Exhibit 10.40
EMPLOYMENT AGREEMENT
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THIS AGREEMENT by and among RJR Nabisco Holdings Corp., a
Delaware corporation ("Holdings"), RJR Nabisco, Inc., a Delaware
corporation and a direct subsidiary of Holdings (the "Company") and ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ ("Executive") is effective as of December 5, 1995, and
supersedes and revokes the prior Employment Agreement with Executive dated
as of October 1, 1995. This Agreement will (i) following a Change of
Control (as defined in Exhibit A), supersede the Executive's participation
in the RJR Nabisco Holdings Corp. Headquarters Continuing Excellence
Recognition Program (the "Headquarters Program") and (ii) be in lieu of
Executive's participation in the RJR Nabisco Holdings Corp. 1995 Employee
Protection Program (the "1995 Program"), but will in no event provide
lesser benefits to Executive in the .event of the termination of
Executive's employment following a Change of Control than would otherwise
be available under the 1995 Program.
RECITALS
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In order to induce Executive to accept the positions of Chief
Executive Officer and member of the Office of the Chief Executive Officer
of Holdings and the Company and to continue in the office of President of
Holdings and the Company, Holdings and the Company desire to provide
Executive with compensation and other benefits under the conditions set
forth in this Agreement. Executive is willing to accept such
employment and perform services for Holdings and the Company on the terms
and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. Employment.
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1.1 Subject to the terms and conditions of this Agreement,
Holdings agrees to employ Executive during the term hereof as Chief
Executive Officer, President, and member of the Office of Chairman of
Holdings and the Company. Executive shall have the customary powers,
responsibilities and authorities of Chief Executive Officers of
corporations of the size, type and nature of Holdings and Company, and
specifically, he shall have responsibility for all of Holdings' and the
Company's staff functions, including finance, human resources,
administration and communications, in addition to responsibility for
Holdings. Executive's principal office shall be at the principal executive
offices of Holdings and the Company in New York, New York.
1.2 Holdings and the Company shall, throughout the term hereof,
cause the election and retention of Executive as Chief Executive Officer,
President and a member of the Boards of Directors of Holdings and the
Company.
1.3 Subject to the terms and conditions set forth herein,
Executive hereby (i) accepts employment as Chief Executive Officer,
President and member of the Office of the
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Chief Executive Officer of Holdings and the Company and shall devote
his full working time and efforts, to the best of his ability,
experience and talent, to the performance of the services, duties and
responsibilities in connection therewith and (ii) agrees to be a
member of the Boards of Directors of Holdings and the Company. Nothing
in this Agreement shall preclude the Executive from engaging,
consistent with his duties and responsibilities hereunder, in
charitable and community affairs, from managing his personal
investments, from continuing to serve on the boards of directors of
any Affiliate (as hereinafter defined) of Holdings or the Company or
from serving, subject to approval of the Holdings Board (as defined in
Exhibit A), as a member of boards of directors of other companies. The
term "Affiliate" shall mean any direct or indirect subsidiary of
Holdings or the Company or any successor thereto. For purposes of this
Agreement, the term "available to Senior Executive Officers" shall
mean that something is available to the senior executive officers of
Holdings or the Company or generally available to all chief executive
officers of the major operating companies of Holdings.
1.4 This Agreement supersedes and revokes in their entirety
any and all prior employment or service agreements with Holdings or
the Company, and in particular, the Engagement Agreement with Holdings
dated March 3, 1995, and the Employment Agreement dated as of October
1, 1995.
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2. Term of Employment.
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Executive's term of employment under this Agreement shall
continue in accordance with the terms hereof until a termination of
Executive's employment.
3. Compensation.
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3.1 Salary. The Company shall pay Executive a base salary
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("Base Salary") at the rate of $1,100,000 per annum. Base Salary shall
be payable in accordance with the ordinary payroll practices of the
Company. Executive's rate of Base Salary shall be reviewed for
possible increases by the Chairman of the Company at least annually
and, once approved by the Board (as defined in Exhibit A), such higher
amount shall constitute Executive's Base Salary.
3.2 Annual Bonus.
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(a) In addition to his Base Salary, Executive shall be
entitled, while he remains employed hereunder, to receive an annual
bonus under the Company's Annual Incentive Award Plan in effect on the
date of this Agreement, as amended from time to time, a copy of which
has been given to Executive, or under any successor plan thereto
available to Senior Executive Officers ("AIAP"), in accordance with
the terms thereof. Such AIAP, in any event, will provide an annual
target bonus opportunity to Executive no less favorable than seventy
percent (70%) of his Base Salary paid or accrued with respect to the
related year, subject to the attainment of the performance goals
established from time to time under such AIAP.
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(b) For the fiscal year ending December 31, 1995, Executive
shall be deemed to have participated in the AIAP from March 3, 1995,
with a target bonus opportunity of 70% of $850,000.
(c) For fiscal years beginning on and after January 1, 1996,
Executive may be granted Performance Units under the Company's 1990
Long Term Incentive Plan or a successor plan (the "LTIP") in lieu of a
cash bonus under the AIAP pursuant to Section 3.2(a). If such grants
are made, each Performance Unit Agreement under the LTIP to which
Executive is a party shall specifically provide that following a
Change of Control the Committee responsible for exercising any
discretion with respect to any such award shall not exercise such
discretion so as to reduce the "Payment Value" of such award below the
award's "Initial Grant Value" (as such terms are customarily defined
in Performance Unit Agreements awarded to Senior Executive Officers of
the Company under the LTIP prior to the date hereof).
3.3 Compensation Plans and Programs. Executive shall
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participate in any compensation plan or program, whether annual or
long term, maintained by Holdings or the Company on terms no less
favorable than those available to Senior Executive Officers eligible
to participate therein.
