UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1993 Commission file number 1-9076
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $3.125 per share New York Stock Exchange, Inc.
$2.67 Convertible Preferred Stock,
without par value New York Stock Exchange, Inc.
9 1/8% Debentures Due 2016 New York Stock Exchange, Inc.
9% Notes Due 1999 New York Stock Exchange, Inc.
8 5/8% Debentures Due 2021 New York Stock Exchange, Inc.
8 1/2% Notes Due 2003 New York Stock Exchange, Inc.
7 7/8% Debentures Due 2023 New York Stock Exchange, Inc.
7 1/2% Notes Due 1999 New York Stock Exchange, Inc.
5 1/4% Notes Due 1995 New York Stock Exchange, Inc.
Preferred Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes(X) No( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at February 4, 1994, was $6,918,007,068. The
number of shares outstanding of Registrant's Common Stock, par value $3.125
per share, at March 4, 1994, was 201,811,463.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain information contained in the Annual Report to Stockholders of
Registrant for the fiscal year ended December 31, 1993 is incorporated
by reference into Part I, Part II and Part IV hereof.
(2) Certain information contained in the Proxy Statement for the Annual
Meeting of Stockholders of Registrant to be held on May 3, 1994 is
incorporated by reference into Part III hereof.
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PART I
Item 1. Business.
(a) General development of business.
Registrant is a holding company with subsidiaries engaged in
various businesses. A subsidiary, Gallaher Limited ("Gallaher"), and
certain of its subsidiaries are engaged in the manufacture and sale of
cigarettes, cigars and smoking tobaccos principally in the United Kingdom,
and another subsidiary, The American Tobacco Company ("ATCO"), is engaged
in the manufacture and sale of cigarettes principally in the United States
and, through a subsidiary, the production of cigarette-tipping and other
printed packaging materials. Subsidiaries of Registrant are also engaged
in the distilled spirits business, the life insurance business, and the
manufacture and sale of various types of hardware and home improvement
products, office products, supplies and accessories, golf products, and
rubber products and, principally in the United Kingdom, the businesses of
optical goods and services, retail distribution and houseware products.
Registrant was incorporated under the laws of Delaware in 1985
and until 1986 conducted no business. Prior to 1986, the businesses of
Registrant's subsidiaries were conducted by American Brands, Inc., a New
Jersey corporation organized in 1904 ("American New Jersey"), and its
subsidiaries. American New Jersey was merged into The American Tobacco
Company on December 31, 1985, and the shares of the principal first-tier
subsidiaries formerly held by American New Jersey were transferred to
Registrant. In addition, Registrant assumed all liabilities and
obligations in respect of the public debt securities of American New Jersey
outstanding immediately prior to the merger. Unless the context otherwise
indicates, references herein to American Brands, Inc. and to Registrant for
all periods prior to January 1, 1986 are to American New Jersey.
As a holding company, Registrant is a legal entity separate and
distinct from its subsidiaries. Accordingly, the right of Registrant, and
thus the right of Registrant's creditors (including holders of its debt
securities and other obligations) and stockholders, to participate in any
distribution of the assets or earnings of any subsidiary is subject to the
claims of creditors of the subsidiary, except to the extent that claims of
Registrant itself as a creditor of such subsidiary may be recognized, in
which event Registrant's claims may in certain circumstances be subordinate
to certain claims of others. In addition, as a holding company, a
principal source of Registrant's unconsolidated revenues and funds is
dividends and other payments from its subsidiaries. Registrant's principal
subsidiaries currently are not limited by long-term debt or other
agreements in their abilities to pay cash dividends or to make other
distributions with respect to their capital stock or other payments to
Registrant, although Registrant's subsidiaries engaged in the life
insurance business are generally subject to state insurance law
restrictions upon amounts that can be transferred to Registrant in the form
of dividends, loans or advances without approval of the relevant state
insurance authorities. These restrictions have not had and are not
expected to have a material effect on the ability of Registrant to meet its
cash obligations.
In recent years Registrant has been engaged in a program seeking
to enhance the operations of its subsidiaries in certain core businesses
and the development of other core businesses as well as certain specialty
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businesses. Pursuant to such program Registrant has since 1986 made major
acquisitions in the distilled spirits business, the office products
business and the hardware and home improvement products business, which
acquisitions were financed at least in part by debt or debt securities
convertible into Common Stock. On June 30, 1993, ATCO acquired from B.A.T
Industries, PLC the Benson and Hedges cigarette trademark in Europe in
exchange for the assignment of its Lucky Strike and Pall Mall overseas
cigarette trademarks, and $107.2 million in cash, including expenses, and
contingent future payments based on volumes. See "Narrative description of
business - Tobacco Products, The American Tobacco Company." During the
fourth quarter of 1993, The Whyte & Mackay Group PLC ("Whyte & Mackay"), a
subsidiary of the Registrant's Gallaher Limited subsidiary, completed its
acquisition of Invergordon Distillers Group PLC ("Invergordon") by
purchasing the remaining 58.7% of the outstanding shares of Invergordon for
a cost, including fees and expenses, of $343.6 million. See "Narrative
description of business - Distilled Spirits." In addition, Registrant has
been making dispositions of businesses considered to be nonstrategic to its
long-term operations. In connection therewith, major dispositions by
Registrant since 1986 have included its food, security, personal care
products and pumps and valves operations and certain operations in the life
insurance and international tobacco businesses.
Registrant continues to pursue this strategy and in furtherance
thereof explores other possible acquisitions in fields related to its core
businesses and possibly other fields and dispositions of any businesses
that may be considered nonstrategic to its long-term operations. Although
no assurance can be given as to whether or when any such acquisitions or
dispositions will be consummated, if agreement with respect to any
acquisitions were to be reached, Registrant might finance such acquisitions
by issuance of additional debt or equity securities. The additional debt
from these or any other acquisitions, if consummated, would increase
Registrant's debt-to-equity ratio and such debt or equity securities might,
at least in the near term, have a dilutive effect on earnings per share.
Registrant also continues to consider other corporate strategies intended
to enhance stockholder value. It cannot be predicted whether or when any
such strategies might be implemented or what the financial effect thereof
might be upon Registrant's debt or equity securities.
(b) Financial information about industry segments.
See the table captioned "Information on Business Segments" and
the second table in the note captioned "Information on Business Segments"
in the Notes to Consolidated Financial Statements contained in the 1993
Annual Report to Stockholders of Registrant, which tables are incorporated
herein by reference.
(c) Narrative description of business.
The following is a description of the business of the
subsidiaries of Registrant in the industry segments of Tobacco Products,
Distilled Spirits, Life Insurance, Hardware and Home Improvement Products
and Office Products, as well as in other industries as discussed under
"Specialty Businesses" below. For financial information about classes of
similar products and services, see the table captioned "Information on
Business Segments" and the second table in the note captioned "Information
on Business Segments" in the Notes to Consolidated Financial Statements
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contained in the 1993 Annual Report to Stockholders of Registrant, which
tables are incorporated herein by reference.
Tobacco Products
Gallaher Limited
Gallaher is engaged primarily in the manufacture and sale of
tobacco products in the United Kingdom and elsewhere, principally in the
European Community. Its sales of tobacco products are the largest in the
United Kingdom. For 1993, Gallaher held approximately 41.7% of the
cigarette market in the United Kingdom, compared with approximately 41.5%
and 43.5% for 1992 and 1991, respectively. Total unit sales of cigarettes
to retail outlets and wholesalers in that country by foreign and domestic
manufacturers increased by 1.9% in 1993, and decreased 6.7% and 3% in 1992
and 1991, respectively. Gallaher's total unit sales to retail outlets and
wholesalers increased by 2.3% in 1993, and decreased in 1992 and 1991 by
10.9% and 6.3%, respectively. The unit sales increases in 1993 resulted
primarily from heavy retailer and wholesaler purchasing prior to the United
Kingdom budget announced in November 1993. It is estimated that the
underlying consumer demand declined in the area of 5.5% in 1993 and it is
likely that unit sales will decline in 1994. In 1993, filter cigarettes
continued to represent over 98% of total unit sales of cigarettes in the
United Kingdom for Gallaher and for the industry.
Gallaher's principal cigarette brands in the United Kingdom are
Benson and Hedges Special Filter, Silk Cut, Berkeley Superkings and
Kensitas. To respond to growing consumer preference for lower priced
cigarettes, Gallaher introduced Benson and Hedges Superkings and Benson and
Hedges Superkings Lights into the mid-price sector in early 1993. These
new brands, together with Berkeley Superkings Menthol, resulted in
Gallaher's share of that sector increasing from 32.6% in 1992 to 37.4% in
1993. Rights to some of these brands in various other countries are
claimed by others. Gallaher also markets other tobacco products, among
which are Hamlet cigars, Condor and Benson and Hedges Mellow Virginia
smoking tobaccos and Old Holborn roll-your-own cigarette tobacco. Sales
are made to retail outlets and wholesalers.
Following the exchange of trademarks in Europe between ATCO and
B.A.T Industries, PLC on June 30, 1993, Gallaher entered into an exclusive
trademark license agreement with ATCO, pursuant to which Gallaher
manufactures and sells Benson and Hedges products in tax-paid markets in
Europe and pays a royalty to ATCO based on volume.
Gallaher's principal competitors in the United Kingdom are
Imperial Tobacco, Rothmans, Philip Morris and imported brands. Gallaher
competes on the basis of the quality of its products and price and its
responsiveness to consumer preferences.
Gallaher buys its leaf tobacco from foreign sources, including
the United States. Large inventories of leaf tobacco are maintained by
Gallaher. Sufficient inventories of finished product are maintained by
Gallaher to respond promptly to orders.
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There has been social and political unrest in Northern Ireland
for many years. Notwithstanding this situation, there has been no
consequential damage to Gallaher's manufacturing facilities there.
The United Kingdom Finance Act, 1992 provided for an increase in
the excise duties on tobacco products with the result that the price of a
typical pack of cigarettes increased by 13 pence. The United Kingdom
Finance Act, 1993 provided for an increase in the excise duties on tobacco
products with the result that the price of a typical pack of cigarettes
increased by 10 pence. The United Kingdom budget introduced on November
30, 1993 provided for an increase in the excise duties on tobacco products
with the result that the price of a typical pack of cigarettes increased by
11 pence. It is believed that the continuing impact of price increases,
principally due to substantial excise tax increases in 1992 and 1993,
combined with the prolonged recession, have led to an overall reduction in
annual industry volumes, declines in consumer demand, greater price
competition and increased trading down by consumers to lower priced brands.
The effect of any further excise duty increases cannot be determined, but
such increases and any new duties or taxes, if enacted, will likely add to
the overall industry declines and the shift to lower priced brands.
An agreement took effect in September 1991 between
representatives of the United Kingdom tobacco industry and the United
Kingdom Health Ministers with respect to tobacco products and their
packaging and advertising. Among other things, the agreement provides for
limitations on expenditures for cigarette brand poster advertisements and
for a reduction in the number of external cigarette advertising signs at
retail premises. Specified warning statements are required to be printed
on cigarette packages and to appear in advertisements. Negotiations are
taking place on a new agreement, which would place further restrictions on
advertising. It is not possible to predict when any such agreement would
take effect. Regulations promulgated in the United Kingdom in July 1991 to
implement a Council Directive of the European Community require, effective
January 1, 1992, that all tobacco product packaging bear the warning
statement "Tobacco Seriously Damages Health" and that cigarette packaging
bear additional warning statements and carry an indication of tar and
nicotine yield. In addition, the Independent Television Commission Code of
Advertising Standards and Practice of December 1990, implementing a Council
Directive of the European Community, prohibits, effective October 1991, the
advertising of all tobacco products on television in the United Kingdom.
Television and radio advertising of cigarettes has been prohibited in the
United Kingdom for many years. Also, a Council Directive of the European
Community has been proposed by the Commission of the European Community to
provide for a total ban on tobacco advertising and sponsorship throughout
the European Community and to restrict the use of tobacco brand names on
non-tobacco products. In February 1992 the European Parliament, an
advisory body, approved such a total ban. Any such Council Directive, even
though approved by the European Parliament and the Commission, must be
adopted by the Council of Ministers of the member states of the Community
by a qualified majority of the member states prior to becoming effective
and may be adopted so as to be binding or non-binding on individual member
states.
A Council Directive of the European Community adopted in May 1990
required that the tar yield of cigarettes marketed in the European
Community should not be greater than 15 milligrams per cigarette after
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December 31, 1992, and 12 milligrams per cigarette after December 31, 1997.
None of Gallaher's cigarette brands have had a tar yield in excess of 15
milligrams per cigarette since December 31, 1992.
The Treaty of Rome has as an objective the removal of certain
restrictions on trading among the member states of the European Community,
and since January 1, 1993 trading barriers within the Community have been
eliminated in accordance with the Single European Act. Actions taken by
the Community effective January 1, 1993 in connection with the
implementation of the Single European Act include an increase in the
allowance of cigarettes for personal consumption that may be purchased
duty-paid in one member state and carried to another without payment of
additional duty. The removal of customs border posts was also scheduled to
occur effective January 1, 1993 but implementation has not been uniform
because of concerns raised by at least one member state. It is possible
that the Treaty of Rome, including implementation of the Single European
Act and other actions taken by the Community, will result in increased
competition in the market for tobacco products in the United Kingdom and in
other member states and cause a shift in sales of tobacco products brands
from certain member states, such as the United Kingdom, to other member
states in which prices of those brands are lower.
On July 18, 1989 the Council of Ministers enacted a non-binding
Council Resolution, as part of its on-going "Europe Against Cancer"
program, inviting member states to introduce legislation that would ban
smoking in most public places. In addition, various member states have
adopted legislation or non-binding guidelines that address smoking in
public places.
It is not possible to state whether additional legislation,
directives, regulations or action will be enacted, promulgated or taken in
or by the United Kingdom or the European Community or the nature of any
such legislation, directives, regulations or action, nor is it possible to
predict the effect any such legislation, directives, regulations or action
may have on the industry generally or on Gallaher.
Gallaher's subsidiary, Gallaher (Dublin) Limited, manufactures
tobacco products in the Republic of Ireland.
See Item 3, "Legal Proceedings".
For a description of the business of other subsidiaries of
Gallaher, see "Distilled Spirits" and "Specialty Businesses - Optical goods
and services - Retail distribution - Housewares".
The American Tobacco Company
ATCO is engaged in the manufacture and sale of filter and
nonfilter cigarettes, principally in the United States. ATCO sells its
cigarettes primarily to distributors, chain stores and other large retail
outlets. In 1993, unit sales of cigarettes in the United States accounted
for approximately 94.6% of ATCO's total unit sales. ATCO's domestic unit
sales of cigarettes increased slightly in 1991 and decreased 4.3% and 9.1%
in 1992 and 1993, respectively. Total unit sales of cigarettes for the
domestic industry declined in 1991, 1992 and 1993 approximately 2.4%, 0.4%
and 9%, respectively. However, it is estimated that the underlying decline
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in consumer demand in 1993 was in the range of 3% to 4%. ATCO's share of
the cigarette market in the United States increased to approximately 7.03%
in 1991 and decreased to approximately 6.76% and 6.75% in 1992 and 1993,
respectively. Unit sales of ATCO's more profitable premium brands were
down 20.9%, particularly nonfilter and charcoal filter brands which
continued to decline far in excess of the overall industry decline in
recent years. Unit sales of filter cigarettes (other than charcoal filter)
in 1993 are estimated to have been approximately 96% of total unit sales
for the domestic industry, compared to 74.9% of ATCO's total domestic unit
sales. ATCO's unit sales of nonfilter cigarettes decreased from 23.4% of
its total domestic unit sales of cigarettes for 1992 to 19.2% for 1993.
ATCO's unit sales of charcoal filter cigarettes decreased from 7.0% of its
total domestic unit sales for 1992 to 5.9% for 1993. The industry's less
profitable price-value category, comprising discount and deep discount
brands, grew from 30% to 37% as price increases over the years, including
excise taxes, have resulted in trading down by consumers, particularly to
deep discount brands. Unit sales of ATCO's price-value brands increased
5.3% as the introduction of deep discount brands more than offset declines
in discount brands. Price-value brands accounted for 52% of ATCO's U.S.
unit sales in 1993, compared to 45% in 1992. The intense price and
promotional competition in the domestic tobacco industry continues. In
April 1993, the industry promotionally reduced the prices of many leading
brands. In August 1993, ATCO's principal competitors decreased list prices
of their premium and discount brands and increased list prices of their
deep discount brands. ATCO announced similar decreases in list prices of
its premium and discount brands, but did not significantly change the list
prices of its deep discount brands. In November 1993, ATCO and its
competition raised prices of certain brands, but the amount of these
increases was far less than the amount of the August decreases. Conditions
in the U.S. tobacco market remain unsettled. ATCO products are also sold
overseas, principally in Japan and other Asian countries, with expansion
into the Middle East, Poland, Korea and the C.I.S.
Registrant believes that ATCO is the fifth largest manufacturer
of cigarettes in the United States. ATCO's principal competitors in the
United States are Philip Morris, R.J. Reynolds, Brown & Williamson,
Lorillard and Liggett. ATCO competes on the basis of the quality and price
of its products and its responsiveness to consumer preferences.
The principal brands produced by ATCO are Lucky Strike, Pall
Mall, Tareyton, Carlton, American, Montclair, Misty, Riviera, Private
Stock, Prime and Summit. Although ATCO has exclusive ownership in the
United States of its brands mentioned above, the ownership of most of its
principal brands in various foreign countries is claimed by others.
On June 30, 1993, ATCO acquired from B.A.T Industries, PLC the
Benson and Hedges cigarette trademark in Europe in exchange for the
assignment of its Lucky Strike and Pall Mall overseas cigarette trademarks,
and $107.2 million in cash, including expenses, and contingent future
payments based on volumes. ATCO recognized a pretax gain of $25.5 million
as a result of the assignment of the Lucky Strike and Pall Mall trademarks.
Certain of the contingent payments are guaranteed and, accordingly, their
present value is included in the initial $183 million of intangibles that
have been recorded. Any payments in excess of the guarantees will also be
amortized over periods not to exceed 40 years. In a related event, on June
30, 1993 ATCO entered into a trademark license agreement with Gallaher.
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Pursuant to the agreement, Gallaher has the exclusive right to manufacture
and sell Benson and Hedges products in tax-paid markets in Europe and pays
a royalty to ATCO based on volume.
There is a federal excise tax on cigarettes, and such tax was
increased by four cents per pack effective January 1, 1991, and an
additional four cents per pack effective January 1, 1993. All the states,
the District of Columbia and many municipalities and counties impose
additional cigarette taxes. In addition, legislation has been introduced
in the United States Congress to further increase the federal excise tax
and to impose other federal taxes. Proposals to increase or adopt new
cigarette taxes are also pending in various state and local jurisdictions.
The Clinton administration has proposed a tax increase on cigarettes to 99
cents per pack from the current level of 24 cents per pack to help pay the
cost of the administration's proposed health care program. As part of an
alternative proposal to the Clinton administration program, the Health
Subcommittee of the House Ways and Means Committee has proposed increasing
the federal tax on cigarettes by $1.25 to $1.49 per pack to help pay the
cost of providing universal health care. The effect of any further excise
tax increases cannot be determined, but such increases and any new taxes,
if enacted, will likely add to the overall industry declines and the shift
to lower priced brands.
Tobacco is an agricultural commodity subject to United States
Government controls and price supports that can affect market prices
substantially. Legislation has been introduced in the United States
Congress that would eliminate the federal price support program. The
market price of flue-cured tobacco decreased from an average of $1.75 per
pound in calendar year 1992 to an average of $1.74 per pound in calendar
year 1993. Burley leaf prices increased from an average of $1.81 per pound
in calendar year 1992 to an average of $1.85 per pound in calendar year
1993. Average market prices do not necessarily reflect ATCO's actual leaf
costs since ATCO's purchases are in a wide range of quality and price
categories.
ATCO buys its leaf tobacco on the domestic and international
markets. Large inventories of leaf tobacco are maintained by ATCO because
the production of leaf tobacco is subject to changing weather conditions
and because most leaf tobacco, when purchased, requires additional aging.
Sufficient inventories of finished product are maintained by ATCO to
respond promptly to orders. The Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") as signed into law on August 10, 1993 contains
provisions which penalize domestic cigarette companies that manufacture
cigarettes containing less than 75% U.S. grown tobacco. The Reconciliation
Act also imposes additional assessments and fees on imported tobacco which
is generally less expensive. The Reconciliation Act will result in ATCO
incurring greater cost for its leaf tobacco, as well as maintaining its
current inventory of foreign tobacco for a longer period before it can be
used in cigarette production. Based on the preliminary rules issued, the
impact of this legislation may increase ATCO's 1994 manufacturing cost by
an estimated $10 million.
The Federal Cigarette Labeling and Advertising Act (the "Labeling
Act") has required since 1966 that cigarettes manufactured, packaged or
imported for sale or distribution in the United States include a warning
statement relating to smoking and health on their packaging. ATCO and five
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other cigarette manufacturers are parties to consent orders, entered into
with the Federal Trade Commission in 1972, which relate to the placement of
prescribed statements in cigarette advertising. The Comprehensive Smoking
Education Act (amending effective in 1985 the Labeling Act) requires that
packages of cigarettes distributed in the United States and cigarette
advertisements in the United States bear in quarterly rotation, in lieu of
the previously required statement, the statements: "SURGEON GENERAL'S
WARNING: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May
Complicate Pregnancy"; "SURGEON GENERAL'S WARNING: Quitting Smoking Now
Greatly Reduces Serious Risks to Your Health"; "SURGEON GENERAL'S WARNING:
Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, And
Low Birth Weight"; and "SURGEON GENERAL'S WARNING: Cigarette Smoke Contains
Carbon Monoxide". Statements also are required in billboard
advertisements. The Labeling Act prohibits any other requirement of a
statement relating to smoking and health on any cigarette packaging,
advertising or promotional material. The United States Supreme Court in a
1992 decision in Cipollone v. Liggett Group, Inc., et al., held that the
1965 version of the Labeling Act, which requires specified warnings on
cigarette packaging, advertising and promotional materials, did not preempt
lawsuits seeking money damages for personal injuries allegedly caused by
cigarette smoking. The Supreme Court further held that the Public Health
Cigarette Smoking Act of 1969, which, among other things, amended the
preemption provision of the 1965 version of the Labeling Act effective July
1, 1969, preempts such lawsuits based on alleged failure to warn and
neutralization of the federally mandated warnings to the extent that those
claims rely on omissions or inclusions in cigarette advertising or
promotions, but that the 1969 version of the Labeling Act does not preempt
claims based on alleged breach of express warranty, or certain claims based
on intentional fraud and misrepresentation or conspiracy. Legislation has
been introduced in the United States Congress that if enacted would limit
the effect of the preemption provisions of the Labeling Act. See Item 3,
"Legal Proceedings". All radio and television advertising of cigarettes is
prohibited by the Labeling Act.
Under the Comprehensive Smoking Education Act, each person who
manufactures, packages or imports cigarettes is required to provide
annually to the Secretary of Health and Human Services, on a confidential
basis, a list of the ingredients added to tobacco in the manufacture of
cigarettes. Annual reports to the United States Congress are also required
from the Secretary of Health and Human Services as to current information
on the health consequences of smoking and from the Federal Trade Commission
on the effectiveness of cigarette labeling and current practices and
methods of cigarette advertising and promotion. In connection with the
reporting responsibilities of the Secretary of Health and Human Services,
the Surgeon General of the United States has from time to time issued
reports addressing aspects of smoking and health issues. In December 1986,
the Surgeon General released a report concluding, among other things, that
"involuntary smoking is a cause of disease, including lung cancer, in
healthy nonsmokers." In May 1988, the Surgeon General released a report
which, among other things, reviewed literature on aspects of tobacco use
and concluded that cigarettes are addicting. In February 1994, the Surgeon
General released a report on the prevention of tobacco use among young
people which concluded, among other things, that "[c]ommunitywide efforts
that include tobacco tax increases, enforcement of minors' access laws,
youth-oriented mass media campaigns, and school-based tobacco use
prevention programs are successful in reducing adolescent use of tobacco."
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Both the Secretary of Health and Human Services and the Federal Trade
Commission also are required to make recommendations with regard to further
legislation.
Legislation has been introduced in the United States Congress
that if enacted would amend the Labeling Act to require that the statements
that the Labeling Act requires to appear on cigarette packaging and
advertisements include the following: "SURGEON GENERAL'S WARNING: Smoking
is Addictive. Once You Start You May Not Be Able To Stop"; and "SURGEON
GENERAL'S WARNING: NICOTINE IN CIGARETTES IS AN ADDICTIVE DRUG".
Legislation has also been introduced in the United States Congress that if
enacted would require nine rotating health warnings on cigarette packages
and advertisements and would change the format of the required warnings.
In addition, legislation has been introduced in the United States Congress
that if enacted would make unlawful the export, by any corporation or any
foreign subsidiary, from the United States or any other country any
cigarettes the package of which does not contain the label statements
required by the Labeling Act.
In 1992, the Alcohol, Drug Abuse and Mental Health Administration
Reorganization Act was adopted. This Act requires, effective January 1,
1994, states to adopt a minimum age of 18 for the purchase of tobacco
products.
Legislation has also been introduced in the United States
Congress that if enacted would require the Secretary of Health and Human
Services to establish a Center for Tobacco Products whose functions would
include collecting information regarding, and determining whether to
require disclosure of and impose restrictions on, additives contained in
tobacco products, reviewing the information required to be contained in
rotating warning labels and making federal grants to promote better
enforcement of state laws concerning the sale of tobacco products to
minors, to promote anti-smoking efforts, including the reduction of the
incidence of smoking in the workplace, and to encourage public information
campaigns concerning the use of tobacco products. Legislation has also
been introduced in the United States Congress that if enacted would further
restrict or ban advertising and restrict promotion of cigarettes and would
ban the sale of cigarettes from vending machines. In addition, legislation
has been introduced in the United States Congress that if enacted would
disallow income tax deductions for tobacco products advertising expenses.
In 1986 and 1987, there were proposals for legislation to eliminate the
deductibility of federal excise taxes, including excise taxes on tobacco
products, but these proposals were not enacted. There have also been
proposals to bring the manufacture and sale of cigarettes under the
jurisdiction of the Food and Drug Administration.
Legislation has been introduced in the United States Congress to
restrict smoking to designated areas in all federal facilities as well as
to prohibit smoking in such facilities. Legislation has also been
introduced to prohibit smoking in most public facilities. The Department
of Defense has announced a policy prohibiting smoking in all offices and
any other indoor work areas. Smoking on virtually all domestic airline
flights is prohibited by federal legislation. A number of states and
municipalities, as well as certain federal agencies, have enacted or
promulgated or are considering legislation and regulations which are
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intended to discourage smoking through educational efforts or which impose
various restrictions or requirements relating to smoking.
On January 7, 1993, the Environmental Protection Agency ("EPA")
released in final form its "risk assessment" report on environmental
tobacco smoke. The EPA's report concludes that environmental tobacco smoke
is a human carcinogen which causes lung cancer in nonsmokers and that
exposure to environmental tobacco smoke is causally associated with an
increased incidence of respiratory effects and disorders in children.
While it is not possible to predict the effects of the EPA report, it has
and will likely continue to result in additional regulation of smoking in
public and in workplaces as well as voluntary restrictions by private
entities relating to their facilities.
In September 1991, the Occupational Safety and Health
Administration ("OSHA") issued a request for information relating to indoor
air quality, including environmental tobacco smoke. The stated purpose of
the request is to assist OSHA in determining whether it is necessary and
appropriate to pursue regulatory action. On March 25, 1994, OSHA proposed
new rules regulating air quality in all indoor and enclosed work places
under OSHA jurisdiction and restricting smoking to designated areas where
employees are not required to enter in the performance of normal work
activities.
Under the terms of the Fire Safe Cigarette Act of 1990, the
Consumer Product Safety Commission ("CPSC") submitted a report to Congress
on August 10, 1993 regarding the technical and commercial feasibility,
economic impact and other consequences of developing cigarettes that have a
minimum propensity to ignite upholstered furniture and mattresses. This
report accepted many of the recommendations of a report prepared by a
technical advisory group established to assist the CPSC. The accepted
recommendations include a standard test method to determine cigarette
ignition propensity. However, in its report, the CPSC suggested additional
research prior to the adoption of a performance standard to reduce
cigarette ignition propensity. On February 23, 1994, Congressman Joseph
Moakley (D-Mass.) introduced legislation which would require the CPSC to
set a performance standard to reduce cigarette ignition. The CPSC would be
required to set such a standard within one year of enactment of the
legislation, and the tobacco industry (including ATCO) would have an
additional year to meet the standard for all cigarettes manufactured or
sold in the United States. It is not possible to predict the impact on
ATCO or the industry of the CPSC report or any resulting legislation or
regulation.
It is not possible to state whether additional federal, state or
local legislation, regulations or action will be enacted, promulgated or
taken or the nature of any such legislation, regulations or action, nor is
it possible to predict the effect any such legislation, regulations or
action may have on the industry generally or on ATCO.
Golden Belt Manufacturing Company ("Golden Belt"), a subsidiary
of ATCO, is primarily engaged in the production of cigarette-tipping
materials and other printed packaging materials, including labels and foil
laminates. Sales are made primarily in the United States through its own
sales force.
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See Item 3, "Legal Proceedings".
Distilled Spirits
Jim Beam Brands Co. ("Beam") and its predecessors have been
distillers of bourbon whiskey since 1795. Beam, together with its
subsidiaries, currently produces, or imports, and markets a broad line of
distilled spirits, including bourbon and other whiskeys, cordials, gin,
vodka and rum. In December 1991, Beam acquired certain trademarks relating
to seven brands (Kessler, Leroux, Calvert Extra, Calvert Gin, Lord Calvert,
Wolfschmidt and Ronrico) from Joseph E. Seagram & Sons, Inc. and certain of
its affiliates ("Seagram").
Beam's nine leading brand names are Jim Beam bourbon, Windsor
Canadian Supreme Whisky, Lord Calvert Canadian Whisky, DeKuyper cordials,
Gilbey's gin, Gilbey's vodka, Kamchatka vodka, Wolfschmidt vodka and
Kessler American Blended Whiskey. Principal bourbon brand names are Jim
Beam, the largest-selling bourbon whiskey in the United States and in the
world, Old Grand-Dad, the largest-selling bonded bourbon in the United
States and in the world, Booker's, a super-premium bourbon whiskey, Old
Taylor and Old Crow. Beam also produces Jim Beam Bourbon Whiskey and Cola,
which combines bourbon with a cola soft drink. DeKuyper Peachtree Schnapps
is the top-selling domestically-produced cordial brand in the United
States. Beam also produces Chateaux and Leroux cordials, Beam's 8-Star
Blend and Calvert Extra blended whiskeys, Dark Eyes vodka and Calvert Gin,
and imports, in bottle or in bulk, Canada House Canadian whisky, The
Dalmore and The Claymore scotch whiskies, Kamora coffee liqueur, Ronrico,
Pusser's and San Tropique rums, Molinari Sambuca and Aalborg Akvavit.
Beam's products are bottled in the United States and are sold
through various distributors and, in the 18 "control" states (and one
county) which have established government control of the purchase and
distribution of alcoholic beverages, through state (or county, as the case
may be) liquor authorities. Beam products are also bottled in eleven
foreign countries. Beam's international volume, which accounted for
approximately 20% and 18% of its total unit sales in 1993 and 1992,
respectively, is exported to over 80 foreign markets for sale through
distributors and brokers.
The distilled spirits business is highly competitive, with many
brands sold in the consumer market. Registrant believes there are
approximately ten major competitors worldwide and many smaller distillers
and bottlers. Registrant also believes that, based on unit sales, Beam is
the second largest producer and marketer of distilled spirits in the United
States and among the ten major competitors worldwide and has six million-
case-selling brands in the United States. Beam competes on the basis of
the quality and price of its products and its responsiveness to consumer
preferences.
The United States market for beverage alcohol has in recent years
demanded an increasingly broad variety of products. Demand for distilled
spirits generally, as well as for bourbon and other whiskeys, has declined
resulting in increased price competition as competitors vie for market
share. It is estimated that unit sales of distilled spirits (which do not
include bulk sales) in the United States declined by approximately 6.7% in
1991, 3% in 1992 and 2.2% in 1993. Total unit sales of Beam's brands in
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the United States decreased by approximately 4.9% in 1991, increased 35% in
1992, primarily due to the acquisition of the trademarks for seven brands
from Seagram, and decreased 4.6% in 1993. Total unit sales of Beam's
brands, including export sales, decreased by 3% in 1991, increased 29% in
1992, primarily due to the acquisition from Seagram, and decreased 1.7% in
1993. In both 1993 and 1992, bourbon accounted for approximately 25% and
other whiskeys for approximately 28% of Beam's total unit sales in the
United States, respectively.
Beam's leading brands are owned by Beam and its subsidiaries,
except that DeKuyper cordials are produced and sold under a perpetual
license and Gilbey's gin and Gilbey's vodka are produced and sold under a
long-term license and the Kamchatka brand is claimed by another entity in
California.
Raw materials for the production, storage and aging of Beam's
products are principally corn, rye, barley malt and white oak barrels and
are readily available from a number of sources, except that white oak
barrels are available from only two major sources, one of which is owned by
a competitor of Beam. Because whiskeys are aged for various periods,
generally from four to eight years, Beam maintains, in accordance with
industry practice, substantial inventories of bulk whiskey in warehouse
facilities. In addition, whiskey production is generally scheduled to meet
demand for four to eight years in the future, and production schedules are
adjusted from time to time to bring inventories into balance with estimated
future demand.
In Canada, a line of distilled spirits, including Windsor
Canadian Supreme Whisky, is produced by a subsidiary, Alberta Distillers
Limited. In Australia, a subsidiary, Fortune Brands Pty. Ltd., markets and
distributes Beam's products as well as several brands under agency
agreements.
The production, storage, transportation, distribution and sale of
Beam's products are subject to regulation by federal, state and local
authorities. Various local jurisdictions prohibit or restrict the sale of
distilled spirits in whole or in part.
In the United States, Canada and many other countries, distilled
spirits are subject to excise taxes and/or custom duties. State, local and
other governmental authorities in such countries also impose taxes on
distilled spirits. On January 1, 1991, the United States federal excise
tax was increased by one dollar per proof gallon of distilled spirits. In
addition, there are proposals pending to increase or impose new distilled
spirits taxes in various jurisdictions. It is believed that the federal
excise tax increase contributed to the increased decline in distilled
spirits unit sales for Beam and the industry in 1991 and in 1992 for the
industry. Increasing the federal excise tax on distilled spirits has been
considered from time to time as a possible means to help pay for the cost
of the national health-care program, but is not included in the Clinton
administration's current proposal. The effect of any future excise tax
increases cannot be determined, but it is possible that any future tax
increases would have an adverse effect on unit sales and add to continuing
industry declines.
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The Alcoholic Beverage Labeling Act of 1988 and regulations
promulgated thereunder by the Bureau of Alcohol, Tobacco and Firearms of
the Department of the Treasury (the "Bureau") require that containers of
alcoholic beverages bottled on or after November 18, 1989 for sale or
distribution in the United States or for sale, distribution or shipment to
members of the United States Armed Forces abroad bear the statement:
"GOVERNMENT WARNING: (1) According to the Surgeon General, women should not
drink alcoholic beverages during pregnancy because of the risk of birth
defects. (2) Consumption of alcoholic beverages impairs your ability to
drive a car or operate machinery, and may cause health problems." The
Alcoholic Beverage Labeling Act of 1988 and the regulations prohibit any
other requirement of a statement relating to alcoholic beverages and health
on any beverage alcohol container or package containing such a container.
If the Secretary of the Treasury, after appropriate investigation and
consultation with the Surgeon General, finds available scientific
information justifying a change in, addition to or deletion of all or part
of the required statement, he is required to report such information to the
United States Congress together with specific recommendations with respect
thereto. On March 8, 1991, the Bureau issued a request for information to
"enable the agency to determine whether the wording . . . should be
amended." Registrant understands that the Bureau has recommended that the
current warning statements are sufficient and has reported its findings to
the United States Congress. In addition, legislation has been introduced
in the United States Congress that would require seven rotating warning
statements in all beverage alcohol advertising and promotional materials.
It is not possible to state whether any legislation or additional
regulations or action imposing additional labeling or other warning
statement requirements will be enacted, promulgated or taken in the U.S. or
export markets served by Beam, nor is it possible to predict the effect, if
any, that the existing labeling requirement or any additional labeling or
other warning statement requirements may have on the industry generally or
on Beam.
See Item 3, "Legal Proceedings".
Whyte & Mackay has been a distiller of scotch whisky since 1844.
Whyte & Mackay and its subsidiaries produce, bottle, market and sell
blended and single malt scotch whiskies, market and sell vodka and sell
scotch whisky in bulk. The principal brand names are Whyte & Mackay
Special Reserve, The Claymore and The Dalmore scotch whiskies and Vladivar
vodka. Whyte & Mackay believes that in both 1993 and 1992, its shares of
the United Kingdom scotch whisky and vodka markets were approximately 14%
and 11%, respectively. Whyte & Mackay's products are sold in the United
Kingdom through its own sales force and outside the United Kingdom,
principally in Japan and France, through independent distributors.
It is estimated that total case sales of scotch whisky in the
United Kingdom decreased by approximately 3% and 6% in 1991 and 1992,
respectively, but increased by 3% in 1993, and worldwide decreased by
approximately 6% in 1991, but increased by approximately 3% and 4% in 1992
and 1993, respectively. Whyte & Mackay's total case sales of scotch whisky
in the United Kingdom declined by approximately 9% in 1991 and 3% in 1992,
but increased by approximately 4% in 1993. Whyte & Mackay's total case
sales of scotch whisky worldwide decreased by approximately 8% in 1991 but
increased by approximately 1% and 10% in 1992 and 1993, respectively.
During 1993, 81% of Whyte & Mackay's total case sales were derived from
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scotch whisky. In addition, 59% of Whyte & Mackay's total scotch whisky
case sales were made in the United Kingdom in 1993.
Blended scotch whiskies comprise a variety of grain and malt
whiskies blended to provide a consistent product. The industry is
therefore dependent on a high level of trading of whiskies between whisky
companies. Whyte & Mackay owns and operates three malt whisky distilleries
in the Highland region of Scotland whose product is used in the production
of Whyte & Mackay's blended whiskies and for trading purposes. Production
is also bottled as malt whiskies from the individual distilleries. Such
distilleries are located at Dalmore, Tomintoul and Fettercairn and produce
The Dalmore, Tomintoul-Glenlivet and Old Fettercairn single malt scotch
whiskies respectively.
Whyte & Mackay imports and markets in the United Kingdom a number
of brands, including Jim Beam bourbon, under agency arrangements. In the
United States, Beam is an importer and distributor of Whyte & Mackay's
brands.
During 1991, Whyte & Mackay purchased 41.3% of the outstanding
ordinary shares of Invergordon, a distiller, blender and marketer of scotch
whisky for a cost, including fees and expenses, of $255.5 million. During
the fourth quarter of 1993, Whyte & Mackay completed its acquisition of
Invergordon by purchasing the remaining 58.7% of the outstanding shares of
Invergordon for a cost, including fees and expenses, of $343.6 million.
The principal brand names of Invergordon are Mackinlay, Cluny,
Glayva, Isle of Jura and Bruichladdich. Invergordon owns and operates four
malt distilleries and one grain distillery in the Highland region of
Scotland and the Islands of Scotland whose product is used in the
production of Invergordon's blended whiskies and for trading purposes.
Production is also bottled as malt whiskies and as a single grain whisky
from the individual distilleries. In addition, Invergordon has a 50%
interest in Greenwich Distillers Limited, a distiller of neutral spirit for
the distilled spirits industry.
The United Kingdom Finance Act, 1992 provided for an increase in
the excise duties on distilled spirits with the result that the price of a
typical bottle of scotch whisky (which during 1991 decreased in size from
75 to 70 centilitres to comply with European Community standards) increased
by 31 pence. The price increase which resulted from this increase in taxes
on distilled spirits includes an associated increase customarily
implemented in conjunction with increases in United Kingdom distilled
spirits taxes to preserve wholesalers' and retailers' percentage gross
margins. It is believed that the 1992 increase was a major contributor to
reductions of volume sales for Whyte & Mackay and the industry in the
United Kingdom in that year. The United Kingdom Finance Act, 1993 did not
provide for any increase in the excise duties on distilled spirits. The
United Kingdom budget introduced on November 30, 1993 also did not provide
for any increase in the excise duties on distilled spirits. This second
budget in 1993 reflected the change in timing of United Kingdom budget
announcements from March to November. The effect of any future excise duty
increases cannot be determined, but it is possible that any future tax
increases would have an adverse effect on unit sales, add to the continuing
industry declines and lead to an increase in already competitive pricing
pressures.
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Life Insurance
The Franklin Life Insurance Company ("Franklin") issues
individual life insurance, annuity and accident and health insurance
policies, group annuities and group life insurance, group credit life
insurance and group credit accident and health insurance, participates in
the U.S. Government's Servicemen's Group Life Insurance program and offers
a variety of whole life, universal life, retirement income and level and
decreasing term insurance plans. Emphasis is placed on the sale of
individual insurance programs that comply with the definition of life
insurance as provided in the Deficit Reduction Act of 1984. Franklin
writes insurance in all states of the United States (except that only
reinsurance is written in New York), the District of Columbia, Puerto Rico
and the U.S. Virgin Islands. A wholly-owned subsidiary of Franklin, The
Franklin United Life Insurance Company, is engaged in the writing of
individual life insurance, annuity and accident and health insurance
policies, group credit life and group credit accident and health insurance
in New York. Another subsidiary, The American Franklin Life Insurance
Company, is engaged in the writing of reinsurance, term, universal and
variable universal life insurance and single premium whole life insurance
and the sale of disability insurance and individual health insurance and is
licensed in 46 states and the District of Columbia. Through another
subsidiary, Franklin Financial Services Corporation, a registered broker-
dealer, Franklin also engages in the distribution of variable annuities and
mutual fund investments.
Franklin and its life insurance subsidiaries are legal reserve
stock life insurance companies and operate in an industry which is highly
competitive. There are about 2,000 legal reserve stock life insurance
companies in the United States. Competition comes from both stock and
mutual companies and is based upon price, product design and services
rendered to policyholders.
As of December 31, 1992, according to A. M. Best Company, Inc., a
statistical reporter upon financial position, history and operating results
of life insurance companies, among all life insurance companies doing
business in the United States and Canada, (i) Franklin had approximately
3/10 of 1% of the admitted assets of all such companies and ranked sixty-
first; (ii) Franklin had approximately 2/10 of 1% of the life insurance in
force in the United States and Canada and ranked eighty-fourth; and (iii)
Franklin wrote approximately 3/10 of 1% of the total new insurance written
in 1992 by such companies and ranked seventy-third. As of December 31,
1992, Franklin ranked thirty-sixth among United States stock life insurance
companies when measured by admitted assets and fifty-sixth among such
companies when measured by insurance in force.
Franklin operates on the general agency plan in which insurance
is sold by independent agents who are not employees of the company.
Certain highly publicized claims have been brought against other
companies in the industry alleging that some advertising and sales
practices are in violation of state insurance laws. It is possible that
this could lead to further regulation of the industry and restrictions on
advertising and sales practices relating to sales of insurance products.
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Hardware and Home Improvement Products
MasterBrand Industries, Inc. ("MasterBrand") is a holding
company for subsidiaries in the Hardware and Home Improvement Products
business. Subsidiaries include Moen Incorporated ("Moen"), Master Lock
Company ("Master Lock"), Aristokraft, Inc. ("Aristokraft") and Waterloo
Industries, Inc. ("Waterloo").
Moen manufactures single- and two-handle faucets, sinks and
plumbing accessories and parts in the United States and East Asia and also
manufactures and packages a wide variety of plumbing supply and repair
products in the United States. Faucets are sold under a variety of
tradenames, including Moen, Moentrol, Touch Control, One-Touch, Riser,
Monticello, Concentrix, Chateau, Legend, Pulsation, Fountain-Flo and Sani-
Stream, and other products are sold under the Moen, Chicago Specialty,
Dearborn Brass, Wrightway, Anchor Brass, Shower After Shower and Hoov-R-
Line brand names. Some of the plumbing parts and repair products are
purchased from other manufacturers. Products are sold principally in the
United States and also in Canada, East Asia and Mexico. Sales are made
through Moen's own sales force and independent manufacturers'
representatives primarily to wholesalers, mass merchandisers and home
centers and also to industrial distributors, repackagers and original
equipment manufacturers.
Legislation has been introduced in the United States Congress
that if enacted would require a reduction in the lead content of plumbing
pipes, fittings and fixtures that convey drinking water, unless the EPA
issues regulations that establish minimum leaching levels of lead from new
plumbing pipes, fittings and fixtures. It is not possible to predict
whether federal, state or local legislation, regulations or action will be
enacted, promulgated or taken or the nature of any such legislation,
regulations or action, nor is it possible to predict the effect any such
legislation, regulations or action may have on the industry generally or on
Moen.
Master Lock manufactures key-controlled and combination padlocks,
chain and cable locks, bicycle locks, built-in locker locks and other
specialty security devices, and also manufactures door lock sets and door
hardware. Sales of products designed for consumer use are made to
wholesale distributors and to hardware and other retail outlets, while
sales of lock systems are made to industrial and institutional users,
original equipment manufacturers and retail outlets. Most sales are
brokered through independent manufacturers' representatives, primarily in
the United States and Canada.
Aristokraft manufactures kitchen cabinets and bathroom vanities.
Stock and semi-custom cabinets are sold under the brand names of
Aristokraft and Decora, respectively. Sales under the Aristokraft brand
name are made in the United States primarily through stocking distributors
for resale to kitchen and bath specialty dealers, lumber and building
material dealers, remodelers and builders. Decora products are sold
primarily to kitchen and bath specialty dealers and regional home centers.
Waterloo is the leading manufacturer of tool storage products in
the United States, consisting primarily of high quality steel tool boxes,
tool chests, workbenches and related products manufactured for private
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label sale by one of the largest national retailers in the United States.
Similar products are sold under the Waterloo and All American brand names
to specialty industrial and automotive dealers, mass merchandisers, home
centers and hardware stores. Waterloo also manufactures hospital carts and
storage units and sells such products to institutional users.
See Item 3, "Legal Proceedings".
Office Products
ACCO World Corporation ("ACCO") is a holding company with
subsidiaries engaged worldwide in designing, developing, manufacturing and
marketing a wide variety of traditional and computer-related office
products and supplies, time management products, presentation aids,
workstation furniture and accessories. Products are manufactured by
subsidiaries, joint ventures and licensees of ACCO, or manufactured to such
subsidiaries' specification, throughout the world, principally in the
United States, Canada, Western Europe and Australia.
ACCO USA, Inc., a subsidiary of ACCO, manufactures binders,
fasteners, paper clips, punches, staples, stapling equipment and storage
products, as well as computer binders, supplies and accessories, in the
United States, and ACCO Canada Inc., a subsidiary of ACCO, manufactures and
distributes a similar range of office products in Canada. Principal brands
include ACCO products, Swingline staples and stapling equipment, Wilson
Jones binders and columnar pads and Perma Products corrugated board storage
products. Products are sold throughout the United States and Canada by
their respective sales forces to office products wholesalers, retailers and
dealers and are sold to mass merchandisers either directly or brokered
through independent manufacturers' representatives.
Subsidiaries of ACCO Europe PLC, a subsidiary of ACCO,
manufacture and distribute a wide range of office supplies and machines and
storage and retrieval filing systems. Their products are sold primarily in
the United Kingdom, Ireland, Western Europe and Australia through their own
sales forces and distributors.
Day-Timers, Inc., a subsidiary of ACCO, manufactures personal
organizers and planners in the United States and Canada and is estimated by
management to be the leading direct marketer of time management aids in
North America. Products are sold through direct mail advertising and
catalogs to consumers and businesses. A subsidiary conducts time
management seminars for personnel of corporations and other entities
throughout the United States and operates four retail stores. Another
subsidiary markets, principally in the United States, art and craft
supplies primarily to schools.
Vogel Peterson Furniture Company, a subsidiary of ACCO,
manufactures in the United States and distributes ergonomic chairs,
workstation components, office coat racks and partitions. Products are
sold in the United States and Canada to office product and furniture
dealers.
Kensington Microware Limited, a subsidiary of ACCO, designs,
develops and markets a range of computer accessories and supplies
principally in the United States.
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Specialty Businesses
Golf products
The Titleist and Foot-Joy operations of Acushnet Company
("Acushnet") are comprised of the Titleist and Foot-Joy Worldwide Division
of Acushnet and, a subsidiary of Acushnet, Foot-Joy, Inc. ("Foot-Joy").
The Titleist and Foot-Joy Worldwide Division is a leading manufacturer and
distributor of golf balls and golf clubs, and also has a line of golf
accessories. The Division's leading brands are Titleist and Pinnacle golf
balls and DCI, Pro Trajectory and Bulls Eye golf clubs. Foot-Joy is the
leading manufacturer of golf shoes and golf gloves. Foot-Joy products also
include dress and athletic shoes as well as socks and related accessories.
Foot-Joy's leading brands are Classics and Dry-Joys golf shoes and Sta-Sof
and Weather-Sof golf gloves. Titleist and Foot-Joy products are sold
primarily to golf pro shops throughout the United States by the Titleist
and Foot-Joy Worldwide sales force, in the United Kingdom, in Canada and in
Germany through a subsidiary, in Japan through a majority-owned joint
venture, and outside these areas primarily through distributors.
Rubber products
The Rubber Division of Acushnet manufactures in the United States
and a majority-owned joint venture manufactures in Thailand a wide variety
of molded products made from natural and synthetic rubber and other
elastomeric materials. Sales are made primarily by the division's own
sales force and through distributors to industrial users principally in the
United States.
Optical goods and services
Dollond & Aitchison Group PLC ("Dollond & Aitchison"), a
subsidiary of Gallaher, and its subsidiaries are opticians. Dollond &
Aitchison is the largest retail optical group in the United Kingdom, with
447 optical service branches, and its subsidiaries form the largest retail
optical groups in Italy and Spain, with 85 branches and 77 branches,
respectively, and have 6 branches in the Republic of Ireland and a 50%
interest in 13 branches in Switzerland. Its subsidiary, Keeler Limited,
manufactures and sells a wide range of ophthalmic and medical instruments.
Retail distribution
Forbuoys PLC, a subsidiary of Gallaher, operates approximately
663 retail newspaper, tobacco, confectionery and stationery outlets in the
United Kingdom. Marshell Group Limited, a subsidiary of Gallaher, operates
approximately 562 kiosks that sell tobacco products in large stores and 66
retail newspaper, tobacco and confectionery outlets. Another subsidiary of
Gallaher, TM Group PLC, the largest vending machine operator in the United
Kingdom, dispenses cigarettes, snack foods and hot drinks through
approximately 41,000 on-site machines.
Housewares
The Prestige Group PLC ("Prestige"), a subsidiary of Gallaher,
manufactures houseware products, including cookware, kitchen tools and
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carpet sweepers, in the United Kingdom and elsewhere. Its principal brand
names are Prestige and Ewbank. A subsidiary of Registrant is operated in
conjunction with Prestige and manufactures kitchen utensils in the United
States.
Other Matters
Employees
Registrant and its subsidiaries (other than Gallaher and its
subsidiaries) had, as of December 31, 1993, approximately 23,300 employees
in the United States and Canada, a substantial number of whom were covered
by collective bargaining agreements with various unions. Of this number,
approximately 3,300 were employed in the Tobacco Products segment, 1,500 in
the Distilled Spirits segment, 1,350 in the Life Insurance segment, 8,300
in the Hardware and Home Improvement Products segment, 5,000 in the Office
Products segment and 3,850 in the Specialty Businesses segment. In
addition, approximately 3,200 employees were employed in Europe by
subsidiaries of Registrant in the Office Products segment, a substantial
number of whom were covered by collective bargaining agreements with
various unions. Gallaher and its subsidiaries had, as of December 31,
1993, approximately 19,100 employees, a substantial number of whom were
covered by collective bargaining agreements with various unions and
approximately 4,700 of whom were employed in the Tobacco Products segment,
1,200 in the Distilled Spirits segment and 13,200 in the Specialty
Businesses segment.
In addition to the approximately 1,350 employees included in the
Life Insurance segment above, Franklin was represented by approximately 30
regional managers, 1,830 area managers, general agents and district
managers and 870 soliciting agents. The Franklin United Life Insurance
Company had approximately 210 agents.
Environmental controls
Registrant and its subsidiaries are subject to federal, state and
local laws and regulations concerning the discharge of materials into the
environment and the handling, disposal and clean-up of waste materials and
otherwise relating to the protection of the environment. While it is not
possible to quantify with certainty the potential impact of actions
regarding environmental matters, particularly remediation and other
compliance efforts that Registrant's subsidiaries may undertake in the
future, in the opinion of management of Registrant compliance with the
present environmental protection laws, before taking into account estimated
recoveries from third parties, will not have a material adverse effect on
the capital expenditures, financial condition, results of operations or
competitive position of Registrant and its subsidiaries.
See Item 3, "Legal Proceedings".
(d) Financial information about foreign and domestic operations
and export sales.
Registrant's subsidiaries operate in the United States, Europe
(principally the United Kingdom) and other areas (principally Canada and
Australia). See the table captioned "Information on Business Segments"
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contained in the 1993 Annual Report to Stockholders of Registrant, which
table is incorporated herein by reference. As is disclosed in such table,
Registrant has sizable investments in, and derives substantial income from,
Europe (principally the United Kingdom), and, therefore, changes in the
value of foreign currencies (principally sterling) can have a material
effect on Registrant's financial statements when expressed in dollars.
Item 2. Properties.
Registrant leases its principal executive offices in Old
Greenwich, Connecticut. The following is a description of properties of
Registrant's subsidiaries.
Tobacco Products
The principal properties of Gallaher and its subsidiaries include
Gallaher's head office in Weybridge, Surrey, England, office and warehouse
facilities in Northolt, Middlesex, England and Crewe, Cheshire, England, a
factory in Northern Ireland for the manufacture of cigarettes and smoking
tobaccos, a factory in England for the manufacture of cigarettes and two
factories in Wales for the manufacture of cigars. Each of these properties
is owned or held under long-term lease with an option to acquire by
Gallaher or one of its subsidiaries. The principal properties of Gallaher
and its subsidiaries also include a factory in the Republic of Ireland,
owned and operated by Gallaher (Dublin) Limited, for the manufacture of
cigarettes and smoking tobaccos. Gallaher also has a research laboratory
in the Northern Ireland factory complex. For a description of properties
of other subsidiaries of Gallaher, see "Distilled Spirits" and "Specialty
Businesses".
ATCO leases its executive offices in Stamford, Connecticut.
ATCO's cigarette manufacturing plant is owned by it and is located in
Reidsville, North Carolina. ATCO owns its administrative offices, a
research facility and an auxiliary processing facility near Richmond,
Virginia. Golden Belt, a subsidiary of ATCO, owns and operates a plant in
North Carolina.
Distilled Spirits
Beam leases its executive offices in Deerfield, Illinois, and a
subsidiary leases an office in Burnaby, British Columbia. Beam and its
subsidiaries own and operate five bottling plants and three distilleries
and approximately 95 warehouses for the aging of bulk whiskies, and lease
and operate 17 regional sales offices and several warehouses for the
storage of promotional material, all located in the United States,
Australia and Canada. Beam also owns and operates approximately 70 U.S.
bonded warehouses. Whyte & Mackay leases its head office in Glasgow,
Scotland and owns and operates three distilleries and two blending and
bottling plants in Scotland. Invergordon owns its head offices in
Edinburgh, Scotland and owns and operates four malt distilleries, one grain
distillery and a blending and bottling plant in Scotland.
Life Insurance
Franklin owns its home office building in Springfield, Illinois.
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Hardware and Home Improvement Products
MasterBrand leases its executive offices in Deerfield, Illinois
and a subsidiary, Moen, owns its executive office in North Olmstead, Ohio.
Principal properties of subsidiaries of MasterBrand include nineteen
plants, four distribution centers and one warehouse owned and operated in
the United States. A 50%-owned joint venture in Taiwan owns and operates
one plant. In addition, subsidiaries of MasterBrand lease and operate
three plants and four warehouses in the United States and eleven
distribution centers, of which eight are in the United States and one each
in Canada, Japan and Mexico.
Office Products
ACCO leases its executive offices in Deerfield, Illinois.
Principal properties of subsidiaries of ACCO include eight plants owned and
operated in the United States, seven in the United Kingdom, and one in each
of Germany, Italy, France, Australia, The Netherlands, the Republic of
Ireland and Mexico. In addition, subsidiaries of ACCO lease and operate
eleven facilities in the United States, four in the United Kingdom, three
in Canada and one in each of Australia, France and Italy. Of these leased
facilities, (i) four in the United States, two in the United Kingdom, three
in Canada and one in each of Australia and France, are combined
manufacturing and distribution facilities, (ii) five in the United States,
two in the United Kingdom and one in Italy, are distribution facilities and
(iii) two in the United States are manufacturing facilities. A subsidiary
also leases four retail stores in the United States.
