<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 9, 1997 (May 7, 1997)
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
AMERICAN BRANDS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 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
----------------------
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
- ------ ------------
Registrant's press releases dated May 7, 1997 with respect to receipt
of a favorable ruling from the Internal Revenue Service and May 8, 1997 with
respect to the commencement of a consent solicitation with respect to its
outstanding U.S. registered debt are filed herewith as Exhibits 20a and 20b,
respectively, and are incorporated herein by reference. The Consent
Solicitation Statement dated May 9, 1997 distributed to holders of such debt
securities in connection with such solicitation is filed herewith as Exhibit
99.1 and is incorporated herein by reference.
In connection with the previously announced spin-off of Registrant's
U.K. based Gallaher tobacco business, on May 8, 1997 Registrant entered into a
Distribution Agreement, Tax Allocation Agreement, Interim Services Agreement and
an Indemnification Agreement. Such agreements are filed herewith as Exhibits
99.2, 99.3, 99.4 and 99.5, respectively, and are incorporated herein by
reference.
The following exhibit is filed herewith as Exhibit 99.6 and is
incorporated herein by reference:
Exhibit 99.6 -- American Brands, Inc. and Subsidiaries (i)
Quarterly Financial Data for 1996, (ii) Consolidated Statement of Income
for the years ended December 31, 1996, 1995 and 1994, (iii) Consolidated
Balance Sheet as of December 31, 1996 and 1995, (iv) Consolidated Statement
of Cash Flows for the years ended December 31, 1996 and 1995 and (v)
Information on Business Segments for the years ended December 31, 1996,
1995 and 1994, each of which has been restated to reflect the tobacco
business as a discontinued operation.
References in such Exhibit to the Company are, unless the context otherwise
requires, to Registrant.
In addition, filed herewith as Exhibit 99.7 and incorporated herein by
reference is a copy of Registrant's Fact Kit to be distributed at conferences
held by Thomas C. Hays, the Chairman of the Board and Chief Executive Officer of
Registrant, with analysts and other interested parties in connection with the
previously announced spin-off of Registrant's U.K.-based Gallaher tobacco
business. Information contained in the Fact Kit includes a compilation of
information regarding the financial performance of Registrant, including some
forward-looking statements. The following additional financial information will
be made available at the aforementioned conferences:
<PAGE>
<TABLE>
<CAPTION>
Fortune Brands Financial Performance
($ in millions, except per share amounts)
- ------------------------------------------------------------------------------------------
Pro Forma* % Pro Forma* %
1996 Change 1Q97 Change
----- ------ ------------ -------
<S> <C> <C> <C> <C>
Sales $4,718 7.7% $1,105 4.7%
Gross Margin % Sales 39.5% 1.5% 40.6% 0.7%
EBITDA $ 743 7.0% $ 170 6.5%
Contribution $ 700 9.3% $ 152 1.7%
% of Sales 14.8% 0.2% 13.7% (0.5)%
Primary E.P.S. $1.32 8.2% $ 0.27 12.5%
(includes $0.60 goodwill)
Free Cash Flow $ 123 6.7% $ 39 22.6%
</TABLE>
* Includes approximately $1.25 billion net proceeds from Gallaher used for
possible 10 million share repurchase and debt repayment 1/1/95. Excludes 1995
restructuring and businesses disposed. Assumes $0.80 anticipated dividend.
Item 7. Financial Statements and Exhibits.
- ---------------------------------------
(c) Exhibits.
--------
20a. Press release of Registrant dated May 7, 1997.
20b. Press release of Registrant dated May 8, 1997.
99.1 Consent Solicitation Statement dated May 9, 1997.
99.2 Distribution Agreement, dated as of May 8, 1997, among
Registrant, Gallaher Group Limited, Gallaher Limited and
ATIC Group, Inc.
99.3 Tax Allocation Agreement, dated as of May 8, 1997, among
Registrant, Gallaher Group Limited and Gallaher Limited.
99.4 Interim Services Agreement, dated as of May 8, 1997, between
Registrant and Gallaher Group Limited.
<PAGE>
99.5 Indemnification Agreement, dated as of May 8, 1997, among
Registrant, Gallaher Group Limited, Gallaher Limited and
ATIC Group, Inc.
99.6 American Brands, Inc. and Subsidiaries (i) Quarterly
Financial Data for 1996, (ii) Consolidated Statement of
Income for the years ended December 31, 1996, 1995 and 1994,
(iii) Consolidated Balance Sheet as of December 31, 1996 and
1995, (iv) Consolidated Statement of Cash Flows for the
years ended December 31, 1996 and 1995 and (v)
Information on Business Segments for the years ended
December 31, 1996, 1995 and 1994, each of which has been
restated to reflect the tobacco business as a discontinued
operation.
99.7 Fact Kit to be distributed at conferences with analysts and
other interested parties in connection with the previously
announced spin-off of Registrant's U.K.-based Gallaher
tobacco business.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this Current Report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN BRANDS, INC.
---------------------
(Registrant)
By /s/ Gilbert L. Klemann, II
--------------------------------
Gilbert L. Klemann, II
Senior Vice President
and General Counsel
Date: May 9, 1997
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
- ------- -------------
20a. Press release of Registrant dated
May 7, 1997.
20b. Press release of Registrant dated
May 8, 1997.
99.1. Consent Solicitation Statement dated
May 9, 1997.
99.2 Distribution Agreement, dated as of
May 8, 1997, among Registrant,
Gallaher Group Limited, Gallaher Limited
and ATIC Group, Inc.
99.3 Tax Allocation Agreement, dated as of
May 8, 1997, among Registrant,
Gallaher Group Limited and Gallaher Limited.
99.4 Interim Services Agreement, dated as of
May 8, 1997, between Registrant and
Gallaher Group Limited.
99.5 Indemnification Agreement, dated as of
May 8, 1997, among Registrant,
Gallaher Group Limited, Gallaher Limited
and ATIC Group, Inc.
99.6 American Brands, Inc. and Subsidiaries (i)
Quarterly Financial Data for 1996,
(ii) Consolidated Statement of Income for
the years ended December 31, 1996, 1995 and
1994, (iii) Consolidated Balance Sheet as
of December 31, 1996 and 1995, (iv)
Consolidated Statement of Cash Flows for
the years ended December 31, 1996 and 1995
and (v) Information on Business
Segments for the years ended December 31,
1996, 1995 and 1994, each of which has
been restated to reflect the tobacco
business as a discontinued operation.
99.7 Fact Kit to be distributed at
conferences with analysts and other
interested parties in connection with
the previously announced spin-off of
Registrant's U.K.-based Gallaher
tobacco business.
<PAGE>
EXHIBIT 20a
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS RECEIVES FAVORABLE
IRS RULING FOR GALLAHER SPIN-OFF
Old Greenwich, CT, May 7, 1997 -- American Brands, Inc. (NYSE-
AMB) today announced that it has received a favorable ruling from
the U.S. Internal Revenue Service. The I.R.S. has ruled that the
Company's previously announced plan to spin off its U.K.-based
Gallaher tobacco business qualifies as a tax-free transaction to
U.S. stockholders.
The ruling was a key condition necessary for the successful
completion of the spin-off. The Company received shareholder
approval at its April 30 Annual Meeting for the spin-off and the
change of its name to Fortune Brands, Inc., and is in the process
of seeking listing of Gallaher's ordinary shares on the London
Stock Exchange. Gallaher's ADRs have been approved for listing
on the New York Stock Exchange, and Fortune Brands shares will
also be listed on the New York Stock Exchange.
The American Brands Board has set a May 30, 1997 record and
payment date for the spin-off and name change. On June 2,
Fortune Brands will begin trading under the symbol "FO," and
Gallaher ADRs, under the symbol "GLH."
Chairman and Chief Executive Officer Thomas C. Hays noted
that, "The receipt of this I.R.S. ruling was a key milestone in
<PAGE>
our plan for the spin-off. At the end of this month, one great
company -- American Brands -- will become two: Fortune Brands
and Gallaher -- each with great brands and strong prospects."
* * * *
American Brands, Inc. is an international consumer products
holding company with headquarters in Old Greenwich, Connecticut.
As noted, following the consummation of the spin-off of Gallaher,
American Brands intends to change its name to Fortune Brands.
Fortune Brands' operating companies have powerhouse brands and
leading market positions. Home and office products consist of
hardware and home improvement brands -- including Moen faucets,
Master locks and Aristokraft cabinets sold by units of
MasterBrand Industries -- and office products brands -- including
ACCO World Corporation's Day-Timer and Swingline. Acushnet
Company's golf brands include Titleist, Cobra, Pinnacle and Foot-
Joy. Major distilled spirits brands sold by units of JBB
Worldwide, Inc. include Jim Beam and the Small Batch Bourbons,
DeKuyper cordials, After Shock liqueur and Whyte & Mackay Scotch.
Gallaher Limited sells tobacco products internationally,
principally in Europe, where its major brands include Benson and
Hedges and Silk Cut.
# # #
<PAGE>
EXHIBIT 20b
FOR IMMEDIATE RELEASE
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS ANNOUNCES CONSENT SOLICITATION
Old Greenwich, CT, May 8, 1997 -- American Brands, Inc. (NYSE-
AMB) announced today that, in connection with the spin-off of its
U.K.-based Gallaher tobacco business, it is soliciting consents
to amend the indenture which governs certain of its U.S. debt
securities. While the Company is of the view that the spin-off
will not require any action to be taken under the indenture by
the Company or the entity to be spun off, the proposed indenture
modifications would expressly permit the spin-off and related
transactions.
The solicitations are being made to all holders of record
as of 5:00 p.m., New York City time, on May 8, 1997. The
solicitation period will commence May 9, 1997, and will expire at
5:00 p.m., New York City time, on May 22, 1997, unless extended.
Holders must deliver consents in respect of a majority in
principal amount of each series of securities in order to approve
the proposed amendments. Each issuance of Notes and Debentures
being solicited represents a separate series. Holders of the
Company's Medium-Term Notes will vote together as one series.
Subject to the terms and conditions set forth in the Consent
Solicitation Statement to be dated May 9, 1997
1
<PAGE>
and the applicable Letter of Consent, the Company will pay to
each holder a consent fee (listed below) for each $1,000
principal amount of securities for which a holder delivers a
valid and unrevoked consent prior to the expiration of the
solicitation.
<TABLE>
<CAPTION>
CONSENT FEE PER
PRINCIPAL $1,000 PRINCIPAL
CUSIP NO. AMOUNT SECURITY DESCRIPTION AMOUNT
<S> <C> <C> <C>
024703AQ3 $150,000,000 7 1/2% Notes Due 1999 $1.50
024703AL4 100,000,000 9% Notes Due 1999 1.50
024703AN0 200,000,000 8 1/2% Notes Due 2003 2.50
024703AP5 150,000,000 8 5/8% Debentures Due 2021 3.50
024703AS9 150,000,000 7 7/8% Debentures Due 2023 3.50
Various 49,250,000 Medium-Term Notes Due 1997 1.00
Various 90,000,000 Medium-Term Notes Due 1998 1.50
Various 11,000,000 Medium-Term Notes Due 2001 2.00
</TABLE>
Any questions concerning the terms of the solicitations
should be directed to Morgan Stanley & Co. Incorporated, the
Solicitation Agent, at 1-800-624-1808. Requests for copies of
the Consent Solicitation Statement and Letters of Consent should
be directed to Kissel-Blake Inc., the Information Agent, at 1-800-
554-7733. Banks and Brokers may call 212-344-6733. Questions
concerning the procedures for delivering consents should be
directed to Kissel-Blake or The Chase Manhattan Bank, the
Tabulation Agent, at 212-946-3471.
American Brands, Inc. is an international consumer
products holding company with headquarters in Old Greenwich,
Connecticut. On May 30, following the consummation of the spin
off of Gallaher, American Brands intends to change its name to
Fortune Brands.
# # # #
2
<PAGE>
Exhibit 99.1
Consent Solicitation Statement
$900,250,000
American Brands, Inc.
Solicitation of Consents Relating to Certain of its
Debentures, Notes and Medium-Term Notes
American Brands, Inc., a Delaware corporation (the "Company"), hereby
solicits consents (the "Consents"), upon the terms and subject to the
conditions set forth in this Consent Solicitation Statement and in the
applicable Letter of Consent (each a "Consent Letter" and together with this
Consent Solicitation Statement, the "Consent Solicitation"), to certain
proposed amendments (the "Proposed Amendments") to an Indenture dated as of
July 15, 1988 as supplemented by a First Supplemental Indenture dated as of
November 14, 1990 and a Second Supplemental Indenture dated as of September 1,
1991 (the "Indenture"), between the Company and The Chase Manhattan Bank
(formerly known as Chemical Bank, as successor by merger to Manufacturers
Hanover Trust Company), as trustee (the "Trustee"), pursuant to which certain
outstanding debt securities of the Company as described herein (each a "series
of Securities" and collectively, the "Securities") were issued.
As described more fully herein, the Company intends, subject to certain
conditions, to spin off the international tobacco business presently conducted
by the Company's indirect wholly-owned subsidiary, Gallaher Limited, and its
subsidiaries. The spin-off will be effected by means of (i) the transfer to
Gallaher Group Limited, an English private limited company formed as a wholly-
owned subsidiary of the Company (to be reincorporated as a public limited
company under the name Gallaher Group Plc prior to the Distribution (as
defined herein)) ("New Gallaher"), of all the stock of ATIC Group, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("ATIC"),
which is the immediate parent of Gallaher Limited, and certain other
transactions intended to allocate to New Gallaher assets and liabilities
relating to the business of New Gallaher (such transfers being referred to
collectively as the "Transfers") and (ii) the distribution on a pro rata basis
of American Depositary Shares and ordinary shares of New Gallaher, together
representing all the outstanding share capital of New Gallaher, to the holders
of the outstanding shares of the Company's Common Stock (the "Distribution"),
upon the terms and subject to the conditions set forth in the Distribution
Agreement (as defined herein). The Company is of the view that the Transfers
and the Distribution will not require any action to be taken by the Company or
New Gallaher under the Indenture. In order to avoid any doubt, however, the
Company is proposing certain modifications to the Indenture to expressly
provide that the Transfers and the Distribution and all other transactions
described in the Distribution Agreement are permitted by the Indenture and
that no other action is required by the Company or New Gallaher as a result of
such transactions to comply with the terms and conditions of the Indenture and
the Outstanding Securities (as defined therein). See "The Proposed
Transactions" and "The Proposed Amendments".
In the event that Consents from holders of record as of the Record Date (as
defined herein) representing not less than a majority of the aggregate
principal amount of each series of Securities (the "Requisite Consents") are
received (and not revoked) on or prior to the Expiration Time (as defined
herein), the Company will pay to each holder, upon the terms and subject to
the conditions set forth in the Consent Solicitation, a consent fee, for each
$1,000 principal amount of Securities in respect of which a Consent has been
delivered and not revoked on or prior to the Expiration Time, equal to that
specified for each series of Securities in the table set forth herein (the
"Consent Fee"). See "The Consent Solicitation-General".
The Consent Solicitation is being made to all persons in whose name the
Securities were registered at the close of business on May 8, 1997 (the
"Record Date") and their duly designated proxies, including, for the purposes
of the Consent Solicitation, DTC Participants (as defined herein) who held
Securities through The Depository Trust Company ("DTC") as of the Record Date
(such DTC Participants, together with such registered holders, are referred to
herein as "Holders").
(cover page continues)
EACH CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MAY 22, 1997, UNLESS EXTENDED (THE "EXPIRATION TIME"). IF THE PROPOSED
AMENDMENTS ARE ADOPTED, EACH HOLDER OF SECURITIES WILL BE BOUND BY THE
PROPOSED AMENDMENTS, WHETHER OR NOT SUCH HOLDER HAS DELIVERED A CONSENT.
---------------
Please handle this matter through your bank or broker. For further
information relating to the Consent Solicitation, please call the Solicitation
Agent or the Information Agent at the telephone numbers set forth on the back
cover of this Consent Solicitation Statement. To obtain copies of this Consent
Solicitation Statement, please contact the Information Agent.
The Solicitation Agent for the Consent Solicitation is
MORGAN STANLEY & CO.
Incorporated
May 9, 1997
<PAGE>
(continuation of cover page)
CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON MAY 22, 1997 ON THE TERMS AND CONDITIONS SET FORTH HEREIN, BUT MAY NOT BE
REVOKED THEREAFTER. SEE "THE CONSENT SOLICITATION--REVOCATION OF CONSENTS".
The title of each of the 23 issuances of Securities subject to the Consent
Solicitation, the amount of the Consent Fee payable for each $1,000 in
principal amount of Securities with respect to each series of Securities,
along with certain other information relating to each series, are set forth in
the following table:
<TABLE>
<CAPTION>
AGGREGATE CONSENT FEE
PRINCIPAL PER $1,000
AMOUNT PRINCIPAL
VOTING CLASS CUSIP NO. OUTSTANDING TITLE OF SERIES AMOUNT
------------ ------------ ------------ ------------------------ -----------
<C> <C> <C> <C> <S> <C>
I (White) 024703 AQ3 $150,000,000 7 1/2% Notes Due 1999 $1.50
II (Green) 024703 AL4 100,000,000 9% Notes Due 1999 $1.50
III (Blue) 024703 AN0 200,000,000 8 1/2% Notes Due 2003 $2.50
8 5/8% Debentures Due
IV (Pink) 024703 AP5 150,000,000 2021 $3.50
7 7/8% Debentures Due
V (Grey) 024703 AS9 150,000,000 2023 $3.50
8.190% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due September 19, 1997 $1.00
8.190% Medium-Term Notes
VI (Yellow) 02470L AY6 23,750,000 Due September 19, 1997 $1.00
8.170% Medium-Term Notes
VI (Yellow) 02470L AZ3 15,500,000 Due September 19, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BA7 1,000,000 Due September 24, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BB5 4,000,000 Due September 25, 1997 $1.00
8.830% Medium-Term Notes
VI (Yellow) Certificated 10,000,000 Due February 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AG5 10,000,000 Due March 16, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AH3 10,000,000 Due March 16, 1998 $1.50
8.820% Medium-Term Notes
VI (Yellow) 02470L AJ9 10,000,000 Due March 23, 1998 $1.50
8.800% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due April 13, 1998 $1.50
8.720% Medium-Term Notes
VI (Yellow) 02470L AM2 20,000,000 Due May 15, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AP5 19,000,000 Due August 10, 1998 $1.50
8.750% Medium-Term Notes
VI (Yellow) 02470L AQ3 5,000,000 Due August 10, 1998 $1.50
8.650% Medium-Term Notes
VI (Yellow) 02470L AT7 1,000,000 Due August 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AK6 6,000,000 Due April 23, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AW0 1,000,000 Due August 15, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AU4 2,000,000 Due August 15, 2001 $2.00
8.760% Medium-Term Notes
VI (Yellow) 02470L AX8 2,000,000 Due August 21, 2001 $2.00
</TABLE>
Only a Holder as of the Record Date of the Securities in respect of which
there has been delivered a valid and unrevoked Consent on or prior to the
Expiration Time will be entitled to receive the Consent Fee. A Holder of
Securities in respect of which no Consent has been delivered will not be
entitled to receive the Consent Fee. The Consent Fee will be paid promptly
after the effective date (the "Effective Date") of the Distribution described
under "The Proposed Transactions", which Distribution is expected to occur on
or about May 30, 1997.
For purposes of the Consent Solicitation, Consents of the Holders of a
majority of the outstanding principal amount of each series of Securities are
necessary to approve the Proposed Amendments with respect to such series.
Holders of Medium-Term Notes (e.g., Voting Class VI) vote together as one
series. The Company and the Trustee will execute the Supplemental Indenture
(as defined herein) contemporaneously with the Expiration Time in the event
that the Requisite Consents have been obtained. However, the Supplemental
Indenture will provide that the operative provisions thereof will not become
effective until the Effective Date, which is expected to occur on or about May
30, 1997. In the event that the Company does not consummate the Distribution
on or before June 30, 1997, the operative provisions of the Supplemental
Indenture will not become effective, no Consent Fee will be paid and the
Indenture will remain in force and effect as if such Consents had never been
furnished. See "The Consent Solicitation--Conditions of Consent Solicitation".
The Company expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate any of the Consent Solicitations upon the
failure of any of the conditions specified in "Conditions of Consent
Solicitation", (ii) waive any of the conditions to any of the Consent
Solicitations, (iii) extend the Expiration Time of any of the Consent
Solicitations, (iv) amend the terms of any of the Consent Solicitations,
including by setting a record date later than the Record Date or (v) modify
the form or amount of the consideration to be paid pursuant to any of the
Consent Solicitations.
2
<PAGE>
(continuation of cover page)
None of the Company, the Solicitation Agent, the Information Agent or the
Tabulation Agent (as defined herein) makes any recommendation as to whether
Consents to the Proposed Amendments should be given.
HOLDERS OF SECURITIES AS OF THE RECORD DATE WHO WISH TO CONSENT AND RECEIVE
THE CONSENT FEE SHOULD MAIL, HAND DELIVER OR SEND BY OVERNIGHT COURIER OR
FACSIMILE THEIR PROPERLY COMPLETED AND EXECUTED CONSENTS TO THE TABULATION
AGENT AT THE ADDRESS SET FORTH ON THE BACK COVER OF THIS CONSENT SOLICITATION
STATEMENT AND ON THE APPLICABLE CONSENT LETTER IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH HEREIN AND THEREIN. CONSENTS SHOULD NOT BE DELIVERED TO
THE COMPANY, THE TRUSTEE, THE SOLICITATION AGENT OR THE INFORMATION AGENT.
HOWEVER, THE COMPANY RESERVES THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY IT,
THE TRUSTEE, THE SOLICITATION AGENT OR THE INFORMATION AGENT.
HOLDERS OF SECURITIES SHOULD NOT TENDER OR DELIVER SECURITIES AT ANY TIME.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS CONSENT SOLICITATION STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS CONSENT SOLICITATION IS NOT BEING MADE TO, AND NO CONSENTS ARE
BEING SOLICITED FROM, HOLDERS OF SECURITIES IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION OR GRANT SUCH CONSENT. THE DELIVERY OF THIS
CONSENT SOLICITATION STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 4
Incorporation of Certain Documents by Reference............................ 4
Summary.................................................................... 5
The Company................................................................ 9
The Proposed Transactions.................................................. 9
Ratings.................................................................... 9
The Proposed Amendments.................................................... 10
The Consent Solicitation................................................... 10
Annex A: Fortune Brands, Inc. Pro Forma Financial Information.............. A-1
Annex B: Form of Third Supplemental Indenture.............................. B-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the rules and
regulations promulgated thereunder and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and in the Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies
of such information may be obtained by mail from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding the Company, which files electronically with the Commission
(http://www.sec.gov). Reports and other information concerning the Company may
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1996;
(2) Annual Report to Stockholders for the fiscal year ended December 31,
1996;
(3) Proxy Statement for the Annual Meeting of Stockholders held April 30,
1997;
(4) Current Report on Form 8-K dated January 24, 1997; and
(5) Current Report on Form 8-K dated April 23, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this
Consent Solicitation Statement and prior to the termination of the Consent
Solicitation shall be deemed to be incorporated by reference herein.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
Any person receiving a copy of this Consent Solicitation Statement may
obtain, without charge, upon written or oral request, a copy of any of the
documents incorporated by reference herein, except for the exhibits to such
documents (other than the exhibits expressly incorporated in such documents by
reference). Requests should be directed to: American Brands, Inc., 1700 East
Putnam Avenue, Old Greenwich, Connecticut 06870, Attention: Mr. Louis F.
Fernous, Jr., Vice President and Secretary (telephone: (203) 698-5000). To
ensure timely delivery of the documents, any request should be made by May 15,
1997.
4
<PAGE>
SUMMARY
The following summary is not intended to be complete. The summary is
qualified by the more detailed information and financial information and notes
thereto appearing elsewhere in this Consent Solicitation Statement or
incorporated by reference herein. Holders are urged to read such information.
THE COMPANY
The Company, a Delaware corporation, is an international consumer products
holding company with subsidiaries engaged in the manufacture and sale of
cigarettes, cigars and smoking tobaccos, principally in the United Kingdom,
distilled spirits, various types of hardware and home improvement products,
golf and leisure products and office products, supplies and accessories. The
Company's principal executive offices are located at 1700 East Putnam Avenue,
Old Greenwich, Connecticut 06870 (telephone: (203) 698-5000).
THE PROPOSED TRANSACTIONS
On October 8, 1996, the Company announced plans to spin off the international
tobacco business presently conducted by the Company's indirect wholly-owned
subsidiary, Gallaher Limited, and its subsidiaries (collectively, "Gallaher").
The Company's stockholders approved the spin-off at the Company's Annual
Meeting of Stockholders held on April 30, 1997 and following the Annual
Meeting, the Board of Directors of the Company set a May 30, 1997 record and
payment date for the spin-off subject to the satisfaction of the conditions set
forth in the Distribution Agreement (as defined herein) or the waiver thereof.
The Company has received a favorable tax ruling from the Internal Revenue
Service as to certain U.S. federal income tax consequences of the spin-off. The
spin-off will be effected by means of (i) the transfer to Gallaher Group
Limited, an English private limited company formed as a wholly-owned subsidiary
of the Company (to be reincorporated as a public limited company under the name
Gallaher Group Plc prior to the Distribution (as defined herein)) ("New
Gallaher"), of all the stock of ATIC Group, Inc., a Delaware corporation and
wholly- owned subsidiary of the Company ("ATIC"), which is the immediate parent
of Gallaher Limited, and certain other transactions intended to allocate to New
Gallaher assets and liabilities relating to the business of New Gallaher (such
transfers being referred to collectively as the "Transfers") and (ii) the
distribution on a pro rata basis of American Depositary Shares and ordinary
shares of New Gallaher, together representing all the outstanding share capital
of New Gallaher, to the holders of the outstanding shares of Common Stock, par
value $3.125 per share, of the Company (the "Distribution"), upon the terms and
subject to the conditions set forth in a Distribution Agreement (the
"Distribution Agreement") dated as of May 8, 1997 among the Company, ATIC, New
Gallaher and Gallaher Limited.
In connection with the Distribution, the name of the Company will be changed
to Fortune Brands, Inc. ("Fortune Brands") and the financial statements will be
restated to show tobacco operations as discontinued operations. Subsidiaries of
Fortune Brands will continue to be engaged in the manufacture and sale of home
and office products, distilled spirits products and golf products.
To allocate the overall debt burden of the Company at the time of the
Distribution, New Gallaher will distribute to the Company pounds sterling in
the range of 925 million. The Company may use the net cash proceeds of
approximately $1.25 billion initially to pay down short-term debt.
Certain pro forma financial information for Fortune Brands is set forth in
Annex A hereto.
RATINGS
On October 9, 1996, Moody's Investors Services affirmed its rating of A2 on
the Company's long-term debt. On October 9, 1996, Standard & Poor's Corporation
affirmed its rating of A on the Company's senior debt, but revised its rating
outlook on the Company to negative from stable.
5
<PAGE>
THE CONSENT SOLICITATION AND THE PROPOSED AMENDMENTS
The Company is of the view that the Transfers and the Distribution will not
require any action to be taken by the Company or New Gallaher under the
Indenture. In order to avoid any doubt, however, the Company is proposing
certain modifications to the Indenture to expressly provide that the Transfers
and the Distribution and all other transactions described in the Distribution
Agreement are permitted by the Indenture and that no other action is required
by the Company or New Gallaher as a result of such transactions to comply with
the terms and conditions of the Indenture and the Outstanding Securities (as
defined therein).
In the event that the Requisite Consents are received (and not revoked) on or
prior to the Expiration Time, the Company will pay to each Holder, upon the
terms and subject to the terms and conditions set forth in the Consent
Solicitation, the Consent Fee, for each $1,000 principal amount of Securities
in respect of which a Consent has been delivered and not revoked on or prior to
the Expiration Time, equal to that specified for each series of Securities in
the table set forth herein. No accrued interest will be paid on the Consent
Fee.
In the event that the All Series Condition (as defined herein) is not
satisfied by the Expiration Time for any series of Securities, the Company may,
in its sole discretion and without the need to give any advance notice, (i)
waive the All Series Condition and enter into a Supplemental Indenture
affecting each series of Securities for which the Requisite Consents have been
received and pay Consent Fees to the Holders of such series and (ii) with
respect to any other series, terminate, amend or extend the Expiration Time of
the Consent Solicitation for such other series of Securities. Alternatively, in
the event that the All Series Condition is not satisfied on or prior to the
Expiration Time for any series, the Company may extend the Expiration Time for
all series of Securities.
The following is a summary of certain Consent Solicitation provisions:
TITLE OF SECURITIES AND The title of each series of Securities subject
CONSENT FEE................... to this Consent Solicitation, the amount of the
Consent Fee payable with respect to each series
and certain other information relating to such
series are set forth in the table below.
<TABLE>
<CAPTION>
AGGREGATE CONSENT FEE
PRINCIPAL PER $1,000
AMOUNT PRINCIPAL
VOTING CLASS CUSIP NO. OUTSTANDING TITLE OF SERIES AMOUNT
------------ ------------ ------------ --------------- -----------
<C> <C> <C> <C> <S> <C>
I (White) 024703 AQ3 $150,000,000 7 1/2% Notes Due 1999 $1.50
II (Green) 024703 AL4 100,000,000 9% Notes Due 1999 $1.50
III (Blue) 024703 AN0 200,000,000 8 1/2% Notes Due 2003 $2.50
8 5/8% Debentures Due
IV (Pink) 024703 AP5 150,000,000 2021 $3.50
7 7/8% Debentures Due
V (Grey) 024703 AS9 150,000,000 2023 $3.50
8.190% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due September 19, 1997 $1.00
8.190% Medium-Term Notes
VI (Yellow) 02470L AY6 23,750,000 Due September 19, 1997 $1.00
8.170% Medium-Term Notes
VI (Yellow) 02470L AZ3 15,500,000 Due September 19, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BA7 1,000,000 Due September 24, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BB5 4,000,000 Due September 25, 1997 $1.00
8.830% Medium-Term Notes
VI (Yellow) Certificated 10,000,000 Due February 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AG5 10,000,000 Due March 16, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AH3 10,000,000 Due March 16, 1998 $1.50
8.820% Medium-Term Notes
VI (Yellow) 02470L AJ9 10,000,000 Due March 23, 1998 $1.50
8.800% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due April 13, 1998 $1.50
8.720% Medium-Term Notes
VI (Yellow) 02470L AM2 20,000,000 Due May 15, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AP5 19,000,000 Due August 10, 1998 $1.50
8.750% Medium-Term Notes
VI (Yellow) 02470L AQ3 5,000,000 Due August 10, 1998 $1.50
8.650% Medium-Term Notes
VI (Yellow) 02470L AT7 1,000,000 Due August 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AK6 6,000,000 Due April 23, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AW0 1,000,000 Due August 15, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AU4 2,000,000 Due August 15, 2001 $2.00
8.760% Medium-Term Notes
VI (Yellow) 02470L AX8 2,000,000 Due August 21, 2001 $2.00
</TABLE>
6
<PAGE>
RECORD DATE................. 5:00 p.m., New York City time, on May 8, 1997.
EXPIRATION TIME............. Each Consent Solicitation will expire at 5:00
p.m., New York City time, on May 22, 1997, unless
the Company, in its sole discretion, extends the
period of time during which such Consent
Solicitation is open, in which case the term
"Expiration Time" means, with respect to such
Consent Solicitation as so extended, the latest
date and time to which such Consent Solicitation
is extended.
ELIGIBILITY FOR CONSENT
FEE......................... Holders of each series of Securities as of the
Record Date whose properly executed Consents are
received by the Tabulation Agent (and not
revoked) on or prior to the Expiration Time will
be eligible to receive the Consent Fee if the
conditions for payment described herein shall
have been satisfied or waived for such series.
The Consent Fee will be paid promptly after the
Effective Date.
