiree Medical benefits as in effect for other retirees and as amended from time to time thereafter. (ix) If your Date of Termination occurs prior to March 1, 1996, you shall be entitled to any applicable additional benefits and protections provided under the Headquarters Program. (d) If within the twenty-four month period following a Change of Control your employment by the Company shall be terminated (x) by the Company other than for Cause and other than because of your death, Disability or voluntary Retirement or (y) by you for Good Reason, then, effective as of the Date of Termination, in lieu of any benefits which you otherwise would be eligible to receive under Section 4 (c) above, you shall be entitled to the payments and benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and, except as set forth below, all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due under the terms of such plans, or as otherwise provided herein. (ii) The Company shall pay to you, not later than 15 business days following the Date of Termination, a lump sum cash payment equal to (A) your AIAP Vested Amount, PS Vested Amount and PU Vested Amount (each as defined in Exhibit B) as of the Date of Termination plus (B) two (2) times the sum of (I) your annual base salary as in effect immediately prior to the Change of Control or the Date of Termination if higher and (II) the amount of your AIAP target award as in effect at the time of such termination or, if higher, as in effect immediately prior to the Change of Control (all as defined in Schedule B). The amount of the payment under this Section 4(d)(ii)(B) shall be discounted to its present value, based on a notional payment period of 36 months, assuming equal semi-monthly payments and a discount rate equal to the product of (x) the 3-year Treasury bond yield as published 9 in the New York Times on the first of the month in which the Termination Date occurs and (y) 100% minus the aggregate applicable federal, state and local taxes then imposed on your employment income computed at the maximum applicable marginal rates. (iii) (A) The Company shall pay to you a lump sum cash payment equal to three times the value of the annual credit under the Perquisites Program to which you were entitled immediately prior to such termination or, if higher, to which you were entitled immediately prior to the Change of Control, reduced by such credits as would otherwise be applied to the continued benefits under Section 4(d)(iii)(C) below. (B) You shall be entitled to use the automobile assigned to you immediately prior to the Change of Control for 36 months following such termination and, at the end of such 36 month period, ownership of such automobile shall be transferred to you. At the time of such transfer, the Company shall pay to you such amount in cash that after payment of all applicable federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed in connection with such transfer. (C) The Company shall provide you with benefits equivalent to those provided under the Perquisites Program immediately prior to the Change of Control for 36 months following such termination. (iv) The Company shall provide you with the opportunity to participate in medical and dental plans and in core life, optional life, and accidental death and dismemberment insurance coverage no less favorable in the aggregate than provided under the SELECT Omnibus Welfare Plan (other than the Short and Long Term Disability Plans), the SELECT Omnibus Insurance Plan, and the Executive Medical Plan, as such plans are in effect for active employees immediately prior to such Change of Control, until the end of the 36 month period after such termination, subject to any applicable coordination of benefits rules. 10 (v) The Company shall pay to you, not later than 15 business days following the Date of Termination, a lump sum cash payment for any unused vacation for the year of termination, for vacation accrued to the Date of Termination for the following calendar year, and/or any accumulated vacation (if applicable) from previous years, all in accordance with the normal practice of the Company immediately prior to such Change of Control. (vi) (A) You shall receive 36 months of service credit ("Additional Credited Service") under the Retirement Plans and Savings Plans for purposes of benefit accrual and employer matching contribution, as applicable, based on the same formula and matching amount as in effect immediately prior to such Change of Control. (B) Within 15 days following the Date of Termination, the Company shall pay to you in cash a lump sum equal to (x) the actuarial present value of such portion, if any, of the benefit resulting from such Additional Credited Service as may not be accrued under the qualified Retirement Plans and/or Savings Plans plus (y) the actuarial present value of all accruals as of the Date of Termination under the non-qualified Retirement Plans and Savings Plans in which you participate. (vii) If you have between three and five years of credited service under the Retirement Plans, including Additional Credited Service, you shall be deemed to receive further credited service under the Retirement Plans for purposes of both vesting and accrual of benefits sufficient to bring you to five years of credited service. The actuarial present value as of the Date of Termination of any resulting increase in benefits thereunder, computed based on the formula in effect immediately prior to such Change of Control, shall be paid to you within 15 days of the Date of Termination in cash in a lump sum. (viii) If you are at least age 50 with at least five years of service, including Additional Credited Service under Section 4(d)(vi) but not under Section 4(d)(vii), you shall be entitled (in addition to and upon the expiration of the benefits provided pursuant to Section 4(d)(iv)) to 11 MedChoice Retiree Medical benefits as in effect for other retirees and as amended from time to time thereafter at the minimum level of Company subsidy or, if greater, the subsidy level based on actual years of service. (ix) If you had relocated to New York or New Jersey at the Company's request during or after 1989, you shall, if you make a written request within twelve months of your Date of Termination, be entitled to a moving and relocation benefit to a new job location in accordance with the terms and limitations of the Company's relocation program as in effect immediately prior to the Change of Control. (x) You shall be entitled to outplacement assistance pursuant to the Company's normal practice for the 12-month period following your Date of Termination, in an amount not to exceed 18% of annualized Base Pay. (xi) If the Company fails to provide any of the benefits under Section 4(d)(iv) or Section 4(d)(viii) above, the Company shall reimburse you for the actual cost of your obtaining comparable benefits within 15 business days after the date you give the Company written notice that you incurred such costs plus such additional amount that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed with respect to such reimbursement. (xii) (A) Anything herein to the contrary notwithstanding, in the event that it is determined that any payment or distribution by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms hereof or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the" Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive, within 15 days following the determination described in Section 4(d)(xii)(B) 12 below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by you of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, you shall retain an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (B) All determinations required to be made under this Section 4(d)(xii), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by Ernst & Young, Winston-Salem, North Carolina, or such other accounting firm as the Company may designate prior to a Change of Control, which shall provide to the Company and you detailed supporting calculations within 15 business days of the date of your termination of employment. Except as hereinafter provided, any determination by Ernst & Young, Winston-Salem, North Carolina, or such other accounting firm as the Company may designate prior to a Change of Control, shall be binding upon the Company and you. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination hereunder, it is possible that (x) Excise Tax Adjustment Payments which should have been made will not have been made by the Company ("Underpayment"), or (y) certain Payments will have been made which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, the Company shall promptly determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Employer. (xiii) The Company shall also pay to you as incurred all legal and accounting fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, in seeking to obtain or enforce any right or benefit provided by this Agreement or any other 13 compensation-related plan, agreement or arrangement of the Company) unless your claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. 5. Special Bonus Payments. Upon a Change of Control, subject to ---------------------- your execution of a release of claims against Holdings and the Company in the relevant form set forth on Exhibit A, the Company shall pay to you a special cash bonus payment equal to the sum of your AIAP Vested Amount, your PS Vested Amount and your PU Vested Amount (all as of the date of the Change of Control and all as defined in Exhibit B). Notwithstanding the foregoing, in the event that following a Change of Control any performance period within which such Change of Control occurred relating to any award under the AIAP or of Performance Units or Performance Shares under the LTIP (as such terms are defined therein) is completed prior to your termination of employment, upon such completion you shall be entitled to payment in respect of each such award of an amount, if any, equal to the excess of the value of such award, based on actual performance for such performance period, over the AIAP Vested Amount, PU Vested Amount or PS Vested Amount, as the case may be, previously paid to you upon such Change of Control in respect of such AIAP award, Performance Units or Performance Shares. 6. Successors; Bindinq Agreement; Undertaking. (a) Holdings and ------------------------------------------ the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Holdings and the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Holdings and the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Holdings" and/or the "Company" shall mean Holdings or the Company, respectively, as hereinbefore defined and any successor to the business and/or assets of either of them as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change of Control, the term "Company" shall also mean any affiliate of the Company to which you may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change of Control the term "Company" shall not mean any affiliate of the Company to which you may be transferred unless you shall have previously approved of such transfer in writing, in which case the Company shall cause such 14 successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. (c) (i) During the two-year period following a Change of Control, there shall be no reduction in the benefit formula of the Retirement Plans or the employer matching contribution amount of the Savings Plans except as may be required by the Code or the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"); and (ii) The Company shall maintain for not less than two years following a Change of Control programs providing benefits on a basis no less favorable in the aggregate than provided under the SELECT Omnibus Welfare Plan, the Executive Medical Plan, the SELECT Omnibus Insurance Plan and the Perquisites Program, or successor programs, all as in effect for active employees immediately prior to such Change of Control. 7. Notice. For the purpose of this Agreement, notices and all ------ other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; provided that all notices to Holdings or the Company shall be directed to - -------- the attention of the Board with a copy to the Secretaries of the Company and of Holdings, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Amendments; Waivers; Mitigation; Other Plans. (a) Except as -------------------------------------------- otherwise specifically provided herein, no provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officers as 15 may be specifically designated by the respective Boards. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. (b) You shall not be required to mitigate the amount of any payment provided for in Section 4 by seeking other employment or otherwise, nor except to the extent provided in Section 4(c)(iv) or Section 4(d)(iv), shall the amount of any payment or benefit provided for in Section 4(c) or Section (d) hereof be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise. (c) Except as provided in this Agreement, if you are a participant in the LTIP or any other stock award plan of Holdings or an affiliate and have outstanding awards thereunder, the treatment of such awards shall be governed by the terms of such applicable plans and awards. 9. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the substantive law (and not the choice of law rules) of the State of New York. 10. Validity. If any provision of this Agreement shall be -------- declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be signed in several ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. Arbitration. Following a Change of Control, any dispute or ----------- controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. The determination of the arbitrator shall be 16 conclusive and binding on the parties and judgment may be entered on the arbitrator's award in any court having jurisdiction. 13. Continued Employment. You agree to be bound by the terms and -------------------- conditions of this Agreement and to remain in the employ of the Company during any period following any public announcement by any person of any proposed transaction or transactions which, if effected, would result in a Change of Control until a Change of Control has taken place or, in the opinion of the Holdings Board, such person has abandoned or terminated its efforts to effect a Change of Control. Subject to the foregoing, nothing contained in this Agreement shall impair or interfere in any way with your right to terminate your employment or the right of the Company or any subsidiary to terminate your employment with or without cause prior to a Change of Control. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and you. 14. Payment Obliqations Absolute; Obliqor. Subject to your ------------------------------------- execution of the relevant release of claims against Holdings and/or the Company in the form set forth on Exhibit A hereto, following a Change of Control, Holdings' and the Company's obligations to make all payments and honor all commitments under this Agreement shall be absolute and unconditional and shall not be affected by any circumstances including, without limitation, any set-off, counterclaim, recoupment, defense or other right which Holdings or the Company may have against you. In default of any payment or provision of benefits hereunder by the Company following a Change of Control, such payment or benefit shall be the obligation of Holdings. 15. Interest on Late Payments. To the extent that any payments ------------------------- required to be made hereunder following a Change of Control are not made within the period specified therefor, the Company shall be liable for interest on such delayed payments at the rate of 150% of the prime rate compounded monthly, as posted by the Morgan Guaranty Trust Company of New York, from time to time. 16. Withholding. Payments under this Agreement will be subject to ----------- normal deductions for taxes and other legally required withholding. 