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 JUNE 30, 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: JULY 31, 1998:
RJR NABISCO HOLDINGS CORP.: 324,812,528 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 June 30, 1998 and 1997......... 1
Consolidated Condensed Statements of Income--Six Months Ended June 30, 1998 and 1997........... 2
Consolidated Condensed Statements of Cash Flows--Six Months Ended June 30, 1998 and 1997....... 3
Consolidated Condensed Balance Sheets--June 30, 1998 and December 31, 1997..................... 4
Notes to Consolidated Condensed Financial Statements........................................... 5-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 12-19
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 20-21
Item 4. Submission of Matters to a Vote of Security Holders............................................ 22
Item 6. Exhibits and Reports on Form 8-K............................................................... 23-24
Signatures................................................................................................ 25
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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
JUNE 30, 1998 JUNE 30, 1997
---------------------- ----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- ----------- --------- -----------
NET SALES*.......................................................... $ 4,292 $ 4,292 $ 4,286 $ 4,286
--------- ----------- --------- -----------
Costs and expenses:
Cost of products sold*............................................ 1,886 1,886 1,954 1,954
Selling, advertising, administrative and general expenses......... 1,624 1,624 1,456 1,455
Tobacco settlement expense (note 4)............................... 145 145 -- --
Amortization of trademarks and goodwill........................... 158 158 160 160
Restructuring expense (note 1).................................... 406 406 -- --
--------- ----------- --------- -----------
OPERATING INCOME................................................ 73 73 716 717
Interest and debt expense........................................... (228) (204) (231) (206)
Other income (expense), net......................................... (35) (35) (47) (47)
--------- ----------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............................... (190) (166) 438 464
Provision (benefit) for income taxes................................ (21) (13) 175 184
--------- ----------- --------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME (LOSS) OF
NABISCO HOLDINGS.............................................. (169) (153) 263 280
Less minority interest in income (loss) of Nabisco Holdings......... (39) (39) 20 20
--------- ----------- --------- -----------
NET INCOME (LOSS)............................................... $ (130) $ (114) $ 243 $ 260
--------- ----------- --------- -----------
--------- ----------- --------- -----------
BASIC NET INCOME (LOSS) PER SHARE................................... $ (0.44) $ 0.72
DILUTED NET INCOME (LOSS) PER SHARE................................. $ (0.44) $ 0.71
DIVIDENDS PER SHARE:
Dividends per share of Series C preferred stock................... -- $ 0.7510
Dividends per share of common stock............................... $ 0.5125 $ 0.5125
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* Excludes excise taxes of $843 million and $879 million for the three months ended June 30, 1998 and 1997, respectively.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------------- ----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- ----------- ---------
NET SALES*............................................................... $ 8,239 $ 8,239 $ 8,065 $ 8,065
--------- --------- ----------- ---------
Costs and expenses:
Cost of products sold*................................................. 3,710 3,710 3,674 3,674
Selling, advertising, administrative and general expenses.............. 3,015 3,016 2,704 2,704
Tobacco settlement expense (note 4).................................... 457 457 -- --
Amortization of trademarks and goodwill................................ 316 316 318 318
Restructuring expense (note 1)......................................... 406 406 -- --
--------- --------- ----------- ---------
OPERATING INCOME................................................... 335 334 1,369 1,369
Interest and debt expense................................................ (449) (401) (463) (415)
Other income (expense), net.............................................. (63) (63) (76) (76)
--------- --------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.................................. (177) (130) 830 878
Provision for income taxes............................................... 1 20 341 360
--------- --------- ----------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME (LOSS) OF NABISCO
HOLDINGS......................................................... (178) (150) 489 518
Less minority interest in income (loss) of Nabisco Holdings.............. (28) (28) 33 33
--------- --------- ----------- ---------
NET INCOME (LOSS).................................................. $ (150) $ (122) $ 456 $ 485
--------- --------- ----------- ---------
--------- --------- ----------- ---------
BASIC NET INCOME (LOSS) PER SHARE........................................ $ (0.53) $ 1.34
DILUTED NET INCOME (LOSS) PER SHARE...................................... $ (0.53) $ 1.33
DIVIDENDS PER SHARE:
Dividends per share of Series C preferred stock.......................... -- $ 2.254
Dividends per share of common stock...................................... $ 1.025 $ 1.025
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* Excludes excise taxes of $1.671 billion and $1.731 billion for the six months ended June 30, 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)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------------- ----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- ----------- ---------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (150) $ (122) $ 456 $ 485
--------- --------- ----- ---------
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization...................................... 570 570 579 579
Deferred income tax benefit........................................ (205) (205) (1) (1)
Changes in working capital items, net.............................. (610) (507) (608) (452)
Tobacco settlement expense, net of cash payments................... 377 377 -- --
Restructuring and restructuring related expense, net of cash
payments......................................................... 292 292 (146) (146)
Other, net......................................................... (20) (21) (7) (14)
--------- --------- ----- ---------
Total adjustments................................................ 404 506 (183) (34)
--------- --------- ----- ---------
Net cash flows from operating activities............................. 254 384 273 451
--------- --------- ----- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures................................................... (296) (296) (308) (308)
Acquisition of businesses.............................................. (9) (9) -- --
Disposition of businesses and certain assets........................... 10 10 100 100
Repurchases of Nabisco Holdings' Class A common stock.................. (38) (38) -- --
Proceeds from exercise of Nabisco Holdings' Class A common stock
options.............................................................. 22 22 -- --
--------- --------- ----- ---------
Net cash flows used in investing activities.......................... (311) (311) (208) (208)
--------- --------- ----- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings of long-term debt....................................... 1,012 1,012 68 68
(Decrease) increase in short-term borrowings........................... (794) (794) 239 239
Dividends paid on common and preferred stock........................... (373) (18) (383) (16)
Other, net-including intercompany transfers and payments............... 55 (430) 20 (524)
--------- --------- ----- ---------
Net cash flows used in financing activities.......................... (100) (230) (56) (233)
--------- --------- ----- ---------
Effect of exchange rate changes on cash and cash equivalents............. (5) (5) (10) (10)
--------- --------- ----- ---------
Net change in cash and cash equivalents.............................. (162) (162) (1) --
Cash and cash equivalents at beginning of period......................... 348 348 252 251
--------- --------- ----- ---------
Cash and cash equivalents at end of period............................... $ 186 $ 186 $ 251 $ 251
--------- --------- ----- ---------
--------- --------- ----- ---------
Income taxes paid, net of refunds........................................ $ 295 $ 295 $ 330 $ 330
Interest paid............................................................ $ 394 $ 346 $ 441 $ 393
Tobacco settlement payments.............................................. $ 80 $ 80 $ -- $ --
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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)
JUNE 30, 1998 DECEMBER 31, 1997
-------------------- --------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 186 $ 186 $ 348 $ 348
Accounts and notes receivable, net.................................. 1,158 1,155 1,122 1,118
Inventories......................................................... 2,630 2,630 2,617 2,617
Prepaid expenses and excise taxes................................... 712 712 538 538
--------- --------- --------- ---------
TOTAL CURRENT ASSETS............................................ 4,686 4,683 4,625 4,621
--------- --------- --------- ---------
Property, plant and equipment, net.................................... 5,718 5,718 5,939 5,939
Trademarks, net....................................................... 7,651 7,651 7,759 7,759
Goodwill, net......................................................... 11,710 11,710 11,885 11,885
Other assets and deferred charges..................................... 480 466 470 453
--------- --------- --------- ---------
$ 30,245 $ 30,228 $ 30,678 $ 30,657
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................................... $ 499 $ 499 $ 361 $ 361
Accounts payable and accrued liabilities............................ 3,528 3,350 3,483 3,305
Current maturities of long-term debt................................ 222 222 33 33
Income taxes accrued................................................ 212 289 268 243
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES....................................... 4,461 4,360 4,145 3,942
--------- --------- --------- ---------
Long-term debt (less current maturities).............................. 9,322 9,322 9,456 9,456
Minority interest in Nabisco Holdings................................. 761 761 812 812
Other noncurrent liabilities.......................................... 2,272 1,560 2,157 1,908
Deferred income taxes................................................. 3,364 3,300 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............................................... 512 -- 520 --
Common stock (328,199,828 shares issued at June 30)................. 3 -- 3 --
Paid-in capital..................................................... 9,199 11,347 9,668 11,470
Retained earnings................................................... -- -- -- --
Accumulated other comprehensive income.............................. (422) (422) (391) (391)
Treasury stock, at cost............................................. (100) -- (100) --
Other stockholders' equity.......................................... (80) -- (69) --
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY.................................... 9,112 10,925 9,631 11,079
--------- --------- --------- ---------
$ 30,245 $ 30,228 $ 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 period amounts have been reclassified to conform to the current period presentation.
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.
On January 1, 1998, RJRN Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which established
standards for reporting and display of comprehensive income and its components.
Comprehensive income is defined as the change in stockholders' equity during a
period from transactions from nonowner sources and primarily includes net income
(loss) and foreign currency translation adjustments. Total comprehensive income
for the three months ended June 30, 1998 and 1997 was $(161) million and $220
million, respectively, for RJRN Holdings and $(145) million and $237 million,
respectively, for RJRN. Total comprehensive income for the six months ended June
30, 1998 and 1997 was $(181) million and $391 million, respectively, for RJRN
Holdings and $(153) million and $420 million, respectively, for RJRN.
RESTRUCTURING CHARGES
In the second quarter of 1998, Nabisco recorded a restructuring charge of $406 million ($216 million after-tax, net of minority interest) related to a program announced on June 8, 1998. The restructuring program, which was undertaken to streamline operations and improve profitability, commenced during the second quarter of 1998 and will be substantially completed during 1999. The $406 million restructuring expense will require cash expenditures of approximately $164 million. In addition to the restructuring charge, the program will require additional cash expenditures of approximately $118 million, of which $6 million ($3 million after-tax, net of minority interest) was incurred in the second quarter of 1998. These additional expenses are principally for implementation and integration of the program and include costs for relocation of employees and equipment and for training. After completion of the restructuring program, pre-tax savings in the year 2000 and thereafter are expected to be approximately $100 million annually.
The major components of the $406 million restructuring charge are $162 million for domestic and international severance and related benefits associated with workforce reductions totaling approximately 4,300 employees, $186 million for estimated losses from disposals of property related to domestic and international plant closures, $43 million for estimated losses from disposals of equipment and packaging materials related to non-strategic product line rationalizations, and $15 million for estimated costs to terminate distribution related contracts.
As of June 30, 1998, $7 million of the food restructuring accruals were utilized as follows: $5 million for severance and related benefits and $2 million for product line rationalizations.
In the fourth quarter of 1997, RJRN Holdings recorded a pre-tax restructuring expense of $301 million ($235 million after-tax) to reorganize its worldwide tobacco operations. As of June 30, 1998, $118 million of the tobacco restructuring accruals were utilized as follows: $56 million for employee severance and related benefits, $35 million for rationalization of manufacturing operations, $6 million for disposal of non-strategic investments, and $21 million for contract terminations and other costs.
NOTE 2 -- INVENTORIES
The major classes of inventory are as follows:
JUNE 30, DECEMBER 31,
1998 1997
----------- -------------
Finished products................................................... $ 796 $ 816
Leaf tobacco........................................................ 1,180 1,184
Raw materials....................................................... 238 226
Other............................................................... 416 391
----------- ------
$ 2,630 $ 2,617
----------- ------
----------- ------
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NOTE 3 -- EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1998 1997 1998 1997
-------------------- -------------------- -------------------- --------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock :
Net income (loss)..................... $ (130) $ (130) $ 243 $ 243 $ (150) $ (150) $ 456 $ 456
Preferred stock dividends............. (11) (11) (11) (11) (22) (22) (22) (22)
Adjustment for the dilutive effect of
Nabisco Holdings' stock options..... -- -- -- (1) -- -- -- (1)
--------- --------- --------- --------- --------- --------- --------- ---------
$ (141) $ (141) $ 232 $ 231 $ (172) $ (172) $ 434 $ 433
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding
(in thousands):
Common shares......................... 323,858 323,858 323,861 323,861 323,828 323,828 323,821 323,821
Assumed exercise of RJRN Holdings'
stock options....................... -- -- -- 1,135 -- -- -- 1,416
--------- --------- --------- --------- --------- --------- --------- ---------
323,858 323,858 323,861 324,996 323,828 323,828 323,821 325,237
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
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Shares of ESOP convertible preferred stock of 13,214,133 and 14,199,704 were not included in computing diluted earnings per share for 1998 and 1997, respectively, because the effect would have been antidilutive. Common shares also exclude approximately 965,000 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 actions 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 second quarter of 1998, 67 new actions were served against RJRT and/or its affiliates or indemnitees (as against 111 in the second quarter of 1997) and 41 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 June 30, 1998, there were 575 active cases pending, as compared with 345 on June 30, 1997, and 193 on June 30, 1996. As of August 7, 1998, 586 active cases were pending against RJRT and/or its affiliates or indemnitees, 580 in the United States, two each in Canada and in Puerto Rico, and one in each of the Marshall Islands and Nigeria.
The United States cases are in 47 states and the District of Columbia, and are distributed as follows: 160 in Florida, 109 in New York, 38 in California, 25 in Louisiana, 22 in Pennsylvania, 17 in Texas, 15 in Tennessee, 14 in each of Ohio and Alabama, 11 in each of Illinois and West Virginia, ten in each of the
NOTE 4--CONTINGENCIES (CONTINUED)
District of Columbia and Nevada, nine in each of Mississippi and New Jersey,
seven in each of Georgia and Massachusetts, six in each of Arkansas, Indiana and
Minnesota, five in each of Iowa, Maryland, and Michigan, four in each of
Arizona, Missouri and Utah, three in each of Colorado, Hawaii, Kansas, Kentucky,
New Mexico, Oklahoma, Rhode Island, South Carolina, South Dakota, Washington and
Wisconsin, two in each of Connecticut, New Hampshire, North Dakota and Oregon,
and one each in Alaska, Idaho, Maine, Montana, North Carolina and Vermont. Of
the 580 active cases in the United States, 457 are in state court and 123 are in
federal court. Most of these cases were brought by individual plaintiffs, but a
significant number, discussed below, seek recovery on behalf of states, union
pension funds, or other 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. Twelve of the 580 active cases in the United States involve alleged non-smokers claiming injuries purportedly resulting from exposure to environmental tobacco smoke. Fifty-seven 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, purchasers of cigarettes claiming to have been defrauded and seeking to recover their costs, and Blue Cross/Blue Shield subscribers seeking reimbursement for premiums paid. One hundred twenty-four 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. Eight, brought by entities administering asbestos liability, seek contribution for the costs of settlements and judgments.
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 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 four 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. That case, CARTER V. BROWN & WILLIAMSON, was overturned on appeal on June 22, 1998. In another Florida case brought by the same attorney, WIDDICK VS. BROWN & WILLIAMSON, a state court jury awarded the plaintiff approximately $1 million in compensatory and punitive damages on June 10, 1998. The defendant will appeal that verdict. In two cases in 1997, brought by the same attorney who represented plaintiffs in the CARTER AND WIDDICK cases, Florida state court juries found no RJRT liability. On March 19, 1998, an Indiana state court jury 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 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
NOTE 4--CONTINGENCIES (CONTINUED)
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. Other types of class action suits have also been filed in additional jurisdictions and there are also putative class action suits pending in Canada, Puerto Rico and Nigeria. Most of these suits assert claims on behalf of classes of individuals who claim to be addicted, injured, or at greater risk of injury by the use of tobacco or exposure to environmental tobacco smoke, or are the legal survivors of such persons.
Jury selection has begun in a class action suit pending in Florida, ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or their survivors who claim to have diseases or medical conditions caused by their alleged "addiction" to cigarettes has been certified. Jury selection is expected to take several weeks and the entire trial is likely to require several months to complete.
Class certifications, initially granted in two cases pending in New York state courts, HOSKINS V. R.J. REYNOLDS TOBACCO COMPANY and GEIGER V. AMERICAN TOBACCO COMPANY, have been reversed on appeal. In the HOSKINS decision, rendered on July 16, 1998, the appeals court also dismissed the complaint entirely. In GEIGER, where class certification had originally been conditional, a July 6, 1998 decision returned the case to the trial court for limited class discovery and some form of hearing on class certification.
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 August 7, 1998, there were 39 such cases pending in the following states 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.
On July 24, 1998, an Indiana state court judge dismissed all claims by that state's attorney general for Medicaid recovery. The judge ruled that the state's exclusive remedy for recovering such costs is by subrogation on a case-by-case basis as to each Medicaid recipient. The state may appeal this decision.
In addition to the 39 pending actions brought by the various attorneys general, 84 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 five native American tribes. Sixty-three of these cases have been brought by health and welfare trusts funds and similar entities, and are 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.
NOTE 4--CONTINGENCIES (CONTINUED)
On July 13, 1998, a federal district court in Maryland dismissed one such
union case, SEAFARERS WELFARE PLAN V. PHILIP MORRIS, stating that "Plaintiffs'
entire complaint suffers from the fundamental flaw that the funds themselves, as
opposed to their participants or the pertinent employers, have not suffered any
cognizable damages." The court also indicated that, even if the funds have
suffered injury, each of the plaintiffs' claims are subject to dismissal
because, among other reasons, the plaintiffs' alleged injuries are too remotely
caused by the defendants to satisfy the requirements of proximate cause,
plaintiffs' lack "antitrust standing," and plaintiffs failed to state a claim
for unjust enrichment. A similar holding by an Oregon federal court on August 5,
1998, dismissed another union case, OREGON LABORERS-EMPLOYERS HEALTH AND WELFARE
TRUST V. PHILIP MORRIS.
PROPOSED RESOLUTION.
Since early 1997, RJRT and other tobacco companies have been seeking a collective resolution of the litigation and regulatory issues concerning tobacco. An initial agreement with attorneys general and certain plaintiffs' lawyers (the "June 20th Agreement"), signed in 1997, required the enactment of federal legislation, which has not occurred. RJRN had expected that implementation of the June 20th 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 20th 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 had a significant negative effect on the business of RJRT and the stated financial position of RJRN Holdings, RJRN and RJRT.
Congress is currently considering various alternatives. Legislation or other resolutions that impose greater financial burdens and/or afford less litigation relief than the June 20th Agreement could have more severe effects on RJRN Holdings, RJRN and RJRT than those discussed above.
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.
Tobacco companies are continuing to explore other alternatives to the June 20th Agreement, including discussions on settling one or more pending attorney general suits. No assurances can be given that such discussions will result in any alternative agreement or agreements or that such an agreement or agreements will resolve the full range of litigation and regulatory issues facing the tobacco companies.
In evaluating any proposal 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 attorney general cases in Mississippi, Florida, Texas and Minnesota, a class action in Florida and an unfair trade practices case in California. These settlements have been described in prior SEC filings on Forms 10-Q and
NOTE 4--CONTINGENCIES (CONTINUED)
8-K. (See RJRN's Report on Form 10-Q for the Quarterly Period ended March 31,
1998, filed May 15, 1998 (the "1998 First Quarter 10-Q"); RJRN's Report on Form
8-K dated January 16, 1998; RJRN's Report on Form 8-K dated August 25, 1997; and
RJRN's Report on Form 10-Q for the Quarterly Period ended June 30, 1997, filed
August 8, 1997.)
As described in the prior filings, the Mississippi, Florida and Texas settlement agreements provided that, if the defendants entered into subsequent settlement agreements with any other state or states, these three states would, under certain circumstances, be entitled to terms at least as favorable to them as those contained in any such future settlement. In July 1998, in light of their May settlement with the State of Minnesota, tobacco company defendants, including RJRT, entered into supplementary agreements with the states of Mississippi and Texas to make "most favored nation" adjustments to the original settlement agreements with those states.
The supplemental agreements with Mississippi and Texas provide for additional "initial payments" by the industry to be paid according to an annual schedule over five years, commencing in January 1999. The first payment to Mississippi, due in January 1999, is set at $41,738,000; payments for the years 2000 through 2002 are set at $145,173,000 per year; and the final payment in 2003 is set at $72,743,000. A similar formula was adopted in the Texas agreement. The first supplemental payment due to Texas in January 1999 is set at $156,530,000; payments for the years 2000 through 2002 are set at $605,090,000 per year and the final payment in 2003 is set at $303,200,000.
All of these industry obligations are to be apportioned among the settling defendants on the basis of their market share. Except for the 1999 initial payments, they are to be adjusted upward by the greater of 3% or the cost of living index and up or down by volume of cigarettes sold in each year. In addition, these agreements modify the "most favored nation" terms applicable to these states so that they apply only to certain non-economic terms of any future settlement agreements with separately settling states or other non-federal governmental entities.
In separate fee payment agreements, also part of the most favored nation adjustments, RJRT and the other settling defendants agreed to pay advances towards the fees of private counsel for Mississippi and Texas. As previously agreed, these fees are to be awarded by arbitration panels that will be appointed and begin deliberations in the fall of 1998. Pursuant to the fee payment agreements, advances on these awards, to be credited against future payments beginning in 1999, were paid for Mississippi's private counsel in the amount of $100,000,000. The same amount was advanced for Texas' private counsel, $50,000,000 pursuant to the initial settlement agreement and $50,000,000 pursuant to the fee payment agreement.
The fee payment agreements establish an annual cap of $500,000,000 for payments of all attorneys' fees awarded by arbitration panels pursuant to past and future smoking and health litigation settlements (other than settlements of cases brought by a single plaintiff). The fee cap was $250,000,000 with respect to 1997. The agreements create a mechanism for allocating these payments among eligible counsel on a quarterly basis. Although the first payments of arbitration awards are to become due on December 15, 1998, Reynolds obligations are to be deferred to January 1999 to the extent of $62,000,000 in the aggregate for both states.
Negotiations to amend the settlement agreement with the State of Florida are ongoing and if an agreement is achieved, will likely give rise to increases in the "initial payments" due to that state, and create an obligation to make advance payments against future attorneys' fee awards for that state's private counsel.
RJRN Holdings accrued $312 million in the first quarter of 1998 for its share of all fixed and determinable portions of its obligations related to the Minnesota settlements and other settlement related costs. In the second quarter of 1998, RJRN Holdings accrued $145 million related to the additional "initial payments" expected to be made under the supplementary agreements and advances toward the fees of
NOTE 4--CONTINGENCIES (CONTINUED)
private counsel discussed above. Total estimated cash payments in 1998 for all
attorney general agreements and related fee payment agreements will be
approximately $600 million, $80 million of which has been paid as of June 30,
1998.
RECENT AND SCHEDULED TRIALS. As of August 7, 1998, there were six cases scheduled for trial in 1998 against RJRT alleging injuries relating to tobacco. The next attorney general case scheduled for trial is the State of Washington's, which has been scheduled for September 14, 1998. ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class-action case in Florida state court, began 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.
RJRT is aware of certain grand jury investigations being conducted in New York and Washington, D.C. which relate to the cigarette business. For a further discussion of these investigations see the 1998 First Quarter 10-Q.
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 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 may be 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 believes that it has a number of valid defenses to any such actions and intends 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
In July 1998, Nabisco sold its College Inn brand of canned broths and signed agreements, which are subject to certain conditions, to sell its U.S. and Canadian tablespreads and U.S. egg substitute businesses and the Del Monte brand canned vegetable business in Venezuela. In 1997, net sales from these businesses totaled approximately $550 million. Subject to completion, these transactions will be recorded in the third quarter of 1998 and are expected to result in a net after-tax gain.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the consolidated financial condition and results of operations of RJRN Holdings. The results of operations discussion and analysis is broken into three sections. The first section includes reported information for net sales and operating company contribution as included in the historical consolidated condensed financial statements. The second section illustrates operating company contribution on a basis consistent with how management manages the ongoing businesses. It excludes one-time items that management believes affect the comparability of the results of operations. This section should not be viewed as a substitute for the historical results of operations but as a tool to better understand underlying trends in the business. The last section includes management's discussion and analysis of the ongoing results. 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
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
--------- --------- ------------- --------- --------- -------------
(DOLLARS IN MILLIONS)
NET SALES:
RJRT............................................ $ 1,398 $ 1,216 15% $ 2,574 $ 2,292 12%
Reynolds International.......................... 763 879 (13) 1,572 1,677 (6)
--------- --------- --------- ---------
Total Tobacco............................... 2,161 2,095 3 4,146 3,969 4
--------- --------- --------- ---------
Nabisco Biscuit................................. 864 907 (5) 1,714 1,708 --
U.S. Foods Group................................ 637 647 (2) 1,167 1,174 (1)
--------- --------- --------- ---------
Domestic Food Group............................. 1,501 1,554 (3) 2,881 2,882 --
International Food Group........................ 630 637 (1) 1,212 1,214 --
--------- --------- --------- ---------
Total Food.................................. 2,131 2,191 (3) 4,093 4,096 --
--------- --------- --------- ---------
$ 4,292 $ 4,286 -- $ 8,239 $ 8,065 2
--------- --------- --------- ---------
--------- --------- --------- ---------
OPERATING COMPANY CONTRIBUTION:(1)
RJRT(2)......................................... $ 265 $ 395 (33) $ 293 $ 775 (62)
Reynolds International.......................... 140 179 (22) 313 374 (16)
--------- --------- --------- ---------
Total Tobacco............................... 405 574 (29) 606 1,149 (47)
--------- --------- --------- ---------
Nabisco Biscuit(3).............................. 125 183 (32) 268 317 (15)
U.S. Foods Group(3)............................. 81 93 (13) 144 158 (9)
--------- --------- --------- ---------
Domestic Food Group............................. 206 276 (25) 412 475 (13)
International Food Group........................ 47 44 7 79 98 (19)
--------- --------- --------- ---------
Total Food.................................. 253 320 (21) 491 573 (14)
--------- --------- --------- ---------
Headquarters.................................... (21) (18) (17) (40) (35) (14)
--------- --------- --------- ---------
$ 637 $ 876 (27) $ 1,057 $ 1,687 (37)
--------- --------- --------- ---------
--------- --------- --------- ---------
|
(1) Operating company contribution represents operating income before amortization of trademarks and goodwill and restructuring expense. Restructuring expense of $406 million related to the food business was recorded in the second quarter of 1998 ($268 million at Biscuit, $90 million at U.S. Foods Group and $48 million at International).
(2) 1998 includes $145 million of additional tobacco settlement charges incurred relating to certain prior state settlement agreements for the three months ended June 30, 1998 and $457 million related to the settlement agreement reached with the Minnesota state attorney general ($312 million) and the
additional tobacco settlement charges incurred relating to certain prior state settlement agreements ($145 million) for the six months ended June 30, 1998.
(3) Both 1998 periods include $6 million of charges related to the implementation of the restructuring of the food business ($4 million at Biscuit and $2 million at U.S. Foods Group).
The following table represents operating company contribution comparisons based upon ongoing results. It excludes all one-time items which management believes affect the comparability of the results of operations. These items are discussed in footnotes (1) through (3) above.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
--------- --------- ------------- --------- --------- -------------
(DOLLARS IN MILLIONS)
OPERATING COMPANY CONTRIBUTION:
RJRT.............................................. $ 410 $ 395 4% $ 750 $ 775 (3)%
Reynolds International............................ 140 179 (22) 313 374 (16)
--------- --------- --------- ---------
Total Tobacco................................. 550 574 (4) 1,063 1,149 (7)
--------- --------- --------- ---------
Nabisco Biscuit................................... 129 183 (30) 272 317 (14)
U.S. Foods Group.................................. 83 93 (11) 146 158 (8)
--------- --------- --------- ---------
Domestic Food Group............................... 212 276 (23) 418 475 (12)
International Food Group.......................... 47 44 7 79 98 (19)
--------- --------- --------- ---------
Total Food.................................... 259 320 (19) 497 573 (13)
--------- --------- --------- ---------
Headquarters...................................... (21) (18) (17) (40) (35) (14)
--------- --------- --------- ---------
$ 788 $ 876 (10) $ 1,520 $ 1,687 (10)
--------- --------- --------- ---------
--------- --------- --------- ---------
|
UNLESS OTHERWISE NOTED, DISCUSSIONS OF THE RESULTS OF OPERATIONS ARE BASED ON ONGOING RESULTS.
TOBACCO
The tobacco line of business is conducted by RJRT and R.J. Reynolds International ("Reynolds International").
RJRT's net sales for the second quarter were $1.4 billion, $182 million higher than the comparable period in 1997 and $2.57 billion for the first six months of 1998, an increase of $282 million over 1997. The increase for both periods is primarily attributable to higher pricing ($217 million for the second quarter and $367 million for the first six months of 1998), partially offset by lower volume ($39 million for the second quarter and $63 million for the first six months of 1998). The pricing increase is before competitive discounting. See the operating company contribution discussion below. Volume for both periods decreased 3%, which was in line with total industry results.
RJRT's overall retail share of market for the second quarter of 1998 decreased to 25.32% from 25.44% in the prior year comparable period. For the second quarter of 1998, RJRT's full-price share of market declined to 16.42% from 16.70%, while its savings share of market increased to 8.90% from 8.75%. Retail share of market for RJRT for the first six months of 1998 decreased to 25.38% compared to 25.45% in 1997. Full price share of market declined to 16.45% for the first six months of 1998 versus 16.61% in 1997, while savings increased to 8.94% in 1998 from 8.84% in 1997. Industry wide the full-price category for the three and six months ended June 30, 1998 increased to 73% of total shipments compared to 72% for the comparable periods in 1997. RJRT's full-price shipments for the three and six months ended June 30, 1998 as a percentage of its total shipments decreased to 62% from 63% in 1997.
RJRT experienced growth in Winston, its largest full-price brand for both the second quarter and first six months of 1998. Winston's volume rose 3% in both periods compared to the prior periods, resulting from the new national "No Bull" marketing campaign featuring a 100-percent-tobacco blend with no additives. While Camel's volume declined 7% and 4% for the second quarter and the first six months of
1998, respectively, compared to prior periods its retail share of market increased 2% and 3% for the second quarter and the first six months of 1998, respectively. Salem's volume declined 7% and 8% for the second quarter and first six months of 1998, respectively compared to the 1997 comparable periods. RJRT is currently testing a new advertising and promotional campaign in select markets to reverse Salem's declining trend. Doral, the industry's leading savings brand, experienced an 8% volume increase in both periods over the prior year.
RJRT's operating company contribution increased 4% to $410 million for the second quarter of 1998 and decreased 3% to $750 million for the first six months of 1998. The increase in the second quarter is due primarily to increased pricing ($217 million), partially offset by lower volume ($32 million), ongoing settlement costs ($38 million) and competitive discounting (marketing) ($128 million). The decrease in the first six months of 1998 is due to a decrease in volume ($51 million), competitive discounting (marketing) ($195 million), ongoing settlement costs ($75 million) and an increase in other costs (legal, product costs and merchandising costs), partially offset by increased pricing ($367 million).
RJRT announced a $3.00 per thousand cigarette price increase effective August 5, 1998. This follows two other price increases of $2.50 per thousand cigarettes announced in the second quarter of this year. Similar price increases were announced by other cigarette manufacturers.
Reynolds International's net sales were $763 million for the second quarter of 1998, a decrease of 13% over the comparable 1997 quarter. Excluding the impact of unfavorable foreign currency translation, net sales would have decreased 8% versus 1997. Overall volume of 46.6 billion units was down 8% versus 1997, primarily due to overall weakness in Special Markets and deteriorating economic conditions in the CIS and Baltics region.
Reynolds International's net sales decreased 6% to $1.57 billion for the first six months of 1998 over the 1997 comparable period, primarily due to the economic slowdown in Asia and the negative impact of foreign currency translation. Excluding the impact of unfavorable foreign currency translation, net sales would have remained flat compared to 1997. Overall volume of 95.6 billion units increased by 4% from 1997 primarily as a result of volume gains of 14% in the CIS and Baltics and the East and Central Europe regions (low margin markets), more than offsetting softness in Western European and Asian markets (high margin markets).
Operating company contribution was $140 million for the second quarter of 1998, a decrease of 22% over the second quarter of 1997, and $313 million for the first six months of 1998, a 16% decrease over the comparable 1997 period. The decrease in the second quarter was driven primarily by the lower volume and the impact of unfavorable foreign currency translation. For the first six months of 1998, the decrease was driven primarily by unfavorable foreign currency translation and lower sales in high margin markets. Excluding the impact of unfavorable foreign currency translation, operating company contribution for the second quarter and first six months of 1998 would have decreased approximately 12% and 5%, respectively compared to the comparable 1997 periods.
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. 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 in February 1997. Implementation of the remaining regulations, which prohibit or impose stringent limits on a broad range of sales and marketing practices, was stayed by the U.S. District Court for the Middle District of North Carolina (COYNE BEAHM V. UNITED STATES FOOD & DRUG ADMINISTRATION) pending appeal of its ruling that, among other things, certain of the FDA restrictions on tobacco advertising were beyond the FDA's authority. A second oral argument on appeal, required because of the death of one of the jurors on the
original appeals court panel, occurred 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 moved to dismiss the action. On July 17, 1998 the court granted the FTC's motion, citing lack of subject matter jurisdiction.
In December 1992, the U.S. Environmental Protection Agency (the "EPA")
issued a report entitled, "Respiratory Health Effects of Passive Smoking: Lung
Cancer and Other Disorders," which classified environmental tobacco smoke as a
Group A (known human) carcinogen. On June 22, 1993, RJRT and others filed suit
in the U.S. District Court for the Middle District of North Carolina (FLUE-CURED
STABILIZATION CORP. V. U.S. ENVIRONMENTAL PROTECTION AGENCY) to challenge the
validity of the EPA report. On July 17, 1998, the court's ruling on the
plaintiffs' motion for summary judgment found that the EPA's classification of
environmental tobacco smoke was invalid, and vacated those portions of the EPA
report dealing with lung cancer.