CONDITIONS OF CONSENT
SOLICITATION................ The Consent Solicitation with respect to each
series of Securities (including the payment of
Consent Fees in respect thereof) is conditioned
on (i) there being received (and not revoked), on
or prior to the Expiration Time for such series,
the Requisite Consents for each series (the
"Requisite Consent Condition"), (ii) there being
received (and not revoked), on or prior to the
Expiration Time, Requisite Consents for each
other series of Securities (the "All Series
Condition"), (iii) the Distribution having
occurred or is simultaneously occurring (the
"Distribution Condition"), which is expected to
occur on or about May 30, 1997 and (iv) the
absence of any law or regulation which would, and
the absence of any injunction or action or other
proceeding (pending or threatened) which (in the
case of any action or proceeding, if adversely
determined) would make unlawful or invalid or
enjoin the implementation of the Proposed
Amendments, the entering into of any Supplemental
Indenture or the payment of any Consent Fee or
question the legality or validity thereof (the
"General Conditions").
REQUISITE CONSENTS.......... Holders of each series of Securities as of the
Record Date must grant (and not revoke) valid
Consents in respect of a majority in principal
amount of the outstanding Securities of each
series of Securities in order to approve the
Proposed Amendments with respect to such series
of Securities. Holders of Medium-Term Notes vote
together as one series. For purposes of the
foregoing calculation, Securities held by the
Company or any of its affiliates will not be
counted as being outstanding.
CONSEQUENCES TO NON-
CONSENTING HOLDERS......... If the Proposed Amendments are adopted for any
series of Securities, each Holder of Securities
of such series and all subsequent Holders of
Securities of such series will be bound by the
Proposed Amendments whether or not such Holder
has delivered a Consent.
7
<PAGE>
CONSENT PROCEDURES.......... Consents must be received by the Tabulation Agent
at its address set forth on the back cover of
this Consent Solicitation Statement on or prior
to the Expiration Time. DTC has authorized its
participants who held Securities through DTC as
of the Record Date ("DTC Participants") to
deliver Consents. Only registered Holders of
Securities as of the Record Date or their duly
designated proxies, including, for the purposes
of the Consent Solicitation, DTC Participants,
are eligible to deliver Consents to the Proposed
Amendments and receive the Consent Fee. A
beneficial owner of an interest in Securities
held in an account of a DTC Participant must
properly instruct such DTC Participant to deliver
a Consent in respect of such Securities. See "The
Consent Solicitation--Consent Procedures".
The WHITE Consent Letter must be used to execute
and deliver Consents for the 7 1/2% Notes Due
1999 (Voting Class I). The GREEN Consent Letter
must be used to execute and deliver Consents for
the 9% Notes Due 1999 (Voting Class II). The BLUE
Consent Letter must be used to execute and
deliver Consents for the 8 1/2% Notes Due 2003
(Voting Class III). The PINK Consent Letter must
be used to execute and deliver Consents for the 8
5/8% Debentures Due 2021 (Voting Class IV). The
GREY Consent Letter must be used to execute and
deliver Consents for the 7 7/8% Debentures Due
2023 (Voting Class V). The YELLOW Consent Letter
must be used to execute and deliver Consents for
Medium-Term Notes (Voting Class VI).
REVOCATION OF CONSENTS...... Revocation of Consents may be made at any time on
or prior to 5:00 p.m., New York City time, on May
22, 1997 but only by the Holder of the Securities
as of the Record Date. Each Holder, by delivering
its Consent, will agree in the applicable Consent
Letter that its Consent shall be irrevocable from
and after that time, even if the Consent
Solicitation for any or all series of Securities
shall be extended beyond that time. See "The
Consent Solicitation--Revocation of Consents".
SOLICITATION AGENT.......... Morgan Stanley & Co. Incorporated.
INFORMATION AGENT........... Kissel-Blake Inc.
TABULATION AGENT............ The Chase Manhattan Bank.
FEDERAL INCOME TAX
CONSEQUENCES................ For a discussion of certain United States federal
income tax considerations relating to the Consent
Solicitation, see "The Consent Solicitation--
Certain Federal Income Tax Consequences".
8
<PAGE>
THE COMPANY
American Brands, Inc., a Delaware corporation (the "Company" or "American
Brands"), is an international consumer products holding company with
subsidiaries engaged in the manufacture and sale of cigarettes, cigars and
smoking tobaccos, principally in the United Kingdom, distilled spirits,
various types of hardware and home improvement products, golf and leisure
products and office products, supplies and accessories. The Company's
principal executive offices are located at 1700 East Putnam Avenue, Old
Greenwich, Connecticut 06870 (telephone: (203) 698-5000).
THE PROPOSED TRANSACTIONS
On October 8, 1996, the Company announced plans to spin off the
international tobacco business presently conducted by the Company's indirect
wholly-owned subsidiary, Gallaher Limited, and its subsidiaries (collectively,
"Gallaher"). The Company's stockholders approved the spin-off at the Company's
Annual Meeting of Stockholders held on April 30, 1997 and following the Annual
Meeting, the Board of Directors of the Company set a May 30, 1997 record and
payment date for the spin-off subject to the satisfaction of the conditions
set forth in the Distribution Agreement (as defined herein) or the waiver
thereof. The Company has received a favorable tax ruling from the Internal
Revenue Service as to certain U.S. federal income tax consequences of the
spin-off. The spin-off will be effected by means of (i) the transfer to
Gallaher Group Limited, an English private limited company formed as a wholly-
owned subsidiary of the Company (to be reincorporated as a public limited
company under the name Gallaher Group Plc prior to the Distribution (as
defined herein)) ("New Gallaher"), of all the stock of ATIC Group, Inc., a
Delaware corporation and wholly- owned subsidiary of the Company ("ATIC"),
which is the immediate parent of Gallaher Limited, and certain other
transactions intended to allocate to New Gallaher assets and liabilities
relating to the business of New Gallaher (such transfers being referred to
collectively as the "Transfers") and (ii) the distribution on a pro rata basis
of American Depositary Shares and ordinary shares of New Gallaher, together
representing all the outstanding share capital of New Gallaher, to the holders
of the outstanding shares of Common Stock, par value $3.125 per share, of the
Company (the "Distribution"), upon the terms and subject to the conditions set
forth in a Distribution Agreement (the "Distribution Agreement") dated as of
May 8, 1997 among the Company, ATIC, New Gallaher and Gallaher Limited.
In connection with the Distribution, the name of the Company will be changed
to Fortune Brands, Inc. ("Fortune Brands") and the financial statements will
be restated to show tobacco operations as discontinued operations.
Subsidiaries of Fortune Brands will continue to be engaged in the manufacture
and sale of home and office products, distilled spirits products and golf
products.
To allocate the overall debt burden of the Company at the time of the
Distribution, New Gallaher will distribute to the Company pounds sterling in
the range of 925 million. The Company may use the net cash proceeds of
approximately $1.25 billion initially to pay down short-term debt.
Certain pro forma financial information for Fortune Brands is set forth in
Annex A hereto.
RATINGS
On October 9, 1996, Moody's Investors Services affirmed its rating of A2 on
the Company's long-term debt. On October 9, 1996, Standard & Poor's
Corporation affirmed its rating of A on the Company's senior debt, but revised
its rating outlook on the Company to negative from stable.
9
<PAGE>
THE PROPOSED AMENDMENTS
The following statements are summaries of the substance or general effect of
certain provisions of the Indenture and the Proposed Amendments and are
qualified in their entirety by reference to the Indenture and Annex B to this
Consent Solicitation Statement, which are hereby incorporated by reference
herein. Copies of the Indenture are available from the Trustee or the Company
upon request.
The Company is of the view that the Transfers and the Distribution will not
require any action to be taken by the Company and New Gallaher under the
Indenture. In order to avoid any doubt, however, the Company is proposing
certain modifications to the Indenture to expressly provide that the Transfers
and the Distribution and all other transactions described in the Distribution
Agreement are permitted by the Indenture and that no other action is required
by the Company or New Gallaher as a result of such transactions to comply with
the terms and conditions of the Indenture and the Outstanding Securities.
More specifically, the Proposed Amendments would effect the following
principal changes: (i) the Indenture would be amended to (a) specifically
provide that nothing in the Indenture shall prevent, or place any restrictions
or conditions on, the consummation of the transactions described in the
Distribution Agreement and (b) specifically allow the Company to consummate
such transactions without complying with the covenant in the Indenture that
generally provides that the Company may not convey or transfer its properties
and assets substantially as an entirety to any person unless, among other
things, the person to which such conveyance or transfer is made assumes the
obligations of the Company under the Securities and the Indenture and (ii) add
certain defined terms used in connection with the foregoing amendments.
The Proposed Amendments will be embodied in a supplemental indenture to be
executed by the Company and the Trustee (the "Supplemental Indenture"). The
Supplemental Indenture will become binding in accordance with its terms upon
execution, but the Proposed Amendments will only become operative upon the
Effective Date. The "Effective Date", which is expected to occur on or about
May 30, 1997, is the date on which (i) the Company has received the Requisite
Consents with respect to each series of Securities, (ii) the Supplemental
Indenture has been duly executed and delivered by all parties thereto and
(iii) the Distribution has occurred or is simultaneously occurring. None of
the maturity dates, payment provisions, interest rates, redemption provisions
or any other similar terms will be amended as a result of the Proposed
Amendments.
Securities which are currently listed on the New York Stock Exchange will
continue to be so listed if the Proposed Amendments are adopted.
The text of the Supplemental Indenture is set forth in Annex B hereto.
THE CONSENT SOLICITATION
GENERAL
The Company hereby offers, upon the terms and conditions set forth herein
and in the applicable Consent Letter for each series of Securities, to pay to
each of the Holders of such series of Securities the Consent Fee specified for
each such series in the table set forth herein, for each $1,000 principal
amount of each series as to which a valid and unrevoked Consent has been given
on or prior to the Expiration Time.
The Company is soliciting Consents to the Proposed Amendments from Holders
of each of the Securities as of the Record Date, upon the terms and subject to
the conditions set forth in this Consent Solicitation Statement and in the
applicable Consent Letter. For the purposes of the Consent Solicitation, there
are 23 series of Securities that are divided into six classes. Each series of
Securities (other than the Medium-Term Notes) will vote separately as a class.
Holders of Medium-Term Notes will vote together as a single class.
Consents relating to any series of Securities may be revoked at any time
prior to 5:00 p.m., New York City time, on May 22, 1997, and shall be
irrevocable from and after such time even if the Consent Solicitation for
10
<PAGE>
such series or any other series shall be extended beyond that time. If
Requisite Consents for Securities of any series are received (and not revoked)
on or prior to the Expiration Time for such series (so that such series
constitutes an "Approving Series") and the other conditions set forth herein
(including the Distribution Condition and the All Series Condition) are
satisfied or waived for such series, the Company will, promptly after such
Expiration Time, (a) execute a Supplemental Indenture to the Indenture
documenting the Proposed Amendments affecting each such series and (b) pay to
each Holder of such series of Securities as of the Record Date who has
delivered (and not revoked) a valid Consent prior to the Expiration Time the
Consent Fee, for each $1,000 in principal amount of such series of Securities
in respect of which such Consent has been received by the Tabulation Agent at
its address set forth on the back cover of this Consent Solicitation
Statement, equal to that specified for such series of Securities in the table
set forth herein. A Holder of Securities in respect of which no Consent has
been delivered will not be entitled to receive the Consent Fee. The Proposed
Amendments will become effective with respect to each Approving Series upon
execution of the Supplemental Indenture but the Proposed Amendments will only
become operative upon the Effective Date. Thereafter, all current Holders of
such series of Securities, including non-consenting Holders, and all
subsequent Holders of such series of Securities will be bound by the Proposed
Amendments. If the Consent Solicitation is terminated for any reason before
the Expiration Time for any or all series of Securities, or conditions thereto
are neither satisfied nor waived with respect to any series of Securities, the
Consents for such series of Securities will be void, the Supplemental
Indenture with respect to such series of Securities will not be executed and
the Consent Fee for such series of Securities will not be paid.
The Consents are being solicited by the Company. All costs of the Consent
Solicitation will be paid by the Company. In addition to the use of the mail,
Consents may be solicited by officers and other employees of the Company,
without additional remuneration, in person, or by telephone or facsimile
transmission. The Company has retained Morgan Stanley & Co. Incorporated, as
Solicitation Agent, and Kissel-Blake Inc., as Information Agent, to aid in the
solicitation of Consents, including soliciting Consents from brokers, dealers,
commercial banks, trust companies or other nominees, custodians and
fiduciaries.
No interest will accrue or be paid on the Consent Fee. However, each series
of Securities will continue to accrue interest at its stated rate.
Holders of each series of Securities as of the Record Date whose properly
executed Consents are received by the Tabulation Agent (and not revoked) on or
prior to the Expiration Time will be eligible to receive the Consent Fee if
the conditions for payment described herein shall have been satisfied or
waived. Any subsequent transferees of such Holders as of the Record Date and
any Holders as of the Record Date who do not timely consent to the Proposed
Amendments (and their transferees) will not be eligible to receive the Consent
Fee even though the Proposed Amendments relating to each series of Securities,
if approved by the Requisite Consents, will be binding on them. The Consent
Fee will be paid to the consenting Holders of each series of Securities as of
the Record Date promptly after the Effective Date of the Distribution
described under "The Proposed Transactions". Beneficial owners of Securities
whose Securities are registered, as of the Record Date, in the name of a
broker, dealer, commercial bank, trust company or other nominee should contact
such broker, dealer, commercial bank, trust company or other nominee promptly
and instruct such person, as the Holder of such series of Securities, to
execute and then deliver the Consent on behalf of the beneficial owner on or
prior to the Expiration Time in order to receive the Consent Fee.
11
<PAGE>
CONSENT FEE
The title of each of the 23 issuances of Securities subject to the Consent
Solicitation, the amount of the Consent Fee payable for each $1,000 in
principal amount of Securities with respect to each series of Securities,
along with certain other information relating to each series, are set forth in
the following table:
<TABLE>
<CAPTION>
AGGREGATE CONSENT FEE
PRINCIPAL PER $1,000
VOTING AMOUNT PRINCIPAL
CLASS CUSIP NO. OUTSTANDING TITLE OF SERIES AMOUNT
------------ ------------ ------------ --------------- -----------
<C> <C> <C> <C> <S> <C>
I (White) 024703 AQ3 $150,000,000 7 1/2% Notes Due 1999 $1.50
II (Green) 024703 AL4 100,000,000 9% Notes Due 1999 $1.50
III (Blue) 024703 AN0 200,000,000 8 1/2% Notes Due 2003 $2.50
8 5/8% Debentures Due
IV (Pink) 024703 AP5 150,000,000 2021 $3.50
7 7/8% Debentures Due
V (Grey) 024703 AS9 150,000,000 2023 $3.50
8.190% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due September 19, 1997 $1.00
8.190% Medium-Term Notes
VI (Yellow) 02470L AY6 23,750,000 Due September 19, 1997 $1.00
8.170% Medium-Term Notes
VI (Yellow) 02470L AZ3 15,500,000 Due September 19, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BA7 1,000,000 Due September 24, 1997 $1.00
8.130% Medium-Term Notes
VI (Yellow) 02470L BB5 4,000,000 Due September 25, 1997 $1.00
8.830% Medium-Term Notes
VI (Yellow) Certificated 10,000,000 Due February 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AG5 10,000,000 Due March 16, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AH3 10,000,000 Due March 16, 1998 $1.50
8.820% Medium-Term Notes
VI (Yellow) 02470L AJ9 10,000,000 Due March 23, 1998 $1.50
8.800% Medium-Term Notes
VI (Yellow) Certificated 5,000,000 Due April 13, 1998 $1.50
8.720% Medium-Term Notes
VI (Yellow) 02470L AM2 20,000,000 Due May 15, 1998 $1.50
8.870% Medium-Term Notes
VI (Yellow) 02470L AP5 19,000,000 Due August 10, 1998 $1.50
8.750% Medium-Term Notes
VI (Yellow) 02470L AQ3 5,000,000 Due August 10, 1998 $1.50
8.650% Medium-Term Notes
VI (Yellow) 02470L AT7 1,000,000 Due August 13, 1998 $1.50
8.875% Medium-Term Notes
VI (Yellow) 02470L AK6 6,000,000 Due April 23, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AW0 1,000,000 Due August 15, 2001 $2.00
8.850% Medium-Term Notes
VI (Yellow) 02470L AU4 2,000,000 Due August 15, 2001 $2.00
8.760% Medium-Term Notes
VI (Yellow) 02470L AX8 2,000,000 Due August 21, 2001 $2.00
</TABLE>
REQUISITE CONSENTS
Holders of each series of Securities as of the Record Date must grant (and
not revoke) valid Consents in respect of a majority in principal amount of the
outstanding Securities of such series in order to approve the Proposed
Amendments with respect to such series. Holders of Medium-Term Notes (e.g.,
Voting Class VI) vote together as one series. For purposes of the foregoing
calculation, Securities held by the Company or any of its affiliates will not
be counted as outstanding with respect to the Consent Solicitation. As of the
date of the Consent Solicitation Statement, none of the outstanding Securities
were held by the Company or any of its affiliates.
The failure of a Holder of Securities as of the Record Date to deliver a
Consent (including any failures resulting from broker non-votes) will have the
same effect as if such Holder had not consented to the Proposed Amendments.
EXPIRATION TIME; EXTENSIONS; AMENDMENT
The term "Expiration Time" with respect to any Consent Solicitation means
5:00 p.m., New York City time, on May 22, 1997, unless the Company, in its
sole discretion, extends the period of time during which such Consent
Solicitation is open, in which case the term "Expiration Time" means, with
respect to such Consent Solicitation as so extended, the latest date and time
to which such Consent Solicitation is extended. In order to extend an
Expiration Time, the Company will notify the Tabulation Agent of any extension
by written notice and will make a public announcement thereof, each prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Time. Such announcement may state that the Company is
extending a Consent Solicitation for a series of Securities for a specified
period of time or on a daily basis.
12
<PAGE>
The Company expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate any of the Consent Solicitations upon the
failure of any of the conditions specified in "Conditions of Consent
Solicitation", (ii) waive any of the conditions to any of the Consent
Solicitations, (iii) extend the Expiration Time of any of the Consent
Solicitations, (iv) amend the terms of any of the Consent Solicitations,
including by setting a record date later than the Record Date or (v) modify
the form or amount of the consideration to be paid pursuant to any of the
Consent Solicitations.
Without limiting the manner in which the Company may choose to make a public
announcement of any extension, amendment or termination of any Consent
Solicitation, the Company expects to make any such public announcement through
a timely release to the Dow Jones News Service.
CONSENT PROCEDURES
Only those persons who are Holders as of the Record Date may execute and
deliver a Consent. DTC has authorized DTC Participants to deliver a Consent.
Accordingly, for the purposes of this Consent Solicitation, the term "Holder"
shall be deemed to include DTC Participants who held Securities through DTC as
of the Record Date. In order to cause a Consent to be given with respect to
Securities held through DTC, such DTC Participant must complete and sign the
applicable Consent Letter, and mail or deliver it to the Tabulation Agent at
its address or facsimile number set forth on the back cover of this Consent
Solicitation Statement and on the Consent Letter pursuant to the procedures
set forth herein and therein. A beneficial owner of an interest in a series of
Securities held through a DTC Participant as of the Record Date of such series
of Securities must complete and sign a letter of instructions and deliver it
to such DTC Participant in order to cause a Consent to be given with respect
to such Securities.
Delivering a Consent will not affect a Holder's right to sell or transfer
the Securities. All Consents received (and not revoked) on or prior to the
Expiration Time will be effective notwithstanding a record transfer of such
Securities subsequent to the Record Date, unless the registered Holder of such
Securities as of the Record Date revokes such Consent on or prior to 5:00
p.m., New York City time, on May 22, 1997 by following the procedures set
forth under "Revocation of Consents" below.
HOLDERS WHO WISH TO CONSENT AND RECEIVE THE CONSENT FEE SHOULD MAIL, HAND
DELIVER OR SEND BY OVERNIGHT COURIER OR FACSIMILE THEIR PROPERLY COMPLETED AND
EXECUTED CONSENTS TO THE TABULATION AGENT AT THE ADDRESS SET FORTH ON THE BACK
COVER OF THIS CONSENT SOLICITATION STATEMENT AND IN THE APPLICABLE CONSENT
LETTER IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN.
CONSENTS SHOULD NOT BE DELIVERED TO THE COMPANY, THE TRUSTEE OR THE
SOLICITATION AGENT. HOWEVER, THE COMPANY RESERVES THE RIGHT TO ACCEPT ANY
CONSENT RECEIVED BY IT, THE TRUSTEE OR THE SOLICITATION AGENT.
HOLDERS OF SECURITIES SHOULD NOT TENDER OR DELIVER SECURITIES AT ANY TIME.
The WHITE Consent Letter must be used to execute and deliver Consents for
the 7 1/2% Notes Due 1999 (Voting Class I). The GREEN Consent Letter must be
used to execute and deliver Consents for the 9% Notes Due 1999 (Voting Class
II). The BLUE Consent Letter must be used to execute and deliver Consents for
the 8 1/2% Notes Due 2003 (Voting Class III). The PINK Consent Letter must be
used to execute and deliver Consents for the 8 5/8% Debentures Due 2021
(Voting Class IV). The GREY Consent Letter must be used to execute and deliver
Consents for the 7 7/8% Debentures Due 2023 (Voting Class V). The YELLOW
Consent Letter must be used to execute and deliver Consents for Medium-Term
Notes (Voting Class VI).
All Consent Letters that are properly completed, signed and delivered to the
Tabulation Agent, and not revoked, on or prior to the Expiration Time will be
given effect in accordance with the specifications thereof. Holders who desire
to consent to the Proposed Amendments should complete, sign and date the
applicable Consent Letter included herewith and mail, deliver, send by
overnight courier or facsimile the signed Consent
13
<PAGE>
Letter to the Tabulation Agent at the address or facsimile number listed on
the back cover of this Consent Solicitation Statement and on the front page of
the applicable Consent Letter, all in accordance with the instructions
contained herein and therein. Consents relating to less than the total
principal amount of Securities of a Holder must be in integral multiples of
$1,000.
Consent Letters by the Holder(s) of Securities as of the Record Date must be
executed in exactly the same manner as such registered Holder(s) name(s)
appear(s) on such Securities or as set forth in a DTC security position
listing. If Securities to which a Consent relates are held of record by two or
more joint holders, all such Holders must sign the Consent Letter. If an
applicable Consent Letter is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must so
indicate when signing and must submit with the applicable Consent Letter
appropriate evidence of authority to execute the Consent Letter. In addition,
if a Consent relates to less than the total principal amount of Securities
registered in the name of such Holder, the Holder must list the serial numbers
(if held in certificated form) or the CUSIP numbers (if held through DTC) and
principal amount of the Securities registered in the name of such Holder to
which the Consent relates. If Securities are registered in different names,
separate Consent Letters must be executed covering each form of registration.
Holders of more than one series of Securities must deliver the applicable
Consent Letter for each such series of Securities.
IF NO PRINCIPAL AMOUNT OF SECURITIES AS TO WHICH A CONSENT IS DELIVERED IS
SPECIFIED, BUT THE CONSENT IS OTHERWISE PROPERLY COMPLETED AND SIGNED, THE
HOLDER WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSED AMENDMENTS WITH
RESPECT TO THE ENTIRE AGGREGATE PRINCIPAL AMOUNT OF SUCH SERIES OF SECURITIES
WHICH SUCH HOLDER HOLDS, WHETHER IN CERTIFICATED FORM OR THROUGH DTC.
The registered ownership of a Security as of the Record Date shall be
provided by the Trustee, as registrar of the Securities. The ownership of
Securities held through DTC by DTC Participants shall be established by a DTC
security position listing provided by DTC as of the Record Date.
All questions as to the validity, form and eligibility (including time of
receipt) regarding the Consent procedures will be determined by the Company in
its sole discretion, which determination will be conclusive and binding
subject only to such final review as may be prescribed by the Trustee
concerning proof of execution and of ownership in the case of Securities not
held through DTC. The Company reserves the right to reject any or all Consents
that are not in proper form or the acceptance of which could, in the opinion
of the Company or its counsel, be unlawful. The Company also reserves the
right, subject to such final review as the Trustee prescribes for proof of
execution and ownership, to waive any defects or irregularities in connection
with deliveries of particular Consents. Unless waived, any defects or
irregularities in connection with deliveries of Consents must be cured within
such time as the Company determines. None of the Company or any of its
affiliates, the Solicitation Agent, the Information Agent, the Tabulation
Agent, the Trustee, or any other person shall be under any duty to give any
notification of any such defects or irregularities or waiver, nor shall any of
them incur any liability for failure to give such notification. Deliveries of
Consents will not be deemed to have been made until any defects or
irregularities therein have been cured or waived. The Company's
interpretations of the terms and conditions of the Consent Solicitation shall
be conclusive and binding.
REVOCATION OF CONSENTS
Each properly completed and executed Consent will be counted,
notwithstanding any transfer of the Securities to which such Consent relates,
unless the procedure for revocation of Consents described below has been
followed.
Each Holder of Securities as of the Record Date who delivers a Consent
pursuant to the Consent Solicitation will agree in the Consent Letter that it
will not revoke its Consent after 5:00 p.m., New York City time, on May 22,
1997 and that until such time such Holder will not revoke its Consent except
in accordance with the conditions and procedures for revocation of Consents
provided below.
14
<PAGE>
Prior to 5:00 p.m., New York City time, on May 22, 1997, any Holder as of
the Record Date may revoke any Consent given as to its Securities or any
portion of such Securities (in integral multiples of $1,000). A Consent shall
be irrevocable from and after 5:00 p.m., New York City time, on May 22, 1997.
A Holder desiring to revoke a Consent must, prior to that time, deliver to the
Tabulation Agent at the address set forth on the back cover of this Consent
Solicitation Statement and on the front page of the applicable Consent Letter
a written revocation of such Consent containing the name of such Holder, the
certificate numbers (if held in certificated form) or the CUSIP numbers (if
held through DTC) of the Securities to which such revocation relates, and the
principal amount of the Securities to which such revocation relates.
Revocations of Consent Letters shall be effective upon receipt by the
Tabulation Agent.
The revocation must be executed by such Holder in the same manner as the
Holder's name appears on the Consent to which the revocation relates. If a
revocation is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when
signing and must submit with the revocation appropriate evidence of authority
to execute the revocation. A Holder may revoke a Consent only if such
revocation complies with the provisions of this Consent Solicitation. Only a
Holder of Securities as of the Record Date is entitled to revoke a Consent
previously given. A beneficial owner of an interest in a series of Securities
held through a DTC Participant as of the Record Date of such series of
Securities must instruct such DTC Participant to revoke any Consent already
given with respect to such series of Securities. A revocation that is not
received by the Tabulation Agent in a timely fashion and accepted by the
Company as a valid revocation will not be effective to revoke a Consent
previously given.
A REVOCATION OF A CONSENT LETTER MAY BE RESCINDED ONLY BY THE EXECUTION AND
DELIVERY OF A NEW CONSENT LETTER. A HOLDER WHO HAS DELIVERED A REVOCATION MAY
THEREAFTER DELIVER A NEW CONSENT LETTER BY FOLLOWING THE ABOVE PROCEDURES AT
ANY TIME ON OR PRIOR TO THE EXPIRATION TIME.
The Company reserves the right to contest the validity of any revocation and
all questions as to validity (including time of receipt) of any revocation
will be determined by the Company in its sole discretion, which determination
will be conclusive and binding, subject only to such final review as may be
prescribed by the Trustee concerning proof of execution and ownership in the
case of Securities not held through DTC. None of the Company or any of its
affiliates, the Solicitation Agent, the Information Agent, the Tabulation
Agent, the Trustee or any other person will be under any duty to give
notification of any defects or irregularities with respect to any revocation
nor shall any of them incur any liability for failure to give such
notification.
CONDITIONS OF CONSENT SOLICITATION
The Consent Solicitation with respect to each series of Securities
(including the payment of Consent Fees in respect thereof) is conditioned on
(i) the Requisite Consent Condition, (ii) the All Series Condition, (iii) the
Distribution Condition and (iv) the General Conditions.
In the event that the All Series Condition is not satisfied by the
Expiration Time for any series of Securities, the Company may, in its sole
discretion and without the need to give any advance notice, (i) waive the All
Series Condition and enter into a Supplemental Indenture affecting each series
of Securities for which the Requisite Consents have been received and pay
Consent Fees to the Holders of such series and (ii) with respect to any other
series, terminate, amend or extend the Expiration Time of the Consent
Solicitation for such other series. Alternatively, in the event that the All
Series Condition is not satisfied by the Expiration Time for any series, the
Company may extend the Expiration Time for all series of Securities.
The "General Conditions" shall mean the absence of any law or regulation
which would, and the absence of any injunction or action or other proceeding
(pending or threatened) which (in the case of any action or proceeding, if
adversely determined) would make unlawful or invalid or enjoin the
implementation of the Proposed Amendments, the entering into of any
Supplemental Indenture or the payment of any Consent Fee or question the
legality or validity thereof.
15
<PAGE>
The Consent Solicitation with respect to each series of Securities may be
abandoned or terminated by the Company at any time on or prior to the
Expiration Time therefor, for any reason, in which case Consents with respect
to such series will be voided and no Consent Fee with respect to such series
will be paid. In addition, in the event that the Company does not consummate
the Distribution on or before June 30, 1997, the operative provisions of the
Supplemental Indenture will not become effective, no Consent Fee will be paid
and the Indenture will remain in full force and effect as if such Consents had
never been furnished. Each of the conditions to the Consent Solicitation set
forth in this Consent Solicitation Statement are for the sole benefit of the
Company and may be waived by the Company with respect to any or all series of
Securities at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Proposed Amendments and the receipt of the Consent Fee to
beneficial owners of Securities ("Beneficial Owners") and is for general
information only. It is based upon provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), the applicable Treasury Regulations
promulgated and proposed thereunder, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. This discussion does not purport to address
all aspects of U.S. federal income taxation that may be relevant to particular
Beneficial Owners in light of their individual circumstances or to certain
types of Beneficial Owners subject to special treatment under the Code (for
example, insurance companies, tax-exempt organizations, financial
institutions, brokers or dealers in securities, foreign corporations, non-
resident alien individuals and certain U.S. expatriates), nor does it discuss
any aspect of state, local or foreign taxation or estate and gift tax
considerations. The discussion assumes that the Securities are held as capital
assets (as defined in the Code) by the initial Beneficial Owners thereof.
Under general principles of tax law, the modification of a debt instrument
creates a deemed exchange (upon which gain or loss is realized) if the
modified debt instrument differs materially either in kind or in extent from
the original debt instrument. The United States Supreme Court, in Cottage
Savings Association v. Commissioner, has held that properties are different to
a material extent "so long as their respective possessors enjoy legal
entitlements that are different in kind or extent."
The Department of the Treasury issued final regulations on June 25, 1996
(the "Regulations") which specifically address the modification of debt
instruments. Under the Regulations, the modification of a debt instrument is a
"significant" modification (i.e., upon which gain or loss is realized) if,
based on all the facts and circumstances and taking into account all
modifications of the debt instrument collectively, the legal rights or
obligations that are altered and the degree to which they are altered is
"economically significant." However, a modification that releases,
substitutes, adds or otherwise alters the collateral for a recourse debt
instrument is not a significant modification unless such modification results
in a change in payment expectations because of a "substantial" impairment or
enhancement of the obligor's ability to meet the payment obligations under the
debt instrument. In addition, a change in the yield of a debt instrument is a
significant modification under the Regulations if the yield of the modified
instrument (determined taking into account any payments made to the issuer or
holder as consideration for the modification) varies from the yield on the
unmodified instrument (determined as of the date of the modification) by more
than the greater of 1/4 of one percent (25 basis points) or five percent of
the annual yield of the unmodified instrument.
The Company intends to take the position that the Proposed Amendments will
not cause a significant modification of the terms of the Securities, and
therefore will not result in a deemed exchange of the Securities for U.S.
federal income tax purposes, because the Company believes that (i) the
modifications of the debt instrument are not economically significant based on
all the facts and circumstances; (ii) the modifications should not result in a
change in payment expectations as a result of a substantial change in the
obligor's ability to meet its obligations; and (iii) taking into account the
Consent Fees paid to the Beneficial Owners as consideration for the
modification, any change in the yield is not significant under the
Regulations. Under this position, the Proposed Amendments should not result in
any U.S. federal income tax consequences to a Beneficial Owner of Securities.
