Tobacco Documents Online

STOCKHOLDER PROPOSALS Certain stockholders have submitted the four proposals set forth below. Holdings will furnish orally or in writing the identity of the proponents of these stockholder proposals, as well as their claimed share ownership amounts, upon written or oral request directed to the Secretary of Holdings. The following proposals have been carefully considered by the Board of Directors which has concluded that their adoption would not be in the best interests of Holdings or its stockholders. For the reasons stated after each proposal, the Board of Directors recommends a vote "AGAINST" each proposal. Proposals of stockholders intended to be presented at the next Annual Meeting must be received by the Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019- 6013 no later than November 21, 1995. ITEM 4-STOCKHOLDER PROPOSAL ON EQUAL EMPLOYMENT REPORTING A stockholder has submitted the following proposal, which will be voted upon at the meeting if presented by its proponent: "We believe there is a strong need for corporate commitment to equal employment opportunity. We also believe a clear policy opposing all forms of discrimination is a sign of a socially responsible corporation. Since a substandard equal employment opportunity record leaves a company open to expensive legal action, poor employment morale and even the loss of certain types of business, we believe it is in the company's and shareholder's interest to have information on our company's equal employ- ment record. "One of the country's largest institutional investors, the California Public Employees' Retirement System, includes workplace performance guidelines as part of their corporate performance criteria. The Department of Labor's Glass Ceiling Commission has for the last four conducted studies, with the help of a number of corporations, and in 1994 held public hearings to ascertain the status of equality and diversity in Corporate America. In 1995 the commission will report to the President their recommendations. "As a major employer we are in a position to take the lead in ensuring that employees receive fair employment opportunities and promotions. We believe a report containing the basic information requested in this resolution keeps issues high and on top of management's and Board of Directors' agenda, and reaffirms our public commitment to equal employment opportunity and programs respon- sive to the concerns of all employees. Publicizing our standards is helpful to our investors and the companies with whom we do business. "We are requesting that EEO information already gathered for the purpose of complying with government regulations be made available to company shareholders on request. The format of the request is not the central question. Many corporations openly release their EEO-1 information in annual reports or public interest booklets. "Different companies use different styles in telling their story to shareholders. Capital Cit- ies/American Broadcasting Company, Bristol-Myers-Squibb and Travellers produced a substantial magazine style report. Campbell Soup produced a straightforward four page document. We feel this request is fair and reasonable. 13 I

"Resolved: The shareholders request our company prepare a report at reasonable cost available to shareholders and employees reporting on the following issues. This report, which may omit confidential information, shall be available by September 1995. "1. A chart identifying employees according to their sex, and race in each of the nine major Equal Employment Opportunity Commission defined job categories for 1992, 1993, 1994 listing either numbers or percentages in each category. "2. A summary description of any Affirmative Action policies and programs to improve performances, including job categories where woman and minorities are underutilized. "3. A description of any policies and programs oriented specifically toward increasing the number of managers, who are qualified females and/or belong to ethnic minorities. "4. A description of how our company publicizes our company's affirmative action policies and programs to merchandise suppliers and service providers. "5. A description of any policies and programs directing the purchase of goods and services to minority- and/or female-owned business enterprises." I The Board of Directors recommends a vote "AGAINST" this proposal. Holdings' corporate policy set forth in the RJR Nabisco Code of Conduct is to provide equal employment opportunity in all personnel actions. Holdings and its subsidiaries strive to maintain a workplace that is free of discrimination on the basis of race, color, religion, gender, age, sexual orientation, national origin, disability or veteran status. Holdings is proud of the progress it and its subsidiaries have made in recent years in building a varied and diverse workforce and is fully committed to continuing to advance the goals of equal employment opportunity, affirmative action and diversity in the workplace. Holdings' and its subsidiaries' current efforts in this area include diversity awareness training for employees; recruiting, developing and advancing women, minorities and people with disabilities; work and family programs; internal diversity councils and employee networking groups; and HIV/AIDS awareness and education. As federal contractors, Holdings' subsidiaries prepare annual Affirmative Action Plans which analyze the workforce by department and job group, according to race and gender, and which establish goals in those areas where Holdings and its subsidiaries strive to increase the