<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
---------------------
NABISCO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 1-10215 13-3490602
<S> <C> <C>
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6013
(212) 258-5600
(Address, including zip code, and telephone number, including area
code, of the registrant's principal executive offices)
------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X , NO ___.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: JULY 31, 1999:
326,137,507 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three and Six Months Ended June 30, 1999 and
1998......................................................................................... 1
Consolidated Condensed Statements of Cash Flows--Six Months Ended June 30, 1999 and 1998....... 2
Consolidated Condensed Balance Sheets--June 30, 1999 and December 31, 1998..................... 3
Notes to Consolidated Condensed Financial Statements........................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............................................ 18
Item 6. Exhibits and Reports on Form 8-K............................................................... 19
Signatures................................................................................................ 20
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------- --------- --------- ---------
NET SALES....................................................... $ 2,023 $ 2,131 $ 3,878 $ 4,093
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold......................................... 1,089 1,187 2,116 2,312
Selling, advertising, administrative and general expenses..... 703 691 1,344 1,289
Amortization of trademarks and goodwill....................... 54 57 107 113
Restructuring charge.......................................... -- 406 -- 406
--------- --------- --------- ---------
OPERATING INCOME (LOSS)..................................... 177 (210) 311 (27)
Interest and debt expense....................................... (90) (102) (188) (206)
Other income (expense), net..................................... -- (3) (10) (12)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES........................... 87 (315) 113 (245)
Provision (benefit) for income taxes............................ 36 (99) 45 (72)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME (LOSS) OF
NABISCO HOLDINGS.......................................... 51 (216) 68 (173)
Less minority interest in income (loss) of Nabisco Holdings..... 13 (39) 20 (28)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... 38 (177) 48 (145)
Discontinued operations:
Income (loss) from operations of discontinued businesses, net
of income taxes............................................. (42) 47 24 (5)
Gain on discontinued businesses, net of income taxes (note
2).......................................................... 2,970 -- 2,970 --
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 2,966 (130) 3,042 (150)
Extraordinary item--loss on early extinguishment of debt, net of
income taxes (note 2)......................................... (279) -- (279) --
--------- --------- --------- ---------
NET INCOME (LOSS)........................................... $ 2,687 $ (130) $ 2,763 $ (150)
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations...................... $ .10 $ (.58) $ .12 $ (.52)
Income (loss) from discontinued operations.................... 9.01 .14 9.21 (.01)
Extraordinary loss............................................ (.86) -- (.86) --
--------- --------- --------- ---------
Net income (loss)........................................... $ 8.25 $ (.44) $ 8.47 $ (.53)
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations...................... $ .10 $ (.58) $ .12 $ (.52)
Income (loss) from discontinued operations.................... 9.01 .14 9.21 (.01)
Extraordinary loss............................................ (.86) -- (.86) --
--------- --------- --------- ---------
Net income (loss)........................................... $ 8.25 $ (.44) $ 8.47 $ (.53)
--------- --------- --------- ---------
--------- --------- --------- ---------
DIVIDENDS PER SHARE OF COMMON STOCK............................. $ .5125 $ .5125 $ 1.025 $ 1.025
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 2,763 $ (150)
Less income (loss) from discontinued operations................................ 2,994 (5)
------- -----
Subtotal....................................................................... (231) (145)
------- -----
Adjustments to reconcile to net cash flows from continuing operating
activities:
Depreciation and amortization.............................................. 239 250
Deferred income tax provision (benefit).................................... 21 (112)
Extraordinary loss on early extinguishment of debt......................... 428 --
Changes in working capital items, net...................................... (422) (269)
Restructuring charge, net of cash payments................................. (41) 401
Other, net................................................................. 24 (39)
------- -----
Total adjustments........................................................ 249 231
------- -----
Net cash flows from continuing operating activities.......................... 18 86
Net cash flows from discontinued operations.................................. 2,284 298
------- -----
Net cash flows from operating activities..................................... 2,302 384
------- -----
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures........................................................... (99) (168)
Acquisition of business........................................................ -- (9)
Investment in commercial paper................................................. (114) --
Proceeds on the sale of assets................................................. 14 5
Repurchases of Nabisco Holdings' Class A common stock.......................... (12) (38)
Proceeds from exercise of Nabisco Holdings' Class A common stock options....... 7 22
------- -----
Net cash flows used in investing activities.................................. (204) (188)
------- -----
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) of long-term debt.................................. (115) 1,090
Repurchase/redemption of trust preferred securities............................ (1,265) --
Increase (decrease) in short-term borrowings................................... 181 (993)
Dividends paid on common and preferred stock................................... (583) (373)
Repurchase of ESOP preferred stock............................................. (202) --
Other, net..................................................................... 63 56
------- -----
Net cash flows used in financing activities.................................. (1,921) (220)
------- -----
Effect of exchange rate changes on cash and cash equivalents..................... (6) (5)
------- -----
Net change in cash and cash equivalents...................................... 171 (29)
Cash and cash equivalents at beginning of period................................. 112 127
------- -----
Cash and cash equivalents at end of period....................................... $ 283 $ 98
------- -----
------- -----
Income taxes paid, net of refunds................................................ $ 223 $ 73
Interest paid.................................................................... $ 191 $ 179
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 283 $ 112
Accounts and notes receivable, net.......................................... 511 522
Inventories................................................................. 819 753
Prepaid expenses............................................................ 70 70
Income tax asset............................................................ 123 --
Deferred income taxes....................................................... 163 101
Net assets of discontinued businesses (note 2).............................. -- 6,696
------- -------
TOTAL CURRENT ASSETS.................................................... 1,969 8,254
------- -------
Property, plant and equipment, net............................................ 2,841 2,947
Trademarks, net............................................................... 3,315 3,368
Goodwill, net................................................................. 3,093 3,182
Other assets and deferred charges............................................. 208 94
------- -------
$ 11,426 $ 17,845
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ 52 $ 68
Accounts payable and accrued liabilities.................................... 1,425 1,638
Current maturities of long-term debt........................................ 160 118
Income taxes accrued........................................................ 104 121
------- -------
TOTAL CURRENT LIABILITIES............................................... 1,741 1,945
------- -------
Long-term debt (less current maturities)...................................... 3,644 3,619
Minority interest in Nabisco Holdings......................................... 733 752
Other noncurrent liabilities.................................................. 745 962
Deferred income taxes......................................................... 1,292 1,226
Contingencies (note 8)
Nabisco Group Holdings' obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely junior subordinated debentures*......... 98 1,327
Stockholders' equity:
ESOP preferred stock........................................................ -- 205
Common stock (1999--329,485,180 shares issued, 1998--328,385,148 shares
issued)................................................................... 3 3
Paid-in capital............................................................. 3,608 9,004
Retained earnings (accumulated deficit)..................................... -- (577)
Accumulated other comprehensive income (loss)............................... (324) (460)
Treasury stock, at cost..................................................... (100) (100)
Other stockholders' equity.................................................. (14) (61)
------- -------
TOTAL STOCKHOLDERS' EQUITY............................................ 3,173 8,014
------- -------
$ 11,426 $ 17,845
------- -------
------- -------
</TABLE>
- ------------------------
* The sole asset of the subsidiary trust is the junior subordinated debentures
of Nabisco Group Holdings Corp. The remaining outstanding junior
subordinated debentures have an aggregate principal amount of approximately
$101 million, an annual interest rate of 9 1/2%, and mature in September,
2047. The preferred securities will be mandatorily redeemed upon redemption
of the junior subordinated debentures. See note 2 for discussion regarding
the partial tender and redemption of these securities.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM REPORTING
GENERAL
The consolidated condensed financial statements include the accounts of
Nabisco Group Holdings Corp. ("NGH"--formerly named RJR Nabisco Holdings Corp.),
and its majority-owned subsidiaries, including 80.5% of Nabisco Holdings Corp.
("Nabisco Holdings") and its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco").
In management's opinion, the accompanying unaudited consolidated condensed
financial statements (the "Consolidated Condensed Financial Statements") of NGH
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods presented.
For interim reporting purposes, certain costs and expenses are charged to
operations in proportion to the estimated total annual amount expected to be
incurred. The results for the three and six month periods ended June 30, 1999
are not necessarily indicative of the results to be expected for the year ended
December 31, 1999.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
The account balances and activities of R.J. Reynolds Tobacco Holdings, Inc.
("RJR"--formerly named RJR Nabisco, Inc.), which included R.J. Reynolds
International ("Reynolds International"), R.J. Reynolds Tobacco Company
("Reynolds Tobacco") and corporate headquarters, are segregated and reported as
discontinued operations in the accompanying consolidated condensed financial
statements. See note 2 for further discussion. The Consolidated Condensed
Financial Statements should be read in conjunction with the restated
consolidated financial statements and footnotes of NGH at December 31, 1998 and
1997 and for each of the three years ended December 31, 1998 filed on Form 8-K
on June 3, 1999.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
On January 1, 1999, NGH adopted SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 established standards on accounting for
start-up and organization costs and, in general, requires such costs to be
expensed as incurred. The adoption of SOP No. 98-5 did not have a material
effect on NGH's financial position or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
During the second quarter of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, which was required
to be adopted by January 1, 2000, with early adoption permitted. In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133, which amended SFAS
No. 133 to delay its effective date one year. SFAS No. 133 requires that all
derivative instruments be recorded on the consolidated balance sheet at their
fair value. Changes in the fair value of derivatives will be recorded each
period in earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. NGH has not yet determined the impact, if any, that
adoption or subsequent application of SFAS No. 133 will have on its financial
position or results of operations.
4
<PAGE>
NOTE 1 -- INTERIM REPORTING (CONTINUED)
COMPREHENSIVE INCOME
Total comprehensive income was $2.72 billion and $(161) million for the
three months ended June 30, 1999 and 1998, respectively, and $2.69 billion and
$(181) million for the six months ended June 30, 1999 and 1998, respectively.
Total comprehensive income includes net income (loss), foreign currency
translation adjustments and minimum pension liability adjustments.
NOTE 2 -- THE REORGANIZATION
On March 9, 1999, RJR and Reynolds Tobacco entered into a definitive
agreement to sell the international tobacco business for approximately $8
billion, including the assumption of approximately $200 million of net debt, to
Japan Tobacco Inc. ("Japan Tobacco"). The sale was substantially completed on
May 12, 1999 and resulted in a net gain of approximately $2.97 billion, after
income taxes of approximately $1.9 billion, subject to post-closing adjustments.
Under the terms of the agreement, Japan Tobacco acquired substantially all of
the business, including intellectual property rights of Reynolds International,
including the international rights to the CAMEL, WINSTON and SALEM brand names.
Proceeds from the sale were used to reduce debt and for general corporate
purposes. The repurchase of approximately $4 billion of debt securities by RJR
resulted in an extraordinary loss of approximately $384 million ($250 million
after-tax) during the period.
Also on March 9, 1999, NGH announced that its board of directors had
approved a plan to separate the domestic tobacco business conducted by Reynolds
Tobacco, from the food business conducted by Nabisco's operating subsidiaries.
Under the plan, the separation was accomplished by the transfer on May 18, 1999
of RJR's 80.5% interest in Nabisco, together with approximately $1.6 billion in
proceeds from the international tobacco sale, to NGH through a merger
transaction, followed by a spin-off on June 14, 1999 to NGH stockholders of
shares in RJR. The merger transaction and subsequent spin-off are intended to be
tax-free. An additional $200 million of proceeds from the international tobacco
sale was transferred by RJR to NGH prior to the spin-off in satisfaction of
certain liabilities assumed by NGH.