In addition, even if the modifications were significant under the Regulations,
with respect to the 8 1/2%
16
<PAGE>
Notes, the 7 7/8% Debentures and the 8 5/8% Debentures, the Proposed
Amendments should not in any event result in any U.S. federal income tax
consequences to a Beneficial Owner of such Securities, because the transaction
would result in a deemed exchange of securities with a maturity of five or
more years and therefore should be treated as a tax-free recapitalization for
U.S. federal income tax purposes. On the other hand, if the modifications were
significant under the Regulations, the deemed exchange of all other series of
Securities (other than the 8 1/2% Notes, the 7 7/8% Debentures and the 8 5/8%
Debentures) would not be treated as a tax-free recapitalization, and a
Beneficial Owner of such Securities would be subject to the U.S. federal
income tax consequences summarized below.
The tax consequences of a Beneficial Owner's receipt of a Consent Fee is
unclear. The Company intends to treat Consent Fees received by Beneficial
Owners as a separate payment in the nature of a fee paid for a Beneficial
Owner's Consent. Accordingly, Beneficial Owners would recognize ordinary
income in the amount of the Consent Fee received. There can be no assurance,
however, that the Internal Revenue Service will not treat the receipt of a
Consent Fee as a payment on the Securities. In that case, a Beneficial Owner's
receipt of a Consent Fee would constitute a return of capital that would not
be taxed currently to the extent of the Beneficial Owner's tax basis in the
Securities, and capital gain to the extent the amount of the payment exceeds
the Beneficial Owner's tax basis in the Securities.
Beneficial Owners of Securities should note that no ruling has been
requested from the U.S. Internal Revenue Service regarding the tax
consequences of the Proposed Amendments. No assurance can be given that the
positions intended to be taken by the Company described above will be accepted
by the U.S. Internal Revenue Service.
If an exchange were deemed to occur under general principles of tax law or
under the standards set forth in the Regulations, and if the deemed exchange
did not constitute a tax-free recapitalization as described above, then the
Securities would be deemed exchanged for new securities (the "New
Securities"), and a Beneficial Owner generally would recognize gain or loss in
an amount equal to the difference between the issue price of the New
Securities (generally, their fair market value on the date of the deemed
exchange) and the Beneficial Owner's adjusted tax basis in the Securities
deemed exchanged therefor. If, as a result of such deemed exchange, such New
Securities are treated as issued at an original issue discount (i.e., if the
stated redemption price at maturity of the New Securities exceeds the fair
market value of the Securities exchanged therefor by more than 0.25% of such
New Securities' stated redemption price at maturity times the number of
complete years to maturity of the New Securities), Beneficial Owners thereof
will be required to include such discount in income as it accrues, in advance
of the receipt of cash attributable to such income. If the fair market value
of the Securities deemed exchanged exceeds the stated redemption price at
maturity of the New Securities received, a Beneficial Owner generally may
elect to amortize such premium.
Although the tax consequences of a Beneficial Owner's receipt of a Consent
Fee is unclear, United States Federal withholding tax will be withheld from a
Consent Fee paid to a Beneficial Owner that is not a United States person
within the meaning of the Code (a "non-United States holder") at a 30% rate
unless (i) such non-United States holder is engaged in the conduct of a trade
or business in the United States to which the receipt of the Consent Fee is
effectively connected and provides a properly executed IRS Form 4224 or (ii) a
tax treaty between the United States and the country of residence of the non-
United States holder eliminates or reduces the withholding on "other income"
and such non-United States holder provides a properly executed IRS Form 1001.
Under Federal income tax law, in certain circumstances a Beneficial Owner of
Securities may be subject to backup withholding at the rate of 31% with
respect to a Consent Fee, unless such Beneficial Owner (i) is a corporation or
is otherwise exempt and, when required, demonstrates this fact, or (ii)
provides a correct taxpayer identification number in the manner prescribed.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
BENEFICIAL OWNERS OF SECURITIES ARE URGED TO CONSULT WITH THEIR OWN
17
<PAGE>
TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE PROPOSED
AMENDMENTS, INCLUDING THE APPLICABILITY OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
SOLICITATION AGENT, INFORMATION AGENT AND TABULATION AGENT
The Company has retained Morgan Stanley & Co. Incorporated ("Morgan
Stanley") as Solicitation Agent in connection with the Consent Solicitation.
Morgan Stanley will solicit Consents and will receive reimbursement for
reasonable out-of-pocket expenses and, pursuant to an agreement with the
Company, will receive a fee for its services as financial advisor. The Company
has agreed to indemnify the Solicitation Agent against certain liabilities and
expenses, including liabilities under the securities laws in connection with
the Consent Solicitation.
The Company has retained Kissel-Blake Inc. as Information Agent in
connection with the Consent Solicitation. The Information Agent will solicit
Consents and will receive a customary fee for such services and reimbursement
for reasonable out-of-pocket expenses.
The Company has retained The Chase Manhattan Bank as Tabulation Agent in
connection with the Consent Solicitation. The Tabulation Agent will be
responsible for collecting and tabulating Consents and will receive a
customary fee for such services and reimbursement for reasonable out-of-pocket
expenses. In addition to acting as trustee under the Indenture, The Chase
Manhattan Bank has extended loans to the Company and provides certain other
financial services to the Company and its subsidiaries.
Requests for assistance in filling out and delivering Consents or for
additional copies of this Consent Solicitation Statement or the forms of
Consent Letters may be directed to the Information Agent at its address and
telephone numbers set forth on the back cover of this Consent Solicitation
Statement.
MISCELLANEOUS
The Consent Solicitation is being made to all Holders. The Company is not
aware of any state or local jurisdiction where the making of the Consent
Solicitation is prohibited by administrative or judicial action pursuant to a
state or local statute. If the Company becomes aware of any state or local
jurisdiction where the making of the Consent Solicitation is so prohibited,
the Company will make a good faith effort to comply with any such statute. If,
after such effort, the Company cannot comply with such statute, the Consent
Solicitation will not be made to (nor will Consent Letters be accepted from or
on behalf of) the Holders of Securities in such state or local jurisdiction.
AMERICAN BRANDS, INC.
18
<PAGE>
ANNEX A
FORTUNE BRANDS, INC.
SUMMARY PRO FORMA CONDENSED FINANCIAL DATA (UNAUDITED)
The following table presents summary pro forma condensed financial data for
Fortune Brands for the three-month periods ended March 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1996. The summary
pro forma condensed financial data presented assumes consummation of the
Transfers and the Distribution as of the beginning of each of the periods
presented for operating data. In addition, the following summary pro forma
condensed financial data reflects the results of The American Tobacco Company,
which was sold in December 1994, as a discontinued operation for all periods
prior to the date of sale.
The summary pro forma condensed financial data of Fortune Brands does not
purport to represent what the results of operations of Fortune Brands would
actually have been if the Transfers and the Distribution had in fact been
consummated on such dates or to project the results of operations as of any
future period, and should be read in conjunction with, and is qualified by,
information set forth under "Fortune Brands, Inc. Pro Forma Condensed
Financial Statements" and Notes thereto and under "Fortune Brands, Inc.
Management's Discussion and Analysis of Pro Forma Results of Operations and
Financial Condition" contained in the Proxy Statement for the Annual Meeting
of Stockholders of the Company held on April 30, 1997, with the Company's
Consolidated Financial Statements and Notes thereto for the fiscal year ended
December 31, 1996 contained in the Annual Report to Stockholders of the
Company for the fiscal year ended December 31, 1996, and with the Company's
Consolidated Financial Statements and Fortune Brands pro forma financial
information, and notes thereto, for the quarterly period ended March 31, 1997
contained in the Company's Current Report on Form 8-K dated April 23, 1997,
which are incorporated herein by reference. See "Incorporation of Certain
Documents by Reference."
The summary pro forma condensed financial data does not reflect the use of
the $1.25 billion net cash proceeds to be received from New Gallaher and any
resulting reduction in interest expense that may occur.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales
Ongoing operations............ $1,105.1 $1,055.1 $4,717.7 $4,380.8 $4,095.6
Other businesses.............. -- -- -- 547.3 1,281.4
-------- -------- -------- -------- --------
$1,105.1 $1,055.1 $4,717.7 $4,928.1 $5,377.0
======== ======== ======== ======== ========
Operating income (i)
Ongoing operations............ $ 125.9 $ 125.2 $ 597.1 $ 535.5 $ 545.5
Other businesses.............. -- -- -- 3.4 (1.8)
-------- -------- -------- -------- --------
$ 125.9 $ 125.2 $ 597.1 $ 538.9 $ 543.7
======== ======== ======== ======== ========
Income (loss) from continuing
operations
Ongoing operations............ $ 35.0 $ 31.8 $ 181.7 $ 170.2 $ 167.0
Other businesses (ii)......... -- -- -- 15.7 (245.8)
-------- -------- -------- -------- --------
$ 35.0 $ 31.8 $ 181.7 $ 185.9 $ (78.8)
======== ======== ======== ======== ========
OTHER DATA
EBITDA (iii).................... $ 169.6 $ 159.2 $ 743.4 $ 718.0 $ 458.5
EBITDA as adjusted (iv)......... 169.6 159.2 743.4 698.0 703.5
</TABLE>
- --------
(i) Operating income represents net sales less all costs and expenses
excluding corporate administrative expenses, interest and related expenses
and other (income) expenses, net.
A-1
<PAGE>
(ii) Income (loss) from continuing operations in 1994 includes a $241.3
million ($245 million before taxes) loss on disposal of businesses.
Income (loss) from continuing operations in 1995 includes a $20 million
(no taxes required) reversal of the loss provision.
(iii) EBITDA is defined as income (loss) from continuing operations before
interest expense, income taxes and depreciation and amortization.
Management believes that EBITDA is a measure commonly used by analysts
and investors. Accordingly, this information has been presented to
permit a more complete analysis of Fortune Brands' performance. EBITDA
should not be considered a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles as
a measure of the profitability or liquidity of Fortune Brands.
(iv) EBITDA as adjusted excludes the 1994 loss ($245 million) and 1995
reversal ($20 million), as discussed in (ii) above.
PRO FORMA ADJUSTED RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, -----------------------
1997 1996 1995 1994
--------------- ------- ------- -------
<S> <C> <C> <C> <C>
Pro forma adjusted ratio of earnings to
fixed charges (i)..................... 3.83 3.92 4.84 3.37
</TABLE>
The pro forma adjusted ratio of earnings to fixed charges restates the
Company's historical ratio to eliminate the results of operations of The
American Tobacco Company (including the gain on its sale) and New Gallaher,
including an allocation of interest expense for each, and assumes the $1.25
billion net cash proceeds to be received from New Gallaher were received on
January 1, 1994 and used for a possible 10 million share purchase of Fortune
Brands Common stock and the repayment of debt. The ratio for 1994 excludes a
$245 million loss on disposal of businesses. The ultimate use of proceeds may
differ from that described above.
- --------
(i) The pro forma historical ratios of earnings to fixed charges for the three
months ended March 31, 1997 and the years ended December 31, 1996, 1995
and 1994 were 2.66, 2.81, 3.23 and 1.22, respectively, assuming
discontinued operations treatment for the historical results of operations
of The American Tobacco Company (including the gain on its sale) and New
Gallaher, including an allocation of interest expense for each. The pro
forma historical ratio of earnings to fixed charges for 1994 includes a
$245 million loss on disposal of businesses.
PRO FORMA CAPITALIZATION (UNAUDITED)
(IN MILLIONS)
The following table sets forth, as of March 31, 1997, the historical
capitalization of American Brands and the pro forma capitalization of Fortune
Brands after giving effect to the Distribution. The table below does not
reflect the use of the estimated $1.25 billion net cash proceeds to be
received from New Gallaher, which may initially be used to reduce debt.
<TABLE>
<CAPTION>
AMERICAN GALLAHER INTERCOMPANY PRO FORMA
BRANDS TOBACCO RECLASSIFICATION ADJUSTMENTS
(I) (II) (III) (IV) PRO FORMA
-------- -------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Short-term debt....... $1,456.6 $(161.6) $(251.3) $1,043.7
Long-term debt........ 1,452.4 1,452.4
Stockholders' equity.. 3,750.7 $483.0 4,233.7
-------- ------- ------- ------ --------
Total capitalization.. $6,659.7 $(161.6) $(251.3) $483.0 $6,729.8
======== ======= ======= ====== ========
</TABLE>
A-2
<PAGE>
BASIS OF PRESENTATION
On October 8, 1996, American Brands announced the Distribution. Completion
of the Distribution is expected to occur on or about May 30, 1997. In
connection with the spin-off, the financial statements will be restated to
show tobacco operations (Gallaher Tobacco and The American Tobacco Company) as
discontinued operations. Following the transaction, American Brands'
stockholders will own shares in two publicly-traded companies-- Fortune Brands
and New Gallaher.
THE FOLLOWING IS A SUMMARY OF THE ADJUSTMENTS:
(I) AMERICAN BRANDS
Represents the historical consolidated capitalization.
(II) GALLAHER TOBACCO
Eliminates the accounts of New Gallaher.
(III) INTERCOMPANY RECLASSIFICATION
Reclassifies American Brands' net intercompany receivable from Gallaher
Tobacco as of March 31, 1997 as a decrease in short-term debt.
(IV) PRO FORMA ADJUSTMENTS
Reflects the estimated $1.25 billion net cash proceeds to be received
from New Gallaher, and eliminates the net assets of Gallaher Tobacco
and records the difference as an adjustment to Stockholders' equity.
A-3
<PAGE>
ANNEX B
FORM OF THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE dated as of , 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
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."
B-1
<PAGE>
(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 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
(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
B-2
<PAGE>
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."
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.
B-3
<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 __________________________________
Name:
Title:
Attest:
_____________________________________
Name:
Title:
The Chase Manhattan Bank, Trustee
[corporate seal]
By __________________________________
Name:
Title:
Attest:
_____________________________________
Name:
Title:
B-4
<PAGE>
Any questions regarding the terms of the Consent Solicitation may be directed
to the Solicitation Agent.
The Solicitation Agent for the Consent Solicitation is
MORGAN STANLEY & CO.
Incorporated
Liability Management Group
1585 Broadway, Second Floor
New York, New York 10036
Call Toll-Free: (800) 624-1808
Requests for assistance or additional copies of this Consent Solicitation
Statement and the Consent Letters may be directed to the Information Agent.
The Information Agent for the Consent Solicitation is
[LOGO] KISSEL BLAKE INC.
110 Wall Street
New York, New York 10005
Banks and Brokers call collect All others call Toll Free
(212) 344-6733 (800) 554-7733
The Tabulation Agent for the Consent Solicitation is
The Chase Manhattan Bank
By Mail: By Overnight Delivery: By Hand:
The Chase Manhattan Bank The Chase Manhattan Bank The Chase Manhattan Bank
c/o Texas Commerce Bank c/o Texas Commerce Bank Corporate Trust
Corporate Trust Services Corporate Trust Services Securities Window
P.O. Box 219052 1201 Main Street, 18th 55 Water Street
Dallas, Texas 75221-9052 Floor Room 234, North Building
Attn: Frank Ivins Dallas, Texas 75202 New York, New York 10041
Personal & Confidential Attn: Frank Ivins
Personal & Confidential
By Facsimile
Transmission:
(214) 672-5746
(214) 672-5690
Confirm by Telephone
(214) 672-5678
<PAGE>
EXHIBIT 99.2
================================================================================
DISTRIBUTION AGREEMENT
dated as of May 8, 1997
among
AMERICAN BRANDS, INC.,
ATIC GROUP, INC.,
GALLAHER GROUP LIMITED
and
GALLAHER LIMITED
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................. 1
Section 1.01 General............................................................. 1
Section 1.02 Exhibits, etc....................................................... 10
ARTICLE II THE DISTRIBUTION....................................................... 10
Section 2.01 The Distribution.................................................... 10
Section 2.02 Cooperation Prior to the Distribution............................... 11
Section 2.03 Parent Board Action; Conditions Precedent to the Distribution....... 12
Section 2.04 Waiver of Conditions................................................ 14
Section 2.05 Disclosure.......................................................... 14
ARTICLE III TRANSACTIONS RELATING TO THE DISTRIBUTION............................. 15
Section 3.01 Intercorporate Reorganization....................................... 15
Section 3.02 Elimination of Intercompany Accounts as of the Distribution Date.... 17
Section 3.03 The New Gallaher Board.............................................. 17
Section 3.04 New Gallaher Articles of Association and Memorandum of Association.. 18
Section 3.05 Resignations; Transfer of Stock Held as Nominee..................... 18
Section 3.06 Insurance........................................................... 19
Section 3.07 Use of Names........................................................ 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.08 Transfers Not Effected Prior to the Distribution; Transfers
Deemed Effective as of the Distribution Date...................... 25
Section 3.09 Guarantees; etc..................................................... 26
ARTICLE IV INDEMNIFICATION........................................................ 27
Section 4.01 Indemnification by Parent........................................... 27
Section 4.02 Indemnification by New Gallaher..................................... 28
Section 4.03 Insurance, Foreign Exchange and Taxes; Limitations on
Indemnification Obligations....................................... 30
Section 4.04 Procedures for Indemnification...................................... 31
Section 4.05 Remedies Cumulative................................................. 36
Section 4.06 Survival of Indemnities............................................. 36
Section 4.07 Limitations on Liability............................................ 36
ARTICLE V EMPLOYEE BENEFITS....................................................... 37
Section 5.01 Retirement Plan for Goldsboro Employees............................. 37
ARTICLE VI ACCESS TO INFORMATION.................................................. 37
Section 6.01 Provision of Corporate Records...................................... 37
Section 6.02 Access to Information............................................... 39
Section 6.03 Production of Witnesses............................................. 40
Section 6.04 Confidentiality..................................................... 40
ARTICLE VII MISCELLANEOUS......................................................... 41
Section 7.01 Complete Agreement; Construction.................................... 41
Section 7.02 Survival of Agreements.............................................. 42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.03 Expenses............................................................ 42
Section 7.04 Governing Law....................................................... 42
Section 7.05 Notices............................................................. 42
Section 7.06 Consent to Jurisdiction............................................. 43
Section 7.07 Modifications or Amendments......................................... 44
Section 7.08 Successors and Assigns.............................................. 44
Section 7.09 Termination......................................................... 44
Section 7.10 No Third Party Beneficiaries........................................ 44
Section 7.11 Titles and Headings................................................. 45
Section 7.12 Severability........................................................ 45
Section 7.13 No Waivers.......................................................... 45
Section 7.14 Counterparts........................................................ 45
Section 7.15 Performance......................................................... 45
Section 7.16 Rights.............................................................. 46
Section 7.17 Further Assurances.................................................. 46
</TABLE>
iii
<PAGE>
SCHEDULE 1.1 Common Policies
SCHEDULE 1.2 Former Gallaher Businesses
SCHEDULE 3.01 ATIC Disclosures
SCHEDULE 3.02 Intercompany Accounts
SCHEDULE 3.03 New Gallaher Board of Directors
SCHEDULE 3.05 Resignations
SCHEDULE 3.09(a) Parent Guarantees; etc.
SCHEDULE 3.09(b) Gallaher Guarantees; etc.
SCHEDULE 7.03 Allocation of Costs and Expenses
ANNEX A Interim Services Agreement
ANNEX B Tax Allocation Agreement
iv
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of May 8, 1997,
by and among AMERICAN BRANDS, INC., a Delaware corporation ("Parent"), ATIC
GROUP, INC., a Delaware corporation and, as of the date hereof, a direct wholly-
owned subsidiary of Parent ("ATIC"), GALLAHER GROUP LIMITED, an English private
limited company and, as of the date hereof, a direct wholly-owned subsidiary of
Parent ("New Gallaher"), and GALLAHER LIMITED, an English private limited
company and, as of the date hereof, an indirect wholly-owned subsidiary of
Parent ("Gallaher").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Parent Board (as defined herein) has determined that it
is appropriate and desirable to distribute all outstanding New Gallaher Ordinary
Shares (as defined herein) on a pro rata basis to the holders of Parent Common
Stock (as defined herein); and
WHEREAS, Parent, ATIC, New Gallaher and Gallaher have determined that
it is appropriate and desirable to set forth the principal corporate
transactions required to effect such distribution and certain other agreements
that will govern certain matters relating to such distribution;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereto hereby agree as follows:
ARTICLE I
Definitions
-----------
Section 1.01 General. As used in this Agreement, the following terms
-------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ADRs" shall mean American Depositary Receipts evidencing ADSs.
<PAGE>
"ADSs" shall mean American Depositary Shares representing New Gallaher
Ordinary Shares, where each ADS represents four New Gallaher Ordinary Shares as
of the Distribution Date.
"Affiliate" shall mean, when used with respect to any specified
Person, any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person; provided, however, that for the purposes of this Agreement, no
-------- -------
member of either the Parent Group or the New Gallaher Group shall be deemed to
be an Affiliate of any member of the other group.
"Ancillary Agreements" shall mean the Interim Services Agreement and
the Tax Allocation Agreement.
"Articles of Association" shall mean New Gallaher's articles of
association substantially in the form previously delivered to Parent.
"ATIC Acquisition Agreement" shall mean the agreement among the
Depositary, Parent and New Gallaher relating to the sale and purchase of the
ATIC Common Stock in a form agreeable to the parties.
"ATIC Common Stock" shall mean all of the issued and outstanding
Common Stock, par value $100.00 per share, of ATIC.
"Business Day" shall mean a day other than a Saturday or Sunday, on
which banks are open for ordinary banking business in London and New York.
"Claims Administration" shall mean the processing of claims made under
the Policies, including the reporting of claims to the insurance carrier,
management and defense of claims, and providing for appropriate releases upon
settlement of claims.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor legislation.
"Commission" shall mean the Securities and Exchange Commission.
"Common Policies" shall mean all occurrence-based Policies, current or
past, which are or were owned
2
<PAGE>
or maintained by or on behalf of Parent or any of its predecessors or
Subsidiaries, or Gallaher or any of its predecessors or Subsidiaries, and which
relate to the businesses of both the Parent Group and the New Gallaher Group, or
current or past directors, officers, employees or agents of any of the foregoing
businesses, including, without limitation, the Policies identified on Schedule
1.1, provided, however, that such Policies shall not include Policies issued by
1700 Insurance Company Ltd.
"Depositary" shall mean The Bank of New York, a New York banking
corporation.
"Distribution" shall mean the distribution on a pro rata basis to
holders of Parent Common Stock of the Distribution Shares on the Distribution
Date pursuant to Article II.
"Distribution Date" shall mean such date as may hereafter be
determined by the Parent Board as the date as of which the Distribution shall be
effected.
"Distribution Shares" shall mean, collectively, (i) the New Gallaher
Ordinary Shares to be delivered to the holders of record of Parent Common Stock
on the Record Date with addresses outside of the U.S. and Canada and (ii) the
ADSs evidenced by the ADRs to be delivered to the holders of record of Parent
Common Stock on the Record Date with addresses within the U.S. and Canada
pursuant to Article II.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Foreign Exchange Rate" shall mean, with respect to any currency other
than United States dollars as of any date of determination, the average of the
bid and asked rates at 10:00 a.m. (New York time) on such date at which such
currency may be exchanged for United States dollars as quoted by Reuters.
"Form 20-F" shall mean the registration statement on Form 20-F filed
by New Gallaher with the Commission to effect the registration of the
Distribution Shares pursuant to the Exchange Act, including any amendments or
supplements thereto.
3
<PAGE>
"Former Gallaher Businesses" shall mean (i) the businesses set forth
in Schedule 1.2 and (ii) all other businesses, assets or operations managed or
operated by, or operationally related to, ATIC or Gallaher or any current or
former Subsidiary of Gallaher, which heretofore have been sold or otherwise
disposed of or discontinued; provided that such term shall be deemed to include
Bonny Products, Inc., a New York corporation, Keeler Instruments, Inc., a
Pennsylvania corporation, and Sefton Corporation, a Pennsylvania corporation,
and shall be deemed not to include The Whyte & Mackay Group PLC and its
Subsidiaries and Ofrex Group Holdings plc and its Subsidiaries.
"Former Gallaher Business Liabilities" shall mean, collectively, all
of the Liabilities related to the Former Gallaher Businesses.
"Former Parent Businesses" shall mean the businesses, assets or
operations managed or operated by, or operationally related to, Parent or any
current or former Subsidiary of Parent, which heretofore have been sold or
otherwise disposed of or discontinued, which are not Former Gallaher Businesses.
"Former Parent Business Liabilities" shall mean, collectively, all of
the Liabilities related to the Former Parent Businesses.
"Gallaher Acquisition Agreement" shall mean the agreement between ATIC
and New Gallaher relating to the sale and purchase of the Gallaher Ordinary
Shares in a form agreeable to the parties.
"Gallaher Guarantee Obligations" shall have the meaning as defined in
Section 3.09(b).
"Gallaher Ordinary Shares" shall mean the entire issued share capital
of Gallaher comprising 85,056,000 ordinary shares of 50 pence each.
"Indemnifiable Losses" shall have the meaning as defined in Section
4.01.
"Indemnification Agreement" shall mean an indemnification agreement
among Parent, ATIC, New Gallaher and Gallaher relating to the tobacco business
of Gallaher in a form agreeable to the parties.
4
<PAGE>
"Indemnifying Party" shall have the meaning as defined in Section
4.03(a).
"Indemnitee" shall have the meaning as defined in Section 4.03(a).
"Indemnity Payment" shall have the meaning as defined in Section
4.03(a).
"Insurance Administration" shall mean, with respect to each Parent
Policy, New Gallaher Policy and Common Policy, (i) the accounting for premiums,
retrospectively-rated premiums, defense costs, indemnity payments, deductibles
and retentions as appropriate under the terms and conditions of each of the
Policies, (ii) the reporting to all primary and excess insurance carriers of any
losses or claims as may be required in accordance with the terms of each Policy
and (iii) the distribution of Insurance Proceeds as contemplated by this
Agreement.
"Insurable Claim" shall have the meaning as defined in Section
3.06(a).
"Insurance Proceeds" shall mean those monies (i) received or
receivable by an insured from an insurance carrier or (ii) paid or payable by an
insurance carrier on behalf of an insured, in either case net of any applicable
premium adjustment, retrospectively-rated premium, deductible, retention, or
reserve paid or held by or for the benefit of such insured.
"Insured Claims" shall mean those claims, debts, liabilities or
obligations of whatever nature that, individually or in the aggregate, are
covered within the terms and conditions of the Policies, whether or not subject
to deductibles, co-insurance, uncollectability or retrospectively-rated premium
adjustments, but only to the extent that such claims, debts, liabilities or
obligations are within applicable Policy limits, including aggregates.
"Interim Services Agreement" shall mean an interim services agreement
between Parent and New Gallaher, substantially in the form attached hereto as
Annex A.
"IRS" shall mean the Internal Revenue Service.
5
<PAGE>
"J.R.F." shall mean J.R.F. Realty, Inc., a Delaware corporation and,
as of the date hereof, a direct, wholly-owned subsidiary of Parent.
"Liabilities" shall mean, with respect to any Person, any and all
claims, debts, liabilities and obligations of whatever nature, absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including, without limitation,
all costs and expenses relating thereto; provided, however, that for the
purposes of this Agreement "Liabilities" shall be deemed not to include those
claims, debts, liabilities and obligations arising from smoking and health or
fire safe cigarette matters.
"Listing Particulars" shall mean the listing particulars relating to
New Gallaher prepared in accordance with the listing rules of the London Stock
Exchange pursuant to Section 142 of the Financial Services Act of 1986,
including any supplement thereto.
"London Stock Exchange" shall mean the London Stock Exchange Limited.
"Memorandum of Association" shall mean New Gallaher's memorandum of
association substantially in the form as previously delivered to Parent.
"New Gallaher Board" shall mean the Board of Directors of New
Gallaher.
"New Gallaher Group" shall mean New Gallaher and the New Gallaher
Subsidiaries whether now or hereafter existing.
"New Gallaher Indemnitees" shall have the meaning as defined in
Section 4.01.
"New Gallaher Liabilities" shall mean, collectively, all of (i) the
Liabilities of the New Gallaher Group under this Agreement or any other
agreement or arrangement entered into in connection with the transactions
contemplated hereby, (ii) other Liabilities of the New Gallaher Group, whether
arising before, on or after the Distribution Date, arising out of or relating to
the conduct of the businesses of the New Gallaher Group or the ownership or use
of assets in
6
<PAGE>
connection therewith, and (iii) the Former Gallaher Business Liabilities.
"New Gallaher Ordinary Shares" shall mean, the ordinary shares of 10
pence each of New Gallaher.
"New Gallaher Policies" shall mean all Policies, current or past,
which are or were owned or maintained by or on behalf of Gallaher or any of its
predecessors or Subsidiaries (i) which relate exclusively to the businesses of
the New Gallaher Group and in either case do not also relate to the businesses
of the Parent Group or (ii) which are Common Policies identified on Part A of
Schedule 1.1.
"New Gallaher Subsidiary" shall mean any Subsidiary of New Gallaher
that, as of the Distribution Date, will be a Subsidiary of New Gallaher, and any
other Subsidiary of New Gallaher which thereafter may be organized or acquired.
"No-action Letter" shall mean a letter from the staff of the
Commission indicating, among other things, that the Division of Corporation
Finance will not recommend enforcement action to the Commission if the
Distribution Shares are distributed pursuant to the Distribution without
registration of the New Gallaher Ordinary Shares under the Securities Act of
1933, as amended.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Parent Board" shall mean the Board of Directors of Parent or the
Executive Committee thereof.
"Parent Common Stock" shall mean the Common Stock, par value $3.125
per share, of Parent.
"Parent Guarantee Obligations" shall have the meaning as defined in
Section 3.09(a).
"Parent Group" shall mean Parent and the Parent Subsidiaries, whether
now or hereafter existing, other than members of the New Gallaher Group.
"Parent Indemnitees" shall have the meaning as defined in Section
4.02.
7
<PAGE>
"Parent Liabilities" shall mean, collectively, all of (i) the
Liabilities of the Parent Group under this Agreement or any other agreement or
arrangement entered into in connection with the transactions contemplated
hereby, (ii) other Liabilities of the Parent Group, whether arising before, on
or after the Distribution Date, arising out of or relating to the conduct of the
businesses of the Parent Group or the ownership or use of assets in connection
therewith and (iii) the Former Parent Business Liabilities, excluding New
Gallaher Liabilities.
"Parent Policies" shall mean all Policies, current or past, which are
or were owned or maintained by or on behalf of Parent or any of its predecessors
or Subsidiaries (i) which relate exclusively to the businesses of the Parent
Group and in either case do not also relate to the businesses of the New
Gallaher Group or (ii) which are Common Policies identified on Part B of
Schedule 1.1.
"Parent Subsidiary" shall mean any Subsidiary of Parent that, as of
the Distribution Date, will be a Subsidiary of Parent, and any other Subsidiary
of Parent which thereafter may be organized or acquired, other than New Gallaher
or any New Gallaher Subsidiary.
"Parent Retirement Plan" shall mean the Retirement Plan for Employees
and Former Employees of American Brands, Inc.
"Person" shall mean any individual, organization, firm, partnership,
joint venture, corporation, company, body corporate, limited liability company,
trust, unincorporated organization or any other business entity or any
government or any department or agency thereof.
"Policies" shall mean insurance policies and insurance contracts of
any kind (other than life and benefits policies or contracts), including,
without limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, product liability, automobile,
aircraft, property and casualty, directors and officers liability, workers'
compensation and employee dishonesty insurance policies, bonds and captive
insurance company
8
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arrangements, together with the rights, benefits and privileges thereunder.
"Proxy Statement" shall mean the proxy statement of Parent
substantially complying with the requirements of Regulation 14A under the
Exchange Act, sent to the holders of Parent capital stock and filed with the
Commission in connection with the Distribution, including any amendment or
supplement thereto.
"Record Date" shall mean the time and date to be determined by the
Parent Board as the record date for the Distribution.
"Records" shall have the meaning as defined in Section 6.01(a).
"Registration Statements" shall mean the Form 20-F and the
registration statement on Form F-6 filed by New Gallaher, whether in preliminary
or final form, and including any amendment or supplement thereto.
"Representative" shall mean, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"Subsidiary" shall mean, with respect to any Person, any corporation
or other legal entity of which such Person or any Subsidiaries controls or owns,
directly or indirectly, more than 50% of the stock or other equity interest, or
more than 50% of the voting power entitled to vote on the election of members to
the board of directors or similar governing body; provided, however, that for
-------- -------
purposes of this Agreement, (i) ATIC, Gallaher, the Subsidiaries of Gallaher and
J.R.F. shall be deemed to be New Gallaher Subsidiaries and (ii) none of ATIC,
Gallaher, New Gallaher, any New Gallaher Subsidiary or J.R.F. shall be deemed to
be Parent Subsidiaries.
