<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
American Brands, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
American Brands, Inc.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
- --------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
March 11, 1994
Dear Stockholder:
The 1994 Annual Meeting of stockholders will be held on Tuesday, May 3, 1994
at 10:00 a.m. at the Stamford Center for the Arts, Atlantic Street and Tresser
Boulevard, Stamford, Connecticut. You are invited to attend the meeting to
consider personally the business described in the following notice of meeting
and proxy statement.
At the meeting, there will be a report to the stockholders on the progress of
the Company during the past year. A discussion period will also take place
during which stockholders will have an opportunity to discuss matters of
interest concerning the Company.
A feature of these Annual Meetings has been the attendance in person of many
stockholders, some with large holdings and some with small holdings. This has
been most welcome. It is important to ensure that your shares be represented at
the meeting whether or not you personally plan to attend. We urge you to
promptly complete, date and return your proxy in the enclosed postpaid return
envelope provided for that purpose.
Sincerely yours,
/S/ William J. Alley
Chairman of the Board
and Chief Executive Officer
<PAGE>
American Brands, Inc.
NOTICE OF MEETING
-----------------
March 11, 1994
The Annual Meeting of stockholders of American Brands, Inc. will be held at
the Stamford Center for the Arts, Atlantic Street and Tresser Boulevard,
Stamford, Connecticut, at 10 o'clock in the forenoon (Eastern Daylight Time) on
Tuesday, May 3, 1994, for the following purposes:
A. To elect four directors for a term expiring at the 1997 Annual
Meeting or until their successors have been duly elected and
qualified;
B. To consider and vote on the election of Coopers & Lybrand as
independent accountants of the Company for the year 1994;
C. To consider and vote on amendments to the Company's 1990 Long-Term
Incentive Plan;
D. To consider and vote on an amendment to the Company's 1986 Stock
Option Plan;
E. To consider and vote on amendments to the Company's annual executive
incentive compensation program set forth in Article XII of the By-
laws;
F. To consider and vote on amendments to the Company's Profit-Sharing
Plan;
G. To consider and vote on five stockholder proposals set forth in the
accompanying Proxy Statement, if such proposals are brought before
the meeting; and
H. To transact such other business as may properly come before the
meeting.
The stock transfer books will not be closed, but holders of Common Stock and
$2.67 Convertible Preferred Stock, to be entitled to vote, must be holders of
record at the close of business on March 4, 1994.
/S/ Louis F. Fernous, Jr.
Vice President and
Secretary
<PAGE>
PROXY STATEMENT
The Company's principal executive offices are located at 1700 East Putnam
Avenue, Old Greenwich, Connecticut 06870. This Proxy Statement and accompanying
proxy are first being sent or given to stockholders on or about March 11, 1994.
The accompanying proxy is solicited by the Board of Directors. It may be
revoked at any time before being voted by written notice given to the secretary
of the meeting or by the delivery of a later-dated proxy. Proxies properly
executed, duly returned to the Company and not revoked, will be voted for the
election of directors (except to the extent that authority therefor is
withheld) and on the other Items described in this Proxy Statement in
accordance with the instructions in the proxy. The Board of Directors is not
aware at the date hereof of any other matter proposed to be presented at this
meeting, and does not believe that any matter may be properly presented other
than the election of directors and Items 2 through 11. If any other matter is
properly presented, the persons named in the enclosed form of proxy will have
discretionary authority to vote thereon according to their best judgment.
Presence at the meeting does not of itself revoke the proxy.
VOTING
The only securities of the Company entitled to be voted are shares of Common
Stock and $2.67 Convertible Preferred Stock and only holders of record at the
close of business on March 4, 1994 are entitled to vote. Holders of Common
Stock are entitled to one vote per share and holders of $2.67 Convertible
Preferred Stock are entitled to three-tenths of a vote per share. There were
201,811,463 shares of Common Stock and 550,522 shares of $2.67 Convertible
Preferred Stock outstanding at March 4, 1994.
The affirmative vote of shares representing a majority in voting power of the
shares of the Company's Common Stock and $2.67 Convertible Preferred Stock,
voted together as one class, present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary for the
adoption of each of Items 2 through 11. Directors shall be elected by a
plurality of votes cast. Proxies marked as abstentions, or to withhold a vote
from a nominee as a director in the case of the election of directors, will
have the effect of a negative vote. Broker non-votes (where a nominee holding
shares for a beneficial owner has not received voting instructions from the
beneficial owner with respect to a particular matter and such nominee does not
possess or choose to exercise his discretionary authority with respect thereto)
will be considered as present at the meeting but not entitled to vote with
respect to the particular matter and will therefore have no effect on the vote.
As a matter of policy, stockholder proxies, ballots and tabulations that
identify individual stockholders are kept secret and access thereto is limited
to the independent Inspectors of Election and certain employees of the Company
who must acknowledge their responsibility to comply with such policy.
ITEM 1
- ------
ELECTION OF DIRECTORS
The Board of Directors currently consists of 12 members. The Company's
Certificate of Incorporation provides for the classification of the Board of
Directors into three classes, as nearly equal in number as possible, with
staggered terms of office and provides that upon the expiration of the term of
office for a class of directors, nominees for such class shall be elected for a
term of three years or until their successors are duly elected and qualified.
At this meeting, four nominees for director are to be elected as Class II
directors. The nominees are Mr. Anderson, Dr. Ewers,
1
<PAGE>
Mr. Johnstone and Mr. Kelley. The four Class III and four Class I directors
have one year and two years, respectively, remaining on their terms of office.
If no contrary indication is made, proxies in the accompanying form are to be
voted for such nominees or, in the event any such nominee is not a candidate or
is unable to serve as a director at the time of the election (which is not now
expected), for any nominee who shall be designated by the Board of Directors to
fill such vacancy, unless the Board of Directors shall determine to reduce the
number of directors pursuant to the By-laws. All nominees are members of the
present Board. All nominees and all current Class I and Class III directors
were elected by the stockholders, except that Dr. Patricia O. Ewers was elected
by the Board of Directors as a Class II director effective October 29, 1991 and
Mr. Peter M. Wilson was elected by the Board of Directors as a Class III
director effective February 1, 1994.
There are set forth below opposite the names of the nominees and Class I and
Class III directors their present positions and offices with the Company and
their principal occupations during the past five years, their ages and the year
first elected a director of the Company. There are also set forth below
opposite their names under the heading "Shares of Common Stock beneficially
owned", the shares of Common Stock of the Company beneficially owned by them on
February 4, 1994 (except, as stated in Note (c) below, beneficial ownership is
disclaimed as to certain shares), including shares of Common Stock (if any) of
which they had the right on such date to acquire beneficial ownership pursuant
to the exercise on or before April 5, 1994 of options granted by the Company,
plus the number (if any) of shares of Common Stock held on December 31, 1993 by
the Trustee of the Profit-Sharing Plan of the Company attributable to Company
contributions and to employee pre-tax contributions made through payroll
deductions that is equivalent as of that date to their undivided proportionate
beneficial interests in all such shares. Beneficial ownership information is
also provided below for the executive officers listed in the Summary
Compensation Table on page 8. In addition, Mr. Anthony D. Househam, an
executive officer listed in the Summary Compensation Table, had such beneficial
ownership of 134,166 shares of Common Stock on February 4, 1994. In no instance
does the security ownership of any of the nominees or other directors or
executive officers listed below equal or exceed one percent of the outstanding
shares of Common Stock of the Company. The information as to security holdings
is based on information received by the Company from the nominees and other
directors and executive officers, from the Corporate Employee Benefits
Committee of the Company and from the Trustee.
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (A)(B)(C)
---- ------------------- --- -------- --------
NOMINEES FOR DIRECTOR--CLASS II--TERM EXPIRING 1997
<C> <S> <C> <C> <C>
Eugene R. Anderson* Partner, Anderson Kill 66 1980 8,800
Olick & Oshinsky, P.C. (law
firm)
Patricia O. Ewers President, Pace University 58 1991 500
since 1990; Vice President,
Dean of Faculties, DePaul
University prior thereto
John W. Johnstone, Jr. Chairman, President and 61 1989 1,200
Chief Executive Officer of
Olin Corporation (chemical,
metal and defense-related
products)
Wendell J. Kelley Retired since 1991; 67 1988 2,800
Chairman and Chief
Executive Officer of
Illinois Power Company from
1989 to 1991; Chairman,
President and Chief
Executive Officer of
Illinois Power Company
prior thereto
CLASS III DIRECTORS--TERM EXPIRING 1995
William J. Alley* Chairman of the Board and 64 1979 796,605
Chief Executive Officer of
American Brands, Inc.
Arnold Henson* Executive Vice President 62 1981 295,588
and Chief Financial Officer
of American Brands, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (A)(B)(C)
---- ------------------- --- -------- ---------
<C> <S> <C> <C> <C>
Howard C. Humphrey Vice President--Life Insurance 60 1987 93,586
of American Brands, Inc. since
1989; Chairman of the Board,
President and Chief Executive
Officer of The Franklin Life
Insurance Company (life
insurance), a subsidiary of
American Brands, Inc., since
1992; Chairman of the Board and
Chief Executive Officer of The
Franklin Life Insurance Company
from 1990 to 1992; Chairman of
the Board, President and Chief
Executive Officer of The
Franklin Life Insurance Company
prior thereto
Peter M. Wilson* Chairman and Chief Executive of 52 1994 98,600
Gallaher Limited (tobacco
products, distilled spirits,
optics, retail distribution and
housewares), a subsidiary of
American Brands, Inc., since
February 1994; Deputy Chairman
of Gallaher Limited from 1989
to 1994; Chairman and Chief
Executive of Gallaher Tobacco
Limited (tobacco products), a
subsidiary of Gallaher Limited,
since 1987
CLASS I DIRECTORS--TERM EXPIRING 1996
Thomas C. Hays* President and Chief Operating 58 1981 380,358
Officer of American Brands,
Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (A)(B)(C)
---- ------------------- --- -------- ---------
<C> <S> <C> <C> <C>
Sidney Kirschner President and Chief 59 1991 1,100
Executive Officer of
Northside Hospital, Inc.
since 1992; Chairman of the
Board, President and Chief
Executive Officer of
National Service
Industries, Inc. (lighting
equipment, textile rentals
and specialty chemicals)
from 1991 to 1992;
President and Chief
Executive Officer of
National Service
Industries, Inc. prior
thereto
Gordon R. Lohman President and Chief 59 1990 1,000
Executive Officer of AMSTED
Industries Incorporated
(products for the railroad,
construction and building
markets) since 1990;
President and Chief
Operating Officer of AMSTED
Industries Incorporated
prior thereto
Charles H. Pistor, Jr. Vice Chair of Southern 63 1985 3,200
Methodist University since
1991; Chairman and Chief
Executive Officer of
NorthPark National Bank
prior thereto
</TABLE>
- --------
*Member of Executive Committee of the Company's Board of Directors.
(a) The numbers of shares attributable to Company contributions under the
Profit-Sharing Plan of the Company included in the numbers shown above are
as follows: William J. Alley, 4,571; Thomas C. Hays, 6,551; and Arnold
Henson, 17,021. The numbers of shares attributable to employee pre-tax
contributions under such Plan included in the numbers shown above are:
William J. Alley, 459; Thomas C. Hays, 500; and Arnold Henson, 756.
(b) The numbers of shares of which the nominees and Class I and Class III
directors and Mr. Househam had the right to acquire beneficial ownership
pursuant to the exercise on or before April 5, 1994 of options granted by
the Company included in the numbers shown above are as follows: William J.
Alley, 656,650; Thomas C. Hays, 288,050; Arnold Henson, 165,600; Anthony D.
Househam, 120,200; Howard C. Humphrey, 58,000; and Peter M. Wilson, 98,100.
Inclusion of such shares does not constitute an admission by any nominee,
director or executive officer that
5
<PAGE>
he is the beneficial owner of such shares. The numbers of shares of
restricted stock granted under the Company's 1990 Long-Term Incentive Plan
included in the numbers shown above are as follows: William J. Alley,
10,000; Thomas C. Hays, 5,000; Arnold Henson, 3,600; and Howard C. Humphrey,
2,000.
(c) To the best of the Company's knowledge, each nominee and Class I and Class
III director and executive officer named above has sole voting and
investment power with respect to shares shown after his name above, other
than with respect to the shares listed in Note (b) above and except as
follows: Mr. Hays shares voting and investment power as a co-trustee of
various family trusts with respect to 8,800 shares and with respect to
which he disclaims beneficial ownership; Mr. Humphrey's wife has sole
voting and investment power with respect to 2,308 shares that she holds as
to which shares Mr. Humphrey disclaims beneficial ownership; and Mr. Pistor
shares voting and investment power with his wife with respect to 2,400
shares. The Trustee of the Profit-Sharing Plan has agreed to vote the
shares it holds in the Trust in accordance with instructions received from
members of the Plan and shares as to which instructions are not received
are voted by the Trustee proportionally in the same manner as shares as to
which the Trustee has received instructions.
Eight meetings of the Company's Board of Directors were held during the
Company's last fiscal year. Each director of the Company attended at least 75%
of the aggregate of (i) all meetings of the Board of Directors and (ii) all
meetings of committees of the Board of Directors of which he was a member,
during the periods that he served during the Company's last fiscal year.
In addition to the Executive Committee, the Board of Directors has an Audit
Committee, a Compensation and Stock Option Committee and a Nominating
Committee. The Audit Committee is comprised of Messrs. Anderson, Kirschner,
Pistor and Dr. Ewers. Its functions include recommending annually to the Board
of Directors a firm of independent accountants to audit the Company's financial
statements and the scope of such firm's audit, reviewing reports and
recommendations of the Company's independent accountants, reviewing the scope
of all internal audits and reports and recommendations in connection therewith
and reviewing nonaudit services provided by the Company's principal independent
accountants. It held five meetings during the Company's last fiscal year. The
Compensation and Stock Option Committee is comprised of Messrs. Anderson,
Johnstone, Kelley and Pistor. It administers the Company's Stock Option Plans
and 1990 Long-Term Incentive Plan, and its functions include the designation of
key employees to whom stock options, stock appreciation rights, restricted
stock, performance awards and other stock-based awards may be granted, and,
within specified limits, the number of shares that may be granted to any such
key employee. Its functions also include setting compensation for officers
employed by the Company and holding the office of Vice President or a more
senior office and the designation of those persons, in addition to the Chairman
of the Board, who shall be entitled to participate in incentive compensation
under Article XII of the By-laws and the allotment among such persons of the
amount made available for allotment. It held seven meetings during the
Company's last fiscal year. In addition, the Company has a Salary Committee
comprised of Messrs. Alley, Hays and Henson and four additional executive
officers. Its functions include the establishment of salary administration
guidelines for the Company and its domestic subsidiaries, applicable to all
employees other than officers of the Company whose salaries are required by the
By-laws of the Company to be fixed by the Compensation and Stock Option
Committee, and, in accordance with such guidelines, the approval of all
salaries above a specified amount, and recommending to the Board of Directors
compensation arrangements for nonmanagement directors. It held two meetings
during the Company's last fiscal year. The Nominating Committee is comprised of
Messrs. Anderson, Johnstone, Lohman and Pistor. Its functions include
recommending persons for nomination for election as members of the Company's
Board of Directors. The Nominating Committee held two meetings during the last
fiscal year. Its functions also include recommending directors for membership
on the Compensation and Stock Option Committee. Stockholders wishing to
recommend persons for consideration by the Nominating
6
<PAGE>
Committee as nominees for election to the Company's Board of Directors can do
so by writing to the Secretary of the Company at 1700 East Putnam Avenue, Old
Greenwich, Connecticut 06870, giving each such person's name, biographical data
and qualifications. Any such recommendation should be accompanied by a written
statement from the person recommended of his consent to be named as a nominee
and, if nominated and elected, to serve as a director. The Company's
Certificate of Incorporation also contains a procedure for stockholder
nomination of directors.
Mr. Alley is a director of CIPSCO Incorporated, Central Illinois Public
Service Company and Rayonier Inc. Mr. Johnstone is a director of Phoenix Home
Life Insurance Company; Mr. Kelley is a director of Magna Group, Inc.; Mr.
Lohman is a director of CIPSCO Incorporated and Central Illinois Public Service
Company; and Mr. Pistor is a director of AMR Corporation, Centex Corporation
and Oryx Energy Company.
For information with respect to the beneficial ownership of securities of the
Company by directors and executive officers as a group, see "Certain
Information Regarding Security Holdings".
During the last fiscal year, a subsidiary of the Company made purchases from
Olin Corporation, of which Mr. Johnstone is Chairman, President and Chief
Executive Officer and a director, in the amount of approximately $3,400,000.
The transactions were made in the ordinary course of business and on terms no
less favorable to the Company's subsidiary than would have prevailed in similar
transactions with any other supplier. The Company's subsidiary intends to
continue to make purchases from Olin Corporation during 1994 if it determines
that it may do so on terms beneficial to it.
Each director and officer of the Company who is subject to Section 16 of the
Securities and Exchange Act of 1934 is required to report to the Securities and
Exchange Commission by a specified date his or her beneficial ownership of or
transactions in the Company's securities. Reports received by the Company
indicate that all such directors and officers have filed all requisite reports
with the Securities and Exchange Commission on a timely basis during or with
respect to 1993, except that Mr. Hays was late in filing an amended Form 5 to
report the transfer of shares between two family trusts of which he is a co-
trustee, Mr. Househam was late in filing his Form 5 to report the exempt
receipt of shares upon vesting of an award and Mr. Humphrey was late in filing
an amended Form 5 to report two exempt exercises of stock appreciation rights.
7
<PAGE>
EXECUTIVE COMPENSATION
There is set forth in the following table a summary of all compensation paid
to, or earned by, the five most highly compensated executive officers during
each of the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ -----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL BONUS (1) COMPENSATION (2) AWARDS (3) OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY $ ($) ($) ($) (#) ($)
- ------------------ ---- --------- --------- ---------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY 1993 1,053,600 862,125 4,313,095 -0- 163,200 949,877(4)
Chairman of the Board 1992 1,003,400 1,008,782 5,910 -0- 120,000 304,487(4)
and Chief Executive 1991 951,000 875,295 445,625 170,000
Officer of American
Brands, Inc.
THOMAS C. HAYS 1993 655,800 394,158 2,122,937 -0- 81,600 503,403(4)
President and Chief 1992 624,600 506,630 2,955 -0- 60,000 169,063(4)
Operating Officer of 1991 592,000 450,738 222,813 85,000
American Brands, Inc.
ARNOLD HENSON 1993 552,800 363,889 2,116,887 -0- 58,750 442,821(4)
Executive Vice President 1992 526,500 425,791 2,128 -0- 43,200 147,250(4)
and Chief Financial 1991 499,000 378,818 160,425 61,200
Officer of American
Brands, Inc.
ANTHONY D. HOUSEHAM 1993 535,716 362,343 4,728 -0- -0- -0-
Chairman and Chief 1992 547,712 385,463 1,182 -0- 24,000 1,046,315(5)
Executive of Gallaher 1991 512,720 370,446 89,125 34,000
Limited
HOWARD C. HUMPHREY 1993 331,255 250,697 1,119,801 -0- 36,500 4,497(4)
Chairman of the Board, 1992 315,600 234,333 1,182 -0- 24,000 4,364(4)
President and Chief 1991 300,000 190,698 89,125 34,000
Executive Officer of The
Franklin Life Insurance
Company
</TABLE>
- --------
(1) Article XII of the By-laws of the Company provides for payment of incentive
compensation to members of the Management Group (consisting of key
employees, defined pursuant to Article XII). An amount equal to 1/2 of 1%
of Net Income Before Taxes (as defined in Article XII) is made available
for allotment annually if net income before taxes equals or exceeds 12% of
net worth and a cash dividend has been paid on the Common Stock of the
Company. Of the amount available for incentive compensation, 18% is
allotted to the Chairman of the Board and the remainder is available to the
Management Group on the following basis: 24% of the total amount available
is allotted by Article XII to the members of the Management Group in
proportion to their fixed salaries, and the balance may be allotted to them
by the Compensation and Stock Option Committee, entirely at its discretion
as to amounts and individuals. Payments are made by distributing 50% of the
amount payable in cash as soon as practicable and 50% in cash on the
December 15 next following the close of the year for which the allotment
was made. The deferred portion of the Article XII payment is contingent
upon the employee not engaging in competitive employment prior to receipt
of payment thereof. See Item 5, Approval of Amendments to Annual Executive
Incentive Compensation Program. Mr. Househam participated in an incentive
compensation plan for key employees of Gallaher Limited. Under such plan,
an amount equal to 0.389% of consolidated profits before tax (as defined in
such plan) is made available for allotment annually, provided that such
profits before tax equal at least (Pounds)27,000,000. Of the amount made
available for incentive compensation, 18.5% is allotted to the Chairman of
Gallaher Limited.
8
<PAGE>
(2) At the 1993 Annual Meeting, stockholders approved Company contributions to
trusts established by executives in order to fund supplemental retirement
and profit-sharing benefits under the Company's Supplemental Retirement
Plan on a current basis. The executive is taxed on the contribution when
made and the earnings on the trust, but the Company provides the executive
with an additional amount to pay the taxes. The amounts distributed to the
executive at retirement, however, are not subject to tax and therefore the
Company contributes to the trusts only the present value of the executive's
after-tax benefit instead of being required to provide the executive's pre-
tax benefit upon retirement. The amount set forth in the "Other Annual
Compensation" column for 1993 includes the amount paid to the executive for
reimbursement of taxes as follows:
<TABLE>
<S> <C>
William J. Alley............................................... $4,281,417
Thomas C. Hays................................................. 2,107,098
Arnold Henson.................................................. 2,105,483
Howard C. Humphrey............................................. 1,113,571
</TABLE>
The contributions to the trusts for 1993 were to fund the supplemental
retirement and profit-sharing benefits accrued for all prior years of
service which had previously been unfunded. The amounts funded for 1994 and
future years will typically fund the supplemental retirement and profit-
sharing accruals for that year only and the related tax reimbursement
payment in future years should therefore be lower. The remaining amounts in
the "Other Annual Compensation" column for 1993 and the amounts for 1992 are
cash dividend equivalents paid on performance awards. See table entitled
"Long-Term Incentive Plans-Awards in Last Fiscal Year". Performance awards
were not granted prior to 1992.
(3)The number and value of the aggregate restricted stock holdings on December
31, 1993 were:
<TABLE>
<CAPTION>
SHARES (#) VALUE ($)
---------- ---------
<S> <C> <C>
William J. Alley................................... 10,000 $332,500
Thomas C. Hays..................................... 5,000 166,250
Arnold Henson...................................... 3,600 119,700
Anthony D. Househam................................ 2,000 66,500
Howard C. Humphrey................................. 2,000 66,500
</TABLE>
Mr. Househam's awards were deferred stock awards under which shares are not
delivered to Mr. Househam until the end of the restriction period. Dividends
are paid on the restricted stock and dividend equivalents are paid on Mr.
Househam's deferred stock awards.
(4) Company contributions to the tax qualified Profit-Sharing Plan of the
Company and supplemental profit-sharing amounts under the Company's
Supplemental Retirement Plan.
Company contributions to the tax qualified Profit-Sharing Plan of the Company
(The Franklin Life Employees' 401(k) Plan in the case of Mr. Humphrey) were
as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
William J. Alley................................... $22,925 $23,134
Thomas C. Hays..................................... 22,925 23,134
Arnold Henson...................................... 22,925 23,134
Howard C. Humphrey................................. 4,497 4,364
</TABLE>
Supplemental profit-sharing amounts credited under the Company's
Supplemental Retirement Plan were as follows:
9
<PAGE>
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
William J. Alley........................................ $148,117 $209,202
Thomas C. Hays.......................................... 75,139 111,072
Arnold Henson........................................... 60,231 90,304
</TABLE>
Earnings credited on supplemental profit-sharing balances under the
Company's Supplemental Retirement Plan were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- -------
<S> <C> <C>
William J. Alley......................................... $105,408 $72,151
Thomas C. Hays........................................... 51,731 34,857
Arnold Henson............................................ 48,677 33,812
</TABLE>
Earnings had been credited on supplemental profit-sharing balances as if the
balances were invested in an investment selected by the Company's Trusts
Investment Committee which was the Salomon Brothers Inc Broad Investment
Grade Index for 1993 and the MAS Pooled Trust Fund-Fixed Income Portfolio
for 1992. Effective in December 1993 with the contributions to the trusts
under the funding arrangement approved by stockholders at the 1993 Annual
Meeting, actual trust earnings will be credited on supplemental profit-
sharing balances.
The Supplemental Retirement Plan provides for those amounts that would have
been contributed under the Company's tax qualified Profit-Sharing Plan but
for Internal Revenue Code limitations. As permitted by Securities and
Exchange Commission rules, information prior to 1992 is not being reported.
These amounts include the following Company contributions under the trust
funding arrangement approved by stockholders at the 1993 Annual Meeting to
satisfy the Company's obligation for supplemental profit-sharing (including
1992 amounts set forth above) under the Company's Supplemental Retirement
Plan:
<TABLE>
<S> <C>
William J. Alley........................................ $673,427
Thomas C. Hays.......................................... 353,608
Arnold Henson........................................... 310,988
</TABLE>
These contributions funded the after-tax equivalent of supplemental profit-
sharing accruals which had been unfunded for all years since supplemental
profit-sharing credits were added to the Supplemental Retirement Plan in
1987. Contributions to the trusts for 1994 and future years will typically
fund the supplemental profit-sharing accrual for that year only. The Company
made additional contributions in 1993 to the trusts to fund its obligations
for supplemental retirement benefits under the Company's Supplemental
Retirement Plan to Messrs. Alley, Hays and Henson and The Franklin Life
Insurance Company made a contribution to a trust established by Mr. Humphrey
to fund obligations under its Supplemental Retirement Plan. See the Pension
Plan Table on page 13 for a description of the amount of these supplemental
retirement benefits.
(5) Under retirement plans and arrangements of Gallaher Limited under which Mr.
Househam is entitled to benefits, Mr. Househam attained his normal
retirement date of age 60 during 1992. Mr. Househam continued in employment
with Gallaher Limited until January 31, 1994 and did not receive any
further pension payments until his employment ceased. He was not credited
with any pensionable service or earnings after normal retirement date and
his pension is based on final pensionable pay through his normal retirement
date. In accordance with United Kingdom law and the rules of the Gallaher
pension schemes, at normal retirement date part of a pension may be
exchanged for a tax-free lump sum. Mr. Househam elected to make this
exchange and in 1992 was paid (Pounds)592,209 (approximately $1,046,315
based on the average exchange rate for 1992) in return for a reduction in
the pension payable to him upon cessation of employment which, after such
reduction, will amount to (Pounds)252,026 (approximately $378,719 based on
the average exchange rate for 1993) per year.
