<PAGE>

                                                                  Exhibit 3.1(a)

                                    RESTATED

                          CERTIFICATE OF INCORPORATION

                                       OF

                           RJR NABISCO HOLDINGS CORP.

       (Originally incorporated as RJR Holdings Corp. on October 25, 1988)

                                  ARTICLE FIRST

         The name of the Corporation is RJR Nabisco Holdings Corp.

                                 ARTICLE SECOND

         The registered office and registered agent of the Corporation is The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, City of Wilmington,
County of New Castle, Delaware, 19805.

                                  ARTICLE THIRD

         The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

                                 ARTICLE FOURTH

         The total number of shares of capital stock that the Corporation is
authorized to issue is 590,000,000 shares of which 440,000,000 shares are Common
Stock, par value $.01 each, and 150,000,000 shares of which are shares of
preferred stock, par value $.01 each (hereinafter referred to as "Preferred
Stock"). The Preferred Stock may be issued from time to time in one or more
series with such distinctive designations as may be stated in the resolution or
resolutions providing for the issue of such stock from time to time adopted by
the Board of Directors or a duly authorized committee thereof. The resolution or
resolutions providing for the issue of shares of a particular series shall fix,
subject to applicable laws and the provisions of this ARTICLE FOURTH, for each
such series the number of shares constituting such series and the designations
and powers, preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including,
without limiting the generality of the foregoing, such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
or a duly authorized committee thereof under the General Corporation Law of the
State of Delaware. The number of authorized shares of any class or classes of
stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
Common Stock of the Corporation irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware or any
corresponding provision hereafter enacted.


                                       1
<PAGE>

         The following is a statement of the number, designation, powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the ESOP Convertible Preferred
Stock of the Corporation:

         (1) Designation; Issuance. (i) The designation of the series of
Preferred Stock authorized by this resolution shall be "ESOP Convertible
Preferred Stock" (the "ESOP Convertible Preferred Stock") consisting of
15,625,000 shares. The stated value of the ESOP Convertible Preferred Stock
shall be $16.00 per share, which value does not represent a determination by the
Board of Directors for the purposes of the capital accounts.

         (ii) Shares of ESOP Convertible Preferred Stock shall be issued only to
a trustee acting on behalf of an employee stock ownership plan or other employee
benefit plan of the Corporation. In the event of any transfer of shares of ESOP
Convertible Preferred Stock except for (a) any transfer to any such plan trustee
or (b) any transfer to, or with respect to, a participant in any such plan to,
or with respect to, whom ESOP Convertible Preferred Stock is distributed by any
such plan trustee in satisfaction of the distribution requirements of any such
plan or any investment elections provided to participants pursuant to any such
plan, unless the Corporation shall have otherwise previously consented to such
transfer, the shares of ESOP Convertible Preferred Stock so transferred, upon
such transfer and without any further action by the Corporation or the holder,
shall be automatically converted into shares of Common Stock (as defined in
paragraph (2) hereof) on the terms otherwise provided for the conversion of
shares of ESOP Convertible Preferred Stock into shares of Common Stock pursuant
to paragraph (7) hereof and no such transferee shall have any of the powers
(including voting powers), preferences and relative, participating, optional or
special rights ascribed to shares of ESOP Convertible Preferred Stock hereunder
but, rather, only the powers (including voting powers) and rights pertaining to
the Common Stock into which such shares of ESOP Convertible Preferred Stock
shall be so converted. Certificates representing shares of ESOP Convertible
Preferred Stock shall be legended to reflect such restrictions on transfer.
Notwithstanding the foregoing provisions of this paragraph (1)(ii), shares of
ESOP Convertible Preferred Stock (a) shall be redeemable by the Corporation upon
the terms and conditions provided by paragraphs (5), (6) and (9) hereof and (b)
may be converted into shares of Common Stock as provided by paragraph (7) hereof
and the shares of Common Stock issued upon such conversion may be transferred by
the holder thereof as permitted by law.

         (2) Rank. The ESOP Convertible Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
prior to the Common Stock, par value $0.01 per share (the "Common Stock"), of
the Corporation. All equity securities of the Corporation to which the ESOP
Convertible Preferred Stock ranks prior, including the Common Stock, are
collectively referred to herein as the "Junior Securities," all equity
securities of the Corporation with which the ESOP Convertible Preferred Stock
ranks on a parity are collectively referred to herein as the "Parity Securities"
and all equity securities of the Corporation (other than convertible debt
securities) to which the ESOP Convertible Preferred Stock ranks junior, whether
with respect to dividends or upon liquidation, dissolution, winding-up or
otherwise, are collectively referred to herein as the "Senior Securities." The
ESOP Convertible Preferred Stock shall be subject to the creation of Junior
Securities, Parity Securities and Senior Securities.

         (3) Dividends. (i) (a) Subject to paragraph (3)(i)(b), the holders of
the shares of ESOP Convertible Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment of dividends, dividends initially at the rate of
7.8125% of the stated value ($1.25) per share per annum (the "Dividend Rate"),
and no more. Subject to paragraph (3)(i)(b), such dividends shall be payable in
semi-annual payments, one half on January 2, (or, at the option of the


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Corporation, the preceding December 27) and one half on July 2 of each year
commencing with January 2, 1992 (or, at the option of the Corporation, December
27, 1991) (each of such dates being a "Dividend Payment Date"), in preference to
dividends on the Junior Securities. Subject to paragraph (3)(i)(b), such
dividends shall be paid to the holders of record at the close of business on the
tenth business day immediately preceding each Dividend Payment Date (each of
such dates being a "Dividend Payment Record Date"). Subject to paragraph
(3)(i)(b), each of such semi-annual dividends shall be fully cumulative and
shall accrue (whether or not declared), without interest, from the previous
Dividend Payment Date, except that with respect to the first dividend, such
dividend shall accrue from the date of initial issuance. Dividends payable for
the first dividend period and any partial dividend period (excluding for this
purpose dividends paid on December 27 in lieu of January 2) shall be calculated
on the basis of a 360-day year of twelve 30-day months.

         (b) Notwithstanding anything to the contrary in paragraph (3)(i)(a), in
the event that after the eighth (8th) anniversary of the initial date of
issuance, for at least twenty (20) trading days within any period of thirty (30)
consecutive trading days (such thirty (30) day period being hereinafter referred
to as the "Adjustment Period"), the closing price on the New York Stock Exchange
Consolidated Tape (or any successor composite tape reporting transactions on
national securities exchanges) or, if such a composite tape shall not be in use
or shall not report transactions in the Common Stock, the last reported sales
price regular way on the principal national securities exchange on which the
Common Stock is listed or admitted to trading (which shall be the national
securities exchange on which the greatest number of shares of Common Stock has
been traded during such Adjustment Period) or, if there is no transaction on any
such day in any such situation, the mean of the bid and asked prices on such day
or, if the Common Stock is not listed or admitted to trading on any such
exchange, the closing price, if reported, or, if the closing price is not
reported, the average of the closing bid and asked prices as reported by the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or a similar source selected from time to
time by the Corporation for the purpose, of the Common Stock equals or exceeds
one hundred percent (100%) of the Conversion Price (as defined in paragraph (7)
hereof) (giving effect to any adjustments required by paragraph (7) hereof), the
Corporation may elect, in its sole discretion, to cease to pay dividends on the
ESOP Convertible Preferred Stock on the Dividend Payment Dates at the Dividend
Rate. Notice of the Corporation's election to discontinue paying dividends on
the ESOP Convertible Preferred Stock at the Dividend Rate shall be given within
ten (10) trading days of the conclusion of the Adjustment Period. Upon the
Corporation giving notice of its election as set forth above, the Dividend Rate
shall cease to be effective as the applicable rate for subsequent ESOP
Convertible Preferred Stock dividend periods commencing the next succeeding
regular Dividend Payment Date (the "Adjustment Date") provided that following
the payment of the dividend due pursuant to paragraph (3)(i)(a) on such date
there shall be no cumulative dividends on the ESOP Convertible Preferred Stock
remaining accrued and unpaid. Notice shall be given by first class mail, postage
prepaid, to each holder of record as of the conclusion of the Adjustment Period
of the shares at such holder's address as the same appears on the stock register
of the Corporation.