3.4 Special Bonus Payments. Upon a Change of Control, the
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Company shall pay to Executive a special cash
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bonus payment equal to the sum of (a) Executive's AIAP Vested Amount
as of such Change of Control, Executive's PS Vested Amount as of such
Change of Control, and Executive's PU Vested Amount as of such Change
of Control (all as defined in Exhibit A); and (b) any additional
funding amounts required to fully fund the Benefit (as defined in
Section 5) accrued to the date of such Change of Control under Section
5 hereof. Notwithstanding the foregoing, in the event that following a
Change of Control any performance period relating to any award under
the AIAP or of Performance Units or Performance Shares under the LTIP
within which such Change of Control occurred is completed prior to
Executive's termination of employment, upon such completion Executive
shall be entitled to payment in respect of each such award of an
amount, if any, equal to the excess of the value of such award based
on actual performance for such performance period over the AIAP Vested
Amount, PU Vested Amount or PS Vested Amount, as the case may be,
previously paid to Executive upon such Change of Control in respect of
such AIAP award, Performance Units or Performance Shares.
4. Employee Benefits.
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4.1 Employee Benefit Plans and Programs. The Company and
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Holdings shall provide Executive during the term of his employment
hereunder coverage under all employee benefit programs, plans and
practices (commensurate with his
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position in the Company and to the extent possible under any employee
benefit plan), in accordance with the terms thereof, which Holdings
and the Company make available to Senior Executive Officers,
including, but not limited to (a) retirement, pension and profit
sharing (including the SERP, as defined in Section 5, subject to the
provisions of Section 5) and (b) medical, dental, hospitalization,
short and long term disability, accidental death and dismemberment and
travel accident coverage.
4.2 Vacation and Fringe Benefits. Executive shall be
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entitled to the number of vacation days customarily available to
Senior Executive Officers of the Company. In addition, Executive shall
be entitled to the perquisites and fringe benefits from time to time
available to Senior -Executive Officers.
4.3 Directors and Officers Liability Coverage. Executive
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shall be entitled to the same level of coverage (as determined from
time to time by the Boards (as defined in Exhibit A)) under such
directors' and officers' liability insurance policies, if any, or
other arrangements as are available to Senior Executive Officers and
directors of Holdings and the Company, to the fullest extent permitted
by the existing By-laws of Holdings and the Company. In any event,
Holdings and the Company shall indemnify and hold Executive harmless,
to the fullest extent permitted by the
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laws of the States of Holdings' and the Company's incorporations, from
and against all costs, charges and expenses (including reasonable
attorneys' fees) whatsoever incurred or sustained by him or his legal
representatives in connection with any action, suit or proceeding to
which he or his legal representatives may be made a party by reason of
his being or having been a director or officer of Holdings or the
Company or any of their Affiliates. This Section 4.3 shall survive the
termination of this Agreement for any reason.
4.4 Retiree Medical. Upon retirement under Section 5 herein,
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Executive shall be eligible for retiree medical coverage based on (i)
the greater of his actual age or a minimum deemed age of 55 and (ii)
the number of years of actual and imputed Service with which Executive
is credited as Service under the provisions of Executive's individual
SERP arrangement as described in Section 5.
5. Supplemental Pension.
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(a) Executive is a participant in the Company's Supplemental
Executive Retirement Program ("SERP"). Executive shall accrue a
benefit (the "Benefit") under the SERP formula resulting from (i) his
years of actual Service plus (ii) 13.5 additional years of imputed
Service plus (iii) additional years of imputed service for the period,
if any, with respect to which Executive receives Compensation
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Continuance (as defined in Section 6.1(a)). "Average Final
Compensation" (as used in the SERP) shall for the foregoing
calculation, or any other SERP calculation made before October 1,
1998, be an amount equal to the sum of the amounts described under
Section 6.1(a)(i) and Section 6.1(a)(ii) (without reduction for actual
performance). Executive's Benefit shall be forfeited if he voluntarily
leaves employment without Good Reason as defined in Section 6.1(b) or
is terminated by the Company for Cause (as defined in Section 6.4) in
either case prior to the earlier of (i) October 1, 1998 or (ii) a
Change of Control. If Executive forfeits the accrued Benefit as
described in this 5(a), the cash value of any annuity securing such
Benefit (as described in Section 5(b) below) at the time of such
forfeiture, net of all taxes imposed on the surrender thereof
(computed at the maximum marginal rates), shall be returned by
the-trustee of the secular trust referred to below to the Company.
(b) (i) To provide Executive with greater security and financial
flexibility, not later than April 30, 1996 the present value of the
after-tax equivalent of the accrued Benefit as of the date of delivery
of the annuity contract as described herein shall be secured by the
Company's purchase and delivery to a secular trust for Executive's
benefit of an annuity contract having a lump-sum cash-out option which
is the same type of annuity previously purchased for SERP
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participants. Executive shall make a timely election under Section
83(b) (an "83(b) election") of the Internal Revenue Code of 1986, as
amended (the "Code") to be taxed on such transfer and the Company
shall pay to Executive at the time of such election an additional
amount such that after payment by Executive of all applicable Federal,
state and local taxes thereon (computed at the maximum marginal rates)
there is retained a sufficient amount to pay all such taxes incurred
by Executive on such transfer.
