UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended June 30, 1997
FORTUNE BRANDS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
AMERICAN BRANDS, INC.
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock, par value
$3.125 per share, at July 31, 1997 was 171,344,465 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
June 30, December 31,
1997 1996
------------ -------------
(Unaudited) (Restated)
Assets
Current assets
Cash and cash equivalents $ 157.5 $ 34.9
Accounts receivable, net 867.2 892.4
Inventories
Bulk whiskey 359.5 379.3
Other raw materials, supplies and
work in process 275.0 266.8
Finished products 385.0 391.8
-------- --------
1,019.5 1,037.9
Net assets of discontinued operations - 683.3
Other current assets 173.3 193.6
-------- --------
Total current assets 2,217.5 2,842.1
Property, plant and equipment, net 943.8 972.6
Intangibles resulting from
business acquisitions, net 3,659.8 3,730.7
Other assets 199.4 191.9
-------- --------
Total assets $7,020.5 $7,737.3
======== ========
See Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
June 30, December 31,
1997 1996
------------- ------------
(Unaudited) (Restated)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 37.4 $ 37.1
Commercial paper - 691.2
Accounts payable 205.4 241.3
Accrued taxes 671.3 443.4
Accrued expenses and other liabilities 518.3 601.2
Current portion of long-term debt 201.5 53.9
--------- ---------
Total current liabilities 1,633.9 2,068.1
Long-term debt 846.2 1,598.3
Deferred income taxes 53.9 19.3
Postretirement and other liabilities 374.6 367.4
--------- ---------
Total liabilities 2,908.6 4,053.1
--------- ---------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 12.2 12.9
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 163.8 166.5
Foreign currency adjustments 40.5 (195.9)
Retained earnings 5,206.5 5,025.4
Treasury stock, at cost (2,028.5) (2,042.1)
--------- ---------
Total stockholders' equity 4,111.9 3,684.2
--------- ---------
Total liabilities and
stockholders' equity $ 7,020.5 $ 7,737.3
========= =========
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1997 1996
---------- ----------
(Restated)
Net sales $2,340.6 $2,262.8
Cost of products sold 1,237.2 1,164.8
Excise taxes on distilled spirits 185.8 202.3
Advertising, selling, general and
administrative expenses 641.4 609.7
Amortization of intangibles 51.9 51.2
Restructuring charges 55.8 -
Interest and related expenses 68.7 79.5
Other (income) expenses, net 2.8 0.3
-------- --------
Income from continuing operations
before income taxes 97.0 155.0
Income taxes 57.7 67.2
-------- --------
Income from continuing operations 39.3 87.8
Income from discontinued operations 65.1 158.3
Extraordinary items - (10.3)
-------- --------
Net income $ 104.4 $ 235.8
======== ========
Earnings per Common share
Primary
Income from continuing operations $.23 $ .49
Income from discontinued operations .38 .90
Extraordinary items - (.06)
---- -----
Net income $.61 $1.33
==== =====
Fully diluted
Income from continuing operations $.23 $ .49
Income from discontinued operations .36 .87
Extraordinary items - (.06)
---- -----
Net income $.59 $1.30
==== =====
Dividends paid per Common share $1.00 $1.00
===== =====
Average number of Common shares outstanding
Primary 171.7 176.3
===== =====
Fully diluted 175.5 182.4
===== =====
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1997 and 1996
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1997 1996
---------- ----------
(Restated)
Net sales $1,235.5 $1,207.7
Cost of products sold 662.7 617.0
Excise taxes on distilled spirits 103.8 116.1
Advertising, selling, general and
administrative expenses 328.4 318.6
Amortization of intangibles 25.9 27.0
Restructuring charges 55.8 -
Interest and related expenses 30.8 42.7
Other (income) expenses, net 0.7 (2.6)
-------- --------
Income from continuing operations
before income taxes 27.4 88.9
Income taxes 23.1 32.9
-------- --------
Income from continuing operations 4.3 56.0
Income (loss) from discontinued operations (36.5) 66.0
-------- --------
Net income (loss) $ (32.2) $ 122.0
======== ========
Earnings per Common share
Primary
Income from continuing operations $ .03 $.31
Income (loss) from discontinued operations (.22) .38
----- ----
Net income (loss) $(.19) $.69
===== ====
Fully diluted
Income from continuing operations $ .03 $.31
Income (loss) from discontinued operations (.22) .37
----- ----
Net income (loss) $(.19) $.68
===== ====
Dividends paid per Common share $.50 $.50
==== ====
Average number of Common shares outstanding
Primary 172.0 174.9
===== =====
Fully diluted 176.1 178.9
===== =====
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------------
(In millions)
(Unaudited)
1997 1996
--------- ---------
(Restated)
Operating activities
Net income $ 104.4 $ 235.8
Restructuring charges 55.8 -
Income from discontinued operations (65.1) (158.3)
Extraordinary items - 10.3
Depreciation and amortization 123.2 117.0
Decrease (increase) in accounts receivable 16.9 (33.5)
Increase in inventories (9.3) (9.7)
Decrease in accounts payable, accrued
expenses and other liabilities (69.4) (91.9)
(Decrease) increase in accrued taxes (20.9) 29.4
Other operating activities, net (25.4) (9.5)
--------- -------
Net cash provided from continuing
operating activities 110.2 89.6
--------- -------
Investing activities
Additions to property, plant and equipment (74.5) (70.6)
Acquisition, net of cash acquired - (695.2)
Other investing activities, net 0.2 8.8
--------- -------
Net cash used by investing activities (74.3) (757.0)
--------- -------
Financing activities
(Decrease)increase in short-term debt, net (690.5) 919.4
Issuance of long-term debt - 403.0
Repayment of long-term debt (601.0) (353.5)
Dividends to stockholders (172.5) (177.3)
Cash purchases of Common stock for treasury (55.0) (282.3)
Other financing activities, net 72.9 1.1
--------- -------
Net cash (used) provided by financing activities (1,446.1) 510.4
--------- -------
Effect of foreign exchange rate changes on cash (2.3) 0.8
Cash provided (used) by discontinued operations 1,535.1 (40.6)
--------- -------
Net increase (decrease) in cash
and cash equivalents 122.6 (196.8)
Cash and cash equivalents at beginning of period 34.9 232.0
--------- -------
Cash and cash equivalents at end of period $ 157.5 $ 35.2
========= =======
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of June 30, 1997, the
related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 1997 and 1996 and the related
condensed consolidated statement of cash flows for the six-month
periods ended June 30, 1997 and 1996 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted
only of normal recurring items. Interim results may not be indicative
of results for a full year.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. The year-end condensed consolidated balance sheet
was derived from the Company's audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes incorporated by
reference in its 1996 Annual Report on Form 10-K.
2. Acquisition
In January 1996, Cobra Golf Incorporated ("Cobra") was acquired
for an aggregate cost of $712 million in cash, including fees and
expenses. In connection with this acquisition, liabilities amounting to
$60 million were included at the date of acquisition. The cost exceeded
the fair value of net assets acquired by $657 million. Cobra's
operations have been included in consolidated results from the date of
acquisition.
3. Discontinued Operations
On May 30, 1997, the international tobacco operations were spun
off and the name of the Company was changed to Fortune Brands, Inc. As
a result, the Company's stockholders owned shares in two
publicly-traded companies -- Fortune Brands, Inc. ("Fortune") and
Gallaher Group Plc ("Gallaher").
To allocate the overall debt burden of the Company at the time of
the spin-off, Gallaher borrowed and paid to the Company an amount that
will ultimately approximate $1.25 billion, after taxes. The Company
used the proceeds initially to pay down short-term debt.
-6-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Discontinued Operations (Continued)
The condensed consolidated financial statements have been
reclassified to identify international tobacco operations as
discontinued operations for all periods. Summarized data for the
international tobacco operations, net of allocation of interest expense
based on a ratio of Gallaher's net assets to consolidated net assets of
the Company, is as follows:
Six Months Three Months
Results of operations Ended June 30, Ended June 30,
--------------------- ----------------- ---------------
1997* 1996 1997* 1996
------- ------- ------- ------
(In millions)
Net sales $2,575.0 $2,961.1 $835.2 $1,278.3
======== ======== ====== ========
Income before taxes $186.4 $243.7 $33.7 $102.2
Spin-off expenses (67.1) - (67.1) -
Income taxes (54.2) (85.4) (3.1) (36.2)
------ ------ ------ ------
Income (loss)from
discontinued operations $ 65.1 $158.3 $(36.5) $ 66.0
====== ====== ====== ======
*Includes results through May 30, 1997; five months in the six months
ended June 30, 1997 and two months in the three months ended June 30,
1997.
-7-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Discontinued Operations (Concluded)
Net assets of discontinued December 31,
operations 1996
-------------------------- -----------
(In millions)
Current assets $ 2,020.4
Property, plant and
equipment, net 258.4
Other assets 477.2
Current liabilities (1,933.0)
Non-current liabilities (139.7)
--------
$ 683.3
========
In connection with the spin-off, the conversion rate of each share
of $2.67 Convertible Preferred stock was adjusted from 4.08 shares of
American Brands, Inc. Common stock to 6.205 shares of Fortune Brands
Common stock.
4. Restructuring and Other Nonrecurring Charges
The Company has been reviewing productivity-enhancing
opportunities and, during the three months ended June 30, 1997,
recorded a pre-tax charge of $89.3 million. The savings expected to be
achieved from the charges recorded to date will principally be offset
by costs associated with brand building, new product development and
new international market development activities.
The Company anticipates additional pre-tax restructuring and other
nonrecurring charges during the third and fourth quarters of 1997
aggregating approximately $100 million as formal restructuring plans
are approved and communicated.
-8-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Restructuring and Other Nonrecurring Charges (Concluded)
Charges recorded to date by business segment are as follows (in
millions, except per share amounts):
Nonrecurring
Cost of Sales
Restructuring Charges Total
------------- ------------ -----
Home Products $ 9.1 $ 8.3 $17.4
Office Products 23.4 0.1 23.5
----- ----- -----
Home and Office Products 32.5 8.4 40.9
Distilled Spirits 23.3 25.1 48.4
----- ----- -----
$55.8 $33.5 89.3
===== =====
Income tax benefit 23.9
-----
Net charge $65.4
=====
Charge per Common share
Primary $.38
Fully diluted $.37
Home Products includes a $17.4 million pre-tax charge related to
the discontinuance of certain product lines and operations, the
consolidation of facilities and the write-down of property, plant and
equipment.
Office Products includes a $23.5 million pre-tax charge,
principally resulting from the discontinuance and rationalization of
product lines and related assets, the write-down of property, plant and
equipment, and lease cancellation costs, partly offset by the pre-tax
gain on the sale of two non-strategic businesses.
Distilled Spirits includes a $48.4 million pre-tax charge due to a
change in estimate for bulk whiskey valuations which results from the
integration of the worldwide distilled spirits business and costs
related to leased facilities and international distribution agreements.
-9-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Pro Forma Financial Information
Pro forma information is presented for informational purposes only
and does not purport to be indicative of the results of operations
which would actually have been obtained if the transactions had
occurred on January 1, 1996, or which may exist or be obtained in the
future.
The following sets forth certain pro forma consolidated results
for the Company which have been adjusted to include a net cash payment
of approximately $1.25 billion that Gallaher made to the Company and
the assumption that such proceeds were used to purchase 2.5 million
Common shares and repay debt as of January 1, 1996 and also to exclude
the restructuring and other nonrecurring charges. The ultimate use of
the proceeds may differ from that described herein.
Six Months Three Months
Ended June 30, Ended June 30,
--------------- ------------
1997 1996 1997 1996
------ ------ ----- ----
(In millions, except
per share amounts)
Income from operations $121.8 $108.4 $76.5 $66.3
====== ====== ===== =====
Earnings per Common share -
Primary $.72 $.62 $.45 $.38
Fully diluted $.70 $.61 $.43 $.37
Previously published pro forma amounts, which reflected an assumed
purchase of 10 million Common shares, have been revised to reflect an
assumed purchase of 2.5 million Common shares. The impact to E.P.S. for
the six months and three months ended June 30, 1996 is negligible. The
impact on previously published pro forma primary and fully diluted
E.P.S. for the year 1996 is a reduction of two cents to $1.30 and
$1.28, respectively.
-10-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Earnings Per Share
Earnings per Common share are based on the weighted average number
of Common shares outstanding in each period and after preferred stock
dividend requirements.
Fully diluted earnings per Common share assume that any
convertible debentures and convertible preferred shares outstanding at
the beginning of each period, or at their date of issuance, if later,
were converted at those dates, with related interest, preferred stock
dividend requirements and outstanding Common shares adjusted
accordingly. It also assumes that outstanding Common shares were
increased by shares issuable upon exercise of those stock options for
which market price exceeds exercise price, less shares which could have
been purchased by the Company with related proceeds.
7. Extraordinary Items
In March 1996, the Company redeemed $149.6 million of its $150
million 7-5/8% Eurodollar Convertible Debentures, Due 2001, at a
redemption price of 103.8125% of the principal amount plus accrued
interest and redeemed its $150 million 9-1/8% Debentures, Due 2016, at
a redemption price of 104.4375% of the principal amount plus accrued
interest. In connection with the redemptions, the Company recorded a
charge of $10.3 million ($15.8 million pre-tax), or six cents per
Common share.
8. Pending Litigation
The Company and its subsidiaries are defendants in various
lawsuits associated with their business and operations, and the Company
is a defendant in actions based upon allegations that human ailments
have resulted from tobacco use. It is not possible to predict the
outcome of the pending litigation, but management believes that there
are meritorious defenses to the pending actions and that the pending
actions will not have a material adverse effect upon the results of
operations, cash flow or financial condition of the Company. These
actions are being vigorously contested.
-11-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
8. Pending Litigation (Concluded)
On December 22, 1994, the Company sold The American Tobacco
Company subsidiary to Brown & Williamson Tobacco Corporation, a
wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with
the sale, Brown & Williamson Tobacco Corporation and The American
Tobacco Company agreed to indemnify the Company against claims arising
from smoking and health and fire safe cigarette matters relating to the
tobacco business of The American Tobacco Company.
In connection with the spin-off of Gallaher Group Plc on May 30,
1997, Gallaher Group Plc and Gallaher Limited agreed to indemnify the
Company against claims arising from smoking and health and fire safe
cigarette matters relating to the tobacco business of Gallaher and its
subsidiaries.
9. Environmental
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify
with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Company's subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws,
before taking into account estimated recoveries from third parties,
will not have a material adverse effect upon the results of operations,
cash flow or financial condition of the Company.
-12-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of Fortune Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
Fortune Brands, Inc. and Subsidiaries as of June 30, 1997, the related
condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1997 and 1996 and the related
condensed consolidated statement of cash flows for the six-month
periods ended June 30, 1997 and 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1996, and the related consolidated statements of income, cash flows and
Common stockholders' equity for the year then ended (not presented
herein) and in our report dated February 3, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996 is fairly stated, in
all material respects, in relation to the consolidated balance sheet
from which it has been derived.
1301 Avenue of the Americas COOPERS & LYBRAND L.L.P.
New York, New York
August 12, 1997
-13-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Six Months Ended June 30, 1997
as Compared to the Six Months Ended June 30, 1996
---------------------------------------------------------------------------
Net Sales Operating Income(1)
------------------ -------------------------
1997 1996(3) 1997 1997(2) 1996(3)
(Adjusted)
------ ------- ----- ------- ------
(In millions)
Home Products $ 664.2 $ 656.7 $ 71.4 $ 88.8 $ 86.2
Office Products 575.5 549.0 9.6 33.1 30.2
-------- ------- ------ ------ ------
Home and Office Products 1,239.7 1,205.7 81.0 121.9 116.4
Golf Products 541.3 473.6 90.7 90.7 87.1
Distilled Spirits 559.6 583.5 34.1 82.5 74.8
-------- -------- ------ ------ ------
$2,340.6 $2,262.8 $205.8 $295.1 $278.3
======== ======== ====== ====== ======
(1) Operating income represents net sales less all costs and expenses
excluding corporate administrative expenses, interest and related
expenses and other (income) expenses, net.
(2) Excludes restructuring and other nonrecurring charges of $89.3 million.
(3) Restated for discontinued international tobacco operations.
CONSOLIDATED
- ------------
Net sales rose 3% on line extensions, new products, the inclusion of Advanced
Gravis (acquired September 1996) and Cobra Golf (acquired January 24, 1996) and
price increases, partly offset by discontinued golf products and the inclusion
of an additional month last year in distilled spirits' U.K. operations (change
to calendar year-end). Operating income decreased 26% due to $89.3 million in
restructuring and other nonrecurring charges in distilled spirits, office
products and home products. (See note 4 in the Notes to Condensed Consolidated
Financial Statements.) Operating income
-14-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
excluding these charges increased 6%, principally due to higher sales and gross
margins, partly offset by increased marketing and research and development
expenses.
Interest and related expenses decreased 14% reflecting lower average borrowings
resulting principally from the Gallaher spin-off proceeds, partly offset by the
effects of Common share purchases.
The effective income tax rate comparisons for the six-month periods ended June
30, 1997 and 1996 were distorted by the 1997 restructuring and other
nonrecurring charges. Excluding these charges, the effective income tax rates
were 43.8% and 43.4%, respectively.
Income from continuing operations of $39.3 million, or 23 cents per Common
share, for the six months ended June 30, 1997 compared with $87.8 million, or 49
cents per share, for the same period last year. The decrease was due to $65.4
million in net restructuring and other nonrecurring charges. Excluding these
charges, income from continuing operations was $104.7 million, up $16.9 million,
or 19%.
On May 30, 1997 the international tobacco operations of Gallaher were spun off.
Income from discontinued operations, which represents the net income of the
international tobacco operations, net of an allocation of interest expense, of
$65.1 million, or 38 cents per share, in 1997 compared with $158.3 million, or
90 cents per share, in 1996. In addition, the 1997 amount includes $67.1 million
in spin-off expenses. (See note 3 in the Notes to Condensed Consolidated
Financial Statements.)
The extraordinary items resulted from a charge of $10.3 million ($15.8 million
pre-tax) in connection with the redemption in March 1996 of the Company's $150
million 7-5/8% Eurodollar Convertible Debentures, Due 2001 and its $150 million
9-1/8% Debentures, Due 2016. (See note 7 in the Notes to Condensed Consolidated
Financial Statements.)
-15-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
Net income of $104.4 million, or 61 cents per share, for the six months ended
June 30, 1997, compared with $235.8 million, or $1.33 per share, for the same
period last year.
In June 1997, the Company purchased 2 million Common shares. Although the
Company has the authority to purchase additional shares and has not ruled out
such purchases, it anticipates that it may not make further substantial
purchases this year. At the July 29 meeting, the Board of Directors authorized
the institution of a systematic share purchase program to cover future stock
option exercises. This program is anticipated to be in the range of two million
shares per year.
The Company has been reviewing productivity-enhancing opportunities and, during
the three months ended June 30, 1997, recorded a pre-tax charge of $89.3
million. The Company anticipates additional pre-tax restructuring and other
nonrecurring charges during the third and fourth quarters of 1997 aggregating
approximately $100 million as formal restructuring plans are approved and
communicated. These charges will provide principally for rationalization of
manufacturing, distribution and sourcing and the discontinuance of marginal
product lines.
In February 1997, FAS Statement No. 128, "Earnings per Share" was issued. FAS
No. 128 simplifies the computation of earnings per share ("E.P.S.") and replaces
primary E.P.S. with basic E.P.S. and fully diluted E.P.S. with diluted E.P.S.
FAS No. 128 is effective for annual and interim financial statements issued
after December 15, 1997 and earlier application is not permitted. FAS No. 128
requires the restatement of E.P.S. data for all prior periods. The Company is
currently determining the impact that this statement will have on its E.P.S.
amounts when adopted.
See notes 8 and 9 in the Notes to Condensed Consolidated Financial Statements
for discussion of pending litigation and environmental matters.
-16-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased 1% principally on line extensions and new products, partly
offset by the absence of Moen's joint venture in Taiwan (sold September 1996).
All companies except Master Lock reported increased sales. Operating income
decreased 17% due to a $17.4 million restructuring and other nonrecurring charge
related to the discontinuance of certain product lines and operations, the
consolidation of facilities and the write-down of property, plant and equipment.
Operating income excluding this charge increased 3% on the sales increase and
improved gross margin (principally favorable product mix at Moen), partly offset
by higher volume-related selling expenses at Moen and increased research and
development expenses.
Operating income at Master Lock declined principally due to the January 1, 1997
15% average price reduction on core padlock products in response to a shift by
mass merchants to value-price imported products, as well as lower volume and
increased operating expenses. It is anticipated that this price reduction will
result in a decline in Master Lock's operating income throughout 1997.
Office Products
- ---------------
Net sales increased 5%, principally in North America on new products, the
inclusion of Advanced Gravis (acquired September 1996) and higher average
foreign exchange rates, partly offset by volume declines in existing product
lines, the absence of office furniture operations (sold November 1996) and a
slight decline in prices. Operating income decreased 68% due to a $23.5 million
restructuring charge principally resulting from the discontinuance and
rationalization of product lines and related assets, the write-down of property,
plant and equipment, and lease cancellation costs, partly offset by the pre-tax
gain on the sale of two non-strategic businesses. Operating income excluding
this charge increased 10% reflecting the sales increase and improved gross
margin (principally manufacturing efficiencies and stabilized raw material costs
in North America), partly offset by higher operating expenses (mainly customer
programs and new product and business development costs).
Comparisons for the third quarter will be unfavorably impacted by the absence of
the two non-strategic businesses sold which had seasonally strong results in the
third quarter.
-17-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products
- -------------
Net sales were up 14% on new products and line extensions, volume increases in
golf balls, clubs, gloves and shoes and one additional month of Cobra results in
1997 (acquired January 24, 1996), partly offset by discontinued products and
lower average foreign exchange rates. Operating income increased 4% reflecting
the higher sales, partly offset by a shift in product mix and increases in
material costs, advertising and promotional expenditures and research and
development expenses associated with the development of new products.
Distilled Spirits
- -----------------
Net sales decreased 4%, principally due to the inclusion of an additional month
of sales in 1996 resulting from the change to a calendar year-end for the U.K.
operations. Excluding the change to calendar year-end and excise taxes, sales
increased 3% on price increases, higher average foreign exchange rates, new
products and line extensions and a benefit from a domestic bulk sale, partly
offset by lower volume in existing product lines. The net decrease in volume
resulted from lower case shipments in the U.S. and U.K., partly offset by higher
Jim Beam Bourbon case shipments, higher shipments in Canada and improved private
label volume in the U.K. Operating income decreased 54% due to a $48.4 million
restructuring and other nonrecurring charge resulting from a change in estimate
for bulk whiskey valuations which results from the integration of the worldwide
distilled spirits business and costs related to leased facilities and
international distribution agreements. Operating income excluding this charge
increased 10% on improved operating results in Australia (higher volume), North
America (price increases and lower brand spending, partly offset by lower U.S.
cased goods volume) and the U.K. (lower operating expenses, partly offset by
lower volume).
In recent years, distilled spirits consumption in many countries, including the
U.S., continued its long-term decline. It is estimated that overall sales of
distilled spirits in the U.S. declined by 2 to 3% in each year from 1993 to
1995. However, industry estimates indicate that U.S. distilled spirits sales
increased slightly in 1996. Whether this represents a change in the long-term
decline in distilled spirits consumption is uncertain.
-18-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from continuing operating activities of $110.2 million for the
six months ended June 30, 1997 compared with net cash provided from continuing
operating activities of $89.6 million for the same six-month period last year.
Net cash used by investing activities for the six months ended June 30, 1997 was
$74.3 million, as compared with net cash used of $757 million in the six-month
period last year, reflecting last year's acquisition of Cobra.
Net cash used by financing activities for the six months ended June 30, 1997 was
$1.4 billion, as compared with net cash provided of $510.4 million in 1996,
principally reflecting the repayment in 1997 of debt using the proceeds provided
by Gallaher in conjunction with the spin-off of that company, the impact of the
1996 acquisition of Cobra and lower Common share purchases. At the time of the
spin-off, Gallaher borrowed and paid to the Company an amount that will
ultimately approximate $1.25 billion, after taxes. For the six months ended June
30, 1997, the Company's purchases of Common stock amounted to $55 million as
compared to $282.3 million during last year's comparable six-month period.
Total debt at June 30, 1997 was $1.1 billion, a decrease of $1.3 billion from
December 31, 1996, reflecting the repayment in 1997 of debt using the proceeds
provided by Gallaher in conjunction with the spin-off of that company. The ratio
of total debt to total capital decreased from 39.3% at December 31, 1996 to
20.9% at June 30, 1997.
On March 5, 1996, the Company redeemed its $150 million 7-5/8% Eurodollar
Convertible Debentures, Due 2001, at a redemption price of 103.8125% of the
principal amount plus accrued interest. On March 1, 1996, the Company redeemed
its $150 million 9-1/8% Debentures, Due 2016, at a redemption price of 104.4375%
of the principal amount plus accrued interest.
-19-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
In June 1997, the Company purchased 2 million Common shares. Although the
Company has the authority to purchase additional shares and has not ruled out
such purchases, it anticipates that it may not make further substantial
purchases this year. At the July 29 meeting, the Board of Directors authorized
the institution of a systematic share purchase program to cover future stock
option exercises. This program is anticipated to be in the range of two million
shares per year.
Management believes that the Company's internally generated funds, together with
its access to global credit markets, are more than adequate to meet the
Company's capital needs.
-20-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Results of Operations for the Three Months Ended June 30, 1997 as Compared
to the Three Months Ended June 30, 1996
---------------------------------------------------------------------------
Net Sales Operating Income(1)
------------------- ---------------------------
1997 1996(3) 1997 1997(2) 1996(3)
(Adjusted)
-------- ------- ------- -------- ------
(In millions)
Home Products $ 335.5 $ 335.4 $ 27.0 $ 44.4 $ 43.4
Office Products 285.4 271.4 (11.6) 11.9 10.5
-------- -------- ------ ------ ------
Home and Office Products 620.9 606.8 15.4 56.3 53.9
Golf Products 305.4 263.8 61.6 61.6 52.1
Distilled Spirits 309.2 337.1 2.9 51.3 47.1
-------- -------- ------ ------ ------
$1,235.5 $1,207.7 $ 79.9 $169.2 $153.1
======== ======== ====== ====== ======
(1) Operating income represents net sales less all costs and expenses
excluding corporate administrative expenses, interest and related
expenses and other (income) expenses, net.
(2) Excludes restructuring and other nonrecurring charges of $89.3 million.
(3) Restated for discontinued international tobacco operations.
CONSOLIDATED
- ------------
Net sales rose 2% on line extensions, price increases, new products and the
inclusion of Advanced Gravis (acquired September 1996), partly offset by
discontinued golf products and the inclusion of an additional month last year in
distilled spirits' U.K. operations (change to calendar year-end). Operating
income decreased 48% due to $89.3 million in restructuring and other
nonrecurring charges in distilled spirits, office products and home products.
Operating income excluding these charges increased 11%, principally due to
higher sales and gross margins, partly offset by higher marketing expenses.
-21-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
Interest and related expenses decreased 28% primarily reflecting lower average
borrowings resulting principally from the Gallaher spin-off proceeds.
The effective income tax rate comparisons for the three-month periods ended June
30, 1997 and 1996 were distorted by the 1997 restructuring and other
nonrecurring charges. Excluding these charges, the effective income tax rates
were 40.3% and 37%, respectively. The lower effective rate for last year
reflected benefits from higher reversal of tax provisions no longer required.
Income from continuing operations of $4.3 million, or three cents per Common
share, for the three months ended June 30, 1997 compared with $56 million, or 31
cents per share for the same period last year.
On May 30, 1997 the international tobacco operations of Gallaher were spun off
resulting in the loss from discontinued operations of $36.5 million, or 22 cents
per share, in 1997, compared with income of $66 million, or 38 cents per share,
in 1996. These amounts represent the net income of international tobacco
operations, net of an allocation of interest expense. The 1997 amount includes
$67.1 million in spin-off expenses. (See note 3 in the Notes to Condensed
Consolidated Financial Statements.)
Net loss of $32.2 million, or 19 cents per share, for the three months ended
June 30, 1997 compared with income of $122 million, or 69 cents per share, for
the same period last year.
Home Products
- -------------
Net sales were flat as line extensions and new products were offset by the
absence of Moen's joint venture in Taiwan (sold September 1996), volume declines
and lower average foreign exchange rates. The increased sales reported by Moen
and Waterloo were offset by declines at Master Lock and Aristokraft. Operating
income decreased 38% due to a $17.4 million restructuring and other nonrecurring
charge, as described above in the section discussing the six months results
through June 30. Operating
-22-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products (Concluded)
- -------------
income excluding this charge increased 2% on improved gross margin (principally
favorable product mix at Moen), partly offset by higher volume-related selling
expenses at Moen and increased research and development expenses.
Office Products
- ---------------
Net sales increased 5%, principally in North America on new products and the
inclusion of Advanced Gravis, partly offset by the absence of office furniture
operations and slight declines in prices and volumes in existing product lines.
An operating loss of $11.6 million for the three months ended June 30, 1997
compared with operating income of $10.5 million for the comparable period last
year due to a $23.5 million restructuring charge, as described above in the
section discussing the six months results through June 30. Operating income
excluding this charge increased 13% reflecting the sales increase and improved
gross margin (principally manufacturing efficiencies and stabilized raw material
costs in North America), partly offset by higher operating expenses (mainly
customer programs and new product and business development costs).
Golf Products
- -------------
Net sales were up 16% reflecting new products and line extensions and volume
increases in golf balls, clubs, gloves and shoes, partly offset by discontinued
products and lower average foreign exchange rates. Operating income increased
18% principally reflecting the higher sales.
Distilled Spirits
- -----------------
Net sales decreased 8%, principally due to the inclusion of an additional month
of sales in 1996, resulting from the change to a calendar year-end for the U.K.
operations. Excluding the change to calendar year-end and excise taxes, sales
increased 1% on price increases, higher average foreign exchange rates, benefits
from a domestic bulk sale and new products and line extensions, partly offset by
lower volume on existing product lines. The net decrease in volume resulted from
lower case shipments in the U.S. Operating income decreased 94% due to a $48.4
million restructuring and
-23-
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits (Concluded)
- -----------------
other nonrecurring charge as described above in the section discussing the six
months results through June 30. Operating income excluding this charge increased
9% principally on improved operating results in the U.K. (lower operating
expenses, partly offset by lower volumes).
CAUTIONARY STATEMENT
- --------------------
This Quarterly Report on Form 10-Q contains statements relating to future
results, which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to changes in general economic conditions, competitive
product and pricing pressures, foreign exchange rate fluctuations, the impact of
excise tax increases with respect to distilled spirits, regulatory developments,
the uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings.
-24-
<PAGE>
PART I - EXHIBIT A
-------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
(Restated)
Income from continuing operations $ 39.3 $ 87.8
Preferred stock dividend requirements (0.6) (0.6)
------ ------
Income from continuing operations available for
computing earnings per Common share - primary 38.7 87.2
Income from discontinued operations 65.1 158.3
Extraordinary items - (10.3)
------ ------
Net income for computing earnings
per Common share - primary $103.8 $235.2
====== ======
Income from continuing operations available for
computing earnings per Common share - primary $ 38.7 $ 87.2
Convertible preferred stock dividend requirements 0.6 0.6
Interest and related expenses on convertible
debentures - 2.0
------ ------
Income from continuing operations available for
computing earnings per Common share -
fully diluted 39.3 89.8
Income from discontinued operations 65.1 158.3
Extraordinary items - (10.3)
------ ------
Net income for computing earnings per Common
share - fully diluted $104.4 $237.8
====== ======
-25-
<PAGE>
PART I - EXHIBIT A (Continued)
------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
Weighted average number of Common shares
outstanding during each period - primary 171.7 176.3
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 1.8 1.8
Addition from assumed conversion of
convertible debentures - 0.8
Other additions 2.0 3.5
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 175.5 182.4
===== =====
(Restated)
----------
Earnings per Common share -
Primary
Income from continuing operations $.23 $ .49
Income from discontinued operations .38 .90
Extraordinary items - (.06)
---- -----
Net income $.61 $1.33
==== =====
Fully diluted
Income from continuing operations $.23 $ .49
Income from discontinued operations .36 .87
Extraordinary items - (.06)
---- -----
Net income $.59 $1.30
==== =====
-26-
<PAGE>
PART I - EXHIBIT A (Continued)
------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
June 30,
----------------------
1997 1996
--------- ---------
(Restated)
Income from continuing operations $ 4.3 $ 56.0
Preferred stock dividend requirements (0.3) (0.3)
------ ------
Income from continuing operations available for
computing earnings per Common share - primary 4.0 55.7
Income (loss) from discontinued operations (36.5) 66.0
------ ------
Net income (loss) for computing earnings
per Common share - primary $(32.5) $121.7
====== ======
Income from continuing operations available for
computing earnings per Common share - primary $ 4.0 $ 55.7
Convertible preferred stock dividend requirements 0.3 0.3
Interest and related expenses on convertible
debentures - 0.3
------ ------
Income from continuing operations available for
computing earnings per Common share -
fully diluted 4.3 56.3
Income (loss) from discontinued operations (36.5) 66.0
------ ------
Net income (loss)for computing earnings per
Common share - fully diluted $(32.2) $122.3
====== ======
-27-
<PAGE>
PART I - EXHIBIT A (Concluded)
------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Three Months Ended
June 30,
----------------------
1997 1996
--------- --------
Weighted average number of Common shares
outstanding during each period - primary 172.0 174.9
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 1.9 1.8
Addition from assumed conversion of
convertible debentures - 0.8
Other additions 2.2 1.4
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 176.1 178.9
===== =====
(Restated)
----------
Earnings per Common share -
Primary
Income from continuing operations $ .03 $.31
Income (loss) from discontinued operations (.22) .38
----- ----
Net income (loss) $(.19) $.69
===== ====
Fully diluted
Income from continuing operations $ .03 $.31
Income (loss) from discontinued operations (.22) .37
----- ----
Net income (loss) $(.19) $.68
===== ====
-28-
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Reference is made to paragraph (a) of Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and to paragraph (a) of Part II, Item 1, "Legal
Proceedings", of Registrant's Quarterly Report on Form 10-Q for the period ended
March 31, 1997. In addition, Registrant has been named as a defendant, together
with leading tobacco manufacturers, in Anderson, J. v. The American Tobacco
Company, et al., Circuit Court of Knox County, Tennessee, May 23, 1997; Brammer,
P. v. The American Tobacco Company, et al., United States District Court for the
Southern District of Iowa, June 30, 1997; Brown v. The American Tobacco Company,
et al., Superior Court of California, San Diego County, June 10, 1997;
Cosentino, M.A. v. The American Tobacco Company, et al., Superior Court of New
Jersey, Law Division, Middlesex County, May 21, 1997; Daley, L. v. The American
Tobacco Company, et al., Circuit Court of Cook County, Illinois, July 7, 1997;
Enright, J. v. The American Tobacco Company, et al., Superior Court of New
Jersey, Camden County, May 28, 1997; Gieger, W. v. The American Tobacco Company,
et al., Supreme Court of New York, Queens County, May 1, 1997; Lippincott v. The
American Tobacco Company, et al., Superior Court of New Jersey, Law Division,
Camden County, June 30, 1997; Lyons, C. v. Brown & Williamson Tobacco Company,
et al., Superior Court of Georgia, Fulton County, May 27, 1997; Tepper, M. v.
Philip Morris Incorporated, et al., Superior Court of New Jersey, Law Division,
Bergen County, May 28, 1997; Thomas, P. v. The American Tobacco Company, et al.,
Circuit Court of Michigan, Wayne County, June 6, 1997; and White, H.L. v. The
American Tobacco Company, et al., United States District Court, Southern
District of Mississippi, Western Division, April 18, 1997. These cases are class
actions on behalf of individuals allegedly addicted to cigarettes through the
manipulation of nicotine levels or individuals who have allegedly suffered
personal injury from the use of cigarettes.
In addition, Registrant has been named as a defendant, together with
leading tobacco manufacturers, in Anes, J. v. The American Tobacco Company, et
al., Court of Common Pleadings for the County of Philadelphia, Pennsylvania,
July 1, 1997; Cameron, R. v. The American Tobacco Company, et al., Supreme Court
of New York, Nassau County, June 30, 1997; Cavanagh, D. v. The American Tobacco
Company, et al., Supreme Court of New York, Richmond County, May 6, 1997;
Collins, J. v. The American Tobacco Company, et al., Supreme Court of New York,
Westchester County, May 16, 1997; Condon, R. v. The American Tobacco Company, et
al., Supreme Court of New York, Nassau County, May 13, 1997; Crane, J. v. The
American Tobacco Company, et al., Supreme Court of New York, New York County,
April 4, 1997; Daley, E. v. The American Tobacco Company, et al., Court of
Common Pleadings for the County of Philadelphia, Pennsylvania, July 1, 1997;
DaSilva, J.C. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, April 3, 1997; El-Haddi, N. v The American Tobacco
Company, et al., Court of Common Pleadings for the County of Philadelphia,
Pennsylvania, May 29, 1997; Evans, B. v. Philip Morris Incorporated, et al.,
Circuit Court of Jasper County, Mississippi, June 10, 1997; Ferguson, F. v. The
American Tobacco Company, et al., Court of Common Pleadings for the County of
Philadelphia, Pennsylvania, May 29, 1997; Fink, D. v. The American Tobacco
Company, et al., Supreme Court of New York, New York
-29-
<PAGE>
Item 1 LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
County, June 6, 1997; Greco, A. v. The American Tobacco Company, et al., Supreme
Court of New York, Queens County, June 27, 1997; Hansen, C. v. The American
Tobacco Company, et al., Supreme Court of New York, Suffolk County, March 28,
1997; Hissom, G. v. The American Tobacco Company, et al., United States District
Court for the Southern Division of West Virginia, June 12, 1997; Kestenbaum, D.
v. The American Tobacco Company, et al., Supreme Court of New York, New York
County, May 23, 1997; Labriola, R. v. The American Tobacco Company, et al.,
Supreme Court of New York, Suffolk County, May 28, 1997; Larkin, R. v. The
American Tobacco Company, et al., Court of Common Pleas of Pennsylvania,
Allegheny County, June 27, 1997; Leibsten v. The American Tobacco Company, et
al., Supreme Court of New York, Nassau County, June 30, 1997; Leiderman, M. v.
The American Tobacco Company, et al., Supreme Court of New York, Kings County,
July 2, 1997; Levinson, M. v. The American Tobacco Company, et al., Supreme
Court of New York, Kings County, April 17, 1997; Lien, L. v. The American
Tobacco Company, et al., Supreme Court of New York, Suffolk County, April 28,
1997; Litke, S. v. American Brands, Inc., et al., Supreme Court of New York,
Kings County, May 7, 1997; Lombardo, S. v. The American Tobacco Company, et al.,
Supreme Court of New York, Nassau County, June 6, 1997; Maisonet, B. v. The
American Tobacco Company, et al., Supreme Court of New York, Kings County, May
12, 1997; Martin, G. v. The American Tobacco Company, et al., Supreme Court of
New York, Queens County, June 30, 1997; McGuinness, J. v. The American Tobacco
Company, et al., Supreme Court of New York, New York County, June 30, 1997;
McLane, J. v. The American Tobacco Company, et al., Supreme Court of New York,
Richmond County, May 13, 1997; Misell, D. v. The American Tobacco Company, et
al., District Court of Texas, Nueces County, December 23, 1996; Mishk, J. v. The
American Tobacco Company, et al., Supreme Court of New York, New York County,
May 2, 1997; Orr, R. v. The American Tobacco Company, et al., Court of Common
Pleas for County of Philadelphia, Pennsylvania, May 29, 1997; Rubinobitz, L. v.
The American Tobacco Company, et al., Supreme Court of New York, Nassau County,
May 28, 1997; Schwartz, I. v. The American Tobacco Company, et al., Supreme
Court of New York, Nassau County, May 19, 1997; Senzer, B. v. The American
Tobacco Company, et al., Supreme Court of New York, Queens County, May 13, 1997;
Shapiro, M. v. The American Tobacco Company, et al., Supreme Court of New York,
New York County, June 17, 1997; Sprung, L. v. The American Tobacco Company, et
al., Supreme Court of New York, Kings County, May 13, 1997; Standish, J. v. The
American Tobacco Company, Supreme Court of New York, Bronx County, July 11,
1997; Stern, G. v. Liggett Group, Inc., et al., Superior Court of the State of
California, Monterey County, April 28, 1997; Walgreen, C. v. The American
Tobacco Company, et al., Supreme Court of New York, New York County, May 23,
1997; Willis, D. v. The American Tobacco Company, United States District Court
for the Western District of Louisiana, Lake Charles Division, April 30, 1997;
and Zarudsky, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, May 28, 1997. These are individual cases where the
plaintiffs allege personal injury from the use of cigarettes.
In addition, Registrant has been named as a defendant, together with
leading tobacco manufacturers, in Birmingham v. The American Tobacco Company, et
al., United States District Court of the Northern District of Alabama, May 28,
1997; Commonwealth of Puerto Rico v. Brown & Williamson Tobacco Company, et al.,
United States District Court, Division of Puerto
-30-
<PAGE>
Item 1 LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
Rico, June 17, 1997; Knowles D. v. The American Tobacco Company, et al., Civil
District Court of Louisiana, Parish of Orleans County, June 30, 1997; Missouri
v. The American Tobacco Company, et al., Circuit Court of Missouri, St. Louis
County, May 12, 1997; Nevada v. Philip Morris Incorporated, et al., Second
Judicial District of Nevada, Washoe County, May 21, 1997; New Mexico v. The
American Tobacco Company, et al., First Judicial District of New Mexico, Santa
Fe County, May 27, 1997; South Carolina v. Brown & Williamson Tobacco Company,
et al., Court of Common Pleas of South Carolina, Richland County, May 12, 1997;
Tennessee (Beckom) v. The American Tobacco Company, et al., United States
District Court, Eastern Division of Tennessee, May 8, 1997; University of South
Alabama v. The American Tobacco Company, et al., United States District Court,
Southern Division of Alabama, May 23, 1997; and Woods D. v. The American Tobacco
Company, et al., Superior Court of North Carolina, Wake County, July 10, 1997.
These cases have been brought by the attorneys general (or on behalf of the
attorney general) of Alabama, Puerto Rico, Louisiana, Missouri, Nevada, New
Mexico, South Carolina, Tennessee, Alabama and North Carolina, respectively,
seeking unspecified compensatory and punitive damages and various forms of
equitable relief, including restitution of the expenditures by the state for the
cost of medical care provided by the state to its citizens for numerous diseases
allegedly caused by cigarettes and other tobacco products.
Reference is made to the description of Crozier v. The American Tobacco
Company, et al., United States District Court for the Middle District of
Alabama, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1996. On April 21, 1997, this case was voluntarily dismissed by plaintiffs.
Reference is made to the description of Ramirez v. American Brands, Inc.,
et al., District Court of Hidalgo County, Texas, in paragraph (a) of Part I,
Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. On April 23, 1997, this case was
voluntarily dismissed by plaintiffs.
Reference is made to the description of Ruiz v. The American Tobacco
Company, et al., United States District Court for the District of Puerto Rico,
in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. On April 7,
1997, this case was voluntarily dismissed by plaintiffs.
Reference is made to the description of Stern v. Liggett Group, Inc., et
al., Supreme Court of the State of California, Monterey County, above. On June
30 1997, this case was voluntarily dismissed by plaintiffs.
Reference is made to the description of Walls v. The American Tobacco
Company, et al., District Court of Creek County, Oklahoma, in paragraph (a) of
Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996. On
-31-
<PAGE>
Item 1 LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
June 20, 1997, plaintiff dismissed Registrant from the case by filing an amended
complaint which did not include Registrant as a party.
Reference is made to the description of Zito v. The American Tobacco
Company, et al., Supreme Court of the State of New York, New York County, in
paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. By stipulation
and order on July 15, 1997, Registrant was dismissed from this action.
It has been reported that on June 20, 1997, certain U.S. tobacco companies
signed a Memorandum of Understanding (the "Memorandum") with certain state
attorneys general and private attorneys maintaining various actions against the
industry, whereby they would support the adoption of federal legislation (and
any necessary ancillary undertakings) that would incorporate the features of a
sixty-eight page "Proposed Resolution" attached to the Memorandum. The Proposed
Resolution calls for legislation that would, among other things, restrict how
tobacco products are manufactured, marketed and distributed in the United
States. If enacted, the legislation would also resolve the attorney general
health care recovery actions and class actions pending against the industry,
would bar similar actions in the future, and would in certain respects limit the
relief that can be obtained in lawsuits brought against the industry by
individual claimants.
The Proposed Resolution would also require substantial payments by
participating manufacturers aggregating an estimated $368.5 billion over the
first 25 years after the legislation is adopted. The legislation featured in the
Proposed Resolution would not require the Registrant to pay any money or incur
any obligations.
There can be no assurance that the legislation called for in the Proposed
Resolution will be enacted. It is also impossible to predict when the
legislation may be approved, if it is. Moreover, there can be no assurance that
any legislation that is enacted will embody the features described in the
Proposed Resolution. Certain features of the contemplated legislation have been
questioned by the President, members of Congress and others, and legislation
that contains new or different terms may be enacted. In addition, any
legislation that is enacted, including provisions limiting claims that can be
brought against the industry or restricting the relief that can be obtained
against it, may be subject to legal challenge in litigation. The Proposed
Resolution itself has no legal effect on any current or future smoking and
health litigation.
In connection with the sale of Registrant's former subsidiary, The American
Tobacco Company ("ATCO"), to Brown & Williamson Tobacco Corporation ("Brown &
Williamson") on December 22, 1994, Brown & Williamson and ATCO agreed to
indemnify Registrant against claims arising from smoking and health and fire
safe cigarette matters relating to the tobacco business of ATCO. Registrant's
counsel have advised that, in their opinion, on the basis of their
investigations generally with respect to suits and claims of this character,
Registrant has meritorious defenses to these actions and threatened actions. The
actions will be vigorously contested.
-32-
<PAGE>
Item 1 LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
Registrant's former subsidiary, Gallaher Limited ("Gallaher"), has been
named as a defendant in certain proceedings alleging smoking-related health
effects as a result of plaintiffs smoking cigarettes manufactured by Gallaher.
Registrant has not been named as a defendant in any such proceedings. On May 30,
1997, Registrant spun off its U.K.-based Gallaher tobacco business. In
connection with such spin-off, Gallaher Group Plc and Gallaher agreed to
indemnify Registrant against claims arising from smoking and health and fire
safe cigarette matters relating to the tobacco business of Gallaher and its
subsidiaries.
(b) It is not possible to predict the outcome of the pending litigation
referenced in paragraph (a) above, but management believes that there are
meritorious defenses to the pending actions and that the pending actions will
not have a material adverse effect upon the results of operations, cash flow or
financial condition of the Registrant. Reference is made to note 8, "Pending
Litigation", in the Notes to Condensed Consolidated Financial Statements set
forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
3(i)(a). Amendment to Certificate of Incorporation of Registrant.
3(i)(b). Certificate of Incorporation of Registrant as in effect
on the date hereof.
3(ii)(a). Amendment to By-laws of Registrant.
3(ii)(b). By-laws of Registrant as in effect on the date hereof.
4a1. Third Supplemental Indenture dated as of May 28, 1997
between Registrant and The Chase Manhattan Bank.
10a1. Registrant's Annual Executive Incentive Compensation
Plan.*
10b1. Registrant's Non-Employee Director Stock Option Plan.*
10c1. Amendment made as of the 1st day of January, 1997 to
Trust Agreement and Amendment thereto constituting
Exhibit 10c6 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1995
and Exhibit 10a1 to the Quarterly Report on Form 10-Q
of Registrant dated August 8, 1996, respectively.*
-33-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Continued)
- ------ --------------------------------
10c2. Schedule identifying substantially identical agreements
to the Amendment to Trust Agreement constituting Exhibit
10c1 hereto in favor of Thomas C. Hays, Robert J.
Rukeyser, Steven C. Mendenhall, Dudley L. Bauerlein,
Jr., Charles H. McGill and Craig P. Omtvedt.*
10d1. Severance and Retirement Agreement made as of February
24, 1997, between Registrant and Thomas C. Hays.*
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated August 12,
1997 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
* Indicates that exhibit is a management contract or
compensatory plan or arrangement.
In lieu of filing certain instruments with respect to long-term debt of the
kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish
a copy of such instruments to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K.
-------------------
Registrant filed a Current Report on Form 8-K, dated April 23,
1997, in respect of Registrant's press release dated April 23,
1997 announcing Registrant's financial results for the three-month
period ended March 31, 1997 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated May 9, 1997,
in respect of Registrant's press releases dated May 7, 1997,
announcing the receipt of a favorable ruling from the Internal
Revenue Service, and May 8, 1997, announcing the commencement of a
consent solicitation with respect to its outstanding U.S.
registered debt, and in respect of Registrant's Consent
Solicitation Statement dated May 9, 1997 distributed to holders of
such debt securities in connection with such solicitation, as well
as certain agreements and financial and other information in
connection with the previously announced spin-off of Registrant's
U.K.-based Gallaher tobacco business (Items 5 and 7(c)).
-34-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
Registrant filed a Current Report on Form 8-K, dated June 9, 1997,
in respect of Registrant's press releases dated May 30, 1997,
announcing the change of Registrant's name to Fortune Brands, Inc.
and its completion of the spin-off of Gallaher Group Plc, and June
2, 1997, announcing the commencement of trading of Registrant as
Fortune Brands, Inc. on the New York Stock Exchange (Items 2, 5,
7(b) and 7(c)).
Registrant filed a Current Report on Form 8-K, dated July 23,
1997, in respect of Registrant's press release dated July 23, 1997
announcing Registrant's financial results for the three-month and
six-month periods ended June 30, 1997 (Items 5 and 7(c)).
-35-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FORTUNE BRANDS, INC.
-------------------
(Registrant)
Date: August 12, 1997 By /s/ C. P. Omtvedt
--------------- -------------------------
C. P. Omtvedt
Vice President and
Chief Accounting Officer
-36-
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
3(i)(a). Amendment to Certificate of Incorporation of
Registrant.
3(i)(b). Certificate of Incorporation of Registrant as
in effect on the date hereof.
3(ii)(a). Amendment to By-laws of Registrant.
3(ii)(b). By-laws of Registrant as in effect on the date
hereof.
4a1. Third Supplemental Indenture dated as of
May 28, 1997 between Registrant and The Chase
Manhattan Bank.
10a1. Registrant's Annual Executive Incentive
Compensation Plan.*
10b1. Registrant's Non-Employee Director Stock Option
Plan.*
10c1. Amendment made as of the 1st day of January, 1997
to Trust Agreement and Amendment thereto constituting
Exhibit 10c6 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31,
1995 and Exhibit 10a1 to the Quarterly Report on
Form 10-Q of Registrant dated August 8, 1996,
respectively.*
<PAGE>
10c2. Schedule identifying substantially identical
agreements to the Amendment to Trust Agreement
constituting Exhibit 10c1 hereto in favor of
Thomas C. Hays, Robert J. Rukeyser, Steven C.
Mendenhall, Dudley L. Bauerlein, Jr., Charles H.
McGill and Craig P. Omtvedt.*
10d1. Severance and Retirement Agreement made as
of February 24, 1997, between Registrant and
Thomas C. Hays.*
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
August 12, 1997 re: unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
* Indicates that exhibit is a management contract
or compensatory plan or arrangement.
EXHIBIT 3(i)a
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
AMERICAN BRANDS, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
AMERICAN BRANDS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Company"), DOES HEREBY CERTIFY that:
FIRST: The Board of Directors of the Company, at a meeting
thereof duly called and held on February 25, 1997, adopted a resolution
proposing an amendment to the Certificate of Incorporation of the Company as set
forth in Article THIRD below, declaring said amendment to be advisable and
directing that said amendment be submitted for approval of stockholders at the
Company's 1997 Annual Meeting of stockholders.
SECOND: Thereafter, pursuant to the By-laws of the Company,
the annual meeting of stockholders of the Company was duly held on April 30,
1997, upon notice in accordance with Section 222 of the General Corporation Law
<PAGE>
of the State of Delaware setting forth a summary of the proposed changes to be
effected by said amendment, at which meeting the requisite number of shares as
prescribed by statute and by the Certificate of Incorporation of the Company
were voted in favor of said amendment.
THIRD: Said amendment would amend the Certificate of
Incorporation of the Company by changing Article I thereof so that, as amended,
such Article shall be and read in its entirety as follows:
"ARTICLE I
The name of the Corporation is Fortune Brands, Inc. (the
'Company')."
FOURTH: The aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FIFTH: This Certificate of Amendment shall become effective
at 1:59 p.m., Eastern Daylight Savings Time, on May 30, 1997.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Amendment to be signed by its officer thereunto duly authorized, this 29th day
of May, 1997.
AMERICAN BRANDS, INC.
By /s/ Gilbert L. Klemann, II
---------------------------
Gilbert L. Klemann, II
Senior Vice President
and General Counsel
EXHIBIT 3(i)b
Certificate of Incorporation
of
Fortune Brands, Inc.
(As Amended)
ARTICLE I
The name of the Corporation is Fortune Brands, Inc. (the "Company").
ARTICLE II
The address of the Company's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The
name of its registered agent at such address is United States Corporation
Company.
ARTICLE III
The purpose of the Company is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
5-30-97
<PAGE>
2 CERTIFICATE OF INCORPORATION
ARTICLE IV
1. The total number of shares of all classes of stock that the Company
shall have authority to issue is eight hundred and ten million (810,000,000)
shares, of which seven hundred and fifty million (750,000,000) shares shall be
Common Stock, par value $3.125 per share, and sixty million (60,000,000) shares
shall be Preferred Stock, without par value. The designations and the powers,
preferences and rights of the Common Stock and the Preferred Stock, and the
qualifications, limitations or restrictions thereof, are as provided in or
pursuant to this Article IV.
2. (a) The rights of holders of Common Stock to receive dividends or to
share in the distribution of assets in the event of liquidation, dissolution or
winding up of the affairs of the Company shall be subject to the preferences and
other rights of the Preferred Stock as may be fixed in this Certificate of
Incorporation or in the resolution or resolutions of the Board of Directors
providing for the issue of such Preferred Stock.
(b) The holders of Common Stock shall be entitled to one vote
for each share of Common Stock held by them of record at the time for
determining the holders thereof entitled to vote.
3. Authority is hereby vested in the Board of Directors to issue from
time to time the Preferred Stock in one
5-10-90
<PAGE>
CERTIFICATE OF INCORPORATION 3
or more series and to fix by the resolution of resolutions providing for the
issue of shares of any such series the voting powers, designations, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of such series to the full
extent permitted by this Certificate of Incorporation and the law of the State
of Delaware. The authority of the Board of Directors with respect to each such
series shall include, but not be limited to, determination of the following:
(i) The number of shares to constitute such series, and the
distinctive designations thereof;
(ii) The voting powers, full or limited, if any, of such
series;
(iii) The rate of dividends payable on shares of such series,
the conditions on which and the times when such dividends are payable,
the preference to, or the relations to, the payment of the dividends
payable on any other class, classes or series of stock, whether
cumulative or noncumulative, and, if cumulative, the dates from which
dividends on shares of such series shall be cumulative;
(iv) The right, if any, of the Company to redeem shares of
such series and the terms and conditions of such redemption;
<PAGE>
4 CERTIFICATE OF INCORPORATION
(v) The requirement of any sinking fund or funds to be
applied to the purchase or redemption of shares of such series and, if
so, the amount of such fund or funds and the manner of application;
(vi) The rights of shares of such series upon the
liquidation, dissolution or winding up of, or upon any distribution of
the assets of, the Company;
(vii) The rights, if any, of the holders of shares of such
series to convert such shares into, or to exchange such shares for,
shares of any other class, classes or series of stock and the price or
prices or rate or rates of exchange and the adjustments at which such
shares shall be convertible or exchangeable, and any other terms and
conditions of such conversion or exchange; and
(viii) Any other preferences and relative, participating,
optional or other special rights of shares of such series, and
qualifications, limitations or restrictions including, without
limitation, any restriction on an increase in the number of shares of
any series theretofore authorized and any qualifications, limitations
or restrictions of rights or powers to which shares of any future
series shall be subject;
<PAGE>
CERTIFICATE OF INCORPORATION 5
provided that the voting powers, designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, of the $2.75
Preferred Stock and $2.67 Convertible Preferred Stock are as set forth
in Sections 6 and 7 of this Article IV.
4. The number of authorized shares of any class or classes of stock of
the Company may be increased or decreased by the affirmative vote of the holders
of a majority of the stock of the Company that is entitled to vote, without a
separate class vote of any class or classes of stock of the Company, except as
may be otherwise provided in this Certificate of Incorporation or in the
resolution or resolutions fixing the voting rights of any series of the
Preferred Stock.
5. No holder of Common Stock or Preferred Stock, as such, shall have or
be entitled to any preemptive right whatsoever.
6. The shares of Preferred Stock are hereby divided to create a first
series of Preferred Stock, and it is hereby determined that such first series
shall consist of 4,514,459 shares, which shall have the following designation,
relative rights, preferences and limitations:
<PAGE>
6 CERTIFICATE OF INCORPORATION
(a) The distinctive designation of the first series is $2.75
Preferred Stock (hereinafter called "$2.75 Preferred").
(b) (1) Holders of shares of $2.75 Preferred shall be
entitled to one-quarter of a vote per share, and, except as provided in
subparagraphs (2), (3) and (4) of this paragraph (b) or by present or
future law otherwise specifically provided, shall not be entitled to
vote as a class.
(2) If payment of six or more quarterly dividends (whether or
not consecutive) payable on shares of $2.75 Preferred shall be in
default, in whole or in part, the holders of shares of $2.75 Preferred
(in addition to any other rights of holders of shares of any series of
Preferred Stock to vote, including any right to vote with the holders
of Common Stock for the election of directors) shall be entitled, until
such time as all such dividends in default have been paid in full, at
each annual meeting of stockholders, voting separately as a class, to
elect two of the directors then being elected, who shall not be
officers, employees or agents of the Company or any of its parents or
subsidiaries, but not any other directors to be elected by any other
series of Preferred Stock voting as a class. If, while the holders of
shares of $2.75 Preferred as a class are entitled to
<PAGE>
CERTIFICATE OF INCORPORATION 7
vote for the election of two directors, any vacancy occurs among the
directors elected by the holders of shares of $2.75 Preferred, the
remaining director so elected by the holders of the shares of $2.75
Preferred shall be entitled to nominate for election by the Board of
Directors a successor director to hold office for the unexpired term of
the director whose position has become vacant. If the vacancy is not
filled by nomination by the remaining director, or if there is then in
office no director who has been elected by the holders of shares of
$2.75 Preferred (whether or not prior to the initial election of any
such director), the Company shall, as soon as possible, call (on at
least 20 days' notice) a special meeting of the holders of shares of
$2.75 Preferred for the purpose of filling such vacancy or vacancies in
the Board of Directors. If the Company fails to call such a meeting
within 30 days after a written request by any three or more holders of
shares of $2.75 Preferred, then such three or more holders of shares of
$2.75 Preferred may call (on at least 20 days' notice) a special
meeting of the holders of shares of $2.75 Preferred and, if the vacancy
or vacancies are not theretofore filled as hereinabove provided, it or
they may be filled at such meeting by the holders of shares of $2.75
Preferred.
<PAGE>
8 CERTIFICATE OF INCORPORATION
(3) The affirmative vote of the holders of at least two-thirds
of the shares of $2.75 Preferred, voting separately as a class, given
in person or by proxy at any special or annual meeting called to take
action thereon, shall be necessary to (A) permit, effect or validate
any amendment of the Certificate of Incorporation of the Company, or
approve any agreement of merger or consolidation which contains any
provision, to (i) exclude or limit the right of the holders of shares
of $2.75 Preferred to vote on any matter, except as such right (other
than the right to vote as a series to elect two directors as provided
in subparagraph (2) of this paragraph (b)) may be limited by voting
rights given to new shares then being authorized of any existing or new
series of Preferred Stock, (ii) reduce the rate or change the time for
accumulation or payment of dividends on the shares of $2.75 Preferred,
(iii) cancel or otherwise adversely affect dividends which have been
accrued but have not been declared and set aside for payment on the
shares of $2.75 Preferred, (iv) effect a conversion, exchange or
reclassification of the shares of $2.75 Preferred, (v) change the
designation, preferences, limitations, call provisions, sinking fund
provisions or relative rights of the shares of $2.75 Preferred or (vi)
change shares of
<PAGE>
CERTIFICATE OF INCORPORATION 9
$2.75 Preferred then outstanding into a different number of shares, or
into the same number of shares of another class or series, or (B)
authorize the Company to merge or consolidate with any other
corporation or corporations unless the Company is the continuing
corporation after such merger or consolidation.
(4) The affirmative vote of the holders of at least two-thirds
of the shares of $2.75 Preferred, voting separately as a class, given
in person or by proxy at any special or annual meeting called to take
action thereon, shall be necessary to permit, effect or validate the
issuance (whether or not upon conversion or exchange of other
securities or upon exercise of rights) of any additional series of
Preferred Stock ranking prior to the $2.75 Preferred as to payment of
dividends or distribution of assets on any dissolution, liquidation or
winding up of the Company, or to increase rights or preferences of any
outstanding class or series of junior stock (which shall mean for the
purposes of this Section 6 the Common Stock and any other class or
series of stock of the Company hereafter authorized over which the
$2.75 Preferred has preference or priority in the payment of dividends
or in the distribution of assets on any dissolu-
<PAGE>
10 CERTIFICATE OF INCORPORATION
tion, liquidation or winding up of the Company) or stock ranking on a
parity with the $2.75 Preferred as to payment of dividends or
distribution of assets on any dissolution, liquidation or winding up of
the Company, so that such class or series ranks prior to the $2.75
Preferred as to payment of dividends or distribution of assets on any
dissolution, liquidation or winding up of the Company. The affirmative
vote of the holders of at least a majority of the shares of $2.75
Preferred, voting separately as a class, given in person or by proxy at
any special or annual meeting called to take action thereon, shall be
necessary to permit, effect or validate the issuance (whether or not
upon conversion or exchange of other securities or upon exercise of
rights) of any additional series of Preferred Stock ranking on a
parity, or to increase rights or preferences of any outstanding class
or series of junior stock so that such class or series ranks on a
parity, with the $2.75 Preferred as to payment of dividends or
distribution of assets on any dissolution, liquidation or winding up of
the Company, unless the combined Net Income of the Company and its
subsidiaries, after adjustment to include the equity in the Net Income
of any corporations, companies or groups of assets to be acquired in
whole or in part with the shares of such additional
<PAGE>
CERTIFICATE OF INCORPORATION 11
series, if any, for any four consecutive calendar quarters within the
six consecutive calendar quarters immediately preceding the
authorization of any such additional series or any increase or any
increase of such rights or preferences, shall have been at least 4.75
times the aggregate annual dividend requirements on all shares of
Preferred Stock of all series (other than series of Preferred Stock
which are junior stock) and 3 times the aggregate annual dividend
requirements on all shares of Preferred Stock of all series (including
series of Preferred Stock which are junior stock) to be outstanding
immediately after any issuance of shares of such additional series or
any increase of such rights and preferences. For the purposes of this
subparagraph (4), the Net Income of American Brands, Inc., a New Jersey
corporation organized under an Agreement of Consolidation in 1904
(hereinafter called "American") and its subsidiaries, calculated as
provided in this subparagraph (4), shall be deemed to be the Net Income
of the Company and its subsidiaries for any relevant period or periods
up to the date of issuance of the $2.75 Preferred. For the purposes of
this subparagraph (4), "Net Income" of a corporation, company or group
of assets for a calendar quarter means the net income (or loss) of such
corporation, company or group of
<PAGE>
12 CERTIFICATE OF INCORPORATION
assets as determined in accordance with generally accepted accounting
principles applicable during that quarter; provided that in determining
the Net Income there shall be (i) excluded from the net income (or
loss) of a corporation, company or group of assets extraordinary items
and gains or losses resulting from the sale or discontinuance of a
business segment of such corporation, company or group of assets, all
as determined in accordance with generally accepted accounting
principles, and (ii) added to such net income (or loss) an amount equal
to the effect on such net income (or loss) of any charge against
earnings resulting from any write-down or amortization of the excess of
cost over fair value of net assets acquired, except to the extent of
such charge as may be required by generally accepted accounting
principles in effect on December 31, 1977. In the event that financial
statements setting forth the net income of a corporation, company or
group of assets to be acquired by the Company have not been prepared
for three or more relevant calendar quarters in accordance with
generally accepted accounting principles and (i) the independent public
accountants of the Company state in writing to the Company that they
would be unable to give any unqualified opinion (or an opinion
qualified only as
<PAGE>
CERTIFICATE OF INCORPORATION 13
to litigation or claims or unasserted claims or matters relating to the
amounts at which assets are recorded) as to the financial statements of
such corporation, company or group of assets for three or more relevant
calendar quarters in accordance with generally accepted accounting
principals or (ii) the time estimated by the independent public
accountants of the Company as the time required for the preparation of
financial statements for such corporation, company or group of assets
on the basis of generally accepted accounting principles and their
examination of such financial statements could, in the opinion of the
Board of Directors, delay the issuance of such additional series of
Preferred Stock or the increase of rights or preferences of any
outstanding class of junior stock, if such preparation and examination
of such financial statements were a condition to such issuance or such
increase, then the Net Income of such corporation, company or group of
assets for each of such calendar quarters shall be deemed, if the Board
of Directors of the Company shall so elect, to be 2.5% of the purchase
price paid or to be paid by the Company for such corporation, company
or group of assets other than the purchase price which is attributable
to the purchase of a corporation, company or group of assets (i) having
<PAGE>
14 CERTIFICATE OF INCORPORATION
aggregate sales and other revenues of less than 15% of the purchase
price or (ii) which is in the development stage. A corporation, company
or group of assets shall be considered to be in the development stage
if, in the written opinion of the chief financial officer of the
Company, substantially all of the efforts (if any) devoted to such
corporation, company or group of assets are for the purpose of
establishing a new business and either of the following conditions
exists: (A) planned principal operations have not commenced or (B)
planned principal operations have commenced but there has been no
significant revenue therefrom. A determination of Net Income in good
faith by the Board of Directors shall be binding on the Company and the
holders of the shares of $2.75 Preferred. For the purposes of this
subparagraph (4), a subsidiary of the Company is a corporation or
company of which more than 50% of the outstanding voting shares are,
directly or indirectly, owned by or held for the Company. Nothing in
this Section 6 shall be deemed to restrict or limit, except as is
expressly provided in this subparagraph (4), the right of the Board of
Directors of the Company to create, or authorize the Board to create, a
new series of Preferred Stock having, or convertible into shares
having, rights or preferences equal,
<PAGE>
CERTIFICATE OF INCORPORATION 15
prior or superior to those of the shares of $2.75 Preferred; provided
that the Board of Directors of the Company shall not have the right to
issue any of the shares with equal, prior or superior rights to those
of the shares of $2.75 Preferred as a dividend or distribution on any
shares of junior stock.
(c)(1) The holders of shares of $2.75 Preferred shall be
entitled to receive, out of funds legally available therefor,
cumulative cash dividends of a limited and preferential nature at a
rate of $2.75 per share per annum, and no more, payable quarterly on
the tenth day of March, June, September and December commencing March
10, 1986, as and when declared by the Board of Directors. Dividends on
each share of $2.75 Preferred shall be cumulative and shall commence to
accrue from the date of the original issues of shares of this series.
Accumulations of dividends shall not bear interest.
(2) No dividends shall be paid or declared on any junior
stock, other than a dividend payable in junior stock, nor shall any
shares of junior stock be acquired for a consideration by the Company
or by any subsidiary (which shall mean any corporation or entity, the
majority of the voting power to elect directors of which is held
directly or indirectly by the
<PAGE>
16 CERTIFICATE OF INCORPORATION
Company), unless all dividends on the $2.75 Preferred accrued for all
past quarter-yearly dividend periods shall have been paid and unless,
in the case of dividends on any junior stock, the full dividends on the
$2.75 Preferred for the then current quarter-yearly dividend period
provided in accordance with subparagraph (1) of this paragraph (c)
shall have been or shall then be paid or declared. The foregoing
restriction on acquisition of shares of junior stock shall be
inapplicable to any payments in lieu of issuance of fractional shares
thereof whether upon any merger, conversion, stock dividend or
otherwise.
(d) (1) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holder
of each share of $2.75 Preferred then outstanding shall be entitled to
be paid out of the assets of the Company available for distribution to
its stockholders before any distribution or payments shall be made to
the holders of any junior stock, an amount equal to the sum of (i)
$30.50 per share plus (ii) an additional sum computed at the rate of
$2.75 per share per annum, for the period from the date on which
dividends on such share became cumulative to and including the date
fixed for such payment, less the aggregate of divi-
<PAGE>
CERTIFICATE OF INCORPORATION 17
dends that on or before the date fixed for such payment shall have been
paid or declared and set aside for payment, but computed without
interest. If the assets of the Company available for distribution to
its stockholders shall be insufficient to pay in full all amounts to
which the holders of shares of $2.75 Preferred are entitled, the amount
available for distribution to holders of shares of $2.75 Preferred
shall be shared pro rata by them.
(2) Notice of any payment in full pursuant to subparagraph (1)
of this paragraph (d) shall be given by publication at least once in a
newspaper of general circulation in the Borough of Manhattan, The City
of New York, printed in the English language and customarily published
on each business day, such publication to be not more than 60 days and
not less than 30 days prior to the payment date. Notice of such payment
shall also be given in the same manner as provided for mailing notice
of redemption in subparagraph (5) of paragraph (e) as if the date for
payment were the date fixed for redemption referred to in said
subparagraph (5), except that such notice shall be mailed not less than
30 days prior to the date fixed for payment. Neither failure to publish
or mail such notice nor defect therein or in
<PAGE>
18 CERTIFICATE OF INCORPORATION
the publication or mailing thereof shall affect the validity of the
proceedings for such payment.
(3) For the purposes of this paragraph (d), a consolidation or
merger of the Company with any other corporation shall not constitute
or be deemed to constitute a liquidation, dissolution, or winding up of
the Company.
(e)(i) The Company may, at its option, at any time or from
time to time on or after March 10, 1989 redeem the whole or any part of
the $2.75 Preferred outstanding at the time of redemption, upon notice
given as hereinafter specified, by paying in cash the following
redemption prices per share:
If Redeemed during
the 12-month Period Redemption
Beginning March 10, Price per Share
------------------- ---------------
1989 ................... $31.88
1990 ................... 31.74
1991 ................... 31.60
1992 ................... 31.46
1993 ................... 31.33
1994 ................... 31.19
1995 ................... 31.05
1996 ................... 30.91
1997 ................... 30.78
1998 ................... 30.64
<PAGE>
CERTIFICATE OF INCORPORATION 19
and thereafter at a redemption price per share of $30.50; together with
an additional sum, for each share so to be redeemed, computed at the
rate of $2.75 per share per annum for the period from the date on which
dividends on such share became cumulative to and including the date
fixed for such redemption, less the aggregate of the dividends that on
or before the date fixed for such redemption shall have been paid or
declared and set aside for payment, but computed without interest.
Notwithstanding the foregoing, the Company may not redeem less than the
whole of the $2.75 Preferred at the time outstanding pursuant to this
subparagraph (1) unless all dividends on the $2.75 Preferred for all
past quarter-yearly dividend periods shall have been paid or declared
and set aside for payment.
(2) On or before each March 10 (each such March 10 being
hereinafter called a "Sinking Fund Redemption Date") so long as any
shares of $2.75 Preferred shall be outstanding and to the extent that
the Company shall have funds legally available for such payment, the
Company shall pay to the Transfer Agent, or other redemption agent, for
the $2.75 Preferred, or if there be no such agent then the Company
shall set aside, in trust, as and for a
<PAGE>
20 CERTIFICATE OF INCORPORATION
sinking fund for the $2.75 Preferred, a sum (hereinafter called the
"Sinking Fund Payment") sufficient in each instance to redeem at a
price equal to $30.50 per share, together with an additional sum, for
each share so to be redeemed, computed at the rate of $2.75 per share
per annum for the period from the date on which dividends on such share
became cumulative to and including the Sinking Fund Redemption Date,
less the aggregate of the dividends that on or before the Sinking Fund
Redemption Date shall have been paid or declared or set aside for
payment, but computed without interest, 165,226 shares of $2.75
Preferred; provided, however, that the Company may, at its
noncumulative option, in any year in which a Sinking Fund Payment is
due, increase the Sinking Fund Payment by an amount sufficient to
redeem at a price equal to $30.50 per share, together with an
additional sum, for each share so to be redeemed, computed at the rate
of $2.75 per share per annum for the period from the date on which
dividends on such share became cumulative to and including the Sinking
Fund Redemption Date, less the aggregate of the dividends that on or
before the Sinking Fund Redemption Date, less the aggregate of the
dividends that or before the Sinking Fund Redemption Date shall have
been paid or declared and set aside for payment, but computed without
interest, an additional number of shares of
<PAGE>
CERTIFICATE OF INCORPORATION 21
$2.75 Preferred not exceeding 165,226; and provided, further, that the
Company shall be entitled to credit against the number of shares
required to be redeemed on any Sinking Fund Redemption Date shares of
$2.75 Preferred theretofore acquired by the Company in any manner
whatsoever prior to the November 25 immediately preceding such Sinking
Fund Redemption Date and not previously credited against any such
redemption, and shares of $2.75 Preferred Stock of American acquired by
American in any manner whatsoever prior to the said November 25 and not
credited against any sinking fund redemption requirement applicable to
the $2.75 Preferred Stock of American.
(3) On the date of issuance of the $2.75 Preferred with
respect to the 1986 Sinking Fund Payment Date, and on the November 25
immediately preceding each succeeding Sinking Fund Payment Date, the
Company shall notify the Transfer Agent, or other redemption agent, if
any, of the amount of the Sinking Fund Payment to be made on the next
following Sinking Fund Redemption Date and the number of shares to be
redeemed thereon and such agent, or the Company if there be no such
agent, shall thereupon take action to redeem, in accordance
<PAGE>
22 CERTIFICATE OF INCORPORATION
with the notice and other provisions of this paragraph (e), the shares
of $2.75 Preferred to be redeemed on such Sinking Fund Redemption Date.
(4) During the continuance of any default by the Company
(because it does not have funds legally available to make a Sinking
Fund Payment or for other reasons) on any payment required under the
provisions of this paragraph (e), no sum shall be set aside for or
applied to the purchase or redemption (pursuant to any applicable
sinking fund or redemption provisions or otherwise) of any shares of
any class of stock ranking as to dividends or distribution upon
liquidation on a parity with or junior to the $2.75 Preferred and no
dividend shall be declared or paid or any other distribution ordered or
made upon any class of stock ranking as to dividends junior to the
$2.75 Preferred (other than a dividend payable in junior stock);
provided, however, that any moneys theretofore deposited in any sinking
fund with respect to any stock of the Company in compliance with the
provisions of such sinking fund may thereafter be applied to the
purchase or redemption of such stock in accordance with the terms of
such sinking fund whether or not at the time of such application such
default is continuing under the provisions of
<PAGE>
CERTIFICATE OF INCORPORATION 23
this paragraph (e). In the event that the Company shall not have funds
legally available to make any Sinking Fund Payment, the obligation to
make such payment shall be carried forward and fulfilled when such
funds are legally available.
(5) Notice of any redemption pursuant to this paragraph (e)
shall be deemed given if mailed by certified mail, return receipt
requested, not less than 90 days prior to the date fixed for
redemption, to each stockholder of record of shares to be redeemed at
his address as it appears on the books of the Company. Neither failure
to mail such notice nor defect therein or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any shares
so to be redeemed. Any notice given by American to holders of shares of
$2.75 Preferred Stock of American prior to issuance of shares of $2.75
Preferred shall constitute notice by the Company in respect of the
$2.75 Preferred.
(6) If only part of the $2.75 Preferred at the time
outstanding is to be redeemed, the selection of the shares to be
redeemed may be made pro rata, by lot or in any other equitable manner.
The Board of Directors shall have the power to prescribe the manner in
which the selection is to be made.
<PAGE>
24 CERTIFICATE OF INCORPORATION
(7) When any shares of $2.75 Preferred are redeemed out of
capital, their redemption shall effect their retirement. When any
shares of $2.75 Preferred are otherwise redeemed or reacquired, the
Company shall retire such shares by resolution of the Board of
Directors. In either event, the Board of Directors shall cause to be
filed with the Office of the Secretary of State of Delaware an
appropriate certificate which shall have the effect of restoring such
shares to the status of authorized but unissued shares of Preferred
Stock without series designation.
(f)(1) If notice of payment in full to holders of shares of
$2.75 Preferred of the amounts to which they are entitled in accordance
with subparagraph (2) of paragraph (d) or notice of redemption in
accordance with subparagraph (5) or paragraph (e) shall have been given
or if the Company shall have given to the bank or trust company
hereinafter referred to irrevocable authority promptly to give or
complete such notice, and if on or before the payment date, or
redemption date specified therein, the funds necessary for such payment
or redemption shall have been deposited by the Company with a bank or
trust company in good standing, designated in such notice, organized
under the laws of the
<PAGE>
CERTIFICATE OF INCORPORATION 25
United States of America or of the State of New York, in trust for the
pro rata benefit of the holders of the shares entitled to such payment
or so called for redemption, as the case may be, then, notwithstanding
that any certificate for shares entitled to such payment or so called
for redemption, as the case may be, shall not have been surrendered for
retirement, from and after the time such notice to holders of $2.75
Preferred is given, whichever is later, all such shares shall be deemed
no longer to be outstanding and all rights appertaining to such shares
shall forthwith terminate, except only the right of the holders thereof
to receive from such bank or trust company the funds so deposited,
without interest. Any interest accrued on such funds shall be paid to
the Company from time to time.
(2) Any funds deposited by the Company pursuant to
subparagraph (1) of this paragraph (f) that have not been paid by the
end of five years from such payment or redemption date shall be
released and repaid to the Company forthwith, after which the holders
of the shares of $2.75 Preferred entitled to such payment or of the
shares of $2.75 Preferred so called for redemption, as the case may be,
shall be
<PAGE>
26 CERTIFICATE OF INCORPORATION
entitled to receive payment thereof only from the Company, but subject
to applicable law.
(7) The shares of Preferred Stock are hereby divided to create a second
series of Preferred Stock, and it is hereby determined that such second series
shall consist of 5,514,459 shares, which shall have the following designation,
relative rights, preferences and limitations and a stated capital at least equal
to the par value of the stock into which such shares are made convertible:
(a) The distinctive serial designation of the second series is
$2.67 Convertible Preferred Stock (hereinafter called "$2.67
Preferred").
(b)(1) Holders of shares of $2.67 Preferred shall be entitled
to three-tenths of a vote per share, and, except as provided in
subparagraphs (2) and (3) of this paragraph (b) or by present or future
law otherwise specifically provided, shall not be entitled to vote as a
class.
(2) If payment of six or more quarterly dividends (whether or
not consecutive) payable on Preferred Stock of any series shall be in
default, in whole or in part, the holders of shares of $2.67 Preferred
(in addition to any other rights of holders of shares of any series of
Preferred Stock to vote, including
<PAGE>
CERTIFICATE OF INCORPORATION 27
any right to vote with the holders of Common Stock for the election of
directors) shall be entitled, until such time as all such dividends in
default have been paid in full, at each annual meeting of stockholders,
voting separately as a class with all other holders of Preferred Stock
having the right to vote for directors at such meeting regardless of
series, to elect two of the directors then being elected. If, while the
holders of shares of Preferred Stock as a class are entitled to vote
for the election of such two directors, any vacancy occurs among the
directors elected by the holders of shares of Preferred Stock, the
remaining director so elected by the holders of shares of Preferred
Stock shall be entitled to nominate for election by the Board of
Directors a successor director to hold office for the unexpired term of
the director whose position has become vacant. If the vacancy is not
filled by nomination by the remaining director, or if there is then in
office no director who has been elected by the holders of shares of
Preferred Stock (whether or not prior to the initial election of any
such director), the Company shall, as soon as possible, call (on at
least 20 days' notice) a special meeting of the holders of shares of
Preferred Stock having the right to vote for directors at such meeting
for the purpose of filling such vacancy or vacancies in
<PAGE>
28 CERTIFICATE OF INCORPORATION
the Board of Directors. If the Company fails to call such a meeting
within 30 days after a written request by any three or more holders of
shares of Preferred Stock, then such three or more holders of shares of
Preferred Stock may call (on at least 20 days' notice) a special
meeting of the holders of shares of Preferred Stock having the right to
vote for directors at such meeting for such purpose and, if the vacancy
or vacancies are not theretofor filled as hereinabove provided, it or
they may be filled at such meeting by the holders of shares of
Preferred Stock, voting separately as a class regardless of series.
(3) The affirmative vote of the holders of at least two-thirds
of the shares of $2.67 Preferred, voting separately as a class, given
in person or by proxy at any special or annual meeting called to take
action thereon, shall be necessary to permit, effect or validate any
amendment of the Certificate of Incorporation of the Company, or
approve any agreement of merger or consolidation which contains any
provision, to (i) exclude or limit the right of the holders of $2.67
Preferred to vote on any matter, except as such right may be limited by
voting rights given to new shares then being authorized of any existing
or new series of Preferred Stock; (ii) reduce the rate or
<PAGE>
CERTIFICATE OF INCORPORATION 29
change the time for accumulation or payment of dividends on the shares of $2.67
Preferred; (iii) cancel or otherwise adversely affect dividends which have
accrued but have not been declared on the shares of $2.67 Preferred; (iv) effect
a conversion, exchange or reclassification of the shares of $2.67 Preferred; (v)
change the designation, preferences, limitations, conversion rate, call
provisions or relative rights of the shares of $2.67 Preferred; or (vi) change
shares of $2.67 Preferred then outstanding into a different number of shares, or
into the same number of shares of another class or series. Nothing herein shall
be deemed to restrict or limit the right of the Board of Directors of the
Company to create, or authorize the Board to create, a new series of Preferred
Stock having, or convertible into shares having, rights or preferences prior or
superior to those of the shares of $2.67 Preferred; provided that the Board of
Directors of the Company shall not have the right to issue any shares with
equal, prior or superior rights to those of the $2.67 Preferred as a dividend or
distribution on any junior stock (which shall mean for the purposes of this
Section 7 the Common Stock and any other class of stock of the Company hereafter
authorized over which the $2.67 Preferred has preference or priority in the
payment
<PAGE>
30 CERTIFICATE OF INCORPORATION
of dividends or in the distribution of assets on any dissolution,
liquidation or winding up of the Company).
(c)(1) The holders of shares of $2.67 Preferred shall be
entitled to receive, out of funds legally available therefor,
cumulative cash dividends of a limited and preferential nature at a
rate of $2.67 per share per annum, and no more, payable quarterly on
the tenth day of March, June, September and December commencing March
10, 1986, as and when declared by the Board of Directors. Dividends on
each share of $2.67 Preferred shall be cumulative and shall commence to
accrue from the date of the original issuance of shares of this series.
Accumulations of dividends shall not bear interest.
(2) No dividend shall be paid or declared on any junior stock,
other than a dividend payable in junior stock, nor shall any shares of
junior stock be acquired for a consideration by the Company or by any
subsidiary (which shall mean any corporation or entity, the majority of
the voting power to elect directors of which is held directly or
indirectly by the Company), unless all dividends on the $2.67 Preferred
accrued for all past quarter-yearly dividend periods shall have been
paid and unless, in the case
<PAGE>
CERTIFICATE OF INCORPORATION 31
of dividends on any junior stock, the full dividends on the $2.67
Preferred for the then current quarter-yearly dividend period provided
in accordance with subparagraph (1) of this paragraph (c) shall have
been or shall then be paid or declared. The foregoing restriction on
acquisition of shares of junior stock shall be inapplicable to any
payments in lieu of issuance of fractional shares thereof whether upon
any merger, conversion, stock dividend or otherwise.
(d)(1) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holder
of each share of $2.67 Preferred then outstanding shall be entitled to
be paid out of the assets of the Company available for distribution to
its stockholders before any distribution or payment shall be made to
the holders of any junior stock, an amount equal to the sum of (i)
$30.50 per share plus (ii) an additional sum computed at the rate of
$2.67 per share per annum, for the period from the date on which
dividends on such share became cumulative to and including the date
fixed for such payment, less the aggregate of dividends that on or
before the date fixed for such payment shall have been paid or declared
and set aside for payment, but computed without interest. If
<PAGE>
32 CERTIFICATE OF INCORPORATION
the assets of the Company available for distribution to its
stockholders shall be insufficient to pay in full all amounts to which
the holders of $2.67 Preferred are entitled, the amount available for
distribution to the holders of shares of $2.67 Preferred shall be
shared pro rata by them.
(2) Notice of any payment in full pursuant to subparagraph (1)
of this paragraph (d) shall be given by publication at least once in a
newspaper of general circulation in the Borough of Manhattan, The City
of New York, printed in the English language and customarily published
on each business day, such publication to be not more than 60 days and
not less than 30 days prior to the payment date. Notice of such payment
shall also be given in the same manner as provided for mailing notice
of redemption in subparagraph (2) of paragraph (e) as if the date for
payment were the date fixed for redemption referred to in said
subparagraph (2), except that such notice shall be mailed not less than
30 days prior to the date fixed for payment. Neither failure to publish
or mail such notice nor defect therein or in the publication or mailing
thereof shall affect the validity of the proceedings for such payment.
<PAGE>
CERTIFICATE OF INCORPORATION 33
(3) For the purposes of this Paragraph (d), a consolidation or
merger of the Company with any other corporation shall not constitute
or be deemed to constitute a liquidation, dissolution or winding up of
the Company.
(e)(1) The Company may, at its option, at any time or
from time to time redeem the whole or any part of the $2.67 Preferred
outstanding at the time of redemption, upon notice given as hereinafter
specified, by paying in cash the following redemption prices per share:
If Redeemed during the
12-Month Period Redemption Price
Beginning March 10 per Share
---------------------- ----------------
1985 ................... $32.10
1986 ................... 31.70
1987 ................... 31.30
1988 ................... 30.90
and thereafter at a redemption price per share of $30.50; together with
an additional sum, for each share so to be redeemed, computed at the
rate of $2.67 per share per annum for the period from the date on which
dividends on such share became cumulative to and including the date
fixed for such redemption, less the aggregate of the dividends that on
or before the date fixed for such redemption shall
<PAGE>
34 CERTIFICATE OF INCORPORATION
have been paid or declared and set aside for payment, but computed
without interest. Notwithstanding the foregoing, the Company may not
redeem less than the whole of the $2.67 Preferred at the time
outstanding unless all dividends on the $2.67 Preferred for all past
quarter-yearly dividend periods shall have been paid or declared and
set aside for payment.
(2) Notice of any such redemption pursuant to this paragraph
(e) shall be deemed given if mailed by certified mail, return receipt
requested, not less than 90 days prior to the date fixed for
redemption, to each stockholder of record of shares so to be redeemed
at his address as it appears on the books of the Company. Neither
failure to mail such notice nor defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption
of any shares so to be redeemed.
(3) If only part of the $2.67 Preferred at the time
outstanding is to be redeemed, the selection of the shares to be
redeemed may be made pro rata, by lot or in any other equitable manner.
The Board of Directors shall have the power to prescribe the manner in
which the selection is to be made.
<PAGE>
CERTIFICATE OF INCORPORATION 35
(4) When any shares of $2.67 Preferred are redeemed out of
capital, their redemption shall effect their retirement. When any
shares of $2.67 Preferred are otherwise redeemed or reacquired, the
Company shall retire such shares by resolution of the Board of
Directors. In either event, the Board of Directors shall cause to be
filed with the Office of the Secretary of State of Delaware an
appropriate certificate which shall have the effect of restoring such
shares to the status of authorized but unissued shares of Preferred
Stock without series designation.
(f)(1) If notice of payment in full to holders of shares of
$2.67 Preferred of the amounts to which they are entitled in accordance
with subparagraph (2) of paragraph (d) or notice of redemption in
accordance with subparagraph (2) of paragraph (e) shall have been given
or if the Company shall have given to the bank or trust company
hereinafter referred to irrevocable authority promptly to give or
complete such notice, and if on or before the payment date, or
redemption date specified therein, the funds necessary for such payment
or redemption shall have been deposited by the Company with a bank or
trust company in good standing, designated in such notice, organized
under the laws of the
<PAGE>
36 CERTIFICATE OF INCORPORATION
United States of America or of the State of New York, in trust for the
pro rata benefit of the holders of the shares entitled to such payment
or so called for redemption, as the case may be, then, notwithstanding
that any certificate for shares entitled to such payment or so called
for redemption, as they case may be, shall not have been surrendered
for retirement, from and after the time such notice to holders of $2.67
Preferred is given, whichever is later, all such shares shall be deemed
no longer to be outstanding and all rights appertaining to such shares
shall forthwith terminate, except only the right of the holders thereof
to receive from such bank or trust company the funds so deposited,
without interest, and the right to exercise on or before but not later
than the fifth day next preceding the date fixed for payment or
redemption, as the case may be, any privilege of conversion that has
not theretofore expired. Any interest accrued on such funds shall be
paid to the Company from time to time.
(2) Any funds deposited by the Company pursuant to
subparagraph (1) of this paragraph (f) that shall not be required for
such payment or redemption because of the exercise of any right of
conversion
<PAGE>
CERTIFICATE OF INCORPORATION 37
subsequent to the date of such deposit shall be released and repaid to
the Company forthwith. Any funds so deposited that have not been paid
by the end of five years from such payment or redemption date shall be
released and repaid to the Company forthwith, after which the holders
of the shares of $2.67 Preferred entitled to such payment or of the
shares of $2.67 Preferred so called for redemption, as the case may be,
shall be entitled to receive payment thereof only from the Company, but
subject to applicable law.
(g) (1) Subject to the provisions for adjustment hereinafter
set forth, each share of $2.67 Preferred shall be convertible, at the
option of the holder thereof, into 1.02 (1-2/100)* of a fully paid and
non-assessable share of Common Stock of the Company upon surrender to
any Transfer Agent for the $2.67 Preferred, or the Company if no such
Transfer Agent exists, of the certificate for the share so to be
converted, together with such form of notice of election to convert as
may be provided from time to time by the Company. The number of shares
of Common Stock deliverable upon conversion of a share of $2.67
Preferred is hereinafter sometimes called "the conversion rate."
*2.04 (2-4/100) to reflect 9-10-86
two-for-one stock split,
in form of a 100% stock
dividend-9/10/86
<PAGE>
38 CERTIFICATE OF INCORPORATION
(2) Any share of $2.67 Preferred called for redemption or for
which payment is provided upon any liquidation, dissolution or winding
up of the Company may be converted as in this paragraph (g); provided
that it is converted at any time on or before but not later than the
fifth day next preceding the date fixed for redemption or payment, as
the case may be. No allowance or adjustment for dividends on either
class of stock shall be made upon conversion, except that where
conversion is made of any share of $2.67 Preferred called for
redemption or for which payment is provided upon any liquidation,
dissolution or winding up of the Company there shall be paid cumulative
cash dividends on the $2.67 Preferred prorated from the next preceding
date on which said cash dividends have been paid to the date the shares
of $2.67 Preferred shall be deemed to have been converted. Shares of
the $2.67 Preferred shall be deemed to have been converted as of the
date of the surrender for conversion of the certificates therefor,
together with the form of notice provided by the Company duly signed by
the holder thereof, and the person entitled to receive shares of Common
Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
<PAGE>
CERTIFICATE OF INCORPORATION 39
(3) The number of shares of Common Stock deliverable upon
conversion of each share of $2.67 Preferred shall be subject to
adjustment from time to time as follows:
(A) In case the Company shall (i) declare a dividend
or other distribution on its Common Stock in shares of its
capital stock, (ii) subdivide or combine the outstanding
shares of Common Stock or (iii) issue by reclassification of
the change of its outstanding shares of Common Stock
(including any such reclassification or changes in connection
with a consolidation or merger in which the Company is the
continuing corporation) any capital stock (all shares so
issued to be included in the term "Common Stock" as used in
this subparagraph (3)), the conversion rate in effect at the
time of the record date for such dividend or distribution or
of the effective date of such subdivision, combination,
reclassification or change shall be adjusted so that the
holder of each share of $2.67 Preferred surrendered for
conversion after such time shall be entitled to receive the
number and kind of shares that he would have owned or have
been entitled to receive had such share of $2.67
<PAGE>
40 CERTIFICATE OF INCORPORATION
Preferred been converted immediately prior to such time. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(B) In case the Company shall, while any shares of
$2.67 Preferred remain outstanding, enter into any
consolidation with or merger into any other corporation
wherein the Company is not the surviving corporation, or sell
or convey its property as an entirety or substantially as an
entirety, and in connection with such consolidation, merger,
sale or conveyance, shares of stock or other securities shall
be issuable or deliverable in exchange for the Common Stock of
the Company, proper provision shall be made that the holder of
any share of $2.67 Preferred may thereafter convert the same
into the same kind and amount of securities as may be issuable
by the terms of such consolidation, merger, sale or conveyance
with respect to the number of shares of Common Stock of the
Company into which such share of $2.67 Preferred is
convertible at the time of such consolidation, merger, sale or
conveyance.
<PAGE>
CERTIFICATE OF INCORPORATION 41
(C) In case the Company shall fix a record date for
the determination of stockholders entitled to receive rights
or warrants to be issued to holders of its Common Stock as
such entitling such holders (for a period expiring within 60
days after such record date) to subscribe for or purchase
Common Stock at a price per share less than the Current Market
Price per share of Common Stock (as defined in clause (E) of
this subparagraph (3)) on such record date, then in each such
case the conversion rate shall be changed so that on and after
such record date it shall be the product obtained by
multiplying the conversion rate immediately prior to such
record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock
issuable upon exercise of such rights and warrants, and of
which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus a number of shares
of Common Stock equal to that obtained by dividing the
aggregate consideration receivable on exercise of such rights
or warrants by such Current Market Price. For the purposes of
this
<PAGE>
42 CERTIFICATE OF INCORPORATION
clause (C), the issuance of rights or warrants (exercisable
for a period expiring within 60 days after the record date
with respect thereto) to purchase stock or securities
convertible into shares of Common Stock shall be deemed to be
the issuance of rights or warrants to purchase the maximum
number of shares of Common Stock into which such stock or
securities are convertible and the aggregate consideration
receivable on exercise of such rights or warrants shall be
deemed equal to the aggregate consideration receivable for
such securities when such rights or warrants are exercised
plus the minimum aggregate amount, if any, payable upon
conversion of such stock or securities into Common Stock. An
adjustment pursuant to this clause (C) shall be made whenever
any such rights or warrants are issued, and shall be made as
of the record date for the determination of stockholders
entitled to receive such rights or warrants. In the event that
such rights or warrants are not so issued, the conversion rate
shall again be adjusted, effective as of the date on which the
Board of Directors of the Company determines not to issue such
rights or warrants, as if such record date had not been fixed.
<PAGE>
CERTIFICATE OF INCORPORATION 43
(D) In case the Company shall fix a record date for
making a distribution (including any such distribution made in
connection with a consolidation or merger in which the Company
is the continuing corporation) on its Common Stock of
evidences of its indebtedness or corporate assets (excluding
dividends paid in, or distributions of, cash) or subscription
rights or warrants (excluding those referred to in clause (C)
of this subparagraph (3)), the conversion rate shall be
increased effective immediately following such record date to
a new conversion rate which shall be the product obtained by
multiplying the conversion rate immediately prior to such
record date by a fraction of which the numerator shall be the
Common Market Price per share of Common Stock (as defined in
clause (E) of this subparagraph (3)) on such record date and
of which the denominator shall be such Current Market Price
per share of Common Stock less the fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or evidences
or indebtedness so distributed or of such subscription rights
or warrants applicable to one share of Common
<PAGE>
44 CERTIFICATE OF INCORPORATION
Stock. Such adjustment shall be made successively whenever
such a record date is fixed. In the event that such
distribution is not so made, the conversion rate shall again
be adjusted, effective as of the date on which the Board of
Directors determines not to make such distribution, as if such
record date had not been fixed.
(E) For the purpose of any computation under clauses
(C) and (D) of this subparagraph (3), the "Current Market
Price" per share of Common Stock on any record date shall be
deemed to be the average of the daily closing prices for the
30 consecutive full business days commencing 45 such business
days before such record date. For the purpose of this clause
(E), the "Current Market Price" per share of Common Stock of
American Brands, Inc., a New Jersey corporation organized
under an Agreement of Consolidation in 1904 (hereinafter
called "American") calculated as provided in this clause (E)
for Common Stock of the Company, shall be deemed to be the
"Current Market Price" per share of Common Stock of the
Company for any relevant period or periods up to the date of
issuance of the $2.67 Preferred.
<PAGE>
CERTIFICATE OF INCORPORATION 45
The "closing price" of the Common Stock for any day shall be
the last sale price regular way on such day, or in case no
such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case as officially
quoted on the New York Stock Exchange, or, if the Common Stock
is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if the Common Stock
is not listed or admitted to trading on any national
securities exchange, the average of the bid and asked prices
as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that
purpose or, if such bid and asked prices are not available,
such other prices as may be selected by the Board of Directors
for the purpose.
(F) No adjustment pursuant to this subparagraph (3)
shall be required unless the particular event involved would
require an increase or decrease of at least 1% in the
conversion rate; provided, however, that any adjustments that
by reason of this clause (F) are not required to be
<PAGE>
46 CERTIFICATE OF INCORPORATION
made shall be carried forward and taken into account in any
subsequent adjustment, and provided further, however, that
such adjustment shall be made no later than the earlier of (i)
3 years after the date of the particular event involved, or
(ii) the date as to which the aggregate adjustments not
previously made would require a total increase or decrease of
1% in the conversion rate. For the purpose of this clause (F),
any adjustment not required to be made with respect to the
$2.67 Preferred Stock of American under the terms of
conversion rate adjustment provisions applicable thereto
because the particular event involved did not require an
increase or decrease of at least 1% in the conversion rate and
not carried forward and taken into account in any subsequent
adjustment pursuant to such terms at the date of issuance of
the $2.67 Preferred, shall be taken into account with respect
to adjustments required to be made pursuant to this clause
(F).
(G) In the event that at any time as a result of an
adjustment made pursuant to clause (A) of this subparagraph
(3), the holder of any share of $2.67 Preferred thereafter
surrendered
<PAGE>
CERTIFICATE OF INCORPORATION 47
for conversion shall become entitled to receive any shares of
capital stock of the Company other than Common Stock,
thereafter the number of such other shares so receivable upon
conversion of any share of $2.67 Preferred shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in clauses (A) to (F) of
this subparagraph (3) and the other provisions of this
resolution fixing terms of the $2.67 Preferred with respect to
the Common Stock, to the extent they can appropriately apply
on like terms to such other shares.
(H) The Company shall, simultaneously with any action
that would require an adjustment pursuant to this subparagraph
(3), take all necessary action to make the aggregate amount of
state capital represented by the outstanding shares of $2.67
Preferred at least equal to the aggregate par value of the
shares of Common Stock into which such shares of $2.67
Preferred will be convertible as the result of such
adjustment.
<PAGE>
48 CERTIFICATE OF INCORPORATION
(I) Whenever any adjustment is required by
this subparagraph (3), the Company shall promptly file with
each Transfer Agent, if any, for the $2.67 Preferred a
statement describing in reasonable detail the adjustment and
the method of calculation used, and mail a copy of such
statement to each holder of shares of $2.67 Preferred of
record on the date as of which such adjustment was made.
(4) The Company shall at all times on and after the issuance
of the $2.67 Preferred keep available for delivery the full number of
issued or unissued shares of Common Stock into which all outstanding
shares of $2.67 Preferred are convertible.
(5) No certificate for a fraction of a share shall be
delivered upon the conversion, but, in lieu of any fractional share
that would otherwise be required to be delivered in accordance with the
foregoing provisions, the Company shall pay to the person otherwise
entitled to such fractional share a sum in cash equal to such fraction
multiplied by the closing price (as defined in clause (E) of
subparagraph (3) of this paragraph (g)) of the Common Stock on the day
prior to the day of the conversion.
<PAGE>
CERTIFICATE OF INCORPORATION 49
(6) The certificate of any independent firm of public
accountants selected by the Board of Directors shall be evidence of the
correctness of any adjustment made pursuant to this paragraph (g). All
calculations of adjustments under this paragraph (g) shall be made to
the nearest one-thousandth of a share.
(7) Conversion of shares of $2.67 Preferred shall effect their
retirement. Shares of $2.67 Preferred otherwise reacquired by the
Company shall be retired by resolution of the Board of Directors. In
either event, the Board of Directors shall cause to be filed with the
Office of the Secretary of State of Delaware an appropriate certificate
which shall have the effect of restoring such shares to the status of
authorized but unissued shares of Preferred Stock without series
designation.
ARTICLE V
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
---- ---------------
Thomas M. Ewing Chadbourne, Parke, Whiteside & Wolff
30 Rockefeller Plaza
New York, New York 10112
<PAGE>
50 CERTIFICATE OF INCORPORATION
ARTICLE VI
Except for any By-law that by its terms states that it may be amended
or repealed only by action of the stockholders, the Board of Directors is
authorized to adopt, amend or repeal the By-laws of the Company.
ARTICLE VII
Any action required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing by stockholders.
ARTICLE VIII
1. Except as otherwise provided in Section 2 of this Article VIII, in
addition to any affirmative vote required by law, this Certificate of
Incorporation or the By-laws of the Company, the affirmative vote of at least 66
2/3% of the votes cast by the stockholders of the Company, voting together as a
single class at a meeting at which a quorum is present, shall be required for
(i) the adoption of any amendment to, or repeal of any provision of, this
Certificate of Incorporation (other than the adoption of any amendment
authorized pursuant to Section 3 of Article
<PAGE>
CERTIFICATE OF INCORPORATION 51
IV of this Certificate of Incorporation or the increase or decrease of the
number of shares of any series of Preferred Stock or the elimination thereof by
action of the Board of Directors as authorized by the General Corporation Law of
Delaware), (ii) any merger or consolidation of the Company with or into any
other corporation, (iii) any sale or lease of all or substantially all of the
assets of the Company to any other corporation, person or other entity or (iv)
the dissolution of the Company. Except as otherwise provided in Section 2 of
this Article VIII, such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage or separate class
vote may be specified, in other provisions of this Certificate of Incorporation,
by law, in any agreement with any national securities exchange or otherwise.
2. Nothing contained in Section 1 of this Article VIII shall require
the approval of the stockholders of the Company to authorize (i) a merger or
consolidation in which the Company is the surviving corporation if (A) the
agreement of merger does not amend in any respect this Certificate of
Incorporation, (B) each share of stock of the Company outstanding immediately
prior to the effective date of the merger is to be an identical outstanding or
treasury share of the Company after the effective
<PAGE>
52 CERTIFICATE OF INCORPORATION
date of the merger, and (C) either no shares of Common Stock of the Company and
no shares, securities or obligations convertible into such stock are to be
issued or delivered under the plan of merger, or the authorized unissued shares
or the treasury shares of Common Stock of the Company to be issued or delivered
under the plan of merger plus those initially issuable upon conversion of any
other shares, securities or obligations to be issued or delivered under such
plan do not exceed 20% of the shares of Common Stock of the Company outstanding
immediately prior to the effective date of the merger, or (ii) a merger into the
Company of any other corporation if at least 90% of the outstanding shares of
each class of stock of such other corporation is owned by the Company.
ARTICLE IX
1. Except as otherwise provided for, or fixed by, or pursuant
to the provisions of Article IV of this Certificate of Incorporation relating to
the rights of holders of any class or series of stock to the rights of holders
of any class or series of stock having a preference over the Common Stock, the
number of the directors of the Company shall be fixed from time to time by or
pursuant to the By-laws of the Company but shall not exceed 20. The director,
other than those who may be elected by the holders of any class or series of
stock having a preference
<PAGE>
CERTIFICATE OF INCORPORATION 53
over the Common Stock, shall be classified, with respect to the time for which
they severally hold office, into three classes, as nearly equal in number as
reasonably possible, with the directors in each class to hold office until their
successors are elected and qualified. Each member of the Board of Directors in
the first class of directors shall hold office until the Annual Meeting of
stockholders in 1987, each member of the Board of Directors in the second class
of stockholders in 1988 and each member of the Board of Directors in the third
class of directors shall hold office until the Annual Meeting of stockholders in
1989. At each annual meeting of the stockholders of the Company, the successors
to the class of directors whose terms expire at that meeting shall be elected to
hold office for terms expiring at the later of the annual meeting of
stockholders held in the third year following the year of their election or the
election and qualification of the successors to such class of directors.
2. Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock, nominations for the election of
directors may be made by the Board of Directors or by any record owner of stock
of the Company authorized to be issued from time to time under Article IV of
this Certificate of Incorporation and entitled to be voted generally in the
election of directors
<PAGE>
54 CERTIFICATE OF INCORPORATION
("Voting Stock"). Any such stockholder, however, may nominate one or more
persons for election as director at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company not later than (a) with respect to an election to be
held at an annual meeting of stockholders, one hundred twenty (120) days in
advance of such meeting, and (b) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the earlier of (i) the date on which
notice of such meeting is first given to stockholders and (ii) the date on which
the public announcement of such meeting is first made. Each such notice shall
include: (1) the name and address of each stockholder of record who intends to
appear in person or by proxy to make the nomination and of the person or persons
to be nominated; (2) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (3) such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the
<PAGE>
CERTIFICATE OF INCORPORATION 55
proxy rules of the Securities and Exchange Commission; and (4) the consent of
each nominee to serve as a director of the Company if so elected. The chairman
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
3. Except as otherwise provided for, or fixed by, or pursuant to the
provisions of Article IV of this Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock, newly created directorships resulting from any increase in the
number of directors or any vacancy on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
<PAGE>
56 CERTIFICATE OF INCORPORATION
4. Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, any one or more
directors of the Company may be removed, only for cause, only by the affirmative
vote of at least 80% of the combined voting power of the then outstanding shares
of Voting Stock, voting together as a single class, at any annual meeting of
stockholders of the Company or at any special meeting of stockholders of the
Company, the notice of which shall state that the removal of a director or
directors is among the purposes of the meeting.
5. Notwithstanding any other provision of this Certificate of
Incorporation or the By-laws of the Company (and notwithstanding the fact that
the lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation or the By-laws of the Company), the affirmative
vote of at least 80% of the combined voting power of the then outstanding shares
of Voting Stock, voting together as a single class, shall be required to amend
or repeal, or adopt any provisions inconsistent with, this Article IX; provided,
however, that the preceding provisions of this Section 5 shall not apply to any
amendment to this Article IX, and such amendment shall require only such
affirmative vote as is required by law and any other provisions of this
Certificate of Incorpora-
<PAGE>
CERTIFICATE OF INCORPORATION 57
tion or the By-laws of the Company, if such amendment shall have been approved
by at least three-fourths of the members of the Board of Directors then in
office.
ARTICLE X
No director of the Company shall be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that the foregoing clause shall not apply to any
liability of a director to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor the repeal of
this Article X, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article X, shall be effective with respect
to any cause of action, suit, claim or other matter that, but for this Article
X, would accrue or arise prior to such amendment, repeal or adoption of an
inconsistent provision.
<PAGE>
58 CERTIFICATE OF INCORPORATION
ARTICLE XI
The Company reserves the right to amend, alter or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by statute, and all rights of stockholders herein are subject to this
reservation.
THE UNDERSIGNED, being the sole incorporator above named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, has signed this instrument on the 30th day of September, 1985 and does
thereby acknowledge that it is his act and deed and that the facts stated herein
are true.
THOMAS M. EWING
Sole Incorporator
<PAGE>
32 CERTIFICATE OF INCORPORATION
The following endorsement appears on the Certificate of Incorporation
as originally filed with the Secretary of State of the State of Delaware:
"FILED
Oct 1 1985
11:50 A.M.
MICHAEL HARKINS
SECRETARY OF STATE."
<PAGE>
AMENDMENT TO
CERTIFICATE OF DESIGNATION
OF
SERIES JUNIOR PARTICIPATING
PREFERRED STOCK
of
AMERICAN BRANDS, INC.
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
We, William J. Alley, Chairman of the Board of American Brands, Inc. a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Company"), and Louis F. Fernous, Jr., Secretary of the
Company, in accordance with the provisions of Section 151 thereof, DO HEREBY
CERTIFY:
1. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Company, the Board of Directors on
June 10, 1986 created a series of 600,000 shares of Preferred Stock designated
as Series A
<PAGE>
A-2
Junior Participating Preferred Stock, of which no shares have been issued.
2. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation and the General Corporation Law of the State
of Delaware, the Board of Directors on December 13, 1987 adopted the following
resolution amending the Series A Junior Participating Preferred Stock:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of this Company in accordance with the provisions of its Certificate
of Incorporation and the General Corporation Law of the State of Delaware, the
designation and amount of the Series A Junior Participating Preferred Stock
created by the Board of Directors on June 10, 1986 and the voting powers,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, are hereby amended to read in their entirety as follows:
SECTION 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" ("Series A
Preferred Stock") and the number of shares constituting such series shall be
1,400,000. Such number
<PAGE>
A-3
of shares may be adjusted by appropriate action of the Board of Directors.
SECTION 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share amount of all cash
dividends contemporaneously declared on the Common Stock of the Company
presently of the par value of $3.125 per share ("Common Stock") and (ii) a
preferential cash dividend ("Preferential Dividends"), if any, on the tenth day
of March, June, September and December of each year (each a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount equal to $10 per share of Series A Preferred Stock less the
per share amount of all cash dividends declared on the Series A Preferred Stock
pursuant to clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of
<PAGE>
A-4
any share or fraction of a share of Series A Preferred Stock. In the event the
Company shall, at any time after the issuance of any share or fraction of a
share of Series A Preferred Stock, make any distribution on the shares of Common
Stock of the Company, whether by way of a dividend or a reclassification of
stock, a recapitalization, reorganization or partial liquidation of the Company
or otherwise, which is payable in cash or any debt security, debt instrument,
real or personal property or any other property (other than cash dividends
subject to the immediately preceding sentence and other than a distribution of
rights or warrants to acquire any such share, including any debt security
convertible into or exchangeable for any such share, at a price less than the
Current Market Price of such share), then and in each such event the Company
shall simultaneously pay on each then outstanding share of Series A Preferred
Stock of the Company a distribution, in like kind, of 100 times (subject to the
provisions for adjustment hereinafter set forth) such distribution paid on a
share of Common Stock. The dividends and distributions on the Series A Preferred
Stock to which holders thereof are entitled pursuant to clause (i) of the first
sentence of this paragraph and pursuant to the second sentence of
<PAGE>
A-5
this paragraph are hereinafter referred to as "Participating Dividends" and the
multiple of such cash and non-cash dividends on the Common Stock applicable to
the determination of the Participating Dividends, which shall be 100 initially
but shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple". In the event the Company shall at any
time after December 31, 1987 declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Participating Dividends which holders of
shares of Series A Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Company shall declare each Participating Dividend at the same
time it declares any cash
<PAGE>
A-6
or non-cash dividend or distribution on the Common Stock in respect of which a
Participating Dividend is required to be paid. No cash or non-cash dividend or
distribution on the Common Stock in respect of which a Participating Dividend is
required to be paid shall be paid or set aside for payment on the Common Stock
unless a Participating Dividend in respect of such dividend or distribution on
the Common Stock shall be simultaneously paid, or set aside for payment, on the
Series A Preferred Stock.
(C) Preferential Dividends shall begin to accrue on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issuance of any shares of Series A Preferred Stock.
Accrued but unpaid Preferential Dividends shall cumulate but shall not bear
interest. Preferential Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
SECTION 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
<PAGE>
A-7
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Company. The number of votes which a holder of
Series A Preferred Stock is entitled to cast, as the same may be
adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Vote Multiple". In the event the Company shall at
any time after December 13, 1987 declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or
split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, then in each such case the Vote Multiple
thereafter applicable to the determination of the number of votes per
share to which holders of shares of Series A Preferred Stock shall be
entitled after such event shall be the Vote Multiple immediately prior
to such event multiplied by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
<PAGE>
A-8
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Company.
(C) In the event that the Preferential Dividends accrued on the Series
A Preferred Stock for four or more quarterly dividend periods, whether
consecutive or not, shall not have been declared and paid or set apart for
payment, the holders of record of preferred stock of the Company of all series
(including the Series A Preferred Stock), other than any series in respect of
which the right is expressly withheld by the Certificate of Incorporation or the
authorizing resolutions included in the Certificate of designation therefor,
shall have the right, at the next meeting of stockholders called for the
election directors, to elect two members of the Board of Directors, which
directors shall be in addition to the number required by the By-laws prior to
such event, to serve until the next annual meeting of the stockholders and until
their successors are elected and qualified or their earlier resignation, removal
or incapacity or until such earlier time as all accrued and unpaid Preferential
Dividends upon the outstanding
<PAGE>
A-9
shares of Series A Preferred Stock shall have been paid (or set aside
for payment) in full. The holders of shares of Series A Preferred Stock
shall continue to have the right to elect directors as provided by the
immediately preceding sentence until all accrued and unpaid
Preferential Dividends upon the outstanding shares of Series A
Preferred Stock shall have been paid (or set aside for payment) in
full. Such directors may be removed and replaced by such stockholders,
and vacancies in such directorships may be filled only by such
stockholders (or by the remaining director elected by such
stockholders, if there be one) in the manner permitted by law;
provided, however, that any such action by stockholders shall be taken
at a meeting of stockholders and shall not be taken by written consent
thereof.
(D) Except as otherwise required by law or set forth herein,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
the taking of any corporate action.
SECTION 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Participating Dividends are in
arrears or the Company
<PAGE>
A-10
shall be in default of payment thereof, thereafter and until all accrued and
unpaid Preferential Dividends and Participating Dividends, whether or not
declares, on shares of Series A Preferred Stock outstanding shall have been paid
or set aside for payment in full, and in addition to any and all other rights
which any holder of shares of Series A Preferred Stock may have in such
circumstances, the Company shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to, the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity as to
dividends with the Series A Preferred Stock, unless dividends are paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) except as permitted by subparagraph (iv) of this paragraph 4(A),
redeem or purchase or otherwise acquire for consideration shares of
<PAGE>
A-11
any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Company ranking junior (both as to dividends
and upon liquidation, dissolution or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock (either as to dividends or
upon liquidation, dissolution or winding up), except in accordance with
a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise
<PAGE>
A-12
acquire for consideration any shares of stock of the Company unless the Company
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
(C) The Company shall not issue any shares of Series A Preferred Stock
except upon exercise of Rights issued pursuant to that certain Rights Agreement
dated as of December 13, 1987 between the Company and Morgan Shareholder
Services Trust Company, a copy of which is on file with the Secretary of the
Company at its principal executive office and shall be made available to
stockholders of record without charge upon written request therefor addressed to
the Secretary. Notwithstanding the foregoing sentence, nothing contained in the
provisions hereof shall prohibit or restrict the Company from issuing for any
purpose any series of preferred stock with rights and privileges similar to,
different from, or greater than, those of the Series A Preferred Stock.
SECTION 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. The Company shall
cause all such shares upon their retirement and cancella-
<PAGE>
A-13
tion to become authorized but unissued shares of preferred stock, without
designation as to a series, and such shares may be reissued as part of a new
series of preferred stock to be created by resolution or resolutions of the
Board of Directors.
SECTION 6. Liquidation, dissolution or Winding Up. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company, no
distribution shall be made (i) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless the holders of shares of Series A Preferred
Stock shall have received, subject to adjustment as hereinafter provided, (A)
$100 per share plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(B) if greater than the amount specified in clause (i)(A) of this sentence, the
amount equal to 100 times the aggregate amount to be distributed per share to
holders of Common Stock, or (ii) to the holders of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred Stock,
unless simultaneously therewith distributions are made ratably on the Series A
Preferred Stock and all other shares of such parity stock in proportion to the
total amounts to which
<PAGE>
A-14
the holders of shares of Series A Preferred Stock are entitled under clause
(i)(A) of this sentence and to which the holders of such parity shares are
entitled, in each case upon such liquidation, dissolution or winding up. The
amount to which holders of Series A Preferred Stock may be entitled upon
liquidation, dissolution or winding up of the Company pursuant to clause (i)(B)
of the foregoing sentence is hereinafter referred to as the "Participating
Liquidation Amount" and the multiple of the amount to be distributed to holders
of shares of Common Stock upon the liquidation, dissolution or winding up of the
Company applicable pursuant to such clause to the determination of the
Participating Liquidation Amount, as such multiple may be adjusted from time to
time as hereinafter provided, is hereinafter referred to as the "Liquidation
Multiple". In the event the Company shall at any time after December 13, 1987
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or split or a combination, consolidation or reverse
split of the outstanding shares of Common Stock into a greater or lesser number
of shares of Common Stock, then in each such case the Liquidation Multiple
thereafter applicable to the determination of the Participating Liquidation
Amount to which holders of Series A Preferred Stock shall be entitled after such
event shall be the
<PAGE>
A-15
Liquidation Multiple applicable immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the Company
receive after December 13, 1987 in respect of their shares of Common Stock any
share of capital stock of the Company (other than any share of Common Stock of
the Company), whether by the way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise ("Transaction"),
then and in each such event the dividend rights, voting rights and rights upon
the liquidation, dissolution or winding up of the Company of the shares of
Series A Preferred Stock shall be adjusted so that after such event the holders
of Series A Preferred Stock shall be entitled, in respect of each share of
Series A Preferred Stock held, in addition to such rights in respect thereof to
which such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple
<PAGE>
A-16
in effect immediately prior to such Transaction multiplied by the additional
dividends which the holder of a share of Common Stock shall be entitled to
receive by virtue of the receipt in the Transaction of such capital stock, (ii)
such additional voting rights as equal the Vote Multiple in effect immediately
prior to such Transaction multiplied by the additional voting rights which the
holder of a share of Common Stock shall be entitled to receive by virtue of the
receipt in the Transaction of such capital stock and (iii) such additional
distributions upon liquidation, dissolution or winding up of the Company as
equal the Liquidation Multiple in effect immediately prior to such Transaction
multiplied by the additional amount which the holder of a share of Common Stock
shall be entitled to receive upon liquidation, dissolution or winding up of the
Company by virtue of the receipt in the Transaction of such capital stock, as
the case may be, all as provided by the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the Company
receive after December 13, 1987 in respect of their shares of Common Stock any
right or warrant to purchase Common Stock (including as such a right, for all
purposes of this paragraph, any security convertible into or exchangeable for
Common Stock) at a purchase price per share less than the Current Market Price
<PAGE>
A-17
(as hereinafter defined) of a share of Common Stock on the date of issuance of
such right or warrant, then and in each such event the dividend rights, voting
rights and rights upon the liquidation, dissolution or winding up of the Company
of the shares of Series A Preferred Stock shall be adjusted so that after such
event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple
shall each be the product of the Dividend Multiple, the Vote Multiple and the
Liquidation Multiple, as the case may be, in effect immediately prior to such
event multiplied by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock which could be
acquired upon exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of shares
of Common Stock which could be purchased, at the Current Market Price of the
Common Stock at the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.
(C) In event that holders of shares of Common Stock of the Company
receive after December 13, 1987 in respect of their shares of Common Stock any
<PAGE>
A-18
right or warrant to purchase capital stock of the Company (other than shares of
Common Stock), including as such a right, for all purposes of this paragraph,
any security convertible into or exchangeable for capital stock of the Company
(other than Common Stock), at a purchase price per share less than the Current
Market Price of such shares of capital stock on the date of issuance of such
right or warrant, then and in each such event the dividend rights, voting rights
and rights upon liquidation, dissolution or winding up of the Company of the
shares of Series A Preferred Stock shall each be adjusted to that after such
event each holder of a share of Series A Preferred Stock shall each be entitled,
in respect of each share of Series A Preferred Stock held, in addition to such
rights in respect thereof to which such holder was entitled immediately prior to
such event, to receive (i) such additional dividends as equal the Dividend
Multiple in effect immediately prior to such event multiplied, first, by the
additional dividends to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the stock capital
which could be acquired upon such exercise and multiplied again by the Discount
Fraction (as hereinafter defined) and (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such event multiplied,
<PAGE>
A-19
first, by the additional voting rights to which the holder of a share of Common
Stock shall be entitled upon exercise of such right of warrant by virtue of the
capital stock which could be acquired upon such exercise and multiplied again by
the Discount Fraction and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such event multiplied, first, by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Company upon exercise of such
right or warrant by virtue of the capital stock which could be acquired upon
such exercise and multiplied again by the Discount Fraction. For purposes of
this paragraph, the "Discount Fraction" shall be a fraction the numerator of
which shall be the difference between the Current Market Price (as hereinafter
defined) of a share of the capital stock subject to a right or warrant
distributed to holders of shares of Common Stock of the Company as contemplated
by this paragraph immediately after the distribution thereof and the purchase
price per share for such share of capital stock pursuant to such right or
warrant and the denominator of which shall be the Current Market Price of a
share of such capital stock immediately after the distribution of such right or
warrant.
<PAGE>
A-19
(D) For purposes of this Section 7, the "Current Market Price" of a
share of capital stock of the Company (including a share of Common Stock) on any
date shall be deemed to be the average of the daily closing prices per share
thereof over the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that, in the event
that such Current Market Price of any such share of capital stock is determined
during a period which includes any date that is within 30 Trading Days after the
ex-dividend date for (i) a dividend or distribution on stock payable in shares
of such stock or securities convertible into shares of such stock, or (ii) any
subdivision, split, combination, consolidation, reverse stock split or
reclassification of such stock, then, and in each such case, the Current Market
Price shall be appropriately adjusted by the Board of Directors of the Company
to reflect the Current Market Price of such stock to take into account
ex-dividend trading. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the shares
are not listed or
<PAGE>
A-21
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares are listed or
admitted to trading or, if the shares are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or if on any such
date the shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the shares selected by the Board of Directors of the Company. The
term "Trading Day" shall mean a day on which the principal national securities
exchange on which the shares are listed or admitted to trading is open for the
transaction of business or, if the shares are not listed or admitted to trading
on any national securities exchange, on which the New York Stock Exchange or
such other national securities exchange as may be selected by the Board of
Directors of the Company is open. If the shares are not publicly held or not so
listed or traded on any day within the period of 30 Trading
<PAGE>
A-22
Days applicable to the determination of Current Market Price thereof as
aforesaid, "Current Market Price" shall mean the fair market value thereof per
share as determined in good faith by the Board of Directors of the Company. In
either case referred to in the foregoing sentence, the determination of Current
Market Price shall be described in a statement filed with the Secretary of the
Company.
SECTION 8. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock securities,
cash and/or any other property, then in any such case each outstanding share of
Series A Preferred Stock shall at the same time be similarly exchanged for or
changed into the aggregate amount of stock, securities, cash and/or other
property (payable in like kind), as the case may be, for which or into which
each share of Common Stock is changed or exchanged multiplied by the highest of
the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect
immediately prior to such event.
SECTION 9. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective
<PAGE>
A-23
as of the time at which the event requiring such adjustments occurs.
(B) The Company shall give prompt written notice to each holder of a
share of Series A Preferred Stock of the effect of any adjustment to the voting
rights, dividend rights or rights upon liquidation, dissolution or winding up of
the Company of such shares required by the provisions hereof. Notwithstanding
the foregoing sentence, the failure of the Company to give such notice shall not
affect the validity of or the force or effect of or the requirement for such
adjustment.
SECTION 10. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable at the option of the Company or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the Company may acquire
shares of Series A Preferred Stock in any other manner permitted by law, the
provisions hereof and the Certificate of Incorporation of the Company.
SECTION 11. Ranking. Unless otherwise provided in the Certificate of
Incorporation of the Company or a Certificate of Designation relating to a
subsequent series of preferred stock of the Company, the Series A Preferred
Stock shall rank junior to all other series of the Company's preferred stock as
to the payment of dividends and the distribution
<PAGE>
A-24
of assets on liquidation, dissolution or winding up and senior to the Common
Stock.
SECTION 12. Amendment. The provisions hereof and the Certificate of
Incorporation of the Company shall not be amended in any manner which would
materially affect the rights, privileges or powers of the Series A Preferred
Stock without, in addition to any other vote of stockholders required by law,
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 23rd day
of December, 1987.
WILLIAM J. ALLEY
---------------------
William J. Alley
Chairman of the Board
LOUIS F. FERNOUS, JR.
----------------------
Louis F. Fernous, Jr.
Secretary
ATTEST:
THERESA B. FEALEY
------------------------
Theresa B. Fealey
Assistant Secretary
EXHIBIT 3(ii)a
AMERICAN BRANDS, INC.
BY-LAW AMENDMENT
ADOPTED ON APRIL 30, 1997
EFFECTIVE APRIL 30, 1997
Article XII was repealed in its entirety.
EXHIBIT 3(ii)b
--------------
BY-LAWS
of
FORTUNE BRANDS, INC.
(As Amended)
ARTICLE I
Directors
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at twelve. The number of the directors
may be altered by amendment of these By-laws, which amendment may be adopted at
any regular or special meeting of the Board of Directors by the affirmative vote
of at least two-thirds of all the directors then in office.
Section 2. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any director
of the Company may resign at any time upon written notice to the Company. Except
as otherwise provided for, or fixed by, or pursuant to the provisions of Article
IV of the Certificate of Incorporation relating to the rights of the holders of
any class or series of stock having a preference over the
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<PAGE>
2 BY-LAWS
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Common Stock, newly created directorships resulting from any increase in the
number of directors or any vacancy on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director.
Section 3. In order to qualify to hold office as a director of the
Company, a person must hold at least one share of stock of the Company.
Section 4. The directors may hold their meetings and have an office and
keep the books of the Company in Old Greenwich, Connecticut, or elsewhere
outside of the State of Delaware.
Section 5. The Board of Directors, by resolution adopted by a majority
of the entire Board, may appoint from among its members an Executive Committee
which shall have at least three members. To the extent provided in such
resolution, such committee shall have and may exercise all the powers and
authority of the Board, including the power to authorize the seal of the Company
to be affixed to all papers that require it, except that such
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<PAGE>
BY-LAWS 3
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committee shall not have such power and authority in reference to
(1) amending the Certificate of Incorporation (except that
such committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Company or the
conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Company or fix the number of shares of
any series of stock or authorize the increase or decrease of the shares
of any series);
(2) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of
Delaware;
(3) recommending to the stockholders any action that requires
stockholders' approval;
1-1-86
<PAGE>
4 BY-LAWS
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(4) making, amending or repealing any By-law of the Company;
(5) electing or appointing any director, or removing any
officer or director;
(6) amending or repealing any resolution theretofore adopted
by the Board of Directors;
(7) fixing compensation of the directors for serving on the
Board of Directors or on any committee; or
(8) unless the resolution shall expressly so provide,
declaring a dividend, authorizing the issuance of stock or
adopting a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
Actions taken at a meeting of such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting; except
that, when the meeting of the Board is held within two days after the committee
meeting, such report shall be made to the Board at either its first or second
meeting following such committee meeting.
1-1-86
<PAGE>
BY-LAWS 5
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ARTICLE II
Meetings of Stockholders
Section l. The annual meeting of the stockholders of the Company for
the election of directors, and such other business as may properly come before
the meeting, shall be held at such place as may from time to time be designated
by the directors, on the first Wednesday of May, at ten o'clock in the forenoon,
or at such other hour as the directors may designate, or on such other day and
at such hour as the directors may designate. If the day fixed for the meeting is
a legal holiday, the meeting shall be held at the same hour on the next business
day which is not a legal holiday.
Section 2. Special meetings of the stockholders, to be held at such
place as may from time to time be designated by the directors, may be called
only by the Chairman of the Board, the President or the Board of Directors, by
resolution adopted by a majority of the entire Board, for such purposes as shall
be specified in the call.
Section 3. Except as otherwise provided by law, due notice of each
annual meeting of the stockholders shall be given by a written or printed notice
signed by the Secretary
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<PAGE>
6 BY-LAWS
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or an Assistant Secretary of the Company and mailed, postage prepaid, at least
ten days prior to such meeting to each stockholder of record entitled to vote
thereat appearing on the books of the Company at the address given thereon.
Due notice of each special meeting shall be given also in the manner
above provided. The notice shall state the object of the special meeting, and no
other business shall be transacted at such meeting.
Section 4. The holders of a majority in voting power of the outstanding
shares of capital stock entitled to vote, present in person or represented by
proxy, shall constitute a quorum at a meeting of stockholders. Except as
otherwise required by law or the Certificate of Incorporation, the affirmative
vote of shares representing a majority in voting power of the shares present in
person or represented by proxy at a meeting at which a quorum is present and
entitled to vote on the subject matter shall be the act of the stockholders, and
except that directors shall be elected by a plurality of votes cast at an
election. The stockholders present at a duly convened meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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BY-LAWS 7
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Section 5. Each meeting of the stockholders, whether annual or special,
shall be presided over by the Chairman of the Board if present, and if he is not
present by the President if present. If neither officer specified in the
preceding sentence is present, the meeting shall be presided over by the person
designated in writing by the Chairman of the Board, or if the Chairman of the
Board has made no designation, by the person designated by the President, or if
the President has made no designation, by the person designated by the Board of
Directors. If neither officer specified in the first sentence of this section is
present, and no one designated by the Chairman of the Board or the President or
the Board of Directors is present, the meeting may elect any stockholder of
record who is entitled to vote for directors, or any person present holding a
proxy for such a stockholder, to preside. The Secretary of the Company (or in
his absence any Assistant Secretary) shall be the Secretary of any such meeting;
in the absence of the Secretary and Assistant Secretaries, any person may be
elected by the meeting to act as Secretary of the meeting.
Section 6. Any voting proxy given by a stockholder must be in writing,
executed by the stockholder, or, in lieu thereof, to the extent permitted by
law, may be transmitted in a telegram, cablegram or other means of
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<PAGE>
8 BY-LAWS
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electronic transmission setting forth or submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. A copy, facsimile transmission
or other reliable reproduction of a written or electronically-transmitted proxy
authorized by this Section 6 may be substituted for or used in lieu of the
original writing or electronic transmission to the extent permitted by law.
Section 7. Any previously scheduled annual or special meeting of
stockholders may, by resolution of the Board of Directors, be postponed upon
public announcement made prior to the date previously scheduled for such meeting
of stockholders. For purposes of this Article II, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The
person presiding over any meeting of stockholders, or a majority of the voting
power of the shares entitled to vote, present in person or represented by proxy,
even if less than a quorum, may adjourn the meeting from time to time. No notice
of the time and
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<PAGE>
BY-LAWS 9
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place of adjourned meetings need be given except as required by law.
Section 8. The directors shall appoint one or more inspectors of
election and of the vote at any time prior to the date of any meeting of
stockholders at which an election is to be held or a vote is to be taken. In the
event any inspector so appointed is absent from such meeting or for any other
reason fails to act as such at the meeting, the person presiding pursuant to
these By-laws may appoint a substitute who shall have all the powers and duties
of such inspector. The inspector or inspectors so appointed shall act at such
meeting, make such reports thereof and take such other action as shall be
provided by law and as may be directed by the person presiding over the meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Section 9. The directors may, at any time prior to any annual or
special meeting of the stockholders, adopt an order of business for such meeting
which shall be the order of business to be followed at such meeting. The date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at
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<PAGE>
10 BY-LAWS
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such meeting shall be announced at such meeting by the person presiding over
such meeting.
Section l0. At any meeting of stockholders a stock vote shall be taken
on any resolution or other matter presented to the meeting for action if so
ordered by the person presiding over the meeting or on the demand of any
stockholder of record entitled to vote at the meeting or any person present
holding a proxy for such a stockholder. Such order or demand for a stock vote
may be made either before or after a vote has been taken on such resolution or
other matter in a manner other than by stock vote and before or after the result
of the vote taken otherwise than by stock vote has been announced. The result of
a stock vote taken in accordance with this By-law shall supersede the result of
any vote previously taken in any manner other than by stock vote.
Section 11. (A) Nominations of persons for election to the Board of
Directors of the Company may be made as provided in the Certificate of
Incorporation. The proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (1) pursuant to
the Company's notice of meeting, (2) by or at the direction of the Board of
Directors or (3) by any stockholder of the Company who was a stockholder of
record at the time of giving of the notice provided for
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<PAGE>
BY-LAWS 11
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in this Section 11, who is entitled to vote thereon at the meeting and who
complies with the notice procedures set forth in this Section 11.
(B) For business (other than the nomination of persons for election to
the Board of Directors) to be properly brought before an annual meeting by a
stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a stockholder's notice shall be delivered, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
not later than one hundred twenty (120) days in advance of such meeting. Such
stockholder's notice shall set forth (1) a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made and (2) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (a) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial owner
and (b) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
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12 BY-LAWS
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(C) The person presiding over an annual meeting of stockholders shall
have the power and duty to determine whether any business proposed by any
stockholder to be brought before the meeting was made in accordance with the
procedures set forth in this Section 11 and, if any proposed business is not in
compliance with this Section 11, to declare that such defective proposal shall
be disregarded.
(D) In addition to the foregoing provisions of this Section 11, a
stockholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule l4a-8 under such
Act.
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<PAGE>
BY-LAWS 13
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ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held at
the office of the Company in Old Greenwich, Connecticut, or at such other place
as may from time to time be designated by the directors, the Chairman of the
Board or the President, at ten o'clock in the forenoon on the last Tuesday of
each month other than March, May, June, August and December and at three o'clock
in the afternoon on the day on which the annual meeting of stockholders is held.
If any such day shall be a holiday, the meeting scheduled for that day shall be
held on the next business day. Special meetings may be held as determined by the
Board of Directors, and may be called by the Chairman of the Board at any time
and shall be called by him on the request of three directors, or, if the
Chairman of the Board fails to call such meeting when so requested, the same may
be called by any three directors.
Section 2. No notice need be given of regular meetings of the
directors, except that at least one day's notice shall be given of any place
other than the office of the Company in Old Greenwich, Connecticut at which any
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14 BY-LAWS
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such meeting is to be held, but such notice need not be given to any director
who signs a written waiver of notice before or after the meeting. Attendance of
a director at a meeting shall constitute a waiver of notice of such meeting,
except when the director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 3. At any meeting six directors shall constitute a quorum
unless otherwise provided for in these By-laws or in the Certificate of
Incorporation or in any applicable statute, but in no case less than one-third
of all the directors then in office.
Section 4. Members of the Board of Directors or of any Committee
thereof may participate in meetings of the Board of Directors or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 5. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of such committee,
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as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or of such
committee.
ARTICLE IV
Officers
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a
President, an Executive Vice President, one or more Senior Vice Presidents (if
any), a principal financial officer, such other Vice Presidents (if any) as it
shall determine, a Secretary, a Treasurer and a Controller, who need not be
directors.
Section 2. The Board of Directors may elect other officers and define
their powers and duties.
Section 3. Any two offices not inconsistent with each other may be held
by the same person.
Section 4. All officers elected by the Board of Directors shall hold
office, subject to removal by the Board, until their successors are chosen and
qualified. The affirmative vote of at least two-thirds of all of the directors
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then in office shall be required to remove or reduce the salary of any officer
elected by the Board of Directors.
Section 5. All agents and employees shall be appointed and may be
removed by the Chairman of the Board, subject to the control of the Board of
Directors.
Section 6. Vacancies among officers of the Company shall be filled as,
and to the extent that, the Board of Directors shall determine by vote of a
majority of the directors present at any regular or special meeting at which not
less than a majority of all the directors then in office are present.
Section 7. The Chairman of the Board shall be the Chief Executive
Officer of the Company and shall have general direction of its business affairs,
subject, however, to the control of the Board of Directors. He shall, if
present, preside at all meetings of the Board of Directors and shall perform
such other duties and have such responsibilities as the Board may from time to
time determine.
Section 8. At the request of the Chairman of the Board, or in case of
his absence or disability, the President shall perform the duties of the
Chairman of the Board, subject to the control of the Board of Directors, and the
President shall have such other powers and
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perform such other duties as shall at any time be delegated to him by the Board
Of Directors. The Executive Vice President and the Senior Vice Presidents (if
any) and such other Vice Presidents as shall have been chosen shall have such
powers and perform such duties as shall at any time be delegated to them by the
Board of Directors.
Section 9. The Secretary shall give the requisite notice of meetings of
stockholders and directors and shall record the proceedings of such meetings,
shall have the custody of the seal of the Company and shall affix it or cause it
to be affixed to such instruments as require the seal and attest it and, besides
his powers and duties prescribed by law, shall have such other powers and
perform such other duties as shall at any time be required of him by the Board
of Directors.
Section 10. The Assistant Secretaries shall assist the Secretary in the
discharge of his duties and shall have such powers and perform such other duties
as shall at any time be delegated to them by the Board of Directors, and in the
absence or disability of the Secretary, shall perform the duties of his office,
subject to the control of the Board.
Section 11. The Treasurer shall have charge of the funds and securities
of the Company and shall have such
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powers and perform such duties as shall at any time be delegated to him by the
Board of Directors.
Section 12. The Assistant Treasurers shall assist the Treasurer in the
discharge of his duties and shall have such powers and perform such other duties
as shall at any time be delegated to them by the Board of Directors, and in the
absence or disability of the Treasurer, shall perform the duties of his office
subject to the control of the Board.
Section 13. Any other officer, agent or employee of the Company may be
required to give such security for the faithful performance of his duties as
shall be determined by the Board of Directors, who shall also determine the
custody of any security given.
ARTICLE V
Salaries
Section 1. The salaries of all officers elected by the Board of
Directors who hold offices of a rank of Vice President or above shall be fixed
by the Compensation and Stock Option Committee.
Section 2. Salaries of all other officers elected by the Board and all
other agents and employees shall be fixed by or in the manner determined by the
Board.
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Section 3. The Board of Directors, by the affirmative vote of a
majority of directors in office and irrespective of any personal interest of any
directors, shall have authority to establish reasonable compensation of
directors for services to the Company as directors, officers or otherwise,
except that the Compensation and Stock Option Committee, by the affirmative vote
of a majority of Committee members in office and irrespective of any personal
interest of any Committee members or other directors, shall have authority to
establish such compensation of directors who also are officers elected by the
Board and hold offices of a rank of Vice President or above.
ARTICLE VI
Seal
Section 1. The Seal of the Company shall be in such form as the Board
of Directors may from time to time prescribe and it may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VII
Signatures on Commercial
Instruments and Contracts
Section 1. All checks or bank drafts shall be signed
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by any two of the following named officers: Chairman of the Board, President,
the principal financial officer, the principal accounting officer, any Vice
President, Secretary, any Assistant Secretary, Treasurer, any Assistant
Treasurer, Controller, any Assistant Controller; and in such other manner as the
Board of Directors may from time to time designate.
Section 2. All notes or other obligations or contracts shall be signed
by the Chairman of the Board, the President, the principal financial officer,
the principal accounting officer, or any Vice President and also by one of the
following officers: the Secretary, an Assistant Secretary, the Treasurer, an
Assistant Treasurer, the Controller, or an Assistant Controller (provided that
no individual shall sign the same instrument in two capacities), or shall be
signed by the Chairman of the Board, the President, the principal financial
officer, the principal accounting officer, or any Vice President, with the
corporate seal or a facsimile thereof affixed thereto or imprinted thereon,
attested by the Secretary or an Assistant Secretary; or such notes, obligations
or contracts shall be signed in such manner and by one or more of such officers
or other persons on behalf of the Company as the Board of Directors may from
time to time authorize or direct. When and as authorized or directed by the
Board of Directors, the signatures of such officers or
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other persons or any of them signing on behalf of the Company may be facsimiles.
ARTICLE VIII
Capital Stock
Section 1. Certificates of the capital stock of the Company shall be
issued for shares duly numbered and registered in the order of their issue, and
shall be in the form the directors shall prescribe.
Section 2. The capital stock shall be transferable on the transfer
books of the Company, subject to these By-laws, by the owner in person, or by
attorney or legal representative, written evidence of whose authority shall be
filed with the Company.
Section 3. No transfer of capital stock can be required except upon
surrender and cancellation of the certificate representing the same.
Section 4. The Board of Directors may at any time, in its discretion,
appoint one or more transfer agents or registrars of the shares of stock of the
Company and terminate the appointment of any transfer agent or registrar. The
Board of Directors may also designate the Company to perform such functions
alone or in conjunction with one or more other transfer agents or registrars.
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Section 5. (A) For the purpose of determining the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or for the purpose of determining stockholders entitled to receive
payment of any dividend or allotment of any right, or for the purpose of any
other action, the Board of Directors may fix, in advance, a date as the record
date for any such determination of stockholders. Such date shall be not more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action.
(B) When a determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders has been made as provided in this
Section 5, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date under this Section 5 for the
adjourned meeting.
ARTICLE IX
Committee on Conflicts of Interests
Section 1. The Board of Directors, by resolution adopted by a majority
of the entire Board, shall appoint a Committee on Conflicts of Interests which
shall have at
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least three members. To the extent provided by resolution of the Board, such
committee shall have the power to interpret, administer and apply the policies
of the Company as established by the Board from time to time with respect to
conflicts of interests.
ARTICLE X
Dividends
Section 1. Dividends on the Preferred Stock and the Common Stock of the
Company may be declared by the Board of Directors, at any regular or special
meeting, as provided by law and the Certificate of Incorporation.
ARTICLE XI
Amendments
Section 1. The Board of Directors shall, except as otherwise provided
in these By-laws or the Certificate of Incorporation, have the power to alter,
amend or repeal these By-laws at any meeting by the affirmative vote of
two-thirds of the directors then in office, provided notice of the proposed
alteration, amendment or repeal be given in writing to each of the directors,
and provided also that
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no alteration, amendment or repeal of a specification in any section of these
By-laws of a stated fraction of directors as the minimum number whose presence
or vote is requisite for action under such section may be made without the
presence or vote or both, as the case may be, of the minimum number so
specified.
ARTICLE XII
[Repealed effective April 30, 1997.]
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ARTICLE XIII
Indemnification
Section 1. (A) Each person (an "indemnitee") who was or is made or
threatened to be made a party to or was or is involved (as a witness or
otherwise) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she or a person of whom
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he or she is the legal representative was or is a director, officer or employee
of the Company or was or is serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding was or is alleged action in
an official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent permitted by
the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than said law permitted the Company to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees and retainers
therefor, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended, and amounts paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to
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the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Section 3 of this Article XIII with respect
to proceedings seeking to enforce rights to indemnification, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.
(B) The right to indemnification conferred in this Article XIII is and
shall be a contract right. The right to indemnification conferred in this
Article XIII shall include the right to be paid by the Company the expenses
(including attorneys' fees and retainers therefor) reasonably incurred in
connection with any such proceeding in advance of its final disposition, such
advances to be paid by the Company within 20 days after the receipt by the
Company of a statement or statements from the indemnitee requesting such advance
or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without
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limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Company of
an undertaking by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article XIII or otherwise.
Section 2. (A) To obtain indemnification under this Article XIII, an
indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to the
indemnitee and is reasonably necessary to determine whether and to what extent
the indemnitee is entitled to indemnification. Upon written request by an
indemnitee for indemnification pursuant to the first sentence of this Section
2(A), a determination, if required by applicable law, with respect to the
indemnitee's entitlement thereto shall be made as follows: (1) if requested by
the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no
request is made by the indemnitee for a determination by Independent Counsel,
(a) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (b) if a quorum of the
Board of Directors consisting of Disinterested Directors is not
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obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to the indemnitee, or (c) by the stockholders
of the Company. In the event the determination of entitlement to indemnification
is to be made by Independent Counsel at the request of the indemnitee, the
Independent Counsel shall be selected by the indemnitee unless the indemnitee
shall request that such selection be made by the Board of Directors, in which
event the Independent Counsel shall be selected by the Board of Directors. If it
is so determined that the indemnitee is entitled to indemnification, payment to
the indemnitee shall be made within 10 days after such determination.
(B) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the indemnitee is entitled to indemnification
under this Article XIII, and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
Section 3. (A) If a claim under Section 1 of this Article XIII is not
paid in full by the Company within
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30 days after a written claim pursuant to Section 2(A) of this Article XIII has
been received by the Company, or if an advance is not made within 20 days after
a request therefor pursuant to Section 1(B) of this Article XIII has been
received by the Company, the indemnitee may at any time thereafter bring suit
(or, at the indemnitee's option, an arbitration proceeding before a single
arbitrator pursuant to the rules of the American Arbitration Association)
against the Company to recover the unpaid amount of the claim or the advance
and, if successful in whole or in part, the indemnitee shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense to any
such suit or proceeding (other than a suit or proceeding brought to enforce a
claim for expenses incurred in connection with any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Company) that the indemnitee has not met the standards of
conduct which make it permissible under the General Corporation Law of the State
of Delaware for the Company to indemnify the indemnitee for the amount claimed
or that such indemnification otherwise is not permitted under the General
Corporation Law of the State of Delaware, but the burden of proving such defense
shall be on the Company.
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(B) Neither the failure of the Company (including its Board of
Directors, Independent Counsel or stockholders) to have made a determination
prior to the commencement of such action that indemnification of the indemnitee
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in the General Corporation Law of the State of Delaware,
nor an actual determination by the Company (including its Board of Directors,
Independent Counsel or stockholders) that the indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the indemnitee has not met the applicable standard of conduct.
(C) If a determination shall have been made pursuant to Section 2(A) of
this Article XIII that the indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to paragraph (A) of this Section 3.
(D) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3
that the procedures and presumptions of this Article XIII are not valid, binding
and enforceable and shall stipulate in any
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such court or before any such arbitrator that the Company is bound by all the
provisions of this Article XIII.
Section 4. The right to indemnification and the payment of expenses
incurred in connection with a proceeding in advance of its final disposition
conferred in this Article XIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
Section 5. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the General Corporation Law of the State of Delaware. To the extent that the
Company maintains any policy or policies providing such insurance, each such
director, officer or employee, and each such agent to which rights to
indemnification have been granted as provided in Section 6 of this Article XIII,
shall be covered by such policy or policies in accordance with its or their
terms to the
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maximum extent of the coverage thereunder for any such director, officer,
employee or agent.
Section 6. The Company may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Company the expenses incurred in connection with any proceeding in
advance of its final disposition, to any agent of the Company to the fullest
extent of the provisions of this Article XIII with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Company.
Section 7. If any provision or provisions of this Article XIII shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (A) the
validity, legality and enforceability of the remaining provisions of this
Article XIII (including without limitation, each portion of any Section of this
Article XIII containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (B) to the fullest extent
possible, the provisions of this Article XIII (including, without limitation,
each portion of any Section of this Article XIII containing any such provision
held to be invalid, illegal or unenforceable) shall be
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BY-LAWS 34
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construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
Section 8. For purposes of this Article XIII:
(A) "Disinterested Director" means a director of the Company who is not
and was not a party to the matter in respect of which indemnification is sought
by the indemnitee.
(B) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (1) the Company or the
indemnitee in any matter material to either such party, or (2) any other party
to the matter giving rise to a claim for indemnification. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or the indemnitee
in an action to determine the indemnitee's rights under this Article XIII.
Section 9. Any notice, request or other communication required or
permitted to be given to the Company under this Article XIII shall be in writing
and either
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35 BY-LAWS
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delivered in person or sent by telecopy, telex, telegram or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary of
the Company and shall be effective only upon receipt by the Secretary.
EXHIBIT 4a1
THIRD SUPPLEMENTAL INDENTURE dated as of May 28, 1997 between
AMERICAN BRANDS, INC., a Delaware corporation (hereinafter called the "Company")
having its principal office at 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870, and THE CHASE MANHATTAN BANK, a New York banking corporation
(formerly known as Chemical Bank, as successor by merger to Manufacturers
Hanover Trust Company), as trustee (hereinafter called the "Trustee") having its
principal corporate trust office in the Borough of Manhattan, The City of New
York.
WHEREAS, the Company and the Trustee have entered into an
Indenture dated as of July 15, 1988, a First Supplemental Indenture dated as of
November 14, 1990 and a Second Supplemental Indenture dated as of September 1,
1991, which Indenture, as amended by such First Supplemental Indenture and such
Second Supplemental Indenture (hereinafter collectively, the "Indenture"),
provides for the issuance from time to time of unsecured debentures, notes or
other evidences of indebtedness of the Company in one or more series
(hereinafter called the "Securities") up to such principal amount or amounts as
may from time to time be authorized in accordance with the terms thereof; and
WHEREAS, Section 9.02 of the Indenture provides that with the
consent of the Holders (as defined in Section 1.01 thereof) of not less than a
majority in principal amount of the Outstanding Securities (as defined in
Section 1.01 of the Indenture) of each series affected thereby (or such greater
percentage in such principal amount as may be specified with respect to the
Securities of such series pursuant to Section 3.01 of the Indenture), by Act (as
defined in Section 1.01 of the Indenture) of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution (as
defined in Section 1.01 of the Indenture), and the Trustee may enter into an
indenture or indentures supplemental thereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under the Indenture, subject to certain conditions;
and
WHEREAS, the Company has requested the Trustee to enter into
this Third Supplemental Indenture; and
WHEREAS, the Company desires to (i) amend Sections 1.01, 8.01
and 8.02 of the Indenture and (ii) add a Section 8.04 to the Indenture; and
<PAGE>
WHEREAS, all things necessary to make this Third Supplemental
Indenture a valid indenture supplemental to the Indenture have been done;
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is hereby
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE I
AMENDMENT OF THE INDENTURE
A. Definitions. (1) The following definition shall be added
to Section 1.01 of the Indenture immediately following the definition of the
term "Depositary" set forth therein:
"'Distribution Agreement' means the Distribution Agreement
dated as of May 8, 1997 among the Company, ATIC Group, Inc., Gallaher
Group Limited and Gallaher Limited, as the same may be amended,
modified or supplemented from time to time."
(2) The following definition shall be added to Section 1.01 of the
Indenture immediately following the definition of the term "Exchange Date" set
forth therein:
"'Excluded Conveyance' means any transaction described in the
Distribution Agreement."
B. Company May Consolidate, etc., Only on Certain Terms.
Section 8.01 of the Indenture shall be deleted in its entirety and replaced with
the following:
"The Company shall not consolidate with or merge into
any other corporation or convey or transfer its properties and
assets substantially as an entirety to any Person, unless
(1) the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires
by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall be a corporation
organized and existing under the laws of the United States of
America or any State or
<PAGE>
the District of Columbia, and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any)
and interest, if any, on all Securities of all series and the
performance of every covenant of this Indenture on the part
of the Company to be performed or observed; provided,
however, that any Person that acquires such properties and
assets in an Excluded Conveyance shall not be required to
assume any payment on the Securities or performance or
observance of any covenants or conditions of this Indenture;
(2) immediately after giving effect to such
transaction, no Event of Default in respect of the Securities
of any series, and no event which, after notice or lapse of
time, or both, would become an Event of Default in respect of
the Securities of any series, shall have happened and be
continuing; provided, however, that an Excluded Conveyance
shall not result in an Event of Default, or an event which,
after notice or lapse of time, or both, would become an Event
of Default, in respect of the Securities of any series;
(3) with respect to Securities of any series that, in
connection with their original issuance, were offered for sale
outside the United States, the corporation formed by such
consolidation or into which the Company is merged or the
Person which acquires by conveyance or transfer the properties
and assets of the Company substantially as an entirety shall
have agreed, by an indenture supplemental hereto, to indemnify
the individuals liable therefor for the amount of United
States federal estate tax attributable to or paid in respect
of any such Securities includable in the gross estate of an
individual who is not a citizen or resident of the United
States at the time of death; provided, however, that any
Person that acquires such properties and assets in an Excluded
Conveyance shall not be required to indemnify any individual
liable therefor for the amount of United States federal estate
tax attributable to or paid in respect of any such Securities
includable in the gross estate of an individual who is not a
citizen or resident of the United States at the time of death;
and
<PAGE>
(4) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger, conveyance or transfer and
such indenture supplemental hereto comply with the Article and
that all conditions precedent herein provided for relating to
such transaction have been complied with."
C. Successor Corporation Substituted. Section 8.02 of the
Indenture shall be deleted in its entirety and replaced with the following:
"Upon any consolidation or merger, or any conveyance
or transfer of the properties and assets of the Company
substantially as an entirety in accordance with Section 8.01,
the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance or
transfer (other than an Excluded Conveyance) is made shall
succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the
same effect as if such successor corporation had been named as
the Company herein. In the event of any such conveyance or
transfer (other than a transfer by way of lease) the
predecessor company shall be discharged from all obligations
and covenants under this Indenture, the Securities and any
Coupons and may be liquidated and dissolved."
D. Permitted Dispositions. The following Section 8.04 shall
be added to the Indenture immediately following Section 8.03 thereof:
"Section 8.04. Permitted Dispositions.
Notwithstanding anything in this Indenture to the contrary,
nothing contained in this Indenture or in any of the Securities shall be deemed
to prevent, or place any restrictions or conditions on, the consummation by the
Company or any of its Subsidiaries of any of the transactions described in the
Distribution Agreement. Without limiting the generality of the foregoing, the
Company may sell, lease, transfer or otherwise dispose of any of its property or
assets in connection with the transactions described in the Distribution
Agreement and the corporation or corporations or other person or persons to
which such sale, lease transfer or other disposition is made shall not be
required to assume any obligations under this Indenture or under the
Securities."
<PAGE>
ARTICLE II
MISCELLANEOUS
A. Effectiveness. Notwithstanding anything contained in this
Third Supplemental Indenture to the contrary, none of the provisions of Article
I hereof will become effective or be of any force or effect until the Effective
Date (as defined below) has occurred.
B. Effective Date. For purposes of this Third Supplemental
Indenture, the "Effective Date" means the date on which the later of the
following events occurs: (i) this Third Supplemental Indenture has been duly
executed and delivered by the parties hereto and (ii) the Distribution, as
defined in the Distribution Agreement, shall have occurred or be simultaneously
occurring.
C. Execution of Third Supplemental Indenture. This Third
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Indenture and, as provided in the Indenture, this Third
Supplemental Indenture forms a part thereof. The Indenture, as supplemented and
amended by this Third Supplemental Indenture, is in all respects hereby adopted,
ratified and confirmed. Except as herein expressly otherwise defined, the use of
the terms and expressions herein is in accordance with the definitions, uses and
constructions contained in the Indenture.
D. Responsibility for Recitals, etc. The recitals herein shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representations
as to the validity or sufficiency of this Third Supplemental Indenture.
E. Provisions Binding on Company's Successors. All the
covenants and agreements in this Third Supplemental Indenture by the Company
shall bind its successors and assigns whether so expressed or not.
F. Governing Law. This Third Supplemental Indenture shall be
governed and construed in accordance with the laws governing the Indenture and
its construction.
G. Execution and Counterparts. This Third Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
an original but such counterparts shall together constitute but one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the date first above written.
AMERICAN BRANDS, INC.
[CORPORATE SEAL] By D.L. Bauerlein, Jr.
---------------------------
D.L. Bauerlein, Jr.
Senior Vice President and
and Chief Financial Officer
Attest:
Louis F. Fernous, Jr.
- ----------------------------
Louis F. Fernous, Jr.
Vice President and Secretary
THE CHASE MANHATTAN BANK,
Trustee
[CORPORATE SEAL] By W.B. Dodge
-------------------------
Name: W.B. Dodge
Title: Vice President
Attest:
Wanda Eiland
- ----------------------------
Name: Wanda Eiland
Title: Trust Officer
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT - 5/28/97
COUNTY OF FAIRFIELD )
On this 28th day of May, 1997, before me personally came D.L.
BAUERLEIN, JR., to me known, who, being by me duly sworn, did depose and say
that he resides at 26 Greenlea Lane, Weston, Connecticut; that he is the Senior
Vice President and Chief Financial Officer of AMERICAN BRANDS, INC., one of the
parties described in and which executed the foregoing instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation; and that he signed his name thereto by like authority.
Dianne L. Ebner
------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 28th day of May, 1997, before me personally came W.B.
DODGE, to me known, who, being by me duly sworn, did depose and say that he
resides at 3582 Kenora Place, Seaford, N.Y. 11783; that he is the Vice President
of THE CHASE MANHATTAN BANK, one of the parties described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said corporation; and that he signed
his name thereto by like authority.
Emily Fayan
------------------------------
Notary Public
EXHIBIT 10a1
FORTUNE BRANDS, INC.
ANNUAL EXECUTIVE
INCENTIVE COMPENSATION PLAN
ARTICLE I
GENERAL
SECTION 1.1 Purpose. The purpose of this Annual Executive Incentive
Compensation Plan (the "Plan") is to advance the interests of the stockholders
of Fortune Brands, Inc. (the "Company") by providing performance-based
incentives to senior executives of the Company.
SECTION 1.2 Definitions. As used in the Plan, the following terms shall
have the following meanings:
(a) "Award" means, for each Participant, a specific dollar amount
payable as determined by the Committee pursuant to Section 2.2 of the Plan
after application of the Committee's discretion pursuant to Section 2.4(b)
of the Plan;
(b) "Board of Directors" means the Board of Directors of the Company;
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Committee" means the Compensation and Stock Option Committee of
the Board of Directors;
(e) "Incentive Pool" means, with respect to each Performance Period,
the total amount of dollars available to be paid to all Participants. This
amount shall be based on an objective formula established by the Committee
in accordance with Section 2.2 of the Plan using one or more of the
Performance Measures. It shall be allocated among the Participants in the
manner determined by the Committee in accordance with the Plan;
(f) "Participants" means, with respect to each Performance Period, the
group of all persons elected to the office of Vice President of the Company
or any office senior thereto except any officer covered by an annual
incentive compensation plan of any subsidiary of the Company. A person who
during part of such Performance Period has held such office shall
participate on a proportional basis reflecting the portion of the
Performance Period during which he or she has held such office;
(g) "Performance Measures" means performance goals and objectives,
which shall be based on any of the following performance criteria, either
alone or in any combination, as the Committee may determine: cash flow;
cash flow from operations; earnings per Common share; earnings per Common
share from continuing operations; income before income taxes; income before
income taxes, depreciation and amortization; income from continuing
operations; net asset turnover; net income; operating income; operating
margin; return on equity; return on net assets; return on total assets;
return on total capital; sales; economic value added; and total return to
stockholders. For any Performance Period, Performance Measures may be
determined on an absolute basis or relative to internal goals or relative
to levels attained in years prior to such Performance Period or related to
other companies. For any Performance Period, the Committee shall provide
whether and how the Performance Measures shall be adjusted in the event of
any or all of the following items: extraordinary, unusual or non-recurring
items; effects of changes in applicable laws, regulations or accounting
<PAGE>
principles; effects of currency fluctuations; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible
debt securities); realized or unrealized gains and losses on securities;
expenses, charges or credits for restructuring initiatives, productivity
initiatives or for impaired assets; non-cash items (e.g., amortization,
depreciation or reserves); other non-operating items; writedowns of
intangible assets, property, plant or equipment, investments in business
units and securities resulting from the sale of business units; spending
for acquisitions; and effects of any recapitalization, reorganization,
merger, acquisition, divestiture, consolidation, spin-off, split-off,
combination, liquidation, dissolution, sale of assets, or other similar
corporate transaction or event; and
(h) "Performance Period" means each consecutive twelve-month period
commencing January 1 of each year.
SECTION 1.3 Administration of the Plan. The Plan shall be administered by
the Committee; provided, however, that (i) the number of directors on the
Committee shall not be less than two and (ii) each member of the Committee shall
be an "outside director" within the meaning of Section 162(m)(4) of the Code.
The Committee may adopt its own rules of procedure, and the action of a majority
of the Committee, taken at a meeting, or taken without a meeting by unanimous
written consent of the members of the Committee, shall constitute action by the
Committee. The Committee shall have the power and authority to administer,
construe and interpret the Plan, to make rules for carrying it out and to make
changes in such rules.
ARTICLE II
AWARDS
SECTION 2.1 Awards. The Committee may make Awards to Participants with
respect to each Performance Period, subject to the terms and conditions set
forth in the Plan.
SECTION 2.2 Terms of Awards. Within 90 days after the commencement of each
Performance Period (or prior to such later date as permitted by, or such earlier
date as required by, Section 162(m) of the Code and the regulations promulgated
thereunder), the Committee shall establish in writing for such Performance
Period (i) the objective formula for determining the Incentive Pool for the
Performance Period (using one or more of the Performance Measures) and (ii) the
allocable percentage of the total Incentive Pool to which each Participant shall
be entitled, provided that the total of all such percentages for all
Participants for any Performance Period shall not exceed 100 percent. The
Committee shall cause each Participant to be notified in writing of (i) his or
her selection as a Participant and (ii) the formula for determining the
Incentive Pool for the Performance Period.
SECTION 2.3 Limitations on Awards. The maximum amount of an Award to any
Participant for any Performance Period shall not exceed $2.5 million. No part of
the amount of any Incentive Pool for any Performance Period which is not awarded
in such Performance Period may be carried forward for award in subsequent
Performance Periods.
SECTION 2.4 Determination of Awards.
(a) The Committee shall, promptly after the date on which all necessary
financial or other information for a particular Performance Period becomes
available, in the manner required by Section 162(m) of the Code, certify (i) the
degree to which each of the Performance Measures has been attained and
<PAGE>
(ii) with respect to each Participant, the amount of the Participant's Award,
if any.
(b) Notwithstanding anything in the Plan to the contrary, the Committee
may, in its sole discretion reduce or eliminate, but may not increase, any
Award. In exercising its discretion, the Committee may use such objective or
subjective factors as it determines to be appropriate in its sole discretion.
The determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding. No part of any potential Award for
any Performance Period which is not actually awarded to a Participant because of
any reduction permitted by this Section 2.4(b) or required by Section 2.3 shall
be available for award to any other Participant whose actual compensation for
such period is subject to Section 162(m) of the Code.
(c) After the end of each Performance Period when the amount of each
Participant's Award has been determined, the Committee shall cause each
Participant to be provided with written notice of the amount of his or her
Award, if any. Awards shall become payable in cash as promptly as practicable
after the certifications described in this Section 2.4 have been made by the
Committee.
SECTION 2.5 Deferral of Payment of Awards. Notwithstanding Section 2.4(c),
the Committee may, in its sole discretion, upon the request of a Participant,
determine that the payment of an Award (or a portion thereof) to the Participant
shall be deferred and when such deferred Award shall be paid and over what
period of time. The Committee shall have discretion to provide for the payment
of an amount equivalent to interest, at such rate or rates fixed by the
Committee or based on one or more predetermined investments selected by the
Committee, on any such deferred Award.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Restriction on Transfer. The rights of a Participant with
respect to amounts payable under the Plan shall not be transferable by such
Participant, otherwise than by will or the laws of descent and distribution.
SECTION 3.2 Tax Withholding. The Company shall have the right to deduct
from all payments made under the Plan to a Participant or to a Participant's
beneficiary or beneficiaries any Federal, state or local taxes required by law
to be withheld with respect to such payments.
SECTION 3.3 Source of Payments. The Company shall not have any obligation
to establish any separate fund or trust or other segregation of assets to
provide for payments under the Plan. To the extent any person acquires any
rights to receive payments hereunder from the Company, such rights shall be no
greater than those of an unsecured creditor.
SECTION 3.4 Employment Rights and Other Benefit Programs. The provisions of
the Plan shall not give any Participant any right to be retained in the
employment of the Company. In the absence of any specific agreement to the
contrary, the Plan shall not affect any right of the Company, or of any
affiliate of the Company, to terminate, with or without cause, any Participant's
employment at any time. The Plan shall not replace any contract of employment
between the Company and any Participant, but shall be considered a supplement
thereto. The Plan is in addition to, and not in lieu of, any other employee
benefit plan or program in which any Participant may be or become eligible to
participate by reason of employment with the Company.
<PAGE>
SECTION 3.5 Amendment and Termination. The Board of Directors may at any
time and from time to time alter, amend, suspend or terminate the Plan in whole
or in part. No termination or amendment of the Plan may, without the consent of
the Participant to whom an Award has been determined for a completed Performance
Period but not yet paid, adversely affect the rights of such Participant in such
Award, nor shall any amendment increase the amount payable to a Participant for
a Performance Period if such amendment is made after the final day of the period
for establishing the objective formula for determining the Incentive Pool for
the Performance Period set forth in Section 2.2 of the Plan.
SECTION 3.6 Governing Law. The Plan and all rights and Awards hereunder
shall be construed in accordance with and governed by the laws of the State of
Delaware.
SECTION 3.7 Severability. If any provision of the Plan is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction such
provision shall be construed or deemed amended to conform to applicable laws, or
if it cannot be so construed or deemed amended without, in the determination of
the Committee, materially altering the purpose or intent of the Plan, such
provision shall be stricken as to such jurisdiction, and the remainder of the
Plan shall remain in full force and effect.
SECTION 3.8 Effective Date. The Plan shall be effective as of January 1,
1997, subject to the approval thereof by the stockholders of the Company at the
1997 annual meeting of stockholders. Such approval shall meet the requirements
of Section 162(m) of the Code and the regulations thereunder. If such approval
is not obtained, then the Plan shall not be effective and any formula for
determining the Incentive Pool for any Performance Period, any percentage
thereof to which any person otherwise may be entitled and any notice given
pursuant to Section 2.2 of the Plan shall be void ab initio.
EXHIBIT 10b1
AMERICAN BRANDS, INC.*
Non-Employee Director Stock Option Plan
1. Purpose of Plan
The purpose of this Non-Employee Director Stock Option Plan (the "Plan") is
to enable American Brands, Inc. ("American") to attract and retain Eligible
Directors (as defined below) of outstanding ability by making it possible to
offer them the opportunity to acquire shares of common stock of American and
thereby further align their interests with those of other stockholders of
American.
2. Definitions
As used in the Plan, the following words shall have the following meanings:
(a) "Board of Directors" means the Board of Directors of American;
(b) "Committee" means the Nominating and Corporate Governance Committee of
the Board of Directors;
(c) "Common Stock" means common stock of American;
(d) "Eligible Director" means:
(i) A person who becomes a member of the Board of Directors, after the
date of adoption of this Plan by the stockholders of American and is not at
the time of receipt of an Option hereunder a full-time employee of American
or a Subsidiary; or
(ii) Any current director of American who is not a full-time employee
of American or a Subsidiary who irrevocably elects to cease to accrue
benefits under American's retirement benefit plan for non-employee
directors for so long as the Company maintains this Plan or a successor
plan hereto; or
(iii) Any current or future director of American who ceases to serve
as an employee of American or a Subsidiary and to whom the Committee
determines in its sole discretion to grant options.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
(f) "Limited Right" means a right to receive cash in lieu of the exercise
of an Option as set forth in Section 7(b);
(g) "Option" means a stock option to purchase shares of Common Stock which
is intended not to qualify as an incentive stock option as defined in Section
422 of the Internal Revenue Code;
(h) "Option Agreement" means an agreement between American and a
Participant that sets forth the terms, conditions and limitations applicable to
an Option;
(i) "Participant" means a person to whom one or more Options have been
granted that have not all been forfeited or terminated under the Plan;
<PAGE>
(j) "Retirement" means retirement from service as a member of the Board of
Directors by an Eligible Director after five or more years of service as an
Eligible Director; and
(k) "Subsidiary" means any corporation other than American in an unbroken
chain of corporations beginning with American if each of the corporations other
than the last corporation in the unbroken chain owns 50% or more of the voting
stock in one of the other corporations in such chain.
* References to American Brands, Inc. or American shall mean Fortune Brands,
Inc. or Fortune, as the case may be, in the event that the stockholders of
American Brands, Inc. approve changing the name of American Brands, Inc. to
Fortune Brands, Inc.
3. Administration of Plan
The Plan shall be administered by the Committee whose members shall be
appointed by the Board of Directors and consisting of at least two members of
the Board of Directors. Members of the Committee shall qualify to administer the
Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated
under Section 16(b) of the Exchange Act. The Committee may adopt its own rules
of procedure, and the action of a majority of the Committee, taken at a meeting,
or taken without a meeting by unanimous written consent of the members of the
Committee, shall constitute action by the Committee. The Committee shall have
the power and authority to administer, construe and interpret the Plan, to make
rules for carrying it out and to make changes in such rules.
4. Granting of Options
Subject to all the terms and conditions of the Plan, each Eligible Director
shall be granted an Option covering 2,000 shares of Common Stock per year for
services as a non-employee director during such year, such grant to be made on
the date of the Annual Meeting of stockholders of American during such year. To
be entitled to receive such Option with respect to any year, an Eligible
Director must be serving as a director of American immediately following such
Annual Meeting. Notwithstanding the foregoing, if at the scheduled time of
grant, the General Counsel of American determines, in such Counsel's sole
determination, that American is in possession of material, undisclosed
information about American, then the annual grant of Options hereunder shall be
suspended until the second day after (a) public dissemination of such
information or (b) the day in such General Counsel's sole determination the
information is no longer material, and the exercise price, exercisability date
and term of option shall be determined by reference to such later date. Options
under the Plan may be in such form and contain such terms, conditions and
limitations as the Committee may determine. The terms, conditions and
limitations of each Option under the Plan shall be set forth in an Option
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan.
5. Grant of Options
(a) The terms and conditions with respect to each Option granted under the
Plan shall be consistent with the following:
<PAGE>
(i) The Option price per share shall not be less than fair market
value at the time the Option is granted.
(ii) Exercise of the Option shall be conditioned upon the Participant
named therein having remained as an Eligible Director of American for at
least one year after the date of the grant of the Option; provided,
however, that this condition shall not be applicable in the event of the
death of the Participant or as otherwise provided in Section 7(b). The
Option shall be exercisable in whole or in part from time to time during
the period beginning at the completion of the required time stated in the
Option Agreement and ending at the expiration of ten years from the date of
grant of the Option, unless an earlier expiration date shall be stated in
the Option or the Option shall cease to be exercisable pursuant to Section
5(a)(iv) or because of the exercise of the Limited Right pertaining thereto
as provided in Section 7(b).
(iii) Payment in full of the Option price shall be made upon exercise
of each Option and may be made in cash, by the delivery of shares of Common
Stock with a fair market value equal to the Option price, provided the
Participant has held such shares for a period of at least one year, or by a
combination of cash and such shares that have been held by the Participant
for a period of at least one year whose fair market value together with
such cash shall equal the Option price. The Committee may also permit
Participants, either on a selective or aggregate basis, simultaneously to
exercise Options and sell the shares of Common Stock thereby acquired
pursuant to a brokerage or similar arrangement, approved in advance by the
Committee, and use the proceeds from such sale as payment of the purchase
price of such shares.
(iv) If a Participant's status as an Eligible Director ceases other
than by reason of the Participant's death, disability or Retirement, the
Participant's Option shall terminate and cease to be exercisable 30 days
after such cessation of service except as otherwise provided in Section
7(b). If a Participant's status as an Eligible Director terminates by
reason of death, disability or Retirement, the Participant's Option shall
continue to be exercisable until the expiration date stated in the Option
Agreement, provided that an Option may be exercised within one year from
the date of death even if later than such expiration date.
(v) Each Option shall contain a Limited Right to receive cash in lieu
of shares under the circumstances set forth in Section 7(b).
(b) The holder of an Option who decides to exercise the Option in whole or
in part shall give notice to the Secretary of American of such exercise in
writing on a form approved by the Committee. Any exercise shall be effective as
of the date specified in the notice of exercise, but not earlier than the date
the notice of exercise, together with payment in full of the Option price, is
actually received and in the hands of the Secretary of American.
6. Limitations and Conditions
(a) The total number of shares of Common Stock that may be made subject to
Options under the Plan is 125,000 shares. Such total number of shares may
consist, in whole or in part, of unissued shares or reacquired shares. The
foregoing number of shares may be increased or decreased by the events set forth
in Section 7(a). In the event that American or a Subsidiary makes an acquisition
or is a party to a merger or consolidation and American assumes the options or
other awards consistent with the purpose of this Plan of the
<PAGE>
company acquired, merged or consolidated which are administered pursuant to this
Plan, shares of Common Stock subject to the assumed options or other awards
shall not count as part of the total number of shares of Common Stock that may
be made subject to Options under this Plan.
(b) Any shares that have been made subject to an Option that cease to be
subject to the Option (other than by reason of exercise or payment of the
Option) shall again be available for grant and shall not be considered as having
been theretofore made subject to option.
(c) No Option shall be granted under the Plan after December 31, 2001, but
the terms of Options granted on or before the expiration thereof may extend
beyond such expiration. At the time an Option is granted or amended or the terms
or conditions of an Option are changed, the Committee may provide for
limitations or conditions on such Option.
(d) No Option or portion thereof shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, except that
an Option may be transferred by gift to any member of the Participant's
immediate family or to a trust for the benefit of such immediate family members,
if permitted in the applicable Option Agreement. During the lifetime of the
Participant, an Option shall be exercisable only by the Participant unless it
has been transferred to a member of the Participant's immediate family or to a
trust for the benefit of such immediate family members, in which case it shall
be exercisable only by such transferee. For the purpose of this provision, a
Participant's "immediate family" shall mean the Participant's spouse, children
and grandchildren.
(e) No person who receives an Option under the Plan shall have any rights
of a stockholder as to shares under option until, after proper exercise of the
Option, such shares have been recorded on American's official stockholder
records as having been issued or transferred.
(f) American shall not be obligated to deliver any shares until they have
been listed (or authorized for listing upon official notice of issuance) upon
each stock exchange upon which outstanding shares of such class at the time are
listed nor until there has been compliance with such laws or regulations as
American may deem applicable. American shall use its best efforts to effect such
listing and compliance. No fractional shares shall be delivered.
(g) Nothing herein shall be deemed to create the right in any Eligible
Director to remain a member of the Board of Directors, to be nominated for
reelection or to be reelected as such or, after claiming to be such a member, to
receive any Options under the Plan to which he or she is not already entitled
with respect to any year.
7. Stock Adjustments, Change in Control and Divestitures
(a) In the event of any merger, consolidation, stock or other non-cash
dividend, extraordinary cash dividend, split-up, spin-off, combination or
exchange of shares, reorganization or recapitalization or change in
capitalization, or any other similar corporate event, the Committee may make
such adjustments in (i) the aggregate number of shares subject to the Plan and
(ii) the number and kind of shares that are subject to any Option (including any
Option outstanding after cessation of director status) and the Option price per
share without any change in the aggregate Option price to be paid therefor upon
exercise of the Option; provided, however, no adjustment to any Option granted
hereunder shall be made in the event American spins-off to its
<PAGE>
stockholders the international tobacco operations of Gallaher Limited and its
subsidiaries except that adjustments may be made to any Options granted prior to
such spin-off. The determination by the Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
(b) (i) In the event of a Change in Control (as defined in Section
7(b)(iii)), then each Option held by a Participant that is not then exercisable
shall become immediately exercisable and shall remain exercisable as provided in
Section 5 notwithstanding anything to the contrary in the first sentence of
Section 5(a)(ii). In addition, unless the Committee otherwise determines at the
time of grant or at any time thereafter but prior to such Change in Control,
each Limited Right outstanding at the time of such Change in Control shall be
deemed to be automatically exercised as of the date of such Change in Control or
as of such other date during the 60-day period beginning on the date of such
Change in Control as the Committee may determine prior to such Change in
Control. In the event that the Limited Right is not automatically exercised, the
Participant may during the 60-day period beginning on the date of the Change in
Control (such 60 day period being herein referred to as the "Limited Right
Exercise Period"), in lieu of exercising such Option in whole or in part,
exercise the Limited Right (or part thereof) pertaining to such Option. Such
Participant, whether the exercise is pursuant to his election or automatic
pursuant to the terms hereof, shall be entitled to receive in cash an amount
determined by multiplying the number of shares subject to such Option (or part
thereof) by the amount by which the exercise price of each share is exceeded by
the greater of (x) the highest purchase price per share paid for the shares of
American beneficially acquired in the transaction or series of transactions
resulting in the Change in Control by the person or persons deemed to have
acquired control pursuant to the Change in Control and (y) the highest fair
market value of shares of Common Stock during the Limited Right Exercise Period
prior to the time of exercise. A Limited Right shall be exercised in whole or in
part by giving written notice of such exercise on a form approved by the
Committee to the Secretary of American, except that no such written notice shall
be required in the event such Limited Right is automatically exercised pursuant
to the terms hereof. The exercise shall be effective as of the date specified in
the notice of exercise, but not earlier than the date the notice of exercise is
actually received and in the hands of the Secretary of American. In the event
the last day of a Limited Right Exercise Period shall fall on a day that is not
a business day, then the last day thereof shall be deemed to be the next
following business day. To the extent an Option is exercised in whole or in
part, the Limited Right in respect of such Option shall terminate and cease to
be exercisable. To the extent a Limited Right is exercised in whole or in part,
the Option (or part thereof) to which such Limited Right pertains shall
terminate and cease to be exercisable.
(ii) Notwithstanding anything to the contrary in the first sentence of
Section 5(a)(ii) or in 5(a)(iv), the provisions of this Section 7(b)(ii) will be
applicable in the event of a termination of a Participant's status of a member
of the Board of Directors on or after a Change in Control and prior to the
expiration of the Limited Right Exercise Period applicable thereto. No Option or
Limited Right held by a Participant shall terminate or cease to be exercisable
as a result of his termination as a member of the Board of Directors on or after
a Change in Control and prior to the expiration of the Limited Right Exercise
Period applicable thereto, but shall be exercisable throughout the Limited Right
Exercise Period applicable thereto; provided, however, that in no event shall
any Option be exercisable after ten years from its date of grant (except in the
event of death as provided in Section 5(a)(iv)).
<PAGE>
(iii) A "Change in Control" shall be deemed to have occurred if (A) any
person (as that term is used in Sections 13(d) and 14(d) of the Exchange Act, as
in effect on January 28, 1997) is or becomes the beneficial owner (as that term
is used in Section 13(d) of the Exchange Act, and the rules and regulations
promulgated thereunder, as in effect on January 28, 1997) of stock of American
entitled to cast more than 20% of the votes at the time entitled to be cast
generally for the election of directors, (B) more than 50% of the members of the
Board of Directors shall not be Continuing Directors (which term, as used
herein, means the directors of American (x) who are members of the Board of
Directors on January 28, 1997 or (y) who subsequently became directors of
American and who were elected or designated to be candidates for election as
nominees of the Board of Directors, or whose election or nomination for election
by American's stockholders was otherwise approved, by a vote of a majority of
the Continuing Directors then on the Board of Directors), (C) American shall be
merged or consolidated with, or, in any transaction or series of transactions,
substantially all of the business or assets of American shall be sold or
otherwise acquired by, another corporation or entity and, as a result thereof,
either (1) the stockholders of American immediately prior thereto shall not
directly or indirectly have at least 50% or more of the combined voting power of
the surviving, resulting or transferee corporation or entity immediately
thereafter or (2) any person (as that term is used in Sections 13(d) and 14(d)
of the Exchange Act, as in effect on January 28, 1997) is or becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange Act, and
the rules and regulations promulgated thereunder, as in effect on January 28,
1997) of more than 20% of combined voting power of the surviving, resulting or
transferee corporation or entity, or (D) any change in control of American shall
have occurred of a nature that would be required to be reported in response to
Item 1(a) of Form 8-K promulgated under the Exchange Act as in effect on January
28, 1997, regardless of whether American is at the time of such change in
control subject to the reporting requirement thereof. Notwithstanding the
foregoing, a Change in Control shall not be deemed to have occurred if an
acquisition of stock that would otherwise constitute a Change in Control
pursuant to clause (A) or (D) of the preceding sentence is made by American or a
Subsidiary, by any corporation in a merger or consolidation that does not
constitute a Change in Control pursuant to clause (C) of the preceding sentence
or by any employee benefit plan (or related trust) sponsored or maintained by
American or a Subsidiary.
8. Amendment and Termination
(a) The Board of Directors shall have the power to amend the Plan. It shall
not, however, except as otherwise provided in the Plan, increase the maximum
number of shares authorized for the Plan, nor change the class of eligible
recipients to other than Eligible Directors, nor reduce the basis upon which the
minimum Option price is determined, nor extend the period within which Options
under the Plan may be granted, nor provide for an Option that is exercisable
more than ten years from the date it is granted except in the event of death. It
shall have no power to change the terms of any Option theretofore granted under
the Plan so as to impair the rights of a Participant without the consent of the
Participant whose rights would be affected by such change except to the extent,
if any, provided in the Plan or in the Option.
(b) The Board of Directors may suspend or terminate the Plan at any time.
No such suspension or termination shall affect Options or Limited Rights then in
effect.
<PAGE>
9. Foreign Options
(a) The Committee may grant Options to Eligible Directors who are subject
to the tax laws of nations other than the United States, which Options may have
terms and conditions that differ from the terms thereof as provided elsewhere in
the Plan for the purpose of complying with the foreign tax laws.
(b) The terms and conditions of Options granted under Section 9(a) may
differ from the terms and conditions which the Plan would require to be imposed
upon Options if the Committee determines that the grants are desirable to
promote the purposes of the Plan for the Eligible Directors identified in
Section 9(a); provided that the Committee may not grant such Options that do not
comply with the limitations of Section 8(a).
10. Withholding Taxes
American shall have the right to deduct from any cash payment made under
the Plan any federal, state or local income or other taxes required by law to be
withheld with respect to such payment. It shall be a condition to the obligation
of American to deliver shares upon the exercise of an Option, that the
Participant pay to American such amount as may be requested by American for the
purpose of satisfying any liability for such withholding taxes. Any Option
Agreement may provide that the Participant may elect, in accordance with any
conditions set forth in such Option Agreement, to pay any withholding taxes in
shares of Common Stock.
11. Effective Date
The Plan shall be subject to and effective upon its approval by the
stockholders of American.
Exhibit 10c1
AMENDMENT TO TRUST AGREEMENT
THIS AMENDMENT, made as of the 1st day of January, 1997, among GILBERT L.
KLEMANN, II (the "Executive"), AMERICAN BRANDS, INC., a Delaware corporation
(the "Company") and THE CHASE MANHATTAN BANK, a New York banking corporation
(the "Trustee")
W I T N E S S E T H :
WHEREAS, the Executive, the Company and the Trustee are parties to a Trust
Agreement (the "Trust Agreement") for the purpose of establishing a trust in
order to provide a source of benefits under the terms of the Company's
Supplemental Plan (the "Plan") for the benefit of the Executive; and
WHEREAS, the parties desire to amend the Trust Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the premises, the parties agree that
the Trust Agreement is hereby amended as follows:
1. Section 1.2 is hereby amended by changing clause (ii) thereof as
follows:
"(ii) the amounts of any actual withdrawals from the Fund or
from the Executive's Segregated Account by the Executive as
provided in Section 2.4 plus the income which would have
been earned on such withdrawn amounts from the time of
withdrawal to the time of the Executive's termination of
employment, assuming earnings at an interest rate equal to
the after-tax equivalent of the average monthly yield on ten
year coupon U.S. Treasury bonds (as published by the Federal
Reserve) for the month of termination of Qualifying
Employment and the prior five months. For any Executive who
terminates employment between May 1 and December 31, 1997,
however, the interest rate used shall be whichever of the
following results in the greater benefit: (i) 120% of the
applicable monthly immediate annuity purchase rate which
would be used by the Pension Benefit Guaranty Corporation
for the month of termination of employment for the purpose
of determining the present value of a single sum
distribution on plan termination, (ii) 120% of the average
of the applicable monthly annuity purchase rates which would
be used by the Pension Benefit Guaranty Corporation for the
month of termination of employment and the prior five months
and (iii) the average monthly yield on ten year coupon U.S.
Treasury bonds (as published by the Federal Reserve) for the
month of termination of employment and the prior five
months."
2. Section 4.2 is hereby amended in its entirety as follows:
"The Trustee is hereby appointed as the investment
manager of the Fund. In the event that the Trustee cannot
serve as investment manager of the Fund, the Trustee shall
then select Pacific Investment Management Company as
investment manager; provided that if Pacific Investment
Management Company is unwilling or unable to act as
investment manager, the Trustee shall select J.P. Morgan
Investment Management Inc. as investment manager. The
investment manager shall invest the assets of the Fund
separately as to amounts representing the Executive's
supplemental retirement benefit under the Plan and amounts
representing the Executive's supplemental profit-sharing
benefit.
Supplemental retirement benefit amounts shall be
invested solely in the Vista Select Bond Fund to the extent
practicable and otherwise in the Chase Manhattan Personal
Trust Market Rate Account. As soon as practicable after the
Executive's 60th birthday, at the direction of the Company,
the investment manager shall cause one-half of the amounts
held in the Vista Select Bond Fund attributable to
supplemental retirement benefits, and as soon as practicable
after the Executive's 63rd birthday, at the direction of the
Company, the investment manager shall cause the remainder of
the amounts held in the Vista Select Bond Fund attributable
to supplemental retirement benefits, to be invested solely
in the Chase Manhattan Personal Trust Market Rate Account,
provided that supplemental retirement benefit amounts shall
not be transferred from the Vista Select Bond Fund to the
Chase Manhattan Personal Trust Market Rate Account after the
Executive's 60th birthday or the Executive's 63rd birthday
if the amount held in the Vista Select Bond Fund
attributable to supplemental retirement benefits is in a
"loss position". The amount held in the Vista Select Bond
Fund attributable to supplemental retirement benefits shall
be in a "loss position" on the Executive's 60th birthday if
the current market value thereof at the Executive's 60th
birthday is less than 95% of the actuarial present value of
the Executive's supplemental retirement benefit calculated
as of the end of the prior calendar year. The amount held in
the Vista Select Bond Fund attributable to supplemental
retirement benefits shall be in a "loss position" on the
Executive's 63rd birthday if the current market value
thereof at the Executive's 63rd birthday is less than 50% of
95% of the actuarial present value of the Executive's
supplemental retirement benefit calculated as of the end of
the prior calendar year. The Company shall notify the
Trustee promptly after the end of each calendar year of the
actuarial present value of the Executive's supplemental
retirement benefit. In the event that transfers cannot be
made as soon as practicable after the Executive's 60th or
63rd birthday because the amount held in the Vista Select
Bond Fund attributable to supplemental retirement benefits
is then in a "loss position", the amounts attributable to
supplemental retirement benefits shall be transferred as
soon as practicable after such Fund is no longer in such
"loss position".
Supplemental profit-sharing benefit amounts shall be
invested in one or more of the (i) Vista Balanced Fund, (ii)
Chase Manhattan Personal Trust Market Rate Account, (iii)
Dodge & Cox Stock Fund, (iv) MFS Institutional Emerging
Equities Fund, (v) Vanguard International Growth Portfolio
or (vi) PIMCO Total Return Fund, in such portions as are
elected by the Executive by written election filed with the
Company and notified to the Trustee by the Company, all to
the extent practicable and otherwise in the Chase Manhattan
Personal Trust Market Rate Account, and all without
liability of the Trustee for such election. The Executive
may change such election at any time by filing a new written
election with the Company, which shall promptly notify the
Trustee thereof, and all without liability of the Trustee
for such new election. Subject to such investment
restrictions, the Trustee shall have the power and right:
(a) To receive and hold all contributions made to it by
the Company;
(b) To participate in and use a book-entry system for
the deposit and transfer of securities;
(c) To sell or exchange any property held by it at
public or private sale, for cash or on credit, to grant and
exercise options for the purchase or exchange thereof, to
exercise all conversion or subscription rights pertaining to
any such property and to enter into any covenant or
agreement to purchase any property in the future;
(d) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other
similar plan relating to property held by it and to consent
to or oppose any such plan or any action thereunder or any
contract, lease, mortgage, purchase, sale or other action by
any person;
(e) To deposit any property held by it with any
protective, reorganization or similar committee, to delegate
discretionary power thereto, and to pay part of the expenses
and compensation thereof and any assessments levied with
respect to any such property so deposited;
(f) To extend the time of payment of any obligation
held by it;
(g) To hold uninvested any moneys received by it,
without liability for interest thereon, until such moneys
shall be invested, reinvested or disbursed;
(h) To exercise all voting or other rights with respect
to any property held by it and to grant proxies,
discretionary or otherwise;
(i) For the purposes of the Trust, to borrow money from
others, including The Chase Manhattan Bank, to issue its
promissory note or notes therefor, and to secure the
repayment thereof by pledging any property held by it;
(j) To furnish the Company and the Executive with such
information as may be needed for tax or other purposes;
(k) To employ suitable agents and counsel, who may be
counsel to the Company or the Trustee, and to pay their
reasonable expenses and compensation from the Fund to the
extent not paid by the Company;
(l) To cause any property held by it to be registered
and held in the name of one or more nominees, with or
without the addition of words indicating that such
securities are held in a fiduciary capacity, and to hold
securities in bearer form;
(m) To settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from the Trust,
respectively, to commence or defend suits or legal
proceedings to protect any interest of the Trust, and to
represent the Trust in all suits or legal proceedings in any
court or before any other body or tribunal; provided,
however, that the Trustee shall not be required to take any
such action unless it shall have been indemnified by the
Company to its reasonable satisfaction against liability or
expenses it might incur therefrom;
(n) To organize under the laws of any state a
corporation or trust for the purpose of acquiring and
holding title to any property which it is authorized to
acquire hereunder and to exercise with respect thereto any
or all of the powers set forth herein; and
(o) Generally, to do all acts, whether or not expressly
authorized, that the Trustee may deem necessary or desirable
for the protection of the Fund."
3. The Trust Agreement is hereby further amended to reflect the change of
the Company's name so that references to "American Brands, Inc." and the
"Company" shall be deemed to be references to "Fortune Brands, Inc.", subject to
approval of such change of name by the Company's stockholders.
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be duly
executed as of the day and year first written above.
AMERICAN BRANDS, INC.
Attest: By Steven C. Mendenhall
------------------------------
Steven C. Mendenhall
Senior Vice President and
Mark S. Lyon Chief Administrative Officer
- ----------------------
THE CHASE MANHATTAN BANK
Attest: By Mark J. Altschuler
------------------------------
Mark J. Altschuler
Vice President
Scott P. Callahan
- ----------------------
I hereby consent to the foregoing AMENDMENT.
Witness:
Dianne J. Ebner Gilbert L. Klemann, II
- ---------------------- ------------------------------
GILBERT L. KLEMANN, II
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT- July 7, 1997
COUNTY OF FAIRFIELD )
Personally appeared STEVEN C. MENDENHALL, Senior Vice President and Chief
Administrative Officer of AMERICAN BRANDS, INC., signer and sealer of the
foregoing instrument, and acknowledged the same to be his free act and deed as
such Senior Vice President and Chief Administrative Officer and the free act and
deed of said Corporation, before me.
Lenora Rowser
-----------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY- July 14, 1997
COUNTY OF NEW YORK )
Personally appeared MARK J. ALTSCHULER, Vice President of THE CHASE
MANHATTAN BANK, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Vice President and the free act and
deed of said Company, before me.
Shavon S. Sharp
-----------------------
Notary Public
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT- July 7, 1997
COUNTY OF FAIRFIELD )
Personally appeared GILBERT L. KLEMANN, II, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before me.
Lenora Rowser
-----------------------
Notary Public
EXHIBIT 10c2
Schedule identifying substantially identical agreements,
among American Brands, Inc. and The Chase Manhattan Bank
(National Association), et al. amending the grantor trust
established in favor of each of the following persons, to
the Amendment to Trust Agreement constituting Exhibit 10c1
to the Quarterly Report on Form 10-Q of Fortune Brands, Inc.
for the quarterly period ended June 30, 1997
------------------------------------------------------------
Name
----
Thomas C. Hays
Robert J. Rukeyser
Steven C. Mendenhall
Dudley L. Bauerlein, Jr.
Charles H. McGill
Craig P. Omtvedt
EXHIBIT 10d1
SEVERANCE AND RETIREMENT AGREEMENT
AGREEMENT dated as of February 24, 1997 between AMERICAN BRANDS, INC., a
Delaware corporation (the "Company"), and THOMAS C. HAYS (the "Executive"),
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into a Severance Agreement
dated as of March 1, 1988, as amended (the "Severance Agreement"), in order to
provide severance benefits in the event of termination of employment of the
Executive under certain circumstances; and
WHEREAS, the Company and the Executive entered into an agreement dated as
of January 1, 1995 (the "Retirement Agreement"), in order to provide certain
supplemental retirement benefits as an added inducement to the Executive to
remain in the employ of the Company; and
WHEREAS, the Company and the Executive desire to combine the Severance
Agreement and the Retirement Agreement, as set forth herein;
NOW, THEREFORE, in consideration of the premises and to further assure the
retention of the Executive in the employ of the Company after the date of this
Agreement, the parties hereto do hereby agree as follows:
Section 1. Severance Benefits.
(a) If and only if during the term of this Agreement the Executive's
employment with the Company is terminated by the Company other than for
Disability or Cause or by the Executive for Good Reason, the Executive shall be
entitled to the severance benefits as provided in this Section 1. The Executive
shall not be entitled to any benefits as provided in this Section 1 in the event
his employment with the Company is terminated by the Company for Disability or
Cause or by the Executive other than for Good Reason.
(b) If the Executive is entitled to severance benefits, then the Company
shall pay to the Executive as severance pay in a lump sum on the fifth day
following the Termination Date the following amounts:
(i) the unpaid portion of his full base salary through the
Termination Date at the rate in effect on the date hereof plus any
increases therein subsequent thereto;
(ii) in lieu of any further salary payments, incentive
compensation awards or defined contribution plan allocations to the
Executive for periods subsequent to the Termination Date, an amount
equal to the product of (A) the sum of (1) his annual base salary at
the rate in effect on the date hereof plus any increases therein
subsequent thereto, plus (2) the greater of the amount awarded to him
under the Incentive Compensation Plans for 1987 and the amount awarded
to him under the Incentive Compensation Plans for the calendar year
immediately preceding the year in which the Termination Date occurs,
but not less than the amount the Executive would have received if the
Executive had received the same percentage of the total amount
available for allotment as he received for 1987, plus (3) the greater
of the amount that was allocated to the Executive's account under the
Defined Contribution Plan, including the Company 401(k) matching
contribution thereto, the profit-sharing provisions of the Supplemental
Plan, including the Company matching award related to the supplemental
tax deferred amounts therein, and any other defined contribution plan
of the Company or an affiliate thereof for 1987 and the amount that
would have been required to be so allocated to him for the year
immediately preceding the year in which the Termination Date occurs,
multiplied by (B) the lesser of the number three and the number of
years (and fraction thereof) from the Termination Date to the
Executive's Normal Retirement Date; and
(iii) all legal fees and expenses incurred by the Executive as
a result of such termination (including, but not limited to, all such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement).
(c) If the Executive is entitled to severance benefits, the Company shall
maintain in full force and effect, for the Executive's continued benefit for a
three-year period (or, if shorter, the period until his Normal Retirement Date)
after the Termination Date, all employee life, health, accident, disability,
medical and other employee welfare benefit plans, programs or arrangements in
which he was participating immediately prior to the date hereof plus all
improvements therein subsequent thereto, provided that his continued
participation is possible under the terms and provisions of such plans, programs
and arrangements. In the event that the Executive's participation in any such
plan, program or arrangement is barred, the Company shall arrange to provide him
with benefits substantially similar to those which he would have been entitled
to receive under such plan, program or arrangement if he had remained a
participant for such additional three-year period (or, if shorter, such
additional period until his Normal Retirement Date) after the Termination Date.
(d) If the Executive is entitled to severance benefits, the Executive shall
be entitled to the following as incentive compensation through the Termination
Date:
(i) the unpaid portion of the amount awarded to him as
incentive compensation under the Incentive Compensation Plans for the
calendar year immediately preceding the year in which the Termination
Date occurs, payable at the time awards thereunder are normally paid;
and
(ii) incentive compensation under the Incentive Compensation
Plans for the calendar year in which the Termination Date occurs,
payable at the time awards thereunder are normally paid, in an amount
equal to the amount the Executive would have received thereunder for
such period if he had been allocated a percentage of the total amount
available for allotment equal to the same percentage of the total
amount available for allotment as he was allocated for 1987 or, if
higher, the percentage for the calendar year immediately preceding the
year in which the Termination Date occurs or in which the Termination
Date occurs, whichever is higher; provided that if the Termination Date
occurs in 1997, the amount that the Executive would have received for
the full year 1997 if the Executive had been awarded the same
percentage of the total amount available for allotment as awarded to
him for 1996 shall be $823,953. The incentive compensation provided by
this Section 1(d) shall be prorated for the portion of the year through
the Termination Date.
The payments under this Section 1(d) shall be reduced by the amount actually
paid to the Executive under the Incentive Compensation Plans for the calendar
year in which the Termination Date occurs.
(e) If the Company shall terminate the Executive's employment other than
for Disability or Cause or if the Executive shall terminate his employment for
Good Reason and a dispute exists concerning the termination as set forth in
Section 7(n), the Company shall continue to pay the Executive's full base salary
through the date the dispute is finally resolved as provided in Section 7(n).
Section 2. Retirement Benefits. Upon the retirement of the Executive, the
Company shall pay to or on behalf of the Executive, monthly beginning on the
date payments commence under the Supplemental Plan an amount equal to the excess
of (i) over (ii) below where
(i) equals the sum of the aggregate monthly amounts of
pension payments (determined as a straight life annuity) to which the
Executive would have been entitled under the terms of the Pension Plans
(without regard to any termination or amendment made subsequent to the
date hereof which adversely affects in any manner the computation of
the Executive's benefits) determined as if Average Actual Earnings
under the Supplemental Plan were determined based on the three
consecutive Plan Years of Qualifying Employment that provide the
highest aggregate of Actual Earnings, divided by three, instead of
five,
and where
(ii) equals the sum of the aggregate monthly amounts of
pension payments (determined as a straight life annuity) which the
Executive is paid under the terms of the Pension Plans.
Section 3. Retirement Benefits in the Event of Termination of Employment
Prior to Normal Retirement Date by Reason of Death or Disability, by the Company
other than for Cause or by the Executive for Good Reason. If the Executive's
employment is terminated by death or disability, or if the Company shall
terminate the Executive's employment other than for Cause, or if the Executive
shall terminate his employment for Good Reason, then in addition to the
retirement benefits to which the Executive is entitled under the Pension Plans,
the Company shall pay to or on behalf of the Executive, monthly beginning at the
date payments commence under the Supplemental Plan an amount equal to the excess
of (i) over (ii) below where
(i) equals the sum of the aggregate monthly amounts of
pension payments (determined as a straight life annuity) to which the
Executive would have been entitled under the terms of the Pension Plans
(without regard to any termination or amendment made subsequent to the
date hereof which adversely affects in any manner the computation of
the Executive's benefits) determined as if (x) Average Actual Earnings
under the Supplemental Plan were determined based on the three
consecutive Plan Years of Qualifying Employment that provide the
highest aggregate of Actual Earnings, divided by three, instead of five
and (y) the Executive had accumulated an additional period of Service
thereunder (subsequent to his Termination Date) to his Normal
Retirement Date at his rate of Actual Earnings in effect on the date
hereof plus any increases subsequent thereto,
and where
(ii) equals the sum of the aggregate monthly amounts of
pension payments (determined as a straight life annuity) which the
Executive is paid under the terms of the Pension Plans.
For purposes of clause (i) there shall be considered as part of the Executive's
Actual Earnings for the period from the Termination Date to his Normal
Retirement Date for purposes of determining his highest consecutive calendar
three-year average rate of Actual Earnings the sum of (x) the Executive's annual
base salary at the rate in effect on the date hereof plus any increases
subsequent thereto plus (y) the amount awarded to the Executive under the
Incentive Compensation Plans for the year immediately prior to the Termination
Date or, if higher, for the year in which the Termination Date occurs (whether
or not paid) but not less than the amount the Executive would have received for
such year if the Executive had been awarded the same percentage of the total
amount available for allotment for such year as the percentage awarded to him
for the last year prior to the Termination Date for which an award was actually
paid; provided that if the Termination Date occurs in 1997, the amount that the
Executive would have received for 1997 if the Executive had been awarded the
same percentage of the total amount available for allotment as awarded to him
for 1996 shall be $823,953. The supplemental pension benefits determined under
Sections 2 and 3 of this Agreement shall be payable by the Company to the
Executive and his contingent annuitant, if any, or as a spouse's benefit to the
Executive's spouse if the Executive dies prior to commencement of benefits, in
the same manner and for the same period as his pension benefits under the
Supplemental Plan and shall be adjusted actuarially as set forth in the
Retirement Plan to reflect payment in a form other than a straight life annuity.
In the event that the Corporate Employee Benefits Committee (or successor
thereto) of the Company directs that the Executive's benefits under the
Supplemental Plan are to be paid as a single sum, such Committee may also direct
that an actuarially equivalent single sum payment be made of the retirement
benefits payable under this Agreement. In the event the Company segregates
assets which are intended to be a source for payment of benefits under this
Agreement and the benefits are determined to be taxable to the Executive prior
to actual receipt thereof, a single sum payment shall be made to the Executive
in an amount sufficient to pay such taxes and any interest and penalties
notwithstanding that the Executive may not then have terminated employment,
which payment for taxes shall then be used as an offset to the benefits
thereafter payable pursuant to this Agreement which shall also be paid in an
actuarially equivalent single sum payment promptly upon termination of
employment. Actuarial equivalence of a single sum payment in cash shall be
determined using 120% of the applicable monthly immediate annuity purchase
interest rate which would be used by the Pension Benefit Guaranty Corporation
for the purposes of determining the present value of a single sum distribution
on plan termination and the mortality table used at the time under the
Retirement Plan for funding purposes.
Section 4. Relocation Program. The Executive shall at any time be entitled
to dispose of his principal residence through the Third Party Home Purchase
feature of the Company's Relocation Program. The purchase price to be paid to
the Executive thereunder shall be the appraised value of the residence. If the
residence is subsequently sold for less than its appraised value, the Executive
shall reimburse the Company for one-half of any amount in excess of $50,000 less
than its appraised value.
Section 5. Notice of Termination; No Mitigation; No Derogation.
(a) Any termination by the Company for Disability or Cause or by the
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto.
(b) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the Termination Date or by any other compensation.
(c) Subject to Section 6, this Agreement and the obligations of the Company
hereunder shall not be in derogation of any other obligations of the Company not
set forth herein to pay any compensation or to pay or provide any benefit to the
Executive.
Section 6. Other Compensation and Benefits. Notwithstanding any other
provision of this Agreement, (a) any amount otherwise payable to the Executive
pursuant to the agreement dated October 27, 1987 between the Company and the
Executive, as amended, shall be reduced by the amount of any payments made by
the Company to the Executive under Sections 1 and 3 of this Agreement, and (b)
any benefits to which the Executive is entitled under the Company's severance
pay program covering salaried employees generally shall be reduced by benefits
paid under Section 1(b)(ii)(A)(i) and (B) of this Agreement.
Section 7. Definitions. The following words shall have the following
meanings in this Agreement:
(a) Actual Earnings. Actual Earnings shall have the same meaning
as set forth in the Retirement Plan on the date hereof or any
amendment thereto which has the effect of increasing Actual Earnings.
(b) Cause. Termination of employment by the Company for Cause
shall be deemed to have occurred only if (i) termination shall have
been the result of (A) an act or acts of dishonesty on the Executive's
part constituting a felony and intended to result directly or
indirectly in substantial gain or personal enrichment to him at the
expense of the Company, or (B) the Executive's willful and continued
failure substantially to perform his duties and responsibilities
(other than any such failure resulting from his incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by the Board of Directors of the Company
which specifically identifies the manner in which such Board believes
that the Executive has not substantially performed his duties and the
Executive is given a reasonable time after such demand substantially
to perform his duties, and (ii) there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the members of the Board of
Directors of the Company at a meeting thereof called and held for the
purpose (after reasonable notice to the Executive and an opportunity
for him, together with his counsel, to be heard before such Board),
finding that in the good faith opinion of the Board of Directors of
the Company the Executive was guilty of conduct set forth above in
clause (i)(A) or (i)(B) of this paragraph and specifying the
particulars thereof in detail. The Executive's employment shall in no
event be considered to have been terminated by the Company for Cause
if the act or failure to act upon which such termination is based (x)
was done or omitted to be done (1) as a result of bad judgment or
negligence on his part, or (2) without intent of gaining therefrom
directly or indirectly a profit to which the Executive was not legally
entitled or (3) as a result of his good faith belief that such act or
failure to act was in or was not opposed to the interests of the
Company, or (y) is an act or failure to act in respect of which the
Executive meets the applicable standard of conduct prescribed for
indemnification or reimbursement of payment of expenses under the
By-laws of the Company or the laws of the state of its incorporation
or the directors' or officers' liability insurance of the Company, in
each case as in effect at the time of such act or failure to act.
(c) Defined Contribution Plan. Defined Contribution Plan means
the Defined Contribution Plan of American Brands, Inc. and
Participating Operating Companies.
(d) Disability. Termination of employment by the Company for
Disability shall be deemed to have occurred only if, as a result of
the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from his duties with the Company on a
full-time basis for 180 consecutive days and, within 30 days after
Notice of Termination is given to the Executive by the Company, the
Executive shall not have returned to the full-time performance of his
duties.
(e) Good Reason. Termination of employment by the Executive for
Good Reason shall be deemed to have occurred only if the Executive
terminates his employment for any of the following reasons:
(i) without the Executive's express written consent,
any material reduction in the aggregate duties,
responsibilities and authority assigned to him as of the date
hereof, or the assignment to him of any duties,
responsibilities or authority inconsistent with the duties,
responsibilities and authority assigned to him as of the date
hereof, or a change in his reporting responsibilities, titles,
offices or other positions as in effect on the date hereof, or
any removal of the Executive from, or any failure to re-elect
the Executive to, any of such positions, except in connection
with the termination of his employment as a result of his
death or by the Company for Disability or Cause or by the
Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's
base salary as in effect on the date hereof plus all increases
therein subsequent thereto;
(iii) the failure of the Company substantially to
maintain and to continue the Executive's participation in the
Company's benefit plans as in effect on the date hereof and
with all improvements therein subsequent thereto (other than
those plans or improvements that have expired thereafter in
accordance with their original terms), or the taking of any
action which would materially reduce the Executive's benefits
under any of such plans or deprive the Executive of any
material fringe benefit enjoyed by him on the date hereof or
subsequently. For the purposes hereof such benefit plans shall
include, but not be limited to, the Incentive Compensation
Plans, the Pension Plans, the Defined Contribution Plan and
the Company's Long-Term Incentive Plan;
(iv) the sum of the Executive's base salary and the
amount paid to the Executive as incentive compensation under
the Incentive Compensation Plans for any calendar year during
the term hereof is less than 90% of the sum of the Executive's
base salary and the amount paid to the Executive under the
Incentive Compensation Plans for 1993 or any subsequent year
during the term hereof for which the sum of such amounts was
greater; provided, however, that this paragraph shall not be
applicable if the cause of the reduction of the sum of the
Executive's base salary and incentive compensation is a
failure of the Company to meet performance goals under the
Incentive Compensation Plans;
(v) the relocation of the Company's principal
executive offices to a location more than 35 miles from their
location on the date hereof or the Company's requiring the
Executive to be based anywhere other than the Company's
principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with
his business travel obligations on the date hereof;
(vi) the failure of the Company to provide the
Executive during each calendar year with a number of paid
vacation days at least equal to the number of paid vacation
days to which he was entitled at the date hereof plus any
increases therein subsequent thereto;
(vii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination, and for purposes of this Agreement, no such
purported termination shall be effective; or
(viii) any failure of the Company to comply with and
satisfy Section 8.
(f) Incentive Compensation Plans. Incentive Compensation Plans
means the incentive compensation provisions of Article XII of the
By-laws of the Company, the Fortune Brands, Inc. Annual Executive
Incentive Compensation Plan and any other plans and arrangements of
the Company and its affiliates.
(g) Normal Retirement Date. Normal Retirement Date means the last
day of the month in which the Executive attains age 65.
(h) Notice of Termination. Notice of Termination means a notice
in writing which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated.
(i) Pension Plans. Pension Plans means the Retirement Plan,
the Supplemental Plan and any other program, practice or arrangement
(other than this Agreement) of the Company or any present or former
affiliate thereof to provide the Executive with a defined pension
benefit after termination of employment and in effect on the date
hereof or hereafter adopted.
(j) Qualifying Employment. Qualifying Employment has the meaning
set forth in the Retirement Plan on the date hereof.
(k) Relocation Program. Relocation Program means the Relocation
Program for Executives of American Brands, Inc.
(l) Retirement Plan. Retirement Plan means the Retirement Plan
for Employees and Former Employees of American Brands, Inc.
(m) Service. Service has the meaning set forth in the Retirement
Plan on the date hereof.
(n) Supplemental Plan. Supplemental Plan means the Supplemental
Plan of American Brands, Inc.
(o) Termination Date. Termination Date means (i) if employment is
terminated by the Company for Disability, 30 days after Notice of
Termination is given (provided that the Executive shall not have
returned to the performance of his duties on a full-time basis during
such 30-day period), (ii) if employment is terminated for Good Reason,
the date specified in the Notice of Termination, (iii) if employment
is terminated by the Company for Cause, the date on which a Notice of
Termination is given and (iv) if employment is terminated for any
other reason, the date on which the Executive ceases to perform his
duties as an officer of the Company; provided, however, that if within
30 days after any Notice of Termination is given the party receiving
such notice of termination notifies the other party that a dispute
exists concerning the termination, the Termination Date shall be the
date on which the dispute is finally determined, either by written
agreement of the parties or by a final judgment, order or decree of
court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); provided further,
however, that if the dispute is resolved in favor of the Company, the
Termination Date shall not be so extended but shall be the date
determined under clauses (i) through (iv) of this Section 7(o).
Section 8. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, and any parent company thereof, by agreement
or agreements in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement, and in the case of any such parent
company expressly to guarantee and agree to cause the performance of this
Agreement, in the same manner and to the same extent as the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined in the first sentence of
this Agreement and any successor to all or substantially all its business or
assets or which otherwise becomes bound by all the terms and provisions of this
Agreement, whether by the terms hereof, by operation of law or otherwise.
(b) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive and, in the
event of his death, his spouse or contingent annuitant, if any, and his personal
or legal representatives.
Section 9. Funding. The Company may, but shall not be obligated to, set
aside any funds to fulfill its obligations under Section 3 of this Agreement.
Benefits under Section 3 of this Agreement may also be funded in accordance with
the terms of the employee grantor trust arrangement set forth in the Trust
Agreement made as of November 1, 1993 among the Executive, the Company and The
Chase Manhattan Bank (National Association) or the Segregated Account referred
to in such Trust Agreement.
Section 10. Notice. Any notice, demand or other communication required or
permitted under this Agreement shall be effective only if it is in writing and
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
If to the Executive:
Thomas C. Hays
2 Contentment Island Road
Darien, Connecticut 06820
or to such other address as either party may designate by notice to the other
and shall be deemed to have been given as of the date so personally delivered or
mailed.
Section 11. Miscellaneous. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. This Agreement
cannot be modified or any term or condition waived in whole or in part except by
a writing signed by the party against whom enforcement of the modification or
waiver is sought. No waiver by either party hereto at any time of any beach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or interpretation of
this Agreement.
Section 12. Separability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
Section 13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, and
such counterparts will together constitute but one Agreement.
Section 14. Withholding of Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
Section 15. Prior Agreements. Effective as of the date first written above,
this Agreement shall replace and supersede each of the Severance Agreement and
the Retirement Agreement, and each of the Severance Agreement and the Retirement
Agreement shall be deemed null and void and shall have no further force or
effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its officer thereunto duly authorized and its seal to be hereunto affixed and
attested and the Executive has hereunto set his hand as of the day of 24th day
of March, 1997.
[Seal] AMERICAN BRANDS, INC.
Attest: By Steven C. Mendenhall
-------------------------------
Steven C. Mendenhall
Senior Vice President and
Louis F. Fernous, Jr. Chief Administrative Officer
- -------------------------
Secretary
Thomas C. Hays
-------------------------------
Thomas C. Hays
PART II - EXHIBIT 12
--------------------
<TABLE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Note)
(Dollar amounts in millions)
<CAPTION>
Six Months
Ended
Years Ended December 31, June 30,
-------------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income from continuing operations
before income taxes, minority
interest and extraordinary items......... $225.0 $249.9 $ 43.4 $358.9 $340.1 $100.3
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies...................... 0.2 0.1 - 0.2 0.2 0.1
Capitalized interest............... - 0.3 0.2 - 0.3 -
------ ------ ------ ------ ------ ------
224.8 249.5 43.2 358.7 339.6 100.2
====== ====== ====== ====== ====== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses............................. 189.6 200.5 184.6 147.1 172.6 72.0
Portion of rentals representative
of an interest factor.................... 12.9 11.9 12.8 13.5 15.1 8.1
------ ------ ------ ------ ------ ------
Total Fixed Charges................ 202.5 212.4 197.4 160.6 187.7 80.1
------ ------ ------ ------ ------ ------
Total Earnings Available........... $427.3 $461.9 $240.6 $519.3 $527.3 $180.3
====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges............ 2.11 2.17 1.22 3.23 2.81 2.25
==== ==== ==== ==== ==== ====
(Note) The ratios of earnings to fixed charges for the years ended December 31, 1992 through 1996 have been restated to exclude
results of the discontinued tobacco operations.
</TABLE>
PART II - EXHIBIT 15
--------------------
August 12, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Attention: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: Fortune Brands, Inc.
We are aware that our report dated August 12, 1997, on our review of
interim financial information of Fortune Brands, Inc. and Subsidiaries for the
six-month periods ended June 30, 1997 and 1996 included in this Form 10-Q, has
been incorporated by reference into (a) the Registration Statement on Form S-8
(Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune
Brands, Inc. and Participating Operating Companies, the Registration Statement
on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries,
Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8
(Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of
Fortune Brands, Inc., and the prospectuses related thereto, and (b) the
prospectuses related to the Registration Statements on Form S-3 (Registration
Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc. Pursuant
to Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of such registration statements or prospectuses or
certification by us within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
PART II - EXHIBIT 23
--------------------
CONSENT OF COUNSEL
We consent to the incorporation by reference of our opinions contained
in Part II, Item 1, "Legal Proceedings", of this Quarterly Report on Form 10-Q
of Fortune Brands, Inc. into (a) the Registration Statement on Form S-8
(Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune
Brands, Inc. and Participating Operating Companies, the Registration Statement
on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries,
Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8
(Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of
Fortune Brands, Inc., and the prospectuses related thereto, and (b) the
prospectuses related to the Registration Statements on Form S-3 (Registration
Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc.
CHADBOURNE & PARKE LLP
30 Rockefeller Plaza
New York, New York 10112
August 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS
OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 157
<SECURITIES> 0
<RECEIVABLES> 919
<ALLOWANCES> 52
<INVENTORY> 1,019
<CURRENT-ASSETS> 2,218
<PP&E> 1,847
<DEPRECIATION> 903
<TOTAL-ASSETS> 7,020
<CURRENT-LIABILITIES> $1,634
<BONDS> 846
<COMMON> 717
0
12
<OTHER-SE> 3,382
<TOTAL-LIABILITY-AND-EQUITY> 7,020
<SALES> $2,341
<TOTAL-REVENUES> 2,341
<CGS> 1,237
<TOTAL-COSTS> 1,237
<OTHER-EXPENSES> 186
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 97
<INCOME-TAX> 58
<INCOME-CONTINUING> 39
<DISCONTINUED> 65
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 104
<EPS-PRIMARY> $.61
<EPS-DILUTED> $.59
</TABLE>