         Commencing on the Adjustment Date, dividends, if any, on the ESOP
Convertible Preferred Stock will be payable, when, as and if declared, in
amounts equal to such dividends as may be declared and paid on the Common Stock,
if any, multiplied by the number of shares of Common Stock issuable upon the
conversion of the ESOP Convertible Preferred Stock on the record date or record
dates for such Common Stock dividends (calculated quarterly if dividends are
then paid quarterly on the Common Stock, without interest), and no more. After
the Adjustment Date, dividends, if any, on the ESOP Convertible Preferred Stock
will be paid on the next succeeding Common Stock dividend payment date and
thereafter semi-annually on the same date as Common Stock dividends are paid;
provided, however, that the dividends payable in respect of the first ESOP
Convertible Preferred Stock dividend payment period following the Adjustment
Date shall be adjusted as set forth in paragraph (3)(a) to the extent that the
number of 


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days in such dividend payment period is less than the number of days in the
corresponding Common Stock quarterly dividend payment period. The record dates
for such ESOP Convertible Preferred Stock dividends shall be the same date as
may be established as the record date for the corresponding Common Stock
dividend. Notwithstanding the foregoing, in the event that a Common Stock
dividend is paid in respect of the initial quarterly period comprising any
semi-annual dividend payment period for the ESOP Convertible Preferred Stock but
no dividend is declared and paid in respect of the Common Stock for the second
quarterly period comprising any such semi-annual dividend payment period for the
ESOP Convertible Preferred Stock, a dividend equal to the dividend paid on the
Common Stock for the initial quarterly period and no more shall be paid on the
ESOP Convertible Preferred Stock on the date 90 days from the date that the last
dividend was paid on the Common Stock (or, if such date is not a business day,
on the next succeeding business day) and the record date for such dividend on
the ESOP Convertible Preferred Stock shall be the date 90 days from the record
date in respect of such last dividend paid on the Common Stock (or, if such date
is not a business day, on the next succeeding business day). In the event that
no dividends are paid on the Common Stock in respect of the two calendar
quarters comprising an ESOP Convertible Preferred Stock dividend payment period,
no dividends will be payable or paid on the ESOP Convertible Preferred Stock in
respect of such period. Notwithstanding anything to the contrary contained
herein, no dividends shall be payable pursuant to this paragraph (3)(i)(b) to
the extent that the corresponding Common Stock dividend is paid other than in
cash.

         (ii) All dividends paid with respect to shares of the ESOP Convertible
Preferred Stock pursuant to paragraph (3)(i) hereof shall be paid pro rata to
the holders entitled thereto.

         (iii) Prior to the Adjustment Date, no full dividends shall be declared
by the Board of Directors or paid or set apart for payment by the Corporation on
any Parity Securities for any period unless full dividends calculated in
accordance with paragraph (3)(i) have been or contemporaneously are declared and
paid or declared and a sum set apart sufficient for such payment on the ESOP
Convertible Preferred Stock for all dividend periods terminating on or prior to
the date of payment, or setting apart for payment, of such full dividends on
such Parity Securities. Prior to the Adjustment Date, if any dividends are not
paid in full as aforesaid upon the shares of the ESOP Convertible Preferred
Stock and any other Parity Securities, all dividends declared upon shares of the
ESOP Convertible Preferred Stock and any other Parity Securities shall be
declared pro rata so that the amount of dividends declared per share of the ESOP
Convertible Preferred Stock and such Parity Securities shall in all cases bear
to each other the same ratio that accrued dividends per share on the ESOP
Convertible Preferred Stock and such Parity Securities bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the ESOP Convertible Preferred Stock or any
other Parity Securities which may be in arrears. Any dividend not paid pursuant
to paragraph (3)(i)(a) hereof or this paragraph (3)(iii) shall be fully
cumulative and shall accrue (whether or not declared), without interest, as set
forth in paragraph (3)(i)(a) hereof. On and after the Adjustment Date, dividends
on the ESOP Convertible Preferred Stock shall cease to be cumulative.

         (iv) (a) Holders of shares of the ESOP Convertible Preferred Stock
shall be entitled to receive the dividends provided for in paragraph (3)(i)
hereof in preference to and in priority over any dividends upon any of the
Junior Securities.

         (b) So long as any shares of the ESOP Convertible Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any of the Junior Securities or
make any payment on account of, or set apart for payment money for a sinking or
other similar fund for, the repurchase, redemption or other retirement of, any
of the Junior Securities or Parity Securities or any warrants, rights or options


                                       4
<PAGE>

exercisable for or convertible into any of the Junior Securities or Parity
Securities (other than purchases or redemptions pursuant to or in accordance
with employee stock subscription agreements entered into between the Corporation
and certain of its or its subsidiaries' directors, officers and key employees
and purchases and redemptions pursuant to employee benefit plans and other than
the repurchase, redemption or other retirement of any Parity Securities or any
warrants, rights or options exercisable for or convertible into any of the
Parity Securities made pursuant to the requirements of paragraph (5)(ii) hereof
and other than the repurchase, redemption or other retirement of debentures or
other debt securities that are convertible or exchangeable into any of the
Junior Securities or Parity Securities), or make any distribution in respect of
the Junior Securities, either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other property (other than
distributions or dividends in Junior Securities to the holders of Junior
Securities), and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or redeem any of the Junior
Securities or Parity Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Securities or Parity
Securities (other than purchases or redemptions pursuant to or in accordance
with employee stock subscription agreements entered into between the Corporation
and certain of its or its subsidiaries' directors, officers and key employees
and purchases and redemptions pursuant to employee benefit plans and other than
the repurchase, redemption or other retirement of any Parity Securities or any
warrants, rights or options exercisable for or convertible into any of the
Parity Securities made pursuant to the requirements of paragraph (5)(ii) hereof
and other than the repurchase, redemption or other retirement of debentures or
other debt securities that are convertible or exchangeable into any of the
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, any and all accrued and
unpaid dividends on shares of the ESOP Convertible Preferred Stock not paid on
the dates provided for in paragraph (3)(i) hereof (including any and all accrued
dividends not paid by reason of the terms and conditions of paragraph (3)(i)(a)
or paragraph (3)(iii) hereof but excluding any and all accrued dividends not yet
payable by reason of the terms and conditions of paragraph (3)(i)(b) hereof)
shall have been or be paid.