10
<PAGE>
The following table provides information on the potential realizable dollar
value of grants of stock options made in 1993 to the end of the option term to
each of the five most highly compensated executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------- -------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE(2) 5%($)(3) 10%($)(3)
- ---- ------------- --------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY........ 163,200 6.92 33.75 9/27/03 3,463,952 8,778,333
THOMAS C. HAYS.......... 81,600 3.46 33.75 9/27/03 1,731,976 4,389,167
ARNOLD HENSON........... 58,750 2.49 33.75 9/27/03 1,246,980 3,160,092
ANTHONY D. HOUSEHAM..... -0- -0- -0- N/A -0- -0-
HOWARD C. HUMPHREY...... 36,500 1.55 33.75 9/27/03 774,720 1,963,291
ALL STOCKHOLDERS........ N/A N/A N/A N/A 4,313,771,932(4) 10,931,945,078(4)
ALL OPTIONEES........... 2,358,600 100 34.00 2/22/03 50,432,529 127,805,930
9/27/03
</TABLE>
- --------
(1) All options are for shares of Common Stock of the Company. No stock
appreciation rights ("SARs") were granted during 1993. Options are
generally not exercisable until the expiration of one year from the date of
grant.
(2) The 1990 Long-Term Incentive Plan further provides that each option shall
have a limited right ("Limited Right") which may be exercised during the
60-day period beginning on the later of the date of a change in control of
the Company and the day after the expiration of six months from the date of
grant of the option (such 60-day period being referred to herein as the
"Limited Right Exercise Period"). The Limited Right generally entitles the
holder of the option to receive cash equal to the number of shares subject
to the option multiplied by the difference between the exercise price per
share and (i) the fair market value of such shares at the date of exercise
of the Limited Right if the option is an incentive stock option and (ii) if
the option is a nonqualified stock option, the greater of (a) the highest
price per share paid for shares of Common Stock of the Company acquired in
the change in control and (b) the highest fair market value of shares of
Common Stock during the Limited Right Exercise Period prior to the date of
exercise. In lieu of exercising the Limited Right, the holder may exercise
the option during the Limited Right Exercise Period. See Item 3, Approval
of Amendments to the American Brands, Inc. 1990 Long-Term Incentive Plan.
(3) The dollar amounts under these columns result from calculations made at
assumed 5% and 10% annual rates of stock price appreciation that are
prescribed pursuant to rules of the Securities and Exchange Commission. The
inclusion of such amounts and the use of such rates are not intended to
forecast any possible future appreciation of the Company's stock price.
(4) No gain to the optionees is possible without an increase in the Company's
stock price, which will benefit all stockholders commensurately.
11
<PAGE>
The following table provides information concerning exercise of stock
options, alone or in tandem with SARs, made during 1993 by each of the five
most highly compensated executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/ OPTIONS/SARS
UNDERLYING SARS AT FY-END (#)-- AT FY-END ($)--
OPTIONS/SARS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED (#)(1) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ---------------- ------------ --------------------- --------------------
<S> <C> <C> <C> <C>
WILLIAM J. ALLEY........ -0- -0- 656,650/163,200 329,214/-0-
THOMAS C. HAYS.......... -0- -0- 288,050/ 81,600 67,811/-0-
ARNOLD HENSON........... -0- -0- 165,600/ 58,750 -0-
ANTHONY D. HOUSEHAM..... -0- -0- 120,200/ -0- 163,688/-0-
HOWARD C. HUMPHREY...... -0- -0- 58,000/ 36,500 -0-
</TABLE>
- --------
(1) SARs permit an optionee, upon exercise of such rights and surrender of the
related option or part thereof, to receive a payment equal to the excess of
the fair market value (at the time of exercise) of the shares covered by
such option or part thereof so surrendered over the option price of such
shares. Such payment may be made in Common Stock of the Company (valued on
the basis of the fair market value of such Common Stock at the time of
exercise), in cash, or partly in cash and partly in Common Stock of the
Company, as the Compensation and Stock Option Committee may determine. No
SAR is exercisable prior to six months from the date of its grant.
The following table provides information concerning long-term compensation
awards made during 1993 to the five most highly compensated executive officers:
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER PERFORMANCE PERIOD OR PRICE-BASED PLANS
OF SHARES, OTHER PERIOD UNTIL -------------------------
UNITS OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) PAYOUT (2) (#) (#) (#)
- ---- -------------- --------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY........ 16,320 3 yrs 8,160 16,320 24,480
THOMAS C. HAYS.......... 8,160 3 yrs 4,080 8,160 12,240
ARNOLD HENSON........... 5,875 3 yrs 2,938 5,875 8,813
ANTHONY D. HOUSEHAM..... -0- -- -0- -0- -0-
HOWARD C. HUMPHREY...... 3,650 3 yrs 1,825 3,650 5,475
</TABLE>
- --------
(1) These figures represent the number of shares that will be awarded upon
attainment of the average consolidated return on equity target for the
performance period.
(2) The performance period began on January 1, 1993 and will end on December
31, 1995. As of December 31, 1993, two years remain until maturation or
payout.
The number of shares of Common Stock to be delivered to the executive
officers granted performance awards in 1993 is based on the level of
achievement of specified operating goals of the Company and its consolidated
subsidiaries during the performance period. The target amount will be earned if
100% of the targeted consolidated return on equity is achieved. The threshold
amount will be earned at the achievement of 83 1/3% of the targeted average
consolidated return on equity and the maximum award amount will be earned at
the achievement of 125% of the targeted average consolidated return on equity.
In addition, whether or not the performance goal is met, cash dividend
equivalents will be paid during the performance period based upon the target
amount.
12
<PAGE>
RETIREMENT PLANS
The following table sets forth the highest estimated annual retirement
benefits payable to persons in the specified compensation and years of service
classifications upon retirement at normal retirement date, assuming election of
an annuity for the life of the employee only, under the retirement plans of the
Company and those of its domestic subsidiaries under which executive officers
of the Company would be entitled to benefits:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR REPRESENTATIVE YEARS OF CREDITED SERVICE
------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $75,000 $112,500 $150,000 $187,500 $225,000 $ 266,250
600,000 90,000 135,000 180,000 225,000 270,000 319,500
700,000 105,000 157,500 210,000 262,500 315,000 372,750
800,000 120,000 180,000 240,000 300,000 360,000 426,000
900,000 135,000 202,500 270,000 337,500 405,000 479,250
1,000,000 150,000 225,000 300,000 375,000 450,000 532,500
1,100,000 165,000 247,500 330,000 412,500 495,000 585,750
1,200,000 180,000 270,000 360,000 450,000 540,000 639,000
1,300,000 195,000 292,500 390,000 487,500 585,000 692,250
1,400,000 210,000 315,000 420,000 525,000 630,000 745,500
1,600,000 240,000 360,000 480,000 600,000 720,000 852,000
1,800,000 270,000 405,000 540,000 675,000 810,000 958,500
2,000,000 300,000 450,000 600,000 750,000 900,000 1,065,000
2,200,000 330,000 495,000 660,000 825,000 990,000 1,171,500
</TABLE>
The estimated annual retirement benefits set forth in the preceding table
include any offset for Social Security benefits required under the applicable
plan.
The compensation covered by the retirement plans under which executive
officers are to receive retirement benefits includes essentially compensation
that would fall under the categories of "Salary" and "Bonus" in the Summary
Compensation Table shown above on page 8 averaged over the five highest
consecutive years. The years of service of Messrs. Alley, Hays, Henson and
Humphrey are 27, 29, 12 and 34, respectively.
The Supplemental Retirement Plan of the Company provides supplemental
retirement benefits to "highly compensated employees" (as defined in the
Internal Revenue Code) in an amount equal to the difference between the
benefits payable under the Retirement Plan and the amount that would be payable
under the Company's tax qualified Retirement Plan formula in excess of the
Internal Revenue Code limitation on maximum benefits payable from tax qualified
retirement plans (currently the lesser of $118,800 and the employee's average
compensation during his three highest-paid consecutive years of employment).
The Supplemental Retirement Plan also provides for payments to "highly
compensated employees" of any amount by which the Retirement Plan benefit is
reduced because of the limitation contained in the Internal Revenue Code on the
combination of the benefits payable thereunder and additions to the Company's
tax qualified Profit-Sharing Plan. The Internal Revenue Code also provides that
benefits under tax qualified plans cannot be based on compensation in excess of
a certain limit (currently $150,000). The Supplemental Retirement Plan provides
to "executive participants" the difference between the amount paid under the
Retirement Plan and the amount that would have been paid thereunder if the
$150,000 limit on compensation were not included therein. "Executive
participants" are defined as those entitled to an allocation under Article XII
and employees covered under the Company's management incentive plan. In
calculating retirement benefits, no credit is given for service in excess of 35
years. The Pension Plan Table set forth above includes these Supplemental
Retirement Plan benefits. Mr. Humphrey is entitled to similar benefits under
the Supplemental Retirement Plan of The Franklin Life Insurance Company.
13
<PAGE>
Under the Supplemental Retirement Plan, Messrs. Hays and Henson will each
receive an annual benefit equal to 52 1/2% of his average compensation during
the five highest-paid consecutive calendar years of employment, provided he
continues in employment until the earlier of normal retirement age of 65 or
completion of 35 years of service. This 52 1/2% benefit is approximately the
same as the benefit in the 35 year column of the Pension Plan Table set forth
on the preceding page. The benefit is reduced by 1 1/2% of such average
compensation for each year that such officer retires prior to age 65 unless he
has completed 35 years of service. The benefit is also reduced by benefits
under the Company's Retirement Plan, the retirement plans of subsidiaries of
the Company and of any prior employer.
The Company has an agreement with Mr. Alley which will provide him with an
annual retirement benefit of 52 1/2% of the average of his five highest-paid
consecutive calendar years' earnings. For purposes of computing Mr. Alley's
highest five-year average earnings, his compensation at the date of his
termination of employment is assumed to continue until his normal retirement
date. If Mr. Alley terminated employment on December 31, 1993 with entitlement
to a retirement benefit under the agreement, his retirement benefit would be
approximately $979,034 annually. This is the same benefit to which Mr. Alley is
entitled under the Company's Retirement Plan and Supplemental Retirement Plan.
As noted in Note (2) under the Summary Compensation Table on page 8, Messrs.
Alley, Hays, Henson, Humphrey and certain other executive officers have
established trusts to which the Company (or the Company's subsidiary by which
the executive is employed) make contributions to fund currently the Company's
supplemental retirement and profit-sharing obligations. The Company also
continues to maintain "rabbi" trusts with a bank for the purpose of paying its
supplemental retirement and profit-sharing obligations that are not fully
funded by the executives' trusts.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company has entered into agreements with Messrs. Alley, Hays, Henson and
Humphrey to provide certain severance benefits for them in the event of their
termination of employment following a change in control (as defined in the
agreements) of the Company. Each agreement provides generally that if,
subsequent to a change in control, the Company terminates the employment of the
officer other than for disability or cause, or if the officer elects to
terminate his employment for good reason, as provided in the agreement, the
officer will then receive three years of base salary, three times the amounts
for one year of his incentive compensation award and Profit-Sharing Plan
allocation (and the supplemental profit-sharing allocation under the
Supplemental Retirement Plan), three additional years of service and earnings
credit under the retirement plans and arrangements of the Company and three
additional years of coverage under the life, health, accident, disability and
other employee plans of the Company, provided that if any such person is within
three years of his normal retirement date, the multiplier of three is reduced
for each category of payment to the number of years and portion thereof
remaining prior to such date. Each agreement also provides for payment of an
amount necessary to restore any benefit diminution under the agreement and the
Company's stock option plans and 1990 Long-Term Incentive Plan if the special
excise tax imposed under Section 280G of the Internal Revenue Code is
applicable. Assuming a change in control and a termination date of February 1,
1994, the amounts payable under such agreements would have been $1,908,029,
$3,427,994, $2,734,841 and $1,791,591, for Messrs. Alley, Hays, Henson and
Humphrey, respectively. The Company has established "rabbi" trusts with a bank
for the purpose of paying these amounts. The foregoing amounts do not include
the three additional years of service and earnings credit under retirement
plans and arrangements or the three additional years of coverage under life,
health, accident, disability and other employee plans to which the foregoing
persons would be entitled. The amounts payable are reduced by any amounts
payable under the agreements referred to in the succeeding paragraph providing
severance benefits after termination of employment without regard to a change
in control.
The Company has also entered into agreements with Messrs. Alley, Hays and
Henson to provide severance benefits without regard to a change in control if
the Company terminates the employment
14
<PAGE>
of the officer for reasons other than for disability or cause. The severance
agreements provide the same benefits as those described in the preceding
paragraph for a termination of employment following a change in control except
that the multiplier is three in the case of Mr. Alley and two in the case of
Messrs. Hays and Henson. Assuming a termination of employment on February 1,
1994, the amounts payable under the severance agreements, which would represent
their base salary, Article XII award and Profit-Sharing Plan allocation (and
the supplemental profit-sharing allocation under the Company's Supplemental
Retirement Plan), would have been $1,908,029, $2,285,329 and $1,988,975 for
Messrs. Alley, Hays and Henson, respectively. Mr. Humphrey has a similar
severance agreement with American Franklin Company wherein the multiplier is
two and, in the event of Mr. Humphrey's severance from employment on February
1, 1994, the amount payable to him would have been $1,194,394. The foregoing
amounts do not include the additional years of service and earnings credit
under retirement plans and arrangements or the additional years of coverage
under life, health, accident, disability and other employee plans to which the
foregoing persons would be entitled.
Gallaher Limited had an agreement with Mr. Househam which provided, among
other things, for his employment by Gallaher Limited at a salary for 1993 of
(Pounds)356,502 (approximately $535,716, based on the average exchange rate for
1993) and for reimbursement of all reasonable expenses incurred by him in the
performance of his duties under the agreement. The agreement was terminable by
Gallaher Limited upon three years' written notice. The agreement also provided
that in the event the employment of Mr. Househam was terminated, or Mr.
Househam elected to terminate his employment for good reason, after a change in
control of the Company or Gallaher Limited, he was to receive up to three times
his salary, incentive compensation and certain benefits. Mr. Wilson has a
similar employment agreement with Gallaher Limited providing for his employment
by Gallaher Limited at a salary rate for 1994 of (Pounds)314,000 (approximately
$471,848, based on the average exchange rate for 1993).
DIRECTOR COMPENSATION
Each director who is not an officer or employee of the Company or one of its
subsidiaries receives an annual fee of $35,000 for services as a director and
an additional $1,500 for services on each committee of which the director is a
member but not chairman. The chairmen of the Audit Committee, the Capital
Appropriations Committee and the Compensation and Stock Option Committee
receive an additional annual fee of $9,500 each for services as chairmen, the
chairmen of the Corporate Committee on Women and Minorities in Management and
Equal Employment Opportunity, the Corporate Responsibility and Public Affairs
Committee, the Environmental Affairs Committee and the Nominating Committee
receive an additional annual fee of $6,000 each for services as chairmen. A
non-employee director receives an additional annual fee of $16,000 for services
as a member of the Executive Committee. The Company has an agreement with Mr.
Anderson to defer payment of the fees to which he is entitled as a director,
including any fees for committee service. Interest on the deferred amounts is
accrued quarterly based on the average quarterly treasury bill rate. During
1993, the Company also paid the cost of group life insurance coverage for
directors who were not officers or employees of the Company as follows: Mr.
Anderson, $2,728; Mr. Auerbach, $7,212; Dr. Ewers, $770; Mr. Johnstone, $1,223;
Mr. Kelley, $2,037; Mr. Kirschner, $771; Mr. Lohman, $797; and Mr. Pistor,
$1,357. Directors who are not officers or employees of the Company are also
covered under the Company's matching gift program whereby the Company will make
a 200% match of gifts totalling up to $15,000 by the director to an eligible
charitable or educational institution.
Each director who is not an officer or employee of the Company or one of its
subsidiaries is also paid 200 shares of Common Stock of the Company each year
under the Company's Stock Plan for Non-employee Directors which was approved by
the stockholders at the 1990 Annual Meeting. Directors who are not officers or
employees of the Company or one of its subsidiaries are covered while on
Company business by the business travel accident insurance policy which covers
employees of the Company generally.
15
<PAGE>
Each director who is not an officer or employee of the Company or one of its
subsidiaries who voluntarily retires or decides not to stand for reelection as
a director will receive an annual retirement benefit equal to the annual
director's fee (exclusive of fees for committee service and fees for service on
boards of directors of subsidiaries) in effect at the time of retirement to be
paid for the number of years equal to such director's full years of service.
Such benefit is payable beginning in the year in which such director retires or
attains age 65, whichever occurs later, and continues to be payable to the
director's beneficiary in the event of the director's death until all such
payments have been made.
Each director who is not an officer or employee of the Company is covered
under the Company's charitable award program for non-executive directors. Under
the program, the Company will make future contributions of up to $500,000 for
each such director to charitable, educational or other qualified organizations
designated by the director. The contribution would be made after the death of
the director and the Company's obligation is funded by Company owned life
insurance policies.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the Company
attract, motivate and retain the executive resources that it needs in order to
maximize its return to stockholders.
Toward that end, the program attempts to provide:
. competitive levels of salary and total compensation
. annual incentive compensation that varies with the annual financial
performance of the Company and its various operating companies
. long-term incentive compensation to reward long-term financial
performance.
The Company intends to provide levels of total compensation for executive
officers that are competitive with compensation for executives with comparable
responsibilities in corporations of similar size. The competitive information
is derived from a variety of sources, principally a survey conducted by Towers
Perrin, the outside consultants of the Compensation and Stock Option Committee
(the "Committee"), of compensation awarded by over 200 large, publicly-held
corporations with revenues in excess of $2 billion participating in the survey
(the "survey group"). Most of the companies in the survey group are in the S&P
500 and some are in the Peer Group index described on page 22. The Committee
relies on a broad array of companies for comparative analysis of executive
compensation because the Committee believes that the Company's competitors for
executive talent are more varied than the Peer Group chosen for comparing
stockholder return in the Performance Graph on page 22.
The Company's executive compensation program consists of three basic
elements--base salaries, annual incentive bonuses and long-term incentives. The
long-term incentive plans of the Company and its operating companies covering
executive officers of the Company are designed to ensure that incentive
compensation varies based on the profitability of the Company and its various
operating companies or on the performance of the Company's Common Stock. In
addition, these plans provide the flexibility to reward executives based on
their individual performance.
As more fully described below, the Company announced a freeze on executive
salaries in October 1993 and, as a result, executive salaries were not
increased effective January 1, 1994.
16
<PAGE>
Committee Responsibilities
The Company's By-laws require that the salaries of officers employed by the
Company and having the offices of Vice President and above be fixed by the
Committee. The Committee also has the authority to allot to executive officers
employed by the Company and certain other officers a portion of the incentive
compensation available for allotment under Article XII of the Company's By-
laws. In addition, the Committee grants awards to executive officers and
certain other officers under the Company's 1990 Long-Term Incentive Plan, which
as described below generally consisted in 1993 of stock options and performance
share awards. With respect to executive officers who are employed by the
Company's subsidiaries, the Committee recommends the salaries of such executive
officers to the relevant subsidiary company's board of directors. Further,
unless the amount is fixed pursuant to the relevant subsidiary company plan,
the incentive bonuses awarded to such executive officers are reviewed by the
Committee prior to formal approval by the subsidiary board or appropriate
committee. The Committee also reviews the design of the Company's compensation
programs, assesses their competitiveness and effectiveness and makes
recommendations with respect to them.
Each of the elements of the program is described in the report below,
including a discussion of the specific actions taken by the Committee with
respect to the Chairman of the Board and Chief Executive Officer and the other
executive officers for 1993.
Base Salaries
In determining salary adjustments for the Chief Executive Officer and other
executive officers employed by the Company for 1993, the Committee sought to
maintain salary levels for the executive group at or above the median of the
survey group. The Committee determined that the salary of the Chairman of the
Board and Chief Executive Officer be increased by 5% and that the salaries of
other executive officers also be generally increased by 5%. This rate of salary
increase was below the 7.7% average market salary increase of the survey group
but maintained the salary levels of these executive officers slightly above the
median of the survey group. One executive officer who retired during 1993 did
not receive a salary adjustment for 1993.
The Committee determined that the rate of salary increase and the resulting
salary levels were appropriate as compared to the median of the survey group.
Although there was no fixed relationship between corporate performance and
salary increases, in making this determination, the Committee considered the
record results that the Company was achieving during 1992 (salaries for 1993
were set at the end of 1992) despite the extremely adverse economic conditions
that had been affecting the principal markets of most of the Company's
businesses.
The salary increases of the Company's executive officers who are chief
executives of subsidiary companies were determined primarily based on the
Committee's subjective assessment of the performance of the respective
subsidiary company. Salary increases ranged from 4% to 9% with a 15% increase
for Mr. Househam, Chairman and Chief Executive of Gallaher Limited. The
Committee noted that, under Mr. Househam's leadership, Gallaher Limited has
been a major contributor to the Company's earnings growth, that Gallaher
Limited had made significant acquisitions of Whyte & Mackay, Vladivar and
Invergordon in the distilled spirits industry and had also launched a major
extension of its Benson & Hedges line of cigarette products and was preparing
to launch another such extension. The average salary rate increase for these
executive officers was 6.9% which compares to the average salary increase of
6.6% for this category of executive officers in the survey group.
In October of 1993, it was determined that, as a result of the potential
decrease in the Company's 1993 profits as compared to 1992 primarily due to the
unsettled conditions in the domestic tobacco industry, salaries of the Chairman
and other executive officers would not be increased effective January 1, 1994
as would ordinarily have been the case.
17
<PAGE>
Annual Incentive Bonuses
Article XII of the By-laws of the Company provides for payment of incentive
compensation to members of the Management Group (defined pursuant to Article
XII), including executive officers. An amount equal to 1/2 of 1% of Net Income
Before Taxes (as defined in Article XII) is made available for allotment
annually if net income before taxes equals or exceeds 12% of net worth and a
cash dividend has been paid on the Common Stock of the Company. Of the amount
available for incentive compensation, 18% is allotted to the Chairman of the
Board and the remainder is available to the Management Group on the following
basis: 24% of the total amount available is allotted by Article XII to the
members of the Management Group in proportion to their fixed salaries, and the
balance may be allotted by the Committee, entirely at the Committee's
discretion, as to amounts and individuals. Payments are made by distributing
50% of the amount payable in cash as soon as practicable and 50% in cash on the
December 15 next following the close of the year for which the allotment was
made. The deferred portion of the Article XII payment is contingent on the
executive officer not engaging in competitive employment prior to receipt of
payment thereof.
As Article XII mandates the allotment to be made to the Chairman of the Board
each year, the Committee has no discretion with respect to his award. With
respect to the incentive compensation awards for the other executive officers,
the Committee allocated the minimum amount required by Article XII and with
respect to the remaining amount, the Committee for 1993 generally followed its
past practice of increasing or decreasing the total incentive compensation
award to each executive officer in proportion to the increase or decrease in
the Company's earnings from which Article XII payments are made available for
allotment. The amount made available for allotment under Article XII for 1993
decreased 22.2% and thus the 1993 Article XII award for executive officers
other than the Chairman of the Board decreased generally by 22.2% from the 1992
Article XII award with certain exceptions for reasons of internal equity and
market competitiveness. Thus, the decrease for one of the executive officers
named in the Summary Compensation Table on page 8 was 14.5%.
Incentive compensation awards for executive officers of the Company who are
employed by subsidiary companies are determined under the incentive
compensation plans of those subsidiary companies. These plans generally provide
for the establishment of target awards as a percentage of salary and the
payment of a percentage of the target award based on the attainment of certain
corporate income and individual achievement goals. Mr. Househam participated in
an incentive compensation plan for key employees of Gallaher Limited. Under
such plan, an amount equal to 0.389% of consolidated profits before tax (as
defined in such plan) is made available for allotment annually, provided that
such profits before tax equal at least (Pounds)27,000,000. Of the amount made
available for incentive compensation, 18.5% is allotted to the Chairman of
Gallaher Limited.
Other Considerations with Respect to the Chairman's Compensation
The annual incentive compensation for the Chairman under Article XII
decreased by 14.5% from the Chairman's 1992 annual incentive compensation. This
portion of his compensation is based strictly on a stockholder-approved formula
related to the pre-tax earnings performance of the Company as explained under
Annual Incentive Bonuses above. Although the total amount available for
allotment decreased by 22.2% from 1992, the Chairman's Article XII payment
decreased by 14.5% as the Chairman had voluntarily waived an amount of $200,000
of his Article XII award for 1992. For 1993, the full payment in accordance
with the stockholder approved formula was made. The salary portion of the
Chairman's compensation was increased by 5% for 1993, which was below the
average market increase of 7.7% for the survey group. The Chairman's salary
level placed him at 13% above the median of the survey group. Although there
was no fixed relationship between salary and corporate performance, in making a
determination that it was appropriate for the Chairman's salary to be at that
level, the Committee subjectively considered the Company's overall financial
performance, particularly in the context of the competitive and economic
conditions within which the
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<PAGE>
Company and its subsidiaries operated. In particular, during the Chairman's
tenure, the Company had seen substantial increases in earnings, even during a
long recessionary period. The Company had achieved record net income during
1992, at the end of which the salary increase was determined, even though the
recessions in many of the Company's principal markets worldwide were continuing
unabated. As noted above, the Committee did not increase the Chairman's salary
effective January 1, 1994.
Long-Term Incentives
Under the Company's 1990 Long-Term Incentive Plan, the Committee can grant to
key employees of the Company and its subsidiaries a variety of long-term
incentives, including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, performance awards, dividend
equivalents and other stock-based incentives.
In 1993, the Company granted incentive stock options, nonqualified stock
options and performance share awards to its executive officers. The options
have an exercise price not less than the fair market value of the stock on the
date of grant. The options generally become exercisable one year from the date
of grant, and expire 10 years from the date of grant. Benefits to an executive
officer from stock options will be realized only in the event of an increase in
the market value of the Company's Common Stock. The performance share awards
are grants of Company Common Stock that are contingent upon the achievement by
the Company and its subsidiaries of specified average return on equity targets
over the performance period of 1993 to 1995. The number of shares of Common
Stock to be delivered to the executive officers granted performance awards in
1993, including the Chairman of the Board and Chief Executive Officer, varies
with the level of achievement during the performance period. The target amount
will be earned if 100% of the targeted consolidated return on equity is
achieved. Fifty percent of the target amount will be earned at the achievement
of 83 1/3% of the targeted average consolidated return on equity and no amount
will be earned below such level. The maximum award of 150% of the target amount
will be earned at the achievement of 125% of the targeted average consolidated
return on equity. In establishing these goals, the Committee considered the
Company's average return on equity in recent years as well as the return on
equity over a similar period of the companies comprising the Standard & Poor's
500. As a result, the awards are designed to provide a maximum share payment
only if the Company's return on equity were to exceed that achieved by more
than 50% of the Standard & Poor's 500 companies in recent years. In addition,
the recipients of the performance awards will receive during the performance
period cash dividend equivalents based on their target amount of shares.
The Committee intends that stock options and performance awards serve as a
significant piece of the executives' total compensation package, and thus they
are granted in consideration of present and anticipated performance, as well as
past performance. Moreover, the stock options and performance awards are
intended to offer the executive officers significant long-term incentives to
increase their efforts on behalf of the Company and its subsidiaries, to focus
managerial efforts on enhancing stockholder value and to align the interests of
the executives with the stockholders. As indicated above, the Committee's
compensation philosophy is to have long-term incentives that pay more for
superior performance and less if performance does not achieve that level. The
Committee, in making its determinations in 1993 with respect to stock option
and performance award grants to the individual senior executives, including the
Chairman of the Board, was guided by the percentage of the individual's base
salary that the estimated value of the stock options and performance awards
would comprise. The Committee sets the percentage of base salary that the long-
term incentive would represent at a level based on a comparison to the value of
long-term incentives awarded to similarly-compensated executives in the survey
group, based on the outside consultants' survey of competitive practice
regarding the percentage of base salary represented by long-term incentives.
