SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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)
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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)
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1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6013
(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.)
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: APRIL 30, 1998:
RJR NABISCO HOLDINGS CORP.: 324,823,528 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 H(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
INDEX
PAGE
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three Months Ended March 31, 1998 and 1997........ 1
Consolidated Condensed Statements of Cash Flows--Three Months Ended March 31, 1998 and 1997.... 2
Consolidated Condensed Balance Sheets--March 31, 1998 and December 31, 1997.................... 3
Notes to Consolidated Condensed Financial Statements........................................... 4-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 13-18
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 19-20
Item 6. Exhibits and Reports on Form 8-K............................................................... 21
Signatures................................................................................................ 22
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PART I
ITEM 1. FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------------- ----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- ----------- --------- -----------
NET SALES*.......................................................... $ 3,947 $ 3,947 $ 3,779 $ 3,779
--------- ----------- --------- -----------
Costs and expenses *
Cost of products sold............................................. 1,787 1,787 1,720 1,720
Selling, advertising, administrative and general expenses......... 1,391 1,392 1,248 1,249
Tobacco settlement expense (note 4)............................... 349 349 -- --
Amortization of trademarks and goodwill........................... 158 158 158 158
--------- ----------- --------- -----------
OPERATING INCOME................................................ 262 261 653 652
Interest and debt expense........................................... (221) (197) (232) (209)
Other income (expense), net......................................... (28) (28) (29) (29)
--------- ----------- --------- -----------
INCOME BEFORE INCOME TAXES...................................... 13 36 392 414
Provision for income taxes.......................................... 22 33 166 176
--------- ----------- --------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME OF NABISCO
HOLDINGS...................................................... (9) 3 226 238
Less minority interest in income of Nabisco Holdings................ 11 11 13 13
--------- ----------- --------- -----------
NET INCOME (LOSS)............................................... $ (20) $ (8) $ 213 $ 225
--------- ----------- --------- -----------
--------- ----------- --------- -----------
BASIC NET INCOME (LOSS) PER SHARE................................... $ (0.10) $ 0.62
DILUTED NET INCOME (LOSS) PER SHARE................................. $ (0.10) $ 0.62
DIVIDENDS PER SHARE:
Dividends per share of Series C preferred stock................... -- $ 1.503
Dividends per share of common stock............................... $ 0.5125 $ 0.5125
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* Excludes excise taxes of $828 million and $852 million for the three months ended March 31, 1998 and 1997, respectively.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------------- ----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- ----------- ---------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (20) $ (8) $ 213 $ 225
--------- --------- ----- ---------
Adjustments to reconcile net income (loss) to net cash flows used in
operating activities:
Depreciation and amortization...................................... 284 284 293 293
Deferred income tax provision (benefit)............................ (17) (17) 11 11
Changes in working capital items, net.............................. (768) (737) (597) (551)
Tobacco settlement expense, net of cash payments................... 302 302 -- --
Restructuring and restructuring related payments................... (91) (91) (81) (81)
Other, net......................................................... 26 26 (10) (12)
--------- --------- ----- ---------
Total adjustments................................................ (264) (233) (384) (340)
--------- --------- ----- ---------
Net cash flows used in operating activities.......................... (284) (241) (171) (115)
--------- --------- ----- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures................................................... (136) (136) (131) (131)
Disposition of businesses and certain assets........................... 6 6 36 36
Repurchases of Nabisco Holdings' Class A common stock.................. (26) (26) -- --
Proceeds from exercise of Nabisco Holdings' Class A common stock
options.............................................................. 15 15 -- --
--------- --------- ----- ---------
Net cash flows used in investing activities.......................... (141) (141) (95) (95)
--------- --------- ----- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings of long-term debt....................................... 1,004 1,004 65 65
(Decrease) increase in short-term borrowings........................... (575) (575) 341 341
Dividends paid on common and preferred stock........................... (191) (9) (189) (8)
Other, net-including intercompany transfers and payments............... 55 (146) 23 (213)
--------- --------- ----- ---------
Net cash flows from financing activities............................. 293 274 240 185
--------- --------- ----- ---------
Effect of exchange rate changes on cash and cash equivalents............. -- -- (8) (8)
--------- --------- ----- ---------
Net change in cash and cash equivalents.............................. (132) (108) (34) (33)
Cash and cash equivalents at beginning of period......................... 348 348 252 251
--------- --------- ----- ---------
Cash and cash equivalents at end of period............................... $ 216 $ 240 $ 218 $ 218
--------- --------- ----- ---------
--------- --------- ----- ---------
Income taxes paid, net of refunds........................................ $ 166 $ 166 $ 145 $ 145
Interest paid............................................................ $ 213 $ 189 $ 229 $ 205
Tobacco settlement payments.............................................. $ 47 $ 47 $ -- $ --
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SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 216 $ 240 $ 348 $ 348
Accounts and notes receivable, net.................................. 1,188 1,187 1,122 1,118
Inventories......................................................... 2,705 2,705 2,617 2,617
Prepaid expenses and excise taxes................................... 510 510 538 538
--------- --------- --------- ---------
TOTAL CURRENT ASSETS............................................ 4,619 4,642 4,625 4,621
--------- --------- --------- ---------
Property, plant and equipment, net.................................... 5,931 5,931 5,939 5,939
Trademarks, net....................................................... 7,712 7,712 7,759 7,759
Goodwill, net......................................................... 11,811 11,811 11,885 11,885
Other assets and deferred charges..................................... 420 406 470 453
--------- --------- --------- ---------
$ 30,493 $ 30,502 $ 30,678 $ 30,657
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................................... $ 496 $ 496 $ 361 $ 361
Accounts payable and accrued liabilities............................ 3,190 3,017 3,483 3,305
Current maturities of long-term debt................................ 57 57 33 33
Income taxes accrued................................................ 107 110 268 243
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES....................................... 3,850 3,680 4,145 3,942
--------- --------- --------- ---------
Long-term debt (less current maturities).............................. 9,703 9,703 9,456 9,456
Minority interest in Nabisco Holdings................................. 813 813 812 812
Other noncurrent liabilities.......................................... 2,305 1,876 2,157 1,908
Deferred income taxes................................................. 3,427 3,363 3,524 3,460
Contingencies (note 4)
RJRN Holdings' obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated
debentures*......................................................... 953 -- 953 --
Stockholders' equity:
Other preferred stock............................................... 516 -- 520 --
Common stock (328,200,828 shares issued at March 31)................ 3 -- 3 --
Paid-in capital..................................................... 9,502 11,458 9,668 11,470
Retained earnings................................................... -- -- -- --
Accumulated other comprehensive income.............................. (391) (391) (391) (391)
Treasury stock, at cost............................................. (100) -- (100) --
Other stockholders' equity.......................................... (88) -- (69) --
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY.................................... 9,442 11,067 9,631 11,079
--------- --------- --------- ---------
$ 30,493 $ 30,502 $ 30,678 $ 30,657
--------- --------- --------- ---------
--------- --------- --------- ---------
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SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM REPORTING
For interim reporting purposes, certain costs and expenses are charged to operations in proportion to the estimated total annual amount expected to be incurred.
Certain prior year amounts have been reclassified to conform to the 1998 presentation.
On January 1, 1998, RJRN Holdings and RJRN adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. Total comprehensive income, which primarily includes net income (loss) and foreign currency translation adjustments, was $(20) million and $171 million for RJRN Holdings and $(8) million and $183 million for RJRN for the three months ended March 31, 1998 and 1997, respectively.
In management's opinion, the accompanying unaudited consolidated condensed financial statements (the "Consolidated Condensed Financial Statements") of RJR Nabisco Holdings Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN" and together with RJRN Holdings, the "Registrants") contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The Consolidated Condensed Financial Statements should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K of RJRN Holdings and RJRN for the year ended December 31, 1997.
NOTE 2 -- INVENTORIES
The major classes of inventory are shown in the table below:
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
Finished products................................................... $ 829 $ 816
Leaf tobacco........................................................ 1,215 1,184
Raw materials....................................................... 247 226
Other............................................................... 414 391
----------- ------
$ 2,705 $ 2,617
----------- ------
----------- ------
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NOTE 3 -- EARNINGS PER SHARE
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------------
1998 1997
------------------------ ------------------------
BASIC DILUTED BASIC DILUTED
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stock :
Net income (loss)...................... $ (20) $ (20) $ 213 $ 213
Preferred stock dividends.............. (11) (11) (11) (11)
----------- ----------- ----------- -----------
$ (31) $ (31) $ 202 $ 202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding
(in thousands):
Common shares outstanding.............. 323,798 323,798 323,780 323,780
Assumed exercise of RJRN Holdings'
stock options........................ -- -- -- 1,696
----------- ----------- ----------- -----------
323,798 323,798 323,780 325,476
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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NOTE 3 -- EARNINGS PER SHARE (CONTINUED)
Shares of ESOP convertible preferred stock of 13,432,872 and 14,396,049 were
not included in computing diluted earnings per share for 1998 and 1997,
respectively, because the effect would have been antidilutive. Common shares
outstanding also exclude 966,000 shares of restricted stock as the vesting
provisions have not been met.
NOTE 4--CONTINGENCIES
TOBACCO LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates (including, with increasing frequency, RJRN and RJRN Holdings) or indemnitees, including those claiming that lung cancer and other diseases as well as addiction have resulted from the use of or exposure to RJRT's tobacco products. During the first quarter of 1998, 72 new actions were served against RJRT and/or its affiliates or indemnitees (as against 102 in the first quarter of 1997) and 16 such actions were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or indemnitees without trial. There have been noteworthy increases in the number of these cases pending. On March 31, 1998, there were 550 active cases pending, as compared with 278 on March 31, 1997 and 168 on March 31, 1996. As of April 30, 1998, 572 active cases were pending against RJRT and/or its affiliates or indemnitees, 566 in the United States, two in Puerto Rico, one in the Marshall Islands, two in Canada and one in Nigeria.
The United States cases are in 45 states and the District of Columbia, and are distributed as follows: 198 in Florida, 103 in New York, 25 in California, 21 in Louisiana, 20 in Pennsylvania, 18 in Texas, 13 in Ohio, 12 in each of Alabama and Tennessee, 10 in each of Illinois and West Virginia, nine in the District of Columbia, eight in each of Mississippi and New Jersey, seven in Indiana, six in Georgia, five in each of Maryland, Massachusetts, Michigan, and Minnesota, four in each of Iowa, Kansas, Missouri, Nevada and South Dakota, three in each of Arizona, Arkansas, Colorado, Hawaii, New Mexico, Oklahoma, Rhode Island, Utah and Wisconsin, two in each of Connecticut, Kentucky, Montana, New Hampshire, Oregon, South Carolina, and Washington, and one each in Alaska, Idaho, Maine, North Carolina and Vermont. Of the 566 active cases in the United States, 451 are in state court and 115 are in federal court. Most of these cases were brought by individual plaintiffs, but an increasing number, discussed below, seek recovery on behalf of states or large classes of claimants.
THEORIES OF RECOVERY. The plaintiffs in these actions seek recovery on a variety of legal theories, including, among others, strict liability in tort, design defect, negligence, special duty, voluntary undertaking, breach of warranty, failure to warn, fraud, misrepresentation, unfair trade practices, conspiracy, aiding and abetting, unjust enrichment, antitrust, Racketeer Influenced and Corrupt Organization Act ("RICO"), indemnity, medical monitoring and common law public nuisance. Punitive damages, often in amounts ranging into the hundreds of millions or even billions of dollars, are specifically pleaded in a number of cases in addition to compensatory and other damages. Nine of the 566 active cases in the United States involve alleged non-smokers claiming injuries purportedly resulting from exposure to environmental tobacco smoke. Fifty-two cases purport to be class actions on behalf of thousands of individuals. Purported classes include individuals claiming to be addicted to cigarettes, individuals and their estates claiming illness and death from cigarette smoking, and Blue Cross/Blue Shield subscribers seeking reimbursement for premiums paid. One hundred twenty of the active cases seek, INTER ALIA, recovery of the cost of Medicaid payments or other health-related costs paid for treatment of individuals suffering from diseases or conditions allegedly related to tobacco use. Five, brought by entities administering asbestos liability, seek contribution for settlement costs.
DEFENSES. The defenses raised by RJRT and/or its affiliates, where applicable, include preemption by the Federal Cigarette Labeling and Advertising Act of some or all such claims arising after 1969; the lack
NOTE 4--CONTINGENCIES (CONTINUED)
of any defect in the product; assumption of the risk; contributory or
comparative fault; lack of proximate cause; and statutes of limitations or
repose; and, in the attorney general cases (discussed below), additional
statutory, equitable, constitutional and other defenses. RJRN and RJRN Holdings
have asserted additional defenses, including jurisdictional defenses, in many of
these cases in which they are named.
Juries have found for plaintiffs in three smoking and health cases in which RJRT was not a defendant, but in one such case, no damages were awarded and the judgment was affirmed on appeal. The jury awarded plaintiffs $400,000 in another such case, CIPOLLONE V. LIGGETT GROUP, INC., but the award was overturned on appeal and the case was subsequently dismissed. In the third such case, on August 9, 1996, a Florida jury awarded damages of $750,000 to an individual plaintiff. The defendant in that case, CARTER V. BROWN & WILLIAMSON, is seeking to reverse the judgment on appeal. In two cases in 1997 brought by the same attorney who represented plaintiffs in the CARTER case, Florida state court juries found no RJRT liability. On March 19, 1998, an Indiana state court found for RJRT, RJRN Holdings and other defendants in an individual case, DUNN V. RJR NABISCO HOLDINGS CORP., in which plaintiffs sought damages for the alleged harm caused to a non-smoker by environmental tobacco smoke. In addition, during 1997 and early 1998, RJRT and other tobacco industry defendants have settled six lawsuits. See "Certain Settlements" below.
CERTAIN CLASS ACTION SUITS. In May 1996, in an early class action case, CASTANO V. AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals overturned the certification of a purported nationwide class of persons whose claims related to alleged addiction to tobacco. Since this ruling by the Fifth Circuit, most purported class action suits have sought certification of statewide rather than nationwide classes.
Putative class action suits based on claims similar to those asserted in Castano have been brought in state and, in a few instances, federal courts in Alabama, Arkansas, California, the District of Columbia (D.C. court), Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, New Mexico, Nevada, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia and Wisconsin. A putative class action filed in Tennessee seeks reimbursement of Blue Cross/Blue Shield premiums paid by subscribers throughout the United States. Suits are also expected to be filed in additional jurisdictions and there are also putative class action suits pending in Canada, Puerto Rico and Nigeria. Each such suit asserts claims on behalf of residents of a particular jurisdiction who claim to be addicted, injured, or at greater risk of injury by the use of tobacco, or are the legal survivors of such persons.
In the class action suit pending in Florida, ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class consisting of Florida residents or their survivors who claim to have diseases or medical conditions caused by their "addiction" to cigarettes has been certified. The case is scheduled for trial on July 6, 1998. A class was certified in another purported class action suit pending in Louisiana state court, SCOTT V. AMERICAN TOBACCO COMPANY, on April 11, 1997. The class certification decision is currently on appeal. Class certification was granted in two cases pending in New York state courts, HOSKINS V. R.J. REYNOLDS TOBACCO COMPANY and GEIGER V. AMERICAN TOBACCO COMPANY (in which certification was conditional). The parties have briefed and argued appeals brought by defendants in both cases. On January 28, 1998, class certification was granted by a Maryland state court in RICHARDSON V. PHILIP MORRIS. On April 8, 1998 the defendants filed a petition with the Maryland Court of Appeals to reverse the class certification decision. Class certification was denied on August 18, 1997, by a District of Columbia court in the case of REED V. PHILIP MORRIS. In October 1997, class certification was also denied in ARCH V. AMERICAN TOBACCO COMPANY (renamed BARNES V. AMERICAN TOBACCO COMPANY), which was pending in the United States District Court for the Eastern District of Pennsylvania. That court had initially certified a medical monitoring class based on the plaintiffs' amended complaint (having refused to certify a class based on the initial complaint), but on October 17, 1997, the judge reversed the certification and also dismissed the claims of each of the class representatives. Plaintiffs are
NOTE 4--CONTINGENCIES (CONTINUED)
appealing this ruling, and briefing concluded as of April 24, 1998. Oral
argument is scheduled for June 4, 1998. In addition, in another purported class
action brought in federal court in Puerto Rico, RUIZ V. AMERICAN TOBACCO
COMPANY, the court on March 17, 1998, denied plaintiffs' motion for class
certification. Another class action suit, BROIN V. PHILIP MORRIS, was settled by
an agreement dated October 9, 1997 and approved by the Florida state court on
February 3, 1998. The settlement has been appealed by various objectors, and
briefing is underway. See "Certain Settlements" below.
THE ATTORNEY GENERAL AND RELATED CASES. Forty-three states, through their attorneys general and/or other state agencies, have sued RJRT and other U.S. cigarette manufacturers as well as, in some instances, their parent companies, in actions to recover the costs of medical expenses incurred by the state or its agencies in the treatment of diseases allegedly caused by cigarette smoking. Some of these cases also seek injunctive relief and treble damages for state and/or federal antitrust law and RICO violations. Certain of the actions also seek statutory penalties and other forms of relief under state consumer protection and antitrust statutes. On May 11, 1998, there were 39 such cases pending in the following states, commonwealths, or territories: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Marshall Islands, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Washington, West Virginia and Wisconsin. Tobacco company defendants have settled attorney general cases in the states of Mississippi, Florida, Texas and Minnesota. See "Certain Settlements" below.
In addition to the 39 pending actions brought by the various attorneys general, 19 pending actions advancing similar theories have been brought by private attorneys and/or local officials purportedly on behalf of the citizens of certain states, counties and/or cities, union health and welfare funds, a university and four native American tribes. A taxpayer case pending in Ohio was dismissed for lack of standing on February 12, 1998 (COYNE V. AMERICAN TOBACCO).
UNION HEALTH AND WELFARE TRUST FUND CASES. On May 20, 1997, three Ohio based union health and welfare trust funds filed a putative class action in the United States District Court for the Northern District of Ohio (IRON WORKERS LOCAL V. PHILIP MORRIS). Three additional Ohio based union health and welfare trust funds were later added as plaintiffs. Plaintiffs seek to certify a class defined as "all labor-management multi-employer health and welfare funds operating in the State of Ohio whose funds were established pursuant to sections of the Labor Management Relations Act which provide their participants and beneficiaries medical, surgical and/or hospital care benefits and are defined as "employee welfare benefit plans" under ERISA. Like the attorney general cases, this and similar cases described below, seek to recover health-care costs expended for injuries allegedly caused by tobacco as well as, in some instances trebled anti-trust damages and other penalties.
Following the filing of the IRON WORKERS case, a number of additional union health and welfare trust cases asserting comparable claims and seeking class-action treatment have been filed against RJRT and other cigarette manufacturers as well as, in some instances, their parent companies. On April 30, 1998, there were a total of fifty-six such cases, including the IRON WORKERS case, pending in the following states: Arizona, California, Connecticut, Florida, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Washington, and West Virginia.
On December 24, 1997, one such case, NORTHWEST LABORERS-EMPLOYERS HEALTH & SECURITY TRUST FUND V. PHILIP MORRIS, filed in federal court in the State of Washington, was certified as a class action. The certified class consists of "all existing jointly administered and collectively bargained-for health and welfare trusts in Washington, and/or the trustees of such entities, that have provided or paid for health care and/or addiction treatment costs or services for employees or other beneficiaries."
NOTE 4--CONTINGENCIES (CONTINUED)
On March 26, 1998, a federal court in New York granted in part defendants'
motions to dismiss two union health and welfare trust fund cases pending in
federal court in New York City (LABORERS LOCAL 17 ET AL. V. PHILIP MORRIS AND
UNITED FEDERATION OF TEACHERS V. PHILIP MORRIS). The court granted the motions
as to plaintiffs' antitrust and unjust enrichment claims. Plaintiffs' claims
asserted under RICO and those based on fraud and breach of a special duty remain
in the case. In a California case (STATIONARY ENGINEERS LOCAL 39 HEALTH AND
WELFARE TRUST AND CARPENTERS HEALTH AND WELFARE TRUST V. PHILIP MORRIS), on
April 30, 1998, a federal district court judge dismissed plaintiffs' RICO,
federal and state anti-trust, intentional breach of special duty, unfair
business practices, and restitution and unjust enrichment claims with prejudice,
gave plaintiffs 30 days to replead their claim of fraud and misrepresentation
and left standing plaintiffs' claim for negligent breach of special duty.
Two federal courts completely dismissed suits brought by labor unions. In SOUTHEAST FLORIDA LABORERS DISTRICT HEALTH AND WELFARE TRUST FUND V. PHILIP MORRIS, the court held that "Florida common law does not permit a plaintiff to recover in its own name from defendants for injuries which defendants allegedly caused to individual third party health care recipients." In addition to the common law claims advanced by plaintiffs, the court also dismissed their RICO and antitrust claims. In STEAMFITTERS LOCAL UNION NO. 420 WELFARE FUND, ET AL. V. PHILIP MORRIS, ET AL., filed in federal court in Pennsylvania, the court also dismissed plaintiff's complaint in its entirety.
PROPOSED RESOLUTION.
Following several months of negotiations with state attorneys general, representatives of the public health community and plaintiffs' lawyers, on June 20, 1997, a Memorandum of Understanding and Resolution (the "June 20(th) Agreement") that set forth concepts for federal legislation and a contractual protocol to resolve a variety of litigation and regulatory issues concerning tobacco was executed. The June 20(th) Agreement required the tobacco companies to make an initial $10 billion payment and subsequent annual multi-billion dollar payments expected to aggregate to approximately $368.5 billion over 25 years. The proposed legislation would also, among other things, have reduced retail access for tobacco products, eliminated cigarette vending machines and tobacco product sampling, conferred authority on the FDA to regulate the manufacture of tobacco products (with express limitations on authority relating to nicotine) and created publicly funded smoking cessation and education programs. The proposed legislation would have granted limited litigation protection to the tobacco industry, including a bar on class action suits, suits based on addiction and demands for punitive damages for past actions. It would also have capped industry payments in permitted individual lawsuits to an aggregate of $5 billion per year. The proposal also provided a "look-back" provision which would penalize manufacturers if youth smoking is not reduced by stated amounts in certain years after enactment, culminating in a 60% reduction after 10 years.
None of the bills relating to the tobacco industry that Congress has considered since that time have offered terms consistent with those contained in the June 20(th) Agreement. The McCain bill reported out favorably by the Senate Commerce Committee and most other bills currently under consideration by Congress, among other things, significantly increase the payments required of the tobacco companies (and the price of tobacco products) and provide no limits on class action and other aggregated claim lawsuits while imposing limitations on tobacco advertising that RJRT believes violate the industry's constitutional rights. For further discussion of pending legislation, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Tobacco -- Governmental Activity."
Based on the directions being taken by Congress discussed above, on April 8, 1998, Steven Goldstone, Chairman of RJRN, stated in a speech to the National Press Club in Washington, D.C., that "I no longer see any purpose in working toward the June 20(th) national settlement. I stand behind the comprehensive
NOTE 4--CONTINGENCIES (CONTINUED)
resolution embodied in the agreement, but I see no possibility in this
environment to achieve it." Other companies with major cigarette industry
interests have taken similar positions.
There can be no assurance that Congress will not enact legislation that could have material adverse effects on the cigarette industry. The financial effects of any such legislation would depend, among other things, on (i) the amount, timing and tax treatment of the payments actually required of RJRT by the legislation; (ii) the means used to finance these payments; (iii) whether or not litigation protection affording financial predictability is provided; (iv) the impact of increased cigarette prices, advertising restrictions and other aspects of the legislation on domestic cigarette consumption; (v) the effect of the legislation on the consumption of tobacco products and on the regulatory and litigation environment outside the United States; (vi) the effect, if any, on public attitudes toward smoking and the tobacco industry; and (vii) the impact on RJRT's competitive position in the tobacco industry.
RJRN had expected that implementation of the June 20(th) Agreement would
increase the costs and reduce the consumption of RJRT's tobacco products in the
United States. In particular, the substantial price increases necessary to fund
payments of the magnitude contemplated by the June 20(th) Agreement were
projected to have the effect of reducing domestic industry cigarette volumes by
up to 45% over 10 years depending on the assumptions used. Such volume reduction
would likely have a significant negative effect on the business of RJRT and the
stated financial position of RJRN Holdings, RJRN and RJRT. Legislation that
imposes greater financial burdens and less litigation relief than the June
20(th)Agreement, if passed by Congress, would have more severe effects on these
entities. In evaluating any proposed legislation to resolve tobacco issues, RJRN
and RJRT will continue to weigh carefully the potential benefits, principally
greater regulatory and litigation certainty and predictability in annual
aggregate contingency risk, against the resulting monetary, regulatory and other
costs. For a further discussion of the effects of federal legislation, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Tobacco -- Governmental Activity."
CERTAIN SETTLEMENTS.
Six cases have been settled, including four attorney general cases, since June 1997. The most significant of these settlements are described below.
THE ATTORNEY GENERAL AGREEMENTS. Tobacco companies settled attorney general cases in Mississippi, Florida and Texas as they came to trial. (A subsequent settlement with Minnesota is described separately below). Each of the first three settling states agreed to a percentage share of the $10 billion initial and scheduled annual payments agreed to in the June 20(th) Agreement; 1.7% for Mississippi, 5.5% for Florida and 7.25% for Texas and also became entitled to attorneys' costs as well as private counsel fees as set by a panel of arbitrators subject to a $500 million aggregate annual cap for payment of such fees for all settlements of similar litigation. Each of the first three agreements also provides that if the U.S. Congress enacts federal legislation substantially equivalent to the June 20(th) Agreement, the terms of that legislation would generally supersede the terms of the state agreement. Defendants would receive credit for their payments under the state agreements against the obligations arising under the federal legislation. If, instead, the defendants enter into separate settlement agreements with other individual states, under certain circumstances these three settling states are entitled to terms at least as favorable as any other separately settling state. Under the most favored nation provisions of their settlement agreements, provided that Florida and Mississippi make equivalent advances, the tobacco companies could be required to make advances to private counsel in those states because they agreed to do so in their agreement with the State of Texas. Based on certain orders of the court having jurisdiction over the Florida settlement, RJRT may be required to pay its share of $50 million (approximately $12 million) as an advance on the
NOTE 4--CONTINGENCIES (CONTINUED)
fees of counsel to the State of Florida in mid May, 1998. Each tobacco company's
share of advances of this type, for all settling states, would be based on
market share.
The settlements also provide that were federal legislation substantially equivalent to the June 20(th) Agreement to be enacted, Mississippi, Florida and Texas, because of their contribution to securing resolution of these matters, may apply to a panel of arbitrators for additional compensation. The settling defendants have agreed not to oppose applications of $75 million for Mississippi, $250 million for Florida and $329.5 million for Texas (as well as any increase over these amounts necessary to offset the difference, if any, between the amounts to be paid to these states during 1998 under the agreements and the amounts allocated to those states for that period under the federal legislation). Payment of these amounts would be made over a number of years and would be subject to an aggregate annual cap of $100 million for all settling states.
On May 8, 1998, following a trial of approximately four months, the parties
to STATE OF MINNESOTA AND BLUE CROSS AND BLUE SHIELD OF MINNESOTA V. PHILIP
MORRIS entered into a series of agreements settling in full the claims brought
by those entities against the tobacco industry. The financial terms of these
agreements call for the industry to: (a) make six settlement payments
aggregating $1.3 billion to the State starting with $240 million in September
1998 and, beginning January 1, 1999, continuing annually in varying amounts
until January 2003 (adjusted commencing with the 2000 payment by the greater of
3% or the consumer price index and by the change in volume of cigarettes sold);
(b) make annual payments to the State commencing December 31, 1998 and each
December 31st thereafter equal to 2.55% of the amounts that would be required
annually under the June 20(th) Agreement ranging from a payment to Minnesota of
$102 million in 1998 to $204 million in 2003 and thereafter (similarly adjusted
commencing with the 1999 payment); (c) pay $469 million in compensation to Blue
Cross/Blue Shield ("BCBS") in six installments beginning with $160 million in
September, 1998 and continuing in varying amounts through January 2003
(similarly adjusted commencing with the 2000 payment); (d) pay attorneys' fees
and costs aggregating approximately $569 million in installments (two
installments in 1998 with respect to BCBS and five installments from September
1998 through July 2000 with respect to the State), and (e) pay $10 million per
year commencing June 1, 1998 and continuing through June 1, 2007, for a national
research fund relating to tobacco use by children.
Each settling defendant's share of these obligations is generally to be based on its market share. However, the first of the six settlement payments to the State of Minnesota (item (a) above) and the first of the six installments payable to BCBS (item (c) above), are not based on market share and are expressly stipulated in the relevant agreement. RJRN Holdings has accrued $312 million in the first quarter of 1998 for its share of all fixed and determinable portions of the obligations described in the preceding paragraph and other settlement related costs. Total estimated payments for this and the other three attorney general agreements are estimated to be approximately $450 million in 1998. Because of the varying terms of the Mississippi, Florida and Texas settlement agreements, RJRN cannot currently predict whether and to what extent the Minnesota agreements might trigger any further obligations under the "most favored nation" provisions of those earlier agreements.
The Minnesota agreements also include injunctive provisions relating to marketing and advertising of tobacco products. Defendants agreed not to make any payments to encourage display of cigarettes in any U.S. movie. Defendants also agreed not to target Minnesota children in the advertisement, promotion or marketing of cigarettes, and, after December 31, 1998, to refrain from marketing, licensing, distributing, selling or offering in the State of Minnesota, any service or non-tobacco product bearing the brand name, logo, symbol, motto, selling message, recognizable color or pattern of colors, or any other product identification linked to those used for any domestic brand of tobacco products.
NOTE 4--CONTINGENCIES (CONTINUED)
With respect to research and information, the settling defendants agree to disband the Council for Tobacco Research and turn over its research to the FDA within 90 days. Defendants further agree not to enter into any agreements that would limit competition in the production or distribution of information about the health or other consequences of tobacco use, or that would limit smoking and health research or research into marketing or development of new products. Finally, defendants are required to provide public access to industry documents and court files by maintaining existing document depositories at industry expense. These depositories, located in the United Kingdom and in Minnesota, are to be maintained for at least ten years.
Each individual state agreement provides that the related settlement is not an admission or concession or evidence of any liability or wrongdoing on the part of any party and was entered into by the settling defendants solely to avoid the further expense and uncertainty of litigation.
THE BROIN SETTLEMENT. The plaintiffs' attorneys in a class action case, BROIN V. PHILIP MORRIS, entered into a settlement agreement with participating tobacco company defendants on October 9, 1997. This case had been brought in Florida state court on behalf of all flight attendants of U.S. airlines alleged to be suffering from diseases or ailments caused by second-hand smoke in airplane cabins. This agreement requires the participating tobacco companies to pay $300 million in three annual installments, allocated among the companies by market share, to fund research on the early detection and cure of diseases associated with tobacco smoke. It also calls for those companies to pay a total of $49 million for plaintiffs' counsel's fees and expenses. The agreement bars class members from bringing aggregate claims or obtaining punitive or exemplary damages and also bars individual claims to the extent that they are based on fraud, misrepresentation, conspiracy to commit fraud or misrepresentation, RICO, suppression, concealment or any other alleged intentional or willful conduct. The defendants agree that in any individual case brought by a class member, they will bear the burden of proof regarding general causation that ordinarily would be born by the plaintiffs. Trial court approval of the BROIN settlement was granted on February 3, 1998, but this approval has been noticed for appeal and briefing is in progress. No payments with respect to either the research fund or attorney's fees will be due until final resolution of all appeals. RJRT's portion will be approximately $86 million. RJRT has already paid its market share of $3 million due to the BROIN attorneys in respect of costs and expenses. This amount is subject to recovery if the settlement is successfully challenged.