         (v) Subject to the foregoing provisions of this paragraph (3) and
paragraph (7)(vi)(c), the Board of Directors may declare and the Corporation may
pay or set apart for payment dividends and other distributions on any of the
Junior Securities or Parity Securities, and may repurchase, redeem or otherwise
retire any of the Junior Securities or Parity Securities or any warrants, rights
or options exercisable for or convertible into any of the Junior Securities or
Parity Securities, and the holders of the shares of the ESOP Convertible
Preferred Stock shall not be entitled to share therein.

         (4) Liquidation Preference. (i) In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of shares of ESOP Convertible Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount in cash equal to $16.00
for each share outstanding, plus an amount in cash equal to any and all accrued
but unpaid dividends thereon to the date of liquidation, dissolution or winding
up before any payment shall be made or any assets distributed to the holders of
any of the Junior Securities; provided, however, that for the purposes of this
paragraph (4)(i), to the extent that after the Adjustment Date dividends have
been declared and paid on the Common Stock and the corresponding dividend has
not yet been paid on the ESOP Convertible Preferred Stock, the amount to be paid
in respect of the ESOP Convertible Preferred Stock in accordance with paragraph
(3)(i)(b) in light of the declaration and payment of such dividend on the Common
Stock shall be deemed to be an accrued but unpaid dividend. If the assets of the
Corporation are not sufficient to pay in full the liquidation payments payable
to the holders of outstanding shares of the ESOP Convertible Preferred Stock and
any Parity Securities, then the holders of all such shares shall share ratably
in such distribution of assets in accordance with the amount which would be
payable on such distribution if the amounts to which the holders 


                                       5
<PAGE>

of outstanding shares of ESOP Convertible Preferred Stock and the holders of
outstanding shares of such Parity Securities are entitled were paid in full.
Except as provided in this paragraph (4)(i), holders of ESOP Convertible
Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.

         (ii) For the purposes of this paragraph (4), neither the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Corporation nor the consolidation or merger of the Corporation
with or into one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up.

         (5) Redemption. (i) The Corporation may redeem at its option the ESOP
Convertible Preferred Stock, at any time in whole or from time to time in part
after the eighth (8th) anniversary of the initial date of issuance or on or
before said date if permitted by paragraphs (5)(iv) through (5)(viii) or
paragraph (9) at the redemption price per share set forth below, together with
accrued and unpaid dividends thereon to the date of redemption (or, if pursuant
to paragraphs (5)(iv), (5)(v), (5)(vii) and (5)(viii), at the redemption price
set forth therein), without interest, to the extent the Corporation shall have
funds legally available for such payment. For the purposes of this paragraph
(5)(i), to the extent that after the Adjustment Date dividends have been
declared and paid on the Common Stock and the corresponding dividend has not yet
been paid on the ESOP Convertible Preferred Stock, the amount to be paid in
respect of the ESOP Convertible Preferred Stock in accordance with paragraph
(3)(i)(b) in light of the declaration and payment of such dividend on the Common
Stock shall be deemed to be an accrued but unpaid dividend.

         If redeemed during the 12 month period beginning on April 10 in each of
the years set forth below, the redemption price per share shall be as follows:

<TABLE>
<CAPTION>
                       YEAR                  REDEMPTION PRICE PER SHARE
                       ----                  --------------------------
<S>                                                    <C>    
                       1991                            $17.250
                       1992                             17.125
                       1993                             17.000
                       1994                             16.875
                       1995                             16.750
                       1996                             16.625
                       1997                             16.500
                       1998                             16.375
                       1999                             16.250
                       2000                             16.125
                2001 and thereafter                     16.000
</TABLE>

         (ii) So long as any shares of the ESOP Convertible Preferred Stock are
outstanding, any repurchase, redemption or other retirement of any Parity
Securities or any warrants, rights or options exercisable for or convertible
into any of the Parity Securities (other than the repurchase, redemption or
other retirement of debentures or other debt securities that are convertible or
exchangeable into any Parity Securities) must be made on a pro rata basis with
the ESOP Convertible Preferred Stock so that the total redemption prices of the
shares redeemed of ESOP Convertible Preferred Stock and such Parity Securities
shall in all cases bear to each other the same ratio that the total redemption
prices of all shares outstanding on the applicable date of ESOP Convertible
Preferred Stock and such Parity Securities bear to each other, unless prior to
or concurrently with such repurchase, redemption or other retirement, as the
case may be, any and all accrued and unpaid dividends on shares of the ESOP
Convertible Preferred Stock not paid on the dates provided for in paragraph
(3)(i) hereof (including any and all accrued dividends not paid by reason of the
terms and conditions of paragraph (3)(i) or paragraph (3)(iii) hereof) shall
have been or be paid.


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<PAGE>

         (iii) Shares of ESOP Convertible Preferred Stock that have been issued
and reacquired in any manner, including shares purchased or redeemed or
exchanged or converted, shall (upon compliance with any applicable provisions of
the laws of the State of Delaware) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock.

         (iv) In the event of a change in the federal tax law or regulations of
the United States of America or of an interpretation or application of such law
or regulations or of a determination by a court of competent jurisdiction, which
in any case has the effect of precluding the Corporation from claiming (other
than for purposes of calculating any alternative minimum tax) any of the tax
deductions for dividends paid on the ESOP Convertible Preferred Stock when such
dividends are used as provided under Section 404(k)(2) of the Internal Revenue
Code of 1986, as amended (the "Code"), as in effect on the date shares of ESOP
Convertible Preferred Stock are initially issued, the Corporation may, in its
sole discretion and notwithstanding anything to the contrary in paragraph (5)(i)
hereof, elect to redeem any or all of the ESOP Convertible Preferred Stock for
(a) the amount payable in respect of such shares upon liquidation of the
Corporation pursuant to paragraph (4) hereof, if such election is made within
one year of the occurrence of such event or (b) the amount payable in respect of
such shares as set forth in paragraph (5)(i) hereof, if such election is made
after one year from the occurrence of such event.

         (v) In the event that the Corporation certifies to the holders of the
ESOP Convertible Preferred Stock that the Corporation has determined in good
faith that either the RJR Nabisco Capital Accumulation Plan, as amended as of
March 15, 1991, as the same may be further amended, or any successor plan (the
"Plan") is not qualified within the meaning of Section 401(a) of the Code or the
RJR Nabisco Employee Stock Ownership Program forming a part thereof, as the same
may be amended, or any successor program (the "Program"), is not an "employee
stock ownership plan" within the meaning of Section 4975(e)(7) of the Code, the
Corporation may, in its sole discretion and notwithstanding anything to the
contrary in paragraph (5)(i) hereof, elect to redeem any or all of the ESOP
Convertible Preferred Stock for (a) the amount payable in respect of such shares
upon liquidation of the Corporation pursuant to paragraph (4) hereof, if such
election is made within one year of the occurrence of such event or (b) the
amount payable in respect of such shares as set forth in paragraph (5)(i)
hereof, if such election is made after one year from the occurrence of such
event.