17. Actuarial Calculations. All required actuarial calculations ---------------------- of payments to be made hereunder shall be made by Watson Wyatt Worldwide, New York, New York, 17 or such other actuarial firm as the Company may designate prior to a Change of Control. 18. Funding. All benefits hereunder are unfunded and will be paid ------- out of the general assets of the Company or Holdings. Notwithstanding the foregoing, the Company or Holdings may choose to maintain a rabbi trust or trusts for the purpose of paying certain of the benefits hereunder or under other plans and programs of the Company or Holdings and, if so, you shall be entitled to payments therefrom, if any, as and to the extent provided in such rabbi trust or trusts. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, RJR NABISCO HOLDINGS CORP. By --------------------------- Name: Steven F. Goldstone Title: President RJR NABISCO, INC. By ------------------------------ Name: Steven F. Goldstone Title: President [FirstName LastName] Agreed to this day of ----- , 1995 - --------------- - --------------------------- 18 EXHIBIT A FORM OF RELEASE AGREEMENT ------------------------- [ ] [Incorporation of terms of Employment Contract] [ ] [Acknowledgment that Release Agreement is the entire agreement to provide severance benefits.] [ ] [Description of Benefits to be provided] [ ] You shall maintain the terms and conditions of this Agreement in confidence. In addition, you will not disclose to any other employer or person any trade secrets or other proprietary, non-public, or confidential information pertaining to the Company. You will return all Company information or documents in whatever form, except information relating to your personal employee benefits or executive compensation. In accordance with normal ethical and professional standards, you will refrain from taking actions or making statements, written or oral, which defame the goodwill or reputation of the Company, its directors, officers, executives and employees or which constitute willful misconduct under circumstances where it is reasonable for you to anticipate or to expect that the natural consequences of such conduct by you will be to affect adversely the business or reputation of the Company or its affiliates, or the morale of other employees. [ ] a) You agree that you will personally provide reasonable assistance and cooperation to the Company in activities related to the prosecution or defense of any pending or future lawsuits or claims involving the Company. b) You will promptly notify the Company if you receive any requests from anyone other than an employee or agent of the Company for information regarding the Company or if you become aware of any potential claim or proposed litigation against the Company. c) You will refrain from providing any information related to any claim or potential litigation against the Company to any non-Company representatives without either the Company's written permission or being required to provide information pursuant to legal process. d) If required by law to provide sworn testimony regarding any Company-related matter, you will consult with and have Company- designated legal counsel present for such testimony. e) The Company will be responsible for the costs of such designated counsel and you will bear no cost for same. f) You will confine your testimony to items about which you have knowledge rather than speculation, unless otherwise directed by legal process. g) You will cooperate with the Company's attorneys to assist their efforts, especially on matters you have been privy to, holding all privileged attorney-client matters in strictest confidence. Nothing in sentences c-g of the above paragraph is intended to apply to governmental or judicial investigations, including, but not limited to, an investigation by any agency or department of the Federal or state government, any hearing before a committee of the Congress of the United States or of a state legislature, any investigation or proceeding by or of a special prosecutor, or any proceeding by or before a grand jury; provided, however, the Company will reimburse you for legal expenses including, but not limited to, the cost of any attorney reasonably acceptable to the Company and other out-of-pocket expenses if you are compelled to appear in a governmental or judicial investigation. [ ] IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS AGREEMENT, YOU VOLUNTARILY, KNOWINGLY AND WILLINGLY RELEASE AND FOREVER DISCHARGE THE COMPANY, ITS PARENTS, SUBSIDIARIES AND AFFILIATES, TOGETHER WITH THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, AND EACH OF THEIR PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM ANY AND ALL CHARGES, COMPLAINTS, CLAIMS, PROMISES, AGREEMENTS, CONTROVERSIES, CAUSES OF ACTION AND DEMANDS OF ANY NATURE WHATSOEVER WHICH AGAINST THEM YOU OR YOUR EXECUTORS, ADMINISTRATORS, SUCCESSORS OR ASSIGNS EVER HAD, NOW HAVE OR HEREAFTER CAN, SHALL OR MAY HAVE BY REASON OF ANY MATTER, CAUSE OR THING WHATSOEVER ARISING TO THE TIME YOU SIGN THIS AGREEMENT. YOU FURTHER AGREE THAT YOU WILL NOT SEEK OR BE ENTITLED TO ANY AWARD OF EQUITABLE OR MONETARY RELIEF IN ANY PROCEEDING OF ANY NATURE BROUGHT ON YOUR BEHALF ARISING OUT OF ANY OF THE MATTERS RELEASED BY THIS PARAGRAPH. THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO, ANY RIGHTS OR CLAIMS RELATING IN ANY WAY TO YOUR EMPLOYMENT RELATIONSHIP WITH THE COMPANY, OR THE TERMINATION THEREOF, OR UNDER ANY STATUTE, INCLUDING THE AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT, THE AMERICANS WITH DISABILITIES ACT, THE NEW YORK STATE AND CITY HUMAN RIGHTS LAWS OR ANY OTHER FEDERAL, STATE OR LOCAL LAW. [ ] By signing this Agreement, you represent that you have not commenced any proceeding against the Company in any forum (administrative or judicial) concerning your employment or the termination thereof. You further acknowledge that you were given sufficient notice under 2 the Worker Adjustment and Retraining Notification Act (the "WARN Act") and that the termination of your employment does not give rise to any claim or right to notice, or pay or benefits in lieu of notice under the WARN Act. In the event any WARN Act issue does exist or arises in the future, you agree and acknowledge that the payments and benefits set forth in this Agreement shall be applied to any pay or benefits in lieu of notice required by the WARN Act, provided that any such offset shall not impair or affect the validity of any provision of this Agreement, including the release set forth in paragraph [ ]. [ ] The Company advises you that you may wish to consult with an attorney of your choosing prior to signing this Agreement. You understand and agree that you have the right and have been given the opportunity to review this Agreement and, specifically, the release in paragraph [ ], with an attorney of your choice should you so desire. You have entered into this Agreement freely, knowingly and voluntarily. [ ] You have at least twenty-one days to consider the terms of this Agreement, although you may sign and return it sooner if you wish. This Agreement may be revoked by you for a period of seven (7) consecutive calendar days after you have signed and dated it, and after such seven (7) days, it becomes final. 3 EXHIBIT B DEFINITIONS AIAP vested Amount means, as of a Change of Control or as of the ------------------ date your employment terminates after a Change of Control, as the case may be, an amount equal to the value of your target award under the AIAP for the relevant performance period in which the Change of Control or such termination occurs, as the case may be, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending on the Change of Control or such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which a Change of Control occurs, for purposes of computing the AIAP Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and the target award shall be that in effect immediately preceding such Change of Control. PS Vested Amount means, with respect to any award of Performance ---------------- Shares (as defined in the LTIP) you hold as of a Change of Control or as of the date your employment terminates after a Change of Control, as the case may be, an amount equal to the adjusted value of (i) the number of Performance Shares subject to such award, multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period, (ii) adjusted by applying target performance with respect to such award; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PS Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and target performance with respect to such Performance Shares shall be that in effect immediately preceding such Change of Control. PU vested Amount means, with respect to any award of Performance Units ---------------- (as defined in the LTIP) you hold as of a Change of Control or as of the date your employment terminates, as the case may be, an amount equal to the target value of the number of Performance Units subject to such award multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which a Change of Control occurs, for purposes of computing the PU Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and the target value of such Performance Units shall be that in effect immediately preceding such Change of Control. Retirement Plans means the Retirement Plan for Employees of RJR ---------------- Nabisco, Inc., the RJR Nabisco, Inc. Additional Benefits Plan, the RJR Nabisco, Inc., Supplemental Benefits Plan and the RJR Nabisco, Inc. Supplemental Executive Retirement Plan, and such other plans as the Board may hereafter determine. Savinqs Plans means the RJR Nabisco, Inc. Capital Investment ------------- Plan, the RJR Nabisco, Inc. Additional Benefits Plan and the RJR Nabisco, Inc. Supplemental Benefits Plans and such other plans as the Board may hereafter determine. Year of Service means each completed 12-month period of service --------------- by you with the Company or any other affiliate of the Company, including periods of approved leaves of absence, up to the last day of active employment. 2 EX-10.84 35 Exhibit 10.84 NI November 1, 1995 [FirstName] [LastName] Dear [AName]: RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc. (the "Company") consider it essential to the best interests of Holdings' stockholders to foster the continuous employment of key management personnel of the Company. In furtherance of the foregoing interests of Holdings and its stockholders, Holdings and the Company have previously committed, in a series of letters to you, the most recent of which is dated January 20, 1995 (the "1995 Letter" and, collectively, the "Letters") and in a protection program for headquarters employees established on July 1, 1994 and implemented as of January 31, 1995, as the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence Recognition Program (the "Headquarters Program"), to provide to you certain payments and benefits in the event of your involuntary separation of employment with the Company other than for cause. In light of the success of the 1995 Letter and the Headquarters Program in retaining and motivating headquarters employees, the Board of Directors of Holdings (the "Holdings Board") and the Board of Directors of the Company (the "Board") (and sometimes, collectively, the "Boards") have determined that further appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key management personnel, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible change of control of Holdings. The Boards have also determined that it is in the best interest of Holdings and its stockholders to ensure your continued availability to Holdings in the event of a change of control. In order to induce you to remain in the employ of the Company, Holdings and the Company agree that you shall receive (i) certain payments and benefits as set forth in this letter agreement (the "Agreement") in the event your employment with the Company is terminated under the circumstances described below and (ii) certain other payments, as set forth in this Agreement, upon a Change of Control (as defined in Section 2 below). This Agreement, when executed by you, will (1) supersede and replace the 1995 Letter and, following a Change of Control, the Headquarters Program and (2) will be in lieu of your participation in the RJR Nabisco, Inc. Salary and Benefit Continuation Program (the "SBC Program") and the RJR Nabisco Holdings Corp. 1995 Employee Protection Program (the "1995 Program") but will in no event provide lesser benefits to you in the event of the termination of your employment than would otherwise have been available under the provisions of the SBC Program or the 1995 Program, as applicable. As a precondition to payment of the benefits provided herein, you will be required to sign the relevant release of claims against Holdings and/or the Company, as the case may be, in the form attached hereto as Exhibit A. 1. Term of Aqreement. This Agreement shall be effective as of the ----------------- date hereof and shall continue in effect as long as you are employed by the Company or any of its affiliates or successors. 2. Chanqe Of Control. For purposes of this Agreement, the term ----------------- "Change of Control" shall mean the first to occur of the following events provided such event occurs prior to October 11, 1996 or such later date as the Boards may specify from time to time: (a) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plan(s) sponsored by Holdings or the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of the Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (b) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent 2 to such date whose election, or nomination for election by the Holdings' shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; (c) the approval by the shareholders of the Company of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (c) occurs, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of this Agreement. 3. Termination of Employment. (a) Definitions. ------------------------- ------------ (i) Disability. You shall be deemed to be Disabled if you become ---------- totally and permanently disabled (as defined in the Company's Long Term Disability Plan applicable to senior executive officers as in effect on the date hereof) or, prior to a Change of Control, if the Board or any committee thereof so determines. (ii) Retirement. "Retirement" shall mean your retirement on or ---------- after attaining age 55 and with ten or more years of service with the Company or any affiliate of the Company. 