(ii) For fiscal year 1996 and for each fiscal year or
portion thereof thereafter, during which Executive is actively
employed or with respect to which period Executive receives
Compensation Continuance, the Company shall purchase and deliver to
such secular trust for Executive's benefit an annuity for the
incremental accrued Benefit in respect of that year not already
secured by the prior purchase and delivery of such annuities until
such time as, and to ensure that, Executive's maximum Benefit under
the SERP has been fully secured by such purchases and deliveries of
annuities. In connection with the Company's purchase and delivery to a
secular trust for Executive's benefit of any such additional annuities
under this subparagraph (ii) prior to Executive's Retirement Date,
Executive shall make a timely 83(b) election if such purchase and
delivery occur prior to the Benefit becoming non-forfeitable pursuant
to Section 5(a). In
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addition, upon (x) each such purchase and transfer of additional
annuities giving rise to taxes payable by Executive and (y) the
imposition on Executive of any other Federal, state or local taxes in
connection with the maintenance of such secular trust, the Company or
a trust established for such purpose shall pay to Executive an
additional amount such that after payment by Executive of all
applicable Federal, state and local taxes thereon (computed at the
maximum marginal rates) there is retained a sufficient amount to pay
all such taxes incurred by Executive
(iii) The present value of the after-tax benefits due the
Executive under the SERP determined at Executive's Retirement Date
under the SERP will be offset by the after-tax value as of Executive's
Retirement Date of any annuities previously purchased hereunder
including earnings thereon. If an annuity instead. of a lump sum is
elected at retirement, a portion of the annuity payments to be made
during retirement may be taxable to Executive, and Executive will be
responsible for the payment of any taxes on such payments. The event
of the Executive's retirement on the Retirement Date, or the delivery
of the Benefit on such date, shall be a termination of employment, but
shall not automatically be a termination under Section 6.1(a)
entitling Executive to Compensation Continuance under this Agreement.
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(c) The Company shall, no later than Executive's Retirement Date,
purchase and transfer to Executive such additional annuities as shall
be necessary to fully fund any additional Benefit accrued to
Executive's Retirement Date and any annuities, to the extent then held
in a secular trust for Executive's benefit, will be delivered to
Executive from such secular trust. The Company shall pay to Executive
at the time of such transfer an additional amount such that after
payment by Executive of all applicable Federal, state and local taxes
thereon (computed at the maximum marginal rates) there is retained a
sufficient amount to pay all such taxes incurred by Executive on such
transfer.
(d) Subject to the following provisions of this Section 5(d),
Executive's "Retirement Date" shall be the attainment of age 60 or, if
later, the last day of any Compensation Period (as described in
Section 6.1(a)). Executive's Retirement Date shall be deemed to
include the date of Executive's death if death occurs before
retirement. Any annuity delivered to Executive hereunder shall have a
lump sum cash-out option. Executive agrees that a pre-condition to any
funding prior to a Change of Control of a Benefit under this Section 5
is the Executive's execution at such time of funding acknowledgment
waivers reasonably requested by the Company, and Executive's agreement
to place all annuities purchased for Executive in a secular trust
designated by the Company until Executive's
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Retirement Date. If Executive's employment is terminated by the
Company or Holdings other than for Cause (as hereinafter defined) or
by Executive for Good Reason (as hereinafter defined) prior to or more
than twenty-four months after a Change of Control, the Benefit shall
be payable at the end of Compensation Continuance (the last day of
which shall become his Retirement Date) and shall be calculated as a
lump sum amount equal to the present value of the Benefit as of such
Retirement Date after reduction thereof under the SERP formula to
reflect the payment of such Benefit prior to age 60. If Executive's
employment is terminated for any reason during the twenty-four month
period following a Change of Control, the Benefit shall be payable
upon such termination (which date shall become his Retirement Date)
and shall be calculated as a lump sum amount equal to the present
value of the Benefit as of the third anniversary of such termination
(the "Calculation Date") assuming payment of the Benefit commenced on
the Calculation Date after reduction thereof under the SERP formula in
effect immediately prior to the Change of Control to reflect the
commencement of payment of such Benefit prior to age 60 but without
any actuarial reduction for acceleration of such payment from the
Calculation Date to the Retirement Date.
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6. Termination of Employment.
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6.1 Termination Not For Cause or For Good Reason.
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(a) The Company and Holdings may terminate Executive's
employment at any time for any reason, and Executive may terminate his
employment at any time for any reason. If Executive's employment is
terminated by the Company or Holdings other than for Cause (as
hereinafter defined) or Executive terminates his employment for Good
Reason (as hereinafter defined), the Company shall pay to Executive as
additional compensation ("Compensation Continuance") (x) if such
termination is prior to, or more than twenty-four months after, a
Change of Control, compensation until the third anniversary (the
"Compensation Period") of the date his employment terminated (or, if
earlier, until his date of death), payable monthly at an annual rate
equal to the amounts set forth in clauses (i) and (ii) below, or (y)
if such termination occurs during the twenty-four month period
following a Change of Control, then upon such termination a lump sum
payment, discounted to its present value, based on a notional payment
period of 3 years assuming equal monthly payments and a discount rate
equal to the product of (i) the three-year Treasury bond yield as
published in the New York Times on the first of the month in which the