         (vi) In the event that the Plan or the Program is, or contributions
thereto are, expressly terminated by the Corporation, the Corporation may, in
its sole discretion and notwithstanding anything to the contrary in paragraph
(5)(i) hereof, elect to redeem any or all the ESOP Convertible Preferred Stock
for the amount payable in respect of such shares as set forth in paragraph
(5)(i) hereof.

         (vii) In the event and to the extent that redemption of shares of ESOP
Convertible Preferred Stock is necessary or appropriate to provide for the
distributions required to be made under, or to satisfy an investment election
provided to participants in accordance with, the Program, the Corporation may,
in its sole discretion and notwithstanding anything to the contrary in paragraph
(5)(i) hereof, elect to redeem any or all ESOP Convertible Preferred Stock for
the amount payable in respect of such shares upon liquidation of the Corporation
pursuant to paragraph (4) hereof.

         (viii) In the event and to the extent that shares of ESOP Convertible
Preferred Stock are transferred to a participant in the Plan, the Corporation
may, in its sole discretion and notwithstanding anything to the contrary in
paragraph (5)(i) hereof, elect to redeem such shares of ESOP Convertible
Preferred Stock for the amount payable in respect of such shares upon
liquidation of the Corporation pursuant to paragraph (4) hereof.


                                       7
<PAGE>

         (ix) In the event and to the extent that the Corporation is required
under Section 409(h)(1)(B) of the Code or any successor provision of law to
redeem shares of ESOP Convertible Preferred Stock, the Corporation shall,
notwithstanding anything to the contrary contained in paragraph (5)(i) hereof,
redeem such shares of ESOP Convertible Preferred Stock for the amount equal to
the greater of (i) the value as of the applicable valuation date (as determined
under the Program) of the shares of Common Stock into which such shares of ESOP
Convertible Preferred Stock are convertible as of such date or (ii) the amount
payable in respect of such shares of upon liquidation of the Corporation
pursuant to paragraph (4) hereof.

         (x) Notwithstanding anything to the contrary contained herein, subject
to the final sentence of this paragraph (5)(x), if there is, or if as a result
of any redemption pursuant to paragraph (5)(ix) hereof there would be, a default
or event of default under any debt instrument or agreement of the Corporation or
any of its subsidiaries or any other material obligation of the Company or any
of its subsidiaries, or an impairment of capital or violation of the General
Corporation Law of the State of Delaware (collectively, an "Event"), then any
such redemption shall be deferred until the first business day that such
redemption may occur without any such Event existing or resulting. If at any
time consummation of any redemptions to be made by the Corporation pursuant to
paragraph (5)(ix) would result in an Event, then the Corporation shall make
redemptions of shares of ESOP Convertible Preferred Stock pro rata (on the basis
of the proportion of the number of shares of ESOP Convertible Preferred Stock
which each holder shall have specified to be redeemed for the maximum number of
shares of ESOP Convertible Preferred Stock permitted without resulting in an
Event; provided, however, that the provisions of the first sentence of this
paragraph (5)(x) shall apply in respect of all shares of ESOP Convertible
Preferred Stock not redeemed. Until all of such ESOP Convertible Preferred Stock
is redeemed and paid for by the Corporation, the shares of ESOP Convertible
Preferred Stock which are required to be redeemed under Section 409(h)(1)(B) of
the Code or any successor provision of law which are not redeemed in accordance
with this paragraph (5)(x) shall have priority, on a pro rata basis, over other
redemptions by the Corporation pursuant to this paragraph (5). Notwithstanding
the terms of this paragraph (5)(x) or paragraph (5)(ix), to the extent the
deferral provided for by this paragraph (5)(x) would not be permitted by the
Code or the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any successor provision of law, the provisions of paragraph
(5)(ix) shall, to the extent permitted by the Code and ERISA, be of no force or
effect where an Event would occur without regard to such deferral.

         (xi) The Corporation, at its option, may make payment of the redemption
price required to be paid upon redemption of shares of ESOP Convertible
Preferred Stock (other than pursuant to paragraph (9)(iv)) in cash or in shares
of Common Stock, or in securities of comparable value that constitute
"qualifying employer securities" with respect to a holder of ESOP Convertible
Preferred Stock within the meaning of Section 409(1) of the Code and Section
407(d)(5) of ERISA or any successor provisions of law ("Qualifying Employer
Securities") or in any combination of such shares, Qualifying Employer
Securities and cash, any such shares and Qualifying Employer Securities to be
valued for such purpose at their Fair Market Value (as defined in paragraph
(7)(vi)(e) hereof) as of the date of redemption.

         (6) Procedure for Redemption. (i) In the event that fewer than all the
outstanding shares of ESOP Convertible Preferred Stock are to be redeemed other
than pursuant to paragraph (5)(vii), (5)(viii) or (5)(ix) or paragraph (9)(iv),
the number of shares to be redeemed shall be determined by the Board of
Directors and the shares to be redeemed shall be selected pro rata, except that
in any redemption of fewer than all the outstanding shares of ESOP Convertible
Preferred Stock, the Corporation may redeem all shares held by any holders of a
number of shares not to exceed 100, including all shares held by holders who,
after giving effect to such redemption, would hold less than 100 shares, as may
be specified by the Corporation.


                                       8
<PAGE>

         (ii) In the event the Corporation shall redeem shares of ESOP
Convertible Preferred Stock other than pursuant to paragraph 5(vii), 5(viii) or
(5)(ix) or paragraph (9)(iv), subject to applicable law, written notice of such
redemption shall be given by first class mail, postage prepaid, mailed not less
than 20 days nor more than 60 days prior to the redemption date, to each holder
of record of the shares to be redeemed at such holder's address as the same
appears on the stock register of the Corporation; provided, however, that no
failure to give such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of ESOP Convertible Preferred
Stock to be redeemed except as to the holder to whom the Corporation has failed
to give said notice or except as to the holder whose notice was defective. Each
such notice shall state: (a) the redemption date; (b) the number of shares of
ESOP Convertible Preferred Stock to be redeemed and, if less than all the shares
held by such holder are to be redeemed from such holder, the number of shares to
be redeemed from such holder; (c) the redemption price; (d) that shares of ESOP
Convertible Preferred Stock called for redemption may be converted in accordance
with, and subject to the terms of, paragraph (7) hereof at any time prior to the
date fixed for redemption (unless the Corporation shall default in payment of
the redemption price, in which case such right shall not terminate at such
date); (e) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (f) the method and form of
payment of the redemption price; and (g) that dividends on the shares to be
redeemed will cease to accrue on such redemption date.

         (iii) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
cash, Qualifying Employer Securities or shares of Common Stock for the payment
of the redemption price of the shares called for redemption) dividends on the
shares of ESOP Convertible Preferred Stock so called for redemption, to the
extent theretofore accruing, shall cease to accrue and said shares shall no
longer be deemed to be outstanding and shall have the status of authorized but
unissued shares of Preferred Stock, undesignated as to series, and all rights of
the holders thereof as holders of the ESOP Convertible Preferred Stock (except
the right to receive from the Corporation the redemption price and any and all
accrued and unpaid dividends) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid together with payment of any and
all accrued and unpaid dividends, without interest. In case fewer than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder thereof.