Specialty Businesses
Acushnet owns its combined executive office and research and
development facility in Fairhaven, Massachusetts. In addition, it owns and
operates two plants, one warehouse, two plants with combined manufacturing
and warehousing operations and a test facility, and leases and operates one
plant, two warehouses, a research and development facility and a test
facility, all located in the United States. In addition, Foot-Joy owns and
operates a plant and a warehouse and leases and operates a retail store and
a warehouse in the United States and also leases an office in Taiwan. A
subsidiary of Acushnet leases two combined sales offices and warehouse
facilities in Canada. Other Acushnet subsidiaries own and operate a plant
and a warehouse in England and lease a sales office and a warehouse in
Germany, Austria, Denmark and France, and lease a sales office in the
Republic of Ireland. Acushnet's majority-owned joint venture in Japan
leases two sales offices and one storage facility there. Acushnet's
majority-owned joint venture in Thailand leases and operates one
manufacturing and warehouse facility there and Foot-Joy's majority-owned
joint venture in Thailand leases and operates two plants there. Plants of
subsidiaries of Gallaher include three plants in England owned or leased
and operated by Dollond & Aitchison. Prestige leases its head office in
Egham, England and owns and operates a plant in Burnley, England. Prestige
also owns and operates a plant in each of Spain and Australia. A
subsidiary of Registrant, which is operated in conjunction with Prestige,
leases one plant in North Carolina.
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Registrant and its subsidiaries are of the opinion that their
properties are suitable to their respective businesses and have productive
capacities adequate to the needs of such businesses.
Item 3. Legal Proceedings.
(a) (i) ATCO and other leading tobacco manufacturers have been
sued by parties seeking damages for cancer and other ailments claimed to
have resulted from tobacco use and by certain asbestos manufacturers
seeking unspecified amounts in indemnity or contribution in third-party
actions against all or most of the major domestic tobacco manufacturers.
At March 25, 1994, ATCO or ATCO's predecessor had disposed of 233 actions,
and the industry a total of 422, all without recovery by the plaintiffs or
by the third-party plaintiffs. Although there was a jury award which was
overturned on appeal against another tobacco manufacturer in the Cipollone
case, discussed below, there has been no actual recovery of damages to date
in any such action against the tobacco manufacturers; however, unfavorable
decisions in other cases could increase filing of additional actions
against the tobacco manufacturers, which would add to the high cost of
defending such litigation as well as increase the defendants' damage
exposure.
Eighteen cases have come to trial, all against manufacturers as
direct defendants. Sixteen of such cases resulted in judgments for the
defendant or defendants. At March 25, 1994, ATCO was a defendant in 28
pending cases. In two cases, ATCO has been joined as a defendant with
members of the asbestos industry and it is alleged that the combination of
smoking and exposure to asbestos produced injury and death. One case in
which ATCO is a defendant, Butler, et al. v. R.J. Reynolds Tobacco Co., et
al., described below, in which plaintiffs are seeking damages for alleged
injuries claimed to have resulted from exposure to tobacco smoking of
others, is scheduled to come to trial on September 5, 1994. In Wilkes, et
al. v. The American Tobacco Company, et al., described below, the jury
found in favor of the defendants on June 17, 1993. Plaintiffs have
appealed from the judgment entered on the jury verdict and from the trial
court's denial of their request to seek "lifetime damages" unrelated to the
cause of death and their request to seek punitive damages. ATCO has cross-
appealed from the trial court's pretrial ruling regarding "absolute
liability" and the court's ruling striking defendants' affirmative
defenses.
In Horton, et al. v. The American Tobacco Company, et al.,
described below, on September 24, 1990, the jury found "for the plaintiffs
against [T]he American Tobacco Company and against New Deal Tobacco and
Candy Company, Inc. and assessed actual damages at $0." Plaintiffs have
appealed from the judgment entered on the jury verdict and from the court's
denial of their post-trial motion for, alternatively, an additur on
damages, a new trial on the issue of damages or a new trial on all issues.
ATCO has cross-appealed from the judgment and from the court's order
denying its motion for judgment notwithstanding the verdict. Oral argument
on the appeals took place before the Mississippi Supreme Court on August
17, 1993. In Broin, et al. v. Philip Morris Companies Inc., et al.,
described below, certain airline flight attendants are seeking unspecified
compensatory and $5 billion punitive damages for alleged injuries claimed
to have resulted from exposure to tobacco smoking of others and are seeking
to establish class-action status on behalf of other alleged nonsmoking
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flight attendants. ATCO's counsel, Chadbourne & Parke, have advised that,
in their opinion, the specified damages claimed in pending actions against
ATCO, which approximate $6,618,185,000 in the aggregate, are exaggerated.
It has been reported that certain groups of attorneys are interested in
promoting product liability suits against the tobacco manufacturers. It
has also been reported that other claims against the tobacco manufacturers
may be made seeking damages for alleged injuries claimed to have resulted
from exposure to tobacco smoking of others.
In Cordova v. Liggett Group Inc., et al., described below,
plaintiffs are seeking injunctive relief and restitution on behalf of the
general public of the State of California for defendants' claimed failure
to disclose to the public information regarding research relating to
smoking and health sponsored by The Council for Tobacco Research, an
organization whose members include ATCO and other cigarette manufacturers.
Plaintiff's complaint in Cordova references the opinion filed February 6,
1992 by Judge Sarokin of the United States District Court for the District
of New Jersey in the case of Haines v. Liggett Group Inc., et al., to which
ATCO is not a party. In that opinion, Judge Sarokin ruled that plaintiff
had made sufficient showing of evidence to warrant disclosure under the
crime-fraud exception to the attorney-client privilege of documents
regarding research relating to smoking and health sponsored by The Council
for Tobacco Research which the defendants in that case had claimed were
protected from discovery by plaintiff. Defendants in Haines sought
appellate review of Judge Sarokin's February 6, 1992 opinion. On September
4, 1992, the United States Court of Appeals for the Third Circuit granted
defendant's petition for writ of mandamus and directed that Judge Sarokin's
February 6, 1992 ruling be vacated and that the case be remanded and
assigned to another District Court judge. The opinion of the Court of
Appeals also stated that the District Court judge to whom the case is
reassigned on remand may reconsider the magistrate judge's order stating
that the crime-fraud exception did not apply, which order had been reversed
by Judge Sarokin's ruling, or alternatively may remand the proceedings to
the magistrate judge for his reconsideration. On September 14, 1992, Judge
Sarokin, as directed, vacated his February 6, 1992 opinion and orders in
Haines. Plaintiff's allegations in Haines may be similar to allegations
which have been made in other actions in which ATCO is a defendant. ATCO
has been advised that the United States Attorney for the Eastern District
of New York has commenced a criminal investigation in connection with
activities relating to The Council for Tobacco Research following the
February 6, 1992 opinion in Haines. It is not possible to predict the
outcome of the investigation.
Another case, Cipollone v. Liggett Group, Inc., et al., tried
against manufacturers other than ATCO, resulted in a jury award of $400,000
against one of three defendants on a theory of breach of warranty. On
January 5, 1990, the jury award in Cipollone was reversed and remanded for
a new trial by the United States Court of Appeals for the Third Circuit.
Plaintiff petitioned the United States Supreme Court to review that ruling.
As described below, on June 24, 1992, the Supreme Court reversed in part
and affirmed in part the ruling of the Court of Appeals. The Cipollone
case was tried before Judge Sarokin. On September 11, 1992, following the
September 4, 1992 decision of the United States Court of Appeals for the
Third Circuit in Haines discussed above, Judge Sarokin removed himself from
the Cipollone case. On November 5, 1992, plaintiff voluntarily dismissed
the Cipollone case with prejudice. Counsel for plaintiff in Cipollone also
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represented the plaintiffs in Smith, et al. v. R.J. Reynolds Tobacco Co.,
et al. and the plaintiff in Haines. On December 2, 1992, plaintiffs'
counsel in Smith filed a motion to withdraw as counsel of record; that
motion was granted on January 8, 1993. Plaintiffs appealed the ruling. On
August 9, 1993, the Appellate Division of the New Jersey Superior Court
vacated the lower court's ruling which had permitted plaintiffs' counsel to
withdraw. The appellate court directed that the trial court convene a
hearing on plaintiffs' counsel's motion to withdraw. Plaintiff's counsel
in Haines also sought to withdraw and be substituted by new counsel. The
motion to withdraw in Haines, however, was denied by United States District
Judge Lechner on January 26, 1993. Counsel appealed. Argument on that
appeal was heard before the Court of Appeals for the Third Circuit on
September 22, 1993.
On June 24, 1992, the Supreme Court reversed in part and affirmed
in part the ruling of the Court of Appeals for the Third Circuit in
Cipollone. The Supreme Court held that the 1965 version of the Labeling
Act did not preempt lawsuits seeking money damages for personal injuries
allegedly caused by cigarette smoking. The Supreme Court further held that
the Public Health Cigarette Smoking Act of 1969, which, among other things,
amended the preemption provision of the 1965 version of the Labeling Act
effective July 1, 1969, preempts such lawsuits based on alleged failure to
warn and the neutralization of the federally mandated warnings to the
extent that those claims rely on omissions or inclusions in cigarette
advertising or promotions, but that the 1969 version of the Labeling Act
does not preempt claims based on alleged breach of express warranty, or
certain claims based on intentional fraud and misrepresentation or
conspiracy.
In addition, legislation has been introduced in the United States
Congress that if enacted would limit the effect of the preemption
provisions of the Labeling Act. It is not possible to predict whether or
not the Supreme Court's decision in Cipollone will affect, or whether or
not the enactment of any such legislation would affect, filing of
additional actions against tobacco manufacturers and, as a result,
litigation costs and defendant's damage exposure.
ATCO has received a civil investigative demand from the U.S.
Department of Justice, Antitrust Division, seeking the production of
documents relating to matters including "fire-safe or self-extinguishing
cigarettes". The civil investigative demand states that it has been issued
in the course of an investigation to determine whether there is or has been
a violation of Section 1 of the Sherman Act. It is not possible to predict
the outcome of the investigation.
While it is not possible to predict the outcome of pending
litigation, management of Registrant does not believe that, based on
failure of recovery to date except as noted above and the advice of
counsel, the pending litigation will have a material adverse effect on
Registrant's financial condition. If, however, there were to be a
significant increase in such litigation, the increased financial burden
could be material. See the note captioned "Pending Litigation" in the
Notes to Consolidated Financial Statements contained in the 1993 Annual
Report to Stockholders of Registrant, which note is incorporated herein by
reference.
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ATCO's counsel have advised that, in their opinion, on the basis
of their investigations generally with respect to suits and claims of this
character, ATCO has meritorious defenses to the above-mentioned actions and
threatened actions. The actions will be vigorously defended on the merits.
Except as otherwise noted, the following sets forth the principal
parties to the above-described pending proceedings, the court in which such
proceedings are pending and the date such proceedings were instituted
against ATCO or ATCO's predecessor: Allgood v. R.J. Reynolds Tobacco
Company, et al., United States District Court for the Southern District of
Texas, January 4, 1991; Arabie v. R.J. Reynolds Tobacco Company, et al.,
District Court, State of Louisiana, Parish of Jefferson, October 5, 1993;
Blanchard, et al. v. Brown and Williamson Tobacco Corp., et al., District
Court, State of Texas, County of Galveston, December 28, 1992; Bluitt v.
R.J. Reynolds Tobacco Co., et al., United States District Court for the
Northern District of Texas, August 30, 1993; Bridges, et al. v. The
American Tobacco Company, Supreme Court, State of New York, County of
Albany, November 17, 1970; Broin, et al. v. Philip Morris Companies, Inc.,
et al., Circuit Court of the 11th Judicial Circuit, State of Florida,
County of Dade, November 8, 1991; Butler v. R.J. Reynolds Tobacco Co., et
al., United States District Court for the Southern District of Mississippi,
October 23, 1992; Chustz v. R.J. Reynolds Tobacco Company, et al., United
States District Court for the Middle District of Louisiana, August 13,
1993; Cordova v. Liggett Group, Inc., et al., Superior Court of the State
of California for the County of San Diego, May 12, 1992; Dunn v. RJR
Nabisco Holdings Corporation, et al., Superior Court State of Indiana,
County of Delaware, May 28, 1993; Dyer, et al. v. American Tobacco Company,
Inc., et al., District Court, State of Texas, County of Travis, December
20, 1985; Gilboy, et al. v. American Tobacco Company, et al., District
Court, State of Louisiana, Parish of East Baton Rouge, April 8, 1987;
Grinnell, et al. v. The American Tobacco Co., Inc., et al., District Court,
State of Texas, County of Jefferson, October 22, 1985; Haight, et al. v.
The American Tobacco Co., et al., Circuit Court of Kanawha County, West
Virginia, May 30, 1984; Horton, et al. v. The American Tobacco Company, et
al., Circuit Court, State of Mississippi, County of Lafayette, May 12,
1986; Hulin, et al. v. Fibreboard Corporation, et al., United States
District Court for the Middle District of Louisiana, January 15, 1986;
Hutchin v. American Tobacco Company, et al., United States District Court
for the Western District of Louisiana, September 29, 1992; Manago, et al.
v. Lorillard, Inc. et al., Supreme Court, State of New York, County of
Queens, March 21, 1988; Miceli v. American Tobacco Company, et al.,
District Court, State of Louisiana, Parish of East Baton Rouge, August 3,
1987; Miceli v. Armstrong World Industries, et al., District Court, State
of Louisiana, Parish of East Baton Rouge, January 18, 1989; Pitre v. GAF
Corporation, et al., District Court, Parish of East Baton Rouge, State of
Louisiana, December 18, 1992; Rogers, I.D., et al. v. R.J. Reynolds Tobacco
Company, et al., District Court, State of Texas, County of Jefferson, March
14, 1985; Rogers, Y., Executrix v. R.J. Reynolds Tobacco Co., et al.,
Superior Court, State of Indiana, County of Marion, March 27, 1987;
Rothgeb, et al. v. The American Tobacco Company, et al., District Court,
State of Texas, County of Travis, June 9, 1986; Smith, et al. v. R.J.
Reynolds Tobacco Co., et al., Superior Court, State of New Jersey, County
of Middlesex, September 24, 1984; Smith, Administrator v. American Tobacco
Company, Court of Common Pleas, Commonwealth of Pennsylvania, County of
Philadelphia, summons served July 1, 1970; Voth v. Forsyth Tobacco
Products, et al., United States District Court for the District of Oregon,
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August 10, 1993; Wilkes, et al. v. The American Tobacco Company, et al.,
Circuit Court, State of Mississippi, County of Holmes, January 6, 1988.
With regard to proceedings of the above-described type which have
been terminated and not previously reported as such: Jamerson v. American
Brands, Inc., et al., which was previously pending in the United States
District Court for the Eastern District of New York and instituted on July
25, 1990, was voluntarily dismissed by stipulation on November 5, 1993;
White v. The American Tobacco Company, et al., which was previously pending
in the United States District Court for the District of Nevada and
instituted on February 13, 1989, was dismissed on summary judgment on
December 2, 1991, and affirmed by the United States Court of Appeals for
the Ninth Circuit on August 20, 1993; Bentz v. Eagle Tobacco Corp., et al.,
which was previously pending in the United States District Court for the
District of Oregon and instituted on September 27, 1993, was dismissed with
prejudice on October 21, 1993; Guillory v. R.J. Reynolds tobacco Company,
et al., which was previously pending in the United States District Court
for the Western District of Louisiana and instituted on February 18, 1993,
was voluntarily dismissed without prejudice on November 22, 1993; Dalio v.
Philip Morris, Inc., et al., which was previously pending in Superior
Court, County of Middlesex, Massachusetts and instituted on January 11,
1993, was dismissed with prejudice by stipulation on January 7, 1994; and
Marks v. R.J. Reynolds Tobacco Company, et al., which was previously
pending in the United States District Court for the Western District of
Louisiana and instituted on September 21, 1992, was dismissed with
prejudice as to ATCO on January 24, 1994.
(ii) Dean v. Gallaher Limited is an action commenced in the High
Court of Justice in Northern Ireland in which plaintiff seeks unspecified
damages including lost income for claimed personal injuries allegedly
related to cigarette smoking. In March 1988, plaintiff obtained Legal Aid
to proceed up to the point of trial. He served his Writ of Summons in
August 1988 and his Statement of Claim in August 1989. Plaintiff filed an
amended Statement of Claim on October 6, 1993. Gallaher subsequently filed
a motion to strike from the amended Statement of Claim a predecessor to
Gallaher, Hergall (1981) Limited (In Liquidation) ("Hergall"), as a second
defendant in the action. The motion was heard on November 30, 1993 and was
granted. Plaintiff served a Writ of Summons on Hergall on December 1, 1993
and a Statement of Claim against Hergall on February 22, 1994. Plaintiff's
lawyers also purported to re-amend the statement of claim against Gallaher.
Applications are expected to be made by Gallaher and Hergall in May 1994 to
strike out parts of the statements of claim against those companies. The
companies have obtained orders extending the time in which their defenses
must be served until after the hearing of the "strike-out" applications.
Plaintiff's appeals against those extension of time orders are also due to
be heard in May 1994. Lawyers in the United Kingdom have sought Legal Aid
to prepare and file other smoking and health lawsuits against tobacco
manufacturers, but to date, all such requests have been denied, with the
exception of the plaintiffs in the Dean case and the Brennan case described
below. An application for Judicial Review of the refusal to grant Legal
Aid to approximately 225 prospective plaintiffs in actions against tobacco
companies, including Gallaher, is pending. Tobacco manufacturers,
including Gallaher, have been advised they are entitled to participate in
the Judicial Review and are seeking an order of the court to that effect.
In Brennan v. Gallaher Limited, pending in the High Court of Justice in
Northern Ireland, plaintiff, a former employee of Gallaher, seeks
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unspecified damages for claimed personal injuries from the alleged
"provision of cigarettes for [sic] the plaintiff". Plaintiff served her
Writ of Summons in October 1990, and no Statement of Claim has been
received. Counsel have advised that, in their opinion, on the basis of
their investigation, Gallaher has meritorious defenses to these actions,
and they will be vigorously defended on the merits. In addition, Gallaher
received a letter before action dated July 23, 1992 from a solicitor in
Scotland acting for Alfred McTear stating that his client had instructed
him to make a claim against Gallaher for lung cancer claimed to have been
caused by smoking. In January 1993 Gallaher received a letter from
plaintiff's solicitors indicating that they did not intend to proceed
against Gallaher and on January 28, 1993, plaintiff filed and served a Writ
of Summons and Condescendence in the Court of Session naming only Imperial
Tobacco Limited as defendant.
(b) Registrant is aware of four lawsuits brought against
manufacturers of alcoholic beverages in which alleged birth defects in
infants were claimed to have been caused by the consumption of alcohol
during pregnancy by the mothers of the infants. None of those actions is
currently pending. Beam was a defendant in one of these lawsuits, and such
lawsuit resulted in a jury verdict in favor of Beam in 1989. The other
actions were dismissed without prejudice at the request of the plaintiffs.
Registrant is also aware of other lawsuits against manufacturers of
alcoholic beverages in which other various claimed injuries have been
alleged to have been caused by their products. Beam has successfully
defended such actions brought against it in the past. On September 29,
1992, the jury in Brune v. Brown-Forman Corp., a Nueces County, Texas state
court action alleging the defendant failed to warn about the risk of death
from excessive alcohol consumption, returned a verdict holding the
defendant responsible for 35% of $1,500,000 in damages. Brown-Forman has
appealed this verdict. Neither Registrant nor any of its subsidiaries,
including Jim Beam Brands Co., is a party to this action.
(c) Forstmann Leff Associates, Inc., et al. v. American Brands,
Inc., et al., is an action commenced in the United States District Court
for the Southern District of New York on June 28, 1988. Plaintiffs,
alleged holders of 12.85% Senior Subordinated Notes due 1997 and 13.05%
Subordinated Debentures due 1999 of E-II Holdings Inc., formerly a
subsidiary of Registrant ("E-II"), allege, inter alia, that defendants
violated Sections 14(e), 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder and engaged in common law fraud
by intentionally or recklessly making certain allegedly false and
misleading statements of material fact, failing to disclose certain
material facts and failing to correct false and misleading statements in
connection with the Offer To Purchase And Consent Solicitation for All
12.85% Senior Subordinated Notes due 1997 and All 13.05% Subordinated
Debentures due 1999 of E-II (the "Offer to Purchase") by AMBR Holdings
Inc., formerly a subsidiary of Registrant ("AMBR"), and certain filings
made by Registrant, AMBR and E-II with the Securities and Exchange
Commission regarding their alleged plans for the disposition of E-II and
certain subsidiaries of E-II. On August 26, 1991, plaintiffs served their
fourth amended complaint making substantially the same allegations as did
their previous complaints and seeking not less than $400 million in damages
against Registrant and two executive officers and a former executive
officer of Registrant. The Board of Directors of Registrant has determined
that such officers and former officer shall be indemnified in full by
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Registrant for all expense, liability and loss reasonably incurred by them
in connection with such action. On November 19, 1993 Registrant settled
for approximately $11 million the claims of the remaining plaintiffs
holding approximately 20% of the total face amount of E-II debt securities
originally alleged to be represented in the Forstmann Leff action. These
remaining plaintiffs also released all of their claims against two
executive officers and a former executive officer of Registrant.
Registrant had previously settled for approximately $37.3 million the
claims of the holders of approximately 80% of the total face amount of E-II
debt securities originally alleged to be represented in the action. As in
the case of the earlier settlements, previously-established reserves fully
covered the amount paid in the settlement with the remaining plaintiffs.
(d) People of the State of California ex rel. Daniel E. Lungren,
Attorney General of the State of California v. American Standard, et al.,
is an action commenced on December 15, 1992 against Moen and 15 other
faucet manufacturers and distributors in the Superior Court of the State of
California, County of San Francisco. The Attorney General of California
alleges violations of California Health and Safety Code Sections 25249.5
and 25249.6 (Proposition 65), as well as two violations of the California
Business and Professions Code Section 17200, for alleged intentional
discharge of lead from faucets to sources of drinking water and failure to
provide clear and reasonable warnings to consumers, and seeks civil
penalties of up to $2,500 per day per violation on each cause of action.
The Attorney General also seeks injunctive relief prohibiting further
discharges of lead from faucets into drinking water sources or, in the
alternative, requiring clear and reasonable warnings regarding lead in
faucets, restitution to consumers and other relief. A related action
against these companies and others, including Moen, MasterBrand and
Registrant, has also been brought by environmental groups in the same
court, Natural Resources Defense Council, et al., v. Price Pfister, Inc.,
et al. In that case, plaintiffs allege the same claims as the Attorney
General's action and also allege certain other violations, including
violation of the Consumer Legal Remedies Act, Civil Code Section 1750. The
plaintiffs seek similar injunctive relief and establishment of a public
information campaign concerning lead from faucets, restitution and
disgorgement of funds obtained from California consumers by unlawful or
unfair business practices and establishment of a fund for medical
monitoring of infants exposed to lead from faucets. The plaintiffs also
seek compensatory damages, statutory penalties, punitive damages,
reasonable attorneys' fees and costs. On July 26, 1993, an agreement was
filed whereby plaintiffs in Natural Resources Defense Council agreed to
dismiss without prejudice the action as to MasterBrand and Registrant. The
plaintiffs in both actions moved for injunctive relief to require certain
of the defendants to post prescribed warnings. In Natural Resources
Defense Council, the court refused to issue any order regarding the motion
pending resolution of defendants' demurrer challenging plaintiffs' standing
to bring the action, which demurrer was filed on April 16, 1993. A hearing
on the demurrer has been delayed until further notice from the court. In
Lungren, on May 17, 1993, the court issued an order requiring certain of
the defendants in the action, including Moen, to provide warnings in
accordance with the protocol voluntarily proposed by the defendants. The
court made no finding of liability for failure to warn. On April 16, 1993,
defendants filed a demurrer in respect of plaintiffs' claims based on
defendants' alleged intentional discharge of lead from faucets to sources
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of drinking water. A hearing on the demurrer has been delayed until
further notice from the court. These actions will be vigorously contested.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4a. Executive Officers of the Registrant.
The name, present positions and offices with Registrant,
principal occupations during the past five years and age of each of
Registrant's present executive officers are as follows:
Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------ ---
William J. Alley Chairman of the Board and Chief Executive 64
Officer of Registrant
Thomas C. Hays President and Chief Operating Officer of 58
Registrant
Arnold Henson Executive Vice President and Chief Financial 62
Officer of Registrant
Robert L. Plancher Senior Vice President and Chief Accounting 62
Officer of Registrant
Robert J. Rukeyser Senior Vice President -- Corporate Affairs 51
of Registrant since 1990; Vice President --
Operations of Registrant prior thereto
Gilbert L. Klemann, II Senior Vice President and General Counsel 43
of Registrant since 1991; Vice President
and Associate General Counsel of Registrant
during 1991; Partner, Chadbourne & Parke
(law firm) prior thereto
John T. Ludes Group Vice President of Registrant; President 57
and Chief Executive Officer of Acushnet since
1982; Chairman of Titleist and Foot-Joy
Worldwide since 1992
Howard C. Humphrey Vice President -- Life Insurance of 60
Registrant since 1989; Chairman of the Board,
President and Chief Executive Officer
of Franklin since 1992; Chairman of the
Board and Chief Executive Officer of
Franklin from 1990 to 1992; Chairman
of the Board, President and Chief Executive
Officer of Franklin prior thereto
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Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------ ---
Randall W. Larrimore Vice President -- Hardware and Home 46
Improvement Products of Registrant;
President and Chief Executive Officer
of MasterBrand
Steven C. Mendenhall Vice President and Chief Administrative 45
Officer of Registrant since 1993; Vice
President -- Human Resources prior thereto
Barry M. Berish Vice President -- Distilled Spirits of 61
Registrant since 1990; Chairman of the
Board and Chief Executive Officer of
Beam since 1993; President and Chief
Executive Officer of Beam prior thereto
Norman H. Wesley Vice President -- Office Products of 44
Registrant since 1990; President and Chief
Executive Officer of ACCO since 1990;
President and Chief Operating Officer of
ACCO prior thereto
Mr. Peter M. Wilson, who has been a member of the Executive
Committee of the Board of Directors of Registrant and Chairman and Chief
Executive of Gallaher since February 1, 1994, is deemed to be an executive
officer of Registrant for the purposes of this Item 4a. Mr. Wilson was
Joint Deputy Chairman of Gallaher from 1987 to 1989 and Deputy Chairman
from 1989 to 1994 and has been Chairman and Chief Executive of Gallaher
Tobacco Limited since 1987. His age is 52.
In the case of each of the above-listed executive officers, the
occupation or occupations given were his principal occupation and
employment during the period or periods indicated. None of such executive
officers is related to any other such executive officer. None was selected
pursuant to any arrangement or understanding between him and any other
person. All executive officers are elected annually.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
See the information in the tables captioned "Quarterly Common
Stock Dividend Payments" and "Quarterly Composite Common Stock Prices" and
the discussion relating thereto contained in the 1993 Annual Report to
Stockholders of the Registrant, which information and discussion are
incorporated herein by reference. On March 4, 1994, there were 63,697
record holders of Registrant's Common Stock, par value $3.125 per share.
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<PAGE>
Item 6. Selected Financial Data.
See the information in the table captioned "Eleven-Year
Consolidated Selected Financial Data" contained in the 1993 Annual Report
to Stockholders of the Registrant, which information is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
See the discussion and analysis under the captions "Results of
Operations" and "Financial Review" contained in the 1993 Annual Report to
Stockholders of Registrant, which discussion and analysis are incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
See the information in the Consolidated Statement of Income,
Consolidated Balance Sheet, Consolidated Statement of Cash Flows,
Consolidated Statement of Common Stockholders' Equity, Notes to
Consolidated Financial Statements and Report of Independent Accountants
contained in the 1993 Annual Report to Stockholders of Registrant, which
information is incorporated herein by reference. For unaudited selected
quarterly financial data, see the table captioned "Quarterly Financial
Data" contained in the 1993 Annual Report to Stockholders of Registrant,
which table is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of Registrant.
See the information under the caption "Election of Directors"
contained in the Proxy Statement for the Annual Meeting of Stockholders of
Registrant to be held on May 3, 1994, which information is incorporated
herein by reference. See also the information with respect to executive
officers of Registrant under Item 4a of Part I hereof, which information is
incorporated herein by reference.
Item 11. Executive Compensation.
See the information up to but not including the subcaption
"Report of the Compensation and Stock Option Committee on Executive
Compensation" under the caption "Executive Compensation" contained in the
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on May 3, 1994, which information is incorporated herein by reference.
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<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
See the information in the table and notes related thereto and in
the third to last paragraph under the caption "Election of Directors" and
the information under the caption "Certain Information Regarding Security
Holdings" contained in the Proxy Statement for the Annual Meeting of
Stockholders of Registrant to be held on May 3, 1994, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See the information in the second to last paragraph under the
caption "Election of Directors" contained in the Proxy Statement for the
Annual Meeting of Stockholders of Registrant to be held on May 3, 1994,
which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
(1) Financial Statements (all financial statements listed below are of
Registrant and its consolidated subsidiaries)
Consolidated Statement of Income for the years ended December 31,
1993, 1992 and 1991 contained in the 1993 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Balance Sheet as of December 31, 1993 and 1992
contained in the 1993 Annual Report to Stockholders of Registrant
is incorporated herein by reference.
Consolidated Statement of Cash Flows for the years ended December
31, 1993, 1992 and 1991 contained in the 1993 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Statement of Common Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991 contained in the
1993 Annual Report to Stockholders of Registrant is incorporated
herein by reference.
Notes to Consolidated Financial Statements contained in the 1993
Annual Report to Stockholders of Registrant are incorporated
herein by reference.
Report of Independent Accountants contained in the 1993 Annual
Report to Stockholders of Registrant is incorporated herein by
reference.
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<PAGE>
(2) Financial Statement Schedules
See Index to Financial Statement Schedules of Registrant and
subsidiaries at page F-1, which Index is incorporated herein by
reference.
(3) Exhibits
3(i). Certificate of Incorporation of Registrant as in effect on the
date hereof is incorporated herein by reference to Exhibit 3a2 to
the Quarterly Report on Form 10-Q of Registrant dated May 14,
1990.
3(ii). By-laws of Registrant as in effect on the date hereof are
incorporated herein by reference to Exhibit 3(ii)b to the
Quarterly Report on Form 10-Q of Registrant dated November 11,
1993.
10a1. Article XII ("Incentive Compensation") of the By-laws of
Registrant is incorporated herein by reference to Exhibit 3(ii)b
to the Quarterly Report on Form 10-Q of Registrant dated November
11, 1993.*
10b1. Stock Option Plan of American Brands, Inc., as amended is
incorporated herein by reference to Exhibit 10b1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992.*
10b2. Amendment to Stock Option Plan of American Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by
reference to Exhibit 10a to the Quarterly Report on Form 10-Q of
Registrant dated November 11, 1993.*
10b3. 1986 Stock Option Plan of American Brands, Inc. and amendments
thereto is incorporated herein by reference to Exhibit 10b2 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10b4. Amendment to 1986 Stock Option Plan of American Brands, Inc.
constituting Exhibit 10b3 hereto is incorporated herein by
reference to Exhibit 10b to the Quarterly Report on Form 10-Q of
Registrant dated November 11, 1993.*
10b5. 1990 Long-Term Incentive Plan of American Brands, Inc. is
incorporated herein by reference to Exhibit 10b4 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1990.*
10b6. Amendment to 1990 Long-Term Incentive Plan of American Brands,
Inc. constituting Exhibit 10b5 hereto is incorporated herein by
reference to Exhibit 10 to the Quarterly Report on Form 10-Q of
Registrant dated May 13, 1993.*
10b7. Stock Plan for Non-employee Directors of American Brands, Inc. is
incorporated herein by reference to Exhibit 10b5 to the Annual
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<PAGE>
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1990.*
10c1. Amended Supplemental Retirement Plan of American Brands, Inc.*
10c2. Trust Agreement, made as of the 1st day of February, 1989, among
Registrant, The Chase Manhattan Bank (National Association)
("Chase"), et al. establishing a trust in favor of William J.
Alley for purposes of paying amounts under the Amended
Supplemental Retirement Plan constituting Exhibit 10c1 hereto is
incorporated herein by reference to Exhibit 10c2 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1988.*
10c3. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10c2 hereto.*
10c4. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10c2
and 10c3 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Robert J. Rukeyser, Randall W. Larrimore and Steven C.
Mendenhall.*
10c5. Trust Agreement, made as of the 1st day of November, 1993, among
William J. Alley, Registrant and Chase establishing a grantor
trust in favor of William J. Alley for purposes of paying amounts
under the Amended Supplemental Retirement Plan constituting
Exhibit 10c1 hereto.*
10c6. Schedule identifying substantially identical agreements to the
Trust Agreement constituting Exhibit 10c5 hereto in favor of
Thomas C. Hays, Arnold Henson, Robert L. Plancher, Gilbert L.
Klemann, II, John T. Ludes, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10d1. Executive mortgage program of Registrant in connection with
relocation of corporate headquarters is incorporated herein by
reference to Exhibit 10d1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1991.*
10e1. Resolutions of the Board of Directors of Registrant adopted on
October 28, 1986 and July 26, 1988 adopting and amending a
retirement plan for directors of Registrant who are not officers
or employees of Registrant or a subsidiary thereof are
incorporated herein by reference to Exhibit 10e1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1991.*
10f1. The Franklin Life Insurance Company Supplemental Retirement Plan
effective January 1, 1988 as amended and restated effective
January 1, 1993.*
10f2. Trust Agreement, made as of the 25th day of January, 1990, among
The Franklin Life Insurance Company ("The Franklin"), The Marine
Bank of Springfield and Milliman & Robertson, establishing a
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<PAGE>
trust in favor of Howard C. Humphrey for purposes of paying
amounts under the supplemental retirement plan constituting
Exhibit 10f1 hereto is incorporated herein by reference to
Exhibit 10f2 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1990.*
10f4. Trust Agreement, made as of the 16th day of December, 1993, among
Howard C. Humphrey, The Franklin and Bank One, Springfield (State
Association) establishing a grantor trust in favor of Howard C.
Humphrey for purposes of paying amounts under the Supplemental
Retirement Plan constituting Exhibit 10f1 hereto.*
10g1. Gallaher Limited Executive Incentive Plan adopted on June 20,
1990 is incorporated herein by reference to Exhibit 10g1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1990.*
10g2. Trust Deed dated March 24, 1983 between Gallaher Limited
("Gallaher") and Gallaher Pensions Limited, and amendments
thereto, providing supplemental retirement benefits to certain
executives of Gallaher are incorporated herein by reference to
Exhibits 10g2 and 10g3 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1989.*
10g3. Trust Deed dated June 3, 1992 further amending Exhibit 10g2
hereto is incorporated herein by reference to Exhibit 10g3 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10g4. Trust Deed dated January 24, 1994 further amending Exhibit 10g2
hereto.*
10h1. ACCO World Corporation Management Incentive Plan is incorporated
herein by reference to Exhibit 10h1 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1991.*
10i1. ACCO World Corporation Supplemental Benefit Plan for Key
Employees is incorporated herein by reference to Exhibit 10k1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1989.*
10j1. American Franklin Company Senior Executive and Key Manager
Incentive Plan is incorporated herein by reference to Exhibit
10j1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1990.*
10k1. Jim Beam Brands Co. Senior Executive and Key Manager Incentive
Plan is incorporated herein by reference to Exhibit 10m4 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10k2. Jim Beam Brands Co. Amended Excess Benefit Plan.*
10k3. Trust Agreement, made as of December 24, 1991, among Jim Beam
Brands Co. ("Beam"), Chase and Hewitt Associates, establishing a
trust in favor of Barry M. Berish for purposes of paying amounts
-35-
<PAGE>
under the Amended Excess Benefit Plan constituting Exhibit 10k2
hereto is incorporated herein by reference to Exhibit 10m3 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10k4. Amendment made as of the 17th day of November, 1993 to Trust
Agreement constituting Exhibit 10k3 hereto.*
10k5. Trust Agreement, made as of the 15th day of December, 1993, among
Barry M. Berish, Beam and Chase establishing a grantor trust in
favor of Barry M. Berish for purposes of paying amounts under the
Amended Excess Benefit Plan constituting Exhibit 10k2 hereto.*
10l1. Resolution of the Board of Directors of Registrant adopted on
December 11, 1985 with respect to retirement and health benefits
provided to William J. Alley is incorporated herein by reference
to Exhibit 10e2 to the Registration Statement on Form 8-B of
Registrant dated January 27, 1986.*
10l2. Agreement dated as of March 1, 1988 between Registrant and
William J. Alley and amendments thereto providing certain
retirement benefits is incorporated herein by reference to
Exhibit 10l2 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1992.*
10m1. Resolutions of the Board of Directors of Registrant adopted on
December 11, 1985 and February 23, 1988 with respect to
retirement and health benefits provided to Arnold Henson is
incorporated herein by reference to Exhibit 10m1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992.*
10n1. Resolution of the Board of Directors of Registrant adopted on
November 27, 1990 with respect to retirement and health benefits
provided to Gilbert L. Klemann, II is incorporated herein by
reference to Exhibit 10p1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1991.*
10o1. Service Agreement dated February 11, 1994 between Gallaher and
Peter M. Wilson.*
10o2. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Peter M. Wilson.*
10o3. Letter dated March 15, 1994 amending Exhibit 10o2 hereto.*
10o4. Service Agreement dated May 15, 1989 between Gallaher and Anthony
D. Househam and amendments thereto are incorporated herein by
reference to Exhibits 10p1 and 10q2 to the Annual Reports on Form
10-K of Registrant for the Fiscal Years ended December 31, 1989
and 1990, respectively.*
10o5. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Anthony D. Househam is
incorporated herein by reference to Exhibit 10q2 to the Annual
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<PAGE>
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1991.*
10p1. ACCO World Corporation Supplemental Retirement Plan and amendment
thereto is incorporated herein by reference to Exhibit 10r1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10p2. Amendment to the ACCO World Corporation Supplemental Retirement
Plan constituting Exhibit 10p1 hereto is incorporated herein by
reference to Exhibit 10p2 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10q1. Employment Agreement entered into as of June 8, 1987 by and
between ACCO International Inc. (a predecessor of ACCO USA, Inc.)
and Norman H. Wesley is incorporated herein by reference to
Exhibit 10r1 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1990.*
10r1. Letters dated July 31, 1984 and February 26, 1990 from Registrant
with respect to deferred payment of fees to Eugene R. Anderson
are incorporated herein by reference to Exhibit 10t1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10s1. Agreement dated January 2, 1991 between Registrant and Gilbert L.
Klemann, II is incorporated herein by reference to Exhibit 10s1
to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1992.*
10s2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10s1 hereto entered into by
Registrant with William J. Alley, Thomas C. Hays, Arnold Henson,
Howard C. Humphrey, Robert L. Plancher, John T. Ludes, Robert J.
Rukeyser, Randall W. Larrimore and Steven C. Mendenhall.*
10s3. Agreement dated April 14, 1992 between Franklin and Howard C.
Humphrey is incorporated herein by reference to Exhibit 10s3 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10t1. Trust Agreement, made as of the 1st day of February 1989, among
Registrant, Chase, et al. establishing a trust in favor of
William J. Alley for purposes of paying amounts under the
Agreement in the form constituting Exhibit 10s1 hereto is
incorporated herein by reference to Exhibit 10gg1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1988.*
10t2. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10t1 hereto.*
10t3. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10t1
and 10t2 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
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<PAGE>
Ludes, Howard C. Humphrey, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10u1. Agreement dated as of March 1, 1988 and amendments thereto
between Registrant and William J. Alley are incorporated herein
by reference to Exhibit 10u1 to the Annual Report on Form 10-k of
Registrant for the Fiscal Year ended December 31, 1992.*
10v1. Agreement dated as of March 1, 1988 and amendments thereto
between Registrant and Thomas C. Hays are incorporated herein by
reference to Exhibit 10v1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10v2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10v1 hereto entered into by
Registrant with Arnold Henson, Robert L. Plancher, John T. Ludes,
Robert J. Rukeyser and Steven C. Mendenhall.*
10w1. Agreement dated as of January 2, 1991 between Registrant and
Gilbert L. Klemann, II and amendment thereto is incorporated
herein by reference to Exhibit 10y1 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1991.*
10w2. Agreement dated as of October 28, 1991 amending the Agreement
constituting Exhibit 10w1 hereto is incorporated herein by
reference to Exhibit 10w2 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10x1. Agreement dated March 7, 1988 between Registrant and Randall W.
Larrimore and amendments thereto is incorporated herein by
reference to Exhibit 10x1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
l0y1. Agreement dated as of February 1, 1990 between American Franklin
and Howard C. Humphrey is incorporated herein by reference to
Exhibit l0mm1 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1989.*
l0z1. Agreement dated as of February 1, 1990 between Beam and Barry M.
Berish is incorporated herein by reference to Exhibit 10pp1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1990.*
l0aa1. Rights Agreement dated as of December 13, 1987 between Registrant
and First Chicago Trust Company of New York, as Rights Agent, and
amendments thereto is incorporated herein by reference to Exhibit
10aa1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1992.*
10bb1. Stock Purchase Agreement dated as of July 20, 1990 among MI
Acquisition, Inc., Stanadyne Partners, Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership III
("MBO") and certain individual shareholders of The Moen Group,
Inc. and Amendment No. 1 to Stock Purchase Agreement dated as of
August 21, 1990 are incorporated herein by reference to Exhibit
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<PAGE>
2a to the Current Report on Form 8-K of Registrant dated August
29, 1990.
10bb2. Escrow Agreement dated as of August 21, 1990 among MI
Acquisition, Inc., Stanadyne Partners, MBO and Chemical Bank as
successor by merger to Manufacturers Hanover Trust Company is
incorporated herein by reference to Exhibit 2b to the Current
Report on Form 8-K of Registrant dated August 29, 1990.
11. Statement setting forth net income for computation of earnings
per Common share, primary and fully diluted, and statement
setting forth computation of weighted average number of Common
shares outstanding on a fully diluted basis.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1993 Annual Report to Stockholders of Registrant.
22. Subsidiaries of Registrant.
23(i)a. Consent of Independent Accountants, Coopers & Lybrand.
23(i)b. Consent of Counsel, Chadbourne & Parke.
24. Powers of Attorney relating to execution of this Annual Report on
Form 10-K.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
In lieu of filing certain instruments with respect to long-term
debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant
agrees to furnish a copy of such instruments to the Securities and Exchange
Commission upon request.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated October 20, 1993,
in respect of Registrant's press release dated October 20, 1993
announcing Registrant's financial results for the three-month and
nine-month periods ended September 30, 1993 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October 21, 1993,
in respect of Registrant's press release dated October 21, 1993
announcing the acquisition by The Whyte & Mackay Group PLC, a United
Kingdom subsidiary of Registrant's Gallaher Limited subsidiary, of an
additional share interest in Invergordon Distillers Group PLC and a
mandatory cash offer for the remaining shares of Invergordon (Items 5
and 7(c)).
Registrant filed a Current Report on Form 8-K, dated November 23,
1993, in respect of a settlement reached by Registrant and the
remaining defendants in the Forstmann Leff Associates, Inc. et al. v.
American Brands, Inc., et al. described in paragraph (c) Item 3 herein
(Item 5).
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<PAGE>
Registrant filed a Current Report on Form 8-K, dated January 26, 1994,
in respect of Registrant's press release dated January 24, 1994
announcing Registrant's financial results for the three-month and
twelve-month periods ended December 31, 1993 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated February 22,
1994, in respect of (i) Management's Discussion and Analysis of
Results of Operations (1993 compared to 1992 and 1992 compared to
1991) and Financial Review, (ii) Consolidated Statement of Income for
the years ended December 31, 1993, 1992 and 1991, (iii) Consolidated
Balance Sheet as of December 31, 1993 and 1992, (iv) Consolidated
Statement of Cash Flows for the years ended December 31, 1993, 1992
and 1991, (v) Consolidated Statement of Common Stockholders' Equity
for the years ended December 31, 1993, 1992 and 1991, (vi) Notes to
Consolidated Financial Statements, (vii) Report of Independent
Accountants, (viii) Report of Management, (ix) Information on Business
Segments and (x) Eleven-Year Consolidated Selected Financial Data of
Registrant and consolidated subsidiaries (Items 5 and 7 (c)).
This annual report shall not be construed as a waiver of the
right to contest the validity or scope of any or all of the provisions of
the Securities Exchange Act of 1934, as amended, under the Constitution of
the United States, or the validity of any rule or regulation made or to be
made under such Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN BRANDS, INC.
(Registrant)
By William J. Alley
William J. Alley
Chairman of the Board and
Date: March 28, 1994 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the dates
indicated.
William J. Alley
William J. Alley, Chairman of the Board and
Chief Executive Officer (principal executive
officer) and Director
Date: March 28, 1994
T.C. Hays
T.C. Hays, President and Chief
Operating Officer and Director
Date: March 28, 1994
A. Henson
A. Henson, Executive Vice President and
Chief Financial Officer (principal
financial officer) and Director
Date: March 28, 1994
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<PAGE>
R.L. Plancher*
R.L. Plancher, Senior Vice President and
Chief Accounting Officer (principal
accounting officer)
Date: March 28, 1994
Howard C. Humphrey*
Howard C. Humphrey, Vice President
- Life Insurance and Director
Date: March 28, 1994
Eugene R. Anderson*
Eugene R. Anderson, Director
Date: March 28, 1994
Patricia O. Ewers*
Patricia O. Ewers, Director
Date: March 28, 1994
John W. Johnstone, Jr.*
John W. Johnstone, Jr., Director
Date: March 28, 1994
Wendell J. Kelley*
Wendell J. Kelley, Director
Date: March 28, 1994
Sidney Kirschner*
Sidney Kirschner, Director
Date: March 28, 1994
Gordon R. Lohman*
Gordon R. Lohman, Director
Date: March 28, 1994
Charles H. Pistor, Jr.*
Charles H. Pistor, Jr., Director
Date: March 28, 1994
Peter M. Wilson*
Peter M. Wilson, Director
Date: March 28, 1994
*By A. Robert Colby
A. Robert Colby, Attorney-in-Fact
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<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Pages
-----
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Report of Independent Accountants ............................. F-2
Schedules
---------
III Condensed Financial Information of Registrant
As of December 31, 1993 and 1992 and for
the years ended December 31, 1993, 1992
and 1991 .......................................... F-3
VIII Valuation and qualifying accounts
For the years ended December 31,
1993, 1992 and 1991 ............................... F-8
IX Short-term borrowings
For the years ended December 31,
1993, 1992 and 1991 ............................... F-9
X Supplementary income statement information
For the years ended December 31,
1993, 1992 and 1991 ............................... F-10
Schedules other than those listed above are omitted as the
information is either not applicable, not required or has been furnished in
the financial statements or notes thereto incorporated by reference in Item
8 hereof.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
American Brands, Inc.:
Our report on the consolidated financial statements of American
Brands, Inc. and Subsidiaries has been incorporated by reference in this
Form 10-K from the 1993 Annual Report to Stockholders of American Brands,
Inc. In connection with our audits of such financial statements, we have
also audited the related financial statement schedules listed in the index
on page F-1 of this Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND
1301 Avenue of the Americas
New York, New York
February 1, 1994
F-2
<PAGE>
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(In millions)
December 31,
-------------------
1993 1992
---- ----
Assets
Current assets
Receivables from affiliated companies $ 565.8 $ 568.0
Other current assets 51.4 59.6
-------- --------
Total current assets 617.2 627.6
-------- --------
Investment in subsidiaries 3,566.5 3,704.6
Long-term receivables from affiliated companies 3,724.8 3,291.3
Other assets 141.2 174.9
-------- --------
Total assets $8,049.7 $7,798.4
======== ========
Liabilities and stockholders' equity
Current liabilities
Commercial paper $ 711.3 $ 433.4
Payables to affiliated companies 113.2 145.8
Other current liabilities 265.9 338.6
Current portion of long-term debt 156.5 133.6
-------- --------
Total current liabilities 1,246.9 1,051.4
Long-term debt 2,438.4 2,360.5
Postretirement and other liabilities 93.0 84.9
-------- --------
Total liabilities 3,778.3 3,496.8
-------- --------
Convertible preferred stock - redeemable at
Company's option 17.1 19.1
-------- --------
Common stockholders' equity 4,254.3 4,282.5
-------- --------
Total liabilities and stockholders' equity $8,049.7 $7,798.4
======== ========
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-3
<PAGE>
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
(In millions)
For the Years Ended
December 31,
--------------------------
1993 1992 1991
---- ---- ----
Interest from affiliates $332.6 $357.8 $341.9
Expenses:
Corporate administrative expenses 78.1 80.7 134.5
Interest: affiliates 12.9 8.2 17.6
non-affiliates 220.3 238.3 240.0
Other expenses, net 12.9 12.1 12.5
------ ------ ------
Total expenses 324.2 339.3 404.6
------ ------ ------
Income (loss) before income tax benefit,
equity in net income of subsidiaries
and cumulative effect of accounting
changes 8.4 18.5 (62.7)
Income tax benefit 1.4 9.4 50.6
------ ------ ------
Income (loss) before equity in net income of
subsidiaries and cumulative effect of
accounting changes 9.8 27.9 (12.1)
Equity in net income of subsidiaries 469.7 855.9 818.2
------ ------ ------
Income before cumulative effect of
accounting changes 479.5 883.8 806.1
Cumulative effect of accounting changes
(net of income taxes of $7.4) (9.7) - -
------ ------ ------
Net income $469.8 $883.8
$806.1
====== ====== ======
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-4
<PAGE>
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(In millions)
For the Years Ended
December 31,
-------------------------
1993 1992 1991
---- ---- ----
Net cash provided from operating activities $663.5 $ 680.2 $ 712.4
------ -------- --------
Investing activities
Additional investment in subsidiary - (1.8) -
Other, net 4.4 (4.0) (4.5)
------ -------- --------
Net cash provided (used) by investing
activities 4.4 (5.8) (4.5)
------ -------- --------
Financing activities
Increase (decrease) in short-term debt 278.0 261.6 (484.1)
Issuance of long-term debt 473.0 351.4 1,155.4
Repayment of long-term debt (364.7) (672.6) (512.3)
Dividends to stockholders (399.1) (377.8) (337.6)
Cash purchases of Common stock for treasury (57.9) (100.4) (106.7)
Change in intercompany balances, net (592.3) (14.2) (427.8)
Redemption and purchases of $2.75
Preferred stock - (134.4) (1.8)
Other financing activities, net (4.9) 12.0 6.3
------ -------- --------
Net cash used by financing activities (667.9) (674.4) (708.6)
------ -------- --------
Net decrease in cash and cash
equivalents $ - $ - $ (0.7)
====== ======== ========
Cash and cash equivalents at
Beginning of year $ - $ - $ 0.7
End of year $ - $ - $ -
====== ======== ========
Cash paid during the year for
Interest $220.2 $ 233.6 $ 218.4
====== ======== ========
Income taxes $238.5 $ 280.8 $ 223.0
====== ======== ========
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-5
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
------------------------------------------------------
1.Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do
not include all of the information and notes normally included with
financial statements prepared in accordance with generally accepted
accounting principles. Therefore, these Condensed Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the Annual Report
to Stockholders of Registrant as referenced in Form 10-K, Part II,
Item 8.
Certain 1992 balance sheet amounts have been reclassified to conform
to the 1993 presentation.
2.Accounting Changes
On January 1, 1993, Registrant adopted FAS Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pension" and FAS No. 112, "Employers' Accounting for Postemployment
Benefits." The initial effects of adopting these statements were
recorded as cumulative changes in accounting principles.
3.Investment in Subsidiaries
During 1993, $134.8 million of intercompany debt was contributed to
the capital of a subsidiary by Registrant.
4.Cash Dividends from Subsidiaries
Dividends of $679.8 million in 1993, $648.1 million in 1992 and
$681.5 million in 1991 were paid to Registrant by its subsidiaries.
F-6
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Concluded)
5.Debt
The components of long-term debt are as follows (In millions):
1993 1992
---- ----
Notes payable $ 300.0 $ 200.0
Revolving credit notes 195.8 203.2
Other notes 356.5 376.5
5 3/4% Eurodollar Convertible Debentures,
Due 2005 200.0 200.0
7 5/8% Eurodollar Convertible Debentures,
Due 2001 150.0 150.0
Other Eurodollar Convertible Debentures 41.0 43.4
8 1/2% Notes, Due 2003 200.0 200.0
5 1/4% Notes, Due 1995 200.0 200.0
8 5/8% Debentures, Due 2021 150.0 150.0
9 1/8% Debentures, Due 2016 150.0 150.0
7 7/8% Debentures, Due 2023 150.0 -
7 1/2% Notes, Due 1999 150.0 150.0
9 3/4% Eurosterling Notes, Due 1993 - 113.6
9% Notes, Due 1999 100.0 100.0
9 1/2% Eurosterling Notes, Due 1994 74.0 75.7
9 1/4% Eurosterling Notes, Due 1998 74.0 75.7
12% Eurosterling Notes, Due 1995 59.2 60.6
12 1/2% Sterling Loan Stock, Due 2009 44.4 45.4
-------- --------
2,594.9 2,494.1
Less current portion 156.5 133.6
-------- --------
$2,438.4 $2,360.5
======== ========
Estimated payments for maturing long-term debt requirements during
the next five years, assuming one-time put options are not exercised,
are as follows: 1994, $156.5 million; 1995, $777.7 million; 1996,
$101 million; 1997, $53.8 million; and 1998, $168.5 million.
At December 31, 1993, the Registrant guaranteed short-term committed
credit facilities of a UK-based subsidiary which provided for
unsecured borrowings of up to $444 million, of which $44 million was
outstanding.
F-7
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
---------
Charged Balance
Balance at to Costs at End
Beginning and of
Description of Period Expenses Deductions Period
- ---------------------------------------------------------------------------
1993:
Allowance for cash
discounts $ 7.9 $ 87.3 $ 88.9(1) $ 6.3
Allowance for
returns 17.3 150.6 146.0(1) 21.9
Allowance for
doubtful accounts 34.8 11.7 11.7(3) 34.3
0.5(2)
----- ------ ------ -----
$60.0 $249.6 $247.1 $62.5
===== ====== ====== =====
1992:
Allowance for cash
discounts $ 7.5 $ 88.6 $ 88.2(1) $ 7.9
Allowance for
returns 9.3 114.3 106.0(1) 17.3
0.3(2)
Allowance for
doubtful accounts 39.3 11.9 13.1(3) 34.8
3.3(2)
----- ------ ------ -----
$56.1 $214.8 $210.9 $60.0
===== ====== ====== =====
1991:
Allowance for cash
discounts $ 6.5 $ 84.8 $ 83.8(1) $ 7.5
Allowance for
returns 10.8 114.4 115.7(1) 9.3
0.2(2)
Allowance for
doubtful accounts 37.8 8.8 6.6(3) 39.3
0.7(2)
----- ------ ------ -----
$55.1 $208.0 $207.0 $56.1
===== ====== ====== =====
- -----------------------------
(1) Cash discounts and returns allowed customers.
(2) Effect of changes in foreign exchange rates.
(3) Doubtful accounts written off, net of recoveries.
F-8
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Weighted Weighted
Average Maximum Average Average
Category of Balance Interest Amount Amount Interest
Aggregate at Rate at Outstanding Outstanding Rate
Short-term End of End of During the During the During the
Borrowings (1) Period Period Period Period (2) Period (3)
- ---------------------------------------------------------------------------
1993:
Notes payable to
banks $298.9 5.8% $424.9 $270.7 6.7%
Commercial paper 711.3 3.4 711.3 427.1 3.4
1992:
Notes payable to
banks $247.1 8.1% $302.0 $194.6 10.0%
Commercial paper 433.4 3.6 673.4 391.0 4.1
1991:
Notes payable to
banks $131.0 10.2% $217.6 $128.6 12.1%
Commercial paper 271.8 5.3 770.5 449.7 6.9
- ------------------------------
(1) Notes payable to banks represents borrowings in various currencies
primarily under credit agreements with banks. Commercial paper
represents paper sold by American Brands, Inc.
(2) Calculated on month-end outstanding balances during the year.
(3) Average amount outstanding during the year divided into actual
interest expense incurred.
F-9
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B
------ ------
Charged to
Costs and
Item (1) Expenses
- ---------------------------------------------------------------------------
1993:
5. Advertising costs $510.2
1992:
5. Advertising costs $551.0
1991:
5. Advertising costs $519.1
- ------------------------------
(1) The items not listed either do not exceed one percent of revenues or
are set forth in the financial statements or notes thereto
incorporated by reference in Item 8 hereof.
F-10
<PAGE>
EXHIBIT INDEX
10c1. Amended Supplemental Retirement Plan of American Brands, Inc.*
10c3. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10c2 hereto.*
10c4. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10c2
and 10c3 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Robert J. Rukeyser, Randall W. Larrimore and Steven C.