representation of minorities and/or women. Affirmative Action Plans are also developed annually for people with disabilities and Vietnam Era and disabled veterans. Holdings' subsidiaries actively monitor the progress and effectiveness of all of their Affirmative Action Plans throughout the year. Female and minority workforce representation is studied and analyzed, not only for the current year, but also in comparison to past years for the purpose of identifying important trends. Holdings' and its subsidiaries' commit- ment to increasing the representation of women and minority employees is further supported by a wide range of corporate sponsorships and contributions. In addition to the above, Holdings is annually required to provide the Federal government with certain reports containing data on the race and gender composition of the U.S, workforce. These reports include several hundred pages of charts and require substantial time and effort to produce. Given the fact that Holdings already spends significant resources to produce and file 150 legally required reports, and taking into consideration Holdings' and its subsidiaries' existing equal employ- ment opportunity policies and initiatives, the Board believes that the expenditure of more resources to produce additional reports, as requested by the proponent, is both unnecessary and inappropriate. The Board believes that the production of additional reports would not serve to advance either Holdings' or 14

its subsidiaries' business performance or the goal of equal employment opportunity and, further, that the resources and costs involved would far exceed any benefit to stockholders. Therefore, your Board urges stockholders to vote "AGAINST" this proposal. The affirmative vote of the shares representing a majority of the shares present at the meeting in person, or represented by proxy and entitled to vote, will be required to approve this item. ITEM 5-STOCKHOLDER PROPOSAL ON NICOTINE MANIPULATION Two stockholders have submitted the following proposal, which will be voted upon at the meeting if presented by its proponents: "WHEREAS Nicotine has been recognized by the Surgeon General, by the Commissioner of the Food and Drug Administration (FDA), and by the FDA's Advisory Committee and Drug Abuse as an addictive substance; '-A Company scientist told ABC's Day One program in February 1994 that consumers seek "mild pharmacology" from their cigarettes; "-Another Company spokeswoman told a CNN reporter on April 13, 1994: "In order to deliver to the consumer a product that he wants, a consistent level of nicotine, we have to blend the tobaccos accordingly. So we do control it;" "-According to a July 14, 1994 article in The New England Journal of Medicine, virtually all cigarettes sold in the US today contain addictive levels of nicotine; "-When a cigarette is smoked, some of the nicotine in the smoke is converted to nitrosamines, which are highly carcinogenic to the lung; products and nicotine absorption by the consumer can now be readily manipulated and controlled, unlike the situation that existed in the early 1950s, when, according to the Federal Trade Commission, nicotine levels in cigarettes were inherently viable; "-The FDA Commissioner has found that at least some methods to control nicotine are used by major manufactures of tobacco products: "-The technology exists to reduce the levels of nitrosamines produced in cigarette smoke by altering the levels of other precursors besides nicotine; RESOLVED that the Company issue a report to shareholders and to the public, without revealing proprietary information and produced at a reasonable cost, whether nicotine content in and absorption from its tobacco products are deliberately controlled by the Company and if the reasons for any such control include the delivery of a reliable dose of nicotine to and/or the promotion of nicotine absorption by the customer. The report shall also include the levels of nitrosamines found in smoke from our Company's current cigarette brands." The proponents have submitted the following statement in support of this proposal: "Nicotine is both a highly addictive substance and a precursor to potent carcinogens. Both its level and its absorbability can be controlled in the manufacturing process. This resolution asks for informa- tion on the extent to which the Company controls nicotine content and delivery in its tobacco products and for information on the levels of nitrosamines in the smoke of its cigarette brands." The Board of Directors recommends a vote "AGAINST" this proposal. In June 1994, R.J. Reynolds Tobacco Company ("RJRT") published a statement in an advertise- ment placed in numerous national publications with readerships of approximately 5.6 million which 15

clearly stated that RJRT does not "spike" its cigarettes with nicotine. Stockholders and other members of the public may obtain a reprint of this statement, as well as a list of ingredients used by the maior manufacturers of cigarettes in the United States, which was made available by RJRT in April 1994, by writing to R.J. Reynolds Tobacco Company, Public Relations Department, P.O. Box 2959, Winston- Salem, N.C. 27102-2959. As RJRT stated in the advertisement and has publicly stated on other occassions, RJRT does not add nicotine to any of its tobacco products and does not manipulate the amount of nicotine in any of its products to create, maintain, or satisfy an "addiction". In fact, RJRT's manufacturing processes actually result in a reduction in the amount of nicotine found in finished cigarettes when compared to the amount of nicotine