RECENT AND SCHEDULED TRIALS. As of April 30, 1998, there were 11 cases scheduled for trial in 1998 against RJRT alleging injuries relating to tobacco. The next attorney general cases scheduled for trial are the State of Washington's, which has been scheduled for September 1998 and the State of Oklahoma's for November 1998. ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class-action case in Florida state court, is scheduled for trial on July 6, 1998. Cases against other tobacco company defendants are also scheduled for trial in 1998 and thereafter. Although trial schedules are subject to change and many cases are dismissed before trial, it is likely that there will be an increased number of tobacco cases, involving claims for possibly billions of dollars, against RJRT and RJRN coming to trial over the next year as compared to prior years when trials in these cases were infrequent.
OTHER DEVELOPMENTS. In 1997, four suits were filed in Georgia, California and New York (two) against RJRT and RJRN and various other tobacco industry entities for contribution/damages related to asbestos litigation. The suits alleged that cigarette smoke inhaled by the asbestos claimants caused the cancers complained of in the litigation in which certain asbestos companies had been involved. Two similar cases have been filed in Florida in 1998. RJRT and the other tobacco industry defendants in these actions dispute the claims advanced in these cases and intend to defend all such actions vigorously.
NOTE 4--CONTINGENCIES (CONTINUED)
A class action brought in Alabama state court against RJRT, RJRN and others,
alleging violations of Alabama antitrust law, (MOSELY V. PHILIP MORRIS
COMPANIES), was dismissed with prejudice on April 7, 1998. The dismissal was
based on a joint stipulation and motion of the parties.
RJRT understands that a grand jury investigation is being conducted in the Eastern District of New York 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 has responded, and will continue to respond, to document subpoenas issued by this grand jury. In addition, five subpoenas, the most recent dated February 12, 1998, were served on RJRT by a grand jury sitting in the District of Columbia. RJRT has responded or is in the process of responding to those subpoenas. RJRN and RJRT are unable to predict the outcome of these investigations.
RJRT, R.J. Reynolds International ("Reynolds International") and Northern Brands International, another subsidiary of RJRN, each received document subpoenas dated July 24, 1997, from a federal grand jury sitting in the Northern District of New York. RJRT understands that the grand jury is investigating possible smuggling activities. RJRT, Reynolds International and Northern Brands International are responding to these subpoenas but are unable to predict the outcome of the grand jury's investigation.
For a further discussion of litigation affecting the tobacco business see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Tobacco -- Governmental Activity."
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 (including RJRN Holdings and RJRN) 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 could encourage an increase in the number of such claims. There have been a number of political, legislative, regulatory, and other developments relating to the tobacco industry and cigarette smoking that have received wide media attention, including the McCain bill, the various litigation settlements and the release and wide availability of various industry documents referred to above. These developments may negatively affect the outcomes of tobacco-related legal actions and encourage the commencement of additional similar litigation.
Although it is impossible to predict the outcome of such events on pending litigation and the rate at which new lawsuits are filed against RJRT, RJRN and RJRN Holdings, a significant increase in litigation and/or in adverse outcomes for tobacco defendants could have an adverse effect on any one or all of these entities. RJRT, RJRN and RJRN Holdings each believe that they have a number of valid defenses to any such actions and intend to defend such actions vigorously.
RJRN Holdings and RJRN believe, that notwithstanding the quality of defenses available to them and RJRT in litigation matters, 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 (including litigation costs). Management is unable to predict the outcome of the litigation or 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.
NOTE 5--SUBSEQUENT EVENTS
The financial condition and results of operations of RJRN Holdings and RJRN include a $312 million charge related to the settlement agreements reached on May 8, 1998 by RJRT with the state of Minnesota and Blue Cross and Blue Shield of Minnesota, as well as other settlement related costs. See note 4 for further discussion.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of RJRN Holdings' financial condition and results of operations should be read in conjunction with the historical financial information included in the Consolidated Condensed Financial Statements.
RESULTS OF OPERATIONS
Summarized financial data for RJRN Holdings is as follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1998 1997 % CHANGE
--------- --------- -------------
(DOLLARS IN
MILLIONS)
NET SALES:
RJRT......................................................... $ 1,176 $ 1,076 9%
Reynolds International....................................... 809 798 1
--------- ---------
Total Tobacco.............................................. 1,985 1,874 6
--------- ---------
Nabisco Biscuit.............................................. 850 801 6
U.S. Foods Group............................................. 530 527 1
--------- ---------
Domestic Food Group.......................................... 1,380 1,328 4
International Food Group..................................... 582 577 1
--------- ---------
Total Food................................................. 1,962 1,905 3
--------- ---------
$ 3,947 $ 3,779 4
--------- ---------
--------- ---------
OPERATING COMPANY CONTRIBUTION(1):
RJRT(2)...................................................... $ 28 $ 380 (93)%
Reynolds International....................................... 173 195 (11)
--------- ---------
Total Tobacco.............................................. 201 575 (65)
--------- ---------
Nabisco Biscuit.............................................. 143 134 7
U.S. Foods Group............................................. 63 65 (3)
--------- ---------
Domestic Food Group.......................................... 206 199 4
International Food Group..................................... 32 54 (41)
--------- ---------
Total Food................................................. 238 253 (6)
--------- ---------
Headquarters................................................. (19) (17) (12)
--------- ---------
$ 420 $ 811 (48)
--------- ---------
--------- ---------
|
(1) Operating company contribution represents operating income before amortization of trademarks and goodwill.
(2) Includes a $312 million charge for upfront settlement costs related to the agreements reached by RJRT with the state of Minnesota and Blue Cross and Blue Shield of Minnesota, as well as other settlement related costs.
TOBACCO
The tobacco line of business is conducted by RJRT and R.J. Reynolds International ("Reynolds International").
RJRT's net sales for the first quarter were $1.2 billion, $100 million or 9% higher than the comparable period in 1997. The increase is primarily attributable to higher pricing, partially offset by lower volume. Volume for the quarter decreased 2%, which was in line with total industry results.
RJRT's overall retail share of market was essentially unchanged at 25.45%. RJRT's full-price share of market declined to 16.48% from 16.52%, while its savings share of market increased to 8.97% from 8.95%. Industry wide the full-price category for the first three months of 1998 increased to 73% of total shipments
compared to 72% for the comparable period in 1997. RJRT's full-price shipments for the first three months of 1998 as a percentage of its total shipments decreased to 62% from 63% in 1997.
Versus the comparable period in 1997, RJRT experienced growth in Winston, its largest full-price brand. Winston's volume rose 3% compared to the first quarter of 1997, resulting from the new national "No Bull" marketing campaign featuring a 100-percent-tobacco blend with no additives. While Camel's volume declined 2 percent versus the first quarter of 1997, its share increased from 5.02% to 5.25%. Salem's volume declined 10% compared to 1997. RJRT is currently testing a new advertising and promotional campaign in select markets to reverse Salem's declining trend. Doral, the industry's leading saving brand, experienced a 9% volume increase and a 12% increase in its share of the savings segment compared to the first quarter 1997.
RJRT's operating company contribution decreased 93% to $28 million. The 1998 period includes a charge of $312 million ($199 million after-tax) related to settlement agreements reached by RJRT with the state of Minnesota and Blue Cross and Blue Shield of Minnesota, as well as other settlement related costs. (See note 4 to the Consolidated Condensed Financial Statements for further discussion). Excluding the aforementioned charge, RJRT's operating company contribution decreased 11% to $340 million. The decrease is due primarily to the lower volume, ongoing settlement costs and increased marketing and litigation costs, which more than offset higher selling prices.
RJRT announced a $2.50 per thousand cigarette price increase effective April 7, 1998 and subsequently announced another $2.50 per thousand cigarette price increase effective May 13, 1998. Similar price increases were announced by other cigarette manufacturers.
Reynolds International's net sales amounted to $809 million for the first quarter of 1998, an increase of 1% from the comparable 1997 period. The period was negatively impacted by unfavorable foreign currency translation, partially offset by higher pricing and higher volume. Excluding the impact of unfavorable foreign currency translation, net sales would have increased approximately 9% over 1997. Overall volume of 49.0 billion units increased 18% from 1997 due primarily to gains in Central Europe and the Commonwealth of Independent States (CIS) and Baltic regions, partially offset by softness in Western Europe.
For the first quarter of 1998, volume in the CIS and Baltics grew 54% driven by Russia's volume growth of 84%, reflecting a strong performance from local or "heritage" brands promoting national themes. The company's Peter I brand is the largest-selling filter cigarette in Russia where Reynolds market share exceeds 20% and is growing. Volume in Central Europe increased 59% over 1997, with Turkey up 41%, fueled by Winston growth and Romania up more than 100%, fueled by Winchester and Monte Carlo. For the first quarter of 1998, volume comparisons remain down in the higher-margin, established markets of Western Europe. However, competitive pricing pressures that depressed performance in Western Europe for much of the past year have lessened and volumes in this region are beginning to stabilize. First-quarter trends in the region showed good improvement in 1998 versus the second half and fourth quarter of 1997.
By brand, Camel volume was up slightly for the quarter, with gains on Camel Lights and Medium in markets such as Spain, Belgium, Greece, and Switzerland offsetting full-flavor losses. Winston volume was up 9 percent overall, driven by increased sales into the CIS, the Baltics and Spain. In addition, the new Winston Lights showed significant gains in Spain, as well as in Greece, Switzerland and Turkey. Salem volumes were soft due to declines in Asian markets, reflecting volatile economic conditions as well as comparisons against high quarterly volume last year in anticipation of price increases.
Operating company contribution of $173 million for the first quarter of 1998 decreased 11% from 1997 mainly due to the negative impact of foreign currency translation. Absent the impact of foreign currency translation, operating company contribution for the quarter would have risen 2% over same period in 1997, primarily due to higher pricing and increased volume, partially offset by unfavorable mix.
GOVERNMENTAL ACTIVITY
In August 1996, the U.S. Food and Drug Administration (the "FDA") asserted jurisdiction over cigarettes and certain other tobacco products by declaring such products to be medical devices and adopting regulations, first proposed in 1995, on the advertising, promotion and sale of cigarettes. The regulations include a phased-in schedule of effectiveness over a two-year period. The first phase began on February 28, 1997, when regulations establishing 18 as the national minimum age for the sale of cigarettes and requiring age identification from purchasers who appear to be under age 26 became effective. Among other things, the remaining 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 rules also limit advertising in print and on billboards to black and white text and impose new labeling language.
RJRT, together with the four other major domestic cigarette manufacturers and an advertising agency, filed suit in the U.S. District Court for the Middle District of North Carolina (COYNE BEAHM V. UNITED STATES FOOD & DRUG ADMINISTRATION) challenging the regulations. Similar suits were filed in the same court by manufacturers of smokeless tobacco products, by operators of retail stores and by advertising interests. On April 26, 1997, the court ruled on a motion for summary judgment, that based on the facts alleged by the FDA, that agency was not barred from asserting jurisdiction over tobacco but lacked authority to issue certain of the regulations bearing on marketing and advertising. The court immediately certified its decision for appeal to the Fourth Circuit Court of Appeals and stayed the effectiveness of that portion of the regulations which had not yet been implemented pending appeal or further court action. Oral argument on the appeal has been heard, but because of the death of one of the members of the court presiding at this argument, a new hearing has been ordered and is scheduled to occur on June 9, 1998. RJRT is unable to predict the ultimate outcome of this litigation seeking to find the FDA's regulations to be unlawful. If the full regulations do go into effect, they could be expected to have an adverse effect on cigarette sales and RJRT.
On May 28, 1997, the Federal Trade Commission (the "FTC") issued an unfairness complaint against RJRT, seeking to prohibit the use of Joe Camel advertising, to require RJRT to undertake certain potentially costly public education activities and to monitor sales and share of sales of each of RJRT's brands to smokers under the age of 18. An administrative hearing is scheduled for November 2, 1998. On June 17, 1997, RJRT filed suit against the FTC in the Federal District Court for the Middle District of North Carolina, challenging the FTC's action as procedurally improper. The FTC has moved to dismiss the action.
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 1996, Massachusetts enacted legislation requiring manufacturers of tobacco products sold in Massachusetts to report yearly, beginning December 15, 1997, the ingredients of each brand sold. The statute also requires the reporting of nicotine yield ratings in accordance with procedures established by the State. The legislation contemplates public disclosure of all ingredients in descending order, a trade-secret disclosure that RJRT believes could damage the competitive position of its brands. RJRT, together with other cigarette manufacturers, filed suit in the U.S. District Court for the District of Massachusetts
seeking to have the statute declared null and void and to restrain Massachusetts officials from enforcing it. A similar suit was filed by manufacturers of smokeless tobacco products. The court granted a preliminary injunction that enjoined Massachusetts officials from enforcing the law relating to ingredient reporting. Both the manufacturers and the State are now seeking summary judgment from the district court. Oral argument is scheduled for May 1998.
In 1997, Texas enacted legislation very similar to the Massachusetts law, except that the Texas statute authorizes confidentiality of trade secrets and its annual reporting requirements begin in 1998. RJRT believes that regulations proposed by Texas, however, are inadequate to prevent inadvertent disclosure of its trade secrets. Together with other cigarette manufacturers, RJRT has provided comments on the regulations. Final regulations are expected from Texas by mid-year. RJRT is unable to predict whether final regulations will provide adequate security for its trade secrets.
The governments of two states whose attorneys general have filed medical care cost recovery actions against tobacco companies, have passed new state laws specifically granting to the states independent (as opposed to subrogated) claims to recover Medicaid costs. These statutes also contain other procedures intended to facilitate recovery by the states and make it difficult for the tobacco company defendants to assert their traditional defenses.
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 1997, the Canadian Parliament passed legislation permitting their Health Department to adopt new regulations that may substantially limit cigarette advertising and sponsorships. The regulations are expected to be promulgated by the end of 1998. Also in 1997, the EU Council of Health Ministers approved a directive banning all tobacco advertising (except at retail point-of-sale) and sponsorships. The EU Parliament approved the directive this year, and member countries will have three years to enact conforming legislation.
As of April 30, 1998, the United States Congress was considering a number of bills that would impose new and severe regulations on the manufacturing, marketing and advertising of tobacco products and/or impose materially increased financial obligations on the tobacco industry. Although, by its execution of the June 20(th) Agreement, RJRT supported the enactment of legislation that would have imposed severe regulatory and financial burdens on the industry, it did so in anticipation that the legislation would also provide certain relief from litigation risk. The currently pending bills generally seek to impose greater burdens on the industry than those provided in the June 20(th) Agreement coupled with little or no litigation risk reduction. RJRT cannot predict what legislation, if any, will be enacted as a result of the current congressional activity, but it is possible that such legislation will not be advantageous to RJRT and could impact the dividend and share repurchase policies of RJRN Holdings and have a material adverse effect on RJRT's business and financial condition and that of its parent companies.
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 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, including the effects on results of operations of certain attorney general agreements, see note 4 to the consolidated condensed financial statements.
FOOD
The food line of business is conducted through the operating subsidiaries of Nabisco Holdings Corp. ("Nabisco Holdings"). Nabisco Holdings' businesses in the United States are comprised of the Nabisco Biscuit and the U.S. Foods Group (collectively, the "Domestic Food Group"). The U.S. Foods Group
includes the Sales & Integrated Logistics Group, the Specialty Products, LifeSavers, Planters, Tablespreads and Food Service organizations. Nabisco Holdings' businesses outside the United States are conducted by Nabisco Ltd and Nabisco International, Inc. (collectively, the "International Food Group").
The Domestic Food Group's net sales were 4% higher for the quarter, with Nabisco Biscuit up 6% and the U.S. Foods Group up 1%. Nabisco Biscuit's increase was principally due to the impact of four extra selling days in 1998. On a days-adjusted basis, 1998 net sales decreased by 1%. Nonetheless, results reflected volume improvements in core cookies and crackers, partially offset by volume declines in SnackWell's and breakfast snacks. The U.S. Foods Group's net sales increase was attributable to higher sales of nuts and condiments and the inclusion of Cornnuts snacks acquired in December 1997, partially offset by lower confectionery sales. Sales of confections were off versus last year, due primarily to the national introduction of SnackWell's candy in the first quarter of 1997. The International Food Group's net sales were up 1% for the quarter. The increase in net sales reflects improved results in Canada, Mexico and South Africa, partially offset by declines in Brazil, due principally to volume declines resulting from aggressive competitive activity in the biscuit and milk categories and in Asia, due to the impact of the regional economic downturn.
The Domestic Food Group's operating company contribution was up 4%, with Nabisco Biscuit up 7% and the U.S. Foods Group down 3%. The improved operating results at Nabisco Biscuit resulted largely from higher sales and improved margins, partially offset by higher consumer marketing expense. The U.S. Foods Group's decrease in operating company contribution was primarily attributable to higher marketing and promotion expense, partially offset by slightly higher net sales and improved margins. The International Food Group's operating company contribution was down 41% for the quarter. The decrease was principally due to lower earnings in Brazil due to lower net sales and higher advertising expense, in Asia due to lower net sales, in Argentina due to competitive pricing pressures and in Canada, due to higher marketing expense, all of which more than offset small profitability improvements in Mexico and South Africa.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows used in operating activities were $284 million in the first quarter of 1998 compared to $171 million in the first quarter of 1997. The increase in the net cash flow used primarily reflects lower net income, the prepayment of foreign excise taxes in anticipation of price increases, higher income tax and restructuring payments and the tobacco settlement payments in 1998.
Net cash flows used in investing activities for 1998 were $141 million, an increase of $46 million from the 1997 level of $95 million. The increase reflects lower proceeds from the sale and closure of certain international tobacco facilities in 1997 and the repurchases of Nabisco Holdings' Class A common stock net of stock option exercises.
Net cash flows from financing activities increased to $293 million in the first quarter of 1998 from $240 million in 1997. The increase was primarily due to an overall increase in borrowings to fund operations.
Free cash flow, another measure used by management to evaluate liquidity and
financial condition, represents cash available for the repayment of debt and
certain other corporate purposes such as common stock dividends, stock
repurchases and acquisitions. It is essentially net cash flow from operating
activities and investing activities per the Consolidated Statements of Cash
Flows, adjusted for acquisitions and divestitures of businesses, less preferred
stock dividends. Free cash flow resulted in outflows of $323 million and $305
million for the first quarter of 1998 and 1997, respectively. The decrease in
free cash flow primarily reflects lower operating company contribution, higher
income tax and restructuring payments
and the tobacco settlement payments in 1998.
Total estimated payments in 1998 for all attorney general agreements, including agreements with the state of Minnesota and Blue Cross and Blue Shield of Minnesota, will be approximately $450 million,
which will be funded primarily by cash flows from operating and financing activities. Because of the varying terms of the Mississippi, Florida and Texas settlement agreements, RJRN cannot currently predict whether and to what extent the Minnesota agreements might trigger any further obligations under the "most favored nation" provisions of the settlement agreements entered into with those states in 1997 and early 1998. For further discussion of the potential impact of the proposed resolution of national, regulatory and litigation issues and various litigation settlements, including the effects of certain attorney general agreements, see note 4 to the consolidated condensed financial statements.
Management of RJRN Holdings and its subsidiaries is continuing to review various strategic transactions, including but not limited to, acquisitions, divestitures, mergers and joint ventures. Management is also exploring ways to increase efficiency and productivity and to reduce the cost structures of its respective businesses, actions that, if implemented, could affect future results.
Capital expenditures were $136 million for the first three months of 1998. Management expects the current level of capital expenditures planned for 1998 to be in the range of approximately $650 million to $700 million (approximately 52% Food and 48% Tobacco), which will be funded primarily by cash flows from operating and financing activities. Management expects its capital expenditures program will continue at a level sufficient to support the strategic and operating needs of RJRN Holdings' operating subsidiaries.
The foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements particularly with respect to capital expenditures and the impact of proposed national legislation and various litigation settlements, including certain attorney general agreements, 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 effect on financial performance and future events of 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, the effects of domestic and foreign government regulation, ratings of RJRN Holdings' or its subsidiaries' securities and, in the case of the tobacco business, litigation and related legislative and regulatory developments. 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.
PART II
ITEM 1. LEGAL PROCEEDINGS
TOBACCO-RELATED LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates (including, with increasing frequency, RJRN and RJRN Holdings) or indemnitees, including those claiming that lung cancer and other diseases as well as addiction have resulted from the use of or exposure to RJRT's tobacco products. During the first quarter of 1998, 72 new actions were served against RJRT and/or its affiliates or indemnitees (as against 102 in the first quarter of 1997) and 16 such actions were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or indemnitees without trial. There have been noteworthy increases in the number of these cases pending. On March 31, 1998, there were 550 active cases pending, as compared with 278 on March 31, 1997 and 168 on March 31, 1996. As of April 30, 1998, 572 active cases were pending against RJRT and/or its affiliates or indemnitees, 566 in the United States, two in Puerto Rico, one in the Marshall Islands, two in Canada and one in Nigeria.
The United States cases are in 45 states and the District of Columbia, and are distributed as follows: 198 in Florida, 103 in New York, 25 in California, 21 in Louisiana, 20 in Pennsylvania, 18 in Texas, 13 in Ohio, 12 in each of Alabama and Tennessee, 10 in each of Illinois and West Virginia, nine in the District of Columbia, eight in each of Mississippi and New Jersey, seven in Indiana, six in Georgia, five in each of Maryland, Massachusetts, Michigan, and Minnesota, four in each of Iowa, Kansas, Missouri, Nevada and South Dakota, three in each of Arizona, Arkansas, Colorado, Hawaii, New Mexico, Oklahoma, Rhode Island, Utah and Wisconsin, two in each of Connecticut, Kentucky, Montana, New Hampshire, Oregon, South Carolina, and Washington, and one each in Alaska, Idaho, Maine, North Carolina and Vermont. Of the 566 active cases in the United States, 451 are in state court and 115 are in federal court. Most of these cases were brought by individual plaintiffs, but an increasing number, discussed below, seek recovery on behalf of states or large classes of claimants.
For information about other litigation and legal proceedings, see note 4 to the consolidated condensed financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Governmental Activity."
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 (including RJRN Holdings and RJRN) 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 could encourage an increase in the number of such claims. There have been a number of political, legislative, regulatory, and other developments relating to the tobacco industry and cigarette smoking that have received wide media attention, including the McCain bill, the various litigation settlements and the release and wide availability of various industry documents referred to above. These developments may negatively affect the outcomes of tobacco-related legal actions and encourage the commencement of additional similar litigation.
Although it is impossible to predict the outcome of such events on pending litigation and the rate at which new lawsuits are filed against RJRT, RJRN and RJRN Holdings, a significant increase in litigation and/or in adverse outcomes for tobacco defendants could have an adverse effect on any one or all of these entities. RJRT, RJRN and RJRN Holdings each believe that they have a number of valid defenses to any such actions and intend to defend such actions vigorously.
RJRN Holdings and RJRN believe, that notwithstanding the quality of defenses available to them and RJRT in litigation matters, 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 (including litigation costs). Management is unable to predict the outcome of the litigation or 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Restricted Stock Agreement between RJR Nabisco Holdings Corp. and Steven F.
Goldstone, dated as of January 15, 1998
10.2 Non-Qualified Stock Option Agreement between Nabisco Holdings Corp. and Steven F.
Goldstone, dated as of January 15, 1998.
10.3 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the
grantee named therein (1998 grant -- 1 year period) dated as of February 6, 1998.
10.4 Letter Agreement by and among Nabisco Holdings Corp., Nabisco, Inc., RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and H. John Greeniaus, dated as of January 21,
1998.
10.5 Employment Agreement (dated January 15, 1998) among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and William L. Rosoff.
10.6 Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and James M.
Kilts, dated as of January 2, 1998.
10.7 Amended and Restated Employment Agreement (dated January 1, 1997) among RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and Steven F. Goldstone.
10.8 Form of Performance Appreciation Right Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1998 Grant).
10.9 Restricted Stock Agreement between RJR Nabisco Holdings Corp. and David B. Rickard,
dated as of January 15, 1998.
10.10 Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and David B.
Rickard, dated as of January 15, 1998.
10.11 Restricted Stock Agreement between RJR Nabisco Holdings Corp. and William L. Rosoff,
dated as of January 15, 1998.
10.12 Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and William
L. Rosoff, dated as of January 15, 1998.
12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges for the three
months ended March 31, 1998.
27.1 RJR Nabisco Holdings Corp. Financial Data Schedule for the three months ended March
31, 1998.
27.2 RJR Nabisco, Inc. Financial Data Schedule for the three months ended March 31, 1998.
27.3 RJR Nabisco Holdings Corp. Financial Data Schedules for the nine months ended
September 30, 1997 and six months ended June 30, 1997.
27.4 RJR Nabisco Holdings Corp. Financial Data Schedules for the fiscal years ended
December 31 1996 and 1995, the nine months ended September 30, 1996, the six months
ended June 30, 1996 and the three months ended March 31, 1996.
99.1 Settlement Agreement and Release in re: THE STATE OF MINNESOTA, ET AL., V. PHILIP
MORRIS, ET AL., by and among the State of Minnesota, Blue Cross and Blue Shield of
Minnesota and the various tobacco-company defendants named therein, dated as of May
8, 1998.
99.2 Settlement Agreement and Stipulation for Entry of Consent Judgement in re: THE STATE
OF MINNESOTA, ET AL., V. PHILIP MORRIS, ET AL., by and among the State of Minnesota,
Blue Cross and Blue Shield of Minnesota and the various tobacco-company defendants
named therein, dated as of May 8, 1998.
99.3 Form of Consent Judgement by Judge Kenneth J. Fitzpatrick, Judge of District Court
in re: THE STATE OF MINNESOTA, ET AL., V. PHILIP MORRIS, ET AL.
99.4 Agreement to Pay State of Minnesota Attorneys' Fees and Costs by and among the State
of Minnesota and various tobacco companies, dated as of May 8, 1998.
99.5 Agreement to Pay Blue Cross and Blue Shield of Minnesota Attorneys' Fees and Costs
by and among Blue Cross and Blue Shield of Minnesota and various tobacco companies,
dated as of May 8, 1998.
|
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
(Registrants)
Date: May 15, 1998 /s/ DAVID B. RICKARD
------------------------------------------------
David B. Rickard
Senior Vice President and Chief Financial
Officer
/s/ RICHARD G. RUSSELL
------------------------------------------------
Richard G. Russell
Senior Vice President and Controller
|
Exhibit 10.1
RESTRICTED STOCK
1998 - SFG
1990 RJR NABISCO HOLDINGS CORP.
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK PROGRAM
RESTRICTED STOCK AGREEMENT
DATE OF GRANT: January 15, 1998
W I T N E S S E T H
1. GRANT OF RESTRICTED STOCK. Pursuant to the provisions of the 1990 Long--Term Incentive Plan and the Restricted Stock Program (collectively, the "Plan") RJR Nabisco Holdings Corp. (the "Company") on the above date has granted, and this agreement evidences the grant 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 SHARES
of Common Stock of the Company ("Common Stock"). 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. All capitalized terms used below shall have the meaning set forth in the Plan, unless the context requires a different meaning.
2. RECEIPT AND DELIVERY OF STOCK. The Grantee waives receipt from the Company of a certificate or certificates representing the shares of Common Stock granted hereunder, registered in his name and bearing a legend evidencing the restrictions imposed on such Common Stock by this agreement. The Grantee acknowledges and agrees that the Company shall retain custody of such certificate or certificates until the restrictions imposed by Paragraph 3 on the Common Stock granted hereunder lapse. Concurrently with the execution of this agreement, the Grantee has delivered to the Company an irrevocable stock power endorsed in blank.
3. RESTRICTIONS ON TRANSFER OF STOCK. The Common Stock granted hereunder may not be sold, tendered, assigned, transferred, pledged or otherwise encumbered prior to the earliest of:
(i) the date of the Grantee's attainment of age 60, for 100% of the
shares;
(ii) the date of the Grantee's death, for 100% of the shares;
(iii) the date of the Grantee's Disability, as defined in RJR Nabisco
Inc.'s Long Term Disability Plan, for 100% of the shares;
(iv) the date of the Grantee's termination by the Company without
"Cause or by the Grantee for Good Reason" (all as defined in the
Grantee's Employment Agreement), for 100% of the shares; or
(v) the date of a Change of Control, for 100% of the shares.
at which time the restrictions imposed on such Common Stock by this paragraph shall lapse for the appropriate number of shares stated above and such Common Stock shall be delivered to the Grantee without a restrictive legend on any Common Stock certificate. Notwithstanding the provisions of this Paragraph 3, the Common Stock granted hereunder shall never become transferable within 6 months of the Date of Grant.
4. FORFEITURE OF STOCK. The Common Stock upon which restrictions still exist following Grantee's Severance Date shall never become transferable by the Grantee or anyone claiming through him and the Grantee shall forfeit all right, title and interest in and to such Common Stock along with the right to any dividends paid thereon and the Common Stock granted hereunder shall revert to the Company. "Severance Date" means termination from active employment; it does not mean the termination of pay and benefits at the end of a period of salary continuation (or other form of severance pay or pay in lieu of salary). The Committee or its agent shall act promptly to record forfeitures pursuant to this paragraph on the stock transfer books of the Company.
5. DIVIDENDS. If the Grantee is a shareholder of record on any applicable record date, he shall receive any dividends on the Common Stock granted hereunder when paid regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
6. VOTING. If the Grantee is a shareholder of record on any applicable record date, he shall have the right to vote the Common Stock granted hereunder regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
7. NO RIGHT TO EMPLOYMENT. The execution and delivery of this agreement and the granting of Common Stock hereunder shall not constitute or be evidence of 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 particular capacity and shall not prevent the Company or its subsidiaries from terminating the Grantee's employment at any time with or without Cause.
8. REGISTRATION. The Common Stock granted hereunder may be offered and sold by the Grantee only if such stock is registered for resale under the Securities Act of 1933 (the " 1933 Act") as amended, or if an exemption from registration under such Act is available. The Company has no obligation to effect such registration. By executing this agreement, the Grantee
(i) agrees not to offer or sell the Common Stock granted hereunder unless and until such stock is registered for resale under the 1933 Act or an exemption from registration is available, (ii) represents that he accepts such Common Stock for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof and (iii) agrees that he or his beneficiary, on request, will be obligated to repeat these representations in writing prior to any future delivery of such Common Stock.
9. CHANGE IN COMMON STOCK OR CORPORATE STRUCTURE.
a) If at any time the number or nature of outstanding shares of Common Stock of the Company shall be increased or changed as the result of any spinoff, stock dividend, subdivision or reclassification of shares, the number or nature of shares of Common Stock subject to this Agreement after such an event shall be increased or changed in the same proportion or manner as the outstanding number of shares of Common Stock is increased or changed, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock subject to this Agreement after such an event shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased.
b) In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be an adjustment to the shares of Common Stock subject to this Agreement after such an event, and in place of the shares so subject, a stock equivalent shall be determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock subject to this Agreement. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Committee shall determine the appropriate change in shares held pursuant to this Agreement after such an event; provided, however, such change shall not be to the detriment of the Executive.
10. APPLICATION OF LAWS. The granting of Common Stock hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.
11. TAXES. Any taxes required by federal, state or local laws to be withheld by the Company on the Grant or the delivery of Common Stock hereunder shall be paid to the Company by the Grantee by the time such taxes are required to be paid or deposited by the Company. The Grantee hereby authorizes the conversion to cash by the Company of a sufficient amount of Common Stock to satisfy the withholding prior to the delivery of Common Stock.
12. 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.
13. 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.
Grantee's Taxpayer Identification Number:
Grantee's Home Address:
Exhibit 10.2
N Option R
1998 - SFG
NABISCO HOLDINGS CORP.