         (7) Conversion. (i) Upon the terms and in the manner set forth in this
paragraph (7) and subject to the provisions for adjustment contained in
paragraph (7)(vi), each share of the ESOP Convertible Preferred Stock shall be
convertible, at the option of the holder thereof at any time, upon surrender to
the Corporation of the certificates for the shares to be converted, into a
number of fully paid and nonassessable shares of Common Stock equal to the
aggregate stated value of the ESOP Convertible Preferred Stock to be converted
divided by a conversion price (the "Conversion Price") of $80.00; provided,
however, that the right to convert shares of ESOP Convertible Preferred Stock
that have been called for redemption pursuant to paragraphs (5), (6) and
(9)(iii) shall terminate at the close of business on the date fixed for
redemption, unless the Corporation shall default in making payment of the amount
payable upon such redemption and provided, further, that the right to convert
shares of ESOP Convertible Preferred Stock as to which a notice of redemption
has been delivered pursuant to paragraph (9)(iv) shall terminate at the close of
business on the fifth (5th) business day prior to the consummation of the
transaction described in paragraph (9)(ii), unless the Corporation or the
successor of the Corporation shall default in making payment of the amount
payable upon such redemption.


                                       9
<PAGE>

          (ii) In order to convert shares of the ESOP Convertible Preferred
Stock, the holder thereof shall (a) deliver a properly completed and duly
executed written notice of election to convert specifying the number of the
shares of the ESOP Convertible Preferred Stock to be converted and the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued to the Corporation at its principal office or at the
office of any agency which may be maintained for such purpose (the "Conversion
Agent"), (b) surrender the certificate for such shares of ESOP Convertible
Preferred Stock to the Corporation or the Conversion Agent, accompanied, if so
required by the Corporation or the Conversion Agent, by a written instrument or
instruments of transfer in form reasonably satisfactory to the Corporation or
the Conversion Agent duly executed by the holder or his attorney duly authorized
in writing, and (c) pay any transfer or similar tax required by paragraph
(7)(viii).

         (iii) (a) Conversion shall be deemed to have been effected at the close
of business on the date (the "Conversion Date") on which the Corporation or the
Conversion Agent shall have received the notice of election to convert, the
surrendered certificate, any required payments and all other required documents.
Immediately upon conversion, the rights of the holders of converted shares of
ESOP Convertible Preferred Stock shall cease and the persons entitled to receive
the shares of Common Stock upon the conversion of such shares of ESOP
Convertible Preferred Stock shall be treated for all purposes as having become
the record owners of such shares of Common Stock but no allowance or adjustment
shall be made in respect of dividends payable to holders of Common Stock of
record on any date prior to the Conversion Date. Conversion shall be at the
Conversion Price in effect at such time on such date, unless the stock transfer
books of the Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record of the Common Stock at the close of business on the next succeeding day
on which such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such shares shall have been
surrendered and such notice and any required payments received by the
Corporation.

         (b) As promptly as practicable after the Conversion Date, the
Corporation shall deliver or cause to be delivered at the office or agency of
the Conversion Agent, to or upon the written order of the holder of the
surrendered shares of ESOP Convertible Preferred Stock, a certificate or
certificates representing the number of fully paid and nonassessable shares of
Common Stock into which such shares of ESOP Convertible Preferred Stock have
been converted in accordance with the provisions of this paragraph (7), and any
cash payable in respect of fractional shares as provided in paragraph (7)(iv).

         (c) Upon the surrender of a certificate representing shares of ESOP
Convertible Preferred Stock that is converted in part, the Corporation shall
issue or cause to be issued for the holder a new certificate representing shares
of ESOP Convertible Preferred Stock equal in number to the unconverted portion
of the shares of ESOP Convertible Preferred Stock represented by the certificate
so surrendered.

         (iv) (a) No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon the conversion of any shares of ESOP
Convertible Preferred Stock. Instead of any fractional interest in a share of
Common Stock which would otherwise be deliverable upon the conversion of a share
of ESOP Convertible Preferred Stock, the Corporation shall either (A) pay to the
holder of such share (a "Fractional Shareholder") an amount in cash (computed to
the nearest cent) equal to the Fair Market Value thereof (as defined in
paragraph (7)(vi)(e)) on the business day next preceding the Conversion Date or
(B) follow the procedures set forth in paragraph (7)(iv)(b). If more than one
share shall be surrendered for conversion at one time by the same holder, the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate stated value of the shares of ESOP
Convertible Preferred Stock so surrendered.


                                       10
<PAGE>

         (b) The Corporation may, in lieu of paying cash to Fractional
Shareholders as provided in paragraph (7)(iv)(a), issue, in full payment of the
Corporation's obligation with respect to such fractional interests, shares of
Common Stock equal to the aggregate of such fractional interests of such
Fractional Shareholder and other Fractional Shareholders (aggregated over a
reasonable period of time, but not in any event more than 20 business days, and
rounded upwards to the nearest whole share) to an agent (which, without limiting
the generality of the foregoing, may be the trustee under the Plan or Program,
the Corporation or the Conversion Agent) (the "Transfer Agent") appointed by the
Corporation for such Fractional Shareholders for sale promptly by the Transfer
Agent on behalf of the Fractional Shareholders. The Transfer Agent will remit
promptly to such Fractional Shareholders their proportionate interest in the net
proceeds (following the deduction of applicable transaction costs and computed
to the nearest cent) from such sale.

         (v) The holders of shares of ESOP Convertible Preferred Stock at the
close of business on a record date for an ESOP Convertible Preferred Stock
dividend (including a Dividend Payment Record Date) shall be entitled to receive
the dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
corresponding dividend payment date (including a corresponding Dividend Payment
Date) shall not be entitled to receive such dividend on such dividend payment
date (including a Dividend Payment Date) but instead will receive accrued and
unpaid dividends to such redemption date) on the corresponding dividend payment
date (including a Dividend Payment Date) notwithstanding the conversion thereof
or the Corporation's default in payment of the dividend due on such dividend
payment date (including a Dividend Payment Date).

         (vi) The Conversion Price shall be subject to adjustment as follows:

         (a) If the Corporation shall (v) declare or pay a dividend on its
outstanding Common Stock in shares of Common Stock or make a distribution to all
holders of its Common Stock in shares of Common Stock, (w) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (x) combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock or (y) issue by reclassification of its shares of
Common Stock other securities of the Corporation, then the Conversion Price in
effect immediately prior thereto shall be adjusted so that the holder of any
shares of ESOP Convertible Preferred Stock thereafter converted shall be
entitled to receive the number and kind of shares of Common Stock or other
securities that the holder would have owned or have been entitled to receive
after the happening of any of the events described above had such shares of ESOP
Convertible Preferred Stock been converted immediately prior to the happening of
such event or any record date with respect thereto. An adjustment made pursuant
to this paragraph (7)(vi)(a) shall become effective on the date of the dividend
payment, subdivision, combination or issuance retroactive to the record date
with respect thereto, if any, for such event. Such adjustment shall be made
successively.