Upon completion of the spin-off, NGH was legally renamed Nabisco Group
Holdings Corp. and continues to exist as a holding company, owning 80.5% of
Nabisco. The re-named Nabisco Group Holdings Corp. (symbol: NGH) and Nabisco
(symbol: NA) each will continue to trade as separate companies on The New York
Stock Exchange. Shares of RJR (symbol: RJR), as the owner of 100% of Reynolds
Tobacco, are also trading separately under the changed name of R.J. Reynolds
Tobacco Holdings, Inc.
NGH, RJR and Reynolds Tobacco have entered into several agreements governing
the relationships among the parties after the distribution of RJR's shares to
NGH stockholders, including the provision of intercompany services by Nabisco to
NGH, certain tax matters, indemnification rights and obligations and other
matters among the parties as disclosed in the Form 8-K filed by NGH on June 15,
1999.
On April 13, 1999, NGH offered to purchase any and all of its 9 1/2% trust
preferred securities and sought consents from the holders of those securities to
waive certain covenants that might have prevented some of the transactions
described above. The consent offer expired on May 17, 1999 and resulted in the
tender of approximately $276 million of the total $374 million trust preferred
securities. The total cost to tender the preferred securities, including accrued
interest, premium fees and consent fees was approximately $314 million. NGH
invested approximately $114 million of the proceeds received from RJR from the
international tobacco sale in highly rated short-term commercial paper to
service future principal and interest payments through 2003 on the trust
securities not tendered. Such amount is included in other assets and deferred
charges as of June 30, 1999.
On May 18, 1999, NGH called for redemption all of its $949 million 10% trust
preferred securities outstanding. NGH completed the redemption of the full
amount of the securities on June 18, 1999.
5
<PAGE>
NOTE 2 -- THE REORGANIZATION (CONTINUED)
The purchase and redemption of the 9 1/2% and 10% trust preferred securities
resulted in an extraordinary loss of approximately $44 million ($29 million
after-tax) during the period.
On or about May 18, 1999, NGH called for redemption of all of its
outstanding ESOP convertible preferred stock at $16.25 per share, plus accrued
dividends. A total of 12,412,767 shares were redeemed at a cost of approximately
$202 million. NGH completed this transaction on June 10, 1999. The 406,200
remaining shares were repurchased at $16.00 per share.
In connection with the reorganization transactions, the assets and
liabilities of the Retirement Plan for Employees of RJR Nabisco, Inc. (the "old
plan") were split into two plans. One plan covers employees and former employees
of Nabisco Holdings, Nabisco and NGH ("the Nabisco Plan") and the other plan
covers employees and former employees of RJR.
The split of the assets and liabilities of the old plan was in accordance
with a May 1999 agreement between the Pension Benefit Guaranty Corporation
("PBGC") and RJR Nabisco Holdings Corp. Based on this agreement and as required
by Section 414(1) of the Internal Revenue Code, the assets of the old plan were
allocated in proportion to the benefit obligations of each of the respective
plans. The use of this methodology resulted in a lower actual transfer of assets
to the Nabisco Plan of approximately $70 million and the assumption of higher
actual benefit obligations of approximately $30 million than the allocated
amounts used in the December 31, 1998 consolidated financial statements. The
impact of this change, an increase in the unfunded pension liability of $100
million, will be recognized in net periodic benefit costs over future periods.
As a result, net periodic benefit cost for full year 1999 is expected to
increase by approximately $7 million. The PBGC agreement did not require Nabisco
to make additional contributions to the Nabisco Plan.
Summarized operating results of the discontinued businesses are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................................. $ 1,844 $ 2,161 $ 4,210 $ 4,146
Provision for income taxes................................................. 62 78 123 73
</TABLE>
Assets and liabilities of the discontinued businesses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Current assets.................................................................. $ 2,987
Property, plant and equipment, net.............................................. 2,351
Trademarks and goodwill, net.................................................... 12,165
Other assets and deferred charges............................................... 341
Current liabilities............................................................. (2,859)
Long-term debt (less current maturities)........................................ (5,036)
Deferred income taxes........................................................... (1,936)
Other noncurrent liabilities.................................................... (1,317)
------------
Net assets of discontinued businesses......................................... $ 6,696
------------
------------
</TABLE>
----------------------------
6
<PAGE>
NOTE 3 -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
-------------------- -------------------- -------------------- --------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
applicable to common stock:
Income (loss) from continuing
operations.......................... $ 38 $ 38 $ (177) $ (177) $ 48 $ 48 $ (145) $ (145)
Preferred stock dividends............. (4) (4) (11) (11) (8) (8) (22) (22)
--------- --------- --------- --------- --------- --------- --------- ---------
$ 34 $ 34 $ (188) $ (188) $ 40 $ 40 $ (167) $ (167)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding
(in thousands):
Common shares......................... 324,769 324,769 323,858 323,858 324,411 324,411 323,828 323,828
Assumed exercise of NGH's stock
options............................. -- 347 -- -- -- 298 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
324,769 325,116 323,858 323,858 324,411 324,709 323,828 323,828
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
Shares of ESOP convertible preferred stock of 13,214,133 were not included
in computing diluted earnings per share for 1998, because the effect would have
been antidilutive. Common shares also exclude 949,100 and 965,000 shares of
restricted stock as the vesting provisions had not been met at June 30, 1999 and
1998, respectively.
In connection with the spin-off, options held by employees to purchase RJR
Nabisco Holdings Corp. common stock (17,065,066 options) were equitably adjusted
into options covering NGH shares (18,354,932 options) and options covering RJR
shares (5,456,114 options) in a manner intended to preserve the aggregate
benefits under the options.
NOTE 4 -- STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the six months ended June 30, 1999 was
as follows:
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
EARNINGS OTHER
CAPITAL PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY
IN MILLIONS STOCK* CAPITAL DEFICIT) INCOME (LOSS) STOCK OTHER TOTAL
- ------------------------------------ ----------- ----------- ------------- ----------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998........ $ 208 $ 9,004 $ (577) $ (460) $ (100) $ (61) $ 8,014
Net income.......................... 2,763 2,763
Exercise of stock options........... 28 28
Retirement and redemption of ESOP
preferred stock (205) (2) (207)
Cash dividends declared............. (341) (341)
Foreign currency translation
adjustments....................... (87) (87)
ESOP note payments received......... 34 34
Recognition of Reynolds
International cumulative
translation adjustments upon
sale.............................. 218 218
Distribution of RJR stock........... (7,268) 6 7 (7,255)
Reclassify retained earnings debit
balance........................... (5,423) 5,423 --
Other............................... 1 (1) 6 6
----- ----------- ------------- ----- ----- --------- ---------
Balance at June 30, 1999............ $ 3 $ 3,608 $ -- $ (324) $ (100) $ (14) $ 3,173
----- ----------- ------------- ----- ----- --------- ---------
----- ----------- ------------- ----- ----- --------- ---------
</TABLE>
* Includes $3 million of common stock for each reporting period presented.
NOTE 5 -- 1998 RESTRUCTURING CHARGES
In the second and fourth quarters of 1998, Nabisco recorded restructuring
charges of $406 million ($216 million after tax, net of minority interest) and
$124 million ($75 million after tax, net of minority
7
<PAGE>
NOTE 5 -- 1998 RESTRUCTURING CHARGES (CONTINUED)
interest), respectively. These restructuring programs were undertaken to
streamline operations and improve profitability and will result in a workforce
reduction of approximately 6,500 employees of which 4,575 positions were
eliminated as of June 30, 1999. The restructuring programs will require net cash
expenditures of approximately $205 million. In addition, the programs will
require additional restructuring-related expenses of approximately $134 million.
$90 million ($43 million after tax, net of minority interest) was incurred since
the programs' inception, of which $19 million ($9 million after tax, net of
minority interest) and $34 million ($17 million after tax, net of minority
interest), respectively, were incurred in the three months and six months ended
June 30, 1999. These additional expenses are principally for implementation and
integration of the programs and include costs for relocation of employees and
equipment and training.
The key elements of the $530 million restructuring programs include:
<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSETS TO BE OTHER EXIT
IN MILLIONS AND BENEFITS TERMINATIONS DISPOSED OF COSTS TOTAL
- ---------------------------------------------------- ------------- --------------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Sales force reorganizations......................... $ 37 $ 3 $ -- $ -- $ 40
Distribution reorganizations........................ 16 8 9 33
Staff reductions.................................... 83 3 86
Manufacturing cost reduction initiatives............ 22 8 30
Plant closures...................................... 46 3 217 15 281
Product line rationalizations....................... 4 4 20 32 60
----- --- ----- --- ---------
Total restructuring reserves.................... 208 18 257 47 530
----- --- ----- --- ---------
Charges and Payments:
Year ended December 31, 1998........................ 34 3 12 12 61
Six months ended June 30, 1999...................... 32 3 58 14 107
----- --- ----- --- ---------
Total charges and payments, net of cash
proceeds...................................... 66 6 70 26 168
----- --- ----- --- ---------
Reserve balances as of June 30, 1999................ $ 142 $ 12 $ 187 $ 21 $ 362
----- --- ----- --- ---------
----- --- ----- --- ---------
</TABLE>
The charges and payments, net of cash proceeds applied against the
restructuring reserves included cash expenditures of $78 million and cash
proceeds of $6 million. $39 million of cash expenditures and $6 million of cash
proceeds were applied against the restructuring reserves in the first six months
of 1999.
As of June 30, 1999, production had ceased in 8 facilities of which 3 were
sold.
NOTE 6 -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ---------------
<S> <C> <C>
Finished products.................................................... $ 487 $ 457
Raw materials........................................................ 195 164
Other................................................................ 137 132
----- -----
$ 819 $ 753
----- -----
----- -----
</TABLE>
8
<PAGE>
NOTE 7 -- SEGMENT REPORTING
NGH is a holding company whose subsidiaries are engaged principally in the
manufacture, distribution and sale of cookies, crackers, and other food
products. NGH is organized and reports its results of operations in three
operating segments: Nabisco Biscuit, the U.S. Foods Group and the International
Food Group which are segregated by both product and geographic location.