termination occurs and (ii) 100% minus the
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ and local taxes then imposed on
Executive's employment income computed at the maximum applicable
marginal rates, in cash in an amount equal to three (3) times the sum
of the amounts set forth in clauses (i) and (ii) below:
(i) his Base Salary at its then current annual rate or following
a Change of Control, if higher, the rate in effect
immediately prior to such Change of Control; and
(ii) his target bonus at its then current percentage or following
a Change of Control, if higher, the percentage in effect
immediately prior to such Change of Control; and computed in
the case of any such bonus opportunity in the form of
Performance Units based on the Initial Grant Value (as
defined in Section 3.2(c)) of such Performance Units
In addition, Executive, if he is entitled to Compensation Continuance,
shall be entitled to receive:
(iii) Executive's full Base Salary through the date of
termination at the rate in effect at the time notice of
termination is given, AIAP Vested Amount as of the date of
termination, and, except as set forth below, all other
amounts to which Executive is entitled under any
compensation or benefit plan of the Company including, but
not limited to, the AIAP and LTIP, and all unpaid amounts,
as of the date of such termination, in respect of any bonus,
including any bonus for any Fiscal Year ending before such
termination which would have been payable had the Executive
remained in employment until the date such bonus would
otherwise have been paid and including any bonus under
Section 3.4, at the times such payments are due under the
terms of such plans or, in the event such termination occurs
during the twenty-four month period following a Change of
Control, upon such termination;
(iv) any payment deferred by Executive, together with any
applicable interest or other accruals thereon;
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(v) the benefits under Section 5 hereof shall be paid out in
accordance with their terms; provided, however, that
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Executive shall, for purposes of Section 5, be deemed to
have remained employed by the Company and Holdings for the
period ending on the third anniversary of the date his
employment terminated at the compensation level in effect on
the date of termination or, if such termination occurs
during the twenty-four month period following a Change of
Control, at the compensation level in effect immediately
prior to such Change of Control if higher;
(vi) continued coverage under Holdings' and the Company's
employee benefit programs, plans and practices described in
Section 4.1 and 4.2 hereof until the third anniversary of
the date his employment terminated, or Holdings or the
Company will provide for equivalent coverage (on an after-
tax basis), subject to any applicable coordination of
benefits rules; provided that (A) in the case of any plan
meeting the requirements of Section 401(a) of the Code,
prior to a Change of Control, such coverage shall be
provided only to the extent consistent with such
requirements and (B) in the event of such a termination
during the twenty-four month period following a Change of
Control, such coverage shall not be less favorable in the
aggregate than that in effect immediately prior to such
Change of Control;
(vii) such payments under applicable plans or programs, including
but not limited to those described in Section 3.3 and 4.3
and payment for accrued vacation, as may be determined
pursuant to the terms of such plans or programs and this
Agreement;
(viii) outplacement counseling services at Company expense;
provided however, this expense shall not exceed 18% of
annualized Base Pay in any calendar year;
(ix) for the first six (6) months after termination, the
reasonable cost of one secretary and a fully functional
office, such office location to be determined by Executive
as long as the office is not to be located on the premises
of the Company;
(x) if Executive's termination occurs prior to March 1, 1996,
and prior to a Change of Control, any
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applicable additional benefits and protections provided
under the Headquarters Program;
(xi) if Executive's termination occurs during the twenty-four
month period following a Change of Control, all cash
payments to be made hereunder upon a termination of
employment shall be made not later than 15 business days
following the date of termination, and in addition Executive
shall receive, to the extent not already provided herein,:
(A) a lump sum cash payment equal to the sum of
Executive's AIAP Vested Amount, PS Vested Amount and PU
Vested Amount all as of the date of termination;
(B) a lump sum cash payment equal to three times the
value of the annual credit under the RJR Nabisco. Inc.
Flexible Perquisites Program (the "Perquisites Program") to
which Executive was entitled immediately prior to such
termination or, if higher, to which Executive was entitled
immediately prior to the Change of Control, reduced by such
credits as would otherwise be applied to the continued
benefits under Section 6.1(a)(vi) above;
(C) use of the automobile assigned to Executive
immediately prior to the Change of Control until the third
anniversary of the date of termination and, at the end of
such period, the transfer of.ownership of such automobile to
Executive plus such amount in cash that after payment of all
applicable Federal, state and local taxes thereon, computed
at the maximum marginal rates, is equal to all such taxes,
so computed, imposed in connection with such transfer;
(D) in addition to and upon the expiration of the
benefits provided pursuant to Section 6.1(a) (vi) above,
MedChoice Retiree Medical benefits as may be in effect at
the time of such expiration for other retirees and as
amended from time to time thereafter at the minimum level of
Company subsidy or, if greater, the subsidy level based on
all his years of service (actual and imputed) credited for
purposes of the Benefit; and
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(E) if the Company fails to provide any of the benefits
under Section 6.1(a) (vi) or Section 6.1(a) (xi) (D) above,
reimbursement for the actual cost of Executive's obtaining
comparable benefits within 15 business days after the date
Executive gives the Company written notice that he incurred
such costs plus such additional amount that after payment of
all applicable Federal, state and local taxes thereon,
computed at the maximum applicable marginal rates, is equal
to all such taxes, so computed, imposed with respect to such
reimbursement.