1994 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: JANUARY 15, 1998
W I T N E S S E T H :
1. GRANT OF OPTION. Subject to (i) the terms and conditions herein and
(ii) 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
STEVEN F. GOLDSTONE (THE "OPTIONEE"),
the right and option to exercise from the Company a total of
100,000 SHARES
of Class A Common Stock of the Company ("Common Stock"), at the exercise price of $47.625 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, net of taxes, equal to 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 Option(s) being exercised. Such cash payment shall be in lieu of delivery of shares.
(c) Subject to Sections 2(b), 2(d), and 4, this Option shall be vested in three installments. The first installment shall be vested on the 1st of January following the Date of Grant for 33% of the number of shares of Common Stock subject to this Option. Thereafter, on each subsequent January 1st an installment shall become vested for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully vested. To the extent that any portion of the Option is not exercised, it shall 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.
(d) This Option shall not be exercised prior to 36 months after the Date of Grant.
3. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT.
Subject to Sections 2(b), 2(d) and 4:
(a) Unless otherwise provided in a written employment or termination agreement between the Optionee and the Company, the Option shall not become vested 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, Retirement, Termination of Employment by the Optionee with Good Reason or involuntary Termination of Employment of the Optionee without Cause. In the event of the Optionee's Termination of Employment because of any of the foregoing reasons, the Option shall immediately become vested 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 with the Company and any other entity which, as of the date of this Agreement, is an affiliate of the Company.
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 tenth 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 may 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, Nabisco Holdings Corp., 7 Campus Drive, Parsippany, New Jersey 07054, 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" OR WITH "GOOD REASON". For purposes of this Agreement, the Optionee's employment shall be deemed to have been terminated for "Cause" or with "Good Reason" only as such terms are defined and applied in the Optionee's employment agreement with the Company. 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 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.
NABISCO HOLDINGS CORP.
Optionee's Taxpayer Identification Number:
Optionee's Home Address:
Exhibit 10.3
Performance Units
Performance Notes
1998
Special - One Year
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
GRANT AGREEMENT
DATE OF GRANT: FEBRUARY 6, 1998
WITNESSETH:
1. GRANT. Pursuant to the 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to
(THE "GRANTEE"),
subject to the terms and conditions of this Agreement and the Plan,
PERFORMANCE UNITS
AND
PERFORMANCE NOTES
A copy of the Plan is attached and constitutes an integral part of this Agreement. All undefined capitalized terms in this Agreement have the same meaning as in the Plan or, if not defined therein, the Annual Incentive Award Plan.
2. PERFORMANCE UNITS. Each Performance Unit has an initial value of $1,000. The Committee will value each Performance Unit at the end of 1998 using the performance measures set forth in the grid attached as Exhibit A, but the Committee has the discretion to reduce the resulting valuation. You agree that these Performance Units are in lieu of an award under the Annual Incentive Award Plan for 1998.
3. PERFORMANCE NOTES.
(a) The Performance Notes have a three year term commencing January 1, 1998 and ending December 31, 2000 (the "Performance Period"). The value of the Notes as of January 1, 1998 is $36.00. Promptly after 1998, 1999 and 2000, the Committee will value the Performance Notes as of December 31 of the preceding year using the performance measures and payment formula approved by the Committee. The Committee has the discretion to reduce the resulting valuations and, on the basis of the Company's performance in 1998, to cancel some or all of the Performance Notes.
(b) PURCHASE NOTES. You may elect to receive additional Performance Notes in lieu of from 5% to 100% (in 5% increments) of the cash that you receive for your Performance Units pursuant to Section 5 below (the "Discount Note Program"). The number of Performance Notes issued will equal 103% of the value of the Performance Units that you take in the form of Performance Notes, divided by 85% of the value of the Notes on January 1, 1999. The Performance Notes issued pursuant to the Discount Note Program will have the same value and performance period as Performance Notes issued at the same time pursuant to the Annual Incentive Award Plan. You must make your election to convert the proceeds of Performance Units into additional Performance Notes at the same time and in the same manner as the election to defer awards pursuant to Section 6.
4. VESTING.
(a) Performance Units vest on December 31, 1998 or, if earlier, your death,
Disability or Retirement. If your employment is involuntarily terminated
without Cause, your Performance Units will vest in proportion to the ratio of
(i) the number of partial or complete months of employment during 1998, to (ii)
12. If termination is voluntary or with Cause, the Performance Units will be
canceled immediately.
(b) Performance Notes granted pursuant to Section 1 vest on December 31, 2000 or, if earlier, your death, Disability or Retirement. If your employment is involuntarily terminated without Cause, these Performance Notes will vest in proportion to the ratio of (i) the number of partial or complete months of employment between January 1, 1999 and December 31, 2000, to (ii) 24. If termination is voluntary or with Cause, these Performance Notes will be canceled immediately. Notes issued pursuant to the Discount Note Program are vested when issued.
5. PAYMENT OF AWARDS.
(a) Subject to Section 5(b), the Company will pay you the value of your vested Performance Units and Performance Notes as soon as practicable after the end of 1998 and 2000, respectively.
(b) Subject to Section 5(c), if your employment terminates before you receive payment for your vested Performance Notes, you will receive payment in an amount equal to their value as of the beginning of the year in which employment terminates. Payment will be made as soon as practicable.
(c) If your employment terminates voluntarily or for Cause prior to December 31, 2000, you will receive payment for Performance Notes issued pursuant to the Discount Note Program in an amount equal to (i) 85% of the value of the Performance Notes when issued, or (ii) the value of the Performance Notes as of the end of the most recently completed year, whichever is less. If your employment terminates prior to December 31,
2000 for any other reason, you will receive payment for these Performance Notes in an amount equal to their value as of the end of the most recently completed year.
(d) All payments will be in cash and in exchange for the Performance Units and Performance Notes, as applicable. You may not obtain payment for them in Common Stock or other Company securities, and they do not give you any rights as a holder of such securities.
6. DEFERRAL.
(a) You may elect to defer payment of Performance Units as of December 31, 1998 and Performance Notes as of December 31, 2000. Your election must be in writing, signed by you and delivered to the Company on or before the foregoing dates. Your election will be irrevocable and must specify the percentage (from 5% to 100%, in 5% increments) of the Performance Units and Performance Notes (collectively, the "Grants") which will be paid (i) as soon as practicable after the year your death, Retirement, Disability or other termination of employment occurs or (ii) in January of any designated future year. If your employment with the Company and its subsidiaries terminates before the designated year, your Grants will be paid as of January of the year following termination. Common Stock credits will not be paid until at least six months after the date of deferral. The Company will contribute an additional 3% to the amount deferred on account of the 3% Company match that you would have received under the Capital Investment Plan if you had not deferred payment. The 3% match will not apply to amounts deferred on account of Performance Notes issued pursuant to the Discount Note Program.
(b) You must specify, on the notice electing deferred payment pursuant to
Section 6(a)(i), whether payment of the Grants will be deferred by cash credit,
Common Stock credit, or a combination of the two. If you elect to defer payment
pursuant to Section 6(a)(ii) or fail to choose a mode of deferral, your deferral
will be by means of a cash credit. Cash credits and stock credits will be
recorded in accounts established in your name on the books of the Company. At
the direction of the Company, your accounts may be consolidated on the books of
the Company or any of its subsidiaries.
(i) If your deferral is wholly or partly a cash credit, your cash credit account will be credited, as of January 1 of the year that payment of the Grants would have been made, with the dollar amount of the portion of the Grants deferred by means of a cash credit. In addition, your cash credit account will be credited as of the last day of each calendar quarter with an interest equivalent in an amount determined by applying to the current balance in the account an interest rate equal to the average prime rate of Morgan Guaranty Trust Company of New York during the quarter. Interest will be credited for the actual number of days in the quarter using a 365-day year.
(ii) If the deferral is wholly or partly a Common Stock credit, your Common Stock credit account will be credited, as of January 1 of the year that payment of the Grants would have been made, with the Common Stock equivalent of the number of shares of Common Stock (including fractions of a share) that could have been purchased with the portion of the Grants deferred by means of a Common Stock credit at the closing price of the Common Stock on the date that payment of the Grants would otherwise have been made. As of the date any dividend is paid to shareholders of Common Stock, your Common Stock credit account will also be credited with an additional Common Stock equivalent equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the Closing Price on such date with the dividend paid on the number of shares of Common Stock to which your Common Stock credit account is then equivalent. If dividends are paid in property, the dividend will be deemed to be the fair market value of the property at the time of distribution of the dividend, as determined by the Committee.
(c) Payment of deferred Grants will be made in a single cash payment; provided, however, that if you elect in writing before December 31 of the year your employment terminates due to Retirement or Disability, payment will be made in substantially equal annual installments (not to exceed ten) commencing on the January following the Retirement or Disability. Notwithstanding any election under Section 6(b) to defer awards by means of a Common Stock credit, your Common Stock credit account, if you elect to receive installment payments, will be converted into a cash credit account as of January 1 of the year in which such installment payments commence.
(d) At your one-time election in writing to the Committee, all or any designated portion of your Common Stock credit account may be converted to, and you will be credited with, a cash credit account as of the first business day of the calendar quarter following the quarter in which the election is made. The amount credited to the cash credit account will be determined by multiplying the number of shares of Common Stock to which your Common Stock credit account is then equivalent and as to which such election has been made by the Closing Price on the first business day of the calendar quarter following the quarter in which the election is made. Any Common Stock credits attributable to dividends paid on Common Stock during the calendar quarter in which the election is made will be credited before making the conversion. You may make this election at any time prior to the end of the calendar year in which termination of employment occurs. An election by you under this Section 6(d) will be irrevocable.
(e) If the number of outstanding shares of Common Stock is increased as the result of any stock dividend, subdivision or reclassification of shares, the number of shares of Common Stock to which your Common Stock credit account is equivalent will be increased in proportion to the increase in the number of outstanding shares of Common Stock. If the number of outstanding shares of Common Stock is decreased as
the result of any combination or reclassification of shares, the number of shares of Common Stock to which your Common Stock credit account is equivalent will be decreased in proportion to the decrease in the number of outstanding shares of Common Stock. In the event the Company is consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, your Common Stock credit account, in place of the shares then credited thereto, will be credited with a stock equivalent determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock to which your account is then equivalent. If in such a consolidation or merger, holders of the Company's Common Stock receive any consideration other than common shares of the resulting or surviving corporation, the Committee will determine the appropriate change in your account. In the event of any extraordinary dividend, including any spin-off, the Committee will make appropriate adjustments to your Common Stock credit account.
(f) If you die, whether before or after termination of employment, any cash credit account and Common Stock credit account to which you are entitled, including any award approved after your death as to which an election to defer was made, will be distributed in cash (unless the Committee otherwise provides) to your beneficiaries pursuant to Section 7.
7. BENEFICIARIES. If you die, the Company will make payments pursuant to this Agreement to the beneficiary designated in writing by you specifically for the Plan or, if there is no such designation or the named beneficiary is dead, to the beneficiary most recently designated by you to receive the proceeds of any Company-paid group life insurance coverage provided to you. Otherwise, the distribution will be made to default beneficiaries as provided under the Company-paid group life insurance plan. Only you may change or revoke your designation.
8. TAX WITHHOLDING. The Company or one of its subsidiaries will deduct any taxes required to be withheld by federal, state, local or foreign governments from the awards that you receive pursuant to this Agreement.
9. TRANSFER. Except as set forth in this Agreement, you may not transfer, pledge or encumber your Grants or any other benefits that you receive pursuant to this Agreement. Except as required by law, creditors may not attach or seize such Grants or benefits.
10. INTERPRETATION. The Committee has the power to interpret this Agreement and complete discretion in making valuations and determinations and taking other action pursuant to the Agreement. All interpretations, determinations and actions by the Committee will be final and binding on all parties. The Company, the Board of Directors, the Committee and the officers and employees of the Company and its
subsidiaries will not be liable for any action taken in good faith in interpreting and performing this Agreement.
11. NO RIGHT TO EMPLOYMENT. The execution, delivery and performance of this Agreement do not constitute an agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ you for any specific period or in any specific capacity and do not prevent the Company or its subsidiaries from terminating your employment at any time with or without Cause. "Termination of employment" under 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 forms of severance pay or pay in lieu of salary.
12. NOTICES. Any notices to the Company pursuant to this Agreement should be addressed to: The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019-6013. Any notice to you pursuant to this Agreement will be sent to your address as shown on Company records.
13. CHANGE OF CONTROL OR SPIN-OFF. In the event of a Change of Control or a Spin-off (i) all unvested Performance Notes and Performance Units issued to you will vest if you are terminated without Cause within two years after the date of the Change of Control or Spin-off, and (ii) the value of the Performance Notes will not be less than the Closing Price of Common Stock on the date of the Change of Control or the fourth business day preceding the record date of the Spin-off, as applicable. For purposes of this Agreement, "Spin-off" means the payment of a dividend or the making of a distribution by the Company to all holders of Common Stock that consists of the capital stock of any of its subsidiaries which accounts for all or substantially all of the Company's interest in either of its two principal lines of business as of the date hereof.
14. YOUR OBLIGATIONS.
(a) You agree that, until the third anniversary of (i) your last day of
employment with the Company or any of its subsidiaries, or (ii) the last date on
which you receive any payment pursuant to this Agreement, whichever is later:
(A) you will personally provide reasonable assistance and cooperation to the
Company or any of its subsidiaries in activities related to the prosecution or
defense of any pending or future lawsuits or claims involving the Company or any
of its subsidiaries; (B) you will promptly notify the Company upon receipt of
any requests from anyone other than an employee or agent of the Company for
information regarding the Company or any of its subsidiaries or if you become
aware of any potential claim or proposed litigation against the Company or any
of its subsidiaries; (C) you will refrain from providing any information related
to any claim or potential litigation against the Company or any of its
subsidiaries to any non-Company representatives unless you have the Company's
written permission or are required to provide information pursuant to legal
process; (D) you will not disclose or misuse any confidential information or
material concerning the Company or any of its subsidiaries; and (E) you will not
engage in any activity contrary or harmful to the
interests of the Company or any of its subsidiaries. You agree that if required by law to provide sworn testimony regarding any matter relating to the Company or any of its subsidiaries: you will consult with and have Company-designated legal counsel present for such testimony (the Company will be responsible for the costs of this counsel); you will confine your testimony to items about which you have knowledge rather than speculation, unless otherwise directed by legal process; and you will assist the efforts of the Company's attorneys to hold all privileged attorney-client matters in strictest confidence, especially matters you have been privy to.
(b) If the Company reasonably determines that you have materially violated any of your obligations under this Agreement, then the Grants hereunder shall terminate, effective no later than the date on which such violations began. In that event, you agree to return to the Company on its demand any amounts paid to you pursuant to this Agreement. If you fail to do so, the Company may deduct from any amounts the Company owes to you (including, but not limited to, wages or other compensation), or commence judicial proceedings against you, to recover these amounts and related attorneys' fees and expenses. In addition, you agree that the Company may pursue any other remedies available in law or at equity, including injunctive relief, for any breach of this Section 14.
15. CHOICE OF LAW. This Agreement will be governed by the substantive law of the State of New York. Any legal action or proceeding with respect to this Agreement may be brought in the federal or state courts located in the Borough of Manhattan in New York City.
IN WITNESS WHEREOF, the Company and you have executed this Agreement as of the Date of Grant.
RJR NABISCO HOLDINGS CORP.
GRANTEE
Grantee's Taxpayer Identification Number: Grantee's Home Address
----------------------------- -------------------------
Date:
------------------------ -------------------------
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Exhibit 10.4
January 21, 1998
H. John Greeniaus
Dear John:
This letter agreement (the "Agreement") by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. (collectively, "RJR Nabisco"), Nabisco Holdings Corp., Nabisco, Inc. (collectively, "Nabisco"), (RJR Nabisco and Nabisco are collectively referred herein as the "Company"), their successors, affiliates and/or assigns, and you, describes the termination of your employment relationship with the Company, and the Company's obligations to you under your Amended and Restated Employment Agreement dated December 14, 1995, with the Company (the "Employment Agreement"). Except as otherwise defined herein, capitalized terms herein shall be defined as in the Employment Agreement.
1. a) Effective January 1, 1998, you will cease to be actively employed by the Company and you will no longer serve as Chairman, President and Chief Executive Officer of Nabisco.
b) In accordance with the letter provided by your doctor on November 3, 1997, and subject to the provisions of this Agreement, the Company and you agree that your termination of employment is a result of your disability.
2. The Company will make a lump-sum payment to you in January 1998, in satisfaction of the Company's obligation with respect to your unused and accrued vacation days. No further vacation will accrue after December 31, 1997.
3. You will receive benefits under the Company's short-term disability plan (the "STD Plan") from January 1, 1998 until June 30, 1998. STD Plan payments to you will be equal to 100% of your base salary as in effect on December 31, 1997 (your "Base Salary") for the first 22 weeks of short-term disability and two-thirds of your Base Salary thereafter. Except as otherwise provided in this Agreement, you will continue to participate in the Company's employee benefit programs as an active employee in accordance with the terms of the short-term disability program.
4. You will receive benefits under the Company's long-term disability plan (the "LTD Plan") from July 1, 1998 until December 31, 2000 (your "Retirement Date"). Payments to you under the LTD Plan will be equal to 60% of your Base Salary.
Except as otherwise provided in this Agreement, you will continue to participate in the Company's employee benefit programs as an active employee until December 31, 2000 and you will be retired on January 1, 2001.
5. a) Provided you make any required employee contributions in a timely manner, full coverage (or equivalent coverage to that provided) in the SELECT Omnibus Welfare Benefit and Insurance Plans as well as the Executive Medical Plan (the "Welfare Plans") will continue in accordance with the terms of the Welfare Plans, until the end of the month in which your Retirement Date occurs. You will be required to re-enroll each year in the same manner as active employees. Should you become employed by an employer not affiliated with the Company, health and dental care coverage provided by your new employer will be coordinated with health and dental care benefits under the Welfare Plans.
b) If, on and after your Retirement Date, the Company provides retiree medical, dental and life insurance coverage for its retirees, you shall be eligible for such coverage at the Company and retiree contribution rate for a retiree with your years of service as of your Retirement Date. New Welfare Plans which replace or supersede current programs will apply to you unless the Company chooses to continue the current program for you.
6. You are fully vested in your account under the RJR Nabisco Capital Investment Plan ("CIP"). During your period of short-term disability, you may continue to make contributions to your CIP account. After June 30, 1998, you may not contribute to your CIP account and you will not accrue any benefits under the deferred contribution portion of SUPP or ABP (each as defined in Section 8(a)).
7. You are fully vested in the tax-qualified Retirement Plan for Employees of RJR Nabisco, Inc., (the "PEP"). You will receive credited service until June 30, 2000 under the PEP.
8. a) Pursuant to Section 5 of the Employment Agreement, you participate in
(i) the RJR Nabisco, Inc. Supplemental Executive Retirement Plan
("SERP"), (ii) the RJR Nabisco, Inc. Supplemental Benefits Plan
("SUPP") and (iii) the RJR Nabisco, Inc. Additional Benefits Plan
("ABP") (collectively, the "Plans"). Annuities have been purchased
for
your benefit and are held in the Excess Benefit Master Trust dated February 5, 1988, as amended through January 27, 1989 (the "Secular Trust"), representing the after-tax cash lump sum value of your accrued benefit as of December 31, 1994 under the SERP, SUPP and ABP. The annuities are to be delivered on your Retirement Date subject to the terms of Section 5 of the Employment Agreement.
b) The Company agrees to contribute such funds to the Secular Trust in 1998 as shall be necessary to fully fund additional supplemental pension accruals under the Plans for the period January 1, 1995 until your Retirement Date (the "Supplemental Accruals"), subject to the execution by you of acknowledgment waivers requested by the Company. The amount to be funded in 1998 will be the discounted present value of the Supplemental Accruals using factors reflecting the interest rate to be credited under annuities purchased in 1998 to fund the Supplemental Accruals. The funds will be delivered on an after-tax basis based on tax rates applicable to you at the time of funding.
c) The Company agrees that you will continue to accrue credited service under the Plans until your Retirement Date. The Company agrees to consent to your retirement on December 31, 2000 and to authorize payment of your benefits under the Plans as of January 1, 2001.
9. In addition to annuities purchased for retirement benefits as referred to in Section 8(a), in 1989, an annuity was purchased for you from Pacific Mutual Life Insurance Company representing the value of compensation continuance payments calculated at that time. The annuity was placed in the Secular Trust, to be paid to you following your termination of employment. The Company agrees to cause the annuity to be paid to you in a single lump-sum as soon as practicable in 1998. This payment will not affect the amount of, or entitlement to, any other benefits contemplated in this Agreement.
10. The Company will continue to provide you with $3,000,000 of life insurance as provided in Section 4.4 of the Employment Agreement. The premium on this policy shall continue to be paid by the Company on a taxed grossed-up basis as provided in Section 4.4 of the Employment Agreement.
11. a) Except as indicated below, you will continue to receive the benefits of the Flexible Perquisite Program until your Retirement Date. Your perquisite allowances for calendar years 1998, 1999 and 2000 shall be as follows, less applicable withholding taxes:
1998 $54,750 1999 $54,750 2000 $54,750
b) Current car lease arrangements provided by the Company will continue until your Retirement Date. No new car or lease will be provided, but you shall have the right to buy the car currently leased for you by the Company on your Retirement Date for its then "blue book" wholesale value.
12. Your 1997 annual performance unit award will be paid to you in 1998, in accordance with the terms of your grant dated February 26, 1997.
13. Prior to February 15, 1998, you are expected to submit Expense Reports for all outstanding travel, entertainment and other business expenses cash advances. In addition, prior to your Retirement Date you must return all Company equipment such as personal computers and mobile telephones.
14. Because your termination of employment is due to disability, all outstanding stock options granted to you under the Nabisco Holdings Corp. 1994 Long-Term Incentive Plan (the "Nabisco LTIP") and under the RJR Nabisco Holdings Corp., 1990 Long-Term Incentive Plan (the "RN LTIP") will be fully vested on January 1, 1998, in accordance with Section 3(a) of the agreements evidencing such grants. All other provisions of the stock option agreements, including provisions governing the exercise of your stock options, remain in effect.
15. a) Your have outstanding indebtedness to Nabisco Holdings Corp. under secured Promisory Notes as follows:
INITIAL INDEBTEDNESS NHC STOCK
DATE INDEBTEDNESS ON 1/1/98 HELD AS SECURITY
---- ------------ ------------ ----------------
February 26, 1996 $348,750 $389,023.52 10,000
February 28, 1996 $341,250 $380,534.40 10,000
March 11, 1996 $692,500 $770,464.41 20,000
---------- ------------- ------
Total $1,382,500 $1,540,022.33 40,000
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The indebtedness becomes due and payable on your Retirement Date and, at your election, may be satisfied by either (i) a cash payment by you to Nabisco Holdings Corp. or (ii) the sale of collateralized stock and use of the proceeds to repay the indebtedness. If, and to the extent that, the
indebtedness exceeds the sale proceeds you will be responsible to repay the remaining indebtedness in accordance with the terms of the appropriate Promissory Notes.
b) You have outstanding indebtedness to RJR Nabisco Holdings Corp. under a secured promisory note dated April 15, 1991. As of January 1, 1998, the outstanding indebtedness is $1,176,584.38, which is secured by 36,000 shares of RJR Nabisco Holdings Corp. common stock. The indebtedness becomes due and payable on your Retirement Date and, at your election, may be satisfied by either (i) a cash payment by you to RJR Nabisco Holdings Corp. or (ii) the sale of collateralized stock and use of the proceeds to repay the indebtedness. If, and to the extent that, the indebtedness exceeds the sale proceeds you will be responsible to repay the remaining indebtedness in accordance with the terms of the appropriate Promissory Notes. You understand and agree that RJR Nabisco Holdings Corp. has no further obligation to you under your Executive Equity Program agreement dated July 1, 1993, as modified on July 11, 1995..
16. a) You agree that until your Retirement Date you will provide consulting services on a reasonable basis (i) to help in the transition to your successor and (ii) with respect to any other matters concerning the Company (past or present) about which you are knowledgeable, subject to appropriate notice and reimbursement of all travel and other expenses. Nothing in this Section 16(a) will require you to take any action which you reasonably believe may be injurious to your disability.
b) You acknowledge that as of January 1, 1998, your active employment with the Company will end irrevocably and will not be resumed again at any time in the future, except upon mutual agreement of the parties hereto.
17. In the event of your death prior to your Retirement Date: (i) benefits under the STD Plan and the LTD Plan shall cease; (ii) continued spousal coverage is available under the Welfare Plans and retiree welfare plans in accordance with the terms of the plans; (iii) your CIP account may be distributed to your designated beneficiary under CIP; (iv) your retirement plan benefits (including SERP) may be distributed to your designated beneficiary based on the form of payment that you elect; (v) your benefits under the Perquisite Program (including your entitlement to a company car) will cease; (vi) outstanding stock option grants will remain in effect and may be exercised in accordance with the
appropriate stock option agreements; and (vii) outstanding indebtedness will become due and payable.
18. a) Your will not, without the prior written consent of 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 the Company except when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order you to divulge, disclose or make accessible such information. For purposes of this Section Agreement, "Confidential Information" means non-public information concerning 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 (other than such items which you know have become publicly available through a breach of fiduciary duty or any confidentiality agreement). In accordance with normal ethical and professional standards, you agree to refrain from taking actions or making statements, written or oral, which defame or denigrate the goodwill or reputation of the Company, their properties, products, directors, officers, executives and employees or which constitute willful conduct under circumstances where it is reasonable for you to anticipate or to expect that the natural consequences of such conduct will be to affect adversely the morale of other employees.
b) Subject to the final sentence of this paragraph (b), during the period
ending on your Retirement Date, you agree that (1) 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, (2) 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, (3) 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, (4) 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,
(5) the Company will be responsible for the costs of such designated
counsel and you will bear no cost for same, (6) you will confine
his testimony to items about which you have knowledge rather than speculation, unless otherwise directed by legal process and (7) 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 the foregoing clauses 2-7 is intended to apply to governmental or judicial investigations; provided, however, the Company will reimburse you for legal expenses if you are compelled to appear in a governmental judicial investigation. Nothing in this Section 18(b) will require you to take any action which you reasonably believe may be injurious to your disability.
c) You agree that until your Retirement Date, you will not, without the written approval of the Chairman of Nabisco (and the Chairman of any majority shareholder of Nabisco), accept employment or act as a director, consultant or advisor to, or with, any other company conducting a business which is substantially competitive with a business conducted by the Company or any affiliate. You also agree that until your Retirement Date you will not solicit or encourage any incumbent employee of the Company or an affiliate to leave the employ of the Company or an affiliate and will ask written approval from the Chairman of Nabisco (and the Chairman of any majority shareholder of Nabisco) to discuss employment offers with incumbent employee of the Company or an affiliate.
d) In the event that the Company determines that you materially violate the terms and conditions of Sections 18(a),(b) or (c) above, the Company may, at its election upon ten (10) days notice, take such action as it deems appropriate, including terminating the disability period, discontinuing cash compensation payments and employee benefits coverage, canceling any outstanding stock options or other Long Term Incentive Plan awards and recovering amounts previously paid to, or gain realized by, you. The Company may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of Sections 18(a),(b) or (c) above.
19. IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS AGREEMENT AND EXCEPT FOR THE COMPANY'S OBLIGATIONS HEREUNDER 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 EFFECTIVE DATE OF THIS AGREEMENT. YOU FURTHER AGREE THAT, EXCEPT IN CONNECTION WITH THE ENFORCEMENT OF YOUR RIGHTS HEREUNDER, 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, OR ANY OTHER FEDERAL, STATE OR LOCAL LAW.
20. 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 19, with an attorney of your choice should you so desire. You also understand and agree that you are under no obligation to consent to the release set forth in paragraph 19 and that you have entered into this Agreement freely, knowingly and voluntarily.
21. This Agreement contains our entire understanding with respect to the subject matter hereof. There are no restrictions, agreements, promises, warranties, covenants, representations or undertakings between the parties with respect to the subject matter hereof other than those expressly set forth herein.
22. You hereby acknowledge that you have consulted with, and relied on your own advisors with respect to the amounts of the payments the Company will make pursuant hereto or has heretofore made to you, and you further acknowledge that in signing this Agreement you are not relying on any statements or representations made by the Company or its agents concerning the calculation of such amounts.
23. You have at least twenty-one (21) 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 ("Effective Date").
Please indicate your acceptance of the terms of this Agreement by signing this letter and the attached duplicate and returning one signed original to me.
Sincerely,
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NABISCO HOLDINGS CORP.
NABISCO, INC.
Understood and Agreed:
Exhibit 10.5
January 15, 1998
William L. Rosoff
Dear Bill:
RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc. (the "Company") consider it essential to the best interests of Holdings' stockholders to attract and 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 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 certain executives certain payments and benefits in the event of involuntary separation of employment with the Company other than for cause.
In light of the success of 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 (as defined in Section 3 below) or a Spinoff (as defined in Section 4(a)(vi) below). 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 become employed with the Company, Holdings and the Company agree that you shall receive (i) certain benefits upon becoming employed, (ii) 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 (iii) certain other payments, as set forth in this Agreement, upon a Change of Control (as defined in Section 3 below).
This Agreement, when executed by you, will (1) supersede and replace 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. BENEFITS AND AWARDS ON EMPLOYMENT. Your employment hereunder has commenced as of the date hereof and, subject to your execution of this Agreement, your employment shall be on the following basis:
a) Your title will be Senior Vice President and General Counsel. You will be in RJR Nabisco, Inc. Salary Grade A. You will have the customary powers, responsibilities and authorities of Senior Vice Presidents and General Counsels of corporations of the size, type and nature of Holdings and Company, specifically, you shall have responsibility for all of Holdings' and the Company's legal staff functions. You will report to the Company's Chief Executive Officer and your principal office shall be at the principal executive offices of Holdings and the Company in New York, New York.
b) Your base salary will be $600,000 per year. Your target bonus will be 70% of base salary, subject to the terms and conditions of RJR Nabisco, Inc. Annual Incentive Award Plan ("AIAP") or any successor plan.
c) You will receive grants annually under the RJR Nabisco Holdings Corp. 1990 Long-Term Incentive Plan ("LTIP") and/or any additional or successor long-term incentive plan commensurate with a Salary Grade Level A position.
d) You will receive 150,000 RJR Nabisco Holdings Corp. Stock Options and 35,000 shares of RJR Nabisco Holdings Corp. Restricted Stock, both subject to the terms and conditions of the LTIP and individual grant agreements to be executed by you and the Company.
e) You will be entitled to a pension enhancement as described hereinafter in Section 6.1, unless forfeited under the terms of this Agreement.
f) You will be entitled to participation in the Company's perquisite program and employee benefits program at a level commensurate for Salary Grade Level A, as long as the Company continues to sponsor such programs and benefits.
3. CHANGE OF CONTROL. For purposes of this Agreement, the term "Change of Control" shall mean the first to occur of the following events:
(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 the date of this Agreement (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 (b), considered as though such person were a member of the Incumbent Board; or
(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.
4. 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, including any imputed service as described in Section 6.1 or as may otherwise be granted by the Company.
(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 (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), (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 an 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 forth above in subclauses (I),
(II) or (III) above, specifying the particulars thereof in detail.
(iv) GOOD REASON FOLLOWING A CHANGE OF CONTROL. 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 paragraph (iv), "Good Reason" shall mean, without your express written consent, any of the following occurring during such twenty-four month period:
(A) A material reduction in your duties or responsibilities, 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 LTIP and 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 7(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 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 7, 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 consistent with your travel requirements prior to such Change of Control.
(v) GOOD REASON PRIOR TO A CHANGE OF CONTROL.