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. Massachusetts appealed that decision. Both the manufacturers and Massachusetts are now seeking summary judgment from the district court. Oral argument on the motions for summary judgment took place during May 1998. Oral argument of Massachusetts' appeal of the preliminary injunction decision occurred on July 28, 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. Together with other cigarette manufacturers, RJRT has provided comments on the regulations. Final regulations were issued and RJRT's initial disclosure is due on December 1, 1998.
As of July, 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 20th 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. Other bills being considered could impose greater burdens on the industry than those provided in the June 20th 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 a material 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 declined 3% for the second quarter and were flat for the first six months of 1998, while the International Food Group's net sales declined 1% in the second quarter and were slightly lower for the first six months of 1998. Within the Domestic Food Group, Nabisco Biscuit's net sales declined 5% in the second quarter and were slightly higher in the first six months versus the prior year. Nabisco Biscuit's decrease for the second quarter was primarily due to volume declines in the SnackWell's line and breakfast snacks. The small increase in net sales for the first six months of 1998 reflects price increases, volume increases in core cookie and cracker brands, largely offset by lower volumes in SnackWell's and breakfast snacks. Net sales for the first six months of 1998 were favorably impacted by more selling days. Without these extra days, net sales would have declined 3% due to lower volumes. The U.S. Foods Group's net sales decreased 2% in the second quarter and 1% for the first six months of 1998 primarily due to the 1997 disposal of certain regional brands and the disposal of Plush Pippin pies in 1998. Excluding the impact of these disposals, net sales would have risen 1% in the second quarter and 2% in the first six months of 1998. In addition, higher sales for nuts and the inclusion of Cornnuts snacks, acquired in December 1997, were offset by lower sales volume for confections and other products. The International Food Group's net sales decrease in the second quarter and first six months resulted from unfavorable foreign exchange rates, particularly in Spain and Canada, and declines in Argentina due to competitive activity, in Spain due to trade consolidations, in Canada due to sluggish biscuit sales, and in Asia due to the impact of the regional economic downturn, partially offset by improvements in Venezuela and Mexico.
The Domestic Food Group's operating company contribution was $212 million in the second quarter of 1998 versus $276 million in the second quarter of 1997, a decrease of 23%. For the first six months of 1998, the Domestic Food Group generated operating company contribution of $418 million versus $475 million in the first six months of 1997, a decrease of 12%. The International Food Group's operating company contribution increased $3 million or 7% for the second quarter and decreased $19 million or 19% for the first six months of 1998.
Within the Domestic Food Group, the operating company contribution for Nabisco Biscuit decreased $54 million, or 30%, for the second quarter of 1998 and decreased $45 million, or 14%, for the first six months of 1998. These declines resulted largely from the impact of lower sales in the second quarter and higher selling related expenses in both periods. The U.S. Foods Group's operating company contribution decreased $10 million for the second quarter of 1998 and $12 million for the first six months of 1998, primarily due to the impact of the 1997 disposal of certain regional brands. The International Food Group's decline in operating company contribution for the first six months of 1998 was principally due to the net sales decline discussed above, coupled with higher marketing expense in Canada, which more than offset improvements in Venezuela and Mexico.
In June 1998, Nabisco announced that marketing initiatives in Nabisco Biscuit would be increased by 30% in the second half of 1998 over year ago levels. These initiatives and the restructuring program discussed below will have a significant impact on anticipated earnings in 1998.
RESTRUCTURING CHARGE
In the second quarter of 1998, Nabisco recorded a restructuring charge of $406 million ($216 million after-tax, net of minority interest) related to a program announced on June 8, 1998. The restructuring program, which was undertaken to streamline operations and improve profitability, commenced during the second quarter of 1998 and will be substantially completed during 1999. The restructuring charge for the Domestic Food Group amounted to $358 million and consisted of $268 million for Nabisco Biscuit, $30 million for LifeSavers, $15 million for Specialty Products and the remaining $45 million for corporate headquarters operations, the Sales & Integrated Logistics Group and other business units. The restructuring expense for the International Food Group amounted to $48 million and consisted of $37 million for Latin American operations, including $15 million for Brazil, $15 million for Argentina, and $7 million for Canada.
The $406 million restructuring charge will require cash expenditures of approximately $164 million. In addition to the restructuring expense, the program will require additional expenditures of approximately $118 million, of which $6 million ($3 million after-tax, net of minority interest) was recorded in the second quarter of 1998. These additional expenses are principally for implementation and integration of the program and include costs for relocation of employees and equipment and for training. Key components of the restructuring program include the disposal of plant and distribution assets in the United States and Latin America, including facilities in Argentina and Brazil; the reconfiguring of sales organizations to improve their effectiveness and drive revenue growth; the downsizing of departmental organizations and operating company structures; and the discontinuance of certain non-strategic product lines. After completion of the restructuring program, pre-tax savings in the year 2000 and thereafter are expected to be approximately $100 million annually. See note 1 to the Consolidated Condensed Financial Statements for information regarding the major components of the restructuring program.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 1998, RJRN Holdings and RJRN adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. See note 1 to the Consolidated Condensed Financial Statements for further discussion.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from operating activities were $254 million in the first six months of 1998 compared to $273 million for the first six months of 1997. The decrease primarily reflects the tobacco settlement payments in 1998 and the timing of accounts payable disbursements, partially offset by a reduction in inventory resulting from overall better inventory management, a reduction in accounts receivable due to an overall decrease in both tobacco and food net sales, a reduction in interest payments due to debt refinancings at Nabisco and lower income tax payments due to lower earnings.
Net cash flows used in investing activities for 1998 were $311 million, an increase of $103 million from the 1997 level of $208 million. The increase reflects a lower level of proceeds in 1998 versus 1997 resulting 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 in 1998.
Net cash flows used in financing activities was $100 million for the first six months of 1998, compared to $56 million in 1997. The increase was primarily due to an overall reduction in debt levels, partially offset by 1998 proceeds from the sale of call options on Nabisco debt.
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 an inflow of $54 million and an outflow of $67 million for the first six months of 1998 and 1997, respectively. The increase in free cash flow primarily reflects the reduction in inventory, the lower accounts receivable levels, and the reduction in interest and income tax payments discussed above, partially offset by the decline in operating company contribution, the timing of accounts payable disbursements and the tobacco settlement payments in 1998.
Total estimated payments in 1998 for all attorney general agreements and related amendments and fee payment agreements, including an agreement with Blue Cross and Blue Shield of Minnesota, will be approximately $600 million, $80 million of which has been paid as of June 30, 1998. Payments will be funded primarily by cash flows from operating and financing activities. 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 $296 million for the first six months of 1998. Management expects the current level of capital expenditures planned for 1998 to be in the range of approximately $600 million to $650 million (approximately 56% Food and 44% 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.
RJRN maintains a three-year revolving credit facility, of which no borrowings were outstanding at June 30, 1998, and a 364-day credit facility primarily to support commercial paper issuances, of which the entire facility was substantially available at June 30, 1998. In June 1998, the maturity of the revolving credit facility was extended to June 2001 and the 364-day credit facility was renewed to May 31, 1999. The commitment under the 364-day facility was reduced to $212 million. The commitments under the revolving credit facility decline to approximately $2.1 billion in year 1, to $2.0 billion in year 2 and to $1.7 billion in the final year. During 1998, RJRN Holdings and RJRN also amended certain terms of these credit agreements to accomodate the settlement of certain litigation.
In July 1998, Nabisco sold its College Inn brand of canned broths and signed agreements, which are subject to certain conditions, to sell its U.S. and Canadian tablespreads and U.S. egg substitute businesses and the Del Monte brand canned vegetable business in Venezuela. In 1997, net sales from these businesses totaled approximately $550 million. Subject to completion, these transactions will be recorded in the third quarter of 1998 and are expected to result in a net after-tax gain.
YEAR 2000
RJRN Holdings and RJRN have been actively working to assure that they and their operating subsidiaries are prepared for the computer issues associated with year 2000 compliance. Comprehensive reviews of all systems and applications, including key suppliers and vendors, are being conducted, implementation plans to resolve any issues are being formulated and certain corrective actions have commenced.
RJRN Holdings and RJRN expect their year 2000 compliance programs, which began in 1996, to be completed in all material respects by the end of 1999. The total cost of achieving year 2000 compliance is currently estimated to be approximately $90 million. All modification costs are expensed as incurred. Through June 30, 1998, approximately $30 million has been expensed.
The foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements particularly with respect to the level of restructuring-related expenses and the amount of savings related to the food restructuring program, capital expenditures, the impact of proposed national legislation and various litigation settlements, including certain attorney general agreements related to the tobacco business and the impact of the year 2000 issue on computer systems and applications 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 actions 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 second quarter of 1998, 67 new actions were served against RJRT and/or its affiliates or indemnitees (as against 111 in the second quarter of 1997) and 41 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 June 30, 1998, there were 575 active cases pending, as compared with 345 on June 30, 1997 and 193 on June 30, 1996. As of August 7, 1998, 586 active cases were pending against RJRT and/or its affiliates or indemnitees, 580 in the United States, two each in Canada and in Puerto Rico, and one in each of the Marshall Islands and Nigeria.
The United States cases are in 47 states and the District of Columbia, and are distributed as follows: 160 in Florida, 109 in New York, 38 in California, 25 in Louisiana, 22 in Pennsylvania, 17 in Texas, 15 in Tennessee, 14 in each of Ohio and Alabama, 11 in each of Illinois and West Virginia, ten in each of the District of Columbia and Nevada, nine in each of Mississippi and New Jersey, seven in each of Georgia and Massachusetts, six in each of Arkansas, Indiana and Minnesota, five in each of Iowa, Maryland, and Michigan, four in each of Arizona, Missouri and Utah, three in each of Colorado, Hawaii, Kansas, Kentucky, New Mexico, Oklahoma, Rhode Island, South Carolina, South Dakota, Washington and Wisconsin, two in each of Connecticut, New Hampshire, North Dakota and Oregon, and one each in Alaska, Idaho, Maine, Montana, North Carolina and Vermont. Of the 580 active cases in the United States, 457 are in state court and 123 are in federal court. Most of these cases were brought by individual plaintiffs, but a significant number, discussed below, seek recovery on behalf of states, union pension funds, or other 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, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The matters indicated below were voted upon at the annual meeting of stockholders of RJRN Holdings held on May 13, 1998. Holders of Common Stock and ESOP Convertible Preferred Stock were entitled to vote upon the proposals to elect directors, ratify the appointment of auditors and to vote on three stockholder proposals. Holders present in person or by proxy at the meeting were entitled to vote 283,840,461 shares of Common Stock and 13,453,248 shares of ESOP Convertible Preferred Stock.
(a) Election of Nine Directors.
NAME VOTES FOR VOTES WITHHELD ----------------------------------------------------------------- ------------- -------------- John T. Chain, Jr. 280,853,958 2,986,503 Julius L. Chambers 280,826,590 3,013,871 John L. Clendenin 280,781,765 3,058,696 Steven F. Goldstone 280,712,178 3,128,283 Ray J. Groves 280,814,494 3,025,967 L. Dennis Kozlowski 280,818,149 3,022,312 H. Eugene Lockhart 279,704,974 4,135,487 Theodore E. Martin 280,646,480 3,193,981 Rozanne L. Ridgway 280,712,672 3,127,789 |
(b) Ratification of Appointment of Deloitte & Touche LLP as Independent Auditors.
For: 282,826,960 Against: 609,516 Abstain: 403,985 |
(c) Stockholder Proposal on U.S. Youth Smoking Programs in Developing Countries.
For: 11,703,222 Against: 215,623,691 Abstain: 9,244,891 |
(d) Stockholder Proposal on Smuggling.
For: 8,243,534 Against: 219,444,766 Abstain: 8,883,509 |
(e) Stockholder Proposal on Workforce Reductions and Stock Options.
For: 11,721,779 Against: 222,699,211 Abstain: 2,150,820 |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Agreement of Resignation, Appointment and Acceptance, dated as of July 27, 1998, by
and among RJR Nabisco, Inc., Citibank, N.A. and The Bank of New York in connection
with the Amended and Restated Indenture, dated as of July 24, 1995, between RJR
Nabisco, Inc. and Citibank, N.A.
10.1 Eighth Amendment to the 364 Day Credit Agreement between RJR Nabisco Holdings Corp.,
RJR Nabisco, Inc. and the lending institutions named therein, dated as of April 3,
1998.
10.2 Sixth Amendment to the 3 Year Credit Agreement and Ninth Amendment to the 364 Day
Credit Agreement between RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and the lending
institutions named therein, dated as of June 8, 1998.
10.3 First Amendment to the 5 Year Credit Agreement and Second Amendment to the 364 Day
Credit Agreement between Nabisco Holdings Corp., Nabisco, Inc. and the lending
institutions named therein, dated as of May 19, 1998.
10.4 Form of Deferred Stock Unit Agreement, dated May 13, 1998, between various unnamed
grantees and RJR Nabisco Holdings Corp. in connection with the Equity Incentive Award
Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries.
10.5 Form of Stock Option Agreement, dated May 13, 1998, between various unnamed optionees
and RJR Nabisco Holdings Corp. in connection with the Equity Incentive Award Plan for
Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries.
10.6 Retention Trust Agreement, dated May 13, 1998 by and between RJR Nabisco, Inc. and
Wachovia Bank, N.A.
12.1 RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends/Deficiency in the Coverage of Combined Fixed Charges and
Preferred Stock Dividends by Earnings before Fixed Charges for the six months ended
June 30, 1998.
12.2 RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to Fixed
Charges/Deficiency in the Coverage of Combined Fixed Charges by Earnings before Fixed
Charges for the six months ended June 30, 1998.
12.3 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges/Deficiency in the
Coverage of Combined Fixed Charges by Earnings before Fixed Charges for the six months
ended June 30, 1998.
27.1 RJR Nabisco Holdings Corp. Financial Data Schedule for the six months ended June 30,
1998.
27.2 RJR Nabisco, Inc. Financial Data Schedule for the six months ended June 30, 1998.
99.1 Mississippi Fee Payment Agreement, dated as of July 2, 1998, by and among Philip
Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco
Corporation and (collectively, the "Mississippi Defendants"), the State of Mississippi
("Mississippi") and Mississippi's private counsel named therein (the "Mississippi
Counsel") in connection with Moore v. The American Tobacco Company, et al.,
Mississippi Litigation No. 94-1429 (the "Mississippi Action").
99.2 Stipulation of Amendment to Settlement Agreement and for Entry of Agreed Order, dated
July 2, 1998, by and among the Mississippi Defendants, Mississippi and the Mississippi
Counsel in connection with the Mississippi Action.
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99.3 Texas Fee Payment Agreement, dated as of July 24, 1998, by and among Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation,
Lorillard Tobacco Company and United States Tobacco Company (collectively, the "Texas
Defendants"), the State of Texas ("Texas") and Texas' private counsel named therein
(the "Texas Counsel") in connection with Texas v. The American Tobacco Company, et
al., Texas Litigation No. 5-96CV-91 (the "Texas Action").
99.4 Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree,
dated July 24, 1998, by and among the Texas Defendants, Texas and the Texas private
counsel in connection with the Texas Action.
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(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: August 14, 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
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Exhibit 4.1
AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of July 27, 1998 by and among RJR Nabisco, Incorporated, a corporation duly organized and existing under the laws of the State of Delaware and having its principal office at 1301 Avenue of the Americas, New York, New York 10019 (the "Company"), Citibank, N.A., a banking corporation duly organized and existing under the laws of the United States of America and having its principal corporate trust office at 111 Wall Street, New York, New York 10043 (the "Resigning Trustee") and The Bank of New York, a New York banking corporation duly organized and existing under the laws of New York and having its principal corporate trust office at 101 Barclay Street, New York, New York 10286 (the "Successor Trustee").
RECITALS:
WHEREAS, the Notes listed on Exhibit A hereto were issued under the Amended and Restated Indenture dated as of July 24, 1995 by and between the Company and the Resigning Trustee (said Notes are hereinafter referred to as "Securities" and said Indenture is hereinafter referred to as the "Indenture");
WHEREAS, Section 6.10 of the Indenture provides that the Trustee may at any time resign by giving written notice of such resignation to the Company, effective upon the acceptance by a successor Trustee of its appointment as a successor Trustee and payment of all fees due and owing to the Resigning Trustee;
WHEREAS, Section 6.11 of the Indenture provides that any successor Trustee appointed in accordance with the Indenture shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment under the Indenture, and thereupon the resignation of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of the predecessor Trustee;
WHEREAS, the Resigning Trustee was appointed Security Registrar and Paying Agent by the Company;
WHEREAS, the Company desires to appoint Successor Trustee as Trustee, Security Registrar and Paying Agent to succeed Resigning Trustee under the Indenture; and
WHEREAS, Successor Trustee is willing to accept such appointment as successor Trustee, Security Registrar and Paying Agent under the Indenture;
NOW, THEREFORE, the Company, Resigning Trustee and Successor Trustee, for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consent and agree as follows:
ARTICLE ONE
THE RESIGNING TRUSTEE
SECTION I. Pursuant to Section 6.10 of the Indenture, Resigning Trustee hereby notifies the Company that Resigning Trustee is hereby resigning as Trustee, Security Registrar and Paying Agent under the Indenture.
SECTION II. Resigning Trustee hereby represents and warrants to Successor Trustee that:
(a) No covenant or condition contained in the Indenture has been waived by Resigning Trustee nor has of the Responsible Officers of Resigning Trustee's Corporate Trust Group, received written notice from the Holders of the percentage in aggregate principal amount of the Securities required by the Indenture to effect any such waiver.
(b) Responsible Officers of the Resigning Trustee's Corporate Trust Group have not received written notice of any action, suit or proceeding pending nor has the Responsible Officers assigned to Resigning Trustee's Corporate Trust Group, received notice of any threatened action, suit or proceeding against Resigning Trustee before any court or any governmental authority arising out of any action or omission by Resigning Trustee as Trustee under the Indenture.
(c) As of the effective date of this Agreement, Resigning Trustee will hold no property under the Indenture.
(d) Pursuant to Section 2.4 of the Indenture, Resigning Trustee duly authenticated and delivered, the securities listed on Exhibit A attached hereto on the specified dates and for the listed principal amounts outstanding;
(e) Each person who so authenticated the Securities was duly elected, qualified and acting as an officer of Resigning Trustee and empowered to authenticate the Securities at the respective times of such authentication and the signature of such person or persons appearing on such Securities is each such person's genuine signature.
(f) This Agreement has been duly authorized, executed and delivered on behalf of Resigning Trustee and constitutes its legal, valid and binding obligation.
(g) No responsible Officers of the Resigning Trustee's Corporate Trust Group, have received written notice of any event which has occurred and is continuing which is, or after notice or lapse of time would become, an Event of Default under Section 5.1 of the Indenture.
SECTION III. Upon payment of all fees due and owing to the Resigning Trustee, the Resigning Trustee hereby assigns, transfers, delivers and confirms to Successor Trustee all right, title and interest of Resigning Trustee in and to the trust under the Indenture and all the rights, powers and trusts of the Trustee under the Indenture. Resigning Trustee shall execute and deliver such further instruments and shall do such other things as Successor Trustee may reasonably require so as to more fully and certainly vest and confirm in Successor Trustee all the rights, trusts and powers hereby assigned, transferred, delivered and confirmed to Successor Trustee as Trustee, Security Registrar and Paying Agent.
SECTION IV. Resigning Trustee shall deliver to Successor Trustee, as of or immediately after the effective date hereof, all of the documents listed on Exhibit B hereto.
ARTICLE TWO
THE COMPANY
SECTION V. The Company hereby accepts the resignation of Resigning Trustee as Trustee, Security Registrar and Paying Agent under the Indenture.
SECTION VI. The Secretary or Assistant Secretary of the Company who is attesting to the execution of this Agreement by the Company hereby certifies that the Company (a) accepts Resigning Trustee's resignation as Trustee under the Indenture; (b) appoints Successor Trustee as Trustee under the Indenture; and (c) will execute and deliver such agreements and other instruments as may be necessary or desirable to effectuate the succession of Successor Trustee as Trustee under the Indenture.
SECTION VII. The Company hereby appoints Successor Trustee as Trustee, Security Registrar and Paying Agent under the Indenture to succeed to, and hereby vests Successor Trustee with, all the rights, powers, duties and obligations of Resigning Trustee under the Indenture with like effect as if originally named as Trustee in the Indenture.
SECTION VIII. Promptly after the effective date of this Agreement, the Company shall cause a notice, substantially in the form of Exhibit C annexed hereto, to be sent to each Holder of the Securities in accordance with the provisions of Section 6.10 of the Indenture.
SECTION IX. The Company hereby represents and warrants to Resigning Trustee and Successor Trustee that:
(a) The Company is a corporation duly and validly organized and existing pursuant to the laws of the State of Delaware.
(b) The Indenture was validly and lawfully executed and delivered by the Company and the Securities were validly issued by the Company.
(c) The Company has performed or fulfilled prior to the date hereof, and will continue to perform and fulfill after the date hereof, each covenant, agreement, condition, obligation and responsibility under the Indenture.
(d) No event has occurred and is continuing which is, or after notice or lapse of time would become, an Event of Default under Section 5.1 of the Indenture.
(e) No covenant or condition contained in the Indenture has been waived by Company or, to the best of Company's knowledge, by Holders of the percentage in aggregate principal amount of the Securities required to effect any such waiver.
(f) There is no action, suit or proceeding pending or, to the best of Company's knowledge, threatened against the Company before any court or any governmental authority arising out of any action or omission by Company under the Indenture.
(g) This Agreement has been duly authorized, executed and delivered on behalf of Company and constitutes its legal, valid and binding obligation.
(h) All conditions precedent relating to the appointment of The Bank of New York as successor Trustee under the Indenture have been complied with by the Company.
ARTICLE THREE
THE SUCCESSOR TRUSTEE
SECTION X. Successor Trustee hereby represents and warrants to Resigning Trustee and to the Company that:
(a) Successor Trustee is not disqualified under the provisions of Section 6.10 and is eligible under the provisions of Section 6.9 of the Indenture to act as Trustee under the Indenture.
(b) This Agreement has been duly authorized, executed and delivered on behalf of Successor Trustee and constitutes its legal, valid and binding obligation.
SECTION XI. Successor Trustee hereby accepts its appointment as successor Trustee, Security Registrar and Paying Agent under the Indenture and accepts the rights, powers, duties and obligations of Resigning Trustee as Trustee under the Indenture, upon the terms and conditions set forth therein, with like effect as if originally named as Trustee under the Indenture.
SECTION XII. References in the Indenture to "Corporate Trust Office" or other similar terms shall be deemed to refer to the Corporate Trust Office of Successor Trustee at 101 Barclay Street, New York, New York 10286 or any other office of Successor Trustee at which, at any particular time, its corporate trust business shall be administered.
ARTICLE FOUR
MISCELLANEOUS
SECTION XIII. Except as otherwise expressly provided herein or unless the context otherwise requires, all terms used herein which are defined in the Indenture shall have the meaning assigned to them in the Indenture.
SECTION XIV. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of the opening of business on July 27, 1998.
SECTION XV. Resigning Trustee hereby acknowledges payment or provision for payment in full by the Company of compensation for all services rendered by Resigning Trustee under Section 6.6 of the Indenture and reimbursement in full by the Company of the expenses, disbursements and advances incurred or made by Resigning Trustee in accordance with the provisions of the Indenture. Resigning Trustee acknowledges that it relinquishes any lien it may have upon all property or funds held or collected by it to secure any amounts due it pursuant to the provisions of Section 6.6 of the Indenture. The Company acknowledges its obligation set forth in Section 6.6 of the Indenture to continue to indemnify Resigning Trustee for, and to hold Resigning Trustee harmless against, any loss, liability and expense incurred without negligence or bad faith on the part of the Resigning Trustee and arising out of or in connection with the acceptance or administration of the trust evidenced by the Indenture (which obligation shall survive the execution hereof).
SECTION XVI. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
SECTION XVII. This Agreement may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
SECTION XVIII. The Company, Resigning Trustee and Successor Trustee hereby acknowledge receipt of an executed and acknowledged counterpart of this Agreement and the effectiveness thereof.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed and acknowledged and their respective seals to be affixed thereunto and duly attested all as of the day and year first above written.
[SEAL] RJR Nabisco, Incorporated
Attest: By:
-----------------------
-------------------------- Name:
Assistant Secretary Title:
[SEAL]
Attest: Citibank, N.A.
Resigning Trustee
By:
------------------------------
` Name:
Title:
---------------------------
Authorized Officer
[SEAL] The Bank of New York
Successor Trustee
By:________________________
Name: MaryBeth Lewicki
Attest: Title: Assistant Vice President
---------------------------
Assistant Treasurer
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EXHIBIT A
Description CUSIP No. Amount Outstanding ---------------------------- --------- ------------------ 8 1/2% Notes due 2007 74960LBF2 200,000,000.00 8 1/4% Notes due 2004 74960LBD7 150,000,000.00 8% Notes due 2001 74960LBB1 400,000,000.00 8 3/4% Notes due 2007 74960LBE5 250,000,000.00 8% Notes due 2000 74960LAZ9 60,692,000.00 8 3/4% Notes due 2005 74960LBA3 500,000,000.00 9 1/4% Debentures due 2013 74960LBC9 500,000,000.00 8.625% Note 2002 74960LAX4 875,000,000.00 7.625% Notes due 2003 74960LAY2 750,000,000.00 Medium-Term Notes ---------------------------- 7.63% due August 13, 2001 74960VAF1 362,000.00 7.375% due August 1, 2001 74960VAM6 736,000.00 6.80% due September 1, 2001 74960VAN4 2,696,000.00 7.625% due September 1,2000 74960VAP9 100,000,000.00 |
EXHIBIT B
Documents to be delivered to Successor Trustee
1. Executed copy of the Amended and Restated Indenture dated as of July 24, 1995
2. File of Closing Documents
3. Copies of the most recent of each of the SEC reports delivered by the Company pursuant to Section 4.2 of the Indenture.
4. A copy of the most recent Compliance Certificate delivered pursuant to
Section 3.5 of the Indenture.
5. Copies of any official notices sent by the Trustee to all the Holders of the Notes pursuant to the terms of the Indenture during the past twelve months and a copy of the most recent Trustee's Annual Report to Holders, if any.
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
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On the 27 day of July , 1998, before me personally came MaryBeth Lewicki to me known, who, being by me duly sworn, did depose and say that he/she resides at Staten Island, New York 10305; that she is an Assistant Vice President of THE BANK OF NEW YORK, one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
State of New York )
: ss
County of New York )
On the 27th day of July , 1998, before me personally came to me known, who, being by me duly sworn, did depose and say that he/she resides at ; that he/she is of Citibank, N.A., one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
State of New York )
: ss
City of New York )
On the 27th day of July, 1998, before me personally came to me known, who, being by me duly sworn, did depose and say that he/she resides at ; that he/she is of RJR Nabisco, Inc.one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of July 27, 1998 by and among RJR Nabisco, Inc., a corporation duly organized and existing under the laws of the State of Delaware and having its principal office at 1301 Avenue of the Americas, New York, New York 10019 (the "Company"), Citibank, N.A., a banking corporation duly organized and existing under the laws of the United States of America and having its principal corporate trust office at 111 Wall Street, New York, New York 10043 (the "Resigning Trustee") and The Bank of New York, a New York banking corporation duly organized and existing under the laws of New York and having its principal corporate trust office at 101 Barclay Street, New York, New York 10286 (the "Successor Trustee").
RECITALS:
WHEREAS, $600,000,000 aggregate principal amount of the Company's 8.75% Senior Notes due April 15, 2004 were issued under an Indenture dated as of May 18, 1992 by and between the Company and the Resigning Trustee (said Notes are hereinafter referred to as "Securities" and said Indenture is hereinafter referred to as the "Indenture");
WHEREAS, Section 5.9 of the Indenture provides that the Trustee may at any time resign by giving written notice of such resignation to the Company, effective upon the acceptance by a successor Trustee of its appointment as a successor Trustee and payment of all fees due and owing to the Resigning Trustee;
WHEREAS, Section 5.10 of the Indenture provides that any successor Trustee appointed in accordance with the Indenture shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment under the Indenture, and thereupon the resignation of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of the predecessor Trustee;
WHEREAS, the Resigning Trustee was appointed Security Registrar and Paying Agent by the Company;
WHEREAS, the Company desires to appoint Successor Trustee as Trustee, Security Registrar and Paying Agent to succeed Resigning Trustee under the Indenture; and
WHEREAS, Successor Trustee is willing to accept such appointment as successor Trustee, Security Registrar and Paying Agent under the Indenture;
NOW, THEREFORE, the Company, Resigning Trustee and Successor Trustee, for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consent and agree as follows:
ARTICLE ONE
THE RESIGNING TRUSTEE
SECTION I. Pursuant to Section 5.9 of the Indenture, Resigning Trustee hereby notifies the Company that Resigning Trustee is hereby resigning as Trustee, Security Registrar and Paying Agent under the Indenture.
SECTION II. Resigning Trustee hereby represents and warrants to Successor Trustee that:
(a) No covenant or condition contained in the Indenture has been waived by Resigning Trustee nor has of the Responsible Officers of Resigning Trustee's Corporate Trust Group, received written notice from the Holders of the percentage in aggregate principal amount of the Securities required by the Indenture to effect any such waiver.
(b) Responsible Officers of the Resigning Trustee's Corporate Trust Group have not received written notice of any action, suit or proceeding pending nor has the Responsible Officers assigned to Resigning Trustee's Corporate Trust Group, received notice of any threatened action, suit or proceeding against Resigning Trustee before any court or any governmental authority arising out of any action or omission by Resigning Trustee as Trustee under the Indenture.
(c) As of the effective date of this Agreement, Resigning Trustee will hold no property under the Indenture.
(d) Pursuant to Section 2.1 of the Indenture, Resigning Trustee duly authenticated and delivered $600,000,000 aggregate principal amount of the Securities, all of which are outstanding as of the effective date hereof.
(e) Each person who so authenticated the Securities was duly elected, qualified and acting as an officer of Resigning Trustee and empowered to authenticate the Securities at the respective times of such authentication and the signature of such person or persons appearing on such Securities is each such person's genuine signature.
(f) This Agreement has been duly authorized, executed and delivered on behalf of Resigning Trustee and constitutes its legal, valid and binding obligation.
(g) No responsible Officers of the Resigning Trustee's Corporate Trust Group, have received written notice of any event which has occurred and is continuing which is, or after notice or lapse of time would become, an Event of Default under Section 4.1 of the Indenture.
SECTION III. Upon payment of all fees due and owing to the Resigning Trustee, the Resigning Trustee hereby assigns, transfers, delivers and confirms to Successor Trustee all right, title and interest of Resigning Trustee in and to the trust under the Indenture and all the rights, powers and trusts of the Trustee under the Indenture. Resigning Trustee shall execute and deliver such further instruments and shall do such other things as Successor Trustee may reasonably require so as to more fully and certainly vest and confirm in Successor Trustee all the rights, trusts and powers hereby assigned, transferred, delivered and confirmed to Successor Trustee as Trustee, Security Registrar and Paying Agent.
SECTION IV. Resigning Trustee shall deliver to Successor Trustee, as of or immediately after the effective date hereof, all of the documents listed on Exhibit A hereto.
ARTICLE TWO
THE COMPANY
SECTION V. The Company hereby accepts the resignation of Resigning Trustee as Trustee, Security Registrar and Paying Agent under the Indenture.
SECTION VI. The Secretary or Assistant Secretary of the Company who is attesting to the execution of this Agreement by the Company hereby certifies that the Company (a) accepts Resigning Trustee's resignation as Trustee under the Indenture; (b) appoints Successor Trustee as Trustee under the Indenture; and (c) will execute and deliver such agreements and other instruments as may be necessary or desirable to effectuate the succession of Successor Trustee as Trustee under the Indenture.
SECTION VII. The Company hereby appoints Successor Trustee as Trustee, Security Registrar and Paying Agent under the Indenture to succeed to, and hereby vests Successor Trustee with, all the rights, powers, duties and obligations of Resigning Trustee under the Indenture with like effect as if originally named as Trustee in the Indenture.
SECTION VIII. Promptly after the effective date of this Agreement, the Company shall cause a notice, substantially in the form of Exhibit B annexed hereto, to be sent to each Holder of the Securities in accordance with the provisions of Section 5.10 of the Indenture.
SECTION IX. The Company hereby represents and warrants to Resigning Trustee and Successor Trustee that:
(a) The Company is a corporation duly and validly organized and existing pursuant to the laws of the State of Delaware.
(b) The Indenture was validly and lawfully executed and delivered by the Company and the Securities were validly issued by the Company.
(c) The Company has performed or fulfilled prior to the date hereof, and will continue to perform and fulfill after the date hereof, each covenant, agreement, condition, obligation and responsibility under the Indenture.
(d) No event has occurred and is continuing which is, or after notice or lapse of time would become, an Event of Default under Section 4.1 of the Indenture.
(e) No covenant or condition contained in the Indenture has been waived by Company or, to the best of Company's knowledge, by Holders of the percentage in aggregate principal amount of the Securities required to effect any such waiver.
(f) There is no action, suit or proceeding pending or, to the best of Company's knowledge, threatened against the Company before any court or any governmental authority arising out of any action or omission by Company under the Indenture.
(g) This Agreement has been duly authorized, executed and delivered on behalf of Company and constitutes its legal, valid and binding obligation.