The Committee used an option pricing valuation method for purposes of making
such comparison. The Committee
19
<PAGE>
determined that the Chairman be given a grant of stock options and performance
awards to place him at the 66th percentile of the survey group and the grants
to the other executive officers were on average at the 68th percentile of the
survey group. The number of performance award shares to be paid if target goals
are met is set at 10% of the stock option award shares. These grants continue
the Committee's practice of providing the Chairman and other executive officers
with annual long-term incentive grants that are somewhat above median
competitive levels, but within the overall range of competitive practice as
recommended by Towers Perrin, the Committee's outside consultants.
In determining the level of grants for the executive officers, including the
Chairman of the Board, the Committee considered several factors in its
subjective judgment without any of these factors being weighted greater than
any other: first, that the Company and its subsidiaries comprise a large and
diverse organization with over 100 operating subsidiaries in more than six
highly competitive industries doing business on a worldwide basis; second, the
complex task facing the executive officers in managing and furthering the
performance, growth and prospects of such an organization; third, the high
level of performance and results achieved by the Company and its subsidiaries
in recent years, particularly during a time when extremely difficult economic
conditions have been adversely affecting principal markets in which many of the
businesses operate; and fourth, the favorable 1993 results in the Company's
non-tobacco businesses as well as the response by the Company to the unsettled
conditions in the domestic tobacco industry and the prospect for greater
challenges to management in the future. Based on these factors, the Committee
determined that it was desirable to establish a percentile target sufficiently
above the median percentile of the competitive survey group so as to provide
additional incentive to the executive officers to increase their efforts on
behalf of the Company, its subsidiaries and its stockholders and also to reward
strong performance.
In addition, certain of the executive officers who are also chief executives
of operating companies were granted additional performance awards payable in
cash contingent upon the achievement by the relevant operating companies of
specified operating company contribution targets over specified performance
periods. The amount of cash payment is equal to the value of shares of the
Company's Common Stock (determined at the date the performance award was set)
underlying 5% of the executive officer's stock option granted immediately prior
to the performance award grant if the operating company achieves the minimum
performance goal and the amount will be increased up to 20% of the value of the
executive officer's prior stock option grant if the maximum performance goal is
attained. In setting the level of these grants, the Committee considered the
factors set forth in the preceding paragraph. The performance goals are based
on increases in operating company contribution for the operating company
employing the executive officer during the performance period commencing
January 1, 1993 and terminating December 31, 1995. Operating company
contribution is defined as operating income excluding amortization of
intangibles.
Subsequent to stockholder approval at the 1993 Annual Meeting of
stockholders, the Committee approved the implementation of employee grantor
trusts for the Chairman and certain other executive officers. The employee
grantor trust arrangements are for the purpose of currently funding the
Company's obligations for supplemental retirement and profit-sharing benefits
for these officers under the Company's Supplemental Retirement Plan. The
amounts funded for the Chairman and the named executive officers are reflected
in the section entitled "Summary Compensation Table" on page 8. The Committee
believes that this funding arrangement provides greater security to executive
officers for their Supplemental Retirement Plan benefits in a manner similar to
that provided to all employees under the Company's tax qualified plans. The
employee grantor trusts will therefore assist the Company in retaining and
attracting key employees of outstanding ability without a significant increase
in the economic cost to stockholders of the Supplemental Retirement Plan as
noted in the proxy statement for the 1993 Annual Meeting.
The Omnibus Budget Reconciliation Act of 1993 amended the Internal Revenue
Code in order to limit the allowable tax deduction that may be taken by the
Company for compensation paid to the
20
<PAGE>
Chairman and the four other highest paid executive officers required to be
named in the Summary Compensation Table. The limit is $1 million per executive
per year, provided that compensation payable solely on account of the
attainment of performance goals is excluded from the limitation. It is the
Committee's intent to qualify to the extent practicable the annual incentive
bonus under Article XII and stock options and performance awards under the 1990
Long-Term Incentive Plan as performance based compensation in order that these
elements of compensation may qualify for the exclusion from the $1 million
limit so that the Company's tax deduction will not be so limited for a
significant portion of the compensation of these executive officers. In order
to qualify compensation under Article XII and the 1990 Long-Term Incentive Plan
for the performance based compensation exclusion, amendments to these programs
are being submitted to stockholders for their approval.
Compensation and Stock Option Committee
Eugene R. Anderson, Chairman
John W. Johnstone, Jr.
Wendell J. Kelley
Charles H. Pistor, Jr.
The following executive officers of the Company, as members of the boards of
directors of two subsidiaries of the Company, participated in setting
compensation for two employees of those subsidiaries who were executive
officers and directors of the Company during 1993, and have signed this Report
for this purpose.
William J. Alley
Thomas C. Hays
Arnold Henson
Robert L. Plancher
January 24,
1994
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As members of the boards of directors of Gallaher Limited and The Franklin
Life Insurance Company, subsidiaries of the Company, Messrs. William J. Alley,
Thomas C. Hays, Arnold Henson and Robert L. Plancher, who are executive
officers of the Company, participated in setting compensation for Messrs.
Anthony D. Househam and Howard C. Humphrey, officers of those respective
subsidiary companies who were also directors of the Company during the last
year. None of these individuals is a member of the Compensation and Stock
Option Committee of the Company. The members of the Compensation and Stock
Option Committee of the Company are set forth above.
21
<PAGE>
AMERICAN BRANDS, INC. STOCK PRICE PERFORMANCE
(WITH DIVIDEND REINVESTMENT)
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG AMB, S&P 500 INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
Measurement period
(Fiscal year Covered) AMB S&P 500 Index PEER GROUP Index
- --------------------- --------- ------------- ----------------
<S> <C> <C> <C>
Measurement PT -
12/31/88 $ 100 $ 100 $ 100
FYE 12/31/89 $ 112.3 $ 131.7 $ 131.8
FYE 12/31/90 $ 136.7 $ 127.6 $ 109.9
FYE 12/31/91 $ 153.8 $ 166.5 $ 151.6
FYE 12/31/92 $ 144.2 $ 179.2 $ 166.7
FYE 12/31/93 $ 125.6 $ 197.3 $ 179.2
</TABLE>
- --------
* Excludes American Brands, Inc.
Peer Group Index
The Peer Group consists of publicly traded companies in industry segments
corresponding to the Company's five core businesses and its specialty
businesses: the Tobacco segment comprises Philip Morris Companies, Inc., B.A.T
Industries, Loews Corporation and Hanson PLC; the Distilled Spirits segment
comprises Brown-Forman Corporation, The Seagram Company, Ltd., Allied-Lyons
PLC, Grand Metropolitan PLC and Guinness PLC; the Life Insurance segment
comprises Transamerica Corporation, American International Group, Inc., Aetna
Life and Casualty, Torchmark Corporation and Capital Holding Corporation; the
Hardware and Home Improvement segment comprises Masco Corporation, American
Woodmark Corporation, The Black & Decker Corporation and The Stanley Works; the
Office Products segment comprises Herman Miller Inc., Mead Corporation, Hunt
Manufacturing Co. and Avery Dennison Corporation; and the Specialty segment
comprises The United States Shoe Corporation, ProGroup, Inc. and T. & S. Stores
PLC.
The weighted average total return of the entire Peer Group, for each year, is
calculated as follows: (1) the total return of each Peer Group member is
calculated by dividing the change in market value of a share of its common
stock, assuming quarterly dividend reinvestment, by the cumulative value of a
share of its common stock at the beginning of the year; (2) each Peer Group
member's total return is then weighted within its industry segment based on its
market capitalization at the beginning of the year, relative to the market
capitalization of the entire segment, and the sum of such weighted returns
results in a weighted average total return for that segment; and (3) each
segment's weighted average total return is then weighted based on the
percentage of sales, excluding excise taxes, of that segment
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<PAGE>
of the Company for the year, as compared with total Company sales, excluding
excise taxes, and the sum of such weighted returns results in a weighted
average total return for the entire Peer Group.
The Peer Group Index reflects the weighted average total return for the
entire Peer Group calculated for the five year period from a base of 100.
The Report of the Compensation and Stock Option Committee on Executive
Compensation and the American Brands, Inc. Stock Price Performance graph shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission or subject to Regulation 14A or 14C of the Regulations
of the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or to the liabilities of Section 18 of
the Exchange Act.
ITEM 2
- ------
ELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the stockholders elect Coopers &
Lybrand as independent accountants for the Company for the year 1994. In line
with this recommendation the Board of Directors intends to introduce at the
forthcoming Annual Meeting the following resolution (designated herein as Item
2):
"RESOLVED, that Coopers & Lybrand be and they are hereby elected
independent accountants for the Company for the year 1994."
In accordance with the Company's practice, a member of Coopers & Lybrand will
attend the Annual Meeting to make a statement if he desires to do so and to
respond to any appropriate questions that may be asked by stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 2.
ITEM 3
- ------
APPROVAL OF AMENDMENTS TO THE AMERICAN BRANDS, INC.
1990 LONG-TERM INCENTIVE PLAN
In 1990, the stockholders of the Company approved the American Brands, Inc.
1990 Long-Term Incentive Plan (the "1990 Plan"), an incentive compensation plan
under which the Company may grant to "key employees" (as defined in the 1990
Plan) awards of stock options, stock appreciation rights, restricted stock,
performance awards, other stock-based awards or any combination of the above.
The Board of Directors has adopted amendments to the 1990 Plan as described
below subject to stockholder approval.
The Board of Directors believes that the 1990 Plan is a key element of the
Company's executive compensation program. The purpose of the 1990 Plan is to
aid the Company and its subsidiaries in securing and retaining key employees of
outstanding ability by making it possible to offer them increased incentives,
which may include a proprietary interest in the Company, to join or continue in
the service of the Company or its subsidiaries and to increase their efforts
for its welfare. There are approximately 600 employees of the Company and its
subsidiaries eligible to receive awards under the 1990 Plan.
SUMMARY OF PROPOSED AMENDMENTS
A description of the proposed amendments to the 1990 Plan and the terms of
the 1990 Plan, as amended, follows. The 1990 Plan, as proposed to be amended,
is set forth in full in Exhibit A, and
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<PAGE>
the description of the proposed amendments to the 1990 Plan and the terms of
the 1990 Plan, as amended, which appears below is qualified in its entirety by
reference thereto.
CHANGES IN RESPONSE TO NEW TAX RULES
New tax legislation precludes the Company from taking a tax deduction for
certain incentive compensation payments in excess of $1 million unless certain
exceptions are met. Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA
1993") the allowable federal income tax deduction for compensation paid or
accrued with respect to the chief executive officer and each of the four other
most highly compensated officers of a publicly held corporation will be limited
to no more than $1 million per year beginning this year. Certain types of
compensation are exempted from this deduction limitation, including
"performance-based compensation" with respect to which objective performance
goals have been established by a committee of "outside" directors before
commencement of the services for which the compensation is paid. The material
terms of the "performance-based compensation" program (including the
individuals eligible to receive compensation, a description of the business
criteria on which the performance goals are based, and either the maximum
amount payable to an individual or the formula used to calculate the amount)
must be approved by stockholders in order to be exempt. The Compensation and
Stock Option Committee (the "Committee") has recommended to the Board of
Directors, and the Board of Directors has approved, subject to the approval of
the stockholders of the Company, the amendments described in the following two
paragraphs, which are intended to comply with the requirements of OBRA 1993 so
that options, stock appreciation rights and performance awards under the 1990
Plan will be considered "performance-based" compensation and, therefore, will
continue to be deductible by the Company. Without the amendments, payments by
the Company under such options, rights and awards granted to the chief
executive officer or any of the next four most highly compensated employees of
the Company during any particular year after 1993 may not be deductible by the
Company if a particular employee's compensation exceeds $1,000,000. The
amendments will avoid an increase in the after-tax cost to the Company as a
result of a disallowance of a deduction for certain awards granted under the
1990 Plan.
Under the 1990 Plan as now in effect, the selection of performance award
criteria and specific goals is left entirely to the discretion of the
Committee, and there are no limits on the number of shares or dollar amounts
which may be awarded, except for the limitation on total stock-based awards of
all types. Under the proposed amendments, performance criteria would be limited
generally to certain criteria measured by revenues, operating income, operating
company contribution, cash flow, income before income taxes, net income,
earnings per share, return on equity or assets or total return to stockholders,
whether applicable to the Company or any relevant subsidiary or business unit,
or any combination thereof, as the Committee may deem appropriate. The specific
goals and targets would be left to be set by the Committee. In addition, the
proposed amendments provide for aggregate $5 million and 500,000 share
limitations applicable to performance awards granted to any individual
participant on or after January 1, 1994, which limitations apply depending upon
whether the awards are denominated in cash or shares, respectively, and apply
in addition to the limitations on the aggregate number of shares that may be
made subject to any awards under the 1990 Plan and to any individual
participant in each case on or after January 1, 1994 (see "Other Changes"
below). This change is intended to satisfy the requirement that to qualify as
"performance-based compensation" the material terms of the performance goal
approved by stockholders include either the maximum amount of compensation to
be paid or the formula used to calculate the amount.
The 1990 Plan as now in effect also provides that the Committee may adjust
the performance goals and measurements applicable to performance awards to take
into account changes in the law
24
<PAGE>
and accounting and tax rules and to reflect the inclusion and exclusion of the
impact of extraordinary or unusual items, events or circumstances. As proposed
to be amended, no adjustment under this provision can be made which would
result in an increase in compensation of any performance award recipient whose
compensation in the year in question is subject to the OBRA 1993 limitation on
deductibility. The Committee will be permitted, however, to adjust performance
goals and measurements applicable to performance awards and thereby reduce the
amount to be received by any performance award recipient if and to the extent
that the Committee deems it appropriate.
OTHER CHANGES
The Board of Directors has conditionally adopted the following other
amendments.
Increase in Number of Shares that may be made Subject to Awards
The 1990 Plan as now in effect provides that the maximum number of shares of
Common Stock which may be subject to awards is 6,400,000. This maximum is
double the original maximum in the 1990 Plan as a result of a two-for-one stock
split in the form of a 100% stock dividend, effective October 9, 1990. Awards
for approximately this number of shares have already been granted and only a
limited number of shares remain available for issuance under the 1990 Plan. In
addition, the maximum number of shares of Common Stock that may be made subject
to awards to any individual participant is 800,000 (reflecting the results of
the two-for-one stock split effective October 9, 1990).
In order to continue to carry out the purposes of the 1990 Plan after 1993 an
amendment to the 1990 Plan will increase the number of shares of Common Stock
that may be subject to awards by 12,000,000 shares, the additional shares to be
made subject to awards on or after January 1, 1994. Another amendment would
provide that no more than 2,000,000 shares of Common Stock could be made
subject to awards granted on or after January 1, 1994 to any individual
participant. The 1990 Plan provides and, following approval of the proposed
amendments, would continue to provide for appropriate adjustment in the number
and class of shares in the event of a stock dividend, recapitalization, merger
or the like. The 1990 Plan as currently in effect also provides a mechanism for
counting the number of shares available for grant under the 1990 Plan. As
proposed to be amended, the 1990 Plan would permit shares that are subject to
awards ultimately settled in cash instead of shares to be available for grant
of future awards.
The closing price per share of the Common Stock of the Company on the New
York Stock Exchange--Composite Transactions on March 4, 1994 was $31.875.
Term of 1990 Plan
Under the 1990 Plan as now in effect, no awards shall be granted after
December 31, 1995. As the 1990 Plan is now being submitted to the stockholders,
an additional amendment is proposed at this time extending the period during
which awards may be granted to December 31, 1999.
Extension of Exercise Period for Retirement, Death and Disability
Options granted under the 1990 Plan are generally exercisable during the
period stated in the option (generally for the period from one to ten years
from date of grant). Under the 1990 Plan as now in effect, however, the period
of exercisability stated in the option may be shortened, in some cases
substantially, upon the termination of the option holder's employment as a
result of retirement, death or disability. In the event of retirement or
disability, options that are exercisable at the time of termination can only be
exercised for three years after termination (unless the normal option period
expires sooner). In the event of death, the option cannot be exercised more
than one year after death.
25
<PAGE>
The Committee believes this acceleration of the option termination date is
unfair to the holders who have retired, died or become disabled and should be
changed. An amendment is thus being proposed to the 1990 Plan which would
permit the grant of an option that would be exercisable, following termination
of the participant's employment due to retirement under a retirement plan of
the Company or a subsidiary or due to death or disability, for a period up to
the balance of the normal term of the option, except that a nonqualified stock
option may be exercised for one year after death even if that extends beyond
the normal ten year term. There will be no change to the provisions regarding
the exercisability of options after termination of the holder's employment for
any other reason.
It is the current intention of the Committee to amend presently outstanding
options held by active employees (but not former employees) to provide for such
longer post-employment exercise period, subject to obtaining the consent of the
holders whose options are being amended. The Committee believes that this will
better serve the purposes of the 1990 Plan. The amendment extending the maximum
post-employment exercise period will enhance the incentive for key employees to
maximize stockholder value by providing additional opportunity following
termination as a result of retirement, death or disability for key employees to
share in the benefits of stock price appreciation to which their services
during employment may have contributed.
For similar reasons, the Board has adopted, subject to stockholder approval,
the same amendment to the Company's 1986 Stock Option Plan which would permit
the extension of such post-employment exercise period for outstanding options
under the 1986 Stock Option Plan. Thus, such options will be exercisable for
the period set forth in the options and will not terminate three years after
retirement or disability or one year after death. As is the case for
outstanding options under the 1990 Plan, the Committee currently intends to
amend outstanding options granted under the 1986 Stock Option Plan and held by
active employees (but not former employees) to provide for such extended post-
employment exercise period, subject to obtaining the consent of the holders
whose options are being amended.
Limited Rights
The 1990 Plan as currently in effect provides that the "limited right"
attached to each option may be exercised by the holder during a 60 day "limited
right exercise period" in the event of a "change in control" (as such terms are
defined in the 1990 Plan) and if such limited right remains unexercised at the
end of the limited right exercise period the Committee may act to exercise the
limited right on the last day of such period. As proposed to be amended, the
1990 Plan would provide for an automatic exercise of limited rights on the date
of a change in control, or (if later) the day after the expiration of the six
month holding period for options not held for such six month period by those
holders subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or a later date determined by the Committee prior
to a change in control, unless the Committee determines at the time of grant or
at any time thereafter but prior to the change in control that the limited
rights shall not be automatically exercised. In the event that the limited
rights are not automatically exercised, the holder may during the limited right
exercise period exercise the limited right in lieu of exercising any option or
right associated therewith.
Family Gifts of Options
The 1990 Plan as currently in effect provides that no award or portion
thereof is transferable by the holder otherwise than by will or by the laws of
descent and distribution. An amendment permits the transfer by gift of options
to members of the holder's immediate family or to one or more trusts for the
benefit of any such family members if permitted in the applicable award
agreement.
Withholding of Shares for Payment of Withholding Taxes
Another amendment confirms that participants may elect to have the Company
withhold shares of Common Stock that would otherwise be deliverable upon the
exercise of an option or right or
26
<PAGE>
payment or receipt of another award or by delivering to the Company other
shares of Common Stock previously owned by the participant to satisfy any tax
withholding in connection with such exercise, payment or receipt.
Written Consent of Committee
Another amendment to the 1990 Plan expressly requires the Committee, when
taking action without a meeting, to act by unanimous written consent rather
than majority written consent. Previously, when acting by written consent the
Committee has acted unanimously although technically not required to do so
under the 1990 Plan.
SUMMARY OF TERMS OF THE 1990 PLAN, AS AMENDED
The 1990 Plan is administered by the Committee appointed by the Board of
Directors and consisting of at least three members of the Board. The members of
the Committee are not eligible to receive awards under the 1990 Plan and are
intended to qualify as "outside" directors under OBRA 1993 and "disinterested"
directors under Rule 16b-3 promulgated under Section 16 of the Exchange Act.
The Committee has the power and authority to administer, enforce and interpret
the 1990 Plan, to make rules for carrying it out and to make changes in such
rules. The Committee has complete discretion to select, from among the key
employees eligible for awards, the individuals to whom the awards will be
granted, to make any combination of awards to any participant and to determine
the specific terms of each grant, subject, however, to the provisions of the
1990 Plan.
Stock Options and Stock Appreciation Rights
The 1990 Plan authorizes the granting of incentive stock options and options
not qualifying as incentive stock options under the Internal Revenue Code to
purchase, or stock appreciation rights (as described below) to receive, shares
of Common Stock.
Under the 1990 Plan (a) the option price per share shall not be less than
fair market value at the time of grant, (b) an option will not become
exercisable until the participant shall have remained in the employ of the
Company or a subsidiary for at least one year after the date of grant (subject
to limited exceptions specified in the 1990 Plan) and may be exercised for ten
years from the date of grant unless an earlier expiration date is stated in the
option, provided that a nonqualified stock option may be exercised within one
year from the date of death even though such one-year period extends beyond the
ten-year term, (c) payment in full of the option price must be made upon
exercise of each option, either in cash or shares of Common Stock with a fair
market value equal to the option price (provided such shares have been held at
least one year by the participant) or by a combination of cash and such shares
having an aggregate value equal to the option price and (d) to the extent that
the aggregate fair market value (determined at the time of grant) of shares
with respect to which an incentive stock option is exercisable for the first
time by any participant during any calendar year exceeds $100,000, such option
shall be treated as a nonqualified stock option to the extent of such excess.
The Committee may permit participants simultaneously to exercise options and
sell the shares of Common Stock thereby acquired pursuant to a brokerage or
similar arrangement, approved in advance by the Committee, and use the proceeds
from such sale as payment of the purchase price of such shares.
An option will expire upon termination of employment for reasons other than
retirement, disability or death. If employment terminates by reason of death,
disability or retirement under a retirement plan of the Company or a
subsidiary, the option will continue to be exercisable until the expiration
date set forth in the option, provided that a nonqualified stock option may be
exercised within one year from the date of death even though beyond such
expiration date. In the case of a
27
<PAGE>
participant whose principal employer is a subsidiary, the participant's
employment shall be deemed to be terminated as of the date on which the
principal employer ceases to be a subsidiary.
The 1990 Plan permits the grant of stock appreciation rights in conjunction
with the grant of an option, either at the time the option is granted or
thereafter during its term and in respect of all or part of such option,
provided that the participant is a key employee at the time of grant of the
stock appreciation rights. Stock appreciation rights permit a participant to
elect to receive, at the discretion of the Committee, (a) shares of Common
Stock of the Company with a fair market value, at the time of exercise of any
such right, equal to the amount by which the fair market value of all shares
subject to the option (or part thereof) in respect of which such stock
appreciation right was granted exceeds the exercise price of such option (or
part thereof), or (b) in lieu of such shares, the fair market value thereof in
cash, or (c) a combination of shares and cash. No stock appreciation right
shall be exercisable prior to six months from the date of its grant, except in
the event of a change in control. To the extent an option is exercised in whole
or in part, any stock appreciation right granted in respect of such option (or
part thereof) shall terminate and cease to be exercisable. To the extent a
stock appreciation right is exercised in whole or in part, the option (or part
thereof) in respect of which such stock appreciation right was granted shall
terminate and cease to be exercisable. To the extent that any stock
appreciation right shall not have been exercised or canceled, or, by reason of
any termination of employment, shall have become non-exercisable, it shall be
deemed to be exercised automatically on the last day on which its related
option is exercisable.
The 1990 Plan further provides that each option shall have a limited right
("Limited Right") which (except for an option that has not been held for at
least six months by a holder subject to Section 16 of the Exchange Act) is
automatically exercised on the date of a change in control (as defined in
"Change in Control" below), and for an option that at the time of a Change in
Control has not been held for six months by a holder subject to Section 16, is
automatically exercised on the day following expiration of such six month
period, or in either case a later date determined by the Committee prior to a
Change in Control, unless the Committee determines at the time of grant or at
any time thereafter but prior to the Change in Control that the Limited Right
shall not be automatically exercised. In the event that the Limited Right is
not automatically exercised, the holder (other than a holder subject to Section
16 who has not held the option for at least six months) may during the 60-day
period beginning on the date of the Change in Control, and the holder who is
subject to Section 16 and has not held the option for at least six months at
the time of a Change in Control may during the 60-day period beginning on the
day following expiration of such six-month period (the applicable 60-day period
for the holder being referred to as the "Limited Right Exercise Period"), in
lieu of exercising the option, exercise the Limited Right relating thereto. The
Limited Right entitles the holder of the option to receive cash equal to the
number of shares subject to the option multiplied by the difference between the
exercise price per share and (i) the fair market value of such shares at the
date of exercise of the Limited Right if the option is an incentive stock
option and (ii) if the option is a nonqualified stock option, the greater of
(a) the highest price per share paid for shares of Common Stock of the Company
acquired in the "Change in Control" (except to the extent such price is based
on an acquisition of shares occurring prior to the expiration of six months
from the date of grant if either at the time of grant of an option or the time
of its exercise the holder is subject to Section 16 of the Exchange Act) and
(b) the highest fair market value of shares of Common Stock during the Limited
Right Exercise Period prior to the date of exercise. The option will be
canceled to the extent of the exercise of a Limited Right whether automatic or
by the holder of the option. In lieu of exercising the Limited Right, the
participant may exercise the option during the Limited Right Exercise Period as
described under "Change in Control" below.
The Committee may grant options under the 1990 Plan which have terms
different from incentive stock options and nonqualified stock options in order
to comply with foreign tax laws. The Committee
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<PAGE>
may also grant stock appreciation rights without options to key employees in
foreign jurisdictions that prohibit the ownership of Common Stock. Any such
options or stock appreciation rights, however, must comply with the limitations
contained in the 1990 Plan.
Restricted Stock
Under the 1990 Plan, the Committee may also award shares of Common Stock
which are subject to restrictions on transferability described below and such
other conditions and restrictions as the Committee may determine, which may be
based, in whole or in part, on service, performance and such other factors or
criteria as the Committee may determine.
The Company will deliver to each recipient of a restricted stock award an
award agreement which shall set forth the restrictions to which the shares are
subject and the date or dates on which the restrictions will lapse. The
Committee may permit such restrictions to lapse in installments within this
restriction period and may accelerate or waive such restrictions at any time.
Shares of restricted stock are non-transferable during the restriction
period, and, if a participant to whom shares of restricted stock are granted
terminates employment for any reason other than death, disability or retirement
under a retirement plan of the Company or a subsidiary prior to the lapse of
the restrictions, all shares still subject to restriction will be forfeited by
the participant. Unless otherwise provided in the terms of the award, if the
participant's employment terminates by reason of death, disability or
retirement under a retirement plan of the Company or a subsidiary, the
restriction period with respect to such shares of restricted stock will expire
as of the date of such disability, retirement or death and the restrictions
will lapse. The Committee may require that the certificates evidencing shares
of restricted stock be held in custody by the Company during the restriction
period.