         (b) If the Corporation shall issue to all holders of its Common Stock
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock at a price per
share that is lower than the then Fair Market Value per share of Common Stock
(as defined in paragraph (7)(vi)(e) below) at the record date mentioned below,
the Conversion Price shall be adjusted in accordance with the following formula:

                                                  NXP
                                            O + (------)
                                                   M
                                      AC = CX------------


                                       11
<PAGE>

                                                 O + N

         where

         AC = the adjusted Conversion Price.
         C = the current Conversion Price.
         O = the number of shares of Common Stock outstanding on the issue date.
         N = the number of additional shares of Common Stock offered.
         P = the offering price per share of the additional shares.
         M = the Fair Market Value per share of Common Stock on the issue date.

The adjustment shall be made successively whenever any such rights, options,
warrants or convertible or exchangeable securities are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive the rights, options, warrants or convertible or
exchangeable securities. Upon the expiration of any such rights, options,
warrants or convertible or exchangeable securities, if any thereof shall not
have been exercised, then the Conversion Price shall be increased by the amount
of the initial adjustment of the Conversion Price pursuant to this paragraph
(7)(vi)(b) in respect of such expired rights, options, warrants or convertible
or exchangeable securities.

         (c) In case the Corporation shall distribute to all holders of its
outstanding Common Stock any shares of capital stock of the Corporation (other
than Common Stock) or evidences of its indebtedness or assets (excluding
ordinary cash dividends, which may be an initial cash dividend, payable out of
consolidated earnings or earned surplus (both of which to be calculated for
these purposes excluding charges for amortization of goodwill and other
intangibles) and dividends or distributions referred to in paragraphs (7)(vi)(a)
and (b) above and, after the Adjustment Date, excluding all cash dividends) or
rights or warrants to subscribe for or purchase any of its securities (excluding
those referred to in paragraph (7)(vi)(b) above) (any of the foregoing being
hereinafter in this paragraph (7)(vi)(c) called the "Securities or Assets"),
then in each such case, unless the Corporation elects to reserve shares or other
units of such Securities or Assets for distribution to the holders of the ESOP
Convertible Preferred Stock upon the conversion of the shares of ESOP
Convertible Preferred Stock so that any such holder converting shares of ESOP
Convertible Preferred Stock will receive upon such conversion, in addition to
the shares of the Common Stock to which such holder is entitled, the amount and
kind of such Securities or Assets which such holder would have received if such
holder had, immediately prior to the record date for the distribution of the
Securities or Assets, converted its shares of ESOP Convertible Preferred Stock
into Common Stock, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the Fair Market Value per share (as defined in paragraph
(7)(vi)(e) below) of the Common Stock on the record date mentioned below less
the then fair market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive, final and binding) of
the portion of the capital stock or assets or evidences of indebtedness so
distributed or of such rights or warrants applicable to one share of Common
Stock, and of which the denominator shall be the Fair Market Value per share of
the Common Stock on such record date. Such adjustment shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such distribution, except as provided in paragraph (7)(vi)(h) below.

         (d) If the Corporation shall, after the date hereof, sell and issue any
shares of Common Stock, rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding (i) shares of Common Stock, rights, options, warrants or
convertible or exchangeable securities containing the right to 


                                       12
<PAGE>

subscribe for or purchase shares of Common Stock issued in any of the
transactions described in paragraphs (7)(vi)(a) and (7)(vi)(b) above; (ii) stock
options and shares of Common Stock issued to, or issuable upon the exercise of
stock options granted to or to be granted to, employees or directors of the
Corporation or its subsidiaries; (iii) shares of Common Stock issuable upon
exercise of warrants previously issued; (iv) shares issued upon conversion of
the Senior Converting Debentures Due 2009 of the Corporation; and (v) shares
issued upon conversion of shares of ESOP Convertible Preferred Stock), at a
price per share (determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Corporation in consideration of the sale and
issuance of such rights, options, warrants or convertible or exchangeable
securities, plus the total consideration payable to the Corporation upon
exercise or conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible or
exchangeable securities) that is lower than the then Fair Market Value per share
of Common Stock immediately prior to such sale and issuance, then in each case
the Conversion Price shall be adjusted in accordance with the following formula:

                                                  NXP
                                            O + (------)
                                                   M
                                      AC = CX------------
                                                 O + N

where

         AC = the adjusted Conversion Price.
         C = the current Conversion Price.
         O = the number of shares of Common Stock outstanding on the issue date.
         N = the number of additional shares of Common Stock offered.
         P = the offering price per share of the additional shares.
         M = the Fair Market Value per share of Common Stock on the issue date.

For the purposes of such adjustments, the shares of Common Stock which the
holder of any such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance, and the
consideration received or receivable by the Corporation therefor shall be deemed
to be the consideration received or receivable by the Corporation (plus any
discounts or commissions in connection therewith) for such rights, options,
warrants or convertible or exchangeable securities, plus the consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares of Common Stock purchasable thereby. In
case the Corporation shall (i) sell and issue shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent or (ii) sell and issue shares of Common Stock together with one
or more other securities as part of a unit at a price per unit, then in
determining the "price per share" and the "consideration received or receivable
by the Corporation" for purposes of the first sentence and the immediately
preceding sentence of this paragraph (7)(vii)(d), the Board of Directors shall
determine, in its discretion, the fair market value of said property or the
shares of Common Stock then being sold as part of such unit, as the case may be,
and such determinations, if made in good faith, shall be conclusive, final and
binding. The adjustment shall be made successively whenever any such shares of
Common Stock, rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock are issued for less than the Fair Market Value, subject to the exceptions
noted above, and shall become effective immediately after the issue date.


                                       13
<PAGE>

         Notwithstanding the foregoing, no adjustments of any kind under this
paragraph (7)(vi)(d) shall be made with respect to the sale and issuance by the
Corporation of any shares of Common Stock, rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock in connection with either (1) an underwritten
public offering or (2) any transaction as to which the Corporation has received
a written opinion of a nationally recognized investment bank stating that the
transaction is fair to the Corporation from a financial point of view.

         (e) For the purposes of any computation under paragraphs (7)(vi)(b),
(c) and (d) and for the purposes of paragraphs (5)(xi), (7)(iv)(a) and (9)(iii),
the Fair Market Value as to shares of Common Stock or any other class of capital
stock or securities of the Corporation or any other issuer that are traded shall
at any date shall be deemed to be the average of the daily closing prices for
the twenty (20) consecutive trading days commencing on the thirtieth (30th)
trading day prior to the date in question. The closing price for each day shall
be (x) if the shares of Common Stock or any other class of capital stock or
securities of the Corporation or any other issuer are listed or admitted to
trading on a national securities exchange, the closing price on the New York
Stock Exchange Consolidated Tape (or any successor composite tape reporting
transactions on national securities exchanges) or, if such a composite tape
shall not be in use or shall not report transactions in such securities, the
last reported sales price regular way on the principal national securities
exchange on which such securities are listed or admitted to trading (which shall
be the national securities exchange on which the greatest number of shares of
stock or the greatest aggregate principal amount of debt securities has been
traded during such twenty (20) consecutive trading days), or, if there is no
transaction on any such day in any such situation, the mean of the bid and asked
prices on such day, or (y) if such securities are not listed or admitted to
trading on any such exchange, the closing price, if reported, or, if the closing
price is not reported, the average of the closing bid and asked prices as
reported by NASDAQ or a similar source selected from time to time by the
Corporation for the purpose. In the event such closing prices are unavailable,
the Fair Market Value shall be deemed to be, subject to applicable law, the fair
market value as determined in good faith by the Board of Directors, on the basis
of such relevant factors as it in good faith considers, in the reasonable
judgment of the Board of Directors, appropriate.