(h) All conditions precedent relating to the appointment of The Bank of New York as successor Trustee under the Indenture have been complied with by the Company.
ARTICLE THREE
THE SUCCESSOR TRUSTEE
SECTION X. Successor Trustee hereby represents and warrants to Resigning Trustee and to the Company that:
(a) Successor Trustee is not disqualified under the provisions of Section 5.9 and is eligible under the provisions of Section 5.8 of the Indenture to act as Trustee under the Indenture.
(b) This Agreement has been duly authorized, executed and delivered on behalf of Successor Trustee and constitutes its legal, valid and binding obligation.
SECTION XI. Successor Trustee hereby accepts its appointment as successor Trustee, Security Registrar and Paying Agent under the Indenture and accepts the rights, powers, duties and obligations of Resigning Trustee as Trustee under the Indenture, upon the terms and conditions set forth therein, with like effect as if originally named as Trustee under the Indenture.
SECTION XII. References in the Indenture to "Corporate Trust Office" or other similar terms shall be deemed to refer to the Corporate Trust Office of Successor Trustee at 101 Barclay Street, New York, New York 10286 or any other office of Successor Trustee at which, at any particular time, its corporate trust business shall be administered.
ARTICLE FOUR
MISCELLANEOUS
SECTION XIII. Except as otherwise expressly provided herein or unless the context otherwise requires, all terms used herein which are defined in the Indenture shall have the meaning assigned to them in the Indenture.
SECTION XIV. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of the opening of business on July 27, 1998.
SECTION XV. Resigning Trustee hereby acknowledges payment or provision for payment in full by the Company of compensation for all services rendered by Resigning Trustee under Section 5.6 of the Indenture and reimbursement in full by the Company of the expenses, disbursements and advances incurred or made by Resigning Trustee in accordance with the provisions of the Indenture. Resigning Trustee acknowledges that it relinquishes any lien it may have upon all property or funds held or collected by it to secure any amounts due it pursuant to the provisions of Section 5.6 of the Indenture. The Company acknowledges its obligation set forth in Section 5.6 of the Indenture to continue to indemnify Resigning Trustee for, and to hold Resigning Trustee harmless against, any loss, liability and expense incurred without negligence or bad faith on the part of the Resigning Trustee and arising out of or in connection with the acceptance or administration of the trust evidenced by the Indenture (which obligation shall survive the execution hereof).
SECTION XVI. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
SECTION XVII. This Agreement may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
SECTION XVIII. The Company, Resigning Trustee and Successor Trustee hereby acknowledge receipt of an executed and acknowledged counterpart of this Agreement and the effectiveness thereof.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed and acknowledged and their respective seals to be affixed thereunto and duly attested all as of the day and year first above written.
[SEAL] RJR Nabisco, Inc.
Attest: By:
------------------------
__________________________ Name:
Assistant Secretary Title:
[SEAL]
Attest: Citibank, N.A.
Resigning Trustee
By:
------------------------------
Name:
Title:
---------------------------
Authorized Officer
[SEAL] The Bank of New York
Successor Trustee
By:
------------------------
Name: MaryBeth Lewicki
Attest: Title: Assistant Vice President
---------------------------
Assistant Treasurer
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EXHIBIT A
Documents to be delivered to Successor Trustee
1. Executed copy of the Amended and Restated Indenture dated as of May 18, 1992
2. File of Closing Documents
3. Copies of the most recent of each of the SEC reports delivered by the Company pursuant to Section 3.7 of the Indenture.
4. A copy of the most recent Compliance Certificate delivered pursuant to
Section 3.5 of the Indenture.
5. Copies of any official notices sent by the Trustee to all the Holders of the Notes pursuant to the terms of the Indenture during the past twelve months and a copy of the most recent Trustee's Annual Report to Holders, if any.
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
|
On the 27 day of July , 1998, before me personally came MaryBeth Lewicki to me known, who, being by me duly sworn, did depose and say that he/she resides at Staten Island, New York 10305; that she is an Assistant Vice President of THE BANK OF NEW YORK, one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
State of New York )
: ss
County of New York )
On the 27th day of July , 1998, before me personally came to me known, who, being by me duly sworn, did depose and say that he/she resides at ; that he/she is of Citibank, N.A., one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
State of New York )
: ss
City of New York )
On the 27th day of July, 1998, before me personally came to me known, who, being by me duly sworn, did depose and say that he/she resides at ; that he/she is of RJR Nabisco, Incorporated, one of the corporations described in and which executed the above instrument; that he/she knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the authority of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like authority.
Exhibit 10.1
EIGHTH AMENDMENT TO THE 364 DAY CREDIT AGREEMENT
EIGHTH AMENDMENT (this "Amendment"), dated as of April 3, 1998, among RJR NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), RJR NABISCO, INC., a Delaware corporation (the "Borrower") and the lending institutions party to the Credit Agreement referred to below (the "Banks"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower and the Banks are parties to a Credit Agreement, dated as of April 28, 1995 (as amended, modified and supplemented to the date hereof, the "Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendment to Credit Agreement.
1. Effective June 1, 1998, the definition of "Measurement Date" appearing in Section 10 of the Credit Agreement shall be amended to read in its entirety as follows:
"Measurement Date" shall mean June 1, 1998.
II. Conditions Precedent to Amendment Effective Date.
1. This Amendment shall become effective on June 1, 1998 (the "Amendment Effective Date"), so long as each of the following conditions shall have been met to the satisfaction of the Senior Managing Agents on or prior to the Amendment Effective Date:
(a) Execution of Amendment. On or prior to the Amendment Effective Date, Holdings, the Borrower and each of the Banks shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of
facsimile transmission) the same to the Payments Administrator at the Payments Administrator's Office.
(b) No Default; Representations and Warranties. On the Amendment Effective Date, both before and after giving effect to this Amendment, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained in the Credit Agreement and in the other Credit Documents shall be true and correct in all material respects.
III. General Provisions
1. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document.
2. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings and the Payments Administrator.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
Exhibit 10.2
SIXTH AMENDMENT TO THE 3 YEAR CREDIT AGREEMENT
NINTH AMENDMENT TO THE 364 DAY CREDIT AGREEMENT
SIXTH AMENDMENT, dated as of June 8, 1998, among RJR NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), RJR NABISCO, INC., a Delaware corporation (the "Borrower"), and the lending institutions party to the 3 Year Credit Agreement referred to below and NINTH AMENDMENT, dated as of June 8, 1998, among Holdings, the Borrower and the lending institutions party to the 364 Day Credit Agreement referred to below (collectively, the "Amendment"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the respective Credit Agreements (as defined below).
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower and various lending institutions (the "3 Year Banks") are parties to a Credit Agreement, dated as of April 28, 1995, with respect to initial Commitments aggregating $2,750,000,000 on such date (as in effect on the date hereof, the "3 Year Credit Agreement");
WHEREAS, Holdings, the Borrower and various lending institutions (the "364 Day Banks" and, together with the 3 Year Banks, the "Banks") are parties to a Credit Agreement, dated as of April 28, 1995, with respect to initial Commitments aggregating $750,000,000 on such date (as in effect on the date hereof, the "364 Day Credit Agreement" and, together with the 3 Year Credit Agreement, the "Credit Agreements");
WHEREAS, Holdings, the Borrower and the 3 Year Banks wish to enter into the agreements with respect to the 3 Year Credit Agreement as herein provided; and
WHEREAS, Holdings, the Borrower and the 364 Day Banks wish to enter into the agreements with respect to the 364 Day Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to the 3 Year Credit Agreement.
1. Section 8.07 of the 3 Year Credit Agreement is hereby amended by deleting said Section in its entirety and inserting the following new Section 8.07 in lieu thereof:
"8.07 Consolidated Net Worth. Holdings will not permit Consolidated Net Worth as of the end of any Test Period to be less than $6,700,000,000."
2. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 3 Year Credit Agreement is hereby amended by (x) deleting the
word "and" appearing at the
end of clause (vii) of the proviso contained therein and inserting a comma in lieu thereof and (y) inserting the following new clause (ix) at the end of said definition:
"and (ix) Adjusted Operating Income shall be adjusted by adding thereto the amount of all expenses accrued by Holdings and its Subsidiaries during any Test Period pursuant to (i) the settlement agreements, dated on or about May 8, 1998, among R.J. Reynolds Tobacco Company, certain other tobacco companies, the State of Minnesota, BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota and the plaintiffs' attorneys in The State of Minnesota and Blue Shield of Minnesota vs. Philip Morris Incorporated, et al. and (ii) the Florida, Mississippi and Texas settlement agreements referred to in clauses (v)(x), (v)(y) and (viii), respectively, of this definition, to the extent (and only to the extent) (I) the aggregate amount of all payments made by Holdings and its Subsidiaries pursuant to the aforementioned agreements (and for which an adjustment to Adjusted Operating Income is made) does not exceed $449,000,000 and (II) the amount of such payments are deducted in any determination of Adjusted Operating Income."
3. The definition of "Senior Managing Agent" appearing in Section 10 of the 3 Year Credit Agreement is hereby amended by inserting the text ", Credit Lyonnais" immediately after the word "Citibank" appearing in said definition.
4. The definition of "Swingline Lender" appearing in Section 10 of the 3 Year Credit Agreement is hereby amended by inserting the text ", Credit Lyonnais" immediately after the word "Citibank" appearing in said definition.
5. Section 10 of the 3 Year Credit Agreement is hereby amended by inserting the following definition in the appropriate alphabetical order:
"Credit Lyonnais" shall mean Credit Lyonnais and any successor corporation by merger, consolidation or otherwise.
6. The Banks hereby irrevocably designate and appoint Credit Lyonnais as a "Senior Managing Agent" of the Banks to act as specified in the 3 Year Credit Agreement and in the other Credit Documents and hereby irrevocably authorize Credit Lyonnais, as the Senior Managing Agent for such Banks, to take such actions on its behalf under the provisions of the 3 Year Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Senior Managing Agents by the terms of the 3 Year Credit Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Banks, BTCo, Chase, Citibank, Fuji, Holdings and the Borrower hereby acknowledge that upon the assumption of Credit Lyonnais' proportionate share of the Swingline Commitment from the existing Swingline Lenders, Credit Lyonnais shall have all of the rights, powers and duties of a Senior Managing Agent under the 3 Year Credit Agreement and shall be a "Senior Managing Agent" for all purposes of the 3 Year Credit Agreement.
II. Amendments to the 364 Day Credit Agreement.
1. Section 8.07 of the 364 Day Credit Agreement is hereby amended by deleting said Section in its entirety and by inserting the following new Section 8.07 in lieu thereof:
"8.07 Consolidated Net Worth. Holdings will not permit Consolidated Net Worth as of the end of any Test Period to be less than $6,700,000,000."
2. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 364 Day Credit Agreement is hereby amended by (x) deleting the
word "and" appearing at the end of clause (vii) of the proviso contained therein
and inserting a comma in lieu thereof and (y) inserting the following new clause
(ix) at the end of said definition:
"and (ix) Adjusted Operating Income shall be adjusted by adding thereto the
amount of all expenses accrued by Holdings and its Subsidiaries during any
Test Period pursuant to (i) the settlement agreements, dated on or about
May 8, 1998, among R.J. Reynolds Tobacco Company, certain other tobacco
companies, the State of Minnesota, BCBSM, Inc., d/b/a Blue Cross and Blue
Shield of Minnesota and the plaintiffs' attorneys in The State of Minnesota
and Blue Shield of Minnesota vs. Philip Morris Incorporated, et al. and
(ii) the Florida, Mississippi and Texas settlement agreements referred to
in clauses (v)(x), (v)(y) and (viii), respectively, of this definition, to
the extent (and only to the extent) (I) the aggregate amount of all
payments made by Holdings and its Subsidiaries pursuant to the
aforementioned agreements (and for which an adjustment to Adjusted
Operating Income is made) does not exceed $449,000,000 and (II) the amount
of such payments are deducted in any determination of Adjusted Operating
Income."
3. The definition of "Senior Managing Agent" appearing in Section 10 of the 364 Day Credit Agreement is hereby amended by inserting the text ", Credit Lyonnais" immediately after the word "Citibank" appearing in said definition.
4. The definition of "Swingline Lender" appearing in Section 10 of the 364 Day Credit Agreement is hereby amended by inserting the text ", Credit Lyonnais" immediately after the word "Citibank" appearing in said definition.
5. Section 10 of the 364 Day Credit Agreement is hereby amended by inserting the following definition in the appropriate alphabetical order:
"Credit Lyonnais" shall mean Credit Lyonnais and any successor corporation by merger, consolidation or otherwise.
6. The Banks hereby irrevocably designate and appoint Credit Lyonnais as a "Senior Managing Agent" of the Banks to act as specified in the 364 Day Credit Agreement and in the other Credit Documents and hereby irrevocably authorize Credit Lyonnais, as the Senior Managing Agent for such Banks, to take such actions on its behalf under the provisions of the 364 Day Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Senior Managing Agents by the terms of the 364 Day Credit Agreement and the other Credit Documents, together with such other powers
as are reasonably incidental thereto. The Banks, BTCo, Chase, Citibank, Fuji, Holdings and the Borrower hereby acknowledge that on and after the Amendment Effective Date Credit Lyonnais shall have all of the rights, powers and duties of a Senior Managing Agent under the 364 Day Credit Agreement and shall be a "Senior Managing Agent" for all purposes of the 364 Day Credit Agreement.
III. Miscellaneous Provisions.
1. In order to induce the Banks to enter into this Amendment, each Credit Party hereby (i) makes each of the representations, warranties and agreements contained in Section 6 of each Credit Agreement and (ii) represents and warrants that there exists no Default or Event of Default, in each case on the date hereof and on the Amendment Effective Date, both before and after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of either Credit Agreement or any other Credit Document (as defined in each Credit Agreement).
3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings and the Payments Administrator.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
5. This Amendment shall become effective as of the date first written above on the date (the "Amendment Effective Date") when (A)(i) each of the Credit Parties, (ii) 3 Year Banks constituting Required Banks under the 3 Year Credit Agreement and (iii) 364 Day Banks constituting Required Banks under the 364 Day Credit Agreement, shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of facsimile transmission) the same to White & Case, 1155 Avenue of the Americas, New York, New York 10036, Attention: Jacquiline Lawrence, Esq. (Facsimile No.: (212) 354-8113) and (B) each of the 3 Year Banks and the 364 Day Banks which shall have signed and delivered a copy of this Amendment prior to June 19, 1998 in accordance with clause (A) above shall have received an amendment fee equal to 1/10 of 1% on the sum of (x) the Commitment (as defined in the 3 Year Credit Agreement) of such Bank as in effect on such date plus (y) the Commitment (as defined in the 364 Day Credit Agreement) of such Bank as in effect on such date. After transmitting its executed signature page to White & Case as provided above, each of the Banks shall deliver executed hard copies of this Amendment to White & Case, Attention: Jacqueline Lawrence at the address provided above.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
ABN AMRO BANK N.V.,
NEW YORK BRANCH
ARAB BANK PLC--GRAND CAYMAN BRANCH
BANCA COMMERCIALE ITALIANA
NEW YORK BRANCH
BANCA DI ROMA--NEW YORK BRANCH
BANCO CENTRAL HISPANOAMERICANO, S.A.
--NEW YORK BRANCH
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.,
NEW YORK BRANCH
Title:
BANKERS TRUST COMPANY
THE BANK OF AMERICA NT & SA
THE BANK OF NOVA SCOTIA
THE BANK OF NEW YORK
PARIBAS
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE--CAYMAN ISLANDS BRANCH
BAYERISCHE VEREINSBANK AG
NEW YORK BRANCH
THE CHASE MANHATTAN BANK
CANADIAN IMPERIAL BANK OF COMMERCE
CITIBANK, N.A.
CREDIT LYONNAIS--NEW YORK
BRANCH
CREDIT SUISSE FIRST BOSTON
(Formerly known as Credit Suisse)
CREDITO ITALIANO
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCH
THE DAI-ICHI KANGYO BANK,
LIMITED, NEW YORK BRANCH
THE FIRST NATIONAL BANK OF CHICAGO
THE FUJI BANK, LIMITED
GULF INTERNATIONAL BANK B.S.C.
MIDLAND BANK PLC- NEW YORK BRANCH
By
KBC Bank N.V.
Title:
KREDIETBANK N.V.
By
LTCB TRUST COMPANY
By
By
THE MITSUBISHI TRUST & BANKING
CORPORATION, NEW YORK BRANCH
By
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED--NEW YORK BRANCH
NATIONSBANK, N.A.
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
THE SAKURA BANK, LTD.
THE SANWA BANK LIMITED- NEW YORK BRANCH
By
STANDARD CHARTERED BANK
STANDARD CHARTERED BANK
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
SUMITOMO BANK OF CALIFORNIA
THE TOKAI BANK, LIMITED
THE TOYO TRUST & BANKING CO.,
LTD. - NEW YORK BRANCH
UNION BANK OF SWITZERLAND
VIA BANQUE
WACHOVIA BANK OF GEORGIA, N.A.
WESTDEUTSCHE LANDESBANK
YASUDA TRUST & BANKING COMPANY, LTD.
THE ASAHI BANK, LTD.--NEW YORK BRANCH
BANCA CASSA di RISPARMIO di TORINO--
NEW YORK BRANCH
BANK OF AMERICA ILLINOIS
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY--NEW YORK BRANCH
THE CHUO TRUST & BANKING CO., LTD--
NEW YORK BRANCH BRANCH
FIRST UNION CAPITAL MARKETS GROUP
THE HOKKAIDO TAKUSHOKU BANK, LTD.
THE INDUSTRIAL BANK OF JAPAN, LTD.
By
ING BANK
ISTITUTO BANCARIO SAN PAOLO di TORINO--
NEW YORK BRANCH
LEHMAN COMMERCIAL PAPER INC.
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
--NEW YORK BRANCH
MORGAN GUARANTY TRUST COMPANY
THE NORINCHUKIN BANK--NEW YORK BRANCH
THE NORTHERN TRUST COMPANY
ROBOBANK NEDERLAND--NEW YORK BRANCH
THE ROYAL BANK OF CANADA--NEW YORK BRANCH
ROYAL BANK OF SCOTLAND--NEW YORK BRANCH
SBC WARBURG
SOCIETE GENERALE--NEW YORK BRANCH
THE TORONTO-DOMINION BANK
U.S. BANK OF OREGON
THE ROYAL BANK OF SCOTLAND--
NEW YORK BRANCH
FIRST BANK, N.A.
HSBC CORPORATE BANKING
FIRST CHICAGO CAPITAL MARKETS
BZW
THE FIRST NATIONAL BANK OF CHICAGO
Title:
Exhibit 10.3
FIRST AMENDMENT TO THE 5 YEAR CREDIT AGREEMENT
SECOND AMENDMENT TO THE 364 DAY CREDIT AGREEMENT
AMENDMENT (this "Amendment"), dated as of May 19, 1998, among NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), NABISCO, INC., a New Jersey corporation (the "Borrower"), and the lending institutions party to the 5 Year Credit Agreement referred to below and the 364 Day Credit Agreement referred to below. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the 5 Year Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower and various lending institutions (the "5 Year Banks") are parties to a Credit Agreement, dated as of October 31, 1996 (as amended, modified and supplemented to the date hereof, the "5 Year Credit Agreement");
WHEREAS, Holdings, the Borrower and various lending institutions (the "364 Day Banks", and together with the 5 Year Banks, the "Banks") are parties to a Credit Agreement, dated as of October 31, 1996 (the "364 Day Credit Agreement" and, together with the 5 Year Credit Agreement, the "Credit Agreements");
WHEREAS, Holdings, the Borrower and the 5 Year Banks wish to enter into the amendments with respect to the 5 Year Credit Agreement as herein provided;
WHEREAS, Holdings, the Borrower and the 364 Day Banks wish to enter into the amendments with respect to the 364 Day Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to the 5 Year Credit Agreement.
1. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 5 Year Credit Agreement shall be amended by (a) deleting the
word "and" appearing at the end of clause (i) of the proviso contained therein
and inserting a comma in lieu thereof and (b) inserting at the end of such
definition, immediately following clause (ii) thereof, the following new clause
(iii):
"and (iii) for all purposes, for any period ending on or before December 31, 2000, there shall be excluded in determining Adjusted Operating
Income any portion of the 1998 Charge which reduced the consolidated operating income of Holdings and its Subsidiaries for such period.
2. The definition of "Consolidated Net Worth" appearing in Section 10 of the 5 Year Credit Agreement shall be amended by inserting the following after the third appearance of the word "date" therein:
"plus any 1998 Charge deducted in determining Consolidated Net Worth of Holdings as of such date".
3. The definition of "Cumulative Consolidated Net Income" appearing in
Section 10 of the 5 Year Credit Agreement shall be amended by inserting at the
end of such definition, immediately following clause (iii) thereof, the
following:
"plus (iv) any 1998 Charge deducted in determining Consolidated Net Income of Holdings for the period referred to in clause (i) above".
4. Section 10 of the 5 Year Credit Agreement is hereby amended by inserting the following new definition in appropriate alphabetical order:
"1998 Charge" shall mean (i) certain restructuring expenses and related costs and expenses and (ii) certain losses incurred in connection with the sale of any branch or line of business not a part of the Nabisco Biscuit Division, to the extent that the aggregate amount of all costs, expenses and losses described in clauses (i) and (ii) above do not exceed $600,000,000 and are recorded or accrued during Holdings' 1998 or 1999 fiscal year.
II. Amendments to the 364 Day Credit Agreement.
1. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 364 Day Credit Agreement shall be amended by (a) deleting the
word "and" appearing at the end of clause (i) of the proviso contained therein
and inserting a comma in lieu thereof and (b) inserting at the end of such
definition, immediately following clause (ii) thereof, the following new clause
(iii):
"and (iii) for all purposes, for any period ending on or before December 31, 2000, there shall be excluded in determining Adjusted Operating Income any portion of the 1998 Charge which reduced the consolidated operating income of Holdings and its Subsidiaries for such period".
2. The definition of "Consolidated Net Worth" appearing in Section 10 of the 364 Day Credit Agreement shall be amended by inserting the following after the third appearance of the word "date" therein:
"plus any 1998 Charge deducted in determining Consolidated Net Worth of Holdings as of such date".
3. The definition of "Cumulative Consolidated Net Income" appearing in
Section 10 of the 364 Day Credit Agreement shall be amended by inserting at the
end of such definition, immediately following clause (iii) thereof, the
following:
"plus (iv) any 1998 Charge deducted in determining Consolidated Net Income of Holdings for the period referred to in clause (i) above".
4. Section 10 of the 364 Day Credit Agreement is hereby amended by inserting the following new definition in appropriate alphabetical order:
"1998 Charge" shall mean (i) certain restructuring expenses and related costs and expenses and (ii) certain losses incurred in connection with the sale of any branch or line of business not a part of the Nabisco Biscuit Division, to the extent that the aggregate amount of all costs, expenses and losses described in clauses (i) and (ii) above do not exceed $600,000,000 and are recorded or accrued during Holdings' 1998 or 1999 fiscal year.
III. Miscellaneous Provisions
1. In order to induce the Banks to enter into this Amendment, each Credit Party hereby (i) makes each of the representations, warranties and agreements contained in Section 6 of each Credit Agreement and (ii) represents and warrants that there exists no Default or Event of Default (as defined in each Credit Agreement), in each case on the Amendment Date (as defined below), both before and after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of either Credit Agreement or any other Credit Document (as defined in each Credit Agreement).
3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings and the Payments Administrator.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
5. This Amendment shall become effective as of the date first written
above on the date (the "Amendment Date") when (i) each of the Credit Parties,
(ii) 5 Year Banks constituting Required Banks under the 5 Year Credit Agreement
and (iii) 364 Day Banks constituting Required Banks under the 364 Day Credit
Agreement, shall have signed a copy hereof (whether the same or different
copies) and shall have delivered (including by way of facsimile transmission)
the same to White & Case, 1155 Avenue of the Americas, New York, New York 10036,
Attention: Ms. Jacquiline Lawrence (Facsimile No.: (212) 354-8113).
* * *
Director's
DSU
1998
RJR NABISCO HOLDINGS CORP.
EQUITY INCENTIVE AWARD PLAN FOR
DIRECTORS AND KEY EMPLOYEES
OF RJR NABISCO HOLDINGS CORP.
AND SUBSIDIARIES
DEFERRED STOCK UNIT AGREEMENT
DATE OF GRANT: MAY 13, 1998
W I T N E S S E T H:
1. Grant. Pursuant to the provisions of the Equity Incentive Award Plan For Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to
FIRSTNAME LASTNAME (the "Grantee"),
subject to the terms and conditions which follow and the terms and conditions of the Plan, a Grant of
STOCK_OPTION Deferred Stock Units.
A copy of the Plan is attached and made a part of this agreement with the same effect as if set forth in the Agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning.
2. Value of Deferred Stock Units. Each Deferred Stock Unit shall be equal in value to one share of Common Stock.
3. Dividends. As of the date any dividend is paid to shareholders of Common Stock, the Grantee shall be credited with additional Deferred Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the closing price of Common Stock on such date with the dividend paid on the number of shares of Common Stock to which the Grantee's Deferred Stock Units are then equivalent. In case of dividends paid in property, the dividend shall be deemed to be the fair market value of the property at the time of distribution of the dividend, as determined by the Committee.
4. Payment of Deferred Stock Units.
(a) Unless a Grantee has elected to receive installment payments as provided below, payment of a Grantee's Deferred Stock Units shall be made in one lump-sum as soon as practicable following the end of the year in which the Grantee ceases to be a Director.
At the election of the Grantee made in writing and delivered to the Committee at any time on or before December 1 of the year of termination of the Grantee's service as a Director, distribution of all of his or her Deferred Stock Units, commencing as soon as practicable following the end of the year in which the Grantee ceases to be a Director, shall be made in any number of annual installments not exceeding ten. Any such election, unless made irrevocable by its terms, may be changed by written notice to the Committee at any time prior to December 1 of the year of a Grantee's termination of service as a Director.
(b) Distribution of a Grantee's Deferred Stock Units shall be made in cash. The amount of distribution shall be determined by multiplying the number of Deferred Stock Units attributable to the installment by the average of the closing price in Common Stock on each business day in the month of December immediately prior to the year in which the installment is to be paid.
(c) In the event a Grantee has elected to receive distribution of his or her Deferred Stock Units in more than one installment, the amount of each installment shall be determined by multiplying the remaining number of Deferred Stock Units by a fraction, the numerator of which is one, and the denominator of which is the number of installments yet to be paid.
5. Transferability. Other than as specifically provided in the Plan with regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee.
6. Consideration to the Company. In consideration of the Grant by the Company, the Grantee agrees to render faithful and efficient services to the Company, with such duties and responsibilities as the Company shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Grantee any right to continue in the service of the Company or any Subsidiary as a director or in any other capacity or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries and their respective shareholders, which are hereby expressly reserved, in connection with the removal of the Grantee from the Board of Directors of the Company or any Subsidiary at any time for any reason whatsoever, with or without cause, subject to applicable law and the relevant certificate of incorporation and bylaws.
7. Adjustments in Deferred Stock Units. In the event that the outstanding shares of the Common Stock subject to the Grant 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 Grant, shall be equivalent. Any adjustment made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons.
8. Application of Laws. The Grant and the obligations of the Company hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to be withheld by the Company on the grant or payment of Deferred Stock Units shall be paid to the Company before payment of the Deferred Stock Units is made to the Grantee.
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 Grantee shall be sent to the Grantee's address as shown on the records of the Company.
11. 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.
12. Other Provisions.
(a) Titles are provided herein for convenience only and are not to
serve as a basis for interpretation of the Agreement.
(b) This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement.
(c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the 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:
Director's Option 1998-Annual
RJR NABISCO HOLDINGS CORP.
EQUITY INCENTIVE AWARD PLAN FOR DIRECTORS AND KEY EMPLOYEES
OF RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES
DATE OF GRANT: May 13, 1998
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the Equity Incentive Award Plan for Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has granted to
FIRSTNAME LASTNAME (the "Optionee"),
subject to the terms and conditions which follow and the terms and conditions of the Plan, the right and option to exercise from the Company a total of
STOCK_OPTION shares
of Common Stock, par value $.01 per share, of the Company, at the exercise price of $27.438 per share (the "Option"). A copy of the Plan is attached and made a part of this Agreement with same effect as if set forth in the Agreement itself. All capitalized terms used herein shall have the meaning set forth in the Plan, unless the context requires a different meaning.
2. Exercise of Option.
(a) Shares may be purchased by giving the Corporate Secretary of the Company written notice of exercise, on a form prescribed by the Company, specifying the number of whole shares to be purchased. The notice of exercise shall be accompanied by:
(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; together with payment for taxes pursuant to Section 9 herein; or
(ii) the unsecured, demand borrowing by the Optionee from the Company on an open account maintained solely for this purpose in the amount of the full exercise price together with the instruction from the Optionee to sell the shares exercised on the open market through a duly registered broker-dealer with which the Company makes an arrangement for the sale of such shares under the Plan. This method is known as the "broker-dealer exercise method" and is subject to the terms and conditions set forth herein, in the Plan and in guidelines established by the Committee. The Option shall be deemed to be exercised simultaneously with the sale of the shares by the broker-dealer. If the shares purchased upon the exercise of an Option or a portion thereof cannot be sold for a price equal to or greater than the full exercise price plus direct costs of the sales, then there is no exercise of the Option. Election of this method authorizes the Company to deliver shares to the broker-dealer and authorizes the broker-dealer to sell said shares on the open market. The broker-dealer will remit proceeds of the sale to the Company which will remit net proceeds to the Optionee after repayment of the borrowing, deduction of costs, if any, and withholding of taxes. The Optionee's borrowing from the Company on an open account shall be a personal obligation of the Optionee which shall bear interest at the published Applicable Federal Rate (AFR) for short-term loans and shall be payable upon demand by the Company. Such borrowing may be authorized by telephone or other telecommunications acceptable to the Company. Upon such borrowing and the exercise of the Option or portion thereof, title to the shares shall pass to the Optionee whose election hereunder shall constitute instruction to the Company to register the shares in the name of the broker-dealer or its nominee. The Company reserves the right to discontinue this broker-dealer exercise method at any time for any reason whatsoever. The Optionee agrees that if this broker-dealer exercise method under this paragraph is used, the Optionee promises unconditionally to pay the Company the full balance in his open account at any time upon demand. Optionee also agrees to pay interest on the account balance at the AFR for short-term loans from and after demand.
(b) This Option shall be exercisable in three installments. The first installment shall be exercisable on the first anniversary following Date of Grant for 33% of the number of shares of Common Stock subject to this option. Thereafter, on each subsequent anniversary, an installment shall become exercisable for 33% and 34%, respectively, of the number of shares subject to this Option until the Option has become fully exercisable. To the extent that any of the above installments is not exercised when it becomes exercisable, it shall not expire, but shall continue to be exercisable at any time thereafter until this Option shall terminate, expire or be surrendered. An exercise shall be for whole shares only.
(c) This Option shall not be exercisable prior to six months after the Date of Grant.
(d) If any shares of the Common Stock are to be disposed of in accordance with Rule 144 under the Securities Act of 1933 or otherwise, the Optionee shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to the Company an executed copy of any notice on Form 144 required to be filed with the SEC.
3. Rights in the Event of Resignation or Non-Election to the Board. Except as may be otherwise provided in this Section 3, after the Optionee's resignation or non-election to the Board of Directors of the Company (the "Board"), the Option shall not become exercisable as to any shares in addition to those already exercisable pursuant to the schedule described in Section 2(b). Notwithstanding the foregoing, if a non-election of the Optionee to the Board is due to death or Permanent Disability (as defined in the Company's Long Term Disability Plan), the Option shall immediately become exercisable as to all shares.
4. Expiration of Option. The Option shall expire or terminate and may not be exercised to any extent by the Optionee after the tenth anniversary of the Date of Grant.
5. Transferability. Other than as specifically provided with regard to the death of the Optionee, this 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. Consideration to the Company. In consideration of the granting of this Option by the Company, the Optionee agrees to render faithful and efficient services to the Company, with such duties and responsibilities as shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the service of the Company or any Subsidiary as a director or in any other capacity or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries and their respective shareholders, which are hereby expressly reserved, in connection with the removal of the Optionee from the Board of Directors of the Company or any Subsidiary at any time for any reason whatsoever, with or without cause, subject to applicable law and the relevant certificate of incorporation and bylaws.
7. Adjustments in Option. In the event that the outstanding shares of the Common Stock subject to the Option are, from time to time, changed into or exchanged
for a different number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares, or otherwise, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares or other consideration as to which the Option, or portions thereof then unexercised, shall be exercisable. Any adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons.
8. Application of Laws. The granting and the exercise of this Option and the obligations of the Company to sell and deliver shares hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to be withheld by the Company 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. 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.
12. Other Provisions.
(a) Titles are provided herein for convenience only and are not to serve as a basis for interpretation of the Agreement.
(b) This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement.
(c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Optionee have executed this Agreement as of the date of Grant first above written.
RJR NABISCO HOLDINGS CORP.