Prior to the lapse of restrictions on shares of restricted stock, the
participant will have all other rights of a stockholder with respect to the
shares, subject to the conditions and restrictions generally applicable to
restricted stock or specifically set forth in the participant's agreement
governing the terms of the award of restricted stock.
Performance Awards
The Committee may also grant performance awards under the 1990 Plan.
Performance objectives may vary from participant to participant, and between
groups of participants, and will be limited generally to certain criteria
measured by revenues, operating income, operating company contribution, cash
flow, income before income taxes, net income, earnings per share, return on
equity or assets or total return to stockholders, whether applicable to the
Company or any relevant subsidiary or business unit, or any combination
thereof, as the Committee may deem appropriate. The criteria selected by the
Committee must include a minimum performance standard below which no payment
will be made and a maximum performance level above which no increased payment
will be made. The Committee has discretion to designate the period over which
the performance factors are to be measured, but the performance period must be
at least two years. The Committee may adjust the performance goals and
measurements applicable to performance awards to take into account changes in
law and accounting and tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances, provided
that no adjustment shall be made which would result in an increase in the
compensation of any holder whose compensation is subject to the OBRA 1993
limitation on deductibility for the year in question.
Unless otherwise determined by the Committee, performance awards will
generally be paid out on a prorated basis in the event of termination of
employment due to death, disability or retirement under a retirement plan of
the Company or a subsidiary, and will be forfeited in the event of other types
of termination. If a participant engages in detrimental activity (which means,
for purposes of
29
<PAGE>
the 1990 Plan, willful, reckless or grossly negligent activity determined by
the Committee, on a case-by-case basis, to be detrimental to or destructive of
the business or property of the Company or any subsidiary thereof) at any time
(whether before or after termination of employment), any performance award that
has not been paid to the participant prior to the date such activity is
determined by the Committee to constitute detrimental activity shall be
forfeited and shall never become payable.
Performance awards will be payable in cash or Common Stock (which may, but
need not, be shares of restricted stock) or a combination of cash and shares,
on a current basis or deferred basis with such interest or earnings equivalent
as may be determined by the Committee.
Other Stock-Based Awards
The Committee may also grant other awards under the 1990 Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of restricted
stock) are or may in the future be acquired, or awards denominated in stock
units, including ones valued using measures other than market value.
Dividend Equivalents
The Committee may, in its discretion, provide that any restricted stock
awards, performance awards or other stock-based awards under the 1990 Plan may
earn dividend equivalents. In respect of any such award which is outstanding on
a dividend record date for Common Stock, the Committee may credit a participant
with an amount equal to the cash or stock dividends or other distributions that
would have been paid on the shares of Common Stock covered by such award had
such covered shares been issued and outstanding on such dividend record date.
The rules and procedures governing the crediting of dividend equivalents,
including the timing, form of payment and payment contingencies thereof, shall
be established by the Committee. For example, the Committee may require that
the performance goals for a performance award must be satisfied prior to
payment of dividend equivalents relating to performance awards.
Other Terms and Conditions
The 1990 Plan provides that no awards may be granted after December 31, 1999,
but that the terms of awards granted on or before December 31, 1999 may extend
beyond such date. Any shares that have been made subject to an award that cease
to be subject to the award (other than by reason of exercise or payment of the
award to the extent it is settled in shares) shall again be available for
award. The 1990 Plan also provides that no award or portion thereof shall be
transferable by the participant (except as a gift to immediate family members
and trusts for the benefit of immediate family members, if permitted in the
agreement governing the terms of the award) otherwise than by will or the laws
of descent and distribution. A stock appreciation right accompanying an option
may not be transferred on the death of the participant except to the transferee
of the related option.
Change in Control
In the event of a change in control (as defined below) of the Company, the
1990 Plan provides that (a) each stock option and stock appreciation right held
by a participant (other than a participant subject to Section 16 of the
Exchange Act who has not held the option or right for at least six months)
shall become immediately exercisable; (b) except as provided below, all other
stock options and stock appreciation rights shall become immediately
exercisable on the date that is six months from the date of grant; (c) if a
participant's employment is terminated following a change in control and such
person has held stock options and stock appreciation rights for more than six
months, the stock options, stock appreciation rights and related Limited Rights
shall be exercisable during the Limited Right Exercise Period applicable to
such stock option or stock appreciation right; (d) if a participant's
employment is terminated following a change in control and such termination
occurs within six months or less from
30
<PAGE>
the grant date, the stock options, stock appreciation rights and Limited Rights
would be so exercisable only if the participant's employment were terminated
(i) by the Company other than for just cause (which would exist only if there
were a felony conviction for fraud, misappropriation or embezzlement) or (ii)
by the participant because the participant in good faith believed that as a
result of the change in control he is unable to continue effectively to
discharge his duties or because of a diminution in his aggregate compensation
or benefits; and (e) Limited Rights shall be automatically exercised or become
exercisable as described above under "Stock Options and Stock Appreciation
Rights". In addition, in the event of a change in control, if the participant's
employment were terminated (i) by the Company other than for just cause or (ii)
by the participant because the participant in good faith believed that as a
result of the change in control he is unable to continue effectively to
discharge his duties or because of a diminution in his aggregate compensation
or benefits, the restriction period with respect to such participant's shares
of restricted stock would terminate and any conditions and restrictions with
respect to performance awards and other stock-based awards would lapse as if
all conditions and restrictions and the maximum objectives applicable thereto
have been fully satisfied or completed, but all such awards would be prorated
and paid only for the portion of the relevant restriction period, performance
period or other period completed as of the date of termination of employment.
A change in control is defined in the 1990 Plan to have occurred upon (a) the
acquisition by a person or group of beneficial ownership of more than 20% of
the outstanding voting stock of the Company, (b) a majority of the Board of
Directors ceasing to be continuing directors (as defined in the 1990 Plan), (c)
a merger, consolidation or sale of substantially all the assets of the Company
in a transaction in which the Company's stockholders immediately prior to the
transaction do not have at least 50% of the voting power of the surviving,
resulting or transferee entity or following which any person or group has
beneficial ownership of more than 20% of the voting power of the surviving,
resulting or transferee entity or (d) the occurrence of any other event
reportable by the Company as a change in control in a filing with the
Securities and Exchange Commission on Form 8-K. The definition does, however,
exclude (i) acquisitions of stock that would otherwise constitute a change in
control made by the Company or an employee benefit plan (or related trust)
sponsored or maintained by the Company and (ii) a merger or consolidation with
a corporation that does not trigger the change in control provisions.
Divestiture of Participant's Employer
The 1990 Plan provides that, if a participant is employed by a subsidiary of
the Company, such participant's employment for purposes of the 1990 Plan shall
be deemed to be terminated as of the date on which such principal employer
ceases to be a subsidiary (the "Divestiture Date") and, except to the extent
otherwise determined by the Committee or set forth in the agreement governing
the terms of the award, (a) the restriction period with respect to shares of
restricted stock shall be deemed satisfied as of the Divestiture Date and such
shares shall become nonforfeitable and (b) performance awards and other stock-
based awards shall become nonforfeitable as if all performance objectives or
other conditions or restrictions applicable thereto have been attained,
completed or satisfied. However, any such award shall be prorated for the
relevant restriction period, performance period or other period completed as of
the Divestiture Date.
Amendment and Termination
The Board of Directors has the power, in its discretion, to amend the 1990
Plan at any time. It does not have the power, however, except as may be
otherwise provided in the 1990 Plan, to (a) increase the maximum number of
shares authorized for issuance pursuant to the 1990 Plan, (b) change the class
of eligible employees to other than key employees, (c) reduce the basis upon
which any minimum stock option price is determined, (d) extend the period
within which awards under the 1990 Plan may be granted beyond December 31, 1999
or (e) provide for a stock option exercisable more
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<PAGE>
than ten years from the date of grant, except in the event of death. In
addition, the Board of Directors does not have the power to change the terms of
any previously-granted award in a manner that would adversely affect the rights
of the holder thereof without the consent of such holder, except to the extent
provided in the 1990 Plan or contained in the terms of the award.
The Board of Directors may suspend or terminate the 1990 Plan at any time. No
such suspension or termination, however, shall affect options or stock
appreciation rights then in effect. In the event of termination of the 1990
Plan, restricted stock, performance awards and other stock-based awards shall
be prorated in the same manner as described above under "Divestiture of
Participant's Employer" as if the participant were employed by a subsidiary
that was divested by the Company on the date of termination of the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1990 Plan. This summary is not intended to be
exhaustive and does not describe state, local or foreign tax laws.
Incentive Stock Options
The grant of an incentive stock option will not result in any immediate tax
consequence to the Company or to the participant. A participant will not
realize taxable income upon the exercise of an incentive stock option, provided
the participant was an employee of the Company or a subsidiary at all times
from the date the option was granted to the date three months (in the case of a
disabled employee, one year) before the date of exercise, and the Company will
not be entitled to any deduction. If the participant does not dispose of the
stock acquired within one year after its receipt (and two years after such
option was granted), gain or loss realized on the subsequent disposition of the
stock will be treated as long term capital gain or loss. The excess of the fair
market value of the stock at the time of exercise over the option price will be
includable in the participant's "alternative minimum taxable income" for
purposes of the "alternative minimum tax". If the stock is disposed of prior to
those times, the participant will realize ordinary income in an amount equal to
the lesser of (i) the excess of the fair market value of the stock on the date
of exercise over the option price; or (ii) if the disposition is a taxable sale
or exchange, the amount of gain realized. Any gain recognized by the
participant on the disposition in excess of the amount taxable as ordinary
income will be treated as capital gain, long or short term depending on whether
the stock has been held for more than one year. Upon such a disposition, the
Company will generally be entitled to a deduction in the same amount and at the
same time as the participant realizes such ordinary income.
Nonqualified Stock Options
The grant of a nonqualified stock option will not result in any immediate tax
consequence to the Company or the participant. Upon exercise of a nonqualified
stock option, the participant will realize ordinary income in an amount equal
to the fair market value of the stock at the time of exercise over the option
price, and the Company will generally be entitled to a deduction in the same
amount.
Stock Appreciation Rights
The grant of a stock appreciation right will not result in any immediate tax
consequence to the Company or to the participant. Upon the exercise of a stock
appreciation right, any cash received and the fair market value of any stock
received will constitute ordinary income to the participant. The Company will
generally be entitled to a deduction in the same amount and at the same time as
the participant realizes such income.
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<PAGE>
Restricted Stock
A participant granted restricted stock will in most cases be subject to tax
at ordinary income rates on the fair market value of the restricted stock at
the time the restrictions lapse. However, a participant who makes an election
under Section 83(b) of the Internal Revenue Code within 30 days of the date of
grant will have ordinary income as of such date equal to the fair market value
of the shares of restricted stock determined without regard to the
restrictions. If the shares subject to such election are forfeited, the
participant will not be entitled to a deduction, refund or loss for tax
purposes. In the case of a sale of shares after the expiration of the
restriction period, the holding period to determine whether the participant has
long-term or short-term capital gain or loss begins upon such expiration and
the tax basis for such shares will be equal to the fair market value thereof on
such date. If the participant elects to be taxed as of date of grant, however,
the holding period commences on such date and the tax basis will be equal to
the fair market value of the shares on the date of grant determined without
regard to the restrictions. The Company will in most instances be entitled to a
deduction equal to the amount treated as compensation to the participant.
Performance Awards and Other Stock-Based Awards
A participant receiving any performance award or other stock-based award will
recognize income, and the Company will generally be allowed a deduction, when
the award is paid. The amount of cash and the fair market value of the shares
of Common Stock received will be ordinary income to the participant and the
Company will generally be entitled to a tax deduction therefor.
Dividend Equivalents
Dividend equivalents credited in respect of performance awards and other
stock-based awards generally will be taxed at ordinary income rates when paid
to the participant and in most instances will be treated as additional
compensation deductible by the Company at such time.
OBRA 1993 Deductibility Limitation
As noted above, under OBRA 1993 the allowable federal income tax deduction
for compensation paid or accrued with respect to the chief executive officer
and as many as four other officers of the Company will be limited to no more
than $1 million per year for 1994 and subsequent years. Under the 1990 Plan as
proposed to be amended, incentive stock options, nonqualified stock options,
stock appreciation rights, and performance awards (and related performance-
based dividend equivalents) are intended to qualify as "performance-based
compensation" not subject to the $1 million limitation, except in limited
circumstances involving accelerated vesting of performance awards on a prorated
basis in the event of termination of employment due to death, disability or
retirement, or divestiture of a subsidiary, or following a change in control of
the Company. Restricted stock and other stock-based awards do not qualify as
"performance-based compensation" and would be subject to the limitation.
NEW PLAN BENEFITS
The following table shows actual awards that were granted under the 1990 Plan
as currently in effect during the 1993 fiscal year and stock options that were
granted since the inception of the 1990 Plan on behalf of Messrs. Alley, Hays,
Henson, Househam and Humphrey (the five executive officers named in the table
on page 8), and on behalf of all current executive officers of the Company as a
group and all employees of the Company (including all current officers who are
not executive officers) as a group. Future awards under the 1990 Plan as
proposed to be amended are not determinable at this time. The Company does not
believe that the amount of awards granted in 1993 or since the
33
<PAGE>
inception of the 1990 Plan would have been different if the 1990 Plan had been
amended at the time such grants were made. No current director of the Company
who is not an executive officer of the Company, no nominee for election as a
director and no associate of any director, executive officer or nominee for
election as a director of the Company is or has been eligible to receive awards
either under the 1990 Plan as currently in effect or as proposed to be amended.
Other than Mr. Alley, no person received 5% or more of the awards granted under
the 1990 Plan during the 1993 fiscal year or since the inception of the 1990
Plan.
<TABLE>
<CAPTION>
AVERAGE CASH AMOUNT
NUMBER OF SHARES PAYABLE UNDER
PAYABLE UNDER PERFORMANCE AWARDS
NUMBER OF SHARES PERFORMANCE AWARDS GRANTED DURING 1993
NUMBER OF SHARES UNDERLYING OPTIONS GRANTED DURING 1993 ASSUMING ATTAINMENT
UNDERLYING OPTIONS GRANTED SINCE ASSUMING PAYMENT AT OF MID-POINT OF
NAME AND POSITION GRANTED DURING 1993 INCEPTION TARGET AMOUNT PERFORMANCE GOAL
- ----------------- ------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
WILLIAM J. ALLEY 163,200 453,200 16,320 $ -0-
Chairman of the Board
and Chief Executive
Officer
THOMAS C. HAYS 81,600 226,600 8,160 -0-
President and Chief
Operating Officer
ARNOLD HENSON 58,750 163,150 5,875 -0-
Executive Vice
President and Chief
Financial Officer
ANTHONY D. HOUSEHAM -0- 58,000 -0- -0-
Chairman and Chief
Executive of Gallaher
Limited
HOWARD C. HUMPHREY 36,500 94,500 3,650 -0-
Chairman of the Board,
President and Chief
Executive Officer of
The Franklin Life
Insurance Company
EXECUTIVE GROUP 632,150 1,703,550 63,215 312,000
EMPLOYEES INCLUDING
NON-EXECUTIVE OFFICERS 1,707,950 4,186,800 12,020 -0-
</TABLE>
If the proposed amendments are not approved, the 1990 Plan will continue in
accordance with its current terms.
RESOLUTION CONSTITUTING ITEM 3
The resolution (designated herein as Item 3) to approve the amendments to the
1990 Long-Term Incentive Plan is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
amendments to the American Brands, Inc. 1990 Long-Term Incentive Plan
described in the proxy statement accompanying the notice of this Annual
Meeting, be and they are hereby approved effective as of January 1, 1994."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 3.
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<PAGE>
ITEM 4
- ------
APPROVAL OF AMENDMENT TO THE
AMERICAN BRANDS, INC. 1986 STOCK OPTION PLAN
In 1986, the stockholders of the Company approved the American Brands, Inc.
1986 Stock Option Plan (the "1986 Plan"). The 1986 Plan provides for the grant
of options and stock appreciation rights and has substantially similar terms in
respect thereof as does the 1990 Plan. See Item 3, Summary of Terms of the 1990
Plan, as Amended--Stock Options and Stock Appreciation Rights. The 1986 Plan
does not provide for the grant of restricted stock, performance awards or any
types of award other than stock options and stock appreciation rights. No
further awards were permitted to be made under the 1986 Plan after February 24,
1991. There were approximately 600 employees of the Company and its
subsidiaries who were granted options and stock appreciation rights under the
1986 Plan. The Board of Directors has adopted an amendment to the 1986 Plan as
described below subject to stockholder approval.
Copies of the 1986 Plan as currently in effect and the amendment thereto will
be sent to any stockholder upon written request to the Secretary at the
Company's office at 1700 East Putnam Avenue, Old Greenwich, Connecticut 06870
and copies will be available at the meeting. Stockholders are referred to the
texts thereof and the summary in this item is qualified by such reference.
EXTENSION OF EXERCISE PERIOD FOR RETIREMENT, DEATH AND DISABILITY
Options granted under the 1986 Plan are generally exercisable during the
period stated in the option which is from one to ten years from the date of
grant. As is the case under the 1990 Plan as now in effect, the period of
exercisability stated in the options granted under the 1986 Plan may be
shortened, in some cases substantially, upon the termination of the option
holder's employment as a result of retirement, death or disability. In the
event of retirement or disability, options that are exercisable at the time of
termination can only be exercised for three years after termination (unless the
normal option period expires sooner). In the event of death, the option cannot
be exercised more than one year after death.
As noted in Item 3 above, the Committee believes that this acceleration of
the option termination date is unfair to the holders who have retired, died or
become disabled and should be changed. An amendment is thus also being proposed
to the 1986 Plan which would permit options thereunder to be exercisable,
following termination of the participant's employment due to retirement under a
retirement plan of the Company or subsidiary or due to death or disability, for
a period up to the balance of the normal term of the option, except that a
nonqualified stock option may be exercised for one year after death even if
that period extends beyond the normal ten year term. There will be no change to
the provisions regarding the exercisability of options after termination of the
holder's employment for any other reason.
As is the case for outstanding options under the 1990 Plan, the Committee
currently intends to amend outstanding options granted under the 1986 Plan and
held by active employees (but not former employees) to provide for such
extended post-employment exercise period, subject to obtaining the consent of
the holders whose options are being amended. The amendment extending the
maximum post-employment exercise period will enhance the incentive for key
employees to maximize stockholder value by providing additional opportunity
following termination as a result of retirement, death or disability for key
employees to share in the benefit of stock price appreciation to which their
services during employment may have contributed.
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<PAGE>
See Item 3, Federal Income Tax Consequences--Incentive Stock Options--
Nonqualified Stock Options--Stock Appreciation Rights, for a brief summary of
the principal federal income tax consequences of stock options and stock
appreciation rights under the 1986 Plan.
The actual number of options that were granted under the 1986 Plan on behalf
of Messrs. Alley, Hays, Henson, Househam and Humphrey (the five executive
officers named in the table on page 8), and on behalf of all current executive
officers of the Company as a group and all employees of the Company (including
all current officers who are not executive officers) as a group, is as follows:
Mr. Alley, 550,000; Mr. Hays, 237,000; Mr. Henson, 205,200; Mr. Househam,
62,200; Mr. Humphrey, 75,800; Executive Group, 1,647,200; and Employees
(including Non-Executive Officers), 4,721,040. The Company does not believe
that the amount of options granted since the inception of the 1986 Plan would
have been different if the 1986 Plan had been amended at the time such grants
were made. No current director of the Company who is not an executive officer
of the Company, no nominee for election as a director and no associate of any
director, executive officer or nominee for election as a director of the
Company is or has been eligible to receive awards either under the 1986 Plan as
currently in effect or as proposed to be amended. Other than Mr. Alley, no
person received 5% or more of the options granted under the 1986 Plan since its
inception.
If the proposed amendment is not approved, options granted under the 1986
Plan will continue in accordance with their current terms.
RESOLUTION CONSTITUTING ITEM 4
The resolution (designated herein as Item 4) to approve the amendment to the
1986 Stock Option Plan is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
amendment to the American Brands, Inc. 1986 Stock Option Plan described in
the proxy statement accompanying the notice of this Annual Meeting, be and
it is hereby approved effective as of January 1, 1994."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 4.
ITEM 5
- ------
APPROVAL OF AMENDMENTS TO ANNUAL EXECUTIVE
INCENTIVE COMPENSATION PROGRAM
The executive incentive compensation program of the Company in its original
form was adopted by the stockholders in 1912. It has had the same purpose of
furnishing annual incentive compensation to key employees for more than 80
years. The executive incentive compensation program is contained in Article XII
of the Company's By-laws and provides that one-half of 1% of the Company's
annual consolidated net income before taxes (subject to certain adjustments) is
made available for allotment as incentive compensation.
As now in effect Article XII provides that of the amount available for any
year 18% shall be allotted to the Chairman of the Board, 24% is allotted to
other key employees constituting the Management Group in proportion to their
fixed salaries and the balance is allotted among the Management Group by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") entirely at its discretion as to amounts and individuals. There
are currently 12 officers of the Company eligible to receive Article XII
awards. One-half of the amount allotted to each participant is paid in cash as
soon as practicable after allotment and the other half is payable on December
15 of the year in which the allotment is made. The deferred portion of the
Article XII
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<PAGE>
payment is contingent on the participant not engaging in competitive employment
prior to receipt of payment thereof. The Committee has typically not awarded
the full discretionary portion. Any amount not awarded does not carry over to
future years.
SUMMARY OF PROPOSED AMENDMENTS
New tax legislation which is effective this year precludes the Company from
taking a tax deduction for certain executive compensation in excess of $1
million unless certain conditions are met. In order to conform the Company's
annual executive incentive compensation program to the new tax rules and
otherwise enhance its effectiveness, the Committee has recommended and the
Board of Directors has adopted amendments to Article XII, subject to approval
by the stockholders of the Company. Article XII, as proposed to be amended, is
set forth in full in Exhibit B, and the description of the proposed amendments
which appears below is qualified in its entirety by reference thereto.
CHANGES IN RESPONSE TO NEW TAX RULES
As noted under Item 3 above, under OBRA 1993 the allowable federal income tax
deduction by the Company for compensation paid or accrued with respect to the
chief executive officer and each of the four other most highly compensated
officers of the Company will be limited to no more than $1 million per year for
1994 and subsequent years. Certain types of compensation are exempted from this
deduction limitation, including "performance-based compensation" with respect
to which objective performance goals have been pre-established by the Committee
and approved by the majority vote of the stockholders. The Board of Directors
has adopted the following amendments, subject to approval by the stockholders
of the Company, which are intended to satisfy the requirements of OBRA 1993 so
that all of the incentive compensation payable under Article XII to the
Chairman of the Board and the non-discretionary portion of the incentive
compensation payable to other officers whose compensation is subject to the
OBRA 1993 $1 million tax deduction limitation will be considered "performance-
based compensation" and therefore will continue to be deductible by the
Company.
1.Under Article XII as now in effect, the Committee designates, as members of
the Management Group who will receive allotments, the "salaried employees of
the Company who, in the judgment of [the] Committee, held during all or any
part of such year positions having responsibility for the management of
important aspects of the Company's business". The designation is not made until
after the end of the year. The proposed amendments would define the Management
Group as consisting of all persons elected to the office of Vice President of
the Company or any office senior thereto (other than the Chairman of the Board
and any officer covered by an incentive compensation plan of any subsidiary of
the Company). The amendment is intended to permit the mandatory allotment of
Article XII amounts among the Management Group members to qualify as
"performance-based compensation" by removing the discretionary nature of
allotments which would result from the designation of recipients by the
Committee after the beginning of a fiscal year.
2.Under Article XII as now in effect, 24% of the amount made available for
allotment in any year is allotted to the Management Group members in proportion
to their fixed salaries and the balance is allottable, as to amounts and
individuals, entirely at the discretion of the Committee. As a result of the
proposed amendments, the mandatory amount allotted to the Management Group
members in proportion to their fixed salaries would be increased from 24% to
30% of the amount made available, and the balance awarded at the discretion of
the Committee would be reduced accordingly. This would increase the amount
eligible to qualify as "performance-based compensation". The discretionary
portion would still not qualify as "performance-based compensation".
37
<PAGE>
3.Under Article XII as now in effect, the mandatory portion of the Management
Group allotment is based on an individual member's highest fixed salary during
the year. Under the proposed amendments, the mandatory portion of the allotment
to each Management Group member subject to the OBRA 1993 $1 million tax
deduction limitation would be based on such individual member's fixed salary at
the beginning of the year (or, if later, the beginning of membership in the
Management Group). This change is intended to avoid any question as to whether
the possibility of an increase in a member's Article XII allotment resulting
from a discretionary increase in the member's salary during the year could
jeopardize qualification of the Article XII allotment as "performance-based
compensation". For Management Group members not subject to the $1 million
limitation, the present allocation criterion (highest fixed salary) would be
retained.
4.Under Article XII as now in effect, the mandatory allotment to the Chairman
of the Board and the mandatory allotments among Management Group members are
fixed and not subject to change by the Committee. The proposed amendments to
Article XII would provide Committee discretion to reduce the amount of the
mandatory allotment to any individual or to the Chairman of the Board.
Discretion to reduce compensation is permitted under the proposed tax
regulations, and would provide flexibility to reduce individual allotments in
appropriate cases. Any such reduction could not be allotted to any other
individual.
5.Under Article XII as now in effect, allotments to the Chairman of the Board
and each member of the Management Group are paid in two equal installments, the
first payment being made as soon as practicable after the allotment is
determined and the second being paid on December 15 of the same year. The
second installment is forfeitable if the employee accepts employment with or
renders service to a competitor without the approval of the Board of Directors.
As proposed to be amended, Article XII would provide that the entire amount to
be payable is to be paid in a single installment as soon as practicable after
determination of the amount available. The December 15 installment would be
eliminated. The split payment of annual executive incentive compensation is not
typical in competitive practice. In addition, under the present two installment
system, the mandatory portion of the first installment is deductible by the
Company for tax purposes in the year to which it relates (e.g., the first
installment of the mandatory portion for 1993 was deductible in 1993, although
not paid until 1994), while the mandatory portion of the second installment
(e.g., the installment for 1993 payable in December 1994) is deductible in the
year paid (1994). Since the $1 million limit applies to the year in which the
deduction would otherwise be allowed, this results in the corporate income tax
deduction for the mandatory portion of an award being split between two years
for purposes of the $1 million limitation. Eliminating the second installment
simplifies this situation.
OTHER CHANGES
In light of the increasingly competitive and difficult economic conditions
under which the Company now operates, the Board has concluded that certain
other modifications to Article XII are warranted in order to preserve the
attractiveness of the Company's annual incentive compensation program for
executives. The Board believes such amendments will be of assistance to the
Company in securing and retaining executives of outstanding ability.