Mendenhall.*
10c5. Trust Agreement, made as of the 1st day of November, 1993, among
William J. Alley, Registrant and Chase establishing a grantor
trust in favor of William J. Alley for purposes of paying amounts
under the Amended Supplemental Retirement Plan constituting
Exhibit 10c1 hereto.*
10c6. Schedule identifying substantially identical agreements to the
Trust Agreement constituting Exhibit 10c5 hereto in favor of
Thomas C. Hays, Arnold Henson, Robert L. Plancher, Gilbert L.
Klemann, II, John T. Ludes, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10f1. The Franklin Life Insurance Company Supplemental Retirement Plan
effective January 1, 1988 as amended and restated effective
January 1, 1993.*
10f3. Trust Agreement, made as of the 16th day of December, 1993, among
Howard C. Humphrey, The Franklin Life Insurance Company and Bank
One, Springfield (State Association) establishing a grantor trust
in favor of Howard C. Humphrey for purposes of paying amounts
under the Supplemental Retirement Plan constituting Exhibit 10f1
hereto.*
10g4. Trust Deed dated January 24, 1994 further amending Exhibit 10g2
hereto.*
10k2. Jim Beam Brands Co. Amended Excess Benefit Plan.*
10k4. Amendment made as of the 17th day of November, 1993 to Trust
Agreement constituting Exhibit 10k3 hereto.*
10k5. Trust Agreement, made as of the 15th day of December, 1993, among
Barry M. Berish, Beam and Chase establishing a grantor trust in
favor of Barry M. Berish for purposes of paying amounts under the
Amended Excess Benefit Plan constituting Exhibit 10k2 hereto.*
10o1. Service Agreement dated February 11, 1994 between Gallaher and
Peter M. Wilson.*
10o2. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Peter M. Wilson.*
<PAGE>
10o3. Letter dated March 15, 1994 amending Exhibit 10o2 hereto.*
10s2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10s1 hereto entered into by
Registrant with William J. Alley, Thomas C. Hays, Arnold Henson,
Howard C. Humphrey, Robert L. Plancher, John T. Ludes, Robert J.
Rukeyser, Randall W. Larrimore and Steven C. Mendenhall.*
10t2. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10t1 hereto.*
10t3. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10t1
and 10t2 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Howard C. Humphrey, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10v2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10v1 hereto entered into by
Registrant with Arnold Henson, Robert L. Plancher, John T. Ludes,
Robert J. Rukeyser and Steven C. Mendenhall.*
11. Statement setting forth net income for computation of earnings
per Common share, primary and fully diluted, and statement
setting forth computation of weighted average number of Common
shares outstanding on a fully diluted basis.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1993 Annual Report to Stockholders of Registrant.
22. Subsidiaries of Registrant.
23(i)a. Consent of Independent Accountants, Coopers & Lybrand.
23(i)b. Consent of Counsel, Chadbourne & Parke.
24. Powers of Attorney relating to execution of this Annual Report on
Form 10-K.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
-2-
EXHIBIT 10c1
AMERICAN BRANDS, INC.
AMENDED SUPPLEMENTAL RETIREMENT PLAN
Section 1. PURPOSE. This Plan is an amendment and restatement,
effective as of January l, l987, by American Brands, Inc. (the "Company")
of its Supplemental Retirement Plan. The Supplemental Retirement Plan is
established in order to induce employees of outstanding ability to join or
continue in the employ of the Company and to increase their efforts for its
welfare by providing them with supplemental retirement and profit-sharing
benefits notwithstanding the limitations imposed by the Internal Revenue
Code on retirement and profit-sharing benefits from tax qualified plans.
Section 2. DEFINITIONS. As used in this Plan, the following
words shall have the following meanings:
(a) "Actual Earnings" means all earnings of an employee in any
Plan Year for Qualifying Employment including tax deferred contributions
elected by the employee under the Profit-Sharing Plan or as contributions
under a plan established pursuant to Section 125 of the Internal Revenue
Code and all compensation under Article XII of the By-laws of the Company
and the Company's Management Incentive Plan paid during such Plan Year, but
excluding (i) Worker's Compensation, (ii) amounts paid by the Company for
insurance, retirement or other benefits and (iii) contributions to or
allocations under the Retirement Plan, the Profit-Sharing Plan, this Plan
or other benefits, including the special bonus paid to Profit-Sharing Plan
members in 1990 and other bonuses paid after l992 except under the
aforesaid Article XII and Management Incentive Plan. The Actual Earnings
of an employee covered under a disability income plan of the Company shall
be deemed to continue as provided in the Retirement Plan.
(b) "Affiliated Employment" means employment by any corporation
which, at the time of such employment, is or was an affiliate of the
Company or the Prior Company, or thereafter becomes or became an affiliate
of the Company or the Prior Company. "Affiliated Plan" means a defined
benefit pension plan by which an employee of the Company had been covered
during Affiliated Employment.
(c) "Allocation" means the sum of the Company contribution, tax
deferred contribution elected by a Profit-Sharing Plan member and the
related matching contribution allocated to the accounts of a Profit-Sharing
Plan member under the Profit-Sharing Plan for a Plan Year, but shall not
include any tax deferred contribution to the Profit-Sharing Plan elected by
a Profit-Sharing Plan member for any Plan Year in excess of $7,000 (or such
greater amount permitted for such Plan Year in accordance with regulations
promulgated by the Secretary of the Treasury or his delegate with respect
to arrangements qualified under Section 40l(k) of the Internal Revenue
Code).
(d) "Average Actual Earnings" means the total Actual Earnings of
an employee in the five consecutive Plan Years of Qualifying Employment
that provide the highest aggregate of Actual Earnings, divided by five. If
an employee's consecutive Plan Years of Qualifying Employment within such
period are less than five, "Average Actual Earnings" means his total Actual
Earnings during the five Plan Years (or fewer) of Qualifying Employment
<PAGE>
that provide the highest aggregate of Actual Earnings, divided by the
number of such Plan Years of Qualifying Employment and fractions thereof.
(e) "Committee" means the Corporate Employee Benefits Committee
of the Company.
(f) "Company" means American Brands, Inc., a Delaware
corporation, its successors and assigns. "Prior Company" means American
Brands, Inc., a New Jersey corporation organized under an Agreement of
Consolidation in l904.
(g) "ERISA" means the Employee Retirement Income Security Act of
l974, as amended.
(h) "Executive Participant" means an employee of the Company who
is within the category of a select group of management or highly
compensated employees as referred to in Sections 20l(a)(2), 30l(a)(3) and
40l(a)(l) of ERISA and who either holds or held the office of a Vice
President of the Company or any office senior thereto or, during the
current Plan Year or the prior Plan Year, was covered under Article XII of
the Company's By-laws or the Company's Management Incentive Plan or any
successor programs.
(i) "4l5 Limitations" means the Retirement Plan and Profit-
Sharing Plan provisions adopted pursuant to Section 4l5 of the Internal
Revenue Code to limit (i) annual Retirement Plan benefits pursuant to
Section 4l5(b) thereof, (ii) annual additions to the Profit-Sharing Plan
pursuant to Section 4l5(c) thereof and (iii) the aggregate of annual
Retirement Plan benefits and additions to the Profit-Sharing Plan pursuant
to Section 4l5(e) thereof.
(j) "40l(a)(l7) Limitations" means the Retirement Plan and
Profit-Sharing Plan provisions adopted pursuant to Section 40l(a)(l7) of
the Internal Revenue Code to limit compensation considered for purposes of
computing Retirement Plan benefits and Profit-Sharing Plan contributions to
$200,000 (or such greater amount permitted for such year in accordance with
regulations promulgated by the Secretary of the Treasury or his delegate).
(k) "404(l) Limitation" means the limitation imposed by Section
404(l) of the Internal Revenue Code on the maximum tax deductible
contribution to the Profit-Sharing Plan.
(l) "Grantor Trust" means a trust for the benefit of an
Executive Participant established pursuant to Section 6 to provide for the
payment of benefits under this Plan.
(m) "Highly Compensated Employee" means an employee or former
employee of the Company who comes within the definition of a highly
compensated employee set forth in Section 4l4(q) of the Internal Revenue
Code (or any successor provision) for any Plan Year.
(n) "Normal Retirement Date" means the last day of the calendar
month in which a person's 65th birthday occurs.
(o) "Qualifying Employment" means the sum of Service and
Affiliated Employment.
2
<PAGE>
(p) "Plan Year" means the calendar year.
(q) "Profit-Sharing Plan" means the Profit-Sharing Plan of
American Brands, Inc., as amended from time to time.
(r) "Retirement Plan" means the Retirement Plan for Employees
and Former Employees of American Brands, Inc., as amended from time to
time.
(s) "Segregated Account" means an account established with a
bank or other financial institution approved by the Company, or other form
of segregated account approved by the Company, established pursuant to
Section 6 by or for the benefit of an Executive Participant to provide for
the payment of benefits under this Plan.
(t) "Service" means employment by the Company or the Prior
Company.
(u) "Surviving Spouse" means the surviving husband or wife of an
employee of the Company who has been married to the employee throughout the
one-year period ending on the date of the death of such employee.
Section 3. SUPPLEMENTAL RETIREMENT BENEFITS.
(a) Each person who was at any time a Highly Compensated
Employee but not an Executive Participant and to whom benefits become
payable under the Retirement Plan shall be paid a supplemental annual
retirement benefit under this Plan equal in amount to the difference
between (i) the benefit paid under the Retirement Plan and the Affiliated
Plans and (ii) the benefit that would be payable if the 415 Limitations
were not contained therein; provided, however, that for purposes of
computing the amount of benefit under this Plan, years of Qualifying
Employment shall not exceed 35. If such a Highly Compensated Employee's
Surviving Spouse is entitled to a pre-retirement spouse's benefit under the
Retirement Plan, the Surviving Spouse shall be paid a benefit hereunder
equal to the difference between (i) the spouse's benefit payable under the
Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that
would be payable if the 415 Limitations were not contained therein.
(b) Each person who was at any time an Executive Participant and
to whom benefits become payable under the Retirement Plan shall be paid a
supplemental annual retirement benefit under this Plan equal in amount to
the difference between (i) the benefit paid under the Retirement Plan and
the Affiliated Plans and (ii) the benefit that would be payable if the
401(a)(17) Limitations and the 415 Limitations were not contained therein;
provided, however, that for purposes of computing the amount of benefit
under this Plan, years of Qualifying Employment shall not exceed 35. If
such an Executive Participant's Surviving Spouse is entitled to a pre-
retirement spouse's benefit under the Retirement Plan and subject to
Section 6, the Surviving Spouse shall be paid a benefit hereunder equal to
the difference between (i) the spouse's benefit payable under the
Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that
would be payable if the 401(a)(17) Limitations and the 415 Limitations were
not contained therein.
3
<PAGE>
(c) Each Executive Participant who at any time held the office
of Vice President of the Company, or any office senior thereto, shall
retire hereunder at the date of his termination of employment and be paid a
supplemental annual retirement benefit under this Plan equal to 52 l/2% of
the Executive Participant's Average Actual Earnings reduced (i) for an
Executive Participant who retires prior to Normal Retirement Date with less
than 35 years of Qualifying Employment by 1 1/2% of Average Actual Earnings
for each year and fraction thereof that the Executive Participant's
retirement date precedes Normal Retirement Date and further reduced (ii) by
benefits payable under the Retirement Plan, the Affiliated Plans and the
defined benefit pension plans of any other prior employer and supplemental
retirement benefits payable under paragraphs (a) and (b) of this Section 3.
If a pre-retirement spouse's benefit is payable under the Retirement Plan
to the Surviving Spouse of an Executive Participant who at any time before
death held the office of Vice President of the Company, or any office
senior thereto, or if an Executive Participant who held such office dies
before supplemental retirement benefits commence with a Surviving Spouse
eligible for a spouse's benefit under the Retirement Plan, the Surviving
Spouse shall be paid a benefit hereunder, subject to Section 6, equal to
the difference between (i) the spouse's benefit payable under the
Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that
would have been payable if the Participant's benefit had been calculated in
accordance with the formula set forth in the first sentence of this
paragraph (c) of this Section 3 (prior to any reduction for calculating the
spouse's benefit).
(d) Subject to Section 6, the supplemental retirement benefits
provided by this Plan shall be paid to the Executive Participant or Highly
Compensated Employee (or to any beneficiary designated by him in accordance
with the Retirement Plan, or to his Surviving Spouse if eligible for a
spouse's benefit under the Retirement Plan) concurrently with the payment
of the benefits payable under the Retirement Plan and in a form permitted
thereby. In the event the supplemental retirement benefit commences prior
to Normal Retirement Date or is payable in a form other than an annuity for
the life of the former employee only, the supplemental retirement benefit
shall be adjusted to the same extent as under the Retirement Plan. The
Committee may, however, direct that the supplemental retirement benefit
payable with respect to a former employee be paid as an actuarially
equivalent single sum payment, provided that (except for a distribution to
pay taxes as provided in Section 5 and except as provided in Section 6) no
such payment may be made prior to termination of Qualifying Employment or
prior to the date that benefits may become payable under the Retirement
Plan. In determining actuarial equivalency of a single sum payment in
cash, there shall be used 120% of the applicable monthly immediate annuity
purchase interest rate which would be used by the Pension Benefit Guaranty
Corporation for the purpose of determining the present value of a single
sum distribution on plan termination and the mortality table used at the
time under the Retirement Plan for funding purposes.
Section 4. SUPPLEMENTAL PROFIT-SHARING BENEFITS.
(a) In the event that the Allocation under the Profit-Sharing
Plan is limited by the 415 Limitations for l987 or any subsequent Plan Year
for a Highly Compensated Employee who is not an Executive Participant, the
Highly Compensated Employee shall receive a supplemental profit-sharing
award under this Plan for such Plan Year equal to the difference between
4
<PAGE>
(i) the Allocation actually made for the Highly Compensated Employee to the
Profit-Sharing Plan for such Plan Year and (ii) the Allocation that would
have been made to the Profit-Sharing Plan for such Plan Year if the 415
Limitations were not contained therein.
(b) In the event that the Allocation under the Profit-Sharing
Plan is limited by the 401(a)(17) Limitations and the 415 Limitations for
1987 or any subsequent Plan Year for an Executive Participant, the
Executive Participant shall receive a supplemental profit-sharing award
under this Plan for such Plan Year equal to the difference between (i) the
Allocation actually made to the Executive Participant and (ii) the
Allocation that would have been made to the Profit-Sharing Plan for such
Plan Year if the 401(a)(17) Limitations and the 415 Limitations were not
contained therein. In addition, in the event the contribution to the
Profit-Sharing Plan for any Plan Year is limited by the 404(l) Limitation,
each Executive Participant shall receive a supplemental profit-sharing
award under this Plan for such Plan Year equal to the difference between
(i) the Allocation actually made to the Executive Participant and (ii) the
Allocation that would have been made to the Profit-Sharing Plan for such
Plan Year for such Executive Participant if the contribution to the Profit-
Sharing Plan was not limited by the 404(l) Limitation.
(c) Except as provided in Section 6, the award for any Plan Year
shall be made as of the first day of the following year and shall be deemed
to be thereafter invested in an interest bearing investment selected by the
Trusts Investment Committee (or successor committee) of the Company. The
amount of a Highly Compensated Employee's or Executive Participant's
supplemental profit-sharing benefits under this Plan shall be the aggregate
amount of such awards together with any deemed investment gain thereon and
less any deemed investment loss.
(d) Supplemental profit-sharing awards and deemed investment
gain thereon shall be fully vested and nonforfeitable.
(e) Supplemental profit-sharing plan benefits shall be paid by a
single sum payment as soon as practicable following termination of
Qualifying Employment, subject to Section 6.
(f) Subject to Section 6, a Highly Compensated Employee or
Executive Participant may designate a beneficiary to receive the unpaid
portion of his supplemental profit-sharing benefits in the event of his
death. The designation shall be made in a writing filed with the Committee
on a form approved by it signed by the Highly Compensated Employee or
Executive Participant. If no effective designation of beneficiary shall be
on file with the Committee when supplemental profit-sharing benefits would
otherwise be distributable to a beneficiary, then such benefits shall be
distributed to the spouse of the Highly Compensated Employee or Executive
Participant or, if there is no spouse, to the executor of the will or the
administrator of his estate or, if no such executor or administrator shall
be appointed within six months after his death, the Committee shall direct
that distribution be made, in such shares as the Committee shall determine,
to the child, parent or other blood relative of such Highly Compensated
Employee or Executive Participant or to such other person or persons as the
Committee may determine.
5
<PAGE>
Section 5. FUNDING. Benefits under this Plan shall not
initially be funded in order that the Plan may be exempt from the
provisions of Parts 2, 3 and 4 of Title I of ERISA. The Committee shall
maintain records of supplemental profit-sharing awards and the assumed
investment thereof and records for the calculation of supplemental
retirement benefits. The Company may, however, segregate assets which are
intended to be a source for payment of benefits hereunder for Executive
Participants. In the event benefits are hereafter determined to be taxable
for Executive Participants prior to actual receipt thereof and subject to
Section 6, a payment shall be made to such Executive Participants in an
amount sufficient to pay such taxes notwithstanding that the Executive
Participant may not then have terminated Qualifying Employment or that the
payment is being made prior to the date that benefits would otherwise be
paid under the Retirement Plan. Amounts so paid shall then be used as an
offset to the supplemental retirement and profit-sharing benefits, if any,
thereafter payable which shall also be paid in an actuarially equivalent
lump sum (calculated as set forth in Section 3(d)) promptly upon the later
of termination of Qualifying Employment or attainment of age 55.
Section 6. GRANTOR TRUSTS AND SEGREGATED ACCOUNTS.
Notwithstanding Section 5 of this Plan, the Company may provide for the
establishment of Grantor Trusts and Segregated Accounts by or for the
benefit of individual Executive Participants to provide for the payment of
benefits under this Plan, consistent with the following provisions:
(a) The Trustee of the Grantor Trusts shall be a bank or trust
company approved by the Company and established under the laws of the
United States or a state within the United States and having either total
assets of at least $15 billion or trust assets of at least $25 billion.
Each Grantor Trust shall be established pursuant to a trust agreement
having terms and provisions approved by the Company and consistent with
this Section. The Grantor Trust shall be solely for the purpose of
providing benefits under the Plan with respect to the Executive
Participant, and neither the Company nor any creditors of the Company shall
have any interest in the assets of the Grantor Trust. The Company shall be
the administrator of the Grantor Trust, and shall have such powers as are
granted by the trust agreement.
(b) The Company shall pay the fees and expenses of the Trustee
and all the expenses for the management and administration of each Grantor
Trust and Segregated Account for all periods prior to the Executive
Participant's termination of employment, and for a period of sixty (60)
days thereafter and for any further period as may be authorized by the
Company, and shall indemnify the Executive Participant against any
liability or cost in respect thereof, including any tax liabilities or
costs.
(c) Each Segregated Account shall be a savings or other type of
account approved by the Company established with a bank or trust company
approved by the Company and established under the laws of the United States
or a state within the United States and having either total assets of at
least $15 billion or trust assets of at least $25 billion, or other form of
segregated account with such a bank or trust company or other financial
institution approved by the Company, in each case with such terms and
provisions as are approved by the Company and consistent with this Section.
6
<PAGE>
(d) The Company may from time to time make contributions to
either the Grantor Trust, or Segregated Account if directed by an Executive
Participant, in amounts which when added to the existing balances in the
Executive Participant's Grantor Trust and Segregated Account will be
approximately equal to the present value of the after tax equivalent of the
Executive Participant's accrued benefits under Sections 3 and 4.
(e) Unless the Grantor Trust has previously been terminated as a
result of the Executive Participant's actual or deemed withdrawal of all
amounts in his Grantor Trust and Segregated Account, as provided in
paragraph (l) of this Section 6, as promptly as practicable after the
Executive Participant's termination of employment, whether by retirement,
death or otherwise, the Company may make a final contribution to the
Executive Participant's Grantor Trust, or Segregated Account if directed by
the Executive Participant, in an amount which when added to the existing
balances in the Executive Participant's Grantor Trust and Segregated
Account, except for any balances which are attributable to amounts deemed
withdrawn previously and the income earned thereon, will be equal to (i)
the sum of the present value of the after tax equivalent of (A) if the
termination of employment is not by reason of the death of the Executive
Participant, the Executive Participant's benefit under Section 3, or if the
termination of employment is by reason of the death of the Executive
Participant, the Executive Participant's benefit under Section 3
immediately prior to his death and (B) the Executive Participant's
supplemental profit-sharing benefit under Section 4, offset by (ii) any
amounts previously actually withdrawn by the Executive Participant from his
Grantor Trust or Segregated Account and income which would have been earned
thereon, calculated as provided in paragraph (k) of this Section 6. If
prior to the Executive Participant's termination of employment his Grantor
Trust has previously been terminated as a result of the Executive
Participant's actual or deemed withdrawal of all amounts in his Grantor
Trust and Segregated Account, as promptly as practicable following such
termination of employment the Company may make a final payment to the
Executive Participant, or in the event of the death of the Executive
Participant his personal representative, in an amount equal to (i) the sum
of the present value of the after tax equivalent of (A) if the termination
of employment is not by reason of the death of the Executive Participant,
the Executive Participant's benefit under Section 3, or if the termination
of employment is by reason of the death of the Executive Participant, the
Executive Participant's benefit under Section 3 immediately prior to his
death and (B) the Executive Participant's supplemental profit-sharing
benefit under Section 4, offset by (ii) the amounts previously withdrawn or
deemed withdrawn by the Executive Participant from his Grantor Trust and
Segregated Account and income which would have been earned thereon,
calculated as provided in paragraph (k) of this Section 6.
(f) Amounts in a Grantor Trust or Segregated Account shall be
invested separately as to amounts representing the Executive Participant's
supplemental retirement benefit under Section 3 and the Executive
Participant's supplemental profit-sharing benefit under Section 4.
Supplemental retirement benefit amounts invested in a Grantor Trust shall
be invested solely in the Chase Manhattan Fixed Income Fund to the extent
practicable and otherwise in the Chase Manhattan Personal Trust Market Rate
Account. Supplemental profit-sharing benefit amounts invested in a Grantor
Trust shall be invested in one or more of (i) the Vista U.S. Government
Income Fund, (ii) the Vista Balanced Fund, (iii) the Chase Manhattan
7
<PAGE>
Personal Trust Market Rate Account or (iv) the Chase Manhattan Equity
Income Fund, in such portions as are elected by the Executive Participant
on a written election form approved by and filed with the Committee, all to
the extent practicable and otherwise in the Chase Manhattan Personal Trust
Market Rate Account. The Executive Participant may change such election at
any time by filing a new written election form with the Committee. The
Committee shall promptly notify the Trustee as to any such elections or
changes therein. Supplemental retirement benefit amounts and supplemental
profit-sharing benefit amounts invested in a Segregated Account shall be
invested solely in the Chase Manhattan Personal Trust Market Rate Account.
In lieu of the calculation of investment gain or loss on supplemental
profit-sharing awards prescribed by Section 4(c), an Executive
Participant's profit-sharing benefit under Section 4 shall include the
actual investment gain or loss on supplemental profit-sharing benefit
amounts invested in accordance with this paragraph (f) (and not deemed
withdrawn pursuant to paragraph (j) of this Section 6).
(g) The Executive Participant may designate a beneficiary to
receive amounts held in his Grantor Trust in the event of his death. The
designation shall be made in a writing filed with the Committee on a form
approved by it and signed by the Executive Participant. The Committee
shall notify the Trustee as to any such designation or changes therein.
The provisions of Section 3(b), (c) and (d) and Section 4(f), providing for
the payment of benefits to the Surviving Spouse of the Executive
Participant, or other person designated by the Executive Participant or the
Committee, in the event of the death of the Executive Participant, shall
not apply to amounts in the Executive Participant's Grantor Trust or
Segregated Account.
(h) The Company shall make payments to the Executive Participant
(or his beneficiary) from time to time in the approximate amounts required
to compensate the Executive Participant (or his beneficiary) for additional
federal, state and local taxes on income resulting from the inclusion in
the Executive Participant's or beneficiary's taxable income of
contributions to the Executive Participant's Grantor Trust and Segregated
Account, the final payment pursuant to paragraph (e) of this Section 6 if
the Grantor Trust has been terminated prior to the Executive Participant's
termination of employment, and the income of the Grantor Trust and
Segregated Account for periods prior to termination of employment
(including amounts paid by the Company pursuant to paragraphs (b) and (e))
of this Section 6.
(i) An Executive Participant may elect to transfer all or any
portion of the funds in his Grantor Trust to his Segregated Account, or to
transfer all or any portion of the funds in his Segregated Account to his
Grantor Trust, upon written notice of not less than sixty (60) days to the
Company and the Trustee and the financial institution with which the
Segregated Account is established.
(j) An Executive Participant may withdraw all or any portion of
the funds in his Grantor Trust or Segregated Account at any time upon not
less than sixty (60) days written notice to the Company and to the Trustee,
or the financial institution with which the Segregated Account is
established, as the case may be. In the event of any such withdrawal,
subject to the last sentence of this paragraph (j), (i) for purposes of
paragraphs (e), (f), (h), (k) and (l) of this Section 6 the Executive
8
<PAGE>
Participant shall be deemed to have made a complete withdrawal of the funds
in his Grantor Trust and Segregated Account at such time, (ii) no further
contributions shall be made thereafter by the Company to the Executive
Participant's Grantor Trust or Segregated Account until the time of the
Executive Participant's termination of employment, at which time the final
contribution or payment described in paragraph (e) of this Section 6 may be
made by the Company, and (iii) no further payments pursuant to paragraph
(h) of this Section 6 shall be made with respect to income of the Grantor
Trust or Segregated Account. The Compensation and Stock Option Committee
of the Company may determine, however, that, on the basis of hardship, (A)
the Executive Participant shall not be deemed to have withdrawn any amounts
not actually withdrawn, and payments pursuant to paragraph (h) of this
Section 6 shall continue to be made with respect to income of the Executive
Participant's Grantor Trust or Segregated Account on amounts so determined
not deemed to have been withdrawn, and also may determine (independently of
any determination pursuant to clause (A) of this sentence) that (B)
notwithstanding such withdrawal, contributions by the Company to the
Executive Participant's Grantor Trust or Segregated Account shall continue
to be made thereafter, as provided in paragraph (e) of this Section 6,
until the time of the Executive Participant's termination of employment.
(k) Benefits payable to an Executive Participant or Surviving
Spouse or other beneficiary under Sections 3 and 4 shall be offset by the
pre-tax equivalent of amounts in the Executive Participant's Grantor Trust
and Segregated Account at the time of the Executive Participant's
termination of employment (except for any amounts which are attributable to
amounts deemed withdrawn previously pursuant to paragraph (j) of this
Section 6 and the income earned thereon), including any final contribution
or payment pursuant to paragraph (e) of this Section 6, and by the present
value of the pre-tax equivalent of any amounts withdrawn or deemed
withdrawn by the Executive Participant from his Grantor Trust or Segregated
Account, plus the amounts of income which would have been earned on such
withdrawn amounts from the time of withdrawal until the time of termination
of employment, calculated by applying an earnings rate equal to the after
tax equivalent of l20% of the applicable monthly immediate annuity purchase
interest rate which would be used by the Pension Benefit Guaranty
Corporation from time to time during such periods for the purpose of
determining the present value of a single sum distribution on plan
termination.
(l) The Grantor Trust of an Executive Participant shall
terminate upon the actual or deemed withdrawal by the Executive Participant
of all amounts in the Grantor Trust and in his Segregated Account. The
Grantor Trust also shall terminate upon the expiration of sixty (60) days
following the termination of employment of the Executive Participant,
unless continued by agreement between the Executive Participant and the
Trustee.
(m) Upon the making of the final contribution or other payment
pursuant to paragraph (e) of this Section 6, and the payment pursuant to
paragraph (h) of this Section 6 in respect of additional taxes resulting
from such final contribution or payment, the Company shall have no further
liability for benefits otherwise payable under Sections 3 and 4 to the
Executive Participant or his Surviving Spouse, estate or other
beneficiaries.
9
<PAGE>
(n) The provisions of this Section 6 shall supersede the
provisions of any other Section of this Plan to the extent such other
provisions might be considered to conflict with the provisions of this
Section 6.
Section 7. ADMINISTRATION. This Plan shall be administered by
the Committee. All decisions and interpretations of the Committee shall be
conclusive and binding on the Company and Highly Compensated Employees and
Executive Participants. The Plan may be amended or terminated by the Board
of Directors of the Company at any time; provided, however, that no such
amendment or termination shall deprive any Highly Compensated Employee or
Executive Participant of supplemental retirement or profit-sharing plan
benefits accrued to the date of such amendment or termination or modify the
last two sentences of Section 5 in a manner adverse to any Executive
Participant; and provided further, however, that the Plan shall not be
amended without approval of the stockholders of the Company if such
amendment would materially increase the cost of the Plan to the Company.
Section 8. NONASSIGNABILITY. Subject to Section 6, no Highly
Compensated Employee or Executive Participant shall have the right to
assign, pledge or otherwise dispose of any benefits payable to him
hereunder nor shall any benefit hereunder be subject to garnishment,
attachment, transfer by operation of law, or any legal process.
10
EXHIBIT 10c3
AMENDMENT TO TRUST AGREEMENT
THIS AMENDMENT, made as of the 1st day of November, 1993,
among AMERICAN BRANDS, INC., a Delaware corporation (the "Company"), THE
CHASE MANHATTAN BANK (National Association), incorporated under the laws
of the United States of America (the "Trustee") and HEWITT ASSOCIATES, a
partnership formed under the laws of Illinois ("Hewitt")
W I T N E S S E T H :
WHEREAS, the Company and the Trustee have entered into a Trust
Agreement for the purpose of establishing a trust in order to provide a
source of benefits under the terms of the Company's Supplemental
Retirement Plan for the benefit of William J. Alley and Hewitt is
designated as Trustee's Contractor thereunder; and
WHEREAS, the Trust Agreement sets forth the permitted investments
of the assets held thereunder and it is desired to change the permitted
investments;
NOW, THEREFORE, in consideration of the premises, the parties
agree that the third sentence of Section 5.2 of the Trust Agreement is
hereby amended to read as follows:
"The investment manager shall invest the assets of the Fund
solely in The Chase Manhattan Bank Fixed Income Fund to the
extent practicable and otherwise in The Chase Manhattan Bank
Personal Trust Market Rate Account."
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be
duly executed as of the day and year first written above.
AMERICAN BRANDS, INC.
Attest:
Theresa B. Fealey Steven C. Mendenhall
- ----------------------- By------------------------
Assistant Secretary Steven C. Mendenhall
Vice President and
Chief Administrative Officer
<PAGE>
THE CHASE MANHATTAN BANK
Attest:
Mark W. Moore William P. Barbeosch
- ----------------------- By------------------------
Assistant Treasurer William P. Barbeosch
Vice President
HEWITT ASSOCIATES
Witness:
Peter E. Ross C.L. Connolly, III
- ----------------------- By------------------------
I hereby consent to the foregoing AMENDMENT.
Witness:
Steven C. Mendenhall William J. Alley
- ----------------------- By------------------------
William J. Alley
2
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 9, 1993
COUNTY OF FAIRFIELD )
Personally appeared Steven C. Mendenhall, Vice President and
Chief Administrative Officer of AMERICAN BRANDS, INC., signer and sealer of
the foregoing instrument, and acknowledged the same to be his free act and
deed as such Vice President and Chief Administrative Officer and the free
act and deed of said Corporation, before me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-November 24, 1993
COUNTY OF NEW YORK )
Personally appeared William P. Barbeosch, Vice President of THE
CHASE MANHATTAN BANK, signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Vice President
and the free act and deed of said Company, before me.
Kamla Jaipal
-----------------------------------
Notary Public
<PAGE>
STATE OF )
: ss.: , -November , 1993
COUNTY OF )
Personally appeared ,
of HEWITT ASSOCIATES, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free act and deed
as such and the free act and deed of said
Corporation, before me.
-----------------------------------
Notary Public
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 18, 1993
COUNTY OF FAIRFIELD )
Personally appeared William J. Alley, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before
me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS )
: ss.: Lincolnshire, IL -November 19, 1993
COUNTY OF LAKE )
Personally appeared C.L. Connolly, III, Partner of HEWITT
ASSOCIATES, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Partner and the free act and
deed of said Partnership, before me.
Barbara L. Stern
-----------------------------------
Notary Public
EXHIBIT 10c4
Schedule identifying substantially identical
agreements, among American Brands, Inc. ("American")
and The Chase Manhattan Bank (National Association), et
al. establishing a trust in favor of each of the
following persons, to the Trust Agreement and Amendment
thereto constituting Exhibits 10c2 and 10c3,
respectively, to the Annual Report on Form 10-K of
American for the Fiscal Year ended December 31, 1993
-------------------------------------------------------
Name
----
Thomas C. Hays
Arnold Henson
Robert L. Plancher
Gilbert L. Klemann, II
John T. Ludes
Robert J. Rukeyser
Randall W. Larrimore
Steven C. Mendenhall
EXHIBIT 10c5
AMERICAN BRANDS, INC.
WILLIAM J. ALLEY
TRUST AGREEMENT
THIS AGREEMENT, made as of the 1st day of November, 1993, among
WILLIAM J. ALLEY, AMERICAN BRANDS, INC., a Delaware corporation (the
"Company"), and THE CHASE MANHATTAN BANK (National Association),
incorporated under the laws of the United States of America (the
"Trustee").
W I T N E S S E T H :
WHEREAS, the Company has incurred and expects to continue to
incur certain retirement income liability to or with respect to WILLIAM J.
ALLEY (the "Executive") pursuant to the terms of the Company's
Supplemental Retirement Plan (including the supplemental profit-sharing
provisions therein) (herein referred to as the "Plan"); and
WHEREAS, the Company and the Executive entered into an agreement
dated as of March 1, 1988 and such agreement was thereafter amended as of
March 1, 1989 and as of May 8, 1990, providing for supplemental retirement
benefits to the Executive (such Agreement as amended being herein referred
to as the "Retirement Agreement"); and
WHEREAS, the Company desires to provide additional assurance to
the Executive that his rights under the Plan and the Retirement Agreement
will in the future be met or substantially met by application of the
procedures set forth herein; and
<PAGE>
WHEREAS, the Executive and the Company wish to establish with
the Trustee a trust for the benefit of the Executive in order to provide a
source of payments of the benefits payable to the Executive under the
terms of the Plan and the Retirement Agreement;
NOW, THEREFORE, in consideration of the premises and mutual and
independent promises herein, the parties hereto covenant and agree as
follows:
ARTICLE I
1.1 The Executive and the Company hereby establish with the
Trustee a Trust consisting of such sums of money and such property
acceptable to the Trustee as shall from time to time be paid or delivered
to the Trustee by the Company and the earnings and profits thereon. All
such money and property, all investments made therewith and proceeds
thereof, less the payments or other distributions which, at the time of
reference, shall have been made by the Trustee, as authorized herein, are
referred to herein as the "Fund" and shall be held by the Trustee, IN
TRUST, in accordance with the provisions of this Agreement. The Trust
shall be solely for the purpose of providing benefits under the Plan and
the Retirement Agreement with respect to the Executive, and neither the
Company nor any creditors of the Company shall have any interest in the
Fund.
1.2 The Trustee shall hold, manage, invest and otherwise
administer the Fund pursuant to the terms of this Agreement. The Trustee
shall be responsible only for contributions actually received by it
hereunder and shall have no responsibility for the correctness of the
2
<PAGE>
amount thereof. Upon the establishment of this Trust, and from time to
time thereafter, the Company may contribute to the Trust, unless otherwise
directed by the Executive to make such contributions to a segregated
account established with the Trustee or other bank, trust company or other
financial institution by or for the benefit of the Executive pursuant to
the Plan ("Segregated Account"), such amount in cash as the Company shall
determine to be appropriate to provide a source of the payments required
under the terms of the Plan and the Retirement Agreement. Prior to the
making of any contribution to the Trust, the Company shall have approved
the establishment of a Segregated Account of the Executive, the terms and
provisions thereof, and the bank, trust company or other financial
institution with which such Segregated Account may be established. The
initial contribution by the Company shall be in an amount approximately
equal to the present value of the after tax equivalent of the aggregate
maximum benefits that would be due to the Executive as of such date under
the retirement provisions of the Plan and the Retirement Agreement and
under the profit-sharing provisions of the Plan, or such lesser amount as
the Company shall determine. Unless there has been a withdrawal by the
Executive from the Trust as provided in Section 2.4, or from the
Executive's Segregated Account, as to which the Compensation and Stock
Option Committee of the Company has not determined otherwise, the Company
will make additional annual contributions to the Trust or Segregated
Account in amounts such that the amount of the Fund, together with the
amount in the Executive's Segregated Account, at such time will be
approximately equal to the present value of the after tax equivalent of
the Executive's accrued benefits under the Plan and the Retirement
Agreement at that time, or in such lesser amounts as the Company shall
determine. Unless the Trust has previously been terminated as a result of
3
<PAGE>
the Executive's actual or deemed withdrawal of all amounts in the Fund, as
provided in Section 8.1, and in his Segregated Account, the Company also
may make a final contribution to the Trust as promptly as practicable
after the Executive's termination of employment in an amount such that the
amount of the Fund, together with the amount, if any, in the Executive's
Segregated Account, except for any amounts which are attributable to
amounts deemed withdrawn previously and the income earned thereon, will be
equal to (i) the sum of the present value of the after tax equivalent of
(x) the Executive's benefit under the supplemental retirement provisions
of the Plan and the Retirement Agreement or, if the termination of
employment is by reason of the death of the Executive, the Executive's
benefit under the supplemental retirement provisions of the Plan and the
Retirement Agreement immediately prior to his death and (y) the
Executive's supplemental profit-sharing benefit under the Plan, reduced by
(ii) the amounts of any actual withdrawals from the Fund or from the
Executive's Segregated Account by the Executive as provided in Section 2.4
plus the income which would have been earned on such withdrawn amounts
from the time of withdrawal to the time of the Executive's termination of
employment, at a rate equal to the after tax equivalent of 120% of the
applicable monthly immediate annuity interest purchase rate which would be
used by the Pension Benefit Guaranty Corporation from time to time during
such period for the purpose of determining the present value of a single
sum distribution on plan termination.
1.3 The Company shall certify to the Trustee and the Executive
at the time of each contribution to the Fund the amount of such
contribution being made in respect of the Executive's supplemental
retirement benefit under the Plan and the Retirement Agreement and the
4
<PAGE>
amount being made in respect of the Executive's supplemental profit-
sharing benefit under the Plan. The Fund shall be revalued by the Trustee
quarterly as of the last business day of each March, June, September and
December, or at such other times as agreed to by the Company and the
Trustee, at current market values, as determined by the Trustee, which
shall deliver as soon as practicable a copy of such quarterly valuation to
the Company and the Executive.
ARTICLE II
2.1 The Company shall act as Administrator of the Trust.
Except for the records dealing solely with the Fund and its investment,
which shall be maintained by the Trustee, the Company as Administrator
shall maintain all the Executive's records contemplated by this Agreement,
including records of the Executive's compensation and benefits from the
Company, the amount of his benefits accrued under the Plan and the
Retirement Agreement, the Company's contributions to the Fund, withdrawals
from the Fund as provided in Section 2.4 or from the Executive's
Segregated Account, the Executive's beneficiary designation and such other
records as may be necessary for determining the amount payable to the
Executive or his Surviving Spouse or other beneficiary under the Plan and
the Retirement Agreement. All such records shall be made available
promptly upon the request of the Executive. In the event that the
Executive's Segregated Account is not maintained with the Trustee, the
Company shall give written notice to the Trustee as to the identity of the
bank, trust company or other financial institution with which the
Segregated Account is maintained. In such case, the Company also shall
give notice to the Trustee in the event of a withdrawal by the Executive
of any or all of the funds in his Segregated Account. Unless the Trust
5
<PAGE>
has previously been terminated as provided in Section 8.1, the Company
shall give written notice to the Trustee of the Executive's termination of
employment, and as to whether such termination is by reason of the death
of the Executive. The Company as Administrator shall also prepare and
distribute the Executive's annual estimated benefit statements specified
in Section 2.2 and shall perform such other duties and responsibilities in
connection with the administration of the Trust as the Company or the
Trustee determines is necessary or advisable to achieve the objectives of
this Agreement.
2.2 The Company as Administrator shall prepare an annual
estimated benefits statement in respect of the Executive and shall furnish
a copy of same to the Executive by no later than May 15 of each year.
2.3 The Company shall have full responsibility for the proper
remittance of all withholding taxes on contributions by the Company to the
Trust to the appropriate taxing authority and shall furnish the Executive
with the appropriate tax information form reporting the amounts of such
contributions and any withholding taxes. The Trustee shall have the
responsibility for the preparation and filing with the appropriate taxing
authorities of all tax returns required to be filed for the Trust.
2.4 Subject to the next to the last sentence of Section 5.2,
the Executive may withdraw all or any portion of the Fund, in cash or, to
the extent practicable, in kind at any time upon written notice of not
less than sixty (60) days to the Company and the Trustee. Prior to any
such withdrawal, the Trustee shall notify the Company in writing of such
withdrawal and the amount thereof, and as to whether or not such
6
<PAGE>
withdrawal is a complete withdrawal of all amounts in the Fund. In the
event of any withdrawal by the Executive from his Segregated Account, the
Company shall promptly notify the Trustee in writing of such withdrawal
and the amount thereof, and as to whether or not such withdrawal is a
complete withdrawal of all amounts in the Segregated Account. In the
event of any such withdrawal from the Fund, or from the Executive's
Segregated Account, for purposes of Sections 1.2 and 8.1 the Executive
shall be deemed to have made a complete withdrawal of all amounts in the
Fund and in his Segregated Account, unless the Compensation and Stock
Option Committee of the Company shall determine that the Executive shall
not be deemed to have made such a complete withdrawal. The Company shall
promptly notify the Trustee in writing of any such determination. Except
as otherwise determined by the Compensation and Stock Option Committee of
the Company, in the event of any such withdrawal from the Fund, or from
the Executive's Segregated Account, no further contributions shall be made
thereafter by the Company to the Trust until the Executive's termination
of employment, at which time if the Trust has not previously been
terminated as a result of the Executive's actual or deemed withdrawal of
all amounts in the Fund and in his Segregated Account a final contribution
by the Company may be made as provided in Section 1.2.
2.5 The Executive may elect to transfer all or any portion of
the Fund to his Segregated Account, in cash or, to the extent practicable,
in kind, at any time upon written notice of not less than sixty (60) days
to the Company and the Trustee and the financial institution with which
the Segregated Account is established. The Executive also may elect to
transfer funds, in cash, from his Segregated Account to the Trust upon
written notice of not less than sixty (60) days to the Company and the
7
<PAGE>
Trustee, and funds so transferred shall be held by the Trustee as part of
the Fund. Such transfers between the Fund and the Executive's Segregated
Account shall not constitute withdrawals for purposes of Section 2.4.
2.6 The Executive may designate a beneficiary to receive all or
any portion of the Fund in the event of his death. Such designation shall
be in writing filed with the Company as Administrator on a form approved
by it and signed by the Executive. The Company shall promptly notify the
Trustee of any such beneficiary designation and any changes therein.
ARTICLE III
3.1 After the execution of this Agreement, the Company shall
promptly file with the Trustee a certified list of the names and specimen
signatures of the officers of the Company and any delegate authorized to
act for it. The Company shall promptly notify the Trustee of the addition
or deletion of any person's name to or from such list, respectively.
Until receipt by the Trustee of notice that any person is no longer
authorized so to act, the Trustee may continue to rely on the authority of
the person. All certifications, notices and directions by any such person
or persons to the Trustee shall be in writing signed by such person or
persons. The Trustee may rely on any such certification, notice or
direction purporting to have been signed by or on behalf of such person or
persons that the Trustee believes to have been signed thereby. The
Trustee may rely on any certification, notice or direction of the Company
that the Trustee believes to have been signed by a duly authorized officer
or agent of the Company. The Trustee shall have no responsibility for
acting or not acting in reliance upon any notification believed by the
Trustee to have been so signed by a duly authorized officer or agent of
8
<PAGE>
the Company. The Company shall be responsible for keeping accurate books
and records with respect to the Executive, his compensation and his rights
and interests in the Fund under the Plan.
3.2 The Company shall indemnify and hold harmless the Trustee
for any liability or expenses, including without limitation advances for
or prompt reimbursement of reasonable fees and expenses of counsel and
other agents retained by it, incurred by the Trustee with respect to
holding, managing, investing or otherwise administering the Fund, other
than by reason of its negligence or willful misconduct.
ARTICLE IV
4.1 The Trustee shall not be liable in discharging its duties
hereunder, including without limitation its duty to invest and reinvest
the Fund, if it acts in good faith and in accordance with the terms of
this Agreement including, without limitation, the making of any investment
directed by the Executive, the Company or an investment manager other than
the Trustee, and any applicable federal or state laws, rules or
regulations.
4.2 The Trustee is hereby appointed as the investment manager
of the Fund. In the event that the Trustee cannot serve as investment
manager of the Fund, the Trustee shall then select Pacific Investment
Management Company as investment manager; provided that if Pacific
Investment Management Company is unwilling or unable to act as investment
manager, the Trustee shall select J.P. Morgan Investment Management Inc.
as investment manager. The investment manager shall invest the assets of
the Fund separately as to amounts representing the Executive's
9
<PAGE>
supplemental retirement benefit under the Plan and amounts representing
the Executive's supplemental profit-sharing benefit. Supplemental
retirement benefit amounts shall be invested solely in the Chase Manhattan
Fixed Income Fund to the extent practicable and otherwise in the Chase
Manhattan Personal Trust Market Rate Account. Supplemental profit-sharing
benefit amounts shall be invested in one or more of (i) the Vista U.S.
Government Income Fund, (ii) the Vista Balanced Fund, (iii) the Chase
Manhattan Personal Trust Market Rate Account or (iv) the Chase Manhattan
Equity Income Fund, in such portions as are elected by the Executive by
written election filed with the Company and notified to the Trustee by the
Company, all to the extent practicable and otherwise in the Chase
Manhattan Personal Trust Market Rate Account, and all without liability of
the Trustee for such election. The Executive may change such election at
any time by filing a new written election with the Company, which shall
promptly notify the Trustee thereof, and all without liability of the
Trustee for such new election. Subject to such investment restrictions,
the Trustee shall have the power and right:
(a) To receive and hold all contributions made to it by the
Company;
(b) To invest and reinvest all or any portion of the Fund
collectively through the medium of any common,
collective, commingled trust or mutual fund that may be established
and maintained by the Trustee or any affiliate thereof, subject to
the instrument or instruments establishing such trust fund or funds
and with the terms of such instrument or instruments, as from time to
time amended, being incorporated into this Agreement to the extent of
the equitable share of the Fund in any such common, collective,
commingled trust or mutual fund;
10
<PAGE>
(c) To participate in and use a book-entry system for the
deposit and transfer of securities;
(d) To sell or exchange any property held by it at public or
private sale, for cash or on credit, to grant and exercise options
for the purchase or exchange thereof, to exercise all conversion or
subscription rights pertaining to any such property and to enter into
any covenant or agreement to purchase any property in the future;
(e) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan
relating to property held by it and to consent to or oppose any such
plan or any action thereunder or any contract, lease, mortgage,
purchase, sale or other action by any person;
(f) To deposit any property held by it with any protective,
reorganization or similar committee, to delegate discretionary power
thereto, and to pay part of the expenses and compensation thereof and
any assessments levied with respect to any such property so
deposited;
(g) To extend the time of payment of any obligation held by it;
(h) To hold uninvested any moneys received by it, without
liability for interest thereon, until such moneys shall be invested,
reinvested or disbursed;
(i) To exercise all voting or other rights with respect to any
property held by it and to grant proxies, discretionary or otherwise;
(j) For the purposes of the Trust, to borrow money from others,
including The Chase Manhattan Bank (National Association), to issue
its promissory note or notes therefor, and to secure the repayment
thereof by pledging any property held by it;
11
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(k) To furnish the Company and the Executive with such
information as may be needed for tax or other purposes;
(l) To employ suitable agents and counsel, who may be counsel
to the Company or the Trustee, and to pay their reasonable expenses
and compensation from the Fund to the extent not paid by the Company;
(m) To cause any property held by it to be registered and held
in the name of one or more nominees, with or without the addition of
words indicating that such securities are held in a fiduciary
capacity, and to hold securities in bearer form;
(n) To settle, compromise or submit to arbitration any claims,
debts or damages due or owing to or from the Trust, respectively, to
commence or defend suits or legal proceedings to protect any interest
of the Trust, and to represent the Trust in all suits or legal
proceedings in any court or before any other body or tribunal;
provided, however, that the Trustee shall not be required to take any
such action unless it shall have been indemnified by the Company to
its reasonable satisfaction against liability or expenses it might
incur therefrom;
(o) To organize under the laws of any state a corporation or
trust for the purpose of acquiring and holding title to any property
which it is authorized to acquire hereunder and to exercise with
respect thereto any or all of the powers set forth herein; and
(p) Generally, to do all acts, whether or not expressly
authorized, that the Trustee may deem necessary or desirable for the
protection of the Fund.
4.3 No person dealing with the Trustee shall be under any
obligation to see to the proper application of any money paid or property
12
<PAGE>
delivered to the Trustee or to inquire into the Trustee's authority as to
any transaction.
4.4 The Trustee shall distribute cash or other assets from the
Fund in accordance with Articles II and VIII hereof.
The Trustee may make any distribution required hereunder by
mailing its check for the specified amount or, if distribution is to be
made in kind, by making other appropriate distribution, to the person to
whom such distribution or payment is to be made, at such address as may be
specified pursuant to Section 10.5, or if no such address shall have been
so furnished, to such person in care of the Company, or (if so directed by
the recipient) by crediting the account of such person or by transferring
funds to such person's account by bank or wire transfer.
4.5 If at any time there is no person authorized to act under
this Agreement on behalf of the Company, the Board of Directors of the
Company or its Compensation and Stock Option Committee shall have the
authority to act hereunder.
ARTICLE V
5.1 The Executive, or in the event of the Executive's death the
Executive's personal representative, shall be responsible for the payment
of any federal, state or local taxes on the Fund, or any part thereof, and
on the income therefrom, subject to the Company's obligation under the
Plan to reimburse the Executive in respect of such taxes.
5.2 For all periods prior to the Executive's termination of
employment, and for a period of sixty (60) days thereafter and for any
13
<PAGE>
further period as may be authorized by the Company, the Company shall pay
to the Trustee its reasonable expenses for the management and
administration of the Fund, including without limitation advances for or
prompt reimbursement of reasonable expenses of counsel and other agents
employed by the Trustee, and reasonable compensation for its services as
Trustee hereunder, the amount of which shall be agreed upon from time to
time by the Company and the Trustee in writing; provided, however, that if
the Trustee forwards an amended fee schedule to the Company requesting its
agreement thereto and the Company fails to object thereto within thirty
(30) days of its receipt, the amended fee schedule shall be deemed to be
agreed upon by the Company and the Trustee. Such expenses and
compensation shall be a charge on the Fund and shall constitute a lien in
favor of the Trustee until paid by the Company. The Company and the
Executive acknowledge that the Trustee, or an affiliate thereof, will, in
addition to the compensation provided by this Article 5.2, receive
compensation with regard to the administration and investment of certain
funds referred to in Article 4.2 hereof, and the Company and the Executive
agree that the Trustee, or any affiliate thereof, shall receive such
compensation in addition to the compensation provided by this Article 5.2.
ARTICLE VI
6.1 The Trustee shall maintain records with respect to the Fund
that show all its receipts and disbursements hereunder. The records of
the Trustee with respect to the Fund shall be open to inspection by the
Company or its representatives and by the Executive at all reasonable
times during normal business hours of the Trustee and may be audited not
more frequently than once each fiscal year by an independent certified
public accountant engaged by the Company; provided, however, the Trustee
14
<PAGE>
shall be entitled to additional compensation from the Company in respect
of audits or auditors' requests which the Trustee determines to exceed the
ordinary course of the usual scope of such examinations of its records.
6.2 Within a reasonable time after the close of each fiscal
year of the Company (or, in the Trustee's discretion, at more frequent
intervals), or of any termination of the duties of the Trustee hereunder,
the Trustee shall prepare and deliver to the Company and the Executive a
statement of transactions reflecting its acts and transactions as Trustee
during such fiscal year, portion thereof or during such period from the
close of the last fiscal year or last statement period to the termination
of the Trustee's duties, respectively, including a statement of the then
current value of the Fund. Any such statement shall be deemed an account
stated and accepted and approved by the Company and the Executive, and the
Trustee shall be relieved and discharged, as if such account had been
settled and allowed by a judgment or decree of a court of competent
jurisdiction, unless protested by written notice to the Trustee within
sixty (60) days of receipt thereof by the Company or the Executive.
The Trustee shall have the right to apply at any time to a court
of competent jurisdiction for judicial settlement of any account of the
Trustee not previously settled as herein provided or for the determination
of any question of construction or for instructions. In any such action
or proceeding it shall be necessary to join as parties only the Trustee,
the Company and the Executive (although the Trustee may also join such
other parties as it may deem appropriate), and any judgment or decree
entered therein shall be conclusive.
15
<PAGE>
ARTICLE VII
7.1 The Trustee may resign at any time by delivering written
notice thereof to the Company and the Executive; provided, however, that
no such resignation shall take effect until the earlier of (i) sixty (60)
days from the date of delivery of such notice to the Company and the
Executive or (ii) the appointment of a successor trustee.
7.2 The Trustee may be removed at any time by the Company,
pursuant to a resolution of the Board of Directors of the Company or its
Compensation and Stock Option Committee, upon delivery to the Trustee of a
certified copy of such resolution and sixty (60) days' written notice to
the Trustee and the Executive of (i) such removal and (ii) the appointment
of a successor trustee, unless such notice period is waived in whole or in
part by the Trustee and the Executive.
7.3 Upon the resignation or removal of the Trustee, a successor
trustee shall be appointed by the Company. Such successor trustee shall
be a bank or trust company established under the laws of the United States
or a state within the United States and having either total assets of at
least $15 billion or trust assets of at least $25 billion. Such
appointment shall take effect upon the delivery to the Trustee and the
Executive of (a) a written appointment of such successor trustee, duly
executed, by the Company and (b) a written acceptance by such successor
trustee, duly executed thereby. Any successor trustee shall have all the
rights, powers and duties granted the Trustee hereunder.
7.4 If, within sixty (60) days of the delivery of the Trustee's
written notice of resignation, a successor trustee shall not have been
16
<PAGE>
appointed, the Trustee shall apply to any court of competent jurisdiction
for the appointment of a successor trustee.
7.5 Upon the resignation or removal of the Trustee and the
appointment of a successor trustee, and after the acceptance and approval
of its account, the Trustee shall transfer and deliver the Fund to such
successor trustee. Under no circumstances shall the Trustee transfer or
deliver the Fund to any successor trustee which is not a bank or trust
company having either total assets of at least $15 billion or trust assets
of at least $25 billion.
ARTICLE VIII
8.1 The Trust established pursuant to this Agreement shall
terminate upon the actual or deemed withdrawal by the Executive of all
amounts in the Fund, as provided in Section 2.4, and in the Executive's
Segregated Account. The Trust also shall terminate upon the expiration of
sixty (60) days following the Executive's termination of employment (by
retirement or otherwise), unless the Trustee and the Executive agree to
continue the Trust thereafter upon such terms as they may agree, but in
the event of such continuation the Company shall have no further
obligations under this Agreement with respect to matters relating to such
continuation, including expenses and compensation of the Trustee, as
provided in Section 5.2, and indemnification of the Trustee as provided in
Section 3.2.
8.2 Upon the termination of the Trust by reason of the death of
the Executive, or by reason of the Executive's termination of employment
other than by death if the Trust has not been continued by agreement
between the Trustee and the Executive, the Trustee shall distribute the
Fund as directed by the Executive or, in the absence of such direction,
17
<PAGE>
shall distribute all of the Fund to the Executive's Segregated Account, if
any, or if there is no such Segregated Account to the Executive, or in the
event of the Executive's death his personal representative, after
deducting therefrom any amounts owing to the Trustee under this Agreement
which have not been paid by the Company. Upon any termination of the
Trust in accordance with Article VIII, the Trustee shall, after the
acceptance and approval of its account, be relieved and discharged. The
powers of the Trustee, including the right to receive compensation for
services and payment of expenses, as provided in Section 5.2, shall
continue as long as any part of the Fund remains in its possession.
ARTICLE IX
9.1 This Agreement may be amended, in whole or in part, at any
time and from time to time, by the Company with the written consent of the
Executive and the Trustee. Any such amendment by the Company shall be
pursuant to a resolution of the Board of Directors of the Company or its
Compensation and Stock Option Committee by delivery to the Trustee of a
certified copy of such resolution and a written instrument duly executed
and acknowledged by the Company and the Executive in the same form as this
Agreement.