Optionee's Taxpayer Identification Number:
Exhibit 10.6
RETENTION TRUST AGREEMENT
(a) This Agreement made this 13th day of May, 1998 by and between RJR Nabisco, Inc. ("RJRN") and Wachovia Bank, N.A. ("Trustee");
(b) Whereas the Boards of Directors of RJRN and RJR Nabisco Holdings Corp. (the "Board") have determined that it is desirable and appropriate for RJRN to establish and maintain a program to retain certain key personnel of RJRN and certain of its subsidiaries;
(c) WHEREAS, in furtherance of the foregoing, the Board has authorized RJRN to establish a trust (hereinafter called "Trust") and to contribute to the Trust assets that shall be held therein, until paid to employees of RJRN, R.J. Reynolds Tobacco Company ("RJR") and/or their subsidiaries in such manner and at such times as specified in Appendix A (such payments, the "Payments" and such employees (or the personal representatives of their estates), the "Trust beneficiaries");
(d) WHEREAS, it is the intention of RJRN to make contributions to the Trust to provide a source of funds from which the Payments will be made;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) RJRN hereby deposits with Trustee in trust one-hundred dollars and zero cents ($100.00), which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established by RJRN is irrevocable.
(c) The principal of the Trust and any earnings thereon shall be used exclusively for the Payments as herein provided and for the payment of such other amounts as are expressly provided herein.
(d) RJRN and any of its parent or subsidiaries, in its or their sole discretion, may at any time, or from time to time, make additional deposits of cash or other property acceptable to Trustee in the Trust to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Trust beneficiary shall have any right to compel additional deposits.
Section 2. Payments from the Trust.
(a) Payments to Trust Beneficiaries.
(1) Attached hereto as Appendix B is a schedule (the "Payment Schedule") that indicates the amounts payable as Payments in respect of each Trust beneficiary, that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid, and the time of Payment. As and to the extent indicated in Appendix A, RJRN may deliver to Trustee updated Payment Schedules from time to time. Except as otherwise provided herein, Trustee shall make Payments to the Trust beneficiaries in accordance with the most recently dated Payment Schedule in the possession of Trustee. Trustee shall be entitled to rely conclusively upon such Payment Schedule. Based on information provided to Trustee by RJRN, RJR or a subsidiary, as appropriate, Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the Payments and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by RJRN, RJR or any of their subsidiaries. Notwithstanding any other provisions, Trustee may deliver to RJRN, RJR or any of its subsidiaries the amount of any federal, state or local tax withholding for payment directly to the taxing authorities.
(2) RJRN shall make the initial determination of Payments due to Trust beneficiaries; provided, however, following this initial determination, a Trust beneficiary may make application to Trustee for an independent decision as to the entitlement of the Trust beneficiary to a Payment (including, but not limited to the amount, form or timing of such a Payment). In the event of such an application, Trustee shall, in each such case, reach its own independent determination, in its absolute and sole discretion, as to the Trust beneficiary's entitlement to a Payment hereunder. In making its determination, Trustee may consult with and make such inquiries of such persons, including the Trust beneficiary, RJRN, RJR, legal counsel or other experts, as Trustee may reasonably deem necessary. Any reasonable costs incurred by Trustee in arriving at its determination shall be reimbursed by RJRN and, to the extent not paid by RJRN within a reasonable time, shall be charged to the Trust. RJRN waives any right to contest any amount paid over by Trustee hereunder pursuant to a determination made by Trustee, notwithstanding any claim by or on behalf of RJRN or RJR that such Payment should not be made.
(3) Trustee agrees that it will not itself institute any action at law or at equity, whether in the nature of an accounting, interpleading action, request for a declaratory judgment or otherwise, requesting a
court or administrative or quasi-judicial body to make the determination required to be made by Trustee under this Section 2 in the place and stead of Trustee.
(b) Payments to RJRN. On an annual basis, or more frequently if required, RJRN shall be entitled to receive, and the Trustee is directed to pay, such amounts out of principal as shall be required to discharge RJRN's tax liability (whether federal, state or otherwise) in respect of the ordinary income of, and gains realized by, the Trust which are taxable to RJRN, if any, and the Trustee shall be entitled to rely on a certification by RJRN of the amount of such taxes, if any. Trustee shall provide the necessary tax information and accounting to RJRN in support of the determination of taxable ordinary income or taxable gains.
(c) No Reversion. Except as provided in Section 2(a)(i) and
2(b), neither RJRN nor any of its parent or subsidiaries shall
have any power to direct Trustee to return or pay to any of
them any of the Trust assets nor (except as otherwise
expressly provided herein) shall any person (including but not
limited to Trustee) have any right of set-off or counter claim
with respect to Trust assets arising from any claim against
RJRN or any of its affiliates.
Section 3. Investment Authority.
(a) In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by RJRN or any parent or subsidiary other than a de minimus amount held in common investment vehicles in which Trustee invests. Subject to Section 3(b), all rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Trust beneficiaries.
(b) Trustee shall have the power in investing and reinvesting the Trust in its sole discretion as follows:
(1) To invest and reinvest, directly or indirectly, in cash equivalents including, but not limited to, U.S. Treasury Securities or other U.S. Government obligations, A-1/P-1 commercial paper (including commercial paper available through Trustee's Trust Department), certificates of deposit issued by financial institutions with short-term individual ratings of "B" or better by IBCA or BankWatch (including certificates issued by Trustee in its corporate capacity) and similar securities with a maturity of less than one year issued by financial institutions with short-term individual ratings of "B" or better by IBCA or BankWatch; provided, that (except for U.S. Government obligations) no more than 10% of the trust assets may be held in the securities of any single issuer. The Trustee may invest in common funds or mutual funds which meet the requirements set forth above, including such funds
maintained by Trustee. Short-term investments may be made in cash, sweep or mutual funds.
(2) To retain any property at any time received by Trustee;
(3) To sell or exchange any property held by it at public or private sale, for cash or on credit, to grant and exercise options for the purchase or exchange thereof, to exercise all conversion or subscription rights pertaining to any such property and to enter into any covenant or agreement to purchase any property in the future;
(4) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by it and to consent to or oppose any such plan or any action thereunder or any contract, lease, mortgage, purchase, sale or other action by any person;
(5) To deposit any property held by it with any protective, reorganization or similar committee of the issuer of any investment, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof and any assessments levied with respect to any such property so deposited;
(6) To extend the time of payment of any obligation held by it;
(7) To hold in short-term cash or money market instruments or uninvested any moneys received by it, without liability for interest thereon, but only in anticipation of payments due for investments, reinvestments, expenses or disbursements;
(8) To exercise all voting or other rights with respect to any property held by it and to grant proxies, discretionary or otherwise;
(9) For the purposes of the Trust, to borrow money from others, to issue its promissory note or notes therefor, and to secure the repayment thereof by pledging any property held by it;
(10) To employ suitable contractors and counsel, who may be counsel to RJRN or RJR or to Trustee, and to pay their reasonable expenses and compensation from the Trust to the extent not paid by RJRN or RJR;
(11) To register investments in its own name or in the name of a nominee; to hold any investment in bearer form; and to combine certificates representing securities with certificates of the same issue held by it in other fiduciary capacities or to deposit or to arrange for the deposit of such securities with any depository, even though, when so deposited, such securities may be held in the name of the nominee of such depository with other securities deposited therewith by other persons, or to deposit or to arrange for the deposit of any securities
issued or guaranteed by the United States government, or any agency or instrumentality thereof, including securities evidenced by book entries rather than by certificates, with the United States Department of the Treasury or a Federal Reserve Bank, even though, when so deposited, such securities may not be held separate from securities deposited therein by other persons; provided, however, that no securities held in the Trust shall be deposited with the United States Department of the Treasury or a Federal Reserve Bank or other depository in the same account as any individual property of the Trustee, and provided, further, that the books and records of the Trustee shall at all times show that all such securities are part of the Trust;
(12) To settle, compromise or submit to arbitration any investment-related claims, debts or damages due or owing to or from the Trust, respectively, to commence or defend such suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all such suits or legal proceedings in any court or before any other body or tribunal; provided, however, that Trustee shall not be required to take any such action unless it shall have been indemnified by RJRN to its reasonable satisfaction against liability or expenses it might incur therefrom;
(13) To hold and retain policies of life insurance, annuity contracts, and other property of any kind which policies are contributed to the Trust by RJRN or any subsidiary of RJRN or are purchased by Trustee;
(14) To hold any other class of assets which may be contributed by RJRN or any subsidiary of RJRN and that is deemed reasonable by the Trustee, unless expressly prohibited herein;
(15) To loan any securities at any time held by it to brokers or dealers upon such security as may be deemed advisable, and during the terms of any such loan to permit the loaned securities to be transferred into the name of and voted by the borrower or others; and
(16) Generally, to do all acts, whether or not expressly authorized, that Trustee may deem necessary or desirable for the protection of the Trust assets.
(c) Trustee shall have the sole and absolute discretion in the management of the Trust assets and shall have all the powers set forth under Section 3(b). In investing the Trust assets, Trustee shall consider:
(1) the need for matching of the Trust assets with the Payments; and
(2) the duty of Trustee to act solely in the best interests of Trust beneficiaries.
(d) Trustee shall have the right, in its sole discretion, to delegate its investment responsibility to an investment manager who may be an affiliate of Trustee. In the event Trustee shall exercise this right, Trustee shall remain, at all times responsible for the acts of such investment manager. Trustee shall have the right to purchase one or more insurance policies or annuities to fund the Payments.
Section 4. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of expenses, taxes and Payments, shall be accumulated and reinvested and added to principal whenever convenient.
Section 5. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between RJRN and Trustee. Within forty-five (45) days following the close of each calendar year and within forty-five (45) days after the removal or resignation of Trustee, Trustee shall deliver to RJRN a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceedings of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. RJRN may approve such account by an instrument in writing delivered to Trustee. In the absence of RJRN's filing with Trustee objections to any such account within ninety (90) days after its receipt, RJRN shall be deemed to have so approved such account. In such case, or upon the written approval by RJRN of any such account, Trustee shall, to the extent permitted by law, be discharged from all liability to RJRN for its acts or failures to act described by such account. The foregoing, however, shall not preclude Trustee from having its accounting settled by a court of competent jurisdiction.
Section 6. Responsibility of Trustee.
(a) Trustee shall act solely in the best interests of Trust beneficiaries and shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Except as otherwise provided in this Trust Agreement, in the event of a dispute involving the Trust, Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in connection with this Trust, RJRN agrees to indemnify Trustee against Trustee's costs and
expenses (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If RJRN does not pay such costs and expenses in a reasonably timely manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for RJRN, RJR or Trustee) with respect to any of its duties or obligations hereunder.
(d) Trustee may hire custodians, agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder and may reasonably rely on any determinations made by such agents and information provided to it by RJRN, RJR or their subsidiaries.
(e) Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or under applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) RJRN shall indemnify Trustee from and against any and all claims, demands, losses, damages, expenses (including, by way of illustration and not limitation, reasonable attorneys' fees and other legal and litigation costs), judgments and liabilities arising from, out of, or in connection with the administration of the Trust, except when determined to be due to Trustee's negligence or willful misconduct.
Section 7. Compensation and Expenses of Trustee.
Trustee's compensation is set forth on Appendix C to this Trust Agreement. RJRN shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 8. Resignation and Removal of Trustee.
(a) The trustee from time to time acting hereunder may only be removed upon the written action of RJRN with the written consent of a majority of Trust beneficiaries.
(b) If any trustee hereunder is removed, RJRN shall, prior to the effective date of such removal and subject to the written consent of a majority of Trust beneficiaries, apply to a court of competent jurisdiction for the appointment of a bank or trust company having trust powers or other party having corporate trust powers under state law (a "Corporate Successor") as successor trustee hereunder, who shall have all of the rights and powers of the former trustee, including ownership rights in the Trust assets and the right to compensation as set forth in Appendix C.
(c) Any trustee hereunder may resign only after the effective appointment of a successor Trustee. If any trustee hereunder resigns, such trustee shall, prior to the effective date of such trustee's resignation, appoint a Corporate Successor acceptable to a majority of the Trust beneficiaries to replace such trustee upon such resignation. The appointment shall be effective when accepted in writing by the successor trustee, who shall have all of the rights and powers of the former trustee, including ownership rights in the Trust assets and the right to compensation as set forth in Appendix C. The former trustee shall execute any instrument necessary or reasonably requested by the successor trustee to evidence the transfer.
(d) Upon resignation or removal of any trustee hereunder and appointment of a successor trustee, all assets shall subsequently be transferred to the successor trustee. The transfer shall be completed within sixty (60) days after the effective date of such resignation or removal.
(e) A successor trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 5 and 6 hereof. A successor trustee shall not be responsible for and RJRN shall indemnify and defend the successor trustee from any claim or liability resulting from any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes successor trustee.
(f) The compensation of any trustee from time to time acting hereunder may be changed by mutual agreement of such trustee, RJRN and a majority of the trust beneficiaries.
Section 9. Amendment or Termination.
(a) This Trust Agreement may not be amended except pursuant to the unanimous written consent of RJRN and all Trust beneficiaries; provided, however, that in no event may this Trust Agreement be amended to provide for any payment to, or for the benefit of, RJRN, its parent or any of its subsidiaries.
(b) This Trust shall not terminate until the date on which all Trust assets have been applied to the Payments, provided, however, that:
(i) if at any time all Payments reflected on the then current Payment Schedule have been made and the aggregate principal of the Trust together with any accrued income on hand is less than one hundred thousand dollars and zero
cents ($100,000.00), this Trust shall terminate and the Trust assets, net of any fees and expenses in connection with such termination, shall be distributed to the RJR Nabisco Foundation; or
(ii) if this Trust shall be in existence on the date which is twenty-one (21) years after the death of the last to die of the descendents of Joseph P. Kennedy who are living on the date hereof, then this Trust shall then terminate and all unpaid Payment amounts shown on the then current Payment Schedule (whether or not payment is then due) shall be paid to the designated Trust beneficiaries thereof who are then active employees of RJRN or its subsidiaries and, after such payments, the Trust assets (net of any fees and expenses in connection with such termination) shall be distributed to the RJR Nabisco Foundation.
Section 10. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of such prohibition, without invalidating the remaining provisions hereof.
(b) Payments to be recovered under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance with the laws of North Carolina.
IN WITNESS WHEREOF, this Trust Agreement has been executed on behalf of the parties hereto on the day and year first above written.
RJR Nabisco, Inc.
By:________________________
Wachovia Bank, N.A.
By:________________________
APPENDIX A
PAYMENTS
Section 1. Introduction. This Appendix A to the Trust Agreement is intended to set forth the terms and conditions governing the Payments identified in the Payment Schedule included as Appendix B to the Trust Agreement. Appendix B identifies each employee Trust beneficiary ("Employee") and indicates the amounts payable as Payments in respect of each Employee.
Section 2. Conditions for Payment.
(a) Except as otherwise provided in this Section 2, payment will be made to an Employee (or to the personal representative of such Employee's estate) on the Payment Date identified for such Employee on the Payment Schedule (the "Payment Date") in the amount identified for such Employee on the Payment Schedule, provided that the Employee remains actively employed by RJRN, RJR or any of their subsidiaries (the "Employer") until the Payment Date.
(b) If, prior to an Employee's Payment Date, such Employee's employment is terminated as a result of death or permanent disability (as defined in RJRN's long-term disability plan for salaried employees), Payment shall be made to or in respect of such Employee as soon as practicable following such termination. In such event, the Payment will be equal to the Payment amount set forth on the Payment Schedule for such Employee.
(c) If, prior to an Employee's Payment Date, such Employee's employment is involuntarily terminated by the Employer without Cause (as defined below), a pro-rata Payment shall be made to or in respect of such Employee as soon as practicable following such termination. In such event, the pro-rata Payment will be equal to the product of (i) the Payment amount set forth on the Payment Schedule for such Employee and (ii) a fraction, the numerator of which is number of days between the beginning of the Retention Period identified for such Employee on the Payment Schedule and the Employee's Severance Date (as defined below) and the denominator of which is the number of days in such Retention Period. Notwithstanding the foregoing, in the event that such involuntary termination occurs following a Change of Control (as defined below) the Payment will be equal to the full Payment amount set forth on the Payment Schedule for such Employee.
(d) If the Employee's employment is terminated for any other reason, the Payment for such Employee shall be forfeited.
(e) For purposes of this Appendix A, the following terms shall have the meanings set forth below:
(i) "Cause" shall be defined as such term is defined in the Employee's employment or severance agreement. Copies of such Employee's employment or service
agreements shall be provided to the Trustee upon reasonable request. If the Employee does not have an employment or severance agreement which defines the term "Cause", employment shall be deemed to have been terminated for "Cause" if the termination results from the Employee's (a) criminal conduct, (b) deliberate continual refusal to perform employment duties on substantially a full time basis, (c) deliberate and continued refusal to act in accordance with any specific lawful instructions of an authorized officer or more senior employee, or (d) deliberate misconduct which could be materially damaging to the Employer or any of its business operations without a reasonable good faith belief by the Employee that such conduct was in the best interests of the Employer. A termination of employment shall not be deemed for Cause hereunder unless the senior personnel executive of the Employer shall confirm that any such termination is for Cause as defined hereunder. Any voluntary termination by the Employee in anticipation of an involuntary termination of employment for Cause, shall be deemed to be a termination of employment for Cause. In addition, for an Employee in Grade Level "E" or higher, a termination with Good Reason (as defined below) shall be deemed to be a termination without Cause.
(ii) "Change of Control" shall be defined as such term is defined in the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan as in effect on the date hereof, except that for purposes of this Appendix A, the term "RJRN" (as used in such definition) shall include RJR Nabisco Holdings Corp., RJR Nabisco Inc. and R.J. Reynolds Tobacco Company. A copy of this definition shall be provided to the Trustee upon execution of the Trust Agreement.
"Good Reason" shall be defined as such term is defined in the Employee's employment or severance agreement. Copies of such Employee's employment or service agreements shall be provided to the Trustee upon reasonable request. If the Employee does not have an employment or severance agreement which defines the term ""Good Reason", employment shall be deemed to have been terminated with Good Reason if the termination results from any of the following:
(A) A material reduction in the Employee's duties, a material diminution in the Employee's position or a material adverse change in the Employee's reporting relationship;
(B) A material reduction in the Employee's pay, grade or bonus opportunity as in effect from time to time during the term of this Agreement;
(C) The failure to continue in effect the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan ("LTIP"), unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing the Employee with substantially similar benefits) has been made with respect to such plan, or the failure to continue the Employee's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of participation relative to other participants, as exists on the date hereof; or
(D) Requiring the Employee to be based at any office or location more than 50 miles from the office or location at which the Employee is based on the date hereof, except
for travel reasonably consistent with the Employee's travel requirements as of the date hereof.
(iv) "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).
Section 3. Payment.
(a) On each Payment Date, Trust assets shall be applied to satisfy fully Payments payable on such Payment Date to or in respect of Employees.
(b) If, on any Payment Date, the assets of the Trust are insufficient to satisfy fully Payments payable to Employees on such Payment Date, then the assets of the Trust shall be paid to or in respect of such Employees in proportion to the Payment amounts payable on such Payment Date. Upon making such partial Payments, the obligation to pay the balance of such Payments to Employees on such Payment Date and the obligation to pay the entire amount due Employees on subsequent Payment Dates shall lapse.
(c) No Payment shall be made until all Payments having an earlier Payment Date have been paid in full.
Section 4. Modifications to Payment Schedule.
As contemplated by Section 2(a) of the Trust Agreement, RJRN may deliver to Trustee updated Payment Schedules from time to time; provided, however, that modifications may be made only to provide for new Payments for existing or new Trust beneficiaries, in either case having a Payment Date later than the latest Payment Date on the existing Payment Schedule. In no event may a Payment Schedule be modified to eliminate a Trust beneficiary or to change the amount of, or postpone, a Payment for any Trust beneficiary.
APPENDIX C
SCHEDULE OF FEES PAYABLE PURSUANT TO SECTION 7
Market Value Rate per $1,000
------------ ---------------
Ad Valorem Charges First $ 500,000 $ 5.00
except as noted below
Next 1,500,000 2.60
Next 8,000,000 1.40
Next 40,000,000 .50
Next 50,000,000 .40
Over 100,000,000 .30
|
Consideration will be given for other trusts established by RJRN, its parent and subsidiaries. Additional fees are charged for tax reporting, tax preparation, wire transfers and payments. As provided in Section 7, expenses, including but not limited to custodian fees and attorney fees, will be recovered in addition to the fees quoted above. Fees charges for investment of assets are separate from the above fees and shall be changed in accordance with the current schedule
of fees in place for such investment.
EXHIBIT 12.1
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS/DEFICIENCY IN THE COVERAGE OF
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BY EARNINGS
BEFORE FIXED CHARGES
(DOLLARS IN MILLIONS)
SIX MONTHS
ENDED
JUNE 30, 1998
-------------
Earnings before fixed charges:
Loss before income taxes......................................................................... $ (177)
Less minority interest in pre-tax loss of Nabisco Holdings....................................... 38
------
Adjusted loss before income taxes................................................................ (139)
Interest and debt expense........................................................................ 449
Interest portion of rental expense............................................................... 30
------
Earnings before fixed charges...................................................................... $ 340
------
------
Combined fixed charges and preferred stock dividends:
Interest and debt expense........................................................................ $ 449
Interest portion of rental expense............................................................... 30
Capitalized interest............................................................................. 2
Preferred stock dividends (1).................................................................... 30
------
Total fixed charges and preferred stock dividends.................................................. $ 511
------
------
Deficiency in the coverage of combined fixed charges and
preferred stock dividends by earnings before fixed charges....................................... $ (171)
------
------
|
(1) Series B preferred stock dividends have been increased to present their
equivalent pre-tax amounts.
EXHIBIT 12.2
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES/DEFICIENCY IN
THE COVERAGE OF FIXED CHARGES BY EARNINGS BEFORE FIXED CHARGES
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED
JUNE 30, 1998
-------------------
Earnings before fixed charges:
Loss before income taxes..................................................................... $ (177)
Less minority interest in pre-tax loss of Nabisco Holdings................................... 38
-----
Adjusted loss before income taxes............................................................ (139)
Interest and debt expense.................................................................... 449
Interest portion of rental expense........................................................... 30
-----
Earnings before fixed charges.................................................................. $ 340
-----
-----
Fixed charges:
Interest and debt expense.................................................................... $ 449
Interest portion of rental expense........................................................... 30
Capitalized interest......................................................................... 2
-----
Total fixed charges........................................................................ $ 481
-----
-----
Deficiency in the coverage of fixed charges by earnings before fixed charges................... $ (141)
-----
-----
|
EXHIBIT 12.3
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES/DEFICIENCY IN
THE COVERAGE OF FIXED CHARGES BY EARNINGS BEFORE FIXED CHARGES
(DOLLARS IN MILLIONS)
SIX MONTHS
ENDED
JUNE 30, 1998
---------------
Earnings before fixed charges:
Loss before income taxes........................................................................ $ (130)
Less minority interest in pre-tax loss of Nabisco Holdings...................................... 38
-----
Adjusted loss before income taxes............................................................... (92)
Interest and debt expense....................................................................... 401
Interest portion of rental expense.............................................................. 30
-----
Earnings before fixed charges..................................................................... $ 339
-----
-----
Fixed charges:
Interest and debt expense....................................................................... $ 401
Interest portion of rental expense.............................................................. 30
Capitalized interest............................................................................ 2
-----
Total fixed charges........................................................................... $ 433
-----
-----
Deficiency in the coverage of fixed charges by earnings before fixed charges...................... $ (94)
-----
-----
|
| 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 | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 186 |
| SECURITIES | 0 |
| RECEIVABLES | 1,158 |
| ALLOWANCES | 0 |
| INVENTORY | 2,630 |
| CURRENT ASSETS | 4,686 |
| PP&E | 9,098 |
| DEPRECIATION | (3,380) |
| TOTAL ASSETS | 30,245 |
| CURRENT LIABILITIES | 4,461 |
| BONDS | 9,322 |
| PREFERRED MANDATORY | 953 |
| PREFERRED | 512 |
| COMMON | 3 |
| OTHER SE | 8,597 |
| TOTAL LIABILITY AND EQUITY | 30,245 |
| SALES | 8,239 |
| TOTAL REVENUES | 8,239 |
| CGS | 4,167 |
| TOTAL COSTS | 4,167 |
| OTHER EXPENSES | 722 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 449 |
| INCOME PRETAX | (177) |
| INCOME TAX | 1 |
| INCOME CONTINUING | (150) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (150) |
| EPS PRIMARY | (.53) |
| EPS DILUTED | (.53) |
| 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 | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 186 |
| SECURITIES | 0 |
| RECEIVABLES | 1,155 |
| ALLOWANCES | 0 |
| INVENTORY | 2,630 |
| CURRENT ASSETS | 4,683 |
| PP&E | 9,098 |
| DEPRECIATION | (3,380) |
| TOTAL ASSETS | 30,228 |
| CURRENT LIABILITIES | 4,360 |
| BONDS | 9,322 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 10,925 |
| TOTAL LIABILITY AND EQUITY | 30,228 |
| SALES | 8,239 |
| TOTAL REVENUES | 8,239 |
| CGS | 4,167 |
| TOTAL COSTS | 4,167 |
| OTHER EXPENSES | 722 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 401 |
| INCOME PRETAX | (130) |
| INCOME TAX | 20 |
| INCOME CONTINUING | (122) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (122) |
| EPS PRIMARY | 0 |
| EPS DILUTED | 0 |
Exhibit 99.1
MISSISSIPPI FEE PAYMENT AGREEMENT
This Mississippi Fee Payment Agreement (the "Agreement") is entered into as of July 2, 1998, by and among Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation and Lorillard Tobacco Company (collectively and severally "Settling Defendants" and each individually a "Settling Defendant"), the State of Mississippi and private counsel retained by the State of Mississippi in connection with the lawsuit In re Mike Moore, Attorney General, ex rel. State of Mississippi Tobacco Litig., No. 94-1429 (Miss. Ch. Ct., Jackson County) (the "Action").
WITNESSETH:
WHEREAS, on October 17, 1997, the State of Mississippi and Settling Defendants entered into a comprehensive settlement agreement to settle and resolve with finality all present and future civil claims relating to the subject matter of the Action (the "Settlement Agreement"), which Settlement Agreement was approved by the Chancery Court for the Jackson County (the "Court") and adopted as an enforceable order of the Court pursuant to Court Order dated December 29, 1997;
WHEREAS, paragraph 16 of the Settlement Agreement provides that Settling Defendants shall pay reasonable attorneys' fees to private counsel for the State of Mississippi, in an amount set by arbitration, subject to an appropriate annual cap on all such payments of attorneys' fees by Settling Defendants, as well as other conditions;
WHEREAS, paragraph 16 of the Settlement Agreement did not and was not intended to reflect the entire agreement of Settling Defendants and the State of Mississippi as to the procedures and conditions that would govern Settling Defendants' payment of fees to private counsel retained by the State of Mississippi in connection with the Action ("Mississippi Counsel"), including an agreed specific annual aggregate national cap on all payments of attorneys' fees and certain other professional fees by Settling Defendants, as well as other essential terms;
WHEREAS, Settling Defendants and Mississippi Counsel have entered into a letter agreement dated October 10, 1997 (the "October 10th Letter") which
describes the essential terms of Settling Defendants' agreement to pay fees to Mississippi Counsel pursuant to paragraph 16 of the Settlement Agreement;
WHEREAS, paragraph 15 of the Settlement Agreement contains a "Most Favored Nation" clause which provides that, in the event that Settling Defendants enter into a future pre-verdict settlement agreement of other litigation brought by a non-federal governmental plaintiff on terms more favorable to such governmental plaintiff than the terms of the Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement shall be revised so that the State of Mississippi will obtain treatment at least as relatively favorable as any such non-federal governmental entity;
WHEREAS, on January 16, 1998, Settling Defendants entered into a pre-verdict settlement agreement with the State of Texas, which sets forth the terms of Settling Defendants' agreement to pay attorneys' fees to private counsel for the State of Texas and includes provisions for advances on such attorneys' fees by Settling Defendants and the State of Texas;
WHEREAS, on May 8, 1998, certain Settling Defendants entered into a pre-verdict settlement agreement with the State of Minnesota (the "Minnesota Settlement"), which includes provisions for payment of attorneys' fees to private counsel for the State of Minnesota;
WHEREAS, on July 2, 1998, Settling Defendants and the State of Mississippi entered into a Stipulation of Amendment to Settlement Agreement and for Entry of Agreed Order (the "Stipulation of Amendment") to resolve any disputes with respect to the Most Favored Nation clause of the Settlement Agreement, including any disputes regarding payment of attorneys' fees, in light of the Texas and Minnesota Settlements; and
WHEREAS, Settling Defendants, the State of Mississippi and Mississippi Counsel, in order to resolve any disputes with respect to paragraphs 15 and 16 of the Settlement Agreement, and to describe more fully the procedures that will govern Settling Defendants' payment of fees to Mississippi Counsel, have agreed to the terms of this Agreement:
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of their mutual agreement to the terms of this Agreement, the State of Mississippi's and Settling Defendants' mutual agreement to the terms of the Stipulation of Amendment, and such other consideration described herein, including the release
of certain claims against Settling Defendants, the sufficiency of which is hereby acknowledged, the parties hereto, acting by and through their authorized agents, memorialize and agree as follows:
SECTION 1. Agreement to Pay Fees
Settling Defendants will pay reasonable attorneys' fees to Mississippi Counsel for their representation of the State of Mississippi in connection with the Action. The amount of such fees will be set by a panel of three independent arbitrators (the "Panel") whose decision as to the amount of fees for Mississippi Counsel arbitrated in connection with this Agreement (the "Mississippi Fee Award") shall be final and not appealable. The procedures governing Settling Defendants' obligation to pay the Mississippi Fee Award, including the procedures for making, and the timing of payments in satisfaction of, the Mississippi Fee Award, shall be as provided herein.
SECTION 2. Aggregate National Caps on Payment of Certain Fees
Settling Defendants' payment of the Mississippi Fee Award pursuant to this Agreement shall be subject to the payment schedule and the annual and quarterly aggregate national caps specified in sections 11, 12, 13, 14 and 15 hereof, which shall apply to:
(a) all payments of attorneys' fees pursuant to an award arbitrated by the Panel ("Fee Award") in connection with the settlement of any tobacco and health cases (other than non-class action personal injury cases brought directly by or on behalf of a single natural person or the survivor of such person or for wrongful death, or any non-class action consolidation of two or more such cases) ("Tobacco Cases") on terms that provide for payment by Settling Defendants or other defendants acting in agreement with Settling Defendants (collectively, "Participating Defendants") of fees with respect to private counsel retained by the plaintiff in connection with any such case ("Private Counsel"), subject to an annual cap on payment of all such fees;
(b) all payments of attorneys' fees (other than fees for attorneys of Participating Defendants) pursuant to a Fee Award for activities in connection with Tobacco Cases resolved by operation of federal legislation that either (i) implements the terms of the June 20, 1997 Proposed Resolution (or a substantially equivalent federal program) (the "Proposed Resolution") or (ii) imposes an enforceable obligation on Participating Defendants to pay attorneys' fees with
respect to Private Counsel (any such legislation hereinafter referred to as "Federal Legislation"); and
(c) all payments of attorneys' fees and certain other professional fees (other than fees for attorneys or agents of Participating Defendants) pursuant to a Fee Award for contributions made toward enacted Federal Legislation. In the event that Federal Legislation is enacted, the terms "Private Counsel" and "Eligible Counsel" shall apply not only to persons otherwise falling within the definitions of such terms herein but also to all persons granted Fee Awards for such contributions (such persons being Eligible Counsel with respect to each month beginning with the month the Federal Legislation was enacted).
Nothing in this Agreement shall be construed to require any Settling Defendant to pay Fee Awards in connection with any litigation other than the Action.
SECTION 3. Exclusive Obligation of Settling Defendants; Release
The provisions set forth herein constitute the entire obligation of Settling Defendants with respect to payment of attorneys' fees in connection with the Action and the exclusive means by which Mississippi Counsel may seek payment of fees by Settling Defendants in connection with the Action. The parties hereto acknowledge that the provisions for payment set forth herein are the entirety of Settling Defendants' obligations with respect to payment of attorneys' fees pursuant to paragraph 16 of the Settlement Agreement and the October 10th Letter. The State of Mississippi agrees that Settling Defendants shall have no other obligation to pay fees or otherwise compensate Mississippi Counsel, any other counsel or representative of the State of Mississippi or the State of Mississippi itself with respect to attorneys' fees in connection with the Action. Each Mississippi Counsel hereby irrevocably releases Settling Defendants and their respective present and former parents, subsidiaries, divisions, affiliates, officers, directors, employees, representatives, insurers, agents and attorneys (as well as the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing) from any and all claims that such counsel ever had, now has or hereafter can, shall or may have in any way related to the Action (including but not limited to any negotiations related to the settlement of the Action). The foregoing shall not be construed as a release of any person or entity as to any of the obligations undertaken in this Agreement in connection with a breach thereof.
SECTION 4. Composition of the Panel
(a) The first and the second members of the Panel shall both be permanent members of the Panel and, as such, will participate in the determination of all Fee Awards. The third Panel member shall not be a permanent Panel member, but instead shall be a state-specific member selected to determine Fee Awards on behalf of Private Counsel retained in connection with litigation within a single state. Accordingly, the third, state-specific member of the Panel for purposes of determining Fee Awards with respect to litigation in the State of Mississippi shall not participate in any determination as to any Fee Award with respect to litigation in any other state (unless selected to participate in such determinations by such persons as may be authorized to make such selections under other agreements).
(b) The members of the Panel shall be selected as follows:
(i) The first member shall be a natural person selected by Participating Defendants, who shall advise Mississippi Counsel of the name of the person selected by October 8, 1998.