(b) For purposes of this Agreement, "Good Reason" shall mean
any of the following (without Executive's express prior written
consent):
(i) (A) The assignment to Executive of duties materially
inconsistent with Executive's position (including duties,
responsibilities, status, titles or offices as set forth in
Section 1 hereof); (B) any elimination or reduction of
Executive's duties or responsibilities as set forth in
Section 1; or (C) any removal of Executive from or any
failure to elect or reelect Executive to the position of
Chief Executive Officer of Holdings and the Company
(including the failure to elect Executive to the position of
Chief Executive Officer of the ultimate controlling entity
in connection with any merger, acquisition or other
extraordinary corporate transaction that includes Holdings
or the Company), except in connection with the termination
of Executive's employment for Cause, Permanent Disability
(as hereinafter defined) or as a result of Executive's death
or by Executive other than for Good Reason;
(ii) A reduction in Executive's Base Salary or annual target
bonus opportunity from the level required hereunder at the
time in question, as the same may be increased from time to
time during the term or pursuant to the terms of this
Agreement;
(iii) The failure by the Company or Holdings to obtain the
specific assumption of this Agreement by any successor or
assign of Holdings or the Company or any person acquiring
substantially all of the Company's or Holdings' assets;
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(iv) Any material breach by the Company or Holdings of any
provision of this Agreement or any agreements entered into
pursuant thereto;
(v) Requiring Executive to be based at any office or location
other than that described in Section 1 above, except for
travel reasonably required in the performance of the
Executive's responsibilities, or
(vi) During the twenty-four month period following a Change of
Control, (A) the failure to continue in effect any
compensation plan in which Executive participates at the
time of the Change of Control, including but not limited to
the LTIP, the AIAP, the Perquisites Program, or any
substitute plans adopted prior to the Change of Control,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan providing Executive with
substantially similar benefits) has been made with respect
to such plan in connection with the Change of Control, or
the failure to continue Executive's participation therein on
substantially the same basis, both in terms of the amount of
benefits provided and the level of his participation
relative to other participants, as existed at the time of
the Change of Control; or (B) the failure to continue to
provide Executive with benefits at least as favorable in the
aggregate as those enjoyed by him under any of the Company's
pension, life insurance, medical, health and accident,
disability, deferred compensation or savings plans in which
he was participating at the time of the Change of Control,
the taking of any action which would directly or indirectly
materially reduce any of such benefits or deprive Executive
of any material fringe benefit enjoyed by him at the time of
the Change of Control, or the failure to provide him with
the number of paid vacation days to which he was entitled on
the basis of the Company's practice with respect to him as
in effect at the time of the Change of Control.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it is determined that any
payment or distribution by Holdings
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or the Company to or for the benefit of Executive, whether paid
or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, other than any payment pursuant
to this Section 6.1(c), (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive
shall be entitled to receive from Holdings or the Company, within
15 days following the determination described in Section 6.1
(c)(ii) below, an additional payment ("Excise Tax Adjustment
Payment") in an amount such that after payment by Executive of
all applicable Federal, state and local taxes (computed at the
maximum marginal rates and including any interest or penalties
imposed with respect to such taxes), including any Excise Tax,
imposed upon the Excise Tax Adjustment Payment, Executive retains
an amount of the Excise Tax Adjustment Payment equal to the
Excise Tax imposed upon the Payments.
(ii) All determinations required to be made under this
Section 6.1(c), including whether an Excise Tax Adjustment
Payment is required and the amount of such Excise Tax Adjustment
Payment, shall be made by Ernst &
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▇▇▇▇▇, ▇▇▇▇▇▇▇-Salem, North Carolina, or such other national
accounting firm as the Company or Holdings may designate prior to
a Change of Control, which shall provide detailed supporting
calculations to the Company and the Executive within 15 business
days of the date of termination of Executive's employment. Except
as hereinafter provided, any determination by Ernst & ▇▇▇▇▇,
▇▇▇▇▇▇▇-Salem, North Carolina, or such other national accounting
firm as the Company or Holdings may designate prior to a Change
of Control, shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder,
it is possible that (x) certain Excise Tax Adjustment Payments
will not have been made by the Company which should have been
made (an "Underpayment"), or (y) certain Excise Tax Adjustment
Payments will have been made which should not have been made (an
"Overpayment"), consistent with the calculations required to be
made hereunder. In the event of an Underpayment, such
Underpayment shall be promptly paid by Holdings or the Company to
or for the benefit of the Executive. In the event that the
Executive discovers that an Overpayment shall have occurred, the
amount thereof shall be promptly repaid to Holdings or the
Company.
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(d) Except as provided in this Agreement, if Executive is a
participant in the LTIP or any other stock award plan of the Company,
Holdings, or any of their affiliates and has outstanding awards
thereunder, the treatment of such awards shall be governed by the
terms of such applicable plans and awards.
6.2 Permanent Disability. The event of the Executive
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becoming eligible for benefits under the Company's Long Term
Disability Plan is not a termination under Section 6.1(a) entitling
Executive to Compensation Continuance under this Agreement. If,
however, Executive becomes eligible for benefits under the Company's
Long Term Disability Plan during his Compensation Period, the amount
of Compensation Continuance shall be reduced during the Compensation
Period by the amount of disability benefits payable to the Executive.
All other provisions of this Agreement shall remain in effect
notwithstanding the Executive's disability including, without
limitation, obligations pursuant to Section 5 hereof, the terms of any
applicable plans, including, but not limited to, those described in
Sections 3.3, 4.1, 4.2, 4.3 and 4.4 hereof, and all unpaid amounts, as
of the date of such disability, in respect of any bonus, including any
bonus payable for any fiscal year ending prior to such disability and
including any bonus under Section 3.4, and any payment deferred by
Executive,
22
together with any applicable interest or other accruals thereon. If
the Executive is still disabled upon reaching his Retirement Date
under the SERP, he shall be retired under the SERP with an offset for
any disability payments made to the Executive after such retirement.
6.3 Death. In the event of Executive's death while actively
-----
employed, the Company's and Holdings' obligations under this Agreement
shall cease and terminate except with respect to obligations pursuant
to Section 5 hereof, the terms of any applicable plans, including, but
not limited to, those described in Sections 3.3, 4.1, 4.2, 4.3 and 4.4
hereof, all unpaid amounts, as of the date of death, in respect of any
bonus, including any bonus for any fiscal year ending prior to death
which would have been payable had Executive remained in employment
until the date such bonus would otherwise have been paid, and,
including any bonus under Section 3.4, and any payment deferred by
Executive, together with any applicable interest or other accruals
thereon. In the event of Executive's death subsequent to commencement
of his Compensation Period hereunder, the balance of Compensation
Continuance will be paid to his beneficiary in a lump sum.
"Beneficiary" shall mean the Executive's designated beneficiary under
his Executive Program life insurance. Any survivor benefit shall be
paid in accordance with the SERP.