3 (iii) Cause. (A) Prior to a Change of Control, termination for ----- "Cause" shall mean termination of your employment resulting from your (I) criminal conduct, (II) deliberate and continual refusal to perform employment duties on substantially a full time basis, (III) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee senior to you or (IV) deliberate misconduct which could be materially damaging to Holdings or the Company without a reasonable good faith belief by the Employee that such conduct was in the best interests of Holdings or the Company. A termination of employment shall not be deemed for Cause hereunder unless the senior personnel executive of Holdings or the Company shall confirm that any such termination is for Cause as defined above. (B) Following a Change of Control, termination for "Cause" shall mean termination of your employment resulting from (I) your willful and continued failure substantially to perform your duties with Holdings or the Company (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by you for Good Reason) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (II) the willful engaging by you in conduct which is demonstrably and materially injurious to Holdings or the Company, monetarily or otherwise or (III) your conviction of (x) a felony under the laws of the United States or any state or (y) a felony under the laws of any other country or political sub-division thereof involving moral turpitude. For purposes of this clause (a)(iii)(B), no act or failure to act, on your part shall be deemed "willful" unless done or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of Holdings or the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause under this Clause (a)(iii)(B) unless and until there shall have been delivered affirmative vote (which cannot be delegated) of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith 4 opinion of the Board you were guilty of conduct set forth above in subclauses (I), (II) or (III) above, specifying the particulars thereof in detail. (iv) Good Reason. During the twenty-four month period following a ----------- Change of Control, you shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, any of the following occurring following a Change of Control: (A) A material reduction in your duties, a material diminution in your position or a material adverse change in your reporting relationship from those in effect immediately prior to the Change of Control; (B) A reduction in your pay grade or bonus opportunity as in effect immediately prior to the Change of Control or as the same may thereafter be increased from time to time during the term of this Agreement; (C) The failure to continue in effect any compensation plan in which you participate at the time of the Change of Control, including but not limited to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan ("LTIP") and the RJR Nabisco, Inc. Annual Incentive Award Plan (the "AIAP"), or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing you with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue your participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (D) The taking of any action which would directly or indirectly materially reduce any of the benefits to be provided under Section 6(c) or deprive you of any material fringe benefit enjoyed by you at the time of the Change of Control, or the failure to provide you with the number of paid vacation days to which you are entitled on the basis of the Company's practice with respect to 5 you as in effect at the time of the Change of Control; (E) Any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (b) below; provided further that for purposes of this Agreement, no such purported termination shall be effective; (F) Any material breach by Holdings or the Company of any provision of this Agreement including, but not limited to any provision of Section 6, or any agreements entered into pursuant hereto; or (G) Requiring you to be based at any office or location more than 50 miles from the office or location at which you were based immediately prior to such Change of Control, except for travel reasonably required in the performance of your responsibilities. (b) Notice of Termination. After a Change of Control, any --------------------- purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, after a Change of Control a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (c) Date Of Termination, Etc. Following a Change of Control, ------------------------ "Date of Termination" shall mean (i) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), (ii) if your employment is terminated by reason of your death, the date of your death, and (iii) if your employment is terminated by reason of your Retirement, for Cause, for Good Reason or for any other reason (other than Disability or death), the date specified in the Notice of Termination (which in the case of a termination for Cause following a Change of Control shall not be less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given). 6 4. Compensation Upon Termination. ----------------------------- Upon termination of your employment, subject to your execution of a release of claims against Holdings and/or the Company (in the relevant form set forth in Exhibit A if such termination is without Cause or for Good Reason after a Change of Control), you shall be entitled to the following benefits: (a) If your employment shall be terminated by the Company for Cause, or by you other than following a Change of Control for Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and any amounts to be paid to you pursuant to the Company's retirement and other benefit plans of the Company then in effect, and Holdings and/or the Company shall have no further obligations to you under this Agreement. (b) If your employment shall be terminated by reason of your voluntary Retirement, Disability or death, the Company shall pay you or your estate, as the case may be, your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given or the time of your death, as the case may be. Benefits to you, your beneficiaries or your estate, as the case may be, shall be determined in accordance with the Company's retirement, benefit, disability and insurance plans and programs in effect at the time of such termination. (c) If, other than during the twenty-four month period following a Change of Control, your employment shall be involuntarily terminated by the Company other than for Cause, you shall be entitled to the payments and benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and, except as set forth below, all other amounts to which you are entitled under any compensation or benefit plan of the Company including, but not limited to, the AIAP and LTIP at the times such payments are due under the terms of such plans; (ii) The Company shall pay to you in seventy-two equal semi- monthly installments an amount 7 equal to two times the sum of (x) your annual base salary as in effect immediately prior to such termination and (y) the amount of your target award under the AIAP as in effect at the time of such termination; (iii) The Company shall provide you with the benefits under the RJR Nabisco, Inc. Flexible Perquisites Program (the "Perquisites Program") for the thirty-six month period following such termination; (iv) The Company shall provide you with the opportunity to participate in the medical and dental plans as provided under the SELECT Omnibus Welfare Plan as in effect for active employees other than the Short and Long Term Disability Plans (or similar coverage as may be provided for active employees), the core life, optional life, and accidental death and dismemberment insurance coverage provided under the SELECT Omnibus Insurance Plan as in effect for active employees (or similar coverage as may be provided for active employees), and the Executive Medical Plan as in effect for active employees until the end of the 36 month period after such termination, subject to any applicable coordination of benefits rules. (v) You shall be paid for any unused vacation for the year of termination, for vacation accrued to your Date of Termination for the following calendar year, and/or any accumulated vacation (if applicable) from previous years, all in accordance with the normal practice of the Company. (vi) You shall be entitled to outplacement assistance pursuant to the Company's normal practice for the 12-month period following your Date of Termination at an out-of-pocket cost to the Company not to exceed 18% of annualized Base Pay. (vii) You shall continue to participate in the Retirement Plans and Savings Plans, as defined in Exhibit B, for purposes of benefit accrual and employer matching contribution, as applicable, for 36 months. 8 (viii) If you are at least age 55 with at least ten years of service including any period of severance, you shall be eligible for MedChoice Retiree Medical benefits as in effect for other retirees and as amended from time to time thereafter. (ix) If your Date of Termination occurs prior to March 1, 1996, you shall be entitled to any applicable additional benefits and protections provided under the Headquarters Program. (d) If within the twenty-four month period following a Change of Control your employment by the Company shall be terminated (x) by the Company other than for Cause and other than because of your death, Disability or voluntary Retirement or (y) by you for Good Reason, then, effective as of the Date of Termination, in lieu of any benefits which you otherwise would be eligible to receive under Section 4 (c) above, you shall be entitled to the payments and benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and, except as set forth below, all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due under the terms of such plans, or as otherwise provided herein. (ii) The Company shall pay to you, not later than 15 business days following the Date of Termination, a lump sum cash payment equal to (A) your AIAP Vested Amount, PS Vested Amount and PU Vested Amount (each as defined in Exhibit B) as of the Date of Termination plus (B) two (2) times the sum of (I) your annual base salary as in effect immediately prior to the Change of Control or the Date of Termination if higher and (II) the amount of your AIAP target award as in effect at the time of such termination or, if higher, as in effect immediately prior to the Change of Control (all as defined in Schedule B). The amount of the payment under this Section 4(d)(ii)(B) shall be discounted to its present value, based on a notional payment period of 36 months, assuming equal semi-monthly payments and a discount rate equal to the product of (x) the 3-year Treasury bond yield as published 9 in the New York Times on the first of the month in which the Termination Date occurs and (y) 100% minus the aggregate applicable federal, state and local taxes then imposed on your employment income computed at the maximum applicable marginal rates. (iii)(A) The Company shall pay to you a lump sum cash payment equal to three times the value of the annual credit under the Perquisites Program to which you were entitled immediately prior to such termination or, if higher, to which you were entitled immediately prior to the Change of Control, reduced by such credits as would otherwise be applied to the continued benefits under Section 4(d)(iii)(C) below. (B) You shall be entitled to use the automobile assigned to you immediately prior to the Change of Control for 36 months following such termination and, at the end of such 36 month period, ownership of such automobile shall be transferred to you. At the time of such transfer, the Company shall pay to you such amount in cash that after payment of all applicable federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed in connection with such transfer. (C) The Company shall provide you with benefits equivalent to those provided under the Perquisites Program immediately prior to the Change of Control for 36 months following such termination. (iv) The Company shall provide you with the opportunity to participate in medical and dental plans and in core life, optional life, and accidental death and dismemberment insurance coverage no less favorable in the aggregate than provided under the SELECT Omnibus Welfare Plan (other than the Short and Long Term Disability Plans), the SELECT Omnibus Insurance Plan, and the Executive Medical Plan, as such plans are in effect for active employees immediately prior to such Change of Control, until the end of the 36 month period after such termination, subject to any applicable coordination of benefits rules. 10 (v) The Company shall pay to you, not later than 15 business days following the Date of Termination, a lump sum cash payment for any unused vacation for the year of termination, for vacation accrued to the Date of Termination for the following calendar year, and/or any accumulated vacation (if applicable) from previous years, all in accordance with the normal practice of the Company immediately prior to such Change of Control. (vi) (A) You shall receive 36 months of service credit ("Additional Credited Service") under the Retirement Plans and Savings Plans for purposes of benefit accrual and employer matching contribution, as applicable, based on the same formula and matching amount as in effect immediately prior to such Change of Control. (B) Within 15 days following the Date of Termination, the Company shall pay to you in cash a lump sum equal to (x) the actuarial present value of such portion, if any, of the benefit resulting from such Additional Credited Service as may not be accrued under the qualified Retirement Plans and/or Savings Plans plus (y) the actuarial present value of all accruals as of the Date of Termination under the non-qualified Retirement Plans and Savings Plans in which you participate. (vii) If you have between three and five years of credited service under the Retirement Plans, including Additional Credited Service, you shall be deemed to receive further credited service under the Retirement Plans for purposes of both vesting and accrual of benefits sufficient to bring you to 5 years of credited service. The actuarial present value as of the Date of Termination of any resulting increase in benefits thereunder, computed based on the formula in effect immediately prior to such Change of Control, shall be paid to you within 15 days of the Date of Termination in cash in a lump sum. (viii) If you are at least age 50 with at least five years of service, including Additional Credited Service under Section 4(d)(vi) but not under Section 4(d)(vii), you shall be entitled (in addition to and upon the expiration of the benefits provided pursuant to Section 4(d)(iv)) to 11 MedChoice Retiree Medical benefits as in effect for other retirees and as amended from time to time thereafter at the minimum level of Company subsidy or, if greater, the subsidy level based on actual years of service. (ix) If you had relocated to New York or New Jersey at the Company's request during or after 1989, you shall, if you make a written request within twelve months of your Date of Termination, be entitled to a moving and relocation benefit to a new job location in accordance with the terms and limitations of the Company's relocation program as in effect immediately prior to the Change of Control. (x) You shall be entitled to outplacement assistance pursuant to the Company's normal practice for the 12-month period following your Date of Termination, in an amount not to exceed 18% of annualized Base Pay. (xi) If the Company fails to provide any of the benefits under Section 4(d)(iv) or Section 4(d)(viii) above, the Company shall reimburse you for the actual cost of your obtaining comparable benefits within 15 business days after the date you give the Company written notice that you incurred such costs plus such additional amount that after payment of all applicable Federal, state and local taxes thereon, computed at the maximum marginal rates, is equal to all such taxes, so computed, imposed with respect to such reimbursement. (xii)(A) Anything herein to the contrary notwithstanding, in the event that it is determined that any payment or distribution by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms hereof or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the" Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive, within 15 days following the determination described in Section 4(d)(xii)(B) 12 below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by you of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, you shall retain an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. (B) All determinations required to be made under this Section 4(d)(xii), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by Ernst & Young, Winston-Salem, North Carolina, or such other accounting firm as the Company may designate prior to a Change of Control, which shall provide to the Company and you detailed supporting calculations within 15 business days of the date of your termination of employment. Except as hereinafter provided, any determination by Ernst & Young, Winston-Salem, North Carolina, or such other accounting firm as the Company may designate prior to a Change of Control, shall be binding upon the Company and you. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination hereunder, it is possible that (x) Excise Tax Adjustment Payments which should have been made will not have been made by the Company ("Underpayment"), or (y) certain Payments will have been made which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, the Company shall promptly determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Employer. (xiii) The Company shall also pay to you as incurred all legal and accounting fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, in seeking to obtain or enforce any right or benefit provided by this Agreement or any other 13 compensation-related plan, agreement or arrangement of the Company) unless your claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous. 5. Special Bonus Payments. Upon a Change of Control, subject to ---------------------- your execution of a release of claims against Holdings and the Company in the relevant form set forth on Exhibit A, the Company shall pay to you a special cash bonus payment equal to the sum of (a) a cash payment in respect of each option you hold under the LTIP equal to the higher of (i) the excess, if any, of the Fair Market Value (as defined in the LTIP) over -- the option price of such option multiplied by the number of Shares (as defined in the LTIP) subject to such option or (ii) the value of such option using the Black Scholes method of valuing such option, based on the following assumptions: Fair Market Value (as so defined), a risk free factor equal to the average rate for zero coupon United States government issues with a remaining term equal to the expected term of the option, a dividend yield calculated by dividing the annual dividend by the Fair Market Value, and volatility of 35.6% (the 4 1/2 year weighted average volatility of the Shares); and (b) your AIAP Vested Amount, your PS Vested Amount and your PU Vested Amount (all as of the date of the Change of Control and all as defined in Exhibit B). Notwithstanding the foregoing, in the event that following a Change of Control any performance period within which such Change of Control occurred relating to any award under the AIAP or of Performance Units or Performance Shares under the LTIP (as such terms are defined therein) is completed prior to your termination of employment, upon such completion you shall be entitled to payment in respect of each such award of an amount, if any, equal to the excess of the value of such award, based on actual performance for such performance period, over the AIAP Vested Amount, PU Vested Amount or PS Vested Amount, as the case may be, previously paid to you upon such Change of Control in respect of such AIAP award, Performance Units or Performance Shares. 6. Successors: Binding Agreement; Undertaking. (a) Holdings and ------------------------------------------ the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Holdings and the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Holdings and the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Holdings" and/or the "Company" shall mean Holdings or the 14 Company, respectively, as hereinbefore defined and any successor to the business and/or assets of either of them as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change of Control, the term "Company" shall also mean any affiliate of the Company to which you may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change of Control the term "Company" shall not mean any affiliate of the Company to which you may be transferred unless you shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devises, legatee or other designee or, if there is no such designee, to your estate. (c) (i) During the two-year period following a Change of Control, there shall be no reduction in the benefit formula of the Retirement Plans or the employer matching contribution amount of the Savings Plans except as may be required by the Code or the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"); and (ii) The Company shall maintain for not less than two years following a Change of Control programs providing benefits on a basis no less favorable in the aggregate than provided under the SELECT Omnibus Welfare Plan, the Executive Medical Plan, the SELECT Omnibus Insurance Plan and the Perquisites Program, or successor programs, all as in effect for active employees immediately prior to such Change of Control. 7. Notice. For the purpose of this Agreement, notices and all ------ other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first 15 page of this Agreement; provided that all notices to Holdings or the -------- Company shall be directed to the attention of the Board with a copy to the Secretaries of the Company and of Holdings, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Amendments; Waivers; Mitigation; Other Plans. (a) Except as -------------------- ----------------------- otherwise specifically provided herein, no provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officers as may be specifically designated by the respective Boards. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. (b) You shall not be required to mitigate the amount of any payment provided for in Section 4 by seeking other employment or otherwise, nor except to the extent provided in Section 4(c)(iv) or Section 4(d)(iv), shall the amount of any payment or benefit provided for in Section 4(c) or Section (d) hereof be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise. (c) Except as provided in this Agreement, if you are a participant in the LTIP or any other stock award plan of Holdings or an affiliate and have outstanding awards thereunder, the treatment of such awards shall be governed by the terms of such applicable plans and awards. 9. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the substantive law (and not the choice of law rules) of the State of New York. 10. Validity. If any provision of this Agreement shall be -------- declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision 16 of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be signed in several ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. Arbitration. Following a Change of Control, any dispute or ----------- controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. The determination of the arbitrator shall be conclusive and binding on the parties and judgment may be entered on the arbitrator's award in any court having jurisdiction. 13. Continued Employment. You agree to be bound by the terms and -------------------- conditions of this Agreement and to remain in the employ of the Company during any period following any public announcement by any person of any proposed transaction or transactions which, if effected, would result in a Change of Control until a Change of Control has taken place or, in the opinion of the Holdings Board, such person has abandoned or terminated its efforts to effect a Change of Control. Subject to the foregoing, nothing contained in this Agreement shall impair or interfere in any way with your right to terminate your employment or the right of the Company or any subsidiary to terminate your employment with or without cause prior to a Change of Control. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and you. 14. Payment Obligations Absolute; Obligor. Subject to your ------------------------------------- execution of the relevant release of claims against Holdings and/or the Company in the form set forth on Exhibit A hereto, following a Change of Control, Holdings' and the Company's obligations to make all payments and honor all commitments under this Agreement shall be absolute and unconditional and shall not be affected by any circumstances including, without limitation, any set-off, counterclaim, recoupment, defense or other right which Holdings or the Company may have against you. In default of any payment or provision of benefits hereunder by the Company following a Change of Control, such payment or benefit shall be the obligation of Holdings. 15. Interest on Late payments. To the extent that any payments ------------------------- required to be made hereunder following a 17 Change of Control are not made within the period specified therefor, the Company shall be liable for interest on such delayed payments at the rate of 150% of the prime rate compounded monthly, as posted by the Morgan Guaranty Trust Company of New York, from time to time. 16. Withholding. Payments under this Agreement will be subject ----------- to normal deductions for taxes and other legally required withholding. 17. Actuarial Calculations. All required actuarial calculations ---------------------- of payments to be made hereunder shall be made by Watson Wyatt Worldwide, New York, New York, or such other actuarial firm as the Company may designate prior to a Change of Control. 18. Funding. All benefits hereunder are unfunded and will be ------- paid out of the general assets of the Company or Holdings. Notwithstanding the foregoing, the Company or Holdings may choose to maintain a rabbi trust or trusts for the purpose of paying certain of the benefits hereunder or under other plans and programs of the Company or Holdings and, if so, you shall be entitled to payments therefrom, if any, as and to the extent provided in such rabbi trust or trusts. 18 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, RJR NABISCO HOLDINGS CORP. By: --------------------------- Name: Steven F. Goldstone Title: President RJR NABISCO, INC. By: --------------------------- Name: Steven F. Goldstone Title: President [FirstName] [LastName] Agreed to this day of ------ , 1995 - ---------------- - ----------------------------- 19 EXHIBIT A FORM OF RELEASE AGREEMENT ------------------------- [ ] [Incorporation of terms of Employment Contract] [ ] [Acknowledgment that Release Agreement is the entire agreement to provide severance benefits.] [ ] [Description of Benefits to be provided] [ ] You shall maintain the terms and conditions of this Agreement in confidence. In addition, you will not disclose to any other employer or person any trade secrets or other proprietary, non-public, or confidential information pertaining to the Company. You will return all Company information or documents in whatever form, except information relating to your personal employee benefits or executive compensation. In accordance with normal ethical and professional standards, you will refrain from taking actions or making statements, written or oral, which defame the goodwill or reputation of the Company, its directors, officers, executives and employees or which constitute willful misconduct under circumstances where it is reasonable for you to anticipate or to expect that the natural consequences of such conduct by you will be to affect adversely the business or reputation of the Company or its affiliates, or the morale of other employees. [ ] a) You agree that you will personally provide reasonable assistance and cooperation to the Company in activities related to the prosecution or defense of any pending or future lawsuits or claims involving the Company. b) You will promptly notify the Company if you receive any requests from anyone other than an employee or agent of the Company for information regarding the Company or if you become aware of any potential claim or proposed litigation against the Company. c) You will refrain from providing any information related to any claim or potential litigation against the Company to any non-Company representatives without either the Company's written permission or being required to provide information pursuant to legal process. d) If required by law to provide sworn testimony regarding any Company-related matter, you will consult with and have Company- designated legal counsel present for such testimony. e) The Company will be responsible for the costs of such designated counsel and you will bear no cost for same. f) You will confine your testimony to items about which you have knowledge rather than speculation, unless otherwise directed by legal process. g) You will cooperate with the Company's attorneys to assist their efforts, especially on matters you have been privy to, holding all privileged attorney-client matters in strictest confidence. Nothing in sentences c-g of the above paragraph is intended to apply to governmental or judicial investigations, including, but not limited to, an investigation by any agency or department of the Federal or state government, any hearing before a committee of the Congress of the United States or of a state legislature, any investigation or proceeding by or of a special prosecutor, or any proceeding by or before a grand jury; provided, however, the Company will reimburse you for legal expenses including, but not limited to, the cost of any attorney reasonably acceptable to the Company and other out-of-pocket expenses if you are compelled to appear in a governmental or judicial investigation. [ ] IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS AGREEMENT, YOU VOLUNTARILY, KNOWINGLY AND WILLINGLY RELEASE AND FOREVER DISCHARGE THE COMPANY, ITS PARENTS, SUBSIDIARIES AND AFFILIATES, TOGETHER WITH THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, AND EACH OF THEIR PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM ANY AND ALL CHARGES, COMPLAINTS, CLAIMS, PROMISES, AGREEMENTS, CONTROVERSIES, CAUSES OF ACTION AND DEMANDS OF ANY NATURE WHATSOEVER WHICH AGAINST THEM YOU OR YOUR EXECUTORS, ADMINISTRATORS, SUCCESSORS OR ASSIGNS EVER HAD, NOW HAVE OR HEREAFTER CAN, SHALL OR MAY HAVE BY REAS0N OF ANY MATTER, CAUSE OR THING WHATSOEVER ARISING TO THE TIME YOU SIGN THIS AGREEMENT. YOU FURTHER AGREE THAT YOU WILL NOT SEEK OR BE ENTITLED TO ANY AWARD OF EQUITABLE OR MONETARY RELIEF IN ANY PROCEEDING OF ANY NATURE BROUGHT ON YOUR BEHALF ARISING OUT OF ANY OF THE MATTERS RELEASED BY THIS PARAGRAPH. THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO, ANY RIGHTS OR CLAIMS RELATING IN ANY WAY TO YOUR EMPLOYMENT RELATIONSHIP WITH THE COMPANY, OR THE TERMINATION THEREOF, OR UNDER ANY STATUTE, INCLUDING THE AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT, THE AMERICANS WITH DISABILITIES ACT, THE NEW YORK STATE AND CITY HUMAN RIGHTS LAWS OR ANY OTHER FEDERAL, STATE OR LOCAL LAW. [ ] By signing this Agreement, you represent that you have not commenced any proceeding against the Company in any forum (administrative or judicial) concerning your employment or the termination thereof. You further acknowledge that you were given sufficient notice under 2 the Worker Adjustment and Retraining Notification Act (the "WARN Act") and that the termination of your employment does not give rise to any claim or right to notice, or pay or benefits in lieu of notice under the WARN Act. In the event any WARN Act issue does exist or arises in the future, you agree and acknowledge that the payments and benefits set forth in this Agreement shall be applied to any pay or benefits in lieu of notice required by the WARN Act, provided that any such offset shall not impair or affect the validity of any provision of this Agreement, including the release set forth in paragraph [ ]. [ ] The Company advises you that you may wish to consult with an attorney of your choosing prior to signing this Agreement. You understand and agree that you have the right and have been given the opportunity to review this Agreement and, specifically, the release in paragraph [ ], with an attorney of your choice should you so desire. You have entered into this Agreement freely, knowingly and voluntarily. [ ] You have at least twenty-one days to consider the terms of this Agreement, although you may sign and return it sooner if you wish. This Agreement may be revoked by you for a period of seven (7) consecutive calendar days after you have signed and dated it, and after such seven (7) days, it becomes final. 