(ii) The second member shall be a natural person selected by agreement of Participating Defendants and a majority of the members of a committee composed of the following members: Joseph F. Rice, Richard F. Scruggs, Steven W. Berman, Walter Umphrey, two representatives of the Castano Plaintiffs' Legal Committee and, at the option of Participating Defendants, one additional representative to serve on behalf of counsel for any one or more states that, subsequent to the date hereof, enter into settlement agreements with Participating Defendants that provide for payment of such states' Private Counsel pursuant to an arbitrated award of fees; such second member shall be selected by October 1, 1998.
(iii) The third, state-specific member for purposes of determining Fee Awards with respect to litigation in the State of Mississippi shall be a natural person selected by Mississippi Counsel, who shall notify Settling Defendants of the name of the person selected by October 15, 1998.
SECTION 5. Commencement of Panel Proceedings
No application for a Fee Award shall be presented to the Panel or any Panel member until November 3, 1998. The Panel shall consider and render decisions on applications for Fee Awards in the order in which they
are submitted or pursuant to notice by counsel having priority that they have ceded their place to others. In the event that more than one application for a Fee Award is submitted on the same date, the Panel shall consider and render decisions on such applications in the order in which their respective cases were settled. Counsel may seek permission from the Panel to make combined presentations of aspects of their respective applications. Settling Defendants shall not oppose any request to combine presentations of applications for Fee Awards in connection with the Action, the lawsuit State of Florida v. American Tobacco Co., No. 95-1466AH (15th Jud. Circuit, Palm Beach County), or the lawsuit State of Texas v. American Tobacco Co., No. 5-96CV-91 (E.D. Tex. filed Mar. 28, 1996).
SECTION 6. Costs of Arbitration
All costs and expenses of the arbitration proceedings held by the Panel, including compensation of Panel members (but not including any costs, expenses or compensation of counsel making applications to the Panel), shall be borne by Settling Defendants in proportion to their respective Market Shares.
SECTION 7. Panel Procedures Regarding Application of Mississippi Counsel
Mississippi Counsel shall make a collective written application to the Panel for a Fee Award on behalf of all Mississippi Counsel not later than November 3, 1998. All interested persons, including persons not parties hereto, may submit to the Panel any information that they wish; but interested persons not parties hereto may submit only written materials. The Panel shall consider all such submissions by any party hereto and may consider any such materials submitted by other interested persons. All written submissions relating to applications for a Fee Award in connection with the Action shall be served on all parties hereto by November 13, 1998. Presentations to the Panel shall, to the extent possible, be based on affidavit rather than live testimony. The Panel shall preserve the confidentiality of any attorney work-product materials or other similar confidential information that may be submitted. Settling Defendants will not take any position adverse to the amount of the Fee Award requested by Mississippi Counsel, nor will they or their representatives express any opinion (even upon request) as to the appropriateness or inappropriateness of the amount of any proposed Mississippi Fee Award. The undersigned
outside counsel for Settling Defendants Philip Morris Incorporated and R.J. Reynolds Tobacco Company will appear, if requested, to provide information as to the nature and efficacy of the work of Mississippi Counsel and to advise the Panel that they support a Mississippi Fee Award of full reasonable compensation under the circumstances.
SECTION 8. Award of Fees to Mississippi Counsel
The members of the Panel will consider all relevant information submitted to them in reaching a decision as to a Fee Award that fairly provides for full reasonable compensation of Mississippi Counsel for their representation of the State of Mississippi in connection with the Action. The Panel shall determine the amount of fees for all Mississippi Counsel collectively no later than December 10, 1998. Given the significance and uniqueness of the Action, the Panel shall not be limited to an hourly-rate or lodestar analysis in determining the amount of the Mississippi Fee Award, but shall take into account the totality of the circumstances. In considering the amount of the Mississippi Fee Award, the Panel shall not consider Fee Awards that already have been or yet may be awarded to others. The Panel's decisions as to Fee Awards shall be in writing and shall report the amount of the fee awarded (with or without explanation or opinion, at the Panel's discretion).
SECTION 9. Allocation of Payments among Mississippi Counsel
All payments (including advances) made by Settling Defendants in satisfaction of the Mississippi Fee Award pursuant to this Agreement shall be paid in the first instance to an account designated in writing by Joseph F. Rice, Esq. Each Mississippi Counsel shall be entitled to receive a percentage of each such payment equal to the percentage such counsel would receive of any fee recovery in the Action, under the terms of the fee-sharing agreement among Mississippi Counsel (such percentage being such counsel's "Fee Percentage" of the payment in question).
SECTION 10. Advances on Payment of Fees
Settling Defendants shall severally make two payments as an advance against later payments of the Mississippi Fee Award pursuant to this Agreement, to be credited as provided in section 15 hereof, as follows:
(a) On or before July 6, 1998, each Settling Defendant shall pay to Mississippi Counsel, pro rata in proportion to its Market Share indicated on Schedule A hereto, its respective share of $50 million.
(b) On or before July 31, 1998, each Settling Defendant shall pay to Mississippi Counsel, pro rata in proportion to its Market Share indicated on Schedule A hereto, its respective share of $50 million.
SECTION 11. Annual Amount for 1997; Allocation
(a) For 1997, Settling Defendants shall pay, in the manner described in section 13 hereof, the unsatisfied amount of the Fee Award (the "Unpaid Fees") of Mississippi Counsel, and those Participating Defendants so obligated shall make payments with respect to the Unpaid Fees of Private Counsel retained in connection with the lawsuits State of Florida v. American Tobacco Co., No. 95-1466 AH (15th Jud. Circuit, Palm Beach County), and Mangini v. R.J. Reynolds Tobacco Co., No. 939359 (Cal. Super. Ct., San Francisco County), in an amount not to exceed $250 million for all payments described in this subsection.
(b) In the event that the sum of the Unpaid Fees of those Private Counsel identified in subsection (a) of this section exceeds $250 million, such amount shall be allocated among the payments to be made with respect to such Private Counsel in proportion to the amount of their respective Unpaid Fees (the amount so allocated with respect to the Unpaid Fees of each such Private Counsel being such counsel's "Allocable Share" for 1997).
SECTION 12. Annual Amount for 1998; Allocation
(a) For 1998, Settling Defendants shall pay, in the manner described in section 13 hereof, the Unpaid Fees of Mississippi Counsel, and those Participating Defendants so obligated shall make payments with respect to the Unpaid Fees of all other Private Counsel, in an amount not to exceed $500 million for all such payments described in this subsection.
(b) The amount payable to Mississippi Counsel by Settling Defendants for 1998 shall be determined as follows: The $500 million annual cap for 1998 shall be allocated equally among each month of the year. Except as provided in section 13(b) hereof, each monthly amount shall be allocated to those Private Counsel retained in connection with Tobacco Cases settled by Participating Defendants or resolved by Federal Legislation before or during such month, up to the amounts of their respective Unpaid Fees (such counsel being "Eligible
Counsel" with respect to such monthly amount). In the event that the monthly amount is less than the sum of Eligible Counsel's Unpaid Fees, the monthly amount shall be allocated to Eligible Counsel in proportion to the amounts of their respective Unpaid Fees (the amount so allocated to each Eligible Counsel for a given month being such counsel's Allocable Share for such month, and the sum of each Private Counsel's Allocable Shares for each month being such counsel's Allocable Share for 1998).
(c) Settling Defendants represent that, as of the date of this Agreement, the only Tobacco Cases (other than the Action) that have been settled by Participating Defendants on terms that allow for Private Counsel retained in connection with such cases to seek a Fee Award from the Panel are State of Florida v. American Tobacco Co., No. 95-1466AH (15th Jud. Circuit, Palm Beach County), State of Texas v. American Tobacco Co., No. 5- 96CV-91 (E.D. Tex.), and Mangini v. R.J. Reynolds Tobacco Co., No. 939359 (Cal. Super. Ct., San Francisco County).
SECTION 13. Payments with Respect to Annual Amounts for 1997 and 1998
(a) On the earlier of December 15, 1998 or 15 days after the date of the Panel's decision with respect to the Mississippi Fee Award (the "Initial Mississippi Fee Payment Date"), each Settling Defendant shall severally pay, pro rata in proportion to its Market Share, its share of an initial fee payment with respect to the Mississippi Fee Award (the "Initial Mississippi Fee Payment"), which shall include:
(i) Mississippi Counsel's Allocable Share for 1997 as provided in section 11 hereof or, in the event that the Panel has not rendered Fee Awards with respect to all Private Counsel described in section 11(a) hereof as of five business days prior to the Initial Mississippi Fee Payment Date, Settling Defendants' reasonable estimation of Mississippi Counsel's Allocable Share for 1997; and
(ii) Mississippi Counsel's Allocable Share for 1998 as provided in section 12 hereof for each month of 1998 except those with respect to which Mississippi Counsel's Allocable Share could not be determined as of five days prior to the Initial Mississippi Fee Payment Date, as a result of there being other Eligible Counsel that, as of such date, had not yet been granted or denied a Fee Award by the Panel (either because such counsel's
application for a Fee Award was still under consideration by the Panel or for any other reason).
(b) On January 15, 1999, each Settling Defendant shall severally pay, pro rata in proportion to its Market Share, its share of Mississippi Counsel's Allocable Share for those months of 1998 not included in the Initial Mississippi Fee Payment. Mississippi Counsel's Allocable Share for any such month shall be based on an allocation of the monthly amount among Eligible Counsel having Fee Awards as of December 31, 1998, without regard to whether there may be other Eligible Counsel that have not been granted or denied a Fee Award by the Panel as of such date.
(c) In the event that Settling Defendants pay an estimation of Mississippi Counsel's Allocable Share for 1997, as provided in subsection (a)(i) of this section, subsequent payments pursuant to this Agreement shall be adjusted to ensure that Mississippi Counsel receive their actual Allocable Share for 1997.
(d) Notwithstanding any provision of this Agreement, Mississippi Counsel agree to defer payment of $62 million of the payment due from Settling Defendant R.J. Reynolds Tobacco Company ("Reynolds") on the Initial Mississippi Fee Payment Date. In the event that (i) Reynolds' share of the Initial Mississippi Fee Payment is less than $62 million or (ii) the Mississippi Fee Award has not been determined as of the date of any other payment by Reynolds in 1998 with respect to Fee Awards, individual Mississippi Counsel Scruggs, Millette, Bozeman & Dent, P.A. ("Scruggs, Millette") and Ness, Motley, Loadholt, Richardson & Poole ("Ness, Motley") shall also defer the amounts of their respective Fee Percentages of such other 1998 payments, until the sum of all deferred amounts equals $62 million. Under no circumstances shall this subsection require any increase in any payment to be made by any other Settling Defendant. On January 5, 1999, Reynolds shall pay to the appropriate persons the amounts of its 1998 payments deferred pursuant to this section.
SECTION 14. Quarterly Amounts for 1999 and Subsequent Years; Allocation
Within 10 business days after the end of each calendar quarter beginning with the first calendar quarter of 1999, Settling Defendants shall pay, in the manner provided in subsection (d) of this section, the Unpaid Fees of Mississippi Counsel, and those Participating Defendants so obligated shall make payments with
respect to the Unpaid Fees of all other Private Counsel, in an amount not to exceed $125 million for all such payments, as follows:
(a) In the event that Federal Legislation has been enacted by the end of the calendar quarter with respect to which such quarterly payment is being made (the "Applicable Quarter"):
(i) the quarterly amount shall be allocated among Private Counsel, up to the amount of their respective Unpaid Fees. Each Private Counsel shall be allocated an amount of each quarterly payment for the calendar year up to (or, in the event that the sum of such Private Counsel's Unpaid Fees exceeds the quarterly amount, in proportion to) the amount of such Private Counsel's Unpaid Fees. Each quarterly payment shall be allocated among Private Counsel having Unpaid Fees, without regard to whether there are other Private Counsel that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter. Subsequent quarterly payments shall be adjusted, if necessary, to account for Private Counsel that are granted Fee Awards in a subsequent quarter of the calendar year, as provided in paragraph (ii)(B) of this subsection.
(ii) In the event that a quarterly payment for the calendar year is less than the sum of all Private Counsel's Unpaid Fees:
(A) in the case of the first such quarterly payment, the quarterly amount shall be allocated among Private Counsel in proportion to the amounts of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first quarterly payment that is less than the sum of all such Unpaid Fees, the quarterly amount shall be allocated only to those Private Counsel, if any, that were not paid a proportionate share of all prior quarterly payments for the calendar year (either because such Private Counsel's applications for Fee Awards were still under consideration as of the end of the calendar quarters with respect to which such quarterly payments were made or for any other reason), until each such Private Counsel has been allocated a proportionate share of all prior quarterly payments. In the event that the sum of all such shares exceeds the amount of the quarterly payment, such payment shall be allocated among such Private Counsel in proportion to the amounts of their respective Unpaid Fees (without regard to whether there are other Private Counsel that have not yet
been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter).
(b) In the event that Federal Legislation has not been enacted by the end of the Applicable Quarter:
(i) the quarterly amount shall be allocated equally among each of the three months of the calendar quarter. The amount for each such month shall be allocated among those Private Counsel retained in connection with Tobacco Cases settled before or during such month (such Private Counsel being "Eligible Counsel" with respect to such monthly amount), each of whom shall be allocated a portion of each such monthly amount up to (or, in the event that the sum of Eligible Counsel's respective Unpaid Fees exceeds such monthly amount, in proportion to) the amount of such Eligible Counsel's Unpaid Fees. The monthly amount for each month of the calendar quarter shall be allocated among Eligible Counsel having Unpaid Fees, without regard to whether there may be Eligible Counsel that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter. Subsequent quarterly payments shall be adjusted, as necessary, to account for Eligible Counsel that are granted Fee Awards in a subsequent quarter of the calendar year, as provided in paragraph (ii)(B) of this subsection.
(ii) In the event that the amount for a given month is less than the sum of all Eligible Counsel's Unpaid Fees:
(A) in the case of a first quarterly payment, such monthly amount shall be allocated among Eligible Counsel for such month in proportion to the amount of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first quarterly payment, the quarterly amount shall be allocated among only those Private Counsel, if any, that were Eligible Counsel with respect to any monthly amount paid in a prior quarter of the calendar year but were not allocated a proportionate share of such monthly amount (either because such counsel's applications for Fee Awards were still under consideration as of the end of the calendar quarter containing the month in question or for any other reason), until each such Eligible Counsel has been allocated a proportionate share of all such prior monthly payments for the calendar year. In the event that the sum of all such shares exceeds
the amount of the quarterly payment, the quarterly payment shall be allocated among Eligible Counsel in proportion to the amounts of their respective Unpaid Fees (without regard to whether there may be other Eligible Counsel with respect to such prior monthly amounts that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter).
(c) Adjustments pursuant to paragraphs (a)(ii)(B) and (b)(ii)(B) of this section shall be made separately for each calendar year. No amounts paid in any calendar year shall be subject to refund, nor shall any payment in any given calendar year affect the allocation of payments to be made in any subsequent calendar year.
(d) Each Settling Defendant shall severally pay, pro rata in proportion to its respective Market Share, its share of the amounts, if any, allocated to Mississippi Counsel pursuant to this section.
SECTION 15. Credits and Limitations
Notwithstanding any other provision of this Agreement, all payments by Settling Defendants with respect to Fee Awards shall be subject to the following:
(a) Notwithstanding any other provision of this Agreement, the advances against future payments to Mississippi Counsel made pursuant to section 10 hereof shall be credited against and shall reduce the payments due to Mississippi Counsel hereunder, beginning with the first quarterly payment for 1999 pursuant to section 14 hereof, in an amount equal to 50% of the payment in question, until the advances paid by Settling Defendants are fully credited; provided, however, that the sum of all such credits applied in any calendar year with respect to the advances made to Mississippi Counsel pursuant to section 10 hereof shall not exceed $50 million. The amount of any credit made against any such payment to Mississippi Counsel shall be counted in computing the annual and quarterly aggregate national caps on all payments made with respect to Private Counsel, in the amount of the credit applied to any such payment to Mississippi Counsel in any quarterly or annual period.
(b) Under no circumstances shall Settling Defendants be required to make payments that would result in aggregate national payments by Participating Defendants with respect to Fee Awards:
(i) for 1997, totaling more than $250 million;
(ii) during 1998, totaling more than $500 million, except insofar as payments under the separate $250 million cap for 1997 are made in 1998 pursuant to section 13 hereof, and except insofar as advances are made in 1998 against payments due in years after 1998;
(iii) during any year beginning with 1999, totaling more than $500 million, excluding payments with respect to any Private Counsel's Allocable Shares for 1998 that are paid in 1999; and
(iv) during any calendar quarter beginning with the first calendar quarter of 1999, totaling more than $125 million, excluding payments with respect to any Private Counsel's Allocable Shares for 1998 that are paid in 1999 and except to the extent that payments with respect to any prior quarter of the calendar year did not total $125 million.
SECTION 16. Contribution to National Legislation
If Federal Legislation is enacted that implements the Proposed Resolution, a three-member national panel including the two permanent members of the Panel shall consider any application for Fee Awards on behalf of Private Counsel for contributions made toward the enactment of such Federal Legislation, along with all applications for Fee Awards for professional fees by any other persons who claim to have made similar contributions (other than attorneys or agents of Participating Defendants). No person shall make more than one application for a Fee Award in connection with any such contributions toward enactment of such Federal Legislation. All payments with respect to such Fee Awards, if any, shall be paid on the payment schedule and subject to, and counted in computing, the annual and quarterly national caps described in sections 12, 13, 14 and 15 hereof.
SECTION 17. Payments on Market Share Basis
All payments to Mississippi Counsel pursuant to this Agreement shall be paid by Settling Defendants pro rata in proportion to their respective Market Shares. Each Settling Defendant shall be severally liable for its
share of all such payments. Under no circumstances shall any such payment or portion thereof become the joint obligation of Settling Defendants or the obligation of any party other than the Settling Defendant from which such payment is originally due, nor shall any Settling Defendant be required to pay a portion of any such payment greater than its respective Market Share. With respect to payment of the advances described in section 10 hereof and the payment for 1997 described in section 11 hereof, the Market Share of each Settling Defendant shall be as provided in Schedule A hereto. With respect to the payment for 1998 described in section 12 hereof, the Market Share of each Settling Defendant shall be its respective share of sales of cigarettes, by number of individual cigarettes shipped for consumption in the United States, for 1998. With respect to all other payments pursuant to this Agreement, each Settling Defendant's Market Share shall be its respective share of sales of cigarettes, by number of individual cigarettes shipped for consumption in the United States, for the 12 month period preceding the end of the calendar quarter with respect to which such payment is made.
SECTION 18. Determination of Market Share
In the event of a disagreement between or among any Settling Defendants as to their respective shares of any payment pursuant to this Agreement (except payments for which each Settling Defendant's Market Share is expressly provided herein), each Settling Defendant shall pay its undisputed share of such payment promptly, on or before the date on which such payment is due, and shall within 21 days submit copies of its federal excise tax reports for the period in question to a third party to be selected by agreement of Settling Defendants (the "Third Party"), who shall within three days determine the Market Share of each Settling Defendant. The decision of the Third Party shall be final and non-appealable, and shall be communicated by facsimile to each party hereto. Each Settling Defendant shall, within two business days of receipt of the Third Party's decision, pay Mississippi Counsel or such other Settling Defendant, as appropriate, the difference, if any, between (1) the amount that such Settling Defendant has already paid with respect to the payment in question and (2) the amount of the payment in question that corresponds to such Settling Defendant's Market Share as determined by the Third Party, together with interest accrued from the original date on which the payment in question was due, at the prime rate, as published in the Wall Street Journal on the latest publication date on or before the original date on which the payment in question was due, plus 3%.
SECTION 19. Limited Waiver as to Other Terms
In consideration of Settling Defendants' agreement to the terms hereof, each Mississippi Counsel hereby covenants and agrees that it will not argue in any forum (other than in proceedings before the Panel relating to Mississippi Counsel's application) that the arrangements made in connection with the Texas Settlement or the Minnesota Settlement for payment of fees to private counsel for the States of Texas or Minnesota give rise to any claim or entitlement on the part of Mississippi Counsel (or any other person) in connection with this Action.
SECTION 20. State's Identification of Mississippi Counsel
The Attorney General represents and warrants that Schedule B hereto contains the names of all Mississippi Counsel.
SECTION 21. Intended Beneficiaries
No part of this Agreement creates any rights on the part of, or is enforceable by, any person or entity that is not a party hereto or a person covered by the release described in section 3 hereof. Nor shall any part of this Agreement bind any non-party or determine, limit or prejudice the rights of any such person or entity.
SECTION 22. Definitions
Terms used herein that are defined in the Settlement Agreement or the Stipulation of Amendment are, unless otherwise defined herein, used in this Agreement as defined in the Settlement Agreement or the Stipulation of Amendment, as applicable.
SECTION 23. Representations of Parties
The parties hereto hereby represent that this 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.
SECTION 24. No Admission
This Agreement 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 any liability or wrongdoing whatsoever on the part of any party hereto or any person covered by the release provided under section 3 hereof. Settling Defendants specifically disclaim and deny any liability or wrongdoing whatsoever with respect to the claims released under section 3 hereof and enter into this Agreement for the sole purposes of memorializing Settling Defendants' rights and obligations with respect to payment of attorneys' fees pursuant to the Settlement Agreement and avoiding the further expense, inconvenience, burden and uncertainty of potential litigation.
SECTION 25. Non-admissibility
This Agreement having been undertaken by the parties hereto in good faith and for settlement purposes only, neither this Agreement nor any evidence of negotiations relating hereto shall be offered or received in evidence in any action or proceeding other than an action or proceeding arising under this Agreement.
SECTION 26. Amendment and Waiver
This Agreement may be amended only by a written instrument executed by the Attorney General, Mississippi Counsel and 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 Agreement shall not be deemed to be or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous, of this Agreement.
SECTION 27. Notices
All notices or other communications to any party hereto shall be in writing
(including but not limited to telex, telecopy or similar writing) and shall be given to the respective parties listed on Schedule C hereto at the addresses therein indicated. 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 section including an updated list conformed to Schedule C hereto.
SECTION 28. Governing Law
This Settlement Agreement shall be governed by the laws of the State of Mississippi, without regard to the conflict of law rules of such State.
SECTION 29. Construction
None of the parties hereto shall be considered to be the drafter of this 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.
SECTION 30. Captions
The captions of the sections of this Agreement are included for convenience of reference only and shall be ignored in the construction and interpretation hereof.
SECTION 31. Counterparts
This 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.
SECTION 32. Entire Agreement of Parties
This Agreement contains an entire, complete and integrated statement of each and every term and provision agreed to by and among the parties
hereto with respect to payment of attorneys' fees by Settling Defendants in connection with the Action and is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Mississippi Fee Payment Agreement as of this 2nd day of July, 1998.
STATE OF MISSISSIPPI acting by and through Michael C. Moore, its duly elected and authorized Attorney General
By:_________________________________ Michael C. Moore Attorney General
PHILIP MORRIS INCORPORATED
By:_________________________________
Meyer G. Koplow
Counsel
By:_________________________________
Martin J. Barrington
General Counsel
R.J. REYNOLDS TOBACCO COMPANY
By:_________________________________
Arthur F. Golden
Counsel
By:_________________________________
Charles A. Blixt
General Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
By:_________________________________
Stephen R. Patton
Counsel
By:_________________________________
F. Anthony Burke
Vice President & General Counsel
LORILLARD TOBACCO COMPANY
By:_________________________________
Arthur J. Stevens
Senior Vice President & General Counsel
MISSISSIPPI COUNSEL
By:_________________________________
Joseph F. Rice
Ness, Motley, Loadholt, Richardson & Poole
By:_________________________________
Richard F. Scruggs
Scruggs, Millette, Bozeman & Dent, P.A
By:_________________________________
Don Barrett
Barrett Law Offices
By:_________________________________ Paul T. Benton
By:__________________________________ Frederick B. Clark
By:__________________________________ Michael T. Lewis Lewis & Lewis
By:_________________________________ David O. McCormick
By:_________________________________ Charles Victor McTeer McTeer & Associates
By:_________________________________ Robert H. Oswald
Oswald & Reed
By:_________________________________
Crymes G. Pittman
Pittman, Germany, Roberts & Welsh
By:_________________________________
Thomas H. Rhoden
Rhoden, Lacy, Downey & Colbert
By:_________________________________
Paul S. Minor
SCHEDULE A
MARKET SHARE PERCENTAGES
Settling Defendant Percentage
Philip Morris Incorporated ......................................49.9
R.J. Reynolds Tobacco Company....................................24.8
Brown & Williamson Tobacco Corp..................................16.4
Lorillard Tobacco Company.........................................8.9
-----
TOTAL 100
|
SCHEDULE B
DESIGNATION of MISSISSIPPI COUNSEL
by the Attorney General
Ness, Motley, Loadholt, Richardson & Poole (Ronald L. Motley, Joseph F. Rice, Charles W. Patrick, Jr., Edward J. Westbrook, Ann K. Ritter, J. Anderson Berly, III, John J. McConnell, Jr., Susan Nial, Robert J. McConnell, Richard L. Akel, Nancy Worth Davis, Alexandra M. Wagner, Kimberly S. Vroon, Jodi W. Flowers, Frederick C. Baker, R. Brian Johnson, Cindi Anne Solomon, Jerry Hudson Evans, Gregory S. Lofstead, William Michael Gruenloh)
Scruggs, Millette, Bozeman & Dent, P.A. (Richard F. Scruggs, W. Steve Bozeman, Charles J. Mikhail, Lee E. Young, Jennifer A. Coley, Ashley Hutchings Hendren)
Barrett Law Offices (Don Barrett)
Paul T. Benton
Frederick B. Clark
Lewis & Lewis (Michael T. Lewis, Pauline Shular Lewis)
David O. McCormick
McTeer & Associates (Charles Victor McTeer)
Oswald & Reed (Robert H. Oswald, William T. Reed)
Pittman, Germany, Roberts & Welsh (Crymes G. Pittman,
Robert G. Germany, Joseph E. Roberts, Jr., C. Victor Welsh)
Rhoden, Lacy, Downey & Colbert (Thomas H. Rhoden)
Paul S. Minor
SCHEDULE C
NOTICES
State of Mississippi
Hon. Michael C. Moore
Attorney General's Office
450 High Street
Post Office Box 220
Jackson, MS 39205
Fax: (601) 359-3441
With copies to:
Richard F. Scruggs
Scruggs, Millette, Bozeman & Dent, P.A.
743 Delmas Avenue
Pascagoula, MS 39568-1425
Fax: (228) 762-1207
and:
Joseph F. Rice, Esq.
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (843) 720-9290
and:
David O. McCormick
707 Watts Avenue
P.O. Box 865
Pascagoula, MS 39568-0865
Fax: (228) 762-4864
(continued)
Settling Defendants
-------------------
Philip Morris Incorporated: R.J. Reynolds Tobacco Company:
--------------------------- ------------------------------
Martin J. Barrington, Esq. Charles A. Blixt, Esq.
Philip Morris Incorporated R.J. Reynolds Tobacco Company
120 Park Avenue 401 North Main Street
New York, NY 10017-5592 Winston-Salem, NC 27102
Fax: (212) 907-5399 Fax: (336) 741-2998
With a copy to: With a copy to:
--------------- ---------------
Meyer G. Koplow, Esq. Arthur F. Golden, Esq.
Wachtell, Lipton, Rosen & Katz Davis Polk & Wardwell
51 West 52nd Street 450 Lexington Avenue
New York, NY 10019 New York, NY 10017
Fax: (212) 403-2000 Fax: (212) 450-4800
Brown & Williamson Tobacco Corp.: Lorillard Tobacco Company:
--------------------------------- --------------------------
F. Anthony Burke, Esq. Arthur J. Stevens, Esq.
Brown & Williamson Tobacco Corp. Lorillard Tobacco Company
200 Brown & Williamson Tower 714 Green Valley Road
401 South Fourth Avenue Greensboro, NC 27408
Louisville, KY 40202 Fax: (336) 335-7707
Fax: (502) 568-7297
With a copy to:
---------------
Stephen R. Patton, Esq.
Kirkland & Ellis
200 East Randolph Dr.
Chicago, IL 60601
Fax: (312) 861-2200
(continued)
|
Mississippi Counsel
-------------------
Joseph F. Rice, Esq. Richard F. Scruggs
Ness, Motley, Loadholt, Scruggs, Millette, Bozeman &
Richardson & Poole Dent, P.A.
151 Meeting Street, Suite 600 743 Delmas Avenue
Charleston, SC 29402 Pascagoula, MS 39568-1425
Fax: (843) 720-9290 Fax: (228) 762-1207
Don Barrett, Esq. Paul T. Benton, Esq.
Barrett Law Offices Attorney At Law
P.O. Box 987 P.O. Box 1341
Lexington, Mississippi 39095 Biloxi, MS 39533-1341
Fax 1: (850) 654-4072 Fax: (228) 432-0336
Fax 2: (601) 948-6187
Frederick B. Clark, Esq. Michael T. Lewis
Attorney At Law Lewis & Lewis
P.O. Box 1806 P.O. Box 1600
Greenwood, MS 38930 Clarksdale, MS 38614
Fax: (601) 455-1282 Fax: (601) 627-2267
David O. McCormick, Esq. Charles Victor McTeer, Esq.
707 Watts Avenue McTeer & Associates
P.O. Box 865 P.O. Box 1835
Pascagoula, MS 39568-0865 Greenville, MS 38702
Fax: (228) 762-4864 Fax: (601) 334-6847
Robert H. Oswald, Esq. Crymes Pittman, Esq.
Oswald & Reed Pittman, Germany, Roberts & Welsh
3106 Canty Street 401 S. President Street
Pascagoula, MS 39567 Jackson, MS 39201
Fax: (228) 769-9019 Fax: (601) 948-6187
(continued)
|
Thomas H. Rhoden, Esq. Paul S. Minor, Esq. Rhoden, Lacy, Downey & Colbert Minor & Associates 111 Park Circle Drive 400 Main Street Flowood, MS 39208 Biloxi, MS 39530 Fax: (601) 936-2515 Fax: (228) 374-6630 |
Exhibit 99.2
IN THE CHANCERY COURT OF JACKSON COUNTY,
STATE OF MISSISSIPPI
)
IN RE MIKE MOORE, ATTORNEY GENERAL, ex. rel. ) CAUSE No. 94-1429
STATE OF MISSISSIPPI TOBACCO LITIGATION )
)
|
STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT
AND FOR ENTRY OF AGREED ORDER
THIS STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT AND FOR ENTRY OF AGREED ORDER (the "Stipulation of Amendment") is made as of the date hereof, by and among the parties hereto, as indicated by their signatures below, to amend the Comprehensive Settlement Agreement and Release entered into by the parties hereto with respect to this Action on October 17, 1997 (the "Settlement Agreement").
WHEREAS, on July 2, 1997, the State of Mississippi and certain defendants (the "Settling Defendants") entered into a Memorandum of Understanding (the "MOU"), setting forth the terms of an agreement in principle to settle all present and future claims relating to the subject matter of this Action, which MOU contemplated that the parties would draft and execute a comprehensive settlement agreement incorporating the terms of the MOU as well as other customary terms and conditions, including releases;
WHEREAS, on October 17, 1997, the State of Mississippi and Settling Defendants entered into the Settlement Agreement to settle and resolve with finality all present and future civil claims against all parties to this litigation relating to the subject matter of this litigation which have been or could have been asserted by any of the parties hereto;
WHEREAS, the Settlement Agreement was approved and adopted as an enforceable order of the Court pursuant to Court Order dated December 29, 1997;
WHEREAS, the Settlement Agreement contains a "Most Favored Nation" clause which provides that, in the event that Settling Defendants enter into a future pre-verdict settlement agreement of other litigation brought by a non-federal governmental plaintiff on terms more favorable to such governmental plaintiff than the terms of this Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement shall be revised so that the State of Mississippi will obtain treatment at least as relatively favorable as any such non-federal governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants entered into a pre-verdict settlement agreement with the State of Minnesota to settle the lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994) (the "Minnesota Settlement");
WHEREAS, the State of Mississippi and Settling Defendants agree that, pursuant to the Most Favored Nation clause of the Settlement Agreement, the Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Mississippi and Settling Defendants have agreed on the terms of revisions to the Settlement Agreement in light of the Minnesota Settlement, as set forth in this Stipulation of Amendment and the Agreed Order attached as Exhibit 1 hereto; and
WHEREAS, the parties hereto have further agreed jointly to petition the Court for approval of the Agreed Order:
NOW, THEREFORE, BE IT KNOWN THAT, pursuant to the Most Favored Nation clause of the Settlement Agreement and in consideration of their mutual agreement to the terms of this Stipulation of Amendment (including, inter alia, waiver of any further claim to revise the Settlement Agreement pursuant to the Most Favored Nation clause, except as expressly provided herein), 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:
1. Amendment of Settlement Agreement. The provisions of this Stipulation of Amendment supplement the terms of the Settlement Agreement,
which shall remain in full force and effect except insofar as they are expressly revised by the provisions of this Stipulation of Amendment.
2. Voluntary Agreement of the Parties. The Court may, upon the State's application, enter the Agreed Order attached hereto as Exhibit A. The State and Settling Defendants understand that Congress may enact legislation dealing with some of the issues addressed in the Settlement Agreement, this Stipulation of Amendment or the Agreed Order. Settling Defendants and their assigns, affiliates, agents and successors hereby voluntarily waive any right to challenge the Settlement Agreement, this Stipulation of Amendment or the Agreed Order, directly or through third parties, on the ground that any term thereof or hereof is unconstitutional, outside the power or jurisdiction of the Court or preempted by or in conflict with any current or future federal legislation (except insofar as any terms of the Settlement Agreement (as revised hereby) or the Agreed Order that relate to matters other than payments are irreconcilable with any such future federal legislation).