23
6.4 Voluntary Resignation; Discharge for Cause. If Executive
------------------------------------------
resigns voluntarily, other than for Good Reason or Permanent
Disability, or the Company and Holdings terminate the employment of
Executive for Cause, the Company's and Holdings' obligations under
this Agreement to make any further payments to Executive shall
thereupon cease and terminate except with respect to accrued and
nonforfeitable obligations pursuant to Section 5 hereof, the terms of
any applicable plans, including those described in Sections 3.3, 4.1,
and 4.3 hereof all unpaid amounts, as of the date of such termination,
in respect of any bonus, including any bonus for any fiscal year
ending prior to such termination which would have been payable had
Executive remained in employment until the date such bonus would
otherwise have been paid and including any bonus under Section 3.4,
and any payment deferred by Executive, together with any applicable
interest or other accruals thereon. The term "Cause" shall be limited
to (a) action by Executive involving willful malfeasance in connection
with his employment having a material adverse effect on Holdings or
the Company, (b) any action by Executive involving willful gross
misconduct having a material adverse effect on Holdings or the Company
(other than an effect that could not reasonably constitute grounds for
dismissal under the circumstances), (c) substantial and continuing
willful refusal by Executive in breach of this Agreement to perform
the duties ordinarily performed by an
24
Executive occupying his positions, which refusal has a material
adverse effect on Holdings or the Company or (d) Executive being
convicted of (i) a felony under the laws of the United States or any
state or (ii) a felony under the laws of any other country or
political subdivision thereof involving moral turpitude; provided that
no action or refusal to perform shall be deemed willful if done in the
reasonable belief that such action or refusal was in the best
interests of the Company or Holdings. Termination of Executive
pursuant to this Section 6.4 shall be communicated by a Notice of
Termination given within one year after the Holdings Board both (i)
had knowledge of conduct or an event allegedly constituting Cause and
(ii) had reason to believe that such conduct or event could be grounds
for Cause. For purposes of this Agreement a "Notice of Termination"
shall mean delivery to Executive of a copy of a resolution duly
adopted by the affirmative vote of-not less than three-quarters of the
entire membership of Holdings Board at a meeting of the Holdings Board
called and held for the purposes (after reasonable notice to the
Executive ("Preliminary Notice") and reasonable opportunity for
Executive, together with the Executive's counsel, to be heard before
the Holdings Board prior to such vote), finding that, in the good
faith opinion of the Holdings Board, Executive was guilty of conduct
set forth in the second sentence of this Section 6.4 and specifying
the particulars
25
thereof in detail. Upon the receipt of the Preliminary Notice,
Executive shall have 14 days in which to appear with counsel or take
such other action as he desires on his behalf, and such 14-day period
is hereby agreed to by the parties as a reasonable opportunity for
Executive to be heard. The Holdings Board shall no later than 30 days
after the receipt of the Preliminary Notice by Executive communicate
its findings to Executive. A failure by the Holdings Board to make its
findings of Cause or to communicate its conclusions within such 30-day
period shall be deemed to be a finding that Executive was not guilty
of the conduct described in the second sentence of this Section 6.4.
Where the Holdings Board has made such findings that, based upon
conduct described in clause (a), (b) or (c) above, Cause exists the
Executive shall have 30 days in which to cure such conduct, to the
extent such cure is possible. Any termination of Executive's
employment (other than by death or Permanent Disability) within 30
days after the date that the Preliminary Notice has been given to
Executive shall be deemed to be a termination for Cause; provided,
however, that if during such period Executive voluntarily terminates
other than for Good Reason or the Company terminates Executive other
than for Cause, and either (A) Executive cured his conduct, as
permitted in the preceding sentence of this Section 6.4, or (B)
Executive is found (or is deemed to be found) not guilty of the
conduct described in the second
26
sentence of this Section 6.4, such termination shall not be deemed to
be for Cause.
7. Stock Arrangements. Except as otherwise provided in
------------------
Section 3.4, Section 6 and Section 13, awards under the LTIP shall be
governed by the provisions of the individual grant agreements made
under the LTIP.
8. Expenses. The Executive is authorized to incur reasonable
--------
expense in carrying out his duties and responsibilities under this
Agreement, including expenses for travel and similar items related to
such duties and responsibilities. The Company shall reimburse
Executive for all such expenses upon presentation by Executive from
time to time of an itemized account of such expenditures.
9. No Obligation to Mitigate Damages. The Executive shall
---------------------------------
not be required to mitigate damages or the amount of any payment
provided for under this Agreement by seeking other employment or
otherwise nor will (a) any payments hereunder be subject to offset in
respect of any claims which the Company may have against Executive or
(b) except as provided in Section 6.1(a)(vi), the amount of any
payment or benefit provided for in Section 6 be reduced by any
compensation earned as a result of Executive's employment with another
employer.
10. Notices. All notices or communications hereunder shall
-------
be in writing, addressed as follows:
27
To the Company or Holdings:
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
c/o RJR Nabisco Holdings Corp.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
To the Executive:
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Any such notice or communication shall be sent certified or
registered mail,return receipt requested, postage prepaid, addressed
as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the actual date of
mailing shall determine the time at which notice was given.