Prior to a Change of Control and following the expiration of the twenty-four month period following a Change of Control, you shall also be entitled to terminate your employment for Good Reason. For purposes of this paragraph (v), "Good Reason" shall mean, without your express written consent, any of the following occurring prior to a Change of Control or following the expiration of such twenty-four month period:
(A) A material reduction in your duties or responsibilities, a material diminution in your position or a material adverse change in your reporting relationship;
(B) A reduction in your pay, grade or bonus opportunity;
(C) Any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8 hereinafter below; provided further that for purposes of this Agreement, no such purported termination shall be effective;
(D) Any material breach by Holdings or the Company of any provision of this Agreement including, but not limited to any provision of Section 7, or any agreements entered into pursuant hereto; or
(E) Requiring you to be based at any office or location more than 50 miles from the office or location at which you were based on the date of this Agreement, except for travel reasonably required in the performance of your responsibilities.
(vi) SPINOFF. A Spinoff shall occur if the Company pays a dividend or makes a distribution to all holders of Common Stock of the capital stock of any subsidiary of the Company, which subsidiary represents all or substantially all of the Company's interest in either of its two principal lines of business as of the date hereof.
(b) NOTICE OF TERMINATION. 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 8 hereof. For purposes of this Agreement, 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. "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 shall not be less than thirty
(30) nor more than sixty (60) days from the date such Notice of Termination
is given).
5. 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 ), 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 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 (including the special pension benefit under Section 6.1 herein).
(c) If, other than during the twenty-four month period following a Change of Control or a Spinoff, your employment shall be terminated by the Company other
than for Cause or Disability or by you for Good Reason, 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 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 vesting, benefit accrual and employer matching contribution, as applicable, for 36 months.
(viii) If you are at least age 55 with at least ten years of service including any period of severance and including service imputed pursuant to Section 6.1, you shall be eligible for MedChoice Retiree Medical benefits as in effect for other retirees and as amended from time to time thereafter.
(ix) 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 or Disability 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 5 (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, if any, and PU Vested Amount, if any, (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 5(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 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 5(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.
(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 vesting, 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) The calculation of the lump-sum in (vi)(B)(y) above shall include the special pension benefit pursuant to Section 6.1 herein.
(viii) You shall be entitled (in addition to and upon the expiration of the benefits provided pursuant to Section 5(d)(iv)) to 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 service and imputed years of service pursuant to Section 6.1.
(ix) 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.
(x) If the Company fails to provide any of the benefits under
Section 5(d)(iv) or Section 5(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.
(xi) (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 , other than any payment pursuant to this Section 5(d)(xi)(A), (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 5(d)(xi)(B) 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 5(d)(xi), 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.
(xii) 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 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.
(e) If, within the twenty-four month period following a Spinoff, your employment with the Company shall be terminated (x) by the Company other than for Cause or Disability or (y) by you for Good Reason, then, effective as of the Date of Termination, you shall be entitled to the payments and benefits provided under Section 5(c) above, modified as provided below:
(i) The Company shall pay to you, not later than 15 business days following the Date of Termination, a lump sum cash payment equal to the sum of your AIAP Vested Amount, PS Vested Amount and PU Vested Amount (each as defined in Exhibit B) as of the Date of Termination.
(ii) You shall be entitled to use the automobile assigned to you immediately prior to the Spinoff 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.
(iii) Within 15 days following the Date of Termination, the Company shall pay to you in cash a lump sum equal to 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, including the special pension benefit pursuant to Section 6.1 herein.
(iv) If you have at least five years of service, including the three-year period during which your compensation continues to be paid to you in accordance with Section 5(c)(ii), you shall be entitled (in addition to and upon the expiration of the benefits provided pursuant to Section 5(c)(iv)) to 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.
6. SPECIAL BONUS PAYMENTS. Upon a Change of Control, the Company shall pay to you a special cash bonus payment equal to the sum of (a) and (b) as follows:
(a) The Company will make a cash payment in respect of and in
cancellation 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:
(A) Fair Market Value (as so defined), (B) a term equal to the remaining life of
the option; (C) a risk-free factor equal to the average yield on zero-coupon
U.S. government issues, with a maturity coincident with the expiration of the
remaining term of the option, as reported in the Wall Street Journal for the day
the Change of Control is deemed to have occurred; (D) a dividend yield equal to
the weighted average annual dividend yield of the shares for the time period
since March 1995, or the immediately preceding 60 months, whichever time period
is less; and (E) a volatility equal to the weighted average volatility of the
shares for the immediately preceding 60 months. The volatility shall be
calculated for each year (12-month periods counting back from the month prior to
that in which the Change in Control is deemed to have occurred) by using the
month-end closing prices plus dividends paid in that month. The dividend yield
shall be calculated for each year (12-month periods counting back from the month
prior to that in which the Change of Control is deemed to have occurred) by
dividing the total dividends (for which the ex-dividend dates occur within that
12-month period) by the average month-end closing prices during that 12 month
period. The weighted average dividend yield is calculated by applying a
weighting factor to each annual yield where the highest factor is the number
that equals the number of full or partial years in the time period and is
applied to the annual yield of the most recent 12-month period, the second
highest factor (highest factor minus 1) is applied to the annual yield of the
second most recent 12-month period, the third highest factor (highest factor
minus 2) is applied to the annual yield of the most recent 12-month period, and
so forth, adding all of these products together and dividing by a number that
equals the sum of the
weighting factors. The weighted average volatility is calculated in the same
manner as described for dividend yield. Notwithstanding the foregoing, this
Section 6(a) shall not apply in the event of a Change of Control under Section
3(c) hereof for which Holdings is using the "pooling of interest" method of
accounting.
(b) The Company will pay 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. . 6.1 SPECIAL PENSION BENEFIT. In order to make you whole for forfeited pension entitlements from prior employers, you will be granted 10 years additional service credit for pension calculation purposes using the formulae under the Retirement Plan for Employees of RJR Nabisco, Inc. (the "PEP") or any successor plan. This 10 years service credit shall be forfeited if you terminate your employment voluntarily without Good Reason prior to completing five years of service with the Company or if you are at any time terminated for Cause (as defined herein). The benefit representing this additional 10 years service credit will not be paid from the tax qualified PEP or the Company's Additional Benefits Plan or Supplemental Benefits Plan, but instead will be paid by the Company in a lump sum, discounted to present value using Pension Benefit Guaranty Corporation rates, from the general assets of the Company upon your termination provided the service credit has not been forfeited as provided above.
7. 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 Company, respectively, as herein before 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 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.
8. 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.
9. 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 5 by seeking other employment or otherwise, nor except to the extent provided in Section 5(c)(iv) or Section 5(d)(iv), shall the amount of any payment or benefit provided for in Sections 5(c), 5(d) or 5(e) 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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 or a Spinoff until such transaction has taken place or, in the opinion of the Holdings Board, such person has
abandoned or terminated its efforts to effect such transaction. Subject to the
foregoing, nothing contained in this Agreement shall impair or interfere in any
way with your right to terminate your employment. In addition, nothing in this
Section 14 shall impair or interfere with the right of the Company or any
subsidiary to terminate your employment with or without cause at any time,
subject to the provisions of this Agreement.
15. PAYMENT OBLIGATIONS ABSOLUTE; OBLIGOR. 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, subject to, in the event of your termination of employment, your execution of the relevant release of claims against Holdings and/or the Company in the form set forth on Exhibit A hereto. In default of any payment or provision of benefits hereunder by the Company, such payment or benefit shall be the obligation of Holdings.
16. 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.
17. WITHHOLDING. Payments under this Agreement will be subject to normal deductions for taxes and other legally required withholding.
18. 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.
19. 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.
RJR NABISCO, INC.
By
--------------------------------
Name: Steven F. Goldstone
Title: Chairman and CEO
Agreed to this ____ day of
|
_____________________, 1998
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 confidential 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 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.
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 or a Spinoff, 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 or a Spinoff, 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 after a Change of Control or a Spinoff, 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.
SAVINGS 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.
Exhibit 10.6
RN Option
1998
JMK
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: January 2, 1998
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
JAMES M. KILTS (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
250,000 SHARES
of Common Stock of the Company, at the exercise price of $37.375 per share (the "Option"). 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. 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), this Option shall be vested in three installments. The first installment shall be vested on the first anniversary following the 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 vested for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully vested. To the extent that any of the above installments is not exercised when it becomes vested, 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) Except as provided in Section 3, this Option shall not be exercised prior to 36 months after the Date of Grant.
3. TERMINATION OF EMPLOYMENT
(a) Except as may be otherwise provided in a written employment or
termination agreement between the Optionee and the Company, the Option shall not
become vested 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, Retirement, termination of employment by the Optionee with Good Reason or involuntary termination of the Optionee without Cause. In the event of Termination of Employment because of death, Permanent Disability, Retirement, termination of employment by the Optionee with Good Reason or involuntary termination without Cause, the Option shall immediately become vested and 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, early retirement at age 55 or over with at least 10 years of service 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 with the Company and any other entity which, as of the date of this Agreement, is an affiliate of the Company.
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 tenth 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 the Optionee's employment agreement).
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, spinoff, 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 on exercise by the Optionee of the Option for Common Stock 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" OR WITH "GOOD REASON"."
(a) 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 the Optionee's employment agreement with Nabisco Holdings Corp. and Nabisco, Inc. effective as of November 20, 1997 (the "Employment Agreement"). 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.
(b) For purposes of the Agreement, the Optionee's employment shall be deemed to have been terminated for "Good Reason" only as such term is defined in the Optionee's 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. OBLIGATIONS OF OPTIONEE
(a) In consideration of the grant, the Optionee, while both actively
employed and in the event of Optionee's Termination of Employment for any
reason, specifically agrees that within the term of this grant or within three
years following the payment of any amounts pursuant to the grant, if later: (i)
the Optionee 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; (ii) the Optionee will
promptly notify the Company upon receipt of any requests from anyone other than
an employee or agent of the Company for information regarding the Company, or if
the Optionee becomes aware of any potential claim or proposed litigation against
the Company; (iii) the Optionee 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; (iv) the
Optionee will not misuse or, other than in the course of performing his duties,
disclose any confidential information or material concerning the Company; and
(v) the Optionee will not engage in any activity contrary or harmful to the
interests of the Company. In further consideration of the grant, the Optionee
specifically agrees that if required by law to provide sworn testimony regarding
any Company-related matter: the Optionee will consult with and have Company
designated legal counsel present for such testimony (the Company will be
responsible for the costs of such designated counsel); the Optionee will confine
his testimony to items about which he has knowledge rather than speculation,
unless otherwise directed by legal process; and the Optionee will cooperate with
the Company's attorneys to assist their efforts, especially on matters the
Optionee has been privy to, holding all privileged attorney-client matters in
strictest confidence.
(b) If the Company reasonably determines that the Optionee has materially violated any of his obligations under this agreement, then this Option shall terminate, effective the date on which such violation began (unless otherwise terminated sooner) and the Company may demand the return of any gain realized by the Optionee from the exercise of all or a portion of this Option and the Optionee hereby agrees to return such amounts upon such demand. If after such demand the Optionee fails to return said amounts, the Optionee acknowledges that the Company has the right to deduct from any amounts the Company owes to the Optionee (including, but not limited to, wages or other compensation), or to commence judicial proceedings against the Optionee, to recover said amounts and any and all of its attorney's fees and costs.
14. 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) In the event of a Change of Control, the Optionee shall receive
in cash in respect of the Option and in exchange for the cancellation of the
Option, the higher of (i) or (ii) where (i) is the excess, if any, of the Fair
Market Value over the exercise price of the Option, multiplied by the number of
Shares subject to the Option and (ii) is the value of the Option using the
Black-Scholes method of valuing the Option based on the following assumptions:
(A) Fair Market Value; (B) a term equal to the remaining life of the option; (C)
a risk-free factor equal to the average yield on zero-coupon U.S. government
issues, with a maturity coincident with the expiration of the remaining term of
the option, as reported in the Wall Street Journal for the day the Change of
Control is deemed to have occurred; (D) a dividend yield equal to the weighted
average annual dividend yield of Holdings for the time period since March 1995,
or the immediately preceding 60 months, whichever time period is less; and (E) a
volatility equal to the weighted average volatility for the immediately
preceding 60 months. The volatility shall be calculated for each year (12-month
periods counting back from the month prior to that in which the Change in
Control is deemed to have occurred) by using the month-end closing prices plus
dividends paid in that month. The dividend yield shall be calculated for each
year (12-month periods counting back from the month prior to that in which the
Change of Control is deemed to have occurred) by dividing the total dividends
(for which the ex-dividend dates occur within that 12-month period) by the
average month-end closing prices during that 12 month period. The weighted
average dividend yield is calculated by applying a weighting factor to each
annual yield where the highest factor is the number that equals the number of
full or partial years in the time period and is applied to the annual yield of
the most recent 12-month period, the second highest factor (highest factor minus
1) is applied to the annual yield of the second most recent 12-month period, the
third highest factor (highest factor minus 2) is applied to the annual yield of
the most recent 12-month period, and so forth, adding all of these products
together and dividing by a number that equals the sum of the weighting factors.
The weighted average volatility is calculated in the same manner as described
for dividend yield. Notwithstanding the foregoing, this Section 14(c) shall not
apply in the event of a Change of Control under Section 8(c)(iii) of the Plan
for which Holdings is using the "pooling of interest" method of accounting.
(d) 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.
Optionee's Taxpayer Identification Number:
Optionee's Home Address:
Exhibit 10.7
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 January 1, 1997 and supersedes and revokes the prior Employment Agreement with Executive dated as of December 5, 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 continue in the positions of Chairman, Chief Executive Officer and 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 and President, 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 Chairman 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 and President 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 serve as Chairman 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 as amended and restated as of December 5, 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 $1,250,000 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 Board 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, subject to Section 3.2(b) below, Executive shall be entitled, while he remains employed hereunder, to receive an annual bonus opportunity 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 one hundred percent (100%) 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 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
opportunity under the AIAP pursuant to Section 3.2(a), provided that the
aggregate "Initial Grant Value" of all such Performance Units granted in any
year shall not be less than the annual target bonus opportunity under Section
3.2(a) (the annual target bonus opportunity under Section 3.2(a) or 3.2(b), as
applicable, is hereinafter referred to as the "Target Bonus Opportunity"). 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". The terms
"Initial Grant Value" and "Payment Value" shall have the meanings customarily
given to them 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. Subject only to Section 3.2(b), 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 (a) pay to Executive a special cash bonus payment equal to the sum of
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); (b) make any additional
funding contributions required to fully fund the Benefit (as defined in Section
5) accrued to the date of such Change of Control under Section 5 hereof; and (c)
make any additional premium payments required to maintain the life insurance
coverage under Section 4.5 in force for Executive's lifetime. 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
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 (subject to the provisions of
Section 6.2), 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 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 maximum number of years of service that may be credited under the retiree medical program.
4.5 LIFE INSURANCE.
(a) As long as Executive is (i) actively employed by the Company (ii) retires pursuant to Section 5(d) herein or (iii) is terminated by the Company and/or Holdings other than for Cause (as defined in Section 6.4) or Executive terminates for Good Reason (as defined in Section 6.1(b)), the Company shall, from the initial purchase of a policy of insurance on the life of Executive issued by The Equitable Variable Life Insurance Company and dated as of April 19, 1996 (the "Policy"), provide sufficient funds to the owner of the Policy to make sufficient premium payments on the Policy to maintain $3 million of variable life insurance on Executive's life thereunder in force throughout Executive's lifetime (it is anticipated that the Policy will be fully funded over a ten-year period). Subject to the conditions of the preceding sentence and if, and only if, additional premiums are required by the insurance company providing the Policy to keep $3 million of life insurance in force during the Executive's lifetime, the Company shall provide sufficient additional funds to the owner of the Policy to make such additional premium payments.
(b) The Company shall hold Executive harmless from any taxes (excluding any gift, estate, transfer, inheritance or other similar taxes), if any, incurred as a result of payments made by the Company pursuant to Section 4.5(a) and this Section 4.5(b).
(c) Executive shall have the right, without the consent of the owner of
the Policy, to relieve the Company of its obligations under Section 4.5(a) and
if (i) Executive shall release the Company from such obligations or (ii) the
owner of the Policy shall fail to contribute payments made pursuant to Section
4.5(a) to the Policy or take any action which causes a diminution in coverage or
a cancellation of the Policy, the Company shall have no further obligation under
Section 4.5(a).
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 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 not less than 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), Executive shall be
deemed to have instructed the Trustee of the secular trust referred to in
Section 5(b) below to return to the Company 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). Subject to Section 5(d)(ii), if Executive's employment
is terminated (I) 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, or (II) for
any reason during the twenty-four month period following a Change of Control, or
if Executive attains his Retirement Date as a result of his permanent disability
in accordance with Section 5(d)(i)(III), Executive's Benefit shall be equal to
the maximum 50% SERP benefit, with no reduction for
early commencement of payment. The preceding sentence shall be disregarded for purposes of Section 5(b)(ii).
(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 has been 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 has made 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 paid to
Executive at the time of such election an additional amount and will pay a
further additional amount, if necessary,such that after payment by Executive of
all applicable Federal, state and local taxes thereon (computed at the maximum
marginal rates) there shall have been 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,
as described in sub paragraph (iv) below, reflecting 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
Benefit under the SERP has been fully secured by such purchases and deliveries
of annuities. The Company shall use its best efforts to ensure that the purchase
and delivery of annuities in respect of any fiscal year shall take place no
later than the earlier of April 30 of the following fiscal year or Executive's
Retirement Date. 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, in the case of clause (x) or (y), or a trust established for such
purpose, in the case of clause (y), shall pay to Executive (or remit to the
appropriate taxing authorities) 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 benefits due Executive under the SERP will be offset by the
annuities purchased hereunder including earnings thereon to the extent that the
present value of the after-tax benefits to be received by Executive under such
annuities equals or exceeds the present value of the after-tax benefits due
Executive under the SERP, determined in each case as of Executive's Retirement
Date using a discount rate determined by the Company's independent actuary as
being consistent with the purchase rates which would be used by insurance
companies to fund the Benefit and mortality assumptions as specified for the
determination of "current liability" as defined in section 412(l)(7) of the
Internal Revenue Code of 1986, as amended (the "Code") and taking into
consideration all applicable Federal, state and local income taxes (computed at
the maximum marginal rates in effect at Executive's Retirement Date) and, in the
case of the annuities, the recovery of the investment in such contract under
Section 72 of the Code based upon the mortality assumptions referred to above.
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, 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
(iv) The annuities delivered to secure any incremental accrued Benefit for
fiscal years ending before Executive's Retirement Date, and any additional
annuities transferred to Executive in accordance with Section 5 (c) below to
fully fund the aggregate Benefit accrued to Executive's Retirement Date, shall
have a lump sum cash-out option and provide the same periodic after tax payments
to Executive as would the corresponding Benefit if provided to Executive under
the SERP without the use of such annuities, in each case calculated after
payment therefrom by Executive of all applicable Federal, state and local income
taxes thereon (computed at the maximum marginal rates then in effect) and, in
the case of any annuity, the recovery of the investment in such contract under
Section 72 of the Code Assuming Executive were to receive "the expected return"
under such contract within the meaning of Section 72.
(c) No later than Executive's Retirement Date, the Company shall purchase
and transfer to Executive such additional annuities as shall be necessary to
fully fund the Benefit accrued to Executive's Retirement Date (including without
limitation pursuant to the next to last sentence of Section 5(a) above and
Section 5(d)(ii) below) 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 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 on such transfer Upon delivery
to Executive on or following his Retirement Date of the annuities provided for
herein, Executive shall reimburse to the Company an amount equal to the Federal
Insurance Contributions Act ("FICA") taxes, if any, for which Executive would
have been liable had Executive received the Benefit under the SERP without the
use of the annuities provided for herein, provided, however, that in no event
shall the amount of such reimbursement exceed the amount of Executive's FICA
taxes actually paid by the Company to or for the account of Executive in
accordance with the terms of the Agreement on
account of Executive's liability for FICA taxes on such annuities.
(d) (i) Subject to clause (ii) of this Section 5(d), Executive's
"Retirement Date" shall be the first to occur of (I) his attainment of age
60,(II) his death or (III) the second anniversary of Executive's commencement of
benefits under the Company's short term disability plan (provided that Executive
had been disabled throughout the two year period). In the event of Executive's
death prior to his attainment of age 60, the Company's sole obligations under
Section 5(c) shall be (x) to deliver or cause to be delivered to Executive's
designated beneficiary or, if none, to his estate, the annuities then held in a
secular trust for Executive's benefit (the "Existing Annuities"), (y) to
purchase and transfer to Executive's designated beneficiary or, if none, to his
estate, such additional annuities, if any, as would be necessary to fully fund a
"Pre-Retirement Spouse's Benefit" under the SERP as accrued to the date of
Executive's death assuming both the Existing Annuities and such additional
annuities, if any, were applied to such "Pre-Retirement Spouse's Benefit" and
(z) to pay to Executive's designated beneficiary or, if none, to his estate the
additional amount referred to in the penultimate sentence of Section 5(c). In
the event of Executive's death, any reference in this Section 5 to payments or
transfers required to be made to "Executive" shall be made to Executive's designated beneficiary or, if none, to his estate. Any annuity delivered to Executive, Executive's designated beneficiary or Executive's estate 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. Executive hereby instructs the Company to deliver all annuities purchased for Executive hereunder prior to Executive's Retirement Date to a secular trust for his benefit designated by the Company.
(ii) If Executive's employment is terminated (I) 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, or (II) 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 equal to the present value of the maximum 50% SERP benefit that would have been paid to him commencing on the third anniversary of his Retirement Date (the "Calculation Date"). The present value shall be calculated using the same methodology as in Section 6.1(a)(y) and shall reflect the acceleration of such payments
by the lesser of (A) 36 months or (B) the number of full months remaining from the month of Executive's Retirement Date until the month of Exectuive's 60th birthday, but without any other reduction under the SERP formula for early commencement of payment prior to age 60.
(e) References in this Agreement to annuities or annuity contracts purchased or to be purchased by the Company to secure the Benefit shall be deemed to include Executive's interest as the insured in any group annuity contract purchased for such purpose by the Company or by the trustee of the secular trust referred to above, including but not limited to any such interest reflected in a certificate issued to Executive by the respective insurance company pursuant to such a group annuity contract. In addition, the obligation under this Agreement to deliver or cause to be delivered any such annuity or annuity contract to Executive, to his designated beneficiary or to his estate shall be deemed satisfied by the distribution to such recipient either of a cash lump sum in the case of such a payment election by such recipient or of such a certificate issued by the respective insurance company in the case of an alternative form of distribution election.
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 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(b)) 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 (or, in the case of any annual bonus opportunity in the form of Performance Units, PU 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
(v) the benefits under Section 5 hereof shall be paid out in accordance with their terms; PROVIDED, HOWEVER, that, for purposes of computing such
benefits under Section 5, Executive's compensation level shall be deemed to be 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, 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) until Executive attains age sixty five (65), but in no event for fewer than 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 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 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
(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;
(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 Executive's responsibilities or, following a Change of Control, travel reasonably consistent with the Executive's travel requirements prior to the Change of Control, 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 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 & 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.
(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. (a) In the event Executive becomes
eligible for benefits under the Company's Short Term Disability Plan and/or
the Company's Long Term disability Plan (collectively, the "Disability Plans"),
Executive's disability benefit will be determined under the appropriate
Disability Plan except that Executive's disability benefit shall be equal to
100% of his base salary (as in effect immediately prior to the disability)
subject to offsets as provided under the appropriate Disability Plan.
Disability benefits shall be paid for twenty four 24 months (at which time
Executive will attain his Retirement Date in accordance with Section
5(d)(i)(III)), but in no event shall disability benefits be paid following (i)
the date Executive
is no longer disabled within the meaning of the appropriate Disability Plan or
(ii) Executive's attainment of age 65.
(b) 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. The period during which disability benefits are paid to Executive (in accordance with Section 6.2(a) hereof) shall be recognized as Service for purposes of determining Executive's SERP Benefits pursuant to Section 5 hereof. All other provisions of this Agreement shall remain in effect notwithstanding the Executive's disability including, without limitation, , 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, together with any applicable interest or other accruals thereon.
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 designated beneficiary in a lump sum. For purposes of this Section 6.3, unless Executive otherwise elects, Executive's "designated beneficiary" shall mean the Executive's estate.
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 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 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 sentence of this Section 6.4, such termination shall not be deemed to be for Cause.
7. STOCK ARRANGEMENTS. (a) Except as otherwise provided in Section 3.4,
Section 6, Section 7(b), and
Section 13, awards under the LTIP shall be governed by the provisions of the individual grant agreements made under the LTIP.
(b) Stock options granted under the LTIP shall be fully vested upon Executive's permanent disability, death, retirement or other termination of employment for any reason, except for termination by the Company or Holdings for Cause or by Executive without Good Reason.
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:
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 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.
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 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.
(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 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 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.
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.
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.
23. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
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:
(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-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 (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.
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.
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 or termination of employment, 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 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.
Exhibit 10.8
PAR-RN 1998
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
PERFORMANCE APPRECIATION RIGHT AGREEMENT
DATE OF GRANT: FEBRUARY 6, 19987
1. GRANT. Pursuant to the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. ("RJRN Holdings") hereby grants the following Performance Appreciation Rights ("Appreciation Rights") to
("you", or the "Grantee")
subject to the terms and conditions of the Plan and this Agreement (the "Agreement"):
a) RJR Nabisco, Inc. (RJRN) Appreciation Rights
b) R.J. Reynolds Tobacco Company (RJRT) Appreciation Rights
c) R.J. Reynolds International (RJRI) Appreciation Rights
d) Nabisco Holdings Corp. (Nabisco) Appreciation Rights
This grant supersedes and cancels any other grant of Performance Appreciation Rights made to you and dated as of the Date of Grant.
2. DEFINITIONS. Capitalized terms have the meanings set forth in Exhibit A to this Agreement or, if not defined therein, the Plan.
3. VALUATION.
(a) Each Appreciation Right represents the right to receive a cash payment from RJRN Holdings in an amount (the "Payment Value") equal to the excess of the Note Value for each type of Note at the time of exercise over its Initial Value. Each of the RJRN, RJRT and RJRI Notes has an Initial Value of $36.00. Each Nabisco Note has an Initial Value of $46.00. The Note Values are set periodically pursuant to Section 3(b) below.
(b) As soon as practicable after the end of each year during the Performance Period, the Committee will determine the Note Values as of December 31 of the preceding year for each type of Note using Performance Measures and Valuation Formulas determined by the Committee. The Committee will set Note Values only once
each year, so the Note Values will remain unchanged during the year. The Committee will provide a written notice (the "Valuation Notice") setting forth the Note Values and the Payment Values for Appreciation Rights promptly after the Committee completes each valuation.
(c) In general, the Payment Value for each type of Appreciation Right will be based on the Note Value in effect at the time of exercise. However, for exercises within thirty (30) days of the date the Committee makes its regular annual determination of new Note Values pursuant to Section 3(b) above, the Payment Value for Appreciation Rights that were exercisable during the immediately preceding year will be calculated using the higher of the Note Values in effect for the year of exercise or the Note Values in effect for the immediately preceding year.
(d) In the event of a Change of Control or a Spinoff, the Payment Value of
each Appreciation Right will equal the greater of (i) the Payment Value of the
Appreciation Right as determined pursuant to Sections 3(b) and 3(c) above, and
(ii) the excess, on the date of the Change of Control or the fourth business day
preceding the record date of the Spinoff, as applicable, of (A) the Closing
Price of the RJRN Common Stock over $36.00, in the case of RJRN, RJRT and RJRI
Appreciation Rights, and (B) the Closing Price of Nabisco Stock over $46.00, in
the case of Nabisco Appreciation Rights.
4. VESTING.
Subject to Section 5 below, 33% of each type of Appreciation Right will vest on each of December 31, 1998 and 1999 and 34% will vest on December 31, 2000, provided in each case that you remain actively employed by a Company or one of its subsidiaries through the date of vesting.
5. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT.
(a) Unless otherwise provided in a written employment or termination agreement between you and your Employer, no additional Appreciation Rights shall vest following your Termination of Active Employment for any reason other than a Termination of Active Employment because of death, Permanent Disability, Retirement or your involuntary termination by your Employer without Cause.
(b) In the event of your Termination of Active Employment because of death, Permanent Disability, Retirement or involuntary termination by your Employer without Cause, your Appreciation Rights will be vested in proportion to the ratio of (i) the number of partial or complete months of employment since January 1, 1998 to (ii) 36.
(c) If your employment is terminated by your Employer without Cause within two years after a Change of Control, all of your Appreciation Rights will vest immediately.
(d) If your employment is terminated by your Employer for Cause, all of your outstanding Appreciation Rights shall be cancelled and no longer exercisable as of your Termination of Active Employment.
(e) You shall be deemed to have a "Permanent Disability" if you become 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.
(f) "Retirement" as used herein means retirement at age 65 or over, or early retirement at age 55 or over with at least ten (10) years of service.
(g) "Termination of Active 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.
(h) If you have an employment or severance agreement, your employment
shall be deemed to have been terminated for "Cause" only as such term is defined
in your employment or severance agreement. If you do not have an employment or
severance agreement which defines the term "Cause", your employment shall be
deemed to have been terminated for "Cause" if the termination results from your
(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 you, or (d) deliberate misconduct which
could be materially damaging to your Employer or any of its business operations
without a reasonable good faith belief by you that such conduct was in the best
interests of your Employer. A termination of your employment shall not be
deemed for Cause hereunder unless the senior personnel executive of your
Employer shall confirm that any such termination is for Cause as defined
hereunder. Any voluntary termination by your in anticipation of an involuntary
termination of your employment for Cause shall be deemed to be a termination of
your employment for Cause.
6. EXERCISE.
(a) You may exercise your Appreciation Rights by giving a written notice to RJRN Holdings, in the manner prescribed by the Committee, which specifies the type and number of Appreciation Rights being exercised. You must exercise all of your vested Appreciation Rights for a Company unless you exercise at least 1,000 of its Appreciation Rights.
(b) If you do not exercise them earlier, Appreciation Rights that vest pursuant to Sections 5(b) or 5(c) above will be deemed exercised as of the date of the next regularly scheduled annual Valuation Notice. In the event of any other Termination of Active Employment within the Performance Period, vested Appreciation Rights will be deemed
exercised as soon as administratively practicable following such Termination of Active Employment.
(c) If you do not exercise them earlier, outstanding vested Appreciation Rights will be deemed exercised as of the last day of the Performance Period.
7. PAYMENT OF AWARDS.
Promptly after your election to exercise an Appreciation Right is processed, RJRN Holdings will pay you, in cash, the amount of its Payment Value unless you have elected to defer receipt of the Payment Value pursuant to the provisions of the Plan or as otherwise provided by the Committee. However, RJRN Holdings may limit the frequency of the payments to one settlement date each month.
8. ADJUSTMENTS.
The Committee may make an appropriate and equitable adjustment in the number and/or values of any type of Appreciation Rights if it determines that conditions warrant such adjustment. Such conditions may include, but are not limited to, changes in the economy, laws, regulations and generally accepted accounting principles, as well as corporate events such as a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, Spinoff or other event. Any adjustment made by the Committee shall be final and binding upon you, any Company and all other interested persons.
9. TAXES.
Any taxes required by federal, state or local laws to be withheld by the Company in respect of the grant or exercise of Appreciation Rights hereunder shall be paid to the Company by you by the time such taxes are required to be paid or deposited by the Company. You hereby authorize the necessary withholding by the Company to satisfy such tax withholding obligations prior to delivery of the Payment Value.
