UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended June 30, 1994
AMERICAN BRANDS, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
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 ( )
The number of shares outstanding of the registrant's Common stock, par
value $3.125 per share, at July 29, 1994 was 201,303,055 shares.
<PAGE> PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
Assets
Consumer products and corporate
Current assets
Cash and cash equivalents $ 102.0 $ 62.5
Accounts receivable, net 1,339.9 1,241.6
Inventories 1,765.9 2,043.2
Other current assets 285.6 385.8
--------- ---------
Total consumer products and
corporate current assets 3,493.4 3,733.1
Property, plant and equipment, net 1,465.5 1,472.1
Intangibles resulting from
business acquisitions, net 3,626.6 3,637.9
Other assets 413.5 379.4
--------- ---------
Total consumer products and
corporate assets 8,999.0 9,222.5
--------- ---------
Life insurance
Investments 6,089.4 5,808.8
Cash and cash equivalents 101.7 79.1
Deferred policy acquisition costs 489.2 470.5
Present value of future profits, net 165.9 170.0
Other assets 373.1 588.1
--------- ---------
Total life insurance assets 7,219.3 7,116.5
--------- ---------
Total assets $16,218.3 $16,339.0
========= =========
See Notes to Condensed Consolidated Financial Statements.
- 1 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
Liabilities and stockholders' equity
Consumer products and corporate
Current liabilities
Notes payable to banks $ 299.3 $ 298.9
Commercial paper 480.3 711.3
Accounts payable, accrued expenses
and other liabilities 1,104.6 1,248.5
Accrued excise and other taxes 1,000.2 726.3
Current portion of long-term debt 102.2 172.7
--------- ---------
Total consumer products and
corporate current liabilities 2,986.6 3,157.7
Long-term debt 2,312.9 2,492.4
Deferred income taxes 129.6 124.7
Postretirement and other liabilities 512.2 520.3
--------- ---------
Total consumer products and
corporate liabilities 5,941.3 6,295.1
--------- ---------
Life insurance
Policy reserves and claims 2,632.9 2,553.4
Investment-type contract deposits 2,801.2 2,732.3
Other liabilities 439.2 486.8
--------- ---------
Total life insurance liabilities 5,873.3 5,772.5
--------- ---------
$2.67 Convertible Preferred stock -
redeemable at Company's option 16.4 17.1
--------- ---------
Common stockholders' equity
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 171.7 173.3
Unrealized (depreciation) appreciation
on available-for-sale investments (4.7) 5.3
Foreign currency adjustments (268.2) (317.4)
Retained earnings 4,505.4 4,393.4
Treasury stock, at cost (734.3) (717.7)
--------- ---------
Total Common stockholders' equity 4,387.3 4,254.3
--------- ---------
Total liabilities and
stockholders' equity $16,218.3 $16,339.0
========= =========
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1994 and 1993
--------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1994 1993
---------- ----------
Revenues
Consumer products $6,041.8 $6,074.4
Life insurance 484.4 509.2
-------- --------
6,526.2 6,583.6
-------- --------
Operating expenses
Cost of products sold 1,888.7 1,752.2
Excise taxes on products sold 2,368.6 2,476.7
Insurance benefits 320.0 310.6
Advertising, selling and
administrative expenses
Consumer products 1,149.2 1,156.7
Life insurance 96.5 89.1
Amortization of intangibles 53.5 45.8
Restructuring charges, net - 5.2
-------- --------
5,876.5 5,836.3
-------- --------
Operating income 649.7 747.3
-------- --------
Interest and related charges 121.1 123.7
Corporate administrative expenses 28.7 24.2
Other expenses (income), net 4.9 (6.7)
-------- --------
154.7 141.2
Income before income taxes 495.0 606.1
Income taxes 181.9 207.7
-------- --------
Income before cumulative effect of
accounting changes 313.1 398.4
Cumulative effect of accounting changes
(net of income taxes of $124) - (201.0)
-------- --------
Net income $ 313.1 $ 197.4
======== ========
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1994 and 1993 (Concluded)
--------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1994 1993
------ ------
Earnings per Common share
Primary
Income before cumulative effect of
accounting changes $1.55 $1.97
Cumulative effect of accounting changes - (.99)
----- -----
Net income $1.55 $.98
===== =====
Fully diluted
Income before cumulative effect of
accounting changes $1.52 $1.91
Cumulative effect of accounting changes - (.95)
----- -----
Net income $1.52 $ .96
===== =====
Dividends paid per Common share $.9925 $.985
====== =====
Average number of Common shares
outstanding during each period
Primary 201.8 201.8
===== =====
Fully diluted 213.5 213.9
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1994 and 1993
--------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1994 1993
---------- ----------
Revenues
Consumer products $3,040.9 $2,578.7
Life insurance 237.1 267.3
-------- --------
3,278.0 2,846.0
-------- --------
Operating expenses
Cost of products sold 977.5 877.7
Excise taxes on products sold 1,153.3 824.7
Insurance benefits 162.4 164.9
Advertising, selling and
administrative expenses
Consumer products 589.6 587.3
Life insurance 47.0 46.8
Amortization of intangibles 26.8 22.9
Restructuring charges, net - 5.2
-------- --------
2,956.6 2,529.5
-------- --------
Operating income 321.4 316.5
-------- --------
Interest and related charges 59.7 61.8
Corporate administrative expenses 21.0 19.2
Other expenses (income), net 2.2 (1.0)
-------- --------
82.9 80.0
Income before income taxes 238.5 236.5
Income taxes 74.6 85.2
-------- --------
Net income $ 163.9 $ 151.3
======== ========
Earnings per Common share
Primary $.81 $.75
==== ====
Fully diluted $.80 $.73
==== ====
Dividends paid per Common share $.50 $.4925
==== ======
Average number of Common shares
outstanding during each period
Primary 201.8 201.7
===== =====
Fully diluted 213.4 213.7
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 1994 and 1993
---------------------------------------------------
(In millions)
(Unaudited)
1994 1993
-------- --------
Operating activities
Net income $ 313.1 $ 197.4
Changes in accounting principles - 201.0
Depreciation and amortization 158.1 146.9
Loss (gain) on dispositions and investments, net 6.5 (65.0)
(Increase) decrease in accounts receivable (62.4) 27.4
Decrease (increase) in inventories 308.4 (8.9)
Decrease in accounts payable, accrued
expenses and other liabilities (194.0) (121.5)
Increase (decrease) in accrued excise & other taxes 229.3 (75.0)
Increase in insurance policy and investment-
type contract related liabilities 159.6 154.6
Purchase of trading securities (168.1) -
Proceeds from sale of trading securities 202.4 -
Other operating activities, net 56.8 85.9
-------- -------
Net cash provided from operating activities 1,009.7 542.8
-------- -------
Investing activities
Additions to property, plant and equipment (76.4) (107.9)
Acquisition (10.3) (107.2)
Purchases of investments (535.8) (1,213.0)
Proceeds from the maturity, call and sale
of investments 400.7 929.2
Other investing activities, net 7.2 7.7
-------- -------
Net cash used by investing activities (214.6) (491.2)
-------- -------
Financing activities
Deposits on annuity and other financial products 170.9 203.7
Withdrawals of annuity and other
financial products (181.6) (127.1)
(Decrease) increase in short-term debt (243.2) 206.4
Issuance of long-term debt 26.9 165.2
Repayment of long-term debt (290.7) (285.2)
Dividends to stockholders (201.1) (199.6)
Other financing activities, net (19.3) (58.2)
-------- -------
Net cash used by financing activities (738.1) (94.8)
-------- -------
Effect of foreign exchange rate changes on cash 5.1 (15.9)
-------- -------
Net increase (decrease) in total cash and
cash equivalents 62.1 (59.1)
Total cash and cash equivalents at beginning
of period 141.6 140.2
-------- -------
Total cash and cash equivalents at end of period $ 203.7 $ 81.1
======== =======
See Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of June 30, 1994, the
related condensed consolidated statements of income for the
three-month and six-month periods ended June 30, 1994 and 1993 and the
related condensed consolidated statement of cash flows for the six-
month periods ended June 30, 1994 and 1993 are unaudited. In the
opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results
may not be indicative of results for a full year. (For a discussion
of results of operations, see Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
The condensed 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.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. The year-end condensed consolidated balance
sheet was derived from the Company's audited financial statements, but
does not include all disclosures required by generally accepted
accounting principles. This Form 10-Q should be read in conjunction
with the Company's consolidated financial statements and notes
incorporated by reference in its 1993 Annual Report on Form 10-K.
2. Accounting Changes
On December 31, 1993, the Company elected early adoption of FAS
Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," under which trading securities purchased with the
intent of being sold in the near term are carried at fair value and
the applicable unrealized gains and losses are recorded in income.
Effective January 1, 1993, the Company adopted FAS Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requiring accrual of the expected costs during the years
that employees render the service that qualifies them for coverage.
Also, effective January 1, 1993, the Company adopted FAS Statement No.
112, "Employers' Accounting for Postemployment Benefits," requiring
accrual of the expected costs of benefits provided to former or
inactive employees after employment but before retirement.
The initial effects of adopting FAS Statements No. 106 and 112 were
recorded as cumulative changes in accounting principles as follows (in
millions, except per share amounts):
- 7 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Accounting Changes (Concluded)
FAS Statements No.
106 112 Total
----- ----- -----
Pretax charges $310.0 $15.0 $325.0
Income taxes 119.0 5.0 124.0
------ ----- ------
Net loss $191.0 $10.0 $201.0
====== ===== ======
Net loss per Common share $.94 $.05 $.99
==== ==== ====
3. Pending Disposition
On April 26, 1994, the Company announced that it entered into an
agreement for the sale of The American Tobacco Company to B.A.T
Industries, PLC for a price of $1 billion, which would be largely tax
free. The transaction is subject to review by government antitrust
agencies and other conditions. The proceeds from the sale could be
used for share purchases, debt reduction, strategic acquisitions or
other general corporate purposes.
On April 26, 1994, the Company's subsidiary in the U.K., Gallaher
Limited, agreed to the sale to B.A.T Industries, PLC of its Silk Cut
trademark rights outside of Europe in exchange for a long-term
manufacturing arrangement. This transaction is contingent upon the
completion of the sale of The American Tobacco Company.
American Tobacco's revenues and operating income were as follows
(in millions):
Six Months Ended Year Ended
June 30, December 31, 1993
------------------ -----------------
1994 1993
------ ------
Revenues $782.1 $826.9 $1,501.5
====== ====== ========
Operating income $125.6 $193.2 $169.2
====== ====== ======
If the transaction is consummated, the estimated gain, which will
be based on the carrying value of The American Tobacco Company at the
date of closing, will be in the range of $500 million, net of taxes,
or about $2.50 per share.
- 8 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions
During the fourth quarter of 1993, Whyte & Mackay, a subsidiary of
Gallaher Limited, completed its acquisition of Invergordon Distillers
Group PLC by purchasing the remaining 58.7% of the outstanding shares
of Invergordon. In 1991, Whyte & Mackay acquired 41.3% of the
outstanding shares of Invergordon. 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.
On June 30, 1993, the Benson and Hedges cigarette trademark in
Europe was acquired from B.A.T Industries, PLC in exchange for the
assignment of the 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 were 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 were
guaranteed and, accordingly, their present value was included in the
initial $183 million of intangibles recorded. Any payments in excess
of the guarantees will also be amortized over periods not to exceed 40
years.
5. Inventories
The components of inventories are as follows (in millions):
June 30, December 31,
1994 1993
---------- ------------
Leaf tobacco $ 415.3 $ 477.7
Bulk whiskey 364.5 359.3
Other raw materials, supplies and work
in process 319.6 306.9
Finished products 666.5 899.3
-------- --------
$1,765.9 $2,043.2
======== ========
- 9 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. The Franklin Life Insurance Company
Summarized income statement data for Franklin (in millions):
Six Months Three Months
Ended June 30, Ended June 30,
--------------- ---------------
1994 1993 1994 1993
------ ------ ------ ------
Revenues
Premiums $221.8 $218.5 $112.2 $117.4
Net investment income 238.1 230.2 118.9 114.0
Investment gains (losses) (9.9) 39.4 (11.5) 21.0
Other income 34.4 21.1 17.5 14.9
------ ------ ------ ------
484.4 509.2 237.1 267.3
------ ------ ------ ------
Insurance benefits 320.0 310.6 162.4 164.9
Advertising, selling and
administrative expenses 96.5 89.1 47.0 46.8
Amortization of intangibles and
present value of future profits 5.7 5.6 2.9 2.8
------ ------ ------ ------
422.2 405.3 212.3 214.5
------ ------ ------ ------
Operating income 62.2 103.9 24.8 52.8
Income taxes 25.1 35.7 10.1 18.1
------ ------ ------ ------
Income before cumulative effect
of accounting change 37.1 68.2 14.7 34.7
Cumulative effect of accounting
change (net of income taxes
of $10.9) - (20.6) - -
------ ------ ------ ------
Net income $ 37.1 $ 47.6 $ 14.7 $ 34.7
====== ====== ====== ======
- 10 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. The Franklin Life Insurance Company (Concluded)
Summarized cash flow data for Franklin (in millions):
Six Months Ended
June 30,
----------------------
1994 1993
------- -------
Net cash provided from operating activities $ 194.4 $ 169.8
------- -------
Investing activities
Additions to property and equipment (1.9) (3.3)
Purchase of investments (535.8) (1,213.0)
Proceeds from sale of investments - 199.8
Proceeds from maturity and call of
investments 400.7 729.4
------- -------
Net cash used by investing activities (137.0) (287.1)
------- -------
Financing activities
Dividends to parent (24.1) (24.5)
Deposits on annuity and other
financial products 170.9 203.7
Withdrawals of annuity and other
financial products (181.6) (127.1)
------- -------
Net cash (used) provided by financing
activities (34.8) 52.1
------- -------
Net increase (decrease) in cash and cash
equivalents $ 22.6 $ (65.2)
======= =======
7. Credit Facilities
The Company recently extended to June 15, 1999 the expiration dates
of revolving credit agreements maintained by the Company with various
banks providing for unsecured committed borrowings of up to $4
billion, including $1 billion in various Eurocurrencies. Other terms
of the agreements remained unchanged.
- 11 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Supplementary Profit and Loss Information
Federal and foreign excise taxes included in consumer products
revenues (in millions):
Six Months Three Months
Ended June 30, Ended June 30,
------------------ ------------------
1994 1993 1994 1993
------ ------ ------ ------
International tobacco $1,949.8 $2,073.0 $ 921.5 $611.6
Domestic tobacco 212.7 177.3 116.4 92.3
Distilled spirits 206.1 226.4 115.4 120.8
-------- -------- -------- ------
$2,368.6 $2,476.7 $1,153.3 $824.7
======== ======== ======== ======
Restructuring charges, net, for the six-month and three-month
periods ended June 30, 1993 included workforce reduction provisions of
$16.7 million in international tobacco and $14 million in domestic
tobacco, partly offset by a $25.5 million gain in domestic tobacco on
the assignment of trademarks.
The higher effective income tax rate for the six-month period ended
June 30, 1994 reflected a higher U.S. income tax rate, this year's
proportionally greater impact of nondeductible goodwill on reduced
income and lower reversals of tax provisions no longer required. For
the three-month period ended June 30, 1994, the lower effective income
tax rate reflected higher reversals of tax provisions no longer
required, partly offset by an increase in the U.S. income tax rate.
9. Earnings Per Share
Earnings per Common share are based on the weighted average number
of Common shares outstanding in each period 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 period, 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.
- 12 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
10. 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. It is not
possible to predict the outcome of the pending litigation, and
management is unable to make a reasonable estimate of the amount or
range of loss that could result from an unfavorable determination of
the pending litigation. It is possible that an unfavorable
determination could have a material effect on the Company's results of
operations and cash flows in a particular quarterly or annual period
and could encourage the commencement of additional litigation.
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. These actions are
being vigorously contested.
11. 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.
12. Subsequent Event
On July 12, 1994, the Company announced the sale of the Dollond &
Aitchison Group PLC, a subsidiary of Gallaher Limited, for a total
consideration of 94 million pounds ($146 million) which approximated
the carrying value of the company.