NGH's management evaluates the performance of its operating segments based
upon ongoing Operating Company Contribution ("OCC"). OCC for each reportable
segment is operating income before amortization of trademarks and goodwill,
restructuring expenses and other items deemed unusual by management.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
IN MILLIONS 1999 1998 1999 1998
- ------------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales from external customers:
Biscuit.................................................... $ 897 $ 864 $ 1,764 $ 1,714
U.S. Foods Group........................................... 547 514 982 921
International Food Group................................... 579 625 1,132 1,205
----------- ------------- ----------- -------------
Total ongoing.......................................... 2,023 2,003 3,878 3,840
----------- ------------- ----------- -------------
U.S. Foods Group........................................... -- 123 -- 246
International Food Group................................... -- 5 -- 7
----------- ------------- ----------- -------------
Total divested......................................... -- 128 -- 253
----------- ------------- ----------- -------------
Total................................................ $ 2,023 $ 2,131 $ 3,878 $ 4,093
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Operating company contribution before restructuring-related
expenses:
Biscuit.................................................... $ 129 $ 129 $ 250 $ 272
U.S. Foods Group........................................... 73 67 122 111
International Food Group................................... 48 47 80 79
----------- ------------- ----------- -------------
Total ongoing.......................................... 250 243 452 462
----------- ------------- ----------- -------------
U.S. Foods Group and other................................. -- 16 -- 36
----------- ------------- ----------- -------------
Total divested......................................... -- 16 -- 36
----------- ------------- ----------- -------------
Segment operating company contribution before restructuring-
related expenses........................................... 250 259 452 498
Restructuring-related expenses............................... (19) (6) (34) (6)
Amortization of trademarks and goodwill...................... (54) (57) (107) (113)
Restructuring charge......................................... -- (406) -- (406)
----------- ------------- ----------- -------------
Consolidated operating income (loss)......................... 177 (210) 311 (27)
Interest and debt expense.................................... (90) (102) (188) (206)
Other income (expense), net.................................. -- (3) (10) (12)
----------- ------------- ----------- -------------
Income (loss) before income taxes............................ $ 87 $ (315) $ 113 $ (245)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
9
<PAGE>
NOTE 8 -- CONTINGENCIES
TOBACCO LITIGATION
As of August 10, 1999, NGH was a defendant in 20 lawsuits arising out of the
tobacco business conducted by Reynolds Tobacco or its subsidiaries. In two
additional cases, NGH has been voluntarily dismissed subject to plaintiffs'
discretion to restore NGH to the case within a limited period of time. These 20
cases name NGH on a variety of theories, not always specifically pled, that seek
to impose liability on NGH for injuries allegedly caused by the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, exposure to, or research, statements or warnings regarding cigarettes.
Most of these 20 active suits were brought in state courts by union
health-benefit trust funds -- and, in two instances, Native American tribes --
seeking to recover the health-care costs they claim to have incurred for their
members whose illnesses are allegedly related to cigarettes. One health-care
cost recovery suit is being brought in a Texas state court by a foreign state
government (RIO DE JANIERO VS. PHILIP MORRIS COMPANIES). Three of the cases are
non-union class action suits, one in Indiana state court, one in Missouri state
court and one pending in Lagos, Nigeria. NGH's defenses in all the cigarette
cases in which it is named include the merits defenses of Reynolds Tobacco plus
separate arguments that NGH is a holding company that does not engage in any of
the activities for which plaintiffs seek to impose liability. NGH also seeks to
be dismissed from some of these cases based on the fact that it has no presence
in the state in which a particular case is pending and therefore should not be
subject to the jurisdiction of the applicable court.
In the union health-care cost-recovery cases of the kind noted above,
defendants also argue that the case should be dismissed because of the settled
law that one who pays an injured person's medical expenses is legally too remote
to maintain an action against the person allegedly responsible for the injury.
Most courts that have decided motions to dismiss based on this argument,
including the federal courts of appeals for the Second, Third and Ninth
Circuits, have granted the motions to dismiss on these "remoteness" grounds. In
another case, in which NGH was named and which proceeded to trial before a jury,
NGH as well as RJR were dismissed from the case on a directed verdict after
plaintiffs had presented their case.
As of August 10, 1999, no case in which NGH is a named defendant was
scheduled for trial in 1999. One case in which Reynolds Tobacco is a defendant
ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, is being tried in three phases. A jury
found against Reynolds Tobacco and the other cigarette company defendants in the
first phase. In the second phase, scheduled to begin in September 1999, the jury
is likely to consider the award of punitive damages for an entire class of
Florida smokers. It is not possible to predict the size of such an award if
made, but it could be in the billions of dollars. No payment of damages would be
required until the end of the trial and appellate process. In addition, three
other cases in which Reynolds Tobacco is a defendant are scheduled for trial
during 1999.
NGH's litigation defense costs as well as any liabilities it might incur as
a result of the cases pending against it are to be paid by RJR and Reynolds
Tobacco under the indemnification provisions of an agreement between NGH, RJR
and Reynolds Tobacco. NGH's costs of defense, as well as any liabilities
incurred as a result of the case pending in Nigeria and the RIO DE JANIERO case,
are also subject to an indemnity from Japan Tobacco Inc. as provided under the
sale agreement among Japan Tobacco, Reynolds Tobacco and RJR. If RJR and
Reynolds Tobacco and Japan Tobacco cannot fulfill their respective indemnity
obligations, NGH could be required to make the relevant payments itself.
In addition to the cases pending against NGH, there are several hundred
lawsuits relating to cigarettes in which Reynolds Tobacco, and sometimes RJR,
are named defendants. If Reynolds Tobacco and RJR are unable to satisfy their
payment obligations for any adverse judgments against them in some or all of
these cases, it is possible that plaintiffs in these cases would seek to recover
the unsatisfied obligations from the assets of NGH by bringing lawsuits on
various theories.
NGH has been served with a document subpoena dated July 7, 1999 by a grand
jury convened by the Eastern District of North Carolina. NGH has responded to
the subpoena. NGH understands that the grand jury is investigating foreign sales
practices relative to a former distributor for the sold international tobacco
businesses.
10
<PAGE>
Some of the claims against NGH seek recovery of hundreds of millions and
possibly billions of dollars. This is also true of the litigation pending
against Reynolds Tobacco and RJR. Litigation is subject to many uncertainties.
Management is unable to predict the outcome of the litigation against NGH, or to
derive a meaningful estimate of the amount or range of any possible loss in any
quarterly or annual period or in the aggregate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of Nabisco Group Holdings'
financial condition and results of operations. The discussion and analysis for
sales, operating company contribution and operating income includes information
as reported in the historical financial statements, followed by items that
management believes impact the comparability of historical results, ongoing
results and management's discussion and analysis of ongoing results. Ongoing
results are presented on a basis consistent with how the ongoing businesses are
managed. They exclude sales, operating company contribution and operating income
from divested and discontinued businesses and restructuring-related expenses
that management believes affect the comparability of the results of operations.
The ongoing results of operations should not be viewed as a substitute for the
historical results of operations but as a tool to better understand the
underlying trends in the business. The discussion and analysis of Nabisco Group
Holdings' financial condition and results of operations should be read in
conjunction with the historical financial information and the related notes
thereto included in the Consolidated Condensed Financial Statements.
Nabisco Group Holdings owns an 80.5% majority interest in Nabisco Holdings.
The food business is conducted by the operating subsidiaries of Nabisco
Holdings. Nabisco's businesses in the United States are comprised of Biscuit and
the U.S. Foods Group. Nabisco's businesses outside the United States are
conducted by Nabisco Ltd and Nabisco International, Inc. ("Nabisco
International" together with Nabisco Ltd, the "International Food Group").
NET SALES
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998 % CHANGE
- --------------------------------------------------- --------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
REPORTED NET SALES:
Biscuit.......................................... $ 897 $ 864 4% $ 1,764 $ 1,714 3%
U.S. Foods Group................................. 547 637 (14%) 982 1,167 (16%)
International Food Group......................... 579 630 (8%) 1,132 1,212 (7%)
--------- --------- --------- ---------
Total............................................ $ 2,023 $ 2,131 (5%) $ 3,878 $ 4,093 (5%)
--------- --------- --------- ---------
NET SALES FROM DIVESTED BUSINESSES:
U.S. Foods Group................................. -- 123 -- 246
International Food Group......................... -- 5 -- 7
--------- --------- --------- ---------
Total............................................ -- 128 -- 253
--------- --------- --------- ---------
NET SALES FROM ONGOING BUSINESSES:
Biscuit.......................................... $ 897 $ 864 4% $ 1,764 $ 1,714 3%
U.S. Foods Group................................. 547 514 6% 982 921 7%
International Food Group......................... 579 625 (7%) 1,132 1,205 (6%)
--------- --------- --------- ---------
Total............................................ $ 2,023 $ 2,003 1% $ 3,878 $ 3,840 1%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON NET SALES FROM ONGOING
BUSINESSES:
- Biscuit's net sales increased 4% in the second quarter and 3% in the first
six months versus the prior year. The increase in the second quarter
reflects price increases and volume gains in core cookies and crackers
partially offset by lower volumes in breakfast snacks. The sales
performance for the
11
<PAGE>
first six months reflects price increases and volume increases in core
cookie and cracker brands, partially offset by lower volume in SnackWell's
and breakfast snacks.
- U.S. Foods Group's net sales increased 6% in the second quarter and 7% in
the first six months versus the prior year. The increase in the second
quarter was paced by strong volume gains from Planters nuts and
condiments. The key contributors to the sales performance for the first
six months reflects increased sales volume of Planters nuts, Life Savers
candy, condiments, pet snacks and hot cereals.
- International's net sales decreased 7% in the second quarter and 6% in the
first six months versus the prior year. The decrease in the second quarter
was primarily driven by unfavorable foreign currency translation in
Brazil, Spain and Canada. Excluding the impact of foreign currency
translation, sales increased 1%, reflecting solid volume gains in Canada,
Asia, the Caribbean and several Latin American countries. The factors
influencing decreased sales for the first six months were unfavorable
foreign currency translation in Brazil and Canada along with volume
declines in Brazil, Argentina, and the Andean region. Price increases in
Brazil and solid volume gains in Canada, Mexico and the Caribbean helped
minimize the impact on sales.
OPERATING COMPANY CONTRIBUTION
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- --------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998
- ----------------------------------------------------------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
REPORTED OPERATING COMPANY CONTRIBUTION(1):
Biscuit.................................................... $ 114 $ 125 (9%) $ 222 $ 268
U.S. Foods Group........................................... 71 81 (12%) 119 144
International Food Group................................... 46 47 (2%) 77 79
Other...................................................... -- -- -- 1
--------- --------- --------- ---------
Total...................................................... $ 231 $ 253 (9%) $ 418 $ 492
--------- --------- --------- ---------
ITEMS EXCLUDED FROM ONGOING OPERATING COMPANY CONTRIBUTION:
Biscuit:
Restructuring-related expenses......................... (15) (4) (28) (4)
U.S. Foods Group:
Restructuring-related expenses......................... (2) (2) (3) (2)
Results from divested businesses....................... -- 16 -- 35
International Food Group:
Restructuring-related expenses......................... (2) -- (3) --
Results from divested businesses....................... -- -- -- --
Other...................................................... -- -- -- 1
--------- --------- --------- ---------
Total...................................................... (19) 10 (34) 30
--------- --------- --------- ---------
OPERATING COMPANY CONTRIBUTION FROM ONGOING BUSINESSES:
Biscuit.................................................... $ 129 $ 129 -- $ 250 $ 272
U.S. Foods Group........................................... 73 67 9% 122 111
International Food Group................................... 48 47 2% 80 79
--------- --------- --------- ---------
Total...................................................... $ 250 $ 243 3% $ 452 $ 462
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
(IN MILLIONS) % CHANGE
- ----------------------------------------------------------- -------------
<S> <C>
REPORTED OPERATING COMPANY CONTRIBUTION(1):
Biscuit.................................................... (17%)
U.S. Foods Group........................................... (17%)
International Food Group................................... (3%)
Other......................................................
Total...................................................... (15%)
ITEMS EXCLUDED FROM ONGOING OPERATING COMPANY CONTRIBUTION:
Biscuit:
Restructuring-related expenses.........................
U.S. Foods Group:
Restructuring-related expenses.........................
Results from divested businesses.......................