3. Definitions. For the purposes of the Settlement Agreement, this Stipulation of Amendment and the Agreed Order, the following terms shall have the meanings set forth below:
(a) "Consumer Price Index" means 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;
(b) "Market Share" means a Settling Defendant's
respective share of sales of cigarettes, by number of individual
cigarettes shipped for consumption in the United States, during
(i) with respect to payments made pursuant to paragraph 7 of this
Stipulation of Amendment, 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 Stipulation of Amendment and the Settlement
Agreement, the calendar year immediately preceding the year in
which the payment at issue is due, regardless of when such
payment is made;
(c) "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;
(d) "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;
(e) "Tobacco Products" means Cigarettes and Smokeless Tobacco; and
(f) "Children" means persons under the age of 18;
The above definitions supplement the definitions provided in the Settlement Agreement and, insofar as they differ, supersede them.
4. Settlement Receipts. The payments to be made by Settling Defendants under the Settlement Agreement and this Stipulation of Amendment constitute reimbursement for public health expenditures of the State of Mississippi and the political subdivisions and agencies of the State of Mississippi, including but not limited to the Mississippi State Employees Health Insurance Plan, University Medical Center and charity hospitals, as well as for Medicaid expenditures of the State of Mississippi. Any payments made by Settling Defendants in a given year are in settlement of claims for damages by the State in the year of 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 the Settlement Agreement or this Stipulation of Amendment is made in settlement of an actual or potential liability for a fine, penalty (civil or criminal) or enhanced damages or as the cost of a tangible or intangible asset or other future benefit. In consonance with the relief sought by this Action and the Proposed Resolution, the parties hereto anticipate that the funds provided hereunder and under the Settlement Agreement, other than funds provided pursuant to the Settlement Agreement that are dedicated for the Mississippi Pilot Program and legal expense reimbursement, will be used for health-related expenditures of the State of Mississippi. This paragraph 4 supersedes paragraph 11 of the Settlement Agreement, which is hereby rendered null, void and of no further effect.
5. Supplemental Initial Payment. Each Settling Defendant severally shall cause to be paid, pro rata in proportion to its Market Share and in accordance with and subject to paragraph 17 of this Stipulation of Amendment, to an account designated in writing by the State of Mississippi, its share of $41,738,000, to be paid on or before January 4, 1999; its share of $145,173,000, to be paid on or before January 3, 2000; its share of $145,173,000, to be paid on or before January 2, 2001; its share of $145,173,000, to be paid on or before January 2, 2002; and its share of $72,743,000, to be paid on or before January 2, 2003. The payments made by Settling Defendants pursuant to this paragraph shall be adjusted upward
by the greater of 3% or the actual total percent change 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 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 adjustment of payments set forth in Appendix A hereto. The payment due to be made by Settling Defendants pursuant to this paragraph 5 on or before January 4, 1999, shall not be subject to adjustment for inflation or in accordance with the formula for adjustment of payments set forth in Appendix A hereto.
6. Acceleration of Supplemental Initial Payment. In the event that any Settling Defendant fails to make any payment required of it pursuant to paragraph 5 of this Stipulation of Amendment (a "Defaulting Defendant") by the applicable date set forth in such paragraph 5 (a "Missed Payment"), the State of Mississippi 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 Mississippi shall have the option of providing notice to each of the Settling Defendants of such continued non-payment. In the event that the State of Mississippi elects to provide such notice, any or all of the Settling Defendants (other than the Defaulting Defendant) shall 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 Mississippi 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 paragraph 5 of this Stipulation of Amendment that have yet to come due prior to the conclusion of such additional 15-day period shall be accelerated and immediately become due and owing to the State of Mississippi from each Settling Defendant, pro rata in proportion to its Market Share; provided, however, that 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 Consumer Price Index, 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 made pursuant to this paragraph 6, and
(b) shall all immediately be adjusted in accordance with the formula for
adjustment of payments set forth in Appendix A hereto.
Nothing in this paragraph 6 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 Mississippi by any other Settling Defendant. All obligations of the Settling Defendants pursuant to this paragraph 6 are intended to be and shall remain several, and not joint.
7. Annual Payments. Each of the Settling Defendants agrees that, beginning on December 31, 1998 (subject to adjustment for appropriate allocation among Settling Defendants by January 30, 1999), 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 Mississippi, in accordance with and subject to paragraph 17 of this Stipulation of Amendment, pro rata in proportion to its respective Market Share, its share of 1.7% 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 7 shall be adjusted upward by the greater of 3% or the actual total percent change in 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. This paragraph 7 supersedes paragraph 9 of the Settlement Agreement (and, insofar as not already superseded thereby, paragraph 3 of the MOU), which is hereby rendered null, void and of no further effect.
8. Determination of Market Share. In the event of a disagreement between or among any Settling Defendants as to their respective shares of any payment due to be paid on a Market Share basis pursuant to the Settlement Agreement and this Stipulation of Amendment, each Settling Defendant shall pay its undisputed share of such payment promptly on or before the date on which such payment is due, and shall, within 21 days of such date, submit copies of its federal excise tax reports for the year in question to a third party to be selected by agreement of Settling Defendants (the "Third Party"), who shall determine the Market Share of each Settling Defendant within 3 business days of receipt of such federal excise tax reports. The decision of the Third Party shall be final and non-appealable, and shall be communicated by facsimile to each person designated to receive notice
under paragraph 23 of the Settlement Agreement. Each Settling Defendant shall, within two business days of receipt of the Third Party's decision, pay the State or such other Settling Defendant, as appropriate, the difference, if any, between (1) the amount that such Settling Defendant has already paid with respect to the payment in question and (2) the amount of the payment in question that corresponds to such Settling Defendant's Market Share as determined by the Third Party, together with interest accrued from the original date on which the payment in question was due, at the prime rate as published in the Wall Street Journal on the latest publication date on or before the original date on which the payment in question was due, plus 3%.
9. Adjustments in Event of Federal Legislation. In the event that federal tobacco legislation is enacted before November 30, 2000 that provides for payments by tobacco companies (whether in the form of settlement payment, tax or otherwise) ("Tobacco Legislation"):
(a) Settling Defendants shall be entitled to receive a dollar for dollar offset against the annual payments required under paragraph 7 of this Stipulation of Amendment of any amounts that the State of Mississippi could elect to receive pursuant to such Tobacco Legislation ("Federal Settlement Funds"), up to the full amount of such annual payments, except to the extent that:
(i) such Federal Settlement Funds are required to be used for purposes other than health care or tobacco-related purposes;
(ii) such Tobacco Legislation does not provide for the abrogation, settlement or relinquishment of state tobacco-related claims; or
(iii) state receipt of such Federal Settlement Funds is conditioned upon (A) the relinquishment of rights or benefits under the Settlement Agreement (including this Stipulation of Amendment and the Agreed Order) (excepting any annual payment amounts subject to the offset); or (B) actions or expenditures by the state unrelated to health care or tobacco (including but not limited to tobacco education, cessation, control or enforcement).
(b) Nothing in this paragraph 9 shall reduce (i) the payments made to the State of Mississippi pursuant to paragraphs 7 and 8 of the Settlement Agreement and paragraphs 5 and 6 of this Stipulation of Amendment (by offset, credit, recoupment, refund or otherwise); or (ii) the percentage figure (1.7%) used to determine the State of Mississippi's annual payments pursuant to paragraph 7 of this Stipulation of Amendment. Nothing in this paragraph 9 is intended to or shall reduce the total amounts payable by Settling Defendants to the State of Mississippi under the Settlement
Agreement (as revised hereby) by an amount greater than the amount of Federal Settlement Funds that the State of Mississippi could elect to receive.
This paragraph 9 supersedes paragraph 10 of the Settlement Agreement (and, insofar as not already superseded thereby, paragraph 5 of the MOU), which is hereby rendered null, void and of no further effect.
10. Clarification of Scope of State's Release. The release of claims provided in paragraph 13 of the Settlement Agreement shall, with respect to the Claims identified in subparagraph (2) thereof, apply only to monetary Claims and, further, shall not operate as a release of any person, party or entity (whether or not a signatory to the Settlement Agreement or this Stipulation of Amendment) as to any of the obligations undertaken in the Settlement Agreement (as revised hereby) in connection with a monetary breach or default thereof. This paragraph 10 does not supersede but rather supplements and clarifies the scope of the release provided in paragraph 13 of the Settlement Agreement.
11. Limited Most-Favored Nation Provision. In partial consideration for the monetary payments to be made by Settling Defendants pursuant to this Stipulation of Amendment, the State of Mississippi agrees that, if Settling Defendants enter into any future pre-verdict settlement agreement of other similar litigation brought by a non-federal governmental plaintiff, or any amendment to
any such existing settlement agreement, on terms more favorable to such non-federal governmental plaintiff than the terms of the Settlement Agreement (including this Stipulation of Amendment and the Agreed Order) (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement (including this Stipulation of Amendment and the Agreed Order) 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 Settling Defendants with respect to monetary payments to be made pursuant to such agreement;
(b) a guarantee by the parent company of any of Settling Defendants or other assurances of payment or creditors' remedies with respect to monetary payments to be made pursuant to such agreement;
(c) for the implementation of non-economic tobacco-related public health measures different from those contained in the Settlement Agreement (including this Stipulation of Amendment and the Agreed Order);
(d) for no offset of Federal Settlement Funds against annual settlement payments pursuant to such settlement agreement; or
(e) for an offset term more favorable to the plaintiff than the offset provisions of paragraph 9 of this Stipulation of Amendment,
then the Settlement Agreement shall, at the option of the Office of the Attorney General of the State of Mississippi, be revised to include terms comparable to such terms.
This paragraph 11 supersedes paragraph 15 of the Settlement Agreement (and, insofar as not already superseded thereby, paragraph 7 of the MOU), which is hereby rendered null, void and of no further effect. The State of Mississippi hereby acknowledges that, pursuant to the terms of this paragraph 11, it has irrevocably waived any future claim to revise the terms of the Settlement Agreement or this Stipulation of Amendment pursuant to paragraph 15 of the Settlement Agreement (or paragraph 7 of the MOU) (except as provided in paragraph 23 of this Stipulation of Amendment), and it hereby further covenants and agrees that, in consideration for Settling Defendants' agreement to the terms of this Stipulation of Amendment, it shall not hereafter seek to revise the Settlement Agreement or this Stipulation of Amendment, except as expressly provided in this paragraph 11 (or pursuant to mutually agreeable amendment by the parties hereto as provided in paragraph 22 of the Settlement Agreement and paragraph 19 hereof).
12. Settling Defendants' Assurances. Settling Defendants agree:
(a) to support the legislative initiatives to enact new laws and administrative initiatives to promulgate new rules described in paragraph 6 of the Settlement Agreement; and
(b) not to support in Congress or any other forum legislation, rules or policies which would preempt, override, abrogate or diminish the State's rights or recoveries under the Settlement Agreement (as amended hereby). Except as specifically provided in the foregoing sentence, nothing in this Settlement Agreement (including this Stipulation of Amendment and the Agreed Order) shall be deemed to restrain the parties from advocating terms of any national settlement or taking any other positions on issues relating to tobacco.
13. Disclosure of Payments. 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" within the meaning of Miss. Code Ann. SECTIONS 5-8-3, 5-8-7 (Supp. 1997)), if the 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 Mississippi 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 Mississippi in any way relating to Tobacco Products or their use; and
(c) Any payment (other than a "campaign contribution" under Miss. Code Ann. SECTIONS 23-15-801 et. seq. (1972 & Supp. 1997) to, or for the benefit of, a state or local official in Mississippi, whether made directly by the Settling Defendant or indirectly through an employee of the Settling Defendant acting within the scope of his employment, or through an affiliate, lobbyist or other agent acting under the substantial control of the Settling Defendant.
Disclosures required under this paragraph 13 shall be filed with the Office of the Attorney General and the Office of the Governor on the first day of February, May, August and November 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:
o The name, address, telephone number and e-mail address of the recipient;
o The amount of each payment described in this paragraph 13; and
o The aggregate amount of all payments described in this paragraph 13 to the recipient in the calendar year.
Information disclosed pursuant to this paragraph 13 is a "public record" within the meaning of the Mississippi Public Records Act of 1983, Miss. Code Ann. SECTIONS 25-61-1 et seq. (1972 & Supp. 1997).
14. Prohibition of Certain Payments for Product Placement. Settling Defendants shall not make or cause to be made, in connection with any motion picture made in the United States, 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.
15. Prohibition on Promotional Merchandise. 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 Mississippi, 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.
16. Document Production. Settling Defendants shall provide to the State of Mississippi a copy of any CD-ROMs of documents that Settling Defendants have agreed to produce, pursuant to the Minnesota Settlement, to the document depository established in connection with the lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994), with a copy of the accompanying transmittal letter provided to each person designated to receive notice under paragraph 23 of the Settlement Agreement.
17. Court Approval. The parties hereto agree to submit this Stipulation of Amendment promptly to the Court for its review and approval. If the Court refuses to approve this Stipulation of Amendment or any material provision hereof, or if such approval is modified in any material respect or set aside on appeal, then this Stipulation of Amendment shall be canceled and terminated and it and all orders issued pursuant hereto (including the Agreed Order) shall become null and void and of no further effect. Any such cancellation or termination of this Stipulation of Amendment shall not result in the cancellation or termination of the Settlement Agreement as approved by the Court on December 29, 1997. All payments described in this Stipulation of Amendment shall be paid into a special escrow account, pursuant to the terms of a mutually acceptable escrow agreement (the "MFN Escrow Agreement"), and if so paid shall remain in said escrow account, until such time as (1) the time for appeal or to seek review of the Court's order
approving this Stipulation of Amendment has expired without the filing of any notice of appeal or petition for review; or (2) in the event of any such appeal or petition, the appeal or the petition has been dismissed or the Court's order has been affirmed in all material respects by the court of last resort to which such appeal or petition has been taken and such dismissal or affirmance has become no longer subject to further appeal or review. Any payments made into escrow shall be disbursed from escrow only in strict accordance with the terms of the MFN Escrow Agreement.
18. Obligations Several, Not Joint. All obligations of the Settling Defendants pursuant to the Settlement Agreement and this Stipulation of Amendment are intended to be and shall remain several, and not joint.
19. Applicable Provisions of Settlement Agreement. The provisions of paragraphs 17 (Representations of Parties); 19 (Headings), 20 (No Determination or Admission), 21 (Non-Admissibility), 22 (Amendment), 23 (Notices), 24 (Cooperation), 26 (Construction), 27 (Severability), 28 (Intended Beneficiaries) and 29 (Counterparts) of the Settlement Agreement shall be equally applicable to this Stipulation of Amendment as though fully set forth herein, and all references to the Settlement Agreement in the paragraphs thereof specifically listed in this paragraph 19 shall be construed to include this Stipulation of Amendment.
20. Release of Right to Additional Compensation. In consideration for the terms hereof, including, inter alia, the provisions of paragraph 5 hereof, the State of Mississippi hereby irrevocably releases Settling Defendants from any claim for additional compensation pursuant to paragraph 16 of the Settlement Agreement (and, insofar as not already superseded thereby, paragraph 8 of the MOU), the provisions of which regarding the State's rights to additional compensation are hereby rendered null, void and of no further effect.
21. Governing Law. The Settlement Agreement (including this Stipulation of Amendment and the Agreed Order) shall be governed by the laws of the State of Mississippi without regard to the conflict of law rules of such State. This paragraph supersedes paragraph 25 of the Settlement Agreement, which is hereby rendered null, void and of no further effect.
22. Attorneys' Fees. The parties hereto acknowledge that the entire obligation of Settling Defendants regarding payment of private counsel's fees pursuant to paragraph 16 of the Settlement Agreement (and, insofar as not already superseded thereby, paragraph 8 of the MOU) is set forth in the Mississippi Fee Payment Agreement dated July 2, 1998. The Attorney General represents that all of the State's outside counsel that have represented the State in connection with this action are, by and through their authorized representatives, signatories to the Mississippi Fee Payment Agreement. Under no circumstances shall Settling
Defendants' entry into this Stipulation of Amendment or the Mississippi Fee Payment Agreement be construed as, or deemed to be, evidence of or an admission or concession that the Settlement Agreement can be revised pursuant to the Most Favored Nations clause without incorporation of all terms of any settlement agreement that provides the occasion for any such revision, including all terms with respect to attorneys' fees.
23. Conditioned on Minnesota Settlement. In the event that a court order or other judicial determination is issued on or before January 2, 2003 that overturns, voids or invalidates the Minnesota Settlement or otherwise declares it to be unenforceable (such that Settling Defendants are relieved from making payments required under the Minnesota Settlement) (the "Minnesota Order"), Settling Defendants shall have the option to elect not to make any payment pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that becomes due on or after the date of such Minnesota Order. In the event that Settling Defendants make such an election:
(a) Settling Defendants shall not be obligated to make any payment pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that becomes due on or after the date of the Minnesota Order; provided, however, that if the Minnesota Order is reversed on appeal or otherwise set aside, Settling Defendants shall be obligated to make any payments
pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that were not made when initially due as result of the Minnesota Order;
(b) the provisions of paragraph 11 of this Stipulation of Amendment shall not apply to preclude the application of paragraph 15 of the Settlement Agreement with respect to any pre-verdict settlement agreement described therein entered into after the date of the Minnesota Order; and
(c) Settling Defendants shall be entitled to a credit, in the amount of any payments made pursuant to paragraphs 5 and 6 of this Stipulation of Amendment, against any payments due to the State of Mississippi as a result of application of paragraph 15 of the Settlement Agreement in connection with any pre-verdict settlement agreement entered into after the date of the Minnesota Order, pursuant to subparagraph (b) of this paragraph 23.
No other provision of the Settlement Agreement, this Stipulation of Amendment or the Consent Decree shall be affected by the Minnesota Order. Settling Defendants will provide the State of Mississippi with notice of any filing seeking to obtain a Minnesota Order.
24. Entire Agreement of Parties. The Settlement Agreement (including for purposes of this paragraph 24 this Stipulation of Amendment, the Mississippi Fee Payment Agreement and the Agreed Order) contains an entire, complete and
integrated statement of each and every term and provision agreed to by and among the parties hereto relating in any way to the settlement of the tobacco litigation brought by the State of Mississippi, and is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Stipulation of Amendment as of this 2nd day of July, 1998.
STATE OF MISSISSIPPI, acting by and through Michael C. Moore, its duly elected and authorized Attorney General
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO
COMPANY
BROWN & WILLIAMSON TOBACCO
CORPORATION
LORILLARD TOBACCO COMPANY
General Counsel
APPENDIX A
FORMULA FOR CALCULATING VOLUME ADJUSTMENTS
Any payment that by the terms of the Stipulation of Amendment 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 cigarettes shipped for domestic consumption by Settling Defendants in the Applicable Year (as defined hereinbelow) (the "Actual Volume") is greater than the aggregate number of cigarettes shipped for domestic consumption by 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 cigarettes for the Applicable Year (the "Actual Net Operating Profit") is greater than the Settling Defendants' aggregate net operating profits from domestic sales of cigarettes 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 1.7% of 25% of such increase in such profits. For purposes of this Appendix, "net operating profits from domestic sales of cigarettes" shall mean net operating profits from domestic sales of cigarettes 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 Settling Defendants' aggregate net operating profits from domestic sales of cigarettes shall be derived using the same methodology as was employed in deriving such Settling Defendants' aggregate net operating profits from domestic sales of cigarettes 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 7 of the Stipulation of Amendment, 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 the Stipulation of Amendment, the calendar year immediately preceding the year in which the payment at issue is due, regardless of when such payment is made.
EXHIBIT 1
IN THE CHANCERY COURT OF JACKSON COUNTY,
STATE OF MISSISSIPPI
)
IN RE MIKE MOORE, ATTORNEY GENERAL, ex. rel. ) CAUSE No. 94-1429
STATE OF MISSISSIPPI TOBACCO LITIGATION )
)
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AGREED ORDER APPROVING STIPULATION OF
AMENDMENT TO SETTLEMENT AGREEMENT
PURSUANT TO COURT ORDER OF DECEMBER 29, 1997
WHEREAS, on October 17, 1997, the State of Mississippi and certain Defendants entered into a Comprehensive Settlement Agreement and Release (the "Settlement Agreement") to settle and resolve with finality all present and future claims against all parties to this litigation relating to the subject matter of this litigation which have been or could have been asserted by any of the parties hereto;
WHEREAS, the Settlement Agreement was approved and adopted as an enforceable order of the Court pursuant to Court Order dated December 29, 1997;
WHEREAS, the Settlement Agreement contains a "Most Favored Nation" clause which provides that, in the event that Settling Defendants enter into a future pre-verdict settlement agreement of other litigation brought by a non-federal governmental plaintiff on terms more favorable to such governmental plaintiff than the terms of the Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement
EXHIBIT 1
Agreement shall be revised so that the State of Mississippi will obtain treatment at least as relatively favorable as any such non-federal governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants entered into a pre-verdict settlement agreement with the State of Minnesota to settle the lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994) (the "Minnesota Settlement");
WHEREAS, the State of Mississippi and Settling Defendants agree that, pursuant to the Most Favored Nations clause of the Settlement Agreement, the Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Mississippi and Settling Defendants have agreed on the terms of the revisions to the Settlement Agreement as set forth in a Stipulation of Amendment to Settlement Agreement and for Entry of Agreed Order executed on July 2, 1998 (the "Stipulation of Amendment");
WHEREAS, the Stipulation of Amendment provides for entry of this Agreed Order and, further, provides that the Settling Defendants have waived as specified therein their right to challenge the terms of this Agreed Order as being superseded or preempted by future congressional enactments; and
WHEREAS, the Attorney General believes the entry of this Agreed Order is appropriate and in the public interest;
EXHIBIT 1
NOW, THEREFORE, the State of Mississippi and Settling Defendants having come before the Court on their joint motion Ore Tenus for approval of a Stipulation of Amendment to the Settlement Agreement pursuant to the Most Favored Nations clause of the Settlement Agreement and this Court's December 29, 1997 Judgment of Dismissal and Order Approving Settlement Agreement (the "December 29, 1997 Order"), and the Court having reviewed and considered the Stipulation of Amendment and otherwise being fully advised in the premises, it is hereby ORDERED, ADJUDGED and DECREED as follows:
1. Approval. Pursuant to the Settlement Agreement and this Court's December 29, 1997 Order, this Court has continuing jurisdiction to enforce and implement the terms of the Settlement Agreement, including the Most Favored Nations clause of the Settlement Agreement. The Court finds that the terms of the Stipulation of Amendment are just and in the best interests of the State of Mississippi and Settling Defendants, and the same is hereby approved. The parties are directed to comply with the terms of the Stipulation of Amendment.
2. Jurisdiction and Venue. In keeping with the Settlement Agreement and this Court's December 29, 1997 Order, the Court retains jurisdiction for the purpose of enforcement of the Settlement Agreement (as amended by the Stipulation of Amendment) and this Agreed Order. Any party to this Agreed Order may apply to this Court at any time for such further orders and directions as
EXHIBIT 1
may be necessary or appropriate for the construction and enforcement of the Settlement Agreement, the Stipulation of Amendment and this Agreed Order.
3. Definitions. The definitions set forth in the Settlement Agreement (as supplemented or superseded by the Stipulation of Amendment) are incorporated by reference herein.
4. Applicability. This Agreed Order 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 entity acting in concert or participating with them. The remedies and penalties for a violation of this Agreed Order 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 Agreed Order to impose or assess a penalty against any employee, officer or director of Settling Defendants or other person or entity as a consequence of a violation of this Agreed Order.
5. Effect on Third Parties. This Agreed Order 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.
6. Injunctive Relief. Settling Defendants are permanently enjoined from:
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(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 Mississippi, 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; provided, however, that nothing in this paragraph shall limit the exercise of any First Amendment right or any defense or position which persons bound by this Agreed Order 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 Tobacco Products;
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(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 Mississippi 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 Mississippi.
7. No Determination or Admission. The Settlement Agreement having been executed prior to the taking of any testimony, no final determination of any violation of any provision of law has been made in this Action. This Agreed Order 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 any liability or any wrongdoing whatsoever on the part of any person covered by the releases provided in paragraphs 12, 13 and 14 of the Settlement Agreement; nor shall this Agreed Order be construed as, or deemed to be, an admission or concession or evidence of personal jurisdiction by any person not a party to this Agreed Order. Defendants specifically disclaim any liability or wrongdoing whatsoever with respect to the claims and allegations asserted against them in this Action and Settling Defendants have entered into the Settlement Agreement and the Stipulation of Amendment, and have stipulated to entry of this Agreed Order, solely to avoid the further expense, inconvenience, burden and risk of litigation.
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8. Modification. This Agreed Order 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 paragraph 4 of this Agreed Order 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 Agreed Order 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 Agreed Order. The provisions of this paragraph shall not be construed to limit or affect any future modification of the Settlement Agreement (as amended by the Stipulation of Amendment) in the manner provided in paragraphs 11 and 23 of the Stipulation of Amendment.
9. Enforcement and Attorneys' Fees. In any proceeding which results in a finding that a Settling Defendant violated this Agreed Order, the responsible Settling Defendant or Settling Defendants shall pay the State's costs and attorneys' fees incurred in such proceeding.
10. Non-Exclusivity of Remedy. The remedies in this Agreed Order are cumulative and in addition to any other remedies the State may have at law or
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equity. Nothing herein shall be construed to prevent the State from bringing any action simply because the conduct that is the basis for such action may also violate this Agreed Order.
SO ORDERED AND ADJUDGED, this the ___ day of July, 1998.
APPROVED:
Exhibit 99.3
TEXAS FEE PAYMENT AGREEMENT
This Texas Fee Payment Agreement (the "Agreement") is entered into as of July 24, 1998, by and among Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and United States Tobacco Company (collectively and severally "Settling Defendants" and each individually a "Settling Defendant"), Walter Umphrey, John M. O'Quinn, P.C., John Eddie Williams, Jr., Reaud, Morgan & Quinn, Inc., The Nix Law Firm and Ness, Motley, Loadholt, Richardson & Poole (collectively, "Private Counsel"), the Law Offices of Marc D. Murr, P.C. ("Other Texas Counsel") and the State of Texas, in connection with the lawsuit State of Texas v. American Tobacco Co., No. 5-96CV-91 (E.D. Tex. filed Mar. 28, 1996) (the "Action").
WITNESSETH:
WHEREAS, on January 16, 1998, the State of Texas and Settling Defendants entered into a comprehensive settlement agreement to settle and resolve with finality all present and future civil claims relating to the subject matter of the Action (the "Settlement Agreement"), which Settlement Agreement was approved by the United States District Court for the Eastern District of Texas (the "Court") and adopted as an enforceable order of the Court pursuant to Court Order dated January 22, 1998.
WHEREAS, paragraph 17 of the Settlement Agreement and Exhibit 1 thereto provide that Settling Defendants shall pay reasonable attorneys' fees to Private Counsel and Other Texas Counsel (collectively "Texas Counsel"), in an amount set by arbitration, subject to an appropriate annual cap on all such payments of attorneys' fees by Settling Defendants, as well as other conditions set forth therein;
WHEREAS, paragraph 16 of the Settlement Agreement contains a "Most Favored Nation" clause which provides that, in the event that Settling Defendants enter into a future pre-verdict settlement agreement of other litigation brought by a non-federal governmental plaintiff on terms more favorable to such governmental plaintiff than the terms of the Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement shall be revised so that the State of Texas
will obtain treatment at least as relatively favorable as any such non-federal governmental entity;
WHEREAS, on May 8, 1998, certain Settling Defendants entered into a pre-verdict settlement agreement with the State of Minnesota (the "Minnesota Settlement"), which includes provisions for payment of attorneys' fees to private counsel for the State of Minnesota;
WHEREAS, on July 24, 1998, Settling Defendants and the State of Texas entered into a Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree (the "Stipulation of Amendment") to resolve any disputes with respect to the Most Favored Nation clause of the Settlement Agreement, including any disputes regarding payment of attorneys' fees, in light of the Minnesota Settlement; and
WHEREAS, Settling Defendants, the State of Texas and Texas Counsel, in order to resolve any disputes with respect to paragraphs 16 and 17 of the Settlement Agreement, and to describe more fully the procedures that will govern Settling Defendants' payment of fees to Texas Counsel, have agreed to the terms of this Agreement:
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of their mutual agreement to the terms of this Agreement, the State of Texas's and Settling Defendants' mutual agreement to the terms of the Stipulation of Amendment, and such other consideration described herein, including the release of certain claims against Settling Defendants, the sufficiency of which is hereby acknowledged, the parties hereto, acting by and through their authorized agents, memorialize and agree as follows:
SECTION 1. Agreement to Pay Fees.
Settling Defendants will pay reasonable attorneys' fees to Texas Counsel (as identified by the Attorney General pursuant to section 21 hereof) for their representation of the State of Texas in connection with the Action. The amount of such fees will be set by a panel of three independent arbitrators (the "Panel") whose decisions as to the amount of fees to be paid in connection with this Agreement ("Fee Award(s)") shall be final and not appealable. The procedures governing Settling Defendants' obligation to pay any such Fee Awards, including the procedures for making, and the timing of payments in satisfaction of, such Fee Awards shall be as provided herein.
SECTION 2. Aggregate National Caps on Payment of Certain Fees.
Settling Defendants' payment of any Fee Award pursuant to this Agreement shall be subject to the payment schedule and the annual and quarterly aggregate national caps specified in sections 13, 14, 15 and 16 hereof, which shall apply to:
(a) all payments of attorneys' fees pursuant to an award arbitrated by the Panel ("Fee Award") in connection with the settlement of any tobacco and health cases (other than non-class action personal injury cases brought directly by or on behalf of a single natural person or the survivor of such person or for wrongful death, or any non-class action consolidation of two or more such cases) ("Tobacco Cases") on terms that provide for payment by Settling Defendants or other defendants acting in agreement with Settling Defendants (collectively, "Participating Defendants") of fees with respect to private counsel retained by the plaintiff in connection with any such case ("Outside Counsel"), subject to an annual cap on payment of all such fees;
(b) all payments of attorneys' fees (other than fees for attorneys of Participating Defendants) pursuant to a Fee Award for activities in connection with Tobacco Cases resolved by operation of federal legislation that either (i) implements the terms of the June 20, 1997 Proposed Resolution (or a substantially equivalent federal program) (the "Proposed Resolution") or (ii) imposes an enforceable obligation on Participating Defendants to pay attorneys' fees with respect to Outside Counsel (any such legislation hereinafter referred to as "Federal Legislation"); and
(c) all payments of attorneys' fees and certain other professional fees (other than fees for attorneys or agents of Participating Defendants) pursuant to a Fee Award for contributions made toward enacted Federal Legislation. In the event that Federal Legislation is enacted, the terms "Outside Counsel" and "Eligible Counsel" shall apply not only to persons otherwise falling within the definitions of such terms herein but also to all persons granted Fee Awards for such contributions (such persons being Eligible Counsel with respect to each month beginning with the month the Federal Legislation was enacted).
Nothing in this Agreement shall be construed to require any Settling Defendant to pay Fee Awards in connection with any litigation other than the Action.
SECTION 3. Exclusive Obligation of Settling Defendants; Release.
The provisions set forth herein constitute the entire obligation of Settling Defendants with respect to payment of attorneys' fees in connection with the Action and the exclusive means by which Texas Counsel may seek payment of fees by Settling Defendants in connection with the Action. The parties hereto acknowledge that the provisions for payment set forth herein are the entirety of Settling Defendants' obligations with respect to payment of attorneys' fees pursuant to paragraph 17 of the Settlement Agreement. The State of Texas agrees that Settling Defendants have no obligation to pay attorneys' fees pursuant to paragraph 17 of the Settlement Agreement with respect to any counsel other than Texas Counsel (as identified by the Attorney General pursuant to section 21 hereof), and that Settling Defendants have no other obligation to pay fees or otherwise compensate Texas Counsel, any other counsel or representative of the State of Texas or the State of Texas itself with respect to attorneys' fees in connection with the Action. Each Texas Counsel hereby irrevocably releases Settling Defendants and their respective present and former parents, subsidiaries, divisions, affiliates, officers, directors, employees, representatives, insurers, agents and attorneys (as well as the predecessors, heirs, executors, administrators, successors and assigns of each of the foregoing) from any and all claims that such counsel ever had, now has or hereafter can, shall or may have in any way related to the Action (including but not limited to any negotiations related to the settlement of the Action). The foregoing shall not be construed as a release of any person or entity as to any of the obligations undertaken in this Agreement in connection with a breach thereof.
SECTION 4. No Effect on Texas Counsel's Fee Contracts.
The State of Texas has entered into a contingent-fee contract with certain Private Counsel ("Private Counsel's Contract") and has entered into a fee contract with Other Texas Counsel ("Other Texas Counsel's Contract"). The rights and obligations, if any, of the parties to Private Counsel's Contract and Other Texas Counsel's Contract shall be unaffected by this Agreement. Those Private Counsel that are parties to Private Counsel's Contract shall not be deemed to have waived any rights under Private Counsel's Contract, nor shall Other Texas Counsel be deemed to have waived any rights under Other Texas Counsel's Contract, as a result of their acceptance of payments made pursuant to this Agreement. However, any Private Counsel Payments made in connection with this Action shall be credited against any amounts that may be due to Private Counsel that are parties to Private Counsel's Contract from the State of Texas under Private Counsel's Contract, and any payments received pursuant to this Agreement by Other Texas Counsel shall be credited against any amounts that may be due to
Other Texas Counsel from the State of Texas under Other Texas Counsel's Contract.
SECTION 5. Composition of the Panel.