         (f) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% of such price;
provided, however, that any adjustments which by reason of this paragraph
(7)(vi)(f) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
(7)(vi) shall be made to the nearest one-hundredth of a cent or to the nearest
one- hundredth of a share, as the case may be.

         (g) For the purposes of this paragraph (7)(vi) and paragraph (7)(ix),
the term "shares of Common Stock" shall mean (x) the class of stock designated
as the Common Stock of the Corporation at the date hereof or (y) any other class
of stock resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to
paragraphs (7)(vi)(a) or (c) above, the holders of ESOP Convertible Preferred
Stock shall become entitled to receive any securities other than shares of
Common Stock, thereafter the number of such other securities so issuable upon
conversion of the shares of ESOP Convertible Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of ESOP Convertible
Preferred Stock contained in this paragraph (7)(vi).

         (h) Notwithstanding the foregoing, in any case in which this paragraph
(7)(vi) provides that an adjustment shall become effective immediately after a
record date for an event, 


                                       14
<PAGE>

the Corporation may defer until the occurrence of such event (A) issuing to the
holder of any share of ESOP Convertible Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount in cash in lieu of any
fraction pursuant to paragraph (7)(iv).

         (i) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this paragraph (7)(vi), the Board
of Directors of the Corporation may consider whether such action is of such a
nature that an adjustment to the Conversion Price should equitably be made in
respect of such transaction. If in such case the Board of Directors of the
Corporation determines that an adjustment to the Conversion Price should be
made, an adjustment shall be made effective as of such date as is determined by
the Board of Directors of the Corporation. The determination of the Board of
Directors of the Corporation as to whether an adjustment to the Conversion Price
should be made pursuant to the foregoing provisions of this paragraph
(7)(vi)(i), and, if so, as to what adjustment should be made and when, shall be
conclusive, final and binding on the Corporation and all stockholders of the
Corporation. The Corporation shall be entitled to make such additional
adjustments in the Conversion Price, in addition to those required by the
foregoing provisions of this paragraph (7)(vi), as shall be necessary in order
that any dividend or distribution in shares of capital stock of the Corporation,
subdivision, reclassification or combination of shares of stock of the
Corporation or any recapitalization of the Corporation shall not be taxable to
holders of the Common Stock.

         (vii) Whenever the Conversion Price is adjusted as herein provided, the
Chief Financial Officer, Treasurer or Controller of the Corporation shall
compute the adjusted Conversion Price in accordance with the foregoing
provisions and shall prepare a certificate setting forth such adjusted
Conversion Price and showing in reasonable detail the facts upon which such
adjustment is based, which certificate shall be conclusive, final and binding
evidence of the correctness of the adjustment. A copy of such certificate shall
be filed promptly with any Conversion Agent. Promptly after delivery of any such
certificate, the Corporation shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which such adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each share of ESOP
Convertible Preferred Stock at his last address as shown on the stock books of
the Corporation.

         (viii) The Corporation will pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock on the conversion of shares of ESOP Convertible Preferred
Stock; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any registration of transfer involved in
the issue or delivery of shares of Common Stock in a name other than that of the
registered holder of ESOP Convertible Preferred Stock converted or to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.

         (ix) (a) The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but unissued
Common Stock or its issued Common Stock held in its treasury, or both, for the
purpose of effecting the conversion of the ESOP Convertible Preferred Stock, the
full number of shares of Common Stock then deliverable upon the conversion of
all outstanding shares of the ESOP Convertible Preferred Stock.


                                       15
<PAGE>

         (b) Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value (if any) of the Common Stock
issuable upon conversion of the ESOP Convertible Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of such Common Stock at such adjusted
Conversion Price.

         (8) Voting Rights. (i) The holders of record of shares of ESOP
Convertible Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this paragraph (8) or as otherwise provided by law. The
holders of ESOP Convertible Preferred Stock shall be entitled to vote on all
matters submitted to a vote of the holders of Common Stock of the Corporation,
voting together with the holders of Common Stock as one class; provided,
however, that the ESOP Convertible Preferred Stock shall not be entitled to vote
on any increase or decrease in the number of authorized shares of any class or
classes of stock. Each share of the ESOP Convertible Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of ESOP Convertible Preferred Stock could be converted on
the record date for determining the stockholders entitled to vote, rounded to
the nearest one-tenth of a vote; it being understood that whenever the
Conversion Price is adjusted as provided in paragraph (7) hereof, the voting
rights of the ESOP Convertible Preferred Stock shall also be similarly adjusted.

         (ii) So long as any shares of the ESOP Convertible Preferred Stock are
outstanding (except when notice of the redemption of all outstanding shares of
ESOP Convertible Preferred Stock has been given pursuant to paragraphs (5) and
(6) or paragraph (9)(iii) and cash, Qualifying Employer Securities or shares of
Common Stock have been deposited in trust for such redemption), the Corporation
shall not, without the affirmative vote or consent of the holders of at least a
majority of the shares of ESOP Convertible Preferred Stock and any other series
of Preferred Stock entitled to vote thereon at the time outstanding voting or
consenting, as the case may be, together as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, amend the Certificate of Incorporation or this
Certificate of Designation so as to affect materially and adversely the
specified rights, preferences, privileges or voting rights of shares of ESOP
Convertible Preferred Stock.

         (iii) (a) The creation, authorization or issuance of any shares of any
Junior Securities, Parity Securities or Senior Securities, (b) the creation of
any indebtedness of any kind of the Corporation, or (c) subject to paragraph
(8)(i), the increase or decrease in the amount of authorized capital stock of
any class, including Preferred Stock, shall not require the consent of the
holders of ESOP Convertible Preferred Stock and shall not be deemed to affect
materially and adversely the rights, preferences, privileges or voting rights of
shares of ESOP Convertible Preferred Stock.