International Food Group:
Restructuring-related expenses.........................
Results from divested businesses.......................
Other......................................................
Total......................................................
OPERATING COMPANY CONTRIBUTION FROM ONGOING BUSINESSES:
Biscuit.................................................... (8%)
U.S. Foods Group........................................... 10%
International Food Group................................... 1%
Total...................................................... (2%)
</TABLE>
- ------------------------
(1) Operating company contribution represents operating income before
amortization of trademarks and goodwill and restructuring charges.
12
<PAGE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING COMPANY CONTRIBUTION
FROM ONGOING BUSINESSES:
Biscuit's operating company contribution was flat in the second quarter and
decreased 8% in the first six months versus the prior year. Both the quarter and
year to date periods were impacted by increased advertising, consumer promotion
spending and increased selling costs associated with the implementation of the
redesigned direct store delivery sales force. Price increases and lower
manufacturing overhead costs resulting from restructuring programs, along with
volume gains in the second quarter for both cookies and crackers partially
offset these higher costs.
U.S. Foods Group's operating company contribution increased 9% in the second
quarter and 10% in the first six months versus the prior year. The second
quarter improvements were primarily due to increased earnings for condiments,
pet snacks and hot cereals. The first six months' improvement was primarily due
to gains in condiments, pet snacks and hot cereals. Both periods were impacted
by increased expenses associated with marketing programs partially offset by the
impact of restructuring programs on fixed overhead costs.
International's operating company contributions increased 2% in the second
quarter and 1% in the first six months of 1999 versus the prior year. The second
quarter increase was primarily due to increased earnings in Asia due to price
increases and volume gains, and lower overhead costs in Brazil and Argentina
partially offset by lower earnings in the Andean region principally due to
volume declines. The first six months' increase was primarily due to increased
earnings in Brazil, principally as a result of higher prices and lower fixed
overhead costs which more than offset unfavorable foreign currency translation,
and Asia due to price increases and volume gains offset by lower earnings in the
Andean region due to volume declines.
OPERATING INCOME
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------- ---------------------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998 % CHANGE
- --------------------------------------------------------- --------- --------- --------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
REPORTED OPERATING INCOME (LOSS)......................... $ 177 $ (210) $ 311 $ (27)
--------- --------- --------- ---------
OPERATING INCOME (LOSS) EXCLUDED FROM ONGOING BUSINESS:
Restructuring charge................................. -- (406) -- (406)
Restructuring-related expenses....................... (19) (6) (34) (6)
Results from divested businesses and other........... -- 14 -- 31
--------- --------- --------- ---------
Total (19) (398) (34) (381)
--------- --------- --------- ---------
OPERATING INCOME FROM ONGOING BUSINESS................... $ 196 $ 188 4% $ 345 $ 354 (3%)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING INCOME FROM ONGOING
BUSINESSES:
- NGH's operating income was $196 million and $345 million for the second
quarter and the first six months of 1999, an increase of 4% and a decrease
of 3%, respectively, from the same 1998 periods. The increase in the
second quarter was a result of higher operating company contribution
discussed previously. The decrease in the first six months reflects lower
operating company contribution discussed previously.
INTEREST AND DEBT EXPENSE
Consolidated interest and debt expense of $90 million and $188 million for
the second quarter and first six months of 1999 both decreased 12% and 9%,
respectively from the same 1998 periods primarily due to the paydown of
long-term debt with the net proceeds from businesses sold in the third quarter
of
13
<PAGE>
1998 and with funds generated from operating cash flows and the repurchase and
redemption of trust preferred securities in May of 1999.
OTHER INCOME (EXPENSE), NET
Other income (expense), net amounted was zero and $10 million expense for
the second quarter and first six months of 1999, a decrease of $3 million and $2
million, respectively, principally due to higher interest income, partially
offset by higher foreign exchange losses.
NET INCOME (LOSS)
Nabisco Group Holdings' net income of $2.69 billion and $2.76 billion for
the second quarter and the first six months of 1999 compares to a net loss of
$130 million and $150 million for the same 1998 periods. Both 1999 periods
reflect the net gain on the sale of the international tobacco business,
increased operating income and lower interest and debt expense.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income of $2.72 billion and $2.69 billion for the second
quarter and first six months of 1999 compares to a comprehensive loss of $161
million and $181 million for the same 1998 periods. The second quarter reflects
higher net income and the favorable impact of foreign currency translation. The
first six months reflects higher net income offset by the unfavorable impact of
foreign currency translation.
RESTRUCTURING
Savings objectives set in our 1998 restructuring programs are on target
despite lower than anticipated spending to-date. The June 1998 program is
expected to be substantially completed in 1999 and the December 1998 program is
expected to be substantially completed by mid-year 2000. Pre-tax savings in 1999
will be approximately $80 million including cash savings of $73 million and,
after completion of the programs, are expected to be approximately $145 million
annually including cash savings of $135 million. For a further discussion of
restructuring programs see Note 5 to the Consolidated Condensed Financial
Statements.
DISCONTINUED OPERATIONS
Total income from discontinued operations increased approximately $2.9
billion in the second quarter of 1999 compared to the second quarter of 1998 and
increased approximately $3.0 billion for the first six months of 1999 compared
to the comparable 1998 period. The increases were due primarily to the gain on
the sale of Reynolds International in May of 1999.
EXTRAORDINARY LOSS
The extraordinary loss for the quarter and first six months of 1999 includes
a loss of approximately $384 million ($250 million after-tax) on the repurchase
of approximately $4 billion of debt securities by RJR and a loss of
approximately $44 million ($29 million after-tax) related to the purchase and
redemption of NGH's trust preferred securities.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from continuing operating activities amounted to $18 million
for the first six months of 1999 compared to $86 million for the first six
months of 1998. The decrease in net cash flows from operating activities
primarily reflects higher interest and income tax payments.
14
<PAGE>
Cash flows used in investing activities for the first six months of 1999
increased $16 million from the first six months of 1998 to $204 million,
primarily due to an investment in commercial paper, partially offset by lower
capital expenditures.
Capital expenditures were $99 million in the first six months of 1999.
Management expects that the current level of net investment for property, plant
and equipment will be $200 million, as spending for capital expenditures will be
approximately $225 million offset by proceeds from asset sales, which is
sufficient to support the strategic and operating needs of Nabisco Holdings'
businesses. Management also expects that cash flow from operations will be
sufficient to support its planned capital expenditures in 1999.
Cash flows used in financing activities were $1.92 billion for the first six
months of 1999, an increase of $1.70 billion from the first six months of 1998,
principally due to the purchase and redemption of trust preferred securities,
the repurchase of ESOP preferred stock and the early payout of NGH's and Nabisco
Holdings' second quarter 1999 dividend.
During the third quarter of 1999 Nabisco expects to exercise a call option
to redeem $200 million of floating rate notes due August 2009 and recognize an
after tax extraordinary loss of approximately $3 million. This redemption is
expected to be refinanced with commercial paper.
As of June 30, 1999, Nabisco's $1.5 billion revolving credit facility was
unutilized and available to support borrowings. In addition, the 364-day $1.11
billion credit facility was utilized to support outstanding commercial paper
borrowings of $364 million, and accordingly, $746 million was available.
The companies believe that they are currently in compliance with all
covenants and restrictions imposed by the terms of their indebtedness.
Before the distribution, NGH had been paying a regular quarterly cash
dividend at an annual rate of $2.05 per share of common stock. On May 12, 1999,
NGH declared its regularly scheduled quarterly cash dividend of $0.5125 per NGH
common share. This cash dividend was paid on June 9, 1999 to holders of NGH
common shares as of May 27, 1999. NGH currently anticipates that it will pay a
regular quarterly cash dividend that is approximately equal to the amount of the
regular Nabisco Holdings' quarterly cash dividend that NGH expects to receive.
However, the dividend payable on each NGH common share will be less than the
dividend payable on each Nabisco Holdings' common share because the number of
outstanding NGH common shares exceeds the number of Nabisco Holdings' shares
owned by NGH. Passing through Nabisco Holdings' current annual dividend of $0.75
per share on NGH's 213,250,000 shares of Nabisco Holdings' stock would yield an
annual dividend of approximately $0.49 per share of the 326,107,880 shares of
NGH stock outstanding on June 30, 1999.
FOREIGN MARKET RISK
Nabisco's international businesses are exposed to financial market
volatility in the countries in which it operates, which can impact the
International Food Group's financial position. As of June 30, 1999, Brazil's
currency, the Real, devalued approximately 46% from December 31, 1998, compared
to the U.S. Dollar, which resulted in an unfavorable foreign currency
translation adjustment of approximately $84 million after minority interest for
the six months ended June 30, 1999.
YEAR 2000 ISSUE
Nabisco has developed plans to address the implications of the Year 2000 on
its computer systems and business operations. The Year 2000 Issue stems from
computer applications that were written using two digits rather than four digits
to define the applicable year. The issue is whether computer systems will
properly interpret date-sensitive information when the year changes to 2000.
15
<PAGE>
Nabisco has completed an inventory and assessment of its financial,
information and operational systems, including equipment with embedded
microprocessors, and has developed detailed plans for required systems
modifications or replacements.
Software remediation of information technology systems ("IT systems") has
been completed and remediation of non-information technology systems with
embedded technology ("non-IT systems") is 70% complete and scheduled to be 100%
complete by the end of the third quarter of 1999.
Software testing following remediation is approximately 95% complete for IT
systems and is scheduled to be completed by the end of the third quarter of
1999. With respect to non-IT systems, testing is 50% complete and is expected to
be complete by the third quarter of 1999.
Approximately 95% of IT systems are remediated and in production. Management
expects the remainder to be completed and in production by the third quarter of
1999. 95% of non-IT systems are compliant and are expected to be fully Year 2000
compliant by November 1999.
Incremental costs, which include contractor costs to modify or replace
existing systems, and costs of internal resources dedicated to achieving Year
2000 compliance are charged to expense as incurred and are funded by operating
cash flows. Costs are expected to total approximately $40 million to $45
million, of which $27 million has been spent through June 30, 1999.
In 1998 Nabisco began a process of contacting key third parties (suppliers,
services providers and customers) to determine their progress on Year 2000
compliance issues and to assess the potential impact on operations if key third
parties are not successful in converting their systems in a timely manner. In
early 1999, Nabisco initiated an effort to gain greater assurance that it will
not suffer any material adverse affects of third party non-compliance. This
effort consisted of re-contacting these third parties and contacting additional
selected third parties to obtain more accurate and up-to-date status of their
Year 2000 compliance. As of June 30, 1999, Nabisco had sent correspondence to
100% of these third parties. As of June 30, 1999, Nabisco has received responses
from 60% of all third parties, with 58% of all third parties indicating
compliance. Responses from all third parties are expected to be received by the
third quarter of 1999. For third parties who have not responded or where
non-compliance was indicated, management has considered this in their assessment
of risk.
Progress against Year 2000 compliance plans is monitored by management as
well as the internal audit department. Results are reported to the Board of
Directors on a regular basis.