"Tax" shall have the meaning as defined in the Tax Allocation
Agreement.
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement
among Parent, New Gallaher and Gallaher, substantially in the form attached
hereto as Annex B.
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"Tax Ruling" shall mean a private letter ruling issued by the IRS
indicating that the Distribution will qualify as a tax-free spin-off to the
stockholders for federal income tax purposes under Section 355 of the Code.
"Third Party Claim" shall have the meaning as defined in Section
4.04(a)(i).
"Trademarks" shall mean the "B Trade Marks" as defined in the
Trademark Agreement, dated as of February 26, 1997 among Gallaher, ATIC and
British-American Tobacco Company Limited.
"U.K. Filings" shall mean the Listing Particulars and any other
document filed or required to be filed with the London Stock Exchange under or
pursuant to the provisions of, or in connection with, the transactions
contemplated by this Agreement.
"U.S. Filings" shall mean the Registration Statements, the Proxy
Statement and any other document filed or required to be filed with the
Commission or the NYSE under or pursuant to the provisions of, or in connection
with, the transactions contemplated by this Agreement.
Section 1.02 Exhibits, etc.. References to an "Exhibit" or
-------------
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to "Section" or "Article" are, unless
otherwise specified, to one of the Sections or Articles of this Agreement and
references to "sub-section" are, unless the context otherwise requires,
references to the section in which the reference appears and references to this
Agreement include each of the Schedules.
ARTICLE II
----------
The Distribution
----------------
Section 2.01 The Distribution. Subject to Section 2.03 hereof and on
----------------
or prior to the Distribution Date, Parent will deliver to the Depositary for the
benefit of holders of record of Parent Common Stock on the Record Date, (i) an
ADR, endorsed by Parent in blank,
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evidencing the ADSs and (ii) a stock transfer, duly executed by Parent in favor
of one or more non-U.S. or Canadian holders of record of Parent Common Stock on
the Record Date, and the related share certificates representing New Gallaher
Ordinary Shares directly owned by Parent, which together represent all of the
then outstanding New Gallaher Ordinary Shares owned directly or indirectly by or
on behalf of Parent, and shall instruct the Depositary to distribute on, or as
soon as practicable following, the Distribution Date the appropriate number of
Distribution Shares to each such holder or designated transferee or transferees
of such holder. The Distribution shall be effective as of the date and time upon
which the admission of the New Gallaher Ordinary Shares for trading on the
Official List of the London Stock Exchange becomes fully effective on the
Distribution Date. New Gallaher will cause to be provided to the Depositary all
share certificates and any information, and Parent and New Gallaher will
instruct the Depositary to take or cause to be taken all action, required in
order to complete the Distribution on the basis of (a) one ADS for each share of
Parent Common Stock outstanding on the Record Date held of record by U.S. and
Canadian holders and (b) four New Gallaher Ordinary Shares for each share of
Parent Common Stock outstanding on the Record Date held of record by all other
holders.
Section 2.02 Cooperation Prior to the Distribution. (a) Parent and
-------------------------------------
New Gallaher shall prepare, and Parent shall file with, and use its reasonable
best efforts to have cleared by, the Commission, the Proxy Statement.
(b) Parent and New Gallaher shall prepare, and New Gallaher shall
file with the Commission, the Form 20-F. Parent and New Gallaher shall use
reasonable best efforts to cause the Form 20-F to become effective under the
Exchange Act as promptly as reasonably practicable, but in any event prior to
the Distribution Date.
(c) Parent and New Gallaher shall cooperate in arranging for the
amendment, restatement and novation of an American depositary facility
established by ATIC and the Depositary so that such facility shall apply with
respect to the New Gallaher Ordinary Shares and for New Gallaher to enter into
an appropriate amended and restated deposit agreement with the Depositary, and
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Parent and New Gallaher shall further cooperate in preparing, filing with the
Commission and causing to become effective under the Securities Act of 1933, as
amended, a registration statement on Form F-6, and any amendments thereto, with
respect to the ADSs evidenced by the ADRs.
(d) Parent and New Gallaher shall take all such action as may be
necessary or appropriate under the securities or "blue sky" laws of the states
or other political subdivisions of the United States and the securities laws of
any applicable foreign countries or other political subdivisions thereof, in
connection with the transactions contemplated by this Agreement.
(e) Parent and New Gallaher shall prepare, and New Gallaher shall
file and pursue, (i) an application to permit listing of the ADSs and the New
Gallaher Ordinary Shares on the NYSE and (ii) an application to permit the
admission of the New Gallaher Ordinary Shares to the Official List of the London
Stock Exchange.
(f) Parent and New Gallaher shall each take all such action as may be
necessary or appropriate (including, without limitation, provide or procure the
provision of all information and execute or procure the execution of all
documents and otherwise do all such acts and things as may be required) to cause
the conditions set forth in Section 2.03 to be satisfied as soon as possible and
in any event before the Distribution Date and to effect the Distribution on the
Distribution Date.
Section 2.03 Parent Board Action; Conditions Precedent to the
------------------------------------------------
Distribution. The Parent Board shall in its discretion establish the Record
- ------------
Date and the Distribution Date and all appropriate procedures in connection with
the Distribution, but in no event shall the Distribution occur prior to such
time as each of the following have occurred or have been waived in accordance
with Section 2.04:
(a) the Distribution shall have been approved or ratified by the
affirmative vote of shares representing a majority in voting power of the
outstanding capital stock of Parent, voting together as one class, present in
person or represented by proxy at a duly called annual or special meeting and
entitled to vote thereat;
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(b) Parent shall have received the Tax Ruling and such Tax Ruling
shall be in full force and effect and shall not have been modified or amended in
any respect materially adversely affecting the tax consequences set forth
therein;
(c) the Parent Board shall have given final approval of the
Distribution conditioned upon the admission of the New Gallaher Ordinary Shares
to the Official List of the London Stock Exchange becoming fully effective;
(d) all necessary third party consents to the transactions
contemplated by this Agreement shall have been obtained, except for those the
failure of which to obtain would not have a material adverse effect on Parent or
New Gallaher;
(e) the Registration Statements shall have been declared effective by
the Commission;
(f) the New Gallaher Board, composed as contemplated by Section 3.03,
shall have been duly elected;
(g) the Articles of Association and the Memorandum of Association
shall each have been adopted and be in effect;
(h) the agreement by the London Stock Exchange to the admission of the
New Gallaher Ordinary Shares to the Official List of the London Stock Exchange,
subject (if applicable) only to allocation and listing, shall have been received
and such admission shall have become fully effective under applicable rules and
regulations of the London Stock Exchange, and the ADSs shall have been approved
for listing upon notice of issuance on the NYSE pursuant to Section 2.02(e);
(i) the transactions contemplated by Section 3.01 and Section 3.02
shall have been consummated in all material respects;
(j) Parent, New Gallaher and Gallaher shall have entered into each of
the Ancillary Agreements and each such agreement shall be in full force and
effect;
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(k) Parent, ATIC, New Gallaher and Gallaher shall have entered into
the Indemnification Agreement and such agreement shall be in full force and
effect;
(l) the No-action Letter shall have been issued and shall be in full
force and effect;
(m) no suit, action or proceeding by or before any court of competent
jurisdiction or other governmental authority shall have been commenced or
threatened to restrain or challenge the transactions contemplated by this
Agreement, and no inquiry shall have been received that in the reasonable
judgment of the Parent Board may lead to such a suit, action or proceeding; and
(n) no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing consummation of
the Distribution shall be in effect.
Section 2.04 Waiver of Conditions. Any or all of the conditions set
--------------------
forth in Section 2.03 may be waived, in whole or in part, in the sole discretion
of the Parent Board; provided, however, that the condition set forth in
-------- -------
paragraph (b) of Section 2.03 shall not be waived unless the Parent Board
determines in its sole discretion, based on an opinion of counsel, that the
Distribution should qualify as a tax-free spin-off to the Parent's U.S.
stockholders for federal income tax purposes under Section 355 of the Code. The
satisfaction of the conditions set forth in Section 2.03 shall not create any
obligation on the part of Parent or any other party hereto to effect the
Distribution or in any way limit Parent's powers of termination set forth in
Section 7.09 or alter the consequences of any such termination from those
specified in such Section.
Section 2.05. Disclosure. If at any time after the date hereof any
----------
of the parties shall become aware of any circumstances that will or may prevent
any or all of the conditions contained in Section 2.03 from being satisfied it
shall promptly give to each of the other parties written notice of those
circumstances.
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<PAGE>
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
-----------------------------------------
Section 3.01 Intercorporate Reorganization.
-----------------------------
(a) Subject to Section 3.08, prior to the Distribution, Parent, ATIC
and New Gallaher each agree to take, or cause to be taken, the following actions
in connection with the Distribution:
(i) ATIC shall transfer to Gallaher the Trademarks, Gallaher
shall assume the liabilities of ATIC in respect of such Trademarks and
thereafter ATIC will distribute any remaining assets (other than the
Gallaher Ordinary Shares) to Parent as a dividend on the ATIC Common Stock;
(ii) Pursuant to the ATIC Acquisition Agreement, Parent will
arrange through the Depositary for the transfer at book value of the ATIC
Common Stock (previously deposited by Parent into an American depositary
facility established by ATIC and the Depositary) to New Gallaher in
exchange for the issuance to the Depositary or its nominee, on behalf of
Parent, of New Gallaher Ordinary Shares. ATIC and New Gallaher shall cause
the deposit agreement in respect of the American depositary facility
established between ATIC and the Depositary to be amended, restated and
novated to substitute New Gallaher for ATIC as the sponsor and to reference
the New Gallaher Ordinary Shares. After such exchange and amendment,
restatement and novation, New Gallaher Ordinary Shares will be represented
by ADSs and evidenced by a replacement ADR held by Parent;
(iii) Immediately following the transfer described in paragraph
(ii) immediately above, pursuant to the Gallaher Acquisition Agreement ATIC
will sell the Gallaher Ordinary Shares to New Gallaher for the book value
thereof, such consideration to be comprised of an intercompany receivable
plus the express assumption by New Gallaher of all the remaining debts,
liabilities and obligations of ATIC, and thereafter ATIC will liquidate and
dissolve, causing the intercompany receivable to be extinguished;
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<PAGE>
(iv) New Gallaher will procure any necessary financing
commitments to borrow pounds sterling 945 million and transfer this amount
to Parent by (a) increasing its share capital by means of a 3 for 2 stock-
split of its shares and (b) immediately thereafter purchasing from the
Depositary a number of shares equal to the increase in the number of shares
resulting from such stock-split pursuant to an agreement between Parent,
the Depositary and New Gallaher in a form agreeable to the parties; and
(v) Prior to the Distribution Date, Parent and New Gallaher shall
take all steps necessary to adjust the outstanding New Gallaher Ordinary
Shares so that immediately prior to the Distribution, Parent will
beneficially own through its ownership of ADSs and New Gallaher Ordinary
Shares, a number of New Gallaher Ordinary Shares equal to four times the
total number of shares of Parent Common Stock outstanding on the Record
Date.
(b) Immediately following the Distribution, Parent will sell and
Gallaher shall purchase the outstanding shares of capital stock of J.R.F. for
fair value of approximately $10 million payable in cash pursuant to an agreement
between Parent and Gallaher in a form agreeable to the parties.
(c) In connection with the transfers of assets other than capital
stock and the assumptions of debts, liabilities and obligations contemplated by
subsection (a) and subsection (b) of this Section, Parent and New Gallaher shall
execute or cause to be executed by the appropriate entities the transfer and
assumption instruments in such forms as Parent and New Gallaher shall reasonably
agree. The transfer of capital stock shall be effected by means of delivery of
stock certificates duly endorsed or accompanied by duly executed stock powers
and notation on the stock record books of the corporation or other legal
entities involved and, to the extent required by applicable law, by notation on
appropriate registries.
(d) Except as set forth in subsection (e) of this Section 3.01 or in
any of the Ancillary Agreements or in any other agreement or document entered
into in connection with the transactions contemplated by this
16
<PAGE>
Agreement, each of the parties hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document entered into
in connection with the transactions contemplated by this Agreement or otherwise,
representing or warranting in any way as to the value or freedom from
encumbrance of, or any other matter concerning, any assets of such party, it
being agreed and understood that all assets are being transferred "as is, where
is."
(e) Parent hereby represents and warrants to New Gallaher that, other
than as set forth in Schedule 3.01 hereto, ATIC does not engage and has not
engaged in any business or activity of any nature other than in connection with
(i) the acquisition, ownership and holding of the Gallaher Ordinary Shares, (ii)
the acquisition, ownership and holding of the Trademarks and (iii) the
transactions contemplated by this Agreement.
Section 3.02 Elimination of Intercompany Accounts as of the
----------------------------------------------
Distribution Date. All intercompany receivables, payables and loans between the
- -----------------
New Gallaher Group, on the one hand, and the Parent Group, on the other hand,
shall be accorded the treatment set forth on Schedule 3.02.
Section 3.03 The New Gallaher Board. At the Distribution Date, the
----------------------
New Gallaher Board shall consist of, and New Gallaher and Parent shall take all
actions which may be required to elect or otherwise appoint as directors of New
Gallaher on or prior to the Distribution Date, the persons named on Schedule
3.03.
Section 3.04 New Gallaher Articles of Association and Memorandum of
------------------------------------------------------
Association. Prior to the Distribution Date, New Gallaher shall adopt the
- -----------
Memorandum of Association and Articles of Association to replace the existing
memorandum and articles of association of New Gallaher and the New Gallaher
Board shall cause copies of the Memorandum of Association and Articles of
Association to be filed with the Registrar of Companies in England and Wales.
Section 3.05 Resignations; Transfer of Stock Held as Nominee. (a)
-----------------------------------------------
Parent shall cause all of its employees, officers and directors and all of the
employees and directors of any member of the Parent Group to resign, not later
than and with effect from the Distribution Date, from all boards of directors or
similar governing bodies of New Gallaher or any member of the New Gallaher Group
on which they serve, and from all positions as officers or employees of New
Gallaher or any member of the New Gallaher Group in which they serve, except as
otherwise specified in Part A of Schedule 3.05, each delivering to New Gallaher
an irrevocable and unconditional waiver and release (without any payment by New
Gallaher) of any and all claims and any liability of any kind whatsoever for
salary, fees, compensation or otherwise for loss of office or services performed
prior to such resignation (but not including any indemnification rights) that
such employee or director may have against New Gallaher or the relevant member
of the New Gallaher Group or any of their respective directors, officers,
employees, servants or agents. New Gallaher shall cause all of its employees,
officers and directors and all of the employees and directors of any member of
the New Gallaher Group to resign, not later than and with effect from the
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<PAGE>
Distribution Date, from all boards of directors or similar governing bodies of
Parent or any member of the Parent Group on which they serve, and from all
positions as officers or employees of Parent or any member of the Parent Group
in which they serve, except as otherwise specified in Part B of Schedule 3.05,
each delivering to Parent an irrevocable and unconditional waiver and release
(without any payment by Parent) of any and all claims and any liability of any
kind whatsoever for salary, compensation or otherwise for loss of office or
services performed prior to such resignation (but not including any
indemnification rights) that such employee or director may have against Parent
or the relevant member of the Parent Group or any of their respective directors,
officers, employees, servants or agents.
(b) Parent shall cause each of its employees and directors and each
of the employees and directors of any members of the Parent Group who holds
stock, or similar evidence of ownership, of any New Gallaher Group entity as
nominee for such entity pursuant to the laws of the country in which such entity
is located to transfer such stock, or similar evidence of
18
<PAGE>
ownership, to the Person so designated by New Gallaher to be such nominee as of
and after the Distribution Date. New Gallaher shall cause each of its employees
and directors and each of the employees and directors of any members of the New
Gallaher Group who holds stock, or similar evidence of ownership, of any Parent
Group entity as nominee for such entity pursuant to the laws of the country in
which such entity is located to transfer such stock, or similar evidence of
ownership, to the Person so designated by Parent to be such nominee as of and
after the Distribution Date.
(c) Parent shall cause each of its employees and directors and each
of the employees and directors of any members of the Parent Group to irrevocably
and unconditionally revoke or withdraw their express written authority, if any,
to act on behalf of any member of the New Gallaher Group as an agent or
representative therefor as of and after the Distribution Date. New Gallaher
shall cause each of its employees and directors and each of the employees and
directors of any members of the New Gallaher Group to irrevocably and
unconditionally revoke or withdraw their express written authority, if any, to
act on behalf of any member of the Parent Group as an agent or representative
therefor as of and after the Distribution Date.
Section 3.06 Insurance.
---------
(a) Policies and Rights Included Within Assets.
------------------------------------------
(i) The assets of the Parent Group shall include (A) the Parent
Policies, and (B) any and all rights of the Parent or a Parent Subsidiary
as an insured party under each of the Common Policies which is also a New
Gallaher Policy, subject to the terms of such Common Policies and any
limitations or obligations of Parent contemplated by this Section 3.06,
specifically including rights of indemnity and the right to be defended by
or at the expense of the insurer, with respect to all claims, suits,
actions, proceedings, injuries, losses, liabilities, damages and expenses
("Insurable Claims") incurred or claimed to have been incurred on or prior
to the Distribution Date by any party in or in connection with the conduct
of the businesses of the Parent Group or, to the extent any claim is made
against Parent or any of the Parent Subsidiaries, the conduct of the
businesses of the New Gallaher Group, and which Insurable Claims may arise
out of an insured occurrence under one or more of such Common Policies;
provided, however, that nothing in this
19
<PAGE>
clause shall be deemed to constitute (or to reflect) an assignment of such
Common Policies, or any of them, to Parent or any Parent Subsidiary.
(ii) The assets of the New Gallaher Group shall include (A) the New
Gallaher Policies, and (B) any and all rights of New Gallaher or a New
Gallaher Subsidiary as an insured party under each of the Common Policies
which is also a Parent Policy, subject to the terms of such Common Policies
and any limitations or obligations of New Gallaher contemplated by this
Section 3.06, specifically including rights of indemnity and the right to
be defended by or at the expense of the insurer, with respect to all
Insurable Claims incurred or claimed to have been incurred on or prior to
the Distribution Date by any party in or in connection with the conduct of
the businesses of the New Gallaher Group or, to the extent any claim is
made against New Gallaher or any of the New Gallaher Subsidiaries, the
conduct of the businesses of the Parent Group, and which Insurable Claims
may arise out of an insured occurrence under one or more of such Common
Policies; provided, however, that nothing in this clause shall be deemed to
constitute (or to reflect) an assignment of such Common Policies, or any of
them, to New Gallaher or any New Gallaher Subsidiary.
(b) Post-Distribution Date Claims.
-----------------------------
(i) If, on or subsequent to the Distribution Date, any person shall
assert a claim against Parent or any of the Parent Subsidiaries (including,
without limitation, where Parent or any of the Parent Subsidiaries are
joint defendants with other persons) with respect to any Insurable Claim
incurred or claimed to have been incurred on or prior to the Distribution
Date and which Insurable Claim may arise out of an insured occurrence under
one or more of the Common Policies which is also a New Gallaher Policy, New
Gallaher shall, at the time such claim is asserted, to the extent any such
Policy requires that any applicable Insurance Proceeds thereunder be
collected directly by the party against whom the Insured Claim is asserted,
be deemed to designate, without need of further documentation, Parent as
the agent and attorney-in-
20
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fact to assert and to collect any applicable Insurance Proceeds under such
Common Policy, and shall further be deemed to assign, without need of
further documentation, to Parent any and all rights of an insured party
under such Common Policy with respect to such asserted claim, specifically
including rights of indemnity and the right to be defended by or at the
expense of the insurer and the right to any applicable Insurance Proceeds
thereunder; provided, however, that nothing in this subsection 3.06(b)(i)
-------- -------
shall be deemed to constitute (or to reflect) an assignment of such Common
Policies, or any of them, to Parent or any Parent Subsidiary.
(ii) If, on or subsequent to the Distribution Date, any person shall
assert a claim against New Gallaher or any of the New Gallaher Subsidiaries
(including, without limitation, where New Gallaher or any of the New
Gallaher Subsidiaries are joint defendants with other persons) with respect
to any Insurable Claim incurred or claimed to have been incurred on or
prior to the Distribution Date and which Insurable Claim may arise out of
an insured occurrence under one or more of the Common Policies which is
also a Parent Policy, Parent shall, at the time such claim is asserted, to
the extent any such Policy requires that any applicable Insurance Proceeds
thereunder be collected directly by the party against whom the Insured
Claim is asserted, be deemed to designate, without need of further
documentation, New Gallaher as the agent and attorney-in-fact to assert and
to collect any applicable Insurance Proceeds under such Common Policy, and
shall further be deemed to assign, without need of further documentation,
to New Gallaher any and all rights of an insured party under such Common
Policy with respect to such asserted claim, specifically including rights
of indemnity and the right to be defended by or at the expense of the
insurer and the right to any applicable Insurance Proceeds thereunder;
provided, however, that nothing in this subsection 3.06(b)(ii) shall be
-------- -------
deemed to constitute (or to reflect) an assignment of such Common Policies,
or any of them, to New Gallaher or any New Gallaher Subsidiary.
21
<PAGE>
(c) Administration. From and after the Distribution Date:
--------------
(i) Parent shall be responsible for the (A) Insurance Administration
of the Parent Policies and (B) Claims Administration with respect to the
claims, debts, liabilities and obligations of the Parent Group, the Former
Parent Businesses, Bonny Products, Inc., Keeler Instruments, Inc. and
Sefton Corporation; provided, that the retention of the Parent Policies by
Parent or a Parent Subsidiary, as appropriate, is in no way intended to
limit, inhibit or preclude any right to insurance coverage for any Insured
Claim of an insured party under the Parent Policies, including but not
limited to New Gallaher and any of its operations, Subsidiaries and
Affiliates; and
(ii) New Gallaher shall be responsible for the (A) Insurance
Administration of the New Gallaher Policies and (B) Claims Administration
with respect to the claims, debts, liabilities and obligations of the New
Gallaher Group and the Former Gallaher Businesses but excluding Bonny
Products, Inc., Keeler Instruments, Inc. and Sefton Corporation; provided,
that the retention of the New Gallaher Policies by New Gallaher or a New
Gallaher Subsidiary, as appropriate, is in no way intended to limit,
inhibit or preclude any right to insurance coverage for any Insured Claim
of an insured party under the New Gallaher Policies, including but not
limited to Parent and any of its operations, Subsidiaries and Affiliates.
(d) Insurance Premiums. The party charged with Insurance
------------------
Administration of a Common Policy under Section 3.06(c) shall pay any premiums
thereunder (retrospectively-rated or otherwise) which are required to be paid
subsequent to the Distribution Date in order to preserve coverage under such
Policy with respect to claims which might be made with respect to an act,
omission or other event taking place on or prior to the Distribution Date and
shall provide the other party with such evidence as it may from time to time
reasonably require as to the payment of such premiums and the fact that the
relevant Common Policy is in full force and effect. The party responsible for
such Insurance Administration shall have the right to be reimbursed on
22
<PAGE>
demand by the other party for the portion of all of such premiums that pertain
to the claims, debts, liabilities and obligations of the Parent Group or the
Former Parent Businesses (with respect to Common Policies the Insurance
Administration of which is charged to New Gallaher), or for the claims, debts,
liabilities and obligations of the New Gallaher Group or the Former Gallaher
Businesses (with respect to Common Policies the Insurance Administration of
which is charged to Parent), as the case may be. If the party charged with such
Insurance Administration does not pay any such premium, the other party shall
have the right to do so and to be reimbursed for the portion of such premium
which it would not have had to pay had the premium been paid in accordance with
the preceding sentence. Notwithstanding the foregoing, neither Parent nor any
Parent Subsidiary shall be responsible for insurance adjustments under policies
provided by The Galleon Insurance Company Limited or The Schooner Insurance
Company Limited.
(e) Allocation of Insurance Proceeds. Insurance Proceeds received
--------------------------------
with respect to claims, costs and expenses under the Common Policies shall be
paid to Parent with respect to the claims, debts, liabilities and obligations of
the Parent Group, the Former Parent Businesses, Bonny Products, Inc., Keeler
Instruments, Inc. and Sefton Corporation and to New Gallaher with respect to the
claims, debts, liabilities and obligations of the New Gallaher Group and the
Former Gallaher Businesses but excluding Bonny Products, Inc., Keeler
Instruments, Inc. and Sefton Corporation. The parties agree that there shall be
no obligation to allocate Insurance Proceeds in respect of any Common Policy in
the event that the aggregate limits on such Common Policy are exhausted. The
parties agree to cooperate in good faith with respect to insurance matters.
(f) Agreement for Waiver of Conflict and Shared Defense. If Insured
---------------------------------------------------
Claims of both Parent or any member of the Parent Group and New Gallaher or any
member of the New Gallaher Group exist relating to the same occurrence, Parent
and New Gallaher agree to, or procure that the relevant Parent Subsidiary and
New Gallaher Subsidiary (as appropriate) shall, jointly defend and waive any
conflict of interest necessary to the conduct of that joint defense. This
subsection (f) shall be without prejudice to, and shall in no way be construed
to limit or otherwise alter, modify or amend in any way, the
23
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indemnity obligations of the parties to this Agreement, including those created
by this Agreement or the Indemnification Agreement, by operation of law or
otherwise.
(g) Directors' and Officers' Liability Insurance. Each of Parent and
--------------------------------------------
New Gallaher agree to cooperate in good faith to obtain prior to the
Distribution Date, and to maintain for a period of time after the Distribution
Date, directors' and officers' liability insurance policies covering events
occurring prior to the Distribution Date for all persons who are or were
directors and officers of Parent and the Parent Subsidiaries or New Gallaher and
the New Gallaher Subsidiaries, respectively, on or prior to the Distribution
Date, such directors' and officers' liability insurance policies to provide
generally comparable coverage as provided under Parent's current directors' and
officers' liability insurance policies.
Section 3.07 Use of Names.
------------
(a) Use of New Gallaher Name. Any existing printed material showing
------------------------
any affiliation or connection of Parent or any member of the Parent Group with
New Gallaher or any member of the New Gallaher Group shall not be used by Parent
or any member of the Parent Group after the Distribution Date, except that the
restrictions contained in this Section 3.07(a) shall not apply to filings,
reports and other documents required by applicable law or regulations of
securities exchanges to be filed and/or made publicly available. On and after
the Distribution Date, neither Parent nor any Parent Subsidiary shall represent
to third parties that any of them is affiliated or connected with New Gallaher
or any member of the New Gallaher Group.
(b) Use of Parent Name. Any existing printed material showing any
------------------
affiliation or connection of New Gallaher or any member of the New Gallaher
Group with Parent or any member of the Parent Group shall not be used by New
Gallaher or any member of the New Gallaher Group after the Distribution Date,
except that the restrictions contained in this Section 3.07(b) shall not apply
to filings, reports and other documents required by applicable law or
regulations of securities exchanges to be filed and/or made publicly available.
On and after the Distribution Date, neither New Gallaher nor any New
24
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Gallaher Subsidiary shall represent to third parties that any of them is
affiliated or connected with Parent or any member of the Parent Group.
Section 3.08 Transfers Not Effected Prior to the Distribution;
-------------------------------------------------
Transfers Deemed Effective as of the Distribution Date. To the extent that any
- ------------------------------------------------------
transfers and assumptions contemplated by this Article III shall not have been
consummated on or prior to the Distribution Date, the parties shall cooperate in
good faith to effect such transfers as promptly following the Distribution Date
as shall be practicable, it nonetheless being agreed and understood by all the
parties that no party shall be liable in any manner to any other party for any
failure of any of the transfers contemplated by this Article III to be
consummated prior to the Distribution Date. Subject to the provisions of
Section 2.03, nothing herein shall be deemed to require the transfer of any
assets or the assumption of any debts, liabilities or obligations which by their
terms or operation of law cannot be transferred or assumed; provided, however,
-------- -------
that Parent and New Gallaher shall, and shall cause their respective
Subsidiaries to, cooperate in good faith to seek to obtain any necessary
consents or approvals for the transfer and assumption of all assets and debts,
liabilities or obligations contemplated to be transferred or assumed pursuant to
this Article III. In the event that any such transfer of assets (other than
capital stock of corporations to be transferred hereunder) or assumption of
debts, liabilities or obligations has not been consummated, effective as of and
after the Distribution Date, the party retaining such asset or debt, liability
or obligation shall thereafter hold such asset in trust for the benefit of the
party entitled thereto (at the expense of the party entitled thereto) and retain
such debt, liability or obligation for the account of the party by whom such
debt, liability or obligation is to be assumed, and take such other action as
may be reasonably requested by and at the cost and expense of the party to whom
such asset is to be transferred, or by whom such debt, liability or obligation
is to be assumed, as the case may be, in order to place such party, insofar as
reasonably possible, in the same position as would have existed had such asset
or debt, liability or obligation been transferred or assumed as of the
Distribution Date. As and when any such asset or debt, liability or obligation
becomes transferable, such transfer shall be effected forthwith. The parties
25
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agree that, as of the Distribution Date, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all of the assets,
together with all rights, powers and privileges incident thereto, and shall be
deemed to have assumed in accordance with the terms of this Agreement and the
Ancillary Agreements all of the debts, liabilities and obligations, and all
duties, obligations and responsibilities incident thereto, which such party is
entitled to acquire or required to assume pursuant to the terms hereof and
thereof.
Section 3.09 Guarantees; etc.
---------------
(a) Parent Guarantees. Parent has entered into guarantees, letter of
-----------------
credit obligations, performance or surety bonds, comfort letters and other
similar obligations of Parent relating to the businesses of the New Gallaher
Group, which obligations are set forth on Schedule 3.09(a) and will remain
outstanding as of and after the Distribution Date (the "Parent Guarantee
Obligations"). Pursuant to Section 4.02, New Gallaher shall indemnify and hold
harmless Parent in all respects from the Parent Guarantee Obligations.
(b) Gallaher Guarantees. Gallaher has entered into guarantees, letter
-------------------
of credit obligations, performance or surety bonds, comfort letters and other
similar obligations of Gallaher relating to the businesses of the Parent Group,
which obligations are set forth on Schedule 3.09(b) and will remain outstanding
as of and after the Distribution Date (the "Gallaher Guarantee Obligations").
Pursuant to Section 4.01, Parent shall indemnify and hold harmless Gallaher in
all respects from the Gallaher Guarantee Obligations.
ARTICLE IV
INDEMNIFICATION
---------------
Section 4.01 Indemnification by Parent. Except with respect to
-------------------------
claims for proceeds of Policies or other amounts received, which shall be
governed by Section 3.06 and Section 4.03, and subject to the provisions of this
Article IV, Parent shall with effect from the Distribution Date indemnify,
defend and hold harmless New Gallaher, each Affiliate of New Gallaher and each
of their respective directors, officers, employees
26
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and agents and each of the heirs, executors, successors and assigns of any of
the foregoing (the "New Gallaher Indemnitees") from and against any and all
damage, loss, liability, obligation, debt, claim, demand, cost and expense of
whatever nature (including, without limitation, reasonable attorneys' fees and
expenses in connection with any and all pending or threatened actions, suits,
arbitrations, inquiries, proceedings or investigations by or before any court,
any governmental or other regulatory or administrative agency, body or
commission or any other tribunal) (collectively, "Indemnifiable Losses")
relating to, arising out of, by reason of or otherwise in connection with:
(a) the Parent Liabilities (including the failure by Parent or any of
its Affiliates to pay, perform or otherwise discharge in due course such Parent
Liabilities in accordance with their terms), whether any such Indemnifiable
Losses relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, on or after the
Distribution Date;
(b) any untrue statement or alleged untrue statement of a material
fact contained in any of the U.S. Filings, or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; but only in each case with respect to information provided
by Parent relating to the Parent Group or Parent contained in or omitted from
the U.S. Filings;
(c) any untrue, inaccurate or misleading statement or alleged untrue,
inaccurate or misleading statement contained in any of the U.K. Filings, or any
omission or alleged omission to state therein any matter required to be stated
therein in accordance with the provisions of Sections 146 and 147 of the
Financial Services Act of 1986 or necessary to make the statements therein, in
light of the circumstances under which they were made, not untrue, inaccurate or
misleading; but only in each case with respect to information provided by Parent
relating to the Parent Group or Parent contained in or omitted from the U.K.