Under Article XII as now in effect, the amount available for allotment each
year is equal to one-half of 1% of "net income before taxes" (as defined
therein), provided that net income before taxes equals or exceeds 12% of net
worth (also defined therein) of the Company and its consolidated subsidiaries
for such year and provided a cash dividend on the Common Stock of the Company
has been paid in such year. Amendments proposed by the Board would replace "net
income before taxes" with "adjusted income from continuing operations", and
eliminate the net worth percentage threshold required before an amount will be
available for allotment under Article XII. The Board considers the concept
"adjusted income from continuing operations" to be a more appropriate measure
of annual
38
<PAGE>
company earnings for purposes of determining amounts available for allotment
under Article XII in that it is designed to better reflect the normal results
of operations of a given year exclusive of unusual or extraordinary items. The
Company's "adjusted income from continuing operations" would be its income from
continuing operations before income taxes adjusted by (i) excluding the
deduction for Article XII incentive compensation, (ii) excluding unrealized
gains and losses on securities, and adjusting realized gains and losses on
trading securities to reflect cost, (iii) excluding restructuring charges or
credits, and charges for impaired assets other than those sold in the ordinary
course of business, (iv) including the results of operations for such year from
businesses classified as discontinued operations prior to disposition and (v)
to the extent not adjusted pursuant to items (ii), (iii) or (iv), excluding
gains or losses included in continuing operations resulting from the sale or
writedown of intangible assets, land or buildings, investments in business
units and securities resulting from the sale of business units. "Adjusted
income from continuing operations" as well as the actual amount available for
allotment each year would continue to be certified by the independent
accountants who have audited the Company's books and certified its consolidated
financial statements for the year in question. The amount available for
allotment for 1993, based on one-half of 1% of "net income before taxes", was
$4,789,585, while the amount that would have been available for allotment for
1993, based on one-half of 1% of "adjusted income from continuing operations"
was $5,688,210. However, all allotments under the proposed program would be
subject to reduction at the discretion of the Committee while only non-
mandatory allotments would be subject to the discretion of the Committee under
the current program.
The Board is also recommending the elimination of the condition that annual
executive incentive compensation shall not be paid unless net income before
taxes equals or exceeds 12% of net worth. The limitation has never had
applicability in the past, is not typical in competitive practice and the Board
does not believe that payment of executive incentive compensation should be
absolutely precluded for a year in which this condition is not met.
As a result of the above amendments and the effectiveness thereof for 1994
and subsequent years, certain other technical changes to Article XII are also
proposed (e.g., the deletion of certain obsolete or otherwise unnecessary
provisions, and related cross-references).
In accordance with the amendatory provisions of the Article, other amendments
to Article XII may be made by the Board of Directors from time to time without
action by the stockholders, provided that no amendment may be made by the Board
changing the basic formula so as to increase the amount made available for
allotment, or increasing to higher than 18% the amount to be allotted to the
Chairman of the Board each year.
39
<PAGE>
The following table shows actual amounts that were allotted under Article XII
as currently in effect, and amounts that would have been allotted under Article
XII, as amended (assuming no negative discretion would have been exercised by
the Committee as to awards made), for the 1993 fiscal year on behalf of each of
the three most highly compensated executive officers named in the table on page
8, and on behalf of all current executive officers of the Company as a group
and all employees of the Company (including all current officers who are not
executive officers) as a group. Messrs. Househam and Humphrey, who are named in
the table on page 8, did not receive allotments under Article XII as currently
in effect, and are not eligible to receive allotments under Article XII as
proposed to be amended. The current directors of the Company who are not
executive officers of the Company are not eligible to receive allotments either
under Article XII as currently in effect or as proposed to be amended.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
PROPOSED (2)
(ASSUMING NO
EXERCISE OF
NEGATIVE
NAME AND POSITION PRESENT (1) DISCRETION)
----------------- ----------- ------------
<S> <C> <C>
WILLIAM J. ALLEY $ 862,125 $1,023,878
Chairman of the Board and Chief
Executive Officer
THOMAS C. HAYS 394,158 468,260
President and Chief
Operating Officer
ARNOLD HENSON 363,889 432,300
Executive Vice President
and Chief Financial
Officer
EXECUTIVE GROUP 2,584,405 3,069,947
EMPLOYEES INCLUDING
NON-EXECUTIVE OFFICERS 299,295 355,562
</TABLE>
- --------
(1) Under the current Article XII the total available for allotment for the
fiscal year ended December 31, 1993 was $4,789,585. The amount actually
allotted was $2,883,700.
(2) The awards set forth in the Proposed column assume that the total award is
allotted to individuals on the same percentage basis as the amounts
actually allotted to them for 1993 prior to the proposed amendments. Under
the amended Article XII, the total that would have been awarded based on
this assumption is $3,425,509. Under the amended Article XII, the total
that would have been available for allotment for the fiscal year ended
December 31, 1993 was $5,688,210.
If the proposed amendments are not approved, Article XII will continue in
accordance with its current terms.
RESOLUTION CONSTITUTING ITEM 5
The resolution (designated herein as Item 5) to approve the amendments to the
annual executive incentive compensation program contained in Article XII of the
By-laws of the Company is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
amendments to the Company's annual executive incentive compensation program
contained in Article XII of the By-laws as shown in Exhibit B to the proxy
statement accompanying the notice of this annual meeting be and they are
hereby approved effective for 1994 and subsequent years."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 5.
40
<PAGE>
ITEM 6
- ------
APPROVAL OF AMENDMENTS TO THE
PROFIT-SHARING PLAN OF AMERICAN BRANDS, INC.
The Board of Directors has adopted amendments to the Profit-Sharing Plan of
American Brands, Inc. (the "Profit-Sharing Plan" or the "Plan"), which, subject
to approval by the stockholders, are to be effective as of January 1, 1994. The
amendments are similar to certain of the amendments being proposed for the
executive incentive compensation program set forth in Article XII of the
Company's By-laws in that the profit-sharing contribution would be based on
"adjusted income from continuing operations" instead of "net income before
taxes" and the condition that "net income before taxes" must equal or exceed
12% of net worth before a contribution could be made would be eliminated. A
description of the Profit-Sharing Plan and amendments thereto appears below.
Copies of the Profit-Sharing Plan as currently in effect and the amendments
thereto will be sent to any stockholder upon written request to the Secretary
at the Company's office at 1700 East Putnam Avenue, Old Greenwich, Connecticut
06870 and copies will be available at the meeting. Stockholders are referred to
the texts thereof and the following summary is qualified by such reference.
CURRENT PROFIT-SHARING PLAN
The principal purpose of the Profit-Sharing Plan is to attract and retain
qualified employees and to offer an incentive for them to build greater profits
by providing for participation by employees in such profits. Another purpose is
to afford a means whereby eligible employees through regular savings on a
voluntary basis may supplement retirement and other benefits otherwise
available to them.
The Profit-Sharing Plan permits the Board of Directors to amend, modify or
terminate the Plan without stockholder approval, except for any amendment which
materially (i) increases benefits accruing to eligible employees, (ii)
increases the number of shares of Common Stock of the Company which may be
issued under the Plan or (iii) modifies the requirements as to eligibility for
participation in the Plan.
EMPLOYEES COVERED
Each employee of the Company becomes a member on the January 1 preceding the
end of the twelve-month period subsequent to date of employment in which the
employee completes 1,000 hours of service, or, if this condition is not met in
such twelve-month period, on the January 1 of any calendar year after date of
employment in which the employee completes 1,000 hours of service.
Each employee, upon the later of becoming a member or completing 1,000 hours
of service, may elect to make tax deferred contributions and after-tax deposits
by payroll deduction (see "Tax Deferred and Matching Contributions" and
"Voluntary After-Tax Deposits" below).
PROFIT-SHARING CONTRIBUTIONS
Absent the amendments, each year the Company contributes a sum equal to one-
sixth of 1% of net income before taxes, as defined in the Plan, for such year.
No contribution may be made for any year (a) in which a cash dividend is not
paid on the Common Stock of the Company, or (b) in excess of the amount
deductible for such year by the Company for federal income tax purposes. In
addition, no contribution may be made for any year for which net income before
taxes does not equal or exceed 12% of net worth (as defined in the Plan).
Subject to certain limitations, the contribution of the Company is reduced by
the amount of forfeitures from members' accounts. The Board of Directors of the
Company may in its sole discretion discontinue, suspend or reduce
contributions.
41
<PAGE>
PLAN INVESTMENTS
Employer contributions are paid to the Trustee of the American Brands, Inc.
Master Defined Contribution Plan Trust. The Northern Trust Company is the
Trustee. The contributions are invested in five investment funds available
through the trust, including the American Stock Fund which invests principally
in Company Common Stock, an equity fund, a diversified fund, a government
securities fund and a short-term investment fund.
The portion of each annual Company profit-sharing contribution apportioned to
each member is allocated among investment funds as the member may elect. The
member may make such election as follows: (a) 30% to the American Stock Fund
and 70% in 10% increments in any of the investment funds or (b) entirely to the
short-term investment fund. A member may also elect once within any three-month
period to transfer up to 25% of the balance held in any investment fund to any
other of such funds.
APPORTIONMENT OF CONTRIBUTIONS TO MEMBERS
Contributions of the Company are apportioned to Plan members on the basis of
each member's Adjusted Earnings for the year in relation to the Adjusted
Earnings of all members. "Adjusted Earnings" means earnings for that year plus
50% of such earnings in excess of the Social Security wage base ($60,600 for
1994).
DISTRIBUTIONS AND WITHDRAWALS
A member's balances in the Profit-Sharing Plan arising from employer
contributions become distributable upon termination of employment. In case of
retirement, death, disability or termination without fault (or upon partial or
complete termination of the Plan) the full amount is distributable. In the case
of any other termination, the full amount is distributable if the member has
completed five years of service but is forfeited if the member has not
completed five years of service. Distribution is made by such method of
settlement--a single distribution in cash or partly in cash and partly in
Company Common Stock, or periodic cash installments--as the member may elect.
TAX DEFERRED AND MATCHING CONTRIBUTIONS
An eligible employee may direct the Company to make a payroll deduction from
his earnings in amounts of from 1% to 3% and that such amounts be contributed
to the Plan as a tax deferred contribution.
The Company currently contributes out of its net income before taxes for each
year an amount equal to the employee's tax deferred contributions, but not in
excess of 50% of the Internal Revenue Code limit on tax deferred contributions
(the limit for 1994 is $9,240). The amount of tax deferred contributions and
matching contributions are subject to certain limitations required by the
Internal Revenue Code which are set forth in the Plan (see "Statutory
Limitations" below). In the event tax deferred contributions of an employee are
reduced because of these limitations, the amount of matching contributions for
such employee will be proportionally reduced. No matching contribution may be
made for any year (a) in which a cash dividend shall not have been paid on the
Common Stock of the Company or (b) in excess of the amount deductible for such
year by the Company for federal income tax purposes. Also, absent the
amendments, no matching contribution will be made for any year for which net
income before taxes shall not have equaled or exceeded 12% of net worth for
such year. Tax deferred contributions and matching contributions will be
nonforfeitable at all times.
Each employee may invest his tax deferred contributions in 10% increments in
any one or more of the investment funds. Not more often than once in any
calendar quarter, an employee may change his investment option. Matching
contributions for years from and after 1990 are invested entirely in the
American Stock Fund.
42
<PAGE>
VOLUNTARY AFTER-TAX DEPOSITS
In addition to receiving Company contributions and tax-deferred and matching
contributions, the Plan Trustee is authorized to accept voluntary after-tax
deposits from members. Any eligible member may become a depositor by electing
to make deposits of his own funds by payroll deductions in amounts not
exceeding 10% of his base pay for the pay period. Each depositor has the same
options for investment of his deposits as he has with respect to investment of
tax-deferred contributions.
OTHER PROVISIONS
The Plan is also permitted to receive a transfer or rollover of an employee's
balance from a tax qualified plan of a predecessor employer. In addition,
subject to certain statutory limitations, Plan members may also take loans from
their Plan account balances which are repaid by payroll deduction.
STATUTORY LIMITATIONS
The Plan contains contribution limits in order to meet the requirements of
the Internal Revenue Code. The annual amount of tax deferred contributions that
may be made by a member is limited to a fixed dollar amount ($9,240 for 1994).
The Internal Revenue Code also limits the amount of tax deferred contributions
and after-tax contributions by highly compensated employees (as defined in the
Internal Revenue Code) to a multiple of such contributions made by non-highly
compensated employees.
In addition, the Internal Revenue Code limits annual additions to the Profit-
Sharing Plan to the lesser of $30,000 or 25% of compensation and provides that
Profit-Sharing Plan contributions cannot be based on compensation in excess of
a fixed dollar amount ($150,000 for 1994).
SUPPLEMENTAL RETIREMENT PLAN
The Company's Supplemental Retirement Plan contains a supplemental profit-
sharing feature. The Supplemental Retirement Plan provides "highly compensated
employees" (as defined in the Internal Revenue Code) with a benefit equal to
the amounts that cannot be contributed to the Profit-Sharing Plan because of
the Internal Revenue Code limit on annual additions to the lesser of $30,000 or
25% of compensation. The Supplemental Retirement Plan also provides "executive
participants" (employees holding the office of Vice President or a senior
office) with supplemental profit-sharing amounts equal to the difference
between the amount contributed under the Profit-Sharing Plan and the amount
that would have been contributed thereunder if the $150,000 limit on
compensation was not included therein. Thus, if the proposed amendments are
adopted and result in an increase or decrease of the Company's contribution to
the Profit-Sharing Plan, the supplemental profit-sharing amounts under the
Supplemental Retirement Plan will correspondingly increase or decrease.
SUMMARY OF PROPOSED AMENDMENTS
Under the Profit-Sharing Plan as now in effect, the Company contributes a sum
equal to one-sixth of 1% of "net income before taxes" as a profit-sharing
contribution, provided that (a) net income before taxes equals or exceeds 12%
of net worth of the Company and its consolidated subsidiaries for such year and
(b) a cash dividend on the Common Stock of the Company has been paid in such
year.
In order to conform to the changes in the Company's executive incentive
compensation program described under Item 5 above, it is proposed that the
Profit-Sharing Plan be amended in order to replace "net income before taxes"
with "adjusted income from continuing operations", and eliminate the net worth
percentage threshold required before Company contributions are permitted under
the Plan. As noted above under Item 5, the Board considers "adjusted income
from continuing operations" to be a more appropriate measure of Company
performance for purposes of determining Company contributions under the Profit-
Sharing Plan in that it is designed to better reflect the normal results of
operations of a given year exclusive of unusual or extraordinary items. The
Board has
43
<PAGE>
approved a similar amendment, subject to approval of the stockholders, to the
executive incentive compensation program set forth in Article XII of the By-
laws of the Company, and believes that a consistent basis for determining
executive incentive compensation under Article XII and profit-sharing for
employees generally under the Profit-Sharing Plan is desirable.
The Company's "adjusted income from continuing operations" would be its
income from continuing operations before income taxes adjusted by (i) excluding
the deduction for contributions under the Plan, (ii) excluding unrealized gains
and losses on securities, and adjusting realized gains and losses on trading
securities to reflect cost, (iii) excluding restructuring charges or credits,
and charges for impaired assets other than those sold in the ordinary course of
business, (iv) including the results of operations for such year from
businesses classified as discontinued operations prior to disposition and (v)
to the extent not adjusted pursuant to items (ii), (iii) or (iv), excluding
gains or losses included in continuing operations resulting from the sale or
writedown of intangible assets, land or buildings, investments in business
units and securities resulting from the sale of business units. "Adjusted
income from continuing operations" as well as the actual amount contributed
each year would continue to be certified by the independent accountants who
have audited the Company's books and certified its consolidated financial
statements for the year in question. The Company's profit-sharing contribution
for 1993, based on one-sixth of 1% of "net income before taxes", was
$1,562,400, while the Company's profit-sharing contribution for 1993, based on
one-sixth of 1% of "adjusted income from continuing operations", would have
been $1,861,942.
The Board is also recommending the elimination of the condition that net
income before taxes equal or exceed 12% of net worth before profit-sharing
contributions may be made. The limitation has never had applicability in the
past, is not typical in competitive practice and the Board does not believe
that profit-sharing contributions should be absolutely precluded for a year in
which this condition is not met.
The following table shows actual amounts that were contributed under the Plan
as currently in effect, and amounts that would have been contributed under the
Plan, as amended, for the 1993 plan year on behalf of each of the three most
highly compensated executive officers, and on behalf of all current executive
officers of the Company as a group, and all employees of the Company (including
all current officers who are not executive officers) as a group. Messrs.
Househam and Humphrey and current directors of the Company who are not
executive officers of the Company are not eligible to have contributions made
on their behalf either under the Plan as currently in effect or under the Plan
as proposed to be amended.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NAME AND POSITION PRESENT PLAN (1) PROPOSED PLAN (1)
----------------- ---------------- -----------------
<S> <C> <C>
WILLIAM J. ALLEY $165,685 $ 197,450
Chairman of the Board and Chief
Executive Officer
THOMAS C. HAYS 92,707 110,480
President and Chief
Operating Officer
ARNOLD HENSON 77,799 92,714
Executive Vice President and
Chief Operating Officer
EXECUTIVE GROUP 626,292 746,363
EMPLOYEES INCLUDING
NON-EXECUTIVE OFFICERS 936,108 1,115,579
</TABLE>
- --------
(1) Includes supplemental profit-sharing amounts.
44
<PAGE>
If the proposed amendments are not approved, the Profit-Sharing Plan will
continue in accordance with its current terms.
RESOLUTION CONSTITUTING ITEM 6
The resolution (designated herein as Item 6) to approve the amendments to the
Profit-Sharing Plan is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
amendments to the Profit-Sharing Plan of American Brands, Inc. described in
the proxy statement accompanying the notice of this Annual Meeting, be and
they are hereby approved effective as of January 1, 1994."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 6.
ITEM 7
- ------
RESOLUTION REQUESTING ELIMINATION OF ELECTION OF
DIRECTORS BY CLASSES PROPOSED BY TWO STOCKHOLDERS
The Company is informed that John J. Gilbert, whose address is 1165 Park
Avenue, New York, New York 10128-1210, a record holder of 400 shares of Common
Stock and claiming an additional family interest of 2,000 shares, and/or John
C. Henry, a record holder of 12,800 shares of Common Stock, whose address is 5
East 93rd Street, New York, New York 10128, intend to introduce at the Annual
Meeting the following resolution (designated herein as Item 7):
"RESOLVED: That the stockholders of American Brands, Inc., assembled in
annual meeting in person and by proxy, hereby request that the Board of
Directors take the steps needed to provide that at future elections of
directors new directors be elected annually and not by classes, as is now
provided, and that on expiration of present terms of directors their
subsequent election shall be on an annual basis."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"Continued strong support along the lines we suggest were shown at the last
annual meeting when 32.57%, 5,111 owners of 55,920,387 shares, were cast in
favor of this proposal. The vote against included 14,294 unmarked proxies.
"LAC Minerals Ltd., Interco, Chemical Banking Corporation and Commonwealth
Edison Company of Chicago are among the latest companies to end their
stagger system of electing directors. In 1992 we withdrew our resolution on
the subject at Westinghouse after they agreed to end their stagger system
of electing directors. Chemical Bank's management, to its credit,
voluntarily ended theirs without a resolution.
"In the 1990 proxy statement of Kmart Corporation, the State Board of
Administration of Florida, pointed out:
"We disagree with management's usual argument favoring classified
boards--that they provide stability and continuity. Stability and
continuity are fine in the abstract, but may not be in the best
interest of shareholders depending upon the management practices which
are being continued.
We also disagree with management's other standard argument favoring
classified boards, that they are necessary to protect shareholders from
abusive takeover tactics.
We believe that broad anti-takeover defenses such as classified
boards can serve as entrenchment devices which discourage all take-over
attempts, both good and bad.
Finally, we believe that by eliminating the market for corporate
control as a disciplinary check on management actions, classified
boards can have a negative impact on ongoing company performance.
45
<PAGE>
In our view, the classified board is contrary to the long-term
interests of all shareholders by not providing that directors be
accountable on an annual basis. Accordingly, we urge your support for
the proposal which recommends that the Board of Directors take the
necessary steps to repeal the classified board and institute annual
election of directors.'
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
BOARD OF DIRECTORS STATEMENT ON ITEM 7
Under the corporate law of Delaware, the State in which the Company is
incorporated, the change contemplated by the proposal would require an
amendment to the Company's Certificate of Incorporation which must first be
approved by the Board of Directors and then submitted to a vote of the
stockholders. A vote in favor of Item 7, therefore, would constitute a request
that the Board initiate this amendment. The Board does not believe, however,
that such an amendment would be in the best interests of the Company or its
stockholders.
In 1986, the stockholders approved an amendment to the Company's Certificate
of Incorporation to provide for the current division of the Board by class,
with one class elected each year for a three-year term. Fully 86.9% of the
votes cast with respect to that proposal were cast in its favor.
The Board believes that a classified Board enables the Company to plan for a
reasonable period into the future and thereby provide for continuity of
corporate policies. The Board also believes that flexibility is achieved by the
election of one-third of the directors annually, while stability is retained
because a majority of the directors at all times will have had prior experience
in the management of the Company's business. In addition, the classified Board
would preclude the immediate removal of all incumbent directors by a person
seeking a change in control of the Company and thereby would benefit all of the
Company's stockholders as the incumbent directors would then be in a position
to act to protect the stockholders' value in the Company. Surveys of corporate
board structures conducted by certain organizations independent of the Company
have shown that more than half of the corporations included in the surveys
maintain classified boards. For the foregoing reasons, the Board believes that
the amendment contemplated by Item 7 is not in the best interests of the
Company. Resolutions substantially similar to Item 7 were soundly rejected by
the stockholders at the 1993, 1992, 1991, 1990 and 1989 Annual Meetings.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST ITEM 7.
ITEM 8
- ------
RESOLUTION REQUESTING CANCELLATION OF
COMPANY PENSIONS FOR OUTSIDE DIRECTORS
PROPOSED BY ONE STOCKHOLDER
The Company is informed that Howard H. Witsma, whose address and stock
ownership will be furnished by the Company promptly upon receipt of any oral or
written request therefor, intends to introduce at the Annual Meeting the
following resolution (designated herein as Item 8):
"RESOLVED: We the stockholders assembled in person and by proxy, do
request that the Board of Directors take the necessary steps so that (i)
the pensions currently granted to "outside' directors be reviewed with an
eye towards cancellation and (ii) no such pensions be granted in the future
nor increased, if granted, without the direct and specific vote of such
stockholders assembled in Annual Meeting."
46
<PAGE>
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"REASONS: Although it has become commonplace for "outside' directors to
be pensioned, these people are the employees of the stockholders and not
the Company. These ladies and gentlemen are currently being handsomely
remunerated for their services in the form of retainers, per diems, and
expenses for their work for the Company. Further these same ladies and
gentlemen are otherwise employed, or are retired with pensions, and are
being paid for their services at their place of primary employment. Such
"double dipping' is not in the interests of we, the stockholders and owners
of the Corporation, nor fair to us. While we certainly require top talent
as our directors, there are many corporations today, despite what
management may say to the contrary, where this practice is not permitted.
"Last year 11,701 proxies representing 46,743,806 shares were cast in
favor of this proposal. The vote against included 14,231 unmarked proxies."
BOARD OF DIRECTORS STATEMENT ON ITEM 8
The Company has a policy of paying retirement benefits to each non-employee
director who voluntarily retires or decides not to stand for reelection. The
annual retirement benefit is equal to the annual basic director's fee in effect
at the time of retirement and is paid for the number of years equal to the
director's full years of service. The benefit is payable beginning in the year
in which the director retires or attains age 65, whichever occurs later, and
continues to be payable to the director's beneficiary in the event of the
director's death until all such payments have been made.
Management of the Company has expressed to the Board and the Board believes
that the Company's retirement policy for outside directors assists it in
remaining competitive with other major corporations so that the Company may
attract and retain persons of the highest quality to serve on your Board of
Directors. An independent benefits consulting firm reports that over 60% of the
136 major publicly-held companies that it surveyed provide retirement benefits
for their outside directors.
The Board is opposed to the proposal for an additional reason. The proposal
would require the termination of retirement benefits being paid to directors
that have already retired and cancellation of retirement benefits that have
already accrued for directors currently serving. The Company's retirement
policy was an inducement for non-employee directors to join and remain in
service on the Board. The Board believes that the termination of these already
earned retirement benefits would be a breach of the Company's obligations. A
resolution substantially similar to Item 8 was soundly rejected by the
stockholders at the 1993 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST ITEM 8.
ITEM 9
- ------
RESOLUTION REQUESTING ESTABLISHMENT OF
MINIMUM STOCK OWNERSHIP REQUIREMENTS FOR
SENIOR MANAGERS AND OUTSIDE DIRECTORS
PROPOSED BY ONE STOCKHOLDER
The Company is informed that Robert J. Jones, whose address and stockholding
will be furnished by the Company promptly upon receipt of any oral or written
request therefor, intends to introduce at the Annual Meeting the following
resolution (designated herein as Item 9):
"Robert J. Jones--owner of 7000 shares of American Brands proposes that he
requests and recommends that Senior Managers of American Brands be required
to own, at their own expense, shares in American Brands equal to a year's
pay; also in conjunction with this, that future Outside Directors that are
nominated at meetings subsequent to this 1994 meeting, not affecting the
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unexpired terms of existing directors, be required to hold, at their own
expense, five thousand shares of American Brands, Inc."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of his proposal:
"This hot management reform, such as insisting that top managers and
outside directors nominated in the future, hold meaningful stakes in the
company to ensure their motivation to insure success and upward movement of
stock prices; this is in effect at RJR Nabisco, Eastman Kodak, and such a
policy of insider purchases would be a bullish sign for investment managers
to make investments in American Brands. Lets [sic] face it, if your money
was involved in a company, you would do your darndest to insure that [sic]
the company's success in all phases of its operations!"
BOARD OF DIRECTORS STATEMENT ON ITEM 9
Each outside director of the Company currently owns at least 500 shares of
Common Stock of the Company and, as part of the annual director's fee, receives
an additional 200 shares each year under a stockholder approved plan for
outside directors. The Board agrees that the interests of stockholders and the
directors should be aligned by stock ownership on the part of the directors,
but the Board does not agree that the large number of shares mandated by the
proposal should be required. The proposal would require that each outside
director own 5,000 shares costing approximately $175,000 (using a market price
of $35 per share), or approximately five times the annual fee currently
received from the Company for outside director services. The Board believes
that such a policy would have the consequence of greatly limiting the pool of
potential outside directors to only those persons with substantial wealth, and
thus severely inhibit the Company's ability to obtain highly qualified
directors.
The Board encourages ownership of shares of the Company's stock by its
management employees as well. As can be seen from the table on pages 3 to 5,
executive officers of the Company already own a significant amount of shares of
the Company's Common Stock. This stock ownership is encouraged by grants of
stock options under the Company's Long-Term Incentive Plan which will benefit
the employee only to the extent that stockholders also gain from an increase in
the value of the Company's Common Stock as well as by grants of performance
awards payable in stock. The Company's Profit-Sharing Plan permits employees to
invest their Plan assets in the Company's Common Stock and the Company's
contribution that matches the employee's tax deferred contributions is required
to be so invested. The Board believes that these are appropriate means of
encouraging stock ownership among key employees rather than mandating purchase
of a fixed number of shares regardless of the employee's current financial
resources. The Board wishes the Company to be able to attract the most highly
qualified managers without imposing a limitation of minimum stock ownership and
does not wish to have to dismiss a skilled manager for failure to meet such
requirement.