Nabisco's existing systems risk management program includes emergency backup
and recovery procedures to be followed in the event of failure of a
business-critical system. In addition, contingency plans to protect the business
from Year 2000-related interruptions have been developed, which will include
development of backup procedures, identification of alternate suppliers and
possible increases in safety inventory levels. The possible consequences of
Nabisco or key third parties not being fully Year 2000 compliant include
temporary plant closings, delays in the delivery of products or receipt of
supplies, invoice and collection errors, and inventory obsolescence. However,
Nabisco believes its Year 2000 implementation plan, including contingency
measures, should be completed in all material respects by the end of 1999,
thereby reducing the possible material adverse effects of the Year 2000 on
Nabisco's business, results of operations, cash flows or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Nabisco is exposed to changes in interest rates primarily as a result of its
borrowing activities which include commercial paper, short-term borrowings and
long-term fixed rate debt used to maintain liquidity and fund its business
operations. Nabisco employs a variance/co-variance approach to its calculation
of Value at Risk ("VaR"), which is a statistical measure of potential loss in
terms of fair value, cash flows, or
16
<PAGE>
earnings of interest rate sensitive financial instruments over a one year
horizon using a 95% confidence interval for changes in interest rates. The model
assumes that financial returns are normally distributed. For options and
instruments with non-linear returns, the model uses the delta/gamma method to
approximate the financial return.
The VaR of the potential loss in fair value associated with Nabisco's
exposure to changing interest rates was $178 million after tax, net of minority
interest at June 30, 1999, a decrease of $20 million from the December 31, 1998
amount. This exposure is primarily related to long-term debt with fixed interest
rates.
The VaR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by Nabisco, nor does it
consider the potential effect of favorable changes in market factors.
COMMODITY PRICE EXPOSURE
The VaR associated with Nabisco's derivative commodity instruments due to
reasonably possible near-term changes in commodity prices, based on historical
commodity price movements, would not result in a material effect on the future
earnings of Nabisco.
The VaR associated with Nabisco's net commodity exposure (derivatives plus
physical contracts less anticipated future consumption) would result in a
potential loss in earnings of $35 million after tax, net of minority interest at
June 30, 1999, an increase of $21 million from the December 31, 1998 amount
primarily due to the volatility of soy oil and wheat commodity prices on our
underlying position in those commodities.
The VaR associated with either Nabisco's derivative commodity instruments or
its net commodity exposure would not have a material effect on the fair values
or cash flows of Nabisco.
------------------------
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements concerning, among other things, the impact of Year 2000 on systems
and applications, the level of restructuring-related expenses and the amount of
savings from the restructuring program, the level of future capital
expenditures, and the level of dividends. These statements reflect management's
current views with respect to future events and financial performance. These
forward-looking statements are based on many assumptions and factors including
competitive pricing for products, commodity prices, success of new product
innovations and acquisitions, economic conditions in countries where Nabisco
Group Holdings' subsidiaries do business, the effects of currency fluctuations
and the effects of government regulation. Any changes in such assumptions or
factors could produce significantly different results.
17
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
As of August 10, 1999, NGH was a defendant in 20 lawsuits arising out of the
tobacco business conducted by Reynolds Tobacco or its subsidiaries. In two
additional cases, NGH has been voluntarily dismissed subject to plaintiffs'
discretion to restore NGH to the case within a limited period of time. These 20
cases name NGH on a variety of theories, not always specifically pled, that seek
to impose liability on NGH for injuries allegedly caused by the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, exposure to, or research, statements or warnings regarding cigarettes.
Most of these 20 active suits were brought in state courts by union
health-benefit trust funds -- and, in two instances, Native American tribes --
seeking to recover the health-care costs they claim to have incurred for their
members whose illnesses are allegedly related to cigarettes. One health-care
cost recovery suit is being brought in a Texas state court by a foreign state
government (RIO DE JANIERO VS. PHILIP MORRIS COMPANIES). Three of the cases are
non-union class action suits, one in Indiana state court, one in Missouri state
court and one pending in Lagos, Nigeria. NGH's defenses in all the cigarette
cases in which it is named include the merits defenses of Reynolds Tobacco plus
separate arguments that NGH is a holding company that does not engage in any of
the activities for which plaintiffs seek to impose liability. NGH also seeks to
be dismissed from some of these cases based on the fact that it has no presence
in the state in which a particular case is pending and therefore should not be
subject to the jurisdiction of the applicable court.
Some of the claims against NGH seek recovery of hundreds of millions and
possibly billions of dollars. This is also true of the litigation pending
against Reynolds Tobacco and RJR. Litigation is subject to many uncertainties.
Management is unable to predict the outcome of the litigation against NGH, or to
derive a meaningful estimate of the amount or range of any possible loss in any
quarterly or annual period or in the aggregate.
For information about other litigation and legal proceedings, see note 8 to
the Consolidated Condensed Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters indicated below were voted upon at the annual meeting of
stockholders of NGH (formerly named RJR Nabisco Holdings Corp.) held on May 12,
1999. Holders of Common Stock and ESOP Convertible Preferred Stock were entitled
to vote upon the proposals to elect directors, ratify the appointment of
auditors and to vote on two stockholder proposals. Holders present in person or
by proxy at the meeting were entitled to vote 255,685,635 shares of Common Stock
and 1,693,486 shares of ESOP Convertible Preferred Stock.
(a) Election of Nine Directors.
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
- --------------------------------------------------------------- ------------- --------------
<S> <C> <C>
John T. Chain, Jr.............................................. 254,569,202 2,809,919
Julius L. Chambers............................................. 254,626,852 2,752,269
John L. Clendenin.............................................. 254,640,274 2,738,847
Steven F. Goldstone............................................ 254,662,790 2,716,331
Ray J. Groves.................................................. 254,663,353 2,715,768
Fred H. Langhammer............................................. 254,825,215 2,533,906
H. Eugene Lockhart............................................. 254,866,031 2,513,090
Theodore E. Martin............................................. 254,672,091 2,707,030
Rozanne L. Ridgway............................................. 254,515,078 2,864,043
</TABLE>
18
<PAGE>
(b)Ratification of Appointment of Deloitte & Touche LLP as Independent
Auditors.
<TABLE>
<S> <C>
For:................................... 256,190,461
Against:............................... 732,625
Abstain:............................... 456,035
</TABLE>
(c)Stockholder Proposal on Tobacco Advertising and Youth.
<TABLE>
<S> <C>
For:................................... 9,230,356
Against:............................... 159,304,661
Abstain:............................... 14,415,742
Broker Non-Votes:...................... 74,428,362
</TABLE>
(d)Stockholder Proposal on Smuggling.
<TABLE>
<S> <C>
For:................................... 9,136,578
Against:............................... 161,408,847
Abstain:............................... 12,405,334
Broker Non-Votes:...................... 74,428,362
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1 Certificate of Ownership and Merger merging Nabisco Group Holdings Corp. into RJR
Nabisco Holdings Corp. filed June 14, 1999.
3.1 Restated Certificate of Incorporation of Nabisco Group Holdings Corp. dated June
16, 1999.
3.2 By-laws of Nabisco Group Holdings Corp. as Amended Effective November 11, 1998 and
reflecting Company Name Change effected June 14, 1999.
10.1 Nabisco Group Holdings Corp. 1990 Long Term Incentive Plan as Amended and Restated
effective June 15, 1999.
27.1 Nabisco Group Holdings Corp. Financial Data Schedule for the six months ended June
30, 1999.
27.2 Nabisco Group Holdings Corp. Financial Data Schedule for the six months ended June
30, 1998.
</TABLE>
(b)Reports on Form 8-K
Report on Form 8-K dated March 9, 1999, announcing, among other things,
that (i) RJR Nabisco, Inc. ("RJRN") and RJR Tobacco Company had entered into a
definitive sale of the international tobacco business of RJR Tobacco Company and
its subsidiaries to Japan Tobacco, Inc., and (ii) the Board of Directors of RJR
Nabisco Holdings Corp. ("RJRNH") had approved a plan to distribute shares of its
domestic tobacco business to RJRNH's shareholders in the form of a tax-free
spin-off transaction.
Report on Form 8-K dated April 13, 1999, regarding the commencement of
cash tender offers and consent solicitations for approximately $4.4 billion in
debt and $373.8 million in Trust Originated Preferred Securities.
Report on Form 8-K dated May 12, 1999 reporting the completion of the
sale of the international tabacco business, declaration of dividend of 100% of
common stock of R.J. Reynolds Tobacco Holdings, Inc. and other related
transactions.
Report on Form 8-K filed June 3, 1999 which restated Nabisco Group
Holdings' consolidated financial statements at December 31, 1998 and 1997 and
for each of the three years ended December 31, 1998 and its consolidated
condensed financial statements at March 31, 1999 and December 31, 1998 and for
the three months ended March 31, 1999 and 1998 to reflect businesses
discontinued during the quarter ended June 30, 1999.
Report on Form 8-K dated June 14, 1999 regarding the completion of the
distribution of 100% of the common stock of Nabisco Group Holdings' former
subsidiary R.J. Reynolds Tobacco Holdings, Inc.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
NABISCO GROUP HOLDINGS CORP.
(Registrant)
/s/ DAVID B. RICKARD
------------------------------------------
David B. Rickard
Senior Vice President and Chief Financial
Officer
Date: August 13, 1999 /s/ RICHARD G. RUSSELL
------------------------------------------
Richard G. Russell
Senior Vice President and Controller
</TABLE>
20
<PAGE>
Exhibit 2.1
--------------------------
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
NABISCO GROUP HOLDINGS CORP.
INTO
RJR NABISCO HOLDINGS CORP.
--------------------------
Pursuant to Section 253 of the
General Corporation Law of the State of Delaware
--------------------------
RJR Nabisco Holdings Corp. ("PARENT"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"GENERAL CORPORATION LAW"), does hereby certify that:
FIRST: Parent was incorporated on October 25, 1988 pursuant to the
General Corporation Law and is existing thereunder.
SECOND: Nabisco Group Holdings Corp. (the "SUBSIDIARY") was
incorporated on May 12, 1999 pursuant to the General Corporation Law and is
existing thereunder.
THIRD: Parent owns of record 100% of the outstanding shares of Common
Stock (the "SHARES") of the Subsidiary, the Shares being the only stock of the
Subsidiary outstanding.
FOURTH: The board of directors of Parent adopted the following
resolutions providing for the merger (the "MERGER") of Subsidiary into Parent,
which resolutions have not been amended or rescinded and are in full force and
effect:
RESOLVED, that the Plan of Merger in the form of Exhibit A
hereto (the "PLAN OF MERGER") dated as of June 14, 1999 between Nabisco
Group Holdings Corp. (the "SUBSIDIARY") and RJR Nabisco Holdings Corp.
(the "PARENT"), pursuant to which the Subsidiary agreed to be merged
with and into the Parent (the "MERGER"), at which time the separate
existence of the Subsidiary shall cease, with the Parent as the
surviving corporation (the "SURVIVING CORPORATION"), and the
<PAGE>
transactions contemplated by that Plan of Merger, are hereby approved,
and pursuant to the Plan of Merger, the Merger shall become effective
as of the date of the filing with the Secretary of State of the State
of Delaware of the Certificate of Merger thereto (the "EFFECTIVE DATE")
and such Certificate of Merger shall be filed with the Secretary of the
State of Delaware.
RESOLVED, that, pursuant to the Plan of Merger, the Merger is
hereby approved pursuant to the provisions of Section 253 of the
General Corporation Law of the State of Delaware.
RESOLVED, that, pursuant to the Plan of Merger, at the
Effective Date, the currently issued and outstanding shares of stock of
Subsidiary, all of which are owned by Parent, shall be surrendered and
canceled. No shares of stock of the Parent or other consideration shall
be issued in exchange therefor.