(a) The first and the second members of the Panel shall both be permanent members of the Panel and, as such, will participate in the determination of all Fee Awards. The third Panel member shall not be a permanent Panel member, but instead shall be a state-specific member selected to determine Fee Awards on behalf of Outside Counsel retained in connection with litigation within a single state. Accordingly, the third, state-specific member of the Panel for purposes of determining Fee Awards with respect to litigation in the State of Texas shall not participate in any determination as to any Fee Award with respect to litigation in any other state (unless selected to participate in such determinations by such persons as may be authorized to make such selections under other agreements).
(b) The members of the Panel shall be selected as follows:
(i) The first member shall be a natural person selected by Participating Defendants, who shall advise Texas Counsel of the name of the person selected by October 8, 1998.
(ii) The second member shall be a natural person selected by agreement of Participating Defendants and a majority of the members of a committee composed of the following members: Joseph F. Rice, Richard F. Scruggs, Steven W. Berman, Walter Umphrey, two representatives of the Castano Plaintiffs' Legal Committee and, at the option of Participating Defendants, one additional representative to serve on behalf of counsel for any one or more states that, subsequent to the date hereof, enter into settlement agreements with Participating Defendants that provide for payment of such states' Outside Counsel pursuant to an arbitrated award of fees. Such second member shall be selected by October 1, 1998.
(iii) The third, state-specific member for purposes of determining Fee Awards with respect to litigation in the State of Texas shall be a natural person selected by Private Counsel, who shall notify Settling Defendants and Other Texas Counsel of the name of the person selected by October 15, 1998.
SECTION 6. Commencement of Panel Proceedings.
No application for a Fee Award shall be presented to the Panel or any Panel member until November 3, 1998. The Panel shall consider and render decisions on applications for Fee Awards in the order in which they are submitted or pursuant to notice by counsel having priority that they have ceded their place to others. In the event that more than one application for a Fee Award is submitted on the same date, the Panel shall consider and render decisions on such applications in the order in which their respective cases were settled. Private Counsel may seek permission from the Panel to make combined presentations of aspects of their respective applications. Settling Defendants shall not oppose any request to combine presentations of applications for Fee Awards in connection with the Action, the lawsuit In re Mike Moore, Attorney General, ex rel. State of Mississippi Tobacco Litig., No. 94-1429 (Miss. Ch. Ct., Jackson County), or the lawsuit State of Florida v. American Tobacco Co., No. 95-1466 AH (15th Jud. Circuit, Palm Beach County).
SECTION 7. Costs of Arbitration.
All costs and expenses of the arbitration proceedings held by the Panel, including compensation of Panel members (but not including any costs, expenses or compensation of counsel making applications to the Panel), shall be borne by Settling Defendants in proportion to their respective Market Shares.
SECTION 8. Application of Private Counsel.
Private Counsel shall make a collective written application to the Panel for a single Fee Award (the "Private Counsel Fee Award") on November 3, 1998. All interested persons, including persons not parties hereto, may submit to the Panel any information that they wish; but interested persons not parties hereto may submit only written materials. The Panel shall consider all such submissions by any party hereto and may consider any such materials submitted by other interested persons. All written submissions relating to applications for a Fee Award in connection with the Action shall be served on all parties hereto by November 13, 1998. Presentations to the Panel shall, to the extent possible, be based on affidavit or video presentation rather than live testimony. The Panel shall preserve the confidentiality of any attorney work-product materials or other similar confidential information that may be submitted. Settling
Defendants will not take any position adverse to the amount of the Fee Award requested by Private Counsel, nor will they or their representatives express any opinion (even upon request) as to the appropriateness or inappropriateness of the amount of any proposed Private Counsel Fee Award. The undersigned outside counsel for Settling Defendants Philip Morris Incorporated and R.J. Reynolds Tobacco Company will appear, if requested, to provide information as to the nature and efficacy of the work of Private Counsel and to advise the Panel that they support a Private Counsel Fee Award of full reasonable compensation under the circumstances.
SECTION 9. Award of Fees to Private Counsel.
The members of the Panel will consider all relevant information submitted to them in reaching a decision as to a Fee Award that fairly provides for full reasonable compensation of Private Counsel for their representation of the State of Texas in connection with the Action. The Panel shall determine the amount of the Private Counsel Fee Award for all Private Counsel collectively no later than December 10, 1998. Given the significance and uniqueness of the Action, the Panel shall not be limited to an hourly-rate or lodestar analysis in determining the amount of the Private Counsel Fee Award, but shall take into account the totality of the circumstances. In considering the amount of the Private Counsel Fee Award, the Panel shall not consider Fee Awards that already have been or yet may be awarded in connection with any other Tobacco Case. The Panel's decisions as to Fee Awards shall be in writing and shall report the amount of the fee awarded (with or without explanation or opinion, at the Panel's discretion).
SECTION 10. Application of Other Texas Counsel.
Other Texas Counsel may submit an application for a Fee Award separate from Private Counsel. The procedures, schedule and process with respect to such application on behalf of Other Texas Counsel shall be the same as the procedures, schedule and process set forth in sections 6, 7, 8 and 9 hereof with respect to the fee application on behalf of Private Counsel, except that Settling Defendants shall be in no way constrained from contesting Other Texas Counsel's entitlement to receive a Fee Award or the amount of the Fee Award requested by Other Texas Counsel.
SECTION 11. Allocation of Payments among Private Counsel.
All payments (including advances) made by Settling Defendants with respect to the Private Counsel Fee Award pursuant to this Agreement ("Private Counsel Payments") shall be paid in the first instance to Walter Umphrey, Esq. (or such other person designated in writing by Private Counsel), on behalf of Private Counsel. Each Private Counsel shall be entitled to receive a percentage of such payment equal to the percentage of any fee recovery allocated to such Private Counsel under the terms of the fee-sharing agreement among Private Counsel (or any written amendment thereto). Settling Defendants shall have no obligation, responsibility or liability with respect to the allocation among Private Counsel, or with respect to any claim of misallocation, of any amounts of any Private Counsel Payment.
SECTION 12. Advances on Payment of Fees.
Each Settling Defendant has paid to Walter Umphrey, Esq., on behalf of Private Counsel, its respective share of $50 million, as listed in Rider B to Exhibit 1 to the Settlement Agreement, as an advance against later Private Counsel Payments. On or before the later of July 31, 1998 or the fifth business day following entry by the Court of an order approving the Stipulation of Amendment, each Settling Defendant shall severally pay to Private Counsel, pro rata in proportion to its Market Share indicated on Schedule A hereto, its respective share of $50 million, as a further advance against later Private Counsel Payments. Each of the advances described in this section shall be credited as provided in section 16 hereof.
SECTION 13. Annual Amount for 1998; Allocation.
(a) For 1998, Settling Defendants shall pay, in the manner described in section 14 hereof, the unsatisfied amount of the Fee Awards (the "Unpaid Fees") of Texas Counsel, and those Participating Defendants so obligated shall make payments with respect to the Unpaid Fees of all other Outside Counsel, in an amount not to exceed $500 million for all such payments described in this subsection.
(b) The amount payable by Settling Defendants with respect to each Fee Award for 1998 shall be determined as follows: The $500 million annual cap for 1998 shall be allocated equally among each month of the year. Except as provided in section 14(b) hereof, each monthly amount shall be allocated to those
Outside Counsel retained in connection with Tobacco Cases settled by Participating Defendants or resolved by Federal Legislation before or during such month, up to the amounts of their respective Unpaid Fees (such counsel being "Eligible Counsel" with respect to such monthly amount). In the event that the monthly amount is less than the sum of Eligible Counsel's Unpaid Fees, the monthly amount shall be allocated to Eligible Counsel in proportion to the amounts of their respective Unpaid Fees (the amount so allocated to each Eligible Counsel for a given month being such counsel's Allocable Share for such month, and the sum of each Outside Counsel's Allocable Shares for each month being such counsel's Allocable Share for 1998).
(c) Settling Defendants represent that, as of the date of this Agreement, the only Tobacco Cases (other than the Action) that have been settled by Participating Defendants on terms that allow for Outside Counsel retained in connection with such cases to seek a Fee Award from the Panel are In re Mike Moore, Attorney General, ex rel. State of Mississippi Tobacco Litig., No. 94-1429 (Miss. Ch. Ct., Jackson County), State of Florida v. American Tobacco Co., No. 95-1466 AH (15th Jud. Cir., Palm Beach County), and Mangini v. R.J. Reynolds Tobacco Co., No. 939359 (Cal. Super. Ct., San Francisco County). In addition, Outside Counsel retained in connection with Mangini v. Brown & Williamson Tobacco Corp., No. 993893 (Cal. Super. Ct., San Francisco County), may under the terms of the settlement in that action "apply to participate in any national, reasonable, 'public benefit' fee award or arbitration process created by a 'national settlement' or 'Congressional Resolution.'"
SECTION 14. Payments with Respect to Annual Amount for 1998.
(a) On December 15, 1998, each Settling Defendant shall severally pay, pro rata in proportion to its Market Share, its share of an initial fee payment with respect to the Private Counsel Award and the Fee Award, if any, on behalf of Other Texas Counsel (the "Initial Texas Fee Payment"), which shall include Texas Counsel's Allocable Share for 1998 as provided in section 13 hereof for each month of 1998 except those with respect to which Texas Counsel's Allocable Share could not be determined as of December 8, 1998, as a result of there being other Eligible Counsel that, as of such date, had not yet been granted or denied a Fee Award by the Panel (either because such counsel's application for a Fee Award was still under consideration by the Panel or for any other reason).
(b) On January 15, 1999, each Settling Defendant shall severally pay, pro rata in proportion to its Market Share, its share of Texas Counsel's Allocable Share for those months of 1998 not included in the Initial Texas Fee Payment.
Texas Counsel's Allocable Share for any such month shall be based on an allocation of the monthly amount among Eligible Counsel having Fee Awards as of December 31, 1998, without regard to whether there may be other Eligible Counsel that have not been granted or denied a Fee Award by the Panel as of such date.
(c) Notwithstanding any provision of this Agreement, Private Counsel shall defer payment of the Private Counsel Payment due from Settling Defendant R.J. Reynolds Tobacco Company ("Reynolds") on December 15, 1998, insofar as necessary for the sum of all deferred amounts of any payments by Reynolds in 1998 with respect to Fee Awards to equal $62 million. Under no circumstances shall this subsection require any increase in any payment to be made by any other Settling Defendant. On January 5, 1999, Reynolds shall pay to Private Counsel the amount, if any, of the Initial Texas Fee Payment deferred pursuant to this subsection.
SECTION 15. Quarterly Amounts for 1999 and Subsequent Years; Allocation.
Within 10 business days after the end of each calendar quarter beginning with the first calendar quarter of 1999, Settling Defendants shall pay, in the manner provided in subsection (d) of this section, the Unpaid Fees of Texas Counsel, and those Participating Defendants so obligated shall make payments with respect to the Unpaid Fees of all other Outside Counsel, in an amount not to exceed $125 million for all such payments, as follows:
(a) In the event that Federal Legislation has been enacted by the end of the calendar quarter with respect to which such quarterly payment is being made (the "Applicable Quarter"):
(i) the quarterly amount shall be allocated among Outside Counsel, up to the amount of their respective Unpaid Fees. Each Outside Counsel shall be allocated an amount of each quarterly payment for the calendar year up to (or, in the event that the sum of such Outside Counsel's Unpaid Fees exceeds the quarterly amount, in proportion to) the amount of such Outside Counsel's Unpaid Fees. Each quarterly payment shall be allocated among Outside Counsel having Unpaid Fees, without regard to whether there are other Outside Counsel that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter. Subsequent quarterly payments shall be adjusted, if
necessary, to account for Outside Counsel that are granted Fee Awards
in a subsequent quarter of the calendar year, as provided in paragraph
(ii)(B) of this subsection.
(ii) In the event that a quarterly payment for the calendar year is less than the sum of all Outside Counsel's Unpaid Fees:
(A) in the case of the first such quarterly payment, the quarterly amount shall be allocated among Outside Counsel in proportion to the amounts of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first quarterly payment that is less than the sum of all such Unpaid Fees, the quarterly amount shall be allocated only to those Outside Counsel, if any, that were not paid a proportionate share of all prior quarterly payments for the calendar year (either because such Outside Counsel's applications for Fee Awards were still under consideration as of the end of the calendar quarters with respect to which such quarterly payments were made or for any other reason), until each such Outside Counsel has been allocated a proportionate share of all prior quarterly payments. In the event that the sum of all such shares exceeds the amount of the quarterly payment, such payment shall be allocated among such Outside Counsel in proportion to the amounts of their respective Unpaid Fees (without regard to whether there are other Outside Counsel that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter).
(b) In the event that Federal Legislation has not been enacted by the end of the Applicable Quarter:
(i) the quarterly amount shall be allocated equally among each of the three months of the calendar quarter. The amount for each such month shall be allocated among those Outside Counsel retained in connection with Tobacco Cases settled before or during such month (such Outside Counsel being "Eligible Counsel" with respect to such monthly amount), each of whom shall be allocated a portion of each such monthly amount up to (or, in the event that the sum of Eligible Counsel's respective Unpaid Fees exceeds such monthly amount, in proportion to) the amount of such Eligible Counsel's Unpaid Fees. The monthly amount for each month of the calendar quarter shall be allocated among Eligible
Counsel having Unpaid Fees, without regard to whether there may be Eligible Counsel that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter. Subsequent quarterly payments shall be adjusted, as necessary, to account for Eligible Counsel that are granted Fee Awards in a subsequent quarter of the calendar year, as provided in paragraph (ii)(B) of this subsection.
(ii) In the event that the amount for a given month is less than the sum of all Eligible Counsel's Unpaid Fees:
(A) in the case of a first quarterly payment, such monthly amount shall be allocated among Eligible Counsel for such month in proportion to the amount of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first quarterly payment, the quarterly amount shall be allocated among only those Outside Counsel, if any, that were Eligible Counsel with respect to any monthly amount paid in a prior quarter of the calendar year but were not allocated a proportionate share of such monthly amount (either because such counsel's applications for Fee Awards were still under consideration as of the end of the calendar quarter containing the month in question or for any other reason), until each such Eligible Counsel has been allocated a proportionate share of all such prior monthly payments for the calendar year. In the event that the sum of all such shares exceeds the amount of the quarterly payment, the quarterly payment shall be allocated among Eligible Counsel in proportion to the amounts of their respective Unpaid Fees (without regard to whether there may be other Eligible Counsel with respect to such prior monthly amounts that have not yet been granted or denied a Fee Award by the Panel as of the end of the Applicable Quarter).
(c) Adjustments pursuant to paragraphs (a)(ii)(B) and (b)(ii)(B) of this section shall be made separately for each calendar year. No amounts paid in any calendar year shall be subject to refund, nor shall any payment in any given calendar year affect the allocation of payments to be made in any subsequent calendar year.
(d) Each Settling Defendant shall severally pay, pro rata in proportion to its respective Market Share, its share of the amounts, if any, allocated to Texas Counsel pursuant to this section.
SECTION 16. Credits and Limitations.
Notwithstanding any other provision of this Agreement, all payments by Settling Defendants with respect to Fee Awards shall be subject to the following:
(a) The advances against future Private Counsel Payments described in section 12 hereof shall be credited against and shall reduce subsequent Private Counsel Payments, beginning with the first quarterly payment for 1999 pursuant to section 15 hereof, in an amount equal to 50% of the Private Counsel Payment in question, until the advances paid by Settling Defendants are fully credited; provided, however, that the sum of all such credits applied in any calendar year with respect to the advances made to Private Counsel described in section 12 hereof shall not exceed $50 million. The amount of any credit made against any such Private Counsel Payment shall be counted toward the annual and quarterly aggregate national caps on all payments made with respect to Outside Counsel, in the amount of the credit applied to any such Private Counsel Payment in any quarterly or annual period. All credits against Private Counsel Payments pursuant to this section shall be allocated among Settling Defendants in proportion to their respective contributions toward the amounts of the advances described in section 12 hereof.
(b) Under no circumstances shall Settling Defendants be required to make payments that would result in aggregate national payments and credits by Participating Defendants with respect to Fee Awards:
(i) during 1998, totaling more than $500 million, except insofar as payments to certain Outside Counsel with respect to 1997 are made in 1998, and except insofar as advances are made in 1998 against payments due in years after 1998;
(ii) during any year beginning with 1999, totaling more than $500 million, excluding payments with respect to any Outside Counsel's Allocable Shares for 1998 that are paid in 1999; and
(iii) during any calendar quarter beginning with the first calendar quarter of 1999, totaling more than $125 million, excluding payments with respect to any Outside Counsel's Allocable Shares for 1998 that are paid
in 1999 and except to the extent that payments and credits with respect to any prior quarter of the calendar year did not total $125 million.
SECTION 17. Contribution to National Legislation.
If Federal Legislation is enacted that implements the Proposed Resolution, a three-member national panel including the two permanent members of the Panel shall consider any application for Fee Awards on behalf of Outside Counsel for contributions made toward the enactment of such Federal Legislation, along with all applications for Fee Awards for professional fees by any other persons who claim to have made similar contributions (other than attorneys or agents of Participating Defendants). No person shall make more than one application for a Fee Award in connection with any such contributions toward enactment of such Federal Legislation. All payments with respect to such Fee Awards, if any, shall be paid on the payment schedule and subject to, and counted in computing, the annual and quarterly national caps described in sections 13, 14, 15 and 16 hereof.
SECTION 18. Payments on Market Share Basis.
All payments due hereunder shall be paid by Settling Defendants pro rata in proportion to their respective Market Shares as provided herein, and each Settling Defendant shall be severally liable for its share of all such payments. Due to the particular corporate structures of Settling Defendants R.J. Reynolds Tobacco Company ("Reynolds") and Brown & Williamson Tobacco Corporation ("Brown & Williamson") with respect to their non-domestic tobacco operations, Settling Defendants Reynolds and Brown & Williamson shall be severally liable for their repsective shares of each payment due pursuant to this Agreement up to (and their liability hereunder shall not exceed) the full extent of their assets used in, and earnings and revenues derived from, their manufacture and sale in the United States of Tobacco Products intended for domestic consumption, and no recourse shall be had against any of their other assets or earnings to satisfy such obligations. Under no circumstances shall any payment due hereunder or any portion thereof become the joint obligation of Settling Defendants or the obligation of any party other than the Settling Defendant from which such payment is originally due, nor shall any Settling Defendant be required to pay a portion of any such payment greater than
its respective Market Share. With respect to the advance to be paid pursuant to section 12 hereof, the Market Share of each Settling Defendant shall be as provided in Schedule A hereto. With respect to the amount for 1998 described in section 13 hereof, the Market Share of each Settling Defendant shall be its respective share pursuant to Appendix A hereto for 1998. With respect to all other payments pursuant to this Agreement, each Settling Defendant's Market Share shall be its respective share pursuant to Appendix A hereto for the 12 month period ending on the last day of the calendar quarter immediately preceding the calendar quarter with respect to which such payment is made.
SECTION 19. Determination of Market Share.
In the event of a disagreement between or among any Settling Defendants as to their respective shares of any payment pursuant to this Agreement (except payments for which each Settling Defendant's Market Share is expressly provided herein), each Settling Defendant shall pay its undisputed share of such payment promptly, on or before the date on which such payment is due, and shall within 21 days submit copies of its audited reports of shipments of Tobacco Products provided to the U.S. Securities and Exchange Commission ("SEC") for the period in question (or, in the case of any Settling Defendant that does not provide such reports to the SEC, audited reports of shipments containing the same shipment information as contained in the reports provided to the SEC) ("Shipment Reports") to a third party to be selected by agreement of Settling Defendants (the "Third Party"), who shall within three business days determine the Market Share of each Settling Defendant. The decision of the Third Party shall be final and non-appealable, and shall be communicated by facsimile to each party hereto. Each Settling Defendant shall, within two business days of receipt of the Third Party's decision, pay Texas Counsel or such other Settling Defendant, as appropriate, the difference, if any, between (1) the amount that such Settling Defendant has already paid with respect to the payment in question and (2) the amount of the payment in question that corresponds to such Settling Defendant's Market Share as determined by the Third Party, together with interest accrued from the original date on which the payment in question was due, at the prime rate as published in the Wall Street Journal on the latest publication date on or before the original date on which the payment in question was due plus 3%.
SECTION 20. Limited Waiver as to Other Terms.
In consideration of Settling Defendants' agreement to the terms hereof, each Texas Counsel hereby covenants and agrees that it will not argue in any forum (other than in proceedings before the Panel relating to their Fee Award application) that the arrangements made in connection with the Florida Settlement, the Mississippi Settlement or the Minnesota Settlement for payment of fees to Outside Counsel for the States of Florida, Mississippi or Minnesota give rise to any claim or entitlement on the part of Texas Counsel (or any other person) in connection with this Action.
SECTION 21. State's Identification of Texas Counsel.
The Attorney General represents and warrants that Schedule B hereto identifies all Texas Counsel.
SECTION 22. Private Counsel's Costs.
Settling Defendants have agreed to reimburse Private Counsel for reasonable costs and expenses incurred in connection with the Action, provided that such costs and expenses are of the same nature as costs and expenses for which Settling Defendants would reimburse their own counsel or agents. To this end, each Settling Defendant has paid to Walter Umphrey, Esq., on behalf of Private Counsel, the respective amount listed for such Settling Defendant in Rider A to Exhibit 1 to the Settlement Agreement, the sum of such payments being $40 million, which equals Private Counsel's best estimate as of the date of the Settlement Agreement of such costs and expenses. Private Counsel shall provide Settling Defendants with an appropriately documented statement of their costs and expenses consistent with the criteria set forth above. Settling Defendants shall promptly pay the amounts of such costs and expenses in excess of $40 million, or shall receive a refund if the total of such costs and expenses is less than $40 million. Any dispute as to the nature or amount of reimbursable costs and expenses shall be decided with finality by the Panel.
SECTION 23. Intended Beneficiaries.
No part of this Agreement creates any rights on the part of, or is enforceable by, any person or entity that is not a party hereto or a person covered by the release described in section 3 hereof. Nor shall any part of this Agreement bind any non-party or determine, limit or prejudice the rights of any such person or entity.
SECTION 24. Definitions.
Terms used herein that are defined in the Settlement Agreement or the Stipulation of Amendment are, unless otherwise defined herein, used in this Agreement as defined in the Settlement Agreement or the Stipulation of Amendment, as applicable.
SECTION 25. Representations of Parties.
The parties hereto hereby represent that this 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.
SECTION 26. No Admission.
This Agreement 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 any liability or wrongdoing whatsoever on the part of any party hereto or any person covered by the release provided under section 3 hereof. Settling Defendants specifically disclaim and deny any liability or wrongdoing whatsoever with respect to the claims released under section 3 hereof and enter into this Agreement for the sole purposes of memorializing Settling Defendants' rights and obligations with respect to payment of attorneys' fees pursuant to the Settlement Agreement and avoiding the further expense, inconvenience, burden and uncertainty of potential litigation.
SECTION 27. Non-admissibility.
This Agreement having been undertaken by the parties hereto in good faith and for settlement purposes only, neither this Agreement nor any evidence of negotiations relating hereto shall be offered or received in evidence in any action or proceeding other than an action or proceeding arising under this Agreement.
SECTION 28. Amendment and Waiver.
This Agreement may be amended only by a written instrument executed by the Attorney General, Texas Counsel and 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 Agreement shall not be deemed to be or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous, of this Agreement.
SECTION 29. Notices.
All notices or other communications to any party hereto shall be in writing (including but not limited to telex, telecopy or similar writing) and shall be given to the respective parties listed on Schedule C hereto at the addresses therein indicated. 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 section including an updated list conformed to Schedule C hereto.
SECTION 30. Governing Law.
This Settlement Agreement shall be governed by the laws of the State of Texas, without regard to the conflict of law rules of such State.
SECTION 31. Construction.
None of the parties hereto shall be considered to be the drafter of this 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.
SECTION 32. Captions.
The captions of the sections of this Agreement are included for convenience of reference only and shall be ignored in the construction and interpretation hereof.
SECTION 33. Execution of Agreement.
This Agreement may be executed in counterparts. Facsimile or photocopied signatures shall be considered valid signatures as of the date hereof, although the original signature pages shall thereafter be appended to this Agreement.
SECTION 34. Certain Court Orders Conditions Precedent.
The terms of this Agreement shall supersede the terms of Exhibit 1 to the Settlement Agreement, and the parties hereto will promptly file a joint motion requesting that the Court approve this Agreement. The parties further agree that Settling Defendants shall not be required to perform any obligation hereunder (excepting Settling Defendants' obligations with respect to the advance to be paid pursuant to section 12 hereof) until such time as (1) the Court issues an order declaring Exhibit 1 to the Settlement Agreement to be null, void and of no further effect; (2) the Court issues an order approving the Stipulation of Amendment; (3) the Court issues the Political Subdivisions Order in the form attached to the
Stipulation of Amendment as Exhibit 2 thereto; (4) the Court issues an order confirming that amounts payable to Texas Counsel pursuant to this Agreement are not funds of the State of Texas and are not subject to appropriation by the State of Texas and that Settling Defendants are under no obligation to pay such amounts to the State of Texas; (5) the 30-day periods to seek review of such orders have expired without the filing of any notice of appeal or petition for review; and (6) in the event of a timely appeal or petition, such appeal or petition has been dismissed or the order in question has been affirmed in all material respects by the court of last resort to which such appeal or petition has been taken and such dismissal or affirmance has become no longer subject to further appeal or review.
SECTION 35. Entire Agreement of Parties.
This Agreement contains an entire, complete and integrated statement of each and every term and provision agreed to by and among the parties hereto with respect to payment of attorneys' fees by Settling Defendants in connection with the Action and is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized representatives, have agreed to this Texas Fee Payment Agreement as of this 24th day of July, 1998.
STATE OF TEXAS, acting by and through Dan Morales, its duly elected and authorized Attorney General
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
General Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
LORILLARD TOBACCO COMPANY
UNITED STATES TOBACCO COMPANY
Executive Vice President & General Counsel
TEXAS COUNSEL
APPENDIX A
MARKET SHARE CALCULATION
The Market Share of each Settling Defendant for purposes of any payment required hereunder shall be equal to the proportion of (1) such Settling Defendant's Aggregate Sales Volume for the period in question to (2) the sum of all Settling Defendants' Aggregate Sales Volumes for the period in question. For purposes of the foregoing:
(a) Each Settling Defendant's Aggregate Sales Volume shall be the sum of such Settling Defendant's Sales Volumes with respect to each type of Tobacco Product.
(b) Each Settling Defendant's Sales Volume with respect to each type of Tobacco Product shall be the number of Units of such type of Tobacco Product sold within the United States by such Settling Defendant during the period in question, as measured by such Settling Defendant's applicable Shipment Reports.
(c) A Unit of Tobacco Product means:
(1) one Cigarette;
(2) .12 ounces of Moist Snuff;
(3) .3 ounces of Loose Leaf, Plug, Twist, Roll or other form of chewing tobacco;
(4) .25 ounces of Dry Snuff; and
(5) .16 ounces of Loose Leaf tobacco suitable for user preparation of cigarettes.
SCHEDULE A
MARKET SHARE PERCENTAGES
Settling Defendant Percentage
Philip Morris Incorporated ...............................49.26
R.J. Reynolds Tobacco Company.............................24.49
Brown & Williamson Tobacco Corp...........................16.20
Lorillard Tobacco Company..................................8.77
United States Tobacco Company..............................1.28
------
TOTAL 100.00
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SCHEDULE B
DESIGNATION OF TEXAS COUNSEL
by the Attorney General
Pursuant to section 21 of the Texas Fee Payment Agreement, I hereby identify as Texas Counsel: (1) Walter Umphrey, John M. O'Quinn, P.C., John Eddie Williams, Jr., Reaud, Morgan & Quinn, Inc., The Nix Law Firm and Ness, Motley, Loadholt, Richardson & Poole ("Private Counsel") and (2) the Law Offices of Marc D. Murr, P.C. ("Other Texas Counsel").
There are no other Texas Counsel entitled to seek any payment of attorneys' fees by Settling Defendants under the Settlement Agreement or the Texas Fee Payment Agreement.
SCHEDULE C
NOTICES
State of Texas
Hon. Dan Morales
Attorney General
P.O. Box 12548
Capitol Station
Austin, TX 78711
Fax: (512) 463-2063
Harold W. Nix
Walter Umphrey Cary Patterson
Provost & Umphrey The Nix Law Firm
490 Park Street 205 Linda Drive
P.O. Box 4905 P.O. Box 679
Beaumont, TX 77704 Daingerfield, TX 75638
Fax: (409) 838-8888 Fax: (903) 645-5389
John M. O'Quinn John Eddie Williams, Jr.
440 Louisiana Street, Suite 2300 8441 Gulf Freeway, Suite 600
Houston, TX 77002 Houston, TX 77017
Fax: (713) 222-6903 Fax: (713) 649-0126
Wayne A. Reaud Marc D. Murr
Reaud, Morgan & Quinn, Inc. Law Offices of Marc D. Murr, P.C.
801 Laurel 1001 Texas Avenue, Suite 1250
Beaumont, TX 77701 Houston, TX 77002-3131
Fax: (409) 833-8236 Fax: (713) 229-8003
Joseph F. Rice
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (803) 720-9290 (continued)
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Settling Defendants
Philip Morris Incorporated: R.J. Reynolds Tobacco Company: -------------------------- ----------------------------- Martin J. Barrington, Esq. Charles A. Blixt, Esq. Philip Morris Incorporated R.J. Reynolds Tobacco Company 120 Park Avenue 401 North Main Street New York, NY 10017-5592 Winston-Salem, NC 27102 Fax: (212) 907-5399 Fax: (336) 741-2998 With a copy to: With a copy to: --------------- --------------- Meyer G. Koplow, Esq. Arthur F. Golden, Esq. Wachtell, Lipton, Rosen & Katz Davis Polk & Wardwell 51 West 52nd Street 450 Lexington Avenue New York, NY 10019 New York, NY 10017 Fax: (212) 403-2000 Fax: (212) 450-4800 Brown & Williamson Tobacco Corp.: Lorillard Tobacco Company: -------------------------------- ------------------------- F. Anthony Burke, Esq. Arthur J. Stevens, Esq. Brown & Williamson Tobacco Corp. Lorillard Tobacco Company 200 Brown & Williamson Tower 714 Green Valley Road 401 South Fourth Avenue Greensboro, NC 27408 Louisville, KY 40202 Fax: (336) 335-7707 Fax: (502) 568-7297 With a copy to: United States Tobacco Company: -------------- ----------------------------- Stephen R. Patton, Esq. Richard H. Verheij Kirkland & Ellis UST Inc. 200 East Randolph Dr. 100 West Putnam Avenue Chicago, IL 60601 Greenwich, CT 06830 Fax: (312) 861-2200 Fax: (203) 863-7233 |
(continued)
Walter Umphrey Wayne A. Reaud Provost & Umphrey Reaud, Morgan & Quinn, Inc. 490 Park Street 801 Laurel P.O. Box 4905 Beaumont, TX 77701 Beaumont, TX 77704 Fax: (409) 833-8236 Fax: (409) 838-8888 John Eddie Williams, Jr. John M. O'Quinn 8441 Gulf Freeway, Suite 600 440 Louisiana Street, Suite 2300 Houston, TX 77017 Houston, TX 77002 Fax: (713) 649-0126 Fax: (713) 222-6903 Harold W. Nix Marc D. Murr Cary Patterson Law Offices of Marc D. Murr, P.C. The Nix Law Firm 1001 Texas Avenue, Suite 1250 205 Linda Drive Houston, TX 77002-3131 P.O. Box 679 Fax: (713) 229-8003 Daingerfield, TX 75638 Fax: (903) 645-5389 Joseph F. Rice Ness, Motley, Loadholt, Richardson & Poole 151 Meeting Street, Suite 600 Charleston, SC 29402 Fax: (803) 720-9290 |
Exhibit 99.4
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
---------------------------------------
)
STATE OF TEXAS, )
)
Plaintiff, )
)
vs. ) No. 5-96CV-91
)
AMERICAN TOBACCO )
COMPANY, et al., )
)
Defendants. )
)
---------------------------------------
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STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT
AND FOR ENTRY OF CONSENT DECREE
THIS STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT AND FOR ENTRY OF CONSENT DECREE (the "Stipulation of Amendment") is made as of the date hereof, by and among the parties hereto, as indicated by their signatures below, to amend the Comprehensive Settlement Agreement and Release entered into by the parties hereto with respect to this Action on January 16, 1998 (the "Settlement Agreement").
WHEREAS, on January 16, 1998, the State of Texas and Settling Defendants entered into the Settlement Agreement to settle and resolve with finality all present and future civil claims against all parties to this litigation
relating to the subject matter of this litigation which have been or could have been asserted by any of the parties hereto;
WHEREAS, the Settlement Agreement was approved and adopted as an enforceable order of the Court pursuant to Court Order dated January 22, 1998.