The Board also objects to the proposal because it contains a number of
obviously important, yet extremely vague, concepts. For example, the terms
"senior managers", "a year's pay" and "at their own expense" can be interpreted
in various ways. Should the term senior managers be limited to senior executive
officers or extended to a broader group of employees? Should a year's pay be
measured by base salary only, include bonuses or include bonuses and other
forms of incentive compensation? Is Common Stock acquired under the Company's
employee benefit plans acquired at one's "own expense"? These questions do not
have simple answers and the proposal provides no guidance in dealing with them.
Thus, the Company could never be sure any policy implemented would be in line
with the expectations of those stockholders voting in favor of the proposal.
For the foregoing reasons, the Board believes that the proposal is not in the
best interests of the Company or its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST ITEM 9.
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<PAGE>
ITEM 10
- -------
RESOLUTION REQUESTING IMPLEMENTATION OF MACBRIDE
PRINCIPLES PROPOSED BY SEVEN STOCKHOLDERS
The Company is informed that the New York City Employees' Retirement System,
the New York City Teachers' Retirement System, the New York City Fire
Department Pension Fund and the New York City Police Pension Fund, the
custodian of each of which is the Comptroller of the City of New York, with the
co-sponsorship of the Missionary Oblates of Mary Immaculate, the Friars of the
Atonement, and the New York State Common Retirement Fund, the sole trustee of
which is H. Carl McCall, State Comptroller of the State of New York, whose
respective addresses and stockholdings will be furnished by the Company
promptly upon receipt of any oral or written request therefor, intend to
introduce at the Annual Meeting the following resolution (designated herein as
Item 10):
"WHEREAS, American Brands has two wholly-owned subsidiaries operating in
Northern Ireland, Gallaher Ltd. and TM Group Ltd.;
"WHEREAS, employment discrimination in Northern Ireland has been cited by
the International Commission of Jurists as being one of the major causes of
the conflict in that country;
"WHEREAS, Dr. Sean MacBride, founder of Amnesty International and Nobel
Peace laureate, has proposed several equal opportunity employment
principles to serve as guidelines for corporations in Northern Ireland.
These include:
1. Increasing the representation of individuals from underrepresented
religious groups in the workforce including managerial, supervisory,
administrative, clerical and technical jobs.
2. Adequate security for the protection of minority employees both at the
workplace and while traveling to and from work.
3. The banning of provocative religious or political emblems from the
workplace.
4. All job openings should be publicly advertised and special recruitment
efforts should be made to attract applicants from underrepresented
religious groupings.
5. Layoff, recall, and termination procedures should not in practice, favor
particular religious groupings.
6. The abolition of job reservations, apprenticeship restrictions, and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin.
7. The development of training programs that will prepare substantial
numbers of current minority employees for skilled jobs, including the
expansion of existing programs and the creation of new programs to
train, upgrade, and improve the skills of minority employees.
8. The establishment of procedures to assess, identify and actively recruit
minority employees with potential for further advancement.
9. The appointment of a senior management staff member to oversee the
company's affirmative action efforts and the setting up of timetables to
carry out affirmative action principles.
"RESOLVED, Shareholders request the Board of Directors to:
1. Make all possible lawful efforts to implement and/or increase activity
on each of the nine MacBride Principles."
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The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"--Continued discrimination and worsening employment opportunities have
been cited as contributing to support for a violent solution to Northern
Ireland's problems.
"--In May 1986, the United States District Court ruled in NYCERS v.
American Brands, 634 F. Supp. 1382 (S.D.N.Y., May 12, 1986) that "all nine
of the MacBride Principles could be legally implemented by management in
its Northern Ireland facility.'
"--An endorsement of the MacBride Principles by American Brands will
demonstrate its concern for human rights and equality of opportunity in its
international operations. Please vote your proxy FOR these concerns."
---
BOARD OF DIRECTORS STATEMENT ON ITEM 10
The Company is committed to a policy of equal employment opportunity.
Consistent with this policy, the Company's subsidiary, Gallaher Limited, has
adopted a Declaration of Practice which sets forth the positive measures taken
by Gallaher to ensure that the policy of equal opportunity is actively pursued
without discrimination against any section of the community. The Declaration of
Practice is worded as follows:
"Gallaher Limited, recognising the importance of equality of opportunity
in employment, declares that it practises such equality of opportunity
irrespective of religion, race, sex or disability and further declares that
it:
a. is committed to recruitment, selection and promotion on the basis of
merit alone;
b. uses as criteria in making judgments about merit (i) the actual
requirements of the job; (ii) job-related personnel specifications;
(iii) either ability to do the job or potential ability to do the job;
c. disseminates information on job openings in a manner that provides
access to this information by all groups and welcomes and takes positive
steps to encourage applications from all persons with potential to do
the job in question;
d. monitors and retains records on the outcome, in terms of religion, sex,
race and disability, of its recruitment, selection, training, layoff and
promotion procedures and on trends in the composition of its work force;
e. identifies any under-representation that may exist in its group of
applicants, those hired or those promoted; investigates the cause of the
under-representation; and eliminates any practice discovered which has
the effect of discriminating on any basis other than merit; takes
appropriate measures where necessary to ensure the effective practice of
equality of opportunity in employment;
f. actively promotes, in association with trade unions or other
representatives of the company workforce, an atmosphere and working
environment that both encourages harmony and co-operation among all
employees and discourages behaviour or the circulation and display of
literature that could give offence on the grounds of religion, race, sex
or to the disabled; and, to this end, bans all religious or political
displays and otherwise works toward the elimination within the workplace
of religious or political tensions;
g. ensures that layoff, recall and termination procedures shall be
according to agreements negotiated with trade unions or other
representatives of the company's workforce, and that those procedures
shall not be inconsistent with the principle of equality of opportunity;
h. keeps its working environment and procedures for recruitment, selection,
training, layoff and promotion under review and works co-operatively
with the Fair Employment Agency or the Equal Opportunity Commission in
promoting equality of opportunity in employment;
50
<PAGE>
i. observes the strictest confidentiality with regard to the disclosure of
personal information obtained from individuals in furtherance of its
policy of promoting equality of opportunity in employment;
j. adopts a training policy which recognises the needs and potential,
relative to job performance, of employees (or applicants) of under-
represented groups, subject to the condition that no one will be
excluded from training programmes on the grounds of religious belief,
political opinion, sex or disability;
k. allocates responsibility for its equality of opportunity policy to a
member of senior management."
As noted in the Declaration of Practice, Gallaher already monitors employment
practices with respect to religion and other matters relating to recruitment,
selection, training, and layoff and promotion procedures. Gallaher also is a
signatory to the Declaration of Principle and Intent of the Fair Employment
(Northern Ireland) Act 1976 (the "1976 Act") and has been certified as an Equal
Opportunity Employer Organisation by the Fair Employment Agency established
under the 1976 Act, which, in simple terms, does not permit discrimination.
Gallaher's employment practices in its tobacco manufacturing operation in
Northern Ireland were investigated by the Fair Employment Agency to determine
the degree to which the Company's stated commitment to equality of opportunity
was being given practical effect. The Fair Employment Agency's Report, which
was published in November 1988, found that in the past the personnel practices
of the Company resulted in failures to provide equality of employment
opportunity but that these practices were generally replaced commencing in the
mid-1960's. The Fair Employment Agency's Report found that overall the number
of Protestants and Catholics employed at the tobacco manufacturing operation at
the time of the Report were not significantly different from what would be
expected taking into account the religious composition of the local area,
though there are considerable imbalances in certain areas and categories. The
Report concluded that:
"The efforts made by the Company and the Local Trade Union Officials to
introduce locally meaningful equal opportunity measures are positive and
encouraging and the Agency is satisfied that the action taken is indicative
of real commitment to provide equality of opportunity."
A new law governing employment discrimination in Northern Ireland became
effective on January 1, 1990. The Fair Employment (Northern Ireland) Act 1989
(the "1989 Act") established a Fair Employment Commission which has more powers
than the Fair Employment Agency which it replaced. The 1989 Act requires
employers to register with the Fair Employment Commission, monitor their
workforce and regularly review their recruitment, training and promotion
practices. The 1989 Act now makes even indirect discrimination illegal and
allows the Fair Employment Commission to mandate measures, including the
setting of goals and timetables to remedy under-representation in a company's
workforce.
The Board of Directors believes that the nondiscrimination requirements of
the 1989 Act are already being undertaken by Gallaher under its own Declaration
of Practice made in 1987. The Board considers the Declaration of Practice to be
more constructive than the MacBride Principles in addressing equality of
opportunity in Northern Ireland without requiring discriminatory action in
favor of any group. TM Group PLC also has adopted a similar declaration of
practice for its employees. The Board does not believe it to be necessary or
advisable to adopt the MacBride Principles to achieve the goal of equal
employment opportunity.
The Board of Directors has determined that the Company cannot endorse or
subscribe to the MacBride Principles for two additional reasons. First, the
Department of Economic Development in Northern Ireland has indicated its
Government's opposition to the MacBride Principles. Second, Northern Ireland
counsel, with whom the Company has consulted on several occasions, advised the
Company that implementation would require discriminatory action by Gallaher in
violation of the
51
<PAGE>
1976 Act and the 1989 Act. Subsequent to the court decision cited by the
proponents of Item 10, such counsel reaffirmed such opinion and stated, in
particular, that it would be impossible to take any lawful steps to implement
Principles 1, 7 and 8. Northern Ireland counsel has reaffirmed his opinion this
year.
Resolutions substantially similar to Item 10 were overwhelmingly rejected by
the stockholders at the 1986, 1987, 1988, 1992 and 1993 Annual Meetings. In
addition, resolutions calling for the Board of Directors to establish a
committee to review the Company's equal employment opportunity policy and
practices in Northern Ireland were overwhelmingly rejected by the stockholders
at the 1989 and 1990 Annual Meetings.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST ITEM 10.
ITEM 11
- -------
RESOLUTION REQUESTING REPORT ON PROMOTION OF
LOWER-PRICED CIGARETTES TO AFRICAN-AMERICANS AND
LOW-INCOME PERSONS PROPOSED BY FIVE STOCKHOLDERS
The Company is informed that the Sisters of Charity of Saint Elizabeth, with
the co-sponsorship of Catholic Healthcare West, the Sisters of Divine
Providence of Kentucky, Inc., Mercy Health Services and Providence Trust, whose
respective addresses and stockholdings will be furnished by the Company
promptly upon receipt of any oral or written request therefor, intend to
introduce at the Annual Meeting the following resolution (designated herein as
Item 11):
"WHEREAS
"-- Our Company has introduced a number of lower-priced cigarettes such as
Riviera. These brands generally have higher levels of toxic tar and
nicotine;
"-- Studies show that the poorest neighborhoods have the highest incidence
of health related problems associated with tobacco;
"-- More black males (33%) than white males (28%) smoke. Black men have a
20% higher death rate from heart disease than white men;
"-- Lower-income people with less education smoke cigarettes at much higher
rates than those of other incomes and higher levels of education;
"-- Low-income women who smoke and who are pregnant are at high risk of
spontaneous miscarriage and low birth-rate [sic] babies;
"-- Demonstrations have occurred in major cities' minority neighborhoods
against billboards promoting smoking;
"RESOLVED--That shareholders request management to prepare a special
Report to be available to requesting shareholders detailing our Company's
promotion of its lower-priced cigarettes to African-Americans and lower-
income persons. Using 1993 as the base year, this Report, produced at a
reasonable cost and excluding proprietary information, shall be made
available within six months of the annual meeting. It shall include the
following:
"1. A summary of the marketing strategy and rationale for targeting
African-Americans and lower-income persons.
"a. A description of the total number of advertisements for our brands
in both Black-oriented and "general public' papers and magazines,
as well as total numbers of black and white models in each;
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"b. List the total number of billboards (divided into the three major
size categories) placed in areas concentrated by African-Americans
as well as areas concentrated by Caucasians:
"2. The Company's position on billboards, in-store promotions, displays,
and point of purchase re: advertising cigarettes
"a. Being equally distributed on a per capita basis in black and white
areas;
"b. Having at least 25% of space featuring mandatory health warnings;
"3. What impact expenditures for our low-priced brands among low-income
persons may have on health care costs and discretionary income."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"Many believe our Company is involved in a sinister targeting of low-income
persons and African-Americans, especially in its aggressive promotion of
lower-priced cigarettes. We believe there should be a careful review of our
policies and practices in this regard. Some billboard companies have agreed
to change the proportion of ads in minority and poor communities to make
them the same as in other areas. This special Report will help set the
record straight and reveal either the baselessness of the allegations or
the validity of claims that American Brands' specific promotion of these
lethal products creates special problems for these groups of our citizens.
"If you agree, please vote "yes' for this proposal."
BOARD OF DIRECTORS STATEMENT ON ITEM 11
The Company's subsidiary, The American Tobacco Company, does not "target"
lower-income people, African-Americans, or any other group in selling its
cigarettes. In order to meet consumer demand in a competitive market, The
American Tobacco Company offers cigarettes in a variety of price ranges. The
American Tobacco Company advertises those cigarettes, both premium brands and
lower-priced brands, in a variety of media, including magazines, newspapers,
and billboards. The fact that The American Tobacco Company manufactures certain
brands of cigarettes which may be lower in price than other brands does not
imply that the Company is "targeting" a particular group; rather, the Company
is striving to respond to consumer preferences for cigarettes in different
price ranges. "Targeting" cannot be inferred because a particular brand may be
popular with a group of consumers.
Contrary to the proponents' suggestions, there is no direct correlation
between a cigarette's price and its "tar" and nicotine content. As publicly-
available information concerning the "tar" and nicotine levels of the Company's
cigarettes makes clear, just because a cigarette is lower-priced does not mean
it has a higher "tar" and nicotine content than do higher-priced brands. Some
premium brands may have a higher "tar" content than some lower-priced
cigarettes, and vice-versa.
The Board of Directors does not believe that the expenditure of resources
required for the preparation of the report requested by the proposal is in the
best interest of the Company or its stockholders. The advertising and marketing
practices of The American Tobacco Company are designed to promote the lawful
sale of its products. In addition, all of the advertising of The American
Tobacco Company is reviewed for compliance with the tobacco industry's
voluntary Cigarette Advertising Code. A resolution substantially similar to
Item 11 was overwhelmingly rejected by the stockholders at the 1993 Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST ITEM 11.
53
<PAGE>
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS
The following tabulation sets forth information with respect to the
beneficial ownership of equity securities of the Company by all directors and
executive officers of the Company as a group (20 persons) at February 4, 1994.
The information is based on information received by the Company from the
directors and officers, from the Corporate Employee Benefits Committee of the
Company and the Trustee of the Profit-Sharing Plan of the Company and from the
committees administering the profit-sharing plans of subsidiaries of the
Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF BENEFICIAL OWNERSHIP PERCENTAGE
CLASS (A)(B)(C) OF CLASS
-------- -------------------- ----------
<S> <C> <C>
Common Stock 2,809,030 shares 1.4%
</TABLE>
- --------
(a) For information as to voting and investment power with respect to shares
owned by directors and executive officers, see Note (c) to the table under
"Election of Directors". To the best of the Company's knowledge, each
executive officer who is not a director has sole voting and investment
power with respect to shares owned by him, other than with respect to
shares included in Note (b) below that may be acquired upon exercise of
options, 15,400 shares of restricted stock and with respect to shares
included in Note (c) below. The Trustee of the Profit-Sharing Plan of the
Company has agreed to vote the shares of Common Stock held in trust in
accordance with instructions received from members of the Plan and shares
as to which instructions are not received are voted by the Trustee
proportionally in the same manner as shares as to which the trustee has
received instructions.
(b) The number shown above includes 62,892 shares of Common Stock held on
December 31, 1993 by the Trustee of the Profit-Sharing Plan of the Company
(including those referred to in Note (a) to the table under "Election of
Directors") which number is equivalent as of that date to the undivided
proportionate beneficial interests of the directors and executive officers
of the Company in all such shares, and 2,207,200 shares (including those
referred to in Note (b) to the table under "Election of Directors"), of
which the directors and executive officers had the right to acquire
beneficial ownership pursuant to the exercise on or before April 5, 1994 of
options granted by the Company. Inclusion of such 2,207,200 shares does not
constitute an admission by the directors and executive officers that they
are the beneficial owners of such shares.
(c) The number shown above includes 60 shares of Common Stock held by an
executive officer's child. The executive officer disclaims beneficial
ownership of these shares. The number shown above also includes (i) 8,800
shares held in various family trusts for the benefit of or with a remainder
to various family members of another executive officer and director, as to
which shares such executive officer and director disclaims beneficial
ownership, and (ii) 2,308 shares held by the wife of another executive
officer and director, as to which shares such executive officer and
director disclaims beneficial ownership. The shares referred to in the
immediately preceding sentence are referred to in Note (c) to the table
under "Election of Directors".
To the best of the Company's knowledge, no one person was the beneficial
owner of more than 5% of the outstanding voting securities of the Company or of
more than 5% of any class of voting securities of the Company at February 4,
1994.
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SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
The Company's Certificate of Incorporation contains procedures for
stockholder nomination of directors and the Company's By-laws contain
procedures for other stockholder proposals to be presented before annual
stockholder meetings. The Certificate of Incorporation provides that any record
owner of stock entitled to be voted generally in the election of directors may
nominate one or more persons for election as a director at a stockholders'
meeting only if written notice is given to the Secretary of the Company of the
intent to make such nomination. The notice must be given 120 days in advance of
the annual meeting and must include: (i) the name and address of each
stockholder who intends to appear in person or by proxy to make the nomination
and of the person or persons to be nominated; (ii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming them) pursuant to which the nomination is to be
made by the stockholder; (iii) such other information regarding each nominee
proposed by such stockholder as would have been included in a proxy statement;
and (iv) the consent of each nominee to serve if elected.
With respect to stockholder proposals of other business to be considered at
the annual meeting of stockholders, the By-laws provide that a stockholder of
record must give written notice to the Secretary of the Company no later than
120 days before the meeting. The notice must set forth: (i) a brief description
of the business to be brought before the meeting, the reasons for conducting
such business and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made and (ii)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (a) the name and address of such stockholder,
as they appear on the Company's books, and of such beneficial owner and (b) the
class and number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner. The By-laws further
provide that, notwithstanding the foregoing provisions, stockholders wishing to
have a proposal included in the Company's proxy statement shall comply with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder and shall have the rights provided by Rule
14a-8 under such Act. In order to be eligible under Rule 14a-8 for inclusion in
the Company's proxy statement and accompanying proxy at the next annual meeting
of stockholders currently scheduled to be held on May 3, 1995, stockholder
proposals must be received by the Company on or before November 11, 1994.
A copy of the relevant Certificate of Incorporation and By-law provisions is
available upon written request to Mr. Louis F. Fernous, Jr., Vice President and
Secretary, American Brands, Inc., 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870. The person presiding at the meeting is authorized to
determine if a proposed matter is properly before the meeting or if a
nomination is properly made.
55
<PAGE>
MISCELLANEOUS
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR ITS LAST FISCAL YEAR, INCLUDING ANY
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES THERETO, WILL BE MADE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO MR. LOUIS F.
FERNOUS, JR., VICE PRESIDENT AND SECRETARY, AMERICAN BRANDS, INC., 1700 EAST
PUTNAM AVENUE, OLD GREENWICH, CONNECTICUT 06870. THE COMPANY WILL FURNISH ANY
EXHIBITS TO FORM 10-K TO EACH STOCKHOLDER REQUESTING THEM UPON PAYMENT OF A FEE
OF $.10 PER PAGE TO COVER THEIR COST.
The expense of the solicitation of proxies for this meeting, including the
cost of mailing, will be borne by the Company. In addition to mailing copies of
this material to stockholders, the Company will request persons who hold stock
in their names or custody, or in the names of nominees, for the benefit of
others to forward copies of such material to the beneficial owners of the stock
of the Company and to request authority for the execution of the proxies. To
the extent deemed necessary in order to assure sufficient representation at the
meeting, officers and regular employees of the Company will request the return
of proxies by telephone, telegram or in person. In addition, the Company has
retained Kissel-Blake Inc., 25 Broadway, New York, N.Y. 10004, to aid in the
solicitation of proxies for a fee, including its expenses, estimated at
$47,500. The total expense to be borne by the Company will depend upon the
volume of shares represented by the proxies received promptly in response to
the notice of meeting.
Stockholders who do not intend to be present at the meeting are urged to send
in their proxies without delay. Prompt response is helpful, and your
cooperation will be appreciated.
March 4, 1994
56
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EXHIBIT A
AMERICAN BRANDS, INC.
1990 LONG-TERM INCENTIVE PLAN*
(As Proposed to be Amended and Restated as of January 1, 1994)
1. PURPOSE OF PLAN
The purpose of this 1990 Long-Term Incentive Plan (the "Plan") is to aid
American Brands, Inc. and its Subsidiaries (the "Company") in securing and
retaining Key Employees of outstanding ability by making it possible to offer
them increased incentives, which may include a proprietary interest in the
Company, to join or continue in the service of the Company and to increase
their efforts for its welfare.
2. DEFINITIONS
As used in the Plan, the following words shall have the following meanings:
(a) "American" means American Brands, Inc.;
(b) "Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, an award or grant of an Option, Right,
Restricted Stock, Performance Award or Other Stock-Based Award, or any
combination of the foregoing;
(c) "Award Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations
applicable to an Award;
(d) "Board of Directors" means the Board of Directors of American;
(e) "Committee" means the Compensation and Stock Option Committee of the
Board of Directors;
(f) "Common Stock" means common stock of American;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
(h) "Incentive Stock Option" means a stock option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422A of the Internal Revenue Code;
(i) "Key Employee" means any person, including an officer or director, in
the regular full-time employment of the Company who, in the opinion of the
Committee, is or is expected to be primarily responsible for the
management, growth or protection of some part or all of the business of the
Company;
(j) "Limited Right" means a right to receive cash in lieu of the exercise
of an Option or Right as set forth in Section 12(b);
(k) "Nonqualified Stock Option" means a stock option to purchase shares
of Common Stock which is intended not to qualify as an incentive stock
option as defined in Section 422[A] of the Internal Revenue Code;
- --------
*Material in brackets is proposed to be deleted and material in bold typeface
is proposed to be added.
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(l) "Option" means an Incentive Stock Option, a Nonqualified Stock Option
or an option granted pursuant to Section 14(a);
(m) "Other Stock-Based Award" means an Award pursuant to Section 8;
(n) "Participant" means a person to whom one or more Awards have been
granted that have not all been forfeited or terminated under the Plan;
(o) "Performance Period" means the period specified with respect to a
Performance Award during which specified performance criteria are to be
measured;
(p) "Performance Award" means an Award granted pursuant to Section 7;
(q) "Restricted Stock" means shares of Common Stock granted pursuant to
Section 6 or as part of a Performance Award or an Other Stock-Based Award;
(r) "Right" means a stock appreciation right to elect to receive shares
of Common Stock with a fair market value, at the time of any exercise of
such stock appreciation right, equal to the amount by which the fair market
value of all shares subject to the Option (or part thereof) in respect of
which such stock appreciation right was granted exceeds the exercise price
of said Option (or part thereof) or to receive from American, in lieu of
such shares, the fair market value in cash, or to receive a combination of
such shares and cash, as provided in Section 5, and shall also mean a stock
appreciation right granted pursuant to Section 14(b); and
(s) "Subsidiary" means any corporation other than American in an unbroken
chain of corporations beginning with American if each of the corporations
other than the last corporation in the unbroken chain owns 50% or more of
the voting stock in one of the other corporations in such chain.
3. ADMINISTRATION OF PLAN
The Plan shall be administered by the Committee whose members shall be
appointed by the Board of Directors and consisting of at least three members of
the Board of Directors. None of the members of the Committee shall be eligible
to be selected for the grant of an Award under the Plan, or any option, stock
appreciation right or shares under any other plan maintained by the Company
during such membership, or have been so eligible for selection within one year
prior thereto, except that such members shall be eligible to receive shares of
Common Stock pursuant to the American Brands, Inc. Stock Plan for Non-employee
Directors; provided, however, that the members of the Committee shall qualify
to administer the Plan for purposes of Rule 16b-3 (and any other applicable
rule) promulgated under Section 16(b) of the Exchange Act. 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 UNANIMOUS WRITTEN
CONSENT OF THE MEMBERS OF THE COMMITTEE [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.
4. AWARDS
The Committee may from time to time make such Awards under the Plan to such
Key Employees and in such form and having such terms, conditions and
limitations as the Committee may determine. Awards may be granted singly, in
combination or in tandem. The terms, conditions and limitations of each Award
under the Plan shall be set forth in an Award Agreement, in a form approved by
the Committee, consistent, however, with the terms of the Plan.
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5. AWARDS OF OPTIONS AND RIGHTS
(a) The terms and conditions with respect to each Award of Options under
the Plan shall be consistent with the following:
(i) The Option price per share shall not be less than fair market
value at the time the Option is granted.
(ii) Exercise of the Option shall be conditioned upon the Participant
named therein having remained in the employ of the Company for at least
one year after the date of the grant of the Option; provided, however,
that this condition shall not be applicable in the event of the death
of the Participant or as otherwise provided in Section 12(b). The
Option shall be exercisable in whole or in part from time to time
during the period beginning at the completion of the required
employment time stated in the Option and ending at the expiration of
ten years from the date of grant of the Option, unless an earlier
expiration date shall be stated in the Option or the Option shall cease
to be exercisable pursuant to Section 5(a)(iv) or because of the
exercise of the Limited Right pertaining thereto as provided in Section
12(b). To the extent that the aggregate fair market value of shares
with respect to which Incentive Stock Options are exercisable for the
first time by any Participant during any calendar year exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options.
The foregoing shall be applied by taking Options into account in the
order in which they were granted. For purposes of the foregoing, the
fair market value of any share shall be determined at the time of the
Award of the Option. In the event the foregoing results in a portion of
an Incentive Stock Option exceeding the $100,000 limitation, only such
excess shall be treated as a Nonqualified Stock Option.
(iii) Payment in full of the Option price shall be made upon exercise
of each Option and may be made in cash, by the delivery of shares of
Common Stock with a fair market value equal to the Option price,
provided the Participant has held such shares for a period of at least
one year, or by a combination of cash and such shares that have been
held by the Participant for a period of at least one year whose fair
market value together with such cash shall equal the Option price. The
Committee may also permit Participants, either on a selective or
aggregate basis, simultaneously to exercise Options and sell the shares
of Common Stock thereby acquired pursuant to a brokerage or similar
arrangement, approved in advance by the Committee, and use the proceeds
from such sale as payment of the purchase price of such shares.
(iv) If a Participant's employment with the Company terminates other
than by reason of the Participant's death, disability or retirement
under a retirement plan of the Company, the Participant's Option shall
terminate and cease to be exercisable except as otherwise provided in
Section 12(b). [If a Participant's employment with the Company
terminates by reason of death, the Participant's Option shall terminate
and cease to be exercisable one year from the date of death; provided
that if the Option is an Incentive Stock Option, the Incentive Stock
Option shall terminate and cease to be exercisable no later than the
earliest of ten years from the date of grant or one year from the date
of death.] If a Participant's employment with the Company terminates by
reason of DEATH, disability or retirement under a retirement plan of
the Company, the Participant's Option shall CONTINUE [terminate and
cease] to be exercisable UNTIL THE [at the earlier of its] expiration
date STATED IN THE OPTION [or three years from the date of termination
of employment for disability or retirement], PROVIDED THAT A
NONQUALIFIED STOCK OPTION MAY BE EXERCISED WITHIN ONE YEAR FROM THE
DATE OF DEATH EVEN IF LATER THAN SUCH EXPIRATION DATE. In the case of a
Participant whose principal employer is a Subsidiary, then such
Participant's employment shall be deemed to be terminated for
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purposes of this Section 5 as of the date on which such principal
employer ceases to be a Subsidiary.