10. MISCELLANEOUS.
(a) The Committee has the power to interpret this Agreement and, together with the officers of RJRN Holdings and its subsidiaries, complete discretion in making determinations and taking action pursuant to the Agreement. All interpretations, determinations and actions by the Committee and the officers and employees to whom they delegate these responsibilities will be final, conclusive and binding on all parties.
(b) This Agreement is subject to the Plan, a copy of which is attached. The Board may amend the Plan and the Committee may amend this Agreement at any time and in any way, except that any amendment of the Plan or this Agreement that would impair your rights hereunder may not be made without your consent.
(c) This Agreement and the award to you of Appreciation Rights does not give you any right to employment or limit the ability of RJRN Holdings and its subsidiaries to terminate your employment at any time with or without cause.
(d) Except for the payments to your beneficiaries contemplated by the Plan, you may not transfer, pledge or encumber any benefit hereunder. Except as required by law, your creditors may not attach or seize any such benefit.
(e) Except to the extent that you receive different instructions from the Companies, you should send notices concerning this Agreement and the Appreciation Rights to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019-6013. RJRN Holdings will send any notices to your office or to your address as shown on the records of the Companies.
IN WITNESS WHEREOF, RJRN Holdings and the Grantee have executed this Agreement as of the Date of Grant.
RJR NABISCO HOLDINGS CORP.
Grantee's Taxpayer Identification Number:
Grantee's Home Address:
EXHIBIT A
DEFINITIONS
BOARD OF DIRECTORS. The Board of Directors of RJRN Holdings.
CLOSING PRICE. The closing sale price of the RJRN Common Stock or the Nabisco Stock, as applicable, as shown on the New York Stock Exchange consolidated tape and reported in THE WALL STREET JOURNAL.
COMMITTEE. The Compensation Committee of the Board of Directors.
COMPANIES. RJRN, RJRT, RJRI and Nabisco.
DATE OF GRANT. The date of this Agreement.
EMPLOYER. The Company (including any subsidiary) with which you are employed.
INITIAL VALUE. The initial values assigned to the Notes as of January 1, 19987, as set forth in Section 3(a).
NABISCO STOCK. The Class A Common Stock of Nabisco.
NOTES. The Performance Notes that RJRN (or Nabisco, in the case of Nabisco Performance Notes) may issue to directors, officers and employees of the Companies and their subsidiaries during the first 90 days of 19998 pursuant to its Annual Incentive Award Plan.
NOTE VALUE. The value of a Note as determined pursuant to Section 3(b).
PAYMENT VALUE. For any Appreciation Right, the excess of its Note Value over its Initial Value.
PERFORMANCE MEASURES. The performance objectives for a Company that are used in Valuation Formulas to determine Payment Values for the Company's Notes.
PERFORMANCE PERIOD. January 1, 19987 through December 31, 20012.
RJRN COMMON STOCK. The Common Stock of RJRN Holdings.
SPINOFF. The payment of a dividend or the making of a distribution by RJRN Holdings to all holders of RJRN Common Stock that consists of the capital stock of any of its subsidiaries which accounts for all or substantially all of RJRN Holdings' interest in either of its two principal lines of business as of the date hereof.
VALUATION FORMULAS. The formulas used to value Notes as of December 31 in each year in the Performance Period.
VALUATION NOTICE. The notice setting forth Note Values and Payment Values described in Section 3(c).
Exhibit 10.9
RESTRICTED STOCK
1998 - DBR
1990 RJR NABISCO HOLDINGS CORP.
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK PROGRAM
RESTRICTED STOCK AGREEMENT
DATE OF GRANT: January 15, 1998
W I T N E S S E T H
1. GRANT OF RESTRICTED STOCK. Pursuant to the provisions of the 1990 Long-TermIncentive Plan and the Restricted Stock Program (collectively, the "Plan") RJR Nabisco HoldingsCorp. (the "Company") on the above date has granted, and this agreement evidences the grant to
David B. Rickard (THE "GRANTEE")
subject to the terms and conditions which follow and the terms and conditions of the Plan, a total of
20,000 SHARES
of Common Stock of the Company ("Common Stock"). 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. All capitalized terms used below shall have the meaning set forth in the Plan, unless the context requires a different meaning.
2. RECEIPT AND DELIVERY OF STOCK. The Grantee waives receipt from the Company of a certificate or certificates representing the shares of Common Stock granted hereunder, registered in his name and bearing a legend evidencing the restrictions imposed on such Common Stock by this agreement. The Grantee acknowledges and agrees that the Company shall retain custody of such certificate or certificates until the restrictions imposed by Paragraph 3 on the Common Stock granted hereunder lapse. Concurrently with the execution of this agreement, the Grantee has delivered to the Company an irrevocable stock power endorsed in blank.
3. RESTRICTIONS ON TRANSFER OF STOCK. The Common Stock granted hereunder may not be sold, tendered, assigned, transferred, pledged or otherwise encumbered prior to the earliest of:
(i) January 15, 2003, for 100% of the shares;
(ii) the date of the Grantee's death, for 100% of the shares;
(iii) the date of the Grantee's Disability, as defined in RJR Nabisco Inc.'s Long Term Disability Plan, for 100% of the shares; or
(iv) the date of a Change of Control.
In the event of the involuntary termination of the Grantee's employment with the Company or a subsidiary without "Cause" or for "Good Reason" (each as defined and applied in the Grantee's Employment Agreement) (as "Involuntary Termination"), the Grantee will be vested in a number of shares of Restricted Stock which is equal to the product of (i) the total number of shares of Restricted Stock granted to the Grantee pursuant to this Agreement and (ii) a fraction, the numerator of which is number of whole or partial months between the Date of Grant and the Grantee's Severance Date (as defined in Section 4) and the denominator of which is 60. Notwithstanding the foregoing sentence, if the Involuntary Termination occurs after the Company pays a dividend or makes a distribution to all holders of Common Stock of the capital stock of any subsidiary of the Company, which subsidiary represents all or substantially all of the Company's interest in either of its two principal lines of business as of the date hereof, the Grantee will be vested in 100% of the shares.
At the time the restrictions imposed by this Section 3 shall lapse, the appropriate number of shares of Common Stock shall be delivered to the Grantee without a restrictive legend on any Common Stock certificate.
4. FORFEITURE OF STOCK. The Common Stock upon which restrictions still exist following the Grantee's Severance Date shall never become transferable by the Grantee or anyone claiming through him and the Grantee shall forfeit all right, title and interest in and to such Common Stock along with the right to any dividends paid thereon and the Common Stock granted hereunder shall revert to the Company. "Severance Date" means termination from active employment; it does not mean the termination of pay and benefits at the end of a period of salary continuation (or other form of severance pay or pay in lieu of salary). The Committee or its agent shall act promptly to record forfeitures pursuant to this paragraph on the stock transfer books of the Company.
5. DIVIDENDS. If the Grantee is a shareholder of record on any applicable record date, he shall receive any dividends on the Common Stock granted hereunder when paid regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
6. VOTING. If the Grantee is a shareholder of record on any applicable record date, he shall have the right to vote the Common Stock granted hereunder regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
7. NO RIGHT TO EMPLOYMENT. The execution and delivery of this agreement and the granting of Common Stock hereunder shall not constitute or be evidence of 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 particular capacity and shall not prevent the Company or its subsidiaries from terminating the Grantee's employment at any time with or without Cause.
8. REGISTRATION. The Common Stock granted hereunder may be offered and sold by the Grantee only if such stock is registered for resale under the Securities Act of 1933 (the " 1933 Act") as amended, or if an exemption from registration under such Act is available. The Company has no obligation to effect such registration. By executing this agreement, the Grantee (i) agrees not to offer or sell the Common Stock granted hereunder unless and until such stock is registered for resale under the 1933 Act or an exemption from registration is available, (ii) represents that he accepts such Common Stock for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof and (iii) agrees that he or his beneficiary, on request, will be obligated to repeat these representations in writing prior to any future delivery of such Common Stock.
9. CHANGE IN COMMON STOCK OR CORPORATE STRUCTURE.
a) If at any time the number or nature of outstanding shares of Common Stock of the Company shall be increased or changed as the result of any spinoff, stock dividend, subdivision or reclassification of shares, the number or nature of shares of Common Stock subject to this Agreement after such an event shall be increased or changed in the same proportion or manner as the outstanding number of shares of Common Stock is increased or changed, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock subject to this Agreement after such an event shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased.
b) In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be an adjustment to the shares of Common Stock subject to this Agreement after such an event, and in place of the shares so subject, a stock equivalent shall be determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock subject to this Agreement. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Committee shall determine the appropriate change in shares held pursuant to this Agreement after such an event; provided, however, such change shall not be to the detriment of the Executive.
10. APPLICATION OF LAWS. The granting of Common Stock hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.
11. TAXES. Any taxes required by federal, state or local laws to be withheld by the Company on the Grant or the delivery of Common Stock hereunder shall be paid to the Company by the Grantee by the time such taxes are required to be paid or deposited by the Company. The Grantee hereby authorizes the conversion to cash by the Company of a sufficient amount of Common Stock to satisfy the withholding prior to the delivery of Common Stock.
12. 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.
13. 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.
Grantee's Taxpayer Identification Number:
Grantee's Home Address:
Exhibit 10.10
RN Option
1998 - DBR
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: January 15, 1998
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
DAVID B. RICKARD (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
150,000 SHARES
of Common Stock of the Company, at the exercise price of $36.50 per share (the "Option"). 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. 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 come vested on the fifth anniversary following the Date of Grant for all of the shares of Common Stock subject to this Option. To the extent that the Option is not exercised when it becomes vested, 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.
3. TERMINATION OF EMPLOYMENT
(a) Except as may be otherwise provided in a written employment or termination agreement between the Optionee and the Company, the Option shall not become vested 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, Retirement, Termination of Employment by the Optionee with Good Reason or involuntary Termination of Employment of the Optionee without Cause. In the event of Termination of Employment because of any of the foregoing reasons, the Option shall immediately become vested and 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, early retirement at age 55 or over with at least 10 years of service 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 with the Company and any other entity which, as of the date of this Agreement, is an affiliate of the Company.
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 tenth 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.
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, spinoff, 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 on exercise by the Optionee of the Option for Common Stock 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" OR WITH "GOOD REASON". For purposes of this Agreement, the Optionee's employment shall be deemed to have been terminated for "Cause" or with "Good Reason" only as such terms are defined and applied in the Optionee's employment agreement with the Company. 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. OBLIGATIONS OF OPTIONEE
(a) In consideration of the grant, the Optionee, while both actively employed and in the event of Optionee's Termination of Employment for any reason, specifically agrees that within the term of this grant or within three years following the payment of any amounts pursuant to the grant, if later: (i) the Optionee 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; (ii) the Optionee will promptly notify the Company upon receipt of any requests from anyone other than an employee or agent of the Company for information regarding the Company, or if the Optionee becomes aware of any potential claim or proposed litigation against the Company; (iii) the Optionee 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;
(iv) the Optionee will not misuse or, other than in the course of performing his
duties, disclose any confidential information or material concerning the
Company; and (v) the Optionee will not engage in any activity contrary or
harmful to the interests of the Company. In further consideration of the grant,
the Optionee specifically agrees that if required by law to provide sworn
testimony regarding any Company-related matter: the Optionee will consult with
and have Company designated legal counsel present for such testimony (the
Company will be responsible for the costs of such designated counsel); the
Optionee will confine his testimony to items about which he has knowledge rather
than speculation, unless otherwise directed by legal process; and the Optionee
will cooperate with the Company's attorneys to assist their efforts, especially
on matters the Optionee has been privy to, holding all privileged
attorney-client matters in strictest confidence.
(b) If the Company reasonably determines that the Optionee has materially violated any of his obligations under this agreement, then this Option shall terminate, effective the date on which such violation began (unless otherwise terminated sooner) and the Company may demand the return of any gain realized by the Optionee from the exercise of all or a portion of this Option and the Optionee hereby agrees to return such amounts upon such demand. If after such demand the Optionee fails to return said amounts, the Optionee acknowledges that the Company has the right to deduct from any amounts the Company owes to the Optionee (including, but not limited to, wages or other compensation), or to commence judicial proceedings against the Optionee, to recover said amounts and any and all of its attorney's fees and costs.
14. 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) In the event of a Change of Control, the Optionee shall receive
in cash in respect of the Option and in exchange for the cancellation of the
Option, the higher of (i) or (ii) where (i) is the excess, if any, of the Fair
Market Value over the exercise price of the Option, multiplied by the number of
Shares subject to the Option and (ii) is the value of the Option using the
Black-Scholes method of valuing the Option based on the following assumptions:
(A) Fair Market Value; (B) a term equal to the remaining life of the option; (C)
a risk-free factor equal to the average yield on zero-coupon U.S. government
issues, with a maturity coincident with the expiration of the remaining term of
the option, as reported in the Wall Street Journal for the day the Change of
Control is deemed to have occurred; (D) a dividend yield equal to the weighted
average annual dividend yield of Holdings for the time period since March 1995,
or the immediately preceding 60 months, whichever time period is less; and (E) a
volatility equal to the weighted average volatility for the immediately
preceding 60
months. The volatility shall be calculated for each year (12-month periods counting back from the month prior to that in which the Change in Control is deemed to have occurred) by using the month-end closing prices plus dividends paid in that month. The dividend yield shall be calculated for each year (12-month periods counting back from the month prior to that in which the Change of Control is deemed to have occurred) by dividing the total dividends (for which the ex-dividend dates occur within that 12-month period) by the average month-end closing prices during that 12 month period. The weighted average dividend yield is calculated by applying a weighting factor to each annual yield where the highest factor is the number that equals the number of full or partial years in the time period and is applied to the annual yield of the most recent 12-month period, the second highest factor (highest factor minus 1) is applied to the annual yield of the second most recent 12-month period, the third highest factor (highest factor minus 2) is applied to the annual yield of the most recent 12-month period, and so forth, adding all of these products together and dividing by a number that equals the sum of the weighting factors. The weighted average volatility is calculated in the same manner as described for dividend yield. Notwithstanding the foregoing, this Section 14(c) shall not apply in the event of a Change of Control under Section 8(c)(iii) of the Plan for which Holdings is using the "pooling of interest" method of accounting.
(d) 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.
Optionee's Taxpayer Identification Number:
Optionee's Home Address:
Exhibit 10.11
RESTRICTED STOCK
1998 - R
1990 RJR NABISCO HOLDINGS CORP.
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK PROGRAM
RESTRICTED STOCK AGREEMENT
DATE OF GRANT: January 15, 1998
W I T N E S S E T H
1. GRANT OF RESTRICTED STOCK. Pursuant to the provisions of the 1990 Long-Term Incentive Plan and the Restricted Stock Program (collectively, the "Plan") RJR Nabisco Holdings Corp. (the "Company") on the above date has granted, and this agreement evidences the grant to
WILLIAM ROSOFF (THE "GRANTEE")
subject to the terms and conditions which follow and the terms and conditions of the Plan, a total of
35,000 SHARES
of Common Stock of the Company ("Common Stock"). 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. All capitalized terms used below shall have the meaning set forth in the Plan, unless the context requires a different meaning.
2. RECEIPT AND DELIVERY OF STOCK. The Grantee waives receipt from the Company of a certificate or certificates representing the shares of Common Stock granted hereunder, registered in his name and bearing a legend evidencing the restrictions imposed on such Common Stock by this agreement. The Grantee acknowledges and agrees that the Company shall retain custody of such certificate or certificates until the restrictions imposed by Paragraph 3 on the Common Stock granted hereunder lapse. Concurrently with the execution of this agreement, the Grantee has delivered to the Company an irrevocable stock power endorsed in blank.
3. RESTRICTIONS ON TRANSFER OF STOCK. The Common Stock granted hereunder may not be sold, tendered, assigned, transferred, pledged or otherwise encumbered prior to the earliest of:
(i) a) January 15, 2001 for 11,666 shares,
b) January 15, 2002 for 11,666 shares,
c) January 15, 2003 for 11,668 shares;
(ii) the date of the Grantee's death, for 100% of the shares;
(iii) the date of the Grantee's Disability, as defined in RJR Nabisco
Inc.'s Long Term Disability Plan, for 100% of the shares; or
(iv) the date of the Grantee's termination by the Company without "Cause or
by Grantee for Good Reason" (all as defined and applied in the
Grantee's Employment Agreement, for 100% of the shares); or
(v) the date of a Change of Control for 100% of the shares.
at which time the restrictions imposed on such Common Stock by this paragraph shall lapse for the appropriate number of shares stated above and such Common Stock shall be delivered to the Grantee without a restrictive legend on any Common Stock certificate. Notwithstanding the provisions of this Paragraph 3, the Common Stock granted hereunder shall never become transferable within 6 months of the Date of Grant.
4. FORFEITURE OF STOCK. The Common Stock upon which restrictions still exist following Grantee's Severance Date shall never become transferable by the Grantee or anyone claiming through him and the Grantee shall forfeit all right, title and interest in and to such Common Stock along with the right to any dividends paid thereon and the Common Stock granted hereunder shall revert to the Company. "Severance Date" means termination from active employment; it does not mean the termination of pay and benefits at the end of a period of salary continuation (or other form of severance pay or pay in lieu of salary). The Committee or its agent shall act promptly to record forfeitures pursuant to this paragraph on the stock transfer books of the Company.
5. DIVIDENDS. If the Grantee is a shareholder of record on any applicable record date, he shall receive any dividends on the Common Stock granted hereunder when paid regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
6. VOTING. If the Grantee is a shareholder of record on any applicable record date, he shall have the right to vote the Common Stock granted hereunder regardless of whether the restrictions imposed by Paragraph 3 hereof have lapsed.
7. NO RIGHT TO EMPLOYMENT. The execution and delivery of this agreement and the granting of Common Stock hereunder shall not constitute or be evidence of 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 particular capacity and shall not prevent the Company or its subsidiaries from terminating the Grantee's employment at any time with or without Cause.
8. REGISTRATION. The Common Stock granted hereunder may be offered and sold by the Grantee only if such stock is registered for resale under the Securities Act of 1933 (the " 1933 Act") as amended, or if an exemption from registration under such Act is available. The Company has no obligation to effect such registration. By executing this agreement, the Grantee
(i) agrees not to offer or sell the Common Stock granted hereunder unless and until such stock is registered for resale under the 1933 Act or an exemption from registration is available, (ii) represents that he accepts such Common Stock for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof and (iii) agrees that he or his beneficiary, on request, will be obligated to repeat these representations in writing prior to any future delivery of such Common Stock.
9. CHANGE IN COMMON STOCK OR CORPORATE STRUCTURE.
a) If at any time the number or nature of outstanding shares of Common Stock of the Company shall be increased or changed as the result of any spinoff, stock dividend, subdivision or reclassification of shares, the number or nature of shares of Common Stock subject to this Agreement after such an event shall be increased or changed in the same proportion or manner as the outstanding number of shares of Common Stock is increased or changed, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock subject to this Agreement after such an event shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased.
b) In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be an adjustment to the shares of Common Stock subject to this Agreement after such an event, and in place of the shares so subject, a stock equivalent shall be determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock subject to this Agreement. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Committee shall determine the appropriate change in shares held pursuant to this Agreement after such an event; provided, however, such change shall not be to the detriment of the Executive.
10. APPLICATION OF LAWS. The granting of Common Stock hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.
11. TAXES. Any taxes required by federal, state or local laws to be withheld by the Company on the Grant or the delivery of Common Stock hereunder shall be paid to the Company by the Grantee by the time such taxes are required to be paid or deposited by the Company. The Grantee hereby authorizes the conversion to cash by the Company of a sufficient amount of Common Stock to satisfy the withholding prior to the delivery of Common Stock.
12. 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.
13. 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.
Grantee's Taxpayer Identification Number:
Grantee's Home Address:
Exhibit 10.12
RN Option
1998 - WLR
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: January 15, 1998
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
WILLIAM L. ROSOFF (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
150,000 SHARES
of Common Stock of the Company, at the exercise price of $36.5037.375 per share (the "Option"). 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. 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 vested in three installments. The first installment shall be vested on the first anniversary following the 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 vested for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully vested. To the extent that any of the above installments is not exercised when it becomes vested, 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.
3. TERMINATION OF EMPLOYMENT
(a) Except as may be otherwise provided in a written employment or
termination agreement between the Optionee and the Company, the Option shall not
become vested 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, Retirement, Termination of Employment by
the Optionee with Good Reason or Involuntary Termination of Employment of the
Optionee without Cause. In the event of Termination of Employment because of any
of the foregoing reasons, the Option shall immediately become vested and
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, early retirement at age 55 or over with at least 10 years of service 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 with the Company and any other entity which, as of the date of this Agreement, is an affiliate of the Company.
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 tenth 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 the Optionee's employment agreement).
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, spinoff, 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 on exercise by the Optionee of the Option for Common Stock 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" OR WITH "GOOD REASON" For purposes of this Agreement, the Optionee's employment shall be deemed to have been terminated for "Cause" or with "Good Reason" only as such terms are defined and applied in the Optionee's employment agreement with the Company. 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. OBLIGATIONS OF OPTIONEE
(a) In consideration of the grant, the Optionee, while both actively employed and in the event of Optionee's Termination of Employment for any reason, specifically agrees that within the term of this grant or within three years following the payment of any amounts pursuant to the grant, if later: (i) the Optionee 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; (ii) the Optionee will promptly notify the Company upon receipt of any requests from anyone other than an employee or agent of the Company for information regarding the Company, or if the Optionee becomes aware of any potential claim or proposed litigation against the Company; (iii) the Optionee 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; (iv) the Optionee will not misuse or, other than in the course of performing his duties, disclose any confidential information or material concerning the Company; and (v) the Optionee will not engage in any activity contrary or harmful to the interests of the Company. In further consideration of the grant, the Optionee specifically agrees that if required by law to provide sworn testimony regarding any Company-related matter: the Optionee will consult with and have Company designated legal counsel present for such testimony (the Company will be responsible for the costs of such designated counsel); the Optionee will confine his testimony to items about which he has knowledge rather than speculation, unless otherwise directed by legal process; and the Optionee will cooperate with the Company's attorneys to assist their efforts, especially on matters the Optionee has been privy to, holding all privileged attorney-client matters in strictest confidence.
(b) If the Company reasonably determines that the Optionee has materially violated any of his obligations under this agreement, then this Option shall terminate, effective the date on which such violation began (unless otherwise terminated sooner) and the Company may demand the return of any gain realized by the Optionee from the exercise of all or a portion of this Option and the Optionee hereby agrees to return such amounts upon such demand. If after such demand the Optionee fails to return said amounts, the Optionee acknowledges that the Company has the right to deduct from any amounts the Company owes to the Optionee (including, but not limited to, wages or other compensation), or to commence judicial proceedings against the Optionee, to recover said amounts and any and all of its attorney's fees and costs.
14. 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) In the event of a Change of Control, the Optionee shall receive
in cash in respect of the Option and in exchange for the cancellation of the
Option, the higher of (i) or (ii) where (i) is the excess, if any, of the Fair
Market Value over the exercise price of the Option, multiplied by the number of
Shares subject to the Option and (ii) is the value of the Option using the
Black-Scholes method of valuing the Option based on the following assumptions:
(A) Fair Market Value; (B) a term equal to the remaining life of the option; (C)
a risk-free factor equal to the average yield on zero-coupon U.S. government
issues, with a maturity coincident with the expiration of the remaining term of
the option, as reported in the Wall Street Journal for the day the
Change of Control is deemed to have occurred; (D) a dividend yield equal to the
weighted average annual dividend yield of Holdings for the time period since
March 1995, or the immediately preceding 60 months, whichever time period is
less; and (E) a volatility equal to the weighted average volatility for the
immediately preceding 60 months. The volatility shall be calculated for each
year (12-month periods counting back from the month prior to that in which the
Change in Control is deemed to have occurred) by using the month-end closing
prices plus dividends paid in that month. The dividend yield shall be
calculated for each year (12-month periods counting back from the month prior to
that in which the Change of Control is deemed to have occurred) by dividing the
total dividends (for which the ex-dividend dates occur within that 12-month
period) by the average month-end closing prices during that 12 month period.
The weighted average dividend yield is calculated by applying a weighting factor
to each annual yield where the highest factor is the number that equals the
number of full or partial years in the time period and is applied to the annual
yield of the most recent 12-month period, the second highest factor (highest
factor minus 1) is applied to the annual yield of the second most recent
12-month period, the third highest factor (highest factor minus 2) is applied to
the annual yield of the most recent 12-month period, and so forth, adding all of
these products together and dividing by a number that equals the sum of the
weighting factors. The weighted average volatility is calculated in the same
manner as described for dividend yield. Notwithstanding the foregoing, this
Section 14(c) shall not apply in the event of a Change of Control under Section
8(c)(iii) of the Plan for which Holdings is using the "pooling of interest"
method of accounting.
(d) 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.
Optionee's Taxpayer Identification Number:
Optionee's Home Address:
EXHIBIT 12.1
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
THREE MONTHS
ENDED
MARCH 31, 1998
-----------------
Earnings before fixed charges:
Income before income taxes...................................................................... $ 36
Less minority interest in pre-tax income of Nabisco Holdings.................................... 18
-----
Adjusted income before income taxes............................................................. 18
Interest and debt expense....................................................................... 197
Interest portion of rental expense.............................................................. 15
-----
Earnings before fixed charges..................................................................... $ 230
-----
-----
Fixed charges:
Interest and debt expense....................................................................... $ 197
Interest portion of rental expense.............................................................. 15
Capitalized interest............................................................................ 1
-----
Total fixed charges......................................................................... $ 213
-----
-----
Ratio of earnings to fixed charges................................................................ 1.1
-----
-----
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM RJRN HOLDINGS' CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK: 0000847903 |
| NAME: RJR NABISCO HOLDINGS CORP. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | MAR 31 1998 |
| CASH | 216 |
| SECURITIES | 0 |
| RECEIVABLES | 1,188 |
| ALLOWANCES | 0 |
| INVENTORY | 2,705 |
| CURRENT ASSETS | 4,619 |
| PP&E | 9,252 |
| DEPRECIATION | (3,321) |
| TOTAL ASSETS | 30,493 |
| CURRENT LIABILITIES | 3,850 |
| BONDS | 9,703 |
| PREFERRED MANDATORY | 953 |
| PREFERRED | 516 |
| COMMON | 3 |
| OTHER SE | 8,923 |
| TOTAL LIABILITY AND EQUITY | 30,493 |
| SALES | 3,947 |
| TOTAL REVENUES | 3,947 |
| CGS | 2,136 |
| TOTAL COSTS | 2,136 |
| OTHER EXPENSES | 158 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 221 |
| INCOME PRETAX | 13 |
| INCOME TAX | 22 |
| INCOME CONTINUING | (20) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (20) |
| EPS PRIMARY | (.10) |
| EPS DILUTED | (.10) |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. |
| CIK: 0000083612 |
| NAME: RJR NABISCO, INC. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | MAR 31 1998 |
| CASH | 240 |
| SECURITIES | 0 |
| RECEIVABLES | 1,187 |
| ALLOWANCES | 0 |
| INVENTORY | 2,705 |
| CURRENT ASSETS | 4,642 |
| PP&E | 9,252 |
| DEPRECIATION | (3,321) |
| TOTAL ASSETS | 30,502 |
| CURRENT LIABILITIES | 3,680 |
| BONDS | 9,703 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 11,067 |
| TOTAL LIABILITY AND EQUITY | 30,502 |
| SALES | 3,947 |
| TOTAL REVENUES | 3,947 |
| CGS | 2,136 |
| TOTAL COSTS | 2,136 |
| OTHER EXPENSES | 158 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 197 |
| INCOME PRETAX | 36 |
| INCOME TAX | 33 |
| INCOME CONTINUING | (8) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (8) |
| EPS PRIMARY | 0 |
| EPS DILUTED | 0 |
| ARTICLE 5 |
| RESTATED: |
| CIK: 0000847903 |
| NAME: RJR NABISCO HOLDINGS CORP |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 9 MOS | 6 MOS |
| FISCAL YEAR END | DEC 31 1997 | DEC 31 1997 |
| PERIOD END | SEP 30 1997 | JUN 30 1997 |
| CASH | 251 | 251 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 1,421 | 1,489 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 2,783 | 2,847 |
| CURRENT ASSETS | 4,918 | 5,180 |
| PP&E | 9,033 | 8,903 |
| DEPRECIATION | (3,214) | (3,132) |
| TOTAL ASSETS | 30,952 | 31,301 |
| CURRENT LIABILITIES | 3,764 | 4,186 |
| BONDS | 9,632 | 9,409 |
| PREFERRED MANDATORY | 953 | 954 |
| PREFERRED | 524 | 528 |
| COMMON | 3 | 3 |
| OTHER SE | 9,555 | 9,636 |
| TOTAL LIABILITY AND EQUITY | 30,952 | 31,301 |
| SALES | 12,474 | 8,065 |
| TOTAL REVENUES | 12,474 | 8,065 |
| CGS | 5,886 | 3,674 |
| TOTAL COSTS | 5,886 | 3,674 |
| OTHER EXPENSES | 476 | 318 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 687 | 463 |
| INCOME PRETAX | 1,074 | 830 |
| INCOME TAX | 445 | 341 |
| INCOME CONTINUING | 578 | 456 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 578 | 456 |
| EPS PRIMARY | 1.68 | 1.34 |
| EPS DILUTED | 1.67 | 1.33 |
| ARTICLE 5 |
| RESTATED: |
| CIK: 0000847903 |
| NAME: RJR NABISCO HOLDINGS CORP |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS | 12 MOS | 9 MOS | 6 MOS 3-MOS |
| FISCAL YEAR END | DEC 31 1995 | DEC 31 1996 | DEC 31 1996 | DEC 31 1996 DEC-31-1996 |
| PERIOD END | DEC 31 1995 | DEC 31 1996 | SEP 30 1996 | JUN 30 1996 MAR-31-1996 |
| CASH | 234 | 252 | 331 | 361 574 |
| SECURITIES | 0 | 0 | 0 | 0 0 |
| RECEIVABLES | 1,334 | 1,418 | 1,434 | 1,420 1,361 |
| ALLOWANCES | 0 | 0 | 0 | 0 0 |
| INVENTORY | 2,489 | 2,636 | 2,576 | 2,581 2,501 |
| CURRENT ASSETS | 4,560 | 4,751 | 4,767 | 4,810 4,927 |
| PP&E | 8,386 | 8,837 | 8,670 | 8,525 8,475 |
| DEPRECIATION | (2,696) | (3,002) | (2,914) | (2,826) (2,770) |
| TOTAL ASSETS | 31,518 | 31,289 | 31,413 | 31,475 31,808 |
| CURRENT LIABILITIES | 4,124 | 4,306 | 4,174 | 4,211 4,019 |
| BONDS | 9,429 | 9,256 | 9,595 | 9,569 9,785 |
| PREFERRED MANDATORY | 957 | 957 | 957 | 957 957 |
| PREFERRED | 404 | 534 | 424 | 417 413 |
| COMMON | 3 | 3 | 3 | 3 3 |
| OTHER SE | 9,919 | 9,608 | 9,689 | 9,696 9,941 |
| TOTAL LIABILITY AND EQUITY | 31,518 | 31,289 | 31,413 | 31,475 31,808 |
| SALES | 16,008 | 17,063 | 12,438 | 8,089 3,886 |
| TOTAL REVENUES | 16,008 | 17,063 | 12,438 | 8,089 3,886 |
| CGS | 7,468 | 7,973 | 5,778 | 3,742 1,801 |
| TOTAL COSTS | 13,670 | 7,973 | 5,778 | 3,742 1,801 |
| OTHER EXPENSES | 790 | 1,064 | 903 | 746 158 |
| LOSS PROVISION | 0 | 0 | 0 | 0 0 |
| INTEREST EXPENSE | 899 | 927 | 697 | 464 234 |
| INCOME PRETAX | 1,266 | 1,199 | 782 | 355 371 |
| INCOME TAX | 580 | 585 | 404 | 216 163 |
| INCOME CONTINUING | 627 | 611 | 396 | 171 198 |
| DISCONTINUED | 0 | 0 | 0 | 0 0 |
| EXTRAORDINARY | (16) | 0 | 0 | 0 0 |
| CHANGES | 0 | 0 | 0 | 0 0 |
| NET INCOME | 611 | 611 | 396 | 171 198 |
| EPS PRIMARY | 1.54 | 1.75 | 1.12 | 0.46 0.58 |
| EPS DILUTED | 1.53 | 1.74 | 1.11 | 0.46 0.57 |
AGREEMENT TO PAY
BLUE CROSS AND BLUE SHIELD OF MINNESOTA
ATTORNEYS' FEES AND COSTS
Philip Morris Incorporated (hereinafter "PM"), R.J. Reynolds Tobacco
Company (hereinafter "RJR"), Brown & Williamson Tobacco Corporation
(hereinafter "B&W"), and Lorillard Tobacco Company (hereinafter "Lorillard")
(collectively referred to as "The Settling Defendants"), hereby enter into
this Agreement To Pay Blue Cross and Blue Shield of Minnesota Attorneys' Fees
And Costs (hereinafter the "Agreement") with Robins, Kaplan, Miller & Ciresi
L.L.P. (hereinafter "RKM&C") providing for the payment of all attorneys' fees
and costs incurred in the prosecution of the lawsuit captioned The State of
Minnesota and Blue Cross and Blue Shield of Minnesota vs. Philip Morris
Incorporated, et al., Court File C1-94-8565 (hereinafter "The Case"), by
BCBS, Inc., d/b/a Blue Cross and Blue Shield of Minnesota (hereinafter
"BCBS").