3 EXHIBIT B DEFINITIONS AIAP Vested Amount means, as of a Change of Control or as of the ------------------ date your employment terminates after a Change of Control, as the case may be, an amount equal to the value of your target award under the AIAP for the relevant performance period in which the Change of Control or such termination occurs, as the case may be, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending on the Change of Control or such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which a Change of Control occurs, for purposes of computing the AIAP Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and the target award shall be that in effect immediately preceding such Change of Control. PS Vested Amount means, with respect to any award of Performance ---------------- Shares (as defined in the LTIP) you hold as of a Change of Control or as of the date your employment terminates after a Change of Control, as the case may be, an amount equal to the adjusted value of (i) the number of Performance Shares subject to such award, multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period, (ii) adjusted by applying target performance with respect to such award; provided that in the event of a termination of employment following a Change of Control in the year in which such Change of Control occurs, for purposes of computing the PS Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and target performance with respect to such Performance Shares shall be that in effect immediately preceding such Change of Control. PU Vested Amount means, with respect to any award of Performance ---------------- Units (as defined in the LTIP) you hold as of a Change of Control or as of the date your employment terminates, as the case may be, an amount equal to the target value of the number of Performance Units subject to such award multiplied by a fraction, the numerator of which is the number of months (including partial months) elapsed in the relevant performance period as of the Change of Control or as of the date of such termination, as the case may be, and the denominator of which is the number of months in such performance period; provided that in the event of a termination of employment following a Change of Control in the year in which a Change of Control occurs, for purposes of computing the PU Vested Amount as of the date of such termination, the performance period shall be deemed to begin on the first day following the Change of Control and the target value of such Performance Units shall be that in effect immediately preceding such Change of Control. Retirement Plans means the Retirement Plan for Employees of RJR --------------- Nabisco, Inc., the RJR Nabisco, Inc. Additional Benefits Plan, the RJR Nabisco, Inc., Supplemental Benefits Plan and the RJR Nabisco, Inc. Supplemental Executive Retirement Plan, and such other plans as the Board may hereafter determine. Savinqs Plans means the RJR Nabisco, Inc. Capital Investment ------------- Plan, the RJR Nabisco, Inc. Additional Benefits Plan and the RJR Nabisco, Inc. Supplemental Benefits Plans and such other plans as the Board may hereafter determine. Year of Service means each completed 12-month period of service --------------- by you with the Company or any other affiliate of the Company, including periods of approved leaves of absence, up to the last day of active employment. 2 EX-10.85 36 Exhibit 10.85 STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES OF RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES (As Amended and Restated Effective December 5, 1995) RJR Nabisco Holdings Corp., a Delaware corporation, hereby adopts this amendment and restatement of the Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries. The purposes of this Plan are as follows: (1) To further the growth, development and financial success of Holdings by providing additional incentives to certain of its Directors and Key Employees who have been or will have or be given responsibility for the management or administration of Holdings' business affairs by assisting them to become owners of capital stock of Holdings and thus to benefit directly from its growth, development and financial success. (2) To enable Holdings to obtain and retain the services of, and business relationships with, the type of professional, technical and managerial Employees and Directors considered essential to the long range success of Holdings by providing and offering them an opportunity to become owners of capital stock of Holdings under Options. ARTICLE I DEFINITIONS ----------- Section 1.1 - General - ----------- ------- Whenever the following terms are used in this Plan they shall have the meaning specified below unless the context clearly indicates to the contrary. Section 1.2 - Affiliated Director - ----------- ------------------- "Affiliated Director" shall mean a Director who is an employee or officer of an entity which owns at least 25% of the outstanding Common Stock, or any affiliate thereof (other than Holdings or any Subsidiary). Section 1.3 - Board - ----------- ----- "Board" shall mean the Board of Directors of Holdings. Section 1.4 - Code - ----------- ---- "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.5 - Committee - ----------- --------- "Committee" shall mean the Compensation Committee of the Board or any other committee appointed by the Board pursuant to Section 7.1. Section 1.6 - Common Stock - ----------- ------------ "Common Stock" shall mean the Common Stock, par value $0.01 per share, of Holdings. Section 1.7 - Director - ----------- -------- "Director" shall mean a member of the Board. Section 1.8 - Eligible Director - ----------- ----------------- "Eligible Director" shall mean a Director who (i) has never been an employee or officer of Holdings or any Subsidiary and (ii) has never been an employee or officer of any entity which owns at least 25% of the outstanding Common Stock, or any affiliate thereof. Section 1.9 - Employee - ----------- -------- "Employee" shall mean any employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of Holdings, or of any corporation which is then a Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan or any other person providing goods or services to Holdings or its subsidiaries, as the Committee may determine in its discretion. Section 1.10 - Holdings - ------------ -------- "Holdings" shall mean RJR Nabisco Holdings Corp., a Delaware Corporation. 2 Section 1.11 - Option - ------------ ------ "Option" shall mean an option granted under the Plan to purchase Common Stock. Options include only options which are not intended to be "incentive stock options" under Section 422 of the Code. Section 1.12 - Option Price - ------------ ------------ "Option Price" shall have the meaning given in Sections 4.2 and 5.2, as appropriate. Section 1.13 - Optionee - ------------ -------- "Optionee" shall mean an Employee or Director to whom an Option is granted under the Plan. Section 1.14 - Plan - ------------ ---- "Plan" shall mean the Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries. Section 1.15 - Secretary - ------------ --------- "Secretary" shall mean the Secretary of Holdings. Section 1.16 - Subsidiary - ------------ ---------- "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with Holdings if each of the corporations, or if each group of commonly controlled corporations, other than the last corporation in an unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3 ARTICLE II SHARES SUBJECT TO PLAN ---------------------- Section 2.1 - Shares Subject to Plan - ----------- ---------------------- The shares of stock subject to Options shall be shares of Common Stock. The aggregate number of shares of Common Stock which may be issued upon exercise of Options shall not exceed 30,000,000. Section 2.2 - Unexercised Options - ----------- ------------------- If any Option expires or is canceled without having been fully exercised, the number of shares subject to such Option but as to which such Option was not exercised prior to its expiration or cancellation may again be optioned hereunder, subject to the limitations of Section 2.1. ARTICLE III GRANTING OF OPTIONS ------------------- Section 3.1 - Eligibility - ----------- ----------- Any Eligible Director, Affiliated Director, or key Employee of Holdings or of any Subsidiary shall be eligible to be granted Options as set forth in this Article III. Section 3.2 - Granting of Options to Directors - ----------- -------------------------------- (a) Each Eligible Director who is elected to serve on the Board on or after March 1, 1994 shall be granted an Option to purchase an aggregate 6,000 shares of Common Stock. Such Option shall be granted only once to each Eligible Director as soon as practicable following the Director's initial election to serve on the Board and shall be subject to the terms and conditions set forth in Article IV. (b) In addition to Options granted pursuant to Section 3.2(a), each Eligible Director and each Affiliated Director shall receive an annual grant of an Option to purchase the number of shares of Common Stock determined pursuant to the following formula (rounded up to the next multiple of 100): 15,000 --------- (A x .37) 4 Where "A" equals the final closing price of Common Stock (as reported on the New York Stock Exchange consolidated tape) on the date of grant, and the factor ".37" is derived from the growth model projection for the value of Common Stock. Such Option shall be granted annually on the date of such Director's election or re-election to serve on the Board; provided, however, that the grant for 1994 shall be made on October 4, 1994. All Options granted pursuant to this Section 3.21(b) shall be subject to the terms and conditions set forth in Article IV. Section 3.3 - Granting of Options to Employees - ----------- -------------------------------- The Committee shall from time to time, in its absolute discretion: (i) Determine which Employees are key Employees and select from among the key Employees (including those to whom Options have been previously granted under the Plan) such of them as in its opinion shall be granted Options; and (ii) Determine the number of shares to be subject to such Options granted to such selected key Employees; and (iii) Determine the terms and conditions of such Options, consistent with the Plan; and (iv) Establish such conditions as to the manner of exercise of such Options as it may deem necessary, including but not limited to requiring Optionees to enter into agreements regarding transferability and other restrictions with respect to shares issuable upon exercise of such Options. ARTICLE IV TERMS OF OPTIONS FOR DIRECTORS ------------------------------ Section 4.1 - Formula Plan - ----------- ------------ With respect to Options granted to Eligible Directors and Affiliated Directors, the Plan is intended to qualify as a nondiscretionary formula plan, within the meaning of Rule 16b-3 (and any other applicable rule) promulgated by the Securities and Exchange Commission under Section 16(b) of 5 the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such rule or its equivalent or successor is then in effect ("Rule 16b-3"). The terms of such Options shall be consistent with the terms of this Article IV. To the extent that any provision of the Plan is not consistent with the "formula plan" requirements of Rule 16b-3, then such provision shall not apply to Options granted to Eligible Directors or Affiliated Directors. The grant of such Options may be evidenced by a Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of Holdings and which shall incorporate the terms and conditions of this Article IV. Section 4.2 - Option Price - ----------- ------------ The exercise price of each share of Common Stock subject to an Option granted pursuant to Section 3.2 shall be the final closing price of Common Stock (as reported on the New York Stock Exchange consolidated tape) on the date of grant. Section 4.3 - Commencement of Exercisability - ----------- ------------------------------ Options granted pursuant to Section 3.2(a) shall not be exercisable prior to six months after the date of grant, and thereafter shall be exercisable in full, subject to applicable securities regulations. Options granted pursuant to Section 3.2(b) shall be exercisable in three installments. The first installment shall be exercisable on the first anniversary of the date of grant for 33% of the number of shares of Common Stock subject to the Option. Thereafter, on each subsequent anniversary of the date of grant, an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to the Option until the Option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until the Option shall terminate, expire or be surrendered. An exercise shall before whole shares only. Section 4.4 - Expiration of Option - ----------- -------------------- The Option shall expire and may not be exercised to any extent after the expiration of ten years from the date the Option was granted. 6 ARTICLE V TERMS OF OPTIONS FOR KEY EMPLOYEES ---------------------------------- Section 5.1 - Option Agreement - ----------- ---------------- Options granted to key Employees shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of Holdings and which shall contain the terms and conditions of this Article V and such other terms and conditions as the Committee shall determine, consistent with the Plan. Section 5.2 - Option Price - ----------- ------------ (a) The price per share of the Common Stock subject to each Option granted pursuant to this Article V shall be set by the Committee. The price per share may be less than the fair market value of such shares on the date such Option is granted; provided that in no event shall the price per share be less than fifty (50%) percent of the fair market value of such shares on the date such Option is granted. (b) For the purpose of Section 5.2(a), the fair market value of a share of Common Stock on the date the Option is granted shall be the fair market value established by the Committee acting in good faith. Section 5.3 - Commencement of Exercisability - ----------- ------------------------------ Subject to the provisions of Section 8.2, Options granted pursuant to this Article V shall become exercisable at such times and in such installments (which may be cumulative) as the Committee shall provide in the terms of each individual Option; provided, however, that by a resolution adopted after an Option is granted the Committee may, on such terms and conditions as it may determine to be appropriate and subject to Section 8.2, accelerate the time at which such Option or any portion thereof may be exercised. Section 5.4 - Expiration of Options - ----------- --------------------- (a) No Option may be exercised to any extent by anyone after, and every Option shall expire no later than, the expiration of ten (10) years and one (1) day from the date the Option was granted. 