ARTICLE X
10.1 This Agreement shall be construed and interpreted under,
and the Trust hereby created shall be governed by, the laws of the State
of New York insofar as such laws do not contravene any applicable federal
laws, rules or regulations.
18
<PAGE>
10.2 Neither the gender nor the number (singular or plural) of
any word shall be construed to exclude another gender or number when a
different gender or number would be appropriate.
10.3 This Agreement shall be binding upon and inure to the
benefit of the Executive, his estate, personal representative,
beneficiary, heirs and assigns. This Agreement also shall be binding upon
and inure to the benefit of any successor to the Company or its business
as the result of merger, consolidation, reorganization, transfer of assets
or otherwise and any subsequent successor thereto. In the event of any
such merger, consolidation, reorganization, transfer of assets or other
similar transaction, the successor to the Company or its business or any
subsequent successor thereto shall promptly notify the Trustee in writing
of its successorship and furnish the Trustee with the information
specified in Section 3.1 of this Agreement. In no event shall any such
transaction described herein suspend or delay the rights of the Executive
to receive benefits hereunder.
10.4 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which shall together constitute only one Agreement.
10.5 All notices and other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when actually delivered to the respective addresses set forth below:
Company: American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870-0811
Attn: Senior Vice President
and General Counsel
19
<PAGE>
Trustee: The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, New York 10036
Attn: Trusts and Estates
Services Division, 34th Floor
Executive: William J. Alley
112 Clearview Lane
New Canaan, Connecticut 06840
or at such other address as such person may specify in writing by notice
as set forth above to the other persons listed above.
ARTICLE XI
11.1 In consideration of the establishment of the Fund, the
Executive consents to the distribution from time to time of assets of the
trust established pursuant to the Trust Agreement made as of the 1st day
of February, 1989, among American Brands, Inc., The Chase Manhattan Bank
(National Association) and Hewitt Associates established to provide a
source of the Executive's benefits under the Plan, in amounts to be used
for the making of contributions to the Trust or Segregated Account of the
Executive as provided in Section 1.2, or the making of payments to the
Executive (or beneficiary) pursuant to the Plan and the Retirement
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the 1st day of November, 1993.
Attest: AMERICAN BRANDS, INC.
Theresa B. Fealey Steven C. Mendenhall
- ----------------------- By------------------------
Assistant Secretary Steven C. Mendenhall
Vice President and
Chief Administrative Officer
20
<PAGE>
Attest: THE CHASE MANHATTAN BANK
Mark W. Moore William P. Barbeosch
- ----------------------- By------------------------
Assistant Treasurer William P. Barbeosch
Vice President
Witness: WILLIAM J. ALLEY
Steven C. Mendenhall William J. Alley
- ----------------------- -------------------------
21
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 9, 1993
COUNTY OF FAIRFIELD )
Personally appeared Steven C. Mendenhall, Vice President and
Chief Administrative Officer of AMERICAN BRANDS, INC., signer and sealer
of the foregoing instrument, and acknowledged the same to be his free act
and deed as such Vice President and Chief Administrative Officer and the
free act and deed of said Corporation, before me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-November 24, 1993
COUNTY OF NEW YORK )
Personally appeared William P. Barbeosch, Vice President of THE
CHASE MANHATTAN BANK, signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Vice President
and the free act and deed of said Company, before me.
Kamla Jaipal
-----------------------------------
Notary Public
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 18, 1993
COUNTY OF FAIRFIELD )
Personally appeared WILLIAM J. ALLEY, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before
me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
EXHIBIT 10c6
Schedule identifying substantially identical agreements,
among American Brands, Inc. ("American") and The Chase
Manhattan Bank (National Association), et al.
establishing a grantor trust in favor of each of the
following persons, to the Trust Agreement constituting
Exhibit 10c5 to the Annual Report on Form 10-K of
American for the Fiscal Year ended December 31, 1993
-------------------------------------------------------
Name
----
Thomas C. Hays
Arnold Henson
Robert L. Plancher
Gilbert L. Klemann, II
John T. Ludes
Robert J. Rukeyser
Randall W. Larrimore
Steven C. Mendenhall
EXHIBIT 10f1
SUPPLEMENTAL RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1988
AS AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1993
Section 1. Purpose. This Supplemental Retirement Plan is an unfunded
plan established for the purpose of providing deferred compensation for a
select group of management or highly compensated employees as referred to
in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of ERISA in order to induce
such employees of outstanding ability to join or continue in the employ of
the Company and to increase their efforts for its welfare by providing them
with supplemental retirement benefits notwithstanding the limitations
imposed by the Internal Revenue Code on retirement benefits from tax
qualified plans.
Section 2. Definitions. As used in this Plan, the following words
shall have the following meanings:
a. "Committee" means the administrative body for the Retirement
Plan.
b. "Company" shall mean The Franklin Life Insurance Company or
any other corporation with or into which it has merged,
consolidated or reinsured or any other corporation which is a
wholly owned subsidiary of The Franklin Life Insurance Company.
c. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
d. "Grantor Trust" means a trust for the benefit of an Executive
Participant (as defined in Section 4) established pursuant to
Section 4 to provide for the payment of benefits under this Plan.
e. "Highly Compensated Employee" means a Participant who comes
within the definition of a highly compensated employee set forth
in Section 414(q) of the Internal Revenue Code (or any successor
provision) for any Plan year. With respect to a disabled
<PAGE>
employee, compensation will be deemed to be that which was in
effect at the date of disablement.
f. "IRC Limitations" means the Retirement Plan provisions adopted
(i) pursuant to Section 415 of the Internal Revenue Code to limit
(A) annual Retirement Plan benefits pursuant to Section 415(b)
thereof, (B) annual additions pursuant to Section 415(c) thereof
and (C) the aggregate of annual Retirement Plan benefits and
additions pursuant to Section 415(e) thereof and (ii) pursuant to
Section 401(a)(17) of the Internal Revenue Code, as amended
(including regulations promulgated by the Secretary of the
Treasury or his delegate), to limit compensation considered for
purposes of computing Retirement Plan benefits.
g. "Participant" means a salaried employee of the Company not
represented by a collective bargaining agent who is within the
category of a select group of management or highly compensated
employees as referred to in Sections 201(a)(2), 301(a)(3) and
401(a)(1) of ERISA.
h. "Plan Year" means the calendar year.
i. "Retirement Plan" means The Franklin Life Employees'
Retirement Plan as amended from time to time.
j. "Segregated Account" means an account established with a bank
or other financial institution approved by the Company, or other
form of segregated account approved by the Company, established
pursuant to Section 4 by or for the benefit of an Executive
Participant to provide for the payment of benefits under this
Plan.
k. "Surviving Spouse" means the surviving husband or wife of a
Participant who has been married to the Participant throughout the
2
<PAGE>
one-year period ending on the earlier of (i) the Participants'
annuity starting date (as defined in the Retirement Plan) or (ii)
the date of the Participant's death.
Section 3. Supplemental Retirement Benefits.
a. Each Participant who is a Highly Compensated Employee and who
has not been elected to the position of Division Vice President or
any office senior thereto prior to the date of termination of
employment, normal, deferred or early retirement under the
Retirement Plan, and to whom benefits become payable under the
Retirement Plan, shall be paid a supplemental annual retirement
benefit under this Plan. The benefit provided under this
subsection shall be equal in amount to the difference between (i)
the benefit paid under the Retirement Plan if the IRC limitations
were not contained therein and (ii) the benefit that would be
payable under the Retirement Plan with the IRC limitations
contained therein; provided, however, that reductions in benefit
incurred as a result of IRC Section 401(a)(17) shall not be paid
under this subsection.
The combined annual benefit provided under this Plan, the
qualified Retirement Plan of the Company and any retirement plans
of affiliated Corporations paid on behalf of a Participant
described in this subsection shall not exceed the lesser of: (1)
60% of the employee's Final Average Compensation (as defined in
the Retirement Plan) minus the applicable offset amount or (2)
100% of the average of the 3 highest consecutive years of
Compensation (as defined in the Retirement Plan). If the
Surviving Spouse of a Participant described in this subsection is
entitled to a spouse's benefit under the Retirement Plan, the
3
<PAGE>
Surviving Spouse shall be paid a benefit hereunder equal to the
difference between (i) the spouse's benefit payable under the
Retirement Plan if the IRC Limitations were not contained therein
and, (ii) the spouse's benefit that would be payable under the
Retirement Plan with the IRC Limitations contained therein,
provided, however, that reductions in benefit incurred as a result
of IRC Section 401(a)(17) shall not be paid to such Surviving
Spouse.
b. Each Participant who is a Highly Compensated Employee and who
has been elected to the position of Division Vice President or any
office senior thereto prior to the date of termination of
employment, normal, deferred or early retirement under the
Retirement Plan, and to whom benefits become payable under the
Retirement Plan, shall be paid a supplemental annual retirement
benefit under this Plan. Subject to Section 4, the benefit
provided under this subsection shall be equal in amount to the
difference between (i) the benefit paid under the Retirement Plan
if the IRC Limitations were not contained therein and (ii) the
benefit that would be payable under the Retirement Plan with the
IRC Limitations contained therein. Reductions in benefit incurred
as a result of IRC Section 401(a)(17) shall be paid under this
subsection. The combined annual benefit provided under this Plan,
the qualified Retirement Plan of the Company and any retirement
plans of affiliated Corporations paid on behalf of a Participant
described in this subsection shall not exceed the lesser of: (1)
60% of the employee's Final Average Compensation (as defined in
the Retirement Plan) minus the applicable offset amount or (2)
4
<PAGE>
100% of the average of the three highest consecutive years of
Compensation (as defined in the Retirement Plan).
If a Surviving Spouse of a Participant described in this
subsection is entitled to a spouse's benefit under the Retirement
Plan, the Surviving Spouse shall be paid a benefit hereunder,
subject to Section 4, equal to the difference between (i) the
spouse's benefit payable under the Retirement Plan if the IRC
Limitations were not contained therein and, (ii) the spouse's
benefit that would be payable under the Retirement Plan with the
IRC Limitations contained therein.
c. Subject to Section 4, the supplemental retirement benefits
provided by this Plan shall be paid to the Participant (or to the
Participant's Surviving Spouse) by the employer concurrently with
the payment of the benefits payable under the Retirement Plan.
d. Subject to Section 4, the form of payment for the supplemental
retirement benefit payable under this Plan will be the same form
of payment as the Participant's benefit under the Retirement Plan.
Section 4. Grantor Trusts and Segregated Accounts. Notwithstanding
Section 3.b. of this Plan, the Company may provide for the establishment of
Grantor Trusts and Segregated Accounts by or for the benefit of individual
Participants who are highly compensated employees and have been elected to
the position of Division Vice President or any position senior thereto
(hereinafter "Executive Participant") to provide for the payment of
benefits under this Plan, consistent with the following provisions:
a. The Trustee of the Grantor Trusts shall be a bank or trust
company approved by the Company and established under the laws of
the United States or a state within the United States and having
either total assets (including assets of a bank holding company of
5
<PAGE>
which the bank is a member) of at least $25 billion or trust
assets of at least $1 billion. Each Grantor Trust shall be
established pursuant to a trust agreement having terms and
provisions approved by the Company and consistent with this
Section. The Grantor Trust shall be solely for the purpose of
providing benefits under the Plan with respect to the Executive
Participant, and neither the Company nor any creditors of the
Company shall have any interest in the assets of the Grantor
Trust. The Company shall be the administrator of the Grantor
Trust, and shall have such powers as are granted by the trust
agreement.
b. The Company shall pay the fees and expenses of the Trustee and
all the expenses for the management and administration of each
Grantor Trust and Segregated Account for all periods prior to the
Executive Participant's termination of employment and for a period
of sixty (60) days thereafter and for any further period as may be
authorized by the Committee to permit the orderly distribution of
the assets of the Executive Participant's Grantor Trust or
Segregated Account, and shall indemnify the Executive Participant
against any liability or cost in respect thereof, including any
tax liabilities or costs.
c. Each Segregated Account shall be a savings or other type of
account approved by the Company established with a bank or trust
company approved by the Company and established under the laws of
the United States or a state within the United States and having
either total assets (including assets of a bank holding company of
which the bank is a member) of at least $25 billion or trust
assets of at least $1 billion, or other form of segregated account
6
<PAGE>
with such a bank or trust company or other financial institution
approved by the Company, in each case with such terms and
provisions as are approved by the Company and consistent with this
Section.
d. The Company may from time to time make annual contributions to
either the Grantor Trust, or Segregated Account if directed by an
Executive Participant, in amounts which when added to the existing
balances in the Executive Participant's Grantor Trust and
Segregated Account will be approximately equal to the present
value of the after tax equivalent of the Executive Participant's
accrued benefit under Section 3.b.
e. Unless the Grantor Trust has previously been terminated as a
result of the Executive Participant's actual or deemed withdrawal
of all amounts in his Grantor Trust and Segregated Account, as
provided in paragraph j, as promptly as practicable after the
Executive Participant's termination of employment, whether by
retirement, death or otherwise, the Company may make a final
contribution to the Executive Participant's Grantor Trust, or
Segregated Account if directed by the Executive Participant, in an
amount which when added to the existing balances in the Executive
Participant's Grantor Trust and Segregated Account, except for any
balances which are attributable to amounts deemed withdrawn
previously and the income earned thereon, will be approximately
equal to (i) the sum of the present value of the after tax
equivalent of (A) if termination is not by reason of the death of
the Executive Participant, the Executive Participant's accrued
benefit under Section 3.b. or, (B) if the termination of
employment is by reason of death, the spouse's benefit payable
7
<PAGE>
under Section 3.b. to the Executive Participant's Surviving
Spouse, if any, offest by (ii) any amounts previously actually
withdrawn by the Executive Participant from his Grantor Trust or
Segregated Account and income which would have been earned thereon
calculated as provided in paragraph i. If prior to the Executive
Participant's termination of employment his Grantor Trust has
previously been terminated as a result of the Executive
Participant's actual or deemed withdrawal of all amounts in his
Grantor Trust and Segregated Account, as promptly as practicable
following such termination of employment, the Company may make a
final payment to the Executive Participant, or his Surviving
Spouse, or in the event of the death of the Executive Participant
his personal representative, in an amount equal to the present
value of the after tax equivalent of benefits payable under
Section 3.b. offset by the amounts previously withdrawn or deemed
withdrawn by the Executive Participant from his Grantor Trust and
Segregated Account and income which would have been earned
thereon, calculated as provided in paragraph i.
f. The Company shall make payments to the Executive Participant
(or his Surviving Spouse or other beneficiary) from time to time
in the approximate amounts required to compensate the Executive
Participant (or his Surviving Spouse or other beneficiary) for
additional federal, state and local taxes on income resulting from
the inclusion in the Executive Participant's or Surviving Spouse's
or other beneficiary's taxable income of contributions to the
Executive Participant's Grantor Trust and Segregated Account, the
final payment pursuant to paragraph e if the Grantor Trust has
been terminated prior to the Executive Participant's termination
8
<PAGE>
of employment, and the income of the Grantor Trust and Segregated
Account for periods prior to termination of employment (including
amounts paid by the Company pursuant to paragraphs b and e).
g. An Executive Participant may elect to transfer all or any
portion of the funds in his Grantor Trust to his Segregated
Account, or to transfer all or any portion of the funds in his
Segregated Account to his Grantor Trust, upon written notice of
not less than sixty (60) days to the Company and the Trustee and
the financial institution with which the Segregated Account is
established.
h. An Executive Participant may withdraw all or any portion of
the funds in his Grantor Trust or Segregated Account at any time
upon not less than sixty (60) days written notice to the Company
and to the Trustee or the financial institution with which the
Segregated Account is established, as the case may be. In the
event of any such withdrawal, subject to the last sentence of this
paragraph h, (i) for purposes of paragraphs e, f, and g of this
Section 4 the Executive Participant shall be deemed to have made a
complete withdrawal of the funds in his Grantor Trust and
Segregated Account at such time, (ii) no further contributions
shall be made thereafter by the Company to the Executive
Participant's Grantor Trust or Segregated Account until the time
of the Executive Participant's termination of employment, at which
time the final contribution or payment described in paragraph e of
this Section 4 may be made by the Company, and (iii) no further
payments pursuant to paragraph f of this Section 4 shall be made
with respect to income of the Grantor Trust or Segregated Account.
The Committee may determine, however, that, on the basis of
9
<PAGE>
hardship, (A) the Executive Participant shall not be deemed to
have withdrawn any amounts not actually withdrawn, and payments
pursuant to paragraph f of this Section 4 shall continue to be
made with respect to income of the Executive Participant's Grantor
Trust or Segregated Account on amounts so determined not deemed to
have been withdrawn and also may determine (independently of any
determination pursuant to clause (A) of this sentence) that (B)
notwithstanding such withdrawal, contributions by the Company to
the Executive Participant's Grantor Trust or Segregated Account
shall continue to be made thereafter, as provided in paragraph e
of this Section 4, until the time of the Executive Participant's
termination of employment.
i. Benefits payable to an Executive Participant or Surviving
Spouse or other beneficiary under Section 3.b. shall be offset by
the pre-tax equivalent of amounts in the Executive Participant's
Grantor Trust and Segregated Account at the time of the Executive
Participant's termination of employment (except for any amounts
which are attributable to amounts deemed withdrawn previously
pursuant to paragraph h and income earned thereon), including any
final contribution or payment pursuant to paragraph e, and by the
present value of the pre-tax equivalent of any amounts withdrawn
or deemed withdrawn by the Executive Participant from his Grantor
Trust or Segregated Account, plus the amount of income which would
have been earned on such withdrawn amounts from the time of
withdrawal until the time of termination of employment, calculated
by applying an earnings rate equal to the after tax equivalent of
120% of the applicable monthly immediate annuity purchase interest
rate which would be used by the Pension Benefit Guaranty
10
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Corporation from time to time during such periods for the purpose
of determining the present value of a single sum distribution on
plan termination.
j. The Grantor Trust of an Executive Participant shall terminate
upon the actual or deemed withdrawal by the Executive Participant
of all amounts in the Grantor Trust and in his Segregated Account.
The Grantor Trust also shall terminate upon the expiration of
sixty (60) days following the termination of employment of the
Executive Participant, unless continued by agreement between the
Executive Participant and the Trustee.
k. Upon the making of the final contribution or other payment
pursuant to paragraph e, and the payment pursuant to paragraph f
in respect of additional taxes resulting from such final
contribution or payment, the Company shall have no further
liability for benefits otherwise payable under Sections 3.b. to
the Executive Participant or his Surviving Spouse, estate or other
beneficiaries.
l. Subject to the provisions of Section 3b providing for the
payment of benefits to the Surviving Spouse of the Executive
Participant, the Executive Participant may designate a beneficiary
to receive amounts held in his Grantor Trust or Segregated Account
in the event of his death. The designation shall be made in a
writing, filed with the Committee on a form approved by it and
signed by the Executive Participant. The Committee shall notify
the Trustee as to any such designation or changes therein.
m. The provisions of this Section 4 shall supersede the
provisions of any other Section of this Plan to the extent such
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other provisions might be considered to conflict with the
provisions of this Section 4.
Section 5. Funding. Benefits under this Plan shall not initially be
funded in order that the Plan may be exempt from the provisions of Parts 2,
3 and 4 of Title I of ERISA. The Committee shall, however, maintain
records for the calculation of supplemental retirement benefits. The
benefits under this Plan shall be paid from the general assets of the
Company, or a Rabbi Trust or a Grantor Trust.
Section 6. Administration. This Plan shall be administered by the
Committee. All decisions and interpretations of the Committee shall be
conclusive and binding on the Company and Participants. The Plan may be
amended or terminated by the Board of Directors of the Company at any time;
provided, however, that no such amendment or termination shall deprive any
Participant of supplemental retirement benefits with respect to a
Participant who has retired or died prior to such amendment; and provided
further, however, the Plan shall not be amended without approval of the
stockholders of the Company if such amendment would materially increase the
cost of the Plan to the Company.
Section 7. Nonassignability. Subject to Section 4, no Participant
shall have the right to assign, pledge or otherwise dispose of any benefits
payable to the Participant hereunder nor shall any Participant's benefit be
subject to garnishment, attachment, transfer by operation of law, or any
legal process.
12
EXHIBIT 10f3
THE FRANKLIN LIFE INSURANCE COMPANY
HOWARD C. HUMPHREY
TRUST AGREEMENT
THIS AGREEMENT, made as of the 16th day of December 1993,
among HOWARD C. HUMPHREY, THE FRANKLIN LIFE INSURANCE COMPANY, an Illinois
corporation (the "Company"), and BANK ONE, Springfield (State Association),
incorporated under the laws of the State of Illinois (the "Trustee").
W I T N E S S E T H :
WHEREAS, the Company has incurred and expects to continue to
incur certain retirement income liability to or with respect to HOWARD C.
HUMPHREY (the "Executive") pursuant to the terms of the Company's
Supplemental Retirement Plan (herein referred to as the "Plan"); and
WHEREAS, the Company desires to provide additional assurance
to the Executive that his rights under the Plan will in the future be met
or substantially met by application of the procedures set forth herein; and
WHEREAS, the Executive and the Company wish to establish with
the Trustee a trust for the benefit of the Executive in order to provide a
source of payments of the benefits payable to the Executive under the terms
of the Plan;
NOW, THEREFORE, in consideration of the premises and mutual
and independent promises herein, the parties hereto covenant and agree as
follows:
<PAGE>
ARTICLE I
1.1 The Executive and the Company hereby establish with the
Trustee a Trust consisting of such sums of money and such property
acceptable to the Trustee as shall from time to time be paid or delivered
to the Trustee by the Company and the earnings and profits thereon. All
such money and property, all investments made therewith and proceeds
thereof, less the payments or other distributions which, at the time of
reference, shall have been made by the Trustee, as authorized herein, are
referred to herein, as the "Fund" and shall be held by the Trustee, IN
TRUST, in accordance with the provisions of this Agreement. The Trust
shall be solely for the purpose of providing benefits under the Plan with
respect to the Executive, and neither the Company nor any creditors of the
Company shall have any interest in the Fund.
1.2 The Trustee shall hold, manage, invest and otherwise
administer the Fund pursuant to the terms of this Agreement. The Trustee
shall be responsible only for contributions actually received by it
hereunder and shall have no responsibility for the correctness of the
amount thereof. Upon the establishment of the Trust, and from time to time
thereafter, the Company shall contribute to the Trust, unless otherwise
directed by the Executive to make such contributions to a segregated
account established with the Trustee or other bank, trust company or other
financial institution by or for the benefit of the Executive pursuant to
the Plan ("Segregated Account"), such amount in cash as the Company shall
determine to be appropriate to provide a source of the payments required
under the terms of the Plan. Prior to the making of any contribution to
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<PAGE>
the Trust, the Company shall have approved the establishment of a
Segregated Account of the Executive, the terms and provisions thereof, and
the bank, trust company or other financial institution with which such
Segregated Account may be established. The initial contribution by the
Company shall be in amount approximately equal to the present value of the
after tax equivalent of the aggregate maximum benefits that would be due to
the Executive as of such date under of the Plan, or such lesser amount as
the Company shall determine. Unless there has been a withdrawal by the
Executive from the Trust as provided in Section 2.4, or from the
Executive's Segregated Account, as to which the Company has not determined
otherwise, the Company will make additional annual contributions to the
Trust or Segregated Account in amounts such that the amount of the Fund,
together with the amount in the Executive's Segregated Account, at such
time will be approximately equal to the present value of the after tax
equivalent of the Executive's accrued benefits under the Plan at that time,
or in such lesser amounts as the Company shall determine. Unless the Trust
has previously been terminated as a result of the Executive's actual or
deemed withdrawal of all amounts in the Fund, as provided in Section 8.1
and in his Segregated Account, the Company also shall make a final
contribution to the Trust as promptly as practicable after the Executive's
termination of employment in an amount such that the amount of the Fund,
together with the amount, if any, in the Executive's Segregated Account,
except for any amounts which are attributable to amounts deemed withdrawn
previously and income earned thereon, will be approximately equal to (i)
the present value of the after tax equivalent of the Executive's accrued
benefit under the Plan or, if the termination of employment is by reason of
the death of the Executive, the spouses benefit payable under the Plan to
the Executive's Surviving Spouse (as defined in the Plan), if any, reduced
3
<PAGE>
by (ii) the amounts of any actual withdrawals from the Fund or from the
Executive's Segregated Account by the Executive as provided in Section 2.4
plus the income which would have been earned on such withdrawn amounts from
the time of withdrawal to the time of the Executive's termination of
employment, at a rate equal to 120% of the applicable monthly immediate
annuity interest purchase rate which would be used by the Pension Benefit
Guaranty Corporation from time to time during such period for the purpose
of determining the present value of a single sum distribution on plan
termination.
1.3 The Company shall certify to the Trustee and the
Executive at the time of each contribution to the Fund the amount of such
contribution being made in respect of the Executive's supplemental
retirement benefit under the Plan. The Fund shall be revalued by the
Trustee quarterly as of the last business day of each March, June,
September and December, or at such other times as agreed to by the Company
and the Trustee, at current market values, as determined by the Trustee,
which shall promptly deliver a copy of such quarterly valuation to the
Company and the Executive.
ARTICLE II
2.1 The Company shall act as Administrator of the Trust.
Except for the records dealing solely with the Fund and its investment,
which shall be maintained by the Trustee, the Company as Administrator
shall maintain all the Executive's records contemplated by the Agreement,
including records of the Executive's compensation and benefits from the
4
<PAGE>
Company, the amount of his benefits accrued under the Plan, the Company's
contributions to the Fund, withdrawals from the Fund as provided in Section
2.4 or from the Executive's Segregated Account, the Executive's beneficiary
designation and such other records as may be necessary for determining the
amount payable to the Executive or his Surviving Spouse or other
beneficiary under the Plan. All such records shall be made available
promptly upon the request of the Trustee or the Executive. In the event
that the Executive's Segregated Account is not maintained with the Trustee,
the Company shall give written notice to the Trustee as to the identity of
the bank, trust company or other financial institution with which the
Segregated Account is maintained. In such case, the Company also shall
give notice to the Trustee in the event of a withdrawal by the Executive of
any or all of the funds in his Segregated Account. Unless the Trust has
previously terminated as provided in Section 8.1, the Company shall give
written notice to the Trustee of the Executive's termination of employment,
and as to whether such termination is by reason of the death of the
Executive. The Company shall also prepare and distribute the Executive's
annual estimated benefit statements specified in Section 2.2 and shall
perform such other duties and responsibilities in connection with the
administration of the Trust as the Company or the Trustee determines is
necessary or advisable to achieve the objectives of this Agreement.
2.2 The Company as Administrator shall prepare an annual
estimated benefits statement in respect of the Executive and shall furnish
a copy of same to the Executive by no later that May 15 of each year.
2.3 The Company shall have full responsibility for the
proper remittance of all withholding taxes on contributions by the Company
5
<PAGE>
to the Trust to the appropriate taxing authority and shall furnish the
Executive with the appropriate tax information form reporting the amounts
of such distributions and any withholding taxes. The Trustee shall have
responsibility for the preparation and filing with the appropriate taxing
authorities of all tax returns required to be filed for the Trust.
2.4 Subject to the next to the last sentence of Section 5.2,
the Executive may withdraw all or any portion of the Fund, in cash or, to
the extent practicable, in kind at any time upon written notice of not less
than sixty (60) days to the Company and the Trustee. Prior to any such
withdrawal, the Trustee shall notify the Company in writing of such
withdrawal and the amount thereof, and as to whether or not such withdrawal
is a complete withdrawal of all amounts in the Fund. In the event of an
withdrawal by the Executive from his Segregated Account, the Company shall
promptly notify the Trustee in writing of such withdrawal and the amount
thereof, and as to whether or not such withdrawal is a complete withdrawal
of all amounts in the Segregated Account. In the event of any such
withdrawal from the Fund, or from the Executive's Segregated Account, for
the purposes of Sections 1.2 and 8.1 the Executive shall be deemed to have
made a complete withdrawal of all amounts in the Fund and in his Segregated
Account, unless the Company shall determine that the Executive shall not be
deemed to have made such a complete withdrawal. The Company shall promptly
notify the Trustee in writing of any such determination. Except as
otherwise determined by the Company, in the event of any such withdrawal
from the Fund, or from the Executive's Segregated Account, no further
contributions shall be made thereafter by the Company to the Trust until
the Executive's termination of employment, at which time if the Trust has
not previously been terminated as a result of the Executive's actual or
6
<PAGE>
deemed withdrawal of all amounts in the Fund and in his Segregated Account
a final contribution by the Company may be made as provided in Section 1.2.
2.5 The Executive may elect to transfer all or any portion of the Fund
to his Segregated Account, in cash or, to the extent practicable, in kind,
at any time upon written notice of not less than sixty (60) days to the
Company and the Trustee and the financial institution with which the
Segregated Account is established. The Executive also may elect to
transfer funds, in cash, from his Segregated Account to the Trust upon
written notice of not less than sixty (60) days to the Company and the
Trustee, and funds so transferred shall be held by the Trustee as part of
the Fund. Such transfers between the Fund and the Executive's Segregated
Account shall not constitute withdrawals for purposes of Section 2.4.
2.6 The Executive may designate a beneficiary to receive all or any
portion of the Fund in the event of his death. Such designation shall be
in writing filed with the Company as Administrator on a form approved by it
and signed by the Executive. The Company shall promptly notify the Trustee
of any such beneficiary designation and any changes therein.
ARTICLE III
3.1 After the execution of this Agreement, the
Company shall promptly file with the Trustee a certified list of the names
and specimen signatures of the officers of the Company and any delegee
authorized to act for it. The Company shall promptly notify the Trustee of
the addition or deletion of any person's name to or from such list,
7
<PAGE>
respectively. Until receipt by the Trustee of notice that any person is no
longer authorized so to act, the Trustee may continue to rely on the
authority of the person. All certifications, notices and directions by any
such person or persons to the Trustee shall be in writing signed by such
person or persons. The Trustee may rely on any such certification, notice
or direction purporting to have been signed by or on behalf of such person
or persons that the Trustee believes to have been signed thereby. The
Trustee may rely on any certification, notice or direction of the Company
that the Trustee believes to have been signed by a duly authorized officer
or agent of the Company. The Trustee shall have no responsibility for
acting or not acting in reliance upon any notification believed by the
Trustee to have been so signed by a duly authorized officer or agent of the
Company. The Company shall be responsible for keeping accurate books and
records with respect to the Executive, his compensation and his rights and
interests in the Fund under the Plan.
3.2 The Company shall indemnify and hold harmless the
Trustee for any liability or expenses, including without limitation
advances for or prompt reimbursement of reasonable fees and expenses of
counsel and other agents retained by it, incurred by the Trustee with
respect to holding, managing, investing or otherwise administering the
Fund, other than by reason of its negligence or willful misconduct.
ARTICLE IV
4.1 The Trustee shall not be liable in discharging its
duties hereunder, including without limitation its duty to invest and
8
<PAGE>
reinvest the Fund, if it acts in good faith and in accordance with the
terms of this Agreement including, without limitation, the making of any
investment directed by the Executive or the Company, and any applicable
federal or state laws, rules or regulations.
4.2 The Trustee is hereby appointed as the investment
manager of the Fund. In the event that the Trustee cannot serve as
investment manager of the Fund, the Trustee shall then select Pacific
Investment Management Company as investment manager; provided that if
Pacific Investment Management Company is unwilling or unable to act as
investment manager, the Trustee shall select J.P. Morgan Investment
Management Inc. as investment manager. The Investment Manager shall invest
the assets of the Fund solely in (a) direct, unconditional obligations of a
solvent business corporation incorporated under the laws of the United
States of America or any state of the United States of America; (b) direct
long term obligations of the United States of America or an agency or
instrumentality thereof, for the payment of money, or obligations for the
payment of money to the extent guaranteed or insured as to the payment of
principal and interest by the United States of America; (c) short term debt
instruments which are direct obligations of the United States of America;
(d) certificates of deposit of Bank One, Springfield; (e) commercial paper;
and (f) any money market vehicle of similar quality and objectives as set
forth below chosen by the Trustee.
Investments at the time of purchase must have predominant investment
grade characteristics, carrying a Standard & Poor's Corporation bond rating
of BBB- or better, and a Moody's Investment Services, Inc., bond rating of
Baa3 or better. The overall average rating of the portfolio may not fall
below A3 quality or above Aa2, using Moody's bond ratings, on a weighted
9
<PAGE>
basis. The average maturity of the Fund shall be maintained within the 8-
15 year range, except for temporary periods the Fund may be predominantly
in liquid short term instruments. Certificates of deposit with Bank One,
Springfield are limited to maturities not exceeding six months and in no
event at the time of purchase shall certificates of deposit with Bank One,
Springfield exceed 10% of the aggregate market value of the Fund.
Commercial paper must carry a quality rating of A-1 from Standard & Poor's
Corporation or P-1 from Moody's Investment Services, Inc. and be limited to
maturities of less that 61 days from the date of purchase. Short term
direct obligations of the United States must be limited to maturities not
exceeding 180 days from the date of purchase. The Investment Manager shall
diversify the Fund's investments in a prudent manner, but in no event shall
obligations of any one issuer (other than direct obligations of the United
States of America or obligations for the payment of principal or interest
by an agency or instrumentality of the United States of America) exceed in
aggregate 25% of the market value of the Fund at the time of purchase. The
Investment Manager may, at its discretion, invest in Bank One, Springfield
managed co-mingled funds, providing such participations substantially meet
the Fund's stated overall objectives. Subject to such investment
restrictions, the Trustee shall have the power and right:
(a) To receive and hold all contributions
made to it by the Company;
(b) To invest and reinvest all or any portion
of the Fund collectively through the medium of any
common, collective or commingled trust fund that
may be established and maintained by the Trustee,
subject to the instrument or instruments
establishing such trust fund or funds and with the
10
<PAGE>
terms of such instrument or instruments, as from
time to time amended, being incorporated into this
Agreement to the extent of the equitable share of
the Fund in any such common, collective or
commingled trust fund;
(c) To participate in and use a book-entry
system for the deposit and transfer of securities;
(d) To sell or exchange any property held by
it at public or private sale, for cash or on
credit, to grant and exercise options for the
purchase or exchange thereof, to exercise all
conversion or subscription rights pertaining to
any such property and to enter into any covenant
or agreement to purchase any property in the
future;
(e) To participate in any plan of
reorganization, consolidation, merger,
combination, liquidation or other similar plan
relating to property held by it and to consent to
or oppose any such plan or any action thereunder
or any contract, lease, mortgage, purchase, sale
or other action by any person;
(f) To deposit any property held by it with
any protective, reorganization or similar
committee, to delegate discretionary power
thereto, and to pay part of the expenses and
compensation thereof and any assessments levied
with respect to any such property so deposited;
11
<PAGE>
(g) To extend the time of payment of any
obligation held by it;
(h) To hold uninvested any moneys received by
it, without liability for interest thereon, until
such moneys shall be invested, reinvested or
disbursed;
(i) To exercise all voting or other rights
with respect to any property held by it and to
grant proxies, discretionary or otherwise;
(j) For the purposes of the Trust, to borrow
money from others, including Bank One,
Springfield, to issue its promissory note or notes
therefor, and to secure the repayment thereof by
pledging any property held by it;
(k) To furnish the Company and the Executive
with such information as may be needed for tax or
other purposes;
(l) To employ suitable agents and counsel,
who may be counsel to the Company or the Trustee,
and to pay their reasonable expenses and
compensation from the Fund to the extent not paid
by the Company;
(m) To cause any property held by it to be
registered and held in the name of one or more
nominees, with or without the addition of words
indicating that such securities are held in a
fiduciary capacity, and to hold securities in
bearer form;
12
<PAGE>
(n) To settle, compromise or submit to
arbitration any claims, debts or damages due or
owing to or from the Trust, respectively, to
commence or defend suits or legal proceedings to
protect any interest of the Trust, and to
represent the Trust in all suits or legal
proceedings in any court or before any other body
or tribunal; provided, however, that the Trustee
shall not be required to take any such action
unless it shall have been indemnified by the
Company to its reasonable satisfaction against
liability or expenses it might incur therefrom;
(o) To organize under the laws of any state a
corporation or trust for the purpose of acquiring
and holding title to any property which it is
authorized to acquire hereunder and to exercise
with respect thereto any or all of the powers set
forth herein; and
(p) Generally, to do all acts, whether or not
expressly authorized, that the Trustee may deem
necessary or desirable for the protection of the
Fund.
4.3 No person dealing with the Trustee shall be under any
obligation to see to the proper application of any money paid or property
delivered to the Trustee or to inquire into the Trustee's authority as to
any transaction.
13
<PAGE>
4.4 The Trustee shall distribute cash from the Fund in
accordance with Article II and VIII hereof.
The Trustee may make any distribution required hereunder by
mailing its check for the specified amount to the person to whom such
distribution or payment is to be made, at such address as may be specified
pursuant to Section 10.5, or if no such address shall have been so
furnished, to such person in care of the Company, or (if so directed by the
recipient) by crediting the account of such person or by transferring funds
to such person's account by bank or wire transfer.
4.5 If at any time there is no person authorized to act
under this Agreement on behalf of the Company, the Board of Directors of
the Company shall have the authority to act hereunder.
ARTICLE V
5.1 The Executive, or in the event of the Executive's death
the Executive's personal representative, shall be responsible for the
payment of any federal, state or local taxes on the Fund, or any part
thereof, and on the income therefrom, subject to the Company's obligation
under the Plan to reimburse the Executive in respect of such taxes.
5.2 For all periods prior to the Executive's termination of
employment, and for a period of sixty (60) days thereafter and for any
further period as may be authorized by the Company, the Company shall pay
to the Trustee its reasonable expenses for the management, investment and
administration of the Fund, including without limitation advances for or
14
<PAGE>
prompt reimbursement of reasonable expenses of counsel and other agents
employed by the Trustee, and reasonable compensation for its services as
Trustee hereunder, the amount of which shall be agreed upon from time to
time by the Company and the Trustee in writing; provided, however, that if
the Trustee forwards an amended fee schedule to the Company requesting its
agreement thereto and the Company fails to object thereto within thirty
(30) days of its receipt, the amended fee schedule shall be deemed to be
agreed upon by the Company and the Trustee. Such expenses and compensation
shall be a charge on the Fund and shall constitute a lien in favor of the
Trustee until paid by the Company.
ARTICLE VI
6.1 The Trustee shall maintain records with respect to the
Fund that show all its receipts and disbursements hereunder. The records
of the Trustee with respect to the Fund shall be open to inspection by the
Company or its representatives and by the Executive at all reasonable times
during normal business hours of the Trustee and may be audited not more
frequently that once each fiscal year by an independent certified public
accountant engaged by the Company; provided, however, the Trustee shall be
entitled to additional compensation from the Company in respect of audits
or auditors' requests which the Trustee determines to exceed the ordinary
course of the usual scope of such examinations of its records.
6.2 Within a reasonable time after the close of each fiscal
year of the Company (or, in the Trustee's discretion, at more frequent
intervals), or of any termination of the duties of the Trustee hereunder,
15
<PAGE>
the Trustee shall prepare and deliver to the Company and the Executive a
statement of transactions reflecting its acts and transactions as Trustee
during such fiscal year, portion thereof or during such period from the
close of the last fiscal year or last statement period to the termination
of the Trustee's duties, respectively, including a statement of the then
current value of the Fund. Any such statement shall be deemed an account
stated and accepted and approved by the Company, and the Trustee shall be
relieved and discharged, as if such account had been settled and allowed by
a judgment or decree of a court of competent jurisdiction, unless protested
by written notice to the Trustee within sixty (60) days of receipt thereof
by the Company or the Executive.
The Trustee shall have the right to apply at any time to a
court of competent jurisdiction for judicial settlement of any account of
the Trustee not previously settled as herein provided or for the
determination of any question of construction or for instructions. In any
such action or proceeding it shall be necessary to join as parties only the
Trustee, the Company and the Executive (although the Trustee may also join
such other parties as it may deem appropriate), and any judgment or decree
entered therein shall be conclusive.
ARTICLE VII
7.1 The Trustee may resign at any time by delivering written
notice thereof to the Company and the Executive; provided, however, that no
such resignation shall take effect until the earlier or (i) sixty (60) days
16
<PAGE>
from the date of delivery of such notice to the Company and the Executive
or (ii) the appointment of a successor trustee.
7.2 The Trustee may be removed at any time by the Company,
pursuant to a resolution of the Board of Directors of the Company, upon
delivery to the Trustee of a certified copy of such resolution and sixty
(60) days written notice to the Trustee and the Executive of (i) such
removal and (ii) the appointment of a successor trustee, unless such notice
period is waived in whole or in part by the Trustee and the Executive.
7.3 Upon the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Such successor
trustee shall be a bank or trust company established under the laws of the
United States or a state within the United States and having either total
assets (including assets of a bank holding company of which the bank is a
member) of at least $25 billion or trust assets of at least $1 billion.
Such appointment shall take effect upon the delivery to the Trustee and the
Executive of (a) a written appointment of such successor trustee, duly
executed, by the Company and (b) a written acceptance by such successor
trustee, duly executed thereby. Any successor trustee shall have all the
rights, powers and duties granted the Trustee hereunder.
7.4 If, within sixty (60) days of the delivery of the
Trustee's written notice of resignation, a successor trustee shall not have
been appointed, the Trustee shall apply to any court of competent
jurisdiction for the appointment of a successor trustee.
17
<PAGE>
7.5 Upon the resignation or removal of the Trustee and the
appointment of a successor trustee, and after the acceptance and approval
of its account, the Trustee shall transfer and deliver the Fund to such
successor trustee. Under no circumstances shall the Trustee transfer or
deliver the Fund to any successor trustee which is not a bank or trust
company having either total assets (including assets of a bank holding
company of which the bank is a member) of at least $25 billion or trust
assets of at least $1 billion.
ARTICLE VIII
8.1 The Trust established pursuant to this Agreement shall
terminate upon the actual or deemed withdrawal by the Executive of all
amounts in the Fund, as provided in Section 2.4, and in the Executive's
Segregated Account. The Trust also shall terminate upon the expiration of
sixty (60) days following the Executive's termination of employment (by
retirement or otherwise), unless the Trustee and the Executive agree to
continue the Trust thereafter upon such terms as they may agree, but in the
event of such continuation the Company shall have no further obligations
under this Agreement with respect to matters relating to such continuation,
including expenses and compensation of the Trustee, as provided in Section
5.2, and indemnification of the Trustee as provided in Section 3.2.
8.2 Upon the termination of the Trust by reason of the death
of the Executive, or by reason of the Executive's termination of employment
other than by death if the Trust has not been continued by agreement
between the Trustee and the Executive, the Trustee shall distribute the
18
<PAGE>
Fund as directed by the Executive or, in the absence of such direction,
shall distribute all of the Fund to the Executive's Segregated Account, if
any, or if there is no such Segregated Account to the Executive, or in the
event of the Executive's death his personal representative, after deducting
therefrom any amounts owing to the Trustee under this Agreement which have
not been paid by the Company. Upon any termination of the Trust in
accordance with Article VIII, the Trustee shall, after the acceptance and
approval of its account, be relieved and discharged. The powers of the
Trustee, including the right to receive compensation for services and
payment of expenses, as provided in Section 5.2, shall continue as long as
any part of the Fund remains in its possession.
ARTICLE IX
9.1 This Agreement may be amended, in whole or in part, at
any time and from time to time, by the Company with the written consent of
the Executive and the Trustee. Any such amendment by the Company shall be
pursuant to a resolution of the Board of Directors of the Company by
delivery to the Trustee of a certified copy of such resolution and a
written instrument duly executed and acknowledged by the Company and the
Executive in the same form as this Agreement.
ARTICLE X
10.1 This Agreement shall be construed and interpreted
under, and the Trust hereby created shall be governed by, the laws of the
19
<PAGE>
State of Illinois insofar as such laws do not contravene any applicable
federal laws, rules or regulations.
10.2 Neither the gender nor the number (singular or plural)
of any word shall be construed to exclude another gender or number when a
different gender or number would be appropriate.
10.3 This Agreement shall be binding upon and inure to the
benefit of the Executive, his estate, personal representative, beneficiary,
heirs and assigns. This Agreement also shall be binding upon and inure to
the benefit of any successor to the Company or its business as the result
of merger, consolidation, reorganization, transfer of assets or otherwise
and any subsequent successor thereto. In the event of any such merger,
consolidation, reorganization, transfer of assets or other similar
transaction, the successor to the Company or its business or any subsequent
successor thereto shall promptly notify the Trustee in writing of its
successorship and furnish the Trustee with the information specified in
Section 3.1 of this Agreement. In no event shall any such transaction
described herein suspend or delay the rights of the Executive to receive
benefits hereunder.
10.4 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which shall together constitute only one Agreement.
10.5 All notices and other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered to the respective addresses set forth below:
20
<PAGE>
Company: The Franklin Life Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
Attn: Senior Vice President
and General Counsel
Trustee: Bank One, Springfield
East Old State Capitol Plaza
Springfield, Illinois 62701
Executive: Howard C. Humphrey
R.R. #6
Springfield, Illinois 62707
or at such other address as such person may specify in writing by notice as
set forth above to the other persons listed above.
ARTICLE XI
11.1 In consideration of the establishment of the Fund,
Executive consents to the distribution from time to time of the assets of
the trust established pursuant to the Trust Agreement made as of the 25th
day of January, 1990, among the Company, The Marine Bank of Springfield and
Milliman & Robertson established to provide a source of Executive's
benefits under the Plan, in amounts to be used for the making of
contributions to the Trust or Segregated Account of the Executive as
21
<PAGE>
provided in Section 1.2, or the making of payments to the Executive (or
Surviving spouse or other beneficiary) pursuant to the Plan.
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed this 16th day of December, 1993.
Attest: THE FRANKLIN LIFE INSURANCE COMPANY
Stephen P. Horvat, Jr. By James M. Quigley
- --------------------------- ---------------------------------
Attest: BANK ONE SPRINGFIELD
Suzanne [Last name illegible] BY Michael W. Ference
- --------------------------- ---------------------------------
Witness: HOWARD C. HUMPHREY
Stephen P. Horvat, Jr. Howard C. Humphrey
- --------------------------- ------------------------------------
STATE OF ILLINOIS )
: ss.:
COUNTY OF MACOUPIN)
Personally appeared JAMES M. QUIGLEY, Vice President, - Director
of Human Resources of THE FRANKLIN LIFE INSURANCE COMPANY, signer and
sealer of the foregoing instrument, and acknowledged the same to be his
free act and deed as such Vice President and the free act and deed of said
Company before me.
Rose M. Lenn
-------------------------------------
Notary Public
22
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF MACOUPIN)
Personally appeared Michael W. Ference of BANK ONE SPRINGFIELD,
signer and sealer of the foregoing instrument, and acknowledged the same to
be his free act and deed as such Vice President and the free act and deed
of said Corporation before me.
Monica M. Malin
-------------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF SANGAMON)
Personally appeared HOWARD C. HUMPHREY, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free act and deed
before me.
Rose M. Lenn
-------------------------------------
Notary Public
23
EXHIBIT 10g4
Dated 24th January 1994
--------------------------------------------------
The Gallaher S Pension Scheme
--------------------------------------------------
Gallaher Limited
- and -
Gallaher Pensions Limited
--------------------------------------------------
Conformed Copy
D e e d
- amending -
the Definitive Deed and Rules
dated 24th March 1983
--------------------------------------------------
Simmons & Simmons
14 Dominion Street
London EC2M 2RJ
(Ref: 8/G.24515/MYM/8059B)
<PAGE>
This Deed is made the 24th day of January 1994
- -------------------
BETWEEN:-
- -------
(1) GALLAHER LIMITED (the "Company"), registered in England under No.
1501573; and
(2) GALLAHER PENSIONS LIMITED (the "Trustee"), registered in England under
No. 765844.
WHEREAS:-
- -------
(A) This Deed is SUPPLEMENTAL (inter alia) to:-
(i) a trust deed (the "Definitive Deed") dated 24th March 1983
whereby the Company established THE GALLAHER S PENSION SCHEME
(the "Scheme") and by which the rules of the Scheme (the "Rules")
were adopted;
(ii) a deed of amendment and covenant dated 1st July 1986; and
(iii) eight deeds dated respectively 1st May 1984, 21st October 1985,
17th November 1986, 18th June 1987, 17th April 1989, 22nd May
1989, 24th October 1989 and 3rd June 1992 amending the Definitive
Deed and the Rules.
(B) The Trustee is the sole trustee of the Scheme.
(C) By Clause 18 of the Definitive Deed (as amended by the deed dated 17th
April 1989) the Company may, at any time and from time to time with
the consent of the Trustee, by deed, alter, modify or add to any of
the trusts, powers and provisions of the Definitive Deed and the Rules
subject as provided in that Clause.
(D) The Company wishes to alter, modify or add to the Definitive Deed and
the Rules as provided below and the Trustee (as evidenced by it being
a party to this Deed) consents to those alterations, modifications and
additions being made.
Now This Deed provides that the Definitive Deed and the Rules are Hereby
Altered, Modified or Added To as follows:-
1. By replacing Clause 6(a) with the following:
"The Trustee may hold all or any of the Fund in the name of any
nominee or nominees upon such terms as to remuneration or otherwise as
the Trustee shall decide."
<PAGE>
2. By deleting the words "with such approval" from the second sentence of
Clause 6(b) and by inserting after "to exercise all or any of the
powers and discretions of the Trustee" in that sentence the following:
"(including, but without limitation, the power to sub-delegate)".
3. By replacing Clause 15(a) with the following:
"power to delegate, either generally or for any particular purpose, to
any corporate body or committee any or all of their powers or
discretions (including, but without limitation, the formation of any
opinion and the power to sub-delegate) upon such terms as to
remuneration or otherwise as the Trustee shall decide. The Trustee
may not, however, delegate pursuant to this paragraph any power or
discretion under Clause 5 except with the approval of the Company.
The production of the Trustee's written authority shall be sufficient
protection to any third party acting on it in good faith and without
negligence. Unless a third party has received written notice of that
authority having been revoked. He shall be entitled to assume and to
act upon the assumption that the authority remains unrevoked"
4. By inserting "(1)" before "A Member may" at the beginning of Rule 3(b)
and by adding the following new sub-Rule (2) at the end of Rule 3(b):
"(2) The Trustee shall comply with the requirements of Regulation 5 of
The Retirement Benefits Schemes (Restriction on Discretion to
Approve) (Additional Voluntary Contributions) Regulations 1993
(SI 1993/3016) and where the Scheme is the "leading scheme" in
relation to a Member, with the requirements of Regulation 6 of
these Regulations so far as they concern main schemes."
2
<PAGE>
In Witness of which this Deed was duly executed the day and year first
above written.
The Common Seal of Gallaher) [Common Seal of Gallaher Limited]
Limited was affixed to this)
deed in the presence of:- )
J.P. Taylor
Director
B. Rudd
Secretary
The Common Seal of Gallaher) [Common Seal of Gallaher
Pensions Limited was ) Pensions Limited]
affixed to this deed in the)
presence of:- )
N.P. Bulpitt
Director
M.P. Newberry
Secretary
3
EXHIBIT 10k2
JIM BEAM BRANDS CO.
AMENDED EXCESS BENEFIT PLAN
Section 1. Purpose. This Plan is an amendment and restatement,
effective as of January 1, 1987, by Jim Beam Brands Co. (the "Company") of
its Excess Benefit Plan. The Excess Benefit Plan is an unfunded excess
benefit plan established pursuant to Section 4(5) of ERISA as well as an
unfunded plan established for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees as referred to in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of
ERISA in order to induce employees of outstanding ability to join or
continue in the employ of the Company and to increase their efforts for its
welfare by providing them with supplemental retirement and profit-sharing
benefits notwithstanding the limitations imposed by the Internal Revenue
Code on retirement and profit-sharing benefits from tax qualified plans.
Section 2. Definitions. As used in this Plan, the following
words shall have the following meanings:
(a) "Affiliated Employment" means employment by any corporation
which, at the time of such employment, is or was an affiliate of the
Company, or thereafter becomes or became an affiliate of the Company.
"Affiliated Plan" means a defined benefit pension plan by which an employee
of the Company had been covered during Affiliated Employment.
(b) "Allocation" means the Company contribution allocated to the
accounts of a Profit-Sharing Plan member under the Profit-Sharing Plan for
a Plan Year.
(c) "Committee" means the Retirement Committee of the Company.
(d) "Company" means Jim Beam Brands Co., a Delaware corporation,
its successors and assigns.
(e) "Credited Service" means the period of an employee's
employment with the Company.
(f) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(g) "Executive Participant" means an employee of the Company who
is within the category of a select group of management or highly
compensated employees as referred to in Sections 201(a)(2), 301(a)(3) and
40l(a)(l) of ERISA and who either holds or held the office of a Vice
President of the Company or any office senior thereto or, during the
current Plan Year or the prior Plan Year, was covered under the Jim Beam
Brands Co. Executive Incentive Plan.
(h) "415 Limitations" means the Retirement Plan and Profit-
Sharing Plan provisions adopted pursuant to Section 415 of the Internal
Revenue Code to limit (i) annual Retirement Plan benefits pursuant to
Section 415(b) thereof, (ii) annual additions to the Profit-Sharing Plan
pursuant to Section 415(c) thereof and (iii) the aggregate of annual
Retirement Plan benefits and additions to the Profit-Sharing Plan pursuant
to Section 415(e) thereof.
<PAGE>
(i) "401(a)(17) Limitations" means the Retirement Plan and
Profit-Sharing Plan provisions adopted pursuant to Section 401(a)(17) of
the Internal Revenue Code to limit compensation considered for purposes of
computing Retirement Plan benefits and Profit-Sharing Plan contributions to
$150,000, effective as of January 1, 1994 (or such greater amount permitted
for such year in accordance with Section 401(a)(17) of the Internal Revenue
Code or the regulations promulgated by the Secretary of the Treasury or his
delegate).
(j) "Grantor Trust" means a trust for the benefit of an
Executive Participant established pursuant to Section 6 to provide for the
payment of benefits under this Plan.
(k) "Highly Compensated Employee" means an employee or former
employee of the Company who comes within the definition of a highly
compensated employee set forth in Section 414(q) of the Internal Revenue
Code (or any successor provision) for any Plan Year.
(l) "Highest Three-Year Average Earnings" means the total
compensation of an employee paid in the three consecutive Plan Years within
such employee's period of Service considered for purposes of computing his
benefits hereunder that provide the highest aggregate of compensation
divided by three.
(m) "Normal Retirement Date" means the last day of the calendar
month in which a person's 65th birthday occurs.
(n) "Plan Year" means the calendar year.
(o) "Profit-Sharing Plan" means, effective as of January 1,
1994, the Jim Beam Brands Co. Profit-Sharing and 401(k) Savings Plan as
amended from time to time.
(p) "Retirement Plan" means the Jim Beam Brands Co. Salaried
(Non-Union) Employees' Pension Plan as amended from time to time.
(q) "Segregated Account" means an account established with a
bank or other financial institution approved by the Company, or other form
of segregated account approved by the Company, established pursuant to
Section 6 by or for the benefit of an Executive Participant to provide for
the payment of benefits under this Plan.
(r) "Service" means the period of employment with the Company
and Affiliated Employment.
(s) "Surviving Spouse" means the surviving husband or wife of an
employee of the Company who has been married to the employee throughout the
one-year period ending on the date of the death of such employee.
Section 3. Retirement Benefits.
(a) Each person who is a Highly Compensated Employee at the date
of termination of employment or during the prior Plan Year and to whom
benefits become payable under the Retirement Plan shall be paid a
supplemental annual retirement benefit under this Plan equal in amount to
the difference between (i) the benefit paid under the Retirement Plan and
2
<PAGE>
the Affiliated Plans and (ii) the benefit that would be payable if the 415
Limitations were not contained therein; provided, however, that the
aggregate annual retirement benefits payable under this Plan, the
Retirement Plan and the Affiliated Plans shall not exceed the lesser of
$225,000 or the Highly Compensated Employee's Highest Three-Year Average
Earnings; and provided further, however, that for purposes of computing the
amount of benefit under this Plan, years of Credited Service shall not
exceed 35. If such a Highly Compensated Employee's Surviving Spouse is
entitled to a pre-retirement spouse's benefit under the Retirement Plan,
the Surviving Spouse shall be paid a benefit hereunder equal to the
difference between (i) the spouse's benefit payable under the Retirement
Plan and the Affiliated Plans and (ii) the spouse's benefit that would be
payable if the 415 Limitations were not contained therein.
(b) Each person who is an Executive Participant at the date of
termination of employment or during the prior Plan Year to whom benefits
become payable under the Retirement Plan shall be paid a supplemental
annual retirement benefit under this Plan equal in amount to the difference
between (i) the benefit paid under the Retirement Plan and the Affiliated
Plans and (ii) the benefit that would be payable if the 401(a)(17)
Limitations and the 415 Limitations were not contained therein; provided,
however, that the aggregate annual retirement benefits payable under this
Plan, the Retirement Plan and the Affiliated Plans shall not exceed the
lesser of $225,000 or the Executive Participant's Highest Three-Year
Average Earnings; and provided further, however, that for purposes of
computing the amount of benefit under this Plan, years of Credited Service
shall not exceed 35. If such an Executive Participant's Surviving Spouse
is entitled to a pre-retirement spouse's benefit under the Retirement Plan
and subject to
Section 6, the Surviving Spouse shall be paid a benefit hereunder equal to
the difference between (i) the spouse's benefit payable under the
Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that
would be payable if the 401(a)(17) Limitations and the 415 Limitations were
not contained therein.