- 13 -
<PAGE> REPORT OF INDEPENDENT ACCOUNTANTS
--------------------
To the Board of Directors of American Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
American Brands, Inc. and Subsidiaries as of June 30, 1994, the
related condensed consolidated statements of income for the
three-month and six-month periods ended June 30, 1994 and 1993 and the
related condensed consolidated statement of cash flows for the six-
month periods ended June 30, 1994 and 1993. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1993, and the related consolidated statements of income, cash flows
and Common stockholders' equity for the year then ended (not presented
herein) and in our report dated February 1, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1993, is fairly stated
in all material respects in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
August 11, 1994
- 14 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for Six Months Ended June 30, 1994 as Compared
to Six Months Ended June 30, 1993
-----------------------------------------------------------------------
Revenues Operating Income
---------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(In millions)
Tobacco products
International $2,545.7 $2,704.7 $218.0 $209.7
Domestic 782.1 826.9 125.6 193.2
-------- -------- ------ ------
Total Tobacco 3,327.8 3,531.6 343.6 402.9
-------- -------- ------ ------
Distilled spirits 533.5 535.9 74.9 85.9
Life insurance 484.4 509.2 62.2 103.9
Hardware and home
improvement products 598.3 518.6 86.2 76.3
Office products 465.6 444.9 21.6 19.3
Specialty businesses 1,116.6 1,043.4 61.2 59.0
-------- -------- ------ ------
Total Nontobacco 3,198.4 3,052.0 306.1 344.4
-------- -------- ------ ------
$6,526.2 $6,583.6 $649.7 $747.3
======== ======== ====== ======
CONSOLIDATED
- ------------
Revenues and operating income decreased 1% and 13%, respectively.
Decreases in total tobacco products principally reflected a cigarette unit
decline in international tobacco due to a change in timing of the U.K.
government budget announcements, and price changes in domestic tobacco
reflecting the industrywide price reductions in August 1993. Nontobacco
revenues increased 5% on new products, price increases and the acquisition
of Invergordon, partly offset by lower volume, principally at Beam, and an
unfavorable change in investment gains/losses in life insurance.
Nontobacco operating income decreased 11%, principally on the unfavorable
change in investment gains/losses.
The increase in the effective income tax rate to 36.7% from 34.3% in 1993
reflected a higher U.S. income tax rate, this year's proportionally greater
impact of nondeductible goodwill on reduced income and lower reversals of
tax provisions no longer required.
Net income was $313.1 million, or $1.55 per Common share, for the six
months ended June 30, 1994, compared to net income of $197.4 million, or 98
cents per share, and income before accounting changes of $398.4 million, or
- 15 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
$1.97 per share, last year. Last year included a one-time charge related
to the adoption of FAS Statements No. 106 and 112.
Although the second quarter results were encouraging, several conditions
indicate that unfavorable overall profit comparisons may well result for
the year 1994. In markets around the world competitive conditions remain
intense. This will tend to continue the pressure on pricing and margins,
particularly in tobacco and distilled spirits. Profit comparisons in life
insurance are also likely to be difficult due to investment gains totaling
$53.2 million in the last half of 1993 and the added volatility from market
fluctuations in valuing the trading securities portfolio. Domestic tobacco
will continue to be adversely affected by last year's extraordinary changes
in the industry, but quarterly profit comparisons should be easier during
the remainder of 1994. In international tobacco, last year's third quarter
benefited from buying by the trade in anticipation of a manufacturers'
price increase, so quarterly comparisons may continue to be somewhat
distorted and achieving full year growth will be challenging.
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. It is not possible to predict the outcome
of the pending litigation, and management is unable to make a reasonable
estimate of the amount or range of loss that could result from an
unfavorable determination of the pending litigation. It is possible that
an unfavorable determination could have a material effect on the Company's
results of operations and cash flows in a particular quarterly or annual
period and could encourage the commencement of additional litigation.
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. These actions are
being vigorously contested.
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 August 10, 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.
- 16 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Tobacco Products
- ----------------
Worldwide tobacco revenues decreased 6% and operating income declined 15%;
total cigarette units increased 4.1%.
International tobacco revenues in sterling were down 7% on a 20.2% decrease
in U.K. cigarette unit sales, partly offset by price increases principally
resulting from higher U.K. tobacco taxes and a substantial unit increase in
export sales, mainly on increased periodic shipments to the CIS and the
inclusion of Benson and Hedges shipments to Europe. U.K. cigarette
industry volume declined 14% and the underlying consumer demand is
estimated to have declined in the area of 4.1%. A change in the timing of
the U.K. budget announcements has significantly impacted U.K. cigarette
unit sales. The November 30, 1993 U.K. Budget announcement had the effect
of drawing sales into the fourth quarter of 1993 from 1994's first quarter.
Additionally, the March 1993 Budget generated advance trade buying that is
still affecting six month comparisons. These adverse effects were partly
offset by manufacturers' price increases ("MPI") in April 1994 and August
1993 and trade buying in advance of the April 1994 MPI. Operating income
in sterling increased 3% primarily on reduced marketing costs as last year
included significant expenditures associated with the launch in January
1993 of Benson and Hedges Superkings. In dollars, revenues declined 6% and
operating income increased 4%.
Domestic tobacco revenues declined 5% reflecting the August 1993 list price
reductions, partly offset by increased volume and new products. American
Tobacco's U.S. unit shipments increased 14.2% while industry shipments
increased 9.8%. American Tobacco increased its market share for the six
months (7.15% from 6.88% last year) while market share for the latest
twelve months remained stable. Unit sales of the more profitable premium
brands increased 4.9%, but continue to lag the industry's performance. The
industry's less profitable price-value category, comprising discount and
deep discount brands, accounted for approximately 37% of the market in 1993
and about 33% in the first six months of 1994. Price-value brands
accounted for 56% of American Tobacco's U.S. unit sales in this year's
first six months, compared to 52% in 1993's like period. American
Tobacco's price-value brands increased 22.8% as discount and deep discount
brands increased 32.3% and 6.5%, respectively. The discount brand increase
reflected a strong performance by Montclair and Misty while the deep
discount increase largely reflected the introduction of Summit in March
1993. Operating income declined 35% reflecting the lower prices, a less
favorable product mix and unfavorable comparison to last year's gain on the
assignment of trademarks, partly offset by volume increases, lower
marketing and administrative expenses, as well as the favorable effects of
workforce reductions.
Profit comparisons for domestic tobacco should be easier in the second half
and the Company is hopeful that full year operating income for American
Tobacco will exceed the 1993 result. Domestic tobacco will continue to be
consolidated in American Brands' results pending consummation of the sale
of The American Tobacco Company to B.A.T Industries, PLC.
- 17 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Tobacco Products (Concluded)
- ----------------
U.S. federal excise taxes on cigarettes increased four cents per pack on
January 1, 1991 and 1993. 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 substantially more than the
administration's proposed increase. U.K. tobacco taxes increased by 11
pence and 10 pence per pack in November and March 1993, respectively, the
fourth consecutive year of increases. The likelihood and effects of any
future tax increases cannot be determined but would likely add to the
overall industry declines and the shift to lower priced brands.
Congressional hearings have been held to determine the appropriateness of
FDA regulation of cigarettes due to nicotine content, and extensive
publicity has occurred relative to cigarette ingredients. The industry has
released lists of cigarette ingredients.
A Florida statute, which took effect July 1, 1994, would permit the state
to sue manufacturers to recover medicaid costs for individuals claiming
product-related illnesses. In such actions, the state would be permitted
to rely upon evidence showing injury to be statistically associated with
that product. The state would not have to prove that the medicaid
recipient used the particular manufacturer's product; rather, the
legislation would impose liability on the basis of a manufacturer's "market
share." Manufacturers would be precluded from asserting various defenses
against liability. While the measure does not mention the tobacco industry
by name, supporters of the legislation have been reported as saying that
tobacco manufacturers are the target of the legislation. On July 10, 1994,
the governor of Massachusetts signed legislation authorizing the state's
attorney general to sue cigarette manufacturers to recover medical
assistance payments made by the state to individuals for which the
cigarette manufacturers may be liable. Other states are considering
legislation authorizing the recovery of medical assistance that they have
provided as well as considering the commencement of actions seeking such
recovery. It is not possible to predict the impact of such legislation or
actions on American Tobacco or the industry.
Distilled Spirits
- -----------------
Worldwide revenues declined slightly and operating income declined 13%.
Beam's revenues were down 9%, principally on lower domestic volume due to a
reduction in wholesale customers' inventory levels, partly offset by a 33%
increase in international revenues. With a continuing consolidation of
distilled spirits wholesalers and retailers, Beam has increased its focus
on retail point of sale and encouraged its wholesale customers in the first
quarter to draw down their inventories. Total branded case sales were down
8% reflecting a 14.2% decline in domestic branded case sales tempered by a
22.8% increase in international. Operating income declined 11% as a result
- 18 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits (Concluded)
- -----------------
of the reduced volume, effects of competitive pricing pressures in the
domestic market and higher international selling costs related to market
development, partly offset by reduced domestic media advertising.
Whyte & Mackay's revenues in sterling increased 39% on the inclusion of
Invergordon, consolidated beginning December 1, 1993. Total unit volume
was up 126.7%. Excluding Invergordon, U.K. and total volume declined 16.2%
and 10.5%, respectively, reflecting a more competitive environment.
Operating income in sterling declined 43% as last year included a dividend
from Invergordon. Excluding the dividend, operating income was up 54% on
the inclusion of Invergordon.
There is likely to be continuing volatility in quarter-to-quarter
comparisons through the year related to changing trade practices at Beam
and last year's acquisition of Invergordon.
Life Insurance
- --------------
Revenues declined 5% reflecting an unfavorable change in investment
gains/losses, partly offset by higher commissions and allowances on group
life and health reinsurance, net investment income and premiums. The $49.3
million unfavorable change in investment gains/losses reflected an
unfavorable change in gains/losses from equity securities (partly resulting
from adoption of FAS Statement No. 115) and substantially lower gains from
high coupon bond redemptions. Although investment gains/losses and
redemptions are dependent on market conditions and cannot be predicted,
bond redemption gain comparisons are likely to be unfavorable for the
remainder of the year. FAS Statement No. 115, which requires inclusion of
market fluctuations on the trading portfolio in income, may continue to add
increased volatility to future results. Operating income declined 40%,
principally reflecting the unfavorable change in investment gains/losses.
Excluding the investment gains/losses, operating income increased 12% on
higher revenues and lower death benefits and dividends to policyholders,
partly offset by higher policy reserves and selling and administrative
expenses.
Hardware and Home Improvement Products
- --------------------------------------
Record revenues increased 15% on new products, line extensions, volume
gains and price increases. All four companies in the group achieved record
revenues. The major contributors with substantial increases were Moen, up
on volume gains and a favorable product mix, and Aristokraft, up on price
and volume increases. Record operating income was up 13% on revenue gains,
partly offset by higher raw material costs at Aristokraft, increased
advertising at Moen and higher administrative expenses.
- 19 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Office Products
- ---------------
Revenues increased 5% on benefits from new products as well as increases in
volume and prices, partly offset by an unfavorable foreign exchange effect.
ACCO continued to achieve significant share increases in the fast-growing
retail channels and is well positioned for further growth. Operating
income increased 12% principally on volume gains and improved operating
margins.
Specialty Businesses
- --------------------
Specialty businesses revenues were as follows (in millions):
Six Months Ended
June 30,
-------------------
1994 1993
------- ------
Golf and leisure products $ 301.4 $ 269.3
Optical goods and services 177.9 189.0
Retail distribution 650.4 653.8
Housewares 41.0 48.2
Rubber products 28.8 27.6
Other 3.0 3.6
-------- --------
1,202.5 1,191.5
Less intersegment elimination 85.9 148.1
-------- --------
$1,116.6 $1,043.4
======== ========
Revenues and operating income increased 7% and 4%, respectively.
Record golf and leisure products revenues and operating income were up 12%
and 14%, respectively. The increases primarily resulted from new golf ball
products and volume gains. Operating income was also impacted by increased
marketing and administrative expenses.
In sterling, operating income from foreign businesses declined 44%.
Optical and retail distribution were down 41% and 21%, respectively, on the
effects of volume declines, partly offset by price increases and lower
marketing and administrative expenses. In dollars, the operating income
percent change approximated the sterling result.
The optical goods and services group was sold on July 12, 1994. See note
12, Notes to Condensed Consolidated Financial Statements.
- 20 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from operating activities of $1 billion for the period
ended June 30, 1994 increased $466.9 million and exceeded the funds
required for capital expenditures and dividends by $732.2 million. The
increase was largely attributable to the shift in international tobacco's
sales pattern resulting from the timing of the U.K. budget announcements in
1993. The shift in sales pattern impacted accounts receivable, accrued
excise taxes and inventories.
Net cash used by investing activities for the period ended June 30, 1994
was $214.6 million compared with $491.2 million in 1993, principally
reflecting lower insurance investment activity and lower acquisition
activity.
In addition, the adoption of FAS Statement No. 115 has affected both the
operating and investing activities by classifying the transactions relating
to trading securities as operating activities, whereas prior to 1994 these
transactions were classified as investing activities.
Net cash used by financing activities for the period ended June 30, 1994
was $738.1 million compared to $94.8 million in 1993, reflecting higher
repayments.
Total debt at June 30, 1994 aggregated $3.2 billion, a decrease of $480.6
million from December 31, 1993 principally due to the timing of
international tobacco's receipts related to the November 1993 U.K. pre-
budget buy-in. The ratio of total debt to total capital decreased from
46.2% at December 31, 1993 to 42.0% at June 30, 1994.
The Company recently extended to June 15, 1999 the expiration dates of
revolving credit agreements maintained by the Company with various banks
providing for unsecured committed borrowings of up to $4 billion, including
$1 billion in various Eurocurrencies. Other terms of the agreements
remained unchanged.
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.
Proceeds from the sale of The American Tobacco Company, if consummated,
could be used for share purchases, debt reduction, strategic acquisitions
or other general corporate purposes. For further information regarding the
pending sale of American Tobacco, see note 3, Notes to Condensed
Consolidated Financial Statements.
- 21 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
-------------------------------------------------------------
Results of Operations for Three Months Ended June 30, 1994 as Compared
to Three Months Ended June 30, 1993
-----------------------------------------------------------------------
Revenues Operating Income
---------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(In millions)
Tobacco products
International $1,215.4 $ 815.4 $ 92.9 $ 44.6
Domestic 405.6 419.4 70.2 90.7
-------- -------- ------ ------
Total Tobacco 1,621.0 1,234.8 163.1 135.3
-------- -------- ------ ------
Distilled spirits 292.9 289.3 44.8 46.5
Life insurance 237.1 267.3 24.8 52.8
Hardware and home
improvement products 309.0 259.8 45.2 39.3
Office products 232.7 216.5 7.3 6.2
Specialty businesses 585.3 578.3 36.2 36.4
-------- -------- ------ ------
Total Nontobacco 1,657.0 1,611.2 158.3 181.2
-------- -------- ------ ------
$3,278.0 $2,846.0 $321.4 $316.5
======== ======== ====== ======
CONSOLIDATED
- ------------
Record revenues increased 15% and operating income was up 2%. Increases in
total tobacco products principally reflected higher volume in both
international and domestic tobacco (total cigarette units were up 37.1%),
partly offset by price changes in domestic tobacco reflecting the
industrywide price reductions in August 1993. Nontobacco revenues were up
3% on new products, increases in volume and prices, principally in hardware
and home improvement products, and the acquisition of Invergordon, partly
offset by an unfavorable change in investment gains/losses in life
insurance. Nontobacco operating income decreased 13% principally on the
unfavorable change in investment gains/losses.
The decrease in the effective income tax rate to 31.3% from 36% in 1993
reflected higher reversals of tax provisions no longer required, partly
offset by an increase in the U.S. income tax rate.
Net income of $163.9 million, or 81 cents per Common share, was up 8%.
- 22 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Tobacco Products
- ----------------
Record worldwide tobacco revenues increased 31% and operating income
increased 21%; total cigarette units increased 37.1%.
International tobacco revenues in sterling were up 51% in part due to a
44.2% increase in U.K. cigarette unit sales reflecting the March 1993 U.K.
Budget announcement which pulled volume from 1993's second quarter into the
first quarter (U.K. cigarette industry volume increased 53%) and price
increases principally resulting from higher U.K. tobacco taxes. Revenues
also increased as a result of a substantial unit increase in export sales,
mainly on increased periodic shipments to the CIS and the inclusion of
Benson and Hedges shipments to Europe. Operating income in sterling
increased 111% on the cigarette volume gain, partly offset by higher
marketing costs, principally on increased support for Benson and Hedges
Special Filter, as well as export expansion in Europe and the CIS. In
dollars, revenues and operating income percent changes approximated the
sterling result.
Domestic tobacco revenues declined 3% reflecting the August 1993 list price
reductions, largely offset by increased volume. American Tobacco's U.S.
unit shipments increased 14.6% and industry shipments increased 11.1%.