7 (b) Subject to the provisions of Section 5.4(a), the Committee shall provide, in the terms of each individual Option, when such Option expires and becomes unexercisable. Section 5.5 - No Right to Continue in Employment - ----------- ---------------------------------- Nothing in this Plan or in any Stock Option Agreement hereunder (i) shall confer upon any Optionee who is an Employee any right to continue in the employ of Holdings or any of its Subsidiaries or (ii) shall interfere with or restrict in any way the rights of Holdings and its Subsidiaries, which are hereby expressly reserved, to terminate the employment of any Optionee at any time for any reason whatsoever, with or without good cause. Section 5.6 - Adjustments - ----------- ----------- (a) In the event of any change in the outstanding Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization or merger, change of control, or similar event, the Committee may adjust appropriately the number of Shares subject to the Plan and available for or covered by Grants and Share prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. (b) In the event of a Change of Control (as defined in paragraph 5.6(c) hereof): (i) Stock options granted pursuant to Section 5 hereof shall become fully vested and exercisable; provided; however, that the Committee may elect to make a cash payment to Participants in cancellation of such options in such amount as the Committee in its sole discretion shall determine, which amount shall not be less than the product of (x) and (y), where (x) is the excess of the Fair Market Value of Common Stock on the date of exercise over the exercise price, and (y) is the number of Shares subject to the stock options being cancelled; and further provided that no stock option grant shall be exercised less than 6 months after the date it is granted. (ii) The Committee shall have authority to revise the terms of any such Grant or any other Grant as it, in its discretion, deems appropriate; provided; however, that the Committee may not make revisions that are adverse to the Participant without the Participant's consent unless such revision is provided for or contemplated in the terms of the Grant. 8 (c) For purposes of the Plan, a "Change of Control" shall mean the first to occur of the following events or such later date as the Corporation may specify from time to time: (i) an individual, corporation, parmership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings or any employee benefit plans sponsored by Holdings or the Company, is or becomes the "beneficial owner' (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of Holdings' outstanding securities ordinarily having the right to vote at elections of directors. (ii) individuals who constitute the Holdings Board on October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Holdings' shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee of Holdings for director), but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Holdings Board, shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; (iii) the approval by the shareholders of Holdings of a plan or agreement providing (1) for a merger or consolidation of Holdings other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Holdings or such surviving entity outstanding immediately after such merger or consolidation, or (2) for a sale, exchange or other disposition of all or substantially all of the assets of Holdings. If any of the events enumerated in this paragraph (iii) occur, the Holdings Board shall determine the effective date of the Change of Control resulting therefrom for purposes of the Program. 9 ARTICLE VI EXERCISE OF OPTIONS ------------------- Section 6.1 - Persons Eligible to Exercise - ----------- ---------------------------- During the lifetime of the Optionee, only he or his guardian may exercise an Option granted to him, or any portion thereof. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under Section 4.4, 5.4 or 5.6, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. Section 6.2 - Partial Exercise - ----------- ---------------- At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof expires or becomes unexercisable under Section 4.4, 5.4, or 5.6, such Option or portion thereof may be exercised in whole or in part; provided, however, that Holdings shall not be required to issue fractional shares. With respect to Options granted to key Employees, the Committee may, in the Stock Option Agreement, require any partial exercise to be with respect to a specified minimum number of shares. Section 6.3 - Manner of Exercise - ----------- ------------------ An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his office all of the following prior to the time when such Option or such portion becomes unexercisable: (a) Notice in writing signed by the Optionee or other person then entitled to exercise such Option or portion thereof, stating that such Option or portion thereof is exercised; (b) Full payment of the Option Price (in cash, by check or by a combination thereof) for the shares with respect to which such Option or portion thereof is thereby exercised, together with payment or arrangement for payment of any federal income or other tax required to be withheld by Holdings with respect to such shares; (c) Such representations and documents as the Committee reasonably deems necessary or advisable to effect compliance with all 10 applicable provisions of the Securities Act of 1933, as amended and any other federal, state or foreign securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and (d) In the event that the Option or portion thereof shall be exercised pursuant to Section 6.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 6.4 - Rights as Stockholders - ----------- ---------------------- The holders of Options shall not be, nor have any of the rights or privileges of, stockholders of Holdings in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by Holdings to such holders. Section 6.5 - Transfer Restrictions - ----------- --------------------- The Committee, in its absolute discretion, may impose such restrictions on the transferability of the shares purchasable upon the exercise of an Option as it deems appropriate, and any such restriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. ARTICLE VII ADMINISTRATION --------------- Section 7.1 - Compensation Committee - ----------- ---------------------- The Plan shall be administered by the Compensation Committee of the Board. In its absolute discretion, the Board may appoint a different committee comprised of two or more Directors to administer all or a portion of the Plan. To the extent required to avoid liability under Section 16 of the Exchange Act, no person shall be eligible to serve on the Committee unless he is then a "disinterested person" within the meaning of Rule 16b- 3. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee shall be filled by the Board. 11 Section 7.2 - Duties and Powers of Committee - ----------- ------------------------------ It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Any such interpretations and rules shall be consistent with the basic purpose of the Plan to grant Options, including Incentive Stock Options and, with respect to Options granted to Eligible Directors or Affiliated Directors, shall be consistent with the designation of this Plan as a nondiscretionary formula plan within the meaning of Rule 16b-3. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan. The Committee may act either by vote at a telephonic or other meeting or by a memorandum or other written instrument signed by a majority of the Committee. Section 7.3 - Compensation; Professional Assistance; Good Faith Actions - ----------- --------------------------------------------------------- Members of the Committee shall not receive compensation for their services as members but all expenses and liabilities they incur in connection with the administration of the Plan shall be borne by Holdings. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, Holdings and the Officers and Directors of Holdings shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Optionees, Holdings and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by Holdings with respect to any such action, determination or interpretation. ARTICLE VIII MISCELLANEOUS PROVISIONS ------------------------ Section 8.1 - Options Not Transferable - ----------- ------------------------ No Option or interest or right therein 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 or by judgment, levy, attachment, garnishment or any other legal or equitable 12 proceeding (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 8.1 shall prevent transfers by will or by the applicable laws of descent and distribution. Notwithstanding the foregoing, the Committee, in its absolute discretion, may direct that a Stock Option Agreement provide that Options granted thereunder may be transferred to a "family member" of the Optionee or to a trust for the benefit of such family member. For purposes of the preceding sentence, "family member" with respect to an Optionee shall include the Optionee's parents, siblings, children or grandchildren. Section 8.2 - Amendment, Suspension or Termination of the Plan - ----------- ------------------------------------------------ (a) The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of Holdings' stockholders given within 12 months before or after the action by the Board or the Committee, no action of the Committee or the Board may, except as provided in Section 8.3, increase any limit imposed in Section 2.1 on the maximum number of shares which may be issued upon exercise of Options, reduce the minimum option price requirements in Section 4.2 or 5.2(a) or extend the limit imposed in this Section 8.2 on the period during which Options may be granted. Except as expressly permitted by the terms of the Plan, neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, alter or impair any rights or obligations under any Option theretofore granted. No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under this Plan after the expiration of ten years from the date the Plan is adopted or the date the stockholders of Holdings approve this Plan, if earlier. (b) Notwithstanding anything in Section 8.2(a) to the contrary, in no event may the provisions of Section 3.2 or Article IV be amended more frequently than once in six months, except as necessary to comport with changes to the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Section 8.3 - Adjustments in Outstanding Options - ----------- ---------------------------------- In the event that the outstanding shares of Common Stock subject to Options are, from time to time, changed into or exchanged for a different number or kind of shares of Holdings or other securities of Holdings by reason of a merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the aggregate number of shares which may 13 be issued pursuant to Section 2.1 hereof and the number and kind of shares or other consideration as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable. Any such adjustment made by the Committee shall be final and binding upon all Optionees, Holdings and all other interested persons. Section 8.4 - Effect of Plan Upon Other Options and Compensation Plans - ----------- -------------------------------------------------------- Nothing in this Plan shall be construed to limit the right of Holdings or any of its Subsidiaries (a) to establish any other forms of incentives or compensation for employees of Holdings or any of its Subsidiaries or (b) to grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. Section 8.5 - Titles - ----------- ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Section 8.6 - Pronouns - ----------- -------- The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates. I hereby certify that this amendment and restatement of the Plan was duly adopted by the Board of Directors of RJR Nabisco Holdings Corp. on December 5, 1995. Executed as of this 5th day of December, 1995. ----------------------------------- Secretary Corporate Seal 14 EX-10.86 37 Exhibit 10.86 Director's Option (Election) RJR NABISCO HOLDINGS CORP. STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES STOCK OPTION AGREEMENT ------------------------- DATE OF GRANT: W I T N E S S E T H: 1. Grant of Option. Pursuant to the provisions of the Stock Option --------------- Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. And Subsidiaries (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of 6,000 shares of Common Stock, no par value, of the Company, at the exercise price of $ per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of Option. ------------------- (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of whole shares to be purchased. The notice of exercise shall be accompanied by tender to the Company of cash for the full purchase price of the shares with respect to which such Option or portion thereof is exercised, together with payment for taxes pursuant to Section 8 herein. (b) This Option shall not be exercisable prior to six months after the Date of Grant, and thereafter, subject to applicable securities regulations, shall be exercisable in full. (c) If any shares of the Common Stock are to be disposed of in accordance with Rule 144 under the Securities Act of 1933 or otherwise, the Optionee shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to the Company an executed copy of any notice on Form 144 required to be filed with the SEC. 3. Expiration of Option. The Option shall expire or terminate and may -------------------- not be exercised to any extent by the Optionee after the tenth anniversary of the Date of Grant. 4. Transferability. Other than as specifically provided with regard to --------------- the death of the Optionee, this option agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Optionee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Optionee. 5. Consideration to the Company. In consideration of the granting of ---------------------------- this Option by the Company, the Optionee agrees to render faithful and efficient services to the Company, with such duties and responsibilities as shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the service of the Company or any Subsidiary as a director or in any other capacity or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries and their respective shareholders, which are hereby expressly reserved, in connection with the removal of the Optionee from the Board of Directors of the Company or any Subsidiary at any time for any reason whatsoever, with or without cause, subject to applicable law and the relevant certificate of incorporation and bylaws. 6. Adjustments in Option. In the event that the outstanding shares of --------------------- the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. -2- 7. Application Of Laws. The granting and the exercise of this Option ------------------- and the obligations of the Company to sell and deliver shares hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required. 8. Taxes. Any taxes required by federal, state, or local laws to be ----- withheld by the Company (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. 9. 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. 10. Administration and Interpretation. In consideration of the grant, --------------------------------- the Optionee specifically agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. 11. Other Provisions. ----------------- a) Titles are provided herein for convenience only and are not to serve as a basis for interpretation of the Agreement. b) This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement. c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. 