11. Separability; Legal Fees; Arbitration. If any provision
-------------------------------------
of this Agreement shall be declared to be invalid or unenforceable, in
whole or in part, such invalidity or unenforceability shall not affect
the remaining provisions hereof which shall remain in full force and
effect. In addition, the Company shall reimburse Executive for
reasonable legal fees incurred in connection with entering into this
Agreement and shall also pay to Executive as incurred all legal and
accounting fees and expenses incurred by Executive in seeking to
obtain or enforce any right or benefit provided by this Agreement or
any other compensation-related plan, agreement or arrangement of the
Company, unless
28
Executive's claim is found by an arbitral tribunal of competent
jurisdiction to have been frivolous. Any good faith controversy or
claim arising out of or relating to this Agreement or the breach of
this Agreement (other than Section 14 hereof) that cannot be resolved
by Executive and the Company, including any dispute as to the
calculation of Executive's benefits or any payments hereunder shall be
submitted to arbitration in New York City in accordance with New York
law and the procedures of the American Arbitration Association. The
determination of the arbitrator(s) shall be conclusive and binding on
the Company and Executive and judgment may be entered on the
arbitrator(s)' award in any court having jurisdiction.
12. Assignment. This contract shall be binding upon and
----------
inure to the benefit of the heirs and representatives of Executive and
the assigns and successors of Holdings and the Company, but neither
this Agreement nor any rights hereunder shall be assignable or
otherwise subject to hypothecation by Executive (except by will or by
operation of the laws of intestate succession) or by Holdings or the
Company, except that Holdings or the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of Holdings or
the Company.
29
13. Amendment/Termination.
---------------------
(a) The Agreement may only be amended at any time by
mutual written agreement of the parties hereto.
(b) Company and Holdings represent and warrant they
will make appropriate adjustments and amendments to the numben of
shares subject to, and the exercise price of, options to purchase
Holdings common stock granted under the LTIP ("Options") (including,
in the event of a spinoff or distribution of assets or stock of
Holdings or an affiliated entity, substituting or replacing the shares
issuable upon the exercise of Options) should extraordinary events or
transactions occur involving the Company, Holdings, or an affiliated
corporation.
14. Nondisclosure of Confidential Information;
------------------------------------------
Non-Competition.
---------------
(a) Executive shall not, without the prior written
consent of Holdings or the Company, divulge, disclose or make
accessible to any other person, firm, partnership or corporation or
other entity any Confidential Information pertaining to the business
of Holdings or the Company except (i) while employed by Holdings or
the Company in the business of and for the benefit of Holdings or the
Company or (ii) when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority
over the business of Holdings or the Company, or by any
30
administrative body or legislative body (including a committee
thereof) with purported or apparent jurisdiction to order Executive to
divulge, disclose or make accessible such information. For purposes of
this Section 14(a), "Confidential Information" shall mean non-public
information concerning Holdings' or the Company's financial data,
strategic business plans, product development (or other proprietary
product data), customer lists, marketing plans and other proprietary
information, except for specific items which have become publicly
available information or otherwise known to the public other than
through a breach by Executive of his fiduciary duty or any
confidentiality agreement, or information known to the Executive prior
to the date of this Agreement. Confidential Information does not
include information the disclosure of which cannot reasonably be
expected to adversely affect the business of Holdings or the Company.
(b) During the period commencing on the date hereof and
ending (i) in the case of a termination described in Section 6.1
hereof, three years after the date of termination and (ii) in case of
a termination described in Section 6.4 hereof, two years after the
date of termination, Executive covenants and agrees that he will not
be an executive officer, board member, owner, partner, consultant or
employee of a food or tobacco company with annual revenues
31
over $1 billion, if such food or tobacco company is engaged in a
"major business" of Holdings or the Company. A "major business" for
this purpose is each major business segment of the Company and its
subsidiaries on the date hereof that produces products constituting
over 5% of the annual revenues of Holdings and its subsidiaries. For
purposes of this Section 14, Executive shall be deemed not a
shareholder of a company that would otherwise be a competing entity if
Executive's record and beneficial ownership of the capital stock of
such company amount to not more than one percent of the outstanding
capital stock of any such company subject to the periodic and other
reporting requirements of Section 13 or Section 15(d) or the
Securities Exchange Act of 1934, as amended. Executive, Holdings, and
Company agree this covenant not to compete is a reasonable covenant
under the circumstances, and further agree that if in the opinion of
any court of competent jurisdiction, such restraint is not reasonable
in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder
of the covenant as so amended.
(c) Executive agrees that any breach of the covenants
contained in this Section 14 would irreparably injure Holdings and the
Company. Accordingly, Holdings or
32
the Company may, in addition to pursuing any other remedies they may have
in law or in equity, obtain an injunction against Executive from any court
having jurisdiction over the matter; restraining any further violation of
this Agreement by Executive.
15. Beneficiaries/References. Executive shall be entitled to select
------------------------
(and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following Executive's death, and may change such election, in
either case by giving the Company written notice hereof. In the event of
Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal
representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
16. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and
obligations. The provisions of this Section are in addition to the
survivorship provisions of any other section of this Agreement.
33
17. Representations and Warranties. Holdings and the Company each
------------------------------
represent and warrant that (a), respectively, they are fully authorized and
empowered to enter into this Agreement, (b) the execution of this Agreement
and the performance of their respective obligations under this Agreement
will not violate or result in a breach of the terms of any material
agreement to which Holdings and/or the Company is a party or by which it is
bound, (c) no approval by any governmental authority or body is required
for them to enter into this Agreement or perform their obligations
hereunder, and (d) this Agreement is valid, binding and enforceable against
Holdings and the Company in accordance with its terms, except to the extent
affected or limited by applicable bankruptcy laws or other statutes
governing the rights of creditors and any regulations or interpretations
thereof. Executive represents and warrants that his execution of this
Agreement and his performance of his duties and responsibilities under this
Agreement will not violate or result in a breach of the terms of any
material agreement to which he is a party or by which he is bound.
18. Governing Law. This Agreement shall be construed, interpreted,
-------------
and governed in accordance with laws of New York, without reference to
rules relating to conflicts of law.