American Tobacco's market share for the second quarter increased to 7.11%
from 6.89% in last year's second quarter. Unit sales of the more
profitable premium brands increased 8.1% in the quarter, but continue to
lag the industry's performance. The industry's less profitable price-value
category, comprising discount and deep discount brands, accounted for about
32% of the market during the second quarter of 1994. Price-value brands
accounted for 57% of American Tobacco's U.S. unit sales in the second
quarter, compared to 54% in last year's second quarter. American Tobacco's
price-value brands increased 20% as discount and deep discount brands
increased 30.6% and 2.4%, respectively. The discount brand increase
reflected a strong performance by Montclair and Misty. The deep discount
increase reflected higher unit sales of Summit and Prime. Operating income
decreased 23% reflecting the lower prices, a less favorable product mix and
unfavorable comparison to last year's gain on the assignment of trademarks,
partly offset by volume increases, lower marketing expenses and favorable
effects of workforce reductions.
- 23 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits
- -----------------
Worldwide revenues increased 1%, while operating income declined 4%.
Beam's revenues decreased 7%. Total branded case sales were down 7.1% as a
12.9% decline in domestic was partly offset by a 22.4% increase in
international. Revenues have been adversely affected by the company
encouraging its wholesale customers in the first quarter to reduce their
inventories. Operating income increased 2% through lower domestic
marketing expenses as well as the very strong performance internationally
offset in part by competitive pricing pressures in the domestic market.
Whyte & Mackay's revenues in sterling increased 43% on the inclusion of
Invergordon, consolidated beginning December 1, 1993. Total unit volume
was up 140.2%. Excluding Invergordon, U.K. and total volume declined 11.7%
and 4.4%, respectively, reflecting a more competitive environment.
Operating income in sterling decreased 67% on lower volume, unfavorable
product mix, higher operating expenses and last year's inclusion of a
dividend from Invergordon. Excluding the dividend, operating income was up
80% on the inclusion of Invergordon.
Life Insurance
- --------------
Revenues were down 11% reflecting an unfavorable change in investment
gains/losses and lower premiums, partly offset by increased investment
income. The $32.5 million unfavorable change in investment gains/losses
principally reflects substantially lower gains from high coupon bond
redemptions and higher losses from equity securities (partly resulting from
adoption of FAS Statement No. 115). Premiums decreased 4% as lower group
annuities related to pension buy-outs were partly offset by higher life
premiums. The increase in net investment income reflects a larger invested
asset base. Operating income declined 53% reflecting the unfavorable
change in investment gains/losses. Excluding the investment gains/losses,
operating income increased 14% on higher revenues and lower death benefits
and dividends to policyholders.
Hardware and Home Improvement Products
- --------------------------------------
Record revenues increased 19% on new products, line extensions, volume
gains and price increases. All four companies in the group achieved record
revenues. The major contributors with substantial increases were Moen, up
on volume gains and a favorable product mix and Aristokraft, up on price
and volume increases. Record operating income was up 15% on revenue gains,
partly offset by higher marketing costs at Moen.
- 24 -
<PAGE> AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
Office Products
- ---------------
Record revenues were up 7% on volume gains and new products, partly offset
by an unfavorable foreign exchange effect. All operating groups reported
higher revenues, most significantly ACCO North America and Australia. ACCO
continued to achieve share increases in the fast-growing retail channels.
Operating income was up 18% mainly on volume gains and the benefits from
ongoing cost reductions, partly offset by higher operating expenses in
North America to improve customer service levels and expand channels of
distribution.
Specialty Businesses
- --------------------
Specialty businesses revenues were as follows (in millions):
Three Months Ended
June 30,
-------------------
1994 1993
------- ------
Golf and leisure products $167.9 $147.4
Optical goods and services 94.2 98.2
Retail distribution 316.9 321.3
Housewares 20.8 24.6
Rubber products 14.7 14.2
Other 1.4 1.7
------ ------
615.9 607.4
Less intersegment elimination 30.6 29.1
------ ------
$585.3 $578.3
====== ======
Revenues increased 1% and operating income decreased slightly.
Record golf and leisure products revenues and operating income were up 14%.
The increases primarily resulted from new golf ball products and volume
gains. Operating income was also impacted by increased marketing and
administrative expenses.
In sterling, operating income from foreign businesses declined 62%.
Optical and retail distribution were down 27% and 55%, respectively, on the
effects of volume declines, partly offset by price increases and lower
marketing and administrative expenses. In dollars, the operating income
percent change approximated the sterling result.
- 25 -
<PAGE>
PART I - EXHIBIT A
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Six Months Ended
June 30,
----------------------
1994 1993
------ ------
Income before cumulative effect of
accounting changes $313.1 $398.4
Preferred stock dividend requirements (0.7) (0.8)
------ ------
Income available before accounting changes for
computing earnings per Common share - primary 312.4 397.6
Cumulative effect of accounting changes - (201.0)
------ ------
Net income for computing earnings
per Common share - primary $312.4 $196.6
====== ======
Income available before accounting changes for
computing earnings per Common share - primary $312.4 $397.6
Convertible preferred stock dividend requirements 0.7 0.8
Interest expense and related charges on
convertible debentures 10.7 10.9
------ ------
Income available before accounting changes for
computing earnings per Common share -
fully diluted 323.8 409.3
Cumulative effect of accounting changes - (201.0)
------ ------
Net income for computing earnings per Common
share - fully diluted $323.8 $208.3
====== ======
- 26 -
<PAGE>
PART I - EXHIBIT A (Continued)
------------------
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Six Months Ended
June 30,
----------------------
1994 1993
---- ----
Weighted average number of Common shares
outstanding during each period - primary 201.8 201.8
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 2.2 2.4
Addition from assumed conversion of
convertible debentures 9.3 9.4
Other additions 0.2 0.3
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 213.5 213.9
===== =====
Earnings per Common share
Primary
Income before cumulative effect of
accounting changes $1.55 $1.97
Cumulative effect of accounting changes - (.99)
----- -----
Net income $1.55 $ .98
===== =====
Fully diluted
Income before cumulative effect of
accounting changes $1.52 $1.91
Cumulative effect of accounting changes - (.95)
----- -----
Net income $1.52 $ .96
===== =====
- 27 -
<PAGE>
PART I - EXHIBIT A (Concluded)
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
June 30,
----------------------
1994 1993
------ ------
Net income $163.9 $151.3
Preferred stock dividend requirements (0.4) (0.4)
------ ------
Net income for computing earnings
per Common share - primary 163.5 150.9
Convertible preferred stock dividend requirements 0.3 0.4
Interest expense and related charges on
convertible debentures 5.4 5.5
------ ------
Net income for computing earnings per Common
share - fully diluted $169.2 $156.8
====== ======
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
----------------------------------------------------------------
(In millions, except per share amounts)
Weighted average number of Common shares
outstanding during each period - primary 201.8 201.7
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 2.2 2.4
Addition from assumed conversion of
convertible debentures 9.3 9.4
Other additions 0.1 0.2
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 213.4 213.7
===== =====
Earnings per Common share
Primary $.81 $.75
==== ====
Fully diluted $.80 $.73
==== ====
- 28 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) (i) The American Tobacco Company ("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 August 10, 1994, ATCO or ATCO's
predecessor had disposed of 238 actions, and the industry a total of 428,
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. It has
been reported that certain groups of attorneys are interested in promoting
product liability and other types of tobacco and health suits against the
tobacco manufacturers.
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 August 10, 1994, ATCO was a defendant in 35
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. In one case in
which ATCO is a defendant, Butler, et al. v. R.J. Reynolds Tobacco Co., et
al. (described under paragraph (a)(i) of Item 3, "Legal Proceedings", of
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1993), plaintiffs are seeking damages for alleged injuries claimed to
have resulted from exposure to tobacco smoking of others. Although the
case is currently scheduled to come to trial on November 28, 1994,
plaintiffs have filed a motion to dismiss this action and have filed a
wrongful death action asserting many of the same claims in the Circuit
Court of Jones County, Mississippi. In Wilkes, et al. v. The American
Tobacco Company, et al. (described under paragraph (a)(i) of Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993), 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 under paragraph (a)(i) of Item
3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993), 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 assess[ed] 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
- 29 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (continued)
- ------ -----------------
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 under paragraph (a)(i) of Item 3, "Legal Proceedings", of
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1993), 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
flight attendants. 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.
Additional purported "class actions" have been filed against ATCO
and other leading tobacco manufacturers. In Castano, et al. v. The
American Tobacco Company, et al. (described in Part II, Item 1(a)(i) of
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994), plaintiffs have asserted an alleged class action claiming
that defendants caused members of the purported class to become "addicted"
to cigarettes through manipulation of nicotine levels. The alleged class
consists of all residents or domiciliaries of the United States who claim
to be "addicted" to cigarettes, as well as survivors who claim that their
decedents were injured by their "addiction" to tobacco products.
Plaintiffs seek equitable relief as well as compensatory and punitive
damages. In Allman, et al. v. The American Tobacco Company, et al.
(described in Part II, Item 1(a)(i) of Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994), plaintiffs have
asserted an alleged class action under the Racketeer Influenced and Corrupt
Organizations Act on behalf of all persons in the United States who have
become "addicted" to defendants' cigarette products and who have or who
will in the future be prescribed a "nicotine patch" to help them break
their purported "addiction." Plaintiffs are seeking treble compensatory
damages for amounts expended for "nicotine patches and associated medical
services," as well as unspecified injunctive relief. In Engle, et al. v.
RJ Reynolds Tobacco Company, et al. (described in Part II, Item 1(a)(i) of
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994), plaintiffs claim to represent all United States citizens
and residents, as well as their survivors, who have suffered or died from
diseases allegedly caused by smoking cigarettes containing nicotine.
Plaintiffs seek compensatory damages in excess of $100 billion as well as
punitive damages in excess of $100 billion. Plaintiffs additionally seek
equitable relief, including the establishment of a medical fund for future
healthcare costs. It has been reported in the press that a purported class
action was filed in June 1994 in the United States District Court for the
Southern District of California.
In Moore v. The American Tobacco Company, et al., described
below, the Mississippi State Attorney General has filed an equitable action
which, inter alia, seeks restitution from tobacco companies of expenditures
by the state for the medical care provided to Mississippi citizens for
- 30 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (continued)
- ------ -----------------
alleged "tobacco-related diseases." It has been reported that other states
are considering filing similar lawsuits.
ATCO's counsel, Chadbourne & Parke, have advised that, in their
opinion, the specified damages claimed in pending actions against ATCO,
which approximate $209,605,685,000 in the aggregate, are exaggerated.
In Cordova v. Liggett Group Inc., et al. (described under
paragraph (a)(i) of Item 3, "Legal Proceedings", of Registrant's Annual
Report on form 10-K for the fiscal year ended December 31, 1993),
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
- 31 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (continued)
- ------ -----------------
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
represented the plaintiffs in Smith, et al. v. R.J. Reynolds Tobacco Co.,
et al. (described under paragraph (a)(i) of Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993) 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
- 32 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (continued)
- ------ -----------------
Registrant's financial condition. If, however, there were to be a
significant increase in such litigation, the increased financial burden
could be material. See note 10 "Pending Litigation" in the Notes to
Condensed Consolidated Financial Statements set forth in Part I, Item 1 of
this Quarterly Report on Form 10-Q, which note is incorporated herein by
reference.
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.
With regard to proceedings of the above-described type terminated
since April 1, 1994, four cases have been dismissed in addition to those
whose termination was previously reported in Part II, Item 1(a) of
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994: Voth v. Forsyth Tobacco Products, et al., which was
previously pending in the United States District Court for the District of
Oregon and instituted on August 10, 1993, was dismissed with prejudice on
May 31, 1994; Haight v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of Kanawha County, State of West
Virginia and instituted on May 30, 1984, was dismissed without prejudice on
June 1, 1994; Rothgeb, et al. v. The American Tobacco Company, et al.,
which was previously pending in the District Court of Travis County, State
of Texas and instituted on June 9, 1986, was voluntarily dismissed with
prejudice on June 2, 1994; and Dyer, et al. v. American Tobacco Company,
Inc., et al., which was previously pending in the District Court of Travis
County, State of Texas and instituted on December 20, 1985, was voluntarily
dismissed with prejudice on July 5, 1994. One case, Higley v. Philip
Morris, Inc., et al., which was previously pending in the United States
District Court for the Southern District of California and instituted on
March 31, 1994, was consolidated with Allman v. Philip Morris, Inc., et al.
on April 29, 1994.
With regard to proceedings of the above-described type initiated
since April 1, 1994, eight new cases have been filed: Estate of Burl
Butler v. Philip Morris, Inc., et al., Circuit Court of Jones County, State
of Mississippi, May 12, 1994; Moore v. The American Tobacco Company, et
al., United States District Court for the Southern District of Mississippi,
May 23, 1994; Burton v. R. J. Reynolds Tobacco Co., et al., United States
District Court for the District of Kansas, May 25, 1994; Collins v. R.J.
Reynolds Tobacco Company, et al., United States District Court for the
District of South Carolina, June 2, 1994; Jensen v. American Brands, United
States District Court for the Eastern District of Michigan, June 9, 1994;
Tompkins v. American Brands, Inc., et al., United States District Court for
the Northern District of Ohio, June 24, 1994; Jacks v. The American Tobacco
Company, et al., Circuit Court of Washington County, State of Mississippi,
June 30, 1994; and Gilboy v. R.J. Reynolds Tobacco Company, et al., United
States District Court for the Middle District of Louisiana, August 1, 1994.
(ii) Reference is made to the discussion in paragraph (a)(ii) of
Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and Part II, Item 1(a)(i) of
- 33 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (concluded)
- ------ -----------------
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994. An application for Judicial Review of the refusal to grant
to approximately 225 prospective plaintiffs legal aid to prepare and file
smoking and health lawsuits against tobacco manufacturers, including
Gallaher, has been decided. At a hearing in the High Court of Justice on
April 22, 1994, Mr. Justice Turner ruled that the tobacco manufacturers,
including Gallaher, were not entitled to participate in the judicial review
proceedings as parties "directly affected" within the meaning of Order 53
of the Rules of the Supreme Court. On or about June 2, 1994, Justice
Popplewell ruled that the Legal Aid Board had applied inconsistent
procedural standards in refusing to grant 225 prospective plaintiffs legal
aid and recommended their applications for reconsideration.
(b) Reference is made to the discussion of People of the State of
California ex rel. Daniel E. Lungren, Attorney General of the State of
California v. American Standard, et al., and the related action, Natural
Resources Defense Council, et al. v. Price Pfister, Inc., et al., in
paragraph (d) of Item 3, "Legal Proceedings", of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993. The plaintiffs
in both actions moved for injunctive relief to require certain of the
defendants to provide 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. By order
dated May 10, 1994, the court ruled that the plaintiffs, the Natural
Resources Defense Council and the Environmental Law Foundation, have
standing to sue with respect to non-residential faucets only, and also
ruled that the plaintiffs are not entitled to restitution, compensatory
damages or punitive damages. In Lungren, 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 of drinking
water. On May 5, 1994, the court sustained the demurrer that water from
faucets does not constitute a prohibited "discharge" within the meaning of
the statute. On or about May 25, 1994, the Attorney General appealed the
demurrer decision, and on July 25, 1994, the California Court of Appeals
issued a show cause order why the peremptory writ of mandate requested by
the plaintiffs should not issue and indicated that it will hear arguments
and issue a formal opinion on the discharge issue. These actions will be
vigorously contested.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on May 3, 1994.
(c)(i) The Registrant's Certificate of Incorporation provides
for the classification of the Board of Directors into three classes, as
nearly equal in number as possible, with staggered terms of office and
provides that upon the expiration of the term of office for a class of
directors, nominees for such class shall be elected for a term of three
years or until their successors are duly elected and qualified. The four
- 34 -
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (continued)
- ------ ---------------------------------------------------
nominees for Class II directors, Mr. Eugene R. Anderson, Dr. Patricia O.
Ewers, Mr. John W. Johnstone, Jr. and Mr. Wendell J. Kelley, were elected
by a plurality of the combined votes cast by the holders of Registrant's
Common Stock and $2.67 Convertible Preferred Stock voting thereon:
(A) Mr. Anderson: 175,387,519 votes for and 5,205,481 votes
withheld;
(B) Dr. Ewers: 175,059,131 votes for and 5,533,870 votes
withheld;
(C) Mr. Johnstone: 175,299,134 votes for and 5,293,867 votes
withheld;
(D) Mr. Kelley: 175,360,680 votes for and 5,232,320 votes
withheld.
(c)(ii) A proposal (designated Item 2 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to elect
Coopers & Lybrand independent accountants of Registrant for the year 1994
was approved by a majority of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting
thereon: 176,442,180 affirmative votes; 1,863,263 negative votes; and
2,287,558 votes abstained.