Filings;
(d) the Gallaher Guarantee Obligations whether any such Indemnifiable
Losses relate to or arise from
27
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events, occurrences, actions, omissions, facts or circumstances occurring,
existing or asserted before, on or after the Distribution Date; and
(e) the enforcement by the New Gallaher Indemnitees of their rights to
be indemnified, defended and held harmless under this Agreement.
Notwithstanding anything in this Section 4.01 to the contrary,
Indemnifiable Losses shall not cover liabilities for Taxes, which shall be
governed exclusively by the Tax Allocation Agreement, or claims, debts,
liabilities and obligations arising from smoking and health or fire safe
cigarette matters, which shall be governed exclusively by the Indemnification
Agreement.
Section 4.02 Indemnification by New Gallaher. Except with respect to
-------------------------------
claims for proceeds of Policies or other amounts received, which shall be
governed by Section 3.06 and Section 4.03, and subject to the provisions of this
Article IV, New Gallaher shall with effect from the Distribution Date indemnify,
defend and hold harmless Parent, each Affiliate of Parent and each of their
respective directors, officers, employees and agents and each of the heirs,
executors, successors and assigns of any of the foregoing (the "Parent
Indemnitees") from and against any and all Indemnifiable Losses relating to,
arising out of, by reason of or otherwise in connection with:
(a) the New Gallaher Liabilities (including the failure by New
Gallaher or any of its Affiliates to pay, perform or otherwise discharge in due
course such New Gallaher Liabilities in accordance with their terms), whether
any such Indemnifiable Losses relate to or arise from events, occurrences,
actions, omissions, facts or circumstances occurring, existing or asserted
before, on or after the Distribution Date;
(b) any untrue statement or alleged untrue statement of a material
fact contained in any of the U.S. Filings, or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; but only in each case with respect to information provided
by New Gallaher relating to the New Gallaher
28
<PAGE>
Group or New Gallaher contained in or omitted from the U.S. Filings;
(c) any untrue, inaccurate or misleading statement or alleged untrue,
inaccurate or misleading statement contained in any of the U.K. Filings, or any
omission or alleged omission to state therein any matter required to be stated
therein in accordance with the provisions of Sections 146 and 147 of the
Financial Services Act of 1986 or necessary to make the statements therein, in
light of the circumstances under which they were made, not untrue, inaccurate or
misleading; but only in each case with respect to information provided by New
Gallaher relating to the New Gallaher Group or New Gallaher contained in or
omitted from the U.K. Filings;
(d) the Parent Guarantee Obligations whether any such Indemnifiable
Losses relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, on or after the
Distribution Date; and
(e) the enforcement by the Parent Indemnitees of their rights to be
indemnified, defended and held harmless under this Agreement.
Notwithstanding anything in this Section 4.02 to the contrary,
Indemnifiable Losses shall not cover liabilities for Taxes, which shall be
governed exclusively by the Tax Allocation Agreement, or claims, debts,
liabilities and obligations arising from smoking and health or fire safe
cigarette matters, which shall be governed exclusively by the Indemnification
Agreement.
Section 4.03 Insurance, Foreign Exchange and Taxes; Limitations on
-----------------------------------------------------
Indemnification Obligations.
- ---------------------------
(a) If any party (an "Indemnitee") shall have received full payment
(an "Indemnity Payment") pursuant to Section 4.01 or Section 4.02 of this
agreement from any other party (an "Indemnifying Party") in respect of any
Indemnifiable Losses and shall subsequently actually receive proceeds of
Policies or other amounts in respect of such Indemnifiable Losses, then such
Indemnitee shall pay to such Indemnifying Party a sum equal to the amount
actually received (net of increased insurance premiums and charges related
directly and solely to the related Indemnifiable Losses and any expenses
(including
29
<PAGE>
reasonable legal fees and expenses) incurred by such Indemnitee in connection
with seeking to collect such insurance proceeds or other amounts, and up to but
not in excess of the amount of any Indemnity Payment made hereunder). The
parties acknowledge that an Indemnitee shall not be required to seek recovery of
proceeds of Policies. An insurer who would otherwise be obligated to pay any
claim shall not be relieved of such responsibility, or have any subrogation
rights with respect thereto, solely by virtue of the indemnification provisions
hereof, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to any benefit they would not be entitled to
receive in the absence of the indemnification provisions hereof.
(b) In the event that an Indemnity Payment shall be denominated in a
currency other than United States dollars, the amount of such payment shall be
translated into United States dollars using the Foreign Exchange Rate for such
currency determined in accordance with the following rules:
(i) with respect to Indemnifiable Losses arising from payment by a
financial institution under a guarantee, comfort letter, letter of credit,
foreign exchange contract or similar instrument, the Foreign Exchange Rate
for such currency shall be determined as of the date on which such
financial institution shall have been reimbursed by the Indemnitee;
(ii) with respect to Indemnifiable Losses covered by insurance, the
Foreign Exchange Rate for such currency shall be the Foreign Exchange Rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Losses with the Indemnifying Party as of the date on which
payment shall be made by such insurance company; and
(iii) with respect to Indemnifiable Losses not covered by clause (i)
or (ii) above, the Foreign Exchange Rate for such currency shall be
determined as of the date that notice of the claim with respect to such
Indemnifiable Losses shall be given to the Indemnitee.
30
<PAGE>
(c) In determining the amount of any Indemnifiable Losses, such amount
shall be (i) reduced to take into account any net Tax benefit realized by the
Indemnitee arising from the incurrence or payment by the Indemnitee of such
Indemnifiable Losses and (ii) increased to take into account any net Tax cost
incurred by the Indemnitee as a result of the receipt or accrual of payments
hereunder (grossed-up for such increase), in each case determined by treating
the Indemnitee as recognizing all other items of income, gain, loss, deduction
or credit before recognizing any item arising from such Indemnifiable Losses.
Section 4.04 Procedures for Indemnification.
------------------------------
(a) Procedures for Indemnification of Third Party Claims shall be as
follows:
(i) If a claim or demand is made against an Indemnitee by any person
who is not a party to this Agreement as to which an Indemnifying Party may
be obligated to provide indemnification pursuant to this Agreement (a
"Third Party Claim"), such Indemnitee shall notify the Indemnifying Party
in writing of the Third Party Claim (giving reasonable details of the
specific matter or claim in respect of which such Third Party Claim is made
to the extent that such information is then known to the Indemnitee)
promptly (and in any event within 15 business days) after receipt by such
Indemnitee of written notice of the Third Party Claim; provided, however,
-------- -------
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the Indemnifying Party shall have
been actually prejudiced as a result of such failure (except that the
Indemnifying Party shall not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice). Thereafter,
the Indemnitee shall deliver to the Indemnifying Party, promptly (and in
any event within 15 business days) after the Indemnitee's receipt thereof,
copies of all notices and documents (including court papers) received or
transmitted by the Indemnitee relating to the Third Party Claim and shall
consult fully with the Indemnifying Party in respect of the Third Party
Claim and permit, and procure that any relevant person in the control of
the Indemnitee shall
31
<PAGE>
permit, the Indemnifying Party and its advisers reasonable access to
relevant employees, premises, documents and records (including, without
limitation, the right to take copies at the Indemnifying Party's expense of
such documents and records) for the purposes of determining whether the
Indemnifying Party is obligated to provide indemnification hereunder.
(ii) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof
and, if it so chooses and unconditionally and irrevocably acknowledges in
writing its obligation to indemnify the Indemnitee therefor, to assume the
defense thereof with counsel selected by the Indemnifying Party; provided
that such counsel is not reasonably objected to by the Indemnitee. Should
the Indemnifying Party so elect to assume the defense of a Third Party
Claim, the Indemnifying Party shall not be liable to the Indemnitee for
legal or other expenses subsequently incurred by the Indemnitee in
connection with the defense thereof after the date of such assumption. If
the Indemnifying Party assumes such defense, the Indemnitee shall have the
right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the Indemnifying Party,
it being understood that the Indemnifying Party shall control such defense.
The Indemnifying Party shall be liable for the fees and expenses of counsel
employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during the
period prior to the time the Indemnitee shall have given notice of the
Third Party Claim as provided above). If the Indemnifying Party elects to
assume the defense of any Third Party Claim, the Indemnifying Party shall
promptly supply to the Indemnitee copies of all correspondence and
documents relating to or in connection with such Third Party Claim and keep
the Indemnitee fully informed of all developments relating to or in
connection with such Third Party Claim (including, without limitation,
provide to the Indemnitee promptly on reasonable request updates and
summaries as to the status thereof).
32
<PAGE>
(iii) If the Indemnifying Party elects to assume the defense of any
Third Party Claim, all of the Indemnitees shall cooperate with the
Indemnifying Party in the defense thereof, such cooperation to be at the
expense (including reasonable legal fees and expenses) of the Indemnifying
Party. Without limiting the generality of the foregoing, the Indemnitee
shall, at the expense (including reasonable legal fees and expenses) of the
Indemnifying Party, (A) provide or cause to be provided to the Indemnifying
Party such information and assistance as the Indemnifying Party may
reasonably request to defend such Third Party Claim, including, without
limitation, the assistance of officers, employees, directors, agents and
others acting on behalf of the Indemnitee when reasonably considered
necessary by the Indemnifying Party to defend such Third Party Claim, and
(B) take or cause to be taken such action as the Indemnifying Party may
reasonably require to defend the Third Party Claim.
(iv) If the Indemnifying Party acknowledges in writing as aforesaid
its obligation to indemnify the Indemnitee for a Third Party Claim, then in
no event will the Indemnitee admit any liability with respect to, or
settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent (such consent not to be
unreasonably withheld or delayed); provided, however, that the Indemnitee
-------- -------
shall have the right to admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the consent of the
Indemnifying Party if the Indemnitee irrevocably and unconditionally
releases absolutely the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
admission, settlement, compromise or discharge would not in the reasonable
opinion of the Indemnifying Party otherwise materially adversely affect the
Indemnifying Party. If the Indemnifying Party acknowledges in writing as
aforesaid its obligation to indemnify the Indemnitee for a Third Party
Claim, the Indemnitee will agree to any settlement, compromise or discharge
of a Third Party Claim that the Indemnifying Party may recommend and that
by its terms obligates the Indemnifying Party to pay the full amount of the
33
<PAGE>
liability in connection with such Third Party Claim and unconditionally and
irrevocably releases the Indemnitee completely in connection with such
Third Party Claim and that would not in the reasonable opinion of the
Indemnitee otherwise materially adversely affect the Indemnitee; provided,
--------
however, that the Indemnitee may refuse to agree to any such settlement,
-------
compromise or discharge if the Indemnitee unconditionally and irrevocably
acknowledges in writing that the Indemnifying Party's indemnification
obligation to the Indemnitee with respect to such Third Party Claim shall
not exceed the amount that would be required to be paid by or on behalf of
the Indemnifying Party in connection with such settlement, compromise or
discharge. Except as required by law or legal process, Parent and New
Gallaher shall not, and shall not permit any of their respective
Affiliates, officers, directors, employees, agents, or others acting on
their respective behalf to, make any adverse public statement regarding any
Third Party Claim.
(v) Notwithstanding the foregoing, (A) the Indemnifying Party shall
not be entitled to assume the defense of any Third Party Claim if the
Indemnitee unconditionally and irrevocably waives and releases in writing
its right to be indemnified by the Indemnifying Party therefor and (B) the
Indemnifying Party shall not be entitled to assume the defense of any Third
Party Claim (and shall be liable for the fees and expenses of counsel
incurred by the Indemnitee in defending such Third Party Claim) if the
Third Party Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against the Indemnitee which the
Indemnitee reasonably determines, after conferring with its counsel, cannot
be separated from any related claim for money damages. If such equitable
relief or other relief portion of the Third Party Claim can be so separated
from that for money damages, the Indemnifying Party shall be entitled to
assume the defense of the portion relating to money damages (subject to
clause (v)(A) above in respect of such portion).
(vi) If the Indemnifying Party unconditionally and irrevocably
acknowledges in writing as aforesaid
34
<PAGE>
its obligations to indemnify the Indemnitee for a Third Party Claim, the
Indemnitee shall take and shall procure to be taken such action as may be
reasonably requested in writing by the Indemnifying Party to avoid or
lessen any loss or liability which is the subject of such claim, and the
Indemnifying Party hereby agrees to indemnify and hold harmless such
Indemnitee from and against any and all costs and expenses (including
reasonable legal fees and expenses), claims and liabilities which the
Indemnitee may suffer or incur relating to, arising out of, by reason of or
otherwise in connection with the action requested.
(vii) For the avoidance of doubt, the provisions of this Section
4.04(a) shall not apply in any respect to the Indemnification Agreement.
(b) Any claim on account of Indemnifiable Losses which does not result
from a Third Party Claim shall be asserted by written notice (giving reasonable
details of the specific matter or claim in respect of which such claim is made
to the extent that such information is then known to the Indemnitee) given by
the Indemnitee to the Indemnifying Party from whom such indemnification is
sought. If such Indemnifying Party does not respond to the Indemnitee within 30
days after the receipt of such notice, such Indemnifying Party shall be deemed
to have refused to accept responsibility to make payment in respect of such
claim. If such Indemnifying Party does not respond within such 30-day period or
rejects such claim in whole or in part, such Indemnitee shall be free to pursue
such remedies as may be available to such party under this Agreement or under
applicable law.
(c) In addition to any adjustments required pursuant to Section 4.03,
if the amount of any Indemnifiable Losses shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any reasonable expenses incurred
in connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(d) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third Party Claim, such Indemnifying Party shall be
subrogated
35
<PAGE>
to and shall stand in the place of such Indemnitee as to any events or
circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim or against any other Person. Such Indemnitee shall
cooperate with such Indemnifying Party in a reasonable manner, and at the cost
and expense of such Indemnifying Party, in prosecuting any subrogated right or
claim.
Section 4.05 Remedies Cumulative. The remedies provided in this
-------------------
Article IV shall be cumulative and shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any and all other remedies
against any Indemnifying Party.
Section 4.06 Survival of Indemnities. The obligations of each of
-----------------------
Parent and New Gallaher under this Article IV shall survive the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Indemnifiable Losses of the other related to
such assets, businesses or Liabilities.
Section 4.07 Limitations on Liability. (a) An Indemnifying Party
------------------------
shall not be liable in respect of any claim in connection with any Indemnifiable
Losses (a "Relevant Claim") to the extent that the Relevant Claim is
attributable (in whole or in part) to anything expressly provided to be done or
omitted to be done pursuant to this Agreement, the Tax Allocation Agreement or
any other Ancillary Agreement.
(b) An Indemnifying Party shall not be liable in respect of any
Relevant Claim to the extent that the subject of the claim has been or is made
good or is otherwise compensated for without cost to the Indemnitee. An
Indemnitee shall not be entitled to recover damages or otherwise obtain
reimbursement or restitution for more than the amount of any Indemnifiable
Losses.
(c) In the event that an Indemnitee is entitled to claim under this
Agreement, or under any Ancillary Agreement, in respect of the same subject
matter, the Indemnitee may claim under any one or all of such agreements but
payments made under any Ancillary Agreement shall pro tanto satisfy and
discharge any claim
36
<PAGE>
which is capable of being made under this Agreement in respect of the same
subject matter and vice versa.
(d) An Indemnifying Party shall not be liable in respect of a Relevant
Claim to the extent that the Relevant Claim is attributable (in whole or in
part) to any voluntary act or transaction carried out by or at the written
request of an Indemnitee or any of their successors in title or assigns on or
after the Distribution Date other than any such act or transaction carried out
in the ordinary and proper course of business.
(e) The provisions of this Section 4.07 shall apply notwithstanding
anything else in this Agreement or any Ancillary Agreement to the contrary.
ARTICLE V
EMPLOYEE BENEFITS
-----------------
Section 5.01 Retirement Plan for Goldsboro Employees. Effective as
---------------------------------------
of the Distribution Date, Gallaher employees based in Goldsboro, North Carolina
and covered under the Parent Retirement Plan shall cease to accrue further
benefits thereunder. Gallaher shall establish a separate retirement plan and
trust for such employees which shall be designed to be tax qualified under the
Code. As soon as practicable after the Distribution Date, Parent shall cause to
be transferred to such separate Gallaher retirement plan and trust the assets
and liabilities of such Gallaher employees under the Parent Retirement Plan.
The amount of assets and liabilities to be transferred shall be determined by
the actuary for the Parent Retirement Plan as the amount necessary to comply
with section 414(l) of the Code.
ARTICLE VI
ACCESS TO INFORMATION
---------------------
Section 6.01 Provision of Corporate Records.
------------------------------
(a) Parent shall arrange as soon as practicable following the
Distribution Date, to the extent not previously delivered in connection with the
transactions contemplated by Section 3.01, for the delivery (at New Gallaher's
cost) to New Gallaher of all
37
<PAGE>
original agreements, contracts, instruments, documents, books, records and
files, including records and files stored on computer disks or tapes or any
other storage medium (collectively, "Records"), if any, in the possession or
control of Parent relating specifically to the business and operations of the
New Gallaher Group, subject to the exceptions set forth in Section 6.01(c).
(b) New Gallaher shall arrange as soon as practicable following the
Distribution Date, to the extent not previously delivered in connection with the
transactions contemplated by Section 3.01, for the delivery (at Parent's cost)
to Parent of all Records, if any, in the possession or control of New Gallaher
relating specifically to the business and operations of the Parent Group,
subject to the exceptions set forth in Section 6.01(c).
(c) Sections 6.01(a) and (b) shall be subject to the following
exceptions:
(i) Parent and New Gallaher each acknowledge that certain Records
may contain incidental information relating to the business and operations
of the other party but may also relate primarily to the business and
operations of the party in possession or control of such Records, and that
the party in possession or control of such Records may retain them and
shall provide the other party with copies of the relevant portions thereof
relating to the business and operations of the other party, if material, on
the Distribution Date or as soon as practicable thereafter;
(ii) Each of Parent and New Gallaher may retain all Records
consisting of routine correspondence (including correspondence, memoranda,
reports and other information provided by employees of one party to the
other) that would be burdensome to deliver to the other party, provided
that such party shall, from and after the Distribution Date, provide copies
thereof to the other party if reasonably and specifically requested by such
other party within a reasonable period following the Distribution Date not
to exceed 90 days;
38
<PAGE>
(iii) Each of Parent and New Gallaher may retain all Records
prepared in connection with the Distribution;
(iv) Parent may retain any Records consisting of or directly
relating to Common Policies that are also Parent Policies, provided that
Parent shall provide copies of Records in respect of claims made by or on
behalf of any member of the New Gallaher Group under such Common Policies
to the extent reasonably and specifically requested by New Gallaher, and
New Gallaher may retain any Records consisting of or directly relating to
Common Policies that are also New Gallaher Policies, provided that New
Gallaher shall provide copies of Records in respect of claims made by or on
behalf of any member of the Parent Group under such Common Policies to the
extent reasonably and specifically requested by Parent; and
(v) Each of Parent and New Gallaher may retain any Records
consisting of publications available to the public generally.
(d) Notwithstanding anything in this Section 6.01 to the contrary, the
delivery and retention of any Records relating to the liability of either the
Parent Group or the New Gallaher Group for Taxes or otherwise in connection with
any audit or other investigation by any taxing authority shall be governed
solely by the terms of the Tax Allocation Agreement.
Section 6.02 Access to Information. After the Distribution Date,
---------------------
upon reasonable written notice, Parent and New Gallaher shall, to the extent
that such information has not previously been delivered pursuant to Section
6.01(a) or Section 6.01(b), furnish or cause to be furnished to each other and
their respective Representatives reasonable access and duplicating rights,
during normal business hours and at the cost of the party so requesting, to such
information and assistance as is reasonably necessary in connection with
asserting, processing or prosecuting insurance administration and claims
handling, environmental matters, financial reporting and accounting matters or
any other required reports or submissions to governmental bodies with respect to
the New Gallaher Group and the Parent Group, respectively, for periods prior to
the Distribution Date
39
<PAGE>
or in connection with litigation and other claims, proceedings and
investigations. Except as required by law or otherwise agreed to in writing by
the parties, such information shall, to the extent that such information has not
previously been delivered pursuant to Section 6.01(a) or Section 6.01(b), be
retained for a period of 5 years after the Distribution Date, except that Common
Policies shall be retained indefinitely. In addition, after the expiration of
such five-year period, such information shall not be destroyed or otherwise
disposed of at any time, unless, prior to such destruction or disposal, (a) the
party proposing to destroy or otherwise dispose of such information shall
provide no less than 30 days' prior written notice to the other, specifying in
reasonable detail the information proposed to be destroyed or disposed of and
(b) if a recipient of such notice shall request in writing prior to the
scheduled date for such destruction or disposal that any of the information
proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the
delivery of such of the information as was requested at the expense of the party
requesting such information.
Section 6.03 Production of Witnesses. After the Distribution Date,
-----------------------
each of Parent and New Gallaher shall, and shall cause their respective
Subsidiaries to, use reasonable efforts to make available to the other party and
its Subsidiaries, upon written request and at the cost and expense of the party
so requesting, its directors, officers, employees and agents as witnesses to the
extent that any such Person may reasonably be required (giving consideration to
business demands of such Representatives) in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved.
Section 6.04 Confidentiality. Each of Parent and New Gallaher shall,
---------------
and shall cause each of their respective Subsidiaries and Representatives to,
hold, in strict confidence, all information concerning the other in its
possession or control or furnished by the other or the other's Representatives
pursuant to or in connection with either this Agreement or any Ancillary
Agreement or the transactions contemplated hereby or thereby (except to the
extent that such information has (a) come into the public domain through no
fault of such party or (b)
40
<PAGE>
lawfully acquired from other sources by such party), and each party shall not
release or disclose such information to any other Person without the prior
written consent of the party from whom the information was obtained (such
consent not to be unreasonably withheld or delayed), unless compelled to
disclose by judicial or administrative process or, as advised by its counsel, by
other requirements of law or such disclosure is required by any securities
exchange or regulatory or governmental body having jurisdiction over such party,
wherever situated and whether or not the requirement has the force of law,
except that each party may disclose such information to its Representatives for
the purposes contemplated by this Agreement or any Ancillary Agreement provided
that such Representatives shall agree to maintain the confidentiality of such
information in accordance with this clause. Each party acknowledges that it
shall be liable for any breach of this Section 6.04 by its Representatives to
whom such information is disclosed by such party. Notwithstanding the foregoing,
each party may disclose the terms of this Agreement, the Ancillary Agreements
and the Indemnification Agreement and the transactions contemplated hereby and
thereby to the extent such information is disclosed in the U.K. or U.S. Filings.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.01 Complete Agreement; Construction. This Agreement, the
--------------------------------
Ancillary Agreements and the Indemnification Agreement, including any schedules
and exhibits hereto or thereto, and other agreements and documents referred to
herein, shall constitute the entire agreement between the parties with respect
to the subject matter hereof and shall supersede all previous negotiations,
commitments, drafts, agreements, undertakings, arrangements of any nature,
whether oral or written with respect to such subject matter. Except as provided
in Section 4.07 and notwithstanding any other provisions in this Agreement to
the contrary, in the event and to the extent that there shall be a conflict
between the provisions of this Agreement and the provisions of the Tax
Allocation Agreement, the provisions of the Tax Allocation Agreement shall
control.
41
<PAGE>
Section 7.02 Survival of Agreements. Except as otherwise
----------------------
contemplated by this Agreement, the Ancillary Agreements and the Indemnification
Agreement all covenants, conditions and agreements of the parties contained in
this Agreement, the Ancillary Agreements and the Indemnification Agreement shall
remain in full force and effect and shall survive the Distribution Date.
Section 7.03 Expenses. All costs and expenses related to the
--------
negotiation, preparation, execution and delivery of this Agreement, the
Ancillary Agreements and the Indemnification Agreement, the carrying into effect
of the Distribution and the consummation of the transactions contemplated hereby
and thereby shall be allocated between Parent and New Gallaher as set forth on
Schedule 7.03.
Section 7.04 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the principles of conflicts of laws thereof.
Section 7.05 Notices. All notices, requests, claims, demands and
-------
other communications hereunder required or permitted to be given shall be in
writing and shall be delivered by hand or sent by prepaid cable or telecopy or
sent, postage prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so delivered by hand,
cable or telecopied, or if mailed, ten days after mailing (two business days in
the case of express mail or overnight courier service) as follows:
If to Parent:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: General Counsel
Telephone: (203) 698-5000
Fax: (203) 698-5172
42
<PAGE>
With a copy to
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
Telephone: (203) 698-5000
Fax: (203) 698-5197
If to New Gallaher, Gallaher or ATIC:
Gallaher Group Plc
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Group Legal Adviser
Telephone: 011-44-1932-832534
Fax: 011-44-1932-849119
With a copy to
Gallaher Group Plc
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Company Secretary
Telephone: 011-44-1932-859777
Fax: 011-44-1932-849119
or to such other person or address as the addressee may from time to time have
specified for that purpose in a notice duly given to the sender as provided
herein.
Section 7.06 Consent to Jurisdiction. Each of the parties
-----------------------
irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of
the State of New York, New York County, and (b) the United States District Court
for the Southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of
43
<PAGE>
New York or if such suit, action or other proceeding may not be brought in such
court for jurisdictional reasons, in the Supreme Court of the State of New York,
New York County. Each of the parties further agrees that service of any process,
summons, notice or document by hand delivery or U.S. registered mail to such
party's respective address set forth in Section 7.05 hereof shall be effective
service of process for any action, suit or proceeding brought against such party
in any such court. Each of the parties irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (i) the Supreme
Court of the State of New York, New York County, or (ii) the United States
District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
Section 7.07 Modifications or Amendments. This Agreement may not be
---------------------------
modified or amended except by an agreement in writing signed by the parties.
Section 7.08 Successors and Assigns. The rights and benefits under
----------------------
this Agreement may not be assigned and duties and obligations may not be
delegated by any party in whole or in part without the prior written consent of
the other parties, which consent shall not be unreasonably withheld or delayed.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
Section 7.09 Termination. This Agreement may be terminated and the
-----------
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Parent Board without the approval of New Gallaher or of
Parent's stockholders. In the event of such termination, no party shall have
any liability of any kind to any other party on account of such termination.
Section 7.10 No Third Party Beneficiaries. Except for the provisions
----------------------------
of Article IV relating to Indemnitees, this Agreement is solely for the benefit
of the parties hereto and their respective Affiliates and
44
<PAGE>
should not be deemed to confer upon third parties (including any employee of
Parent or New Gallaher or of any Parent or New Gallaher Subsidiary) any remedy,
claim, reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
Section 7.11 Titles and Headings. Titles and headings to sections
-------------------
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 7.12 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 7.13 No Waivers. No failure or delay by any party hereto to
----------
take any action or assert any right hereunder shall be deemed to be a waiver of
such right in the event of the continuation or repetition of the circumstances
giving rise to such right, unless expressly waived in writing by the party
against whom the existence of such waiver is asserted.
Section 7.14 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.15 Performance. Each party hereto shall cause to be
-----------
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary or Affiliate of
such party.
45
<PAGE>
Section 7.16 Rights. The rights, powers, privileges and remedies
------
provided in this Agreement are cumulative and are not exclusive of any rights,
powers, privileges or remedies provided by law or otherwise. No single or
partial exercise of any right, power, privilege or remedy under this Agreement
shall prevent any further or other exercise thereof or the exercise of any other
right, power, privilege or remedy.
Section 7.17 Further Assurances. The parties shall cooperate in good
------------------
faith to ensure that they and each of their respective Subsidiaries do all such
acts and things as may reasonably be necessary to complete the Distribution and
the transactions contemplated by this Agreement, the Indemnification Agreement
and each of the Ancillary Agreements. Without limiting the generality of the
foregoing, at any time after the date hereof each of Parent and New Gallaher
shall, at the request and cost of another party hereto, execute or procure the
execution of such documents and do or procure the doing of such acts and things
as the party so requesting may reasonably require for the purpose of giving the
party so requesting the full benefit of the provisions of this Agreement, the
Indemnification Agreement and each of the Ancillary Agreements. For the
avoidance of doubt, this section shall not and shall not be deemed to impose
upon any of the parties more onerous duties and obligations than those contained
in or contemplated by this Agreement, the Indemnification Agreement and the
Ancillary Agreements.
46
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
AMERICAN BRANDS, INC.
By: /s/ Gilbert L. Klemann, II
------------------------------
Name: Gilbert L. Klemann, II
Title: Senior Vice President
and General Counsel
GALLAHER GROUP LIMITED
By: /s/ C.T. Fielden
------------------------------
Name: C.T. Fielden
Title: Director
GALLAHER LIMITED
By: /s/ N.P. Bulpitt
------------------------------
Name: N.P. Bulpitt
Title: Director and Secretary
ATIC GROUP, INC.
By: /s/ C.P. Omtvedt
------------------------------
Name: C.P. Omtvedt
Title: Vice President
47
<PAGE>
EXHIBIT 99.3
================================================================================
TAX ALLOCATION AGREEMENT
dated as of May 8, 1997
among
AMERICAN BRANDS, INC.,
and
GALLAHER GROUP LIMITED,
and
GALLAHER LIMITED
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS...................................................... 2
- ----------------------
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS; TAX DISPUTES.. 6
- --------------------------------------------------------------------------
2.01 Obligations of American Brands........................................ 6
2.02 Obligations of New Gallaher........................................... 7
2.03 J.R.F. Realty, Inc.................................................... 7
2.04 Bonny Products, Inc. and Keeler Instruments, Inc...................... 9
2.05 JBB (Greater Europe) plc.............................................. 9
ARTICLE III TAX INDEMNIFICATION............................................ 11
- --------------------------------
3.01 Indemnification....................................................... 11
3.02 New Gallaher Tax Group Tax Acts....................................... 13
3.03 Notice of Indemnity................................................... 14
3.04 Indemnification Payments.............................................. 14
ARTICLE IV COOPERATION AND EXCHANGE OF INFORMATION......................... 15
- ---------------------------------------------------
4.01 Inconsistent Actions.................................................. 15
4.02 Ruling Request........................................................ 15
4.03 IRS Gain Recognition Agreement; Notification of Certain Dispositions.. 15
4.04 Cooperation and Exchange of Information............................... 16
4.05 Tax Records........................................................... 16
ARTICLE V MISCELLANEOUS.................................................... 17
- ------------------------
5.01 Complete Agreement; Construction...................................... 17
5.02 Effectiveness......................................................... 17
5.03 Survival of Agreements................................................ 17
5.04 Governing Law......................................................... 17
5.05 Notices............................................................... 18
5.06 Consent to Jurisdiction............................................... 19
5.07 Modifications or Amendments........................................... 19
5.08 Successors and Assigns................................................ 20
5.09 Termination........................................................... 20
5.10 No Third Party Beneficiaries.......................................... 20
5.11 Titles and Headings................................................... 20
5.12 Severability.......................................................... 20
5.13 No Waivers............................................................ 21
5.14 Counterparts.......................................................... 21
5.15 Performance........................................................... 21
5.16 Rights 21
</TABLE>
i
<PAGE>
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement") is made and entered
into as of May 8, 1997, by and between American Brands, Inc., a Delaware
corporation ("American Brands"), Gallaher Group Limited, an English private
limited company ("New Gallaher"), and Gallaher Limited, an English private
limited company ("Gallaher").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the American Brands Board (as hereinafter defined) has
determined that it is appropriate and desirable to transfer all of the
outstanding ordinary shares of Gallaher to New Gallaher in a transaction that
will be treated for U.S. federal income tax purposes as a reincorporation of
ATIC Group, Inc., a Delaware corporation and wholly-owned subsidiary of American
Brands ("ATIC"), as New Gallaher, qualifying as a tax-free reorganization under
Section 368(a)(1)(F) of the Code (as hereinafter defined) (the
"Reorganization");
WHEREAS, the American Brands Board has determined that it is
appropriate and desirable to effectuate the Distribution (as hereinafter
defined) in a transaction that will qualify under Section 355 of the Code as a
tax-free distribution to its shareholders; and
WHEREAS, American Brands, New Gallaher and Gallaher wish to provide
for and agree upon the allocation between the American Brands Tax Group (as
hereinafter defined) and the New Gallaher Tax Group (as hereinafter defined) of
all responsibilities, liabilities and benefits relating to or affecting Taxes
(as hereinafter defined) paid or payable by either of them for all taxable
periods, whether beginning before, on or after the Distribution Date (as
hereinafter defined).