found in unprocessed tobacco. The amount of nicotine in a cigarette is largely a result of the amount and kinds of tobacco used in the cigarette blend, which are chosen because of their taste and other properties. A variety of agricultural factors and practices in turn influence these properties, including, for example, tobacco type, stalk position of the leaf, curing practices, and whether a particular crop year is wet or dry. Through statements in peer-reviewed scientific literature and other sources, RJRT has clearly stated its position regarding the claim by the Surgeon General, the Commissioner of the Food and Drug Administration and others that cigarette smoking is an "addiction". In RJRT's opinion, cigarette smoking does not meet the classic definitions of "addiction", and the forty-five million Americans who smoke are not "addicts". To call nicotine "addictive" is to ignore significant differences between cigarettes and truly addicting drugs. Over the last forty years, RJRT, other cigarette manufacturers, and scientists have explored many methods to reduce or eliminate individual constituents, such as nitrosamines, in cigarette smoke as suggested in this proposal. In general these efforts to produce commercial cigarettes using such methods have not been successful. During the same period, however, RJRT has been one of the world's leaders in research that reduces levels of all constituents of cigarette smoke, which include "tar", nicotine and many other constituents of smoke , including nitrosamines. As a result of this research by RJRT and others, cigarettes such as RJRT's NOW brand are now available with "tar" yields of less than 1.0 milligram and nicotine yields of less than 0.1 milligrams as measured by the FTC method. This compares to the early 1950's, when all cigarettes had yields of "tar" and nicotine of approximately 40 milligrams and 2.5 milligrams, respectively. Other constituents of cigarette smoke, such as nitrosamines, have been reduced more or less proportionately. There has been extensive discussion of these issues in the publicly available literature, including the 1981 Surgeon General's Report. RJRT is proud to produce the highest quality cigarette products in the world today. In order to ensure that quality and that each WINSTON, CAMEL and SALEM has the same taste, quality and other characteristics that its customers have come to expect, RJRT controls its tobacco blending, processing, and manufacturing very closely. This results in cigarettes which are consistent from cigarette to cigarette and from pack to pack in all performance characteristics, including taste, appearance, draw and other qualities. However, these controls are not intended to and do not result in some predetermined "addictive level" of nicotine in RJRT's cigarettes. In summary, RJRT does not "spike" its cigarettes with nicotine. Furthermore, RJRT complies with all government regulations regarding the public disclosure of tar and nicotine levels in its cigarettes and regarding disclosure to the federal government of the ingredients in RJRT's cigarettes. Accord- ingly, RJRT does not believe that it would serve any useful purpose to issue a report to stockholders and the public regarding nicotine, nitrosamines or other smoke constituents. Therefore, your Board urges stockholders to vote "AGAINST" this proposal. 16

The affirmative vote of the shares representing a majority of the shares present at the meeting in person. or represented by proxy and entitled to vote, will be required to approve this item. ITEM 6-STOCKHOLDER PROPOSAL ON WARNING LABELS FOR ADVERTISING AND PROMOTIONAL ITEMS Two stockholders have submitted the following proposal, which will be voted upon at the meeting if presented by its proponents: "WHEREAS Camel cigarettes has been the fastest-growing brand among teenagers for the last six years; "-Our Company actively seeks customers for its cigarettes by spending hundreds of millions of dollars in advertising and promotions. These include advertising on billboards, magazines, newspapers, bus signs, placards and television whenever allowed, as well as advertising through sponsorships and promotional items bearing our Company's cigarette logos and symbols. These include clothing, toys, sporting goods, and watches. Many of these are popular with children. For instance, 30% of 12-17 year olds in a Gallup survey reported owning promotional items for tobacco products; "-In recent years, our Company has shifted advertising dollars into promotions to convey the images, symbols, and other advertising messages of its cigarette brands, to impress the image of the brands on potential consumers' psyches; -The Joe Camel campaign helped increase our Company's share of the cigarette market for minors from 0.5% to almost 33.0% between 1988 and 1933. In 1992, Camel was the only major brand of cigarettes to show a sales increase, which we believe is attributable to sales to minors; "-Although promotions are a form of advertising for our Company's brands, they carry no warnings about health hazards caused by smoking our cigarette brands; "-The Federal Trade Commission requires that advertising for brands of chewing tobacco and moist snuff on items such as caps and t-shirts carry prominent warning labels; "RESOLVED that shareholders request the Board to adopt the following policy to be put into effect by January 1, 1996: All advertising and promotional items for our Company's tobacco products distributed throughout the world shall include clear and effective health warnings about the dangers of addiction, disease, and death caused by smoking