[(v) Any shares that have been optioned that cease to be subject to
an Option (other than by reason of exercise of the Option) shall again
be available for option and shall not be considered as having been
theretofore optioned. Any shares subject to option under an Option (or
part thereof) that is cancelled upon exercise of a Right shall be
treated as if the Option itself were exercised and such shares shall no
longer be available for grant.]
(v[i]) Each Option shall contain a Limited Right to receive cash in
lieu of shares under the circumstances set forth in Section 12(b).
(b) The Committee, at the time of grant of an Option or at any time prior
to the expiration of its term, may also grant, subject to the terms and
conditions of the Plan, Rights in respect of all or part of such Option to
the Participant who has been granted the Option, provided that at such time
the Participant is a Key Employee. No Right shall be exercisable prior to
six months from the date of grant, EXCEPT AS OTHERWISE PROVIDED IN SECTION
12(B).
(c) The holder of an Option or Right who decides to exercise the Option
or Right in whole or in part shall give notice to the Secretary of American
of such exercise in writing on a form approved by the Committee. A notice
exercising a Right shall also specify the extent, if any, to which the
Participant elects to receive cash, and shall be subject to the
determination by the Committee as provided in Section 5(f). Any exercise
shall be effective as of the date specified in the notice of exercise, but
not earlier than the date the notice of exercise, together with, in the
case of exercise of an Option, payment in full of the Option price, is
actually received and in the hands of the Secretary of American.
(d) To the extent an Option is exercised in whole or in part, any Right
granted in respect of such Option (or part thereof) shall terminate and
cease to be exercisable. To the extent a Right is exercised in whole or in
part, the Option (or part thereof) in respect of which such Right was
granted shall terminate and cease to be exercisable.
(e) Subject to Sections 5(b) and 14, a Right granted with an accompanying
Option shall be exercisable only during the period in which the Option (or
part thereof) in respect of which such Right was granted is exercisable,
except that when the Right is held by a person who is, or within the
preceding six months has been, a director or an officer of American for
purposes of Section 16(b) of the Exchange Act who elects to receive cash
for all or part of the payments upon exercise, or who exercises for such
cash, the person may so elect or exercise such Right only during any period
beginning on the third business day following the date of release of a
summary statement of American's quarterly or annual sales and earnings and
ending on the twelfth business day following such date.
(f) The Committee shall have sole discretion to determine the form in
which payment will be made following exercise of a Right. All or any part
of the obligation arising out of an exercise of a Right may be settled
(i) by payment in shares of Common Stock with a fair market value
equal to the cash that would otherwise be paid,
(ii) by payment in cash, or
(iii) by payment in a combination of such shares and cash.
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(g) To the extent that any Right that shall have become exercisable shall
not have been exercised or cancelled or, by reason of any termination of
employment, shall have become non-exercisable, it shall be deemed to have
been exercised automatically, without any notice of exercise, on the last
day on which its related Option is exercisable, provided that any
conditions or limitations on its exercise (other than (i) notice of
exercise and (ii) exercise or election to exercise during the period
prescribed in Section 5(e)) are satisfied and the Right shall then have
value. Such exercise shall be deemed to specify that, subject to
determination by the Committee as provided in Section 5(f), the holder
elects to receive cash and that such exercise of a Right shall be effective
as of the time of the exercise.
6. AWARDS OF RESTRICTED STOCK
The terms and conditions with respect to each Award of Restricted Stock under
the Plan shall be consistent with the following:
(a) The provisions of Awards of Restricted Stock need not be the same
with respect to each Participant. Each Award of Restricted Stock shall be
subject to forfeiture as set forth in the Plan and may be otherwise subject
to forfeiture as set forth in the provisions of such Award.
(b) Each Participant receiving an Award of Restricted Stock shall be
issued a certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of such Participant and shall
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award. The Committee may require that the
certificates evidencing such shares be held in custody by American until
the restrictions thereon shall have lapsed and that, as a condition of any
Award of Restricted Stock, the Participant shall have delivered a stock
power, endorsed in blank, relating to the Common Stock covered by such
Award.
(c) Shares of Restricted Stock shall be subject to the restrictions set
forth in this Section 6(c).
(i) Subject to the provisions of the Plan and the applicable Award
Agreement, during the period established by the Committee commencing on
the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber such shares of Restricted Stock. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments and may accelerate or waive any or all of such
restrictions, in whole or in part, based on service, performance and
such other factors or criteria as the Committee may determine.
(ii) Subject to Section 10(e) and except as provided in this Section
6(c), the Participant shall have, with respect to shares of Restricted
Stock issued to such Participant under the Plan, all of the rights of a
holder of Common Stock of American, including the right to vote the
shares and the right to receive any cash dividends. Unless otherwise
determined by the Committee, cash dividends shall be automatically
reinvested in additional shares of Common Stock which shall be treated
as Restricted Stock under this Section 6 and dividends payable in
Common Stock shall be treated as additional shares of Restricted Stock
subject to the same restrictions and other terms and conditions that
apply to the shares with respect to which such dividends are issued.
(iii) Except to the extent otherwise provided in this Section 6(c),
in Section 12(c) or 12(d) or in the applicable Award Agreement, upon
termination of a Participant's employment with the Company for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the Participant. Except to the extent
otherwise provided in the applicable Award Agreement, if the
Participant's employment shall terminate and cease
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by reason of disability, retirement under a retirement plan of the
Company or death, the Restriction Period with respect to any shares of
Restricted Stock then held shall expire as of the date of such
disability, retirement or death.
(iv) Upon expiration of the Restriction Period with respect to any
shares of the Restricted Stock without a prior forfeiture thereof, the
holder of such shares shall have the right to receive in exchange for
the certificates representing such shares unlegended certificates for
such shares.
7. PERFORMANCE AWARDS
The terms and conditions with respect to each Performance Award under the
Plan shall be consistent with the following:
(a) Performance Awards may be paid in cash, shares of Common Stock (which
may, but need not, be shares of Restricted Stock pursuant to Section 6), or
any combination thereof. The Committee shall determine the nature, length
and starting date of the Performance Period for each Performance Award
which shall be at least two years (subject to Sections 12(c) and 12(d)) and
shall determine the performance objectives to be used in valuing
Performance Awards and determining the extent to which such Performance
Awards have been earned. Performance objectives may vary from Participant
to Participant and between groups of Participants and shall be based upon
REVENUES, OPERATING INCOME, OPERATING COMPANY CONTRIBUTION, CASH FLOW,
INCOME BEFORE INCOME TAXES, NET INCOME, EARNINGS PER SHARE, RETURN ON
EQUITY OR ASSETS OR TOTAL RETURN TO STOCKHOLDERS, WHETHER APPLICABLE TO THE
COMPANY OR ANY RELEVANT SUBSIDIARY OR BUSINESS UNIT, OR ANY COMBINATION
THEREOF, [such Subsidiary, business unit or individual performance factors
or other criteria] as the Committee may deem appropriate. Performance
Periods may overlap and Participants may participate simultaneously with
respect to Performance Awards that are subject to different Performance
Periods and different performance factors and criteria. The terms of
Performance Awards need not be the same with respect to each Participant.
The Committee shall determine for each Performance Award subject to such
Performance Period the range of dollar values or number of shares of Common
Stock (which may, but need not, be shares of Restricted Stock pursuant to
Section 6), or combination thereof, to be received by the Participant at
the end of the Performance Period if and to the extent that the relevant
measures of performance for such Performance Awards are met. The factors
must include a minimum performance standard below which no payment will be
made and a maximum performance level above which no increased payment will
be made. [Such dollar values or number of shares of Common Stock may be
fixed or may vary in accordance with such performance or other criteria as
may be determined by the Committee.] NO PERFORMANCE AWARDS HAVING AN
AGGREGATE MAXIMUM DOLLAR VALUE IN EXCESS OF $5,000,000 OR AN AGGREGATE
MAXIMUM AMOUNT OF COMMON STOCK IN EXCESS OF 500,000 SHARES SHALL BE GRANTED
TO ANY INDIVIDUAL PARTICIPANT ON OR AFTER JANUARY 1, 1994.
(b) The Committee may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances, PROVIDED
THAT NO ADJUSTMENT SHALL BE MADE WHICH WOULD RESULT IN AN INCREASE IN THE
COMPENSATION OF ANY PARTICIPANT WHOSE COMPENSATION IS SUBJECT TO THE
LIMITATION ON DEDUCTIBILITY UNDER SECTION 162(M) OF THE INTERNAL REVENUE
CODE, AS AMENDED, OR ANY SUCCESSOR PROVISION, FOR THE APPLICABLE YEAR. THE
COMMITTEE ALSO MAY ADJUST THE PERFORMANCE GOALS AND MEASUREMENTS APPLICABLE
TO PERFORMANCE AWARDS AND THEREBY REDUCE THE AMOUNT TO BE RECEIVED BY ANY
PARTICIPANT PURSUANT TO SUCH AWARDS IF AND TO THE EXTENT THAT THE COMMITTEE
DEEMS IT
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APPROPRIATE, PROVIDED THAT NO SUCH REDUCTION SHALL BE MADE ON OR AFTER THE
DATE OF A CHANGE IN CONTROL (AS DEFINED IN SECTION 12(B)(III)).
(c) Except as otherwise provided in the applicable Award Agreement, if
during a Performance Period a Participant's employment with the Company
terminates by reason of the Participant's death, disability or retirement
under a retirement plan of the Company, such Participant shall be entitled
to a payment with respect to each outstanding Performance Award at the end
of the applicable Performance Period (i) based, to the extent relevant
under the terms of the Award, upon the Participant's performance for the
portion of such Performance Period ending on the date of termination and
(ii) prorated for the portion of the Performance Period during which the
Participant was employed by the Company, all as determined by the
Committee. The Committee may provide for an earlier payment in settlement
of such Performance Award DISCOUNTED AT A REASONABLE INTEREST RATE AND
OTHERWISE in such amount and under such terms and conditions as the
Committee deems appropriate. Except as otherwise provided in Section 12(c)
or 12(d) or in the applicable Award Agreement, if during a Performance
Period a Participant's employment with the Company terminates other than by
reason of the Participant's death, disability or retirement under a
retirement plan of the Company, then such Participant shall not be entitled
to any payment with respect to the Performance Awards relating to such
Performance Period, unless the Committee shall otherwise determine.
(d) The earned portion of a Performance Award may be paid currently or on
a deferred basis with such interest or earnings equivalent as may be
determined by the Committee. Payment shall be made in the form of cash or
whole shares of Common Stock, either in a single payment or in annual
installments, all as the Committee shall determine.
(e) If a Participant engages in detrimental activity (as hereinafter
defined) at any time (whether before or after termination of employment),
any Performance Award that has not been paid to such Participant (or is not
payable as provided in Section 12(c) or 12(d)) prior to the date such
activity has been determined by the Committee to constitute detrimental
activity shall be forfeited and shall never become payable. For purposes of
this Section 7(e), "detrimental activity" shall mean willful, reckless or
grossly negligent activity that is determined by the Committee, on a case-
by-case basis, to be detrimental to or destructive of the business or
property of American or any Subsidiary. Any such determination of the
Committee shall be conclusive and binding for all purposes of the Plan.
Notwithstanding the foregoing, no Performance Award shall be forfeited or
become not payable by virtue of this Section 7(e) on or after the date of a
Change in Control (as defined in Section 12(b)(iii)).
8. OTHER STOCK-BASED AWARDS
The Committee may grant other Awards under the Plan pursuant to which shares
of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 6) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone, in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the purposes of the Plan.
9. DIVIDEND EQUIVALENTS
Any Awards (other than Awards of Options or Rights) under the Plan may, in
the discretion of the Committee, earn dividend equivalents. In respect of any
such Award which is outstanding on a dividend record date for Common Stock the
Participant may be credited with an amount equal to the cash or stock dividends
or other distributions that would have been paid on the shares of Common
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Stock covered by such Award had such covered shares been issued and outstanding
on such dividend record date. The Committee shall establish such rules and
procedures governing the crediting of dividend equivalents, including the
timing, form of payment and payment contingencies of such dividend equivalents,
as it deems are appropriate or necessary.
10. LIMITATIONS AND CONDITIONS
(a) The total number of shares of Common Stock that may be made subject
to Awards under the Plan ON OR AFTER JANUARY 1, 1994 is 12,000,000
[6,400,000] shares. Such total number of shares may consist, in whole or in
part, of unissued shares or reacquired shares. Not more than 2,000,000
[800,000] shares of Common Stock may be made subject to Awards under the
Plan to any individual Participant ON OR AFTER JANUARY 1, 1994, WHICH
LIMITATION SHALL BE APPLIED IN A MANNER CONSISTENT WITH THE REQUIREMENTS OF
SECTION 162(M) OF THE INTERNAL REVENUE CODE, AS AMENDED. The foregoing
numbers of shares may be increased or decreased by the events set forth in
Section 12(a). In the event that the Company makes an acquisition or is a
party to a merger or consolidation and American assumes the options or
other awards consistent with the purpose of this Plan of the company
acquired, merged or consolidated which are administered pursuant to this
Plan, shares of Common Stock subject to the assumed options or other awards
shall not count as part of the total number of shares of Common Stock that
may be made subject to Awards under this Plan.
(b) Any shares that have been made subject to an Award that cease to be
subject to the Award (other than by reason of exercise or payment of the
Award TO THE EXTENT IT IS SETTLED IN SHARES) shall again BE AVAILABLE FOR
AWARD AND SHALL NOT be considered as having been theretofore made subject
to award. Any shares subject to option under an Option (or part thereof)
that is cancelled upon exercise of a Right WHEN SETTLED WHOLLY OR PARTIALLY
IN SHARES shall TO THE EXTENT OF SUCH SETTLEMENT IN SHARES be treated as if
the Option itself were exercised and such shares RECEIVED IN SETTLEMENT OF
THE RIGHT shall no longer be available for grant.
(c) No Awards shall be made under the Plan after December 31, 1999
[1995], but the terms of Awards granted on or before the expiration thereof
may extend beyond such expiration. At the time an Award is granted or
amended or the terms or conditions of an Award are changed, the Committee
may provide for limitations or conditions on such Award.
(d) No Award or portion thereof shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, EXCEPT
THAT AN OPTION AND RELATED RIGHT MAY BE TRANSFERRED BY GIFT TO ANY MEMBER
OF THE HOLDER'S IMMEDIATE FAMILY OR TO A TRUST FOR THE BENEFIT OF SUCH
IMMEDIATE FAMILY MEMBERS, IF PERMITTED IN THE APPLICABLE AWARD AGREEMENT. A
Right shall never be transferred except to the transferee of the related
Option. During the lifetime of the Participant, an Option or Right shall be
exercisable only by the Participant UNLESS IT HAS BEEN TRANSFERRED TO A
MEMBER OF THE HOLDER'S IMMEDIATE FAMILY OR TO A TRUST FOR THE BENEFIT OF
SUCH IMMEDIATE FAMILY MEMBERS, IN WHICH CASE IT SHALL BE EXERCISABLE ONLY
BY SUCH TRANSFEREE. FOR THE PURPOSE OF THIS PROVISION, A HOLDER'S
"IMMEDIATE FAMILY" SHALL MEAN THE HOLDER'S SPOUSE, CHILDREN AND
GRANDCHILDREN.
(e) No person who receives an Award under the Plan which includes shares
of Common Stock or the right to acquire shares of Common Stock (which may
include shares of Restricted Stock pursuant to Section 6) shall have any
rights of a stockholder (i) as to shares under option until, after proper
exercise of the Option, such shares have been recorded on American's
official stockholder records as having been issued or transferred, (ii) as
to shares to be delivered following exercise of a Right until, after proper
exercise of the Right and determination by the Committee to make payment
therefor in shares, such shares shall have been recorded on
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American's official stockholder records as having been issued or
transferred, or (iii) as to shares included in Awards of Restricted Stock,
Performance Awards or Other Stock-Based Awards, until such shares shall
have been recorded on American's official stockholder records as having
been issued or transferred.
(f) American shall not be obligated to deliver any shares until they have
been listed (or authorized for listing upon official notice of issuance)
upon each stock exchange upon which outstanding shares of such class at the
time are listed nor until there has been compliance with such laws or
regulations as American may deem applicable. American shall use its best
efforts to effect such listing and compliance. No fractional shares shall
be delivered.
(g) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
11. TRANSFERS AND LEAVES OF ABSENCE
For purposes of the Plan: (a) a transfer of a Participant's employment
without an intervening period from American to a Subsidiary or vice versa, or
from one Subsidiary to another, shall not be deemed a termination of
employment, and (b) a Key Employee who is granted in writing a leave of absence
shall be deemed to have remained in the employ of the Company during such leave
of absence.
12. STOCK ADJUSTMENTS, CHANGE IN CONTROL AND DIVESTITURES
(a) In the event of any merger, consolidation, stock or other non-cash
dividend, extraordinary cash dividend, split-up, spin-off, combination or
exchange of shares, REORGANIZATION or recapitalization or change in
capitalization, or any other similar corporate event, the Committee may
make such adjustments in (i) the aggregate number of shares subject to the
Plan and the number of shares that may be made subject to Awards to any
individual Participant as set forth in Section 10(a), (ii) the number and
kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option, (iii) the number and kind of Rights granted or that
may be granted under the Plan, (iv) the number and kind of shares of
outstanding Restricted Stock, (v) the number and kind of shares of Common
Stock covered by a Performance Award or Other Stock-Based Award and (vi)
the number of outstanding dividend equivalents, as the Committee shall deem
appropriate in the circumstances. The determination by the Committee as to
the terms of any of the foregoing adjustments shall be conclusive and
binding.
(b) (i) In the event of a Change in Control (as defined in Section
12(b)(iii)), then each Option or Right held by a Participant that is
not then exercisable shall become immediately exercisable and shall
remain exercisable as provided in Section 5 notwithstanding anything to
the contrary in the first sentence of Section 5(a)(ii) OR IN SECTION
5(B); provided, however, that, no such Option or Right HELD BY ANY
PERSON WHO IS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT (A "SECTION 16
PARTICIPANT") shall become so exercisable until the day after the
expiration of six months from its date of grant (or until such
Participant's death, if earlier). In addition, UNLESS THE COMMITTEE
OTHERWISE DETERMINES AT THE TIME OF GRANT OR AT ANY TIME THEREAFTER BUT
PRIOR TO SUCH CHANGE IN CONTROL, (A) EACH LIMITED RIGHT OUTSTANDING AT
THE TIME OF SUCH CHANGE IN CONTROL (EXCEPT LIMITED RIGHTS HELD BY ANY
SECTION 16 PARTICIPANT THAT HAVE NOT BEEN OUTSTANDING AT THE TIME OF
SUCH CHANGE IN CONTROL FOR AT LEAST SIX MONTHS FROM THE DATE OF GRANT)
SHALL BE DEEMED TO BE AUTOMATICALLY EXERCISED AS OF THE DATE OF SUCH
CHANGE IN CONTROL OR AS OF SUCH OTHER DATE during the 60-day period
beginning on [the later of] the date of such Change in Control [and the
day after
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the expiration of six months from the date of grant of such Option or
Right (such 60-day period being herein referred to as the "Limited
Right Exercise Period"), such Participant may,] AS THE COMMITTEE MAY
DETERMINE PRIOR TO SUCH CHANGE IN CONTROL, AND (B) EACH LIMITED RIGHT
HELD BY ANY SECTION 16 PARTICIPANT THAT HAS NOT BEEN OUTSTANDING AT THE
TIME OF SUCH CHANGE IN CONTROL FOR AT LEAST SIX MONTHS FROM THE DATE OF
GRANT (SUCH SIX-MONTH PERIOD BEING HEREINAFTER REFERRED TO AS THE
"HOLDING PERIOD") SHALL BE DEEMED TO BE AUTOMATICALLY EXERCISED AS OF
THE DAY AFTER THE EXPIRATION OF THE HOLDING PERIOD OR AS OF SUCH OTHER
DAY DURING THE 60-DAY PERIOD BEGINNING ON THE DAY AFTER THE EXPIRATION
OF THE HOLDING PERIOD AS THE COMMITTEE MAY DETERMINE PRIOR TO SUCH
CHANGE IN CONTROL. IN THE EVENT THAT THE LIMITED RIGHT IS NOT
AUTOMATICALLY EXERCISED, THE PARTICIPANT (OTHER THAN A SECTION 16
PARTICIPANT WHO HAS NOT HELD SUCH LIMITED RIGHT FOR THE HOLDING PERIOD)
MAY DURING THE 60-DAY PERIOD BEGINNING ON THE DATE OF THE CHANGE IN
CONTROL, AND THE PARTICIPANT WHO IS A SECTION 16 PARTICIPANT AND HAS
NOT HELD SUCH LIMITED RIGHT FOR THE HOLDING PERIOD MAY DURING THE 60-
DAY PERIOD BEGINNING ON THE LATER OF THE DATE OF THE CHANGE IN CONTROL
AND THE DAY AFTER THE EXPIRATION OF THE HOLDING PERIOD (THE APPLICABLE
60-DAY PERIOD FOR ANY PARTICIPANT BEING HEREIN REFERRED TO AS THE
"LIMITED RIGHT EXERCISE PERIOD"), in lieu of exercising such Option or
Right in whole or in part, exercise the Limited Right (or part thereof)
pertaining to such Option. SUCH [, in which event such] Participant,
WHETHER THE EXERCISE IS PURSUANT TO HIS ELECTION OR AUTOMATIC PURSUANT
TO THE TERMS HEREOF, shall be entitled to receive in cash an amount
determined by multiplying the number of shares subject to such Option
(or part thereof) by the amount by which the exercise price of each
share is exceeded by (A) if such Option is an Incentive Stock Option,
the fair market value of such shares at the date of exercise or (B) if
such Option is a Nonqualified Stock Option, the greater of (x) the
highest purchase price per share paid for the shares of the Company
beneficially acquired in the transaction or series of transactions
resulting in the Change in Control by the person or persons deemed to
have acquired control pursuant to the Change in Control (except that
this clause (x) shall not be applicable to the extent that such price
is based on a transaction or series of transactions that has occurred
prior to the expiration of six months from the date of grant of such
Option if at either the date of grant or the time of exercise the
person holding such Option IS SUBJECT TO [is, or within the preceding
six months has been, a director or officer of American for purposes of]
Section 16[(b)] of the Exchange Act) and (y) the highest fair market
value of shares of Common Stock during the Limited Right Exercise
Period prior to the TIME [date] of exercise[; provided, however, that
the Committee may at any time determine that any Limited Right
outstanding at the close of business on the last day of the Limited
Right Exercise Period applicable to each such Limited Right shall be
deemed to be automatically exercised on such last day]. A Limited Right
shall be exercised in whole or in part by giving written notice of such
exercise on a form approved by the Committee to the Secretary of
American, except that no such written notice shall be required in the
event such Limited Right is automatically exercised pursuant to THE
TERMS HEREOF [the proviso to the preceding sentence]. The exercise
shall be effective as of the date specified in the notice of exercise,
but not earlier than the date the notice of exercise is actually
received and in the hands of the Secretary of American. In the event
the last day of a Limited Right Exercise Period shall fall on a day
that is not a business day, then the last day thereof shall be deemed
to be the next following business day. To the extent an Option or a
Right pertaining thereto is exercised in whole or in part, the Limited
Right in respect of such Option shall terminate and cease to be
exercisable. To the extent a Limited Right is exercised in whole or in
part, the Option (or part thereof) to which such Limited Right pertains
and the Right (or part thereof) pertaining to such Option (or part
thereof) shall terminate and cease to be exercisable.
(ii) Notwithstanding anything to the contrary in the first sentence
of Section 5(a)(ii) or IN 5(a)(iv) OR 5(B), the provisions of this
Section 12(b)(ii) will be applicable in the event of a
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<PAGE>
termination of a Participant's employment on or after a Change in
Control and prior to the expiration of the Limited Right Exercise
Period applicable thereto. No Option, Right or Limited Right held by a
Participant shall terminate or cease to be exercisable as a result of
his termination of employment on or after a Change in Control and prior
to the expiration of the Limited Right Exercise Period applicable
thereto, but shall be exercisable throughout the Limited Right Exercise
Period applicable thereto; provided, however, that in no event shall
any Option or Right be exercisable after ten years from its date of
grant (except in the event of death as provided in Section 5(a)(iv)).
However, in the event such Option or Right or the Option to which such
Limited Right pertains has not, on the date of termination, been held
for more than six months from the date of its grant, the preceding
sentence shall apply only if such Participant has been terminated other
than for just cause (as hereinafter defined) or has voluntarily
terminated his employment because he in good faith believes that as a
result of such Change in Control he is unable effectively to discharge
his duties or the duties of the position he occupied immediately prior
to such Change in Control or because of a diminution in his aggregate
compensation or in his aggregate benefits below that in effect
immediately prior to such Change in Control. For purposes hereof,
termination shall be for "just cause" only if such termination is based
on fraud, misappropriation or embezzlement on the part of the
Participant which results in a final conviction of a felony. Nothing in
this Section 12(b) shall be in derogation of any rights otherwise
provided in the Plan in respect of a Participant's Options or Rights in
the event of his death, disability or retirement under a retirement
plan of the Company.
(iii) A "Change in Control" shall be deemed to have occurred if (A)
any person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on November 28, 1989 is or becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange
Act, and the rules and regulations promulgated thereunder, as in effect
on November 28, 1989 of stock of the Company entitled to cast more than
20% of the votes at the time entitled to be cast generally for the
election of directors, (B) more than 50% of the members of the Board of
Directors shall not be Continuing Directors (which term, as used
herein, means the directors of American (x) who are members of the
Board of Directors on November 28, 1989 or (y) who subsequently became
directors of American and who were elected or designated to be
candidates for election as nominees of the Board of Directors, or whose
election or nomination for election by American's stockholders was
otherwise approved, by a vote of a majority of the Continuing Directors
then on the Board of Directors), (C) American shall be merged or
consolidated with, or, in any transaction or series of transactions,
substantially all of the business or assets of American shall be sold
or otherwise acquired by, another corporation or entity and, as a
result thereof, either (1) the stockholders of American immediately
prior thereto shall not directly or indirectly have at least 50% or
more of the combined voting power of the surviving, resulting or
transferee corporation or entity immediately thereafter or (2) any
person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on November 28, 1989 is or becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange
Act, and the rules and regulations promulgated thereunder, as in effect
on November 28, 1989 of more than 20% of combined voting power of the
surviving, resulting or transferee corporation or entity, or (D) any
change in control of American shall have occurred of a nature that
would be required to be reported in response to Item 1(a) of Form 8-K
promulgated under the Exchange Act as in effect on November 28, 1989,
regardless of whether American is at the time of such change in control
subject to the reporting requirement thereof. Notwithstanding the
foregoing, a Change in Control shall not be deemed to have occurred if
an acquisition of stock that would otherwise constitute a Change in
Control pursuant to clause (A) or (D) of the preceding sentence is made
by the Company, by any corporation in a merger or consolidation that
does not
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<PAGE>
constitute a Change in Control pursuant to clause (C) of the preceding
sentence or by any employee benefit plan (or related trust) sponsored
or maintained by the Company.