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereto hereby agree as follows:
1
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
Section 1.01 General. As used in this Agreement, the following terms
-------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ACT" has the meaning set forth in Section 2.05(a).
"ADRs" shall mean American Depositary Receipts evidencing ADSs.
"ADSs" shall mean American Depositary Shares representing New Gallaher
Ordinary Shares, where each ADS represents four New Gallaher Ordinary Shares as
of the Distribution Date.
"American Brands" has the meaning set forth in the Recitals above.
"American Brands Common Stock" shall mean the Common Stock, par value
$3.125 per share, of American Brands.
"American Brands Tax Group" shall mean (i) American Brands, (ii) any
corporation or other legal entity which American Brands directly or indirectly
owns immediately following the Distribution, (iii) any other corporation or
other legal entity (other than ATIC) which American Brands directly or
indirectly owned at any time prior to the Distribution (but only with respect to
the period such corporation or other entity was so owned by American Brands)
other than New Gallaher or a member of the New Gallaher Tax Group, and (iv)
ATIC, but only in respect of the period ending on the transfer of ATIC to New
Gallaher.
"ATIC" has the meaning set forth in the Recitals above.
"Board" shall mean the Board of Directors of American Brands or the
Executive Committee thereof.
"Buyer Tax Act" has the meaning set forth in Section 3.01(a).
2
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor legislation.
"Distribution" shall mean the distribution of the Distribution Shares
(as hereinafter defined) on a pro rata basis to holders of American Brands
Common Stock on the Distribution Date pursuant to the Distribution Agreement (as
hereinafter defined).
"Distribution Agreement" shall mean the Distribution Agreement dated
as of May 8, 1997 by and between American Brands, ATIC, New Gallaher and
Gallaher.
"Distribution Date" shall mean the date on which the Distribution
occurs or is deemed to occur for U.S. federal income tax purposes. Solely for
purposes of this Agreement, the Distribution shall be deemed effective as of the
close of business on the Distribution Date.
"Distribution Payment" shall mean the payment in connection with the
Distribution of approximately 945 million pounds sterling by New Gallaher to
American Brands.
"Distribution Shares" shall mean, collectively, (i) the New Gallaher
Ordinary Shares to be delivered to the holders of record of American Brands
Common Stock on the Record Date (as hereinafter defined) with addresses outside
of the United States and Canada and (ii) the ADSs evidenced by the ADRs to be
delivered to the holders of record of American Brands Common Stock on the Record
Date with addresses within the United States and Canada pursuant to the
Distribution Agreement.
"Gallaher" has the meaning set forth in the Recitals above.
"Gallaher VAT Group" has the meaning set forth in Section 2.05(b).
"IRS" shall mean the Internal Revenue Service.
"IRS Gain Recognition Agreement" shall mean the gain recognition
agreement entered into between the IRS and American Brands pursuant to Section
367 of the Code and the regulations thereunder and the Ruling (as
3
<PAGE>
hereinafter defined), and any revised or successor agreement thereto.
"New Gallaher" has the meaning set forth in the Recitals above.
"New Gallaher Facility" shall mean the credit agreement entered into
by New Gallaher with certain banks for a 1.2 billion pounds sterling five-year
multicurrency revolving credit facility.
"New Gallaher Ordinary Shares" shall mean, the ordinary shares of 10
pence each of New Gallaher.
"New Gallaher Tax Group" shall mean (i) New Gallaher, (ii) any
corporation or other legal entity which New Gallaher directly or indirectly owns
immediately following the Distribution, (iii) any other corporation or legal
entity which Gallaher directly or indirectly owned at any time prior to the
Distribution (but only with respect to the period such corporation or other
entity was so owned by Gallaher), (iv) J.R.F. Realty, Inc., (v) Bonny Products,
Inc., a New York corporation, and subsidiaries, and (vi) Keeler Instruments,
Inc., a Pennsylvania corporation, and subsidiaries, but excluding (vii) JBB
(Greater Europe) plc (formerly The Whyte & Mackay Group, PLC) and subsidiaries,
(viii) Ofrex Group Holdings plc and subsidiaries and (ix) ATIC, but only in
respect of the period ending on the transfer of ATIC to New Gallaher.
"New Gallaher Tax Group Tax Act" has the meaning set forth in Section
3.02(a).
"New Gallaher Tax Representation Letter" means the letter delivered by
New Gallaher to American Brands on the Distribution Date, substantially in the
form set forth in Schedule 3.02(b) attached hereto.
"Plan of Reorganization" shall mean the Plan of Reorganization for
ATIC Group, Inc. to be adopted by American Brands and ATIC, substantially in the
form set forth in Schedule 3.02(c) hereto.
"Record Date" shall mean the close of business on the date to be
determined by the Board as the record date for the Distribution.
4
<PAGE>
"Reorganization" has the meaning set forth in the Recitals above.
"Ruling" means the private letter ruling issued by the IRS in reply to
the Ruling Request (as hereinafter defined) including any amendment thereto or
any supplement thereto.
"Ruling Request" means the private letter ruling request filed by
American Brands with the IRS on October 8, 1996 (as modified or supplemented by
any materials submitted to the IRS), seeking rulings that, inter alia, the
----- ----
Distribution will qualify for U.S. federal income tax purposes as a tax-free
distribution to the shareholders under Section 355 of the Code.
"Sale Date" means the date on which the shares of J.R.F. Realty, Inc.
are sold by American Brands to a member of the New Gallaher Tax Group. Solely
for purposes of this Agreement, the sale of J.R.F. Realty, Inc. shares shall be
deemed effective as of the close of business on the Sale Date.
"Tax" and "Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States, the United Kingdom or elsewhere, and
whether imposed by a federal, state, municipal, governmental, territorial,
local, foreign or other body, and without limiting the generality of the
foregoing, shall include net income, gross income, gross receipts, sales, use,
value added, ad valorem, transfer, recording, franchise, profits, license,
lease, service, service use, payroll, wage, withholding, employment,
unemployment insurance, workers compensation, social security, excise,
severance, stamp, business license, business organization, occupation, premium,
property, environmental, windfall profits, customs, duties, alternative minimum,
estimated or other taxes, fees, premiums, assessments or charges of any kind
whatever imposed or collected by any governmental entity or political
subdivision thereof, which any member of the American Brands Tax Group or the
New Gallaher Tax Group is required to pay, collect or withhold, together with
any related interest and any penalties, additions to such tax or additional
amounts imposed with respect thereto by any Tax Authority.
"Tax Authority" means, with respect to any Tax, any governmental
entity, quasi-governmental body or
5
<PAGE>
political subdivision thereof that imposes such Tax and the agency (if any)
charged with the determination or collection of such Tax for such entity, body
or subdivision.
"Tax Group" means the American Brands Tax Group or the New Gallaher
Tax Group, as the case may be.
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including requests for extensions
of time, filings made with respect to estimated tax payments, claims for refund
and amended returns that may be filed, for any period with any Tax Authority
(whether domestic or foreign) in connection with any Tax (whether or not a
payment is required to be made with respect to such filing).
Any capitalized term not otherwise defined in this Agreement shall
have the meaning ascribed to it in the Distribution Agreement.
Section 1.02 Schedules, etc. References to a "Schedule" is, unless
--------------
otherwise specified, to the Schedule attached to this Agreement; references to
"Section" or "Article" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement; references to "sub-section" are, unless the
context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
ARTICLE II
----------
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS; TAX DISPUTES
--------------------------------------------------------------
2.01 Obligations of American Brands. American Brands shall with
------------------------------
respect to members of the American Brands Tax Group (i) file or cause to be
filed all Tax Returns (including amendments thereto); (ii) pay or cause to be
paid all Taxes due on all Tax Returns filed pursuant to this Section 2.01 or
otherwise; (iii) be entitled to any refund or credit in respect of such Taxes;
and (iv) control all audits and disputes with Tax Authorities relating to such
Taxes.
6
<PAGE>
2.02 Obligations of New Gallaher. Except as provided in Section 2.03
---------------------------
and Section 2.04 below, New Gallaher shall with respect to members of the New
Gallaher Tax Group (i) file or cause to be filed all Tax Returns (including
amendments thereto); (ii) pay or cause to be paid all Taxes due on all Tax
Returns filed pursuant to this Section 2.02 or otherwise (including transfer
Taxes and stamp Taxes relating to the transfer of trademarks by ATIC to
Gallaher, the transfer of shares in ATIC to New Gallaher and the issue of shares
in New Gallaher to the Depositary, the transfer of shares in Gallaher to New
Gallaher, the purchase by New Gallaher of its own shares, the effecting of the
Distribution and the transfer of the shares in J.R.F. Realty, Inc., all pursuant
to the Distribution Agreement); (iii) be entitled to any refund or credit in
respect of such Taxes; and (iv) control all audits and disputes with Tax
Authorities relating to such Taxes, including a Tax audit or Tax dispute with
Tax Authorities which might give rise to a payment by American Brands pursuant
to Section 3.01(a)(vii) of this Agreement, provided that in the event of a Tax
audit or Tax dispute with Tax Authorities which might give rise to a payment by
American Brands pursuant to section 3.01(a)(vii) of this Agreement, (x) New
Gallaher shall promptly advise American Brands of the existence of such Tax
audit or Tax dispute, (y) American Brands (and its representatives) shall have
the right to participate fully, at its own expense, in all aspects of such Tax
audit or Tax dispute and Gallaher shall in good faith seek the consensus of
American Brands in taking any actions in connection with such Tax audit or Tax
dispute and (z) New Gallaher shall not settle any such Tax audit or Tax dispute
without the prior written consent of American Brands, which consent shall not be
unreasonably withheld.
2.03 J.R.F. Realty, Inc.
------------------
(a) For all periods ending on or before the Sale Date, American
Brands shall file or cause to be filed on behalf of J.R.F. Realty, Inc. (i) all
U.S. federal income Tax Returns (including amendments thereto) for all periods
ending on or before the Sale Date and (ii) all state income Tax Returns which
include on a consolidated or combined basis J.R.F. Realty, Inc. and any other
member of the American Brands Tax Group. All such Tax Returns shall be prepared
on a basis consistent with the elections, accounting methods, conventions and
7
<PAGE>
principles of taxation used for the most recent tax periods for which such Tax
Returns have been filed unless American Brands determines there is no
substantial authority to support such position or there has been a change in or
amendment to any law or regulation, or any change in the official interpretation
thereof. At least five days prior to the due date (with extensions) of any such
Tax Returns not yet filed on the Sale Date, New Gallaher shall pay or cause to
be paid to or at the direction of American Brands all Taxes (including estimated
payments) of J.R.F. Realty, Inc. shown as due on any such Tax Returns.
(b) J.R.F. Realty, Inc. will be included in the U.S. federal
consolidated income Tax Returns and the Connecticut combined Tax Returns of
American Brands for the calendar year 1996 and the portion of the calendar year
1997 ending on the Sale Date. To the extent all necessary information was not
previously provided to American Brands, New Gallaher shall, or shall cause
J.R.F. Realty, Inc. to, provide complete information packages prepared in
accordance with instructions and procedures furnished by American Brands, and
such other information as American Brands may reasonably request, to enable
American Brands to include J.R.F. Realty, Inc. in such Tax Returns. In the case
of the portion of the calendar year 1997 ending on the Sale Date, such
instructions and procedures shall be furnished by American Brands not later than
one month after the Sale Date and the information package shall be delivered by
New Gallaher to American Brands not later than three months after receipt of
such instructions and procedures. Promptly after completion thereof, American
Brands shall furnish to J.R.F. Realty, Inc. a copy of the pro forma separate
U.S. federal income Tax Returns of J.R.F. Realty, Inc., or similar data, used in
the preparation and filing of the U.S. consolidated federal income Tax Returns
of American Brands for 1996 or 1997, as the case may be. Comparable procedures
shall apply for the preparation and filing of the Connecticut combined Tax
Return for the years 1996 and 1997.
(c) American Brands shall control all Tax audits and Tax disputes
with Tax Authorities relating to Tax Returns filed or required to be filed by
American Brands pursuant to Section 2.03(a); provided, however, that American
Brands shall reasonably consult with New Gallaher and in good faith take its
interests into
8
<PAGE>
account in handling and settling disputes relating to such Tax Returns. New
Gallaher shall pay or cause to be paid to or at the direction of American Brands
within thirty days after written demand therefor is made by American Brands any
additional Taxes due relating to such Tax Returns as a result of such Tax audit
or Tax dispute or otherwise.
2.04 Bonny Products, Inc. and Keeler Instruments, Inc.
------------------------------------------------
American Brands shall control all Tax audits and Tax disputes with Tax
Authorities relating to Tax Returns filed or required to be filed on behalf of
Bonny Products, Inc. and Keeler Instruments, Inc. (and its subsidiaries);
provided, however, that American Brands shall reasonably consult with New
Gallaher and in good faith take its interests into account in handling and
settling disputes relating to such Tax Returns. New Gallaher shall pay or cause
to be paid to or at the direction of American Brands within thirty days after
written demand therefor is made by American Brands any additional Taxes due
relating to such Tax Returns as a result of such Tax audit or Tax dispute or
otherwise.
2.05 JBB (Greater Europe) plc.
------------------------
(a) Group Relief and Advance Corporation Tax Surrenders. New Gallaher
---------------------------------------------------
and American Brands agree that claims for and surrenders of group relief and
advance corporation tax ("ACT") will be made between companies in their
respective Tax Groups in the amounts set forth on Schedule 2.05(a). The payment
to be made by each claimant company to the relevant surrendering company in
respect of each surrender shall equal the amount of Tax which is saved by the
claimant company as a consequence of that surrender. Estimates of such amounts
payable are set forth on Schedule 2.05(a). To the extent that payments under
this Section 2.05(a) have not already been made (as set forth on Schedule
2.05(a)), payments shall be due on the later of (a) the date on which the
relevant claimant company would have been liable to account for Tax to the
Inland Revenue had the surrender not been made and (b) five days after the
relevant claimant company receives notice that a surrender has been accepted by
the Inland Revenue as valid.
9
<PAGE>
(b) Value Added Tax. New Gallaher has submitted an application to HM
---------------
Customs & Excise pursuant to Section 43(5) of the Value Added Tax Act 1994 for
the exclusion from the Gallaher group VAT registration (the "Gallaher VAT
Group") of the New Gallaher Subsidiaries, and the replacement of Gallaher as
representative member by JBB (Greater Europe) plc and for such exclusion and
replacement to take effect on May 1, 1997. The parties shall furnish or procure
to be furnished such information as may be required to enable Gallaher (as the
current representative member) to make the returns required in respect of the
Gallaher VAT Group for periods ending on or before May 1, 1997.
(c) Advance Corporation Tax. In the event the value of the specie
-----------------------
distribution by Gallaher of the shares of JBB (Greater Europe) plc is ultimately
determined by the Inland Revenue to be (i) an amount higher than (Pounds)323
million, Gallaher agrees to pay or cause to be paid to or at the direction of
American Brands within 30 days thereof the additional half ACT tax credit
thereon less income tax withholding at a rate of 5 percent on the aggregate of
the amount by which such value exceeds (Pounds)323 million and the half ACT tax
credit thereon; and (ii) an amount lower than (Pounds)323 million, American
Brands agrees to pay or cause to be paid within 30 days thereof to or at the
direction of Gallaher the half ACT tax credit attributable to the amount by
which the value of the distribution is less than (Pounds)323 million less income
tax withholding at the rate of 5% on the aggregate of the amount by which such
value is less than (Pounds)323 million and the half ACT tax credit thereon.
ARTICLE III
-----------
TAX INDEMNIFICATION
-------------------
3.01 Indemnification.
---------------
(a) American Brands Indemnification. Subject to Section 3.01(b) and
-------------------------------
Section 3.02, American Brands shall indemnify, defend and hold harmless New
Gallaher, each member of the New Gallaher Tax Group and each of their respective
stockholders, directors, officers, employees and agents and each of the heirs,
executors, successors, and assigns of any of the foregoing from and against:
(i) all Taxes of the American Brands Tax Group;
10
<PAGE>
(ii) all liability as a result of Treas. Reg. (S) 1.1502-6(a) (which imposes
several liability on members of an affiliated group that file a U.S. federal
consolidated income Tax return) or comparable state provision for Taxes of any
person (other than J.R.F. Realty, Inc., Bonny Products, Inc., and Keeler
Instruments, Inc. (and their subsidiaries)) which is or has ever been affiliated
with any member of the American Brands Tax Group or with which any member of the
American Brands Tax Group joins or has ever joined (or is or has ever been
required to join) in filing any state consolidated, combined or unitary Tax
Return for any Tax period ending on or before or including the Sale Date; (iii)
all Taxes for any Tax period (whether beginning before, on or after the
Distribution Date) that would not have been payable but for the breach by any
member of the American Brands Tax Group of any representation, warranty,
covenant or obligation under this Agreement; (iv) all liability for a breach by
any member of the American Brands Tax Group of any representation, warranty,
covenant or obligation under this Agreement; (v) all Taxes for which American
Brands is liable pursuant to Section 3.02; (vi) all liability for any reasonable
legal, accounting, appraisal, consulting or similar fees and expenses relating
to the foregoing; and (vii) 50% of the Taxes that would not have been payable
but for the Inland Revenue's denial of relief under para 13, sch. 9 Finance Act
1996 (or successor provision) for corporation tax purposes in respect of its
borrowings of approximately (Pounds)945 million incurred to fund the
Distribution Payment under the New Gallaher Facility; provided, however, that
with respect to subsection (a)(vii) of this Section 3.01, American Brands'
liability for Taxes shall not exceed (Pounds)65 million plus 50% of the Taxes,
if any, incurred by New Gallaher on any payment by American Brands pursuant to
such Section 3.01(a)(vii). Notwithstanding the foregoing and subject to Section
3.01(b) and Section 3.02, American Brands shall not indemnify, defend or hold
harmless any member of the New Gallaher Tax Group from any liability for Taxes
(other than Taxes resulting from the failure of the Reorganization to qualify as
a "reorganization" within the meaning of Section 368(a)(1)(F) of the Code or the
failure of the Distribution to qualify as a transaction described in Section 355
of the Code) attributable to any action taken by any member of the New Gallaher
Tax Group after the Distribution (other than any such action expressly required
or otherwise expressly contemplated by this Agreement, the Distribution
11
<PAGE>
Agreement, the Interim Services Agreement, the Indemnification Agreement or any
other agreement entered into for the purpose of implementing the Distribution or
taken in the ordinary course of business) (a "Buyer Tax Act").
(b) New Gallaher and Gallaher Indemnification. New Gallaher and
-----------------------------------------
Gallaher shall be liable for, and shall indemnify, defend and hold harmless
American Brands, each member of the American Brands Tax Group and each of the
respective stockholders, directors, officers, employees and agents and each of
the heirs, executors, successors, and assigns of any of the foregoing from and
against: (i) all Taxes of any member of the New Gallaher Tax Group (other than
Taxes for which American Brands provides indemnification pursuant to Section
3.01(a)); (ii) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) and any other Tax that would not have been payable
but for the breach by any member of the New Gallaher Tax Group of any
representation, warranty, covenant or obligation under this Agreement; (iii) all
liability for a breach by any member of the New Gallaher Tax Group of any
representation, warranty, covenant or obligation under this Agreement; (iv) all
transfer Taxes and stamp Taxes imposed in connection with the transactions
contemplated by the Distribution Agreement, the Interim Services Agreement, the
Indemnification Agreement or any other agreement entered into for the purpose of
implementing the Distribution, other than those transfer Taxes and stamp Taxes
for which New Gallaher and Gallaher assume responsibility pursuant to Section
2.02; (v) all Taxes for which New Gallaher is liable pursuant to Section 3.02;
(vi) all Taxes arising under the IRS Gain Recognition Agreement; (vii) all Taxes
attributable to a Buyer Tax Act; and (viii) all liability for any reasonable
legal, accounting, appraisal, consulting or similar fees and expenses relating
to the foregoing.
3.02 New Gallaher Tax Group Tax Acts.
-------------------------------
(a) Notwithstanding Section 3.01, New Gallaher and Gallaher agree to
indemnify, defend and hold harmless American Brands, each member of the American
Brands Tax Group and each of the respective stockholders, directors, officers,
employees and agents and each of the heirs, executors, successors, and assigns
of any of the foregoing from and against any Taxes resulting from any
12
<PAGE>
New Gallaher Tax Group Tax Act which causes the Reorganization to fail to
qualify as a "reorganization" within the meaning of Section 368(a)(1)(F) of the
Code or the Distribution to fail to qualify as a transaction described in
Section 355 of the Code. A New Gallaher Tax Group Tax Act shall mean any action
set forth on Schedule 3.02(a) hereof.
(b) New Gallaher shall, and shall cause each member of the New
Gallaher Tax Group to, comply with and take no action inconsistent with the New
Gallaher Tax Representation Letter, unless, pursuant to a favorable ruling
letter obtained from the IRS which is satisfactory to American Brands or in the
opinion of Chadbourne & Parke LLP or other nationally recognized counsel to
American Brands, which opinion shall be satisfactory to American Brands, such
act or omission would not adversely affect the U.S. federal income tax
consequences of the Distribution or Reorganization to American Brands or the
stockholders of American Brands. Notwithstanding Sections 3.01(b)(ii),
3.01(b)(iii) and 3.01(b)(vii), the parties intend that the sole remedy for
breach of the covenants contained in this Section 3.02(b) shall be as set forth
in Section 3.02(a).
(c) Notwithstanding the foregoing, a New Gallaher Tax Group Tax Act
shall not include any transaction or action specifically disclosed or
specifically described in the New Gallaher Tax Representation Letter, the
Distribution Agreement or the Plan of Reorganization (or any agreement or
document included as an exhibit thereto). A New Gallaher Tax Group Tax Act
shall not include any action on the part of American Brands or any member of the
American Brands Tax Group (other than ATIC for the period ATIC is a member of
the New Gallaher Tax Group). American Brands agrees to indemnify and hold New
Gallaher and each member of the New Gallaher Tax Group harmless from and against
any Taxes resulting from the failure of the Distribution to qualify under
Section 355 of the Code or the failure of the Reorganization to qualify as a
"reorganization" within the meaning of Section 368(a)(1)(F) of the Code, except
where such failure is attributable to a New Gallaher Tax Group Tax Act.
3.03 Notice of Indemnity. Whenever a party hereto becomes aware of
-------------------
the existence of an issue raised by any Tax Authority which could reasonably be
expected
13
<PAGE>
to result in a determination that would increase the liability for any Tax of
the other party hereto or any member of its Tax Group for any Tax period or
require a payment hereunder by the other party, such first party shall in good
faith promptly give notice to such other party of such issue. The failure of the
first party to give such notice shall not relieve such other party of its
obligations under this Agreement, except to the extent such other party or a
member of its Tax Group is actually materially prejudiced by such failure to
give notice.
3.04 Indemnification Payments.
------------------------
(a) Time for Payment. Unless otherwise provided in this Agreement,
----------------
any indemnity payment required to be made pursuant to this Agreement shall be
paid within thirty days after the indemnified party makes written demand upon
the indemnifying party, but in no case earlier than five business days prior to
the date on which the relevant Taxes are required to be paid (or would be
required to be paid if no such Taxes are due) to the relevant Tax Authority
(including estimated Tax payments).
(b) Payments Net of Taxes and Tax Benefits. Any payments made by the
--------------------------------------
parties to each other pursuant to this Agreement shall be (i) reduced to take
into account any net Tax benefit realized by the recipient arising from the
incurrence or payment by such recipient of the items giving rise to such
payments hereunder and (ii) increased to take into account any net Tax cost (or,
in the case of a payment under Section 3.01(a)(vii), 50% of such net Tax cost)
incurred by the recipient as a result of the receipt or accrual of payments
hereunder grossed-up for such increase, in each case determined by treating the
recipient as recognizing all other items of income, gain, loss, deduction or
credit before recognizing any item in respect of this Agreement.
(c) Right to Offset. Any party making a payment under this Agreement
---------------
shall have the right to reduce any such payment by any amounts owed to it by the
other party to this Agreement.
14
<PAGE>
ARTICLE IV
----------
COOPERATION AND EXCHANGE OF INFORMATION.
---------------------------------------
4.01 Inconsistent Actions. Each of the parties to this Agreement
--------------------
agrees (i) to, and to cause each of the relevant members of its Tax Group to,
report the Distribution as a transaction described in Section 355 of the Code
and the Reorganization as a reorganization described in Section 368(a)(1)(F) of
the Code on all Tax Returns and other filings, (ii) to use their respective best
efforts to ensure that the Distribution and the Reorganization receive such
treatment for United States federal Tax purposes and (iii) that, unless it has
obtained the prior written consent of the other parties, it (and the members of
its Tax Group) shall not take any action inconsistent with, or fail to take any
action required by, either this Agreement, the Distribution Agreement or the
Plan of Reorganization.
4.02 Ruling Request. Each of the parties hereto represents that
--------------
neither it (nor any of the members of its Tax Group) will take or has any plan
or intention to take any action which is inconsistent with any factual
statements, representations or other similar conditions contained in the Ruling
Request or in the Ruling.
4.03 IRS Gain Recognition Agreement; Notification of Certain
-------------------------------------------------------
Dispositions. New Gallaher shall give American Brands at least sixty days
- ------------
prior written notice in the event that at any time prior to the date which is 10
years after the Distribution Date, New Gallaher directly or indirectly disposes
of all or any portion of the ownership interest in, or all or a substantial
portion of the assets of, Gallaher. Such notice shall describe any such
disposition in sufficient detail to enable American Brands (i) to comply with
the requirements of Section 367 of the Code, applicable regulations thereunder
and the IRS Gain Recognition Agreement and (ii), if applicable, to enter into a
revised IRS Gain Recognition Agreement under Section 367 of the Code and the
applicable regulations thereunder. At the time of the delivery of such notice,
New Gallaher shall provide to American Brands security reasonably satisfactory
to American Brands for the performance of all obligations of New Gallaher and
Gallaher under Section 3.01(b)(vi) and this Section 4.03 of the Tax Allocation
Agreement in respect of the disposition referred to in such notice.
4.04 Cooperation and Exchange of Information. Each party hereto
---------------------------------------
agrees to provide, and to cause each member of its Tax Group to provide such
cooperation and information as such other party shall reasonably request,
15
<PAGE>
on a timely basis, in connection with the preparation or filing of any Tax
Return or claim for Tax refund not inconsistent with this Agreement or in
conducting any Tax audit, Tax dispute, or otherwise in respect to Taxes or to
carry out the provisions of this Agreement.
4.05 Tax Records.
-----------
(a) American Brands, New Gallaher and Gallaher agree to (and to cause
each member of their respective Tax Group to) (i) retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
as required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto existing on the date hereof or created through the
Distribution Date, for a period of at least 10 years following the Distribution
Date and (ii) allow the parties to this Agreement, at times and dates reasonably
acceptable to the retaining party, to inspect, review and make copies of such
records, as American Brands, New Gallaher and Gallaher may reasonably deem
necessary or appropriate from time to time. In addition, after the expiration
of such ten-year period, such Tax Returns, related schedules and workpapers, and
material records shall not be destroyed or otherwise disposed of at any time,
unless, prior to such destruction or disposal, (a) the party proposing to
destroy or otherwise dispose of such records shall provide no less than 30 days'
prior written notice to the other, specifying in reasonable detail the records
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the records proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such requested records at
the expense of the party requesting such records.
(b) Notwithstanding anything in this Agreement to the contrary, if any
party fails to comply with the requirements of Section 4.05(a), the party
failing so to comply shall be liable for, and shall hold the other party or
parties, as the case may be, harmless from, any Taxes (including without
limitation, penalties for failure to comply with the record retention
requirements of the Code) and other costs resulting from such party's failure to
comply.
16
<PAGE>
ARTICLE V
---------
MISCELLANEOUS
-------------
5.01 Complete Agreement; Construction. This Agreement, the
--------------------------------
Distribution Agreement, the Interim Services Agreement, the Indemnification
Agreement, including any schedules and exhibits hereto or thereto, and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments, drafts, agreements,
undertakings, arrangements of any nature, whether oral or written with respect
to such subject matter. Notwithstanding any other provisions in this Agreement
to the contrary, in the event and to the extent that there shall be a conflict
relating to Taxes between the provisions of this Agreement and the provisions of
the Distribution Agreement, the Interim Services Agreement, the Indemnification
Agreement or any other agreement entered into for the purpose of implementing
the Distribution, the provisions of this Agreement shall control.
5.02 Effectiveness. All covenants and agreements of the parties
contained in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.
5.03 Survival of Agreements. Except as otherwise contemplated by
----------------------
this Agreement, all covenants, conditions and agreements of the parties
contained in this Agreement shall remain in full force and effect and shall
survive the Distribution Date.
5.04 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the principles of conflicts of laws thereof.
5.05 Notices. All notices, requests, claims, demands and other
-------
communications hereunder required or permitted to be given shall be in writing
and shall be delivered by hand or sent by prepaid cable or telecopy or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service, and
17
<PAGE>
shall be deemed given when so delivered by hand, cable or telecopied, or if
mailed, ten days after mailing (two business days in the case of express mail or
overnight courier service) as follows:
If to American Brands:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: General Counsel
Telephone: (203) 698-5000
Facsimile: (203) 698-5172
With a copy to:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
Telephone: (203) 698-5000
Facsimile: (203) 698-5197
If to New Gallaher or Gallaher:
Gallaher Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Group Legal Adviser
Telephone: 011-44-1932-832-534
Facsimile: 011-44-1932-832-536
With a copy to:
Gallaher Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Company Secretary
Telephone: 011-44-1932-859-777
Facsimile: 011-44-1932-832-536
18
<PAGE>
or to such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein.
5.06 Consent to Jurisdiction. Each of the parties hereto irrevocably
-----------------------
submits to the exclusive jurisdiction of (a) the Supreme Court of the State of
New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties hereto agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Supreme Court of the
State of New York, New York County. Each of the parties further agrees that
service of any process, summons, notice or document by hand delivery or U.S.
registered mail to such party's respective address set forth in Section 5.04
shall be effective service of process for any action, suit or proceeding brought
against any such party in such court. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
5.07 Modifications or Amendments. This Agreement may not be modified
---------------------------
or amended except by an agreement in writing signed by the parties.
5.08 Successors and Assigns. The rights and benefits under this
----------------------
Agreement may not be assigned and duties and obligations may not be delegated by
any party in whole or in part without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed. This
Agreement and all of the provisions hereof shall be binding upon and inure
19
<PAGE>
to the benefit of the parties and their respective successors and permitted
assigns.
5.09 Termination. This Agreement may be terminated and the
-----------
Distribution abandoned at any time on or prior to the Distribution Date by and
in the sole discretion of the Board without the approval of New Gallaher,
Gallaher or of American Brands' stockholders. In the event of such termination,
no party shall have any liability of any kind to any other party on account of
such termination.
5.10 No Third Party Beneficiaries. Except for the provisions of
----------------------------
Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
American Brands or New Gallaher or of any American Brands or New Gallaher
subsidiary) any remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
5.11 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
5.12 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
5.13 No Waivers. No failure or delay by any party hereto to take any
----------
action or assert any right hereunder shall be deemed to be a waiver of such
right in the event of the continuation or repetition of the circumstances giving
rise to such right, unless expressly
20
<PAGE>
waived in writing by the party against whom the existence of such waiver is
asserted.
5.14 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.15 Performance. Each party hereto shall cause to be performed, and
-----------
hereby guarantees the performance of, all actions, agreements and obligations
set forth herein to be performed by any subsidiary or any member of such party's
Tax Group.
5.16 Rights. The rights, powers, privileges and remedies provided in
------
this Agreement are cumulative and are not exclusive of any rights, powers,
privileges or remedies provided by law or otherwise. No single or partial
exercise of any right, power, privilege or remedy under this Agreement shall
prevent any further or other exercise thereof or the exercise of any other
right, power, privilege or remedy.
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
AMERICAN BRANDS, INC.
By: /s/ Gilbert L. Klemann, II
--------------------------
Name: Gilbert L. Klemann, II
Title: Senior Vice Pesident
and General Counsel
GALLAHER GROUP PLC
By: /s/ C.T. Fielden
--------------------------
Name: C.T. Fielden
Title: Director
GALLAHER LIMITED
By: /s/ N.P. Bulpitt
--------------------------
Name: N.P. Bulpitt
Title: Director and Secretary
22
<PAGE>
EXHIBIT 99.4
INTERIM SERVICES AGREEMENT
INTERIM SERVICES AGREEMENT (this "Agreement"), dated as of May 8,
1997, between AMERICAN BRANDS, INC., a Delaware corporation ("Parent"), and
GALLAHER GROUP LIMITED, an English private limited company and, as of the date
hereof, a direct wholly-owned subsidiary of Parent ("New Gallaher").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Board of Directors of Parent has determined that it is
appropriate and desirable to distribute all outstanding New Gallaher Ordinary
Shares (as defined in the Distribution Agreement) on a pro rata basis to the
holders of Parent's common stock (the "Distribution") pursuant to a Distribution
Agreement, dated as of May 8, 1997 (the "Distribution Agreement"), by and among
Parent, ATIC Group, Inc., a Delaware corporation and wholly-owned subsidiary of
Parent, New Gallaher and Gallaher Limited, an English private limited company
and, as of the date hereof, an indirect wholly-owned subsidiary of Parent
("Gallaher");
WHEREAS, the parties hereto deem it to be appropriate and in the best
interests of Parent and New Gallaher that Parent and New Gallaher, respectively,
provide or shall procure the provision of certain services to New Gallaher and
Parent, respectively, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereto hereby agree as follows:
1. Description of Parent Services. Subject to and conditional upon
------------------------------
the Distribution (as defined in the Distribution Agreement) becoming effective,
Parent shall, subject to the terms and provisions of this Agreement, provide to
New Gallaher or a Subsidiary or Affiliate (as such terms are defined in the
Distribution Agreement) of New Gallaher, or procure the provision to New
Gallaher or a
<PAGE>
Subsidiary or Affiliate of New Gallaher of, those services described in Exhibit
A hereto (the "Parent Services"). New Gallaher may, at its option, upon not less
than thirty (30) days prior written notice (or such other period provided in
Exhibit A for a particular service or as the parties may otherwise mutually
agree in writing), direct Parent to no longer provide or procure the provision
of all or any category of such services.
2. Provision of Parent Services.
-----------------------------
(a) Parent shall be responsible for ensuring that it complies with all
applicable statutes, regulations and laws relevant to the provision of the
Parent Services.
(b) For the avoidance of doubt, it is acknowledged that, subject to
its obligations to Parent under the provisions of this Agreement, New Gallaher
shall be free at any time (and without obligation to notify or inform Parent) to
arrange for any service identical to or similar to the Parent Services to be
provided to it by any person whatsoever.
(c) Parent shall exercise reasonable care to ensure that the manner in
which it performs or provides the Parent Services does not have any adverse
effect on the name, trading image, goodwill or business of New Gallaher or any
member of the New Gallaher Group (as defined in the Distribution Agreement).
(d) New Gallaher shall provide Parent with such advice, assistance and
information in connection with the performance of the Parent Services as Parent
may from time to time reasonably require. New Gallaher and Parent shall also
liaise as appropriate to ensure that the Parent Services are carried out in
accordance with the provisions of Exhibit A hereto and where reasonably
practicable, Parent shall comply with any instructions that New Gallaher shall
reasonably issue from time to time concerning the methods of operation by which
the Parent Services shall be provided to New Gallaher.
(e) New Gallaher and Parent shall each use reasonable best efforts to
keep each other informed of any special requirements applicable to the carrying
out of the Parent Services. To the extent reasonably necessary and
2
<PAGE>
appropriate Parent shall promptly take steps where reasonably practicable to
comply with such special requirements. In the event that these steps shall
result in any increase or reduction in the actual cost to Parent of providing
the relevant Parent Services then the fees payable pursuant to Section 3 below
shall be increased or reduced accordingly.
3. Consideration for Parent Services. New Gallaher shall pay Parent
---------------------------------
in accordance with Sections 7 and 8 of this Agreement and Parent shall accept as
consideration for the services to be rendered to New Gallaher hereunder the
charges set forth on Exhibit A.
4. Description of New Gallaher Services. New Gallaher shall, subject
------------------------------------
to the terms and provisions of this Agreement, provide to Parent or a Subsidiary
or Affiliate (as such terms are defined in the Distribution Agreement) of
Parent, or procure the provision to Parent or a Subsidiary or Affiliate of
Parent of, those services described on Exhibit B hereto (the "New Gallaher
Services"). Parent may, at its option, upon not less than thirty (30) days
prior written notice (or such other period provided in Exhibit B for a
particular service or as the parties may otherwise mutually agree in writing),
direct New Gallaher to no longer provide or procure the provision of all or any
category of such services.
5. Provision of New Gallaher Services.
-----------------------------------
(a) New Gallaher shall be responsible for ensuring that it complies
with all applicable statutes, regulations and laws relevant to the provision of
the New Gallaher Services.
(b) For the avoidance of doubt, it is acknowledged that, subject to
its obligations to New Gallaher under the provisions of this Agreement, Parent
shall be free at any time (and without obligation to notify or inform New
Gallaher) to arrange for any service identical to or similar to the New Gallaher
Services to be provided to it by any person whatsoever.
3
<PAGE>
(c) New Gallaher shall exercise reasonable care to ensure that the
manner in which it performs or provides the New Gallaher Services does not have
any adverse effect on the name, trading image, goodwill or business of Parent or
any member of Parent Group (as defined in the Distribution Agreement).
(d) Parent shall provide New Gallaher with such advice, assistance and
information in connection with the performance of the New Gallaher Services as
New Gallaher may from time to time reasonably require. Parent and New Gallaher
shall also liaise as appropriate to ensure that the New Gallaher Services are
carried out in accordance with the provisions of Exhibit B hereto and where
reasonably practicable New Gallaher shall comply with any instructions that
Parent shall reasonably issue from time to time concerning the methods of
operation by which the New Gallaher Services shall be provided to Parent.
(e) Parent and New Gallaher shall each use reasonable best efforts to
keep each other informed of any special requirements applicable to the carrying
out of the New Gallaher Services. To the extent reasonably necessary and
appropriate New Gallaher shall promptly take steps where reasonably practicable
to comply with such special requirements. In the event that these steps shall
result in any increase or reduction in the actual cost to New Gallaher of
providing the relevant New Gallaher Services then the fees payable pursuant to
Section 6 below shall be increased or reduced accordingly.
6. Consideration for New Gallaher Services. Parent shall pay to New
---------------------------------------
Gallaher in accordance with Sections 7 and 8 of this Agreement and New Gallaher
shall accept as consideration for the services to be rendered to Parent
hereunder the charges set forth on Exhibit B.
7. Terms of Payment. Each party shall submit in writing an invoice
----------------
covering its charges to the other party for services rendered hereunder. Such
invoice shall be submitted on a monthly basis and shall contain a summary
description of the charges and services rendered. Payment shall be made not
later than thirty (30) days after the invoice date. Except as otherwise
provided in this Agreement, the amount of any monthly service fee shall be
4
<PAGE>
pro-rated in the event that the corresponding services were provided for only a
portion of a given month.
8. Method of Payment. All amounts payable by New Gallaher for the
-----------------
services described on Exhibit A shall be remitted to Parent in United States
dollars to a bank to be designated in the invoice or otherwise in writing by
Parent, unless otherwise provided for and agreed upon in writing by the parties.
All amounts payable by Parent for the services described on Exhibit B shall be
remitted to New Gallaher in English pounds to a bank to be designated in the
invoice or otherwise in writing by New Gallaher, unless otherwise provided for
and agreed upon in writing by the parties. Detailed billing information will be
provided upon request.
9. Taxes. All amounts expressed in this Agreement as being payable
-----
by Parent or New Gallaher are expressed exclusive of any value added tax or
other similar Tax (as defined in the Distribution Agreement) which may be
properly chargeable thereon.
10. WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY
----------
STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS WARRANTIES OR GUARANTIES AND
THERE ARE NO IMPLIED WARRANTIES OR GUARANTIES, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS FOR A PARTICULAR
PURPOSE.
11. Limitation on Liability.
------------------------
(a) In no event shall either party have any liability, whether based
on contract, tort (including, without limitation, negligence), warranty or any
other legal or equitable grounds, for any punitive, consequential, special,
indirect or incidental loss or damage suffered by the other party or any of
their respective Subsidiaries or Affiliates (as such terms are defined in the
Distribution Agreement) arising from or related to this Agreement, including
without limitation, loss of data, profits (excluding profits under this
Agreement), interest or revenue, or use or interruption of business, even if
such party is advised of the possibility of such losses or damages.
5
<PAGE>
(b) The limitations set forth in Section 11(a) above shall not apply
to liabilities which may arise as the result of fraud, willful misconduct, bad
faith, gross negligence or willful default of Parent, New Gallaher or anyone
performing services on their behalf pursuant to this Agreement, or the reckless
disregard or breach by Parent or New Gallaher of its obligations and duties
contained in or arising as a result of or in connection with this Agreement.
12. Termination. This Agreement shall terminate on completion of all
-----------
Parent Services and New Gallaher Services, but may be terminated earlier in
accordance with the following:
(a) upon the mutual written agreement of the parties;
(b) by either New Gallaher or Parent for material breach of any
of the terms hereof by Parent or New Gallaher, as the case may be, if the
breach is capable of being remedied and is not corrected within thirty (30)
calendar days after written notice of the breach has been delivered to the
defaulting party; provided that if the breach is not capable of being
--------
remedied, the Agreement may be terminated immediately; provided, further,
that such termination shall only apply to those services in respect of
which the defaulting party is in material breach and shall be without
prejudice to the provision or receipt of all other Parent Services and New
Gallaher Services pursuant to this Agreement which shall remain in full
force and effect notwithstanding such termination;
(c) by either New Gallaher or Parent forthwith, upon written
notice to Parent or New Gallaher, as the case may be, if Parent or New
Gallaher, as the case may be, shall become insolvent or shall make an
assignment for the benefit of creditors, or shall be placed in
receivership, reorganization, liquidation whether compulsory or voluntary
(except for the purposes of a bona fide reconstruction or amalgamation with
the consent of the other party, such consent not to be unreasonably
withheld or delayed) or bankruptcy;
6
<PAGE>
(d) by Parent forthwith, upon written notice to New Gallaher, if,
for any reason, the ownership or control of New Gallaher, Gallaher or any
of their respective business operations which receive or provide services
under this Agreement, becomes vested in, or is made subject to the control
or direction of, any direct competitor of Parent's consumer products
businesses, or any governmental or regulatory authority; provided, however,
-------- -------
that termination in the event of a change of ownership or control of a
business operation of New Gallaher or Gallaher shall only apply to the
services received by or provided to such business operation and shall be
without prejudice to the provision or receipt of all other Parent Services
and New Gallaher Services pursuant to this Agreement which shall remain in
full force and effect notwith-standing termination of the provision of
Parent Services or New Gallaher Services to such business operation; or
(e) by New Gallaher forthwith, upon written notice to Parent, if
for any reason, the ownership or control of Parent or any of its business
operations which receive or provide services under this Agreement, becomes
vested in, or is made subject to the control or direction of, any direct
competitor of New Gallaher, or any governmental or regulatory authority;
provided, however, that termination in the event of a change of ownership
-------- -------
or control of a business operation of Parent shall only apply to the
services received by or provided to such business operation and shall be
without prejudice to the provision or receipt of all other Parent Services
and New Gallaher Services pursuant to this Agreement which shall remain in
full force and effect notwith-standing termination of the provision of
Parent Services or New Gallaher Services to such business operation.
13. Consequences of Termination. Upon termination of this Agreement
---------------------------
in accordance with Section 12:
7
<PAGE>
(a) each party shall be compensated for all services performed up to
and including the date of termination in accordance with the provisions of
this Agreement;
(b) any rights or obligations to which any of the parties to this
Agreement may be entitled or be subject to before such termination shall
remain in full force and effect; and
(c) termination shall not affect or prejudice any right to damages or
other remedy which the terminating party may have in respect of the event
which gave rise to the termination or any other right to damages or other
remedy which any party may have in respect of any breach of this Agreement
which existed at or before the date of termination.
14. Term. This Agreement shall be effective from and after the
----
Distribution Date (as defined in the Distribution Agreement) until terminated in
accordance with Section 12 hereof.
15. Amendment. This Agreement may be modified or amended only by the
---------
agreement of the parties hereto in writing, duly executed by the authorized
representatives of each party.
16. Force Majeure.
-------------
(a) Any delays in or failure of performance by any party hereto, other
than the payment of money, shall not constitute a default hereunder if and to
the extent such delays or failures of performance are caused by occurrences not
reasonably foreseeable at the date of this Agreement and which are beyond the
reasonable control of such party ("Force Majeure"), including, but not limited
to: acts of God; expropriation or confiscation of facilities; compliance with
any order or request of any governmental authority; acts of war; riots or
strikes or other concerted acts of personnel; or any causes, whether or not of
the same class or kind as those specifically named above, which are not within
the reasonable control of such party, and which by the exercise of reasonable
diligence, such party is unable to prevent.
8
<PAGE>
(b) If and to the extent that either party is prevented or delayed by
Force Majeure from performing any of its obligations under this Agreement and
promptly so notifies the other party, specifying the matters constituting Force
Majeure together with such evidence in verification thereof as it can reasonably
give and specifying the period for which it is estimated that the prevention or
delay will continue, then the party so affected shall be relieved of liability
to the other party for failure to perform or for delay in performing such
obligations (as the case may be) and shall not be in breach of the terms and
conditions of this Agreement as a result of such failure or delay, but shall
nevertheless use its reasonable best efforts to resume full performance thereof
as soon as possible; provided, however, that:
-------- -------
(i) if the Force Majeure continues for a period of two months or
more following notification, the party not affected by the Force
Majeure may terminate the provision or receipt of the services
affected by the Force Majeure by giving not less than 30 days prior
notice to the other party, without prejudice to the provision or
receipt of all other Parent Services and New Gallaher Services
pursuant to this Agreement which shall remain in full force and effect
notwithstanding such termination; and
(ii) if the Force Majeure continues for a period of two months or
more following notification and is such that the party affected by the
Force Majeure is prevented or delayed from performing all or a
substantial part of its obligations under this Agreement, the party
not affected by the Force Majeure may terminate this Agreement by
giving not less than 30 days prior notice to the other party;
provided, further, that a notice of termination given under
- -------- -------
Section 16(b)(i) or (ii) shall be of no effect if the party affected by the
Force Majeure resumes full performance of its obligations before the expiration
of such notice period.
17. Assignment. This Agreement and all of the provisions hereof
----------
shall not be assignable by either party hereto without the prior written consent
of the other party
9
<PAGE>
hereto (which consent shall not be unreasonably withheld or delayed). This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns.
18. Notices. All notices, requests, claims, demands and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be delivered by hand or sent by prepaid cable or telecopy or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, cabled or
telecopied, or if mailed, ten days after mailing (two business days in the case
of express mail or overnight courier service), as follows:
If to Parent:
Mr. Louis F. Fernous, Jr.
Vice President and
Secretary
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Telephone: (203) 698-5000
Facsimile: (203) 698-5197
With a copy to
Gilbert L. Klemann, II, Esq.
Senior Vice President and
General Counsel
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Telephone: (203) 698-5000
Facsimile: (203) 698-5172
10
<PAGE>
If to New Gallaher:
Mr. Nigel P. Bulpitt
Company Secretary
Gallaher Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Telephone: 011-44-1932-859-777
Facsimile: 011-44-1932-832-536
With a copy to
Christopher T. Fielden, Esq.
Group Legal Advisor
Gallaher Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Telephone: 011-44-1932-832-534
Facsimile: 011-44-1932-832-536
19. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the state of New York applicable to
contracts made and to be performed entirely within such state, without regard to
the principles of conflicts of laws thereof.
20. Relationship of the Parties. Nothing in this Agreement shall
---------------------------
constitute a partnership between the parties. Each party hereto is an
independent contractor and not an agent or employee of the other party. Neither
party shall have the authority or right to make any statements, representations,
warranties or commitments of any kind, incur any liability or assume any
obligation of any kind or to take any action which shall be binding on the other
party, except as may be explicitly provided for in this Agreement or authorized
in writing by the other party.
11
<PAGE>
21. Liability for Acts and Omissions of Others. Any act or omission
------------------------------------------
of any subsidiary, employee, director, officer, contractor, representative or
agent of Parent or New Gallaher involved in the performance of this Agreement
shall be considered in relation to this Agreement as an act or omission of
Parent or New Gallaher (as appropriate).
22. Subcontracting.
--------------
(a) Either party may subcontract or delegate the performance of all or
any of its duties and obligations under this Agreement to any person without the
prior consent of the other party, provided that the subcontracting party shall
--------
use reasonable skill and care in selecting such subcontractors or delegates and
shall so far as is possible ensure that they are experienced and competent in
relation to their respective duties and obligations.
(b) Any party who subcontracts or delegates any of its duties and
obligations in accordance with this Section 22 shall be responsible for every
act or omission of the subcontractor or delegate as if it were an act or
omission of the party itself.
23. Cooperation after the Distribution. If, following the
----------------------------------
Distribution Date (as defined in the Distribution Agreement), it shall come to
the notice of Parent or New Gallaher that any service or facility provided by
the other or any of its Subsidiaries or Affiliates (as such terms are defined in
the Distribution Agreement) prior to the Distribution Date to or for it or any
of its Subsidiaries or Affiliates and not covered hereby is not being performed
or made available after the Distribution Date and such party considers that the
relevant service or facility is necessary or desirable for the effective
operation of its business, it may notify the other party giving full details of
the relevant service or facility and the parties shall cooperate and negotiate
in good faith to the extent reasonably practicable with a view to such service
or facility being provided on reasonable commercial terms.
24. Construction. In this Agreement:
---------------------------------
(a) references to an "Exhibit" are, unless otherwise specified,
references to one of the Exhibits attached to this Agreement, and references to
a "Section"
12
<PAGE>
are, unless otherwise specified, references to one of the Sections of this
Agreement and references to a "sub-section" are, unless the context otherwise
requires, references to the section in which the reference appears;
(b) each of the Exhibits shall have effect as if set out in this
Agreement and references to this Agreement shall include each of the Exhibits;
(c) in the event of and to the extent that there shall be any conflict
between the provisions of this Agreement and the provisions of the Exhibits, the
provisions of the Exhibits shall take precedence notwithstanding any other
provision of this Agreement to the contrary; and
(d) references to The Whyte & Mackay Group Plc shall also include
references to JBB (Greater Europe) Plc and vice versa.
25. Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
26. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
27. No Waivers. No failure or delay by any party hereto to take any
----------
action or assert any right hereunder shall be deemed to be a waiver of such
right in the event of the continuation or repetition of the circumstances giving
rise to such right, unless expressly waived in writing by the party against whom
the existence of such waiver is asserted.
28. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13
<PAGE>
29. Rights. The rights, powers, privileges and remedies provided in
------
this Agreement are cumulative and are not exclusive of any rights, powers,
privileges or remedies provided by law or otherwise. No single or partial
exercise of any right, power, privilege or remedy under this Agreement shall
prevent any further or other exercise thereof or the exercise of any other
right, power, privilege or remedy.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
AMERICAN BRANDS, INC.
By: /s/ Gilbert L. Klemann, II
--------------------------------
Name: Gilbert L. Klemann, II
Title: Senior Vice President
and General Counsel
GALLAHER GROUP LIMITED
By: /s/ C.T. Fielden
--------------------------------
Name: C.T. Fielden
Title: Director
14
<PAGE>
EXHIBIT 99.5
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (this "Agreement") dated as of May 8, 1997
among AMERICAN BRANDS, INC., a Delaware corporation ("Parent"), ATIC GROUP,
INC., a Delaware corporation and, as of the date hereof, a direct wholly-owned
subsidiary of Parent ("ATIC"), GALLAHER GROUP LIMITED, an English private
limited company and, as of the date hereof, a direct wholly-owned subsidiary of
Parent ("New Gallaher"), and GALLAHER LIMITED, an English private limited
company and, as of the date hereof, an indirect wholly-owned subsidiary of
Parent ("Gallaher"). (ATIC, New Gallaher and Gallaher are herein sometimes
referred to individually as an "Indemnitor" and collectively as "Indemnitors".)
W I T N E S S E T H :
---------------------
WHEREAS, Parent, ATIC, New Gallaher and Gallaher have entered into a
Distribution Agreement dated as of May 8, 1997 (the "Distribution Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the willingness of the parties to the Distribution
Agreement to consummate the Distribution (as defined in the Distribution
Agreement); and
WHEREAS, each Indemnitor will benefit from, and therefore desires to
facilitate the consummation of, the transactions contemplated by the
Distribution Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements, provisions and covenants contained in this Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Indemnification. Subject to and conditioned upon the Distribution
---------------
(as defined in the Distribution Agreement) becoming effective, the Indemnitors
agree, jointly and severally, to indemnify Parent, its affiliates and each of
their respective officers, directors, employees, stockholders, agents,
representatives, successors and assigns, against and hold
<PAGE>
them harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by any such indemnified
party arising from (i) any claim, investigation or proceeding alleging personal
injury, (ii) any claim, investigation or proceeding alleging fraud or (iii) any
other claim, investigation or proceeding, in the case of each of clauses (i),
(ii) and (iii), arising from smoking and health or fire-safe cigarette matters
relating to the tobacco business of Gallaher or any of its predecessors, present
or former subsidiaries, joint ventures or minority owned enterprises, including,
without limitation, any such matter arising from or related to the development,
manufacture, packaging, labeling, production, delivery, sale, resale,
distribution, advertising, marketing, promotion, use or consumption of, or
exposure to (whether occurring before, on or after the date hereof), any tobacco
products of Gallaher or any of its predecessors or research in respect of
smoking and health or fire-safe cigarette matters.
2. Procedures Relating to Indemnification Claims. (a) If any person
---------------------------------------------
(the "indemnified party") entitled to indemnification under this Agreement
should have a claim against any Indemnitor under this Agreement, the indemnified
party shall deliver notice of such claim with reasonable promptness to New
Gallaher, as the representative of the Indemnitors. The failure by any
indemnified party so to notify New Gallaher shall not relieve the Indemnitors
from any liability which they may have to such indemnified party under this
Agreement, except to the extent that the Indemnitors shall have been actually
prejudiced as a result of such failure (except that the Indemnitors shall not be
liable for any expenses incurred during the period in which the indemnified
party failed to give such notice).
(b) If a claim for indemnification hereunder relates to an action,
suit, investigation or proceeding against or involving the indemnified party,
New Gallaher shall assume the defense thereof with counsel selected by New
Gallaher. From and after the time that New Gallaher assumes the defense of such
matter, the Indemnitors shall not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with such
defense. The indemnified party shall have the right to employ counsel, at its
own expense, separate from the counsel employed by the
2
<PAGE>
Indemnitors, but such counsel shall not have any right to participate in the
defense of such claim and New Gallaher shall control such defense in all
respects but Parent and such counsel shall have the right to be kept fully
informed of the progress of such defense. The Indemnitors shall be liable for
the fees and expenses of counsel employed by the indemnified party for any
period during which New Gallaher has failed to assume the defense of such matter
(other than during any period in which the indemnified party shall have failed
to give notice of the matter to the Indemnitors as provided herein). The
indemnified party shall not unreasonably withhold or delay its consent to any
settlement, compromise or discharge of such matter which New Gallaher may
recommend. The indemnified party shall not settle, compromise or discharge any
claim covered by this Agreement without the prior written consent of the
Indemnitors.
(c) The indemnified party shall cooperate with the Indemnitors in
their defense of any matter covered by this Agreement, at the expense (including
reasonable legal fees and expenses) of the Indemnitors. Without limiting the
generality of the foregoing, the indemnified party shall, at the expense
(including reasonable legal fees and expenses) of the Indemnitors, (i) provide
or cause to be provided to the Indemnitors with such information and assistance
as any Indemnitor may reasonably request to defend any matter covered hereby,
including without limitation in the case of Parent, the assistance of officers
and employees of Parent and, to the extent that Parent is reasonably able to
cause it to be provided, the assistance of directors, agents and others acting
on behalf of Parent, when reasonably considered necessary by any Indemnitor to
defend such matter, (ii) supply with reasonable promptness to the Indemnitors
copies of all correspondence and documents relating to or in connection with
such claim received or transmitted by the indemnified party and (iii) take or
cause to be taken such action as the Indemnitors may reasonably require to
defend a claim covered hereby. Except as required by law or legal process,
Parent shall not, and, to the extent within Parent's reasonable control, shall
not permit any of its affiliates, officers, directors, employees, agents or
others acting on its behalf to, take any action or make any admission which
adversely affects or could reasonably be foreseen to adversely affect the
defense of any matter covered
3
<PAGE>
hereby or that could reasonably be foreseen to be covered hereby and shall not,
and shall not permit any of its affiliates, officers, directors, employees,
agents or others acting on its behalf to, make any adverse public statement
regarding any such matters.
(d) If an indemnified party shall have received full payment (an
"Indemnity Payment") required by this Agreement from an Indemnitor in respect of
any indemnifiable losses and shall subsequently actually receive proceeds of any
insurance policies or other amounts in respect of such indemnifiable losses,
then such indemnified party shall pay to such Indemnitor a sum equal to the
amount actually received (net of increased insurance premiums and charges
related directly and solely to such indemnifiable losses and any expenses
(including reasonable attorneys fees and expenses) incurred by such indemnified
party in connection with seeking to collect such insurance proceeds or other
amounts, and up to but not in excess of the amount of any Indemnity Payment made
hereunder). The parties acknowledge that an indemnified party shall not be
required to seek recovery of any proceeds of insurance policies. An insurer who
would otherwise be obligated to pay any claim shall not be relieved of such
responsibility, or have any subrogation rights with respect thereto, solely by
virtue of the indemnification provisions hereof, it being expressly understood
and agreed that no insurer or any other third party shall be entitled to any
benefit they would not be entitled to receive in the absence of the
indemnification provisions hereof.
(e) In determining the amount of any indemnifiable losses, such amount
shall be (i) reduced to take into account any net Tax (as defined in the Tax
Allocation Agreement between Parent, New Gallaher and Gallaher) benefit realized
by the indemnified party arising from the incurrence or payment by the
indemnified party of such indemnifiable losses and (ii) increased to take into
account any net Tax cost incurred by the indemnified party as a result of the
receipt or accrual of payments hereunder (grossed-up for such increase), in each
case determined by treating the indemnified party as recognizing all other items
of income, gain, loss, deduction or credit before recognizing any item arising
from such indemnifiable losses.
4
<PAGE>
3. Representations and Warranties of the Indemnitors. The
-------------------------------------------------
Indemnitors jointly and severally represent and warrant to Parent as follows:
(a) New Gallaher is a company incorporated and existing in England
under the Companies Act 1985, Gallaher is a company incorporated and existing in
England under the Companies Act 1948 to 1980 and ATIC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each Indemnitor has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. All
corporate acts and other proceedings required to be taken by each Indemnitor to
authorize the execution, delivery and performance of this Agreement have been
duly and properly taken. This Agreement has been duly executed and delivered
by each Indemnitor and constitutes a legal, valid and binding obligation of such
Indemnitor enforceable against it in accordance with its terms, subject to the
qualification, however, that enforcement of the rights and remedies created
hereby is subject to bankruptcy and other similar laws of general application
relating to or affecting the rights and remedies of creditors and that the
remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
(b) The execution and delivery of this Agreement by each Indemnitor
does not, and compliance with the terms hereof will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation to any person under, or to increased, additional,
accelerated or guaranteed rights or entitlements of any person under, or result
in the creation of any lien, claim, encumbrance, security interest, option,
charge or restriction of any kind upon any of the properties or assets of it
under, any provision of (i) its articles and memorandum of association, (ii) any
material notice, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which it is a party or by
which any of its properties or assets are bound or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to it or its
properties or assets, other than, in the case of clause
5
<PAGE>
(ii) above, any such items that, individually or in the aggregate, would not
have a material adverse effect on the ability of it to perform its obligations
hereunder. No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any government or any court of
competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required to
be obtained or made by or with respect to each Indemnitor or any of its
affiliates in connection with the execution, delivery and performance of this
Agreement by it. Parent acknowledges that it is aware of the terms of the
various contracts which have been or will be entered into by the Indemnitors in
conneciton with the Distribution Agreement and transactions associated
therewith, including those material contracts set forth in the Listing
Particulars prepared for the introduction of ordinary shares of Gallaher Group
Plc to the official list of the London Stock Exchange.
4. Covenants of the Indemnitors. The Indemnitors jointly and
----------------------------
severally agree as follows:
(a) Subject to Section 4(b), each Indemnitor will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence in accordance with its respective organizational documents
and all laws applicable to the maintenance of its corporate existence; provided
that ATIC may liquidate and dissolve as provided in the Distribution Agreement.
(b) An Indemnitor shall not consolidate with or merge into any other
person unless (i) the person formed by such consolidation or into which the
Indemnitor is merged shall be duly organized and existing under the laws of the
jurisdiction of its organization and shall expressly assume, by an instrument
supplemental hereto, executed and delivered to Parent prior to or
contemporaneously with the consummation of such transaction, the performance of
the obligations of the Indemnitor under this Agreement; and (ii) prior to and
immediately after giving effect to such transaction, the Indemnitor shall not be
in default in any material respect of its obligations under this Agreement.
(c) With the exception of bona fide charitable contributions, an
Indemnitor shall not license, convey or transfer any assets on other than
commercially reasonable, arm's length terms.
(d) An Indemnitor shall not convey or transfer, or cause to be
conveyed or transferred, any portion of the "brand assets" of the Indemnitor,
consisting of existing and future trademarks, trade
6
<PAGE>
names, package dress, blends and know-how, to any person or persons, unless (i)
the person or persons acquiring such brand assets by conveyance or transfer
shall be duly organized and existing under the laws of the jurisdiction of its
organization and shall have expressly assumed, by an instrument supplemental
hereto, executed and delivered to Parent prior to or contemporaneously with the
consummation of such transaction, the performance of the obligations of the
Indemnitor under this Agreement in respect of any existing or future liability
arising out of or in any way associated with the brand assets being conveyed or
transferred; and (ii) prior to and immediately after giving effect to such
transaction, the Indemnitor shall not be in default in any material respect of
its obligations under this Agreement. The restrictions set forth in this Section
4(d) shall also apply to the conveyance or transfer of the shares of a more than
50% owned subsidiary that directly or indirectly owns such brand assets, but
shall not apply to conveyances or transfers of brand assets that are or were
used exclusively in connection with a tobacco product brand "house" or franchise
that, at the time of such conveyance or transfer, represents less than 0.5% of
the unit volume of the Indemnitor in the U.K. in respect of such tobacco product
or to the conveyance or transfer of the shares of a subsidiary that directly or
indirectly owns such brand assets and no other brand assets. For purposes
hereof, it is expressly acknowledged that the name of the manufacturer of a
tobacco product, when used as such and not as a trademark element, is not of
itself an indication of a single brand "house" or franchise.
(e) An Indemnitor shall not license, or cause to be licensed, to any
person or persons any U.K. cigarette brand asset that is or was used in
connection with a brand "house" or franchise representing more than twenty
percent of the Indemnitors' collective cigarette unit sales in the U.K. at the
time of such license, unless the Indemnitor shall have complied with the
provisions of Section 4(g). The provisions of this Section 4(e) shall not apply
to licenses of trademarks or trade names outside the U.K., European Union,
European Economic Area, European Free Trade Association and countries otherwise
subject to the free movement of goods principles as established under the Treaty
of Rome, or of package dress, blends and know-how incidental to such trademarks
or trade names wherever situate.
7
<PAGE>
(f) Except for (i) transactions in the ordinary course of business
(including bona fide charitable contributions); (ii) transactions the proceeds
of which are reinvested in the business of the Indemnitor; or (iii) the payment
of dividends or share purchases or redemptions out of "profits available for
distribution", as currently defined in the Companies Act of 1985; an Indemnitor
shall not convey or transfer, or cause to be conveyed or transferred, in one or
a series of transactions in any period of ten years, an aggregate of more than
25% in market value of the business or assets (including brand assets) of the
Indemnitor, unless the Indemnitor shall have complied with the provisions of
Section 4(g). For purposes of this Section 4(f) the value of the businesses or
assets conveyed or transferred shall be taken at the respective dates of their
conveyance or transfer and the limit (i.e., 25% of the market value) shall be
- -
calculated at the date of the last such conveyance or transfer. In calculating
the value of the businesses or assets conveyed or transferred for purposes of
this Section 4(f) there shall be excluded any conveyances or transfers to which
Section 4 is not applicable by virtue of the application of Section 4(h) and any
transaction where the provisions of Section 4(g) have been observed.