34
19. Withholding. The Company and Holdings shall be entitled to
-----------
withhold for payment any amount of withholding required by law.
20. Interest on Late Payments. To the extent that any payments
-------------------------
required to be made hereunder upon or following a Change of Control are not
made within the period specified therefor, the Company and Holdings shall
be liable for interest on such delayed payments at the rate of 150% of the
prime rate compounded monthly, as posted by the ▇▇▇▇▇▇ Guaranty Trust
Company of New York from time to time.
21. Actuarial Calculations. All required actuarial calculations of
----------------------
payments to be made hereunder and of annuities to be purchased pursuant to
Section 5 hereof shall be made by ▇▇▇▇▇▇ ▇▇▇▇▇ Worldwide, New York, New
York, or such other national actuarial firm as the Company or Holdings may
designate prior to a Change of Control.
22. Funding. Except as otherwise provided herein, all benefits
-------
hereunder are unfunded and will be paid out of the general assets of the
Company or Holdings. Notwithstanding the foregoing, the Company or Holdings
may choose to maintain a rabbi trust or other trusts for the purpose of
paying certain of the benefits hereunder or under other plans and programs
of the Company or Holdings and, if so, Executive shall be entitled to
payments therefrom, if any, as and to the extent provided in such rabbi
trust or other trusts.
35
23. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original.
RJR NABISCO HOLDINGS CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Chairman
RJR NABICO, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Chairman
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
36
EXHIBIT "A"
AIAP Vested Amount means, as of a Change of Control or as of the
------------------
date Executive's employment terminates, as the case may be, an amount equal
to (a) in the case of any bonus opportunity under the AIAP, the value of
Executive's target award under the AIAP for the relevant period in which
such Change of Control or such termination occurs, as the case may be,
multiplied by a fraction, the numerator of which is the number of months
(including partial months) in the period beginning on the first day of the
relevant performance period and ending on the Change of Control or such
termination, as the case may be, and the denominator of which is the number
of months in such performance period; provided that in the event of a
termination of employment following a Change in Control in the year in
which such Change of Control occurs, for purposes of computing the AIAP
Vested Amount as of the date of such termination, the performance period
shall be deemed to begin on the first day following such Change of Control
and the target award shall be that in effect immediately preceding such
Change of Control, or (b) in the case of any annual bonus opportunity in
the form of Performance Units, the PU Vested Amount as of the date of such
termination.
Board means the Board of Directors of the Company.
-----
Boards means, collectively, the Board and the Holdings Board.
------
Change of Control means the first to occur of the following
-----------------
events provided such event occurs prior to October 11, 1996 or such later
date as the Boards may specify from time to time:
(a) an individual, corporation, partnership, group, associate
or other entity or "person", as such term is defined in
Section 14 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than Holdings or any employee
benefit plan(s) sponsored by Holdings or the Company, is
or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
30% or more of the combined voting power of Holdings'
outstanding securities ordinarily having the right to
vote at elections of directors.
(b) individuals who constitute the Holdings Board on October
11, 1995 (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any
person becoming a director subsequent to such date whose
election, or nomination for election by Holdings'
shareholders, was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy
statement of Holdings in which such person is named as a
nominee of Holdings for director), but excluding for this
purpose any such individual whose initial assumption of
office occurs as a result of either an actual or
threatened election contest (as such terms are used in
Rule 14a-ll of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of an individual,
corporation, partnership, group, associate or other
entity or "person" other than the Holdings Board, shall
be, for purposes of this paragraph (b), considered as
though such person were a member of the Incumbent Board;
(c) the approval by the shareholders of Holdings of a plan or
agreement providing (1) for a merger or consolidation of
Holdings other than with a wholly-owned subsidiary and
other than a merger or consolidation that would result in
2
the voting securities of Holdings outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting
securities of Holdings or such surviving entity outstanding
immediately after such merger or consolidation, or (2) for a
sale, exchange or other disposition of all or substantially all
of the assets of Holdings. If any of the events enumerated in
this paragraph (c) occurs, the Holdings Board shall determine the
effective date of the Change of Control resulting therefrom for
purposes of the Program.
Holdings Board means the Board of Directors of Holdings.
--------------
PS Vested Amount means with respect to any award of Performance
----------------
Shares (as defined in the LTIP) Executive holds as of a Change of Control
or as of the date Executive's employment terminates, as the case may be, an
amount equal to the adjusted value of (i) the number of Performance Shares
subject to such award, multiplied by a fraction, the numerator of which is
the number of months (including partial months) elapsed in the relevant
performance period as of such Change of Control or as of the date of such
termination, as the case may be, and the denominator of which is the number
of months in such performance period, (ii) adjusted by applying target
performance with respect to such award; provided that in the event of a
termination of employment following a Change of Control in the year in
which such Change of Control occurs, for purposes of computing the PS
Vested Amount as of the date of such termination, the performance period
shall be deemed to begin on the first day following such
3
Change of Control and target performance with respect to such Performance
Shares shall be that in effect immediately preceding the Change of Control.
PU Vested Amount means, for any award of Performance Units (as
----------------
defined in the LTIP) Executive holds as of a Change of Control or as of the
date Executive's employment terminates, as the case may be, an amount equal
to the target value of the number of Performance Units subject to such
award multiplied by a fraction, the numerator of which is the number of
months (including partial months) elapsed in the relevant performance
period as of the Change of Control and the denominator of which is the
number of months in such performance period; provided that in the event of
a termination of employment following a Change of Control in the year in
which such Change of Control occurs, for purposes of computing the PU
Vested Amount as of the date of such termination, the performance period
shall be deemed to begin on the first day following such Change of Control
and the target value of such Performance Units shall be that in effect
immediately preceding the Change of Control.
4