(c)(iii) A proposal (designated Item 3 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to
approve amendments to the American Brands, Inc. 1990 Long-Term Incentive
Plan to be effective as of January 1, 1994 was approved by a majority of
the combined votes cast by the holders of Registrant's Common Stock and
$2.67 Convertible Preferred Stock voting thereon: 108,866,540 affirmative
votes; 49,859,230 negative votes; 4,672,215 votes abstained; and 17,195,015
broker non-votes.
(c)(iv) A proposal (designated Item 4 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to
approve an amendment to the American Brands, Inc. 1986 Stock Option Plan to
be effective as of January 1, 1994 was approved by a majority of the
combined votes cast by the holders of Registrant's Common Stock and $2.67
Convertible Preferred Stock voting thereon: 132,085,795 affirmative votes;
44,253,665 negative votes; and 4,282,191 votes abstained.
(c)(v) A proposal (designated Item 5 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to
approve amendments to the executive incentive compensation program
contained in Article XII of Registrant's By-laws to be effective for 1994
and subsequent years was approved by a majority of the combined votes cast
by the holders of Registrant's Common Stock and $2.67 Convertible Preferred
Stock voting thereon: 145,406,135 affirmative votes; 30,847,456 negative
votes; and 4,339,408 votes abstained.
(c)(vi) A proposal (designated Item 6 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to
- 35 -
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (concluded)
- ------ ---------------------------------------------------
approve amendments to the Profit-Sharing Plan of American Brands, Inc. to
be effective as of January 1, 1994 was approved by a majority of the
combined votes cast by the holders of Registrant's Common Stock and $2.67
Convertible Preferred Stock voting thereon: 163,103,301 affirmative votes;
13,405,122 negative votes; and 4,084,577 votes abstained.
(c)(vii) A proposal (designated Item 7 and set forth in
Registrant's Proxy Statement) requesting the elimination of election of
directors by classes was defeated by a majority of the combined votes cast
by the holders of Registrant's Common Stock and $2.67 Convertible Preferred
Stock voting thereon: 99,517,442 negative votes; 59,064,835 affirmative
votes; 4,815,708 votes abstained; and 17,195,016 broker non-votes.
(c)(viii) A proposal (designated Item 8 and set forth in
Registrant's Proxy Statement) requesting the cancellation of Company
pensions for outside directors was defeated by a majority of the combined
votes cast by the holders of Registrant's Common stock and $2.67
Convertible Preferred Stock voting thereon: 114,428,537 negative votes;
43,578,036 affirmative votes; 5,390,696 votes abstained; and 17,195,731
broker non-votes.
(c)(ix) A proposal (designated Item 9 and set forth in
Registrant's Proxy Statement) requesting establishment of minimum stock
ownership requirements for senior managers and outside directors was
defeated by a majority of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting
thereon: 141,913,890 negative votes; 14,958,601 affirmative votes;
6,522,563 votes abstained; and 17,197,947 broker non-votes.
(c)(x) A proposal (designated Item 10 and set forth in
Registrant's Proxy Statement) requesting implementation of the MacBride
Principles was defeated by a majority of the combined votes cast by the
holders of Registrant's Common Stock and $2.67 Convertible Preferred Stock
voting thereon: 133,527,810 negative votes; 16,376,103 affirmative votes;
13,491,138 votes abstained; and 17,197,949 broker non-votes.
(c)(xi) A proposal (designated Item 11 and set forth in
Registrant's Proxy Statement) requesting a report on promotion of lower-
priced cigarettes to African-Americans and low-income persons was defeated
by a majority of the combined votes cast by the holders of Registrant's
Common Stock and $2.67 Convertible Preferred Stock voting thereon:
141,944,320 negative votes; 8,030,731 affirmative votes; 13,415,503 votes
abstained; and 17,202,447 broker non-votes.
- 36 -
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
3(ii)a. By-law amendment adopted May 3, 1994 effective May
3, 1994.
3(ii)b. By-laws of Registrant, as amended effective May 3,
1994.
10a. 1990 Long-Term Incentive Plan of American Brands,
Inc., as amended and restated.
10b. Amendment to 1986 Stock Option Plan of American
Brands, Inc. constituting Exhibit 10b3 to the
Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1993.
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated August
11, 1994 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke.
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 April 26,
1994, in respect of Registrant's press release dated April 26,
1994 announcing (i) Registrant's financial results for the three-
month period ended March 31, 1994, (ii) that Registrant had
entered into an agreement with B.A.T Industries p.l.c. for the
sale of The American Tobacco Company and (iii) that Registrant
had increased its dividend (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated July 25,
1994, in respect of Registrant's press release dated July 25,
1994 announcing Registrant's financial results for the three-
month and six-month periods ended June 30, 1994 (Items 5 and
7(c)).
- 37 -
<PAGE>
This Quarterly 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 under the Constitution of the United
States, or the validity of any rule or regulation made or to be made under
such Act.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERICAN BRANDS, INC.
---------------------
(Registrant)
Date: August 11, 1994 By A. Henson
--------------- -----------------------------
A. Henson
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
3(ii)a. By-law amendment adopted May 3, 1994
effective May 3, 1994.
3(ii)b. By-laws of Registrant, as amended effective
May 3, 1994.
10a. 1990 Long-Term Incentive Plan of American
Brands, Inc., as amended and restated.
10b. Amendment to 1986 Stock Option Plan of
American Brands, Inc. constituting Exhibit
10b3 to the Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1993.
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
August 11, 1994 re unaudited financial
information.
23. Consent of Counsel, Chadbourne & Parke.
EXHBIT 3(ii)a
-------------
AMERICAN BRANDS, INC.
BY-LAW AMENDMENT
ADOPTED ON MAY 3, 1994
EFFECTIVE MAY 3, 1994
Article XII was amended to read in its entirety as follows:
ARTICLE XII
Incentive Compensation
Section 1. (A) As soon as practicable after the end of the year 1994
and of each year thereafter, if a cash dividend on the Common Stock shall
have been paid in such year, there shall be made available for allotment,
as hereinafter provided, an amount equal to one-half of 1% of adjusted
income from continuing operations (as defined in Section 5 hereof).
(B) Of such amount made available for allotment under this Article,
18% shall be allotted to the person or persons who during such year held
the office of Chairman of the Board, subject to reduction of any person's
share as permitted by Section 3(A) hereof, as incentive compensation, in
addition to the fixed salary of such person or persons for such year. If
such office shall have been vacant at any time during the year, the amount
to be allotted to the incumbent or incumbents of such office for such year
shall be reduced proportionately. If such office shall have had more than
one incumbent during the year, the amount to be allotted in respect of such
office shall be divided among the different incumbents in the proportion of
their respective periods of incumbency during the year. Nothing herein
contained shall give any incumbent of such office any right to claim to
continue therein, or any other right except as herein specifically
expressed.
(C) Of such amount made available for allotment under this Article,
the amount not allottable pursuant to Section 1(B) hereof by reason of a
vacancy at any time during such year in the office of the Chairman of the
Board shall be available for allotment to other key employees, as provided
in Section 2 hereof, in addition to the fixed salary of each of such
persons for such year.
Section 2. (A) The amount available for allotment pursuant to this
Section 2 for each year shall be allotted among the members of a Management
Group consisting of all persons elected to the office of Vice President of
the Company or any office senior thereto (except the Chairman of the Board
and any officer covered by an incentive compensation plan of any subsidiary
of the Company). A person who during part of such year has held an office
in the Management Group shall participate in such allotment on a
proportional basis reflecting the portion of the year during which he holds
such office. A person who during part of such year has held the office of
Chairman of the Board shall be included in the Management Group for the
portion of the year during which he held an office in the Management Group
and did not hold the office of Chairman of the Board, and the allotment to
such person as a member of the Management Group shall be in addition to the
allotment to which he is entitled under Section 1(B) hereof.
<PAGE>
(B) Within 60 days after receipt from the independent accountants of
the certificate to be furnished pursuant to Section 6 hereof showing the
amount made available for allotment under this Article, the amount to be
allotted pursuant to this Section 2 shall then be allottable among the
members of such Management Group as follows:
(1) Of such amount made available for allotment under this
Article, 30% shall be allotted to all members of such Group pro rata,
subject to reduction of any member's share as permitted by Section
3(A) hereof, according to the proportion which the fixed salary of
each member of said Group for periods of membership during such year
bears to the total of such fixed salaries of all members of the Group
for such periods. For purposes of this allotment, (a) the fixed salary
of each member of said Group whose compensation is not subject to the
limitation on deductibility under Section 162(m) of the Internal
Revenue Code, as amended, or any successor provision (the _Section
162(m) Limitation_) for such year shall be at a rate equal to the
highest fixed salary rate of such member during any period of
membership in said Group during such year and (b) the fixed salary of
each member of said Group whose compensation is subject to the Section
162(m) Limitation for such year shall be at the rate in effect at the
beginning of such year, or if later the beginning of such member's
first period of membership in the Group during such year.
(2) So much of the remaining amount made available for allotment
under this Article as the Committee (as defined in Section 3(C) of
this Article) determines, in its sole discretion, shall be allotted
among the members of such Management Group to such individuals in said
Group, and in such amounts as to individuals as the Committee, in its
sole discretion, shall determine, except as otherwise provided in
Section 2(D) hereof.
(C) In addition to the foregoing, there shall also be allottable to
such Management Group within the 60-day period specified in Section 2(B)
hereof any amount which is not allotted in such year to the Chairman of the
Board pursuant to Section 1(B) hereof by reason of vacancy at any time
during such year in such office. Except as otherwise provided in Section
2(D) hereof, so much of such additional amount as the Committee determines,
in its sole discretion, shall be allotted among the members of such
Management Group to such individuals in said Group, and in such amounts as
to individuals, as the Committee, in its sole discretion, shall determine.
(D) In any case where a Chairman of the Board is a person to whom an
allotment may be made as a member of such Management Group pursuant to
paragraph (2) of Section 2(B) hereof or pursuant to both said paragraph (2)
and Section 2(C) hereof, there shall be allotted to him within the 60-day
period specified in Section 2(B) hereof (subject to reduction as permitted
by Section 3(A) hereof), from the total of the amount allottable among the
members of the Management Group by the Committee under said paragraph (2)
and of any additional amount so allottable under said Section 2(C), a sum
which shall be the same percentage (adjusted proportionately on the basis
of the period of the year for which the allotment is being made in which he
was a member of the Management Group but did not hold the office of
Chairman of the Board) of such total as the allotment made to him for the
next preceding year under said paragraph (2) and said Section 2(C) was of
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the total amount allottable for such preceding year under said paragraph
(2) and said Section 2(C).
Section 3. (A) The Committee shall have authority to reduce the
amount of any allotment to the Chairman of the Board pursuant to Section
1(B) hereof or the amount of any allotment to a member of the Management
Group pursuant to Section 2 (B)(1) or Section 2(D) hereof if and to the
extent that the Committee deems it appropriate. No part of any such
reduction in any allotment shall be available for allotment to any other
person under this Article.
(B) No part of the amount made available for allotment under this
Article as shall not have been allotted, under Sections 1 and 2 hereof,
within such 60-day period, for any year may be carried forward for
subsequent allotment.
(C) As used in this Article the word _Committee_ shall mean the
Compensation and Stock Option Committee. All decisions of the Committee
pursuant to the provisions of this Article shall be binding and conclusive
on all interested parties.
Section 4. Payment to the Chairman of the Board of the amounts
payable to him under Section 1(B) hereof, and to each of the allottees of
the Management Group of the amount of his total allotment under Sections
2(B), 2(C) and 2(D) hereof, with respect to any year shall be made in cash
as soon as practicable.
Section 5. For the purpose of this Article, the term _adjusted income
from continuing operations_ for any year is defined as the income from
continuing operations, before income taxes, as reflected in the
consolidated financial statements set forth in the annual report for such
year of the Company to the stockholders, but adjusted by the independent
accountants who have audited the Company's consolidated financial
statements to (i) exclude the deduction for Article XII incentive
compensation, (ii) exclude unrealized gains and losses on securities, and
adjust realized gains and losses on trading securities to reflect cost,
(iii) exclude restructuring charges or credits, and charges for impaired
assets other than those sold in the ordinary course of business, (iv)
include the results of operations for such year from businesses classified
as _discontinued operations_ prior to the disposition dates, and (v) to the
extent not adjusted pursuant to items (ii), (iii) or (iv) above, exclude
gains or losses included in continuing operations resulting from the sale
or writedown of intangible assets, land or buildings, investments in
business units and securities resulting from the sale of business units.
Section 6. At the time of rendering their report with respect to the
financial statements of the Company and its consolidated subsidiaries for
any year, such independent accountants shall also furnish to the Company
their written certificate stating the amount of the _adjusted income from
continuing operations_ for such year as defined in Section 5(A) hereof, the
amount made available for allotment under this Article for such year, and
the amounts thereof to be allotted to the Chairman of the Board, and the
amount thereof available for allotment to the Management Group, which
certificate as to the amounts available and payable hereunder shall be
binding and conclusive on all interested parties, and no one claiming
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hereunder shall have a right to question the same, or to any examination of
the books or accounts of the Company or subsidiaries.
Section 7. This Article may be repealed only by the action of the
stockholders of the Company, and not by the directors. Upon the unanimous
recommendation of the Committee, this Article may be amended or modified by
the directors in accordance with Article XI, except that, without the
approval of the stockholders of the Company, no such amendment or
modification shall be made which increases the amount made available for
allotment as specified in Section 1(A) hereof or increases to higher than
18% of such amount the amount to be allotted hereunder to the Chairman of
the Board.
4
EXHIBIT 3(ii)b
--------------
BY-LAWS
of
AMERICAN BRANDS, INC.
(As Amended)
ARTICLE I
Directors
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at twelve. The number of the
directors may be altered by amendment of these By-laws, which amendment may
be adopted at any regular or special meeting of the Board of Directors by
the affirmative vote of at least two-thirds of all the directors then in
office.
Section 2. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any
director of the Company may resign at any time upon written notice to the
Company. Except as otherwise provided for, or fixed by, or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a
preference over the
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Common Stock, newly created directorships resulting from any increase in
the number of directors or any vacancy on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director.
Section 3. In order to qualify to hold office as a director of the
Company, a person must hold at least one share of stock of the Company.
Section 4. The directors may hold their meetings and have an office
and keep the books of the Company in Old Greenwich, Connecticut, or
elsewhere outside of the State of Delaware.
Section 5. The Board of Directors, by resolution adopted by a
majority of the entire Board, may appoint from among its members an
Executive Committee which shall have at least three members. To the extent
provided in such resolution, such committee shall have and may exercise all
the powers and authority of the Board, including the power to authorize the
seal of the Company to be affixed to all papers that require it, except
that such
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committee shall not have such power and authority in reference to
(1) amending the Certificate of Incorporation (except that such
committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Company or fix the number of shares
of any series of stock or authorize the increase or decrease of the
shares of any series);
(2) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware;
(3) recommending to the stockholders any action that requires
stockholders' approval;
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(4) making, amending or repealing any By-law of the Company;
(5) electing or appointing any director, or removing any officer
or director;
(6) amending or repealing any resolution theretofore adopted by
the Board of Directors;
(7) fixing compensation of the directors for serving on the
Board of Directors or on any committee; or
(8) unless the resolution shall expressly so provide, declaring
a dividend, authorizing the issuance of stock or adopting a
certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of Delaware.
Actions taken at a meeting of such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting;
except that, when the meeting of the Board is held within two days after
the committee meeting, such report shall be made to the Board at either its
first or second meeting following such committee meeting.
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ARTICLE II
Meetings of Stockholders
Section l. The annual meeting of the stockholders of the Company for
the election of directors, and such other business as may properly come
before the meeting, shall be held at such place as may from time to time be
designated by the directors, on the first Wednesday of May, at ten o'clock
in the forenoon, or at such other hour as the directors may designate, or
on such other day and at such hour as the directors may designate. If the
day fixed for the meeting is a legal holiday, the meeting shall be held at
the same hour on the next business day which is not a legal holiday.
Section 2. Special meetings of the stockholders, to be held at such
place as may from time to time be designated by the directors, may be
called only by the Chairman of the Board, the President or the Board of
Directors, by resolution adopted by a majority of the entire Board, for
such purposes as shall be specified in the call.
Section 3. Except as otherwise provided by law, due notice of each
annual meeting of the stockholders shall be given by a written or printed
notice signed by the Secretary
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or an Assistant Secretary of the Company and mailed, postage prepaid, at
least ten days prior to such meeting to each stockholder of record entitled
to vote thereat appearing on the books of the Company at the address given
thereon.
Due notice of each special meeting shall be given also in the manner
above provided. The notice shall state the object of the special meeting,
and no other business shall be transacted at such meeting.
Section 4. The holders of a majority in voting power of the
outstanding shares of capital stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at a meeting of
stockholders. Except as otherwise required by law or the Certificate of
Incorporation, the affirmative vote of shares representing a majority in
voting power of the shares present in person or represented by proxy at a
meeting at which a quorum is present and entitled to vote on the subject
matter shall be the act of the stockholders, and except that directors
shall be elected by a plurality of votes cast at an election. The
stockholders present at a duly convened meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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Section 5. Each meeting of the stockholders, whether annual or
special, shall be presided over by the Chairman of the Board if present,
and if he is not present by the President if present. If neither officer
specified in the preceding sentence is present, the meeting shall be
presided over by the person designated in writing by the Chairman of the
Board, or if the Chairman of the Board has made no designation, by the
person designated by the President, or if the President has made no
designation, by the person designated by the Board of Directors. If
neither officer specified in the first sentence of this section is present,
and no one designated by the Chairman of the Board or the President or the
Board of Directors is present, the meeting may elect any stockholder of
record who is entitled to vote for directors, or any person present holding
a proxy for such a stockholder, to preside. The Secretary of the Company
(or in his absence any Assistant Secretary) shall be the Secretary of any
such meeting; in the absence of the Secretary and Assistant Secretaries,
any person may be elected by the meeting to act as Secretary of the
meeting.
Section 6. Any voting proxy given by a stockholder must be in
writing, executed by the stockholder, or, in lieu thereof, to the extent
permitted by law, may be transmitted in a telegram, cablegram or other
means of
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electronic transmission setting forth or submitted with information from
which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. A copy, facsimile
transmission or other reliable reproduction of a written or electronically-
transmitted proxy authorized by this Section 6 may be substituted for or
used in lieu of the original writing or electronic transmission to the
extent permitted by law.
Section 7. Any previously scheduled annual or special meeting of
stockholders may, by resolution of the Board of Directors, be postponed
upon public announcement made prior to the date previously scheduled for
such meeting of stockholders. For purposes of this Article II, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Company with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. The person presiding over any meeting of
stockholders, or a majority of the voting power of the shares entitled to
vote, present in person or represented by proxy, even if less than a
quorum, may adjourn the meeting from time to time. No notice of the time
and
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BY-LAWS 9
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place of adjourned meetings need be given except as required by law.
Section 8. The directors shall appoint one or more inspectors of
election and of the vote at any time prior to the date of any meeting of
stockholders at which an election is to be held or a vote is to be taken.
In the event any inspector so appointed is absent from such meeting or for
any other reason fails to act as such at the meeting, the person presiding
pursuant to these By-laws may appoint a substitute who shall have all the
powers and duties of such inspector. The inspector or inspectors so
appointed shall act at such meeting, make such reports thereof and take
such other action as shall be provided by law and as may be directed by the
person presiding over the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best
of his ability.
Section 9. The directors may, at any time prior to any annual or
special meeting of the stockholders, adopt an order of business for such
meeting which shall be the order of business to be followed at such
meeting. The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at
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10 BY-LAWS
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such meeting shall be announced at such meeting by the person presiding
over such meeting.
Section l0. At any meeting of stockholders a stock vote shall be
taken on any resolution or other matter presented to the meeting for action
if so ordered by the person presiding over the meeting or on the demand of
any stockholder of record entitled to vote at the meeting or any person
present holding a proxy for such a stockholder. Such order or demand for a
stock vote may be made either before or after a vote has been taken on such
resolution or other matter in a manner other than by stock vote and before
or after the result of the vote taken otherwise than by stock vote has been
announced. The result of a stock vote taken in accordance with this By-law
shall supersede the result of any vote previously taken in any manner other
than by stock vote.
Section 11. (A) Nominations of persons for election to the Board of
Directors of the Company may be made as provided in the Certificate of
Incorporation. The proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (1) pursuant
to the Company's notice of meeting, (2) by or at the direction of the Board
of Directors or (3) by any stockholder of the Company who was a stockholder
of record at the time of giving of the notice provided for
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BY-LAWS 11
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in this Section 11, who is entitled to vote thereon at the meeting and who
complies with the notice procedures set forth in this Section 11.
(B) For business (other than the nomination of persons for election
to the Board of Directors) to be properly brought before an annual meeting
by a stockholder pursuant to clause (3) of paragraph (A) of this
Section 11, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's
notice shall be delivered, either by personal delivery or by United States
mail, postage prepaid, to the Secretary not later than one hundred twenty
(120) days in advance of such meeting. Such stockholder's notice shall set
forth (1) a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made and (2) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (a) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial
owner and (b) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
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(C) The person presiding over an annual meeting of stockholders shall
have the power and duty to determine whether any business proposed by any
stockholder to be brought before the meeting was made in accordance with
the procedures set forth in this Section 11 and, if any proposed business
is not in compliance with this Section 11, to declare that such defective
proposal shall be disregarded.
(D) In addition to the foregoing provisions of this Section 11, a
stockholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
with respect to the matters set forth in this Section 11. Nothing in this
Section 11 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy statement pursuant to Rule
l4a-8 under such Act.
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ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held
at the office of the Company in Old Greenwich, Connecticut, or at such
other place as may from time to time be designated by the directors, the
Chairman of the Board or the President, at ten o'clock in the forenoon on
the last Tuesday of each month other than March, May, June, August and
December and at three o'clock in the afternoon on the day on which the
annual meeting of stockholders is held. If any such day shall be a holiday,
the meeting scheduled for that day shall be held on the next business day.
Special meetings may be held as determined by the Board of Directors, and
may be called by the Chairman of the Board at any time and shall be called
by him on the request of three directors, or, if the Chairman of the Board
fails to call such meeting when so requested, the same may be called by any
three directors.
Section 2. No notice need be given of regular meetings of the
directors, except that at least one day's notice shall be given of any
place other than the office of the Company in Old Greenwich, Connecticut at
which any
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such meeting is to be held, but such notice need not be given to any
director who signs a written waiver of notice before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, except when the director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
Section 3. At any meeting six directors shall constitute a quorum
unless otherwise provided for in these By-laws or in the Certificate of
Incorporation or in any applicable statute, but in no case less than one-
third of all the directors then in office.
Section 4. Members of the Board of Directors or of any Committee
thereof may participate in meetings of the Board of Directors or of such
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation shall constitute presence in person
at such meeting.
Section 5. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such
committee,
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BY-LAWS 15
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as the case may be, consent thereto in writing and the writing or writings
are filed with the minutes of proceedings of the Board of Directors or of
such committee.
ARTICLE IV
Officers
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a
President, an Executive Vice President, one or more Senior Vice Presidents
(if any), a principal financial officer, such other Vice Presidents (if
any) as it shall determine, a Secretary, a Treasurer and a Controller, who
need not be directors.
Section 2. The Board of Directors may elect other officers and define
their powers and duties.
Section 3. Any two offices not inconsistent with each other may be
held by the same person.
Section 4. All officers elected by the Board of Directors shall hold
office, subject to removal by the Board, until their successors are chosen
and qualified. The affirmative vote of at least two-thirds of all of the
directors
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then in office shall be required to remove or reduce the salary of any
officer elected by the Board of Directors.
Section 5. All agents and employees shall be appointed and may be
removed by the Chairman of the Board, subject to the control of the Board
of Directors.
Section 6. Vacancies among officers of the Company shall be filled
as, and to the extent that, the Board of Directors shall determine by vote
of a majority of the directors present at any regular or special meeting at
which not less than a majority of all the directors then in office are
present.
Section 7. The Chairman of the Board shall be the Chief Executive
Officer of the Company and shall have general direction of its business
affairs, subject, however, to the control of the Board of Directors. He
shall, if present, preside at all meetings of the Board of Directors and
shall perform such other duties and have such responsibilities as the Board
may from time to time determine.
Section 8. At the request of the Chairman of the Board, or in case of
his absence or disability, the President shall perform the duties of the
Chairman of the Board, subject to the control of the Board of Directors,
and the President shall have such other powers and
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BY-LAWS 17
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perform such other duties as shall at any time be delegated to him by the
Board Of Directors. The Executive Vice President and the Senior Vice
Presidents (if any) and such other Vice Presidents as shall have been
chosen shall have such powers and perform such duties as shall at any time
be delegated to them by the Board of Directors.
Section 9. The Secretary shall give the requisite notice of meetings
of stockholders and directors and shall record the proceedings of such
meetings, shall have the custody of the seal of the Company and shall affix
it or cause it to be affixed to such instruments as require the seal and
attest it and, besides his powers and duties prescribed by law, shall have
such other powers and perform such other duties as shall at any time be
required of him by the Board of Directors.
Section 10. The Assistant Secretaries shall assist the Secretary in
the discharge of his duties and shall have such powers and perform such
other duties as shall at any time be delegated to them by the Board of
Directors, and in the absence or disability of the Secretary, shall perform
the duties of his office, subject to the control of the Board.
Section 11. The Treasurer shall have charge of the funds and
securities of the Company and shall have such
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powers and perform such duties as shall at any time be delegated to him by
the Board of Directors.
Section 12. The Assistant Treasurers shall assist the Treasurer in
the discharge of his duties and shall have such powers and perform such
other duties as shall at any time be delegated to them by the Board of
Directors, and in the absence or disability of the Treasurer, shall perform
the duties of his office subject to the control of the Board.
Section 13. Any other officer, agent or employee of the Company may
be required to give such security for the faithful performance of his
duties as shall be determined by the Board of Directors, who shall also
determine the custody of any security given.
ARTICLE V
Salaries
Section 1. The salaries of all officers elected by the Board of
Directors who hold offices of a rank of Vice President or above shall be
fixed by the Compensation and Stock Option Committee.
Section 2. Salaries of all other officers elected by the Board and
all other agents and employees shall be fixed by or in the manner
determined by the Board.
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Section 3. The Board of Directors, by the affirmative vote of a
majority of directors in office and irrespective of any personal interest
of any directors, shall have authority to establish reasonable compensation
of directors for services to the Company as directors, officers or
otherwise, except that the Compensation and Stock Option Committee, by the
affirmative vote of a majority of Committee members in office and
irrespective of any personal interest of any Committee members or other
directors, shall have authority to establish such compensation of directors
who also are officers elected by the Board and hold offices of a rank of
Vice President or above.
ARTICLE VI
Seal
Section 1. The Seal of the Company shall be in such form as the Board
of Directors may from time to time prescribe and it may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VII
Signatures on Commercial
Instruments and Contracts
Section 1. All checks or bank drafts shall be signed
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by any two of the following named officers: Chairman of the Board,
President, the principal financial officer, the principal accounting
officer, any Vice President, Secretary, any Assistant Secretary, Treasurer,
any Assistant Treasurer, Controller, any Assistant Controller; and in such
other manner as the Board of Directors may from time to time designate.
Section 2. All notes or other obligations or contracts shall be
signed by the Chairman of the Board, the President, the principal financial
officer, the principal accounting officer, or any Vice President and also
by one of the following officers: the Secretary, an Assistant Secretary,
the Treasurer, an Assistant Treasurer, the Controller, or an Assistant
Controller (provided that no individual shall sign the same instrument in
two capacities), or shall be signed by the Chairman of the Board, the
President, the principal financial officer, the principal accounting
officer, or any Vice President, with the corporate seal or a facsimile
thereof affixed thereto or imprinted thereon, attested by the Secretary or
an Assistant Secretary; or such notes, obligations or contracts shall
be signed in such manner and by one or more of such officers or other
persons on behalf of the Company as the Board of Directors may from time to
time authorize or direct. When and as authorized or directed by the Board
of Directors, the signatures of such officers or
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other persons or any of them signing on behalf of the Company may be
facsimiles.
ARTICLE VIII
Capital Stock
Section 1. Certificates of the capital stock of the Company shall be
issued for shares duly numbered and registered in the order of their issue,
and shall be in the form the directors shall prescribe.
Section 2. The capital stock shall be transferable on the transfer
books of the Company, subject to these By-laws, by the owner in person, or
by attorney or legal representative, written evidence of whose authority
shall be filed with the Company.
Section 3. No transfer of capital stock can be required except upon
surrender and cancellation of the certificate representing the same.
Section 4. The Board of Directors may at any time, in its discretion,
appoint one or more transfer agents or registrars of the shares of stock of
the Company and terminate the appointment of any transfer agent or
registrar. The Board of Directors may also designate the Company to
perform such functions alone or in conjunction with one or more other
transfer agents or registrars.
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Section 5. (A) For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or for the purpose of determining stockholders
entitled to receive payment of any dividend or allotment of any right, or
for the purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination of
stockholders. Such date shall be not more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action.
(B) When a determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders has been made as provided in
this Section 5, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date under this Section 5
for the adjourned meeting.
ARTICLE IX
Committee on Conflicts of Interests
Section 1. The Board of Directors, by resolution adopted by a
majority of the entire Board, shall appoint a Committee on Conflicts of
Interests which shall have at
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least three members. To the extent provided by resolution of the Board,
such committee shall have the power to interpret, administer and apply the
policies of the Company as established by the Board from time to time with
respect to conflicts of interests.
ARTICLE X
Dividends
Section 1. Dividends on the Preferred Stock and the Common Stock of
the Company may be declared by the Board of Directors, at any regular or
special meeting, as provided by law and the Certificate of Incorporation.
ARTICLE XI
Amendments
Section 1. The Board of Directors shall, except as otherwise provided
in these By-laws or the Certificate of Incorporation, have the power to
alter, amend or repeal these By-laws at any meeting by the affirmative vote
of two-thirds of the directors then in office, provided notice of the
proposed alteration, amendment or repeal be given in writing to each of the
directors, and provided also that
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no alteration, amendment or repeal of a specification in any section of
these By-laws of a stated fraction of directors as the minimum number whose
presence or vote is requisite for action under such section may be made
without the presence or vote or both, as the case may be, of the minimum
number so specified.
ARTICLE XII
Incentive Compensation
Section 1. (A) As soon as practicable after the end of the year 1994
and of each year thereafter, if a cash dividend on the Common Stock shall
have been paid in such year, there shall be made available for allotment,
as hereinafter provided, an amount equal to one-half of 1% of adjusted
income from continuing operations (as defined in Section 5 hereof).
(B) Of such amount made available for allotment under this Article,
18% shall be allotted to the person or persons who during such year held
the office of Chairman of the Board, subject to reduction of any person's
share as permitted by Section 3(A) hereof, as incentive compensation, in
addition to the fixed salary of such person or persons for such year. If
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such office shall have been vacant at any time during the year, the amount
to be allotted to the incumbent or incumbents of such office for such year
shall be reduced proportionately. If such office shall have had more than
one incumbent during the year, the amount to be allotted in respect of such
office shall be divided among the different incumbents in the proportion of
their respective periods of incumbency during the year. Nothing herein
contained shall give any incumbent of such office any right to claim to
continue therein, or any other right except as herein specifically
expressed.
(C) Of such amount made available for allotment under this Article,
the amount not allottable pursuant to Section 1(B) hereof by reason of a
vacancy at any time during such year in the office of the Chairman of the
Board shall be available for allotment to other key employees, as provided
in Section 2 hereof, in addition to the fixed salary of each of such
persons for such year.
Section 2. (A) The amount available for allotment pursuant to this
Section 2 for each year shall be allotted among the members of a Management
Group consisting of all persons elected to the office of Vice President of
the Company or any office senior thereto (except the
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Chairman of the Board and any officer covered by an incentive compensation
plan of any subsidiary of the Company). A person who during part of such
year has held an office in the Management Group shall participate in such
allotment on a proportional basis reflecting the portion of the year during
which he holds such office. A person who during part of such year has held
the office of Chairman of the Board shall be included in the Management
Group for the portion of the year during which he held an office in the
Management Group and did not hold the office of Chairman of the Board, and
the allotment to such person as a member of the Management Group shall be
in addition to the allotment to which he is entitled under Section 1(B)
hereof.
(B) Within 60 days after receipt from the independent accountants of
the certificate to be furnished pursuant to Section 6 hereof showing the
amount made available for allotment under this Article, the amount to be
allotted pursuant to this Section 2 shall then be allottable among the
members of such Management Group as follows:
(1) Of such amount made available for allotment under this
Article, 30% shall be allotted to all members of such Group pro rata,
subject to reduction of any member's share as permitted by Section
3(A) hereof, according to the proportion
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which the fixed salary of each member of said Group for periods of
membership during such year bears to the total of such fixed salaries
of all members of the Group for such periods. For purposes of this
allotment, (a) the fixed salary of each member of said Group whose
compensation is not subject to the limitation on deductibility under
Section 162(m) of the Internal Revenue Code, as amended, or any
successor provision (the _Section 162(m) Limitation_) for such year
shall be at a rate equal to the highest fixed salary rate of such
member during any period of membership in said Group during such year
and (b) the fixed salary of each member of said Group whose
compensation is subject to the Section 162(m) Limitation for such year
shall be at the rate in effect at the beginning of such year, or if
later the beginning of such member's first period of membership in the
Group during such year.