(c) Subject to Section 6, the supplemental retirement benefits
provided by this Plan shall be paid to the Executive Participant or Highly
Compensated Employee (or to any beneficiary designated by him in accordance
with the Retirement Plan, or to his Surviving Spouse if eligible for a
spouse's benefit under the Retirement Plan) concurrently with the payment
of the benefits payable under the Retirement Plan and in a form permitted
thereby. In the event the supplemental retirement benefit commences prior
to Normal Retirement Date or is payable in a form other than an annuity for
the life of the former employee only, the supplemental retirement benefit
shall be adjusted to the same extent as under the Retirement Plan. The
Committee may, however, direct that the supplemental retirement benefit
payable with respect to a former employee be paid as an actuarially
equivalent single sum payment, provided that (except for a distribution to
pay taxes as provided in Section 5 and except as provided in Section 6) no
such payment may be made prior to termination of Service or prior to the
date that benefits may become payable under the Retirement Plan. In
determining actuarial equivalency of a single sum payment in cash, there
shall be used the interest rate which would be used by the Pension Benefit
Guaranty Corporation for the month preceding the month for which the
determination is required for the purpose of determining the present value
3
<PAGE>
of a single sum distribution on plan termination and the UP-1984 unisex
mortality table.
Section 4. Supplemental Profit-Sharing Benefits.
(a) In the event that the Allocation under the Profit-Sharing
Plan is limited by the 415 Limitations for 1987 or any subsequent Plan Year
for a Highly Compensated Employee, the Highly Compensated Employee shall
receive a supplemental profit-sharing award under this Plan for such Plan
Year equal to the difference between (i) the Allocation actually made for
the Highly Compensated Employee to the Profit-Sharing Plan for such Plan
Year and (ii) the Allocation that would have been made to the Profit-
Sharing Plan for such Plan Year if the 415 Limitations were not contained
therein.
(b) In the event that the Allocation under the Profit-Sharing
Plan is limited by the 401(a)(17) Limitations and the 415 Limitations for
1987 or any subsequent Plan Year for an Executive Participant, the
Executive Participant shall receive a supplemental profit-sharing award
under this Plan for such Plan Year equal to the difference between (i) the
Allocation actually made to the Executive Participant and (ii) the
Allocation that would have been made to the Profit-Sharing Plan for such
Plan Year if the 401(a)(17) Limitations and the 415 Limitations were not
contained therein.
(c) Except as provided in Section 6, the award for any Plan Year
shall be made as of the first day of the following year and shall be deemed
to be thereafter invested in an interest bearing investment selected by the
Committee. The amount of a Highly Compensated Employee's or Executive
Participant's supplemental profit-sharing benefits under this Plan shall be
the aggregate amount of such awards together with any deemed investment
gain thereon and less any deemed investment loss.
(d) Supplemental profit-sharing awards and deemed investment
gain thereon shall be fully vested and nonforfeitable.
(e) Supplemental profit-sharing plan benefits shall be paid by a
single sum payment as soon as practicable following termination of
employment, subject to Section 6.
(f) Except as provided in Section 6, a Highly Compensated
Employee or Executive Participant may designate a beneficiary to receive
the unpaid portion of his supplemental profit-sharing benefits in the event
of his death. The designation shall be made in a writing filed with the
Committee on a form approved by it signed by the Highly Compensated
Employee or Executive Participant. If no effective designation of
beneficiary shall be on file with the Committee when supplemental profit-
sharing benefits would otherwise be distributable to a beneficiary, then
such benefits shall be distributed to the spouse of the Highly Compensated
Employee or Executive Participant or, if there is no spouse, to the
executor of the will or the administrator of his estate or, if no such
executor or administrator shall be appointed within six months after his
death, the Committee shall direct that distribution be made, in such shares
as the Committee shall determine, to the child, parent or other blood
relative of such Highly Compensated Employee or Executive Participant or to
such other person or persons as the Committee may determine.
4
<PAGE>
Section 5. Funding. Benefits under this Plan shall not be
funded in order that the Plan may be exempt from the provisions of Parts 2,
3 and 4 of Title I of ERISA. The Committee shall maintain records of
supplemental profit-sharing awards and the assumed investment thereof and
records for the calculation of supplemental retirement benefits. The
Company may, however, segregate assets which are intended to be a source
for payment of benefits hereunder for Executive Participants. In the event
benefits are hereafter determined to be taxable for Executive Participants
prior to actual receipt thereof, a payment shall be made to such Executive
Participants in an amount sufficient to pay such taxes notwithstanding that
the Executive Participant may not then have terminated Service or that the
payment is being made prior to the date that benefits would otherwise be
paid under the Retirement Plan. Amounts so paid shall then be used as an
offset to the supplemental retirement and profit-sharing benefits, if any,
thereafter payable which shall also be paid in an actuarially equivalent
lump sum (calculated as set forth in Section 3(c)) promptly upon the later
of termination of Service or attainment of age 55.
Section 6. Grantor Trusts and Segregated Accounts.
Notwithstanding Section 5 of this Plan, the Company may provide for the
establishment of Grantor Trusts and Segregated Accounts by or for the
benefit of individual Executive Participants to provide for the payment of
benefits under this Plan, consistent with the following provisions:
(a) The Trustee of the Grantor Trusts shall be a bank or trust
company approved by the Company and established under the laws of the
United States or a state within the United States and having either total
assets of at least $15 billion or trust assets of at least $25 billion.
Each Grantor Trust shall be established pursuant to a trust agreement
having terms and provisions approved by the Company and consistent with
this Section. The Grantor Trust shall be solely for the purpose of
providing benefits under the Plan with respect to the Executive
Participant, and neither the Company nor any creditors of the Company shall
have any interest in the assets of the Grantor Trust. The Company shall be
the administrator of the Grantor Trust, and shall have such powers as are
granted by the trust agreement.
(b) The Company shall pay the fees and expenses of the Trustee
and all the expenses for the management and administration of each Grantor
Trust and Segregated Account for all periods prior to the Executive
Participant's termination of employment, and for a period of sixty (60)
days thereafter and for any further period as may be authorized by the
Company, and shall indemnify the Executive Participant against any
liability or cost in respect thereof, including any tax liabilities or
costs.
(c) Each Segregated Account shall be a savings or other type of
account approved by the Company established with a bank or trust company
approved by the Company and established under the laws of the United States
or a state within the United States and having either total assets of at
least $15 billion or trust assets of at least $25 billion, or other form of
segregated account with such a bank or trust company or other financial
institution approved by the Company, in each case with such terms and
provisions as are approved by the Company and consistent with this Section.
5
<PAGE>
(d) The Company may from time to time make contributions to
either the Grantor Trust, or Segregated Account if directed by an Executive
Participant, in amounts which when added to the existing balances in the
Executive Participant's Grantor Trust and Segregated Account will be
approximately equal to the present value of the after tax equivalent of the
Executive Participant's accrued benefits under Sections 3 and 4.
(e) Unless the Grantor Trust has previously been terminated as a
result of the Executive Participant's actual or deemed withdrawal of all
amounts in his Grantor Trust and Segregated Account, as provided in
paragraph (l) of this Section 6, as promptly as practicable after the
Executive Participant's termination of employment, whether by retirement,
death or otherwise, the Company may make a final contribution to the
Executive Participant's Grantor Trust, or Segregated Account if directed by
the Executive Participant, in an amount which when added to the existing
balances in the Executive Participant's Grantor Trust and Segregated
Account, except for any balances which are attributable to amounts deemed
withdrawn previously and the income earned thereon, will be equal to (i)
the sum of the present value of the after tax equivalent of (A) if the
termination of employment is not by reason of the death of the Executive
Participant, the Executive Participant's benefit under Section 3, or if the
termination of employment is by reason of the death of the Executive
Participant, the Executive Participant's benefit under Section 3
immediately prior to his death and (B) the Executive Participant's
supplemental profit-sharing benefit under Section 4, offset by (ii) any
amounts previously actually withdrawn by the Executive Participant from his
Grantor Trust or Segregated Account and income which would have been earned
thereon, calculated as provided in paragraph (k) of this Section 6. If
prior to the Executive Participant's termination of employment his Grantor
Trust has previously been terminated as a result of the Executive
Participant's actual or deemed withdrawal of all amounts in his Grantor
Trust and Segregated Account, as promptly as practicable following such
termination of employment the Company may make a final payment to the
Executive Participant, or in the event of the death of the Executive
Participant his personal representative, in an amount equal to (i) the sum
of the present value of the after tax equivalent of (A) if the termination
of employment is not by reason of the death of the Executive Participant,
the Executive Participant's benefit under Section 3, or if the termination
of employment is by reason of the death of the Executive Participant, the
Executive Participant's benefit under Section 3 immediately prior to his
death and (B) the Executive Participant's supplemental profit-sharing
benefit under Section 4, offset by (ii) the amounts previously withdrawn or
deemed withdrawn by the Executive Participant from his Grantor Trust and
Segregated Account and income which would have been earned thereon,
calculated as provided in paragraph (k) of this Section 6.
(f) Amounts in a Grantor Trust or Segregated Account shall be
invested separately as to amounts representing the Executive Participant's
supplemental retirement benefit under Section 3 and the Executive
Participant's supplemental profit-sharing benefit under Section 4.
Supplemental retirement benefit amounts invested in a Grantor Trust shall
be invested solely in the Chase Manhattan Fixed Income Fund to the extent
practicable and otherwise in the Chase Manhattan Personal Trust Market Rate
Account. Supplemental profit-sharing benefit amounts invested in a Grantor
Trust shall be invested in one or more of (i) the Vista U.S. Government
Income Fund, (ii) the Vista Balanced Fund, (iii) the Chase Manhattan
6
<PAGE>
Personal Trust Market Rate Account or (iv) the Chase Manhattan Equity
Income Fund, in such portions as are elected by the Executive Participant
on a written election form approved by and filed with the Committee, all to
the extent practicable and otherwise in the Chase Manhattan Personal Trust
Market Rate Account. The Executive Participant may change such election at
any time by filing a new written election form with the Committee. The
Committee shall promptly notify the Trustee as to any such elections or
changes therein. Supplemental retirement benefit amounts and supplemental
profit-sharing benefit amounts invested in a Segregated Account shall be
invested solely in the Chase Manhattan Personal Trust Market Rate Account.
In lieu of the calculation of investment gain or loss on supplemental
profit-sharing awards prescribed by Section 4(c), an Executive
Participant's profit-sharing benefit under Section 4 shall include the
actual investment gain or loss on supplemental profit-sharing benefit
amounts invested in accordance with this paragraph (f) (and not deemed
withdrawn pursuant to paragraph (j) of this Section 6).
(g) The Executive Participant may designate a beneficiary to
receive amounts held in his Grantor Trust in the event of his death. The
designation shall be made in a writing filed with the Committee on a form
approved by it and signed by the Executive Participant. The Committee
shall notify the Trustee as to any such designation or changes therein.
The provisions of Section 3(b) and (c) and Section 4(f), providing for the
payment of benefits to the Surviving Spouse of the Executive Participant,
or other person designated by the Executive Participant or the Committee,
in the event of the death of the Executive Participant, shall not apply to
amounts in the Executive Participant's Grantor Trust or Segregated Account.
(h) The Company shall make payments to the Executive Participant
(or his beneficiary) from time to time in the approximate amounts required
to compensate the Executive Participant (or his beneficiary) for additional
federal, state and local taxes on income resulting from the inclusion in
the Executive Participant's or beneficiary's taxable income of
contributions to the Executive Participant's Grantor Trust and Segregated
Account, the final payment pursuant to paragraph (e) of this Section 6 if
the Grantor Trust has been terminated prior to the Executive Participant's
termination of employment, and the income of the Grantor Trust and
Segregated Account for periods prior to termination of employment
(including amounts paid by the Company pursuant to paragraphs (b) and (e))
of this Section 6.
(i) An Executive Participant may elect to transfer all or any
portion of the funds in his Grantor Trust to his Segregated Account, or to
transfer all or any portion of the funds in his Segregated Account to his
Grantor Trust, upon written notice of not less than sixty (60) days to the
Company and the Trustee and the financial institution with which the
Segregated Account is established.
(j) An Executive Participant may withdraw all or any portion of
the funds in his Grantor Trust or Segregated Account at any time upon not
less than sixty (60) days written notice to the Company and to the Trustee,
or the financial institution with which the Segregated Account is
established, as the case may be. In the event of any such withdrawal,
subject to the last sentence of this paragraph (j), (i) for purposes of
paragraphs (e), (f), (h), (k) and (l) of this Section 6 the Executive
Participant shall be deemed to have made a complete withdrawal of the funds
7
<PAGE>
in his Grantor Trust and Segregated Account at such time, (ii) no further
contributions shall be made thereafter by the Company to the Executive
Participant's Grantor Trust or Segregated Account until the time of the
Executive Participant's termination of employment, at which time the final
contribution or payment described in paragraph (e) of this Section 6 may be
made by the Company, and (iii) no further payments pursuant to paragraph
(h) of this Section 6 shall be made with respect to income of the Grantor
Trust or Segregated Account. The Compensation and Stock Option Committee
of American Brands, Inc., in the case of a Participant who is the Chief
Executive Officer of the Company, and the Corporate Employee Benefits
Committee of American Brands, Inc. in the case of all other Participants,
may determine, however, that, on the basis of hardship, (A) the Executive
Participant shall not be deemed to have withdrawn any amounts not actually
withdrawn, and payments pursuant to paragraph (h) of this Section 6 shall
continue to be made with respect to income of the Executive Participant's
Grantor Trust or Segregated Account on amounts so determined not deemed to
have been withdrawn, and also may determine (independently of any
determination pursuant to clause (A) of this sentence) that (B)
notwithstanding such withdrawal, contributions by the Company to the
Executive Participant's Grantor Trust or Segregated Account shall continue
to be made thereafter, as provided in paragraph (e) of this Section 6,
until the time of the Executive Participant's termination of employment.
(k) Benefits payable to an Executive Participant or Surviving
Spouse or other beneficiary under Sections 3 and 4 shall be offset by the
pre-tax equivalent of amounts in the Executive Participant's Grantor Trust
and Segregated Account at the time of the Executive Participant's
termination of employment (except for any amounts which are attributable to
amounts deemed withdrawn previously pursuant to paragraph (j) of this
Section 6 and the income earned thereon), including any final contribution
or payment pursuant to paragraph (e) of this Section 6, and by the present
value of the pre-tax equivalent of any amounts withdrawn or deemed
withdrawn by the Executive Participant from his Grantor Trust or Segregated
Account, plus the amounts of income which would have been earned on such
withdrawn amounts from the time of withdrawal until the time of termination
of employment, calculated by applying an earnings rate equal to the after
tax equivalent of l20% of the applicable monthly immediate annuity purchase
interest rate which would be used by the Pension Benefit Guaranty
Corporation from time to time during such periods for the purpose of
determining the present value of a single sum distribution on plan
termination.
(l) The Grantor Trust of an Executive Participant shall
terminate upon the actual or deemed withdrawal by the Executive Participant
of all amounts in the Grantor Trust and in his Segregated Account. The
Grantor Trust also shall terminate upon the expiration of sixty (60) days
following the termination of employment of the Executive Participant,
unless continued by agreement between the Executive Participant and the
Trustee.
(m) Upon the making of the final contribution or other payment
pursuant to paragraph (e) of this Section 6, and the payment pursuant to
paragraph (h) of this Section 6 in respect of additional taxes resulting
from such final contribution or payment, the Company shall have no further
liability for benefits otherwise payable under Sections 3 and 4 to the
8
<PAGE>
Executive Participant or his Surviving Spouse, estate or other
beneficiaries.
(n) The provisions of this Section 6 shall supersede the
provisions of any other Section of this Plan to the extent such other
provisions might be considered to conflict with the provisions of this
Section 6.
Section 7. Administration. This Plan shall be administered by
the Committee. All decisions and interpretations of the Committee shall be
conclusive and binding on the Company and Highly Compensated Employees and
Executive Participants. The Plan may be amended or terminated by the Board
of Directors of the Company at any time; provided, however, that no such
amendment or termination shall deprive any Highly Compensated Employee or
Executive Participant of supplemental retirement or profit-sharing plan
benefits accrued to the date of such amendment or termination or modify the
last two sentences of Section 5 in a manner adverse to any Executive
Participant.
Section 8. Nonassignability. No Highly Compensated Employee or
Executive Participant shall have the right to assign, pledge or otherwise
dispose of any benefits payable to him hereunder nor shall any benefit
hereunder be subject to garnishment, attachment, transfer by operation of
law, or any legal process.
9
EXHIBIT 10k4
AMENDMENT TO TRUST AGREEMENT
THIS AMENDMENT, made as of the 17th day of November, 1993,
among JIM BEAM BRANDS CO., a Delaware corporation (the "Company"), THE
CHASE MANHATTAN BANK (National Association), incorporated under the laws
of the United States of America (the "Trustee") and HEWITT ASSOCIATES, a
partnership formed under the laws of Illinois ("Hewitt")
W I T N E S S E T H :
WHEREAS, the Company and the Trustee have entered into a Trust
Agreement for the purpose of establishing a trust in order to provide a
source of benefits under the terms of the Company's Excess Benefit Plan
for the benefit of Barry M. Berish and Hewitt is designated as Trustee's
Contractor thereunder; and
WHEREAS, the Trust Agreement sets forth the permitted investments
of the assets held thereunder and it is desired to change the permitted
investments;
NOW, THEREFORE, in consideration of the premises, the parties
agree that the third sentence of Section 5.2 of the Trust Agreement is
hereby amended to read as follows:
"The investment manager shall invest the assets of the Fund
solely in The Chase Manhattan Bank Fixed Income Fund to the
extent practicable and otherwise in The Chase Manhattan Bank
Personal Trust Market Rate Account."
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be
duly executed as of the day and year first written above.
JIM BEAM BRANDS CO.
Attest:
Theresa B. Fealey David C. Wagner
- ----------------------- By------------------------
Secretary David C. Wagner
Vice President, Administration
<PAGE>
THE CHASE MANHATTAN BANK
Attest:
Mark J. Altschuler William P. Barbeosch
- ----------------------- By------------------------
Vice President William P. Barbeosch
Vice President
HEWITT ASSOCIATES
Witness:
Jill Bloom C.L. Connolly, III
- ----------------------- By------------------------
I hereby consent to the foregoing AMENDMENT.
Witness:
David C. Wagner Barry M. Berish
- ----------------------- ------------------------
Barry M. Berish
2
<PAGE>
STATE OF ILLINOIS)
: ss.: 10th, -December, 1993
COUNTY OF COOK )
Personally appeared David C. Wagner, Vice President of JIM BEAM
BRANDS CO., signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Vice President and the free
act and deed of said Corporation, before me.
Ann Nell G. Koktzoglou
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-December 27, 1993
COUNTY OF NEW YORK )
Personally appeared William P. Barbeosch, Vice President of THE
CHASE MANHATTAN BANK, signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Vice President
and the free act and deed of said Company, before me.
Kamla Jaipal
-----------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS)
: ss.: , -December 21, 1993
COUNTY OF LAKE )
Personally appeared C. Lawrence Connolly, III, of HEWITT
ASSOCIATES, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Partner and the free act and
deed of said Partnership, before me.
Gail K. Nelson
-----------------------------------
Notary Public
STATE OF ILLINOIS)
: ss.: 10th, -December, 1993
COUNTY OF COOK )
Personally appeared Barry M. Berish, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before
me.
Ann Nell G. Koktzoglou
-----------------------------------
Notary Public
EXHIBIT 10k5
Jim Beam Brands Co.
BARRY M. BERISH
TRUST AGREEMENT
THIS AGREEMENT, made as of the 15th day of December, 1993,
among BARRY M. BERISH, JIM BEAM BRANDS CO., a Delaware corporation
(the "Company"), and THE CHASE MANHATTAN BANK (National Association),
incorporated under the laws of the United States of America (the
"Trustee").
W I T N E S S E T H :
WHEREAS, the Company has incurred and expects to continue to
incur certain retirement income liability to or with respect to BARRY
M. BERISH (the "Executive") pursuant to the terms of the Company's
Excess Benefit Plan (including the supplemental profit-sharing
provisions therein) (herein referred to as the "Plan"); and
WHEREAS, the Company desires to provide additional assurance
to the Executive that his rights under the Plan will in the future be
met or substantially met by application of the procedures set forth
herein; and
WHEREAS, the Executive and the Company wish to establish
with the Trustee a trust for the benefit of the Executive in order to
provide a source of payments of the benefits payable to the Executive
under the terms of the Plan;
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual
and independent promises herein, the parties hereto covenant and agree
as follows:
ARTICLE I
1.1 The Executive and the Company hereby establish with the
Trustee a Trust consisting of such sums of money and such property
acceptable to the Trustee as shall from time to time be paid or
delivered to the Trustee by the Company and the earnings and profits
thereon. All such money and property, all investments made therewith
and proceeds thereof, less the payments or other distributions which,
at the time of reference, shall have been made by the Trustee, as
authorized herein, are referred to herein as the "Fund" and shall be
held by the Trustee, IN TRUST, in accordance with the provisions of
this Agreement. The Trust shall be solely for the purpose of
providing benefits under the Plan with respect to the Executive, and
neither the Company nor any creditors of the Company shall have any
interest in the Fund.
1.2 The Trustee shall hold, manage, invest and otherwise
administer the Fund pursuant to the terms of this Agreement. The
Trustee shall be responsible only for contributions actually received
by it hereunder and shall have no responsibility for the correctness
of the amount thereof. Upon the establishment of this Trust, and from
time to time thereafter, the Company may contribute to the Trust,
unless otherwise directed by the Executive to make such contributions
to a segregated account established with the Trustee or other bank,
trust company or other financial institution by or for the benefit of
2
<PAGE>
the Executive pursuant to the Plan ("Segregated Account"), such amount
in cash as the Company shall determine to be appropriate to provide a
source of the payments required under the terms of the Plan. Prior to
the making of any contribution to the Trust, the Company shall have
approved the establishment of a Segregated Account of the Executive,
the terms and provisions thereof, and the bank, trust company or other
financial institution with which such Segregated Account may be
established. The initial contribution by the Company shall be in an
amount approximately equal to the present value of the after tax
equivalent of the aggregate maximum benefits that would be due to the
Executive as of such date under the retirement and profit-sharing
provisions of the Plan, or such lesser amount as the Company shall
determine. Unless there has been a withdrawal by the Executive from
the Trust as provided in Section 2.4, or from the Executive's
Segregated Account, as to which the Compensation and Stock Option
Committee of American Brands, Inc. has not determined otherwise, the
Company will make additional annual contributions to the Trust or
Segregated Account in amounts such that the amount of the Fund,
together with the amount in the Executive's Segregated Account, at
such time will be approximately equal to the present value of the
after tax equivalent of the Executive's accrued benefits under the
Plan at that time, or in such lesser amounts as the Company shall
determine. Unless the Trust has previously been terminated as a
result of the Executive's actual or deemed withdrawal of all amounts
in the Fund, as provided in Section 8.1, and in his Segregated
Account, the Company also may make a final contribution to the Trust
as promptly as practicable after the Executive's termination of
employment in an amount such that the amount of the Fund, together
3
<PAGE>
with the amount, if any, in the Executive's Segregated Account, except
for any amounts which are attributable to amounts deemed withdrawn
previously and the income earned thereon, will be equal to (i) the sum
of the present value of the after tax equivalent of (x) the
Executive's benefit under the supplemental retirement provisions of
the Plan or, if the termination of employment is by reason of the
death of the Executive, the Executive's benefit under the supplemental
retirement provisions of the Plan immediately prior to his death and
(y) the Executive's supplemental profit-sharing benefit under the
Plan, reduced by (ii) the amounts of any actual withdrawals from the
Fund or from the Executive's Segregated Account by the Executive as
provided in Section 2.4 plus the income which would have been earned
on such withdrawn amounts from the time of withdrawal to the time of
the Executive's termination of employment, at a rate equal to the
after tax equivalent of 120% of the applicable monthly immediate
annuity interest purchase rate which would be used by the Pension
Benefit Guaranty Corporation from time to time during such period for
the purpose of determining the present value of a single sum
distribution on plan termination.
1.3 The Company shall certify to the Trustee and the
Executive at the time of each contribution to the Fund the amount of
such contribution being made in respect of the Executive's
supplemental retirement benefit under the Plan and the amount being
made in respect of the Executive's supplemental profit-sharing
benefit. The Fund shall be revalued by the Trustee quarterly as of
the last business day of each March, June, September and December, or
at such other times as agreed to by the Company and the Trustee, at
4
<PAGE>
current market values, as determined by the Trustee, which shall
deliver as soon as practicable a copy of such quarterly valuation to
the Company and the Executive.
ARTICLE II
2.1 The Company shall act as Administrator of the Trust.
Except for the records dealing solely with the Fund and its
investment, which shall be maintained by the Trustee, the Company as
Administrator shall maintain all the Executive's records contemplated
by this Agreement, including records of the Executive's compensation
and benefits from the Company, the amount of his benefits accrued
under the Plan, the Company's contributions to the Fund, withdrawals
from the Fund as provided in Section 2.4 or from the Executive's
Segregated Account, the Executive's beneficiary designation and such
other records as may be necessary for determining the amount payable
to the Executive or his Surviving Spouse or other beneficiary under
the Plan. All such records shall be made available promptly upon the
request of the Executive. In the event that the Executive's
Segregated Account is not maintained with the Trustee, the Company
shall give written notice to the Trustee as to the identity of the
bank, trust company or other financial institution with which the
Segregated Account is maintained. In such case, the Company also
shall give notice to the Trustee in the event of a withdrawal by the
Executive of any or all of the funds in his Segregated Account.
Unless the Trust has previously been terminated as provided in Section
8.1, the Company shall give written notice to the Trustee of the
Executive's termination of employment, and as to whether such
termination is by reason of the death of the Executive. The Company
5
<PAGE>
as Administrator shall also prepare and distribute the Executive's
annual estimated benefit statements specified in Section 2.2 and shall
perform such other duties and responsibilities in connection with the
administration of the Trust as the Company or the Trustee determines
is necessary or advisable to achieve the objectives of this Agreement.
2.2 The Company as Administrator shall prepare an annual
estimated benefits statement in respect of the Executive and shall
furnish a copy of same to the Executive by no later than May 15 of
each year.
2.3 The Company shall have full responsibility for the
proper remittance of all withholding taxes on contributions by the
Company to the Trust to the appropriate taxing authority and shall
furnish the Executive with the appropriate tax information form
reporting the amounts of such contributions and any withholding taxes.
The Trustee shall have the responsibility for the preparation and
filing with the appropriate taxing authorities of all tax returns
required to be filed for the Trust.
2.4 Subject to the next to the last sentence of Section
5.2, the Executive may withdraw all or any portion of the Fund, in
cash or, to the extent practicable, in kind at any time upon written
notice of not less than sixty (60) days to the Company and the
Trustee. Prior to any such withdrawal, the Trustee shall notify the
Company in writing of such withdrawal and the amount thereof, and as
to whether or not such withdrawal is a complete withdrawal of all
amounts in the Fund. In the event of any withdrawal by the Executive
6
<PAGE>
from his Segregated Account, the Company shall promptly notify the
Trustee in writing of such withdrawal and the amount thereof, and as
to whether or not such withdrawal is a complete withdrawal of all
amounts in the Segregated Account. In the event of any such
withdrawal from the Fund, or from the Executive's Segregated Account,
for purposes of Sections 1.2 and 8.1 the Executive shall be deemed to
have made a complete withdrawal of all amounts in the Fund and in his
Segregated Account, unless the Compensation and Stock Option Committee
of American Brands, Inc. shall determine that the Executive shall not
be deemed to have made such a complete withdrawal. The Company shall
promptly notify the Trustee in writing of any such determination.
Except as otherwise determined by the Compensation and Stock Option
Committee of American Brands, Inc., in the event of any such
withdrawal from the Fund, or from the Executive's Segregated Account,
no further contributions shall be made thereafter by the Company to
the Trust until the Executive's termination of employment, at which
time if the Trust has not previously been terminated as a result of
the Executive's actual or deemed withdrawal of all amounts in the Fund
and in his Segregated Account a final contribution by the Company may
be made as provided in Section 1.2.
2.5 The Executive may elect to transfer all or any portion
of the Fund to his Segregated Account, in cash or, to the extent
practicable, in kind, at any time upon written notice of not less than
sixty (60) days to the Company and the Trustee and the financial
institution with which the Segregated Account is established. The
Executive also may elect to transfer funds, in cash, from his
Segregated Account to the Trust upon written notice of not less than
7
<PAGE>
sixty (60) days to the Company and the Trustee, and funds so
transferred shall be held by the Trustee as part of the Fund. Such
transfers between the Fund and the Executive's Segregated Account
shall not constitute withdrawals for purposes of Section 2.4.
2.6 The Executive may designate a beneficiary to receive
all or any portion of the Fund in the event of his death. Such
designation shall be in writing filed with the Company as
Administrator on a form approved by it and signed by the Executive.
The Company shall promptly notify the Trustee of any such beneficiary
designation and any changes therein.
ARTICLE III
3.1 After the execution of this Agreement, the Company
shall promptly file with the Trustee a certified list of the names and
specimen signatures of the officers of the Company and any delegate
authorized to act for it. The Company shall promptly notify the
Trustee of the addition or deletion of any person's name to or from
such list, respectively. Until receipt by the Trustee of notice that
any person is no longer authorized so to act, the Trustee may continue
to rely on the authority of the person. All certifications, notices
and directions by any such person or persons to the Trustee shall be
in writing signed by such person or persons. The Trustee may rely on
any such certification, notice or direction purporting to have been
signed by or on behalf of such person or persons that the Trustee
believes to have been signed thereby. The Trustee may rely on any
certification, notice or direction of the Company that the Trustee
believes to have been signed by a duly authorized officer or agent of
8
<PAGE>
the Company. The Trustee shall have no responsibility for acting or
not acting in reliance upon any notification believed by the Trustee
to have been so signed by a duly authorized officer or agent of the
Company. The Company shall be responsible for keeping accurate books
and records with respect to the Executive, his compensation and his
rights and interests in the Fund under the Plan.
3.2 The Company shall indemnify and hold harmless the
Trustee for any liability or expenses, including without limitation
advances for or prompt reimbursement of reasonable fees and expenses
of counsel and other agents retained by it, incurred by the Trustee
with respect to holding, managing, investing or otherwise
administering the Fund, other than by reason of its negligence or
willful misconduct.
ARTICLE IV
4.1 The Trustee shall not be liable in discharging its
duties hereunder, including without limitation its duty to invest and
reinvest the Fund, if it acts in good faith and in accordance with the
terms of this Agreement including, without limitation, the making of
any investment directed by the Executive, the Company or an investment
manager other than the Trustee, and any applicable federal or state
laws, rules or regulations.
4.2 The Trustee is hereby appointed as the investment
manager of the Fund. In the event that the Trustee cannot serve as
investment manager of the Fund, the Trustee shall then select Pacific
Investment Management Company as investment manager; provided that if
9
<PAGE>
Pacific Investment Management Company is unwilling or unable to act as
investment manager, the Trustee shall select J.P. Morgan Investment
Management Inc. as investment manager. The investment manager shall
invest the assets of the Fund separately as to amounts representing
the Executive's supplemental retirement benefit under the Plan and
amounts representing the Executive's supplemental profit-sharing
benefit. Supplemental retirement benefit amounts shall be invested
solely in the Chase Manhattan Fixed Income Fund to the extent
practicable and otherwise in the Chase Manhattan Personal Trust Market
Rate Account. Supplemental profit-sharing benefit amounts shall be
invested in one or more of (i) the Vista U.S. Government Income Fund,
(ii) the Vista Balanced Fund, (iii) the Chase Manhattan Personal Trust
Market Rate Account or (iv) the Chase Manhattan Equity Income Fund, in
such portions as are elected by the Executive by written election
filed with the Company and notified to the Trustee by the Company, all
to the extent practicable and otherwise in the Chase Manhattan
Personal Trust Market Rate Account, and all without liability of the
Trustee for such election. The Executive may change such election at
any time by filing a new written election with the Company, which
shall promptly notify the Trustee thereof, and all without liability
of the Trustee for such new election. Subject to such investment
restrictions, the Trustee shall have the power and right:
(a) To receive and hold all contributions made to it by the
Company;
(b) To invest and reinvest all or any portion of the Fund
collectively through the medium of any common,
collective, commingled trust or mutual fund that may be
established and maintained by the Trustee or any affiliate
10
<PAGE>
thereof, subject to the instrument or instruments establishing
such trust fund or funds and with the terms of such instrument or
instruments, as from time to time amended, being incorporated
into this Agreement to the extent of the equitable share of the
Fund in any such common, collective, commingled trust or mutual
fund;
(c) To participate in and use a book-entry system for the
deposit and transfer of securities;
(d) To sell or exchange any property held by it at public
or private sale, for cash or on credit, to grant and exercise
options for the purchase or exchange thereof, to exercise all
conversion or subscription rights pertaining to any such property
and to enter into any covenant or agreement to purchase any
property in the future;
(e) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar
plan relating to property held by it and to consent to or oppose
any such plan or any action thereunder or any contract, lease,
mortgage, purchase, sale or other action by any person;
(f) To deposit any property held by it with any protective,
reorganization or similar committee, to delegate discretionary
power thereto, and to pay part of the expenses and compensation
thereof and any assessments levied with respect to any such
property so deposited;
(g) To extend the time of payment of any obligation held by
it;
11
<PAGE>
(h) To hold uninvested any moneys received by it, without
liability for interest thereon, until such moneys shall be
invested, reinvested or disbursed;
(i) To exercise all voting or other rights with respect to
any property held by it and to grant proxies, discretionary or
otherwise;
(j) For the purposes of the Trust, to borrow money from
others, including The Chase Manhattan Bank (National
Association), to issue its promissory note or notes therefor, and
to secure the repayment thereof by pledging any property held by
it;
(k) To furnish the Company and the Executive with such
information as may be needed for tax or other purposes;
(l) To employ suitable agents and counsel, who may be
counsel to the Company or the Trustee, and to pay their
reasonable expenses and compensation from the Fund to the extent
not paid by the Company;
(m) To cause any property held by it to be registered and
held in the name of one or more nominees, with or without the
addition of words indicating that such securities are held in a
fiduciary capacity, and to hold securities in bearer form;
(n) To settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from the Trust,
respectively, to commence or defend suits or legal proceedings to
protect any interest of the Trust, and to represent the Trust in
all suits or legal proceedings in any court or before any other
body or tribunal; provided, however, that the Trustee shall not
be required to take any such action unless it shall have been
12
<PAGE>
indemnified by the Company to its reasonable satisfaction against
liability or expenses it might incur therefrom;
(o) To organize under the laws of any state a corporation
or trust for the purpose of acquiring and holding title to any
property which it is authorized to acquire hereunder and to
exercise with respect thereto any or all of the powers set forth
herein; and
(p) Generally, to do all acts, whether or not expressly
authorized, that the Trustee may deem necessary or desirable for
the protection of the Fund.
4.3 No person dealing with the Trustee shall be under any
obligation to see to the proper application of any money paid or
property delivered to the Trustee or to inquire into the Trustee's
authority as to any transaction.
4.4 The Trustee shall distribute cash or other assets from
the Fund in accordance with Articles II and VIII hereof.
The Trustee may make any distribution required hereunder by
mailing its check for the specified amount or, if distribution is to
be made in kind, by making other appropriate distribution, to the
person to whom such distribution or payment is to be made, at such
address as may be specified pursuant to Section 10.5, or if no such
address shall have been so furnished, to such person in care of the
Company, or (if so directed by the recipient) by crediting the account
of such person or by transferring funds to such person's account by
bank or wire transfer.
13
<PAGE>
4.5 If at any time there is no person authorized to act
under this Agreement on behalf of the Company, the Board of Directors
of the Company or the Compensation and Stock Option Committee of
American Brands, Inc. shall have the authority to act hereunder.
ARTICLE V
5.1 The Executive, or in the event of the Executive's death
the Executive's personal representative, shall be responsible for the
payment of any federal, state or local taxes on the Fund, or any part
thereof, and on the income therefrom, subject to the Company's
obligation under the Plan to reimburse the Executive in respect of
such taxes.
5.2 For all periods prior to the Executive's termination of
employment, and for a period of sixty (60) days thereafter and for any
further period as may be authorized by the Company, the Company shall
pay to the Trustee its reasonable expenses for the management and
administration of the Fund, including without limitation advances for
or prompt reimbursement of reasonable expenses of counsel and other
agents employed by the Trustee, and reasonable compensation for its
services as Trustee hereunder, the amount of which shall be agreed
upon from time to time by the Company and the Trustee in writing;
provided, however, that if the Trustee forwards an amended fee
schedule to the Company requesting its agreement thereto and the
Company fails to object thereto within thirty (30) days of its
receipt, the amended fee schedule shall be deemed to be agreed upon by
the Company and the Trustee. Such expenses and compensation shall be
a charge on the Fund and shall constitute a lien in favor of the
14
<PAGE>
Trustee until paid by the Company. The Company and the Executive
acknowledge that the Trustee, or an affiliate thereof, will, in
addition to the compensation provided by this Article 5.2, receive
compensation with regard to the administration and investment of
certain funds referred to in Article 4.2 hereof, and the Company and
the Executive agree that the Trustee, or any affiliate thereof, shall
receive such compensation in addition to the compensation provided by
this Article 5.2.
ARTICLE VI
6.1 The Trustee shall maintain records with respect to the
Fund that show all its receipts and disbursements hereunder. The
records of the Trustee with respect to the Fund shall be open to
inspection by the Company or its representatives and by the Executive
at all reasonable times during normal business hours of the Trustee
and may be audited not more frequently than once each fiscal year by
an independent certified public accountant engaged by the Company;
provided, however, the Trustee shall be entitled to additional
compensation from the Company in respect of audits or auditors'
requests which the Trustee determines to exceed the ordinary course of
the usual scope of such examinations of its records.
6.2 Within a reasonable time after the close of each fiscal
year of the Company (or, in the Trustee's discretion, at more frequent
intervals), or of any termination of the duties of the Trustee
hereunder, the Trustee shall prepare and deliver to the Company and
the Executive a statement of transactions reflecting its acts and
transactions as Trustee during such fiscal year, portion thereof or
15
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during such period from the close of the last fiscal year or last
statement period to the termination of the Trustee's duties,
respectively, including a statement of the then current value of the
Fund. Any such statement shall be deemed an account stated and
accepted and approved by the Company and the Executive, and the
Trustee shall be relieved and discharged, as if such account had been
settled and allowed by a judgment or decree of a court of competent
jurisdiction, unless protested by written notice to the Trustee within
sixty (60) days of receipt thereof by the Company or the Executive.
The Trustee shall have the right to apply at any time to a
court of competent jurisdiction for judicial settlement of any account
of the Trustee not previously settled as herein provided or for the
determination of any question of construction or for instructions. In
any such action or proceeding it shall be necessary to join as parties
only the Trustee, the Company and the Executive (although the Trustee
may also join such other parties as it may deem appropriate), and any
judgment or decree entered therein shall be conclusive.
ARTICLE VII
7.1 The Trustee may resign at any time by delivering
written notice thereof to the Company and the Executive; provided,
however, that no such resignation shall take effect until the earlier
of (i) sixty (60) days from the date of delivery of such notice to the
Company and the Executive or (ii) the appointment of a successor
trustee.
16
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7.2 The Trustee may be removed at any time by the Company,
pursuant to a resolution of the Board of Directors of the Company,
upon delivery to the Trustee of a certified copy of such resolution
and sixty (60) days' written notice to the Trustee and the Executive
of (i) such removal and (ii) the appointment of a successor trustee,
unless such notice period is waived in whole or in part by the Trustee
and the Executive.
7.3 Upon the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Such successor
trustee shall be a bank or trust company established under the laws of
the United States or a state within the United States and having
either total assets of at least $15 billion or trust assets of at
least $25 billion. Such appointment shall take effect upon the
delivery to the Trustee and the Executive of (a) a written appointment
of such successor trustee, duly executed, by the Company and (b) a
written acceptance by such successor trustee, duly executed thereby.
Any successor trustee shall have all the rights, powers and duties
granted the Trustee hereunder.
7.4 If, within sixty (60) days of the delivery of the
Trustee's written notice of resignation, a successor trustee shall not
have been appointed, the Trustee shall apply to any court of competent
jurisdiction for the appointment of a successor trustee.
7.5 Upon the resignation or removal of the Trustee and the
appointment of a successor trustee, and after the acceptance and
approval of its account, the Trustee shall transfer and deliver the
17
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Fund to such successor trustee. Under no circumstances shall the
Trustee transfer or deliver the Fund to any successor trustee which is
not a bank or trust company having either total assets of at least $15
billion or trust assets of at least $25 billion.
ARTICLE VIII
8.1 The Trust established pursuant to this Agreement shall
terminate upon the actual or deemed withdrawal by the Executive of all
amounts in the Fund, as provided in Section 2.4, and in the
Executive's Segregated Account. The Trust also shall terminate upon
the expiration of sixty (60) days following the Executive's
termination of employment (by retirement or otherwise), unless the
Trustee and the Executive agree to continue the Trust thereafter upon
such terms as they may agree, but in the event of such continuation
the Company shall have no further obligations under this Agreement
with respect to matters relating to such continuation, including
expenses and compensation of the Trustee, as provided in Section 5.2,
and indemnification of the Trustee as provided in Section 3.2.
8.2 Upon the termination of the Trust by reason of the
death of the Executive, or by reason of the Executive's termination of
employment other than by death if the Trust has not been continued by
agreement between the Trustee and the Executive, the Trustee shall
distribute the Fund as directed by the Executive or, in the absence of
such direction, shall distribute all of the Fund to the Executive's
Segregated Account, if any, or if there is no such Segregated Account
to the Executive, or in the event of the Executive's death his
personal representative, after deducting therefrom any amounts owing
18
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to the Trustee under this Agreement which have not been paid by the
Company. Upon any termination of the Trust in accordance with Article
VIII, the Trustee shall, after the acceptance and approval of its
account, be relieved and discharged. The powers of the Trustee,
including the right to receive compensation for services and payment
of expenses, as provided in Section 5.2, shall continue as long as any
part of the Fund remains in its possession.
ARTICLE IX
9.1 This Agreement may be amended, in whole or in part, at
any time and from time to time, by the Company with the written
consent of the Executive and the Trustee. Any such amendment by the
Company shall be pursuant to a resolution of the Board of Directors of
the Company by delivery to the Trustee of a certified copy of such
resolution and a written instrument duly executed and acknowledged by
the Company and the Executive in the same form as this Agreement.
ARTICLE X
10.1 This Agreement shall be construed and interpreted
under, and the Trust hereby created shall be governed by, the laws of
the State of New York insofar as such laws do not contravene any
applicable federal laws, rules or regulations.
10.2 Neither the gender nor the number (singular or plural)
of any word shall be construed to exclude another gender or number
when a different gender or number would be appropriate.
19
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10.3 This Agreement shall be binding upon and inure to the
benefit of the Executive, his estate, personal representative,
beneficiary, heirs and assigns. This Agreement also shall be binding
upon and inure to the benefit of any successor to the Company or its
business as the result of merger, consolidation, reorganization,
transfer of assets or otherwise and any subsequent successor thereto.
In the event of any such merger, consolidation, reorganization,
transfer of assets or other similar transaction, the successor to the
Company or its business or any subsequent successor thereto shall
promptly notify the Trustee in writing of its successorship and
furnish the Trustee with the information specified in Section 3.1 of
this Agreement. In no event shall any such transaction described
herein suspend or delay the rights of the Executive to receive
benefits hereunder.
10.4 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which shall together constitute only one Agreement.
10.5 All notices and other communications provided for in
this Agreement shall be in writing and shall be deemed to have been
duly given when actually delivered to the respective addresses set
forth below:
Company: Jim Beam Brands Co.
510 Lake Cook Road
Deerfield, Illinois 60015-4916
Attn: Vice President,
Human Resources
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Trustee: The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, New York 10036
Attn: Trusts and Estates
Services Division, 34th Floor
Executive: Barry M. Berish
1274 Trapp Lane
Winnetka, Illinois 60093
or at such other address as such person may specify in writing by
notice as set forth above to the other persons listed above.
ARTICLE XI
11.1 In consideration of the establishment of the Fund,
the Executive consents to the distribution from time to time of assets
of the trust established pursuant to the Trust Agreement made as of
the 24th day of December, 1991, among Jim Beam Brands Co., The Chase
Manhattan Bank (National Association) and Hewitt Associates
established to provide a source of the Executive's benefits under the
Plan, in amounts to be used for the making of contributions to the
Trust or Segregated Account of the Executive as provided in Section
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1.2, or the making of payments to the Executive (or beneficiary)
pursuant to the Plan.
IN WITNESS WHEREOF, the parties hereto have caused this
Trust Agreement to be duly executed as of the 15th day of December,
1993.
Attest: JIM BEAM BRANDS CO.
Louis F. Fernous, Jr. David C. Wagner
- ------------------------- By-------------------------------
Assistant Secretary David C. Wagner
Vice President, Administration
Attest: THE CHASE MANHATTAN BANK
Mark J. Altschuler William P. Barbeosch
- ------------------------- By--------------------------------
Vice President William P. Barbeosch
Vice President
Witness: BARRY M. BERISH
Gail Burns Barry M. Berish
- ------------------------- --------------------------------
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<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF COOK )
Personally appeared David C. Wagner, Vice President of JIM
BEAM BRANDS CO., signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Vice
President and the free act and deed of said Corporation, before me.
Ann Nell G. Koktzoglou
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-December 29, 1993
COUNTY OF NEW YORK )
Personally appeared William P. Barbeosch, Vice President of
THE CHASE MANHATTAN BANK, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed as
such Vice President and the free act and deed of said Company, before
me.
Kamla Jaipal
-----------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF COOK )
Personally appeared BARRY M. BERISH, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed,
before me.
Ann Nell G. Koktzoglou
-----------------------------------
Notary Public
EXHIBIT 10o1
T H I S A G R E E M E N T is made the eleventh day of
- ------------------------------ February 1994
B E T W E E N:-
(1) GALLAHER LIMITED a company incorporated in England under number
1501573 whose registered office is at Members Hill Brooklands Road,
Weybridge, Surrey ("the Company") and
(2) PETER MICHAEL WILSON of 191 Sycamore Road, Farnborough, Hampshire
("the Executive")
WHEREBY IT IS AGREED as follows:-
INTERPRETATION
1. (A) DEFINITIONS
UNLESS the context otherwise requires, in this Agreement and in the
Schedule hereto the following words and phrases shall have the meanings
given below:-
(1) "subsidiary" or "subsidiary company" and "holding company" shall have
the meanings ascribed to them in Part XXVI of the Companies Act 1985;
(2) "Group" means the Company, American Brands Inc and all its
subsidiaries and "Group Company" shall be construed accordingly;
(3) "the Board" means the Board of Directors of the Company;
(4) "the Business" means (taken together) the business of the Company and
the business of any other Group Company with which the Executive is
required by the Board under Clause 3 of this Agreement to be
concerned;
(5) "Contractual Retirement Date" means the date specified in paragraph 8
of the Schedule hereto;
(6) "the Effective Date" means the date specified in paragraph 2 of the
Schedule hereto; and
(7) "month" means a calendar month.
Other words and phrases the definition of which is contained or referred to
in Part XXVI of the Companies Act 1985 shall be construed as having the
meanings thereby attributed to them.
(B) CONSTRUCTION OF CERTAIN REFERENCES
Unless the context otherwise requires any references in this Agreement to:
- -
(1) a "person" shall include any individual company corporation firm
partnership joint venture association organization or trust (in each
<PAGE>
case whether or not having separate legal personality) and references
to any of the same shall include a reference to the others;
(2) "writing" or "written" shall include any means of visible
reproduction;
(3) words denoting the singular shall include the plural and vice versa;
(4) sub-clauses are references to sub-clauses of the Clause in which the
reference appears;
(5) statutory provisions shall be construed as references to those
provisions as respectively amended or re-enacted or as their
application is modified by other provisions (whether before or after
the date hereof) from time to time and shall include any provisions of
which they are re-enactments (whether with or without modification);
and
(6) the masculine gender shall be deemed to include the feminine gender.
(C) CLAUSE HEADINGS
Clause headings are inserted for convenience only and shall not affect the
construction of this Agreement.
(D) REASONABLENESS OF RESTRICTIONS
The restrictions contained in Clause 13 hereof are considered reasonable by
the parties hereto. In particular, the Executive agrees that the
restrictions are reasonable and necessary for the protection of the
Business of the Company and any Group Company as appropriate.
APPOINTMENT
2. THE Company shall employ the Executive and the Executive agrees to
serve the Company in the capacity specified in paragraph l of the Schedule
hereto as at and with effect from the Effective Date and continuing
thereafter (subject to termination as hereinafter provided) unless and
until terminated by the Executive giving to the Company not less than two
years written notice or the Company giving to the Executive not less than
the period of prior notice in writing specified in paragraph 3 of the
Schedule hereto but so that the employment of the Executive hereunder shall
terminate in any event on the Contractual Retirement Date.
DUTIES, POWERS AND MOBILITY
3. (A) THE Executive shall exercise such powers perform such duties (if
any) and comply with such directions in relation to the Business of the
Company and any other Group Company or Group Companies consistent with his
employment hereunder as the Board or any person authorised by the Board for
the purpose may from time to time confer upon or assign or give to him.
(B) The Executive shall during the continuance of his employment
hereunder (unless prevented by ill health or accident) devote so much of
his time and attention and abilities to the Business as the Board may
reasonably require for the proper performance of his duties hereunder and
2
<PAGE>
shall use his best endeavours to promote and protect the general interests
and welfare of the Company.
(C) The Executive shall at all times promptly give to the Board (in
writing if so requested) all such information explanations and assistance
as it may require in connection with the Business and his employment
hereunder.
(D) The Executive may be required to travel on the Business of the
Company or any other Group Company both inside and outside the United
Kingdom in the proper performance of his duties hereunder.
(E) The Executive shall work in such place or places (whether within
or outside the United Kingdom) as the Board may reasonably require for the
proper performance of his duties hereunder.
REMUNERATION
4. (A) THE Company shall pay to the Executive during the continuance of
his employment hereunder as remuneration for his services a salary at the
annual rate specified in paragraph 4 of the Schedule hereto payable in
arrear by equal instalments on or before the last day of each month which
said salary shall be deemed to accrue from day to day. Such salary shall
include any sum receivable by the Executive as Director's fees from the
Company or any other Group Company.
(B) The remuneration payable to the Executive by the Company pursuant
to sub-clause (A) shall be subject to upward review in accordance with the
Company's practice from time to time.
(C) The Executive shall be designated an eligible employee for the
purposes of the Company's Executive Incentive Plan and shall participate in
the Plan.
(D) If the Company ceases to be beneficially owned (directly or
indirectly) to the extent of at least 50% by American Brands Inc or if 20%
or more of the common stock of American Brands Inc shall come within the
beneficial ownership of one person or one concerted group of persons ("the
New Circumstances") the Executive shall be entitled to receive incentive
payments in respect of the financial year of the Company in which the New
Circumstances occur and in respect of the next following three financial
years of the Company (such three financial years being referred to as "the
Guarantee Period") each such payment to be made within 4 months of the end
of the relevant financial year of the Company and each such payment to be
not less than the last full year's incentive payment received by or due to
the Executive under the Company's Executive Incentive Plan in respect of
the financial year of the Company prior to that in which the New
Circumstances occurred provided that if the Executive achieves his
Contractual Retirement Date during the course of the Guarantee Period the
Executive shall only be entitled to such incentive payments for that part
of the Guarantee Period ending at the end of the month in which he achieves
his Contractual Retirement Date calculated on a pro rata basis.
3
<PAGE>
EXPENSES
5. THE Company shall pay or refund or procure to be paid or refunded to
the Executive all reasonable travelling entertainment and other similar out
of pocket expenses necessarily and wholly incurred by him in the
performance of his duties hereunder but the Company shall be entitled as a
condition of reimbursement to such evidence from the Executive as to such
expenses as the Board may reasonably require (including without limitation
proper accounts with vouchers).
COMPANY CAR
6. THE Company will provide a suitable car ("the Car") for the use of the
Executive during the continuance of his employment and will pay all costs
relating to it (including the cost of fuel license insurance and
maintenance) except that the Executive will pay all costs relating to the
Car when it is being used for private purposes outside the United Kingdom.
HOLIDAYS
7. (A) IN addition to statutory and bank holidays the Executive shall be
entitled to paid holiday in each calendar year of the period specified in
paragraph 5 of the Schedule hereto at such time or times as the Business
may permit.
(B) Holidays may not be carried forward from one year to the next and
the Executive will not be entitled to any payment (whether during the
continuance or on termination of this Agreement) in lieu of holidays not
taken.
SICKNESS AND INCAPACITY
8. (A) IF the Executive is absent from work as a result of sickness or
injury he will
(l) if the period of absence is less than eight consecutive
calendar days, submit to the Company on his return a
certificate of sickness completed by himself;
(2) if it is eight consecutive calendar days or more submit to
the Company without delay a medical certificate signed by a
practising medical practitioner in respect of each week of
absence after the first.
(B) Subject to Clause 18 below and subject to compliance with sub-
clause (A) above the Executive will be entitled to payment of his salary at
the full rate (less any social security or other benefits payable to him)
during any periods of absence from work as a result of sickness or injury.
(C) The Company will pay Statutory Sick Pay, where appropriate, in
accordance with the legislation in force at the time of absence and any
payment of salary in accordance with this Clause will go towards
discharging its liability to pay Statutory Sick Pay.
(D) If the Executive is absent from work due to the act or default of
a third party, any claim for damages, if made, shall include a claim for
4
<PAGE>
"loss of earnings". Any sum recovered under this head shall subsequently
be refunded to the Company.
(E) The Executive shall submit himself to a medical examination at
the request and reasonable expense of the Board at any time during the
continuance of his employment hereunder whether or not the Executive is
absent by reason of sickness injury or other incapacity.
PENSION
9. (A) SUBJECT to satisfying the eligibility conditions under the rules
of the Schemes the Executive shall be entitled to be a member of the
Pension Schemes specified in paragraph 6 of the Schedule hereto as amended
from time to time.
(B) A contracting out certificate is in force in relation to The
Gallaher 'M' Pension Scheme for the purposes of the Social Security
Pensions Act 1975.
PRIVATE HEALTH INSURANCE AND OTHER INSURANCE
10. THE Company shall pay all premiums and make all necessary payments to
provide the Executive with medical insurance under the provisions of the
Company's membership of such medical insurance as the Board may from time
to time determine and of which the Executive is or may become during the
continuance of his employment hereunder a member.
EXCLUSIVE SERVICE
11. DURING the continuance of his employment hereunder the Executive shall
not (save with the prior consent of the Board communicated in writing by
the Secretary of the Company to the Executive) either as principal servant
or agent carry on or be engaged concerned or interested directly or
indirectly whether alone or on his behalf or on behalf of or in association
or conjunction with any other person and whether as an employee or in any
capacity in any trade business or occupation whatsoever other than that of
the Company or of any other Group Company (otherwise than as a holder for
investment purposes only of any units of an authorised unit trust and as a
holder directly or through nominees of not more than 5 per cent of the
shares or debentures in any company or companies).
INVENTIONS AND IMPROVEMENTS
12. (A) IN the event that the Executive shall during the continuance of
his employment by the Company either make or discover any literary work
computer program invention process development or design or make any
improvement upon any existing literary work computer program invention
process development or design whether or not the same is capable of patent
registered design design right copyright or other like protection and
whether alone or in conjunction with any other employee or employees of the
Company or of any other Group Company or other persons he shall immediately
disclose the same to the Secretary of the Company and the rights in the
same shall subject to any applicable provisions of the Patents Act 1977
become the property of the Company or its nominee and the Executive shall
at the Company's request and expense do all such acts and execute all such
documents as may be necessary to confirm or vest the rights of any such
5
<PAGE>
literary work computer program invention process development design or
improvement in the name of the Company.
(B) The Executive irrevocably appoints the Company as his attorney in
his name and on his behalf to execute all documents and do all things
required in order to give full effect to the provisions of this Clause.
(C) The Executive will if and when required to do so by the Company
(whether during the continuance of his employment or afterwards) and at its
expense: -
(a) apply or join with the Company in applying for letters patent or
other protection in any part of the world for any literary work
computer program invention process development design or
improvement to which sub-clause (A) above applies;
(b) execute or procure to be executed all instruments and do or
procure to be done all things which are necessary for renewing or
maintaining such letters patent or other protection in the name
of the Company;
(c) assist in prosecuting or defending any proceedings relating to or
to any application for such letters patent or other protection.
PROTECTION OF INTERESTS OF COMPANY: CONFIDENTIALITY NON-ENTICEMENT AND NON-
SOLICITATION
13. (A) THE Executive shall not at any time either before or after the
termination of his employment with the Company use disclose or communicate
to any person whatsoever any confidential information relating to the
Business of the Company or any Group Company or any customers suppliers or
agents thereof or their affairs or any trade secrets of which he may have
become possessed during the continuance of his employment with the Company
or supply the names or addresses of any customers or agents of the Company
or any Group Company to any person except in the proper course of his
duties hereunder or as authorised in writing by the Board or as ordered by
a Court of competent jurisdiction.
(B) The Executive shall not at any time during the continuance of his
employment with the Company make otherwise than for the benefit of the
Company or any Group Company any notes or memoranda relating to any matter
within the scope of the Business or concerning any of the dealings or
affairs of any Group Company.
(C) The Executive shall not utter any statement (whether written or
oral) to any representative of television radio film or other similar media
and shall not write any article for the press or otherwise for publication
on any matter connected with or relating to the Business of any Group
Company except in the proper course of his duties or with the approval of
the Board.
(D) The Executive hereby covenants that he shall not without the
consent in writing of the Board during the continuance of his employment by
the Company or during the period after termination (for whatever cause) of
his employment by the Company specified in paragraph 9 of the Schedule
hereto either on his own account or in conjunction with or on behalf of any
6
<PAGE>
other person solicit or entice away or endeavour to solicit or to entice
away from the Company or any Group Company any individual who was during
the Executive's employment by the Company an employee director or
consultant of the Company or any Group Company whether or not any such
person would commit a breach of contract by reason of his leaving service.
(E) The Executive hereby covenants that he shall not during the
period after the termination for whatever cause of his employment by the
Company specified in paragraph 10 of the Schedule hereto on his own behalf
or on behalf of or in conjunction with any other person solicit interfere
with or entice away or attempt to solicit interfere with or entice away any
person who on the date of the Executive ceasing to be employed by the
Company or at any time during the period prior to that date specified in
paragraph 11 of the Schedule hereto to the knowledge of the Executive was
provided with goods or services by the Company provided always that nothing
contained in this Clause shall be deemed to prohibit the seeking or doing
of business not in direct or indirect competition to the Business.
(F) The Executive hereby covenants with the Company in terms
identical to those contained in sub-clause (E) save that the reference to a
person who was provided with goods or services shall refer only to a person
who is or was during the period specified therein a person who was provided
with goods or services by any Group Company (other than the Company) and
with whom in the course of his employment with the Company within the
twelve months prior to the termination of his employment (howsoever caused)
the Executive shall have had dealings.
SCOPE OF RESTRICTIONS AND APPLICATION
14. THE Executive agrees that in the event of his receiving from any
person an offer of employment either during the continuance of this
Agreement or during the continuance in force of all or any of the
restrictions set out in Clause 13 of this Agreement he shall forthwith
inform the Company Secretary.
TERMINATION UPON AMALGAMATION OR RECONSTRUCTION
15. IF the employment of the Executive with the Company shall be
terminated either by reason of the liquidation of the Company for the
purpose of reconstruction or amalgamation or as part of any arrangement for
the amalgamation or reconstruction of the Company not involving insolvency
and the Executive shall be offered employment with any concern or
undertaking resulting from such amalgamation or reconstruction on terms and
conditions which taken as a whole are not less favourable than the terms of
this Agreement then the Executive shall have no claim against the Company
in respect of such termination of his employment with the Company.
PROTECTION OF INTERESTS OF EXECUTIVE
16. THIS Clause shall have effect only in the event of the New
Circumstances (as defined in Clause 4(D)) arising and no part of this
Clause shall be relevant for any other purpose whatsoever. In particular,
without limitation to the foregoing, the definition of termination for Good
Reason in sub-clause (E) of this Clause shall apply only to termination of
employment by the Executive within two years after the New Circumstances
7
<PAGE>
and not to termination of employment by the Executive on any other
occasion.
(A) The Company believes that it is necessary, and in the interests
of the Company, for the Company to afford to the Executive the protection
given by the following provisions of this Clause 16, taking into account
the fact that the Company is presently a wholly owned subsidiary of
American Brands Inc but may in the future cease (for whatever reason) to be
such wholly owned subsidiary and the fact that American Brands Inc has been
and may well in the future be subject to hostile take-over bids, and also
taking into account the fact that executives of American Brands Inc and
companies within the American Brands group are given similar protection in
their contracts of service.
(B) If within two years after the New Circumstances (as defined in
Clause 4(D) of this Agreement) arise, either
(i) the Executive is dismissed by the Company (otherwise than under
Clause 18) or
(ii) the Executive terminates his employment under this Agreement for
Good Reason (as defined in sub-clause (E) of this Clause)
then in the case of either such event (in this Clause hereinafter called
"the Event") the Company shall pay to the Executive, subject only to sub-
clause (C) of this Clause, as severance pay the following amounts (which
amounts are in substitution for any other entitlement or remedy either
under this Agreement or arising from the breach thereof): -
(1) three times his annual salary at the rate prevailing at the time
of the Event
(2) three times the incentive payment to which the Executive is
entitled under Clause 4(D) in respect of the first financial year
within the Guarantee Period
(3) salary and incentive payment accrued due up to the date of the
Event to the extent not already received by the Executive
(4) three times the tax value of benefits in kind received by the
Executive in respect of the twelve month period preceding the
Event.
(C) If the Executive's sixtieth birthday would fall within the period
of three years immediately following the Event then the amounts referred to
in (1), (2) and (4) of sub-clause (B) shall be reduced by the fraction
whose numerator is 36 less the number of complete calendar months between
the Event and the sixtieth anniversary of the Executive's birthday and
whose denominator is 36.
(D) The Executive shall not be required to mitigate the amount of any
payment provided for in sub-clause (B) by seeking other employment or
otherwise nor shall the amount of any payment so provided for be reduced by
any compensation earned by the Executive as the result of employment by
another employer following termination of this Agreement or by any other
compensation.
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(E) Termination of employment by the Executive for Good Reason shall
be deemed to have occurred only if the Executive terminates his employment
without notice for any of the following reasons occurring since the New
Circumstances arose: -
(1) without the Executive's express written consent any material
reduction in the aggregate duties responsibilities and authority
assigned to him pursuant to Clause 3(A) of this Agreement or the
assignment to him of any duties responsibilities or authority
inconsistent with the duties responsibilities and authority
previously assigned to him pursuant to Clause 3(A) of this
Agreement or a change in his title or position below that in
effect on the date hereof;
(2) a reduction by the Company in the Executive's salary in effect on
the date hereof as increased subsequently pursuant to Clause
4(B);
(3) the failure of the Company or of American Brands Inc
substantially to maintain and to continue the Executive's
participation in the benefit plans as in effect on the date
hereof as increased by improvements made subsequent thereto or
the taking of any action which would materially reduce the
Executive's benefits under any of such plans or deprive the
Executive of any material fringe benefit enjoyed by him on the
date hereof or subsequently. For the purposes hereof such benefit
plans shall include but not be limited to the Company's Executive
Incentive Plan and pension plans and stock option plans of
American Brands Inc. The substituting for any existing benefit
plan of a similar plan providing no less favourable benefits
shall be deemed not to be a failure by the Company to maintain or
continue the Executive's participation in any such benefit plan
and any reference in this sub-clause to any benefit plan shall be
deemed to include a reference to any such substituted benefit
plan;
(4) the sum of the Executive's salary and the amount paid to the
Executive under the Executive Incentive Plan for a calendar year
is less than the sum of the Executive's salary and the amount
awarded (whether or not fully paid) to the Executive under the
Executive Incentive Plan for 1993 or any subsequent year in which
the sum of such amounts was greater;
(5) notwithstanding Clause 3(E) the relocation of the offices at
which the Executive was required to work at the time of the New
Circumstances arising to a location more than 35 miles away
except for required travel on the Company's business to an extent
substantially consistent with his business travel obligations on
the date hereof;
(6) the failure of the Company to provide the Executive during a
calendar year with a number of paid holidays at least equal to
the number of paid holidays to which he was entitled at the date
hereof pursuant to Clause 7 of this Agreement as increased
subsequent thereto;
9
<PAGE>
(7) circumstances arise which entitle the Executive to terminate this
Agreement without notice because of the Company's conduct (i.e.
the circumstances of constructive dismissal).
DIRECTORSHIPS
17. (A) THE Executive shall accept appointment as a Director of any such
Group Company as the Board may require in connection with his appointment
hereunder and as a Director of any other company as the Board may
reasonably so require and he shall resign without claim for compensation
from office as a Director of any such company (other than the Company) at
any time on request by the Company which resignation shall not affect the
continuance in any way of this Agreement. The Executive shall forthwith
account to the Company for any Director's fees or other emoluments
remuneration or payments either receivable or received by him by virtue of
his holding office as such Director as aforesaid (or waive any right to the
same if so required by the Company).
(B) Upon the termination of the Executive's employment with the
Company for whatsoever reason the Executive shall unless requested by the
Board not to do so resign promptly from
(l) office as a Director of the Company or of any Group Company or of any
other company as is referred to in sub-clause (A) of which he is a
Director and
(2) from all offices held by him in any or all of such companies and
(3) all trusteeships held by him of any pension schemes or other trusts
established by the Company or any other Group Company or any other
company with which the Executive has had dealings as a consequence of
his employment by the Company.
(C) Should the Executive fail to resign from office as a Director or
from any other office or trusteeship as is referred to in sub-clauses (A)
or (B) either during his employment when requested by the Company so to do
or on termination thereof the Company is hereby irrevocably authorised to
appoint some person in his name and on his behalf to execute any documents
and to do all things requisite to give effect thereto.
(D) Save with the prior agreement in writing of the Board the
Executive shall not during the continuance of his employment hereunder
resign office as a Director of the Company or any Group Company or any
other company as is referred to in sub-clause (A) or do anything that would
cause him to be disqualified from continuing to hold office as a Director.
TERMINATION
18. (A) THE Executive's employment with the Company may be terminated
forthwith by the Company without prior notice if the Executive shall at any
time: -
(1) commit any serious breach or repeated or continual breach of any of
his obligations hereunder; or
10
<PAGE>
(2) be guilty of any serious misconduct or serious neglect in the
discharge of his duties hereunder; or
(3) have a bankruptcy order made against him or if he shall make any
arrangement or composition with his creditors or have an interim order
made against him pursuant to Section 252 of the Insolvency Act 1986;
or
(4) tend by his actions or omissions to bring the name or reputation of
the Company or any Group Company into serious disrepute or prejudice
the interests of the Business of the Company or any other Group
Company (bearing in mind the nature of the duties he is engaged in
hereunder and the capacity in which he is employed); or
(5) be or become of unsound mind or shall be or become a patient for the
purpose of any statute relating to mental health; or
(6) be convicted of an offense under any present or future statutory
enactment or regulation relating to insider dealing; or
(7) be or become prohibited by law from being a director.
(B) In the event of termination pursuant to sub-clause (A) the
Company shall not be obliged to make any further payment to the Executive
beyond the amount of any remuneration actually accrued due to the date of
such termination and the Company shall be entitled to deduct from such
remuneration any sums owing to it or to any other Group Company by the
Executive.
(C) In the event of the termination of the employment of the
Executive hereunder for whatever reason and whether by notice or in any
other manner whatsoever the Executive agrees that he will not at any time
after such termination represent himself as still having any connection
with the Company or any Group Company.
(D) In the event that the Executive is incapacitated by ill health
accident or any other cause from performing his duties hereunder for an
aggregate of 125 working days or more (whether consecutive or not) in any
twelve consecutive months then the Company may terminate this Agreement by
giving to the Executive not less than six months' notice in writing given
within three months after the end of the 125 working days.
(E) In the event of the termination of the employment of the
Executive hereunder by notice given pursuant to Clause 2 of this Agreement
by either party, the Executive agrees that the Company may in its absolute
discretion require the Executive not to render all or any of his duties
hereunder or to exclude him from any premises of the Company (without
providing any reason therefor) during the relevant notice period or (if the
date of termination is disputed) at any time after the disputed date of
termination and that such action (if taken) on the part of the Company
shall not constitute a breach of this Agreement of any kind whatsoever in
respect of which the Executive has any claim against the Company provided
always that throughout the period of any such action the Executive's salary
and contractual benefits shall not cease to be payable by reason thereof.
11
<PAGE>
STATUTORY PARTICULARS
19. THE following particulars are set forth in compliance with the
requirements of the Employment Protection (Consolidation) Act 1978 as
amended by the Trade Union Reform and Employment Rights Act 1993 and the
Wages Act 1986: -
(A) The employment of the Executive by the Company and his continuous
period of employment with the Company began on the respective dates
specified in paragraphs 13 and 7 of the Schedule hereto.
(B) Save as contained herein or otherwise notified to the Executive
in writing there are no terms or conditions of employment relating to hours
of work or to normal working hours or to holidays or to holiday pay or to
incapacity for work due to sickness or injury or to sick pay or to pensions
or pension schemes or to collective agreements or to work outside the
United Kingdom or to disciplinary rules and procedures.
(C) If the Executive is dissatisfied with any disciplinary decision
relating to him or if he has any grievance arising from his employment
hereunder he may refer any such matter to the Board which will deal with
the matter by discussion and by a decision of those present at the relevant
Board Meeting at which the matter is discussed.
(D) The Executive's hours of work shall be such as may be requisite
for the proper discharge of his duties hereunder.
(E) The Executive hereby authorises the Company to deduct and to retain
from any remuneration accrued due to him under the terms of this Agreement
(whether or not actually paid during the continuance of his employment
hereunder) those sums set out in paragraph 12 of the Schedule hereto.
RETURN OF PROPERTY ON TERMINATION
20. (A) UPON the termination of his employment with the Company for
whatsoever cause the Executive shall forthwith deliver up to the Company or
its authorised representative any property of the Company or any other
Group Company which may be in his possession custody or under his control
including without limitation the Car and the keys relating thereto minutes
memoranda correspondence notes records reports sketches plans or other
documents and any copies thereof, whether or not the same were originally
supplied to him by the Company or any other Group Company.
(B) If so requested the Executive shall provide to the Board a signed
statement confirming that he has fully complied with sub-clause (A).
NOTICES
21. ANY notice to be given hereunder shall be given in writing and may be
given either personally or may be sent addressed in the case of the Company
to its registered office for the time being and in the case of the
Executive to him at his last known place of residence and any notice given
by post shall be deemed to have been served on the day which is three days
following that on which it was posted.
12
<PAGE>
CONSTRUCTION
22. (A) THE provisions of the Schedule hereto and any special terms
endorsed in writing by or on behalf of the parties hereto shall be read and
construed as part of this Agreement and shall be enforceable accordingly.
(B) The benefit of each agreement and obligation of the Executive
under Clause 13 of the Agreement may be assigned to successors for the time
being carrying on the Business and enforced by such assignees for the time
being carrying on the Business and such agreements and obligations shall
operate and remain binding notwithstanding the termination of this
Agreement whether or not as a result of a breach of the terms hereof on the
part of the Company.
LAW OF AGREEMENT
23. THIS Agreement shall be governed by and interpreted according to the
Law of England.
PRIOR AGREEMENTS
24. SAVE for the letter dated 20th September 1991 (whose terms remain in
full force and effect) in respect of retirement benefits this Agreement
shall be in substitution for any subsisting service agreement or contract
of employment (oral or otherwise) made between the Company and the
Executive or between any other Group Company and the Executive which shall
be deemed to have been terminated by mutual consent with effect from the
Effective Date.
IN WITNESS whereof this Agreement has been entered into the day and year
first above written.
THE COMMON SEAL OF GALLAHER ) [Common Seal of Gallaher Limited]
LIMITED was hereunto affixed )
in the presence of: - )
Director P.R. Burchell
Secretary B. Rudd
SIGNED SEALED and DELIVERED )
by the EXECUTIVE in the ) P.M. Wilson
presence of: - )
B. Rudd
Solicitor
Weybridge
13
<PAGE>
THE SCHEDULE ABOVE REFERRED TO
1. Capacity of the Executive: Chairman and Chief Executive
(Clause 2) of Gallaher Limited
2. The Effective Date: 1st February 1994
(Clause 2)
3. Minimum Notice Period: Three years
(Clause 2)
4. Remuneration: (L)314,000
(Clause 4)
5. Holidays: 25 working days
(Clause 7)
6. Pension Schemes: The Gallaher 'S' Pension
(Clause 9) Scheme and Gallaher 'M'
Pension Scheme
7. The continuous period of employment of the Executive with
the Company for statutory purposes began on: 6th October
1969
(Clause 19(A))
8. Contractual Retirement Date: 9th June 2001
(Clause 2) The Executive's 60th
birthday
9. Period of Non-Enticement: Twelve months
(Sub-clause 13(D))
10. Period of Non-solicitation: Twelve months
(Sub-clause 13(E))
11. Period of dealing: Twelve months
(Sub-clause 13(E))
12. Deductions authorised pursuant to the Wages Act 1986: any
debt owed by the Executive to the Company; any pension or
other similar contribution owed by the Executive as a
consequence of the Executive's membership of the pension
schemes referred to in paragraph 6 above; any deduction
from remuneration the Executive's consent to which has
previously been signified to the Company in writing and the
deduction of any other sum or sums which may from time to
time be required or authorised pursuant to subsection 1(1)
(a) of the Wages Act 1986.
(Sub-clause 19(E))
13. The employment of the Executive by the Company began on:
1st January 1981
(Clause 19(A))
EXHIBIT 10o2
GALLAHER LIMITED
MEMBERS HILL BROOKLANDS ROAD
WEYBRIDGE SURREY KTI3 OQU
TELEPHONE: 0932-859777
FACSIMILE: 0932 859777 EXT. 2233 TELEX: 25505
Mr P M Wilson 20th September 1991
Weybridge
Dear Mr Wilson
THE GALLAHER "M" AND "S" PENSION SCHEMES (THE "PENSION SCHEMES")
- ----------------------------------------------------------------
Your benefits were as set out in my letter to you of 31st October 1986 and
in the schedule to that letter, subject however to the amendments contained
in my letter of 22nd December 1987 (which related to the definitions of
"Pensionable Pay" and "Basic Annual Salary" and to the "S" scheme becoming
non-contributory) and my letter of 21st May 1990 (which related to the lump
sum death benefit).
This letter confirms that you are a member of the Pension Schemes and the
schedule hereto sets out the benefits under those schemes which are
applicable to you. This letter and its schedule are in substitution for
those referred to above dated 31st October 1986, 22nd December 1987 and
21st May 1990. Apart from consolidating the previous schedule and its
amendments, the new schedule is fuller and a comprehensive statement of
your Company pension benefits.
In consideration of your agreeing to the terms of this letter and the
schedule hereto and of your continued services to Gallaher Limited (and
notwithstanding anything in your employment contract with Gallaher Limited
or under either of the Pension Schemes to the contrary), Gallaher Limited
agrees and undertakes to and with you as follows:
(a) subject to (b) and (c) below, it shall be a term of your contract
of employment that benefits are and continue to be provided for
or in respect of you as set out in the schedule hereto on a non-
contributory basis;
(b) not to exercise and to procure that there is not exercised any
power or discretion under the Pension Schemes (or either of them)
so as to affect materially and adversely the benefits payable, or
prospectively or contingently payable, under the Pension Schemes
to or in respect of you unless the power or discretion is being
exercised either (i) with your prior consent in writing or (ii)
in order to comply with any applicable law, regulation or
requirement or (iii) to terminate the Pension Scheme (in which
event (c) below shall apply);
(c) in the event of either of the Pension Schemes being terminated,
to provide a replacement scheme on terms no less favourable to
you overall than those applicable to you under the Pension Scheme
<PAGE>
immediately prior to its termination (and the provisions of this
letter shall apply to any such replacement scheme as if it were
one of the Pension Schemes).
Please confirm your agreement to the terms of this letter and the schedule
hereto by signing and returning to me the enclosed copy of this letter.
Yours sincerely
for and on behalf of
Gallaher Limited
B. Rudd
Secretary
I hereby agree to the terms of the above letter and the schedule thereto of
which this is a copy.
P.M. WILSON Date 23 SEPTEMBER 91
- ------------------------- ------------------------
P M Wilson
2
<PAGE>
THE GALLAHER 'M' & 'S' PENSION SCHEMES
--------------------------------------
Schedule of benefits applicable to
P M WILSON
-------------------------------------
1. INTRODUCTION
This schedule describes the principal benefits payable under the Gallaher
'M' and 'S' Pension Schemes.
Standard benefits will be paid under the 'M' Scheme. In addition, the lump
sum death in service benefit under the 'M' Scheme will be increased to the
level described under paragraph 8(a). The rest of your benefits will be
provided through the 'S' Scheme.
The benefits are subject to the Inland Revenue limits for approval of the
schemes under the Income and Corporation Taxes Act 1988.
2. DEFINITIONS
In this schedule -
"COMPANY" means Gallaher Limited;
"FINAL PENSIONABLE PAY" means the greater of -
(a) 105% of basic salary for the last l2 months of your employment
with the Company; and
(b) 70% of the sum of -
(i) 105% of basic salary for the last l2 months of your
employment with the Company; plus
(ii) any Incentive Payments received during that 12 month period
(or, if greater, the annual average of the Incentive
Payments received in the best 5 consecutive years out of
the 10 year period ending on the last day of your
employment with the Company);
less such sum (if any) as the Trustee decides is appropriate in light of
the state pension.
Notes
(i) the deduction in respect of the state pension is currently
(L)470;
(ii) the Company may vary the percentage in (a) and (b)(i) (currently
105%) from time to time but any reduction shall not operate so as
to make the amounts referred to in those paragraphs less than
<PAGE>
they would have been had the reduction not been made and had your
basic salary continued at the rate in force immediately prior to
the reduction being made; and
(iii) if you continue in employment after Normal Retirement Date
paragraph 6 applies.
"GROUP SERVICE" means employment with the Company or any other member of
the Gallaher Group of Companies, which shall be deemed to have commenced on
6th October 1969.
"INCENTIVE PAYMENT" means on and after 1st July 1986 a payment by the
Company under the Gallaher Executive Incentive Plan and before 1st July
1986 a payment not made directly by the Company in respect of service for
the Company. In this connection -
(a) where the Incentive Payment received in any period of 12 months
is to be ascertained and more than one Incentive Payment is
received during that 12 month period, the Incentive Payment
received during that 12 month period shall be deemed to be the
amount which the Trustee, after consulting the Company, considers
to be equitable; and
(b) the amount of the last Incentive Payment received before the
earlier of Normal Retirement Date and your employment with the
Company ending shall be increased by the amount (if any) by which
that Incentive Payment falls short of the next following
Incentive Payment.
"'M' SCHEME" means the Gallaher 'M' Pension Scheme.
"NORMAL RETIREMENT DATE" means the first day of the month coinciding with
or otherwise next following your 60th birthday.
"RULES" means the rules as amended from time to time of either or both of
the 'M' Scheme and the 'S' Scheme, as the context requires.
"'S' SCHEME" means the Gallaher 'S' Pension Scheme.
"TRUSTEE" means the trustee of the 'S' Scheme.
3. RETIREMENT AT NORMAL RETIREMENT DATE
On retiring from the Company at Normal Retirement Date you will be entitled
to an annual pension equal to two-thirds of Final Pensionable Pay.
4. ILL-HEALTH RETIREMENT
If you are suffering from a permanent incapacity (and this is shown to the
Trustee's satisfaction), you may retire from the Company before Normal
Retirement Date with an annual pension equal to two-thirds of Final
Pensionable Pay multiplied by Group Service completed and divided by Group
Service which would have been completed had it continued to Normal
Retirement Date.
2
<PAGE>
5. VOLUNTARY EARLY RETIREMENT
With the consent of the Company you may retire from the Company at any time
on or after your 50th birthday and draw an immediate pension. Your pension
will be calculated in the same way as an ill-health early retirement
pension (see 4 above) but will then be reduced by such amount as the
Trustee on actuarial advice considers appropriate to allow for early
payment.
6. LATE RETIREMENT
You may only continue in Group Service after Normal Retirement Date if the
Company agrees. If you do so you will have the choice of whether to remain
in pensionable service or not. If you remain in pensionable service, your
pension will be based on your Final Pensionable Pay when you retire and you
will continue to be covered for death in service benefits (see 9 below).
If, however, you terminate your pensionable service your pension will be
based on your Final Pensionable Pay as at Normal Retirement Date and cover
for death in service benefits will cease. Payment of your pension will
then be deferred until you retire or you may start drawing your pension
and/or exercising the cash option before retirement at any time after
Normal Retirement Date. Your pension will be increased actuarially in
respect of any period of deferment.
7. OPTION ON RETIREMENT
On retirement you may exchange part of your pension for -
(a) a lump sum and/or
(b) a dependant's pension.
8. DEATH IN SERVICE BEFORE NORMAL RETIREMENT DATE
If you die while in the Company's service before Normal Retirement Date,
there will be payable -
(a) LUMP SUM
a lump sum equal to the greater of -
(i) four times the annual rate of basic salary at the date of
death; and
(ii) three times 70% of the sum of -
(A) 105% of the annual rate of basic salary at the date of
death; plus
(B) any Incentive Payments received during the 12 month
period ending on the date of death (or, if greater, the
annual average of the Incentive Payments received in
the best 5 consecutive years out of the 10 year period
ending on the date of death)
3
<PAGE>
(Note - the Company may vary the percentage in (ii)(A)
(currently, 105%) from time to time but any reduction shall not
operate so as to make the amount referred to in (ii)(A) less than
it would have been had the reduction not been made and had your
basic salary continued at the rate in force immediately prior to
the reduction being made).
(b) WIDOW'S AND CHILDREN'S PENSIONS
a widow's pension of one-third of Final Pensionable Pay plus
children's pensions in accordance with the Rules.
(Note - the widow's pension will be reduced if your widow is more
than 10 years younger than you and may be terminated if she
remarries before age 60).
9. DEATH IN SERVICE ON OR AFTER NORMAL RETIREMENT DATE
If you die before retiring but after Normal Retirement Date -
(a) if your pensionable service was continuing after Normal
Retirement Date (see 6 above) benefits will be payable under 8
above just as if you had died before Normal Retirement Date but
will be based on your applicable earnings level at death;
(b) if, however, your pensionable service had terminated, benefits
will be payable just as if you had retired immediately prior to
your death.
10. DEATH IN RETIREMENT
If you die after retiring there will be payable -
(a) if you die within 5 years from the date of retirement, a lump sum
equal to the value of the pension payments which would have been
made over the balance of that 5 year period had you survived; and
(b) a widow's pension equal to 50% of your pension at the date of
death plus children's pensions in accordance with the Rules.
(Note - if you are receiving a reduced pension on account of
having exercised the cash option, the widow's pension will be
based on the full pension which you would have been receiving had
you not exercised that option. The pension will be reduced if
your widow is more than 10 years younger than you. The widow's
pension will not be paid if you married after the earlier of the
date of retirement and Normal Retirement Date unless the Company
otherwise decides).
11. LEAVING SERVICE
(a) DEFERRED PENSION
On leaving the Company before Normal Retirement Date, you will be
entitled to a pension starting at Normal Retirement Date, equal
to two-thirds of Final Pensionable Pay multiplied by Group
4
<PAGE>
Service completed and divided by Group Service which would have
been completed had it continued to Normal Retirement Date.
The pension will be increased up to Normal Retirement Date in
accordance with statutory requirements.
(b) TRANSFER OPTION
Alternatively, if you leave the Company more than one year before
Normal Retirement Date you may transfer the cash equivalent of
the deferred pension to an approved scheme of your new employer
or to an appropriate personal pension scheme or a suitable
insurance policy.
12. WITHDRAWAL FROM SERVICE FOLLOWING A CHANGE OF CONTROL OF THE COMPANY
(a) PENSION ENTITLEMENT
If
(i) the Company ceases to be beneficially owned (directly or
indirectly) to the extent of at least 50% by American
Brands Inc; and
(ii) within three years from the event referred to at (i)
occurring either -
(A) your employment with the Company terminates for either of the
following reasons -
(1) termination by the Company (with or without notice or a
payment in lieu of notice) other than in circumstances
where the Company is entitled to terminate your employment
lawfully without notice and without payment in lieu of
notice; or
(2) termination by yourself (with or without notice) in
circumstances such that you are entitled to terminate your
employment without notice; or
(B) your ceasing to be employed by the Company on the undertaking of
the Company being transferred to another person;
you will be entitled to a pension payable from the day next following
the date upon which your employment with the Company ends if you have
then attained age 50 but otherwise from your 50th birthday. When your
pension starts it will be payable at an annual rate of two-thirds of
Final Pensionable Pay reduced by the applicable percentage ascertained
from the following table -
5
<PAGE>
AGE ON CEASING TO BE PERCENTAGE
IN COMPANY'S EMPLOYMENT
----------------------- ----------
59 nil
58 nil
57 nil
56 5
55 10
54 15
53 20
52 24
51 28
50 or under 31
It is intended that your pension will increase during any period of
deferment on a similar basis as applies to pensions payable from
normal pension age in accordance with Schedule 1A to the Social
Security Pensions Act 1975. Therefore, if your employment with the
company ends before your 50th birthday, the provisions for revaluation
contained in Schedule 1A to the Social Security Pensions Act 1975
shall apply as if your normal pension age was 50.
(b) DEFERMENT OPTION
As an alternative to taking an immediate pension or a pension
from age 50 (as the case may be) you may elect to defer payment
of your pension up to age 60. Your pension will be increased
actuarially in respect of any period of deferment after attaining
age 50. If you die while your pension is being deferred,
benefits will be payable in respect of you just as if you had
retired immediately prior to the date of your death and in the
event of your dying before attaining age 50 just as if you had
attained that age when you died except that no account shall be
taken of any revaluation of your pension after the date of your
actual death.
(c) TRANSFER OPTION
While your pension is being deferred as above you may transfer
the cash equivalent of the benefits payable to or in respect of
you to an approved scheme of your new employer or to an
appropriate personal pension scheme or a suitable insurance
policy.
13. PENSION INCREASES
Pensions in payment are reviewed by the Trustee at least once a year. Any
discretionary increases are subject to the approval of the Company. It is
guaranteed that the level of increase will not be less than 2% or the
percentage increase in the cost of living, whichever is less.
14. ADDITIONAL BENEFITS
Any benefits secured by voluntary contributions or by the surrender of
bonus or salary will be provided in addition to the benefits described
above.
6
<PAGE>
15. MISCELLANEOUS
Your employment is contracted-out of the State earnings related pension
scheme by reference to the 'M' Scheme.
You will not be required to contribute to either scheme. The Company
contributes at the rate recommended by the actuary. It may terminate its
contributions at any time.
The benefits described above are those payable before the exercise of any
option available under either the 'M' Scheme or the 'S' Scheme, such as
converting pension to cash. It is assumed that the benefits under the two
schemes will start at the same time and that a transfer is not made in
respect of the benefits under one of the schemes but not the other.
However, if this is not the case, the benefits under the 'S' Scheme will be
appropriately adjusted by the Trustee on actuarial advice.
You may not assign or charge your benefits in any way. They may be reduced
on account of any debt of yours to the Company arising from a criminal,
negligent or a fraudulent act or omission.
Either scheme may be varied at any time in accordance with the Rules. The
Company may also terminate either scheme.
7
EXHIBIT 10o3
GALLAHER LIMITED
Mr. P.M. Wilson, 15th March 1994
Weybridge.
Dear Mr. Wilson,
The Gallaher "M" and "S" Pension Schemes
----------------------------------------
The schedule to Gallaher Limited's letter of 20th September 1991 to you set
out the benefits under the above schemes which are applicable to you.
In consequence of the terms of your new service agreement dated 11th
February 1994, it is appropriate to change the said schedule and to
substitute therefor the schedule attached to this letter, which
substitution the Company hereby proposes.
Save as varied by the substitution of a new schedule thereto, the terms of
Gallaher Limited's letter of 20th September 1991 shall remain in full force
and effect.
Please confirm your agreement to the above proposal and the schedule hereto
by signing and returning to me the enclosed copy of this letter.
Yours sincerely,
for and on behalf of Gallaher Limited
B. Rudd
-----------------------
B. Rudd
Secretary
I hereby agree to the terms of the above letter and the schedule thereto of
which this is a copy.
P.M. Wilson 15 March 1994
- --------------------------- ------------------
P.M. Wilson Date
REGISTERED OFFICE:
MEMBERS HILL. BROOKLANDS RD. WEYBRIDGE. SURREY. KT13 0QU
TEL: 0932 859777 FAX: 0932 849119 TELEX: 25505
Registered in England Number 1501573
<PAGE>
THE GALLAHER 'M' & 'S' PENSION SCHEMES
----------------------------------------------------
Schedule to a letter dated fifteenth March 1994
of benefits applicable to
P M WILSON
----------------------------------------------------
1. INTRODUCTION
This schedule describes the principal benefits payable under the Gallaher
'M' ad 'S' Pension Schemes.
Standard benefits will be paid under the 'M' Scheme. The rest of your
benefits will be provided through the 'S' Scheme.
The benefits are subject to the Inland Revenue limits for approval of the
schemes under the Income and Corporation Taxes Act 1988.
2. DEFINITIONS
In this schedule -
"COMPANY" means Gallaher Limited;
"FINAL PENSIONABLE PAY" means the greater of -
(a) 105% of basic salary for the last 12 months of your employment
with the Company; and
(b) 70% of the sum of -
(i) 105% of basic salary for the last 12 months of your
employment with the Company; plus
(ii) any Incentive Payments received during that 12 month period
(or, if greater, the annual average of the Incentive
Payments received in the best 5 consecutive years out of the
10 year period ending on the last day of your employment
with the Company);
less such sum (if any) as the Trustee decides is appropriate in light of
the state pension.
Notes
(i) the deduction in respect of the state pension is currently
(L)470;
1
<PAGE>
(ii) the Company may vary the percentage in (a) and (b)(i) (currently
105%) from time to time but any reduction shall not operate so
as to make the amounts referred to in those paragraphs less than
they would have been had the reduction not been made and had
your basic salary continued at the rate in force immediately
prior to the reduction being made; and
(iii)if you continue in employment after Normal Retirement Date
paragraph 6 applies.
"GROUP SERVICE" means employment with the Company or any other member of
the Gallaher Group of Companies, which shall be deemed to have commenced on
6th October 1969.
"INCENTIVE PAYMENT" means on and after 1st July 1986 a payment by the
Company under the Gallaher Executive Incentive Plan and before 1st July
1986 a payment not made directly by the Company in respect of service for
the Company. In this connection -
(a) where the Incentive Payment received in any period of 12 months
is to be ascertained and more than one Incentive Payment is
received during that 12 month period, the Incentive Payment
received during that 12 month period shall be deemed to be the
amount which the Trustee, after consulting the Company, considers
to be equitable; and
(b) the amount of the last Incentive Payment received before the
earlier of Normal Retirement Date and your employment with the
Company ending shall be increased by the amount (if any) by which
that Incentive Payment falls short of the next following
Incentive Payment.
"'M' SCHEME" means the Gallaher 'M' Pension Scheme.
"NORMAL RETIREMENT DATE" means the first day of the month next following
your 60th birthday.
"RULES" means the rules as amended from time to time of either or both of
the 'M' Scheme and the 'S' Scheme, as the context requires.
"'S' SCHEME" means the Gallaher 'S' Pension Scheme.
"TRUSTEE" means the trustee of the 'S' Scheme.
3. RETIREMENT AT NORMAL RETIREMENT DATE
On retiring from the Company at Normal Retirement Date you will be entitled
to an annual pension equal to two-thirds of Final Pensionable Pay.
4. ILL-HEALTH RETIREMENT
If you are suffering from a permanent incapacity (and this is shown to the
Trustee's satisfaction), you may retire from the Company before Normal
Retirement Date with an annual pension equal to two-thirds of Final
Pensionable Pay multiplied by Group Service completed and divided by Group
2
<PAGE>
Service which would have been completed had it continued to Normal
Retirement Date.
5. VOLUNTARY EARLY RETIREMENT
With the consent of the Company you may retire from the Company at any time
before Normal Retirement Date and draw an immediate pension. Your pension
will be calculated in the same way as an ill-health early retirement
pension (see 4 above) but will then be reduced by such amount as the
Trustee on actuarial advice considers appropriate to allow for early
payment.
6. LATE RETIREMENT
You may only continue in Group Service after Normal Retirement Date if the
Company agrees. If you do so you will have the choice of whether to remain
in pensionable service or not. If you remain in pensionable service, your
pension will be based on your Final Pensionable Pay when you retire and you
will continue to be covered for death in service benefits (see 9 below).
If, however, you terminate your pensionable service your pension will be
based on your Final Pensionable Pay as at Normal Retirement Date and cover
for death in service benefits will cease. Payment of your pension will then
be deferred until you retire or you may start drawing your pension and/or
exercising the cash option before retirement at any time after Normal
Retirement Date. Your pension will be increased actuarially in respect of
any period of deferment.
7. OPTION ON RETIREMENT
On retirement you may exchange part of your pension for -
(a) a lump sum and/or
(b) a dependant's pension.
8. DEATH IN SERVICE BEFORE NORMAL RETIREMENT DATE
If you die while in the Company's service before Normal Retirement Date,
there will be payable -
(a) LUMP SUM
a lump sum equal to the greater of -
(i) four times 105% of the annual rate of basic salary at the
date of death; and
(ii) three times 70% of the sum of
(A) 105% of the annual rate of basic salary at the date of
death; plus
(B) any Incentive Payments received during the 12 month
period ending on the date of death (or, if greater, the
annual average of the Incentive Payments received in
3
<PAGE>
the best 5 consecutive years out of the 10 year period
ending on the date of death)
(Note - the Company may vary the percentage in (ii)(A)
(currently, 105%) from time to time but any reduction shall not
operate so as to make the amount referred to in (ii)(A) less than
it would have been had the reduction not been made and had your
basic salary continued at the rate in force immediately prior to
the reduction being made).
(b) WIDOW'S AND CHILDREN'S PENSIONS
a widow's pension of one-third of Final Pensionable Pay plus
children's pensions in accordance with the Rules.
(Note - the widow's pension will be reduced if your widow is more
than 10 years younger than you and may be terminated if she
remarries before age 60).
9. DEATH IN SERVICE ON OR AFTER NORMAL RETIREMENT DATE
If you die before retiring but on or after Normal Retirement Date -
(a) if your pensionable service was continuing after Normal
Retirement Date (see 6 above) benefits will be payable under 8
above just as if you had died before Normal Retirement Date but
will be based on your applicable earnings level at death;
(b) if, however, your pensionable service had terminated, benefits
will be payable just as if you had retired immediately prior to
your death.
10. DEATH IN RETIREMENT
If you die after retiring there will be payable -
(a) if you die within 5 years from the date of retirement, a lump sum
equal to the value of the pension payments which would have been
made over the balance of that 5 year period had you survived; and
(b) a widow's pension equal to 50% of your pension at the date of
death plus children's pensions in accordance with the Rules.
(Note - if you are receiving a reduced pension on account of having
exercised the cash option, the widow's pension will be based on the
full pension which you would have been receiving had you not exercised
that option. The pension will be reduced if your widow is more than
10 years younger than you. The widow's pension will not be paid if
you married after the earlier of the date of retirement and Normal
Retirement Date unless the Company otherwise decides).
4
<PAGE>
11. LEAVING SERVICE
(a) DEFERRED PENSION
On leaving the Company before Normal Retirement Date, you will be
entitled to a pension starting at Normal Retirement Date, equal
to two-thirds of Final Pensionable Pay multiplied by Group
Service completed and divided by Group Service which would have
been completed had it continued to Normal Retirement Date.
The pension will be increased up to Normal Retirement Date in
accordance with statutory requirements.
If you die while your pension is being deferred, your widow will
immediately receive a pension of 50% of the value of your
deferred pension as at the date of your death.
(Note - your widow in this context refers to your wife as at the
date of you leaving the Company before Normal Retirement Date.
The widow's pension will be reduced if your widow is more than 10
years younger than you and may be terminated if she remarries
before age 60).
(b) TRANSFER OPTION
Alternatively, if you leave the Company more than one year before
Normal Retirement Date you may transfer the cash equivalent of
the deferred pension to an approved scheme of your new employer
or to an appropriate personal pension scheme or a suitable
insurance policy.
12. WITHDRAWAL FROM SERVICE FOLLOWING A CHANGE OF CONTROL OF THE COMPANY
(a) Pension entitlement
If
(i) the Company ceases to be beneficially owned (directly or
indirectly) to the extent of at least 50% by American
Brands, Inc. or if 20% or more of the common stock of
American Brands, Inc. shall come within the beneficial
ownership of one person or one concerted group of persons;
and
(ii) within three years from the event referred to at (i)
occurring either-
(A) your employment with the Company terminates for either of the
following reasons -
(1) termination by the Company (with or without notice or a
payment in lieu of notice) other than in circumstances where
the Company is entitled to terminate your employment
lawfully without notice and without payment in lieu of
notice; or
5
<PAGE>
(2) termination by yourself (with or without notice) in
circumstances such that you are entitled to terminate your
employment without notice; or
(B) your ceasing to be employed by the Company on the undertaking of
the Company being transferred to another person;
you will be entitled to a pension payable from the day next following the
date upon which your employment with the Company ends. When your pension
starts it will be payable at an annual rate of two-thirds of Final
Pensionable Pay reduced by the applicable percentage ascertained from the
following table -
Age on ceasing to be
in Company's employment Percentage
----------------------- ----------
59 nil
58 nil
57 nil
56 5
55 10
54 15
53 20
52 24
(b) DEFERMENT OPTION
As an alternative to taking an immediate pension you may elect to
defer payment of your pension up to age 60. Your pension will be
increased actuarially in respect of any period of deferment. If
you die while your pension is being deferred, benefits will be
payable in respect of you just as if you had retired immediately
prior to the date of your death.
(c) TRANSFER OPTION
While your pension is being deferred as above you may transfer
the cash equivalent of the benefits payable to or in respect of
you to an approved scheme of your new employer or to an
appropriate personal pension scheme or a suitable insurance
policy.
13. PENSION INCREASES
Pensions in payment are reviewed by the Trustee at least once a year. Any
discretionary increases are subject to the approval of the Company. It is
guaranteed that the level of increase will not be less than 2% or the
percentage increase in the cost of living, whichever is less.
14. ADDITIONAL BENEFITS
Any benefits secured by voluntary contributions or by the surrender of
bonus or salary will be provided in addition to the benefits described
above.
6
<PAGE>
15. MISCELLANEOUS
Your employment is contracted-out of the State earnings related pension
scheme by reference to the 'M' Scheme.
You will not be required to contribute to either scheme. The Company
contributes at the rate recommended by the actuary. It may terminate its
contributions at any time.
The benefits described above are those payable before the exercise of any
option available under either the 'M' Scheme or the 'S' Scheme, such as
converting pension to cash. It is assumed that the benefits under the two
schemes will start at the same time and that a transfer is not made in
respect of the benefits under one of the schemes but not the other.
However, if this is not the case, the benefits under the 'S' Scheme will be
appropriately adjusted by the Trustee on actuarial advice.
You may not assign or charge your benefits in any way. They may be reduced
on account of any debt of yours to the Company arising from a criminal,
negligent or a fraudulent act or omission.
Either scheme may be varied at any time in accordance with the Rules. The
Company may also terminate either scheme.
7
EXHIBIT 10s2
Schedule identifying substantially identical agreements,
among American Brands, Inc. ("American") and each of the
following persons to the Agreement constituting Exhibit
10s1 to the Annual Report on Form 10-K of American for
the Fiscal Year ended December 31, 1993
-------------------------------------------------------
Name
----
William J. Alley
Thomas C. Hays
Arnold Henson
Howard C. Humphrey
Robert L. Plancher
John T. Ludes
Robert J. Rukeyser
Randall W. Larrimore
Steven C. Mendenhall
EXHIBIT 10t2
AMENDMENT TO TRUST AGREEMENT
THIS AMENDMENT, made as of the 1st day of November, 1993, among
AMERICAN BRANDS, INC., a Delaware corporation (the "Company"), THE CHASE
MANHATTAN BANK (National Association), incorporated under the laws of the
United States of America (the "Trustee") and HEWITT ASSOCIATES, a
partnership formed under the laws of Illinois ("Hewitt")
W I T N E S S E T H :
WHEREAS, the Company and the Trustee have entered into a Trust
Agreement for the purpose of establishing a trust in order to provide a
source of payments under the terms of a Compensation Agreement with William
J. Alley and Hewitt is designated as Trustee's Contractor thereunder; and
WHEREAS, the Trust Agreement sets forth the permitted investments
of the assets held thereunder and it is desired to change the permitted
investments;
NOW, THEREFORE, in consideration of the premises, the parties
agree that the third sentence of Section 5.2 of the Trust Agreement is
hereby amended to read as follows:
"The investment manager shall invest the assets of the Fund
solely in The Chase Manhattan Bank Fixed Income Fund to the
extent practicable and otherwise in The Chase Manhattan Bank
Personal Trust Market Rate Account."
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be
duly executed as of the day and year first written above.
AMERICAN BRANDS, INC.
Attest:
Theresa B. Fealey Steven C. Mendenhall
- ------------------------- By-------------------------------
Assistant Secretary Steven C. Mendenhall
Vice President and
Chief Administrative Officer
<PAGE>
THE CHASE MANHATTAN BANK
Attest:
Mark W. Moore William P. Barbeosch
- ------------------------- By-------------------------------
Assistant Treasurer William P. Barbeosch
Vice President
HEWITT ASSOCIATES
Witness:
Peter E. Ross C.L. Connolly, III
- ------------------------- By-------------------------------
I hereby consent to the foregoing AMENDMENT.
Witness:
Steven C. Mendenhall William J. Alley
- ------------------------- -------------------------------
William J. Alley
2
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 9, 1993
COUNTY OF FAIRFIELD )
Personally appeared Steven C. Mendenhall, Vice President and
Chief Administrative Officer of AMERICAN BRANDS, INC., signer and sealer of
the foregoing instrument, and acknowledged the same to be his free act and
deed as such Vice President and Chief Administrative Officer and the free
act and deed of said Corporation, before me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-November 24, 1993
COUNTY OF NEW YORK )
Personally appeared William P. Barbeosch, Vice President of THE
CHASE MANHATTAN BANK, signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Vice President
and the free act and deed of said Company, before me.
Kamla Jaipal
-----------------------------------
Notary Public
<PAGE>
STATE OF )
: ss.: , -November , 1993
COUNTY OF )
Personally appeared ,
of HEWITT ASSOCIATES, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free act and deed
as such and the free act and deed of said
Corporation, before me.
-----------------------------------
Notary Public
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-November 18, 1993
COUNTY OF FAIRFIELD )
Personally appeared William J. Alley, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before
me.
Louis F. Fernous, Jr.
-----------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS)
: ss.: Lincolnshire, IL-November 19, 1993
COUNTY OF LAKE )
Personally appeared C.L. Connolly, III, Partner of HEWITT
ASSOCIATES, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Partner and the free act and
deed of said Partnership, before me.
Barbara L. Stern
-----------------------------------
Notary Public
EXHIBIT 10t3
Schedule identifying substantially identical
agreements, among American Brands, Inc. ("American")
and The Chase Manhattan Bank (National Association), et
al. establishing a trust in favor of each of the
following persons, to the Trust Agreement and Amendment
thereto constituting Exhibits 10tl and 10t2,
respectively, to the Annual Report on Form 10-K of
American for the Fiscal Year ended December 31, 1993
-------------------------------------------------------
Name
----
Thomas C. Hays
Arnold Henson
Robert L. Plancher
Gilbert L. Klemann, II
John T. Ludes
Howard C. Humphrey
Robert J. Rukeyser
Randall W. Larrimore
Steven C. Mendenhall
EXHIBIT 10v2
Schedule identifying substantially identical agreements,
among American Brands, Inc. ("American") and each of the
following persons, to the Agreement constituting Exhibit
10vl to the Annual Report on Form 10-K of American for
the Fiscal Year ended December 31, 1993
--------------------------------------------------------
Name
----
Arnold Henson
Robert L. Plancher
John T. Ludes
Robert J. Rukeyser
Steven C. Mendenhall
EXHIBIT 11
AMERICAN BRANDS, INC.
Statement setting forth net income for computation of earnings per
Common share - primary and fully diluted:
Years Ended December 31,
--------------------------
1993 1992 1991
---- ---- ----
(In millions)
Income before cumulative effect of
accounting changes $668.2 $883.8 $806.1
Preferred stock dividend requirements 1.6 9.1 13.8
------ ------ ------
Income before cumulative effect of
accounting changes for computing
earnings per Common share - Primary 666.6 874.7 792.3
Cumulative effect of accounting changes (198.4) - -
------ ------ ------
Net income for computing earnings per
Common share - Primary 468.2 874.7 792.3
Interest expense and related charges on
Convertible debentures, net of income
taxes 21.3 22.1 26.2
Convertible Preferred stock dividend
requirements 1.6 1.8 2.1
------ ------ ------
Net Income for computing earnings per
Common share - Fully diluted $491.1 $898.6 $820.6
====== ====== ======
<PAGE>
Statement setting forth computation of weighted average number of Common
shares outstanding on a fully diluted basis:
Years Ended December 31,
--------------------------
1993 1992 1991
---- ---- ----
(In millions, except
per share amounts)
Weighted average number of Common shares
outstanding during each year - Primary 201.8 204.0 202.6
Addition from assumed conversion as of
the beginning of each year of the
Convertible Preferred stock outstanding
at the end of each year 2.3 2.5 3.0
Addition from assumed conversion of
Convertible debentures 9.3 9.4 9.3
Other additions 0.3 1.5 4.8
----- ----- -----
Weighted average number of Common shares
outstanding during each year on a
Fully diluted basis 213.7 217.4 219.7
===== ===== =====
EARNINGS PER COMMON SHARE
Primary
Income before cumulative effect
of accounting changes $3.30 $4.29 $3.91
Cumulative effect of accounting
changes (.98) - -
----- ----- -----
Net income $2.32 $4.29 $3.91
----- ----- -----
Fully diluted
Income before cumulative effect
of accounting changes $3.23 $4.13 $3.74
Cumulative effect of accounting
changes (.94) - -
----- ----- -----
Net income $2.29 $4.13 $3.74
===== ===== =====
-2-
EXHIBIT 12
AMERICAN BRANDS, INC.
Statement Re Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
Years Ended December 31,
--------------------------------------------
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
Continuing Operations
- ---------------------
Earnings Available:
Income before provision
for taxes on income
and minority interest $1,065.2 $1,044.6 $1,241.4 $1,401.9 $1,079.6
Less: Excess of earnings
over dividends of
less than fifty
percent owned
companies 0.1 0.1 0.1 0.3 0.8
Capitalized interest 1.9 1.5 1.0 1.0 2.5
-------- -------- -------- -------- --------
1,063.2 1,043.0 1,240.3 1,400.6 1,076.3
-------- -------- -------- -------- --------
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt
discount and expenses 292.7 290.2 276.6 283.4 258.7
Portion of rentals represent-
ative of an interest
factor 22.0 27.6 30.7 32.6 30.1
-------- -------- -------- -------- --------
Total Fixed Charges 314.7 317.8 307.3 316.0 288.8
-------- -------- -------- -------- --------
Total Earnings Available $1,377.9 $1,360.8 $1,547.6 $1,716.6 $1,365.1
======== ======== ======== ======== ========
Ratio of Earnings to Fixed
Charges 4.38 4.28 5.04 5.43 4.73
======== ======== ======== ======== ========
EXHIBIT 13
FINANCIAL SECTION
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------------
CONTENTS
Page in
Printed
Version of
Page Annual Report
---- -------------
Results of Operations 1 20
Financial Review 9 26
Consolidated Statement of Income 14 29
Consolidated Balance Sheet 16 30
Consolidated Statement of Cash Flows 18 32
Consolidated Statement of Common Stockholders' Equity 20 33
Notes to Consolidated Financial Statements 21 34
Report of Independent Accountants 50 50
Report of Management 51 50
Information on Business Segments 52 51
Eleven-Year Consolidated Selected Financial Data 54 52
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Revenues Operating Income
------------------------------------- ---------------------------------
(In millions) 1993 1992 1991 1993 1992 1991
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Tobacco products
International $ 5,940.0 $ 6,376.6 $ 6,373.7 $ 486.5 $ 554.4 $ 528.4
Domestic 1,501.5 1,780.3 1,726.4 169.2 536.1 540.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 7,441.5 8,156.9 8,100.1 655.7 1,090.5 1,069.2
Distilled spirits 1,194.6 1,268.3 1,061.2 214.7 195.8 151.6
Life insurance 1,070.9 965.5 870.4 217.3 165.3 151.8
Hardware and home improvement products 1,119.5 1,014.8 902.3 155.5 159.0 141.5
Office products 977.2 1,003.5 982.3 63.2 58.1 37.7
Specialty businesses 1,897.7 2,214.6 2,147.5 91.5 86.3 79.0
- -----------------------------------------------------------------------------------------------------------------------------------
$13,701.4 $14,623.6 $14,063.8 $1,397.9 $1,755.0 $1,630.8
===================================================================================================================================
</TABLE>
1
<PAGE>
===========================================================================
CONSOLIDATED
1993 compared to 1992
Revenues and operating income declined 6% and 20%, respectively.
Translation of foreign currencies at substantially lower average exchange
rates adversely affected revenues and operating income by $1.4 billion and
$100.3 million, respectively. Excluding the effect of foreign exchange,
revenues would have been up 3% on price increases (including excise tax
increases) and new products, partly offset by significant unit declines in
domestic tobacco. Operating income, excluding the effect of foreign
exchange, restructuring items and a $29.9 million domestic tobacco trade
inventory buydown, would have been down 10%. The decrease reflected lower
cigarette units, unfavorable tobacco product mix and higher marketing
expenses, partly offset by price increases and higher realized investment
gains in the life insurance segment.
Interest and related charges decreased $25.9 million (10%) on lower
average interest and foreign exchange rates.
Earnings per share before the cumulative effect of accounting changes
was $3.30, down 23% compared with $4.29 last year. Excluding restructuring
items, the buydown of domestic tobacco trade inventories and currency
translation, earnings per share before accounting changes would have been
$3.89, down 9% from last year. Net income of $469.8 million, or $2.32 per
Common share, was down 47%, also reflecting a non-cash charge of $198.4
million, or 98 cents per share, due to the adoption of FAS Statements No.
106, 112, and 115 as described on page 21, Notes to Consolidated Financial
Statements.
Several conditions indicate that profit comparisons in 1994 may continue
to be unfavorable. With slow growth, low inflation economies prevailing
through much of the world, price competition is intense in virtually every
market and seems likely to endure for the foreseeable future. This will
tend to have an adverse impact on margins and profits, particularly in
tobacco. Profit comparisons in the life insurance segment are also likely
to be difficult due to extraordinarily high realized investment gains
during 1993.
For a description of certain pending litigation, see page 49, Notes to
Consolidated Financial Statements. As stated therein, while it is not
possible to predict the outcome of such litigation or its effect on the
results of operations for any period, management believes that there are
meritorious defenses to the pending actions and that the pending actions
will not have a material adverse effect upon the financial condition of the
Company.
The Company is involved in proceedings concerning the discharge of
materials into the environment and the handling, disposal and clean-up of
waste materials and otherwise relating to the protection of the
environment. As of February 1, 1994, various subsidiaries of the Company
had been designated as potentially responsible parties under "Superfund" or
similar state laws with respect to 39 sites. While it is not possible to
quantify with certainty the potential impact of actions regarding
environmental matters, particularly remediation and other compliance
efforts that the Company's subsidiaries may undertake in the future, in the
opinion of management compliance with the present environmental protection
laws, before taking into account estimated recoveries from third parties,
will not have a material adverse effect on the Company's competitive
position, financial condition or results of operations.
2
<PAGE>
1992 compared to 1991
Record revenues and operating income rose 4% and 8%, respectively.
Revenues were favorably affected by higher prices (which included excise
tax increases in international tobacco products), the results of certain
distilled spirits products for which trademarks were acquired at the end of
1991 and benefits from new products and line extensions, partly offset by
volume declines (principally tobacco products). Operating income also
reflected higher realized investment gains in the life insurance segment.
Translation of pounds sterling did not have a significant impact on
results.
Corporate administrative expenses decreased $53.8 million, reflecting a
reduction in legal and stock appreciation rights expenses in 1992, while
1991 included a substantial increase in nontobacco legal reserves.
The effective income tax rate increased from 34.9% to 36.8%, reflecting
a lower tax differential relating to foreign operations and lower tax
benefits from the utilization of tax loss carryforwards.
Record net income was $883.8 million, or $4.29 per Common share,
compared with $806.1 million, or $3.91 per Common share in 1991.
===========================================================================
TOBACCO PRODUCTS
1993 compared to 1992
Worldwide revenues decreased 9% and operating income declined 40%; total
cigarette units decreased 1.5%.