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. -3- RJR NABISCO HOLDINGS CORP. By ---------------------------- Authorized Signatory - -------------------------------- Optionee Optionee's Taxpayer Identification Number: - -------------------------------- Optionee's Home Address: - -------------------------------- - -------------------------------- - -------------------------------- -4- EX-10.87 38 Exhibit 10.87 Director's Option (Annual) RJR NABISCO HOLDINGS CORP. STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES STOCK OPTION AGREEMENT ----------------------- DATE OF GRANT: W I T N E S S E T H: 1. Grant of Option. Pursuant to the provisions of the Stock Option --------------- Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. And Subsidiaries (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to (the "Optionee"), subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of shares of Common Stock, no par value, of the Company, at the exercise price of $ per share (the "Option"). A copy of the Plan is attached and made a part of this agreement with same effect as if set forth in the agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning. 2. Exercise of 0ption. ------------------ (a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of whole shares to be purchased. The notice of exercise shall be accompanied by tender to the Company of cash for the full purchase price of the shares with respect to which such Option or portion thereof is exercised, together with payment for taxes pursuant to Section 9 herein. (b) This Option shall be exercisable in three installments. The first installment shall be exercisable on the 1st of April following Date of Grant for 33% of the number of shares of Common Stock subject to this option. Thereafter, on each subsequent April 1st, an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to this Option until the option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only. (c) This Option shall not be exercisable prior to six months after the Date of Grant. (d) If any shares of the Common Stock are to be disposed of in accordance with Rule 144 under the Securities Act of 1933 or otherwise, the Optionee shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to the Company an executed copy of any notice on Form 144 required to be filed with the SEC. 3. Rights in the Event of Resignation or Non-Election to the Board. --------------------------------------------------------------- Except as may be otherwise provided in this Section 3, after the Optionee's resignation or non-election to the Board of Directors of the Company (the "Board"), the Option shall not become exercisable as to any shares in --- addition to those already exercisable pursuant to the schedule described in Section 2(b). Notwithstanding the foregoing, if a non-election of the Optionee to the Board is due to death or Permanent Disability (as defined in the Company's Long Term Disability Plan), the Option shall immediately become exercisable as to all shares. 4. Expiration of Option. The Option shall expire or terminate and may -------------------- not be exercised to any extent by the Optionee after the tenth anniversary of the Date of Grant. 5. Transferability. Other than as specifically provided with regard to --------------- the death of the Optionee, this 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. -2- 6. Consideration to the Company. In consideration of the granting of ---------------------------- this Option by the Company, the Optionee agrees to render faithful and efficient services to the Company, with such duties and responsibilities as shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the service of the Company or any Subsidiary as a director or in any other capacity or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries and their respective shareholders, which are hereby expressly reserved, in connection with the removal of the Optionee from the Board of Directors of the Company or any Subsidiary at any time for any reason whatsoever, with or without cause, subject to applicable law and the relevant certificate of incorporation and bylaws. 7. Adjustments in Option. In the event that the outstanding shares of --------------------- the Common Stock subject to the Option are, from time to time, changed into or exchanged for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 8. Application of Laws. The granting and the exercise of this Option ------------------- and the obligations of the Company to sell and deliver shares hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required. 9. Taxes. Any taxes required by federal, state, or local laws to be ----- withheld by the Company (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. 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. Administration and Interpretation. In consideration of the grant, ---------------------------------- the Optionee specifically agrees that the Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan -3- or the Agreement. The Committee may delegate its interpretive authority to an officer or officers of the Company. 12. Other Provisions. ----------------- a) Titles are provided herein for convenience only and are not to serve as a basis for interpretation of the Agreement. b) This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement. c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. 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: - --------------------------- - --------------------------- - --------------------------- -4- EX-11 39 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, 1995(A) 1994(A) 1993(A) ------------------------- ------------------------- -------------------------- PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED PRIMARY(B) FULLY DILUTED --------- ------------- --------- ------------- ---------- ------------- Average number of common and common equivalent shares outstanding during the period (in thousands): Common stock issued and outstanding at beginning of period (excluding shares related to value of restricted stock not earned)............ 325,107 325,107 269,602 269,602 268,930 268,930 Average number of shares of common stock issued during the period....................... 223 223 669 669 708 708 Average number of shares related to value of restricted stock earned during the period....... 146 146 135 135 201 201 Average number of stock options outstanding during the period and shares issuable under performance shares granted..... 1,167 1,320 2,483 2,726 -- 1,243 Average number of shares issuable on conversion of redeemable convertible preferred stock.... -- -- -- -- -- 2,100 Average number of shares issuable on conversion of senior converting debentures.......... -- -- -- -- -- 1,110 ESOP convertible preferred stock........................... -- 3,032 -- 3,094 -- 3,122 Average number of Series C Depositary Shares issued during the period(C).................. -- -- 34,736 34,736 -- -- --------- ------------- --------- ------------- ---------- ------------- Average number of common and common equivalent shares outstanding during the period (in thousands)................. 326,643 329,828 307,625 310,962 269,839 277,414 --------- ------------- --------- ------------- ---------- ------------- --------- ------------- --------- ------------- ---------- ------------- Net income (loss) applicable to common stock: Income (loss) before extraordinary item............. $ 627 $ 627 $ 764 $ 764 $ (3 ) $ (3) Interest on senior converting debentures (net of income taxes)......................... -- -- -- -- -- 17 Preferred stock dividends........ (110) (95) (131) (116) (68 ) (43) Income tax benefit on ESOP convertible preferred stock dividends...................... -- (3) -- (2) -- (1) --------- ------------- --------- ------------- ---------- ------------- Income (loss) before extraordinary item applicable to common stock................ 517 529 633 646 (71 ) (30) Extraordinary item--loss on early extinguishments of debt, net of income taxes and minority interest........................ (16) (16) (245) (245) (142 ) (142) --------- ------------- --------- ------------- ---------- ------------- Net income (loss) applicable to common stock................... $ 501 $ 513 $ 388 $ 401 $ (213 ) $ (172) --------- ------------- --------- ------------- ---------- ------------- --------- ------------- --------- ------------- ---------- ------------- Net income (loss) per common and common equivalent share: Income (loss) before extraordinary item............. $ 1.58 $ 1.60 $ 2.06 $ 2.08 $ (0.26 ) $ (0.11) Extraordinary item............... (0.05) (0.05) (0.79) (0.78) (0.53 ) (0.51) --------- ------------- --------- ------------- ---------- ------------- Net income (loss)................ $ 1.53 $ 1.55 $ 1.27 $ 1.30 $ (0.79 ) $ (0.62) --------- ------------- --------- ------------- ---------- ------------- --------- ------------- --------- ------------- ---------- -------------
- ------------ (A) The calculations of fully diluted earnings per share are antidilutive; therefore, primary earnings per share are used for financial statement purposes. The stockholders of RJRN Holdings approved a one-for-five reverse split of the Common Stock on April 12, 1995. Approximately, all amounts have been restated to reflect such reverse split. (B) The net loss per common and common equivalent share reported for the year ended December 31, 1993 would have increased by $.91 per share if the weighted average number of shares of Series A Depositary Shares outstanding during the period had been excluded from the earnings per share calculation. (C) Each Series C Depositary Share represents a one-tenth ownership interest in a share of Series C Preferred Stock of RJRN Holdings. EX-12.1 40 EXHIBIT 12.1 RJR NABISCO HOLDINGS CORP. 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, ------------------------------------------ 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Earnings before fixed charges: Income (loss) before extraordinary item............... $ 627 $ 764 $ (3) $ 776 $ 368 Provision for income taxes............................ 580 611 114 680 280 ------ ------ ------ ------ ------ Income (loss) before income taxes..................... 1,207 1,375 111 1,456 648 Interest and debt expense............................. 899 1,065 1,209 1,359 2,140 Interest portion of rental expense.................... 54 51 52 49 56 ------ ------ ------ ------ ------ Earnings before fixed charges(a)........................ $2,160 $2,491 $1,372 $2,864 $2,844 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Fixed charges: Interest and debt expense............................. $ 899 $1,065 $1,209 $1,359 $2,140 Interest portion of rental expense.................... 54 51 52 49 56 Capitalized interest.................................. 12 11 9 5 10 Preferred stock dividends(b).......................... 411 594 368 307 294 ------ ------ ------ ------ ------ Total fixed charges................................. $1,376 $1,721 $1,638 $1,720 $2,500 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Deficiency in the coverage of fixed charges by earnings before fixed charges....................... $ -- $ -- $ (266) $ -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges...................... 1.6 1.4 -- 1.7 1.1 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------------ (a) Includes non-cash amortization of trademarks and goodwill for each of the years in the five-year period ended December 31, 1995 of $636 million, $629 million, $625 million, $616 million and $609 million respectively. (b) Certain preferred stock dividend amounts are presented on a pre-tax equivalent basis. EX-12.2 41 EXHIBIT 12.2 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, ------------------------------------------ 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Earnings before fixed charges: Income (loss) before extraordinary item............... $ 638 $ 762 $ (4) $ 783 $ 349 Provision for income taxes............................ 594 614 116 693 301 ------ ------ ------ ------ ------ Income (loss) before income taxes..................... 1,232 1,376 112 1,476 650 Interest and debt expense............................. 872 1,065 1,186 1,359 2,140 Interest portion of rental expense.................... 54 51 52 49 56 ------ ------ ------ ------ ------ Earnings before fixed charges(a)........................ $2,158 $2,492 $1,350 $2,884 $2,846 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Fixed charges: Interest and debt expense............................. $ 872 $1,065 $1,186 $1,359 $2,140 Interest portion of rental expense.................... 54 51 52 49 56 Capitalized interest.................................. 12 11 9 5 10 ------ ------ ------ ------ ------ Total fixed charges................................. $ 938 $1,127 $1,247 $1,413 $2,206 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges...................... 2.3 2.2 1.1 2.0 1.3 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------------ (a) Includes non-cash amortization of trademarks and goodwill for each of the years in the five-year period ended December 31, 1995 of $636 million, $629 million, $625 million, $616 million and $609 million respectively. EX-21 42 Exhibit 21 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 ABCO Sp. Z.o.o. ? 1995 Poland Airco IHC, Inc. Mar 22, 1989 Delaware AO ISMA (60%)** Nov 09, 1992 Russia AO Kabisco Jul 05, 1994 Kazakhstan A/O Nabisco Aug 16, 1994 Russia AO Vostanovlenniy Tabak (48.46%) Oct 26, 1994 Russia Arjay Equipment Corporation Nov 08, 1968 Delaware Arjay Holdings, Inc. May 07, 1984 Delaware Associated Biscuits ** Mar 29, 1898 England Avare (I.C.P.A. Cerqeirense Ltda) ? Brazil Batavia Inc. Jul 31, 1951 New Jersey Beech-Nut Life Savers (Panama) S.A. Jul 12, 1963 Panama Beijing Nabisco Food Company Limited (91.9%) Mar 16, 1995 China Bisco Services B.V. Dec 22, 1988 Netherlands Camel Racing Inc.* Jun 22, 1989 Canada Carnes y Conservas Espanolas, S.A. (CARCESA) Dec 02, 1975 Spain 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 Club - Cigarettenfabrik GmbH **** Aug 27, 1990 Germany Colophon Company Limited * Jul 09, 1981 Bermuda Comercial Benut, S.A. de C.V. ** Mar 16, 1977 Mexico Compania Venezolana de Conservas C.A. Jul 25, 1969 Venezuela Consiber, S.A. Mar 31, 1979 Spain Covenco Holding C.A. Nov 26, 1991 Venezuela Dely, S.A. Dec 18, 1960 Guatemala Distribuidora Pan Americana, S.A. Oct 22, 1974 Panama Establecimiento Modelo Terrabusi S.A. (99.1%) ? Argentina Exhold Limited Oct 03, 1989 Liberia 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 International, Inc. Nov 20, 1944 Delaware Fleischmann Peruana Inc. Sep 01, 1939 Delaware Fleischmann Uruguaya S.A. Mar 09, 1961 Uruguay * Inactive December 31, 1995 ** In Liquidation Page 1 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 RJR NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- 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 Galletas Artiach, S.A. Jul 23, 1932 Spain Galletera Tejerias, S.A. ? Venezuela 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 Grupo Gamesa, S.A. de C.V. (1%) Jul 29, 1981 Mexico Gumz Alimentos F.A. Industria e Comercio ? Brazil Hanover Servicing, Inc. Apr 13, 1992 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 Prnc Ed Is., Can. Huntley & Palmer Foods Pensions Limited ? 1967 England 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 Iracema Industrias de Caju S.A. Aug 08, 1978 Brazil Jupiter Produtos Alimenticios Ltda. Mar 02, 1962 Brazil 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 Loste-McVitie's Distribution Service, S.A. (50%) Oct 28, 1992 Spain Lowney Inc. Jan 01, 1983 Federal, Canada Mahachai Holding Co. Ltd. (49%) Jan 07, 1986 Thailand Marbu, S.A. Oct 26, 1967 Spain Merola Finance B.V. May 09, 1995 Netherlands MEX Holdings, Ltd. Nov 27, 1991 Delaware Modi RJR Limited (50%) *** Sep 24, 1993 India Mont Pelrin Inc. May 05, 1954 New Jersey NABEC, S.A. Nov 17, 1982 Ecuador * Inactive December 31, 1995 ** In Liquidation Page 2 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 RJR NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Nabisco ** Dec 24, 1908 England Nabisco Arabia ? Saudi Arabia Nabisco Argentina S.A. Mar 14, 1994 Argentina Nabisco Biscuit Manufacturing (Midwest), Inc.* Dec 21, 1988 New York Nabisco Biscuit Manufacturing (West), Inc.* Dec 21, 1988 New York Nabisco Brands Company Aug 01, 1995 Delaware Nabisco Brands Holdings Denmark Limited ? 1989 Liberia Nabisco Brands Nominees Limited ** Aug 22, 1983 England Nabisco Brands Trading Limited * 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 China Limited 1995 China Nabisco Chongqing Food Co., Ltd. Mar 01, 1995 China Nabisco de Nicaragua, S.A. (60%) Dec 10, 1965 Nicaragua Nabisco de Puerto Rico, Inc. Sep 21, 1951 New York Nabisco Direct, Inc. Aug 23, 1995 Delaware Nabisco Dominicana S.A. Dec 15, 1995 Dom. Repub. 