         (9) Consolidation, Merger, etc. (i) In the event that the Corporation
shall consummate any consolidation or merger or similar transaction, however
named, pursuant to which the outstanding shares of Common Stock are by operation
of law exchanged solely for or changed, reclassified or converted solely into
shares of any successor or resulting company (including the Corporation) that
constitute Qualifying Employer Securities that are common stock or common equity
with respect to a holder of ESOP Convertible Preferred Stock within the meaning
of Section 409(1) of the Code and Section 407(d)(5) of ERISA, or any successor
provision of law, and, if applicable, for a cash payment in lieu of fractional
shares, if any, then, in such event, the shares of ESOP Convertible Preferred
Stock of such holder shall be converted into or exchanged for and shall become
preferred shares of such successor or resulting company, having in respect of
such company insofar as possible (taking into account, without limitation, any


                                       16
<PAGE>

requirements relating to the listing of such preferred shares on any national
securities exchange or the qualification of such preferred shares for trading in
any over-the-counter market) the same powers, preferences and relative,
participating, optional or other special rights (including the redemption rights
provided by paragraphs (5) and (6) hereof and this paragraph (9)), and the
qualifications, limitations or restrictions thereon, that the ESOP Convertible
Preferred Stock had immediately prior to such transaction; provided, however,
that after such transaction each share of stock into which the ESOP Convertible
Preferred Stock is so converted or for which it is exchanged shall be
convertible, pursuant to the terms and conditions provided by paragraph (7)
hereof, into the number and kind of Qualifying Employer Securities receivable by
a holder of the number of shares of Common Stock into which such shares of ESOP
Convertible Preferred Stock could have been converted pursuant to paragraph (7)
hereof immediately prior to such transaction and provided, further, that if by
virtue of the structure of such transaction, a holder of Common Stock is
required to make an election with respect to the nature and kind of
consideration to be received in such transaction, then such election shall be
deemed to be solely for Qualifying Employer Securities (together, if applicable,
with a cash payment in lieu of fractional shares) with the effect provided above
on the basis of the number and kind of Qualifying Employer Securities receivable
by a holder of the number of shares of Common Stock into which the shares of
ESOP Convertible Preferred Stock could have been converted pursuant to paragraph
(7) hereof immediately prior to such transaction (it being understood that if
the kind or amount of Qualifying Employer Securities receivable in respect of
each share of Common Stock upon such transaction is not the same for each such
share, then the kind and amount of Qualifying Employer Securities deemed to be
receivable in respect of each share of Common Stock for purposes of this proviso
shall be the kind and amount so receivable per share of Common Stock by a
plurality of such shares). The rights of the ESOP Convertible Preferred Stock as
preferred shares of such successor resulting company shall successively be
subject to adjustments pursuant to paragraph (7) hereof after any such
transaction as nearly equivalent to the adjustments provided for by such
paragraph prior to such transaction.

         (ii) In the event that the Corporation shall consummate any
consolidation or merger or similar transaction, however named, pursuant to which
the outstanding shares of Common Stock are by operation of law exchanged for or
changed, reclassified or converted into other shares or securities or cash or
any other property, or any combination thereof, other than any such
consideration which is constituted solely of Qualifying Employer Securities that
are common stock or common equity (as referred to in paragraph (9)(i)) and cash
payments, if applicable, in lieu of fractional shares, outstanding shares of
ESOP Convertible Preferred Stock shall, without any action on the part of the
Corporation or any holder thereof but subject to paragraph (9)(iii) and (9)(iv),
be automatically converted immediately prior to the consummation of such merger,
consolidation or similar transaction into shares of Common Stock at the
conversion rate then in effect so that each share of ESOP Convertible Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate amount
of shares, securities, cash or other property (payable in like kind) receivable
by a holder of the number of shares of Common Stock into which such shares of
ESOP Convertible Preferred Stock could have been converted immediately prior to
such transaction if such holder of Common Stock failed to exercise any rights of
election as to the kind or amount of shares, securities, cash or other property
receivable upon such transaction (provided that, if the kind or amount of
shares, securities, cash or other property receivable upon such transaction is
not the same for each non-electing share, then the kind and amount of shares,
securities, cash or other property receivable upon such transaction for each
non- electing share shall be the kind and amount so receivable per share by a
plurality of non-electing shares).

         (iii) In the event the Corporation shall enter into any agreement
providing for any consolidation or merger or similar transaction described in
paragraph (9)(ii), then the Corporation shall as soon as practicable thereafter
(and in any event at least ten (10) business days before 


                                       17
<PAGE>

consummation of such transaction) give notice of such agreement and the material
terms thereof to each holder of ESOP Convertible Preferred Stock and the
Corporation shall have the right to elect, to the extent permitted by applicable
law, by written notice to the holders, to redeem such ESOP Convertible Preferred
Stock upon consummation of such transaction (if and when such transaction is
consummated), out of funds legally available therefor, in lieu of any cash or
other securities which such holder would otherwise be entitled to receive under
paragraph (9)(ii) hereof, for the amount payable in respect of shares of ESOP
Convertible Preferred Stock upon a redemption by the Corporation pursuant to
paragraph (5)(i) hereof, which amount may be paid in cash or in shares of Common
Stock or common stock of the successor of the Corporation or in Qualifying
Employer Securities of the Corporation or the successor of the Corporation or in
any combination thereof, any such shares and Qualifying Employer Securities to
be valued for such purpose at their Fair Market Value (as defined in paragraph
(7)(vi)(e). No such notice of redemption shall be effective unless given to the
holders prior to the close of business of the tenth (10th) business day prior to
consummation of such transaction, unless the holders shall waive such prior
notice, but any notice or redemption so given prior to such time may be
withdrawn by notice of withdrawal given to the holders prior to the close of
business on the tenth (10th) business day prior to consummation of such
transaction.

         (iv) In the event the Corporation shall enter into any agreement
providing for any consolidation or merger or similar transaction described in
paragraph (9)(ii) and the Corporation shall not elect pursuant to paragraph
(9)(iii) to redeem the ESOP Convertible Preferred Stock, to the extent permitted
by applicable law, each such holder shall have the right to elect, by written
notice to the Corporation, to receive, upon consummation of such transaction (if
and when such transaction is consummated), out of funds legally available
therefor, from the Corporation or the successor of the Corporation, in
redemption of such ESOP Convertible Preferred Stock, in lieu of any cash or
other securities which such holder would otherwise be entitled to receive under
paragraph (9)(ii) hereof, a cash payment equal to the amount payable in respect
of shares of ESOP Convertible Preferred Stock upon a redemption by the
Corporation pursuant to paragraph (5)(i) hereof. No such notice of redemption
shall be effective unless given to the Corporation prior to the close of
business of the fifth (5th) business day prior to consummation of such
transaction, unless the Corporation or the successor of the Corporation shall
waive such prior notice, but any notice or redemption so given prior to such
time may be withdrawn by notice of withdrawal given to the Corporation prior to
the close of business on the fifth (5th) business day prior to consummation of
such transaction.

         (10) Limitations. Except as may otherwise be required by law, the
shares of ESOP Convertible Preferred Stock shall not have any powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth in this resolution (as such resolution may be
amended from time to time) or otherwise in the Certificate of Incorporation of
the Corporation.

                                  ARTICLE FIFTH

         The Board of Directors of the Corporation, acting by majority vote, may
alter, amend or repeal the By-Laws of the Corporation.

                                  ARTICLE SIXTH

         Except as otherwise provided by the Delaware General Corporation Law as
the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of this Article SIXTH by the stockholders of the Corporation shall not 


                                       18
<PAGE>

adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.


                                       19
<PAGE>

         IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates but does not further amend the provisions of the
Corporation's Restated Certificate of Incorporation, as heretofore amended and
supplemented, there being no discrepancy between these provisions and the
provisions of this Restated Certificate of Incorporation, and having been duly
adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware, has been executed this ____ day of December, 1998.

                                        RJR NABISCO HOLDINGS CORP.


                                        By:    
                                            --------------------------------
                                            H. Colin McBride
                                            Senior Vice President and Secretary

[CORPORATE SEAL]

Attest:


By:                                         
    --------------------------------
    Suzanne P. Jenney
    Assistant Secretary


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