RESOLVED, that, pursuant to the Plan of Merger, from and after
the Effective Date, the name of the Surviving Corporation shall be
"Nabisco Group Holdings Corp."
RESOLVED, that, pursuant to the Plan of Merger, from and after
the Effective Date, the bylaws and certificate of incorporation of the
Parent shall be the bylaws and certificate of incorporation of the
Surviving Corporation.
RESOLVED, that the officers of the Subsidiary are authorized
on behalf of the Subsidiary to take any and all actions, to execute,
deliver and file any and all documents, agreements and instruments and
to take any and all steps deemed by any such officer to be necessary or
appropriate to carry out the purpose and intent of each of the
foregoing resolutions, and all actions heretofore taken by any of them
in furtherance thereof are hereby ratified and confirmed in all
respects.
2
<PAGE>
IN WITNESS WHEREOF, the Parent has caused this Certificate of Ownership
and Merger to be executed in its corporate name by its duly authorized officer
the 14th day of June, 1999.
RJR NABISCO HOLDINGS CORP.
By: /s/ H. Colin McBride
-----------------------------------
Name: H. Colin McBride
Title: Senior Vice President, Secretary
and Associate General Counsel
3
<PAGE>
ANNEX A
PLAN OF MERGER
FIRST: NABISCO GROUP HOLDINGS CORP., a corporation organized under the laws
of the State of Delaware ("SUBSIDIARY"), shall merge with and into RJR
NABISCO HOLDINGS CORP., a corporation organized under the laws of the
State of Delaware ("PARENT"). The name of the surviving corporation is
NABISCO GROUP HOLDINGS CORP.
SECOND: The currently issued and outstanding shares of stock of Subsidiary,
all of which are owned by Parent, shall be surrendered and canceled.
No shares of stock of the Parent or other consideration shall be
issued in exchange therefore.
THIRD: The name of the Corporation surviving the merger shall be "NABISCO
GROUP HOLDINGS Corp."
FOURTH: The certificate of incorporation of Parent shall be the certificate of
incorporation of the corporation surviving the merger.
FIFTH: The bylaws of Parent shall be the bylaws of the corporation surviving
the merger.
SIXTH: The directors and officers of Parent shall be the directors and
officers of the corporation surviving the merger and shall serve until
their successors are selected.
SEVENTH: The officers of each corporation party to the merger shall be and
hereby are authorized to do all acts and things necessary and proper
to effect the merger.
EIGHTH: The merger shall be effective on the date of the filing with the
Secretary of State of the State of Delaware of the Certificate of
Merger relating thereto.
4
<PAGE>
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
NABISCO GROUP HOLDINGS CORP.
(Originally incorporated as RJR Holdings Corp. on October 25, 1988)
ARTICLE FIRST
The name of the Corporation is Nabisco Group 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>
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 adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
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 16th day of June, 1999.
NABISCO GROUP HOLDINGS CORP.
By: /s/ H. Colin McBride
--------------------------------------
H. Colin McBride
Senior Vice President and Secretary
[CORPORATE SEAL]
Attest:
By: /s/ Suzanne P. Jenney
---------------------------------
Suzanne P. Jenney
Assistant Secretary
2
<PAGE>
Exhibit 3.2
NABISCO GROUP HOLDINGS CORP.
BY-LAWS
As Amended Effective November 11, 1998
(Company Name Change effected June 14, 1999)
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders of the
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. ANNUAL AND SPECIAL MEETINGS. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of stockholders may be called by the Chairman for any purpose and shall
be called by the Chairman or the Secretary if directed by the Board of Directors
or requested in writing by holders of not less than 25% of the common stock of
the Corporation. Each such stockholder request shall state the purpose of the
proposed meeting.
Section 3. NOTICE. Except as otherwise provided by law or by the
Certificate of Incorporation, written notice shall be given to each stockholder
entitled to vote at least 10 and not more than 60 days before each meeting of
stockholders, such notice to include the time, date and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Section 4. QUORUM. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
stock issued and outstanding and entitled to vote shall constitute a quorum for
the transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
<PAGE>
Section 5. CONDUCT OF MEETING AND ORDER OF BUSINESS. The
Chairman or, at the Chairman's request, the Chief Executive Officer, shall act
as chairman at all meetings of stockholders. The Secretary of the Corporation
or, in his or her absence, an Assistant Secretary shall act as secretary at all
meetings of stockholders. The chairman of the meeting shall have the right and
authority to determine and maintain the rules, regulations and procedures for
the proper conduct of the meeting, including but not limited to restricting
entry to the meeting after it has commenced, maintaining order and the safety of
those in attendance, opening and closing the polls for voting, dismissing
business not properly submitted, and limiting time allowed for discussion of the
business of the meeting.
Business to be conducted at annual meetings of stockholders
shall be limited to that properly submitted to the meeting either by or at the
direction of the Board of Directors or by any stockholder of the Corporation who
shall be entitled to vote at such meeting and who complies with the notice
requirements set forth in Section 6 of this Article I. If the chairman of the
meeting shall determine that any business was not properly submitted in
accordance with the terms of Section 6 of this Article I, he or she shall
declare to the meeting that such business was not properly submitted and would
not be transacted at that meeting.
Section 6. ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. In order to
properly submit any business to an annual meeting of stockholders, a stockholder
must give timely notice in writing to the Secretary of the Corporation. To be
considered timely, a stockholder's notice must be delivered either in person or
by United States certified mail, postage prepaid, and received at the principal
executive offices of the Corporation (a) not less than 60 days nor more than 90
days before the first anniversary of the Corporation's last annual meeting of
stockholders or (b) if no annual meeting was held in the previous year or the
date of the applicable annual meeting has been changed by more than 30 days from
such anniversary date, not less than a reasonable time, as determined by the
Board of Directors, prior to the date of the applicable annual meeting. In no
event shall the public announcement of a postponement or adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
Nomination of persons for election to the Board of Directors may
be made by the Board of Directors or any committee designated by the Board of
Directors or by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders. However, nominations other than those
made by the Board of Directors or its designated committee must comply with the
procedures set forth in this Section 6, and no person shall be eligible for
election as a director unless nominated in accordance with the terms of this
Section 6.
2
<PAGE>
A stockholder may nominate a person or persons for election to
the Board of Directors by giving written notice to the Secretary of the
Corporation in accordance with the procedures set forth above. In addition to
the timeliness requirements set forth above for notice to the Corporation by a
stockholder of business to be submitted at an annual meeting of stockholders,
with respect to any special meeting of stockholders called for the election of
directors, written notice must be delivered in the manner specified above and
not later than the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders.
The Secretary of the Corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board of
Directors or a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting
of stockholders shall set forth (i) the name and address of the stockholder,
(ii) the class and number of shares of stock beneficially owned by such
stockholder, (iii) the name in which such shares are registered on the stock
transfer books of the Corporation, (iv) a representation that the stockholder
intends to appear at the meeting in person or by proxy to submit the business
specified in such notice, (v) any material interest of the stockholder in the
business to be submitted and (vi) a brief description of the business desired to
be submitted to the annual meeting, including the complete text of any
resolutions to be presented at the annual meeting, and the reasons for
conducting such business at the annual meeting. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth, as
to each person whom the stockholder proposes to nominate for election as a
director, (a) the name, age, business address and, if known, residence address
of such person, (b) the principal occupation or employment of such person, (c)
the class and number of shares of stock of the Corporation which are
beneficially owned by such person, (d) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors or is otherwise required by the rules and regulations of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934, as amended, (e) the written consent of such person to be named in the
proxy statement as a nominee and to serve as a director if elected and (f) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person
3
<PAGE>
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
Any person nominated for election as director by the Board of
Directors or any committee designated by the Board of Directors shall, upon the
request of the Board of Directors or such committee, furnish to the Secretary of
the Corporation all such information pertaining to such person that is required
to be set forth in a stockholder's notice of nomination.
Notwithstanding the foregoing provisions of this Section 6, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Section 7. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation, all matters submitted to a meeting of stockholders
shall be decided by vote of the holders of record, present in person or by
proxy, of a majority of the Corporation's stock issued and outstanding and
entitled to vote.
A proxy shall be executed in writing by the stockholder or by
his or her duly authorized attorney-in-fact and shall be delivered to the
secretary of the meeting at or prior to the time designated by the chairman of
the meeting. No stockholder may designate more than four persons to act on his
or her behalf at a meeting of stockholders.
Section 8. INSPECTORS OF ELECTION. Prior to any meeting of
stockholders, the Board of Directors shall appoint one or more inspectors to act
at the meeting and make a written report thereof in accordance with the Delaware
General Corporation Law. The Board of Directors may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability.
4
<PAGE>
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The number
of Directors that shall constitute the Board of Directors shall be not less than
one nor more than seventeen. The first Board of Directors shall consist of three
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting and
shall serve until the next annual meeting of stockholders and until their
successors are elected and shall qualify. Vacancies and newly created
directorships resulting from any increase in the number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director or by the stockholders, and any
Director so chosen shall serve until the next annual meeting of stockholders and
until his or her successor shall be elected and shall qualify. A Director may be
removed with or without cause by the stockholders.
Section 2. MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting. Special
meetings of the Board of Directors may be held at any time upon the call of the
Chairman or the Chief Executive Officer and shall be called by the Chairman, the
Chief Executive Officer or the Secretary if directed by the Board of Directors.
A meeting of the Board of Directors may be held without notice immediately after
the annual meeting of stockholders. Notice need not be given of regular or
special meetings of the Board of Directors.
Section 3. QUORUM. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. EXECUTIVE COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the entire Board, may appoint from among its
members an Executive Committee consisting of the Chief Executive Officer, if
5
<PAGE>
such officer is a member of the Board of Directors, or the Chairman, if the
Chief Executive Officer is not a member of the Board of Directors, and at least
two other Directors. Meetings of the Executive Committee shall be held without
notice at such dates, times and places as shall be determined by the Executive
Committee. The Executive Committee shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation that are permitted by law to be exercised by a
committee of the Board of Directors, including the power to declare dividends,
to authorize the issuance of stock and to adopt a certificate of ownership and
merger of parent corporation and subsidiary or subsidiaries; provided, however,
that the Executive Committee shall not have the power or authority of the Board
of Directors in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation with respect to the Corporation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
amending the By-Laws of the Corporation or adopting a certificate of ownership
and merger of the Corporation (other than a certificate of ownership and merger
of parent corporation and subsidiary or subsidiaries). The majority of the
members of the Executive Committee shall constitute a quorum. Minutes shall be
kept of the proceedings of the Executive Committee, which shall be reported at
meetings of the Board of Directors. The Executive Committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors of the Corporation, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series.
Section 5. OTHER COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution adopted by a majority of the Board of Directors, designate
one or more other committees to have and exercise such power and authority as
the Board of Directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may unanimously appoint another Director to act at the meeting in place
of any such absent or disqualified member.