WHEREAS, the Settlement Agreement contains a "Most Favored Nation" clause which provides that, in the event that Settling Defendants enter into a future pre-verdict settlement agreement of other litigation brought by a non-federal governmental plaintiff on terms more favorable to such governmental plaintiff than the terms of the Settlement Agreement (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement shall be revised so that the State of Texas will obtain treatment at least as relatively favorable as any such non-federal governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation and Lorillard Tobacco Company (the "MFN Settling Defendants") entered into a pre-verdict settlement agreement with the State of Minnesota (the "Minnesota Settlement") to resolve the lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994);
WHEREAS, the State of Texas and MFN Settling Defendants agree that, pursuant to the Most Favored Nation clause of the Settlement Agreement, the Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Texas and Settling Defendants have agreed on the terms of revisions to the Settlement Agreement, including revisions in light of the Minnesota Settlement, as set forth in this Stipulation of Amendment and the attached Consent Decree; and
WHEREAS, the parties hereto have further agreed jointly to petition the Court for approval of the Consent Decree:
NOW, THEREFORE, BE IT KNOWN THAT, pursuant to the Most Favored Nation clause of the Settlement Agreement and in consideration of their mutual agreement to the terms of this Stipulation of Amendment (including, inter alia, waiver of any further claim to revise the Settlement Agreement pursuant to the Most Favored Nation clause, except as expressly provided herein), 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:
1. Amendment of Settlement Agreement. The provisions of this Stipulation of Amendment supplement the terms of the Settlement Agreement, which shall remain in full force and effect except insofar as they are expressly
revised by the provisions of this Stipulation of Amendment. Nothing in this Stipulation of Amendment shall be construed to release Settling Defendants from any of the obligations assumed in paragraphs 6 (Elimination of Billboards and Transit Advertisements), 8 (Initial Payments) and 9 (Pilot Program Payments) of the Settlement Agreement.
2. Voluntary Agreement of the Parties. This Stipulation of Amendment is entered into voluntarily by the parties hereto. The State and Settling Defendants understand that Congress may enact legislation dealing with some of the issues addressed in the Settlement Agreement, this Stipulation of Amendment or the Consent Decree. The MFN Settling Defendants and their assigns, affiliates, agents and successors hereby voluntarily waive any right to challenge the Settlement Agreement, this Stipulation of Amendment or the Consent Decree, directly or through third parties, on the ground that any term thereof or hereof is unconstitutional, outside the power or jurisdiction of the Court or preempted by or in conflict with any current or future federal legislation (except insofar as the non-economic terms of the Settlement Agreement (as revised hereby) or the Consent Decree are irreconcilable with any such future federal legislation). The Court may, upon the State's application, enter a Consent Decree in the form attached as Exhibit 1 hereto.
3. Definitions. For the purposes of the Settlement Agreement, this Stipulation of Amendment and the Consent Decree, the following terms shall have the meanings set forth below:
(a) "Consumer Price Index" means 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;
(b) "Market Share" means a Settling Defendant's respective share of sales of Cigarettes, by number of individual Cigarettes shipped in the United States for domestic consumption, as measured by such Settling Defendant's audited reports of shipments of Tobacco Products provided to the U.S. Securities and Exchange Commission ("SEC") (or, in the case of any Settling Defendant that does not provide such reports to the SEC, audited reports of shipments containing the same shipment information as contained in the reports provided to the SEC) ("Shipment Reports"), during (i) with respect to payments made pursuant to paragraph 7 of this Stipulation of Amendment, the calendar year ending on the date on which the payment at issue is due (or, in the case of the payment due on November 1, 1998, the calendar year ending December 31, 1998), regardless of when such payment is made, and (ii) with respect to all other
payments made pursuant to this Stipulation of Amendment and the Settlement Agreement, the calendar year immediately preceding the year in which the payment at issue is due, regardless of when such payment is made;
(c) "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;
(d) "Smokeless Tobacco" means any product that consists of cut, ground, powdered or leaf tobacco that contains nicotine and that is intended to be placed in the oral cavity;
(e) "Tobacco Products" means Cigarettes and Smokeless Tobacco; and
(f) "Children" means persons under the age of 18. The above definitions supplement the definitions provided in the Settlement Agreement and, insofar as they differ, supersede them.
4. Settlement Receipts. The payments to be made by Settling Defendants under this Stipulation of Amendment during the year 1998 are in settlement of the State's claims for reimbursement for public health expenditures of the State of Texas incurred in the year of payment or earlier years related to the subject matter of this Action, including without limitation expenditures made by the State's Employees' Health Insurance Program and Charity Care programs. All other payments made by Settling Defendants pursuant to this Stipulation of Amendment are in settlement of all of the State of Texas's claims for damages incurred by the State in the year of payment or earlier years related to the subject matter of this Action, including claims for reimbursement of Medicaid expenditures and punitive damages, except that no part of any payment under the Settlement Agreement or this Stipulation of Amendment is made in settlement of an actual or potential liability for a fine, penalty (civil or criminal) or enhanced damages or as the cost of a tangible or intangible asset or other future benefit.
5. Supplemental Initial Payment. Each MFN Settling Defendant severally shall cause to be paid into the registry of the court and in accordance with and subject to paragraph 17 of this Stipulation of Amendment, pro rata in proportion to
its Market Share, its share of $156,530,000, to be paid on or before January 4, 1999; its share of $605,090,000, to be paid on or before January 3, 2000; its share of $605,090,000, to be paid on or before January 2, 2001; its share of $605,090,000, to be paid on or before January 2, 2002; and its share of $303,200,000, to be paid on or before January 2, 2003. The payments made by MFN Settling Defendants pursuant to this paragraph shall be adjusted upward by the greater of 3% or the actual total percent change 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 MFN Settling Defendants pursuant to this paragraph 5 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 adjustment of payments set forth in Appendix A hereto. The payment due to be made by MFN Settling Defendants pursuant to this paragraph 5 on or before January 4, 1999, shall not be subject to adjustment for inflation or in accordance with the formula for adjustment of payments set forth in Appendix A hereto.
6. Acceleration of Supplemental Initial Payment. In the event that any MFN Settling Defendant fails to make any payment required of it pursuant to
paragraph 5 of this Stipulation of Amendment (a "Defaulting Defendant") by the applicable date set forth in such paragraph 5 (a "Missed Payment"), the State of Texas shall provide notice to each of the MFN 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 Texas shall have the option of providing notice to each of the MFN Settling Defendants of such continued non-payment. In the event that the State of Texas elects to provide such notice, any or all of the MFN Settling Defendants (other than the Defaulting Defendant) shall have 15 days after receipt of such notice to elect (in such MFN Settling Defendant's or such MFN 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 Texas does not receive the Missed Payment, together with such accrued interest, within such additional 15-day period, all future payments required to be made by each of the respective MFN Settling Defendants pursuant to paragraph 5 of this Stipulation of Amendment shall at the end of such
additional 15-day period be accelerated and immediately become due and owing to the State of Texas from each MFN Settling Defendant, pro rata in proportion to its Market Share; provided, however, that 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 Consumer Price Index, 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 made pursuant to this paragraph 6, and (b) shall all immediately be adjusted in accordance with the formula for adjustment of payments set forth in Appendix A hereto.
Nothing in this paragraph 6 shall be deemed under any circumstance to create any obligation on the part of any MFN Settling Defendant to pay any amount owed or payable to the State of Texas by any other MFN Settling Defendant. All obligations of the MFN Settling Defendants pursuant to this paragraph 6 are intended to be and shall remain several, and not joint.
7. Annual Payments. Each of the Settling Defendants agrees that it shall severally cause to be paid into the registry of the Court, in accordance with and subject to paragraph 17 of this Stipulation of Amendment, pro rata in proportion to its Market Share, its share of the following payments (subject to adjustment for appropriate allocation among Settling Defendants by January 30, 1999): $89
million to be paid on or before November 1, 1998; and $201 million to be paid on or before December 31, 1998.
Each of the Settling Defendants further agrees that, on December 31, 1999 and annually thereafter on December 31st of each year after 1999 (subject to final adjustment within 30 days), it shall severally cause to be paid into the registry of the Court and in accordance with and subject to paragraph 17 of this Stipulation of Amendment, pro rata in proportion to its Market Share, its share of 7.25% of the following amounts (in billions):
Year 1999 2000 2001 2002 2003 thereafter
----
2 3 4 5 6
Amount $4.5B $5B $6.5B $6.5B $8B $8B
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The payments made by Settling Defendants pursuant to this paragraph 7 shall be adjusted upward by the greater of 3% or the actual total percent change in 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 adjustment of payments set forth in Appendix A hereto. Settling Defendants shall pay the payments due pursuant to this paragraph 7 on November 1, 1998 and December 31, 1998 without adjustment for inflation or in accordance with the formula for adjustments of
payments set forth in Appendix A hereto. This paragraph 7 supersedes paragraph 10 of the Settlement Agreement, which is hereby rendered null, void and of no further effect.
8. Determination of Market Share. In the event of a disagreement between or among any Settling Defendants as to their respective shares of any payment due to be paid on a Market Share basis pursuant to the Settlement Agreement and this Stipulation of Amendment, each Settling Defendant shall pay its undisputed share of such payment promptly on or before the date on which such payment is due, and shall, within 21 days of such date, submit its Shipment Reports for the year in question to a third party to be selected by agreement of Settling Defendants (the "Third Party"), who shall determine the Market Share of each Settling Defendant within three business days of receipt of such Shipment Reports. The decision of the Third Party shall be final and non-appealable, and shall be communicated by facsimile to each person designated to receive notice hereunder. Each Settling Defendant shall, within two business days of receipt of the Third Party's decision, pay the State or such other Settling Defendant, as appropriate, the difference, if any, between (1) the amount that such Settling Defendant has already paid with respect to the payment in question and (2) the amount of the payment in question that corresponds to such Settling Defendant's Market Share as determined by the Third Party, together with interest accrued from the original date on which the
payment in question was due, at the prime rate as published in the Wall Street Journal on the latest publication date on or before the original date on which the payment in question was due plus 3%.
9. Adjustments in Event of Federal Legislation. In the event that federal tobacco legislation is enacted before November 30, 2000 that provides for payments by tobacco companies (whether in the form of settlement payment, tax or otherwise) ("Tobacco Legislation"):
(a) MFN Settling Defendants shall be entitled to receive a dollar for dollar offset against the annual payments required under paragraph 7 of this Stipulation of Amendment of any amounts that the State of Texas could elect to receive pursuant to such Tobacco Legislation ("Federal Settlement Funds"), up to the full amount of such annual payments, except to the extent that:
(i) such Federal Settlement Funds are required to be used for purposes other than health care or tobacco-related purposes;
(ii) such Tobacco Legislation provides the opportunity for other states to elect to receive Federal Settlement Funds but does not provide for the abrogation, settlement or relinquishment of any tobacco-related claims of such states that have not previously been resolved; or
(iii) state receipt of such Federal Settlement Funds is conditioned upon (A) the relinquishment of rights or benefits under the Settlement Agreement (including this Stipulation of Amendment and the Consent Decree) (excepting any annual payment amounts subject to the offset); or (B) actions or expenditures by the state unrelated to health care or tobacco (including but not limited to tobacco education, cessation, control or enforcement).
(b) Nothing in this paragraph 9 shall reduce (i) the payments
made to the State of Texas pursuant to paragraphs 8 and 9 of the
Settlement Agreement and paragraphs 5 and 6 of this Stipulation of
Amendment (by offset, credit, recoupment, refund or otherwise); or
(ii) the percentage figure (7.25%) used to determine the State of
Texas's annual payments pursuant to paragraph 7 of this Stipulation of
Amendment. Nothing in this paragraph 9 is intended to or shall reduce
the total amounts payable by MFN Settling Defendants to the State of
Texas under the Settlement Agreement (as revised hereby) by an amount
greater than the amount of Federal Settlement Funds that the State of
Texas could elect to receive. This paragraph 9 supersedes paragraph 12
of the Settlement Agreement,
which is hereby rendered null, void and of no further effect.
10. Clarification of Scope of State's Release. The release of claims provided in paragraph 14 of the Settlement Agreement shall, with respect to the Claims identified in subparagraph (2) thereof, apply only to monetary Claims. This paragraph 10 does not supersede but rather supplements and clarifies the scope of the release provided in paragraph 14 of the Settlement Agreement.
11. Limited Most-Favored Nation Provision. In partial consideration for the monetary payments to be made by MFN Settling Defendants pursuant to this Stipulation of Amendment, the State of Texas agrees that, if MFN Settling Defendants enter into any future pre-verdict settlement agreement of other similar litigation brought by a non-federal governmental plaintiff, or any amendment to any such existing settlement agreement, on terms more favorable to such non-federal governmental plaintiff than the terms of the Settlement Agreement (including this Stipulation of Amendment and the Consent Decree) (after due consideration of relevant differences in population or other appropriate factors), the terms of the Settlement Agreement (including this Stipulation of Amendment and the Consent Decree) 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 MFN Settling Defendants with respect to monetary payments to be made pursuant to such agreement;
(b) a guarantee by the parent company of any of MFN Settling Defendants or other assurances of payment or creditors' remedies with respect to monetary payments to be made pursuant to such agreement;
(c) for the implementation of non-economic tobacco-related public health measures different from those contained in the Settlement Agreement (including this Stipulation of Amendment and the Consent Decree);
(d) for no offset of Federal Settlement Funds against annual settlement payments pursuant to such settlement agreement; or
(e) for an offset term more favorable to the plaintiff than the offset provisions of paragraph 9 of this Stipulation of Amendment,
then the Settlement Agreement shall, at the option of the Office of the Attorney General of the State of Texas, be revised to include terms comparable to such terms.
This paragraph 11 supersedes paragraph 16 of the Settlement Agreement, which is hereby rendered null, void and of no further effect as to any MFN Settling Defendant. The State of Texas hereby acknowledges that, pursuant to the terms of this paragraph 11, it has irrevocably waived any future claim against MFN Settling Defendants to revise the terms of the Settlement Agreement or this Stipulation of Amendment pursuant to paragraph 16 of the Settlement Agreement (except as
provided in paragraph 23 of this Stipulation of Amendment), and it hereby further covenants and agrees that, in consideration for MFN Settling Defendants' agreement to the terms of this Stipulation of Amendment, it shall not hereafter seek to revise the Settlement Agreement or this Stipulation of Amendment as to MFN Settling Defendants, except as expressly provided in this paragraph 11 (or pursuant to mutually agreeable amendment by the parties hereto as provided in paragraph 23 of the Settlement Agreement and paragraph 19 hereof).
12. MFN Settling Defendants' Assurances. MFN Settling Defendants agree:
(a) to support the legislative initiatives to enact new laws and administrative initiatives to promulgate new rules described in paragraph 7 of the Settlement Agreement; and
(b) not to support in Congress or any other forum legislation, rules or policies which would preempt, override, abrogate or diminish the State's rights or recoveries under the Settlement Agreement (as amended hereby). Except as specifically provided in the foregoing sentence, nothing in the Settlement Agreement (including this Stipulation of Amendment and the Consent Decree) shall be deemed to restrain the parties from advocating terms of any national settlement or taking any other positions on issues relating to tobacco.
13. Disclosure of Payments. Each MFN Settling Defendant shall disclose to the Office of the Attorney General and the Texas Ethics Commission, at the times and in the manner provided below, information about the following payments:
(a) Any payment to a person required to register under Tex. Gov't Code Ann. Section 305.005 (West 1998), if the MFN 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 Texas in any way relating to Tobacco Products or their use;
(b) Any payment to a third party, if the MFN 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 Texas in any way relating to Tobacco Products or their use; and
(c) Any payment (other than a "political contribution" under 2 U.S.C. Section 431(8)(A)) to, or for the benefit of, a state or local official in Texas, whether made directly by the MFN Settling Defendant or indirectly through an employee of the MFN Settling Defendant acting within the scope of his employment, or through an affiliate, lobbyist or other agent acting under the substantial control of the MFN Settling Defendant.
Disclosures required under this paragraph 13 shall be filed with the Office of the Attorney General and the Texas Ethics Commission on the first day of February, May, August and November of each year (beginning November 1, 1998) 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:
- The name, address, telephone number and e-mail address of the recipient;
- The amount of each payment described in this paragraph 13; and
- The aggregate amount of all payments described in this paragraph 13 to the recipient in the calendar year.
Information disclosed pursuant to this paragraph is "public information" within the meaning of Tex. Gov't Code Ann. Section 552.002 (West 1998).
14. Prohibition of Certain Payments for Product Placement. MFN Settling Defendants shall not make or cause to be made, in connection with any motion picture made in the United States, 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.
15. Prohibition on Promotional Merchandise. On and after December 31, 1998, MFN Settling Defendants shall permanently cease marketing, licensing, distributing, selling or offering, directly or indirectly, including by catalogue or direct mail, in the State of Texas, any 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, except that nothing in this paragraph shall (i) require any MFN Settling Defendant to terminate, breach or violate any licensing agreement or contract in existence as of July 1, 1998 for the remaining term of such contract; (ii) prohibit the distribution to any employee (18 years of age or older) of an MFN Settling Defendant of any item described above that is intended for the personal use of such employee by such MFN Settling Defendant; or (iii) prohibit items necessarily incidental to or ordinarily distributed in connection with any sponsorship described in paragraph 4(e)(2) of the Settlement Agreement.
16. Document Production. MFN Settling Defendants shall, upon request, provide to the State of Texas a copy of any CD-ROMs of documents that MFN Settling Defendants have agreed to produce, pursuant to the Minnesota Settlement,
to the document depository established in connection with the lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994), with a copy of the accompanying transmittal letter provided to each person designated to receive notice hereunder.
17. Court Approval. The parties hereto agree to submit this Stipulation of Amendment promptly to the Court for its review and approval. If the Court refuses to approve this Stipulation of Amendment and the Consent Decree in any respect unacceptable to either of the parties hereto or to enter the Order Granting Joint Motion for Approval of Agreement Regarding Disposition of Settlement Proceeds and to Withdraw with Predjudice All Political Subdivisions' Motions to Intervene (the "Political Subdivisions Order," in the form attached as Exhibit 2 hereto), or if such approval or the Political Subdivisions Order is modified in any respect unacceptable to either of the parties hereto or set aside on appeal, then this Stipulation of Amendment shall be canceled and terminated and it and all orders issued pursuant hereto (including the Consent Decree) shall become null and void and of no further effect. Any such cancellation or termination of this Stipulation of Amendment shall not of itself result in the cancellation or termination of, or otherwise affect, the Settlement Agreement as approved by the Court on January 22, 1998. All payments described in this Stipulation of Amendment shall be paid into a special escrow account, pursuant to the terms of a mutually acceptable
escrow agreement (the "MFN Escrow Agreement" in the form attached as Exhibit 3
hereto), and if so paid shall remain in said escrow account, until such time as
(1) the 30-day time periods to seek review of the Court's order approving this
Stipulation of Amendment and the Political Subdivisions Order have expired
without the filing of any notice of appeal or petition for review; or (2) in the
event of a timely appeal or petition, the appeal or the petition has been
dismissed or the Court order in question has been affirmed in all material
respects by the court of last resort to which such appeal or petition has been
taken and such dismissal or affirmance has become no longer subject to further
appeal or review. Any payments made into escrow shall be disbursed from escrow
only in strict accordance with the terms of the MFN Escrow Agreement and upon
disbursement shall be transferred into the registry of the Court. All payments
described in this Stipulation of Amendment that are not required to be paid into
the MFN Escrow Account pursuant to this paragraph 17 shall be paid into the
registry of the Court.
18. Payment Responsibility. All obligations of the Settling Defendants
pursuant to the Settlement Agreement and this Stipulation of Amendment are
intended to be and shall remain several, and not joint. Due to the particular
corporate structures of Settling Defendants R.J. Reynolds Tobacco Company
("Reynolds") and Brown & Williamson Tobacco Corporation ("Brown & Williamson")
with respect to their non-domestic tobacco operations, Settling
Defendants Reynolds and Brown & Williamson shall be severally liable for their respective shares of each payment due pursuant to the Settlement Agreement and this Stipulation of Amendment up to (and their liability hereunder shall not exceed) the full extent of their assets used in, and earnings derived from, the manufacture and sale in the United States of Tobacco Products intended for domestic consumption, and no recourse shall be had against any of their other assets or earnings to satisfy such obligations.
19. Applicable Provisions of Settlement Agreement. The provisions of paragraphs 18 (Representations of Parties), 20 (Headings), 21 (No Admission), 22 (Non-Admissibility), 23 (Amendment), 25 (Cooperation), 26 (Governing Law), 27 (Construction), 28 (Severability), 29 (Intended Beneficiaries) and 30 (Counterparts) of the Settlement Agreement shall be equally applicable to this Stipulation of Amendment as though fully set forth herein, and all references to the Settlement Agreement in the sections thereof specifically listed in this paragraph 19 shall be construed to include this Stipulation of Amendment.
20. Release of Right to Additional Compensation. In consideration for the terms hereof, including, inter alia, the provisions of paragraph 5 hereof, the State of Texas hereby irrevocably releases MFN Settling Defendants from any claim for additional compensation pursuant to paragraphs 17(a) and (d) of the Settlement Agreement, and the provisions of paragraphs 17(a) and (d) regarding the State's
rights to additional compensation are hereby rendered null, void and of no further effect.
21. Discovery Materials. Paragraph 22 of the Settlement Agreement is hereby modified to permit the Attorney General of the State of Texas to seek the dissolution of any protective order in this Action governing treatment of discovery materials during the pendency of this Action (as well as existing confidentiality designations), but only with regard to materials that have been made public in other litigation pursuant to a final court order, subject to any defenses or objections as may be made by Settling Defendants. Except as expressly provided above, the provisions of paragraph 22 of the Settlement Agreement with respect to discovery materials shall remain in effect for the period of time specified therein.
22. Attorneys' Fees. Settling Defendants, the State of Texas, Private Counsel and the Law Offices of Marc D. Murr, P.C. have entered into a separate agreement on July 24, 1998 (the "Texas Fee Payment Agreement") that sets forth the entire obligation of Settling Defendants with respect to payment of attorneys' fees pursuant to paragraph 17 of the Settlement Agreement. The parties hereto agree that the Texas Fee Payment Agreement supersedes Exhibit 1 to the Settlement Agreement, which is hereby rendered null, void and of no further effect. The parties further agree that Settling Defendants shall not be required to perform any obligation pursuant to this Stipulation of Amendment (excepting Settling
Defendants' obligations with respect to the advance to be paid pursuant to section 12 of the Texas Fee Payment Agreement) until such time as (1) the Court issues an order confirming that amounts payable with respect to attorneys' fees of Texas Counsel pursuant to the Texas Fee Payment Agreement are not funds of the State of Texas and that Settling Defendants are under no obligation to pay such amounts to the State of Texas; (2) the 30-day period to seek review of such order has expired without the filing of any notice of appeal or petition for review; and (3) in the event of a timely appeal or petition, such appeal or petition has been dismissed or the order has been affirmed in all material respects by the court of last resort to which such appeal or petition has been taken and such dismissal or affirmance has become no longer subject to further appeal or review. Under no circumstances shall Settling Defendants' entry into this Stipulation of Amendment or the Texas Fee Payment Agreement be construed as, or deemed to be, evidence of or an admission or concession that the Settlement Agreement can be revised pursuant to the Most Favored Nation clause without incorporation of all terms of any settlement agreement that provides the occasion for any such revision, including all terms thereof with respect to attorneys' fees.
23. Conditioned on Minnesota Settlement. In the event that a court order or other judicial determination is issued on or before January 2, 2003 that overturns, voids or invalidates the Minnesota Settlement or otherwise declares it to
be unenforceable (such that MFN Settling Defendants are relieved from making payments required under the Minnesota Settlement) (the "Minnesota Order"), MFN Settling Defendants shall have the option to elect not to make any payment pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that becomes due on or after the date of such Minnesota Order. In the event that MFN Settling Defendants make such an election:
(a) MFN Settling Defendants shall not be obligated to make any payment pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that becomes due on or after the date of the Minnesota Order; provided, however, that if the Minnesota Order is reversed on appeal or otherwise set aside, MFN Settling Defendants shall be obligated to make any payments pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that were not made when initially due as result of the Minnesota Order;
(b) the provisions of paragraph 11 of this Stipulation of Amendment shall not apply to preclude the application of paragraph 16 of the Settlement Agreement with respect to any pre-verdict settlement agreement described therein entered into after the date of the Minnesota Order; and
(c) MFN Settling Defendants shall be entitled to a credit, in the amount of any payments made pursuant to paragraphs 5 and 6 of this
Stipulation of Amendment, against any payments due to the State of Texas as a result of application of paragraph 16 of the Settlement Agreement in connection with any pre-verdict settlement agreement entered into after the date of the Minnesota Order, pursuant to subparagraph (b) of this paragraph 23.
No other provision of the Settlement Agreement, this Stipulation of Amendment or the Consent Decree shall be affected by the Minnesota Order. MFN Settling Defendants will provide the State of Texas with notice of any filing seeking to obtain a Minnesota Order.
24. Entire Agreement of Parties. The Settlement Agreement (including this Stipulation of Amendment, the Texas Fee Payment Agreement and the Consent Decree but excluding Exhibit 1 to the Settlement Agreement, which is hereby rendered null, void and of no further effect) contains an entire, complete and integrated statement of each and every term and provision agreed to by and among the parties hereto relating in any way to the settlement of the tobacco litigation brought by the State of Texas, and is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized
representatives, have agreed to this Stipulation of Amendment as of this 24th
day of July, 1998.
STATE OF TEXAS, acting by and
through Dan Morales, its duly
elected and authorized Attorney
General
COUNSEL TO THE STATE OF TEXAS
PHILIP MORRIS INCORPORATED
R.J. REYNOLDS TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO
CORPORATION
LORILLARD TOBACCO COMPANY
UNITED STATES TOBACCO COMPANY
APPENDIX A
FORMULA FOR CALCULATING VOLUME ADJUSTMENTS
Any payment that by the terms of the Stipulation of Amendment 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 cigarettes shipped for domestic consumption by Settling Defendants in the Applicable Year (as defined hereinbelow) (the "Actual Volume") is greater than the aggregate number of cigarettes shipped for domestic consumption by 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 cigarettes for the Applicable Year (the "Actual Net Operating Profit") is greater than the Settling Defendants' aggregate net operating profits from domestic sales of cigarettes 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 7.25% of 25% of such increase in such profits. For purposes of this Appendix, "net operating profits from domestic sales of cigarettes" shall mean net operating profits from domestic sales of cigarettes 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 Settling Defendants' aggregate net operating profits from domestic sales of cigarettes shall be derived using the same methodology as was employed in deriving such Settling Defendants' aggregate net operating profits from domestic sales of cigarettes 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 7 of the Stipulation of Amendment, 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 the Stipulation of Amendment, the calendar year immediately preceding the year in which the payment at issue is due, regardless of when such payment is made.
EXHIBIT 1
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
------------------------------------------
)
STATE OF TEXAS, )
)
Plaintiff, )
)
vs. ) No. 5-96CV-91
)
AMERICAN TOBACCO )
COMPANY, et al., )
)
Defendants. )
)
)
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|
CONSENT DECREE
WHEREAS, on January 16, 1998, the State of Texas and certain defendants
entered into a Comprehensive Settlement Agreement and Release (the "Settlement
Agreement") to settle and resolve with finality all present and future claims
against all parties to this litigation relating to the subject matter of this
litigation which have been or could have been asserted by any of the parties
hereto;
WHEREAS, the Settlement Agreement was approved and adopted as an
enforceable order of the Court pursuant to Court Order dated January 22, 1998,
in which the Court expressly retained continuing jurisdiction to enforce and
implement the terms of the Settlement Agreement, including the Most Favored
Nation clause of the Settlement Agreement;
EXHIBIT 1
WHEREAS, the Settlement Agreement contains a "Most Favored Nation"
clause which provides that, in the event that Settling Defendants enter into a
future pre-verdict settlement agreement of other litigation brought by a
non-federal governmental plaintiff on terms more favorable to such governmental
plaintiff than the terms of the Settlement Agreement (after due consideration of
relevant differences in population or other appropriate factors), the terms of
the Settlement Agreement shall be revised so that the State of Texas will obtain
treatment at least as relatively favorable as any such non-federal governmental
entity;
WHEREAS, on May 8, 1998, Settling Defendants Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco
Corporation and Lorillard Tobacco Company (the "MFN Settling Defendants")
entered into a pre-verdict settlement agreement with the State of Minnesota (the
"Minnesota Settlement") to resolve the lawsuit State of Minnesota v. Philip
Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994);
WHEREAS, the State of Texas and MFN Settling Defendants agree that, pursuant to the Most Favored Nation clause of the Settlement Agreement, the Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Texas and Settling Defendants have agreed on the terms of the revisions to the Settlement Agreement as set forth in a Stipulation of
EXHIBIT 1
Amendment to Settlement Agreement and for Entry of Consent Decree executed on July 24, 1998 (the "Stipulation of Amendment");
WHEREAS, the Stipulation of Amendment provides for entry of this Consent Decree, which sets forth certain terms of injunctive relief, and further, provides that the MFN Settling Defendants have waived as specified therein their right to challenge the terms of this Consent Decree as being superseded or preempted by future congressional enactments; and
WHEREAS, the Attorney General believes the entry of this Consent Decree is appropriate and in the public interest;
NOW, THEREFORE, the State of Texas and MFN Settling Defendants having come before the Court on their joint motion for approval of a Stipulation of Amendment to the Settlement Agreement, and the Court having reviewed and considered the Stipulation of Amendment and otherwise being fully advised in the premises, it is hereby ORDERED, ADJUDGED and DECREED as follows:
1. Approval. The Court finds that the terms of the Stipulation of Amendment are just and in the best interests of the State of Texas and Settling Defendants, and the same is hereby approved. The Court further finds that the Texas Fee Payment Agreement referred to in paragraph 22 of the Stipulation of Amendment sets forth the entire obligation of Settling Defendants with respect to payment of attorneys' fees pursuant to paragraph 17 of the Settlement Agreement and supersedes Exhibit 1 to the
EXHIBIT 1
Settlement Agreement, which is hereby declared to be null, void and of no further effect, that amounts payable with respect to attorneys' fees of Texas Counsel pursuant to the Texas Fee Payment Agreement are not funds of the State of Texas and that Settling Defendants are under no obligation to pay such amounts to the State of Texas.
2. Jurisdiction and Venue. In keeping with the Settlement Agreement and this Court's January 22, 1998 Order, the Court expressly retains jurisdiction for the purpose of enforcement of the Settlement Agreement (as amended by the Stipulation of Amendment) and this Consent Decree, as well as other issues relating to the settlement of this Action that are currently pending before the Court. Any party to this Consent Decree 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 the Settlement Agreement, the Stipulation of Amendment and this Consent Decree.
3. Definitions. The definitions set forth in the Settlement Agreement (as supplemented or superseded by the Stipulation of Amendment) are incorporated by reference herein.
4. Applicability. This Consent Decree applies only to MFN 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 entity acting in concert or participating with them, and only with respect to activities in connection with the manufacture and
EXHIBIT 1
sale in the United States of Tobacco Products intended for domestic consumption. The remedies and penalties for a violation of this Consent Decree shall apply only to MFN Settling Defendants, and shall not be imposed or assessed against any employee, officer or director of MFN Settling Defendants or other person or entity as a consequence of such a violation, and there shall be no jurisdiction under this Consent Decree to impose or assess a penalty against any employee, officer or director of MFN Settling Defendants or other person or entity as a consequence of a violation of this Consent Decree.
5. Effect on Third Parties. This Consent Decree 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.
6. Injunctive Relief. MFN 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 Texas, any 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, except that nothing in this paragraph
EXHIBIT 1
shall (i) require any MFN Settling Defendant to terminate, breach or violate any licensing agreement or contract in existence as of July 1, 1998 for the remaining term of such contract; (ii) prohibit the distribution to any employee (18 years of age or older) of an MFN Settling Defendant of any item described above that is intended for the personal use of such employee by such MFN Settling Defendant; or (iii) prohibit items necessarily incidental to or ordinarily distributed in connection with any sponsorship described in paragraph 4(e)(2) of the Settlement Agreement.
(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; provided, however, that nothing in this paragraph shall limit the exercise of any First Amendment right or any defense or position which persons bound by this Consent Decree 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 Tobacco Products; (2) limiting or suppressing research into smoking and health; or (3) limiting or suppressing research into, marketing, or development of new products.
EXHIBIT 1
(d) Taking any action, directly or indirectly, to target children in Texas 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 Texas.
7. No Determination or Admission. The Settlement Agreement having been executed prior to the taking of any testimony, no final determination of any violation of any provision of law has been made in this Action. This Consent Decree 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 any liability or any wrongdoing whatsoever on the part of any person covered by the releases provided in paragraphs 14 and 15 of the Settlement Agreement; nor shall this Consent Decree be construed as, or deemed to be, an admission or concession or evidence of personal jurisdiction by any person not a party to this Consent Decree. Defendants specifically disclaim any liability or wrongdoing whatsoever with respect to the claims and allegations asserted against them in this Action and MFN Settling Defendants have entered into the Settlement Agreement and the Stipulation of Amendment, and have stipulated to entry of this Consent Decree, solely to avoid the further expense, inconvenience, burden and risk of litigation.
8. Modification. This Consent Decree 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
EXHIBIT 1
provisions of paragraph 4 of this Consent Decree 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 MFN Settling Defendants will comply with this Consent Decree as originally entered, even if MFN 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 MFN Settling Defendants shall not support modification of this Consent Decree. The provisions of this paragraph shall not be construed to limit or affect any future modification of the Settlement Agreement (as amended by the Stipulation of Amendment) in the manner provided in paragraphs 11 and 23 of the Stipulation of Amendment.
9. Enforcement and Attorneys' Fees. In any proceeding which results in a finding that a MFN Settling Defendant violated this Consent Decree, the responsible MFN Settling Defendant or MFN Settling Defendants shall pay the State's costs and attorneys' fees incurred in such proceeding.
10. Non-Exclusivity of Remedy. The remedies in this Consent Decree 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 simply because the conduct that is the basis for such action may also violate this Consent Decree.
EXHIBIT 1
DONE AND ORDERED at Texarkana, Texas, this the 24th day of July, 1998.
APPROVED: