<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AMERICAN BRANDS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
LOGO AMERICAN
BRANDS, INC.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
March 12, 1996
Dear Stockholder:
The 1996 Annual Meeting of stockholders will be held on
Wednesday, May 1, 1996 at 10:00 a.m. at the Stamford Center
for the Arts, Atlantic Street and Tresser Boulevard, Stamford,
Connecticut. You are invited to attend the meeting to consider
personally the business described in the following notice of
meeting and proxy statement.
At the meeting, there will be a report to the stockholders
on the progress of the Company during the past year. A
discussion period will also take place during which
stockholders will have an opportunity to discuss matters of
interest concerning the Company.
A feature of these Annual Meetings has been the attendance
in person of many stockholders, some with large holdings and
some with small holdings. This has been most welcome. It is
important to ensure that your shares be represented at the
meeting whether or not you personally plan to attend. We urge
you to promptly complete, date and return your proxy in the
enclosed postpaid return envelope provided for that purpose.
Sincerely yours,
/s/ Thomas C. Hays
Thomas C. Hays
Chairman of the Board
and Chief Executive Officer
<PAGE>
LOGO AMERICAN
BRANDS, INC.
NOTICE OF MEETING
-----------------
March 12, 1996
The Annual Meeting of stockholders of American Brands, Inc. will be held at
the Stamford Center for the Arts, Atlantic Street and Tresser Boulevard,
Stamford, Connecticut, at 10 o'clock in the forenoon (Eastern Daylight Time) on
Wednesday, May 1, 1996, for the following purposes:
Item 1 - to elect four directors for a term expiring at the 1999 Annual
Meeting or until their successors have been duly elected and
qualified;
Item 2 - to consider and vote on the election of Coopers & Lybrand L.L.P.
as independent accountants of the Company for the year 1996;
Item 3 - if presented, to consider and vote on a proposal requesting the
elimination of election of directors by classes, expected to be
made by two stockholders;
Item 4 - if presented, to consider and vote on a proposal requesting
cancellation of Company pensions for outside directors, expected
to be made by one stockholder;
Item 5 - if presented, to consider and vote on a proposal requesting that
non-employee director compensation be paid partly in restricted
stock, expected to be made by one stockholder;
Item 6 - if presented, to consider and vote on a proposal requesting
stockholder approval of change of control compensation agreements,
expected to be made by one stockholder;
Item 7 - if presented, to consider and vote on a proposal requesting an
equal employment report, expected to be made by one stockholder;
Item 8 - if presented, to consider and vote on a proposal requesting
implementation of the MacBride Principles, expected to be made by
five stockholders;
and to transact such other business as may properly come before the
meeting.
The stock transfer books will not be closed, but holders of Common Stock and
$2.67 Convertible Preferred Stock, to be entitled to vote, must be holders of
record at the close of business on March 4, 1996.
/s/ Louis F. Fernous, Jr.
Louis F. Fernous, Jr.
Vice President and
Secretary
<PAGE>
PROXY STATEMENT
The Company's principal executive offices are located at 1700 East Putnam
Avenue, Old Greenwich, Connecticut 06870. This Proxy Statement and accompanying
proxy are first being sent or given to stockholders on or about March 12, 1996.
The accompanying proxy is solicited by the Board of Directors. It may be
revoked at any time before being voted by written notice given to the secretary
of the meeting or by the delivery of a later-dated proxy. Proxies properly
executed, duly returned to the Company and not revoked, will be voted for the
election of directors (except to the extent that authority therefor is
withheld) and on the other Items described in this Proxy Statement in
accordance with the instructions in the proxy. The Board of Directors is not
aware at the date hereof of any other matter proposed to be presented at this
meeting, and does not believe that any matter may be properly presented other
than the election of directors and Items 2 through 8. If any other matter is
properly presented, the persons named in the enclosed form of proxy will have
discretionary authority to vote thereon according to their best judgment.
Presence at the meeting does not of itself revoke the proxy.
VOTING
The only securities of the Company entitled to be voted are shares of Common
Stock and $2.67 Convertible Preferred Stock and only holders of record at the
close of business on March 4, 1996 are entitled to vote. Holders of Common
Stock are entitled to one vote per share and holders of $2.67 Convertible
Preferred Stock are entitled to three-tenths of a vote per share. There were
177,859,657 shares of Common Stock and 453,096 shares of $2.67 Convertible
Preferred Stock outstanding at March 4, 1996.
The affirmative vote of shares representing a majority in voting power of the
shares of the Company's Common Stock and $2.67 Convertible Preferred Stock,
voted together as one class, present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary for the
adoption of each of Items 2 through 8. Directors shall be elected by a
plurality of votes cast. Proxies marked as abstentions, or to withhold a vote
from a nominee as a director in the case of the election of directors, will
have the effect of a negative vote. Broker non-votes (where a nominee holding
shares for a beneficial owner has not received voting instructions from the
beneficial owner with respect to a particular matter and such nominee does not
possess or choose to exercise his discretionary authority with respect thereto)
will be considered as present at the meeting but not entitled to vote with
respect to the particular matter and will therefore have no effect on the vote.
As a matter of policy, stockholder proxies, ballots and tabulations that
identify individual stockholders are kept secret and access thereto is limited
to the independent Inspectors of Election and certain employees of the Company
who must acknowledge their responsibility to comply with such policy.
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of 12 members. The Company's
Certificate of Incorporation provides for the classification of the Board of
Directors into three classes, as nearly equal in number as possible, with
staggered terms of office and provides that upon the expiration of the term of
office for a class of directors, nominees for such class shall be elected for a
term of three years or until their successors are duly elected and qualified.
At this meeting, four nominees for director are to be elected as Class I
directors. The nominees are Messrs. Thomas C. Hays, Sidney
1
<PAGE>
Kirschner, Gordon R. Lohman and Charles H. Pistor, Jr. The four Class II and
Class III directors have one year and two years, respectively, remaining on
their terms of office. If no contrary indication is made, proxies in the
accompanying form are to be voted for such nominees or, in the event any such
nominee is not a candidate or is unable to serve as a director at the time of
the election (which is not now expected), for any nominee who shall be
designated by the Board of Directors to fill such vacancy, unless the Board of
Directors shall determine to reduce the number of directors pursuant to the By-
laws. All nominees are members of the present Board. All nominees and all
current Class II and Class III directors were elected by the stockholders,
except that Mrs. Anne M. Tatlock was elected by the Board of Directors as a
Class III director effective February 27, 1996.
There are set forth below opposite the names of the nominees and Class II and
Class III directors their present positions and offices with the Company and
their principal occupations during the past five years, their ages and the year
first elected a director of the Company. There are also set forth below
opposite their names under the heading "Shares of Common Stock beneficially
owned", the shares of Common Stock of the Company beneficially owned by them on
February 15, 1996 (except, as stated in Note (c) below, beneficial ownership is
disclaimed as to certain shares), including shares of Common Stock (if any) of
which they had the right on such date to acquire beneficial ownership pursuant
to the exercise on or before April 15, 1996 of options granted by the Company,
plus the number (if any) of shares of Common Stock held on December 31, 1995 by
the Trustee of the Profit-Sharing Plan of the Company attributable to Company
contributions and to employee pre-tax contributions made through payroll
deductions that is equivalent as of that date to their undivided proportionate
beneficial interests in all such shares. Beneficial ownership information is
also provided below for the executive officers listed in the Summary
Compensation Table on page 8. In addition, Messrs. Barry M. Berish and Gilbert
L. Klemann, II, executive officers listed in the Summary Compensation Table,
had such beneficial ownership of 231,965 and 142,855 shares of Common Stock,
respectively, on February 15, 1996. In no instance does the security ownership
of any of the nominees or other directors or executive officers listed below
equal or exceed one percent of the outstanding shares of Common Stock of the
Company. The information as to security holdings is based on information
received by the Company from the nominees and other directors and executive
officers, from the Corporate Employee Benefits Committee of the Company and
from the Trustee.
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
NOMINEES FOR DIRECTOR--CLASS I--TERM EXPIRING 1999
<C> <S> <C> <C> <C>
Chairman of the Board and 60 1981 598,473
Chief Executive Officer of
American Brands, Inc. since
[Photo] January 1995; President and
Chief Operating Officer of
American Brands, Inc. prior
Thomas C. Hays* thereto
President and Chief 61 1991 1,600
Executive Officer of
Northside Hospital, Inc.
since 1992; Chairman of the
[Photo] Board, President and Chief
Executive Officer of
National Service
Industries, Inc. (lighting
equipment, textile rentals
and specialty chemicals)
Sidney Kirschner prior thereto
President and Chief 61 1990 1,500
Executive Officer of AMSTED
[Photo] Industries Incorporated
(products for the railroad,
construction and building
Gordon R. Lohman* markets)
[Photo] Retired since 1995; Vice 65 1985 3,700
Chair of Southern Methodist
Charles H. Pistor, Jr. University prior thereto
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
CLASS II DIRECTORS--TERM EXPIRING 1997
<C> <S> <C> <C> <C>
[Photo] Partner, Anderson Kill 68 1980 9,300
Olick & Oshinsky, P.C. (law
Eugene R. Anderson* firm)
[Photo] President, Pace University 60 1991 1,000
Patricia O. Ewers
[Photo] Chairman of Olin 63 1989 1,700
Corporation (chemical,
John W. Johnstone, Jr. metal and defense-related
products) since 1996;
Chairman and Chief
Executive Officer of Olin
Corporation from 1994 to
1995; Chairman, President
and Chief Executive Officer
of Olin Corporation prior
thereto
Retired since 1991; 69 1988 3,300
[Photo] Chairman and Chief
Executive Officer of
Illinois Power Company
Wendell J. Kelley prior thereto
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
CLASS III DIRECTORS--TERM EXPIRING 1998
<C> <S> <C> <C> <C>
Retired since 1994; 66 1979 942,483
Chairman of the Board and
[Photo] Chief Executive Officer of
American Brands, Inc.
William J. Alley* prior thereto
President and Chief 59 1995 270,682
Operating Officer of
American Brands, Inc.
since January 1995; Group
Vice President of American
Brands, Inc. from 1988 to
[Photo] 1994; President and Chief
Executive Officer of
Acushnet Company (golf and
leisure products), a
subsidiary of American
Brands, Inc., from 1982 to
John T. Ludes* 1994
President, Fiduciary Trust 56 1996 700(d)
Company International
(global investment
management services) since
[Photo] 1994; Executive Vice
President and Director,
Institutional Equity
Department, Fiduciary
Trust Company
International prior
Anne M. Tatlock thereto
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
<C> <S> <C> <C> <C>
Chairman and Chief 54 1994 178,890
Executive of Gallaher
Limited (tobacco products
and distilled spirits), a
subsidiary of American
[Photo] Brands, Inc., since
February 1994; Deputy
Chairman of Gallaher
Limited from 1989 to 1994;
Chairman and Chief
Executive of Gallaher
Tobacco Limited (tobacco
products), a subsidiary of
Gallaher Limited, since
Peter M. Wilson* 1987
</TABLE>
- --------
* Member of Executive Committee of the Company's Board of Directors. Mr. Ludes
also served on the Board of Directors of the Company from 1987 to 1990.
(a) The numbers of shares attributable to Company contributions under the
Profit-Sharing Plan of the Company included in the numbers shown above are
as follows: William J. Alley, 656; Barry M. Berish, 9,144; Thomas C. Hays,
2,157; Gilbert L. Klemann, II, 1,689; and John T. Ludes, 2,652. The numbers
of shares attributable to employee pre-tax contributions under such Plan
included in the numbers shown above are: Thomas C. Hays, 6,220; Gilbert L.
Klemann, II, 401; and John T. Ludes, 431.
(b) The number of shares of which the nominees and Class II and Class III
directors and Messrs. Berish and Klemann had the right to acquire
beneficial ownership pursuant to the exercise on or before April 15, 1996
of options granted by the Company included in the numbers shown above are
as follows: William J. Alley, 819,850; Barry M. Berish, 184,900; Thomas C.
Hays, 499,650; Gilbert L. Klemann, II, 134,650; John T. Ludes, 229,950; and
Peter M. Wilson, 172,600. Inclusion of such shares does not constitute an
admission by any nominee, director or executive officer that he is the
beneficial owner of such shares.
(c) To the best of the Company's knowledge, each nominee and Class II and Class
III director and executive officer named above has sole voting and
investment power with respect to shares shown after his name above, other
than with respect to the shares listed in Note (b) above and except as
follows: Mr. Hays shares voting and investment power as a co-trustee of
various family trusts with respect to 5,107 shares and with respect to
which shares he disclaims beneficial ownership and Mr. Hays has no voting
or investment power with respect to 4,000 shares held in trust for the
benefit of his wife and with respect to which shares he disclaims
beneficial ownership; Mr. Pistor shares voting and investment power with
his wife with respect to 2,400 shares; and Mr. Berish has no voting or
investment power with respect to 12,900 shares held by his wife as trustee
of a family trust and with respect to which shares he disclaims beneficial
ownership. The Trustee of the Profit-Sharing Plan has agreed to vote the
shares it holds in the Trust in accordance with instructions received from
members of the Plan and shares as to which instructions are not received
are voted by the Trustee proportionally in the same manner as shares as to
which the Trustee has received instructions.
(d) Mrs. Tatlock acquired the shares shown after her name above on February 22,
1996.
Eight meetings of the Company's Board of Directors were held during the
Company's last fiscal year. Each director of the Company attended at least 75%
of the aggregate of (i) all meetings of the Board of Directors and (ii) all
meetings of committees of the Board of Directors of which the director was a
member, during the periods that the director served during the Company's last
fiscal year. In addition to participation at Board and committee meetings, the
Company's directors discharge their
6
<PAGE>
responsibilities throughout the year through personal meetings and other
communications, including considerable telephone contact, with the Chairman and
others regarding matters of interest and concern to the Company.
In addition to the Executive Committee, the Board of Directors has an Audit
Committee, a Compensation and Stock Option Committee and a Nominating and
Corporate Governance Committee. The Audit Committee is composed of Messrs.
Anderson, Kirschner, Pistor, Dr. Ewers and Mrs. Tatlock. Its functions include
recommending annually to the Board of Directors a firm of independent
accountants to audit the Company's financial statements and the scope of such
firm's audit, reviewing reports and recommendations of the Company's
independent accountants, reviewing the scope of all internal audits and reports
and recommendations in connection therewith and reviewing nonaudit services
provided by the Company's principal independent accountants. It held five
meetings during the Company's last fiscal year. The Compensation and Stock
Option Committee is composed of Messrs. Anderson, Johnstone, Lohman and Pistor.
It administers the Company's Stock Option Plans and 1990 Long-Term Incentive
Plan, and its functions include the designation of key employees to whom stock
options, performance awards and other stock-based awards may be granted, and,
within specified limits, the number of shares that may be granted to any such
key employee. Its functions also include setting compensation for officers
employed by the Company and holding the office of Vice President or a more
senior office and the determination of the award to such persons of incentive
compensation under Article XII of the By-laws of the Company. It held six
meetings during the Company's last fiscal year. In addition, the Company has a
Salary Committee composed of Messrs. Hays and Ludes and one additional
executive officer. Its functions include the establishment of salary
administration guidelines for the Company and its domestic subsidiaries,
applicable to all employees other than officers of the Company whose salaries
are required by the By-laws of the Company to be fixed by the Compensation and
Stock Option Committee, and, in accordance with such guidelines, the approval
of all salaries above a specified amount, and recommending to the Board of
Directors compensation arrangements for nonmanagement directors. It held two
formal meetings during the Company's last fiscal year and acted on numerous
other occasions by written consent. The Nominating and Corporate Governance
Committee is composed of Messrs. Anderson, Johnstone, Lohman and Pistor. Its
functions include recommending persons for nomination for election as members
of the Company's Board of Directors, recommending directors for membership on
the Compensation and Stock Option Committee and recommending to the Board of
Directors policies and practices designed to foster an effective corporate
governance environment within the Company. The Nominating and Corporate
Governance Committee held two meetings during the last fiscal year.
Stockholders wishing to recommend persons for consideration by the Nominating
and Corporate Governance Committee as nominees for election to the Company's
Board of Directors can do so by writing to the Secretary of the Company at 1700
East Putnam Avenue, Old Greenwich, Connecticut 06870, giving each such person's
name, biographical data and qualifications. Any such recommendation should be
accompanied by a written statement from the person recommended of his consent
to be named as a nominee and, if nominated and elected, to serve as a director.
The Company's Certificate of Incorporation also contains a procedure for
stockholder nomination of directors.
Mr. Alley is a director of CIPSCO Incorporated, Central Illinois Public
Service Company, Olin Corporation and Rayonier Inc.; Mr. Johnstone is a
director of Phoenix Home Life Insurance Company and McDermott International
Inc.; Mr. Kelley is a director of Magna Group, Inc.; Mr. Lohman is a director
of CIPSCO Incorporated and Central Illinois Public Service Company; Mr. Pistor
is a director of AMR Corporation, Centex Corporation and Oryx Energy Company;
and Mrs. Tatlock is a director of American General Corporation and PHH
Corporation.
For information with respect to the beneficial ownership of securities of the
Company by directors and executive officers as a group, see "Certain
Information Regarding Security Holdings".
Each director and officer of the Company who is subject to Section 16 of the
Securities and Exchange Act of 1934 is required to report to the Securities and
Exchange Commission by a specified date his or her beneficial ownership of or
transactions in the Company's securities. Reports received by the Company
indicate that all such directors and officers have filed all requisite reports
with the Securities and Exchange Commission on a timely basis during or with
respect to 1995.
7
<PAGE>
EXECUTIVE COMPENSATION
There is set forth in the following table a summary of all compensation paid
to, or earned by, the five most highly compensated executive officers during
each of the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- --------------------
AWARDS PAYOUTS
------------ -------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING LTIP ALL OTHER
PRINCIPAL BONUS (1) COMPENSATION OPTIONS/SARS PAYOUT COMPENSATION
POSITION YEAR SALARY ($) $ ($) (2) (#) ($)(3) ($)(4)
- --------- ---- ---------- --------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THOMAS C. HAYS 1995 900,000 812,341 219,289 93,000 379,440 229,679(5)
Chairman of the Board 1994 655,800 433,600 198,133 130,000 113,063 272,596(5)
and Chief Executive 1993 655,800 394,158 2,122,937 81,600 -0- 149,397
Officer of American
Brands, Inc.
JOHN T. LUDES 1995 500,000 408,600 189,082 50,000 151,823 171,187(5)
President and Chief 1994 365,600 331,000 96,852 60,000 45,225 156,369(5)
Operating Officer of 1993 365,600 210,000 1,010,458 32,650 -0- 71,453
American Brands, Inc.
PETER M. WILSON 1995 520,695 389,261 8,200 30,000 169,725 -0-
Chairman and Chief 1994 477,280 361,939 10,859 38,000 33,919 -0-
Executive of Gallaher 1993 426,767 264,412 5,344 36,500 -0- -0-
Limited
BARRY M. BERISH 1995 405,000 254,353 124,664 30,000 155,775 115,828
Chairman and Chief 1994 388,500 252,902 111,492 35,000 41,456 100,836
Executive Officer of JBB 1993 370,000 194,673 887,446 33,500 -0- 113,984
Worldwide, Inc.
GILBERT L. KLEMANN, II 1995 396,600 225,600 96,409 28,100 151,823 96,777(5)
Senior Vice President 1994 377,700 217,500 54,942 34,000 45,225 118,591(5)
and General Counsel of 1993 377,700 175,000 422,238 32,650 -0- 58,290
American Brands, Inc.
</TABLE>
- --------
(1) Article XII of the By-laws of the Company provides for payment of incentive
compensation to members of the Management Group (consisting generally of
persons elected to the office of Vice President of the Company or a more
senior office). An amount equal to 1/2 of 1% of Adjusted Income From
Continuing Operations (as defined in Article XII) is made available for
allotment annually if a cash dividend has been paid on the Common Stock of
the Company. Of the amount available for incentive compensation, 18% is
allotted to the Chairman of the Board and the remainder is available to the
Management Group on the following basis: 30% of the total amount available
is allotted by Article XII to the members of the Management Group other
than the Chairman of the Board in proportion to their fixed salaries, and
the balance may be allotted to them by the Compensation and Stock Option
Committee, entirely at its discretion as to amounts and individuals. The
Compensation and Stock Option Committee has the authority to reduce the 18%
allotment to the Chairman of the Board and the 30% allotment to any member
of the Management Group. Payments are made in cash as soon as practicable
after the award is determined after the end of the year. Mr. Berish
participated in the annual incentive compensation program of Jim Beam
Brands Co. which is based on operating company contribution, asset
management and individual performance. The target award for Mr. Berish for
1995 was equal to 55% of base salary with 75% of the target award based on
corporate financial criteria and 25% based on individual objectives. Mr.
Wilson participated in an incentive compensation plan for key employees of
Gallaher Limited. Under such plan, an amount equal to 0.389% of
consolidated profits before tax (as defined in such plan) is made available
for allotment annually. Of the amount made available for incentive
compensation, 18.5% is allotted to the Chairman of Gallaher Limited.
8
<PAGE>
(2) At the 1993 Annual Meeting, stockholders approved Company contributions to
trusts established by executives in order to fund supplemental retirement
and profit-sharing benefits under the Company's Supplemental Plan on a
current basis. The executive is taxed on the contribution when made and the
earnings on the trust, but the Company provides the executive with an
additional amount to pay the taxes. The amounts distributed to the
executive at retirement, however, are not subject to tax and therefore the
Company contributes to the trusts only the present value of the executive's
after-tax benefit instead of being required to provide the executive's pre-
tax benefit upon retirement. The amounts set forth in the "Other Annual
Compensation" column include the amounts paid to the executive for
reimbursement of taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ---------
<S> <C> <C> <C>
Thomas C. Hays.................................. 201,469 169,919 2,107,098
John T. Ludes................................... 181,951 85,563 1,004,122
Barry M. Berish................................. 117,414 100,434 881,463
Gilbert L. Klemann, II.......................... 89,278 43,653 415,902
</TABLE>
The amounts shown above for Mr. Berish relate to his supplemental benefits
under the Jim Beam Brands Co. Excess Benefit Plan. The contributions to the
trusts for 1993 were to fund the supplemental retirement and profit-sharing
benefits accrued for all prior years of service which had previously been
unfunded. The amounts contributed in each year after 1993 funded the
supplemental retirement and profit-sharing accruals for that year only and
the related tax reimbursement payment in years after 1993 were lower. The
remaining amounts in the "Other Annual Compensation" column are cash
dividend equivalents paid on performance awards.
(3) The LTIP Payout is the value of performance share payment for the
performance period ended in the year reported.
(4) These amounts include Company contributions to the tax qualified Profit-
Sharing Plan of the Company (the Jim Beam Brands Co. Profit-Sharing and
401(k) Savings Plan for Mr. Berish) and supplemental profit-sharing amounts
under the Company's Supplemental Plan as described below.
Company contributions to the tax qualified Profit-Sharing Plan of the
Company (the Jim Beam Brands Co. Profit-Sharing and 401(k) Savings Plan for
Mr. Berish) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Thomas C. Hays....................................... 17,617 18,486 22,527
John T. Ludes........................................ 17,617 18,486 22,527
Barry M. Berish...................................... 21,000 21,000 30,000
Gilbert L. Klemann, II............................... 17,617 18,486 22,527
</TABLE>
The Supplemental Plan provides for those amounts that would have been
contributed under the Company's tax qualified Profit-Sharing Plan but for
certain Internal Revenue Code limitations. Supplemental profit-sharing
amounts credited under the Company's Supplemental Plan (the Jim Beam Brands
Co. Excess Benefit Plan for Mr. Berish) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Thomas C. Hays....................................... 98,838 92,671 75,139
John T. Ludes........................................ 56,868 43,825 28,347
Barry M. Berish...................................... 94,828 79,836 68,270
Gilbert L. Klemann, II............................... 38,755 41,467 28,366
</TABLE>
9
<PAGE>
Earnings had been credited on supplemental profit-sharing balances as if
the balances were invested in an investment selected by the Company's
Trusts Investment Committee which was the Salomon Brothers Inc Broad
Investment Grade Index for 1993. Effective in December 1993 with the
contributions to the trusts under the funding arrangement approved by
stockholders at the 1993 Annual Meeting, actual trust investment
performance was credited on supplemental profit-sharing balances. The
Company therefore had no liability for supplemental profit-sharing balance
investment earnings for 1994 and no earnings credits on supplemental
profit-sharing balances are disclosed for 1994 or 1995 in the "All Other
Compensation" column. Earnings credited on supplemental profit-sharing
balances under the Company's Supplemental Plan for 1993 were as follows:
<TABLE>
<CAPTION>
1993
------
<S> <C>
Thomas C. Hays................................ 51,731
John T. Ludes................................. 20,579
Barry M. Berish............................... 15,714
Gilbert L. Klemann, II........................ 7,397
</TABLE>
In order to fund the Company's obligations to provide supplemental profit-
sharing benefits under the Company's Supplemental Plan as described above,
the Company made contributions under the trust funding arrangements
approved by stockholders at the 1993 Annual Meeting. Jim Beam Brands Co.
made contributions during these years under the Jim Beam Brands Co. Excess
Benefit Plan for Mr. Berish. These contributions for 1993 funded the after-
tax equivalent of supplemental profit-sharing accruals which had been
unfunded for all years since supplemental profit-sharing credits were added
to the Supplemental Plan in 1987. The amounts contributed in each year
after 1993 will typically fund the supplemental profit-sharing accruals for
that year only. The following contributions to the trusts are not listed in
the "All Other Compensation" column as they were made to fund these
supplemental profit-sharing liabilities described above and already
disclosed therein:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Thomas C. Hays...................................... 52,353 32,586 353,608
John T. Ludes....................................... 24,758 18,670 131,606
Barry M. Berish..................................... 45,825 49,785 96,604
Gilbert L. Klemann, II.............................. 23,426 17,846 47,258
</TABLE>
The Company made additional contributions in 1993, 1994 and 1995 to the
trusts to fund its obligations for supplemental retirement benefits under
the Company's Supplemental Plan to Messrs. Hays, Ludes and Klemann. Jim
Beam Brands Co. made additional contributions during these years under the
Jim Beam Brands Co. Excess Benefit Plan for Mr. Berish. See the Pension
Plan Table on page 14 for a description of the amount of these supplemental
retirement benefits.
(5) In 1994, the Company substituted a split-dollar life insurance program for
certain executive officers in lieu of the group term life insurance program
under which they were previously covered. The death benefits payable on
behalf of the executives under the split-dollar life insurance program, and
the amount of premiums contributed by the executives, remain the same as
under the group term life insurance program which had been available to all
salaried employees, including executives, on the same terms and conditions.
All insurance proceeds from the split-dollar life insurance program in
excess of each executive's death benefit are payable to the Company, and
the program is designed for the Company to recover at least its aggregate
premium cost. The Company has elected to prepay its share of the full
premiums for the policy in two annual installments in 1994 and 1995.
Additional split-dollar life insurance was obtained in 1995 for Messrs.
Hays and Ludes in order to provide for the increased death benefit
attributable to their 1995 salary increases with the premium for this
increased insurance payable in two annual installments in 1995 and 1996.
The amounts set forth in the "All Other Compensation" column for 1994 and
1995 include the dollar value of insurance premiums paid
10
<PAGE>
by the Company as reduced by the projected refund to the Company on the
maturity of the policy calculated on an actuarial basis as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Thomas C. Hays............................................. 113,224 161,439
John T. Ludes.............................................. 96,702 94,058
Gilbert L. Klemann, II..................................... 40,405 58,638
</TABLE>
The following table provides information on grants of stock options made in
1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE(2) VALUE ($)(3)
- ---- -------------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
THOMAS C. HAYS.......... 93,000 5.28 42.25 11/27/05 509,640
JOHN T. LUDES........... 50,000 2.84 42.25 11/27/05 274,000
PETER M. WILSON......... 30,000 1.70 42.25 11/27/05 164,400
BARRY M. BERISH......... 30,000 1.70 42.25 11/27/05 164,400
GILBERT L. KLEMANN, II.. 28,100 1.60 42.25 11/27/05 153,988
ALL OPTIONEES........... 1,760,400 100 2/27/05 8,206,956
42.20 11/27/05
</TABLE>
- --------
(1) All options are for shares of Common Stock of the Company. No stock
appreciation rights ("SARs") were granted during 1995. Options are
generally not exercisable until the expiration of one year from the date of
grant.
(2) The 1990 Long-Term Incentive Plan (As Amended and Restated as of January 1,
1994) further provides that each option shall have a limited right
("Limited Right") which generally is exercised automatically on the date of
change in control of the Company, or (if later) the day after the
expiration of the six-month holding period for options not held for such
six-month period by those holders subject to Section 16 of the Securities
Exchange Act of 1934, as amended. The Limited Right generally entitles the
holder of the option to receive cash equal to the number of shares subject
to the option multiplied by the difference between the exercise price per
share and (i) the fair market value of such shares at the date of exercise
of the Limited Right if the option is an incentive stock option and (ii) if
the option is a nonqualified stock option, the greater of (a) the highest
price per share paid for shares of Common Stock of the Company acquired in
the change in control and (b) the highest fair market value of shares of
Common Stock during a specified period prior to the time of exercise. The
option is cancelled to the extent of the exercise of the Limited Right.
(3) Grant Date Present Value is determined using the Black-Scholes option
pricing model based on the following assumptions: (a) an expected option
term of six years which reflects a reduction of the actual ten year term of
an option based on historical data regarding the average length of time an
optionee holds the option before exercising; (b) a risk-free rate of return
of 5.75%, the rate of a six year U.S. Treasury Zero Coupon Bond
corresponding to the expected option term; (c) stock price volatility of
16% based on weekly stock market quotations for the five years preceding
the date of grant, adjusted for the effect of certain events in the tobacco
industry in 1993 and the recent Company restructurings; (d) yield of 5%
based on the annual dividend rate of $2.00 per share at date of grant; (e)
a discount of 15% for risk of forfeiture for all optionees only but with no
discount for risk of forfeiture for the named executive officers; and
(f) notwithstanding the fact that these options are non-transferable, no
discount for non-transferability was applied. Consequently, the Grant Date
Present Values set forth in the table are only theoretical values and may
not accurately determine present value. The actual value, if any, to be
realized by an optionee will depend on the excess of the market value of
the Common Stock over the exercise price on the date the option is
exercised.
11
<PAGE>
The following table provides information concerning exercise of stock
options, alone or in tandem with SARs, made during 1995 by each of the five
most highly compensated executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/ OPTIONS/SARS
OPTIONS/SARS SARS AT FY-END (#)-- AT FY-END ($)--
EXERCISED VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
THOMAS C. HAYS.......... -0- -0- 499,650/93,000 3,626,042.19/209,250
JOHN T. LUDES........... 4,700 77,256.25 229,950/50,000 1,912,900/112,500
PETER M. WILSON......... -0- -0- 172,600/30,000 1,443,806.25/67,500
BARRY M. BERISH......... 4,700 77,843.75 184,900/30,000 1,551,118.75/67,500
GILBERT L. KLEMANN, II.. -0- -0- 134,650/28,100 669,737.50/63,225
</TABLE>
- --------
(1) SARs permit an optionee, upon exercise of such rights and surrender of the
related option or part thereof, to receive a payment equal to the excess of
the fair market value (at the time of exercise) of the shares covered by
such option or part thereof so surrendered over the option price of such
shares. Such payment may be made in Common Stock of the Company (valued on
the basis of the fair market value of such Common Stock at the time of
exercise), in cash, or partly in cash and partly in Common Stock of the
Company, as the Compensation and Stock Option Committee may determine. No
SAR is exercisable prior to six months from the date of its grant.
The following tables provide information concerning long-term compensation
awards made during 1995 to the five most highly compensated executive officers:
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
PERFORMANCE PERIOD 1995-1997
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
PERFORMANCE PERIOD OR PRICE-BASED PLANS
NUMBER OF SHARES, OTHER PERIOD UNTIL ------------------------
UNITS OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) PAYOUT (2) (#) (#) (#)
- ---- ----------------- --------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
THOMAS C. HAYS.......... 13,000 3 yrs 6,500 13,000 19,500
JOHN T. LUDES........... 6,000 3 yrs 3,000 6,000 9,000
PETER M. WILSON......... 3,800 3 yrs 1,900 3,800 5,700
BARRY M. BERISH......... 3,500 3 yrs 1,750 3,500 5,250
GILBERT L. KLEMANN, II.. 3,400 3 yrs 1,700 3,400 5,100
</TABLE>
- --------
(1) In February 1995, performance share awards were granted for the 1995-1997
performance period. These figures represent the number of shares that will
be awarded upon attainment of the average consolidated return on equity
targets for the performance period 1995-1997.
(2) The performance period began on January 1, 1995 and will end on December
31, 1997. As of December 31, 1995, two years remain until maturation or
payout.
The number of shares of Common Stock to be delivered for the performance
period 1995-1997 is based on the level of achievement of specified operating
goals of the Company and its consolidated subsidiaries during the performance
period. The target amount will be earned if 100% of the targeted average
consolidated return on equity is achieved. The threshold amount will be earned
at the
12
<PAGE>
achievement of 83 1/3% of the targeted average consolidated return on equity
and the maximum award amount will be earned at the achievement of 125% of the
targeted average consolidated return on equity. In addition, cash dividend
equivalents will be paid only to the extent that the performance goals are
achieved.
PERFORMANCE PERIOD 1996-1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNDER NON-STOCK
PERIOD OR OTHER PRICE-BASED PLANS
NUMBER OF SHARES, PERIOD UNTIL ------------------------
UNITS OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) PAYOUT (2) (#) (#) (#)
- ---- ----------------- --------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
THOMAS C. HAYS.......... 14,600 3 yrs 7,300 14,600 21,900
JOHN T. LUDES........... 7,800 3 yrs 3,900 7,800 11,700
PETER M. WILSON......... 4,700 3 yrs 2,350 4,700 7,050
BARRY M. BERISH......... 3,500 3 yrs 1,750 3,500 5,250
GILBERT L. KLEMANN, II.. 4,400 3 yrs 2,200 4,400 6,600
</TABLE>
- --------
(1) In November 1995, performance share awards were granted for the 1996-1998
performance period. These figures represent the number of shares that will
be awarded upon attainment of the average consolidated return on equity and
cumulative increase in earnings per share targets for the performance
period 1996-1998.
(2) The performance period began on January 1, 1996 and will end on December
31, 1998. As of December 31, 1995, three years remain until maturation or
payment.
The number of shares of Common Stock to be delivered for the performance
period 1996-1998 is based on the level of achievement of specified operating
goals of the Company and its consolidated subsidiaries during the performance
period. The target amount will be earned if 100% of the targeted average
consolidated return on equity and cumulative increase in earnings per share are
achieved. The threshold amount will be earned at the achievement of 83 1/3% of
the targeted average consolidated return on equity and 94% of the targeted
cumulative earnings per share. The maximum award amount will be earned at the
achievement of 125% of the targeted average consolidated return on equity and
114% of the targeted cumulative earnings per share. In addition, cash dividend
equivalents will be paid only to the extent that the performance goals are
achieved.
13
<PAGE>
RETIREMENT PLANS
The following table sets forth the highest estimated annual retirement
benefits payable to persons in the specified compensation and years of service
classifications upon retirement at normal retirement date, assuming election of
an annuity for the life of the employee only, under the retirement plans of the
Company and those of its domestic subsidiaries under which executive officers
of the Company would be entitled to benefits:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR REPRESENTATIVE YEARS OF CREDITED SERVICE
---------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 75,000 $112,500 $150,000 $187,500 $ 225,000 $ 262,500
600,000 90,000 135,000 180,000 225,000 270,000 315,000
700,000 105,000 157,500 210,000 262,500 315,000 367,500
800,000 120,000 180,000 240,000 300,000 360,000 420,000
900,000 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 210,000 315,000 420,000 525,000 630,000 735,000
1,600,000 240,000 360,000 480,000 600,000 720,000 840,000
1,800,000 270,000 405,000 540,000 675,000 810,000 945,000
2,000,000 300,000 450,000 600,000 750,000 900,000 1,050,000
2,200,000 330,000 495,000 660,000 825,000 990,000 1,155,000
2,400,000 360,000 540,000 720,000 900,000 1,080,000 1,260,000
</TABLE>
The estimated annual retirement benefits set forth in the preceding table
include any offset for Social Security benefits required under the applicable
plan.
The compensation covered by the retirement plans under which executive
officers are to receive retirement benefits includes essentially compensation
that would fall under the categories of "Salary" and "Bonus" in the Summary
Compensation Table shown above on page 8 averaged over the five highest
consecutive years. The years of service of Messrs. Hays, Ludes and Berish are
31, 17 and 39, respectively. Mr. Klemann, who joined the Company's employ in
1991, has a special retirement arrangement which credits him with service since
1976 in order to recognize that he devoted full time to the legal affairs of
the Company from 1976 through 1991 while with the Company's outside law firm.
The Supplemental Plan of the Company provides supplemental benefits in an
amount equal to the difference between the benefits payable under the
Retirement Plan and the amount that would be payable under the Company's tax
qualified Retirement Plan formula in excess of the Internal Revenue Code
limitation on maximum annual benefits payable from tax qualified retirement
plans (currently the lesser of $120,000 and the employee's average compensation
during his three highest-paid consecutive years of employment). The
Supplemental Plan also provides for payments of any amount by which the
Retirement Plan benefit is reduced because of the limitation contained in the
Internal Revenue Code on the combination of the benefits payable thereunder and
additions to the Company's tax qualified Profit-Sharing Plan. The Internal
Revenue Code also provides that benefits under tax qualified plans cannot be
based on compensation in excess of a certain limit (currently $150,000). The
Supplemental Plan provides the difference between the amount paid under the
Retirement Plan and the amount that would have been paid thereunder if the
$150,000 limit on compensation were not included therein. In calculating
retirement benefits, no credit is given for service in excess of 35 years.
14
<PAGE>
Mr. Berish is covered under the Jim Beam Brands Co. Excess Benefit Plan which
provides a comparable benefit except that the maximum aggregate annual benefit
payable thereunder and under Beam's tax qualified Retirement Plan is the lesser
of $225,000 or Mr. Berish's highest three year average earnings. The Pension
Plan Table includes these Supplemental Plan benefits as well as the retirement
benefit for Mr. Berish.
Under the Supplemental Plan, persons employed by the Company holding the
office of Vice President or a more senior office with the Company will each
receive an annual benefit equal to 52 1/2% of his average compensation during
the five highest-paid consecutive calendar years of employment, provided he
continues in employment until the earlier of normal retirement age of 65 or
completion of 35 years of service. This 52 1/2% benefit is the same as the
benefit in the 35 year column of the Pension Plan Table set forth above. The
benefit is reduced by 1 1/2% of such average compensation for each year that
such officer retires prior to age 65 unless he has completed 35 years of
service. The benefit is also reduced by benefits under the Company's Retirement
Plan, the retirement plans of subsidiaries of the Company and of any prior
employer. This supplemental retirement benefit covers Messrs. Hays, Ludes and
Klemann.
Executive officers employed by the Company will accrue all benefits after
1995 under the Supplemental Plan rather than the Company's tax qualified
Retirement Plan.
The Company has an agreement with Mr. Hays which will provide him with an
annual retirement benefit of 52 1/2% of his average compensation during the
five highest-paid consecutive calendar years of employment if Mr. Hays becomes
disabled or dies prior to normal retirement date of age 65 or if the Company
terminates his employment for reasons other than cause, or Mr. Hays terminates
his employment for good reason (as defined in the agreement). For purposes of
determining Mr. Hays' highest five-year average earnings, his compensation at
the date of his termination of employment is deemed to continue until normal
retirement date. This benefit to Mr. Hays is reduced by the amount paid to him
under the Company's tax qualified Retirement Plan and Supplemental Plan.
As noted in Note (2) under the Summary Compensation Table on page 8, Messrs.
Hays, Ludes and Klemann and certain other executive officers have established
trusts to which the Company makes contributions to fund currently the Company's
supplemental retirement and profit-sharing obligations. The Company also
continues to maintain "rabbi" trusts with a bank for the purpose of paying its
supplemental retirement and profit-sharing obligations that are not fully
funded by the executives' trusts. Similar trusts have also been established
with respect to Mr. Berish under the Jim Beam Brands Co. Excess Benefit Plan.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company has entered into agreements with Messrs. Hays, Ludes and Klemann
to provide certain severance benefits for them in the event of their
termination of employment following a change in control (as defined in the
agreements) of the Company. Each agreement provides generally that if,
subsequent to a change in control, the Company terminates the employment of the
officer other than for disability or cause, or if the officer elects to
terminate his employment for good reason, as provided in the agreement, the
officer will then receive three years of base salary, three times the amounts
for one year of his incentive compensation award and Profit-Sharing Plan
allocation (and the supplemental profit-sharing allocation under the
Supplemental Plan), three additional years of service and earnings credit under
the retirement plans and agreements of the Company and three additional years
of coverage under the life, health, accident, disability and other employee
plans of the Company, provided that if any such person is within three years of
his normal retirement date, the multiplier of three is reduced for each
category of payment to the number of years and portion thereof remaining prior
to such date. Each agreement also provides for payment of an amount necessary
to restore any benefit diminution under the agreement and the Company's stock
option plans and 1990 Long-Term Incentive Plan if the special excise tax
imposed under Section 280G of the Internal Revenue Code is applicable. Assuming
a change in control and a termination date of February 1, 1996, the amounts
15
<PAGE>
payable under such agreements would have been $5,594,388, $3,160,754 and
$2,075,616 for Messrs. Hays, Ludes and Klemann, respectively. The Company has
established "rabbi" trusts with a bank for the purpose of paying these amounts.
The foregoing amounts do not include the three additional years of service and
earnings credit under retirement plans and agreements or the three additional
years of coverage under life, health, accident, disability and other employee
plans to which the foregoing persons would be entitled. Upon termination of
employment following a change in control, the executive would also be entitled
to retain his split-dollar life insurance policy in order to provide the death
benefit with any insurance proceeds after death in excess of the death benefit
to be returned to the Company. The amounts payable are reduced by any amounts
payable under the agreements referred to in the succeeding paragraph providing
severance benefits after termination of employment without regard to a change
in control.
The Company has also entered into agreements with Messrs. Hays, Ludes and
Klemann to provide severance benefits without regard to a change in control if
the Company terminates the employment of the officer for reasons other than for
disability or cause. The severance agreements provide the same benefits as
those described in the preceding paragraph for a termination of employment
following a change in control except that the multiplier is three in the case
of Mr. Hays and two in the case of Messrs. Ludes and Klemann. Assuming a
termination of employment on February 1, 1996, the amounts payable under the
severance agreements, which would represent their base salary, Article XII
award and Profit-Sharing Plan allocation (and the supplemental profit-sharing
allocation under the Company's Supplemental Plan), would have been $5,594,388,
$2,107,169 and $1,383,744 for Messrs. Hays, Ludes and Klemann, respectively.
The foregoing amounts do not include the additional years of service and
earnings credit under retirement plans and agreements or the additional years
of coverage under life, health, accident, disability and other employee plans
to which the foregoing persons would be entitled. Mr. Berish is covered under a
similar severance agreement with Jim Beam Brands Co. with a multiplier of two.
Assuming a termination of employment on February 1, 1996, the amount payable
under Mr. Berish's severance agreement would have been $1,640,362.
Gallaher Limited has an agreement with Mr. Wilson which provides, among other
things, for his employment by Gallaher Limited at a salary rate for 1995 of
(Pounds)329,700 and for reimbursement of all reasonable expenses incurred by
him in the performance of his duties under the agreement. The agreement is
terminable by Gallaher Limited upon three years' written notice. The agreement
also provides that in the event the employment of Mr. Wilson is terminated, or
Mr. Wilson elects to terminate his employment for good reason, after a change
in control of the Company or Gallaher Limited, he is to receive up to three
times his salary, incentive compensation and certain benefits.
DIRECTOR COMPENSATION
Each director who is not an officer or employee of the Company or one of its
subsidiaries receives an annual fee of $35,000 for services as a director and
an additional $15,000 for committee service for an aggregate cash fee of
$50,000. Three non-employee directors each receive an additional $15,000 for
service on the Executive Committee. The Company has agreements with Messrs.
Anderson and Lohman to defer payment of the fees to which they are entitled as
directors, including any fees for committee service. Interest on the deferred
amounts is accrued quarterly based on the average quarterly treasury bill rate.
During 1995, the Company also paid the cost of group life insurance coverage
for directors who were not officers or employees of the Company as follows:
Mr. Anderson, $2,911; Dr. Ewers, $1,257; Mr. Johnstone, $1,299; Mr. Kelley,
$2,246; Mr. Kirschner, $1,257; Mr. Lohman, $1,299; and Mr. Pistor, $2,315.
During 1995, the Company also paid the last installment of the premium for the
split-dollar life insurance for the death benefit that Mr. Alley had accrued
before his retirement with the Company. The dollar value of the insurance
premium paid as reduced by the projected refund to the Company on the maturity
of the policy calculated on an actuarial basis was $309,138. Directors who are
not officers or employees of the Company are also covered under the Company's
matching gift program whereby the Company will make a 200% match of gifts
totalling up to $15,000 by the director to an eligible charitable or
educational institution.
16
<PAGE>
Each director who is not an officer or employee of the Company or one of its
subsidiaries is also paid 300 shares of Common Stock of the Company each year
under the Company's Stock Plan for Non-employee Directors which was approved by
the stockholders at the 1995 Annual Meeting. The Company has an agreement with
Mr. Lohman to defer payment of these shares. While receipt of the shares is
deferred, dividends that would have been paid with respect to such shares had
receipt thereof not been deferred are also deferred and will accrue interest
quarterly from the respective dates such dividends would have been paid at a
rate equal to the average quarterly treasury bill rate. Directors who are not
officers or employees of the Company or one of its subsidiaries are covered
while on Company business by the business travel accident insurance policy
which covers employees of the Company generally.
Each director who is not an officer or employee of the Company or one of its
subsidiaries who voluntarily retires or decides not to stand for reelection as
a director will receive an annual retirement benefit equal to the annual
director's fee (exclusive of fees for committee service and fees for service on
boards of directors of subsidiaries) in effect at the time of retirement to be
paid for the number of years equal to such director's full years of service.
Such benefit is payable beginning in the year in which such director retires or
attains age 65, whichever occurs later, and continues to be payable to the
director's beneficiary in the event of the director's death until all such
payments have been made. The benefit is also payable to the director's
beneficiary if the director dies prior to retirement after having completed at
least three years of service. Mr. Alley is not covered under the non-employee
director retirement program.
Each director who is not an officer or employee of the Company is covered
under the Company's charitable award program for non-employee directors. Under
the program, the Company will make future contributions of up to $500,000 for
each such director to charitable, educational or other qualified organizations
designated by the director. The contribution would be made after the death of
the director and the Company's obligation is funded by Company owned life
insurance policies.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the Company
attract, motivate and retain the executive resources that it needs in order to
maximize its return to stockholders.
Toward that end, the program attempts to provide:
. competitive levels of salary and total compensation
. annual incentive compensation that varies with the annual financial
performance of the Company and its various operating companies
. long-term incentive compensation to reward long-term financial
performance.
The Company intends to provide levels of total compensation for executive
officers that are competitive with compensation for executives with comparable
responsibilities in corporations of similar size. The competitive information
is derived from a variety of sources, principally surveys conducted by Towers
Perrin, the outside consultants of the Compensation and Stock Option Committee
(the "Committee"), and Management Compensation Services, a division of Hewitt
Associates, of compensation awarded by over 200 large, publicly-held
corporations with revenues in excess of $2 billion participating in the surveys
(the "survey group"). Most of the companies in the survey group are in the S&P
500 and some are in the Peer Group indices described on pages 23 and 24. The
Committee relies on a broad array of companies for comparative analysis of
executive compensation because the Committee believes that the Company's
competitors for executive talent are more varied than the Peer Group chosen for
comparing stockholder return in the Performance Graph on page 23.
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The Company's executive compensation program consists of three basic
elements--base salaries, annual incentive bonuses and long-term incentives. The
long-term incentive plans of the Company and its operating companies covering
executive officers of the Company are designed to ensure that incentive
compensation varies based on the profitability of the Company and its various
operating companies and on the performance of the Company's Common Stock. In
addition, these plans provide the flexibility to reward executives based on
their individual performance.
Committee Responsibilities
The Company's By-laws require that the salaries of officers employed by the
Company and having the offices of Vice President and above be fixed by the
Committee. The Committee also has the authority to allot to executive officers
employed by the Company and certain other officers a portion of the incentive
compensation available for allotment under Article XII of the Company's By-
laws. In addition, the Committee grants awards to executive officers and
certain other officers under the Company's 1990 Long-Term Incentive Plan, which
as described below generally consisted in 1995 of stock options and performance
share awards. With respect to executive officers who were employed by the
Company's subsidiaries during 1995, the Committee recommended the salaries of
such executive officers to the relevant subsidiary company's board of directors
or appropriate committee. Further, unless the amount is fixed pursuant to the
relevant subsidiary company plan, the incentive bonuses awarded to such
executive officers are reviewed by the Committee prior to formal approval by
the subsidiary board or appropriate committee. The Committee also reviews the
design of the Company's executive compensation programs, assesses their
competitiveness and effectiveness and makes recommendations with respect to
them.
Each of the elements of the program is described in the report below,
including a discussion of the specific actions taken by the Committee with
respect to the Chairman of the Board and Chief Executive Officer and the other
executive officers for 1995.
Base Salaries
In determining salary adjustments for the Chief Executive Officer and other
executive officers employed by the Company for 1995, the Committee sought to
maintain salary levels that were comparable with the median level of the survey
group. A promotional salary increase was granted to Mr. Thomas C. Hays, who
assumed the title and responsibilities of Chairman of the Board and Chief
Executive Officer effective January 1, 1995, of 37.2%. A promotional salary
increase was also granted to Mr. John T. Ludes, who assumed the title and
responsibilities of President and Chief Operating Officer effective as of
January 1, 1995, of 36.8%. Two other executive officers who were promoted
effective January 1, 1995 also received promotional increases. The Committee
determined that the salaries of other executive officers should be increased by
5.0%. This rate of salary increase was slightly below the 5.2% average market
increase of the survey group. After giving effect to these promotional and
other salary increases, the salary levels of the executive officers employed by
the Company were on average 2% below the median of the survey group and the
salary of the Chairman was 1% below the median of the survey group. Salary
adjustments were therefore made in order to remain competitive with the survey
group.
The salary increases of the Company's executive officers who were chief
executives of subsidiary companies were also comparable to the median of the
survey group. Salary increases ranged from 4.2% to 5.3% compared with the
average salary increase for the survey group of 4.9%.
Annual Incentive Bonuses
Article XII of the By-laws of the Company as approved by stockholders
provides for payment of incentive compensation to members of the Management
Group (defined pursuant to Article XII), including executive officers. An
amount equal to 1/2 of 1% of adjusted income from continuing
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operations (as defined in Article XII) is made available for allotment annually
if a cash dividend has been paid on the Common Stock of the Company. Of the
amount available for incentive compensation, 18% is allotted to the Chairman of
the Board and the remainder is available to the Management Group on the
following basis: 30% of the total amount available is allotted by Article XII
to the members of the Management Group in proportion to their salaries, and the
balance may be allotted by the Committee, entirely at the Committee's
discretion, as to amounts and individuals. The Committee has the authority to
reduce the amount of any allotment to the Chairman or a member of the
Management Group. In determining the manner of allocating the amount made
available for allotment to individual executive officers employed by the
Company other than the Chairman for 1995, the Committee decided that 75% of
such award should be based on corporate earnings performance and 25% on the
attainment of individual objectives. Payments are made in cash as soon as
practicable after determination of the amount available.
In determining the incentive awards for executive officers other than the
Chairman of the Board, the Committee noted that adjusted income from continuing
operations decreased 19% during 1995 as compared with 1994, principally as a
result of the sale of The American Tobacco Company subsidiary, but that income
from ongoing operations increased 14.7%. As a result of the extraordinary
efforts of management in implementing the new focus of the Company's
operations, the Committee determined that the portion of the target incentive
awards based on corporate earnings performance for 1995 for executive officers
employed by the Company, apart from the Chairman, should be increased generally
by 10%. The total amount of the 1995 Article XII awards to eligible officers,
including executive officers, was $2,670,741 as compared with $4,513,005 which
was permitted to be awarded under the Article XII formula.
Incentive compensation awards for executive officers of the Company who are
employed by subsidiary companies are determined under the incentive
compensation plans of those subsidiary companies. These plans generally provide
for the establishment of target awards as a percentage of salary and the
payment of a percentage of the target award based on the attainment of certain
operating company financial and individual achievement goals. Mr. Barry M.
Berish, Chairman and Chief Executive Officer of Jim Beam Brands Co. during
1995, participated in the annual incentive compensation program of Jim Beam
Brands Co. which is based on operating company contribution, asset management
and individual performance. The target award for Mr. Berish was equal to 55% of
his base salary with 75% of the target based on the corporate financial
criteria and 25% based on individual objectives. Mr. Wilson participated in an
incentive compensation plan for key employees of Gallaher Limited. Under such
plan, an amount equal to 0.389% of consolidated profits before tax (as defined
in such plan) is made available for allotment annually. Of the amount made
available for incentive compensation, 18.5% is allotted to the Chairman of
Gallaher Limited.
Other Considerations with Respect to the Chairman's Compensation
The annual incentive compensation for Mr. Thomas C. Hays as Chairman under
Article XII decreased 19% from the 1994 annual incentive compensation payable
to his predecessor who was Chairman during 1994. This portion of his
compensation is based strictly on a stockholder-approved formula related to the
pre-tax earnings performance of the Company as explained under Annual Incentive
Bonuses above. The decrease thus reflected the decrease in the Company's
adjusted income from continuing operations for 1995 attributable primarily to
the sale of The American Tobacco Company subsidiary.
Long-Term Incentives
Under the Company's 1990 Long-Term Incentive Plan, the Committee can grant to
key employees of the Company and its subsidiaries a variety of long-term
incentives, including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock,
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performance awards, dividend equivalents and other stock-based incentives.
During 1995, the Committee granted performance share awards, incentive stock
options and nonqualified stock options to executive officers of the Company.
The Committee intends that stock options and performance awards serve as a
significant piece of the executives' total compensation package, and thus they
are granted in consideration of present and anticipated performance, as well as
past performance. Annual and long-term incentives make up the major portion of
the total compensation of executive officers. Moreover, the stock options and
performance awards are intended to offer the executive officers significant
long-term incentives to increase their efforts on behalf of the Company and its
subsidiaries, to focus managerial efforts on enhancing stockholder value and to
align the interests of the executives with the stockholders. As indicated
above, the Committee's compensation philosophy is to have long-term incentives
that pay more for superior performance and less if performance does not achieve
that level. The Committee, in making its determinations with respect to stock
option and performance award grants to the individual senior executives was
guided by the percentage of the individual's base salary that the estimated
value of the stock options and performance awards would comprise. The Committee
sets the percentage of base salary that the long-term incentive would represent
at a level based on a comparison to the value of long-term incentives awarded
to similarly-compensated executives in the survey group, based on the outside
consultants' survey of competitive practice regarding the percentage of base
salary represented by long-term incentives. The Committee used an option
pricing valuation method for purposes of making such comparison. The Committee
granted stock options and performance awards for the 1996 to 1998 performance
period to executive officers employed by the Company to place them generally at
the 50th percentile of the survey group. These grants continue the Committee's
practice of providing executive officers with annual long-term incentive grants
that are at competitive levels as recommended by Towers Perrin, the Committee's
outside consultants.
In determining the level of grants for the executive officers, the Committee
considered several factors in its subjective judgment without any of these
factors being weighted greater than any other: first, that the Company and its
subsidiaries comprised a large and diverse organization with over 100 operating
subsidiaries in five highly competitive industries doing business on a
worldwide basis; second, the complex task facing the executive officers in
managing and furthering the performance, growth and prospects of such an
organization; and third, the high level of performance and results achieved by
the Company and its subsidiaries in recent years, particularly during a time
when extremely difficult economic conditions have been adversely affecting
principal markets in which many of the businesses operate, as well as the steps
taken by the executive officers to enhance stockholder value.
1995-1997 Performance Share Awards
In February 1995 the Committee granted performance share awards for the
performance period 1995 to 1997. The performance share awards are grants of
Company Common Stock that are contingent upon the achievement by the Company
and its subsidiaries of specified average return on equity targets over the
performance period of 1995 to 1997. The number of shares of Common Stock to be
delivered to the executive officers granted performance awards in 1995 varies
with the level of achievement during the performance period. The number of
performance award shares to be paid if target goals are met was set at 10% of
the stock option award shares in the prior stock option grant. The target
amount will be earned if 100% of the targeted consolidated return on equity is
achieved. Fifty percent of the target amount will be earned at the achievement
of 83 1/3% of the targeted average consolidated return on equity and no amount
will be earned below such level. The maximum award of 150% of the target amount
will be earned at the achievement of 125% of the targeted average consolidated
return on equity. In establishing these goals, the Committee considered the
Company's average return on equity in recent years as well as the return on
equity over a similar period of the
20
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companies comprising the Standard & Poor's 500. As a result, the awards are
designed to provide a maximum share payment only if the Company's return on
equity were to exceed that achieved by more than 50% of the Standard & Poor's
500 companies in recent years. In addition, the recipients of the performance
awards will receive cash dividend equivalents at the time of payment of the
performance shares based on the number of performance shares actually earned.
This performance share award grant when aggregated with the prior stock option
grant to the Chairman placed him at the 67th percentile of the survey group
while the performance award and prior stock option grants to all executive
officers were at the 72nd percentile of the survey group.
In addition, certain of the executive officers who are also chief executives
of operating companies were granted additional performance awards payable in
cash contingent upon the achievement by the relevant operating companies of
specified operating company performance targets over the performance period
1995 to 1997. The target award, when aggregated with the stock option and
performance share awards granted to these executive officers, placed them
between the 59th and 68th percentile of the survey group. If the target is not
achieved but minimum goals are attained, an amount of 33 1/3% to 50% of the
target is payable. An amount of two to three times the target is payable if
maximum goals are attained. The performance goals are based on operating
performance for the operating company employing the executive officer during
the performance period commencing January 1, 1995 and terminating December 31,
1997.
Stock Options and 1996-1998 Performance Share Awards
In November 1995 the Committee granted performance share awards for the 1996
to 1998 performance period as well as stock options. The options have an
exercise price of not less than fair market value of the stock on the date of
grant. The options generally become exercisable one year from the date of
grant, and expire 10 years from the date of grant. Benefits to an executive
officer from stock options will be realized only in the event of an increase in
the market value of the Company's Common Stock.
The performance share awards for the 1996 to 1998 performance period are
contingent upon the achievement by the Company and its subsidiaries of
specified average return on equity and cumulative increase in earnings per
share targets over the performance period 1996 to 1998. The target number of
shares of the Company's Common Stock will be earned if 100% of the targeted
consolidated return on equity and cumulative earnings per share are achieved.
Fifty percent of the target amount will be earned at the achievement of 83 1/3%
of the targeted average consolidated return on equity and 94% of the targeted
cumulative earnings per share. The maximum award of 150% of the target amount
will be earned at the achievement of 125% of the targeted average consolidated
return on equity and 114% of the targeted cumulative earnings per share. The
performance share awards for this 1996 to 1998 performance period are designed
to provide a maximum share payment only if the Company's return on equity and
earnings per share increase were to exceed that achieved by more than 80% of
companies comprising the Standard & Poor's 500 in recent years. In addition,
the recipients of these performance awards will receive cash dividend
equivalents at the time of payment of the performance shares equal to the cash
dividends that would have been paid on the shares had the recipient owned the
shares during the performance period.
The Internal Revenue Code limits the allowable tax deduction that may be
taken by the Company for compensation paid to the Chairman and the four other
highest paid executive officers required to be named in the Summary
Compensation Table. The limit is $1 million per executive per year, provided
that compensation payable solely on account of the attainment of performance
goals is excluded from the limitation. It is the Committee's intent to qualify
to the extent practicable the annual incentive bonus under Article XII and
stock options and performance awards under the 1990 Long-Term Incentive Plan as
performance based compensation in order that these elements of
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compensation may qualify for the exclusion from the $1 million limit so that
the Company's tax deduction will not be so limited for a significant portion of
the compensation of these executive officers.
Compensation and Stock Option Committee
Eugene R. Anderson, Chairman
John W. Johnstone, Jr.
Wendell J. Kelley
Charles H. Pistor, Jr.
December 31, 1995
The following individuals, who were executive officers of the Company during
1995, served as members of the Board of Directors of Gallaher Limited, a
subsidiary of the Company, and participated in setting compensation for Mr.
Peter M. Wilson, Chairman and Chief Executive of Gallaher Limited, who was also
an executive officer and director of the Company during 1995, and have signed
this Report for this purpose.
Thomas C. Hays
John T. Ludes
Robert L. Plancher
Dudley L. Bauerlein, Jr.
December 31, 1995
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As members of the Board of Directors of Gallaher Limited, a subsidiary of the
Company, Messrs. Thomas C. Hays, John T. Ludes, Robert L. Plancher and Dudley
L. Bauerlein, Jr., who are executive officers of the Company, participated in
setting compensation for Mr. Peter M. Wilson, the Chairman and Chief Executive
of Gallaher Limited, who was also an executive officer and director of the
Company during 1995. None of these individuals is a member of the Compensation
and Stock Option Committee of the Company. The members of the Compensation and
Stock Option Committee of the Company are set forth above.
During the last fiscal year, a subsidiary of the Company made purchases from
Olin Corporation, of which Mr. Johnstone, a member of the Compensation and
Stock Option Committee, is Chairman and a director, in the amount of
approximately $1.6 million. The transactions were made in the ordinary course
of business and on terms no less favorable to the Company's subsidiary than
would have prevailed in similar transactions with any other supplier. The
Company's subsidiary intends to continue to make purchases from Olin
Corporation during 1996 if it determines that it may do so on terms beneficial
to it.
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AMERICAN BRANDS, INC. STOCK PRICE PERFORMANCE
(WITH DIVIDEND REINVESTMENT)
[CHART APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG ABI, S&P 500 INDEX, 1994 PEER GROUP INDEX*
AND 1995 PEER GROUP INDEX*
<TABLE>
<CAPTION>
Measurement period S&P 500 1994 Peer 1995 Peer
(Fiscal year covered) ABI Index Group Index* Group Index*
- --------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Measurement PT -
12/31/90 $ 100 $ 100 $ 100 $ 100
FYE 12/31/91 $ 112.5 $ 130.47 $ 139.83 $ 133.36
FYE 12/31/92 $ 105.51 $ 140.41 $ 152.26 $ 150.70
FYE 12/31/93 $ 91.88 $ 154.59 $ 154.98 $ 172.86
FYE 12/31/94 $ 109.89 $ 156.60 $ 149.63 $ 156.51
FYE 12/31/95 $ 136.83 $ 215.46 $ 196.89 $ 178.99
</TABLE>
- --------
* Excludes American Brands, Inc.
Peer Group Index
The 1994 Peer Group was composed of publicly traded companies in industry
segments corresponding to the Company's then five core businesses and its
specialty businesses: the Tobacco segment was composed of Philip Morris
Companies, Inc., B.A.T Industries, Loews Corporation and Hanson PLC; the
Distilled Spirits segment was composed of Brown-Forman Corporation, The Seagram
Company, Ltd., Allied Domecq PLC, formerly known as Allied-Lyons PLC, Grand
Metropolitan PLC and Guinness PLC; the Life Insurance segment was composed of
Transamerica Corporation, American International Group, Inc., Aetna Life and
Casualty, Torchmark Corporation and Providian Corporation, formerly known as
Capital Holding Corporation; the Hardware and Home Improvement segment was
composed of Masco Corporation, American Woodmark Corporation, The Black &
Decker Corporation and The Stanley Works; the Office Products segment was
composed of Herman Miller Inc., Mead Corporation, Hunt Manufacturing Co. and
Avery Dennison Corporation; and the Specialty segment was composed of ProGroup,
Inc. and T. & S. Stores PLC. U.S. Shoe is not included in the Specialty segment
of the 1994 Peer Group because as of May 1995 it no longer trades publicly.
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The 1995 Peer Group is composed of publicly traded companies in industry
segments corresponding to the Company's current five core businesses and thus
differs from the 1994 Peer Group as follows: the Tobacco segment is now
composed of Hanson PLC (Philip Morris Companies, Inc., B.A.T Industries and
Loews Corporation have been deleted due to the change in the Company's tobacco
business following the sale of The American Tobacco Company in 1994); the Life
Insurance segment has been deleted in its entirety due to the sale of the
American Franklin Company in 1995; the Hardware and Home Improvement segment is
now composed of Masco Corporation, The Black & Decker Corporation, Newell Co.
and The Stanley Works (American Woodmark Corporation has been deleted due to
its relatively small market capitalization and Newell Co. has been added
because of its hardware and housewares business); the Office Products segment
is now composed of Hunt Manufacturing Co., General Binding Corporation,
Rubbermaid Incorporated and Avery Dennison Corporation (Mead Corporation has
been deleted because it has a significant paper products business and the
Company does not, Herman Miller has been deleted due to the sale of the Vogel
Peterson Furniture Company business in 1995 by a subsidiary of the Company and
General Binding Corporation and Rubbermaid Incorporated have been added because
of their office products businesses); and the Specialty segment is now called
the Golf and Leisure segment and is composed of ProGroup, Inc., Salomon S.A.
and Brunswick Corporation (T&S Stores has been deleted because of the sale by a
subsidiary of the Company of its retail distribution operations in 1995 and
Salomon S.A. and Brunswick Corporation have been added because of their leisure
products businesses).
The weighted average total return of each of the entire 1994 Peer Group and
the entire 1995 Peer Group, for each year, is calculated as follows: (1) the
total return of each Peer Group member is calculated by dividing the change in
market value of a share of its common stock, assuming quarterly dividend
reinvestment, by the cumulative value of a share of its common stock at the
beginning of the year; (2) each Peer Group member's total return is then
weighted within its industry segment based on its market capitalization at the
beginning of the year, relative to the market capitalization of the entire
segment, and the sum of such weighted returns results in a weighted average
total return for that segment; and (3) each segment's weighted average total
return is then weighted based on the percentage of sales, excluding excise
taxes, of that segment of the Company for the year, as compared with total
Company sales, excluding excise taxes, and the sum of such weighted returns
results in a weighted average total return for the entire Peer Group.
Each of the 1994 Peer Group Index and the 1995 Peer Group Index reflects the
weighted average total return for the entire Peer Group calculated for the five
year period from a base of 100.
The Report of the Compensation and Stock Option Committee on Executive
Compensation and the American Brands, Inc. Stock Price Performance graph shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission or subject to Regulation 14A or 14C of the Regulations
of the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or to the liabilities of Section 18 of
the Exchange Act.
ITEM 2
ELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the stockholders elect Coopers &
Lybrand L.L.P. as independent accountants for the Company for the year 1996. In
line with this recommendation the Board of Directors intends to introduce at
the forthcoming Annual Meeting the following resolution (designated herein as
Item 2):
"RESOLVED, that Coopers & Lybrand L.L.P. be and they are hereby elected
independent accountants for the Company for the year 1996."
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<PAGE>
In accordance with the Company's practice, a member of Coopers & Lybrand
L.L.P. will attend the Annual Meeting to make a statement if he desires to do
so and to respond to any appropriate questions that may be asked by
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 2.
ITEM 3
RESOLUTION REQUESTING ELIMINATION OF ELECTION OF
DIRECTORS BY CLASSES PROPOSED BY TWO STOCKHOLDERS
The Company is informed that John J. Gilbert, whose address is 29 East 64th
Street, New York, New York 10021-7043, a record holder of 400 shares of Common
Stock and claiming an additional family interest of 1,200 shares, and/or John
C. Henry, a record holder of 12,800 shares of Common Stock, whose address is 5
East 93rd Street, New York, New York 10128, intend to introduce at the Annual
Meeting the following resolution (designated herein as Item 3):
"RESOLVED: That the stockholders of American Brands, Inc., assembled in
annual meeting in person and by proxy, hereby request that the Board of
Directors take the needed steps to provide that at future elections of
directors new directors be elected annually and not by classes as is now
provided and that on expiration of present terms of directors their
subsequent election shall also be on an annual basis."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"Continued very strong support along the lines we suggest were shown at the
last annual meeting when 38.04%, an increase over the previous year, 4,677
owners of 58,297,438 shares, were cast in favor of this proposal. The vote
against included 10,263 unmarked proxies.
"ARCO to its credit, voluntarily ended theirs stating that when a very high
percentage (34.6%) desired it to be changed to an annual election it was
reason enough for them to change it. Several other companies have also
followed suit such as: Pacific Enterprises, Katy Industries, Hanover Direct
and others. A few years ago my resolution on the subject was withdrawn when
the Westinghouse directors agreed to end their stagger system. Also,
Lockheed-Martin in the recent merger ended theirs.
"Because of the normal need to find new directors and because of
environmental problems and the avalanche of derivative losses and many
groups desiring to have directors who are qualified on the subjects, we
think that ending the stagger system of electing directors is the answer.
In addition, some recommendations have been made to carry out the CERES 10
points. The 11th, in our opinion, should be to end the stagger system of
electing directors and to have cumulative voting.
"Equitable Life Insurance Company, which is now called Equitable Companies,
converted from a policy owned company to a public stockholder meeting.
Thanks to AXA, the controlling French insurance company not wanting it they
now do not have a staggered board.
"Orange and Rockland Utility Company had a terrible time with the stagger
system and its 80% clause to recall a director. The chairman was involved
in a scandal effecting the company. Not having enough votes the meeting to
get rid of the chairman had to be adjourned. Finally, at the adjourned
meeting enough votes were counted to recall him.
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
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BOARD OF DIRECTORS STATEMENT ON ITEM 3
Under the corporate law of Delaware, the State in which the Company is
incorporated, the change contemplated by the proposal would require an
amendment to the Company's Certificate of Incorporation which must first be
approved by the Board of Directors and then submitted to a vote of the
stockholders. A vote in favor of Item 3, therefore, would constitute a request
that the Board initiate this amendment. The Board does not believe, however,
that such an amendment would be in the best interests of the Company or its
stockholders.
In 1986, the stockholders approved an amendment to the Company's Certificate
of Incorporation to provide for the current division of the Board by class,
with one class elected each year for a three-year term. Fully 86.9% of the
votes cast with respect to that proposal were cast in its favor.
The Board believes that a classified Board enables the Company to plan for a
reasonable period into the future and thereby provide for continuity of
corporate policies. The Board also believes that flexibility is achieved by the
election of one-third of the directors annually, while stability is retained
because a majority of the directors at all times will have had prior experience
in the management of the Company's business. In addition, the classified Board
would preclude the immediate removal of all incumbent directors by a person
seeking a change in control of the Company and thereby would benefit all of the
Company's stockholders as the incumbent directors would then be in a position
to act to protect the stockholders' value in the Company. Surveys of corporate
board structures conducted by certain organizations independent of the Company
have shown that more than half of the corporations included in the surveys
maintain classified boards. For the foregoing reasons, the Board believes that
the amendment contemplated by Item 3 is not in the best interests of the
Company. Resolutions substantially similar to Item 3 were rejected by the
stockholders at each Annual Meeting from 1989 through 1995.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 3.
ITEM 4
RESOLUTION REQUESTING CANCELLATION OF
COMPANY PENSIONS FOR OUTSIDE DIRECTORS
The Company is informed that Kenneth Steiner, whose address and stock
ownership will be furnished by the Company promptly upon receipt of any oral or
written request therefor, intends to introduce at the Annual Meeting the
following resolution (designated herein as Item 4):
"RESOLVED, that the shareholders assembled in person and by proxy,
recommend (i) that all future non-employee directors not be granted pension
benefits and (ii) current non-employee directors voluntarily relinquish
their pension benefits."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"Aside from the usual reasons, presented in the past, regarding `double
dipping', that is outside (non-employee) directors who are in almost all
cases amply rewarded with their pension at their primary place of
employment, and in many instances serving as outside pensioned directors
with other companies, there are other more cogent reasons that render this
policy as unacceptable.
"Traditionally, pensions have been granted in both the private and public
sectors for long term service. The service component usually represents a
significant number of hours per week. The practice of offering pensions for
consultants is a rarity. Outside directors' service could logically fit the
definition of consultants and pensions for this type of service is an abuse
of the term.
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<PAGE>
"But more importantly, outside directors, although retained by corporate
management, namely the C.E.O., are in reality representatives of
shareholders. Their purpose is to serve as an impartial group to which
management is accountable. Although outside directors are certainly
entitled to compensation for their time and expertise, pensions have the
pernicious effect of compromising their impartiality. In essence, pensions
are management's grants to outside directors to insure their unquestioning
loyalty and acquiescence to whatever policy management initiates, and at
times, serving their own self interests. Thus, pensions become another
device to enhance and entrench management's controls over corporate
policies while being accountable only to themselves. I am a founding member
of the Investors Rights Association of America and I feel this practice
perpetuates a culture of corporate management `cronyism' that can easily be
at odds with shareholder and company interest.
"A final note in rebuttal to management's contention that many companies
offer their outside directors pensions, so they can attract and retain
persons of the highest quality. Since there are also companies that do not
offer their outside directors pensions, can management demonstrate that
those companies that offer pensions have a better performance record than
their non-pensioned peers? In addition, do we have any evidence of a
significant improvement in corporate profitability with the advent of
pensions for outside directors?
"I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION."
BOARD OF DIRECTORS STATEMENT ON ITEM 4
The Company has a policy of paying deferred benefits to each non-employee
director who voluntarily retires or decides not to stand for reelection. The
annual benefit is equal to the annual basic director's fee in effect at the
time of retirement and is paid for the number of years equal to the director's
full years of service. Thus, the amount of benefit is dependent upon the
director's length of service. The benefit is payable beginning in the year in
which the director retires or attains age 65, whichever occurs later, and
continues to be payable to the director's beneficiary in the event of the
director's death until all such payments have been made. The benefit is also
payable to the director's beneficiary if the director dies prior to retirement
after having completed at least three years of service.
The Board believes that paying a portion of the total compensation for
outside directors as deferred benefits is appropriate and that the Company's
retirement policy for outside directors assists it in remaining competitive
with other major corporations so that the Company may attract and retain
persons of the highest quality to serve on your Board of Directors. The
retirement benefit provides an incentive to join the Board, and to remain long
enough to gain experience and knowledge of the Company's businesses. Unlike
many pensions that are payable in the form of an annuity for the life of the
director, the Company's payments are deferred compensation payable only for the
period of years for which the director served on the Board. Payment of
retirement benefits also recognizes the ever increasing time commitment,
diligence and risks associated with Board service. An independent benefits
consulting firm reports that a majority of the 137 major publicly-held
companies that it surveyed provide retirement benefits for their outside
directors.
The Board is opposed to the proposal for an additional reason. The proposal
asks all current non-employee directors to voluntarily relinquish their pension
benefits. The Company's retirement policy was an inducement for non-employee
directors to join and remain in service on the Board and the Company believes
that it would not be appropriate for directors to forego this benefit which was
promised to them and which they have earned. A resolution substantially similar
to Item 4 was rejected by the stockholders at the 1995 Annual Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 4.
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ITEM 5
RESOLUTION REQUESTING NON-EMPLOYEE DIRECTOR
COMPENSATION BE PAID PARTLY IN RESTRICTED STOCK
The Company is informed that Lee Brenin, whose address and stock ownership
will be furnished by the Company promptly upon receipt of any oral or written
request therefor, intends to introduce at the Annual Meeting the following
resolution (designated herein as Item 5):
"RESOLVED that the shareholders recommend that the board of directors take
the necessary steps to ensure that from here forward all non-employee
directors should receive a minimum of fifty percent of their total
compensation in the form of company stock which cannot be sold for three
years."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"A significant equity ownership by outside directors is probably the best
motivator for facilitating identification with shareholders.
"Traditionally, outside directors, sometimes selected by management, were
routinely compensated with a fixed fee, regardless of corporate
performance. In today's competitive global economy, outside directors must
exercise a critical oversight of management's performance in furthering
corporate profitability. All too often, outside director's oversight has
been marked by complacency, cronyism, and inertia.
"Corporate America has too many examples of management squandering company
assets on an extended series of strategic errors. Meanwhile, boards of
directors stood by and passively allowed the ineptitude to continue, well
after disaster struck. They fiddled while Rome was burning.
"When compensation is in company stock, there is a greater likelihood that
outside directors will be more vigilant in protecting their own, as well as
corporate, and shareholder interests.
"What is being recommended in this proposal is neither novel or untried. A
number of corporations have already established versions of such practices,
namely, Scott Paper, The Travelers, Hartford Steam Boiler, and Alexander &
Alexander.
"Harvard Business School did a series of studies comparing highly
successful to poorly performing companies. They found that outside
directors in the better performing companies had significantly larger
holdings of company stock than outside directors in the more mediocre and
poorly performing companies.
"It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to a
company's profitability as paying them exclusively in stock. However, it is
our contention that stock options are rewarding on the upside but offer no
penalties on the downside. There are few strategies that are more likely to
cement outside directors with shareholder interests and company
profitability than one which results in their sharing the same bottom line.
"I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION."
BOARD OF DIRECTORS STATEMENT ON ITEM 5
The Company must offer a competitive compensation program to attract and
retain highly qualified persons to serve as directors. The Company believes
that many U.S. companies with which it competes for director candidates offer a
combination of cash and stock-based compensation to their
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non-employee directors. The Company also provides for payment of directors'
fees in both cash and stock.
At the 1995 Annual Meeting, the Company submitted to stockholders a proposal
to approve the Stock Plan for Non-employee Directors. Under this program, which
was approved by stockholders, each non-employee director is granted 300 shares
of Common Stock of the Company as part of the director's total compensation
package. Prior to the 1995 Annual Meeting, the Company had not increased non-
employee director compensation since 1993, while director fees at other
corporations had been trending upward. The Company believed that by increasing
the stock-based portion of the compensation package, rather than the cash
portion, the Company was able to remain competitive with other corporations
while further aligning the interest of the non-employee directors and the
stockholders.
As a result, and based on current market prices, non-employee directors
receive approximately 20% of their total fees in Common Stock of the Company.
The Company does not believe that mandating that 50% of total fees be paid in
restricted stock is necessary to increase the commitment of non-employee
directors or their accountability to stockholders.
The Company believes that its compensation program for non-employee directors
is properly structured and fair to the directors and stockholders and that the
proposal is neither necessary nor appropriate.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 5.
ITEM 6
RESOLUTION REQUESTING STOCKHOLDER APPROVAL OF
CHANGE OF CONTROL COMPENSATION AGREEMENTS
The Company is informed that William Steiner, whose address and stock
ownership will be furnished by the Company promptly upon receipt of any oral or
written request therefor, intends to introduce at the Annual Meeting the
following resolution (designated herein as Item 6):
"RESOLVED, that the shareholders recommend that the board of directors
adopt a policy against entering into future agreements with officers and
directors of this corporation which provide compensation contingent on a
change of control of the corporation, unless such compensation agreements
are submitted to a vote of the shareholders and approved by a majority of
shares present and voting on the issue."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"Lucrative severance contracts awarded to senior corporate executives which
provide compensation contingent on a change of control, usually through a
merger or acquisition of the corporation, are known as `golden parachutes'.
These contracts are awarded without shareholder approval.
"The practice of providing these large cash awards to a small group of
senior corporate managers without shareholder approval has been a subject
of public outcry. In 1988, the U.S. Senate in emphasizing the potential
conflict of interest between management and shareholders created by these
agreements voted ninety eight to one to require shareholder approval of
golden parachutes which exceed three times annual compensation.
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<PAGE>
"Although final action was not taken, it is clear to me that the
overwhelming vote in favor of the measure reflects public sentiment against
golden parachutes. A shareholder vote would allow the corporation's owners
to decide for themselves whether golden parachutes are in their best
interests.
"I am a founding member of the Investors Rights Association of America and
it is clear to me that requiring a shareholder vote is necessary to address
the conflicts of interest between management and shareholders that arise in
the awarding of golden parachutes.
"I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION."
BOARD OF DIRECTORS STATEMENT ON ITEM 6
The Board of Directors disagrees with the proponent's assertion that the
agreements that the Company has entered into with its senior executives,
providing for compensation during a period following termination of employment
subsequent to a change of control of the Company, are in conflict with
management's duty to the stockholders. On the contrary, these agreements are
intended to minimize, rather than create, a conflict of interest that senior
executives might have in the event of a change of control contest for the
Company. By providing a measure of financial security for possible job loss
following a takeover, the agreements help senior executives to assess a
takeover bid objectively and to advise the Board whether the bid is in the best
interests of the Company and its stockholders without fear of personal
financial loss. Furthermore, as there may be an extended period from the time
the change of control is proposed until it is completed, the Company could be
at a disadvantage if it were to lose senior executives during that time. The
agreements are an incentive for senior executives to remain with the Company
and protect stockholder interests during a contest for control.
The agreements provide that no benefit is paid unless (i) a change of control
occurs and (ii) the executive's employment is thereafter terminated. The
agreements thus have no current cost to the Company and are similar to other
such agreements which exist at many publicly held companies. The agreements
will not prevent a business combination that would increase stockholder value.
The determination of whether the Company should enter into such an agreement
with one of its executives is made by the Compensation and Stock Option
Committee which is made up of outside members of the Board of Directors who are
not executives of the Company. In those circumstances when the Compensation and
Stock Option Committee believes that an agreement of this type would be in the
best interests of the Company and its stockholders, the Committee needs the
flexibility to provide it efficiently and without delay. This ability would be
significantly diminished by a requirement to submit the agreement to
stockholders for approval. Unless the Company were to incur the substantial
expense of convening a special stockholders' meeting for the purpose, such
agreements could only be entered into once a year after approval at an annual
meeting of stockholders. In today's competitive environment, a corporation
cannot afford to wait one year to implement a needed and desirable agreement.
The Board believes that providing senior executives with a reasonable measure
of financial security in the event of termination of employment following a
change of control helps to recruit and retain key executives and also helps to
ensure their objectivity at a time when a change of control of the Company may
be at stake. An identical resolution was rejected by the stockholders at the
1995 Annual Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 6.
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ITEM 7
RESOLUTION REQUESTING EQUAL EMPLOYMENT REPORT
The Company is informed that the Immaculate Heart Missions, Inc., whose
address and stock ownership will be furnished by the Company promptly upon
receipt of any oral or written request therefor, intends to introduce at the
Annual Meeting the following resolution (designated herein as Item 7):
"In 1994 corporations spent more than $2.2 billion on legal fees and
related discrimination settlements. The Equal Employment Opportunity
Commission (EEOC) reported that over 155,000 discrimination complaints were
filed in 1994. The high cost of legal expenses, the potential loss of
government contracts and the financial consequences of a damaged corporate
image from discrimination allegations is placing this issue high upon a
priority list for shareholders. Companies must better reflect the market-
place, the customer, trading partners, and the diverse workforce through
all levels of its organization.
"CEOs from 28 major companies have cited changing demographics of the labor
force, the diverse national consumer market, and rapid globalization of the
marketplace as reasons for expanding diversity. Over 100 major employers
publicly report on work diversity and EEO-1 information. Corporate
publications available to their shareholders such as; Capital Cities/ABC's
Commitment Report for shareholders, Kmart Corporation's Reflections of
America, U.S. Air's Affirming Workplace Diversity, Amoco's Diverse Work
Force and Sear's Corporate Responsibility Report, just to name a few, are
disclosing EEO statistics for public review.
"Many California corporations provide this data voluntarily, including all
of the regulated utilities and most of the major banks. Southern California
Edison, for example, has informed the Glass Ceiling Commission that it
supports public reporting of this kind.
"The bi-partisan Glass Ceiling Commission was established to study and make
recommendations on the Glass Ceiling by 1995. Concerned investors have
closely watched the development of this study. Secretary of Labor, Robert
Reich and a 21 member Glass Ceiling Commission released a report called
`Good For Business: Making Full Use of The Nation's Human Capital' This
report is an important analysis for shareholders because it shows that in
the U.S. we select from less than 1/2 the total talent in our workforce.
For example women and minorities who represent over 57% of the workforce
represent only 3% of the executive management positions. This is a serious
deficiency in our ability to select the most talented people for our top
management positions. It affects our competitive position if we stifle this
gifted portion of our workforce.
"Through this resolution we are asking our company to report to
shareholders the progress we have made and the obstacles we still have to
overcome.
"Be it resolved: A report shall be prepared at reasonable cost, by
September, 1996, excluding confidential information and shall focus on the
following areas:
1. A copy of the consolidated EEO-1 report for 1993, 1994, 1995 available
to shareholders upon request.
2. Report the number of discrimination complaints and lawsuits concerning
race, gender and the physically challenged. The cost to the company and
shareholders from discrimination lawsuits and alternatives to resolve
the issue.
3. Report any federal audit, corporate management review, and letter of
compliance with corrective measures enacted to protect the company's
government contracts and legal penalties.
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<PAGE>
4. Report to shareholders on the race, ethnicity and gender among top
management.
5. A description of any policies and programs utilizing the purchase of
goods and services from minority-and/or female-owned business
enterprises."
BOARD OF DIRECTORS STATEMENT ON ITEM 7
The Company long has been and will continue to be strongly committed to the
principle of equal employment opportunity. The policy of the Company opposing
all forms of discrimination has been clearly stated. The policy of the Company
and each of its subsidiaries is to comply fully with the spirit and letter of
federal, state and local anti-discrimination laws. Nondiscriminatory and equal
employment opportunity is to be provided for all qualified applicants and
employees in all personnel actions, including recruiting, job assignment,
training and educational opportunity, promotion, layoff and compensation and
benefits.
The final report of the Glass Ceiling Commission, "A Solid Investment: Making
Full Use of the Nation's Capital," was issued in late November 1995 and only
recently became available. Many of the recommendations in the final report
involved considerable controversy within the Glass Ceiling Commission itself.
For example, on the issue of disclosure of EEO-1 information and diversity
data, a number of commissioners believed that issues of privacy and corporate
trade secrets dictated against such disclosure.
The Company's corporate equal employment opportunity policy has been and is
communicated to employees in various Company documents and by posting on
bulletin boards. Supervisors are informed that they should base decisions on
employment in accord with this policy. Equal employment training sessions are
held from time to time for employees and managers and have included sensitivity
programs on harassment in the workplace.
Many of the subsidiary companies for some time have maintained formal
affirmative action programs applicable to government contractors. These
programs have been and are available for review by employees. Recruiting
agencies, labor unions and suppliers of goods and services are advised of these
programs and are asked to execute government required EEO certifications.
Statistical information required by law is filed with government agencies.
Corporate committees have been established to review and monitor corporate
equal employment opportunity policies and procedures and affirmative action
programs where applicable. One such committee, which includes members of the
Board of Directors, reviews various policies and programs of the Company that
support the goal of diversity and considers workforce issues relating to the
effective utilization of, and opportunities for, women and minorities. Among
the matters considered by such committee has been information in the March 1995
Glass Ceiling Commission fact-finding report, "Good for Business: Making Full
Use of the Nation's Human Capital" referred to in the proposal.
The Board believes that the additional report requested by this proposal is
neither appropriate nor necessary. As described above, equal employment
opportunity and diversity issues have long been high on the agenda of
management and the Board of Directors as part of the ordinary business
operations of the Company. Adoption of the proposal is not needed to enhance
the Company's already strong commitment to equal employment opportunity nor
ensure that the Company's employees receive fair employment opportunities. Much
of the information requested by the proponents is duplicative and maintained
locally by the more than 100 active subsidiaries of the Company. The Board also
believes that much of this information should be kept confidential. The
preparation of a report in the format requested by the proponents would also
require an unnecessary expenditure of time and money. A resolution
substantially similar to Item 7 was rejected by the stockholders at the 1995
Annual Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 7.
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ITEM 8
RESOLUTION REQUESTING IMPLEMENTATION OF MACBRIDE
PRINCIPLES PROPOSED BY FIVE STOCKHOLDERS
The Company is informed that the New York City Employees' Retirement System,
the New York City Teachers' Retirement System, the New York City Fire
Department Pension Fund and the New York City Police Pension Fund, the
custodian of each of which is the Comptroller of the City of New York, with the
co-sponsorship of the Minnesota State Board of Investment, whose respective
addresses and stockholdings will be furnished by the Company promptly upon
receipt of any oral or written request therefor, intend to introduce at the
Annual Meeting the following resolution (designated herein as Item 8):
"WHEREAS, American Brands has a wholly-owned subsidiary operating in
Northern Ireland, Gallaher Limited;
"WHEREAS, the on-going peace process in Northern Ireland encourages us to
search for non-violent means for establishing justice and
equality;
"WHEREAS, employment discrimination in Northern Ireland has been cited by
the International Commission of Jurists as being one of the
major causes of the conflict in that country;
"WHEREAS, Dr. Sean MacBride, founder of Amnesty International and Nobel
Peace laureate, has proposed several equal opportunity
employment principles to serve as guidelines for corporations in
Northern Ireland. These include:
1. Increasing the representation of individuals from
underrepresented religious groups in the workforce including
managerial, supervisory, administrative, clerical and
technical jobs.
2. Adequate security for the protection of minority employees
both at the workplace and while traveling to and from work.
3. The banning of provocative religious or political emblems
from the workplace.
4. All job openings should be publicly advertised and special
recruitment efforts should be made to attract applicants from
underrepresented religious groups.
5. Layoff, recall, and termination procedures should not in
practice, favor particular religious groupings.
6. The abolition of job reservations, apprenticeship
restrictions, and differential employment criteria, which
discriminate on the basis of religion or ethnic origin.
7. The development of training programs that will prepare
substantial numbers of current minority employees for skilled
jobs, including the expansion of existing programs and the
creation of new programs to train, upgrade, and improve the
skills of minority employees.
8. The establishment of procedures to assess, identify and
actively recruit minority employees with potential for
further advancement.
9. The appointment of a senior management staff member to
oversee the company's affirmative action efforts and the
setting up of timetables to carry out affirmative action
principles.
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"RESOLVED, Shareholders request the Board of Directors to:
1. Make all possible lawful efforts to implement and/or increase activity
on each of the nine MacBride Principles."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"--We believe that our company benefits by hiring from the widest available
talent pool. An employee's ability to do the job should be the primary
consideration in hiring and promotion decisions.
"--Continued discrimination and worsening employment opportunities have
been cited as contributing to support for a violent solution to Northern
Ireland's problems.
"--Implementation of the MacBride Principles by American Brands will
demonstrate its concern for human rights and equality of opportunity in its
international operations.
"Please vote your proxy FOR these concerns."
BOARD OF DIRECTORS STATEMENT ON ITEM 8
The Company is committed to a policy of equal employment opportunity.
Consistent with this policy, the Company's subsidiary, Gallaher Limited, has
adopted a Declaration of Practice which sets forth the positive measures taken
by Gallaher to ensure that the policy of equal opportunity is actively pursued
without discrimination against any section of the community. The Declaration of
Practice is worded as follows:
"Gallaher Limited, recognising the importance of equality of opportunity in
employment, declares that it practises such equality of opportunity
irrespective of religion, race, sex or disability and further declares that
it:
a. is committed to recruitment, selection and promotion on the basis of
merit alone;
b. uses as criteria in making judgments about merit (i) the actual
requirements of the job; (ii) job-related personnel specifications;
(iii) either ability to do the job or potential ability to do the job;
c. disseminates information on job openings in a manner that provides
access to this information by all groups and welcomes and takes positive
steps to encourage applications from all persons with potential to do
the job in question;
d. monitors and retains records on the outcome, in terms of religion, sex,
race and disability, of its recruitment, selection, training, layoff and
promotion procedures and on trends in the composition of its work force;
e. identifies any under-representation that may exist in its group of
applicants, those hired or those promoted; investigates the cause of the
under-representation; and eliminates any practice discovered which has
the effect of discriminating on any basis other than merit; takes
appropriate measures where necessary to ensure the effective practice of
equality of opportunity in employment;
f. actively promotes, in association with trade unions or other
representatives of the company workforce, an atmosphere and working
environment that both encourages harmony and co-operation among all
employees and discourages behaviour or the circulation and display of
literature that could give offence on the grounds of religion, race, sex
or to the disabled; and, to this end, bans all religious or political
displays and otherwise works toward the elimination within the workplace
of religious or political tensions;
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g. ensures that layoff, recall and termination procedures shall be
according to agreements negotiated with trade unions or other
representatives of the company's workforce, and that those procedures
shall not be inconsistent with the principle of equality of opportunity;
h. keeps its working environment and procedures for recruitment, selection,
training, layoff and promotion under review and works co-operatively
with the Fair Employment Agency or the Equal Opportunity Commission in
promoting equality of opportunity in employment;
i. observes the strictest confidentiality with regard to the disclosure of
personal information obtained from individuals in furtherance of its
policy of promoting equality of opportunity in employment;
j. adopts a training policy which recognises the needs and potential,
relative to job performance, of employees (or applicants) of under-
represented groups, subject to the condition that no one will be
excluded from training programmes on the grounds of religious belief,
political opinion, sex or disability;
k. allocates responsibility for its equality of opportunity policy to a
member of senior management."
As noted in the Declaration of Practice, Gallaher already monitors employment
practices with respect to religion and other matters relating to recruitment,
selection, training, and layoff and promotion procedures. Gallaher also is a
signatory to the Declaration of Principle and Intent of the Fair Employment
(Northern Ireland) Act 1976 (the "1976 Act") and has been certified as an Equal
Opportunity Employer Organisation by the Fair Employment Agency established
under the 1976 Act, which, in simple terms, does not permit discrimination.
Gallaher's employment practices in its tobacco manufacturing operation in
Northern Ireland were investigated by the Fair Employment Agency to determine
the degree to which the Company's stated commitment to equality of opportunity
was being given practical effect. The Fair Employment Agency's Report, which
was published in November 1988, found that in the past the personnel practices
of the Company resulted in failures to provide equality of employment
opportunity but that these practices were generally replaced commencing in the
mid-1960's. The Fair Employment Agency's Report found that overall the number
of Protestants and Catholics employed at the tobacco manufacturing operation at
the time of the Report were not significantly different from what would be
expected taking into account the religious composition of the local area,
though there are considerable imbalances in certain areas and categories. The
Report concluded that:
"The efforts made by the Company and the Local Trade Union Officials to
introduce locally meaningful equal opportunity measures are positive and
encouraging and the Agency is satisfied that the action taken is indicative
of real commitment to provide equality of opportunity."
A new law governing employment discrimination in Northern Ireland became
effective on January 1, 1990. The Fair Employment (Northern Ireland) Act 1989
(the "1989 Act") established a Fair Employment Commission which has more powers
than the Fair Employment Agency which it replaced. The 1989 Act requires
employers to register with the Fair Employment Commission, monitor their
workforce and regularly review their recruitment, training and promotion
practices. The 1989 Act now makes even indirect discrimination illegal and
allows the Fair Employment Commission to mandate measures, including the
setting of goals and timetables to remedy under-representation in a company's
workforce.
The Board of Directors believes that the nondiscrimination requirements of
the 1989 Act are already being undertaken by Gallaher under its own Declaration
of Practice made in 1987. The Board considers the Declaration of Practice to be
more constructive than the MacBride Principles in addressing equality of
opportunity in Northern Ireland without requiring discriminatory action in
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favor of any group. The Board does not believe it to be necessary or advisable
to adopt the MacBride Principles to achieve the goal of equal employment
opportunity.
The Board of Directors has determined that the Company cannot endorse or
subscribe to the MacBride Principles for two additional reasons. First, the
Department of Economic Development in Northern Ireland has indicated its
Government's opposition to the MacBride Principles. Second, Northern Ireland
counsel, with whom the Company has consulted on several occasions, advised the
Company that implementation would require discriminatory action by Gallaher in
violation of the 1976 Act and the 1989 Act. Such counsel has reaffirmed such
opinion and stated, in particular, that it would be impossible to take any
lawful steps to implement Principles 1, 7 and 8. Northern Ireland counsel has
reaffirmed his opinion this year.
Resolutions substantially similar to Item 8 were rejected by the stockholders
at the 1986, 1987, 1988, 1992, 1993 and 1994 Annual Meetings. In addition,
resolutions calling for the Board of Directors to establish a committee to
review the Company's equal employment opportunity policy and practices in
Northern Ireland were rejected by the stockholders at the 1989 and 1990 Annual
Meetings.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 8.
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS
The following tabulation sets forth information with respect to the
beneficial ownership of equity securities of the Company by all directors and
executive officers of the Company as a group (19 persons) at February 15, 1996
(except, as stated in Note (c) below, the date of ownership reported for one
director is February 22, 1996). The information is based on information
received by the Company from the directors and officers, from the Corporate
Employee Benefits Committee of the Company and the Trustee of the Profit-
Sharing Plan of the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF BENEFICIAL OWNERSHIP PERCENTAGE
CLASS (A)(B)(C) OF CLASS
-------- -------------------- ----------
<S> <C> <C>
Common Stock 2,995,731 shares 1.7%
</TABLE>
- --------
(a) For information as to voting and investment power with respect to shares
owned by directors and executive officers, see Note (c) to the table under
"Election of Directors". To the best of the Company's knowledge, each
executive officer who is not a director has sole voting and investment
power with respect to shares owned by him, other than with respect to
shares included in Note (b) below that may be acquired upon exercise of
options, and with respect to shares included in Note (c) below. The Trustee
of the Profit-Sharing Plan of the Company has agreed to vote the shares of
Common Stock held in trust in accordance with instructions received from
members of the Plan and shares as to which instructions are not received
are voted by the Trustee proportionally in the same manner as shares as to
which the trustee has received instructions.
(b) The number shown above includes 39,447 shares of Common Stock held on
December 31, 1995 by the Trustee of the Profit-Sharing Plan of the Company
(including certain of those referred to in Note (a) to the table under
"Election of Directors") which number is equivalent as of that date to the
undivided proportionate beneficial interests of the directors and executive
officers of the Company in all such shares, and 2,570,860 shares (including
certain of those referred to in Note (b) to the table under "Election of
Directors"), of which the directors and executive officers had the right to
acquire beneficial ownership pursuant to the exercise on or before April
15, 1996 of options granted by the Company. Inclusion of such 2,570,860
shares does not constitute an admission by the directors and executive
officers that they are the beneficial owners of such shares.
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<PAGE>
(c) The number shown above includes 9,107 shares held in various family trusts
for the benefit of or with a remainder to various family members of another
executive officer and director, as to which shares such executive officer
and director disclaims beneficial ownership. These shares are referred to
in Note (c) to the table under "Election of Directors". The number shown
above includes 700 shares held by a director that were acquired on February
22, 1996 and which are referred to in Note (d) to the table under "Election
of Directors."
To the best of the Company's knowledge, no one person was the beneficial
owner of more than 5% of the outstanding voting securities of the Company or of
more than 5% of any class of voting securities of the Company at February 15,
1996.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
The Company's Certificate of Incorporation contains procedures for
stockholder nomination of directors and the Company's By-laws contain
procedures for other stockholder proposals to be presented before annual
stockholder meetings. The Certificate of Incorporation provides that any record
owner of stock entitled to be voted generally in the election of directors may
nominate one or more persons for election as a director at a stockholders'
meeting only if written notice is given to the Secretary of the Company of the
intent to make such nomination. The notice must be given 120 days in advance of
the annual meeting and must include: (i) the name and address of each
stockholder who intends to appear in person or by proxy to make the nomination
and of the person or persons to be nominated; (ii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming them) pursuant to which the nomination is to be
made by the stockholder; (iii) such other information regarding each nominee
proposed by such stockholder as would have been included in a proxy statement;
and (iv) the consent of each nominee to serve if elected.
With respect to stockholder proposals or other business to be considered at
the annual meeting of stockholders, the By-laws provide that a stockholder of
record must give written notice to the Secretary of the Company no later than
120 days before the meeting. The notice must set forth: (i) a brief description
of the business to be brought before the meeting, the reasons for conducting
such business and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made and (ii)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (a) the name and address of such stockholder,
as they appear on the Company's books, and of such beneficial owner and (b) the
class and number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner. The By-laws further
provide that, notwithstanding the foregoing provisions, stockholders wishing to
have a proposal included in the Company's proxy statement shall comply with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder and shall have the rights provided by Rule
14a-8 under such Act. In order to be eligible under Rule 14a-8 for inclusion in
the Company's proxy statement and accompanying proxy at the next annual meeting
of stockholders currently scheduled to be held on May 7, 1997, stockholder
proposals must be received by the Company on or before November 12, 1996.
A copy of the relevant Certificate of Incorporation and By-law provisions is
available upon written request to Mr. Louis F. Fernous, Jr., Vice President and
Secretary, American Brands, Inc., 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870. The person presiding at the meeting is authorized to
determine if a proposed matter is properly before the meeting or if a
nomination is properly made.
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MISCELLANEOUS
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR ITS LAST FISCAL YEAR, INCLUDING ANY
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES THERETO, WILL BE MADE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO MR. LOUIS F.
FERNOUS, JR., VICE PRESIDENT AND SECRETARY, AMERICAN BRANDS, INC., 1700 EAST
PUTNAM AVENUE, OLD GREENWICH, CONNECTICUT 06870. THE COMPANY WILL FURNISH ANY
EXHIBITS TO FORM 10-K TO EACH STOCKHOLDER REQUESTING THEM UPON PAYMENT OF A FEE
OF $.10 PER PAGE TO COVER THEIR COST.
The expense of the solicitation of proxies for this meeting, including the
cost of mailing, will be borne by the Company. In addition to mailing copies of
this material to stockholders, the Company will request persons who hold stock
in their names or custody, or in the names of nominees, for the benefit of
others to forward copies of such material to the beneficial owners of the stock
of the Company and to request authority for the execution of the proxies. To
the extent deemed necessary in order to assure sufficient representation at the
meeting, officers and regular employees of the Company will request the return
of proxies by telephone, facsimile or in person. In addition, the Company has
retained Kissel-Blake Inc., 110 Wall Street, New York, New York 10005, to aid
in the solicitation of proxies for a fee, including its expenses, estimated at
$35,000. The total expense to be borne by the Company will depend upon the
volume of shares represented by the proxies received promptly in response to
the notice of meeting.
Stockholders who do not intend to be present at the meeting are urged to send
in their proxies without delay. Prompt response is helpful, and your
cooperation will be appreciated.
March 4, 1996
38
<PAGE>
LOGO
THIS PROXY STATEMENT IS PRINTED ON
RECYCLED PAPER. THE ENTIRE
PUBLICATION IS RECYCLABLE.
<PAGE>
LOGO AMERICAN PROXY SOLICITED BY THE BOARD OF DIRECTORS
BRANDS, INC.
The undersigned hereby appoints T.C. HAYS, G.L. KLEMANN, II AND J.T. LUDES
proxies, with power of substitution, to vote at the Annual Meeting (including
adjournments) of stockholders of American Brands, Inc., to be held May 1, 1996,
at the Stamford Center for the Arts, Stamford, Connecticut at 10:00 A.M., for
the election of nominees Thomas C. Hays, Sidney Kirschner, Gordon R. Lohman and
Charles H. Pistor, Jr. as Class I directors, on Items 2 through 8 referred to on
the reverse side and described in the Proxy Statement, and on any other business
before the meeting, with all powers the undersigned would possess if personally
present. A majority (or, of only one, then that one) of the proxies or their
substitutes acting at the meeting may exercise all powers hereby conferred.
THIS PROXY WHEN PROPERLY EXECUTED WIll BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO CONTRARY INDICATION IS MADE, THE PROXIES WILL VOTE FOR
---
THE ELECTION OF THE NOMINEES OF THE BOARD OF DIRECTORS, FOR ITEM 2 AND AGAINST
--- -------
ITEMS 3 THROUGH 8 IF THEY ARE PRESENTED TO THE MEETING.
PLEASE MARK, DATE, SIGN
AS NAME APPEARS AT RIGHT,
AND RETURN THIS PROXY IN
THE ENCLOSED POSTPAID
ENVELOPE.
(EXECUTORS, ADMINISTRATORS,
TRUSTEES, CUSTODIANS, ETC.,
SHOULD INDICATE CAPACITY
IN WHICH SIGNING.)
PLEASE --------------------------------
SIGN [RIGHT ARROW] Dated _________, 1996
HERE --------------------------------
(DETACH HERE)
PLEASE EXECUTE AND RETURN YOUR PROXY PROMPTLY
(See enclosed Proxy Statement)
<PAGE>
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS VOTES THE BOARD OF DIRECTORS RECOMMENDS VOTES
FOR ITEMS 1 AND 2 PROPOSED BY THE COMPANY AGAINST ITEMS 3 THROUGH 8 PROPOSED BY STOCKHOLDERS
--- -------
<S> <C> <C> <C> <C> <C> <C> <C>
WITHHELD FOR AGAINST ABSTAIN
FOR ALL FROM ALL
1. Election of Directors [_] [_] 3. Request elimination of election
of directors by classes [_] [_] [_]
P P
R FOR, EXCEPT individual nominees(s) (Messrs. 4. Request cancellation of Company R
O Hays, Kirschner, Lohman and Pistor) whose pensions for outside directors [_] [_] [_] O
X name(s) is written below: X
Y 5. Request non-employee director Y
-------------------------------------------- compensation be paid partly in
restricted stock [_] [_] [_]
FOR AGAINST ABSTAIN 6. Request stockholder approval of
2. Elect Coopers & Lybrand [_] [_] [_] change of control compensation
L.L.P. independent agreements [_] [_] [_]
accountants for 1996
7. Request equal employment report [_] [_] [_]
8. Request implementation of
MacBride Principles [_] [_] [_]
</TABLE>
(To be signed and dated on the other side)
(DETACH HERE)
LOGO AMERICAN
BRANDS, INC.