International tobacco revenues in sterling increased 11% on price
increases, which principally resulted from higher U.K. tobacco taxes, and a
5.4% increase in total cigarette volume (including exports and line
extensions), partly offset by an unfavorable product mix. U.K. cigarette
volume increased 2.3% as compared to an estimated industry volume increase
of 1.9%. Underlying consumer demand is estimated to have declined in the
area of 5.5%. Results benefited from substantial buying by the trade in
anticipation of the November 1993 U.K. budget increase. Continuing the
trend in recent years, the U.K. budgets announced in November and March
1993, and March 1992 each provided for an increase in taxes on tobacco
products with the result that the tax on a typical pack of cigarettes
increased 11 pence, 10 pence and 13 pence, respectively. The continuing
impact of price increases, principally due to substantial excise tax
increases, combined with the prolonged recession, have reduced annual
industry volumes, led to greater price competition and increased trading
down by consumers to lower priced brands. These changes are particularly
affecting Gallaher, the majority of whose sales are in the premium sector.
Despite these factors, Gallaher maintained its position as the #1 tobacco
company in the U.K. with an estimated 41.7% cigarette market share for the
year compared to 41.5% in 1992 and its share of consumer sales increased.
Operating income in sterling increased 4%, resulting from price increases
and the 5.4% total volume increase, partly offset by higher advertising
costs associated with the launch of Benson and Hedges Superkings, and
restructuring charges. On a comparable basis with 1992, excluding
restructuring items, operating income in sterling would have increased 8%.
Gallaher has moved decisively to control costs, with a plant closing and
workforce reductions completed or announced totaling over 16% of its prior
year employment. Translated at substantially lower average exchange rates,
revenues and operating income in dollars declined 7% and 12%, respectively.
3
<PAGE>
Domestic tobacco revenues declined 16% on substantial volume declines,
price decreases, and a $29.9 million charge related to a buydown of trade
inventories, partly offset by new products. The effects of list price
reductions were partly offset by the four cents per pack increase in
federal excise taxes on January 1, 1993. Although both the industry and
American Tobacco's U.S. shipments declined about 9% in 1993, reflecting
changes in trade buying patterns, it is estimated that the underlying
decline in consumer demand was in the range of 3% to 4%. American Tobacco
maintained its market share for 1993 at about 6.75%. Unit sales of the more
profitable premium brands, particularly nonfilter and charcoal filter
brands, were down 20.9% and continued to decline in excess of the overall
industry decline in recent years. The industry's less profitable price-
value category, comprising discount and deep discount brands, grew from 30%
to 37% as price increases over the years, including excise taxes, have
resulted in trading down by consumers, particularly to deep discount
brands. American Tobacco's price-value brands unit sales increased 5.3% as
the introduction of deep discount brands (Private Stock in June 1992, Prime
in September 1992 and Summit in March 1993) more than offset declines in
discount brands. Price-value brands accounted for 52% of American Tobacco's
U.S. unit sales, compared to 45% in 1992. Operating income declined 68% on
volume declines, lower prices (including buydown costs), a less favorable
product mix, higher promotional expenses to meet intense competitive
activity and $44 million in restructuring provisions (principally for
voluntary early retirement programs), partly offset by a $25.5 million gain
in connection with an exchange of trademarks.
The intense price and promotional competition in the domestic tobacco
industry continues. In August, American Tobacco's principal competitors
decreased list prices of their premium and discount brands and increased
prices of their deep discount brands. American Tobacco announced similar
decreases in list prices of its premium and discount brands, but did not
significantly change the prices of its deep discount brands. In November,
American Tobacco and its competition raised prices of certain brands, but
the amount of these increases was far less than the amount of the August
decreases. Conditions in the U.S. tobacco market remain unsettled. Profit
comparisons for American Tobacco are likely to be difficult in 1994,
particularly in the first half. The full impact of the lower prices and,
conversely, the primary benefit of American Tobacco's cost reduction
programs including lower ongoing marketing expenses, will not be realized
until 1994. American Tobacco expects continued pressure on units, product
mix and margins, and is hopeful, based on its assessment of the current
market conditions, that comparisons will improve as the year progresses and
that full year results for 1994 will approximate 1993's result.
In addition to the previously discussed increases in U.S. and U.K.
tobacco excise taxes, the Clinton administration has proposed increasing
the tax on cigarettes from 24 cents to 99 cents per pack. Legislation has
also been introduced in the U.S. Congress that would increase excise taxes
on cigarettes. The effects of any of the foregoing cannot be determined but
will likely add to the overall industry declines and the shift to lower
priced brands. In addition, further restrictions on advertising and use of
tobacco products in the U.S., the U.K. and elsewhere are possible. A change
in timing of the U.K. budget resulted in a second budget announcement on
November 30, 1993, and thereafter will be at about the same time each year.
This change had the effect of drawing significant sales into the fourth
quarter of 1993 from the first quarter of 1994. As a result, the first
quarter 1994 comparison will be especially difficult as 1993's first
4
<PAGE>
quarter benefited from trade buying in anticipation of the March U.K.
budget increase.
Recent legislation restricts the use of imported tobacco in U.S.
manufactured cigarettes. Based on the preliminary rules issued, the impact
of this legislation may increase American Tobacco's 1994 manufacturing cost
by an estimated $10 million.
1992 compared to 1991
Revenues increased 1% and operating income increased 2%. Worldwide
cigarette unit sales decreased 3.8%.
International tobacco revenues in sterling increased slightly as price
increases, which principally resulted from higher U.K. tobacco taxes, line
extensions and new products were largely offset by a 10.9% decline in U.K.
cigarette unit sales. The U.K. industry declined 6.7%. Export sales
increased principally on shipments of cigarettes to markets in the C.I.S.
The U.K. budgets, announced in March 1992 and March 1991, each provided for
an increase in taxes on tobacco products with the result that the tax on a
pack of cigarettes increased 13 pence and 22 pence, respectively. The
decline in unit sales reflected the continuing impact of price increases,
including the effect of substantial excise tax increases, which, combined
with the prolonged recession, reduced industry volumes and led to greater
price competition and increased trading down by consumers to lower priced
brands. These changes particularly affected Gallaher, the majority of whose
sales are in the premium sector. Despite the decline in unit sales,
Gallaher maintained its position as the #1 tobacco company in the U.K. with
an estimated 41.5% cigarette market share for 1992, compared to 43.5% in
1991. Operating income in sterling was up 6% on higher gross margin,
favorable comparison to the 1991 provision for workforce reductions and
lower expenses. Dollar revenues and operating income percentage changes
approximated the sterling results.
Record domestic tobacco revenues increased 3% on price increases and
unit gains in price-value brands, resulting from product introductions and
exports, partly offset by substantial unit declines in premium brands.
American Tobacco's U.S. unit sales were down 4.3%, while industry unit
sales declined slightly, and market share for the year was 6.76% compared
to 7.03% for 1991. Price-value brands accounted for 45% of American
Tobacco's U.S. unit sales, compared with 38% in 1991. Operating income
declined 1% on substantially higher promotional expenses to meet
competitive activity and less favorable product mix, almost offset by price
increase benefits and reductions in coupon redemption accruals.
===========================================================================
DISTILLED SPIRITS
1993 compared to 1992
Revenues decreased 6% while record operating income in 1993 rose 10%.
Beam's revenues were down 5% on lower domestic volume principally
reflecting competitive pricing pressures, the effect of lower foreign
exchange rates and a domestic bulk sale last year. U.S. distilled spirits
consumption continued its long-term decline. Worldwide branded case sales
were down 1.7% and domestic branded cases declined 4.6%. Record operating
income was up slightly on the timing of operating expenses and higher
margins, partly offset by higher international selling costs. With recent
heavy price competition and consumer rebates, margins may well be under
pressure as the intensifying competitive situation may limit future price
increases.
5
<PAGE>
Whyte & Mackay revenues in sterling were up 6% on inclusion of
Invergordon for one month and higher volume, mainly in export markets,
partly offset by 1992's significant level of bulk sales. Excluding
Invergordon, worldwide case sales were up 10.4% and U.K. case sales were up
6.5%. Translated at substantially lower average foreign exchange rates,
revenues were down 9% in dollars. Operating income in sterling and dollars
was up with continuing profit improvement from higher margins, despite the
lingering effects of the U.K. recession and competitive pricing pressures,
partly offset by higher general and administrative expenses. Operating
income included a $6.7 million benefit resulting from the application of
the equity method to prior periods for Invergordon.
The 1993 U.K. budgets did not provide for increases in excise taxes on
distilled spirits as compared with an increase in taxes of 31 pence on a
typical bottle announced in March 1992 and an increase of 84 pence
announced in March 1991. The U.S. federal excise tax on distilled spirits
was increased by one dollar per proof gallon on January 1, 1991. It is
possible that any future tax increases as well as any restrictions on
advertising would have an adverse effect on unit sales and add to
continuing industry declines.
1992 compared to 1991
Record revenues and operating income increased 20% and 29%,
respectively, primarily reflecting the results of certain distilled spirits
products acquired by Beam at the end of 1991, which contributed to margin
growth and case sales.
Beam achieved record results, as revenues and operating income increased
30% and 39%, respectively, with worldwide branded case sales up 29%.
Excluding the acquired brands, Beam's worldwide branded case sales would
have increased 3%. U.S. industry volume continued to decline and was down
about 3% in 1992. Additionally, operations benefited from a domestic bulk
sale in 1992.
Whyte & Mackay revenues in sterling were down 9% on lower units, and
after translation into dollars, revenues declined 11%. While bulk sales,
which are highly profitable, declined substantially, worldwide branded case
sales rose 1.6%. Results continued to be adversely affected by severe price
competition, trading down by consumers to lower priced products in a
prolonged recessionary climate and higher marketing expenses.
===========================================================================
LIFE INSURANCE
1993 compared to 1992
Record revenues were up 11% on higher net investment income, reflecting
a larger investment portfolio and $51.8 million higher realized investment
gains (principally due to bond redemptions), as well as increased
commissions and allowances on group health reinsurance assumed. The higher
realized investment gains in 1993 will result in very difficult comparisons
through 1994. Future investment gains and redemptions are dependent on
market conditions and cannot be predicted. The adoption of FAS No. 115,
which requires that unrealized gains and losses on trading securities be
included as a component of income, could result in increased volatility in
future period results. The continuing large number of high coupon bond
redemptions will adversely affect future net investment income. Record
operating income increased 31% as the higher revenues were partly offset by
increased insurance benefits and selling and administrative expenses.
Excluding realized investment gains, operating income was up slightly.
6
<PAGE>
1992 compared to 1991
Revenues were up 11%, principally on a $47.8 million increase in net
investment income, reflecting both a larger investment portfolio and $20.2
million higher realized investment gains, due to bond redemptions. Premiums
increased $42.1 million, principally from assumption reinsurance agreements
and higher ordinary life and annuity sales. Operating income increased
$13.5 million (9%), reflecting the $20.2 million increase in investment
gains, partly offset by higher policy reserves, benefits paid and operating
expenses.
===========================================================================
HARDWARE AND
HOME IMPROVEMENT PRODUCTS
1993 compared to 1992
Revenues were up 10%, reaching record levels in all companies, on new
products, price increases and volume gains. Operating income was down 2%.
Excluding last year's one-time gain from a change in an employee benefit
program, operating income would have been up 2%, reflecting price and
volume gains, partly offset by higher manufacturing costs associated with
the introduction of several new faucet lines, unfavorable product mix and
higher marketing and administrative expenses.
1992 compared to 1991
Record revenues and operating income both increased 12%. All companies
posted record revenues on strong volumes, product introductions and price
increases. Moen increased its share of the U.S. faucet market and
Aristokraft increased its share of the U.S. kitchen and bath cabinet market
with higher volume. Excluding the one-time benefit from a change in an
employee benefit program in 1992, operating income would have been up 7%
despite substantially increased marketing expenses. Moen and Aristokraft
achieved record operating income while Master Lock, which was heavily
supporting new products, was down slightly.
===========================================================================
OFFICE PRODUCTS
1993 compared to 1992
Revenues declined 3%, reflecting the absence of two nonstrategic
businesses sold in 1992 and substantially lower average foreign exchange
rates. Excluding these items, revenues would have been up 8%. Revenues
benefited from new products and volume gains resulting in an increase in
market share, particularly in the faster growing channels of distribution,
despite continuing pricing pressures. Operating income was up 9%,
principally reflecting volume gains and the benefits of ongoing cost
reductions, partly offset by translation at substantially lower average
foreign exchange rates and the continuing effects of pricing pressures. On
a comparable basis, principally excluding the effects of the two businesses
sold and the lower average foreign exchange rates, operating income would
have been up 24%.
7
<PAGE>
1992 compared to 1991
Revenues and operating income increased 2% and 54%, respectively.
Excluding a gain on the sale of nonstrategic businesses in the U.K.,
operating income would have been up 32%. Significant improvements in
customer service contributed to unit growth and market share gain in spite
of weak economies in all of ACCO's major markets, particularly Europe and
Australia. Despite intense price competition and a shift of distribution
channels to larger retailers and buying groups, margins improved from
benefits of facilities rationalization, restructuring and cost reduction
programs.
===========================================================================
SPECIALTY BUSINESSES
1993 compared to 1992
Revenues declined 14%. In sterling, revenues from foreign businesses
declined 5% primarily on retail distribution's volume declines and fewer
outlets, partly offset by price increases. Optical, in sterling, declined
slightly as effects of lower exchange rates and volume declines were almost
offset by price increases. Golf and leisure products posted record
revenues, up 9%, on new products, volume gains and price increases, partly
offset by unfavorable exchange rates. Operating income increased 6%. In
sterling, operating income from foreign businesses increased 9%. Results of
optical were up 40% in sterling, reflecting improved margins on higher
prices and cost reductions, and lower advertising and other expenses.
Retail distribution declined 29% in sterling, on the volume decreases and
higher selling and other expenses. Record golf and leisure products
operating income increased 19% on record revenues, partly offset by higher
advertising costs to meet competitive activity. In dollars, revenues and
operating income from foreign businesses declined 19% and 5%, respectively,
due to translation at substantially lower average foreign exchange rates.
1992 compared to 1991
Revenues and operating income increased 3% and 9%, respectively,
primarily on golf and leisure products increases. Record revenues and
operating income for golf and leisure products rose 6% and 16%,
respectively, on product introductions, line extensions and price
increases. Results of optical in sterling were slightly ahead. Retail
distribution revenues declined 1% in sterling, reflecting volume decreases
in a recessionary market and unfavorable comparisons due to fewer outlets,
partly offset by price increase benefits. Operating income in sterling
decreased 28%, reflecting the volume decreases and higher marketing
expenses. Housewares revenues declined 5% in sterling on lower volume due
to effects of the continuing recession. Improved operating efficiencies
resulted in a lower sterling operating loss in 1992.
8
<PAGE>
FINANCIAL REVIEW
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
===========================================================================
EARNINGS
Earnings per Common share decreased to $2.32 in 1993, from $4.29 in
1992, principally reflecting weaker domestic tobacco earnings, a one-time,
non-cash charge due to the adoption of the FAS Statements, the unfavorable
impact of sterling translation, and restructuring charges.
===========================================================================
DIVIDENDS
Dividends paid on Common stock in 1993 rose to $397.5 million, or $1.97
per share, from $368 million, or $1.805 per share in 1992, marking the 26th
consecutive year in which the dividend paid increased. The Common stock
dividend paid per share has increased 74% over the past five years compared
to an increase in the Consumer Price Index of 21%. 1993 marked the 89th
consecutive year in which the Company paid dividends.
The quarterly dividend on the Common stock paid during 1993 was
unchanged at 49.25 cents per share.
===========================================================================
CASH FLOW
Net Cash Provided from Operating Activities
Net cash provided from operating activities in 1993 of $967.6 million,
which compared with $1.08 billion in 1992, exceeded the funds required for
capital expenditures and dividends by $318.6 million. The reduction was
principally due to a decline in net income and an increase in inventories,
partly offset by a reduction in accrued excise and other taxes. The changes
in inventories and accrued taxes were primarily due to a change in the
timing of the U.K. budget and 1992 changes in pre-U.K. budget restrictions
on inventory movements. In addition, accrued excise and other taxes
decreased in 1992 due to a change in VAT collection procedures in the U.K.
Additionally, cash flow benefited from a decrease in accounts receivable
due to lower domestic tobacco sales and enhanced collections and an
increase in accounts payable, accrued expenses and other liabilities due to
higher provisions at domestic tobacco for advertising and rebates and
reserves for restructuring activities.
Net Cash Used by Investing Activities
Net cash used by investing activities of $1.04 billion compared with
$693.5 million in 1992.
The capital expenditures program is focused on the operating companies
becoming the lowest cost producers of the highest quality products. Capital
expenditures for 1993 of $249.9 million decreased 13.4% compared to 1992
expenditures of $288.5 million reflecting a reduction in expenditures in
domestic tobacco. Capital expenditures by industry segments are shown on
page 49, Notes to Consolidated Financial Statements. Funds for 1994 capital
expenditures, budgeted at approximately $260 million, are expected to be
generated internally.
9
<PAGE>
Acquisitions. On June 30, 1993, The American Tobacco Company acquired
from B.A.T Industries, PLC the Benson and Hedges cigarette trademark in
Europe in exchange for its Lucky Strike and Pall Mall trademarks overseas,
and $107.2 million in cash and contingent payments based on future volume.
During the fourth quarter 1993, Whyte & Mackay purchased the remaining
outstanding ordinary shares of Invergordon for $343.6 million.
Life insurance investing activities increased primarily due to
substantial calls of fixed income investments and reinvestment of the
proceeds.
Net Cash Provided (Used) by Financing Activities
Net cash provided by financing activities of $76.5 million compared to a
use of $333.1 million in 1992. The increase resulted primarily from higher
net borrowings and lower treasury stock purchases in 1993 and, in 1992, the
redemption of the $2.75 Preferred stock for $134.4 million. The increase
was partially offset by a lower net increase in deposits in investment-type
contracts.
===========================================================================
FINANCIAL POSITION
At year end, total debt increased $443.8 million to $3.7 billion. Short-
term debt increased $358.2 million to $1.2 billion and long-term debt
increased $85.6 million to $2.5 billion. The ratio of total debt to total
capital increased from 42.9% for 1992 to 46.2% at year-end 1993. The
increase was as a result of the acquisitions and the year end U.K. budget
announcement. The average ratio of total debt to total capital was 43.8% in
1993 compared to 42.7% in 1992.
During the year, the Company issued $150 million of 7-7/8% Debentures,
Due 2023. The net proceeds from this issuance was used for general
corporate purposes, including the repayment of outstanding debt. During
1993, 75 million pounds sterling of 9-3/4% Notes and $20 million in Medium
Term Notes matured.
At December 31, 1993, the Company had $850 million of debt securities
(including Medium Term Notes) available for sale under its shelf
registration with the Securities and Exchange Commission.
At year end, the Company had $4 billion of long-term credit facilities,
of which $3.8 billion remained unused. These facilities are available for
general corporate purposes, including acquisitions and support of the
Company's short-term borrowings in the commercial paper market. In
addition, Gallaher has committed short-term revolving credit agreements of
300 million pounds sterling (approximately $444 million) which are
available for general corporate purposes, including acquisitions.
The Company believes that its internally generated funds, together with
its access to global credit markets, are more than adequate to meet its
capital needs.
Working capital decreased from $664.4 million in 1992 to $575.4 million
in 1993. Management believes this is an adequate level to support continued
growth.
Life insurance net assets were $1.3 billion, up $69.8 million. Although
life insurance net assets and cash flow are consolidated in the financial
statements, generally Franklin is restricted by the insurance laws of the
State of Illinois as to amounts that can be transferred to the Company in
the form of dividends, loans or advances without approval of the Director
of Insurance. This restriction has not had and is not expected to have a
material effect on the ability of the Company to meet its cash obligations.
10
<PAGE>
Life insurance investments in 1993 increased by $487.6 million primarily
reflecting increases in fixed maturities and mortgage loans.
At December 31, 1993, the unrealized gain on Franklin's held-to-maturity
portfolio was $467.1 million.
In 1993, independent insurance analysts continued to rate Franklin
highly in terms of financial strength. Franklin has consistently followed a
conservative investment program and has maintained a high-quality
portfolio. At year-end, only 4.5% of Franklin's held-to-maturity portfolio
was in non-investment grade securities. Its mortgage loans represented 9.2%
of its investment portfolio, and its non-performing assets comprised less
than 1%.
Franklin's insurance and investment-type contracts contain provisions
that permit surrender for cash. At December 31, 1993, outstanding contracts
representing approximately 22% of the liabilities for these products
provided for withdrawal fees, which may discourage early surrender. During
1993, contracts representing less than 4% of these liabilities were
surrendered prior to maturity. Such surrenders are a part of the normal
course of business and do not reflect any significant change in surrender
activity.
===========================================================================
FOREIGN EXCHANGE
The Company has sizeable investments in, and derives substantial income
from, Europe (primarily the United Kingdom). Therefore, changes in the
value of foreign currencies, principally sterling, can have a significant
effect on its financial statements when translated into dollars.
===========================================================================
TAXES
Federal excise taxes on cigarettes increased four cents per pack on
January 1, 1993. In 1993, U.K. taxes on cigarettes increased 12%. Total
domestic and international excise taxes were $5.4 billion and income taxes
amounted to $407.9 million. Including Social Security and other taxes, the
Company's total taxes amounted to $6 billion, as compared with $6.5 billion
in 1992.
===========================================================================
COMMON STOCKHOLDERS' EQUITY
Common stockholders' equity at year end was $4.3 billion. Equity
remained flat primarily resulting from the charge to net income due to the
adoption of the FAS Statements and the purchase of 1.1 million shares for
the treasury, offset by results from operations net of dividends to
stockholders. In 1993, Common stockholders' equity also reflected a
decrease of $56.5 million due to foreign currency translation adjustments.
Return on average Common stockholders' equity was 11.1% as compared to
20.3% in 1992. Excluding the impact of the one-time charge due to the
adoption of the FAS Statements, the return on equity would have been 15.2%.
At year end, the Company had 27.8 million treasury shares, an amount
sufficient to cover future requirements of shares deliverable upon
conversions of outstanding preferred stock and debentures, the exercise of
outstanding stock options and in connection with other stock-based awards.
11
<PAGE>
During the year, American Brands Common stock traded within a range of
$28.50 to $40.625. The Common stock generated a total return of 258.7%, or
13.6% compounded annually, over the ten-year period ended December 31,
1993.
Book value per Common share was $21.09 at year end.
===========================================================================
QUARTERLY COMMON STOCK
DIVIDEND PAYMENTS
1993 1992
- ------------------------------ -----------------------------
===========================================================================
Payment Amount Payment Amount
Date per Share Date per Share
- ---------------------------------------------------------------------------
3/1/93 $ .4925 3/2/92 $ .4375
6/1/93 .4925 6/1/92 .4375
9/1/93 .4925 9/1/92 .4375
12/1/93 .4925 12/1/92 .4925
- ---------------------------------------------------------------------------
$1.97 $1.805
==========================================================================
===========================================================================
QUARTERLY COMPOSITE
COMMON STOCK PRICES
1993 1992
--------------------- ----------------------
===========================================================================
High Low High Low
- ---------------------------------------------------------------------------
First 40-5/8 31-7/8 46-1/2 42-3/4
Second 34-1/4 28-1/2 49-3/8 42-3/4
Third 34-3/8 29-7/8 49-7/8 44-1/2
Fourth 35-3/4 32 46 39
===========================================================================
The Common stock is listed on the New York Stock Exchange, which is the
principal market for this security. The high and low prices are as reported
in the consolidated transaction reporting system.
12
<PAGE>
===========================================================================
QUARTERLY FINANCIAL DATA unaudited
(In millions, except
per share amounts) 1ST 2ND 3RD 4TH
1993 -------- -------- -------- --------
===========================================================================
Revenues $3,737.6 $2,846.0 $3,302.0 $3,815.8
Operating income 430.8 316.5 248.0 402.6
Income before cumulative effect
of accounting changes 247.1 151.3 85.0 184.8
Cumulative effect of
accounting changes (201.0) -- -- 2.6
Net income 46.1 151.3 85.0 187.4
Earnings per Common share
Primary
Income before cumulative
effect of accounting changes $1.22 $.75 $.42 $.91
Cumulative effect of
accounting changes (.99) -- -- .01
- ---------------------------------------------------------------------------
Net income $ .23 $.75 $.42 $.92
- ---------------------------------------------------------------------------
Fully diluted
Income before cumulative effect
of accounting changes $1.18 $.73 $.42 $.90
Cumulative effect of
accounting changes (.95) -- -- .01
- ---------------------------------------------------------------------------
Net income $ .23 $.73 $.42 $.91
===========================================================================
1st 2nd 3rd 4th
1992 -------- -------- -------- --------
===========================================================================
Revenues $3,833.6 $3,245.0 $3,773.1 $3,771.9
Operating income 473.4 398.0 420.8 462.8
Net income 245.2 202.6 202.7 233.3
Earnings per Common share
Primary $1.18 $.98 $.98 $1.15
Fully diluted 1.14 .94 .95 1.10
===========================================================================
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
1993 1992 1991
For years ended December 31 (In millions, except per share amounts) --------- --------- ---------
=================================================================================================================
<S> <C> <C> <C>
REVENUES
Consumer products $12,630.5 $13,658.1 $13,193.4
Life insurance 1,070.9 965.5 870.4
- -----------------------------------------------------------------------------------------------------------------
13,701.4 14,623.6 14,063.8
- -----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of products sold 3,587.6 3,823.5 3,685.6
Excise taxes on products sold 5,413.9 5,783.3 5,684.8
Insurance benefits 654.2 646.3 571.0
Advertising, selling and administrative expenses
Consumer products 2,315.2 2,388.5 2,271.4
Life insurance 188.2 143.1 136.8
Amortization of intangibles 103.6 92.4 83.4
Restructuring charges (credits), net 40.8 (8.5) --
- -----------------------------------------------------------------------------------------------------------------
12,303.5 12,868.6 12,433.0
- -----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,397.9 1,755.0 1,630.8
- -----------------------------------------------------------------------------------------------------------------
Interest and related charges 244.2 270.1 264.0
Corporate administrative expenses 78.1 80.7 134.5
Other (income) expenses, net (0.5) 6.1 (5.7)
- -----------------------------------------------------------------------------------------------------------------
321.8 356.9 392.8
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,076.1 1,398.1 1,238.0
Income taxes 407.9 514.3 431.9
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 668.2 883.8 806.1
Cumulative effect of accounting changes (net of income taxes of $122.5) (198.4) -- --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 469.8 $ 883.8 $ 806.1
=================================================================================================================
14
<PAGE>
EARNINGS PER COMMON SHARE
Primary
Income before cumulative effect of accounting changes $3.30 $4.29 $3.91
Cumulative effect of accounting changes (.98) -- --
- -----------------------------------------------------------------------------------------------------------------
Net income $2.32 $4.29 $3.91
- -----------------------------------------------------------------------------------------------------------------
Fully diluted
Income before cumulative effect of accounting changes $3.23 $4.13 $3.74
Cumulative effect of accounting changes (.94) -- --
- -----------------------------------------------------------------------------------------------------------------
Net income $2.29 $4.13 $3.74
=================================================================================================================
DIVIDENDS PAID PER COMMON SHARE $1.97 $1.805 $1.5925
=================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
1993 1992
December 31 (In millions, except per share amounts) -------- ---------
=================================================================================================================
<S> <C> <C>
ASSETS
CONSUMER PRODUCTS AND CORPORATE
Current assets
Cash and cash equivalents $ 62.5 $ 54.8
Accounts receivable, net 1,241.6 1,255.3
Inventories 2,043.2 1,810.2
Other current assets 385.8 332.8
- -----------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS AND CORPORATE CURRENT ASSETS 3,733.1 3,453.1
- -----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 1,472.1 1,406.4
Intangibles resulting from business acquisitions, net 3,637.9 3,104.0
Other assets 379.4 631.1
- -----------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS AND CORPORATE ASSETS 9,222.5 8,594.6
- -----------------------------------------------------------------------------------------------------------------
LIFE INSURANCE
Investments 5,808.8 5,321.2
Cash and cash equivalents 79.1 85.4
Accrued investment income 101.1 98.9
Deferred policy acquisition costs 470.5 437.9
Present value of future profits, net 170.0 175.6
Intangibles resulting from business acquisitions, net 83.2 86.5
Other assets 403.8 119.6
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIFE INSURANCE ASSETS 7,116.5 6,325.1
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $16,339.0 $14,919.7
=================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
1993 1992
December 31 --------- ---------
=================================================================================================================
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSUMER PRODUCTS AND CORPORATE
Current liabilities
Notes payable to banks $ 298.9 $ 247.1
Commercial paper 711.3 433.4
Accounts payable 454.1 339.6
Accrued excise and other taxes 726.3 884.0
Accrued expenses and other liabilities 794.4 740.4
Current portion of long-term debt 172.7 144.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS AND CORPORATE CURRENT LIABILITIES 3,157.7 2,788.7
- -----------------------------------------------------------------------------------------------------------------
Long-term debt 2,492.4 2,406.8
Deferred income taxes 124.7 195.2
Postretirement and other liabilities 520.3 176.5
- -----------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS AND CORPORATE LIABILITIES 6,295.1 5,567.2
- -----------------------------------------------------------------------------------------------------------------
LIFE INSURANCE
Policy reserves and claims 2,553.4 2,401.2
Investment-type contract deposits 2,732.3 2,265.9
Other policyholders' funds 238.1 217.1
Other liabilities 248.7 166.7
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIFE INSURANCE LIABILITIES 5,772.5 5,050.9
- -----------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK-REDEEMABLE AT COMPANY'S OPTION
$2.67 Convertible Preferred stock, without par value, stated value $30.50 per share 17.1 19.1
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4
Paid-in capital 173.3 177.9
Unrealized appreciation on investments 5.3 10.5
Foreign currency adjustments (317.4) (260.9)
Retained earnings 4,393.4 4,322.7
Treasury stock, at cost (717.7) (685.1)
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY 4,254.3 4,282.5
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,339.0 $14,919.7
=================================================================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
1993 1992 1991
For years ended December 31 (In millions) --------- --------- ---------
============================================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 469.8 $ 883.8 $ 806.1
Depreciation and amortization 308.9 304.1 281.2
Changes in accounting principles 198.4 -- --
Gain on dispositions and investments, net (120.9) (43.2) (27.1)
Decrease (increase) in accounts receivable 40.1 (64.6) (20.6)
(Increase) decrease in inventories (147.9) 150.6 (114.8)
Decrease (increase) in other assets 15.1 (56.9) (40.8)
(Decrease) increase in accrued excise and other taxes (179.7) (344.9) 195.0
Increase in accounts payable, accrued expenses and other liabilities 192.5 33.9 47.3
Increase (decrease) in deferred income taxes 4.8 (5.3) (71.6)
Increase in deferred policy acquisition costs (32.6) (29.3) (21.7)
Increase in insurance policy and investment-type contract related liabilities 295.2 329.0 259.2
Other operating activities, net (76.1) (80.2) 10.6
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 967.6 1,077.0 1,302.8
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (249.9) (288.5) (233.9)
Proceeds from the disposition of property, plant and equipment 19.3 18.9 32.7
Proceeds from the disposition of operations, net of cash and income taxes 9.6 13.7 --
Acquisitions, net of cash acquired (456.7) -- (632.6)
Purchases of investments (2,079.7) (1,576.8) (890.2)
Proceeds from the maturity, call and sale of investments 1,708.2 1,142.7 472.8
Other investing activities, net 4.9 (3.5) --
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,044.3) (693.5) (1,251.2)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Deposits on annuity and other financial products 386.0 427.3 363.2
Withdrawals of annuity and other financial products (268.5) (227.4) (200.3)
Increase (decrease) in short-term debt 296.9 399.8 (431.7)
Issuance of long-term debt 511.2 357.7 1,173.8
Repayment of long-term debt (387.3) (689.1) (561.3)
Dividends to stockholders (399.1) (377.8) (337.6)
Cash purchases of Common stock for treasury (57.9) (100.4) (106.7)
Redemption and purchases of $2.75 Preferred stock -- (134.4) (1.8)
Other financing activities, net (4.8) 11.2 3.3
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 76.5 (333.1) (99.1)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 1.6 (38.7) 22.0
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN TOTAL CASH AND CASH EQUIVALENTS $ 1.4 $ 11.7 $ (25.5)
============================================================================================================================
18
<PAGE>
Total cash and cash equivalents at beginning of year $140.2 $128.5 $154.0
Total cash and cash equivalents at end of year $141.6 $140.2 $128.5
============================================================================================================================
Cash paid during the year for
Interest, net of capitalized amount $245.1 $265.5 $239.8
Income taxes $464.4 $502.4 $493.8
============================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Unrealized
appreciation Foreign Treasury
Common Paid-in (depreciation) currency Retained stock,
stock capital on investments adjustments earnings at cost
(In millions) ------ ------- -------------- ----------- -------- --------
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $717.4 $137.7 $(15.4) $ 40.7 $3,348.2 $(626.6)
Net income -- -- -- -- 806.1 --
Cash dividends -- -- -- -- (337.6) --
Translation adjustments -- -- -- (21.7) -- --
Net unrealized appreciation -- -- 42.8 -- -- --
Purchases -- -- -- -- -- (110.3)
Conversion of securities and delivery of stock plan shares -- 44.6 -- -- -- 137.4
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 717.4 182.3 27.4 19.0 3,816.7 (599.5)
Net income -- -- -- -- 883.8 --
Cash dividends -- -- -- -- (377.8) --
Translation adjustments -- -- -- (279.9) -- --
Net unrealized depreciation -- -- (16.9) -- -- --
Purchases -- -- -- -- -- (122.5)
Conversion of securities and delivery of stock plan shares -- (0.2) -- -- -- 36.9
Redemption of $2.75 Preferred stock -- (4.2) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 717.4 177.9 10.5 (260.9) 4,322.7 (685.1)
Net income -- -- -- -- 469.8 --
Cash dividends -- -- -- -- (399.1) --
Translation adjustments -- -- -- (56.5) -- --
Net unrealized depreciation -- -- (5.2) -- -- --
Purchases -- -- -- -- -- (40.3)
Conversion of securities and delivery of stock plan shares -- (4.6) -- -- -- 7.7
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $717.4 $173.3 $ 5.3 $(317.4) $4,393.4 $(717.7)
===================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
===========================================================================
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. Balance sheet accounts are
segregated into two categories. Consumer products and corporate accounts
are classified as current or noncurrent, whereas the life insurance
accounts are unclassified, in accordance with industry practice. Fiscal
year ends of certain subsidiaries of Gallaher Limited and ACCO World
Corporation are November 30 to facilitate year-end closing.
Certain 1992 balance sheet amounts have been reclassified to conform to
the 1993 presentation.
Accounting Changes
On January 1, 1993, the Company adopted FAS Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" and
FAS Statement No. 112, "Employers' Accounting for Postemployment Benefits."
See Other Retiree Benefits and Postemployment Benefits notes on pages 41
and 42, respectively. On December 31, 1993, the Company adopted FAS
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." See "Investments" on page 29. The initial effects of adopting
these statements were recorded as cumulative changes in accounting
principles as follows:
===========================================================================
FAS Statements No.
(In millions, except per share amounts) 106 112 115 Total
- ---------------------------------------------------------------------------
Pretax charge (credit) $310.0 $15.0 $(4.1) $320.9
Income taxes 119.0 5.0 (1.5) 122.5
- ---------------------------------------------------------------------------
Net loss (income) $191.0 $10.0 $(2.6) $198.4
===========================================================================
Earnings per Common share $.94 $.05 $(.01) $.98
===========================================================================
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or
less are included in cash and cash equivalents. The carrying amount
approximates fair value.
Inventories
Inventories are priced at the lower of cost (principally average and
first-in, first-out and minor amounts at last-in, first-out) or market. In
accordance with generally recognized trade practice, the leaf tobacco and
bulk whiskey inventories are classified as current assets, although part of
such inventories, due to the duration of aging processes, ordinarily will
not be sold within one year.
21
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
provided, principally on a straight-line basis, over the estimated useful
lives of the assets. Profits or losses resulting from dispositions are
included in income. Betterments and renewals which improve and extend the
life of an asset are capitalized; maintenance and repair costs are
expensed.
Intangibles Resulting from Business Acquisitions
Intangibles resulting from business acquisitions, comprising cost in
excess of net assets of businesses acquired, and brands and trademarks, are
being amortized on a straight-line basis over 40 years, except for
intangibles acquired prior to 1971, which are not being amortized because
they are considered to have a continuing value over an indefinite period.
Amortization amounted to $95.7 million, $84.9 million and $75.9 million in
1993, 1992 and 1991, respectively. The cumulative amortization amounted to
$476.1 million and $380.8 million at December 31, 1993 and 1992,
respectively.
Valuation of Investments
At December 31, 1993, held-to-maturity securities, which are fixed
maturity securities that Franklin has the ability and intent to hold until
maturity, are carried at amortized cost. Trading securities, principally
equity securities that Franklin purchased with the intent of selling in the
near term, are carried at fair value with unrealized gains and losses
included in income. Available-for-sale securities, representing fixed
maturity securities not elsewhere classified, are carried at fair value
with unrealized gains and losses included directly in Common stockholders'
equity, net of applicable deferred federal income taxes.
Prior to December 31, 1993, all fixed maturity securities were valued at
amortized cost. Unrealized appreciation and depreciation on marketable
equity securities (including Invergordon through November 1993) were
included directly in Common stockholders' equity, net of applicable
deferred federal income taxes.
Investment income is recognized as revenue when earned. Realized gains
and losses on disposals of investments are determined on a specific
identification basis and are included in income.
Recognition of Premium Revenue and Policy Benefits
For traditional life and annuity products, premiums are recognized as
revenue when received. Policy reserves have been established in a manner
which allocates policy benefits and expenses on a basis consistent with the
recognition of the related premiums and generally results in the
recognition of profits over the premium-paying period of the policies. For
investment-type contracts, principally deferred annuity contracts, premiums
are treated as policyholder deposits and are recorded as liabilities.
Benefits paid reduce the policyholder liability.
Deferred Policy Acquisition Costs
Costs directly associated with acquiring new business, principally
commissions, along with home office expenses relating to underwriting and
policy issue and certain agency expenses, all of which vary with and are
primarily related to the production of new business, have been deferred to
the extent recoverable. Deferred costs for traditional products are being
amortized over the anticipated premium-paying period of the related
policies, using the same assumptions that are applied in calculating policy
22
<PAGE>
reserves. For investment-type contracts, deferred costs are amortized at a
constant rate in proportion to the anticipated profits.
Present Value of Future Profits
The present value of profits to be realized from future premiums,
relating to insurance in force at the date of acquisition of Franklin and
additions related to assumption reinsurance agreements, is being amortized
over the years that such profits are anticipated to be earned. These future
profits have been discounted to provide an appropriate rate of return using
assumptions applied in calculating policy reserves and deferred policy
acquisition costs. Amortization, included in amortization of intangibles,
amounted to $7.9 million in 1993 and $7.5 million in each of 1992 and 1991,
net of imputed interest of $25.5 million, $26.3 million and $27.3 million
in 1993, 1992 and 1991, respectively. As a result of assumption reinsurance
agreements acquired, $2.2 million and $4.3 million was added to the present
value of future profits in 1993 and 1992, respectively. Approximately $8
million will be amortized in each of the next five years. The cumulative
amortization amounted to $131.1 million, $123.2 million and $115.7 million
at December 31, 1993, 1992 and 1991, respectively.
Policy Reserves and Investment-Type Contract Deposits
Policy reserves provide amounts adequate to discharge estimated future
obligations on policies in force. Policy reserves for traditional insurance
contracts are computed by the net level premium valuation method. Life and
annuity reserves have been computed based upon future investment needs,
mortality, withdrawals and current dividend scale assumptions applicable to
these coverages, including provision for reasonable adverse deviations.
Interest rates range from 2% to 11.5%, and mortality and withdrawal
assumptions reflect company experience and industry standards. The
assumptions vary by plan, age at issue, year of issue and duration.
For investment-type contracts, the liability for future policyholder
benefits and the policyholder account balance are equal. The policyholder
account balance includes premium deposits and interest credits less
mortality and expense charges.
Participating Policyholders' Interest
Income before taxes for participating policies is determined annually.
From this amount, a portion is allocated to participating policies for
dividends and to satisfy regulatory requirements. These amounts, net of
applicable income taxes, are included in other policyholders' funds.
Participating insurance accounted for 51%, 51% and 50% during 1993, 1992
and 1991, respectively, of the total ordinary insurance in force and
premium income from ordinary life participating policies amounted to 65%,
69% and 68% of total premiums during 1993, 1992 and 1991, respectively.
Income Taxes
Deferred tax liabilities or assets are established for temporary
differences between financial and tax reporting bases and are subsequently
adjusted to reflect changes in tax rates expected to be in effect when the
temporary differences reverse. A valuation allowance is established for any
deferred tax asset for which realization is not likely.
Deferred income taxes are not provided on undistributed earnings of
foreign subsidiaries, aggregating approximately $1.2 billion at December
31, 1993, as such earnings are expected to be permanently reinvested in
these companies.
23
<PAGE>
Under insurance tax laws in effect for years prior to 1984, a portion of
Franklin's accumulated statutory income has not been subject to tax. Should
the aggregated untaxed income exceed certain prescribed maximums or cash
dividends to the Company exceed the accumulated taxed portion, the excess
would be subject to federal income tax. Taxes of $70 million calculated
using the current federal statutory income tax rate have not been provided
on the untaxed income, which aggregated $201 million at December 31, 1993,
since Franklin does not contemplate distributing such income in the
foreseeable future.
Earnings Per Share
Earnings per Common share are based on the weighted average number of
Common shares outstanding in each year and after preferred stock dividend
requirements.
Fully diluted earnings per Common share assume that any convertible
debentures and convertible preferred shares outstanding at the beginning of
each year or at their date of issuance, if later, were converted at those
dates, with related interest, preferred stock dividend requirements and
outstanding Common shares adjusted accordingly. It also assumes that
outstanding Common shares were increased by shares issuable upon exercise
of those stock options for which market price exceeds exercise price, less
shares which could have been purchased by the Company with related
proceeds.
===========================================================================
ACQUISITIONS
During the fourth quarter of 1993, Whyte & Mackay completed its
acquisition of Invergordon Distillers Group PLC ("Invergordon") by
purchasing the remaining 58.7% of the outstanding shares of Invergordon for
a cost, including fees and expenses, of $343.6 million. In 1991, Whyte &
Mackay acquired 41.3% of the outstanding shares of Invergordon for a cost,
including fees and expenses, of $255.5 million. Due to absence of control,
this was recorded in "Other assets" as an investment in marketable equity
securities at a carrying value of $222.2 million at December 31, 1992. The
aggregate cost of Invergordon of $599.1 million, exceeded the fair value of
net assets acquired by $492.9 million. The financial statements for prior
periods were not restated because the effect was not material. Operations,
including the effect of the application of the equity method to prior
periods, were consolidated from December 1, 1993. Had operations been
consolidated from January 1, 1992, they would not have materially affected
the periods being reported. In connection with the acquisition of
Invergordon, liabilities amounting to $108.4 million were recorded at date
of acquisition.
On June 30, 1993, The American Tobacco Company acquired from B.A.T
Industries, PLC the Benson and Hedges cigarette trademark in Europe in
exchange for assignment of its Lucky Strike and Pall Mall overseas
cigarette trademarks, and $107.2 million in cash, including expenses, and
contingent future payments based on volumes. Results from the Benson and
Hedges trademark are included in international tobacco from the date of
acquisition. A pretax gain of $25.5 million was recognized in domestic
tobacco as a result of the assignment of the Lucky Strike and Pall Mall
trademarks. Certain of the contingent payments are guaranteed and,
accordingly, their present value is included in the initial $183 million of
intangibles that have been recorded. Any payments in excess of the
guarantees will also be amortized over periods not to exceed 40 years.
24
<PAGE>
On December 13, 1991, Jim Beam Brands Co. acquired certain distilled
spirits trademarks for an aggregate cost, including fees and expenses, of
$376.2 million. Results from these trademarks were included in operations
from January 1, 1992.
===========================================================================
ACCOUNTS RECEIVABLE, NET
The components of accounts receivable, net are as follows:
1993 1992
(In millions) -------- --------
===========================================================================
Accounts receivable $1,304.1 $1,315.3
Less allowances for discounts, doubtful accounts
and returns 62.5 60.0
- ---------------------------------------------------------------------------
$1,241.6 $1,255.3
===========================================================================
The Company's accounts receivable comprises amounts due from customers,
principally in the tobacco products segment. At December 31, 1993 and 1992,
approximately 45% and 42% of accounts receivable were related to U.K.
operations, and 6% and 5% were due from a U.K. tobacco distributor,
respectively.
===========================================================================
INVENTORIES
The components of inventories are as follows:
1993 1992
(In millions) -------- --------
===========================================================================
Leaf tobacco $ 477.7 $ 522.1
Bulk whiskey 359.3 272.6
Other raw materials, supplies and work in process 306.9 324.7
Finished products 899.3 690.8
- ---------------------------------------------------------------------------
$2,043.2 $1,810.2
===========================================================================
25
<PAGE>
===========================================================================
PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, net are as follows:
1993
------------------------------------
===========================================================================
Consumer
products and Life
(In millions) corporate insurance(a) Total
- ---------------------------------------------------------------------------
Land and improvements $ 92.3 $ 3.7 $ 96.0
Buildings and improvements to leaseholds 636.9 14.4 651.3
Machinery and equipment 1,847.2 33.7 1,880.9
Construction in progress 114.3 -- 114.3
- ---------------------------------------------------------------------------
2,690.7 51.8 2,742.5
Less accumulated depreciation 1,218.6 32.5 1,251.1
- ---------------------------------------------------------------------------
$1,472.1 $19.3 $1,491.4
===========================================================================
1992
------------------------------------
===========================================================================
Consumer
products and Life
(In millions) corporate insurance(a) Total
- ---------------------------------------------------------------------------
Land and improvements $ 88.9 $ 3.7 $ 92.6
Buildings and improvements to leaseholds 593.2 11.7 604.9
Machinery and equipment 1,729.2 30.0 1,759.2
Construction in progress 102.9 -- 102.9
- ---------------------------------------------------------------------------
2,514.2 45.4 2,559.6
Less accumulated depreciation 1,107.8 29.2 1,137.0
- ---------------------------------------------------------------------------
$1,406.4 $16.2 $1,422.6
===========================================================================
(a) Included in Life insurance-Other assets
26
<PAGE>
===========================================================================
THE FRANKLIN LIFE INSURANCE COMPANY
INCOME AND CASH FLOW STATEMENTS
Summarized income statement data for The Franklin Life Insurance Company
and its subsidiaries are as follows:
1993 1992 1991
(In millions) -------- ------ ------
===========================================================================
Revenues
Premiums $ 462.2 $459.8 $417.7
Net investment income 558.0 484.1 436.3
Other income 50.7 21.6 16.4
- ---------------------------------------------------------------------------
1,070.9 965.5 870.4
- ---------------------------------------------------------------------------
Insurance benefits
Benefits paid or provided and change
in policy reserves 561.9 551.9 477.7
Dividends to policyholders 92.3 94.4 93.3
Advertising, selling and administrative
expenses
Amortization of deferred policy
acquisition costs 68.0 58.3 58.6
Amortization of intangibles and present
value of future profits 11.2 10.8 10.8
Other 120.2 84.8 78.2
- ---------------------------------------------------------------------------
853.6 800.2 718.6
- ---------------------------------------------------------------------------
Operating income 217.3 165.3 151.8
Income taxes 79.5 56.2 50.4
- ---------------------------------------------------------------------------
Income before cumulative effect of
accounting changes 137.8 109.1 101.4
Cumulative effect of accounting changes
(net of income taxes of $12.4) (18.0) -- --
- ---------------------------------------------------------------------------
Net income $ 119.8 $109.1 $101.4
===========================================================================
Generally, Franklin is restricted by the insurance laws of its
domiciliary state as to amounts that can be transferred to the Company in
the form of dividends, loans or advances without the approval of the
Director of Insurance. Under these restrictions, loans or advances in
excess of $144 million and dividends in any twelve-month period aggregating
in excess of $72 million will require the approval of the Director.
27
<PAGE>
Summarized cash flow data is as follows:
1993 1992 1991
(In millions) --------- --------- ---------
==========================================================================
Operating activities
Net income $ 119.8 $ 109.1 $ 101.4
Depreciation and amortization 15.0 15.1 15.0
Changes in accounting principles 18.0 -- --
Gain on dispositions and
investments, net (92.6) (40.8) (20.6)
Increase in deferred policy
acquisition costs (32.6) (29.3) (21.7)
Change in policy reserves and claims
and other policyholders' funds 140.1 185.9 136.1
Interest, net of charges on
investment-type contract deposits 155.1 143.1 123.1
Other, net (23.5) (51.8) (44.7)
- ---------------------------------------------------------------------------
Net cash provided from operating
activities 299.3 331.3 288.6
- ---------------------------------------------------------------------------
Investment activities
Additions to property and equipment (6.5) (2.8) (1.9)
Purchases of investments (2,079.7) (1,576.8) (890.2)
Proceeds from the sale of
investments:
Fixed maturities 34.1 68.1 38.8
Other 256.5 220.5 118.6
Proceeds from maturity and
call of investments 1,417.6 854.1 315.4
- ---------------------------------------------------------------------------
Net cash used by investing
activities (378.0) (436.9) (419.3)
- ---------------------------------------------------------------------------
Financing activities
Dividends to parent (45.1) (55.1) (50.5)
Deposits on annuity and other
financial products 386.0 427.3 363.2
Withdrawals of annuity and other
financial products (268.5) (227.4) (200.3)
- ---------------------------------------------------------------------------
Net cash provided by financing
activities 72.4 144.8 112.4
- ---------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents $ (6.3) $ 39.2 $ (18.3)
===========================================================================
28
<PAGE>
INVESTMENTS
On December 31, 1993, the Company adopted FAS Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
effect of adoption of this statement, recorded as a cumulative change in
accounting principle, representing the unrealized gain on the trading
portfolio, was a benefit of $2.6 million, net of $1.5 million of income
taxes, or one cent per Common share. The net unrealized gain on the
available-for-sale portfolio, which amounted to $5.3 million, net of $2.9
million of income taxes, is included in unrealized appreciation on
investments in Common stockholders' equity at December 31, 1993.
The components of investments are as follows:
1993 1992
(In millions) ------- --------
===========================================================================
Held-to-maturity, fixed maturities at amortized cost $4,525.5 $ --
Trading securities:
Equity securities, at fair value, cost - $257.7 261.5 --
Other securities, at fair value, cost - $9.9 10.2 --
Available-for-sale securities, at fair value,
cost - $129.8 138.0 --
Fixed maturities, at amortized cost -- 4,286.9
Equity securities, at fair value, cost - $236.4 -- 252.5
Mortgage loans on real estate, at unpaid
principal balance 537.2 436.0
Policy loans, at unpaid principal balance 311.2 310.3
Other investments 25.2 35.5
- ---------------------------------------------------------------------------
$5,808.8 $5,321.2
===========================================================================
29
<PAGE>
The amortized cost and estimated fair value of investments in fixed
maturities are as follows:
1993
-----------------------------------------------
===========================================================================
Gross Gross
Amortized unrealized unrealized Fair
(In millions) cost gains losses value
- ---------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies $ 47.2 $ 7.2 $ -- $ 54.4
Obligations of states
and political
subdivisions 25.9 2.3 (0.2) 28.0
Fixed maturity securities
issued by foreign
governments 97.1 11.2 (0.4) 107.9
Corporate securities
Public utilities 1,479.6 137.9 (6.1) 1,611.4
All other 2,407.5 273.6 (7.1) 2,674.0
Mortgage-backed
securities 465.4 48.6 (0.4) 513.6
Redeemable preferred
stocks 2.8 0.5 -- 3.3
- ---------------------------------------------------------------------------
4,525.5 481.3 (14.2) 4,992.6
- ---------------------------------------------------------------------------
Available-for-sale:
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies 125.9 7.2 (0.2) 132.9
Fixed maturity
securities
issued by foreign
governments 3.1 1.1 -- 4.2
Redeemable preferred
stocks 0.8 0.1 -- 0.9
- ---------------------------------------------------------------------------
129.8 8.4 (0.2) 138.0
- ---------------------------------------------------------------------------
$4,655.3 $489.7 $(14.4) $5,130.6
===========================================================================
30
<PAGE>
1992
-----------------------------------------------
==========================================================================
Gross Gross
Amortized unrealized unrealized Fair
(In millions) cost gains losses value
- --------------------------------------------------------------------------
Bonds
Federal, state and local $ 130.8 $ 9.4 $ (3.9) $ 136.3
Foreign governments 94.1 10.3 -- 104.4
Corporate securities
Public utilities 1,426.8 122.6 (6.3) 1,543.1
All other 2,161.4 162.9 (12.2) 2,312.1
Mortgage-backed
securities 468.4 35.9 (6.0) 498.3
Redeemable preferred stocks 5.4 -- (0.6) 4.8
- --------------------------------------------------------------------------
$4,286.9 $341.1 $(29.0) $4,599.0
==========================================================================
Franklin is restricted by the insurance laws of its domiciliary state as
to the amount which it can invest in any entity. At December 31, 1993 and
1992, Franklin's largest investment in any one entity was $39.3 million and
$24.9 million, respectively. Exclusive of the concentration noted above,
the fixed maturity investments in all other corporate securities did not
contain any significant geographic or industry concentrations of credit
risk.
The amortized cost and estimated fair value of investments in fixed
maturities at December 31, 1993, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
1993
----------------------
==========================================================================
Amortized Fair
(In millions) amount value
- --------------------------------------------------------------------------
Held-to-maturity:
Due in one year or less $ 38.4 $ 38.6
Due after one year through five years 501.2 556.2
Due after five years through ten years 1,479.9 1,625.4
Due after ten years 2,040.6 2,258.8
Mortgage-backed securities 465.4 513.6
- --------------------------------------------------------------------------
4,525.5 4,992.6
- --------------------------------------------------------------------------
Available-for-sale:
Due in one year or less 15.1 15.1
Due after one year through five years 4.7 5.2
Due after five years through ten years 44.5 46.6
Due after ten years 65.5 71.1
- --------------------------------------------------------------------------
129.8 138.0
- --------------------------------------------------------------------------
$4,655.3 $5,130.6
==========================================================================
31
<PAGE>
During 1993, 1992 and 1991, proceeds from sales of investments in fixed
maturities were $34.1 million, $68.1 million and $38.8 million,
respectively. During 1993, 1992 and 1991, gross gains of $1 million, $1.4
million and $1.7 million, respectively, and during 1993 and 1992, gross
losses of $0.2 million and $0.5 million, respectively, were realized on
those sales.
Summary of net investment income is as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
Fixed maturities $394.2 $383.5 $359.3
Equity securities 8.3 5.9 5.5
Mortgage loans 47.7 38.3 30.1
Net realized gains on investments 92.6 40.8 20.6
Policy loans 17.8 17.7 17.6
Other investments 3.8 3.7 9.4
- --------------------------------------------------------------------------
564.4 489.9 442.5
Less investment expenses 6.4 5.8 6.2
- --------------------------------------------------------------------------
$558.0 $484.1 $436.3
==========================================================================
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Information is provided about management's best estimates of the fair
value of certain financial instruments for which it is practicable to
estimate that value. This disclosure excludes certain insurance policy-
related financial instruments and all nonfinancial instruments. The
aggregate fair value amounts presented are not intended to represent the
underlying aggregate fair value of Franklin.
The methods and assumptions used to estimate fair value are as follows:
Fair values for held-to-maturity and available-for-sale (fixed maturity)
securities are determined from quoted market prices, where available. For
securities not actively traded, fair value is estimated by discounting cash
flows and using current interest rates considering credit ratings and the
remaining terms to maturity.
Fair value for trading (equity) securities is based on quoted market
prices.
Fair value for mortgage loans is estimated by discounting cash flows and
using current interest rates on similar real estate loans considering
credit ratings and the remaining terms to maturity.
Fair value for investment-type insurance contracts is estimated by
reducing the policyholder liability for applicable surrender or mortality
charges, if any.
Fair value for commitments to extend credit, principally mortgage loans,
is calculated using current interest rates that approximate the amount a
willing buyer would pay to acquire a similar instrument. The amount of
commitments to extend credit at December 31, 1993 and 1992 was $176 million
and $90 million, respectively, which approximates fair value.
Fair value for accrued investment income approximates the carrying
amount.
32
<PAGE>
Policy loans have no stated maturity dates and are an integral part of
the related insurance contract. Accordingly, it is not practicable to
estimate a fair value.
The estimated fair value of Franklin's financial instruments, for which
it is practicable to estimate that value, are as follows:
1993
---------------------
==========================================================================
Carrying Fair
(In millions) amount value
- --------------------------------------------------------------------------
Held-to-maturity securities $4,525.5 $4,992.6
Trading securities 271.7 271.7
Available-for-sale securities 138.0 138.0
Mortgage loans 537.2 559.4
Liabilities for investment-type contracts,
principally individual and group annuities (1,800.8) (1,713.1)
==========================================================================
1992
---------------------
==========================================================================
Carrying Fair
(In millions) amount value
- --------------------------------------------------------------------------
Fixed maturities $4,286.9 $4,599.0
Equity securities 252.5 252.5
Mortgage loans 436.0 449.6
Liabilities for investment-type contracts,
principally individual and group annuities (1,517.9) (1,444.0)
==========================================================================
===========================================================================
SHORT-TERM BORROWINGS AND
CREDIT FACILITIES
The estimated fair value of the Company's $298.9 million and $247.1
million of notes payable to banks and $711.3 million and $433.4 million of
commercial paper at December 31, 1993 and 1992, respectively, approximates
the carrying amounts due principally to their short maturity.
At December 31, 1993, there was $44 million outstanding under committed
bank credit agreements which provide for unsecured borrowings of up to $444
million for general corporate purposes, including acquisitions. Fees of
1/8% per annum are paid.
In addition, the Company had uncommitted bank lines of credit which
provide for unsecured borrowings for working capital of up to $824 million,
of which $253 million was outstanding at year end.
33
<PAGE>
==========================================================================
LONG-TERM DEBT
The components of long-term debt are as follows:
1993 1992
(In millions) -------- --------
==========================================================================
Notes payable(a) $ 300.0 $ 200.0
Revolving credit notes(a) 211.2 237.8
Other notes(b) 356.5 376.5
5-3/4% Eurodollar Convertible Debentures, Due 2005(c) 200.0 200.0
7-5/8% Eurodollar Convertible Debentures, Due 2001(d) 150.0 150.0
Other Eurodollar Convertible Debentures(e) 41.0 43.4
8-1/2% Notes, Due 2003 200.0 200.0
5-1/4% Notes, Due 1995 200.0 200.0
8-5/8% Debentures, Due 2021 150.0 150.0
9-1/8% Debentures, Due 2016 150.0 150.0
7-7/8% Debentures, Due 2023 150.0 --
7-1/2% Notes, Due 1999 150.0 150.0
9-3/4% Eurosterling Notes, Due 1993 -- 113.6
9% Notes, Due 1999(f) 100.0 100.0
9-1/2% Eurosterling Notes, Due 1994 74.0 75.7
9-1/4% Eurosterling Notes, Due 1998 74.0 75.7
12% Eurosterling Notes, Due 1995 59.2 60.6
12-1/2% Sterling Loan Stock, Due 2009 44.4 45.4
Miscellaneous 54.8 22.3
- --------------------------------------------------------------------------
2,665.1 2,551.0
Less current portion 172.7 144.2
- --------------------------------------------------------------------------
$2,492.4 $2,406.8
==========================================================================
(a) The Company maintains revolving credit agreements expiring in 1995 with
various banks which provide for unsecured borrowings of up to $4 billion,
including $1 billion in various Eurocurrencies. The interest rate is set at
the time of each borrowing, and a commitment fee of 1/4% per annum is paid.
Borrowings under these agreements may be made for general corporate
purposes, including acquisitions and support for the Company's short-term
borrowings in the commercial paper market.
The Company, in the event that it becomes advisable, intends to exercise
its rights under these agreements to refinance $300 million of short-term
notes payable; accordingly, short-term notes payable in this amount have
been classified as long-term debt at December 31, 1993.
(b) The Other notes have maturity dates ranging from one to eight years,
with a weighted average coupon of 8.4%.
(c) The 5-3/4% Eurodollar Convertible Debentures, Due 2005, are convertible
into Common shares at a conversion price of $39.50 per share. Each
debenture holder will have a one-time put on April 11, 1995, at a price of
114.74%, plus accrued interest, and if there is a fundamental change in the
Common stock prior to April 11, 1995, at a price of 105.75%, or thereafter
prior to April 11, 2000 at par, plus accrued interest. The Company may
redeem all or part of the debentures at its option any time after April 11,
1995 at par, plus accrued interest.
34
<PAGE>
(d) The 7-5/8% Eurodollar Convertible Debentures, Due 2001, are convertible
into Common shares at a conversion price of $53.19 per share. If a
fundamental change in the Common stock occurs, each debenture holder will
have the right to repayment at a price of 106.1% declining to par at
maturity, plus accrued interest. The Company may redeem all or part of the
debentures at its option any time on or after March 5, 1994 at a price of
105.3375% declining to par at maturity, plus accrued interest.
(e) The Other Eurodollar Convertible Debentures include 7-3/4% Debentures,
Due 2002, of $39.9 million and $40 million and 5-3/8% Debentures, Due 2003,
of $1.1 million and $3.4 million, in 1993 and 1992, respectively. These 7-
3/4% and 5-3/8% debentures are convertible into Common shares based on
conversion prices of $28.35 and $29 per share, respectively. During 1992
and 1991, $10.5 million and $155.2 million of these debentures were
converted and 0.4 million and 5.4 million treasury shares, respectively,
were issued upon such conversions.
(f) The holders of the 9% Notes, Due 1999, have a one-time put on June 15,
1994 at par, plus accrued interest.
Estimated payments for maturing debt and sinking fund requirements,
assuming one-time put options are not exercised, during the next five years
are as follows: 1994, $172.7 million; 1995, $815.1 million; 1996, $112.6
million; 1997, $56.4 million; and 1998, $169.4 million.
The estimated fair value of the Company's $2,665.1 million and $2,551
million total long-term debt (including current portion) at December 31,
1993 and 1992 approximated $2,880 million and $2,698 million, respectively.
The fair value is determined from quoted market prices, where available,
and from investment bankers using current interest rates considering credit
ratings and the remaining terms to maturity.
===========================================================================
REDEEMABLE PREFERRED STOCK
On August 17, 1992, the Company redeemed its outstanding $2.75 Preferred
stock at a redemption price of $31.46 per share, plus an amount
representing accrued dividends of 52 cents per share. The aggregate
redemption payment including accrued dividends was $133.9 million.
A cash dividend of $2.75 per share in the aggregate amount of $8 million
and $11.8 million was paid in the years ended December 31, 1992 and 1991,
respectively.
===========================================================================
CONVERTIBLE PREFERRED
STOCK-REDEEMABLE
AT COMPANY'S OPTION
Shares of the $2.67 Convertible Preferred stock issued and outstanding
at December 31, 1993, 1992 and 1991 were 561,286 shares, 624,933 shares and
742,382 shares, respectively. Reacquired, redeemed or converted authorized
shares that are not outstanding are required to be retired or restored to
the status of authorized but unissued shares of preferred stock without
series designation. The holders of $2.67 Convertible Preferred stock are
entitled to cumulative dividends, to three-tenths of a vote per share (in
certain events, to the exclusion of the Common shares), to preference in
35
<PAGE>
liquidation over holders of Common stock of $30.50 per share plus accrued
dividends and to convert each share of such stock into 4.08 shares of
Common stock. Authorized but unissued Common shares are reserved for
issuance upon such conversions, but treasury shares may be and are
delivered. 63,647 shares, 117,634 shares and 78,859 shares were converted
during 1993, 1992 and 1991, respectively. The Company may redeem such
Preferred stock at a price of $30.50 per share, plus accrued dividends.
A cash dividend of $2.67 per share in the aggregate amounts of $1.6
million, $1.8 million and $2.1 million was paid in each of the years ended
December 31, 1993, 1992 and 1991, respectively.
===========================================================================
CAPITAL STOCK
The Company has 750 million authorized shares of Common stock and 60
million authorized shares of preferred stock.
There were 201,744,048 Common shares outstanding at December 31, 1993.
The cash dividends paid on the Common stock for the years ended December
31, 1993, 1992 and 1991 aggregated $397.5 million, $368 million and $323.7
million, respectively.
Treasury shares purchased and received as consideration for stock
options exercised amounted to 1,159,262 shares in 1993, 2,882,362 shares in
1992 and 2,794,910 shares in 1991. Treasury shares delivered in connection
with exercise of stock options and grants of other stock awards and
conversion of preferred stock and debentures amounted to 326,494 shares in
1993, 1,541,437 shares in 1992 and 6,355,610 shares in 1991. At December
31, 1993, there were 27,825,976 treasury shares.
===========================================================================
PREFERRED SHARE PURCHASE RIGHTS
Each outstanding share of Common stock also evidences one Preferred
Share Purchase Right ("Right"). The Rights will generally become
exercisable only in the event of an acquisition of or a tender offer for
10% or more of the Common stock. If exercisable, each Right is exercisable
for 1/200th of a share of Series A Junior Participating Preferred Stock at
an exercise price of $52.50. Also, upon an acquisition of 10% or more of
the Common stock, or upon an acquisition of the Company or the transfer of
50% or more of its assets or earning power, each Right (other than rights
held by the 10% acquiror, if applicable), if exercisable, will generally be
exercisable for common shares of the Company or the acquiring company, as
the case may be, having a market value of twice the exercise price. In
certain events, however, Rights may be exchanged by the Company for Common
stock at a rate of one share per Right. The Rights may be redeemed at any
time prior to an acquisition of 10% or more of the Common stock at a
redemption price of $.005 per Right. Until a Right is exercised, the
holder, as such, will have no voting, dividend or other rights as a
stockholder of the Company. Unless either redeemed or exchanged, the Rights
will expire on December 24, 1997.
All 1.4 million of the authorized Series A Preferred shares are reserved
for issuance upon exercise of Rights, and at December 31, 1993, outstanding
Rights were exercisable as described above in the aggregate for 1,008,720
of such shares.
36
<PAGE>
===========================================================================
STOCK PLANS
The 1990 Long-Term Incentive Plan authorizes the granting to key
employees of the Company and its subsidiaries of incentive and nonqualified
stock options, stock appreciation rights, restricted stock, performance
awards and other stock-based awards, any of which may be granted alone or
in combination with other types of awards or dividend equivalents. Such
grants may be made on or before December 31, 1995 for up to 6.4 million
shares of the Common stock. The Company's Long-Term Incentive Plan for Key
Employees of Subsidiaries also authorizes the granting to key employees of
the Company's subsidiaries of similar types of awards other than stock
options and stock appreciation rights, and one million shares have been
reserved for issuance upon payment of any awards granted thereunder after
December 31, 1990. Stock options and stock appreciation rights may no
longer be granted under the Company's 1981 or 1986 Stock Option Plans, but
outstanding awards may continue to be exercised until their expiration
dates.
Stock options under the Plans have exercise prices of fair market values
at dates of grant. Options generally may not be exercised prior to one year
or more than ten years from the date of grant. Stock appreciation rights,
which may be granted in conjunction with option grants, permit the
optionees to receive shares of Common stock, cash or a combination of
shares and cash measured by the difference between the option exercise
price and the fair market value of the Common stock at the time of exercise
of such right.
Changes during the three years ended December 31, 1993 in shares under
option were as follows:
Option Prices Shares
---------------- ---------
==========================================================================
Under option at
January 1, 1991 $ 9.70 to $36.31 4,955,790
Options granted 40.19 to 46.63 1,977,200
Options exercised 9.70 to 34.59 (743,840)
Options lapsed -- (59,200)
- --------------------------------------------------------------------------
Under option at
December 31, 1991 $11.83 to $46.63 6,129,950
Options granted 44.38 to 46.81 1,554,550
Options exercised 11.83 to 44.56 (1,034,090)
Options lapsed -- (60,500)
- --------------------------------------------------------------------------
Under option at
December 31, 1992 $14.44 to $46.81 6,589,910
Options granted 33.75 TO 34.25 2,358,600
Options exercised 14.44 TO 33.91 (73,150)
Options lapsed -- (96,300)
- --------------------------------------------------------------------------
UNDER OPTION AT
DECEMBER 31, 1993 $15.03 TO $46.81 8,779,060
==========================================================================
37
<PAGE>
At December 31, 1993, options for 6,434,760 shares were exercisable.
Under the Long-Term Incentive Plans, awards of 93,000 restricted or
deferred shares were granted during 1990 and 1991 subject to a restriction
period of three years from date of grant. As of December 31, 1993, the
restriction period had ended as to 48,900 shares. At December 31, 1993,
performance awards were outstanding pursuant to which up to 54,246 shares,
145,390 shares and 112,855 shares may be issued in 1994, 1995 and 1996,
respectively, depending on the extent to which certain specified
performance objectives are met. 9,048 shares, 838 shares and 1,062 shares
were issued pursuant to performance awards during 1993, 1992 and 1991,
respectively. The costs of restricted and deferred shares and performance
awards are expensed over the restriction or performance period.
Shares available in connection with future awards under the Company's
stock plans at January 1 and December 31, 1993 were 3.6 million and 1.2
million, respectively. Authorized but unissued shares are reserved for
issuance in connection with awards, but treasury shares may be and are
delivered.
===========================================================================
PENSION AND OTHER RETIREE BENEFITS
The Company has a number of pension plans covering substantially all
employees. The plans provide for payment of retirement benefits, mainly
commencing between the ages of 60 and 65, and also for payment of certain
disability and severance benefits. After meeting certain qualifications, an
employee acquires a vested right to future benefits. The benefits payable
under the plans are generally determined on the basis of an employee's
length of service and earnings. Annual contributions to the plans are
sufficient to satisfy legal funding requirements.
U.S. PENSION PLANS
The components of net pension costs are as follows:
1993 1992 1991
(In millions) ------ ------ -------
==========================================================================
Service cost $ 23.7 $ 21.2 $ 18.7
Interest cost 70.1 67.8 65.3
Actual return on plan assets (92.3) (55.5) (118.9)
Net amortization and deferral 13.6 (22.1) 55.3
- --------------------------------------------------------------------------
$ 15.1 $ 11.4 $ 20.4
==========================================================================
38
<PAGE>
The funded status of the plans as of December 31 was as follows:
1993 1992
------------------------ ------------------------
==========================================================================
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
(In millions) benefits assets benefits assets
- --------------------------------------------------------------------------
Accumulated benefit
obligation
Vested $744.2 $100.8 $657.3 $56.2
Nonvested 30.7 2.6 28.9 2.6
- --------------------------------------------------------------------------
$774.9 $103.4 $686.2 $58.8
==========================================================================
Projected benefit
obligation $903.2 $113.6 $810.0 $ 70.6
Fair value of plan assets,
principally equity
securities and
corporate bonds 883.0 66.5 848.0 24.7
- --------------------------------------------------------------------------
(Deficiency) excess of
assets over projected
benefit obligation (20.2) (47.1) 38.0 (45.9)
Unrecognized net transition
(gain) loss (0.6) 2.0 (2.3) 4.2
Unrecognized net loss from
experience differences 74.6 24.1 24.4 10.3
Unrecognized prior service
cost 8.7 25.5 13.0 7.3
Adjustment needed to
recognize minimum
liability -- (26.2) -- (11.6)
- --------------------------------------------------------------------------
Prepaid pension cost
(pension liability) $ 62.5 $(21.7) $ 73.1 $(35.7)
==========================================================================
Actuarial assumptions:
Discount rate 7.25% 7.25% 8.25% 8.25%
- --------------------------------------------------------------------------
Weighted average rate of
compensation increase 4.9% 5.1% 6.1% 6.1%
- --------------------------------------------------------------------------
Expected long-term
rate of return on
plan assets 9.5% 9.5% 9.5% 9.5%
==========================================================================
39
<PAGE>
NON-U.S. PENSION PLANS
The components of net pension costs are as follows:
1993 1992 1991
(In millions) ------- ------ -------
==========================================================================
Service cost $ 27.1 $ 29.1 $ 20.2
Interest cost 62.3 66.5 57.5
Actual return on plan assets (222.0) (32.1) (198.7)
Net amortization and deferral 144.4 (61.2) 125.5
- --------------------------------------------------------------------------
$ 11.8 $ 2.3 $ 4.5
==========================================================================
The funded status (assets exceed accumulated benefits) of the plans as
of December 31 was as follows:
1993 1992
(In millions) ------ ------
==========================================================================
Accumulated benefit obligation
Vested $720.1 $525.2
Nonvested 3.8 2.9
- --------------------------------------------------------------------------
$723.9 $528.1
==========================================================================
Projected benefit obligation $ 857.8 $633.1
Fair value of plan assets, principally
equity securities and corporate bonds 1,021.8 815.6
- --------------------------------------------------------------------------
Excess of assets over projected benefit
obligation(a) 164.0 182.5
Unrecognized net transition gain (35.1) (40.7)
Unrecognized net loss (gain) from
experience differences 3.3 (16.2)
Unrecognized prior service cost 49.9 52.3
- --------------------------------------------------------------------------
Prepaid pension cost $ 182.1 $177.9
==========================================================================
Actuarial assumptions:
Weighted average discount rate 8.0% 9.75%
- --------------------------------------------------------------------------
Weighted average rate of compensation
increase 7.0% 7.0%
- --------------------------------------------------------------------------
Expected long-term rate of return on
plan assets 9.5% 9.5%
==========================================================================
(a) The excess of assets over the projected benefit obligation, calculated
under the valuation method mandated by FAS Statement No. 87, "Employers'
Accounting for Pensions," arises principally in the U.K. At December 31,
under current U.K. legislation, no part of this excess could be repaid to
the Company from the U.K. plans.
40
<PAGE>
DEFINED CONTRIBUTION PLANS
The Company sponsors a number of defined contribution plans.
Contributions are determined under various formulas. Costs related to such
plans amounted to $24.4 million, $30.3 million and $25.4 million in 1993,
1992 and 1991, respectively.
OTHER RETIREE BENEFITS
The Company provides postretirement health care and life insurance
benefits to certain employees and retirees in the United States and certain
employee groups outside the United States. Most employees and retirees
outside the United States are covered by government health care programs.
Effective January 1, 1993, the Company adopted FAS Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
for its retiree benefit plans. Under FAS No. 106, the Company is required
to accrue the estimated cost of these benefits during employees' active
service periods. The Company previously expensed the cost of these benefits
as incurred.
The Company elected to recognize the one-time transition obligation
charge resulting from this change in accounting on the immediate
recognition basis. The transition obligation at January 1, 1993 was $310
million, net of $41.3 million of liabilities previously recorded. The
cumulative change in accounting principle, net of $119 million of deferred
income taxes, was $191 million, or 94 cents per Common share. The increase
in ongoing pretax expense for these benefits for 1993 was $19.6 million.
The components of the postretirement benefit costs for 1993 are $7.5
million for service cost and $28.9 million for interest cost, for a total
of $36.4 million.
The status of the plans was as follows:
DECEMBER 31, January 1,
1993 1993
(In millions) ------------ -----------
===========================================================================
Accumulated benefit obligation
Retirees $265.7 $231.0
Fully eligible active plan participants 42.2 40.7
Other active plan participants 98.7 79.6
- --------------------------------------------------------------------------
406.6 351.3
Unrecognized net loss from experience
differences (34.9) --
- --------------------------------------------------------------------------
Accrued postretirement costs $371.7 $351.3
==========================================================================
Assumed weighted average discount rate 7.4% 8.5%
==========================================================================
41
<PAGE>
The assumed health care cost trend rate used in measuring the principal
portion of the accumulated benefit obligation was 13.25% for 1993,
gradually declining to 6% by the year 2007 and remaining at that level
thereafter. A 1% increase in the assumed health care cost trend rate for
each year would increase the accumulated benefit obligation as of December
31, 1993 and postretirement benefit costs for 1993 by approximately 9%.
Postretirement health and life insurance benefits prior to January 1,
1993 were expensed as incurred and amounted to $14.3 million and $11.2
million in 1992 and 1991, respectively.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to former or
inactive employees after employment but before retirement. Effective
January 1, 1993, the Company adopted FAS Statement No. 112, "Employers'
Accounting for Postemployment Benefits," which required a change from the
cash basis to the accrual basis for these postemployment benefits.
Accordingly, the cumulative effect of the accounting change as of January
1, 1993 of adopting FAS No. 112, net of $5 million of income taxes, was a
charge of $10 million, or five cents per Common share.
===========================================================================
INCOME TAXES
The components of income before income taxes are as follows:
1993 1992 1991
(In millions) -------- -------- --------
==========================================================================
Domestic operations $ 495.8 $ 793.2 $ 657.2
Foreign operations 580.3 604.9 580.8
- --------------------------------------------------------------------------
$1,076.1 $1,398.1 $1,238.0
==========================================================================
Income taxes are as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
Currently payable
Federal $209.1 $277.1 $252.1
Foreign 187.2 181.2 190.1
Other 4.1 50.2 45.0
Deferred
Federal and other 20.6 0.3 (38.5)
Foreign (13.1) 5.5 (16.8)
- --------------------------------------------------------------------------
$407.9 $514.3 $431.9
==========================================================================
42
<PAGE>
A reconciliation of income taxes at the 35% federal statutory income tax
rate for 1993, and 34% for each of 1992 and 1991 to income taxes as
reported is as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
Income taxes computed at federal
statutory income tax rate $376.6 $475.4 $420.9
Other income taxes, net of federal tax
benefit 21.8 37.6 39.0
Realization of capital loss
carryforwards (0.9) (20.8) (28.4)
Goodwill not deductible for income
tax purposes 29.5 28.9 25.8
Tax differential relating to foreign
operations 11.0 (1.0) (17.4)
Miscellaneous, including reversals of
tax provisions no longer required (30.1) (5.8) (8.0)
- --------------------------------------------------------------------------
Income taxes as reported $407.9 $514.3 $431.9
==========================================================================
43
<PAGE>
The components of net deferred tax assets (liabilities) are as follows:
1993 1992
(In millions) ------- -------
==========================================================================
Consumer products and corporate
Current assets
Compensation and benefits $ 14.0 $ 11.2
Other reserves 37.1 48.8
Product coupons 21.7 23.7
Capitalized interest-inventory 26.9 25.4
Restructuring 29.0 16.5
Interest 6.6 9.4
Accounts receivable 12.4 13.3
Miscellaneous 39.2 25.5
- --------------------------------------------------------------------------
186.9 173.8
- --------------------------------------------------------------------------
Current liabilities
Inventories (27.9) (22.4)
Miscellaneous (18.0) (16.1)
- --------------------------------------------------------------------------
(45.9) (38.5)
- --------------------------------------------------------------------------
Deferred income taxes included in
Other current assets 141.0 135.3
- --------------------------------------------------------------------------
Noncurrent assets
Compensation and benefits 22.8 15.6
Other retiree benefits 132.7 15.7
Other reserves 11.7 6.2
Foreign exchange -- 11.1
Miscellaneous 15.7 13.6
- --------------------------------------------------------------------------
182.9 62.2
- --------------------------------------------------------------------------
Noncurrent liabilities
Depreciation (145.8) (131.8)
Pensions (96.7) (90.6)
Trademark amortization (30.8) (14.8)
Miscellaneous (34.3) (20.2)
- --------------------------------------------------------------------------
(307.6) (257.4)
- --------------------------------------------------------------------------
Deferred income taxes (124.7) (195.2)
- --------------------------------------------------------------------------
44
<PAGE>
Life insurance
Policy reserves 115.2 103.5
Participating policyholders' interests 63.4 57.4
Other retiree benefits 11.3 --
Miscellaneous 13.2 9.6
- --------------------------------------------------------------------------
Assets 203.1 170.5
- --------------------------------------------------------------------------
Deferred policy acquisition costs (141.5) (133.5)
Present value of future profits (59.7) (59.9)
Miscellaneous (20.5) (26.5)
- --------------------------------------------------------------------------
Liabilities (221.7) (219.9)
- --------------------------------------------------------------------------
Deferred income taxes included in Other
liabilities (18.6) (49.4)
- --------------------------------------------------------------------------
Net deferred tax liability $ (2.3) $(109.3)
==========================================================================
==========================================================================
COMMITMENTS
Leases
Future minimum rental payments under noncancelable operating leases as
of December 31, 1993 are as follows:
(In millions)
==========================================================================
1994 $ 83.1
1995 77.3
1996 73.5
1997 69.1
1998 65.1
Remainder 454.3
- --------------------------------------------------------------------------
Total minimum rental payments 822.4
Less minimum rentals to be received under noncancelable
subleases 17.5
- --------------------------------------------------------------------------
$804.9
==========================================================================
Total rental expense for all operating leases (reduced by minor amounts
from subleases) amounted to $89.7 million, $97.3 million and $91.6 million
in 1993, 1992 and 1991, respectively.
Other
The Company enters into a variety of contracts and agreements in order
to hedge known transactions, or achieve costs or obtain terms that might
not otherwise be available. The counterparties are major financial
institutions. Although the Company's theoretical risk is the replacement
cost at the then estimated fair value of these transactions, management
currently believes that the risk of incurring losses is remote and that
such losses, if any, would be immaterial.
45
<PAGE>
At December 31, 1993 and 1992, outstanding swap agreements effectively
converted $342.4 million and $269.8 million, respectively, of variable-
interest-rate debt into fixed-rate debt. These agreements mature at various
dates through 1999 and have resulted in weighted average fixed rates of
7.8% and 8.1% for 1993 and 1992, respectively.
The estimated fair value of these swap agreements, which represents the
estimated payment that would be made by the Company to terminate these
agreements, approximated $29 million and $19 million at December 31, 1993
and 1992, respectively. The fair value is based on dealer quotes,
considering current interest rates.
The estimated fair value of foreign currency contracts represents the
amount required to enter into like contracts with similar remaining
maturities based on quoted market prices. At December 31, 1993 and 1992,
the difference between the contract values and fair values was immaterial.
==========================================================================
SUPPLEMENTARY PROFIT AND LOSS
INFORMATION
Supplementary profit and loss information is as follows:
1993 1992 1991
(In millions) ------- -------- --------
==========================================================================
Federal and foreign excise taxes
included in consumer products
revenues
International tobacco $4,548.0 $4,894.1 $4,884.9
Domestic tobacco 360.9 337.0 350.3
Distilled spirits 505.0 552.2 449.6
- ---------------------------------------------------------------------------
$5,413.9 $5,783.3 $5,684.8
==========================================================================
Research and development expense $39.7 $33.7 $28.9
==========================================================================
Corporate administrative expenses in 1993 included a $5 million
provision for staff reduction at the corporate headquarters and in 1991
included a substantial increase in nontobacco legal reserves.
==========================================================================
INFORMATION ON BUSINESS SEGMENTS
The Company's subsidiaries operate principally in the following business
segments:
Tobacco products includes cigarettes manufactured by American Tobacco
and cigarettes and other tobacco products manufactured by Gallaher.
Distilled spirits includes products produced or imported by Jim Beam and
Whyte & Mackay.
Life insurance includes the operations of The Franklin group of
companies.
46
<PAGE>
Hardware and home improvement products includes kitchen and bathroom
faucets, plumbing supply and repair products manufactured, packaged or
distributed by Moen, locks manufactured by Master Lock, tool storage
products manufactured by Waterloo and kitchen cabinets and bathroom
vanities manufactured by Aristokraft.
Office products includes office supplies, stationery and other office
products manufactured by ACCO World subsidiaries.
Specialty businesses includes golf and leisure products and rubber
products of Acushnet, and optical goods and services, retail distribution
and housewares products of Gallaher subsidiaries.
The intersegment elimination primarily includes sales of international
tobacco products to retail distribution.
The Company operates in the United States, Europe (principally the
United Kingdom) and other areas (principally Canada and Australia).
Restructuring charges (credits), net by industry segments are as
follows:
1993 1992
(In millions) ------ -----
==========================================================================
Tobacco products
International $ 29.8 $ --
Domestic 18.5 --
- --------------------------------------------------------------------------
Total Tobacco 48.3 --
Distilled spirits (15.8) --
Hardware and home improvement products 4.7 --
Office products 3.6 (8.5)
- --------------------------------------------------------------------------
$ 40.8 $(8.5)
==========================================================================
Revenues and operating income for the years 1993, 1992 and 1991, and
identifiable assets for the related year ends by industry segments and by
geographic areas, are shown on page 52.
Specialty businesses revenues are as follows:
1993 1992 1991
(In millions) -------- -------- --------
==========================================================================
Golf and leisure products $ 452.7 $ 416.2 $ 391.0
Optical goods and services 368.9 433.7 429.2
Retail distribution 1,283.9 1,524.8 1,546.9
Housewares 91.8 109.5 116.7
Rubber products 52.3 48.1 44.5
Other 7.0 51.5 68.5
- --------------------------------------------------------------------------
2,256.6 2,583.8 2,596.8
Less intersegment elimination 358.9 369.2 449.3
- --------------------------------------------------------------------------
$1,897.7 $2,214.6 $2,147.5
==========================================================================
47
<PAGE>
Reconciliation of identifiable assets to consolidated total assets is as
follows:
1993 1992 1991
(In millions) --------- --------- ---------
==========================================================================
Identifiable assets $16,145.8 $14,689.9 $14,831.5
Corporate 193.2 229.8 230.1
- --------------------------------------------------------------------------
$16,339.0 $14,919.7 $15,061.6
==========================================================================
Depreciation by industry segments is as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
Tobacco products
International $ 29.2 $ 29.8 $ 28.8
Domestic 22.0 23.8 21.8
- --------------------------------------------------------------------------
Total Tobacco 51.2 53.6 50.6
Distilled spirits 31.6 29.5 23.9
Life insurance 3.8 4.3 4.2
Hardware and home improvement products 30.7 29.3 27.1
Office products 35.4 37.6 36.8
Specialty businesses 52.6 57.4 55.2
- --------------------------------------------------------------------------
$205.3 $211.7 $197.8
==========================================================================
Amortization of intangibles by industry segments is as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
International tobacco $ 2.3 $ -- $ --
Distilled spirits 32.2 23.0 13.5
Life insurance 11.2 10.8 10.8
Hardware and home improvement products 30.1 30.2 30.4
Office products 20.9 21.0 21.2
Specialty businesses 6.9 7.4 7.5
- --------------------------------------------------------------------------
$103.6 $92.4 $83.4
==========================================================================
48
<PAGE>
Capital expenditures by industry segments are as follows:
1993 1992 1991
(In millions) ------ ------ ------
==========================================================================
Tobacco products
International $ 43.1 $ 42.9 $ 29.5
Domestic 21.8 33.0 38.1
- --------------------------------------------------------------------------
Total Tobacco 64.9 75.9 67.6
Distilled spirits 29.8 41.4 32.4
Life insurance 6.5 2.8 1.9
Hardware and home improvement products 62.7 53.9 33.8
Office products 26.0 24.2 28.2
Specialty businesses 60.0 90.3 70.0
- --------------------------------------------------------------------------
$249.9 $288.5 $233.9
==========================================================================
==========================================================================
PENDING LITIGATION
The American Tobacco Company subsidiary and other tobacco manufacturers
are defendants in various actions based upon allegations that human
ailments have resulted from tobacco use. While it is not possible to
predict the outcome of the pending litigation or the effect of such
litigation on the results of operations for any period, management believes
that there are meritorious defenses to the pending actions and that the
pending actions will not have a material adverse effect upon the financial
condition of the Company. Such actions are being vigorously defended.
==========================================================================
ENVIRONMENTAL
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify with
certainty the potential impact of actions regarding environmental matters,
particularly remediation and other compliance efforts that the Company's
subsidiaries may undertake in the future, in the opinion of management
compliance with the present environmental protection laws, before taking
into account estimated recoveries from third parties, will not have a
material adverse effect on the Company's financial condition or results of
operations.
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
==========================================================================
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMERICAN BRANDS, INC.:
We have audited the accompanying consolidated balance sheet of American
Brands, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, cash flows and Common
stockholders' equity for the years ended December 31, 1993, 1992 and 1991.
These financial statements are the responsibility of the management of
American Brands, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Brands, Inc. and Subsidiaries at December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for the
years ended December 31, 1993, 1992 and 1991, in conformity with generally
accepted accounting principles.
As discussed in Notes to Consolidated Financial Statements, in 1993 the
Company changed its methods of accounting for postretirement benefits other
than pensions, postemployment benefits and certain investments in debt and
equity securities.
Coopers & Lybrand
1301 Avenue of the Americas
New York, New York
February 1, 1994
50
<PAGE>
REPORT OF MANAGEMENT
==========================================================================
TO THE STOCKHOLDERS OF AMERICAN BRANDS, INC.:
We have prepared the consolidated balance sheet of American Brands, Inc.
and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, cash flows and Common stockholders'
equity for the years ended December 31, 1993, 1992 and 1991. The financial
statements have been prepared in accordance with generally accepted
accounting principles. Financial information elsewhere in the Annual Report
is consistent with that in the financial statements.
The system of internal controls of the Company and its subsidiaries is
designed to provide reasonable assurances that the financial records are
adequate and can be relied upon to provide information for the preparation
of financial statements and that established policies and procedures are
carefully followed.
Independent accountants are elected annually by the stockholders of the
Company to audit the financial statements. Coopers & Lybrand, independent
accountants, are currently engaged to perform such audit. Their audit is in
accordance with generally accepted auditing standards and includes tests of
transactions and selective tests of internal accounting controls.
The Audit Committee of the Board of Directors, consisting solely of
outside directors, meets periodically with the independent accountants,
internal auditors and management to review accounting, auditing, and
financial reporting matters. The auditors have direct access to the Audit
Committee.
51
<PAGE>
<TABLE>
<CAPTION>
INFORMATION ON BUSINESS SEGMENTS(1)
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
1993 1992 1991 1990 1989 1988
(In millions) --------- --------- --------- --------- --------- ---------
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BUSINESS BY INDUSTRY SEGMENTS
REVENUES
Tobacco products
International $ 5,940.0 $ 6,376.6 $ 6,373.7 $ 6,394.8 $ 5,402.8 $ 5,453.5
Domestic 1,501.5 1,780.3 1,726.4 1,596.6 1,570.7 1,528.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 7,441.5 8,156.9 8,100.1 7,991.4 6,973.5 6,982.1
Distilled spirits 1,194.6 1,268.3 1,061.2 1,005.3 735.4 758.7
Life insurance 1,070.9 965.5 870.4 805.5 831.0 923.4
Hardware and home improvement products 1,119.5 1,014.8 902.3 632.6 503.7 437.2
Office products 977.2 1,003.5 982.3 1,024.6 968.3 883.2
Specialty businesses 1,897.7 2,214.6 2,147.5 2,321.5 1,909.5 1,995.4
- -----------------------------------------------------------------------------------------------------------------------------------
$13,701.4 $14,623.6 $14,063.8 $13,780.9 $11,921.4 $11,980.0
===================================================================================================================================
OPERATING INCOME
Tobacco products
International $ 486.5 $ 554.4 $ 528.4 $ 580.6 $ 418.2 $ 362.0
Domestic 169.2 536.1 540.8 506.8 481.5 455.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 655.7 1,090.5 1,069.2 1,087.4 899.7 817.3
Distilled spirits 214.7 195.8 151.6 135.5 106.8 100.4
Life insurance 217.3 165.3 151.8 140.5 156.8 203.3
Hardware and home improvement products 155.5 159.0 141.5 78.1 69.7 63.8
Office products 63.2 58.1 37.7 87.2 96.5 26.0
Specialty businesses 91.5 86.3 79.0 73.9 70.2 113.1
- -----------------------------------------------------------------------------------------------------------------------------------
$1,397.9 $1,755.0 $1,630.8 $1,602.6 $1,399.7 $1,323.9
===================================================================================================================================
IDENTIFIABLE ASSETS
Tobacco products
International $ 1,540.2 $ 1,251.0 $ 1,690.2 $ 1,733.6 $ 1,426.1 $ 1,606.4
Domestic 702.1 806.0 762.9 654.8 648.3 579.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 2,242.3 2,057.0 2,453.1 2,388.4 2,074.4 2,186.1
Distilled spirits 2,229.7 1,830.9 1,947.4 1,295.2 806.6 822.2
Life insurance 7,116.5 6,325.1 5,778.7 5,251.8 4,951.6 5,576.1
Hardware and home improvement products 1,809.0 1,786.4 1,734.6 1,720.4 633.1 639.6
Office products 1,465.7 1,510.5 1,588.4 1,692.9 1,542.8 1,553.7
Specialty businesses 1,282.6 1,180.0 1,329.3 1,349.5 1,107.7 1,116.3
- -----------------------------------------------------------------------------------------------------------------------------------
$16,145.8 $14,689.9 $14,831.5 $13,698.2 $11,116.2 $11,894.0
===================================================================================================================================
52
<PAGE>
BUSINESS BY GEOGRAPHIC AREAS
REVENUES
United States $ 5,486.1 $ 5,556.7 $ 5,077.2 $ 4,686.4 $ 4,521.7 $ 4,459.7
Europe 7,881.8 8,740.9 8,736.3 8,948.6 7,263.2 7,378.5
Other 333.5 326.0 250.3 145.9 136.5 141.8
- -----------------------------------------------------------------------------------------------------------------------------------
$13,701.4 $14,623.6 $14,063.8 $13,780.9 $11,921.4 $11,980.0
===================================================================================================================================
OPERATING INCOME
United States $ 775.4 $1,079.8 $ 995.6 $ 905.5 $ 882.5 $ 842.2
Europe 578.4 633.7 594.7 679.9 503.3 457.0
Other 44.1 41.5 40.5 17.2 13.9 24.7
- -----------------------------------------------------------------------------------------------------------------------------------
$1,397.9 $1,755.0 $1,630.8 $1,602.6 $1,399.7 $1,323.9
===================================================================================================================================
IDENTIFIABLE ASSETS
United States $12,160.2 $11,475.5 $10,808.9 $ 9,897.5 $ 8,430.0 $ 8,994.3
Europe 3,767.3 3,019.8 3,840.1 3,648.9 2,545.1 2,741.6
Other 218.3 194.6 182.5 151.8 141.1 158.1
- -----------------------------------------------------------------------------------------------------------------------------------
$16,145.8 $14,689.9 $14,831.5 $13,698.2 $11,116.2 $11,894.0
===================================================================================================================================
<FN>
(1) See page 46, Notes to Consolidated Financial Statements, for further information on business segments.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR CONSOLIDATED SELECTED FINANCIAL DATA (1)
--------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
(In millions, except per share amounts 1993(2) 1992 1991(2) 1990(2) 1989(2) 1988(2)
and number of Common stockholders) --------- --------- --------- --------- --------- ---------
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $13,701.4 $14,623.6 $14,063.8 $13,780.9 $11,921.4 $11,980.0
Depreciation and amortization 308.9 304.1 281.2 259.2 218.1 227.7
Operating income 1,397.9 1,755.0 1,630.8 1,602.6 1,399.7 1,323.9
Interest and related charges 244.2 270.1 264.0 278.7 281.1 266.6
Income taxes 407.9 514.3 431.9 454.3 431.0 449.7
Income from continuing operations 668.2 883.8 806.1 588.6 633.3 544.5
Income from discontinued operations -- -- -- -- -- 21.4
Cumulative effect of accounting changes (198.4) -- -- -- -- --
Net income 469.8 883.8 806.1 588.6(3) 633.3 565.9
Earnings per Common share
Primary
Continuing operations $3.30 $4.29 $3.91 $2.95(3) $3.27 $2.74
Discontinued operations -- -- -- -- -- .11
Cumulative effect of accounting
changes (.98) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $2.32 $4.29 $3.91 $2.95 $3.27 $2.85
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted
Continuing operations $3.23 $4.13 $3.74 $2.80(3) $3.05 $2.59
Discontinued operations -- -- -- -- -- .10
Cumulative effect of accounting
changes (.94) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $2.29 $4.13 $3.74 $2.80 $3.05 $2.69
===================================================================================================================================
COMMON SHARE DATA
Dividends paid $397.5 $368.0 $323.7 $274.3 $238.0 $221.9
Dividends paid per share $1.97 $1.805 $1.5925 $1.405 $1.255 $1.13
Average number of shares outstanding 201.8 204.0 202.6 194.5 189.2 193.4
Book value per share $21.09 $21.14 $20.42 $17.98 $15.21 $13.20
Number of stockholders, December 31(4) 63,537 63,929 66,950 69,378 72,404 77,106
===================================================================================================================================
54
<PAGE>
BALANCE SHEET DATA
Consumer products and corporate
Inventories $2,043.2 $1,810.2 $2,141.5 $2,043.8 $1,675.0 $1,815.9
Current assets 3,733.1 3,453.1 3,869.8 3,829.4 3,005.4 3,080.2
Working capital 575.4 664.4 609.4 622.3 440.2 434.5
Property, plant and equipment, net 1,472.1 1,406.4 1,472.4 1,488.3 1,201.7 1,179.6
Intangibles, net 3,637.9 3,104.0 3,284.0 2,975.3 1,831.4 1,911.2
Short-term debt 1,182.9 824.7 730.6 845.4 740.0 829.3
Long-term debt 2,492.4 2,406.8 2,551.9 2,433.8 1,717.4 2,359.2
Life insurance
Investments 5,808.8 5,321.2 4,859.7 4,341.6 4,050.8 4,418.3
Policy reserves and claims 2,553.4 2,401.2 2,230.8 2,111.5 2,007.5 2,398.7
Investment-type contract deposits 2,732.3 2,265.9 1,921.4 1,632.6 1,460.8 1,438.3
Total assets
Consumer products and corporate 9,222.5 8,594.6 9,282.9 8,616.4 6,511.7 6,606.4
Life insurance 7,116.5 6,325.1 5,778.7 5,251.8 4,951.6 5,576.1
Redeemable preferred stock -- -- 130.1 131.9 135.6 137.5
Common stockholders' equity 4,254.3 4,282.5 4,163.3 3,602.0 2,912.4 2,466.4
Capital expenditures 249.9 288.5 233.9 296.7 256.8 235.3
===================================================================================================================================
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
(In millions, except per share amounts 1987(2) 1986 1985 1984 1983
and number of Common stockholders) --------- -------- -------- -------- --------
===================================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $10,076.6 $8,114.2 $6,983.0 $6,669.4 $6,568.5
Depreciation and amortization 168.7 127.4 107.9 104.1 92.4
Operating income 1,087.7 797.6 844.1 835.0 786.2
Interest and related charges 150.4 95.5 99.2 98.6 84.5
Income taxes 379.0 284.1 306.9 263.1 319.1
Income from continuing operations 492.6 357.0 407.5 443.9 357.6
Income from discontinued operations 20.0 4.8 16.9 20.4 26.0
Cumulative effect of accounting changes -- -- -- -- --
Net income 512.6 361.8 424.4 464.3 383.6
Earnings per Common share
Primary
Continuing operations $2.16 $1.55 $1.78 $1.94 $1.54
Discontinued operations .09 .02 .07 .09 .12
Cumulative effect of accounting
changes -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income $2.25 $1.57 $1.85 $2.03 $1.66
- -------------------------------------------------------------------------------------------------------------------
Fully diluted
Continuing operations $2.09 $1.52 $1.74 $1.89 $1.51
Discontinued operations .09 .02 .07 .09 .11
Cumulative effect of accounting
changes -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income $2.18 $1.54 $1.81 $1.98 $1.62
===================================================================================================================
COMMON SHARE DATA
Dividends paid $232.4 $224.1 $214.9 $204.4 $195.0
Dividends paid per share $1.055 $1.019 $.975 $.928 $.887
Average number of shares outstanding 220.3 219.7 220.4 220.2 219.7
Book value per share $13.24 $11.51 $10.82 $9.52 $8.93
Number of stockholders, December 31(4) 83,004 86,477 94,862 101,303 106,588
===================================================================================================================
BALANCE SHEET DATA
Consumer products and corporate
Inventories $1,693.4 $1,264.4 $1,254.8 $1,180.4 $1,259.3
Current assets 3,414.0 2,052.3 1,975.6 1,750.0 1,880.6
Working capital 1,006.6 415.6 660.0 621.3 680.6
Property, plant and equipment, net 1,078.7 745.1 637.1 532.1 528.4
Intangibles, net 1,381.6 532.1 453.5 407.1 407.3
Short-term debt 751.4 465.0 375.6 397.7 427.7
Long-term debt 1,631.5 671.1 735.5 727.7 595.5
56
<PAGE>
Life insurance
Investments 4,114.9 3,773.1 3,530.0 3,246.1 2,409.4
Policy reserves and claims 2,316.6 2,225.9 2,187.0 2,191.5 1,647.5
Investment-type contract deposits 1,185.1 1,021.4 848.4 672.9 505.6
Total assets
Consumer products and corporate 6,080.5 3,947.3 3,589.2 3,189.7 3,317.2
Life insurance 5,216.2 4,863.6 4,557.0 4,347.0 3,218.2
Redeemable preferred stock 137.5 137.5 137.5 137.5 152.7
Common stockholders' equity 2,915.3 2,529.1 2,369.2 2,098.2 1,962.7
Capital expenditures 216.2 201.8 135.8 145.6 110.3
===================================================================================================================
<FN>
(1) See pages 1 through 13 for Financial Section.
(2) See page 24, Notes to Consolidated Financial Statements, for
information related to acquisitions. 1990 includes the acquisitions of The
Moen Group, Inc. in August and Whyte & Mackay in February. Southland Life
Insurance was sold in March 1989. 1988 includes the acquisition in February
of Aristokraft, Waterloo Industries, Twentieth Century Companies, Day-
Timers and Vogel Peterson. 1987 includes acquisitions in May of National
Distillers and Chemical Corporation's distilled spirits business and in
August of ACCO World Corporation.
(3) Net income and primary and fully diluted earnings per Common share
include $179.9 million and 93 cents and 83 cents, respectively, relating to
a write-down of an investment.
(4) On January 31, 1994, there were 62,978 Common stockholders of record,
not necessarily reflecting beneficial ownership.
</TABLE>
57
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
The following is a list of subsidiaries of Registrant as of the date
hereof and the state or other jurisdiction of incorporation of each.
Except as indicated below, each subsidiary does business under its own
name. Indentations indicate that the voting securities of a subsidiary are
wholly owned by the subsidiary immediately preceding the indentation,
unless otherwise indicated.
The names of certain subsidiaries are omitted. Such subsidiaries would
not, if considered in the aggregate as a single subsidiary, constitute a
significant subsidiary within the meaning of Item 601(b)(22)(ii) of
Regulation S-K.
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
ABCO, Inc. Delaware
Bonny Products, Inc. New York
Keeler Instruments, Inc. Pennsylvania
ACCO World Corporation Delaware
ACCO Canada Inc. Ontario, Canada
Plymouth Tool & Stamping Limited Ontario, Canada
ACCO Europe PLC England
ACCO-Rexel France S.A. France
Val-Rex S.A.R.L. France
ACCO-Rexel Group Services PLC England
ACCO Company Limited England
ACCO-Rexel Limited England
Hetzel GmbH Germany
Eastlight Limited England
Marbig Rexel Pty. Limited Australia
Office Products International Limited Australia
Timbercrest Properties Limited England
ACCO-Rexel Limited Republic of Ireland 1
Don Gresswell Ltd. England
ACCO USA, Inc. Delaware
Perma Products Company Delaware
Day-Timers, Inc. Delaware
Day-Timers of Canada, Ltd. Canada
Day-Timers Pty. Limited Australia
Sax Arts and Crafts, Inc. Delaware
International Business Controls, B.V. 2 Netherlands
King-Mec S.p.A. Italy
- --------------------
1 66.67% owned by Timbercrest Properties Limited and 33.33% owned by ACCO
World Corporation.
2 Does business in the Republic of Ireland through a branch named "ACCO
Ireland."
<PAGE>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
Kensington Microware Limited Delaware
Vogel Peterson Furniture Company Delaware
Acushnet Company Delaware
Acushnet Foreign Sales Corporation U.S. Virgin Islands
Acushnet International Inc. Delaware
Acushnet Canada Inc. Canada
Acushnet GmbH Germany
Acushnet-Danmark ApS Denmark
Acushnet Osterreich GmbH Austria
Acushnet Limited England
Titleist Japan, Inc. Japan 3
Acushnet (Thailand) Limited Thailand 4
Foot-Joy, Inc. Massachusetts
Foot-Joy (Thailand) Limited Thailand 5
AmeriBrands Finance Canada Ltd. Ontario, Canada
American Brands Finance Europe B.V. Netherlands
American Brands International Corporation Delaware
American Franklin Company Delaware
The Franklin Life Insurance Company Illinois
The American Franklin Life Insurance Company Illinois
Franklin Financial Services Corporation Delaware
The Franklin United Life Insurance Company New York
The American Tobacco Company Delaware
The American Tobacco Company of the Orient, Inc. New Jersey
Golden Belt Manufacturing Company Delaware
American Tobacco International Corporation Delaware
Gallaher Limited England
Benson & Hedges Limited England
Dollond & Aitchison Group PLC England
Dollond & Aitchison Limited England
Filotecnica Salmoiraghi S.p.A Italy 6
General Optica S.A. Spain
Istituto Ottico Vigano S.p.A Italy
Keeler Limited England
Theodore Hamblin Limited England
Forbuoys PLC England
Gallaher (Dublin) Limited Republic of Ireland
Gallaher Hellas Epe Greece
Gallaher International Limited England
Gallaher Tobacco Limited England
The Galleon Insurance Company Limited Isle of Man
J. R. Freeman & Son Limited England
Marshell Group Limited England
- --------------------
3 80% owned by Acushnet International Inc.
4 70% owned by Acushnet Company.
5 70% owned by Foot-Joy, Inc.
6 99.998% owned by Dollond & Aitchison Group PLC.
-2-
<PAGE>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
The Prestige Group PLC England
Fabricados Inoxidables S.A. Spain
Prestige France S.A. France
Prestige Group (Australia) Pty. Limited Australia
Prestige Group UK PLC England
Prestige Haushaltswaren GmbH Germany
Prestige Italiana S.A. Italy
The Schooner Insurance Company Limited Isle of Man
TM Group PLC England
The Whyte & Mackay Group PLC Scotland
Invergordon Distillers Group PLC Scotland
Invergordon Distillers (Holdings) Limited England
The Invergordon Distillers Limited Scotland
William Muir Limited Scotland
The Scotch Whisky Heritage Centre Limited Scotland 7
Jim Beam Brands Co. Delaware
Alberta Distillers Limited Alberta, Canada
Carrington Distillers Limited Ontario, Canada
Societe Commerciale La Verendrye Inc. Quebec, Canada
Featherstone & Co. Limited Ontario, Canada
Bourbon Warehouse Receipts, Inc. Delaware
Fortune Brands Pty. Ltd. Australia 8
James B. Beam Distilling International Co., Inc. U.S. Virgin Islands
JBB Spirits (New York) Inc. New York
John de Kuyper & Son, Incorporated New York
Regal China Corporation Delaware
Wood Terminal Company Delaware
MasterBrand Industries, Inc. Delaware
Aristokraft, Inc. Delaware
Master Lock Company Delaware
Master Lock Europe, S.A. France 9
Milwaukee Lock Company Delaware
Moen Incorporated Delaware
HCG-Moen Corporation Taiwan 10
Moen Inc. Ontario, Canada
Moen International, Inc. Connecticut
Moen of Pennsylvania, Inc. Delaware
Moen de Mexico, S.A. de C.V. Mexico
Stanadyne do Brazil Brazil
Stanadyne Ltd. Japan
21st Century Companies, Inc. Delaware
Waterloo Industries, Inc. Delaware
1700 Insurance Company Ltd. Bermuda
- --------------------
7 49.41% owned by William Muir Limited, 3.53% owned by Whyte & Mackay
Distillers Limited and 3.53% owned by Invergordon Distillers Limited.
8 299,999 shares owned by Jim Beam Brands Co.; 1 share owned by James B.
Beam Distilling International Co., Inc.
9 99.68% owned by Master Lock Company.
10 50% owned by Moen Incorporated.
-3-
EXHIBIT 23(i)a
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into (a) Post-
Effective Amendment No. 4 to the Registration Statement on Form S-8
(Registration No. 33-13363) relating to the Profit-Sharing Plan of American
Brands, Inc., the Registration Statement on Form S-8 (Registration No. 33-
45869) relating to the Profit-Sharing Plan of The American Tobacco Company
and the Registration Statement on Form S-8 (Registration No. 33-39855)
relating to the 1990 Long-Term Incentive Plan of American Brands, Inc., and
the prospectuses related thereto, and (b) the prospectuses related to the
Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397,
33-23039 and 33-3985) of American Brands, Inc. of:
(1) our report dated February 1, 1994, accompanying the
consolidated financial statements of American Brands, Inc.
and its subsidiaries as of December 31, 1993 and 1992, and
for the years ended December 31, 1993, 1992 and 1991,
incorporated by reference into this Annual Report on Form
10-K of American Brands, Inc., and
(2) our report dated February 1, 1994, accompanying the
consolidated financial statement schedules of American
Brands, Inc. and its subsidiaries, included in this Annual
Report on Form 10-K.
We also consent to the references to our firm as experts in the
prospectuses related to the Registration Statements on Form S-3 referred to
above.
COOPERS & LYBRAND
1301 Avenue of the Americas
New York, New York 10019
March 28, 1994
EXHIBIT 23(i)b
CONSENT OF COUNSEL
We consent to the incorporation by reference of our opinions
contained in Item 3, "Legal proceedings," of this Annual Report on Form 10-
K of American Brands, Inc. into (a) Post-Effective Amendment No. 4 to the
Registration Statement on Form S-8 (Registration No. 33-13363) relating to
the Profit-Sharing Plan of American Brands, Inc., the Registration
Statement on Form S-8 (Registration No. 33-45869) relating to the Profit-
Sharing Plan of The American Tobacco Company and the Registration Statement
on Form S-8 (Registration No. 33-39855) relating to the 1990 Long-Term
Incentive Plan of American Brands, Inc., and the prospectuses related
thereto, and (b) the prospectuses related to the Registration Statements on
Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of
American Brands, Inc.
CHADBOURNE & PARKE
30 Rockefeller Plaza
New York, New York 10112
March 28, 1994
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated with
their respective names below, hereby constitute and appoint GILBERT L.
KLEMANN, II, EDWARD P. SMITH and A. ROBERT COLBY, and each of them
severally, the attorneys-in-fact of the undersigned with full power to them
and each of them to sign for and in the name of the undersigned in the
capacities indicated below the Annual Report on Form 10-K of American
Brands, Inc. for the fiscal year ended December 31, 1993, and any and all
amendments thereto:
Signature Title Date
William J. Alley
- ---------------------- Chairman of the Board February 21, 1994
William J. Alley and Chief Executive
Officer (principal
executive officer) and
Director
T.C. Hays
- ---------------------- President and Chief February 21, 1994
T.C. Hays Operating Officer and
Director
A. Henson
- ---------------------- Executive Vice February 21, 1994
A. Henson President and Chief
Financial Officer
(principal financial
officer) and Director
R.L. Plancher
- ---------------------- Senior Vice President February 22, 1994
R.L. Plancher and Chief Accounting
Officer (principal
accounting officer)
Howard C. Humphrey
- ---------------------- Vice President - Life February 22, 1994
Howard C. Humphrey Insurance and Director
<PAGE>
Eugene R. Anderson
- ---------------------- Director February 21, 1994
Eugene R. Anderson
- ---------------------- Director February , 1994
Patricia O. Ewers
John W. Johnstone, Jr.
- ---------------------- Director February 21, 1994
John W. Johnstone, Jr.
Wendell J. Kelley
- ---------------------- Director February 21, 1994
Wendell J. Kelley
Sidney Kirschner
- ---------------------- Director February 22, 1994
Sidney Kirschner
Gordon R. Lohman
- ---------------------- Director February 22, 1994
Gordon R. Lohman
Charles H. Pistor, Jr.
- ---------------------- Director February 21, 1994
Charles H. Pistor, Jr.
Peter M. Wilson
- ---------------------- Director February 22, 1994
Peter M. Wilson
2
<PAGE>
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated with
their respective names below, hereby constitute and appoint GILBERT L.
KLEMANN, II, EDWARD P. SMITH and A. ROBERT COLBY, and each of them
severally, the attorneys-in-fact of the undersigned with full power to them
and each of them to sign for and in the name of the undersigned in the
capacities indicated below the Annual Report on Form 10-K of American
Brands, Inc. for the fiscal year ended December 31, 1993, and any and all
amendments thereto:
Signature Title Date
- ---------------------- Chairman of the Board February , 1994
William J. Alley and Chief Executive
Officer (principal
executive officer) and
Director
- ---------------------- President and Chief February , 1994
T.C. Hays Operating Officer and
Director
- ---------------------- Executive Vice February , 1994
A. Henson President and Chief
Financial Officer
(principal financial
officer) and Director
- ---------------------- Senior Vice President February , 1994
R.L. Plancher and Chief Accounting
Officer (principal
accounting officer)
- ---------------------- Vice President - Life February , 1994
Howard C. Humphrey Insurance and Director
<PAGE>
- ---------------------- Director February , 1994
Eugene R. Anderson
Patricia O. Ewers
- ---------------------- Director February 20, 1994
Patricia O. Ewers
- ---------------------- Director February , 1994
John W. Johnstone, Jr.
- ---------------------- Director February , 1994
Wendell J. Kelley
- ---------------------- Director February , 1994
Sidney Kirschner
- ---------------------- Director February , 1994
Gordon R. Lohman
- ---------------------- Director February , 1994
Charles H. Pistor, Jr.
- ---------------------- Director February , 1994
Peter M. Wilson
2