(2) So much of the remaining amount made available for allotment
under this Article as the Committee (as defined in Section 3(C) of
this Article) determines, in its sole discretion, shall be allotted
among the members of such Management Group to such individuals in said
Group, and in such amounts as to individuals as the Committee, in its
sole discretion, shall determine, except as otherwise provided in
Section 2(D) hereof.
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(C) In addition to the foregoing, there shall also be allottable to
such Management Group within the 60-day period specified in Section 2(B)
hereof any amount which is not allotted in such year to the Chairman of the
Board pursuant to Section 1(B) hereof by reason of vacancy at any time
during such year in such office. Except as otherwise provided in Section
2(D) hereof, so much of such additional amount as the Committee determines,
in its sole discretion, shall be allotted among the members of such
Management Group to such individuals in said Group, and in such amounts as
to individuals, as the Committee, in its sole discretion, shall determine.
(D) In any case where a Chairman of the Board is a person to whom an
allotment may be made as a member of such Management Group pursuant to
paragraph (2) of Section 2(B) hereof or pursuant to both said paragraph (2)
and Section 2(C) hereof, there shall be allotted to him within the 60-day
period specified in Section 2(B) hereof (subject to reduction as permitted
by Section 3(A) hereof), from the total of the amount allottable among the
members of the Management Group by the Committee under said paragraph (2)
and of any additional amount so allottable under said Section 2(C), a sum
which shall be the same percentage (adjusted proportionately on the basis
of the period of the year for which the allotment
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is being made in which he was a member of the Management Group but did not
hold the office of Chairman of the Board) of such total as the allotment
made to him for the next preceding year under said paragraph (2) and said
Section 2(C) was of the total amount allottable for such preceding year
under said paragraph (2) and said Section 2(C).
Section 3. (A) The Committee shall have authority to reduce the
amount of any allotment to the Chairman of the Board pursuant to Section
1(B) hereof or the amount of any allotment to a member of the Management
Group pursuant to Section 2 (B)(1) or Section 2(D) hereof if and to the
extent that the Committee deems it appropriate. No part of any such
reduction in any allotment shall be available for allotment to any other
person under this Article.
(B) No part of the amount made available for allotment under this
Article as shall not have been allotted, under Sections 1 and 2 hereof,
within such 60-day period, for any year may be carried forward for
subsequent allotment.
(C) As used in this Article the word _Committee_ shall mean the
Compensation and Stock Option Committee. All decisions of the Committee
pursuant to the provisions of this Article shall be binding and conclusive
on all interested parties.
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Section 4. Payment to the Chairman of the Board of the amounts
payable to him under Section 1(B) hereof, and to each of the allottees of
the Management Group of the amount of his total allotment under Sections
2(B), 2(C) and 2(D) hereof, with respect to any year shall be made in cash
as soon as practicable.
Section 5. For the purpose of this Article, the term _adjusted income
from continuing operations_ for any year is defined as the income from
continuing operations, before income taxes, as reflected in the
consolidated financial statements set forth in the annual report for such
year of the Company to the stockholders, but adjusted by the independent
accountants who have audited the Company's consolidated financial
statements to (i) exclude the deduction for Article XII incentive
compensation, (ii) exclude unrealized gains and losses on securities, and
adjust realized gains and losses on trading securities to reflect cost,
(iii) exclude restructuring charges or credits, and charges for impaired
assets other than those sold in the ordinary course of business, (iv)
include the results of operations for such year from businesses classified
as _discontinued operations_ prior to the disposition dates, and (v) to the
extent not adjusted pursuant to items (ii), (iii) or (iv) above, exclude
gains or losses included in continuing operations resulting from
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the sale or writedown of intangible assets, land or buildings, investments
in business units and securities resulting from the sale of business units.
Section 6. At the time of rendering their report with respect to the
financial statements of the Company and its consolidated subsidiaries for
any year, such independent accountants shall also furnish to the Company
their written certificate stating the amount of the _adjusted income from
continuing operations_ for such year as defined in Section 5(A) hereof, the
amount made available for allotment under this Article for such year, and
the amounts thereof to be allotted to the Chairman of the Board, and the
amount thereof available for allotment to the Management Group, which
certificate as to the amounts available and payable hereunder shall be
binding and conclusive on all interested parties, and no one claiming
hereunder shall have a right to question the same, or to any examination of
the books or accounts of the Company or subsidiaries.
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Section 7. This Article may be repealed only by the action of the
stockholders of the Company, and not by the directors. Upon the unanimous
recommendation of the Committee, this Article may be amended or modified by
the directors in accordance with Article XI, except that, without the
approval of the stockholders of the Company, no such amendment or
modification shall be made which increases the amount made available for
allotment as specified in Section 1(A) hereof or increases to higher than
18% of such amount the amount to be allotted hereunder to the Chairman of
the Board.
ARTICLE XIII
Indemnification
Section 1. (A) Each person (an _indemnitee_) who was or is made or
threatened to be made a party to or was or is involved (as a witness or
otherwise) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a _proceeding_), by reason of
the fact that he or she or a person of whom
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he or she is the legal representative was or is a director, officer or
employee of the Company or was or is serving at the request of the Company
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding was or is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Company to the fullest extent permitted by the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees and retainers therefor, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as
amended, and amounts paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to
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the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Section 3 of this Article XIII with
respect to proceedings seeking to enforce rights to indemnification, the
Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Company.
(B) The right to indemnification conferred in this Article XIII is
and shall be a contract right. The right to indemnification conferred in
this Article XIII shall include the right to be paid by the Company the
expenses (including attorneys' fees and retainers therefor) reasonably
incurred in connection with any such proceeding in advance of its final
disposition, such advances to be paid by the Company within 20 days after
the receipt by the Company of a statement or statements from the indemnitee
requesting such advance or advances from time to time; provided, however,
that if the General Corporation Law of the State of Delaware requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without
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limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Company of an undertaking by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Article XIII or otherwise.
Section 2. (A) To obtain indemnification under this Article XIII, an
indemnitee shall submit to the Company a written request, including therein
or therewith such documentation and information as is reasonably available
to the indemnitee and is reasonably necessary to determine whether and to
what extent the indemnitee is entitled to indemnification. Upon written
request by an indemnitee for indemnification pursuant to the first sentence
of this Section 2(A), a determination, if required by applicable law, with
respect to the indemnitee's entitlement thereto shall be made as follows:
(1) if requested by the indemnitee, by Independent Counsel (as hereinafter
defined), or (2) if no request is made by the indemnitee for a
determination by Independent Counsel, (a) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors (as
hereinafter defined), or (b) if a quorum of the Board of Directors
consisting of Disinterested Directors is not
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obtainable or, even if obtainable, such quorum of Disinterested Directors
so directs, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to the indemnitee, or (c) by
the stockholders of the Company. In the event the determination of
entitlement to indemnification is to be made by Independent Counsel at the
request of the indemnitee, the Independent Counsel shall be selected by the
indemnitee unless the indemnitee shall request that such selection be made
by the Board of Directors, in which event the Independent Counsel shall be
selected by the Board of Directors. If it is so determined that the
indemnitee is entitled to indemnification, payment to the indemnitee shall
be made within 10 days after such determination.
(B) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the indemnitee is entitled to
indemnification under this Article XIII, and the Company shall have the
burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
Section 3. (A) If a claim under Section 1 of this Article XIII is
not paid in full by the Company within
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30 days after a written claim pursuant to Section 2(A) of this Article XIII
has been received by the Company, or if an advance is not made within 20
days after a request therefor pursuant to Section 1(B) of this Article XIII
has been received by the Company, the indemnitee may at any time thereafter
bring suit (or, at the indemnitee's option, an arbitration proceeding
before a single arbitrator pursuant to the rules of the American
Arbitration Association) against the Company to recover the unpaid amount
of the claim or the advance and, if successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such suit or proceeding (other
than a suit or proceeding brought to enforce a claim for expenses incurred
in connection with any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Company) that the indemnitee has not met the standards of conduct which
make it permissible under the General Corporation Law of the State of
Delaware for the Company to indemnify the indemnitee for the amount claimed
or that such indemnification otherwise is not permitted under the General
Corporation Law of the State of Delaware, but the burden of proving such
defense shall be on the Company.
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(B) Neither the failure of the Company (including its Board of
Directors, Independent Counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the indemnitee is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, Independent Counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that the indemnitee has
not met the applicable standard of conduct.
(C) If a determination shall have been made pursuant to Section 2(A)
of this Article XIII that the indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding
or arbitration commenced pursuant to paragraph (A) of this Section 3.
(D) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to paragraph (A) of this
Section 3 that the procedures and presumptions of this Article XIII are not
valid, binding and enforceable and shall stipulate in any
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such court or before any such arbitrator that the Company is bound by all
the provisions of this Article XIII.
Section 4. The right to indemnification and the payment of expenses
incurred in connection with a proceeding in advance of its final
disposition conferred in this Article XIII shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-laws, agreement,
vote of stockholders or Disinterested Directors or otherwise.
Section 5. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company
or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of
Delaware. To the extent that the Company maintains any policy or policies
providing such insurance, each such director, officer or employee, and each
such agent to which rights to indemnification have been granted as provided
in Section 6 of this Article XIII, shall be covered by such policy or
policies in accordance with its or their terms to the
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maximum extent of the coverage thereunder for any such director, officer,
employee or agent.
Section 6. The Company may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights
to be paid by the Company the expenses incurred in connection with any
proceeding in advance of its final disposition, to any agent of the Company
to the fullest extent of the provisions of this Article XIII with respect
to the indemnification and advancement of expenses of directors, officers
and employees of the Company.
Section 7. If any provision or provisions of this Article XIII shall
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(A) the validity, legality and enforceability of the remaining provisions
of this Article XIII (including without limitation, each portion of any
Section of this Article XIII containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(B) to the fullest extent possible, the provisions of this Article XIII
(including, without limitation, each portion of any Section of this Article
XIII containing any such provision held to be invalid, illegal or
unenforceable) shall be
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construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
Section 8. For purposes of this Article XIII:
(A) "Disinterested Director" means a director of the Company who is
not and was not a party to the matter in respect of which indemnification
is sought by the indemnitee.
(B) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(1) the Company or the indemnitee in any matter material to either such
party, or (2) any other party to the matter giving rise to a claim for
indemnification. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest
in representing either the Company or the indemnitee in an action to
determine the indemnitee's rights under this Article XIII.
Section 9. Any notice, request or other communication required or
permitted to be given to the Company under this Article XIII shall be in
writing and either
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delivered in person or sent by telecopy, telex, telegram or certified or
registered mail, postage prepaid, return receipt requested, to the
Secretary of the Company and shall be effective only upon receipt by the
Secretary.
EXHIBIT 10a
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AMERICAN BRANDS, INC.
1990 LONG-TERM INCENTIVE PLAN
(As Amended and Restated as of
January 1, 1994)
1.Purpose of Plan
The purpose of this 1990 Long-Term Incentive Plan (the "Plan") is to aid
American Brands, Inc. and its Subsidiaries (the "Company") in securing and
retaining Key Employees of outstanding ability by making it possible to
offer them increased incentives, which may include a proprietary interest
in the Company, to join or continue in the service of the Company and to
increase their efforts for its welfare.
2.Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "American" means American Brands, Inc.;
(b) "Award" means an award or grant made to a Participant pursuant to
the Plan, including, without limitation, an award or grant of an Option,
Right, Restricted Stock, Performance Award or Other Stock-Based Award,
or any combination of the foregoing;
(c) "Award Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations
applicable to an Award;
(d) "Board of Directors" means the Board of Directors of American;
(e) "Committee" means the Compensation and Stock Option Committee of
the Board of Directors;
(f) "Common Stock" means common stock of American;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(h) "Incentive Stock Option" means a stock option to purchase shares
of Common Stock which is intended to qualify as an incentive stock
option as defined in Section 422A of the Internal Revenue Code;
(i) "Key Employee" means any person, including an officer or director,
in the regular full-time employment of the Company who, in the opinion
of the Committee, is or is expected to be primarily responsible for the
management, growth or protection of some part or all of the business of
the Company;
(j) "Limited Right" means a right to receive cash in lieu of the
exercise of an Option or Right as set forth in Section 12(b);
<PAGE>
(k) "Nonqualified Stock Option" means a stock option to purchase
shares of Common Stock which is intended not to qualify as an incentive
stock option as defined in Section 422 of the Internal Revenue Code;
(l) "Option" means an Incentive Stock Option, a Nonqualified Stock
Option or an option granted pursuant to Section 14(a);
(m) "Other Stock-Based Award" means an Award pursuant to Section 8;
(n) "Participant" means a person to whom one or more Awards have been
granted that have not all been forfeited or terminated under the Plan;
(o) "Performance Period" means the period specified with respect to a
Performance Award during which specified performance criteria are to be
measured;
(p) "Performance Award" means an Award granted pursuant to Section 7;
(q) "Restricted Stock" means shares of Common Stock granted pursuant
to Section 6 or as part of a Performance Award or an Other Stock-Based
Award;
(r) "Right" means a stock appreciation right to elect to receive
shares of Common Stock with a fair market value, at the time of any
exercise of such stock appreciation right, equal to the amount by which
the fair market value of all shares subject to the Option (or part
thereof) in respect of which such stock appreciation right was granted
exceeds the exercise price of said Option (or part thereof) or to
receive from American, in lieu of such shares, the fair market value in
cash, or to receive a combination of such shares and cash, as provided
in Section 5, and shall also mean a stock appreciation right granted
pursuant to Section 14(b); and
(s) "Subsidiary" means any corporation other than American in an
unbroken chain of corporations beginning with American if each of the
corporations other than the last corporation in the unbroken chain owns
50% or more of the voting stock in one of the other corporations in such
chain.
3.Administration of Plan
The Plan shall be administered by the Committee whose members shall be
appointed by the Board of Directors and consisting of at least three
members of the Board of Directors. None of the members of the Committee
shall be eligible to be selected for the grant of an Award under the Plan,
or any option, stock appreciation right or shares under any other plan
maintained by the Company during such membership, or have been so eligible
for selection within one year prior thereto, except that such members shall
be eligible to receive shares of Common Stock pursuant to the American
Brands, Inc. Stock Plan for Non-employee Directors; provided, however, that
the members of the Committee shall qualify to administer the Plan for
purposes of Rule 16b-3 (and any other applicable rule) promulgated under
Section 16(b) of the Exchange Act. The Committee may adopt its own rules
of procedure, and the action of a majority of the Committee, taken at a
meeting, or taken without a meeting by unanimous written consent of the
members of the Committee, shall constitute action by the Committee. The
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Committee shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make changes
in such rules.
4.Awards
The Committee may from time to time make such Awards under the Plan to
such Key Employees and in such form and having such terms, conditions and
limitations as the Committee may determine. Awards may be granted singly,
in combination or in tandem. The terms, conditions and limitations of each
Award under the Plan shall be set forth in an Award Agreement, in a form
approved by the Committee, consistent, however, with the terms of the Plan.
5.Awards of Options and Rights
(a) The terms and conditions with respect to each Award of Options
under the Plan shall be consistent with the following:
(i) The Option price per share shall not be less than fair market
value at the time the Option is granted.
(ii) Exercise of the Option shall be conditioned upon the
Participant named therein having remained in the employ of the Company
for at least one year after the date of the grant of the Option;
provided, however, that this condition shall not be applicable in the
event of the death of the Participant or as otherwise provided in
Section 12(b). The Option shall be exercisable in whole or in part
from time to time during the period beginning at the completion of the
required employment time stated in the Option and ending at the
expiration of ten years from the date of grant of the Option, unless
an earlier expiration date shall be stated in the Option or the Option
shall cease to be exercisable pursuant to Section 5(a)(iv) or because
of the exercise of the Limited Right pertaining thereto as provided in
Section 12(b). To the extent that the aggregate fair market value of
shares with respect to which Incentive Stock Options are exercisable
for the first time by any Participant during any calendar year exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options.