BACKGROUND
1. On August 17, 1994, The State of Minnesota, together with BCBS, commenced The Case in Ramsey County District Court in St. Paul, Minnesota.
2. From August 1994 until January 1998, RKM&C engaged in extensive and unprecedented pretrial and discovery proceedings, which led to the establishment of a document depository in Minneapolis, Minnesota, into which was placed in excess of 28 million pages of documents. A second document depository was established in Guildford, England, into which was placed in excess of six million pages of documents. The majority of the documents in the U.S. and Guildford depositories were never previously produced by defendants in any lawsuit. Also included among the documents in the Minneapolis depository are in excess of 40,000 documents obtained by RKM&C over which defendants had continuously maintained the claim of attorney-client privilege.
The production of the attorney-client privilege documents was the subject of numerous appeals, including an appeal to the U.S. Supreme Court.
3. RKM&C painstakingly reviewed the 34 million documents and selected those it deemed the most probative and relevant, which set of documents became nationally known as the "Minnesota select" documents. The Minnesota select documents have been provided to other litigants (including state attorneys general and private parties), Congress and Governmental authorities.
4. RKM&C took or defended the depositions of more than 300 fact and expert witnesses.
5. Throughout the pretrial proceedings, more than 190 motions were prosecuted and defended by Defendants and RKM&C, resulting in 200 orders being issued by the trial court.
6. Interlocutory appeals were taken by Defendants of numerous trial court orders resulting in 12 appeals to the Minnesota Court of Appeals; four appeals to the Minnesota Supreme Court; and two appeals to the U.S. Supreme Court.
7. On January 20, 1998, trial of The Case began before the Honorable Kenneth J. Fitzpatrick. The trial proceeded for 74 trial days until May 4, 1998. Forty-one witnesses testified, and the transcript of the trial is more than 15,000 pages in length.
8. On May 8, 1998, after all parties to the trial had rested, but before the case was submitted to the jury, The Case was settled. After settlement of the BCBS's claims, RKM&C relinquished its right to receive attorneys' fees and costs pursuant to the retainer agreement entered into between RKM&C and BCBS based upon the undertaking by The Settling Defendants to negotiate directly with RKM&C for payment of attorneys' fees and costs. This Agreement between
The Settling Defendants and RKM&C is the result of those negotiations and represents The Settling Defendants' undertaking to pay attorneys' fees and costs to RKM&C
AGREEMENT
Now, therefore, the undersigned parties agree as follows:
9. For and in consideration of the payment of attorneys' fees and costs as set forth herein, RKM&C relinquishes its right to receive attorneys' fees and costs pursuant to the retainer agreement entered into between RKM&C and BCBS.
10. For and in consideration of the facts set forth above and in consideration of RKM&C agreeing to relinquish its right to claim any fees and costs under its retainer agreement with BCBS, and in partial consideration for the settlement of The Case, The Defendants agree to pay to RKM&C attorneys' fees in the amount of One Hundred Seventeen Million Two Hundred Fifty Thousand Dollars ($117,250,000) to be paid as follows: Sixty Million Dollars ($60,000,000) on July 1, 1998; Fifty-seven Million Two Hundred Fifty Thousand Dollars ($57,250,000) on September 4, 1998.
11. Defendants also agree to pay Four Million Dollars ($4,000,000) as and for costs due and owing by BCBS to RKM&C on or before May 18, 1998.
12. The amount of fees and costs due and owing pursuant to paragraphs 10 and 11 shall be paid by Settling Defendants pro rata in proportion to their Market Share. No Settling Defendant shall be obligated to make any payment due from any other Settling Defendant. All obligations of The Settling Defendants pursuant to this Agreement are intended to be and shall remain several, and not joint.
13. The payment of fees pursuant to paragraph 10 shall constitute the entire obligation of The Settling Defendants with respect to attorneys' fees in connection with the representation by RKM&C of BCBS in connection with this action, and the exclusive means by which RKM&C may seek payment of fees from defendants, or otherwise, in connection with its representation of BCBS in this action. RKM&C represents that it has served as sole outside counsel to BCBS in connection with this action.
MISCELLANEOUS PROVISIONS
14. In the event either party to this Agreement is required to seek enforcement of the terms of this Agreement in court, all attorneys' fees and costs incurred in enforcing the Agreement shall be paid by the party against whom enforcement is obtained.
15. Each Defendant has all requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by each Defendant and constitutes its legal, valid and binding obligation.
16. This Agreement constitutes the entire agreement among the parties with regard to the subject matter of the Agreement and supersedes any previous agreements and understandings between the parties with respect to the subject matter. This Agreement may not be modified or amended except in writing and signed by all parties.
17. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
18. Except as otherwise specifically provided for in this Agreement, no party shall be liable for any costs or expenses incurred by or on behalf of any other party in connection with this Agreement and the actions contemplated hereby.
19. This Agreement shall be construed in accordance with and governed by the laws of Minnesota applicable to agreements made and to be performed in Minnesota.
20. Any disputes regarding the interpretation of this Agreement and any actions to enforce its terms shall be venued in Ramsey County District Court in the State of Minnesota.
21. The parties agree that the payment of attorneys' fees and costs provided for in this Agreement shall be made strictly according to its terms. The Settling Defendants will not seek to avoid through legislation any of their obligations under this Agreement.
22. This Agreement is not intended to, and does not, vest standing in any third party with respect to the terms hereof, or create for any person other than the parties hereto a right to enforce the terms hereof.
23. For and in consideration for the payment of fees as provided herein, RKM&C hereby releases Settling Defendants from any and all claims (other than a claim to enforce this Agreement) arising out of or in any way related to the litigation or settlement of The Case.
24. Unless otherwise specified, the terms used in this Agreement are subject to the definitions contained in the Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Agreement To Pay Blue Cross and Blue Shield of Minnesota Attorneys' Fees and Costs as of this ____ day of May, 1998.
ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO CORPORATION
LORILLARD TOBACCO COMPANY
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT
THE STATE OF MINNESOTA, Case Type: Other Civil BY HUBERT H. HUMPHREY III, Court File No. C1-94-8565 ITS ATTORNEY GENERAL, |
and
BLUE CROSS AND BLUE SHIELD
OF MINNESOTA,
Plaintiffs,
vs.
PHILIP MORRIS INCORPORATED,
R.J. REYNOLDS TOBACCO COMPANY,
BROWN & WILLIAMSON TOBACCO
CORPORATION, B.A.T. INDUSTRIES
P.L.C., BRITISH-AMERICAN TOBACCO
COMPANY LIMITED, BAT (U.K. &
EXPORT) LIMITED, LORILLARD
TOBACCO COMPANY, THE AMERICAN
TOBACCO COMPANY, LIGGETT GROUP,
INC., THE COUNCIL FOR TOBACCO
RESEARCH-U.S.A., INC., and THE
TOBACCO INSTITUTE, INC.,
Defendants.
SETTLEMENT AGREEMENT AND STIPULATION
FOR ENTRY OF CONSENT JUDGMENT
THIS SETTLEMENT AGREEMENT AND RELEASE ("Settlement Agreement") is made as of the date hereof, by and among the parties hereto, as indicated by their signatures below, to
settle and resolve with finality all claims of the State of Minnesota relating to the subject matter of this action which have been or could have been asserted by the State of Minnesota.
WHEREAS, the State of Minnesota, through its Attorney General Hubert H. Humphrey III, and Blue Cross and Blue Shield of Minnesota, commenced this action on August 17, 1994, asserting various claims for monetary, equitable and injunctive relief on behalf of the State of Minnesota and Blue Cross and Blue Shield of Minnesota against certain tobacco manufacturers and others as Defendants;
WHEREAS, the Defendants have denied each and every one of Plaintiffs' allegations of unlawful conduct or wrongdoing and have asserted a number of defenses to Plaintiffs' claims, which defenses have been contested by Plaintiffs;
WHEREAS, the parties hereto wish to avoid the further expense, delay, inconvenience, burden and uncertainty of continued litigation of this matter (including appeals from any verdict), the State of Minnesota and the Settling Defendants have agreed to settle this litigation pursuant to terms which will achieve for the State of Minnesota (and thus for the people of the State of Minnesota) significant funding for the advancement of public health, the implementation of important tobacco-related public health measures in Minnesota, as well as funding for national research dedicated to studying and significantly reducing the use of Tobacco Products by youth;
WHEREAS, the State of Minnesota and Settling Defendants have agreed to settle this lawsuit on terms set forth in this Settlement Agreement and Stipulation for Entry of Consent Judgment and the attached Consent Judgment;
WHEREAS, the parties have further agreed to jointly petition the Court for approval of the Consent Judgment, on the grounds that settlement would be in the public interest;
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of the payments to be made by the Settling Defendants, the dismissal and release of claims by the State of Minnesota and such other consideration as described herein, the sufficiency of which is hereby acknowledged, the parties hereto, acting by and through their authorized agents, memorialize and agree as follows:
I. GENERAL PROVISIONS
A. Jurisdiction. The State and the Settling Defendants acknowledge that this Court has jurisdiction over the subject matter of this action and over each of the parties to this Settlement Agreement, and that this Court shall retain jurisdiction for the purposes of implementing and enforcing this Settlement Agreement. The parties hereto agree to present any disputes under this Settlement Agreement, including without limitation any claims for breach or enforcement of this Settlement Agreement, exclusively to this Court. The Court may, upon the State's application, enter a Consent Judgment in the form attached hereto as Exhibit A. The cumulative terms of this Settlement Agreement and Stipulation for Entry of Consent Judgment, and the attached Consent Judgment, may be referred to for convenience as this "Agreement" or "Settlement Agreement."
B. Voluntary Agreement of the Parties. The State and the Settling Defendants acknowledge and agree that this Settlement Agreement is voluntarily entered into by all parties hereto as the result of arm's-length negotiations during which all such parties were represented by counsel. The State and Settling Defendants understand that Congress may enact legislation dealing with some of the issues addressed in this Agreement. Settling Defendants and their assigns, affiliates, agents, and successors hereby waive any right to challenge this Agreement or the Consent Judgment, directly or through third parties, on the ground that any term hereof is unconstitutional, outside the power or jurisdiction of the Court, preempted by or in conflict with any current or future
federal legislation (except where non-economic terms of future federal legislation are irreconcilable).
C. Definitions.
For the purposes of this Settlement Agreement and attached Consent Judgment, the following terms shall have the meanings set forth below:
1. "State" or "State of Minnesota" means the State of Minnesota acting by and through its Attorney General;
2. "Blue Cross" means BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota, and all of its administrators, representatives, employees, directors, officers, agents, attorneys, parents and divisions;
3. "Settling Defendants" means those Defendants in this action that are signatories hereto;
4. "Defendants" means Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, B.A.T Industries P.L.C., British-American Tobacco Company Limited, BAT (U.K. and Export) Limited, Lorillard Tobacco Company, The American Tobacco Company, The Council for Tobacco Research-U.S.A., Inc., and the Tobacco Institute, Inc. and their successors and assigns;
5. "Consumer Price Index" shall mean the Consumer Price Index for All Urban Consumers, for the most recent twelve-month period for which such percentage information is available as published by the Bureau of Labor Statistics of the U.S. Department of Labor.
6. "Court" means the District Court of the State of Minnesota, County of Ramsey, Second Judicial District;
7. "Market Share" means a Settling Defendant's respective share of
sales of cigarettes by unit for consumption in the United States during
(i) with respect to payments made pursuant to Paragraph II.D. of this
Settlement Agreement, the calendar year ending on the date on which the
payment at issue is due, regardless of when such payment is made, and
(ii) with respect to all other payments made pursuant to this Settlement
Agreement, the calendar year immediately preceding the year in which the
payment at issue is due, regardless of when such payment is made;
8. "Cigarettes" means any product which contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (i) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (ii) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or (iii) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in subparagraph (i) of this paragraph;
9. "Smokeless Tobacco" means any powder that consists of cut, ground, powdered, or leaf tobacco that contains nicotine and that is intended to be placed in the oral cavity;
10. "Tobacco Products" means Cigarettes and Smokeless Tobacco;
11. "Billboards" includes billboards, as well as all signs and placards in arenas and stadiums, whether open-air or enclosed. "Billboards" does not include (1) any
advertisements placed on or outside the premises of retail establishments which sell tobacco products, or any retail point-of-sale; and (2) billboards or advertisements in connection with the sponsorship by the Defendants of any entertainment, sporting or similar event, such as NASCAR, that appears in the State of Minnesota as part of a national or multi-state tour;
12. "Children" or "youth" means persons under the age of 18;
13. "Depository," unless otherwise specified, means the Minnesota document depository established by the Court's Order dated June 16, 1995. "Depositories" includes both the Minnesota depository and the Guildford, U.K. document depository established by the Court's Order dated September 6, 1995;
14. "Transit Advertisements" means advertising on private or public vehicles and all advertisements placed at, on or within any bus stop, taxi stand, waiting area, train station, airport or any similar location. "Transit Advertisements" does not include any advertisements placed on or outside the premises of retail establishments licensed to sell Tobacco Products or any retail point-of-sale;
15. "Special State Counsel" means Robins, Kaplan, Miller & Ciresi L.L.P. or a successor, if any; and
16. "Final Approval" means the date on which this Settlement Agreement and the form of State Escrow Agreement are approved by the Court. At the time of such approval, the settlement between the parties is final.
II. SETTLEMENT PAYMENTS
A. Settlement Receipts. The payments to be made by the Settling Defendants under this Settlement Agreement are in satisfaction of all of the State of Minnesota's claims for damages
incurred by the State in the year of such payment or earlier years related to the subject matter of this action, including, without limitation, claims for equitable and injunctive relief, claims for health care expenditures and claims for punitive damages, except that no part of any payment under this Settlement Agreement is made in settlement of an actual or potential liability for a fine, penalty (civil or criminal) or enhanced damages.
B. Settlement Payments to the State of Minnesota. Each Settling
Defendant severally shall cause to be paid to an account designated in
writing by the State of Minnesota in accordance with and subject to paragraph
II.E. of this Settlement Agreement, the following amounts: the amount listed
for it in Schedule A hereto, such amount representing its share of
$240,000,000, to be paid on or before September 5, 1998; pro rata in
proportion to its Market Share, its share of $220,800,000, to be paid on or
before January 4, 1999; pro rata in proportion to its Market Share, its share
of $242,550,000, to be paid on or before January 3, 2000; pro rata in
proportion to its Market Share, its share of $242,550,000, to be paid on or
before January 2, 2001; pro rata in proportion to its Market Share, its share
of $242,550,000, to be paid on or before January 2, 2002; and pro rata in
proportion to its Market Share, its share of $121,550,000, to be paid on or
before January 2, 2003. The payments made by the Settling Defendants
pursuant to this Paragraph shall be adjusted upward by the greater of 3% or
the Consumer Price Index applied each year on the previous year, beginning
with the payment due to be made on or before January 3, 2000. The payments
due to be made by the Settling Defendants pursuant to this Paragraph on or
before January 3, 2000, on or before January 2, 2001, on or before January 2,
2002, and on or before January 2, 2003, will also be decreased or increased,
as the case may be, in accordance with the formula for adjustments of
payments as set forth in Appendix A. The payments due to be made by the
Settling
Defendants pursuant to this Paragraph on or before September 5, 1998, and on or before January 4, 1999, shall not be subject to inflation escalation and volume adjustments described in the preceding sentences.
In the event that any of the Settling Defendants fails to make any payment required of it pursuant to this Paragraph (a "Defaulting Defendant") by the applicable date set forth in this paragraph II.B. (a "Missed Payment"), the State of Minnesota shall provide notice to each of the Settling Defendants of such non-payment. The Defaulting Defendant shall have 15 days after receipt of such notice to pay the Missed Payment, together with interest accrued from the original applicable due date at the prime rate as published in the Wall Street Journal on the latest publication date on or before the date of default plus 3%. If the Defaulting Defendant does not make such payment within such 15-day period, the State of Minnesota shall provide notice to each of the Settling Defendants of such continued non-payment. Any or all of the Settling Defendants (other than the Defaulting Defendant) shall thereafter have 15 days after receipt of such notice to elect (in such Settling Defendant's or such Settling Defendants' sole and absolute discretion) to pay the Missed Payment, together with interest accrued from the original applicable due date at the prime rate as published in the Wall Street Journal on the latest publication date on or before the date of default plus 3%. In the event that the State of Minnesota does not receive the Missed Payment, together with such accrued interest, within such additional 15-day period, all payments required to be made by each of the respective Settling Defendants pursuant to this Paragraph shall at the end of such additional 15-day period be accelerated and shall immediately become due and owing to the State of Minnesota from each Settling Defendant pro rata in proportion to its Market Share; provided, however, that any such accelerated payments (a) shall all be adjusted upward by the greater of (i) the
rate of 3% per annum or (ii) the actual total percent change in the CPI, in either instance for the period between January 1 of the year in which the acceleration of payments pursuant to this Paragraph occurs and the date on which such accelerated payments are due pursuant to this subsection, and (b) shall all immediately be adjusted in accordance with the formula for adjustments of payments set forth in Appendix A.
Nothing in this Paragraph shall be deemed under any circumstance to create any obligation on the part of any Settling Defendant to pay any amount owed or payable to the State of Minnesota by any other Settling Defendant. All obligations of the Settling Defendants pursuant to this Paragraph are intended to be and shall remain several, and not joint.
C. Public Health Foundation. The Attorney General will propose, and the Settling Defendants have agreed not to oppose, that the Legislature appropriate to a foundation one-half the payments due in September 1998, and in January of the years 1999 through 2003, to be used for such activities as the directors of the foundation may determine will diminish the human and economic consequences of tobacco use. It is contemplated that the directors of the foundation will include public representatives, and representatives of such groups as the American Lung Association, Minnesota Chapter; the University of Minnesota School of Public Health; the Minnesota SmokeFree 2000 Coalition; the American Cancer Society, Minnesota Division; the American Heart Association, Minnesota Chapter; the Association for Non-Smokers' Rights--Minnesota; and the Mayo Clinic Nicotine Dependence Center.
D. Annual Payments. Each of the Settling Defendants agrees that, beginning on December 31, 1998, and annually thereafter on December 31st of each year after 1998 (subject to final adjustment within 30 days), it shall severally cause to be paid to an account designated in
writing by the State of Minnesota in accordance with and subject to paragraph
II.E. of this Settlement Agreement, pro rata in proportion to its respective
Market Share, its share of 2.55% of the following amounts (in billions):
Year 1998 1999 2000 2001 2002 2003 thereafter
1 2 3 4 5 6
Amount $4B $4.5B $5B $6.5B $6.5B $8B $8B
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The payments made by Settling Defendants pursuant to this Paragraph shall be adjusted upward by the greater of 3% or the Consumer Price Index applied each year on the previous year, beginning with the annual payment due on December 31, 1999. Such payments will also be decreased or increased, as the case may be, beginning with the annual payment due on December 31, 1999, in accordance with the formula for adjustments of payments set forth in Appendix A.
E. Payment of Settlement Proceeds. Any payment made pursuant to this Settlement Agreement shall be made to an account designated in writing by the State of Minnesota or the Court, as applicable; provided that after Final Approval, if the Court's approval is challenged by any third party, payments due to be made shall be paid into a special escrow account (the "State Escrow Account"), and held in escrow pursuant to this Section V.B. and the State Escrow Agreement.
F. Adjustments in Event of Federal Legislation. The enactment of federal tobacco-related legislation shall not affect the payments required by this Agreement except as follows:
1. If federal tobacco-related legislation providing for the resolution or other disposition of State Attorney General actions brought against tobacco companies is enacted
on or before November 30, 2000, and if such legislation provides for payment(s) by tobacco companies (whether by settlement payment, tax or any other means), all or part of which is made available to States, the State of Minnesota shall elect to receive any funds that are (i) unrestricted as to their use, or (ii) are restricted to any form of health care or to any use related to tobacco (collectively "Federal Settlement Funds"), and Settling Defendants shall receive a dollar-for-dollar offset up to the full amount of payments required under Section II.D of this Agreement for any and all Settlement Funds received by the State of Minnesota, until all Federal Settlement Funds provided however:
a. There shall be no offset to payments required by this Agreement on account of any federal program, subsidies, payments, credits or other aid to the State which are not conditioned or tied to the settlement of a state tobacco-related suit or the relinquishment of state tobacco-related claims;
b. The State relinquishes no rights or benefits under this Agreement except for payments subject to the offset;
c. There are no federally imposed preconditions to the receipt of Federal Settlement Funds other than (i) the settlement of any state tobacco-related lawsuit or the relinquishment of state tobacco-related claims, (ii) actions or expenditures related to tobacco, including but not limited to, education, cessation, control or enforcement, or (iii) actions or expenditures related to health care;
d. If Settling Defendants enter into any pre-verdict settlement agreement (subsequent to the date of this Agreement) of similar litigation brought by a non-
federal governmental plaintiff which does not require such an offset, this Section is null and void;
e. If Settling Defendants enter into any pre-verdict settlement agreement (subsequent to the date of this Agreement) of similar litigation brought by a non-federal governmental plaintiff which has an offset term more favorable to the plaintiff, this Settlement Agreement shall, at the option of the Office of the Attorney General of the State of Minnesota, be revised to include a comparable term.
2. Nothing in this section is intended to or shall reduce the total amounts payable to the State under this Agreement by Settling Defendants beyond the amount of Federal Settlement Funds actually received by the State of Minnesota.
III. DISMISSAL OF CLAIMS AND RELEASES
A. State of Minnesota's Dismissal of Claims. Upon approval of this Settlement Agreement by the Court, the Court shall enter a Final Judgment dismissing with prejudice all claims as to all Defendants.
This Agreement resolves all claims between the State and the Defendants, except for issues pending before the court pertaining to the discoverability or production of documents for which the Defendants reserve their rights of appeal.
B. State of Minnesota's Release and Discharge. Upon Final Approval, the State of Minnesota shall release and forever discharge all Defendants and their present and former parents, subsidiaries (whether or not wholly owned) and affiliates, and their respective divisions, organizational units, officers, directors, employees, representatives, insurers, suppliers, agents, attorneys and distributors (and the predecessors, heirs, executors, administrators, successors and
assigns of each of the foregoing) from any and all manner of civil claims, demands, actions, suits and causes of action, damages whenever incurred, liabilities of any nature whatsoever, including civil penalties, as well as costs, expenses and attorneys' fees, known or unknown, suspected or unsuspected, accrued or unaccrued, whether legal, equitable or statutory ("Claims") that the State of Minnesota (including any of its past, present or future administrators, representatives, employees, officers, attorneys, agents, representatives, officials acting in their official capacities, agencies, departments, commissions, and divisions, and whether or not any such person or entity participates in the settlement), whether directly, indirectly, representatively, derivatively or in any other capacity, ever had, now has or hereafter can, shall or may have, as follows:
a. for past conduct, as to any Claims relating to the subject matter of this action which have been asserted or could be asserted now or in the future in this action or a comparable Federal action by the State; and
b. for future conduct, only as to monetary Claims directly or indirectly based on, arising out of or in any way related to, in whole or in part, the use of or exposure to Tobacco Products manufactured in the ordinary course of business, including without limitation any future claims for reimbursement for health care costs allegedly associated with use of or exposure to Tobacco Products;
(such past and future Claims hereinafter referred to as the "Released Claims"); provided, however, that the foregoing shall not operate as a release of any person, party or entity (whether or not a signatory to this Agreement) as to any of the obligations undertaken in this Agreement in connection with a monetary breach or default of this Agreement.
The State of Minnesota hereby covenants and agrees that it shall not hereafter sue or seek to establish civil liability against any person or entity covered by the release provided under Paragraph III.B based, in whole or in part, upon any of the Released Claims, and the State of Minnesota agrees that this covenant and agreement shall be a complete defense to any such civil action or proceeding.
C. Settling Defendants' Release and Discharge. Upon Final Approval, Settling Defendants shall release and forever discharge the State of Minnesota (including any of its past, present or future administrators, representatives, employees, officers, attorneys, agents, representatives, officials acting in their official capacities, agencies, departments, commissions, and divisions, and whether or not any such person or entity participates in the settlement) from any and all manner of civil claims, demands, actions, suits and causes of action, damages whenever incurred, liabilities of any nature whatsoever, including costs, expenses, penalties and attorneys' fees, known or unknown, suspected or unsuspected, accrued or unaccrued, whether legal, equitable or statutory, arising out of or in any way related to, in whole or in part, the subject matter of the litigation of this lawsuit, that Settling Defendants (including any of their present and former parents, subsidiaries, divisions, affiliates, officers, directors, employees, witnesses (fact or expert), representatives, insurers, agents, attorneys and distributors and the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing, and whether or not any such person participates in the settlement), whether directly, indirectly, representatively, derivatively or in any other capacity, ever had, now has or hereafter can, shall or may have.
D. Limited Most-Favored Nation Provision. In partial consideration for the monetary payments to be made by the Settling Defendants pursuant to this Settlement Agreement, the State
of Minnesota agrees that if the Settling Defendants enter into any future pre-verdict settlement agreement of other similar litigation brought by a non-federal governmental plaintiff on terms more favorable to such non-federal governmental plaintiff than the terms of this Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of this Settlement Agreement shall not be revised except as follows: to the extent, if any, such other pre-verdict settlement agreement includes terms that provide (a) for joint and several liability among the Settling Defendants with respect to monetary payments to be made pursuant to such agreement; (b) a guarantee by the parent company of any of the Settling Defendants or other assurances of payment or creditors' remedies with respect to monetary payments to be made pursuant to such agreement; or (c) for the implementation of non-economic tobacco-related public health measures different from those contained in this Settlement Agreement, then this Settlement Agreement shall, at the option of the Office of the Attorney General of the State of Minnesota, be revised to include terms comparable to such terms.
IV. DEFENDANTS' ASSURANCES
A. Settling Defendants agree not to directly or indirectly, including through any third party or affiliate:
1. Oppose the passage of those future Minnesota legislative proposals or administrative rules intended by their terms to reduce tobacco use by children listed on Schedule B. (The foregoing does not prohibit Settling Defendants from resisting enforcement of, or suing for declaratory or injunctive relief with respect to any such legislation or rule on any grounds.)
2. Facially challenge the enforceability or constitutionality of existing Minnesota laws or rules relating to tobacco control, including, but not limited to, Minnesota Statutes Section 461.17 regarding the disclosure of certain ingredients in cigarettes; Minnesota Statutes Sections 461.12, et. seq., and 609.685 regarding the sale of tobacco to minors; Minnesota Statutes Section 325F.77 regarding the distribution of samples; and Minnesota Statutes Section 144.411 et. seq. regarding clean indoor air.
3. Support in Congress or any forum, legislation, rules or policies which would preempt, override, or abrogate or diminish the State's rights or recoveries under this Agreement. Except as specifically provided in the foregoing sentence, nothing in this Agreement shall be deemed to restrain the parties from advocating terms of any national settlement or taking any other positions on issues relating to tobacco. The State and its attorneys specifically reserve the right to continue to litigate or advocate for additional document disclosure beyond that ordered by the Ramsey County District Court, in any forum outside of Minnesota.
4. Settling Defendants' obligation to produce documents in
discovery pertaining to enactment or repeal of, or opposition to, state
legislation or state executive action relating to tobacco in Minnesota
is extended beyond August 17, 1994, to the date of this Agreement, with
Settling Defendants required to produce these documents within thirty
(30) days of the date of this Agreement.
B. Disclosure of Payments Likely to Affect Public Policy.
1. Each Settling Defendant shall disclose to the Office of the Attorney General and the Office of the Governor, at the times and in the manner provided below, information about the following payments:
a. Any payment to a "lobbyist" or "principal" within the meaning of Minnesota Statutes, Section 10A.01, subdivisions 11 and 28, if Settling Defendant knows or has reason to know that the payment will be used, directly or indirectly, to influence legislative or administrative action, or the official action of state or local government in Minnesota in any way relating to Tobacco Products or their use.
b. Any payment to a third party, if the Settling Defendant knows the payment is partly in consideration for the third party attending, offering testimony at, or participating before a state or local government hearing in Minnesota in any way relating to Tobacco Products or their use; and
c. Any payment (other than a "political contribution" under Minn. Stat. Section 10.01, subd. 7, or 2 USC Section 431(8)(A)) to, or for the benefit of, a state or local official in Minnesota, whether made directly by a defendant or indirectly through an employee acting in the scope of his employment, affiliate, lobbyist, or other agent acting under the substantial control of a defendant.
2. Disclosures required under this section shall be filed with the Office of the Attorney General and with the Office of the Governor on the first day of January, April, July and October of each year for any and all payments made through the first day of the previous month and shall be transmitted in electronic format or such format as the attorney general may require, with the following information:
a. The name, address, telephone number and e-mail address of the recipient.
b. The amount of each payment described in Paragraph B(1).
c. The aggregate amount of all payments described in Paragraph B(1) to the recipient in the calendar year.
3. Information filed under this section is "public data" within the meaning of the Minnesota Government Data Practices Act.
C. Settling Defendants agree to discontinue all Billboards and Transit Advertisements of Tobacco Products in the State. Settling Defendants shall use their best efforts in cooperation with the State to identify all such Billboards that are located within 1000 feet of any public or private school or playground in the State, and shall provide the State with a preliminary list of the location of all Billboards and stationary Transit Advertisements within 30 days from the date hereof, such list to be finalized within an additional 15 days. Settling Defendants shall, at the earlier of the expiration of applicable contracts or four months from the date the final list is supplied to the State, remove all Billboards and Transit Advertisements for Tobacco Products from within the State, leaving the space unused or used for advertising unrelated to Tobacco Products; or at the option of the State of Minnesota, will allow the State, at its expense, to substitute for the remaining term of the contract, alternative advertising intended to discourage the use of Tobacco Products by children and their exposure to second-hand smoke. The parties also agree to secure the expedited removal of up to 50 Billboards or stationary Transit Advertisements for Tobacco Products designated by the State within 30 days after their designation. Each Settling Defendant which has Billboard advertising in the State shall provide the Court and the Attorney General, or his designee, with the
name of a contact person to whom the State may direct inquiries during the time such Billboards and Transit Advertisements are being eliminated, from whom the State may obtain periodic reports as to the progress of their elimination and who will be responsible for ensuring that appropriate action is taken to remove any Billboards that have not been timely eliminated.