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 Food (Suzhou) Co. Ltd. ? China Nabisco Group Ltd. Jun 02, 1995 Delaware Nabisco Group Pensions Investments Ltd. Jun 07, 1962 England Nabisco Group Pensions Limited Sep 13, 1977 England Nabisco Holdings Corp. (80.5%) Apr 21, 1981 Delaware Nabisco Holdings IHC, Inc. Mar 22, 1989 Delaware Nabisco Hong Kong Limited Apr 12, 1994 Hong Kong Nabisco Iberia, S.L. Jul 15, 1993 Spain Nabisco, Inc. Feb 03, 1898 New Jersey Nabisco, Inc. Foreign Sales Corporation Dec 17, 1991 US Virgin Is. Nabisco Indonesia ? Indonesia * Inactive December 31, 1995 ** In Liquidation Page 3 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 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 M.E./Africa (49%) ? Dubai, U.A.E. Nabisco International Market Development Group, Inc. Mar 22, 1989 Delaware Nabisco International, S.A. Nov 26, 1953 Panama Nabisco Investments, Inc. Mar 22, 1989 Delaware Nabisco Investments S.A. Mar 14, 1994 Argentina Nabisco Ltd Jan 01, 1993 Federal, Canada 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 Chile Limitada Mar 22, 1978 Chile Nabisco Royal Colombiana Inc. Jan 03, 1938 Delaware Nabisco Royal de Honduras S.A. Jul 22, 1982 Honduras Nabisco Royal del Ecuador, S.A. Sep 16, 1977 Ecuador Nabisco Royal Inc. Sep 03, 1932 Delaware Nabisco Royal Panama, S.A. Mar 07, 1979 Panama Nabisco S.A. de C.V. (99.5%) Jun 15, 1992 Mexico Nabisco Trading A.G. Aug 02, 1960 Switzerland Nabisco Venezuela, C.A. Nov 26, 1991 Venezuela National Biscuit Company **** Jan 17, 1971 Delaware Northern Brands International, Inc. Dec 10, 1992 Delaware Nova Zembla Inc. Aug 19, 1975 New Jersey Outdoor Traders International S.r.l. ** 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 Confitados Salvavidas de Guatemala, S.A. Jul 03, 1974 Guatemala Productos Royal S.A.* Dec 27, 1977 Argentina Produtos Alimenticios Fleischmann e Royal Ltda. Nov 28, 1964 Brazil * Inactive December 31, 1995 ** In Liquidation Page 4 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 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 (Cyprus) Limited Feb 20, 1990 Cyprus R. J. Reynolds-Da Nang Tobacco Company Limited (70%)*** Jan 24, 1995 Vietnam R. J. Reynolds Espana, S.L. (50%) Dec 16, 1992 Spain 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 B.V. ? 1995 Netherlands 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 Tabacos, 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 (Slovakia) Spol. s.r.o. Sep 20, 1993 Slovakia R. J. Reynolds (Thailand) Inc. Aug 06, 1992 Delaware R. J. Reynolds Tobacco A.G. Dagmersellen Mar 03, 1966 Switzerland 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 (Croatia) Ltd. * Dec 21, 1992 Croatia 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 International (Asia Pacific), Inc. Nov 27, 1978 Delaware R. J. Reynolds Tobacco International B.V. Sep 02, 1963 Netherlands 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 OY Jun 14, 1995 Finland R. J. Reynolds Tobacco International S.A. Nov 03, 1966 Switzerland * Inactive December 31, 1995 ** In Liquidation Page 5 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 RJR NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- R. J. Reynolds Tobacco - Kazakhstan (80%) Jun 30, 1994 Kazakhstan R. J. Reynolds Tobacco - Kremenchuk (70%) Jun 10, 1993 Ukraine R. J. Reynolds Tobacco Limited * Jun 18, 1975 New Zealand R. J. Reynolds Tobacco - Lviv JSC (70%) Oct 28, 1993 Ukraine R. J. Reynolds Tobacco (Magyarorszag) Kft Feb 27, 1991 Hungary R. J. Reynolds Tobacco (MAK)* Jul 25, 1994 Macedonia R. J. Reynolds Tobacco (Poland) Ltd. Jan 07, 1991 Poland R. J. Reynolds Tobacco (Romania) Ltd. Jul 06, 1993 Romania R. J. Reynolds Tobacco Rt Jul 28, 1992 Hungary R. J. Reynolds Tobacco Spol. s.r.o. Apr 12, 1991 Czech. 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. Jan 21,1993 Turkey Reynolds Manufacturing (Bulgaria) Ltd. (67%) * Dec 29, 1993 Bulgaria Reynolds Manufacturing (Romania) SRL (97%) Jul 12, 1993 Romania Reynolds Technologies, Inc. Mar 01, 1994 Delaware REYTAB Tutun Sanayi ve Ticaret AS Jun 10, 1986 Turkey Ritz Biscuit Company Limited **** Sep 28, 1989 England RJR-Armavirtabak (76%) Oct 24, 1994 Russia RJR (Bulgaria) Ltd. * Oct 27, 1993 Bulgaria RJR Central Asia Mar 10, 1995 Kazakhstan RJR Comercial Ltda. * Aug 18, 1977 Brazil 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 Federal, Canada RJR Marketing and Sales JSC Feb 16, 1995 Russia RJR Mauritius Private Limited Sep 27, 1993 Mauritius RJR Merchandise Marketing Company Aug 22, 1994 Delaware 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 Holdings Capital Trust I *** (3%) Jun 20, 1995 Delaware RJR-Nabisco Industries, Inc. Dec 13, 1985 Delaware RJR Nabisco (Philippines) Inc. Apr 22, 1992 Philippines RJR Nabisco Processing, Inc. ** Nov 21, 1994 Delaware RJR Nabisco Securities Ltd. Sep 28, 1987 Federal, Canada * Inactive December 31, 1995 ** In Liquidation Page 6 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 RJR NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- RJR-Petro (82%) *** May 07, 1992 Russia RJR Realty Relocation Services, Inc. Nov 01, 1994 N. Carolina 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 Eurasia, Inc. May 26, 1994 Delaware RJR Tobacco Holdings IHC, Inc. Mar 22, 1989 Delaware RJR Tobacco (Kiev) JSC Apr 09, 1993 Ukraine RJR Tobacco Russia Dec 05, 1991 Russia RJR Trade Promotion Co. Feb 18, 1993 Delaware RJRN Policy Institute, Inc. ** Dec 13, 1985 Delaware Royal Beech-Nut (Proprietary) Ltd. (49%) Jan 02, 1945 S. Africa Royal Brands Portugal Comercio e Industria Limitada Dec 23, 1916 Portugal Royal Food Products, S.A. Jul 02, 1976 Tunisia Royal Holding C.A. Nov 26, 1991 Venezuela Royal Productos Alimenticios, C.A. Jul 26, 1971 Venezuela Salem Holidays Sdn. Bhd. Oct 03, 1994 Malaysia Salem Power Station Sdn. Bhd. * Sep 18, 1993 Malaysia 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 S. F. Imports, Inc. May 26, 1994 Delaware Smiths Foods ** Jul 26, 1922 England Sports Marketing Enterprises, Inc. **** Apr 14, 1988 N. Carolina STAR Cooperation GmbH **** Jan 29, 1960 Germany Stella D'oro Biscuit Co., Inc. Jan 02, 1948 New York Sunrise Biosystems, Inc. (50%) *** Mar 01, 1994 Delaware Tanzanian Cigarette Company (50%) ? ? 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. * Nov 22, 1988 Switzerland West Indies Yeast Company Limited (72%) Nov 29, 1965 Jamaica Worldwide Brands, Inc. Oct 18, 1983 Delaware Worldwide Brands Inc. Sdn. Bhd. Mar 30, 1991 Malaysia Worldwide Brands International (Hong Kong) Limited Jan 19, 1988 Hong Kong Yili-Nabisco Biscuit & Food Company Limited (51%) *** Jan 29, 1985 China * Inactive December 31, 1995 ** In Liquidation Page 7 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Nabisco Holdings Corp. Apr 21, 1981 Delaware Nabisco, Inc. Feb 03, 1898 New Jersey Airco IHC, Inc. Mar 22, 1989 Delaware A/O Nabisco Aug 16, 1994 Russia Associated Biscuits ** Mar 29, 1898 England Avare (I.C.P.A. Cerqeirense Ltda) ? Brazil Batavia Inc. Jul 31, 1951 New Jersey Beech-Nut Life Savers (Panama) S.A. Jul 12, 1963 Panama Beijing Nabisco Food Company Limited (91.9%) Mar 16, 1995 China Bisco Services B.V. Dec 22, 1988 Netherlands Carnes y Conservas Espanolas, S.A. (CARCESA) Dec 02, 1975 Spain Cartera e Inversiones S.A. Mar 05, 1979 Peru Colophon Company Limited * Jul 09, 1981 Bermuda Comercial Benut, S.A. de C.V. ** Mar 16, 1977 Mexico Compania Venezolana de Conservas C.A. Jul 25, 1969 Venezuela Consiber, S.A. Mar 31, 1979 Spain Covenco Holding C.A. Nov 26, 1991 Venezuela Dely, S.A. Dec 18, 1960 Guatemala Distribuidora Pan Americana, S.A. Oct 22, 1974 Panama Establecimiento Modelo Terrabusi S.A. (99.1%) ? Argentina Exhold Limited Oct 03, 1989 Liberia 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 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 Galletas Artiach, S.A. Jul 23, 1932 Spain Galletera Tejerias, S.A. ? Venezuela Gelatinas Ecuatorianas S.A. (66.7%) Nov 21, 1978 Ecuador Golden Sociedad Anonima Apr 01, 1966 Costa Rica Grupo Gamesa, S.A. de C.V. (1%) Jul 29, 1981 Mexico Gumz Alimentos F.A. Industria e Comercio ? Brazil Hanover Servicing, Inc. Apr 13, 1992 Delaware Hervin Company, The May 28, 1965 Oregon Hervin Holdings, Inc. Mar 29, 1988 Delaware Huntley & Palmer Foods Pensions Limited ? 1967 England * Inactive December 31, 1995 ** In Liquidation Page 1 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 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 Iracema Industrias de Caju S.A. Aug 08, 1978 Brazil Jupiter Produtos Alimenticios Ltda. Mar 02, 1962 Brazil 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 Loste-McVitie's Distribution Service, S.A. (50%) Oct 28, 1992 Spain Lowney Inc. Jan 01, 1983 Federal, Canada Mahachai Holding Co. Ltd. (49%) Jan 07, 1986 Thailand Marbu, S.A. Oct 26, 1967 Spain Merola Finance B.V. May 09, 1995 Netherlands MEX Holdings, Ltd. Nov 27, 1991 Delaware Mont Pelrin Inc. May 05, 1954 New Jersey NABEC, S.A. Nov 17, 1982 Ecuador Nabisco ** Dec 24, 1908 England Nabisco Arabia ? Saudi Arabia Nabisco Argentina S.A. Mar 14, 1994 Argentina Nabisco Biscuit Manufacturing (Midwest), Inc.* Dec 21, 1988 New York Nabisco Biscuit Manufacturing (West), Inc.* Dec 21, 1988 New York Nabisco Brands Company Aug 01, 1995 Delaware Nabisco Brands Holdings Denmark Limited ? 1989 Liberia Nabisco Brands Nominees Limited ** Aug 22, 1983 England Nabisco Brands Trading Limited * 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 China Limited 1995 China Nabisco Chongqing Food Co., Ltd. Mar 01, 1995 China Nabisco de Nicaragua, S.A. (60%) Dec 10, 1965 Nicaragua Nabisco de Puerto Rico, Inc. Sep 21, 1951 New York Nabisco Direct, Inc. Aug 23, 1995 Delaware Nabisco Dominicana S.A. Dec 15, 1995 Dom. Repub. Nabisco England IHC, Inc. Mar 29, 1989 Delaware Nabisco Enterprises IHC, Inc. Mar 22, 1989 Delaware * Inactive December 31, 1995 ** In Liquidation Page 2 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Nabisco Foods, Inc. Dec 30, 1991 New Jersey Nabisco Food (Suzhou) Co. Ltd. ? China Nabisco Group Ltd. Jun 02, 1995 Delaware Nabisco Group Pensions Investments Ltd. Jun 07, 1962 England Nabisco Group Pensions Limited Sep 13, 1977 England Nabisco Holdings IHC, Inc. Mar 22, 1989 Delaware Nabisco Hong Kong Limited Apr 12, 1994 Hong Kong Nabisco Iberia, S.L. Jul 15, 1993 Spain Nabisco, Inc. Foreign Sales Corporation Dec 17, 1991 US Virgin Is. Nabisco Indonesia ? Indonesia Nabisco International, Inc. Jul 29, 1947 Delaware Nabisco International Limited Dec 11, 1987 Nevada Nabisco International M.E./Africa (49%) ? Dubai, U.A.E. Nabisco International Market Development Group, Inc. Mar 22, 1989 Delaware Nabisco International, S.A. Nov 26, 1953 Panama Nabisco Investments, Inc. Mar 22, 1989 Delaware Nabisco Investments S.A. Mar 14, 1994 Argentina Nabisco Ltd Jan 01, 1993 Federal, Canada 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 Chile Limitada Mar 22, 1978 Chile Nabisco Royal Colombiana Inc. Jan 03, 1938 Delaware Nabisco Royal de Honduras S.A. Jul 22, 1982 Honduras Nabisco Royal del Ecuador, S.A. Sep 16, 1977 Ecuador Nabisco Royal Inc. Sep 03, 1932 Delaware Nabisco Royal Panama, S.A. Mar 07, 1979 Panama Nabisco S.A. de C.V. (99.5%) Jun 15, 1992 Mexico Nabisco Trading A.G. Aug 02, 1960 Switzerland Nabisco Venezuela, C.A. Nov 26, 1991 Venezuela National Biscuit Company **** Jan 17, 1971 Delaware Nova Zembla Inc. Aug 19, 1975 New Jersey Plush Pippin Corporation Aug 06, 1986 Washington Plush Pippin Restaurants, Inc. Aug 29, 1974 Oregon Precis One Hundred Limited ** Feb 12, 1982 England Productos Confitados Salvavidas de Guatemala, S.A. Jul 03, 1974 Guatemala Productos Royal S.A.* Dec 27, 1977 Argentina Produtos Alimenticios Fleischmann e Royal Ltda. Nov 28, 1964 Brazil * Inactive December 31, 1995 ** In Liquidation Page 3 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 NABISCO HOLDINGS CORP. Date of Place of Name of Subsidiary Incorporation Incorporation - ---------------------------------------------------------------------------- Ritz Biscuit Company Limited **** Sep 28, 1989 England RJR Industries (U.K.) Limited ** Jun 01, 1982 England RJR Nabisco Securities Ltd. Sep 28, 1987 Federal, Canada Royal Beech-Nut (Proprietary) Ltd. (49%) Jan 02, 1945 S. Africa Royal Brands Portugal Comercio e Industria Limitada Dec 23, 1916 Portugal Royal Food Products, S.A. Jul 02, 1976 Tunisia Royal Holding C.A. Nov 26, 1991 Venezuela Royal Productos Alimenticios, C.A. Jul 26, 1971 Venezuela 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 Stella D'oro Biscuit Co., Inc. Jan 02,1948 New York Tevalca Holding C.A. Nov 26, 1991 Venezuela 20th Century Denmark Limited Mar 06, 1990 Liberia West Indies Yeast Company Limited (72%) Nov 29, 1965 Jamaica Yili-Nabisco Biscuit & Food Company Limited (51%) *** Jan 29, 1985 China * Inactive December 31, 1995 ** In Liquidation Page 4 *** Partnership/Joint Venture/Trust SUB-1995 **** Nameholder Revised 1/15/96 EX-23 43 EXHIBIT 23 CONSENT OF DELOITTE & TOUCHE LLP, 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, 33-54397, 33-54399, 33-54393 and 33-40702 of RJR Nabisco Holdings Corp. on Form S-8 and Registration Statement No. 33-60803 of RJR Nabisco, Inc. on Form S-3 of our report dated January 29, 1996 (February 16, 1996 as to Note 12), appearing in this Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the year ended December 31, 1995. DELOITTE & TOUCHE LLP New York, New York February 21, 1996 EX-24 44 Exhibit 24 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 Robert F. Sharpe, Jr., H. Colin McBride, David F. Sternlieb and Sara L. Silbiger, 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, 1995, 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 ___day of ____________, 19__. /s/ Steven F. Goldstone President and Chief Executive Officer, - ------------------------------- Director Steven F. Goldstone /s/ Robert S. Roath Senior Vice President and Chief - ------------------------------- Financial Officer Robert S. Roath /s/ Richard G. Russell Senior Vice President and Controller - ------------------------------- Richard G. Russell Page 2 /s/ John T. Chain, Jr. Director - ------------------------------ John T. Chain, Jr. /s/ Julius L. Chambers Director - ------------------------------ Julius L. Chambers /s/ John L. Clendenin Director - ------------------------------ John L. Clendenin /s/ H. John Greeniaus Director - ------------------------------ H. John Greeniaus /s/ Ray J. Groves Director - ------------------------------ Ray J. Groves /s/ Charles M. Harper Chairman of the Board, Director - ------------------------------ Charles M. Harper /s/ James W. Johnston Director - ------------------------------ James W. Johnston /s/ John G. Medlin, Jr. Director - ------------------------------ John G. Medlin, Jr. /s/ Rozanne L. Ridgway Director - ------------------------------ Rozanne L. Ridgway EX-27 45
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOLDINGS' CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE BY REFERTENCE TO SUCH FINANCIAL STATEMENTS. RJR NABISCO HOLDINGS CORP. (Dollars in Millions Except Per Share Amounts) 847903 RJR NABISCO HOLDINGS CORP. 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 234 0 1,334 0 2,489 4,560 8,386 (2,696) 31,518 4,124 9,429 957 404 3 9,919 31,518 16,008 16,008 7,468 13,670 (173) 0 (899) 1,266 580 627 0 (16) 0 611 1.53 1.55
EX-27 46
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT RJR NABISCO INC. (Dollars in Millions Except Per Share Amounts) 083612 RJR NABISCO, INC. 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 232 0 1,327 0 2,489 4,551 8,386 (2,696) 31,508 3,965 9,429 0 0 0 12,153 31,508 16,008 16,008 7,468 13,670 (175) 0 (872) 1,291 594 638 0 (16) 0 622 0.00 0.00
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