6
<PAGE>
ARTICLE III
OFFICERS
Section 1. DESCRIPTION AND TERMS. The officers of the
Corporation shall be the Chairman, the Chief Executive Officer, a President, a
Secretary, a Treasurer and such other additional officers with such titles as
the Board of Directors shall determine, all of whom shall be chosen by and serve
at the pleasure of the Board of Directors; provided that the Chief Executive
Officer may appoint Senior Vice Presidents, Vice Presidents or Assistant
Officers at his or her discretion. Subject to such limitations as may be imposed
by the Board of Directors, the Chief Executive Officer shall have full executive
power and authority with respect to the Corporation. The President, if separate
from the Chief Executive Officer, shall have such powers and authority as the
Chief Executive Officer may determine. If the Chief Executive Officer is absent
or incapacitated, the Executive Committee shall determine the person who shall
have all the power and authority of the Chief Executive Officer. Other officers
shall have the usual powers and shall perform all the usual duties incident to
their respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the Chief Executive
Officer with or without cause. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors with or without cause.
Subject to such limitations as the Board of Directors may provide, each officer
may further delegate to any other officer or any employee or agent of the
Corporation such portions of his or her authority as the officer shall deem
appropriate, subject to such limitation as the officer shall specify, and may
revoke such authority at any time.
Section 2. STOCKHOLDER CONSENTS AND PROXIES. The Chairman, the
Chief Executive Officer, each Vice Chairman, the President, the Secretary and
the Treasurer, or any one of them, shall have the power and authority on behalf
of the Corporation to execute any stockholders' consents or proxies and to
attend and act and vote in person or by proxy at any meetings of stockholders of
any corporation in which the Corporation may own stock, and at any such meetings
shall possess and may exercise any and all of the rights and powers incident to
the ownership of such stock which as the owner thereof the Corporation might
have possessed and executed if present. The Board of Directors by resolution
from time to time may confer like powers upon any other officer.
7
<PAGE>
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with any threatened, pending or completed action, suit or proceeding brought by
or in the right of the Corporation or otherwise, to which he or she was or is a
party or is threatened to be made a party by reason of his or her current or
former position with the Corporation or by reason of the fact that he or she is
or was serving, at the request of the Corporation, as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The right to indemnification conferred in
this Article shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such action, suit or
proceeding in advance of its final disposition unless such action, suit or
proceeding was initiated by the person seeking advances of expenses or was
brought by or in the right of the Corporation with the approval of the Board of
Directors or the Chief Executive Officer; provided however, that if the Delaware
General Corporation Law then so requires, the payment of such expenses incurred
by a Director or officer of the Corporation in advance of the final disposition
of such action, suit or proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
Director or officer is not entitled to be indemnified under this Article or
otherwise.
8
<PAGE>
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice is to be given in writing by mail, addressed to such
Director or stockholder at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid. Such notice shall be deemed to
have been given when it is deposited in the United States mail. Notice to
Directors may also be given by telegram or facsimile transmission or be
delivered personally or by telephone.
Section 2. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
Section 3. CERTIFICATES OF STOCK. Certificates representing
shares of the Corporation shall be signed by the Chairman or the Chief Executive
Officer and by the Secretary or an Assistant Secretary. Any and all signatures
on such certificates, including signatures of officers, transfer agents and
registrars, may be facsimile.
9
<PAGE>
Exhibit 10.1
NABISCO GROUP HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE JUNE 15, 1999)
1. Purpose of Plan
The Nabisco Group Holdings Corp. 1990 Long Term Incentive Plan (the
"Plan") is amended and restated effective June 15, 1999, to reflect corporate
transactions pursuant to which RJR Nabisco Holdings Corp. became known as
Nabisco Group Holdings Corp. The Plan is designed:
(a) to promote the long term financial interests and growth of Nabisco
Group Holdings Corp. and subsidiaries (the "Corporation") by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of the
Corporation's business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the identity of interests of participants with those of
the stockholders of the Corporation through opportunities for increased stock,
or stock-based, ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Base Value" means not less than the Fair Market Value on the date
a Stock Appreciation Right is granted, or, in the case of a Stock Appreciation
Right granted retroactively in tandem with (or in replacement of) an outstanding
stock option, not less than the exercise price of such option;
(b) "Board of Directors" means the Board of Directors of NGH;
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Committee" means the Compensation Committee of the Board of
Directors;
(e) "Common Stock" or "Share" means common stock of NGH which may be
authorized but unissued, or issued and reacquired;
(f) "Effective Date" shall have the meaning set forth in Section 12;
<PAGE>
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(h) "Fair Market Value" means such value of a Share as reported for
stock exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time;
(i) "Grant Agreement" means an agreement between NGH and a Participant
that sets forth the terms, conditions and limitations applicable to a Grant;
(j) "Grant" means an award made to a Participant pursuant to the Plan
and described in Paragraph 5, including, without limitation, an award of an
Incentive Stock Option, Other Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Units or Performance Shares or any combination of the
foregoing;
(k) "Incentive Stock Options" shall have the meaning set forth in
Section 5(a);
(l) "NGH" means Nabisco Group Holdings Corp.
(m) "Other Stock Options" shall have the meaning set forth in Section
5(b);
(n) "Options" shall mean Incentive Stock Options and Other Stock
Options;
(o) "Participant" means any employee, or other person having a unique
relationship with NGH or one of its Subsidiaries, to whom one or more Grants
have been made and such Grants have not all been forfeited or terminated under
the Plan; provided, however, a non-employee director of NGH or one of its
Subsidiaries may not be a Participant;
(p) "Performance Units" shall have the meaning set forth in Section
5(e);
(q) "Performance Shares" shall have the meaning set forth in Section
5(f);
(r) "Restricted Stock" shall have the meaning set forth in Section
5(d);
(s) "Stock Appreciation Rights" shall have the meaning set forth in
Section 5(c); and
(t) "Subsidiary" means any corporation or other entity in which NGH has
a significant equity or other interest as determined by the Committee.
3. Administration of Plan
(a) The Plan shall be administered by the Committee or, in lieu of the
Committee, the Board of Directors. The Committee may adopt its own rules of
procedure, and the action of a majority of the Committee, taken at a meeting or
taken without a meeting by a writing signed by such majority, shall constitute
action by the Committee. The Committee shall have the power and authority to
administer, construe and interpret the Plan, to make rules for carrying it out
and to make changes in such rules. Any such interpretations, rules,
<PAGE>
and administration shall be consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Corporation its duties under the Plan, subject to
such conditions and limitations as the Committee shall prescribe, except that
only the Committee may designate and make Grants to Participants who are subject
to Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, NGH, and the officers and
directors of NGH shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, NGH and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Grants, and
all members of the Committee shall be fully protected by NGH with respect to any
such action, determination or interpretation.
4. Eligibility
The Committee may from time to time make Grants under the Plan to such
employees, or other persons having a unique relationship with NGH or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine. No Grants may be made under this Plan to
non-employee directors of NGH or any of its Subsidiaries. Grants may be granted
singly, in combination or in tandem. The terms, conditions and limitations of
each Grant under the Plan shall be set forth in a Grant Agreement, in a form
approved by the Committee, consistent, however, with the terms of the Plan;
provided, however, such Grant Agreement shall contain provisions dealing with
the treatment of Grants in the event of the termination, death or disability of
a Participant, and may also include provisions concerning the treatment of
Grants in the event of a change of control of NGH.
5. Grants
From time to time, the Committee will determine the forms and amounts
of Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the
meaning of Section 422 of the Code to purchase Common Stock. In addition to
other restrictions contained in the Plan, an option granted under this Section
5(a), (i) may not be exercised more than 10 years after the date it is granted,
(ii) may not have an option price less than the Fair Market Value of Common
Stock on the date the option is granted, (iii) must otherwise comply with Code
Section 422, and (iv) must be designated as an "Incentive Stock Option" by the
Committee. The maximum aggregate Fair Market Value of Common
<PAGE>
Stock (determined at the time of each Grant) with respect to which any
Participant may first exercise Incentive Stock Options under this Plan and any
Incentive Stock Options granted to the Participant for such year under any plans
of NGH or any Subsidiary in any calendar year is $100,000. Payment of the option
price shall be made in cash or in shares of Common Stock, or a combination
thereof, in accordance with the terms of the Plan, the Grant Agreement, and of
any applicable guidelines of the Committee in effect at the time.
(b) Other Stock Options - These are options to purchase Common Stock
which are not designated by the Committee as "Incentive Stock Options". At the
time of the Grant the Committee shall determine, and shall have contained in the
Grant Agreement or other Plan rules, the option exercise period, the option
price, and such other conditions or restrictions on the grant or exercise of the
option as the Committee deems appropriate. In addition to other restrictions
contained in the Plan, an option granted under this Section 5(b), (i) may not be
exercised more than 15 years after the date it is granted and (ii) may not have
an option exercise price less than the Fair Market Value of Common Stock on the
date the option is granted. Payment of the option price shall be made in cash or
in shares of Common Stock, or a combination thereof, in accordance with the
terms of the Plan and of any applicable guidelines of the Committee in effect at
the time. Payment of the option price may also be made by tender of an amount
equal to the full exercise price which has been borrowed from NGH or one of its
Subsidiaries if the Participant also authorizes the concurrent sale of the
exercised Common Stock by a broker (through an arrangement established by NGH,
or one of its Subsidiaries, for Participants) and repays the borrowing, all in
accordance with any applicable guidelines of the Committee.
(c) Stock Appreciation Rights - These are rights that on exercise
entitle the holder to receive the excess of (i) the Fair Market Value of a share
of Common Stock on the date of exercise over (ii) the Base Value multiplied by
(iii) the number of rights exercised in cash, stock or a combination thereof as
determined by the Committee. Stock Appreciation Rights granted under the Plan
may, but need not be, granted in conjunction with an Option under Paragraphs
5(a) or 5(b).
The Committee, in the Grant Agreement or by other Plan rules, may
impose such conditions or restrictions on the exercise of Stock Appreciation
Rights as it deems appropriate, and may terminate, amend, or suspend such Stock
Appreciation Rights at any time. No Stock Appreciation Right granted under this
Plan may be exercised more than 15 years after the date it is granted.
(d) Restricted Stock - Restricted Stock is a Grant of Common Stock or
stock units equivalent to Common Stock subject to such conditions and
restrictions as the Committee shall determine. Any rights to dividends or
dividend equivalents accruing due to a grant of Restricted Stock shall also be
determined by the Committee. Grants of Restricted Stock shall be subject to a
normal minimum vesting schedule of 3 years. The number of shares of Restricted
Stock and the restrictions or conditions on such shares, as the Committee may
determine, shall be set forth in the Grant Agreement or by other Plan rules, and
the certificate for the Restricted Stock shall bear evidence of the restrictions
or conditions.
<PAGE>
(e) Performance Units - These are rights, denominated in cash or cash
units, to receive, at a specified future date, payment in cash or stock of an
amount equal to all or a portion of the value of a unit granted by the
Committee. At the time of the Grant, in the Grant Agreement or by other Plan
rules, the Committee must determine the base value of the unit, the performance
factors applicable to the determination of the ultimate payment value of the
unit as set forth in Section 7 and the period over which performance will be
measured.
(f) Performance Shares - These are rights granted in the form of Common
Stock or stock units equivalent to Common Stock to receive, at a specified
future date, payment in cash or Common Stock, as determined by the Committee, of
an amount equal to all or a portion of the Fair Market Value at which the Common
Stock is traded on the last day of the specified performance period of a
specified number of shares of Common Stock based on performance during the
period. At the time of the Grant, the Committee, in the Grant Agreement or by
Plan rules, will determine the factors which will govern the portion of the
Grants so payable as set forth in Section 7 and the period over which
performance will be measured.