D. Settling Defendants shall not make, in the connection with any motion picture made in the United States, or cause to be made any payment, direct or indirect, to any person to use, display, make reference to, or use as a prop any cigarette, cigarette package, advertisement for cigarettes, or any other item bearing the brand name, logo, symbol, motto, selling message, recognizable color or pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, those used for any brand of domestic tobacco products.
E. On and after December 31, 1998, Settling Defendants shall permanently cease marketing, licensing, distributing, selling or offering, directly or indirectly, including by catalogue or direct mail, in the State of Minnesota, any service or item (other than tobacco products or any item of which the sole function is to advertise tobacco products) which bears the brand name (alone or in conjunction with any other word), logo, symbol, motto, selling message, recognizable color or pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, those used for any brand of domestic tobacco products.
F. Settling Defendants and the Law Firm of Robins, Kaplan, Miller & Ciresi L.L.P. ("RKM&C") have reached a separate agreement for the payment of the State's costs and attorneys fees. In consideration for said agreement, RKM&C has released the State from its obligation to pay costs and attorneys fees under the Special Attorney Appointment dated May 23, 1994.
V. MISCELLANEOUS PROVISIONS
A. Representations of Parties. The respective parties hereto hereby represent that this Settlement Agreement has been duly authorized and, upon execution, will constitute a valid and binding contractual obligation, enforceable in accordance with its terms, of each of the parties hereto. The State represents that all of its outside counsel that have represented it in this action are, by and through their authorized representatives, signatores to this Settlement Agreement.
B. Court Approval. The Parties agree to submit this Settlement Agreement to the Court for its review and approval on Friday, May 8, 1998. If the Court declines to approve this Settlement Agreement, the Blue Cross Settlement Agreement, the form of State Escrow Agreement, and the form of Blue Cross Escrow Agreement, the matter will be immediately submitted to the jury. If the Court, as a condition of approval or otherwise, requires any change in the Agreements which any signatory is unwilling to make, the case will be immediately submitted to the jury. If before the Court approves the Agreements, any third-party seeks to intervene for the purpose of opposing the Settlement Agreement, the Blue Cross Settlement Agreement, the State Escrow Agreement, and the Blue Cross Escrow Agreement, any Party at its sole election, may withdraw from this Agreement, after first giving notice to the Court and all of the Parties before the jury is dismissed, and submit the case to the jury. If the Court approves the Settlement Agreement as submitted, the Agreement will be final and binding upon all Parties.
In the event that there is a challenge to any provision of this Settlement Agreement by anyone other than the Attorney General of the State of Minnesota as of the date of this Agreement, BCBS or Settling Defendants ("a third-party challenge") after Final Approval, any amounts required to be paid by Settling Defendants pursuant to this Settlement Agreement shall be paid into escrow pursuant to the State Escrow Agreement. If, as a result of such a challenge, any material
term of Sections II, III, IV of this Settlement Agreement is modified or rendered unenforceable, the parties shall negotiate an equivalent or comparable substitute term or other appropriate credit or adjustment. In the event that the parties are unable to agree on such a substitute term or appropriate credit or adjustment, then the parties will submit the issue to the Court for resolution, subject to any available appeal rights. In the event that any third-party challenge is made after December 31, 1998, any payments due under Paragraph II.B. shall be made to the State according to the terms of this Settlement Agreement, and only those payments due under Paragraph II.D. shall be placed into escrow as provided above.
In the event that the Court determines that there has been a failure of consideration legally sufficient to warrant termination of this Settlement Agreement, then this Settlement Agreement may be terminated by the party adversely affected. In the event of such termination, the action will be reinstated and all decisions of the trial court, and any party's appeal or other rights with respect thereto, will have the same force and effect as if this Settlement Agreement had never been entered into.
C. Obligations Several, Not Joint. All obligations of the Settling Defendants pursuant to this Settlement Agreement are intended to be and shall remain several, and not joint.
D. Headings. The headings of the paragraphs of this Settlement Agreement are not binding and are for reference only and do not limit, expand or otherwise affect the contents of this Settlement Agreement.
E. No Determination or Admission. This Settlement Agreement and any proceedings taken hereunder are not intended to be and shall not in any event be construed as, or deemed to be, an admission or concession or evidence of any liability or any wrongdoing whatsoever on the part
of any party hereto or any person covered by the releases provided under paragraphs III.B. and C. hereof. The Settling Defendants specifically disclaim and deny any liability or wrongdoing whatsoever with respect to the allegations and claims asserted against them in this action and enter into this Settlement Agreement solely to avoid the further expense, inconvenience, burden and uncertainty of litigation.
F. Non-Admissibility. The settlement negotiations resulting in this Settlement Agreement have been undertaken by the parties hereto in good faith and for settlement purposes only, and neither this Settlement Agreement nor any evidence of negotiations hereunder shall be offered or received in evidence in this action, or any other action or proceeding, for any purpose other than in an action or proceeding arising under this Settlement Agreement.
G. Amendment; Waiver. This Settlement Agreement may be amended only by a written instrument executed by the Attorney General and the Settling Defendants. The waiver of any rights conferred hereunder shall be effective only if made by written instrument executed by the waiving party. The waiver by any party of any breach of this Settlement Agreement shall not be deemed to be or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous, of this Settlement Agreement.
H. Notices. All notices or other communications to any party to this Settlement Agreement shall be in writing (and shall include telex, telecopy or similar writing) and shall be given to the respective parties hereto at the following addresses. Any party hereto may change the name and address of the person designated to receive notice on behalf of such party by notice given as provided in this paragraph.
Chief Deputy Attorney General
State of Minnesota
102 State Capitol
St. Paul, MN 55155
Fax: 612.297.4193
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Fax: 910.741.2998
I. Cooperation. The parties hereto agree to use their best efforts and to cooperate with each other to cause this Settlement Agreement to become effective, to obtain all necessary approvals, consents and authorizations, if any, and to execute all documents and to take such other action as
may be appropriate in connection therewith. Consistent with the foregoing, the parties hereto agree that they will not directly or indirectly assist or encourage any challenge to this Settlement Agreement by any other person. All parties hereto agree to support the integrity and enforcement of the terms of this Settlement Agreement.
J. Governing Law. This Settlement Agreement shall be governed by the laws of the State of Minnesota, without regard to the conflicts of law rules of such state.
K. Construction. None of the parties hereto shall be considered to be the drafter of this Settlement Agreement or any provision hereof for the purpose of any statute, case law or rule of interpretation or construction that would or might cause any provision to be construed against the drafter hereof.
L. Severability. Subject to the provisions of Paragraph V.B., the terms of this Agreement are severable. If any term of this Agreement is found to be unlawful, the remaining terms shall remain in full force and effect, and the parties agree to negotiate a substitute term of equivalent value.
M. Intended Beneficiaries. This action was brought by the State of Minnesota, through its Attorney General, and by Blue Cross to recover certain monies and to promote the health and welfare of the people of Minnesota. No portion of this Settlement Agreement shall provide any rights to, or be enforceable by, any person or entity that is neither a party hereto nor a person encompassed by the releases provided in paragraphs III.B. and C. of this Settlement Agreement. Except as expressly provided in this Settlement Agreement, no portion of this Settlement Agreement shall bind any non-party or determine, limit or prejudice the rights of any such person or entity. None of the rights granted or obligations assumed under this Settlement Agreement by the parties
hereto may be assigned or otherwise conveyed without the express prior written consent of all of the parties hereto.
N. Counterparts. This Settlement Agreement may be executed in counterparts. Facsimile or photocopied signatures shall be considered as valid signatures as of the date hereof, although the original signature pages shall thereafter be appended to this Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Comprehensive Settlement Agreement and Release as of this 8th day of May, 1998.
STATE OF MINNESOTA, acting by and through Hubert H. Humphrey III, its duly elected and authorized Attorney General
By:
COUNSEL TO THE STATE OF MINNESOTA
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO CORPORATION
LORILLARD TOBACCO COMPANY
SCHEDULE A
AMOUNTS PAYABLE BY SETTLING DEFENDANTS ON OR
BEFORE SEPTEMBER 5, 1998 PURSUANT TO
PARAGRAPH II.B. OF THE SETTLEMENT AGREEMENT
Date 9/5/98 Settling Defendants ------------------- Philip Morris Incorporated......................... $163,200,000 R.J. Reynolds Tobacco Company...................... $ 16,320,000 Brown & Williamson Tobacco Corporation............. $ 42,960,000 Lorillard Tobacco Company.......................... $ 17,520,000 Total Amount....................................... $240,000,000 |
SCHEDULE B
Potential Future Legislation to Reduce Tobacco Use by Children
- Legislation to expand the self-service-sale restrictions of the youth access to tobacco law and to remove the current exception for sales of cigars.
- Legislation to clarify the current youth access law provision on vending machines, making clear that machines equipped with automatic locks or that use tokens are vending machines within the meaning of the law.
- Legislation providing enhanced or coordinated funding for enforcement efforts under sales-to-minors provisions of the criminal code or the youth access statute and ordinances.
- Legislation to encourage or support the use of technology to increase effectiveness of age-of-purchase laws, such as, without limitation, the use of programmable scanners or scanners to read drivers' licenses.
- Legislation or rules restricting the wearing, carrying or display of tobacco indicia in school-related settings, including, without limitation, in school facilities, on school premises, or in connection with school-sponsored activities.
- Legislation to create or stiffen non-monetary incentives for youth not to smoke, such as expansion of youth community service programs.
APPENDIX A
FORMULA FOR CALCULATING
STATE OF MINNESOTA VOLUME ADJUSTMENTS
Any payment that by the terms of the Settlement Agreement is to be adjusted pursuant to this Appendix (the "Applicable Base Payment") shall be adjusted pursuant to this Appendix in the following manner:
(A) in the event the aggregate number of units of Tobacco Products sold domestically by the Settling Defendants in the Applicable Year (as defined hereinbelow) (the "Actual Volume") is greater than the aggregate number of units of Tobacco Products sold domestically by the Settling Defendants in 1997 (the "Base Volume"), the Applicable Base Payment shall be multiplied by the ratio of the Actual Volume to the Base Volume;
(B) in the event the Actual Volume is less than the Base Volume,
(i) the Applicable Base Payment shall be multiplied by the ratio of the Actual Volume to the Base Volume, and the resulting product shall be divided by 0.98; and
(ii) if a reduction of the Applicable Base Payment results from the application of subparagraph (B)(i) of this Appendix, but the Settling Defendants' aggregate net operating profits from domestic sales of Tobacco Products for the Applicable Year (the "Actual Net Operating Profit") is greater than the Settling Defendants' aggregate net operating profits from domestic sales of Tobacco Products in 1997 (the "Base Net Operating Profit") (such Base Net Operating Profit being adjusted upward by the greater of the rate of 3% per annum or the actual total percent change in the Consumer Price Index, in either instance for the period between January 1, 1998 and the date on which the payment at issue is made), then the amount by which the Applicable Base Payment is reduced by the application of subparagraph (B)(i) shall be reduced (but not below zero) by 2.55% of 25% of such increase in such profits. For purposes of this Appendix, "net
operating profits from domestic sales of Tobacco Products" shall mean net operating profits from domestic sales of Tobacco Products as reported to the United States Securities and Exchange Commission ("SEC") for the Applicable Year or, in the case of a Settling Defendant that does not report profits to the SEC, as reported in financial statements prepared in accordance with generally accepted accounting principles and audited by a nationally recognized accounting firm. The determination of the Settling Defendants' aggregate net operating profits from domestic sales of Tobacco Products shall be derived using the same methodology as was employed in deriving such Settling Defendants' aggregate net operating profits from domestic sales of Tobacco Products in 1997. Any increase in an Applicable Base Payment pursuant to this subparagraph B(ii) shall be payable within 120 days after the date that the payment at issue was required to be made.
(C) "Applicable Year" means (i) with respect to the payments made pursuant to paragraph II.D of the Settlement Agreement, the calendar year ending on the date on which the payment at issue is due, regardless of when such payment is made; and (ii) with respect to all other payments made pursuant to this Settlement Agreement, the calendar year immediately preceding the year in which the payment at issue is due, regardless of when such payment is made.
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT
THE STATE OF MINNESOTA, Case Type: Other Civil
BY HUBERT H. HUMPHREY III, Court File No. C1-94-8565
ITS ATTORNEY GENERAL,
and
BLUE CROSS AND BLUE SHIELD
OF MINNESOTA,
Plaintiffs,
vs.
PHILIP MORRIS INCORPORATED, CONSENT JUDGMENT
R.J. REYNOLDS TOBACCO COMPANY,
BROWN & WILLIAMSON TOBACCO
CORPORATION, B.A.T. INDUSTRIES
P.L.C., BRITISH-AMERICAN TOBACCO
COMPANY LIMITED, BAT (U.K. &
EXPORT) LIMITED, LORILLARD
TOBACCO COMPANY, THE AMERICAN
TOBACCO COMPANY, LIGGETT GROUP,
INC., THE COUNCIL FOR TOBACCO
RESEARCH-U.S.A., INC., and THE
TOBACCO INSTITUTE, INC.,
Defendants.
WHEREAS, the State of Minnesota, by its Attorney General, Hubert H. Humphrey III, and Blue Cross and Blue Shield of Minnesota filed their Complaint herein on August 17, 1994, and their Second Amended Complaint on January 6, 1998;
WHEREAS, Defendants have contested the claims in the Plaintiffs' Complaint and Second Amended Complaint;
WHEREAS, the parties recognize that Congress is considering national tobacco legislation and have agreed to settle this case on a basis which acknowledges possible federal legislation, but which guarantees to the people of Minnesota the relief granted herein;
WHEREAS, Settling Defendants, in the Settlement Agreement and Stipulation for Entry of Consent Judgment, have waived as specified therein their right to challenge the terms of this Consent Judgment as being superseded or preempted by future Congressional enactments; and
WHEREAS, the Attorney General believes the entry of this Consent Judgment is appropriate and in the public interest;
NOW THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS:
I. JURISDICTION AND VENUE
The Court has jurisdiction over the subject matter of this action and
over the Settling Defendants under Minn. Stat. Sections 8.31, 325D.15,
325D.45, 325D.58, 325F.70 and 484.01 (1994). Venue is proper in Ramsey
County pursuant to Minn. Stat. Sections 325D.65 and 542.09 (1994) in that
Settling Defendants do business in Ramsey County.
II. DEFINITIONS
The definitions set forth in the Settlement Agreement and Stipulation for Entry of Consent Judgment ("Settlement Agreement") are incorporated by reference herein.
III. APPLICABILITY
This Consent Judgment applies only to Settling Defendants in their
corporate capacity acting through their respective successors and assigns,
directors, officers, employees, agents, subsidiaries, divisions, or other
internal organizational units of any kind or any other entities acting in
concert or participation with them. The remedies and penalties in Sections
XD. and E. herein for a violation of this Consent Judgment shall apply only
to Settling Defendants, and shall not be imposed or assessed against any
employee, officer or director of Settling Defendants or other person or
entity as a consequence of such a violation, and there shall be no
jurisdiction under this Consent Judgment to do so.
IV. EFFECT ON THIRD PARTIES
This Consent Judgment is not intended to and does not vest standing in any third party with respect to the terms hereof, or create for any person other than the parties hereto a right to enforce the terms hereof.
V. INJUNCTIVE RELIEF
Settling Defendants are permanently enjoined from:
A. On and after December 31, 1998, marketing, licensing, distributing, selling or offering, directly or indirectly, including by catalogue or direct mail, in the State of Minnesota, any service or item (other than tobacco products or any item the sole function of which is to advertise tobacco products) which bears the brand name (alone or in conjunction with any other word), logo, symbol, motto, selling message, recognizable color or pattern of colors, or any other indicia or product identification identical or similar to, or identifiable with, those used for any domestic brand of tobacco products.
B. Making any material misrepresentation of fact regarding the health consequence of using any tobacco product, including any tobacco additives, filters, paper or other ingredients. Nothing in this paragraph shall limit the exercise of any First Amendment right or any defense or position which persons bound by this Consent Judgment may assert in any judicial, legislative, or regulatory forum.
C. Entering into any contract, combination or conspiracy between or among themselves, which has the purpose or effect of: (1) limiting competition in the production or distribution of information about the health hazards or other consequences of the use of their products; (2) limiting or suppressing research into smoking and health; or (3) limiting or suppressing research into, marketing, or development of new products.
D. Taking any action, directly or indirectly, to target children in Minnesota in the advertising, promotion, or marketing of cigarettes, or taking any action the primary purpose of which is to initiate, maintain or increase the incidence of underage smoking in Minnesota.
VI. DISSOLUTION OF DEFENDANT COUNCIL FOR TOBACCO RESEARCH
Settling Defendants represent that they have the authority to effectuate the following and will do so within 90 days of this Agreement: The Council for Tobacco Research-U.S.A. Inc. shall cease all operations except as necessary to comply with existing grants or contracts and to continue its defense of other lawsuits and will be disbanded and dissolved within a reasonable time period thereafter. To the extent not required elsewhere in this Consent Judgment, the Council for Tobacco Research shall forward all smoking and health research in its possession or control to the Food and Drug Administration subject to appropriate confidentiality protection required by contracts between the Council for Tobacco Research and any third party. Defendants shall preserve all other records of the Council for Tobacco Research which relate in any way to issues raised in this or any other Attorney General lawsuit. Defendants may not reconstitute the Council for Tobacco Research or its function in any form.
VII. PUBLIC ACCESS TO DOCUMENTS AND COURT FILES
A. The Court's previous Protective Orders are hereby dissolved with respect to all documents, including the 4A and 4B indices and the privilege logs, which have been produced to the Plaintiffs and for which Defendants have made no claim of privilege or Category II trade secret protection. Such documents shall be made available to the public at the Depository, in the manner provided as follows:
1. The public shall be given access to all non-privileged documents contained in the Minnesota Depository, including all documents set forth in Paragraph VII.A. above.
2. Plaintiffs and Settling Defendants shall meet with representatives of the current Minnesota Depository administrators, Smart Legal Assistance and Merrill Corporation, and/or other appropriate persons, to discuss staffing issues and the procedures
that should be implemented to continue the operation of the Minnesota Depository, thereby to ensure broad and orderly access to these documents.
3. Category II documents shall be returned to the Defendants as soon as practical, provided that Defendants, upon receiving appropriate assurances of trade secret protection from the Food and Drug Administration, shall forward a copy of the Category II documents bearing the Bates numbers from this action to said agency. Plaintiffs shall retain the Bates stamp numbers of all Category II documents produced in this case.
B. The documents produced in this case are not "government data" under the Minnesota Government Data Practices Act.
C. For documents upon which a privilege was claimed and found not to exist, including any briefs, memoranda and other pleadings filed by the parties which include reference to such documents, Plaintiffs may seek court approval to make such documents available to the public, provided that any such request be made to the Court within 45 days of the date of entry of this Consent Judgment.
D. Defendant British-American Tobacco Company Limited shall maintain and operate the Guildford Depository for a period of ten years. Defendant British-American Tobacco Company Limited shall have the option of maintaining such depository at its current location or at an appropriate alternative location. All documents, except those identified in Paragraph VII.A.3 above, which were selected by plaintiffs from the Guildford Depository in response to the Plaintiffs' discovery requests shall be moved to and retained at the Minnesota Depository.
E. The Minnesota Depository shall be maintained and operated at Settling Defendants' sole expense, in the manner set forth above for ten years after the date hereof, or such longer period
as may be provided in federal legislation for a national document depository. At the end of such period, or sooner, at the State's discretion, the documents shall be transferred to the State Archives or other appropriate state body, where they shall remain available for historical and research purposes. The parties and the Depository staff shall cooperate with the State Archivist or such other state officials as may be involved in transferring the documents to the custody of the State.
F. Settling Defendants shall provide to the State for the Depository a copy of all existing CD-ROMs of documents produced in this action that do not contain any privileged or work-product documents or information, to be placed in the Depository.
G. Defendants shall produce to the Depository all documents produced by such defendants in other United States smoking and health litigation but not previously produced in Minnesota, within 30 days of their production such the other litigation, provided Defendants do not claim privilege with respect to such documents, and provided such documents are not subject to any protective order.
VIII. EQUITABLE RELIEF: NATIONAL RESEARCH; DEPOSIT OF FUNDS.
A. In furtherance of the equitable relief sought by the State, pursuant to the Court's equitable powers to shape appropriate injunctive relief, in light of the public health interests demonstrated by the evidence in this case, and pursuant to the agreement of the parties:
1. Consistent with the Prayer for Relief in the State's Complaint and Amended Complaints that the Defendants fund cessation programs in the State of Minnesota, the amount due in December, 1998 ($102 million), pursuant to the Settlement Agreement, Section II.D, shall be deposited into a separate cessation account and used to offer smoking
cessation opportunities to Minnesota smokers, and shall be administered as ordered by the Court.
2. In addition to other money paid under this Consent Judgment and the Settlement Agreement and Stipulation for Entry of Consent Judgment, each Settling Defendant shall pay pro rata in proportion to its Market Share, on or before June 1, 1998, and no later than June 1 of each succeeding year through and including June 1, 2007, its share of $10 million into a national research account, to be administered as ordered by the Court. The parties envision that approximately 70% of the $100 million total will be used for research grants relating to the elimination of tobacco use by children, and 30% for program implementation, evaluation and other tobacco control purposes; provided, however, the administrator of the national research account may, in its discretion, change the allocation.
3. The State shall submit a plan for the administration and authorized uses of the funds payable under this section within 45 days of the date of entry of this Consent Judgment.
4. Monies payable under this section and Section V.B. of the Settlement Agreement shall be deposited in interest bearing accounts at a bank to be designated by the Commissioner of Finance. Settling Defendants' payment of the amounts set forth above are Settling Defendants' sole obligation under this section.
B. Except as specified in this section and Section V.B of the Settlement Agreement, all monies payable under Sections II.B. and D. of the Settlement Agreement between the parties shall be deposited into the general fund of the State of Minnesota.
IX. FINAL DISPOSITION
This Consent Judgment resolves all claims set forth in the State's Second Amended Complaint against Defendants, which are hereby dismissed with prejudice, and shall constitute the final disposition of this action.
X. MISCELLANEOUS PROVISIONS
A. Jurisdiction of this case is retained for the purpose of enforcement and enabling the continuing proceedings contemplated herein. Any party to this Consent Judgment may apply to this Court at any time for such further orders and directions as may be necessary or appropriate for the construction and enforcement of this Consent Judgment.
B. This Consent Judgment is not intended to be and shall not in any event be construed as, or deemed to be, an admission or concession or evidence of personal jurisdiction or any liability or any wrongdoing whatsoever on the part of any Defendant. The Defendants specifically disclaim any liability or wrongdoing whatsoever with respect to the claims and allegations asserted against them in this action and Settling Defendnats have stipulated to entry of this Consent Judgment solely to avoid the further expense, inconvenience, burden and risk of litigation.
C. Except as provided in Section III.D. of the Settlement Agreement and Stipulation for Entry of Consent Judgment, this Consent Judgment shall not be modified unless the party seeking modification demonstrates, by clear and convincing evidence, that it will suffer irreparable harm from new and unforeseen conditions; provided, however, that the provisions of Section III of this Consent Judgment shall in no event be subject to modification. Changes in the economic conditions of the parties shall not be grounds for modification. It is intended that Settling Defendants will comply with this Consent Judgment as originally entered, even if Settling Defendants' obligations
hereunder are greater than those imposed under current or future law. Therefore, a change in law that results, directly or indirectly, in more favorable or beneficial treatment of any one or more of the Settling Defendants shall not support modification of this Consent Judgment.
D. In enforcing this Consent Judgment the Attorney General shall have the discovery powers of Minn. Stat. Section 8.31 (1996), as amended. Any Settling Defendant which violates this Consent Judgment shall be subject to contempt and to the remedies provided in Minn. Stat. Section 8.31 (1996), as amended. In addition, in any proceeding which results in a finding that a Settling Defendant violated this Consent Judgment, the responsible Settling Defendant or Settling Defendants shall pay the State's costs and attorneys' fees incurred in such proceeding.
E. The remedies in this Consent Judgment are cumulative and in addition to any other remedies the State may have at law or equity. Nothing herein shall be construed to prevent the State from bringing any action for conduct not released hereunder, even though that conduct may also violate this Consent Judgment.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated:
------------------------ ---------------------------
KENNETH J. FITZPATRICK
Judge of District Court
|
JUDGMENT
Pursuant to the foregoing Consent Judgment, judgment is hereby entered accordingly.
AGREEMENT TO PAY STATE OF MINNESOTA
ATTORNEYS' FEES AND COSTS
Philip Morris Incorporated (hereinafter "PM"), R.J. Reynolds Tobacco
Company (hereinafter "RJR"), Brown & Williamson Tobacco Corporation
(hereinafter "B&W"), and Lorillard Tobacco Company (hereinafter "Lorillard")
(collectively referred to as "The Settling Defendants"), hereby enter into
this Agreement To Pay Attorneys' Fees And Costs (hereinafter the "Agreement")
with Robins, Kaplan, Miller & Ciresi L.L.P. (hereinafter "RKM&C") providing
for the payment of all attorneys' fees and costs incurred in the prosecution
of the lawsuit captioned the State of Minnesota and Blue Cross and Blue
Shield of Minnesota vs. Philip Morris Incorporated, et al., Court File
C1-94-8565 (hereinafter "The Case"), by The State of Minnesota.
BACKGROUND
1. On August 17, 1994, The State of Minnesota, together with Blue Cross and Blue Shield of Minnesota (hereinafter "BCBS"), commenced The Case in Ramsey County District Court in St. Paul, Minnesota.
2. From August 1994 until January 1998, RKM&C engaged in extensive and unprecedented pretrial and discovery proceedings, which led to the establishment of a document depository in Minneapolis, Minnesota, into which was placed in excess of 28 million pages of documents. A second document depository was established in Guildford, England, into which was placed in excess of six million pages of documents. The majority of the documents in the U.S. and Guildford depositories were never previously produced by defendants in any lawsuit. Also included among the documents in the Minneapolis depository are in excess of 40,000 documents obtained by
RKM&C over which defendants had continuously maintained the claim of attorney-client privilege. The production of the attorney-client privilege documents was the subject of numerous appeals, including an appeal to the U.S. Supreme Court.
3. RKM&C painstakingly reviewed the 34 million pages of documents and selected those it deemed the most probative and relevant, which set of documents became nationally known as the "Minnesota select" documents. The Minnesota select documents have been provided to other litigants (including state attorneys general and private parties), Congress and Governmental authorities.
4. RKM&C took or defended the depositions of more than 300 fact and expert witnesses.
5. Throughout the pretrial proceedings, more than 190 motions were prosecuted and defended by Defendants and RKM&C, resulting in 200 orders being issued by the trial court.
6. Interlocutory appeals were taken by Defendants of numerous trial court orders resulting in 12 appeals to the Minnesota Court of Appeals; four appeals to the Minnesota Supreme Court; and two appeals to the U.S. Supreme Court.
7. On January 20, 1998, trial of The Case began before the Honorable Kenneth J. Fitzpatrick. The trial proceeded for 74 trial days until May 4, 1998. Forty-one witnesses testified, and the transcript of the trial is more than 15,000 pages in length.
8. On May 8, 1998, after all parties to the trial had rested, but before submission of The Case to the jury, The Case was settled. After settlement of the State's claims, RKM&C relinquished its right to receive attorneys' fees and costs pursuant to the retainer agreement entered
into between RKM&C and the State of Minnesota based upon the undertaking by The Settling Defendants to negotiate directly with RKM&C for payment of attorneys' fees and costs. This Agreement between The Settling Defendants and RKM&C is the result of those negotiations and represents The Settling Defendants' undertaking to pay attorneys' fees and costs to RKM&C.
AGREEMENT
Now, therefore, the undersigned parties agree as follows:
9. For and in consideration of the payment of attorneys' fees and costs as set forth herein, RKM&C relinquishes its right to receive attorneys' fees and costs pursuant to the retainer agreement entered into between RKM&C and The State of Minnesota as part of the Special Attorney Appointment dated May 23, 1994.
10. For and in consideration of the facts set forth above; and (a) in consideration of RKM&C foregoing the offer of a comprehensive, non-severable set of terms in connection with the payment of attorneys' fees relating to this action, which terms included, without limitation, the following: the determination of attorneys' fees by an arbitration panel of three (3) members with no cap on the amount of fees to be awarded by such panel; a Five Hundred Million Dollar ($500,000,000) annual cap on the payment in any one year of fees awarded by all such arbitration panels nationwide in tobacco and health litigation; provision that RKM&C's contractual rights, if any, for payment of attorneys' fees by The State of Minnesota or any other plaintiff would be unaffected by RKM&C's participation in such arbitration process; and a "most-favored nation" clause applicable to the payment of attorneys' fees; and (b) in consideration of RKM&C agreeing to relinquish its right to claim any fees and costs under its retainer agreement with The State of
Minnesota, and in partial consideration for the settlement of The Case, The Settling Defendants agree to pay to RKM&C attorneys' fees in connection with its representation of The State of Minnesota in this action, over and above payments owed to The State of Minnesota by virtue of the Settlement Agreement and Release, the sum of the lodestar component described in paragraph 11.b., and the contingency component described in paragraph 12, according to the schedule set forth in paragraph 15.
11. The lodestar component shall be calculated as follows:
a. RKM&C represents to The Settling Defendants that the total amount of fees incurred as documented in its billing records for all time spent prosecuting The Case on behalf of The State of Minnesota is $27,500,000 for purposes of the initial calculation in paragraph 11(b). This amount takes into account continuing work on The Case up to and through Final Approval of Settlement. Within ten (10) days of the execution of this Agreement, The Settling Defendants may elect to require RKM&C to submit to a mutually agreeable third party selected by The Settling Defendants an accounting of hours reasonably worked in connection with the RKM&C representation of The State of Minnesota in this action, broken out by name of attorney and including a description of the type of work done and the normal hourly billing rate of each attorney in question and costs reasonably expended and customarily charged to clients of the firm. Such accounting shall also set forth the aggregate billable amount by multiplying all hours reasonably worked in connection with RKM&C's representation of The State of Minnesota in this action times the normal hourly billing rate of the attorneys in question, which hourly rates are actually charged to other
clients of RKM&C to determine whether the hours listed in such accounting were reasonably worked and charged in connection with RKM&C's representation of The State of Minnesota in this action. Determinations by such third party shall be binding on the parties. If the third party determines that any hours listed in such an accounting were not reasonably worked in connection with RKM&C's representation of The State of Minnesota in this action, or that hourly rates were overstated, the aggregate billable amount shall be recalculated so as to exclude such hours or recalculate the rates. If the third party determines that any costs listed in such an accounting were not reasonably expended or not customarily charged to clients of the firm, such costs will be excluded. Nothing in this section which gives The Settling Defendants the right to request a third-party review of RKM&C's time and costs records entitles The Defendants to see a copy of the time and costs records. Furthermore, the parties agree that in making the time and costs records available for review by a third party for purposes of paying attorneys' fees and costs in partial consideration for The Settling Defendants' agreement to settle with The State of Minnesota, neither RKM&C nor The State of Minnesota is waiving any right to claim attorney-client or other privilege with regard to any RKM&C time and costs records or any other document or matter pertaining to this litigation.
b. The lodestar component shall be calculated by multiplying the aggregate billable amount (as adjusted pursuant to subsection a.), insofar as it does not exceed Thirty Million Dollars ($30,000,000) times a multiplier derived as follows:
i. 6; plus
ii. 2, in that this action was filed prior to January 1, 1995, in the name of The State to recover health-care costs allegedly associated with tobacco; plus
iii. 2, in that this action was not predicated, in any part, upon a state statute specifically directed at tobacco companies or at a recovery of costs allegedly associated with tobacco; plus
iv. 4, in that this action was tried to the conclusion.