cigarettes." The proponents have submitted the following statement in support of this proposal: "On the one hand, our Company says smoking is an adult custom and that it tries to "discourage" children from smoking. On the other hand, we believe it encourages young people to smoke through promotions and by sponsoring sporting events which attract them. The cigarette brand symbols and logos invade their consciousness with no simultaneous warnings about the health hazards caused by smoking. We believe there should be warnings wherever our ads and promotions appear; these should be at least as readable and easy to see as the images or symbols associated with our cigarette brands. "Our Company has been relatively free of damages connected to litigation from plaintiffs because of smoking, arguing that cigarette packages contained warnings. Similar warnings should be placed on any ads or promotional symbols connected to our cigarettes because it may be argued that these attracted people to use our products to the detriment of their health. Recently our Company voluntarily placed health warnings on all cigarette packages sold throughout the world, even though such were not required by law. We believe warnings on all use of our cigarette logos is the logical next step. If you agree, please vote "yes" for this resolution." 17

The Board of Directors recommends a vote "AGAINST" this proposal. Independent studies consistently conclude that advertising does not play a significant role in the decision to start smoking. Peer pressure and sibling and parental example are consistently found to be the principal reasons young people start to smoke; indeed, many studies conclude that advertising plays no role in this decision at all. Claims that the CAMEL campaign has resulted in additional underage smoking are not supported by the empirical data. In fact, the same studies cited by the proponents conclude that another brand manufactured by another company has the overwhelming share of underage smokers. Indeed, the 1993 Center for Disease Control Teenage Attitude and Practices Study found that smoking among 12-17 year olds was down when compared to 1989 and that CAMEL's share among 12-17 year olds who purchase cigarettes was up only modestly. After conducting a thorough investigation of tens of thousands of pages of company documents and other available research, the Federal Trade Commission concluded in June 1994 that: "Although it may seem intuitive to some that the Joe Camel advertising campaign would lead more children to smoke or lead children to smoke more, the evidence to support that intuition is not there." RJRT does not direct its cigarette advertising and/or promotions towards minors. Moreover, RJRT supports its position that youth should not smoke through in-school, parental and retail programs. RJRT's off-shore subsidiaries also comply with industry marketing codes which exist in a number of markets in which they compete. In markets where no such codes exist, RJRT's off-shore subsidiaries comply with the R. J. Reynolds Tobacco International, Inc. Youth Policy and Voluntary Code. These codes similarly seek to ensure that cigarettes are advertised and promoted to adults only. RJRT believes that there is awareness throughout the world of the health issues involved with smoking. This awareness is reinforced through the warning label on each pack of cigarettes that RJRT manufactures. Additionally, RJRT is already in compliance with age and labeling restrictions in all countries in which it operates. - In summary, RJRT is confident that its CAMEL advertising does not influence children to start smoking. The Federal Trade Commission has concluded that there is no evidence to support the contention that the Joe Camel campaign leads more children to smoke. Accordingly, RJRT does not believe that extending warning labels to promotional items would decrease the incidence of underage smoking. Therefore, your Board urges stockholders to vote "AGAINST" this proposal. The affirmative vote of the shares representing a majority of the shares present at the meeting in person, or represented by proxy and entitled to vote, will be required to approve this item, ITEM 7-STOCKHOLDER PROPOSAL TO SPIN OFF TOBACCO BUSINESS Two stockholders have submitted the following proposal, which will be voted upon at the meeting if presented by its proponents: "WHEREAS many institutional investors believe our Company would produce more financial returns if our tobacco business would be separated from our other businesses; "-Some institutional investors have been uneasy about [cigarette companies'] potential legal liability for the health problems of smokers, and think that such problems have depressed the share price" of tobacco companies' stock (The New York Times 9/22/94); 18