6. Limitations and Conditions
(a) The number of shares available for Grants under this Plan shall be
33 million shares of the authorized Common Stock as of the Effective Date. The
maximum number of Shares subject to Grants of Options and Stock Appreciation
Rights made after December 31, 1996 to any one Participant in any calendar year
shall not exceed 2 million shares for each type of Grant, plus any amount of
shares that were available within this limit for such type of Grant for any
prior year such limitation was in effect and which were not covered by Options
or Stock Appreciation Rights granted to such Participant during such year. No
more than 3 million shares of Common Stock may be granted as Incentive Stock
Options after December 31, 1996. The maximum payment that any one Participant
may be paid in respect of any Grant of Performance Units granted for any
specified performance period shall not exceed $10 million. The maximum payment
that any one Participant may receive in respect of any Grant of Performance
Shares granted for any specified performance period shall not exceed 500,000
shares of Common Stock or the cash equivalent thereof. The aggregate maximum
number of shares of Common Stock to which Restricted Stock or Performance Shares
granted after December 31, 1996 may relate shall not exceed 3 million shares.
Shares related to Grants that are forfeited, terminated, cancelled, expire
unexercised, settled in cash in lieu of stock, received in full or partial
payment of any exercise price or in such manner that all or some of the Shares
covered by a Grant are not issued to a Participant, shall immediately become
available for Grants. A Grant may contain the right to receive dividends or
dividend equivalent payments which may be paid either currently, credited to a
Participant or deemed invested in shares or share units of Common Stock. Any
such crediting of dividends or dividend equivalents or reinvestment in Shares
may be subject to such conditions, restrictions and contingencies as the
Committee shall establish, including the reinvestment of such credited amounts
in Common Stock equivalents. Subject to the overall limitation on the number of
shares of
<PAGE>
Common Stock that may be delivered under this Plan, the Committee may use
available shares of Common Stock as the form of payment for compensation, grants
or rights earned or due under any other compensation plans or arrangements of
NGH, including the plan of any entity acquired by NGH.
(b) At the time a Grant is made or amended or the terms or conditions
of a Grant are changed, the Committee may provide for limitations or conditions
on such Grant. NGH may adopt other compensation programs, plans or arrangements
as it deems appropriate.
(c) Nothing contained herein shall affect the right of the Corporation
to terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole
discretion of the Committee, in the Grant Agreements.
(e) No benefit under the Plan shall, prior to receipt thereof by the
Participant, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements, or torts of the Participant.
(f) Except to the extent otherwise provided in any other retirement or
benefit plan, any grant under this Plan shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of NGH
or its Subsidiaries and shall not affect any benefits under any other benefit
plan of any kind or subsequently in effect under which the availability or
amount of benefits is related to level of compensation.
This Plan is not a "Retirement Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended. This Plan shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The Plan shall not establish any fiduciary relationship between
NGH and any Participant or beneficiary of a Participant. To the extent any
person holds any obligation of NGH by virtue of an award granted under this
Plan, such obligation shall merely constitute a general unsecured liability of
NGH and accordingly shall not confer upon such person any right, title or
interest in any assets of NGH.
(g) Unless the Committee determines otherwise, no benefit or promise
under the Plan shall be secured by any specific assets of NGH or any of its
Subsidiaries, nor shall any assets of NGH or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of NGH's obligations
under the Plan.
7. Performance Factors
The performance factors selected by the Compensation Committee in
respect of Performance Units and Performance Shares shall be based on any one or
more of the following: price of Common Stock or the stock of any affiliate,
shareholder return, return on equity, return on investment, return on capital,
return on invested capital, economic
<PAGE>
profit, economic value added, net income, cash net income, free cash flow,
earnings per share, cash earnings per share, operating company contribution or
market share. These factors shall have a minimum performance standard below
which no amount will be paid and may have a maximum performance standard above
which no additional payments will be made. The applicable performance period
shall not exceed 10 years.
8. Adjustments
(a) In the event of any stock split, spin-off, stock dividend,
extraordinary cash dividend, stock combination or reclassification,
recapitalization or merger, change in control, or similar event, the Committee
may adjust appropriately the number or kind of shares subject to the Plan and
available for or covered by Grants, share prices related to outstanding Grants
and the other applicable limitations of Section 6(a), and make such other
revisions to outstanding Grants and the LTIP as it deems are equitably required.
(b) In the event of a Change of Control, except as otherwise set forth
in the terms of a Grant:
(i) Options granted pursuant to paragraphs 5(a) or 5(b) hereof
shall become fully vested and exercisable; provided, however, that the Committee
may make a cash payment to Participants (A) in cancellation of such Options as
provided in the applicable Grant Agreements or any amendments or deemed
amendments thereto entered into by NGH and the Participant in such amount as
shall be provided in such Grant Agreements or amendments or (B) in lieu of the
delivery of shares upon exercise, equal to the product of (x) and (y), where (x)
is the excess of the Fair Market Value on the date of exercise over the exercise
price, and (y) is the number of Shares subject to the stock options being
exercised;
(ii) Stock Appreciation Rights shall become fully vested and
exercisable;
(iii) Restricted Stock shall have all restrictions removed;
(iv) Performance Units whose performance period ends after the
date of the Change of Control shall become vested as to a percentage of
Performance Units granted equal to the number of months (including partial
months) in the performance period before the date of the Change of Control,
divided by the total number of months in the performance period. The value of
the Performance Units shall be equal to the greater of the target value of the
Performance Units or the value derived from the actual performance as of the
date of the Change of Control;
(v) Performance Shares whose performance period ends after the
date of the Change of Control shall become vested pro rata as to the number of
Performance Shares granted equal to the number of months (including partial
months) in the performance period before the date of Change of Control, divided
by the total number of
<PAGE>
months in the performance period. The prorated number of Performance Shares
derived from the preceding calculation shall be further adjusted by applying the
higher of target or actual performance to the date of Change of Control; and
(vi) The Committee shall have authority to establish or to
revise the terms of any such Grant or any other Grant as it, in its discretion,
deems appropriate; provided, however, that the Committee may not make revisions
that are adverse to the Participant without the Participant's consent unless
such revision is provided for or contemplated in the terms of the Grant.
(c) For purposes of the Plan, a "Change of Control" shall mean the
first to occur of the following events:
(i) an individual, corporation, partnership, group, associate
or other entity or "person", as such term is defined in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than any employee
benefit plans sponsored by NGH, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the combined voting power of NGH's outstanding securities ordinarily having the
right to vote at elections of directors.
(ii) individuals who constitute the Board of Directors on
October 11, 1995 (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to such date whose election, or nomination for election by NGH's
shareholders, was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of NGH in which such person is named as a nominee of NGH for
director), but excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of an individual, corporation,
partnership, group, associate or other entity or person other than NGH's Board,
shall be, for purposes of this paragraph (ii), considered as though such person
were a member of the Incumbent Board;
(iii) the approval by the shareholders of NGH of a plan or
agreement providing (1) for a merger or consolidation of NGH other than with a
wholly-owned subsidiary and other than a merger or consolidation that would
result in the voting securities of NGH outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of NGH or such surviving entity
outstanding immediately after such merger or consolidation, or (2) for a sale,
exchange or other disposition of all or substantially all of the assets of NGH.
If any of the events enumerated in this paragraph (iii) occur, NGH's Board shall
determine the effective date of the Change of Control resulting therefrom for
purposes of this Plan and the Grants hereunder.
<PAGE>
9. Amendment and Termination
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with
this Plan, provided that, except for adjustments under Paragraph 8(a) hereof, no
such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant. Except as provided in Section 8(a), the
exercise price of any outstanding Option or Stock Appreciation Right may not be
adjusted or amended, whether through amendment, cancellation or replacement,
unless such adjustment or amendment is properly approved by NGH's shareholders.
Likewise, the share and payment limitations set forth in Section 6(a) cannot be
increased, and the minimum Option or Stock Appreciation Right grant price
limitations set forth in Sections 5(a), 5(b) and 5(c) cannot be reduced, in
either case without proper shareholder approval. Subject to the foregoing, NGH's
Board of Directors may amend, suspend or terminate this Plan as it deems
necessary and appropriate to better achieve the Plan's purpose.
10. Foreign Options and Rights
(a) The Committee may make Grants to employees who are subject to the
tax laws of nations other than the United States, which Grants may have terms
and conditions that differ from the terms thereof as provided elsewhere in the
Plan for the purpose of complying with the foreign tax laws. Grants of stock
options may have terms and conditions that differ from Incentive Stock Options
and Other Stock Options for the purpose of complying with the foreign tax laws.
(b) The terms and conditions of stock options granted under Paragraph
10(a) may differ from the terms and conditions which the Plan would require to
be imposed upon Incentive Stock Options and Other Stock Options if the Committee
determines that the Grants are desirable to promote the purposes of the Plan.
11. Withholding Taxes
The Corporation shall have the right to deduct from any payment or
settlement made under the Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such payment.
12. Effective Date and Termination Dates
The Plan shall be effective on and as of April 16, 1997, subject to the approval
of NGH's shareholders, and shall terminate ten years later, subject to earlier
termination by the Board of Directors pursuant to Paragraph 9. The terms of
Grants made on or before the expiration of the Plan shall extend beyond such
expiration. Grants made under the Plan prior to the Effective Date shall be
governed by the terms of the Plan as in effect on the date such Grant was made.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NABISCO
GROUP HOLDINGS' CONSOLIDTED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000847903
<NAME> NABISCO GROUP HOLDINGS CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 283
<SECURITIES> 0
<RECEIVABLES> 511
<ALLOWANCES> 0
<INVENTORY> 819
<CURRENT-ASSETS> 1,969
<PP&E> 4,787
<DEPRECIATION> (1,946)
<TOTAL-ASSETS> 11,426
<CURRENT-LIABILITIES> 1,741
<BONDS> 3,644
98
0
<COMMON> 3
<OTHER-SE> 3,170
<TOTAL-LIABILITY-AND-EQUITY> 11,426
<SALES> 3,878
<TOTAL-REVENUES> 3,878
<CGS> 2,116
<TOTAL-COSTS> 2,116
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 113
<INCOME-TAX> 45
<INCOME-CONTINUING> 48
<DISCONTINUED> 2,994
<EXTRAORDINARY> (279)
<CHANGES> 0
<NET-INCOME> 2,763
<EPS-BASIC> 8.47
<EPS-DILUTED> 8.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NABISCO
GROUP HOLDINGS' CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000847903
<NAME> NABISCO GROUP HOLDINGS CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 98
<SECURITIES> 0
<RECEIVABLES> 519
<ALLOWANCES> 0
<INVENTORY> 832
<CURRENT-ASSETS> 8,990
<PP&E> 4,956
<DEPRECIATION> (1,810)
<TOTAL-ASSETS> 19,183
<CURRENT-LIABILITIES> 1,773
<BONDS> 4,356
953
512
<COMMON> 3
<OTHER-SE> 8,597
<TOTAL-LIABILITY-AND-EQUITY> 19,183
<SALES> 4,093
<TOTAL-REVENUES> 4,093
<CGS> 2,312
<TOTAL-COSTS> 2,312
<OTHER-EXPENSES> 519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> (245)
<INCOME-TAX> (72)
<INCOME-CONTINUING> (145)
<DISCONTINUED> (5)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