12. The contingency component shall be composed of the sum of the following:
a. One percent (1%) of the first Five Billion Dollars ($5,000,000,000) or less of nominal recovery to be paid to The State over the first twenty-five (25) years (The "Nominal Recovery");
b. .5% times the amount by which the Nominal Recovery exceeds Five Billion Dollars ($5,000,000,000) and is less than or equal to Ten Billion Dollars ($10,000,000,000);
c. .2% times the amount by which the Nominal Recovery exceeds Ten Billion Dollars ($10,000,000,000) and is less than or equal to Fifteen Billion Dollars ($15,000,000,000); and
d. .1% times the amount by which the Nominal Recovery exceeds Fifteen Billion Dollars ($15,000,000,000).
13. The Nominal Recovery for The State herein is Six Billion One Hundred Sixty-five Million Dollars ($6,165,000,000). Accordingly, the contingency component equals Fifty-five Million Eight Hundred Twenty-five Thousand Dollars ($55,825,000).
14. The lodestar component equals Three Hundred Eighty-five Million Dollars ($385,000,000).
15. The sum of the lodestar and contingency components equals Four Hundred Forty Million Eight Hundred Twenty-five Thousand Dollars ($440,825,000). The Defendants agree to pay this amount to RKM&C as and for attorneys' fees pursuant to the following schedule:
a. Seventy-four Million Seven Hundred Fifty Thousand Dollars ($74,750,000) on or before September 5, 1998;
b. One Hundred Million Dollars ($100,000,000) on or before January 31, 1999;
c. One Hundred Million Dollars ($100,000,000) on or before April 15, 1999;
d. One Hundred Million Dollars ($100,000,000) on or before January 31, 2000.
e. Sixty-six Million Seventy-five Thousand Dollars ($66,075,000) on or before July 1, 2000.
16. Defendants also agree to pay Four Million Dollars ($4,000,000) as and for costs due and owing by The State of Minnesota to RKM&C on or before May 18, 1998.
17. The amount of fees and costs due and owing pursuant to paragraphs 15 and 16 shall be paid by Settling Defendants pro rata in proportion to their Market Share. No Settling Defendant shall be obligated to make any payment due from any other Settling Defendant. All obligations of The Settling Defendants pursuant to this Agreement are intended to be and shall remain several, and not joint.
18. The payment of fees pursuant to paragraph 15 shall constitute the entire obligation of The Settling Defendants with respect to attorneys' fees in connection with the
representation by RKM&C of The State of Minnesota in connection with this action, and the exclusive means by which RKM&C may seek payment of fees from defendants, or otherwise, in connection with its representation of The State of Minnesota in this action. RKM&C represents that it has served as sole outside counsel to The State of Minnesota in this action.
19. The Settling Defendants' obligation to pay attorneys' fees pursuant to paragraph 15 is contingent upon approval of the Settlement Agreement and Release between The Settling Defendants and The State of Minnesota and the State Escrow Agreement. If the Court declines to approve the Settlement Agreement between The Settling Defendants and The State of Minnesota or the State Escrow Agreement, or, pursuant to paragraph VI.B. (Court Approval) of the Settlement Agreement, either party withdraws from the Agreement before Court approval, this Agreement shall become null and void and of no effect. Once the Court has approved the Settlement Agreement between The State of Minnesota and The Settling Defendants, The Settling Defendants are obligated to make the payments set forth herein, unless there is a challenge to the Settlement Agreement between The Settling Defendants and The State of Minnesota which results in a payment required to be paid by Settling Defendants pursuant to the Settlement Agreement with The State of Minnesota being paid into escrow.
20. In the event any payments due to The State of Minnesota are required to be paid into escrow, then any unpaid attorneys' fees due under this Agreement shall also be paid into a special escrow account (the "RKM&C Escrow Account"). Any funds held in the RKM&C Escrow Account shall be immediately released to RKM&C at the same time that funds are released from The State of Minnesota Escrow Account to the State of Minnesota. Provided, however, that in the event
a court should determine that the Settlement Agreement between The State of Minnesota and The Defendants is cancelled or terminated such that no further payment obligations are due under The State Settlement Agreement, then any outstanding funds held in the RKM&C Escrow Account shall be returned to The Defendants, and Defendants' obligations under this Agreement shall become null and void and of no effect.
MISCELLANEOUS PROVISIONS
21. In the event either party to this Agreement is required to seek enforcement of the terms of this Agreement in court, all attorneys' fees and costs incurred in enforcing the Agreement shall be paid by the party against whom enforcement is obtained.
22. Each Settling Defendant has all requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by each Settling Defendant and constitutes its legal, valid and binding obligation.
23. This Agreement constitutes the entire agreement among the parties with regard to the subject matter of the Agreement and supersedes any previous agreements and understandings between the parties with respect to the subject matter. This Agreement may not be modified or amended except in writing and signed by all parties.
24. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
25. Except as otherwise specifically provided for in this Agreement, no party shall be liable for any costs or expenses incurred by or on behalf of any other party in connection with this Agreement and the actions contemplated hereby.
26. This Agreement shall be construed in accordance with and governed by the laws of The State of Minnesota applicable to agreements made and to be performed in Minnesota.
27. Any disputes regarding the interpretation of this Agreement and any actions to enforce its terms shall be venued in Ramsey County District Court in the State of Minnesota.
28. The parties agree that the payment of attorneys' fees and costs provided for in this Agreement shall be made strictly according to its terms. The Settling Defendants agree not to support, directly or indirectly, in Congress or any forum, legislation, rules or other policies which would preempt, override, abrogate or diminish their obligations under this Agreement.
29. This Agreement is not intended to, and does not, vest standing in any third party with respect to the terms hereof, or create for any person other than the parties hereto a right to enforce the terms hereof.
30. For and in consideration for the payment of fees as provided herein, RKM&C hereby releases Settling Defendants from any and all claims (other than a claim to enforce this Agreement) arising out of or in any way related to the litigation or settlement of The Case.
31. Unless otherwise specified, the terms used in this Agreement are subject to the definitions contained in the Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Agreement as of this _____ day of May, 1998.
ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO CORPORATION
LORILLARD TOBACCO COMPANY
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT
THE STATE OF MINNESOTA, Court File No. C1-94-8565
BY HUBERT H. HUMPHREY, III,
ITS ATTORNEY GENERAL,
and
BLUE CROSS AND BLUE SHIELD
OF MINNESOTA,
Plaintiffs,
vs.
PHILIP MORRIS INCORPORATED,
R.J. REYNOLDS TOBACCO COMPANY,
BROWN & WILLIAMSON TOBACCO
CORPORATION, B.A.T. INDUSTRIES
P.L.C., BRITISH-AMERICAN TOBACCO
COMPANY LIMITED, BAT (U.K. &
EXPORT) LIMITED, LORILLARD
TOBACCO COMPANY, THE
AMERICAN TOBACCO COMPANY,
LIGGETT GROUP, INC., THE
COUNCIL FOR TOBACCO RESEARCH
U.S.A., INC. and THE TOBACCO
INSTITUTE, INC.,
Defendants.
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE ("Settlement Agreement") is made as of the date hereof, by and among the parties hereto, as indicated by their signatures below, to settle and resolve with finality all claims of BCBSM, Inc. d/b/a Blue Cross and Blue Shield of
Minnesota ("Blue Cross") relating to the subject matter of this action which have been or could have been asserted by Blue Cross and Blue Shield of Minnesota.
WHEREAS, Blue Cross is a nonprofit health service plan corporation organized pursuant to Minnesota Statutes Chapter 62C, and as such fulfills a variety of health related functions in the State of Minnesota;
WHEREAS, the general purposes of Blue Cross under its enabling legislation and its Articles of Incorporation is "to make possible wide, economic and timely availability of hospital, medical surgical, dental and other health services for the people of Minnesota and others" and "advance public health and the art and science of hospital, medical and health care under the laws of the State of Minnesota;"
WHEREAS, Blue Cross in recognition and furtherance of its statutory mandate and charter, and the State of Minnesota, through its Attorney General, Hubert H. Humphrey III, commenced this action on August 17, 1994, asserting various claims for monetary and injunctive relief on behalf of Blue Cross and the State of Minnesota against certain tobacco manufacturers and others as Defendants;
WHEREAS, Blue Cross brought this action with the objectives of seeking disclosure of cigarette industry knowledge about Tobacco Products to help better inform the public and banning the marketing of Tobacco Products to children;
WHEREAS, Blue Cross has achieved disclosure of millions of cigarette industry documents that shall hereafter be available to the public in the Minnesota depository;
WHEREAS, Blue Cross has, by this action, sought to affect conduct of Defendants, including:
- to refrain from opposition to Minnesota legislative activity intended to control tobacco use by children;
- to refrain from challenging the enforceability of existing Minnesota laws or rules relating to tobacco control;
- to discontinue all billboard and transit advertisements of Tobacco Products in the State of Minnesota;
- to refrain from the payment for product placement within motion pictures made within the United States;
- to permanently cease the marketing of any service or item, other than Tobacco Products and advertisements for such products, which bears the brand name or other identifying mark of any domestic Tobacco Product;
- to disclose certain payments or provision of other benefits to lobbyists, third parties and public officials; and
- to cause The Council for Tobacco Research-U.S.A. to cease operations.
WHEREAS, Blue Cross has specifically asserted various claims for monetary relief against the tobacco manufacturers and other defendants to recover amounts which Blue Cross has expended for the treatment of the smoking-caused illnesses of its subscribers;
WHEREAS, Blue Cross is the first such health plan to undertake such action against any of the Defendants with regard to issues of smoking and health, and until 1998, was the only such health plan to have commenced such an action;
WHEREAS, the Defendants have denied each and every one of Plaintiffs' allegations of unlawful conduct or wrongdoing and have asserted a number of defenses to Plaintiffs' claims, which defenses have been contested by Plaintiffs; and
WHEREAS, the parties hereto wish to avoid the further expense, delay, inconvenience, burden and uncertainty of continued litigation of this matter (including appeals from any verdict), Blue Cross and the Settling Defendants have agreed to settle this litigation:
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of the payments to be made by the Settling Defendants, the dismissal and release of claims by Blue Cross and such other consideration as described herein, the sufficiency of which is hereby acknowledged, the parties hereto, acting by and through their authorized agents, memorialize and agree as follows:
I. GENERAL PROVISIONS
A. Jurisdiction. Blue Cross and the Settling Defendants acknowledge that this Court has jurisdiction over the subject matter of this action and over each of the parties to this Settlement Agreement, and that this Court shall retain jurisdiction for the purposes of implementing and enforcing this Settlement Agreement. The parties hereto agree to present any disputes under this Settlement Agreement, including without limitation any claims for breach or enforcement of this Settlement Agreement, exclusively to this Court.
B. Voluntary Agreement of the Parties. Blue Cross and the Settling Defendants acknowledge and agree that this Settlement Agreement is voluntarily entered into by all parties hereto as the result of arm's-length negotiations during which all such parties were represented by counsel. Blue Cross and Settling Defendants understand that Congress may enact legislation dealing with some of the issues addressed in this Agreement. Settling Defendants and their assigns,
affiliates, agents, and successors, hereby waive any right to challenge this Agreement, directly or through third parties, on the ground that any term hereof is unconstitutional, outside the power or jurisdiction of the Court, preempted by or in conflict with any current or future federal legislation (except where non-economic terms of future federal legislation are irreconcilable).
C. Definitions.
For the purposes of this Settlement Agreement, the following terms shall have the meanings set forth below:
1. "State" or "State of Minnesota" means the State of Minnesota acting by and through its Attorney General;
2. "Blue Cross" means BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota, and all of its employees, directors, officers, attorneys, parents, and divisions. BCBSM, Inc. represents that it is an independent corporation operating under license from Blue Cross and Blue Shield Association, an association of independent Blue Cross and Blue Shield Plans (the "Association"), permitting BCBSM, Inc. to use the Blue Cross and Blue Shield service marks in Minnesota, and that BCBSM, Inc. is not serving as an agent of the Association or any other Blue Cross/Blue Shield Plans in entering into this Settlement Agreement;
3. "Settling Defendants" means those Defendants in this action that are signatories hereto;
4. "Defendants" means Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, B.A.T. Industries P.L.C., British- American Tobacco Company Limited, BAT (U.K. and Export) Limited, Lorillard Tobacco
Company, The American Tobacco Company, The Council for Tobacco Research-U.S.A., Inc., and the Tobacco Institute, Inc. and their successors and assigns;
5. "Consumer Price Index" shall mean the Consumer Price Index for All Urban Consumers for the most recent twelve-month period, as published by the Bureau of Labor Statistics of the U.S. Department of Labor;
6. "State Settlement Agreement" means the settlement agreement entitled "Settlement Agreement and Stipulation for Entry of Consent Judgment" entered into among the State and the Settling Defendants with respect to the settlement of this action;
7. "State Escrow Agreement" means the escrow agreement so entitled and entered into among State, the Settling Defendants and an escrow agent;
8. "Court" means the District Court of the State of Minnesota, County of Ramsey, Second Judicial District;
9. "Market Share" means a Settling Defendant's respective share of sales of cigarettes by unit for consumption in the United States during the calendar year immediately preceding the year in which the payment at issue is due, regardless of when payment is made;
10. "Cigarettes" means any product which contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (i) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (ii) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or (iii) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its
packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in subparagraph (i) of this Paragraph.;
11. "Smokeless Tobacco" means any powder that consists of cut, ground, powdered, or leaf tobacco that contains nicotine and that is intended to be placed in the oral cavity;
12. "Tobacco Products" means Cigarettes and Smokeless Tobacco;
13. "Depository," unless otherwise specified, means the Minnesota document depository established by the Court's Order dated June 16, 1995. "Depositories" includes both the Minnesota depository and the Guildford, U.K. document depository established by the Court's Order dated September 6, 1995.
14. "Private Counsel" means Robins, Kaplan, Miller & Ciresi L.L.P.
15. "Final Settlement" means the date on which this Settlement Agreement, is executed and a Stipulation of Dismissal with prejudice is filed with the Court;
16. "Allocation Fraction" means that fraction of each of the payments made to Blue Cross which is expressed as a fraction for which, for each year, 1978-1996, the numerator is Blue Cross's damages for that year and the denominator is Blue Cross's total damages for years 1978-1996. The Allocation Fractions for years 1978-1996 are as follows:
For year, 1978: 0.028166303; For year, 1979: 0.032609439; For year, 1980: 0.039670851; For year, 1981: 0.040893991; For year, 1982: 0.042167950; |
For year, 1983: 0.037203831; For year, 1984: 0.031715039; For year, 1985: 0.040184252; For year, 1986: 0.046644637; For year, 1987: 0.048474365; For year, 1988: 0.049674533; For year, 1989: 0.058874757; For year, 1990: 0.066059121; For year, 1991: 0.068837235; For year, 1992: 0.071286135; For year, 1993: 0.066550282; For year, 1994: 0.075199152; For year, 1995: 0.075114815; and For year, 1996: 0.080673311. |
D. Settlement Receipts. The payments to be made by the Settling Defendants under this Settlement Agreement are in satisfaction of all of Blue Cross's claims for damages, including, without limitation, those for punitive damages, incurred by Blue Cross in the year of payment or earlier years, except that no part of any payment under this Settlement Agreement is made in settlement of an actual or potential liability for a fine, penalty (civil or criminal) or enhanced damages. Blue Cross represents that it does not have authority to bring: (1) claims attributable to or arising out of the payment of benefits by self-funded employer-employee benefit plans for which Blue Cross presently provides or has formerly provided administrative services, (2) claims
attributable to or arising out of the payment of benefits under any program or
plan for the Minnesota Comprehensive Health Association or under the Federal
Employees Health Benefit Act or any other federal health benefit plan, or
(3) claims attributable to or arising out of the payment of benefits by any
employee benefit plan of any political subdivision of the State of Minnesota for
which Blue Cross provides or has provided administrative services. Each payment
set forth in this section shall be in partial satisfaction of each year of
damages incurred and alleged by Blue Cross for the years 1978 through 1996 and
each payment shall accordingly be allocated to the satisfaction of each specific
year of damages incurred by Blue Cross according to the Allocation Fraction set
forth above.
E. Settlement Payments to Blue Cross. Each Settling Defendant severally shall cause to be paid to an account designated in writing by Blue Cross in accordance with and subject to Paragraph I.F. of this Settlement Agreement, the following amounts: the amount listed for it in Schedule A hereto, such amount representing its share of $160,000,000, to be paid on or before September 5, 1998; pro rata in proportion to its Market Share, its share of $79,200,000, to be paid on or before January 4, 1999; pro rata in proportion to its Market Share, its share of $57,450,000, to be paid on or before January 3, 2000; pro rata in proportion to its Market Share, its share of $57,450,000, to be paid on or before January 2, 2001; pro rata in proportion to its Market Share, its share of $57,450,000, to be paid on or before January 2, 2002; and pro rata in proportion to its Market Share, its share of $57,450,000, to be paid on or before January 2, 2003. The payments made by the Settling Defendants pursuant to this Paragraph shall be adjusted upward by the greater of 3% or the percentage increase in the Consumer Price Index applied each year on the previous year, beginning with the payment due to be made on or before January 3, 2000. The payments due to be made by the Settling Defendants pursuant to this Paragraph E on or before January 3, 2000, on or
before January 2, 2001, on or before January 2, 2002, and on or before January 2, 2003, will also be decreased or increased, as the case may be, in accordance with the formula for adjustments of payments set forth in Appendix A. The payments due to be made by the Settling Defendants pursuant to this Paragraph E on or before September 5, 1998, and on or before January 4, 1999, shall not be subject to the inflation escalation and volume adjustment described in the preceding sentences.
In the event that any of the Settling Defendants (a "Defaulting Defendant") fails to make any payment required of it pursuant to this Paragraph E by the applicable date set forth in this Paragraph E (a "Missed Payment"), Blue Cross shall provide notice to each of the Settling Defendants of such non-payment. The Defaulting Defendant shall have 15 days after receipt of such notice to pay the Missed Payment, together with interest accrued from the original applicable due date at the prime rate as published in the Wall Street Journal on the latest publication date on or before the date of default plus 3%. If the Defaulting Defendant does not make such payment within such 15-day period, Blue Cross shall provide notice to each of the Settling Defendants of such continued non-payment. Any or all of the Settling Defendants (other than the Defaulting Defendant) shall thereafter have 15 days after receipt of such notice to elect (in such Settling Defendant's or such Settling Defendants' sole and absolute discretion) to pay the Missed Payment, together with interest accrued from the original applicable due date the rate of prime rate as published in the Wall Street Journal on the latest publication date on or before the date of default plus 3%.
In the event that Blue Cross does not receive the Missed Payment, together with such accrued interest, within such additional 15-day period, all payments required to be made by each of the respective Settling Defendants pursuant to this Paragraph E shall at the end of such additional 15-
day period be accelerated and shall immediately become due and owing to Blue Cross from each Settling Defendant pro rata in proportion to its Market Share; provided, however, that any such accelerated payments (a) shall all be adjusted upward by the greater of (i) the rate of 3% per annum or (ii) the actual total percent change in the CPI, in either instance for the period between January 1 of the year in which the acceleration of payments pursuant to this Paragraph occurs and the date on which such accelerated payments are due pursuant to this subsection, and (b) shall all immediately be adjusted in accordance with the formula for adjustments of payments set forth in Appendix A.
Nothing in this Paragraph E shall be deemed under any circumstance to create any obligation in any of the Settling Defendants to pay any amount owed or payable to Blue Cross from any other Settling Defendant. All obligations of the Settling Defendants pursuant to this Paragraph E are intended to be and shall remain several, and not joint.
F. Payment of Settlement Proceeds. Any payment made pursuant to the Settlement Agreement shall be made to an account designated in writing by Blue Cross.
G. Blue Cross's Dismissal of Claims. Upon execution of this Settlement Agreement Blue Cross shall file a Stipulation of Dismissal dismissing with prejudice all claims as to all Defendants.
H. Blue Cross's Release and Discharge. Upon Final Approval, Blue Cross shall release and forever discharge all Defendants and their present and former parents, subsidiaries (whether or not wholly owned) and affiliates, and their divisions, organizational units, affiliates, officers, directors, employees, representatives, insurers, suppliers, agents, attorneys and distributors (and the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing) ("Releasees") from any and all manner of civil claims, demands, actions, suits and causes of action,
damages whenever incurred, liabilities of any nature whatsoever, including civil penalties, as well as costs, expenses and attorneys' fees, known or unknown, suspected or unsuspected, accrued or unaccrued, whether legal, equitable or statutory ("Claims") that Blue Cross (including any of its past, present or future parents, subsidiaries (whether or not wholly owned) and their respective representatives, employees, directors, trustees, officers, attorneys, Private Counsel, agents, representatives, divisions, organizational units (and the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing, and whether or not any such person or entity participates in the settlement), whether directly, indirectly, representatively, derivatively or in any other capacity, ever had, now has or hereafter can, shall or may have as to any claims relating to the subject matter of this action (including damages not incurred as of the date of this Settlement); provided, however, that the foregoing shall not operate as a release of any person, party or entity (whether or not a signatory to this Agreement) as to any of the monetary obligations undertaken in this Agreement in connection with a breach or default of this Agreement.
Blue Cross hereby covenants and agrees that it shall not hereafter sue or seek to establish civil liability against any person or entity covered by the release provided under this Paragraph H based, in whole or in part, upon any of the Released Claims, and Blue Cross agrees that this covenant and agreement shall be a complete defense to any such civil action or proceeding. .
Notwithstanding the foregoing, if the Settling Defendants enter into any future pre-verdict settlement of any action brought by any insurer, health maintenance organization, Blue Cross plan, Blue Shield plan, employee welfare benefit plan, union trust fund providing health care benefits and/or coverage for health care benefits, or any other third-party payor (hereinafter collectively referred to as "Third-Party Payors") of health care coverage or benefits that does not release claims
for damages not incurred as of the date of such settlement relating to the subject matter of such action, the scope of the release provided herein shall be revised so as to permit Blue Cross to assert claims for damages not incurred as of the date hereof relating to the subject matter of this action.
I. Settling Defendants' Release and Discharge. Upon Final Approval, Settling Defendants shall release and forever discharge Blue Cross from any and all manner of civil claims, demands, actions, suits and causes of action, damages whenever incurred, liabilities of any nature whatsoever, including costs, expenses, penalties and attorneys' fees, known or unknown, suspected or unsuspected, accrued or unaccrued, whether legal, equitable or statutory, arising out of or in any way related to, in whole or in part, the subject matter of the litigation of this lawsuit, that Settling Defendants (including any of their present and former parents, subsidiaries, divisions, affiliates, officers, directors, employees, witnesses (fact or expert), representatives, insurers, agents, attorneys and distributors and the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing, and whether or not any such person participates in the settlement), whether directly, indirectly, representatively, derivatively or in any other capacity, ever had, now has or hereafter can, shall or may have.
J. Pierringer Release. Without limiting the terms or effect of Paragraph I.H. of this Settlement Agreement, Blue Cross hereby expressly releases and discharges each Releasee from its respective fraction(s), portion(s), or percentage(s) of any of the Released Claims that shall hereafter be determined at trial or other disposition to be the fault of such Releasee. Blue Cross expressly agrees to indemnify and hold harmless all Releasees from any claims, demands, damages or causes of action for contribution or indemnification that may be made by any person or entity with respect to any Released Claim, and to satisfy such fraction, portion or percentage of any judgment,
settlement or other disposition with respect to any Released Claim which is determined to be the fault of any of such Releasees. The parties to this Settlement Agreement specifically intend that one of the purposes and legal effects of this Settlement Agreement is to bar forever any right of contribution and/or indemnify against the Releasees, and that it thus have the effect of a "Pierringer-type" release and be construed in accordance with Pierringer v. Hoger, 124 N.W.2d 106 (Wisc. 1963); Frey v. Snelgrove, 269 N.W.2d 918 (Minn. 1978); and Alumax Mill Products, Inc. v. Congress Financial Corp., 912 F.2d 996 (8th Cir. 1990).
K. Limited Most-Favored Nation Provision. In partial consideration for the monetary payments to be made by the Settling Defendants pursuant to this Settlement Agreement, Blue Cross agrees that if the Settling Defendants enter into any future pre-verdict settlement agreement of other similar litigation brought by a Third-Party Payor on terms more favorable to such Third-Party Payor than the terms of this Settlement Agreement, the terms of this Settlement Agreement shall not be revised except as follows: to the extent, if any, such other pre-verdict settlement agreement includes terms that provide (a) for joint and several liability among the Settling Defendants with respect to monetary payments to be made pursuant to such agreement or (b) a guarantee by the parent company of any of the Settling Defendants or other assurances of payment or creditors' remedies with respect to monetary payments to be made pursuant to such agreement, then this Settlement Agreement shall, at the option of Blue Cross, be revised to include terms comparable to such terms.
II. PUBLIC ACCESS TO DOCUMENTS AND COURT FILES
In connection with the settlement of this action, Blue Cross has insisted that the Settling Defendants enter into a Consent Judgment with the State of Minnesota providing for the
maintenance of the Minnesota and Guildford Depositories, thereby achieving continued public access to millions of industry documents for the public benefit.
III. MISCELLANEOUS PROVISIONS
A. Settling Defendants and the Law Firm of Robins, Kaplan, Miller & Ciresi L.L.P. ("RKM&C") have reached separate agreement for the payment of the Blue Cross' costs and attorneys' fees. In consideration for said agreement, RKM&C has released Blue Cross from its obligation to pay costs and attorneys' fees under the retainer agreement entered into between the Blue Cross and RKM&C.
B. Representations of Parties. The respective parties hereto hereby represent that this Settlement Agreement has been duly authorized and, upon execution, will constitute a valid and binding contractual obligation, enforceable in accordance with its terms, of each of the parties hereto. Blue Cross represents that all of its outside counsel that have represented it in connection with this action are, by and through their authorized representatives, signatories to this Settlement Agreement.
C. Obligation Several, Not Joint. All obligations of the Settling Defendants pursuant to this Settlement Agreement are intended to be and shall remain several, and not joint.
D. Headings. The headings of the paragraphs of this Settlement Agreement are not binding and are for reference only and do not limit, expand or otherwise affect the contents of this Settlement Agreement.
E. No Determination or Admission. This Settlement Agreement and any proceedings taken hereunder are not intended to be and shall not in any event be construed as, or deemed to be, an admission or concession or evidence of any liability or any wrongdoing whatsoever on the part of any party hereto or any person covered by the releases provided under Paragraphs I.H. and I.I.
hereof. The Settling Defendants specifically disclaim and deny any liability or wrongdoing whatsoever with respect to the allegations and claims asserted against them in this action and enter into this Settlement Agreement solely to avoid the further expense, inconvenience, burden and uncertainty of litigation.
F. Non-Admissibility. The settlement negotiations resulting in this Settlement Agreement have been undertaken by the parties hereto in good faith and for settlement purposes only, and neither this Settlement Agreement nor any evidence of negotiations hereunder shall be offered or received in evidence in this action, or any other action or proceeding, for any purpose other than in an action or proceeding arising under this Settlement Agreement.
G. Amendment; Waiver. This Settlement Agreement may be amended only by a written instrument executed by Blue Cross, and the Settling Defendants. The waiver of any rights conferred hereunder shall be effective only if made by written instrument executed by the waiving party. The waiver by any party of any breach of this Settlement Agreement shall not be deemed to be or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous, of this Settlement Agreement.
H. Notices. All notices or other communications to any party to this Settlement Agreement shall be in writing (and shall include telex, telecopy or similar writing) and shall be given to the respective parties hereto at the following addresses. Any party hereto may change the name and address of the person designated to receive notice on behalf of such party by notice given as provided in this paragraph.
For Blue Cross:
Thomas F. Gilde
Associate Corporate Counsel
Blue Cross and Blue Shield of Minnesota
3535 Blue Cross Road
Eagan, MN 55122
or
P. O. Box 64560
St. Paul, MN 55164
Fax: 612.456.6017
with a copy to:
Michael V. Ciresi
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, MN 55402-2015
Fax: 612.339.4181
For Philip Morris Incorporated:
Martin J. Barrington
Philip Morris Incorporated
120 Park Avenue
New York, NY 10017-5592
Fax: 212.907.5399
With a copy to:
Meyer G. Koplow
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Fax: 212.403.2000
For R.J. Reynolds Tobacco Company:
Charles A. Blixt
General Counsel
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Fax: 910.741.2998
With a copy to:
Arthur F. Golden
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Fax: 212.450.4800
For Brown & Williamson Tobacco Corporation:
F. Anthony Burke
Brown & Williamson Tobacco Corporation
200 Brown & Williamson Tower
401 South Fourth Avenue
Louisville, KY 40202
Fax: 502.568.7297
With a copy to:
Stephen R. Patton
Kirkland & Ellis
200 East Randolph Dr.
Chicago, IL 60601
Fax: 312.861.2200
For Lorillard Tobacco Company:
Arthur J. Stevens
Lorillard Tobacco Company
714 Green Valley Road
Greensboro, NC 27408
Fax: 910.335.7707
I. Cooperation. The parties hereto agree to use their best efforts and to cooperate with each other to cause this Settlement Agreement to become effective, to obtain all necessary approvals, consents and authorizations, if any, and to execute all documents and to take such other action as may be appropriate in connection therewith. Consistent with the foregoing, the parties hereto agree that they will not directly or indirectly assist or encourage any challenge to this Settlement Agreement by any other person. All parties hereto agree to support the integrity and enforcement of the terms of this Settlement Agreement.
J. Governing Law. This Settlement Agreement shall be governed by the laws of the State of Minnesota, without regard to the conflicts of law rules of such state.
K. Construction. None of the parties hereto shall be considered to be the drafter of this Settlement Agreement or any provision hereof for the purpose of any statute, case law or rule of interpretation or construction that would or might cause any provision to be construed against the drafter hereof.
L. Intended Beneficiaries. This action was brought by the Blue Cross, through its Attorney General, and by Blue Cross to recover certain monies and to promote the health and welfare of the people of Minnesota. No portion of this Settlement Agreement shall provide any rights to, or be enforceable by, any person or entity that is neither a party hereto nor a person encompassed by the releases provided in Paragraphs I.H. and I.I. of this Settlement Agreement. Except as expressly provided in this Settlement Agreement, no portion of this Settlement Agreement shall bind any non- party or determine, limit or prejudice the rights of any such person or entity. None of the rights granted or obligations assumed under this Settlement Agreement by the parties hereto may be assigned or otherwise conveyed without the express prior written consent of all of the parties hereto.
M. Counterparts. This Settlement Agreement may be executed in counterparts. Facsimile or photocopied signatures shall be considered as valid signatures as of the date hereof, although the original signature pages shall thereafter be appended to this Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Comprehensive Settlement Agreement and Release as of this 8th day of May, 1998.
BLUE CROSS AND BLUE SHIELD OF
MINNESOTA
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO
CORPORATION
LORILLARD TOBACCO COMPANY
SCHEDULE A
AMOUNTS PAYABLE BY SETTLING DEFENDANTS ON OR
BEFORE SEPTEMBER 5, 1998 PURSUANT TO
PARAGRAPH I.E OF THE SETTLEMENT AGREEMENT
Philip Morris Incorporated .. $108,800,000 R.J. Reynolds Tobacco Company $ 10,880,000 Brown & Williamson Tobacco Corporation ................. $ 28,640,000 Lorillard Tobacco Company ... $ 11,680,000 Total Amount ................ $160,000,000 |