(c) Notwithstanding any other provision of the Plan, in the event that a
Participant's employment is terminated on or after a Change in Control (as
defined in Section 12(b)(iii)) (x) by the Company other than for just cause
(as defined in Section 12(b)(ii)) or (y) by the Participant because the
Participant in good faith believes that as a result of such Change in
Control he is unable effectively to discharge his duties or the duties of
the position he occupied immediately prior to such Change in Control or
because of a diminution in his aggregate compensation or in his aggregate
benefits below that in effect immediately prior to such Change in Control:
(i) with respect to shares of Restricted Stock then outstanding, the
Restriction Period with respect to such shares shall be deemed
satisfied as of the date such Participant's employment is so
terminated, but only as to that portion of such shares as is equivalent
to the portion of the Restriction Period applicable thereto that has
been satisfied as of such date without regard to this Section 12(c)(i);
as of such date, the portion of such shares as to which the Restriction
Period is deemed satisfied pursuant to this Section 12(c)(i) shall
become nonforfeitable and all other of such shares shall be forfeited;
and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and
shall be paid out on the date such Participant's employment is so
terminated (A) as if all Performance Periods or other conditions or
restrictions applicable thereto had been completed or satisfied, the
maximum performance or other objectives with respect thereto had been
attained and all Awards granted with respect thereto had been fully
earned, but (B) prorated for the portion of any relevant Performance
Period or other period ending on the date such Participant's employment
is so terminated, unless prior to the Change in Control the Committee
otherwise so provides.
(d) In the case of a Participant whose principal employer is a
Subsidiary, then such Participant's employment shall be deemed to be
terminated for purposes of Sections 6 through 9 as of the date on which
such principal employer ceases to be a Subsidiary (the "Divestiture Date")
and, except to the extent otherwise determined by the Committee and set
forth in the applicable Award Agreement:
(i) with respect to shares of Restricted Stock held by such
Participant, the Restriction Period shall be deemed satisfied as of the
Divestiture Date, but only as to that portion of such shares as is
equivalent to the portion of the Restriction Period applicable thereto
that has been satisfied as of the Divestiture Date without regard to
this Section 12(d)(i); as of the Divestiture Date, the portion of such
shares as to which the Restriction Period is deemed satisfied pursuant
to this Section 12(d)(i) shall become nonforfeitable and all other of
such shares shall be forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and
shall be paid out on the Divestiture Date (A) as if all Performance
Periods or other conditions or restrictions applicable thereto had been
completed or satisfied, the maximum performance or other objectives
with respect thereto had been attained and all Awards granted with
respect thereto had been fully earned, but (B) prorated for the portion
of the relevant Performance Period or other period ending on the
Divestiture Date, all as determined by the Committee.
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<PAGE>
In the event of a termination of the Plan, then each Participant's employment
shall be deemed to be terminated for purposes of Sections 6 through 9 as of the
date of such termination of the Plan and, except to the extent otherwise
determined by the Committee and set forth in the applicable Award Agreement,
the foregoing provisions of clauses (i) and (ii) of this Section 12(d) shall
apply to such Participant's shares of Restricted Stock, Performance Awards and
Other Stock-Based Awards with the same effect as if the date of such
termination of the Plan were a Divestiture Date.
13. AMENDMENT AND TERMINATION
(a) The Board of Directors shall have the power to amend the Plan,
including the power to change the amount of the aggregate fair market value
of the shares subject to Incentive Stock Options first exercisable in any
calendar year under Section 5 to the extent provided in Section 422[A], or
any successor provision, of the Internal Revenue Code. It shall not,
however, except as otherwise provided in the Plan, increase the maximum
number of shares authorized for the Plan, nor change the class of eligible
employees to other than Key Employees, nor reduce the basis upon which the
minimum Option price is determined, nor extend the period within which
Awards under the Plan may be granted, nor provide for an Option that is
exercisable more than ten years from the date it is granted except in the
event of death. It shall have no power to change the terms of any Award
theretofore granted under the Plan so as to impair the rights of a
Participant without the consent of the Participant whose rights would be
affected by such change except to the extent, if any, provided in the Plan
or in the Award.
(b) The Board of Directors may suspend or terminate the Plan at any time.
No such suspension or termination shall affect Options, Rights or Limited
Rights then in effect.
14. FOREIGN OPTIONS AND RIGHTS
(a) The Committee may grant Awards to Key Employees who are subject to
the tax laws of nations other than the United States, which Awards 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. Awards of Options may have terms and conditions that differ from
Incentive Stock Options and Nonqualified Stock Options for the purposes of
complying with the foreign tax laws.
(b) The Committee may grant stock appreciation rights to Key Employees
without the grant of an accompanying Option if the Key Employees are
subject at the time of grant to the laws of a jurisdiction that prohibits
them from owning Common Stock. The Rights shall permit the Key Employees to
receive, at the time of any exercise of such Rights, cash equal to the
amount by which the fair market value of all shares of Common Stock in
respect to which the Right was granted exceeds the exercise price thereof.
(c) The terms and conditions of Options and Rights granted under Sections
14(a) and 14(b) may differ from the terms and conditions which the Plan
would require to be imposed upon Incentive Stock Options, Nonqualified
Stock Options and Rights if the Committee determines that the grants are
desirable to promote the purposes of the Plan for the Key Employees
identified in Sections 14(a) and 14(b); provided that the Committee may not
grant such Options or Rights that do not comply with the limitations of
Section 13(a).
15. WITHHOLDING TAXES
The Company shall have the right to deduct from any cash payment made under
the Plan any federal, state or local income or other taxes required by law to
be withheld with respect to such payment. It shall be a condition to the
obligation of American to deliver shares upon the exercise of
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<PAGE>
an Option or Right, upon payment of a Performance Award, upon delivery of
Restricted Stock or upon exercise, settlement or payment of any Other Stock-
Based Award that the Participant pay to the Company such amount as may be
requested by the Company for the purpose of satisfying any liability for such
withholding taxes. Any Award Agreement may provide that the Participant may
elect, in accordance with any conditions set forth in such Award Agreement, to
pay ANY [a portion or all of such] withholding taxes in shares of Common Stock.
16. EFFECTIVE DATE
The Plan AS ORIGINALLY APPROVED [shall be effective on and as of the date of
its approval] by the stockholders of American, WAS EFFECTIVE ON AND AS OF MAY
8, 1990. THE PLAN, AS AMENDED AND RESTATED, SHALL BE EFFECTIVE ON AND AS OF
JANUARY 1, 1994 SUBJECT TO APPROVAL THEREOF BY THE STOCKHOLDERS OF AMERICAN.
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<PAGE>
EXHIBIT B
BY-LAWS OF AMERICAN BRANDS, INC.
ARTICLE XII*
(AS PROPOSED TO BE AMENDED FOR THE INCENTIVE COMPENSATION AWARDS FOR 1994 AND
LATER YEARS)
INCENTIVE COMPENSATION
Section 1. (A) As soon as practicable after the end of the year 1994 [1986]
and of each year thereafter, [if net income before taxes for such year (as
hereinafter defined) shall have equaled or exceeded 12% of net worth for such
year (as hereinafter defined) and] if a cash dividend on the Common Stock shall
have been paid in such year, there shall be made available for allotment, as
hereinafter provided, an amount equal to one-half of 1% of ADJUSTED INCOME FROM
CONTINUING OPERATIONS (AS DEFINED IN SECTION 5 HEREOF) [such net income before
taxes].
(B) Of such amount made available for allotment under this Article, 18% shall
be allotted to the person or persons who during such year held the office of
Chairman of the Board, SUBJECT TO REDUCTION OF ANY PERSON'S SHARE AS PERMITTED
BY SECTION 3(A) HEREOF, as incentive compensation, in addition to the fixed
salary of such person or persons for such year. If such office shall have been
vacant at any time during the year, the amount to be allotted to the incumbent
or incumbents of such office for such year shall be reduced proportionately. If
such office shall have had more than one incumbent during the year, the amount
to be allotted in respect of such office shall be divided among the different
incumbents in the proportion of their respective periods of incumbency during
the year. Nothing herein contained shall give any incumbent of such office any
right to claim to continue therein, or any other right except as herein
specifically expressed.
(C) Of such amount made available for allotment under this Article, the
amount not allottable pursuant to Section 1(B) hereof BY REASON OF A VACANCY AT
ANY TIME DURING SUCH YEAR IN THE OFFICE OF THE CHAIRMAN OF THE BOARD shall be
available for allotment to other key employees, as provided in Section 2
hereof, in addition to the fixed salary of each of such persons for such year.
Section 2. (A) THE AMOUNT AVAILABLE FOR ALLOTMENT PURSUANT TO THIS SECTION 2
FOR EACH YEAR SHALL BE ALLOTTED AMONG THE MEMBERS OF A MANAGEMENT GROUP
CONSISTING OF ALL PERSONS ELECTED TO THE OFFICE OF VICE PRESIDENT OF THE
COMPANY OR ANY OFFICE SENIOR THERETO (EXCEPT THE CHAIRMAN OF THE BOARD AND ANY
OFFICER COVERED BY AN INCENTIVE COMPENSATION PLAN OF ANY SUBSIDIARY OF THE
COMPANY). [As soon as practicable after the end of the year 1986 and of each
year thereafter, the Committee (as defined in Section 3(C) of this Article)
shall designate a Management Group to participate in such allotment, which
Group in respect of such allotment shall consist of all salaried employees of
the Company who, in the judgment of such Committee, held during all or any part
of such year positions having responsibility for the management of important
aspects of the Company's business.] A PERSON WHO DURING PART OF SUCH YEAR HAS
HELD AN OFFICE IN THE MANAGEMENT GROUP SHALL PARTICIPATE IN SUCH ALLOTMENT ON A
PROPORTIONAL BASIS REFLECTING THE PORTION OF THE YEAR DURING WHICH HE HOLDS
SUCH OFFICE. A person who during part of such year has held the office of
Chairman of the Board SHALL [may] be included in the Management Group for the
portion of the year during which he HELD AN OFFICE IN THE MANAGEMENT GROUP AND
[was in the employ of the Company but] did not hold THE OFFICE OF CHAIRMAN OF
THE BOARD [such office], and the allotment to such person as a member of the
Management Group shall be in addition to the allotment to which he is entitled
under Section 1(B) hereof.
- --------
*Material in brackets is proposed to be deleted and material in bold typeface
is proposed to be added.
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<PAGE>
(B) Within 60 days after receipt from the independent [public] accountants of
the certificate to be furnished pursuant to Section 6[7] hereof showing the
amount made available for allotment under this Article, the amount to be
allotted pursuant to this Section 2 shall then be allottable among the members
of such Management Group as follows:
(1) Of such amount made available for allotment under this Article, 30%
[24%] shall be allotted to all members of such Group pro rata, SUBJECT TO
REDUCTION OF ANY MEMBER'S SHARE AS PERMITTED BY SECTION 3(A) HEREOF,
ACCORDING TO THE PROPORTION WHICH THE FIXED SALARY OF EACH MEMBER OF SAID
GROUP FOR PERIODS OF MEMBERSHIP DURING SUCH YEAR BEARS TO THE TOTAL OF SUCH
FIXED SALARIES OF ALL MEMBERS OF THE GROUP FOR SUCH PERIODS. FOR PURPOSES
OF THIS ALLOTMENT, (A) THE FIXED SALARY OF EACH MEMBER OF SAID GROUP WHOSE
COMPENSATION IS NOT SUBJECT TO THE LIMITATION ON DEDUCTIBILITY UNDER
SECTION 162(M) OF THE INTERNAL REVENUE CODE, AS AMENDED, OR ANY SUCCESSOR
PROVISION (THE "SECTION 162(M) LIMITATION") FOR SUCH YEAR SHALL BE AT A
RATE EQUAL TO THE HIGHEST FIXED SALARY RATE OF SUCH MEMBER DURING ANY
PERIOD OF MEMBERSHIP IN SAID GROUP DURING SUCH YEAR AND (B) THE FIXED
SALARY OF EACH MEMBER OF SAID GROUP WHOSE COMPENSATION IS SUBJECT TO THE
SECTION 162(M) LIMITATION FOR SUCH YEAR SHALL BE AT THE RATE IN EFFECT AT
THE BEGINNING OF SUCH YEAR, OR IF LATER THE BEGINNING OF SUCH MEMBER'S
FIRST PERIOD OF MEMBERSHIP IN THE GROUP DURING SUCH YEAR [according to the
proportion which the highest fixed salary rate during each such year of
each member of said Group bears to the total of the highest fixed salary
rates for such year of all members of said Group. In the case of any
members of such Management Group who were employed by the Company during
less than all of any such year, the pro rata computation hereunder shall be
adjusted proportionately to include such members only for their respective
periods of employment during such year. In the case of any members of such
Management Group who have held the office of Chairman of the Board during
part of any such year, the pro rata computation hereunder shall be adjusted
proportionately to include such members as if they had been employed during
such year only during their respective periods of employment in capacities
other than as Chairman of the Board].
(2) So much of the remaining amount made available for allotment under
this Article as the Committee (AS DEFINED IN SECTION 3(C) OF THIS ARTICLE)
determines, in its sole discretion, shall be allotted among the members of
such Management Group to such individuals in said Group, and in such
amounts as to individuals as the Committee, in its sole discretion, shall
determine, except as otherwise provided in Section 2(D) hereof.
(C) In addition to the foregoing, there shall also be allottable to such
Management Group within the 60-day period specified in Section 2(B) hereof any
amount which is not allotted in such year to the Chairman of the Board pursuant
to Section 1(B) hereof by reason of vacancy at any time during such year in
such office. Except as otherwise provided in Section 2(D) hereof, so much of
such additional amount as the Committee determines, in its sole discretion,
shall be allotted among the members of such Management Group to such
individuals in said Group, and in such amounts as to individuals, as the
Committee, in its sole discretion, shall determine.
(D) In any case where a Chairman of the Board is a person to whom an
allotment may be made as a member of such Management Group pursuant to
paragraph (2) of Section 2(B) hereof or pursuant to both said paragraph (2) and
Section 2(C) hereof, there shall be allotted to him within the 60-day period
specified in Section 2(B) hereof (subject to REDUCTION AS PERMITTED BY SECTION
3(A) HEREOF) [the provisions of the next sentence of this Section 2(D))], from
the total of the amount allottable among the members of the Management Group by
the Committee under said paragraph (2) and of any additional amount so
allottable under said Section 2(C), a sum which shall be the same percentage
(adjusted proportionately on the basis of the period of the year for which the
allotment is being made in which he WAS A MEMBER OF THE MANAGEMENT GROUP [was
in the employ of the Company] but did not hold the office of Chairman of the
Board) of such total as the allotment made to him for the next preceding year
under said paragraph (2) and said Section 2(C) was of the total amount
allottable for
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<PAGE>
such preceding year under said paragraph (2) and said Section 2(C). [If the
Board of Directors, by the affirmative vote of at least two-thirds of all of
the directors (other than the Chairman of the Board) then in office, shall
determine, at or before the regular meeting of the Board of Directors scheduled
to be held in the month of February next following the close of the year for
which the allotment is being made, upon a lesser amount to be allotted to such
member under said paragraph (2) or under both said paragraph (2) and said
Section 2(C), such lesser amount so determined shall be allotted to him in lieu
of any amount that might otherwise be allotted to him thereunder.]
Section 3. (A) THE COMMITTEE SHALL HAVE AUTHORITY TO REDUCE THE AMOUNT OF ANY
ALLOTMENT TO THE CHAIRMAN OF THE BOARD PURSUANT TO SECTION 1(B) HEREOF OR THE
AMOUNT OF ANY ALLOTMENT TO A MEMBER OF THE MANAGEMENT GROUP PURSUANT TO SECTION
2(B)(1) OR SECTION 2(D) HEREOF IF AND TO THE EXTENT THAT THE COMMITTEE DEEMS IT
APPROPRIATE. NO PART OF ANY SUCH REDUCTION IN ANY ALLOTMENT SHALL BE AVAILABLE
FOR ALLOTMENT TO ANY OTHER PERSON UNDER THIS ARTICLE.
(B) No part of the amount made available for allotment under this Article as
shall not have been allotted, under Sections 1 and 2 hereof, within such 60-day
period, for any year may be carried forward for subsequent allotment.
[(B) As used in Section 2 to 5, inclusive, of this Article the word "Company"
means American Brands, Inc. and its subsidiaries included in the consolidated
financial statements set forth in the annual report for the year 1986 to the
stockholders of American Brands, Inc., together with such other subsidiaries or
affiliates as the Committee shall expressly designate for any year or years.]
(C) As used in this Article the word "Committee" shall mean the Compensation
and Stock Option Committee [for all purposes relating to Article XII incentive
compensation for the year 1990 and each year thereafter, but shall mean the
Incentive Compensation Committee for the years prior to 1990]. All decisions of
the Committee pursuant to the provisions of this Article shall be binding and
conclusive on all interested parties.
[(D) The Incentive Compensation Committee shall consist of the persons
holding the following offices: the Chairman of the Board, the President and the
Executive Vice President. No vote of a member of the Incentive Compensation
Committee who is a member of the Management Group shall be counted with respect
to making any allotment to him.]
Section 4. [(A)] Payment to the Chairman of the Board of the amounts payable
to him under Section 1(B) hereof, and to each of the allottees of the
Management Group of the amount of his total allotment under Sections 2(B), 2(C)
and 2(D) hereof, with respect to any year shall be made [one half] in cash as
soon as practicable [and, subject to Section 5 hereof, the balance on a
deferred basis as hereinafter provided].
[(B) All deferred amounts payable to all persons hereunder, such persons
being hereinafter referred to as "participants," shall be payable (subject to
the conditions set forth in this Section 4(B) and to Section 4(C) hereof) in
cash on the fifteenth day of December next following the close of the year for
which the allotment was made, subject to the condition that prior to such
fifteenth day of December the participant shall not, without the express
approval of the Board of Directors, have accepted employment with, or rendered
personal service to, a competitor as defined in the following sentence. As used
herein, a "competitor" shall mean any corporation or other entity engaged in
any activity which, at the time the applicable allotment was made, was
competitive with the business of the Company and "the business of the Company"
at the time of allotment shall mean the types of business carried on by the
Company and its subsidiaries which are deemed by the Board of Directors to have
been the principal types at that time.
(C) Subject to Section 5 hereof, no such installment may be transferred by
any participant in any manner whatsoever, including transfer by operation of
law. If any participant is, in the opinion of
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<PAGE>
the Board of Directors, incapable of handling his affairs, or makes or suffers
any attempted transfer, whether voluntary or involuntary, of any such
installment, then in the discretion of the Board of Directors payment thereof
to such participant shall cease and payments may be made or applied to or for
the benefit of such participant or his spouse, children, or other dependents,
or any of them, in such manner and in such proportion as the Board of Directors
shall from time to time deem proper, subject, however, to the other provisions
hereof.
(D) Any portion of any allotment which terminates by reason of noncompliance
with its conditions shall revert to the Company.
Section 5. Any of the said deferred payments that may fall due after death of
a participant shall be paid as soon as practicable either to such person as
shall furnish evidence satisfactory to the Company that under the last will and
testament of the participant or for other reason such person is authorized in
law to receive such payment, or, in the discretion of the Company, to such
person as shall furnish the Company with evidence of appointment as
representative of the estate of the participant. The Company may rely upon any
opinion of counsel in determining the person entitled to receive such payments
and the receipt of any such person for such payments shall release the Company
from any further obligation in respect thereof. The word "person" as used in
this Section 5 may include one or more individuals, firms, trusts or
corporations.]
Section 5[6 (A)]. For the purpose of this Article, the term "ADJUSTED INCOME
FROM CONTINUING OPERATIONS" ["net income before taxes"] for any year is defined
AS [to mean] the income FROM CONTINUING OPERATIONS, before INCOME taxes, AS
REFLECTED [on income, stated by the independent public accountants who have
audited the Company's books as fairly reflecting, before such taxes and before
the deduction for Article XII incentive compensation, the consolidated results
of the operations for such year of the Company and its subsidiaries included]
in the consolidated financial statements set forth in the annual report for
such year of the Company to the stockholders, but adjusted BY THE INDEPENDENT
ACCOUNTANTS WHO HAVE AUDITED THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS TO
(I) EXCLUDE THE DEDUCTION FOR ARTICLE XII INCENTIVE COMPENSATION, (II) EXCLUDE
UNREALIZED GAINS AND LOSSES ON SECURITIES, AND ADJUST REALIZED GAINS AND LOSSES
ON TRADING SECURITIES TO REFLECT COST, (III) EXCLUDE RESTRUCTURING CHARGES OR
CREDITS, AND CHARGES FOR IMPAIRED ASSETS OTHER THAN THOSE SOLD IN THE ORDINARY
COURSE OF BUSINESS, (IV) INCLUDE THE RESULTS OF OPERATIONS FOR SUCH YEAR FROM
BUSINESSES CLASSIFIED AS "DISCONTINUED OPERATIONS" PRIOR TO THE DISPOSITION
DATES, AND (V) TO THE EXTENT NOT ADJUSTED PURSUANT TO ITEMS (II), (III) OR (IV)
ABOVE, EXCLUDE GAINS OR LOSSES INCLUDED IN CONTINUING OPERATIONS RESULTING FROM
THE SALE OR WRITEDOWN OF INTANGIBLE ASSETS, LAND OR BUILDINGS, INVESTMENTS IN
BUSINESS UNITS AND SECURITIES RESULTING FROM THE SALE OF BUSINESS UNITS [to
exclude all gain in excess of loss resulting from sales or other dispositions
of land, buildings, good will, brands, trademarks and investments in
subsidiaries, other companies or governmental bodies].
[(B) For the purpose of this Article, the term "net worth" for any year means
the amount stated by the independent public accountants who have audited the
books of the Company as representing the stockholders' equity, at the end of
the immediately preceding year, in the Company and its consolidated
subsidiaries included in the consolidated financial statements set forth in the
annual report for such preceding year of the Company to the stockholders;
provided, however, that with respect to 1986, the term "net worth" means the
amount stated by the independent accountants who have audited the books of
American Brands, Inc., a New Jersey corporation organized under an Agreement of
Consolidation in 1904, and any successor thereto (such corporation and any such
successor being hereinafter together called "American"), as representing the
stockholders' equity, at the end of 1985, in American and its consolidated
subsidiaries included in the consolidated financial statements set forth in the
annual report for 1985 to the stockholders of the Company.]
Section 6[7]. At the time of rendering their report with respect to the
financial statements of the Company and its consolidated subsidiaries for any
year, such [public] INDEPENDENT accountants
B-4
<PAGE>
shall also furnish to the Company their written certificate stating [the "net
worth" for such year as defined in Section 6(B) hereof,] the amount of the
"ADJUSTED INCOME FROM CONTINUING OPERATIONS" ["net income before taxes"] for
such year as defined in Section 5[6](A) hereof, the amount made available for
allotment under this Article for such year, and the amounts thereof to be
allotted to the Chairman of the Board, and the amount thereof available for
allotment to the Management Group, which certificate as to the amounts
available and payable hereunder shall be binding and conclusive on all
interested parties, and no one claiming hereunder shall have a right to
question the same, or to any examination of the books or accounts of the
Company or subsidiaries.
Section 7[8]. This Article may be repealed only by the action of the
stockholders of the Company, and not by the directors. Upon the unanimous
recommendation of the Committee, this Article may be amended or modified by the
directors in accordance with Article XI, except that, without the approval of
the stockholders of the Company, no such amendment or modification shall be
made which increases the amount made available for allotment as specified in
Section 1(A) hereof or increases to higher than 18% of such amount the amount
to be allotted hereunder to the Chairman of the Board.
B-5
<PAGE>
LOGO OF RECYCLE SYMBOL
THIS PROXY STATEMENT IS PRINTED ON
RECYCLED PAPER. THE ENTIRE
PUBLICATION IS RECYCLABLE.
<PAGE>
PLEASE EXECUTE AND RETURN YOUR PROXY PROMPTLY
(SEE ENCLOSED PROXY STATEMENT)
(DETACH HERE)
[LOGO OF American Brands, Inc.] PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints W. J. ALLEY, T. C. HAYS and A. HENSON proxies,
with power of substitution, to vote at the Annual Meeting (including
adjournments) of stockholders of American Brands, Inc., to be held May 3,
1994, at the Stamford Center for the Arts, Stamford, Connecticut at 10:00
A.M., for the election of nominees E. R. Anderson, P.O. Ewers, J.W. Johnstone,
Jr. and W. J. Kelley as Class II directors, on Items 2 through 11 referred to
on the reverse side and described in the Proxy Statement, and on any other
business before the meeting, with all powers the undersigned would possess if
personally present. A majority (or, if only one, then that one) of the proxies
or their substitutes acting at the meeting may exercise all powers hereby
conferred.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE STOCKHOLDER. IF NO CONTRARY INDICATION IS MADE, THE PROXIES WILL VOTE
FOR THE ELECTION OF THE NOMINEES OF THE BOARD OF DIRECTORS, FOR ITEMS 2
---
THROUGH 6 AND AGAINST ITEMS 7 THROUGH 11 IF THEY ARE PRESENTED TO THE MEETING.
-------
PLEASE MARK, DATE, SIGN AS NAME APPEARS AT RIGHT, AND RETURN THIS PROXY IN THE
ENCLOSED POSTPAID ENVELOPE. (EXECUTORS, ADMINISTRATORS, TRUSTEES, CUSTODIANS,
ETC., SHOULD INDICATE CAPACITY IN WHICH SIGNING.)
PLEASE
SIGN RIGHT ARROW DATED
HERE ------------------------- ------------------, 1994
<PAGE>
(DETACH HERE)
P R O X Y
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1 THROUGH 6
---
WITHHELD
1. Election of Directors FOR ALL FROM ALL
[_] [_]
FOR, EXCEPT individual nominee(s) (Messrs. Anderson,
Johnstone and Kelley and Dr. Ewers) whose name(s) is
written below:
----------------------------------------------------
FOR AGAINST ABSTAIN
2. Elect Coopers & Lybrand independent [_] [_] [_]
accountants for 1994
3. Amend 1990 Long-Term Incentive Plan [_] [_] [_]
4. Amend 1986 Stock Option Plan [_] [_] [_]
5. Amend Annual Executive Incentive [_] [_] [_]
Compensation Program
6. Amend Profit-Sharing Plan [_] [_] [_]
P R O X Y
THE BOARD OF DIRECTORS RECOMMENDS VOTES AGAINST ITEMS 7 THROUGH 11
-------
FOR AGAINST ABSTAIN
7. Request elimination of election of [_] [_] [_]
directors by classes
8. Request cancellation of Company [_] [_] [_]
pensions for outside directors
9. Request establishment of minimum [_] [_] [_]
stock ownership requirements for senior
managers and outside directors
10. Request implementation of MacBride [_] [_] [_]
Principles
11. Request report on promotion of lower- [_] [_] [_]
priced cigarettes to African-Americans
and low-income persons
(TO BE SIGNED AND DATED ON THE OTHER SIDE)