The foregoing shall be applied by taking Options into account in the
order in which they were granted. For purposes of the foregoing, the
fair market value of any share shall be determined at the time of the
Award of the Option. In the event the foregoing results in a portion
of an Incentive Stock Option exceeding the $100,000 limitation, only
such excess shall be treated as a Nonqualified Stock Option.
(iii) Payment in full of the Option price shall be made upon
exercise of each Option and may be made in cash, by the delivery of
shares of Common Stock with a fair market value equal to the Option
price, provided the Participant has held such shares for a period of
at least one year, or by a combination of cash and such shares that
have been held by the Participant for a period of at least one year
whose fair market value together with such cash shall equal the Option
price. The Committee may also permit Participants, either on a
selective or aggregate basis, simultaneously to exercise Options and
sell the shares of Common Stock thereby acquired pursuant to a
brokerage or similar arrangement, approved in advance by the
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Committee, and use the proceeds from such sale as payment of the
purchase price of such shares.
(iv) If a Participant's employment with the Company terminates
other than by reason of the Participant's death, disability or
retirement under a retirement plan of the Company, the Participant's
Option shall terminate and cease to be exercisable except as otherwise
provided in Section 12(b). If a Participant's employment with the
Company terminates by reason of death, disability or retirement under
a retirement plan of the Company, the Participant's Option shall
continue to be exercisable until the expiration date stated in the
option, provided that a Nonqualified Stock Option may be exercised
within one year from the date of death even if later than such
expiration date. In the case of a Participant whose principal
employer is a Subsidiary, then such Participant's employment shall be
deemed to be terminated for purposes of this Section 5 as of the date
on which such principal employer ceases to be a Subsidiary.
(v) Each Option shall contain a Limited Right to receive cash in
lieu of shares under the circumstances set forth in Section 12(b).
(b) The Committee, at the time of grant of an Option or at any time
prior to the expiration of its term, may also grant, subject to the
terms and conditions of the Plan, Rights in respect of all or part of
such Option to the Participant who has been granted the Option, provided
that at such time the Participant is a Key Employee. No Right shall be
exercisable prior to six months from the date of grant, except as
otherwise provided in Section 12(b).
(c) The holder of an Option or Right who decides to exercise the
Option or Right in whole or in part shall give notice to the Secretary
of American of such exercise in writing on a form approved by the
Committee. A notice exercising a Right shall also specify the extent, if
any, to which the Participant elects to receive cash, and shall be
subject to the determination by the Committee as provided in Section
5(f). Any exercise shall be effective as of the date specified in the
notice of exercise, but not earlier than the date the notice of
exercise, together with, in the case of exercise of an Option, payment
in full of the Option price, is actually received and in the hands of
the Secretary of American.
(d) To the extent an Option is exercised in whole or in part, any
Right granted in respect of such Option (or part thereof) shall
terminate and cease to be exercisable. To the extent a Right is
exercised in whole or in part, the Option (or part thereof) in respect
of which such Right was granted shall terminate and cease to be
exercisable.
(e) Subject to Sections 5(b) and 14, a Right granted with an
accompanying Option shall be exercisable only during the period in which
the Option (or part thereof) in respect of which such Right was granted
is exercisable, except that when the Right is held by a person who is,
or within the preceding six months has been, a director or an officer of
American for purposes of Section 16(b) of the Exchange Act who elects to
receive cash for all or part of the payments upon exercise, or who
exercises for such cash, the person may so elect or exercise such Right
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only during any period beginning on the third business day following the
date of release of a summary statement of American's quarterly or annual
sales and earnings and ending on the twelfth business day following such
date.
(f) The Committee shall have sole discretion to determine the form in
which payment will be made following exercise of a Right. All or any
part of the obligation arising out of an exercise of a Right may be
settled
(i) by payment in shares of Common Stock with a fair market value
equal to the cash that would otherwise be paid,
(ii) by payment in cash, or
(iii) by payment in a combination of such shares and cash.
(g) To the extent that any Right that shall have become exercisable
shall not have been exercised or cancelled or, by reason of any
termination of employment, shall have become non-exercisable, it shall
be deemed to have been exercised automatically, without any notice of
exercise, on the last day on which its related Option is exercisable,
provided that any conditions or limitations on its exercise (other than
(i) notice of exercise and (ii) exercise or election to exercise during
the period prescribed in Section 5(e)) are satisfied and the Right shall
then have value. Such exercise shall be deemed to specify that, subject
to determination by the Committee as provided in Section 5(f), the
holder elects to receive cash and that such exercise of a Right shall be
effective as of the time of the exercise.
6.Awards of Restricted Stock
The terms and conditions with respect to each Award of Restricted Stock
under the Plan shall be consistent with the following:
(a) The provisions of Awards of Restricted Stock need not be the same
with respect to each Participant. Each Award of Restricted Stock shall
be subject to forfeiture as set forth in the Plan and may be otherwise
subject to forfeiture as set forth in the provisions of such Award.
(b) Each Participant receiving an Award of Restricted Stock shall be
issued a certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such Participant and
shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award. The Committee may require that
the certificates evidencing such shares be held in custody by American
until the restrictions thereon shall have lapsed and that, as a
condition of any Award of Restricted Stock, the Participant shall have
delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Shares of Restricted Stock shall be subject to the restrictions
set forth in this Section 6(c).
(i) Subject to the provisions of the Plan and the applicable Award
Agreement, during the period established by the Committee commencing
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on the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber such shares of Restricted Stock. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments and may accelerate or waive any or all of such
restrictions, in whole or in part, based on service, performance and
such other factors or criteria as the Committee may determine.
(ii) Subject to Section 10(e) and except as provided in this
Section 6(c), the Participant shall have, with respect to shares of
Restricted Stock issued to such Participant under the Plan, all of the
rights of a holder of Common Stock of American, including the right to
vote the shares and the right to receive any cash dividends. Unless
otherwise determined by the Committee, cash dividends shall be
automatically reinvested in additional shares of Common Stock which
shall be treated as Restricted Stock under this Section 6 and
dividends payable in Common Stock shall be treated as additional
shares of Restricted Stock subject to the same restrictions and other
terms and conditions that apply to the shares with respect to which
such dividends are issued.
(iii) Except to the extent otherwise provided in this Section 6(c),
in Section 12(c) or 12(d) or in the applicable Award Agreement, upon
termination of a Participant's employment with the Company for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the Participant. Except to the
extent otherwise provided in the applicable Award Agreement, if the
Participant's employment shall terminate and cease by reason of
disability, retirement under a retirement plan of the Company or
death, the Restriction Period with respect to any shares of Restricted
Stock then held shall expire as of the date of such disability,
retirement or death.
(iv) Upon expiration of the Restriction Period with respect to any
shares of the Restricted Stock without a prior forfeiture thereof, the
holder of such shares shall have the right to receive in exchange for
the certificates representing such shares unlegended certificates for
such shares.
7.Performance Awards
The terms and conditions with respect to each Performance Award under
the Plan shall be consistent with the following:
(a) Performance Awards may be paid in cash, shares of Common Stock
(which may, but need not, be shares of Restricted Stock pursuant to
Section 6), or any combination thereof. The Committee shall determine
the nature, length and starting date of the Performance Period for each
Performance Award which shall be at least two years (subject to Sections
12(c) and 12(d)) and shall determine the performance objectives to be
used in valuing Performance Awards and determining the extent to which
such Performance Awards have been earned. Performance objectives may
vary from Participant to Participant and between groups of Participants
and shall be based upon revenues, operating income, operating company
contribution, cash flow, income before income taxes, net income,
earnings per share, return on equity or assets or total return to
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stockholders, whether applicable to the Company or any relevant
Subsidiary or business unit, or any combination thereof, as the
Committee may deem appropriate. Performance Periods may overlap and
Participants may participate simultaneously with respect to Performance
Awards that are subject to different Performance Periods and different
performance factors and criteria. The terms of Performance Awards need
not be the same with respect to each Participant. The Committee shall
determine for each Performance Award subject to such Performance Period
the range of dollar values or number of shares of Common Stock (which
may, but need not, be shares of Restricted Stock pursuant to Section 6),
or combination thereof, to be received by the Participant at the end of
the Performance Period if and to the extent that the relevant measures
of performance for such Performance Awards are met. The factors must
include a minimum performance standard below which no payment will be
made and a maximum performance level above which no increased payment
will be made. No Performance Awards having an aggregate maximum dollar
value in excess of $5,000,000 or an aggregate maximum amount of Common
Stock in excess of 500,000 shares shall be granted to any individual
Participant on or after January 1, 1994.
(b) The Committee may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the inclusion or exclusion of
the impact of extraordinary or unusual items, events or circumstances,
provided that no adjustment shall be made which would result in an
increase in the compensation of any Participant whose compensation is
subject to the limitation on deductibility under Section 162(m) of the
Internal Revenue Code, as amended, or any successor provision, for the
applicable year. The Committee also may adjust the performance goals
and measurements applicable to Performance Awards and thereby reduce the
amount to be received by any Participant pursuant to such Awards if and
to the extent that the Committee deems it appropriate, provided that no
such reduction shall be made on or after the date of a Change in Control
(as defined in Section 12(b)(iii)).
(c) Except as otherwise provided in the applicable Award Agreement, if
during a Performance Period a Participant's employment with the Company
terminates by reason of the Participant's death, disability or
retirement under a retirement plan of the Company, such Participant
shall be entitled to a payment with respect to each outstanding
Performance Award at the end of the applicable Performance Period (i)
based, to the extent relevant under the terms of the Award, upon the
Participant's performance for the portion of such Performance Period
ending on the date of termination and (ii) prorated for the portion of
the Performance Period during which the Participant was employed by the
Company, all as determined by the Committee. The Committee may provide
for an earlier payment in settlement of such Performance Award
discounted at a reasonable interest rate and otherwise in such amount
and under such terms and conditions as the Committee deems appropriate.
Except as otherwise provided in Section 12(c) or 12(d) or in the
applicable Award Agreement, if during a Performance Period a
Participant's employment with the Company terminates other than by
reason of the Participant's death, disability or retirement under a
retirement plan of the Company, then such Participant shall not be
entitled to any payment with respect to the Performance Awards relating
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to such Performance Period, unless the Committee shall otherwise
determine.
(d) The earned portion of a Performance Award may be paid currently or
on a deferred basis with such interest or earnings equivalent as may be
determined by the Committee. Payment shall be made in the form of cash
or whole shares of Common Stock, either in a single payment or in annual
installments, all as the Committee shall determine.
(e) If a Participant engages in detrimental activity (as hereinafter
defined) at any time (whether before or after termination of
employment), any Performance Award that has not been paid to such
Participant (or is not payable as provided in Section 12(c) or 12(d))
prior to the date such activity has been determined by the Committee to
constitute detrimental activity shall be forfeited and shall never
become payable. For purposes of this Section 7(e), "detrimental
activity" shall mean willful, reckless or grossly negligent activity
that is determined by the Committee, on a case-by-case basis, to be
detrimental to or destructive of the business or property of American or
any Subsidiary. Any such determination of the Committee shall be
conclusive and binding for all purposes of the Plan. Notwithstanding
the foregoing, no Performance Award shall be forfeited or become not
payable by virtue of this Section 7(e) on or after the date of a Change
in Control (as defined in Section 12(b)(iii)).
8.Other Stock-Based Awards
The Committee may grant other Awards under the Plan pursuant to which
shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 6) are or may in the future be acquired, or
Awards denominated in stock units, including ones valued using measures
other than market value. Such Other Stock-Based Awards may be granted
alone, in addition to or in tandem with any Award of any type granted under
the Plan and must be consistent with the purposes of the Plan.
9.Dividend Equivalents
Any Awards (other than Awards of Options or Rights) under the Plan may,
in the discretion of the Committee, earn dividend equivalents. In respect
of any such Award which is outstanding on a dividend record date for Common
Stock the Participant may be credited with an amount equal to the cash or
stock dividends or other distributions that would have been paid on the
shares of Common Stock covered by such Award had such covered shares been
issued and outstanding on such dividend record date. The Committee shall
establish such rules and procedures governing the crediting of dividend
equivalents, including the timing, form of payment and payment
contingencies of such dividend equivalents, as it deems are appropriate or
necessary.
10. Limitations and Conditions
(a) The total number of shares of Common Stock that may be made
subject to Awards under the Plan on or after January 1, 1994 is
12,000,000 shares. Such total number of shares may consist, in whole or
in part, of unissued shares or reacquired shares. Not more than
2,000,000 shares of Common Stock may be made subject to Awards under the
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Plan to any individual Participant on or after January 1, 1994, which
limitation shall be applied in a manner consistent with the requirements
of Section 162(m) of the Internal Revenue Code, as amended. The
foregoing numbers of shares may be increased or decreased by the events
set forth in Section 12(a). In the event that the Company makes an
acquisition or is a party to a merger or consolidation and American
assumes the options or other awards consistent with the purpose of this
Plan of the company acquired, merged or consolidated which are
administered pursuant to this Plan, shares of Common Stock subject to
the assumed options or other awards shall not count as part of the total
number of shares of Common Stock that may be made subject to Awards
under this Plan.
(b) Any shares that have been made subject to an Award that cease to
be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is settled in shares) shall again be
available for award and shall not be considered as having been
theretofore made subject to award. Any shares subject to option under
an Option (or part thereof) that is cancelled upon exercise of a Right
when settled wholly or partially in shares shall to the extent of such
settlement in shares be treated as if the Option itself were exercised
and such shares received in settlement of the Right shall no longer be
available for grant.
(c) No Awards shall be made under the Plan after December 31, 1999,
but the terms of Awards granted on or before the expiration thereof may
extend beyond such expiration. At the time an Award is granted or
amended or the terms or conditions of an Award are changed, the
Committee may provide for limitations or conditions on such Award.
(d) No Award or portion thereof shall be transferable by the
Participant otherwise than by will or by the laws of descent and
distribution, except that an Option and related Right may be transferred
by gift to any member of the holder's immediate family or to a trust for
the benefit of such immediate family members, if permitted in the
applicable Award Agreement. A Right shall never be transferred except
to the transferee of the related Option. During the lifetime of the
Participant, an Option or Right shall be exercisable only by the
Participant unless it has been transferred to a member of the holder's
immediate family or to a trust for the benefit of such immediate family
members, in which case it shall be exercisable only by such transferee.
For the purpose of this provision, a holder's "immediate family" shall
mean the holder's spouse, children and grandchildren.
(e) No person who receives an Award under the Plan which includes
shares of Common Stock or the right to acquire shares of Common Stock
(which may include shares of Restricted Stock pursuant to Section 6)
shall have any rights of a stockholder (i) as to shares under option
until, after proper exercise of the Option, such shares have been
recorded on American's official stockholder records as having been
issued or transferred, (ii) as to shares to be delivered following
exercise of a Right until, after proper exercise of the Right and
determination by the Committee to make payment therefor in shares, such
shares shall have been recorded on American's official stockholder
records as having been issued or transferred, or (iii) as to shares
included in Awards of Restricted Stock, Performance Awards or Other
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Stock-Based Awards, until such shares shall have been recorded on
American's official stockholder records as having been issued or
transferred.
(f) American shall not be obligated to deliver any shares until they
have been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange upon which outstanding shares of such
class at the time are listed nor until there has been compliance with
such laws or regulations as American may deem applicable. American
shall use its best efforts to effect such listing and compliance. No
fractional shares shall be delivered.
(g) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
11. Transfers and Leaves of Absence
For purposes of the Plan: (a) a transfer of a Participant's employment
without an intervening period from American to a Subsidiary or vice versa,
or from one Subsidiary to another, shall not be deemed a termination of
employment, and (b) a Key Employee who is granted in writing a leave of
absence shall be deemed to have remained in the employ of the Company
during such leave of absence.