"-A consumer boycott of RJR Nabisco's products has been launched by INFACT, a consumer activist group. It successfully brought infant formula companies to change their practices and General Electric to sell a good portion of its nuclear weapons business. Among INFACT's demands to end the boycott include the Company's need to stop marketing to children and young people, stop influencing public policy, and pay its just share of health care costs associated with tobacco use; "-With the stock of the Company depressed in the past yearfrom previous years' highs, the threat of a consumer boycott does not auger well for any rapid rebound; "-Increased litigation coming from states and private insurers indicate new and ominous chal- lenges that might undermine the value of the stock. The stock value might be increased if the tobacco division(s) would be separated from the other divisions; "-Some pension-fund executives feel that the decisions by Kohlberg, Kravis, Roberts & Company to shed a major portion of its stock in RJR Nabisco Holdings has put the idea of a split-up back on the table (The New York Times 9/22/94); "-The subsequent decision of our Company not to acquire 20% of Borden Inc., and to sell 1976 of our Nabisco food division to the public is seen by The Wall Street Journal as the first step in dividing RJR into completely separate food and tobacco companies (10/31/94); "-The day following Kmart Corporation's announcement that it would sell majority stakes in three of its specialty businesses in August, 1994, its stock jumped over 2%; "RESOLVED that shareholders ask management to take steps to accomplish a separation of the Corporation's tobacco business from all its non-tobacco businesses by January 1, 1996." The proponents have submitted the following statement in support of this proposal: "According to The Wall Street Journal, the decision by RJR Nabisco Holdings Corp. to sell part of Nabisco to the public "is the culmination of a frustrating, two-year struggle by RJR management to increase the value of its tobacco-tainted stock by getting Wall Street to focus on the performance of red- hot Nabisco ° Even though the article continues that "given the current antitobacco climate and recent increase in lawsuits against tobacco companies, observers say that RJR won't be in a hurry to separate its businesses" (10/31 /94). However, it is precisely for this reason that the proponents of this resolution feel the split-up of tobacco from the rest of the Company should take place as soon as possible. If you agree, please vote "yes" for this resolution." The Board of Directors recommends a vote "AGAINST" this proposal. The Board of Directors is strongly supportive of the proponent's goal of improving the value of Holdings' Common Stock, In furtherance of this objective, the Board of Directors has reviewed-and continues to review-on an ongoing basis various alternatives to improve Holdings' capital structure and its subsidiaries' operations. Among the alternatives considered have been repurchases or issuances of securities, joint ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and recapitaliza- tions. Certain of these options have envisioned the partial or complete separation of the tobacco and food businesses. However, based on its review of these alternatives, the Board has decided that separating Holdings' tobacco business from its other businesses at this time is not the most effective means of increasing the value of Holdings' Common Stock. Instead, after considering the available alternatives in consultation with its financial advisors, bank creditors and rating agencies. Holdings announced in October 1994 that it would undertake a major initiative which included an initial public offering of approximately 19% of the common stock of Nabisco. The offering was completed in January 1995 and the proceeds of the offering were used to reduce consolidated debt by approximately S 1 billion. The offering improved Holdings' credit ratios and 19

r. established a separate market for Nabisco's stock. Holdings believes that the offering should encourage the financial markets to recognize the value of Nabisco in each common share of Holdings. As a further part of the initiative, Holdings declared a regular quarterly cash dividend of S.075 per share of Common Stock, or $.30 per common share on an annualized basis. The first dividend is payable April 1, 1995 to stockholders of record on March 10, 1995. Payment of a dividend not only provides stockholders with a cash return on their investment but also provides an additional measure of Holdings' performance-its dividend yield. In addition, as a part of the overall initiative, the Board has adopted a policy of not declaring a dividend or distribution to its stockholders of the shares of capital stock of a subsidiary before December 31, 1996. The Board has also adopted a policy of not making such a distribution prior to December 31, 1998 if that distribution would cause the ratings of the senior indebtedness of RJR Nabisco, Inc. to be reduced from investment grade to non-investment grade or if, after giving effect to such distribution, any publicly held senior indebtedness of the distributed company would not be rated investment grade. The actions described above and the proposal included in this Proxy Statement to effect a one-for- five reverse split of Holdings' Common Stock demonstrate that Holdings is committed to the goal of improving the value of its Common Stock, the same objective espoused by the proponents. Holdings will continue to review all appropriate alternatives to create stockholder value and believes that it should do so without being constrained by a specific program or timetable such as that suggested in this proposal. Although the Board of Directors does not believe that it is in the best interests of Holdings or its stockholders to separate Holdings' tobacco business from its food business at this time, the initiative described above has been structured in a manner that preserves the option of separating such businesses on a tax-free basis at some later date should Holdings consider it advisable. Therefore, your Board urges stockholders to vote "AGAINST" this proposal. The affirmative vote of the shares representing a majority of the shares present at the meeting in person, or represented by proxy and entitled to vote, will be required to approve this item. 20