12. Stock Adjustments, Change in Control and Divestitures
(a) In the event of any merger, consolidation, stock or other non-cash
dividend, extraordinary cash dividend, split-up, spin-off, combination
or exchange of shares, reorganization or recapitalization or change in
capitalization, or any other similar corporate event, the Committee may
make such adjustments in (i) the aggregate number of shares subject to
the Plan and the number of shares that may be made subject to Awards to
any individual Participant as set forth in Section 10(a), (ii) the
number and kind of shares that are subject to any Option (including any
Option outstanding after termination of employment) and the Option price
per share without any change in the aggregate Option price to be paid
therefor upon exercise of the Option, (iii) the number and kind of
Rights granted or that may be granted under the Plan, (iv) the number
and kind of shares of outstanding Restricted Stock, (v) the number and
kind of shares of Common Stock covered by a Performance Award or Other
Stock-Based Award and (vi) the number of outstanding dividend
equivalents, as the Committee shall deem appropriate in the
circumstances. The determination by the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
(b) (i) In the event of a Change in Control (as defined in Section
12(b)(iii)), then each Option or Right held by a Participant that is
not then exercisable shall become immediately exercisable and shall
remain exercisable as provided in Section 5 notwithstanding anything
to the contrary in the first sentence of Section 5(a)(ii) or in
Section 5(b); provided, however, that, no such Option or Right held by
any person who is subject to Section 16 of the Exchange Act (a
"Section 16 Participant") shall become so exercisable until the day
after the expiration of six months from its date of grant (or until
such Participant's death, if earlier). In addition, unless the
Committee otherwise determines at the time of grant or at any time
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thereafter but prior to such Change in Control, (a) each Limited Right
outstanding at the time of such Change in Control (except Limited
Rights held by any Section 16 Participant that have not been
outstanding at the time of such Change in Control for at least six
months from the date of grant) shall be deemed to be automatically
exercised as of the date of such Change in Control or as of such other
date during the 60-day period beginning on the date of such Change in
Control as the Committee may determine prior to such Change in
Control, and (b) each Limited Right held by any Section 16 Participant
that has not been outstanding at the time of such Change in Control
for at least six months from the date of grant (such six-month period
being hereinafter referred to as the "Holding Period") shall be deemed
to be automatically exercised as of the day after the expiration of
the Holding Period or as of such other day during the 60-day period
beginning on the day after the expiration of the Holding Period as the
Committee may determine prior to such Change in Control. In the event
that the Limited Right is not automatically exercised, the Participant
(other than a Section 16 Participant who has not held such Limited
Right for the Holding Period) may during the 60-day period beginning
on the date of the Change in Control, and the Participant who is a
Section 16 Participant and has not held such Limited Right for the
Holding Period may during the 60-day period beginning on the later of
the date of the Change in Control and the day after the expiration of
the Holding Period (the applicable 60-day period for any Participant
being herein referred to as the "Limited Right Exercise Period"), in
lieu of exercising such Option or Right in whole or in part, exercise
the Limited Right (or part thereof) pertaining to such Option. Such
Participant, whether the exercise is pursuant to his election or
automatic pursuant to the terms hereof, shall be entitled to receive
in cash an amount determined by multiplying the number of shares
subject to such Option (or part thereof) by the amount by which the
exercise price of each share is exceeded by (A) if such Option is an
Incentive Stock Option, the fair market value of such shares at the
date of exercise or (B) if such Option is a Nonqualified Stock Option,
the greater of (x) the highest purchase price per share paid for the
shares of the Company beneficially acquired in the transaction or
series of transactions resulting in the Change in Control by the
person or persons deemed to have acquired control pursuant to the
Change in Control (except that this clause (x) shall not be applicable
to the extent that such price is based on a transaction or series of
transactions that has occurred prior to the expiration of six months
from the date of grant of such Option if at either the date of grant
or the time of exercise the person holding such Option is subject to
Section 16 of the Exchange Act) and (y) the highest fair market value
of shares of Common Stock during the Limited Right Exercise Period
prior to the time of exercise. A Limited Right shall be exercised in
whole or in part by giving written notice of such exercise on a form
approved by the Committee to the Secretary of American, except that no
such written notice shall be required in the event such Limited Right
is automatically exercised pursuant to the terms hereof. The exercise
shall be effective as of the date specified in the notice of exercise,
but not earlier than the date the notice of exercise is actually
received and in the hands of the Secretary of American. In the event
the last day of a Limited Right Exercise Period shall fall on a day
that is not a business day, then the last day thereof shall be deemed
to be the next following business day. To the extent an Option or a
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Right pertaining thereto is exercised in whole or in part, the Limited
Right in respect of such Option shall terminate and cease to be
exercisable. To the extent a Limited Right is exercised in whole or
in part, the Option (or part thereof) to which such Limited Right
pertains and the Right (or part thereof) pertaining to such Option (or
part thereof) shall terminate and cease to be exercisable.
(ii) Notwithstanding anything to the contrary in the first sentence
of Section 5(a)(ii) or in 5(a)(iv) or 5(b), the provisions of this
Section 12(b)(ii) will be applicable in the event of a termination of
a Participant's employment on or after a Change in Control and prior
to the expiration of the Limited Right Exercise Period applicable
thereto. No Option, Right or Limited Right held by a Participant
shall terminate or cease to be exercisable as a result of his
termination of employment on or after a Change in Control and prior to
the expiration of the Limited Right Exercise Period applicable
thereto, but shall be exercisable throughout the Limited Right
Exercise Period applicable thereto; provided, however, that in no
event shall any Option or Right be exercisable after ten years from
its date of grant (except in the event of death as provided in Section
5(a)(iv)). However, in the event such Option or Right or the Option
to which such Limited Right pertains has not, on the date of
termination, been held for more than six months from the date of its
grant, the preceding sentence shall apply only if such Participant has
been terminated other than for just cause (as hereinafter defined) or
has voluntarily terminated his employment because he in good faith
believes that as a result of such Change in Control he is unable
effectively to discharge his duties or the duties of the position he
occupied immediately prior to such Change in Control or because of a
diminution in his aggregate compensation or in his aggregate benefits
below that in effect immediately prior to such Change in Control. For
purposes hereof, termination shall be for "just cause" only if such
termination is based on fraud, misappropriation or embezzlement on the
part of the Participant which results in a final conviction of a
felony. Nothing in this Section 12(b) shall be in derogation of any
rights otherwise provided in the Plan in respect of a Participant's
Options or Rights in the event of his death, disability or retirement
under a retirement plan of the Company.
(iii) A "Change in Control" shall be deemed to have occurred if (A)
any person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on November 28, 1989) is or becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act, and the rules and regulations promulgated thereunder, as
in effect on November 28, 1989) of stock of the Company entitled to
cast more than 20% of the votes at the time entitled to be cast
generally for the election of directors, (B) more than 50% of the
members of the Board of Directors shall not be Continuing Directors
(which term, as used herein, means the directors of American (x) who
are members of the Board of Directors on November 28, 1989 or (y) who
subsequently became directors of American and who were elected or
designated to be candidates for election as nominees of the Board of
Directors, or whose election or nomination for election by American's
stockholders was otherwise approved, by a vote of a majority of the
Continuing Directors then on the Board of Directors), (C) American
shall be merged or consolidated with, or, in any transaction or series
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of transactions, substantially all of the business or assets of
American shall be sold or otherwise acquired by, another corporation
or entity and, as a result thereof, either (1) the stockholders of
American immediately prior thereto shall not directly or indirectly
have at least 50% or more of the combined voting power of the
surviving, resulting or transferee corporation or entity immediately
thereafter or (2) any person (as that term is used in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on November 28, 1989) is
or becomes the beneficial owner (as that term is used in Section 13(d)
of the Exchange Act, and the rules and regulations promulgated
thereunder, as in effect on November 28, 1989) of more than 20% of
combined voting power of the surviving, resulting or transferee
corporation or entity, or (D) any change in control of American shall
have occurred of a nature that would be required to be reported in
response to Item 1(a) of Form 8-K promulgated under the Exchange Act
as in effect on November 28, 1989, regardless of whether American is
at the time of such change in control subject to the reporting
requirement thereof. Notwithstanding the foregoing, a Change in
Control shall not be deemed to have occurred if an acquisition of
stock that would otherwise constitute a Change in Control pursuant to
clause (A) or (D) of the preceding sentence is made by the Company, by
any corporation in a merger or consolidation that does not constitute
a Change in Control pursuant to clause (C) of the preceding sentence
or by any employee benefit plan (or related trust) sponsored or
maintained by the Company.
(c) Notwithstanding any other provision of the Plan, in the event that
a Participant's employment is terminated on or after a Change in Control
(as defined in Section 12(b)(iii)) (x) by the Company other than for
just cause (as defined in Section 12(b)(ii)) or (y) by the Participant
because the Participant in good faith believes that as a result of such
Change in Control he is unable effectively to discharge his duties or
the duties of the position he occupied immediately prior to such Change
in Control or because of a diminution in his aggregate compensation or
in his aggregate benefits below that in effect immediately prior to such
Change in Control:
(i) with respect to shares of Restricted Stock then outstanding,
the Restriction Period with respect to such shares shall be deemed
satisfied as of the date such Participant's employment is so
terminated, but only as to that portion of such shares as is
equivalent to the portion of the Restriction Period applicable thereto
that has been satisfied as of such date without regard to this Section
12(c)(i); as of such date, the portion of such shares as to which the
Restriction Period is deemed satisfied pursuant to this Section
12(c)(i) shall become nonforfeitable and all other of such shares
shall be forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based
Awards, including shares of Common Stock covered thereby, all such
Performance Awards and Other Stock-Based Awards shall become
nonforfeitable and shall be paid out on the date such Participant's
employment is so terminated (A) as if all Performance Periods or other
conditions or restrictions applicable thereto had been completed or
satisfied, the maximum performance or other objectives with respect
thereto had been attained and all Awards granted with respect thereto
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had been fully earned, but (B) prorated for the portion of any
relevant Performance Period or other period ending on the date such
Participant's employment is so terminated, unless prior to the Change
in Control the Committee otherwise so provides.
(d) In the case of a Participant whose principal employer is a
Subsidiary, then such Participant's employment shall be deemed to be
terminated for purposes of Sections 6 through 9 as of the date on which
such principal employer ceases to be a Subsidiary (the "Divestiture
Date") and, except to the extent otherwise determined by the Committee
and set forth in the applicable Award Agreement:
(i) with respect to shares of Restricted Stock held by such
Participant, the Restriction Period shall be deemed satisfied as of
the Divestiture Date, but only as to that portion of such shares as is
equivalent to the portion of the Restriction Period applicable thereto
that has been satisfied as of the Divestiture Date without regard to
this Section 12(d)(i); as of the Divestiture Date, the portion of such
shares as to which the Restriction Period is deemed satisfied pursuant
to this Section 12(d)(i) shall become nonforfeitable and all other of
such shares shall be forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based
Awards, including shares of Common Stock covered thereby, all such
Performance Awards and Other Stock-Based Awards shall become
nonforfeitable and shall be paid out on the Divestiture Date (A) as if
all Performance Periods or other conditions or restrictions applicable
thereto had been completed or satisfied, the maximum performance or
other objectives with respect thereto had been attained and all Awards
granted with respect thereto had been fully earned, but (B) prorated
for the portion of the relevant Performance Period or other period
ending on the Divestiture Date, all as determined by the Committee.
In the event of a termination of the Plan, then each Participant's
employment shall be deemed to be terminated for purposes of Sections 6
through 9 as of the date of such termination of the Plan and, except to the
extent otherwise determined by the Committee and set forth in the
applicable Award Agreement, the foregoing provisions of clauses (i) and
(ii) of this Section 12(d) shall apply to such Participant's shares of
Restricted Stock, Performance Awards and Other Stock-Based Awards with the
same effect as if the date of such termination of the Plan were a
Divestiture Date.
13. Amendment and Termination
(a) The Board of Directors shall have the power to amend the Plan,
including the power to change the amount of the aggregate fair market
value of the shares subject to Incentive Stock Options first exercisable
in any calendar year under Section 5 to the extent provided in Section
422, or any successor provision, of the Internal Revenue Code. It shall
not, however, except as otherwise provided in the Plan, increase the
maximum number of shares authorized for the Plan, nor change the class
of eligible employees to other than Key Employees, nor reduce the basis
upon which the minimum Option price is determined, nor extend the period
within which Awards under the Plan may be granted, nor provide for an
Option that is exercisable more than ten years from the date it is
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<PAGE>
granted except in the event of death. It shall have no power to change
the terms of any Award theretofore granted under the Plan so as to
impair the rights of a Participant without the consent of the
Participant whose rights would be affected by such change except to the
extent, if any, provided in the Plan or in the Award.
(b) The Board of Directors may suspend or terminate the Plan at any
time. No such suspension or termination shall affect Options, Rights or
Limited Rights then in effect.
14. Foreign Options and Rights
(a) The Committee may grant Awards to Key Employees who are subject to
the tax laws of nations other than the United States, which Awards may
have terms and conditions that differ from the terms thereof as provided
elsewhere in the Plan for the purpose of complying with the foreign tax
laws. Awards of Options may have terms and conditions that differ from
Incentive Stock Options and Nonqualified Stock Options for the purposes
of complying with the foreign tax laws.
(b) The Committee may grant stock appreciation rights to Key Employees
without the grant of an accompanying Option if the Key Employees are
subject at the time of grant to the laws of a jurisdiction that
prohibits them from owning Common Stock. The Rights shall permit the
Key Employees to receive, at the time of any exercise of such Rights,
cash equal to the amount by which the fair market value of all shares of
Common Stock in respect to which the Right was granted exceeds the
exercise price thereof.
(c) The terms and conditions of Options and Rights granted under
Sections 14(a) and 14(b) may differ from the terms and conditions which
the Plan would require to be imposed upon Incentive Stock Options,
Nonqualified Stock Options and Rights if the Committee determines that
the grants are desirable to promote the purposes of the Plan for the Key
Employees identified in Sections 14(a) and 14(b); provided that the
Committee may not grant such Options or Rights that do not comply with
the limitations of Section 13(a).
15. Withholding Taxes
The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a
condition to the obligation of American to deliver shares upon the exercise
of an Option or Right, upon payment of a Performance Award, upon delivery
of Restricted Stock or upon exercise, settlement or payment of any Other
Stock-Based Award that the Participant pay to the Company such amount as
may be requested by the Company for the purpose of satisfying any liability
for such withholding taxes. Any Award Agreement may provide that the
Participant may elect, in accordance with any conditions set forth in such
Award Agreement, to pay any withholding taxes in shares of Common Stock.
16. Effective Date
The Plan as originally approved by the stockholders of American, was
effective on and as of May 8, 1990. The Plan, as amended and restated,
-15-
<PAGE>
shall be effective on and as of January 1, 1994 subject to approval thereof
by the stockholders of American.
-16-
EXHIBIT 10b
-----------
AMENDMENT TO THE
AMERICAN BRANDS, INC.
1986 STOCK OPTION PLAN
----------------------
1. Paragraph (d) of Section 5 is hereby amended in its entirety as
follows:
(d) If a Participant's employment with the Company terminates
other than by reason of the Participant's death, disability or
retirement under a retirement plan of the Company, the Participant's
Option shall terminate and cease to be exercisable except as otherwise
provided in paragraph (b) of Section 10. If a Participant's
employment with the Company terminates by reason of death, disability
or retirement under a retirement plan of the Company, the
Participant's Option shall continue to be exercisable until the
expiration date stated in the option, provided that a Nonqualified
Stock Option may be exercised within one year from the date of death
even if later than such expiration date. If the terms of an Option
provide for its expiration prior to ten years from its date of grant,
the Committee may at any time extend the expiration date of the Option
but not beyond ten years from its date of grant.
PART II - EXHIBIT 12
--------------------
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Six Months
Ended
Years Ended December 31, June 30,
------------------------------------------------------------- --------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income before income
taxes and minority interest......... $1,065.2 $1,044.6 $1,241.4 $1,401.9 $1,079.6 $496.4
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies................... 0.1 0.1 0.1 0.3 0.8 0.3
Capitalized interest........ 1.9 1.5 1.0 1.0 2.5 1.3
-------- -------- -------- -------- -------- ------
1,063.2 1,043.0 1,240.3 1,400.6 1,076.3 494.8
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses...................... 292.7 290.2 276.6 283.4 258.7 128.1
Portion of rentals representative
of an interest factor............. 22.0 27.6 30.7 32.6 30.1 15.6
-------- -------- -------- -------- -------- ------
Total Fixed Charges......... 314.7 317.8 307.3 316.0 288.8 143.7
-------- -------- -------- -------- -------- ------
Total Earnings Available.... $1,377.9 $1,360.8 $1,547.6 $1,716.6 $1,365.1 $638.5
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges.... 4.38 4.28 5.04 5.43 4.73 4.44
==== ==== ==== ==== ==== ====
</TABLE>
PART II - EXHIBIT 15
August 11, 1994
Securities and Exchange Commission
450 5th Street, N.W.
Attention: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: American Brands, Inc.
We are aware that our report dated August 11, 1994, on our review of
interim financial information of American Brands, Inc. and Subsidiaries for
the three-month and six-month periods ended June 30, 1994 and 1993 included
in this Form 10-Q, has been incorporated 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. Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a
part of such registration statements or prospectuses or certification by us
within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
PART II - EXHIBIT 23
--------------------
CONSENT OF COUNSEL
We consent to the incorporation by reference of our opinions contained
in Part II, Item 1, "Legal Proceedings", of this Quarterly Report on Form
10-Q 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
August 11, 1994