(g) An Indemnitor shall not engage in any transaction that is
restricted under Section 4(e) or 4(f) unless, in each such instance, (i) the
person or persons acquiring assets by such license, conveyance or transfer shall
be duly organized and existing under the laws of the jurisdiction of its
organization and, in addition to any assumption of obligations required under
Section 4(d), shall expressly assume, by an instrument supplemental hereto,
executed and delivered to Parent prior to or contemporaneously with the
consummation of such transaction, the performance of the entire obligations of
the Indemnitor under this Agreement; and (ii) prior to and immediately after
giving effect to such transaction, the Indemnitor shall not be in default in any
material respect of its obligations under this Agreement; provided, however,
-------- -------
that the acquiring party's assumption of obligations hereunder, exclusive of its
separate obligations, if any, under Section 4(d), shall be limited in the
aggregate to the total consideration paid by the acquiring party in respect of
such license, conveyance or transfer.
8
<PAGE>
(h) The restrictions on consolidations, mergers, licenses, conveyances
and transfers in this Section 4 shall be applicable to transactions with any
parent, subsidiary or affiliate of an Indemnitor as well as transactions with
any unrelated person or persons, but shall not be applicable to a transaction
with a person (including an Indemnitor) who has previously assumed, without
limitation, the performance of all the obligations of the Indemnitors under this
Agreement or transactions with a wholly-owned subsidiary of an Indemnitor
insofar as such subsidiary is subject, without limitation, to the constraints of
this Section 4.
(i) Notwithstanding any other provision of this Section 4 to the
contrary, no conveyance, transfer or license requiring the transferee to assume
indemnification obligations under this Agreement shall be valid unless Parent
may directly enforce the provisions of this Agreement against the party to whom
the assets are being conveyed, transferred or licensed notwithstanding that
Parent is not or may not be a party to such conveyance, transfer or license.
(j) No consolidation, merger, license, conveyance or transfer
permitted under this Section 4 shall limit or affect the obligations of any
Indemnitor hereunder.
(k) At the request of any party that is or may become subject to the
terms of this Agreement, Parent agrees to discuss in good faith the modification
of the provisions of this Section 4.
(l) For the avoidance of doubt nothing in this Section 4 shall
prohibit the conveyance and transfer of the assets of ATIC in accordance with
the Distribution Agreement, in the course of its liquidation and dissolution,
and no such conveyance or transfer shall be taken into account under Section
4(f).
5. Notices. All notices, requests, claims, demands and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be delivered by hand or sent by prepaid cable or telecopy or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, cabled or
telecopied, or if mailed, ten days after mailing (two
9
<PAGE>
business days in the case of express mail or overnight courier service), as
follows:
If to Parent:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: General Counsel
Telephone: (203) 698-5000
Facsimile: (203) 698-5172
With a copy to
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
Telephone: (203) 698-5000
Facsimile: (203) 698-5197
If to New Gallaher, Gallaher or ATIC:
Gallaher Group Plc
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Group Legal Advisor
Telephone: 011-44-1932-832-534
Facsimile: 011-44-1932-832-536
With a copy to
Gallaher Group Plc
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Company Secretary
Telephone: 011-44-1932-859-777
Facsimile: 011-44-1932-832-536
or to such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein.
10
<PAGE>
6. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
7. Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. None of the parties hereto shall be liable or bound to any
other party hereto in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed to relieve New Gallaher from any other indemnification obligations it
may have under the Distribution Agreement and the Tax Allocation Agreement but
an indemnified party shall not be entitled to recover in excess of the
indemnifiable losses it suffers.
8. Jurisdiction. Parent and the Indemnitors each irrevocably submits
------------
to the nonexclusive jurisdiction of (a) the Supreme Court of the State of New
York, New York County, and (b) the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other proceeding
arising out of this Agreement. Each of Parent and the Indemnitors agrees that
service of process, summons, notice or document by hand delivery or U.S.
registered mail to such party's respective address set forth in Section 5 hereof
shall be effective service of process for any action, suit or proceeding brought
against Parent or such Indemnitor in any such court. Parent and the Indemnitors
each irrevocably and unconditionally waives any objection to the laying of venue
of any action, suit or proceeding arising out of this Agreement in (i) the
Supreme Court of the State of New York, New York County, or (ii) the United
States District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
11
<PAGE>
9. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
10. Amendment; Waiver. No amendment, modification or waiver in
-----------------
respect of this Agreement shall be effective unless in writing and signed by all
parties hereto. No delay or failure on the part of any party in exercising any
rights hereunder, and no particular or single exercise thereof, will constitute
a waiver of such rights or of any other rights hereunder.
11. Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
12. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Warranties. Each party hereto acknowledges that it has not been
----------
induced to enter into this Agreement by any representation or warranty other
than those contained herein and, having negotiated and freely entered into this
Agreement, agrees that it shall have no remedy under this Agreement in respect
of any other such representation or warranty except in the case of fraud.
14. Rights. The rights, powers, privileges and remedies provided in
------
this Agreement are cumulative and are not exclusive of any rights, powers,
privileges or remedies provided by law or otherwise. No single or partial
exercise of any right, power, privilege or remedy under this Agreement shall
prevent any further or other exercise thereof or the exercise of any other
right, power, privilege or remedy.
12
<PAGE>
15. Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure for the benefit of the parties hereto and
their respective successors and permitted assigns. None of the Indemnitors may
assign its rights and benefits under this Agreement, either in whole or in part,
without the prior written consent of Parent. Parent may assign its rights and
benefits under this Agreement, either in whole or in part, provided that (a) the
person or persons acquiring the benefit of such rights and benefits shall be
duly organized and existing under the laws of the jurisdiction of its
organization, (b) prior to or contemporaneously with the consummation of such
transaction, the Parent delivers to each of the Indemnitors (i) an instrument
duly executed and delivered by the assignee(s) for the benefit of the
Indemnitors containing the agreement by the assignee(s) to be bound by and to
observe and perform the provisions of this Agreement and (ii) an opinion of
counsel in form and substance reasonably satisfactory to the Indemnitors that,
from and after such assignment, the assignee(s) will be bound by and required to
observe and perform the provisions of this Agreement and that the Indemnitors
may directly enforce the provisions of this Agreement against the assignee(s)
notwithstanding that the Indemnitors are or may not be parties to such
assignment and (c) prior to and immediately after giving effect to such
transaction, the Parent shall not be in default in any material respect of its
obligations under this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
AMERICAN BRANDS, INC.
By /s/ Gilbert L. Klemann, II
--------------------------------
Name: Gilbert L. Klemann, II
Title: Senior Vice President
and General Counsel
ATIC GROUP, INC.
By /s/ C.P. Omtvedt
--------------------------------
Name: C.P. Omtvedt
Title: Vice President
GALLAHER GROUP LIMITED
By /s/ C.T. Fielden
--------------------------------
Name: C.T. Fielden
Title: Director
GALLAHER LIMITED
By /s/ N.P. Bulpitt
--------------------------------
Name: N.P. Bulpitt
Title: Director and Secretary
14
<PAGE>
EXHIBIT 99.6
American Brands, Inc. and Subsidiaries
Quarterly Financial Data/(1)/
unaudited
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1996 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,055.1 $1,207.7 $1,158.1 $1,296.8
Gross profit 421.1 474.6 446.7 521.0
Operating income 125.2 153.1 134.0 184.8
Income from continuing operations $ 31.8 $ 56.0 $ 31.2 $ 62.7
Income from discontinued operations 92.3 66.0 105.5 51.3
Extraordinary items (10.3) -- -- --
-------- -------- -------- --------
Net income $ 113.8 $ 122.0 $ 136.7 $ 114.0
-------- -------- -------- --------
Earnings per Common share
Primary
Continuing operations $ .18 $ .31 $ .19 $ .36
Discontinued operations .52 .38 .61 .31
Extraordinary items (.06) -- -- --
-------- -------- -------- --------
Net income $ .64 $ .69 $ .80 $ .67
-------- -------- -------- --------
Fully diluted
Continuing operations $ .18 $ .31 $ .19 $ .35
Discontinued operations .50 .37 .60 .30
Extraordinary items (.06) -- -- --
-------- -------- -------- --------
Net income $ .62 $ .68 $ .79 $ .65
-------- -------- -------- --------
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
American Brands, Inc. and Subsidiaries
Consolidated Statement of Income/(1)/
<TABLE>
<CAPTION>
For years ended December 31
(In millions, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $4,717.7 $4,928.1 $5,377.0
Cost of products sold 2,854.3 3,111.7 3,405.9
Advertising, selling, general and administrative
expenses 1,249.5 1,245.8 1,405.9
Amortization of intangibles 102.7 90.1 91.4
Restructuring charges -- 17.8 --
Interest and related expenses 165.5 136.6 173.0
Other (income) expenses, net 6.1 (11.3) 14.8
(Gain) loss on disposal of businesses, net -- (20.0) 245.0
-------- -------- --------
Income from continuing operations before income taxes 339.6 357.4 41.0
Income taxes 157.9 171.5 119.8
-------- -------- --------
Income (loss) from continuing operations 181.7 185.9 (78.8)
Income from discontinued operations 315.1 357.2 812.9
Extraordinary items (10.3) (2.7) --
-------- -------- --------
Net income $ 486.5 $ 540.4 $ 734.1
======== ======== ========
Earnings per Common share
Primary
Income (loss) from continuing operations $ 1.04 $ .99 $ (.40)
Income from discontinued operations 1.82 1.91 4.03
Extraordinary items (.06) (.01) --
-------- -------- --------
Net income $ 2.80 $ 2.89 $ 3.63
======== ======== ========
Fully diluted
Income (loss) from continuing operations $ 1.03 $ 1.01 $ (.27)
Income from discontinued operations 1.77 1.83 3.80
Extraordinary items (.06) (.01) --
-------- -------- --------
Net income $ 2.74 $ 2.83 $ 3.53
======== ======== ========
Dividends paid per Common share $ 2.00 $ 2.00 $ 1.9925
======== ======== ========
Average number of Common shares outstanding
Primary 173.3 186.9 201.6
======== ======== ========
Fully diluted 178.4 195.7 213.7
======== ======== ========
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
American Brands, Inc. and Subsidiaries
Consolidated Balance Sheet/(1)/
<TABLE>
<CAPTION>
December 31 (In millions, except per share amounts) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 34.9 $ 232.0
Accounts receivable less allowances for discounts,
doubtful accounts and returns, 1996 $49.6; 1995 $42.3 892.4 778.2
Inventories
Bulk whiskey 379.3 343.7
Other raw materials, supplies and work in process 266.8 227.4
Finished products 391.8 379.8
-------- --------
1,037.9 950.9
Net assets of discontinued operations 683.3 --
Other current assets 193.6 151.4
-------- --------
Total current assets 2,842.1 2,112.5
-------- --------
Property, plant and equipment
Land and improvements 59.4 60.6
Buildings and improvements to leaseholds 472.9 447.9
Machinery and equipment 1,198.9 1,063.7
Construction in progress 92.1 72.8
-------- --------
1,823.3 1,645.0
Less accumulated depreciation 850.7 740.7
-------- --------
Property, plant and equipment, net 972.6 904.3
Intangibles resulting from business acquisitions,
net of cumulative amortization, 1996 $649.3; 1995 $537.7 3,730.7 3,103.2
Net assets of discontinued operations -- 520.7
Other assets 191.9 192.7
-------- --------
Total assets $7,737.3 $6,833.4
======== ========
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
American Brands, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)/(1)/
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 37.1 $ 56.6
Commercial paper 691.2 --
Accounts payable 241.3 222.2
Accrued taxes 443.4 373.3
Accrued expenses and other liabilities 601.2 395.3
Current portion of long-term debt 53.9 413.4
--------- ---------
Total current liabilities 2,068.1 1,460.8
--------- ---------
Long-term debt 1,598.3 1,063.0
Deferred income taxes 19.3 54.6
Postretirement and other liabilities 367.4 377.8
--------- ---------
Total liabilities 4,053.1 2,956.2
--------- ---------
Stockholders' equity
$2.67 Convertible Preferred stock 12.9 14.1
Common stock, par value $3.125 per share,
229.6 shares issued 717.4 717.4
Paid-in capital 166.5 171.6
Foreign currency adjustments (195.9) (234.6)
Retained earnings 5,025.4 4,887.3
Treasury stock, at cost (2,042.1) (1,678.6)
--------- ---------
Total stockholders' equity 3,684.2 3,877.2
--------- ---------
Total liabilities and stockholders' equity $ 7,737.3 $ 6,833.4
========= =========
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
American Brands, Inc. and Subsidiaries
Consolidated Statement of Cash Flows/(1)/
<TABLE>
<CAPTION>
For years ended December 31 (In millions) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 486.5 $ 540.4
Income from discontinued operations (315.1) (357.2)
Extraordinary items 10.3 2.7
Restructuring charges -- 17.8
Gain on disposals, net -- (20.0)
Depreciation and amortization 238.3 224.0
Increase in accounts receivable (74.4) (59.2)
(Increase) decrease in inventories (34.2) 121.2
Decrease in other assets (5.1) (18.7)
Increase in accrued taxes 43.4 12.1
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 20.3 (211.3)
(Decrease) increase in deferred income taxes (1.6) 1.1
Other operating activities, net (34.9) 127.4
------- ---------
Net cash provided from continuing operating activities 333.5 380.3
------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (199.7) (175.6)
Proceeds from the disposition of property, plant
and equipment 14.5 15.3
Proceeds from the disposition of operations, net of cash 5.9 1,175.8
Acquisitions, net of cash acquired (700.3) (4.2)
Other investing activities, net 12.3 (2.3)
------- ---------
Net cash (used) provided by investing activities (867.3) 1,009.0
------- ---------
FINANCING ACTIVITIES
Increase in short-term debt, net 670.7 10.2
Issuance of long-term debt 604.7 94.1
Repayment of long-term debt (421.0) (588.3)
Dividends to stockholders (348.4) (377.5)
Cash purchases of Common stock for treasury (444.3) (988.4)
Other financing activities, net 34.2 25.5
------- ---------
Net cash provided (used) by financing activities 95.9 (1,824.4)
------- ---------
Effect of foreign exchange rate changes on cash (3.6) (16.9)
Cash provided by discontinued operations 244.4 230.0
------- ---------
Net decrease in cash and cash equivalents $(197.1) $ (222.0)
======= =========
Cash and cash equivalents at beginning of year $ 232.0 $ 454.0
Cash and cash equivalents at end of year $ 34.9 $ 232.0
======= =========
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
American Brands, Inc. and Subsidiaries
Information on Business Segments/(1)/
<TABLE>
<CAPTION>
For years ended December 31 (In millions) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Distilled spirits $1,303.5 $1,288.6 $1,268.2
Hardware and home improvement products 1,374.1 1,306.8 1,270.6
Golf and leisure products 811.4 579.3 507.1
Office products 1,228.7 1,206.1 1,049.7
-------- -------- --------
Ongoing operations 4,717.7 4,380.8 4,095.6
Other businesses -- 547.3 1,281.4
-------- -------- --------
Continuing operations $4,717.7 $4,928.1 $5,377.0
======== ======== ========
OPERATING INCOME
Distilled spirits $ 208.4 $ 189.7 $ 221.2
Hardware and home improvement products 184.1 178.3 176.5
Golf and leisure products 109.0 83.0 73.3
Office products 95.6 84.5 74.5
-------- -------- --------
Ongoing operations 597.1 535.5 545.5
Other businesses -- 3.4 (1.8)
-------- -------- --------
Continuing operations $ 597.1 $ 538.9 $ 543.7
======== ======== ========
DEPRECIATION
Distilled spirits $ 39.4 $ 35.9 $ 36.2
Hardware and home improvement products 40.8 35.2 34.4
Golf and leisure products 13.4 10.0 8.9
Office products 39.2 35.8 36.7
Corporate 2.8 2.9 2.7
-------- -------- --------
Ongoing operations 135.6 119.8 118.9
Other businesses -- 14.1 34.2
-------- -------- --------
Continuing operations $ 135.6 $ 133.9 $ 153.1
======== ======== ========
AMORTIZATION
Distilled spirits $ 35.7 $ 34.4 $ 33.9
Hardware and home improvement products 30.0 30.1 30.1
Golf and leisure products 16.3 1.2 1.1
Office products 20.7 21.0 20.5
-------- -------- --------
Ongoing operations 102.7 86.7 85.6
Other businesses -- 3.4 5.8
-------- -------- --------
Continuing operations $ 102.7 $ 90.1 $ 91.4
======== ======== ========
CAPITAL EXPENDITURES
Distilled spirits $ 46.5 $ 39.5 $ 34.3
Hardware and home improvement products 60.6 68.1 45.3
Golf and leisure products 50.4 20.6 15.5
Office products 40.9 36.1 33.5
Corporate 1.3 0.9 1.1
-------- -------- --------
Ongoing operations 199.7 165.2 129.7
Other businesses -- 10.4 27.9
-------- -------- --------
Continuing operations $ 199.7 $ 175.6 $ 157.6
======== ======== ========
</TABLE>
/(1)/Restated for discontinued tobacco operations.
<PAGE>
EXHIBIT 99.7
FORTUNE BRANDS
Great Brands
Great Prospects
Goal: Long-term E.P.S. growth in 13%-15% range
[Pie chart indicating Percentage ]
[of Contribution(1)(2): Home & ]
[Office brands - 47%; Distilled ]
[Spirits brands - 35%; and Golf ]
[brands - 18%. ]
Determined to Delight Shareholders
1996(1)
------------------------------------------------------------
Net Sales (billions) $ 4.7 +8%
------------------------------------------------------------
Contribution(2) (millions) $ 700 +9%
------------------------------------------------------------
Pro Forma(3) E.P.S. $1.32 +8%
------------------------------------------------------------
EBITDA(4) per Common share $4.55
------------------------------------------------------------
Anticipated Dividend
Per Common Share(5) 80 cents
------------------------------------------------------------
Great Brands
- - Household names, category leaders, twelve with $100+ million
sales, with substantial opportunities to expand leadership.
- Titleist, Foot-Joy and Cobra: #1 worldwide in the fast-growing
golf equipment category.
- Master Lock: #1 padlock worldwide, Moen: #1 faucet in North
America, and Aristokraft: #2 in U.S. kitchen & bath cabinets, all
leaders in the growing home products category.
- Day-Timer organizer, Kensington computer accessories
(approaching $100 million), Swingline (approaching $100
million) and Rexel (U.K.) staplers, and ACCO paper clips/
punches and Wilson Jones vinyl ring binders: #1 worldwide in
fast-growth office supplies category.
- Jim Beam: #1 Bourbon worldwide and DeKuyper: #1 U.S. cordial
line together with other brands are #2 in U.S. distilled spirits
category; also, #1 U.K. Scotch supplier; fast growing
international business, representing over a third of contribution.
Great Prospects
- - Long-term E.P.S. growth goal in the range of 13-15%, assuming a
satisfactory economic and pricing environment.
- Expect to achieve goal in 1997 on a pro forma(3) basis (excluding
<PAGE>
restructuring charges), leveraging high single-digit contribution
growth with the benefit of strong cash flow and lower corporate
expense.
- Solid record of achieving prior goals.
- - Brands are well positioned for growth.
- 80% sales with #1/#2 position.
- Leading shares with plenty of room for expansion, benefiting
from category consolidation.
- Substantial, faster growing international sales ($1.4 billion and
29% of total sales).
- Strong pipeline of innovative new products (about 25% sales
from products introduced over past 3 years).
- Stepped-up brand investment to drive growth (double-digit
increases in marketing/customer service and R&D).
- Enhance brand building, new product and international
development by reinvesting substantial savings anticipated from
rationalization of manufacturing, distribution, sourcing and
product lines (approximately $200 million total pre-tax charges
expected over 2Q - 4Q 1997).
- - Strong financial resources and breadth of brands to support
growth strategies.
- $150 - $200 million free cash flow anticipated.
- Strong balance sheet - 27% pro forma debt to total capital(3)
(target debt rating: "A").
- Primary emphasis is internal growth of highly profitable brands,
augmented by high return, add-on acquisitions and possible share
repurchases.
Determined to Delight Shareholders
- - Moved decisively to build value - successfully focused company
on attractive, faster-growth, non-tobacco categories, with leading
brands and strong potential to expand category leadership.
- Spin-off of Gallaher Tobacco; name change from "American
Brands" to "Fortune Brands;" received indemnification.
- Successfully sold low-growth operations with no prospect of
brand leadership.
- Major divestitures: The American Tobacco Company for $1
billion in 1994 (received indemnification) and Franklin Life
insurance for $1.2 billion in 1995.
- Reduced fully diluted shares by 20% 1995 - 1996, investing $1.8
billion.
<PAGE>
- - 20.2% compounded annual total return over restructuring period
1994 - 1996 beat peer index and S&P 500.
- ----------------------------------------------------------------
Headquarters Old Greenwich, Connecticut
- ----------------------------------------------------------------
Employees Approximately 24,300 worldwide
- ----------------------------------------------------------------
(1) Includes 1/96 Cobra Golf acquisition. Excludes businesses sold in
1995 and restructuring charges: $18 million pre-tax or 6 cents per
share in 1995 for distilled spirits. 1995 excludes 9 cents gain on
disposal of businesses. Excludes extraordinary charges relating to
debt retirement: 1 cent, 1995; 6 cents per share 1996.
(2) Operating income excluding amortization of intangibles.
(3) Assumes that $1.25 billion net proceeds from Gallaher payment at
time of spin-off and possible 10 million share repurchase following
spin took place at beginning of 1995.
(4) Income from continuing operations before interest expense, income
taxes and depreciation and amortization.
(5) Future dividends are at the discretion of the Board.
This material 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, foreign exchange rate fluctuations, competitive
product and pricing pressures, 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.
HOME & OFFICE BRANDS
Global leader in fast-growing office supplies and a leader in North
American hardware; capitalizing on growth of PCs, organizers and
home repair & remodeling; positioned to benefit from ongoing
customer and manufacturer consolidation.
- - Leading home products brands: Moen ($600+ million sales),
#1 faucet in North America; Master Lock ($200+ million sales),
#1 padlock worldwide; Aristokraft ($200+ million sales) and
Decora, #2 in U.S. kitchen & bath cabinets. Waterloo, #1 tool
storage manufacturer worldwide.
- - Leading office products brands from computer accessories to
fasteners: Kensington (approaching $100 million sales), a leader in
computer accessories; Day-Timer ($150+ million sales), a leader
in time management and personal productivity solutions; ACCO
($200 million sales), Wilson Jones ($200 million sales), Rexel
($100+ million sales in Europe); Swingline (approaching $100
million sales), #1 stapler worldwide.
1996
Total Home Office
Home & Office Products Products
- --------------------------------------------------------------------------
Net Sales (1) (billions) $2.6 +5% $1.4 +5% $1.2 +5%
- --------------------------------------------------------------------------
Contribution (millions) $330 +5% $214 +3% $116 +10%
<PAGE>
- --------------------------------------------------------------------------
(1) % change exclude acquisitions, divestitures and impact of foreign
exchange.
- - Reorganization brought Home & Office products operations
under coordinated leadership of a single executive.
- Sales increasingly concentrated with big-box retailers.
- Home & Office operations facing similar manufacturing,
sourcing and distribution issues.
- Significant long-term advantages in realignment - competence/
competitive advantage servicing large retailers.
- - Leading positions in faster-growth categories of huge, consolidating
industries.
- Home: Brands concentrated in traditionally more stable repair &
remodeling (43% of home contribution).
- Office: #1 overall in large fast growth categories, totalling $25
billion in sales.
- 7% growth rate of cut-sheet paper driven by growth of PCs;
double-digit growth computer accessories.
- #1 in North America, U.K., Australia and Ireland;
expanding in continental Europe.
- International sales 42% of office products total.
- Vendor of the Year at key office products superstores.
- - Brand investments in new products, advertising and international
development to expand category leadership.
- New products:
- Utilize global distribution strength in office supplies,
leveraging product breadth and new product investment.
- Sales of semi-custom Decora cabinets were up 18%, boosted
by new Keystone line.
- Extended popular Monticello line, with LifeShine polished
brass faucet in 1997.
- Exciting kitchen faucet line to be introduced later in 1997;
innovative padlock lines for 1998.
- Substantial opportunities to enhance office productivity (e.g.
space-saving inkjet printer stand), personalize office space
(e.g. Kensington Mouse-in-a-Box computer mouse for home
and office use) and expand into new channels (e.g. Day-
Timer retail expansion).
- Advertising: Moen increased U.S. market share to 27%, backed
by aggressive advertising ("Buy It For Looks. Buy It For Life.")
- International:
<PAGE>
- Office brands organizing to service customers on a North
American and pan-European basis; supported Staples' and
Office Depot's international expansions.
- Selected investments in developing countries (e.g. Moen
China joint venture).
- - Further restructuring and systems investments to reduce costs and
enhance working capital efficiency and customer service.
- Master Lock reviewing cost-cutting alternatives; announced
possible elimination of 200-400 jobs.
- Moen assemble-to-demand manufacturing reduced average
working capital 14%.
- Office supplies inventory decreased 15% (days sales).
- Aristokraft continuous flow manufacturing achieved 41%
inventory reduction over past 2 years.
- Waterloo's successful start-up of major new, low-cost
manufacturing facility.
- Successfully divested office furniture operations.
- - Potential high return, add-on acquisitions to expand category
leadership of Home & Office brands.
- Leverage Kensington brand in fast-growing computer accessories
($2 billion market worldwide); acquired Advanced Gravis late in
1996, a leading supplier of personal computer joysticks.
- Capitalize on category consolidation.
- - For 1997, we expect mid-to-high single digit increase in
contribution.
- Office: Another double-digit contribution increase.
- Home: Modest overall contribution growth, with solid
contribution growth from Moen, Aristokraft and Waterloo more
than offsetting Master Lock's lower padlock prices.
- Faster growth in pre-tax income, with benefit of strong cash
generation.
General Information
MasterBrand Industries, Inc. (Home products) and ACCO World Corporation (Office
products)
- ----------------------------------------------------------------
Headquarters Deerfield, Illinois
- ----------------------------------------------------------------
Employees Approximately 16,900
- ----------------------------------------------------------------
DISTILLED SPIRITS BRANDS
<PAGE>
Leader in 2 major spirits categories growing worldwide - Bourbon
and cordials - and a major presence in a third, Scotch; U.S.
powerhouse with broadest portfolio and #2 overall; substantial
international growth potential.
- - Leading brands: Jim Beam Bourbon whiskey ($300+ million
sales), #1 Bourbon worldwide; DeKuyper ($100+ million sales),
#1 cordial line in U.S.; Whyte & Mackay, #2 Scotch in Scotland;
and Vladivar, #2 vodka in U.K.
1996
- -------------------------------------------------------------------------
Net Sales (billions) $ 1.3 +1
- -------------------------------------------------------------------------
Contribution (millions) $ 244 +1%(1)
- -------------------------------------------------------------------------
Total Cases (millions)(2) 27.5 +1%
- -------------------------------------------------------------------------
(1) Excluding $18 million restructuring charge in 1995.
(2) 9 liter equivalents, excluding commodity bulk and private label
Scotch shipments; including 13 months at Whyte & Mackay to conform
accounting periods.
- - Powerful cash flow has produced substantially faster growth in
pre-tax income.
- - Expanding substantial international business, now one third of
total contribution:
- Jim Beam, the #1 selling Bourbon whiskey in the world,
5+ million cases worldwide; international case sales increased
9% compounded annually over past four years.
- Continue international expansion through Jim Beam advertising,
premium line extensions and leverage of combined portfolio with
Whyte & Mackay.
- Highly successful "This Ain't Jim Beam" TV commercial has
been seen in over 50 countries.
- After Shock premium cordial, highly successful in U.S.,
launched in 19 international markets.
- Joint venture began bottling and distributing brands in India.
- Substantial growth achieved in the emerging markets,
particularly Eastern Europe.
- Whyte & Mackay Scotch brand became one of the first Scotch
brands to be advertised on TV in the U.K., substantially
increasing brand awareness with young-adult consumers.
- Expanded private label Scotch whisky volume 18% (#1 U.K.
supplier).
- - Focused on building brands and developing high-margin, new
products; substantial opportunities to expand category leadership.
<PAGE>
- 1996 contribution gain was achieved in spite of a 17% increase
in marketing spending worldwide.
- 4% average price increase in key U.S. and U.K. markets in 1996,
with plans for additional price increases in that range again in
1997.
- Contemporizing Jim Beam with young-adult advertising ("Get in
Touch with Your Masculine Side").
- High-margin Small Batch Bourbon Collection - Booker's, Knob
Creek, Baker's, and Basil Hayden's - worldwide unit sales up
36%.
- DeKuyper volume up 3% driven by the successful introduction of
two new Pucker products - Cheri-Beri and Grape; twelve new
DeKuyper flavors added in the last eight years.
- Expanding in high-margin premium cordial category that is
growing in double-digits:
- After Shock, launched April 1995, with hot cinnamon taste
followed by an ice-cool sensation, is one of the most
successful new brands ever in distilled spirits.
- Avalanche Blue, launched in June 1996, is "extremely cool,
extremely smooth" and peppermint flavored.
- After Shock and Avalanche Blue shipped an aggregate
250,000 cases in 1996.
- - For 1997, we expect solid contribution growth and, reflecting
powerful cash flow, even faster growth in pre-tax income.
General Information
JBB Worldwide, Inc.
Jim Beam North America: Jim Beam Brands and Alberta Distillers.
Jim Beam International: JBB (Asia-Pacific) - formerly Fortune Brands
JBB (Greater Europe) - formerly Whyte & Mackay
- ------------------------------------------------------------------------
Headquarters Deerfield, Illinois
- ------------------------------------------------------------------------
Major Brands Bourbon Whiskey Jim Beam*, Old Grand-Dad, Old Crow, Small
Batch Bourbon Collection (Booker's, Knob
Creek, Baker's, Basil Hayden's), Jacob's
Well
Canadian Whisky Windsor*, Lord Calvert, Alberta Springs,
Tangle Ridge
American Blended
Whiskey Kessler, Calvert Extra
Blended Scotch Whyte & Mackay Special Reserve, The
Whisky Claymore, Crawfords, Mackinlay
Single Malts The Dalmore, Bruichladdich, Isle of Jura
Scotch Liqueur Glayva
Gin Gilbey's, Calvert
Vodka Kamchatka, Wolfschmidt, Gilbey's, Vladivar,
Banff Ice
Cordials DeKuyper*, Kamora, After Shock, Avalanche
Blue, Leroux
Rum Ronrico, Pusser's, Don Q, Palo Viejo
<PAGE>
Tequila El Tesoro, Chinaco
Cognac A. de Fussigny
Pre-mixed
Cocktails Jim Beam and Cola*, Jim Beam's Choice and
Dry
*Million-plus case (9 liter) brand
- ------------------------------------------------------------------------
Employees Approximately 2,500
- ------------------------------------------------------------------------
Major Facilities North America: Clermont, Boston and Frankfort, KY;
Cincinnati, OH; and Calgary, Alberta.
International: In Scotland, 4 malt distilleries, 1
grain distillery, and bottling plants
at Leith and Grangemouth.
- ------------------------------------------------------------------------
GOLF BRANDS
Worldwide leader in fast-growing and highly profitable golf equipment
category - #1 in golf balls, shoes, gloves, and Titleist and Cobra
brands together are #1 in clubs in on-course and off-course U.S.
pro shops.
1996(1)
- ---------------------------------------------------------------------------
Net Sales (millions) $811 +40%
- ---------------------------------------------------------------------------
Contribution (millions) $125 +49%
- ---------------------------------------------------------------------------
(1) Reflects benefit of Cobra acquisition (1/96).
- - Leading brands: Titleist ($350+ million sales), Foot-Joy ($200+
million sales), Cobra ($200 million sales) and Pinnacle.
- Titleist, #1 ball in professional golf since 1949, won more
tournaments and more money than all other golf balls combined
in 1996; ball of choice for Tiger Woods, who has had a legendary
amateur career and start as a pro with his record breaking win at
the Masters; Davis Love III, Phil Mickelson, Tom Lehman,
Dottie Pepper and more than 250 other professionals worldwide.
- Titleist clubs: DCI irons - #1 iron with golf club professionals
for 4 consecutive years and excellent momentum with custom-
fitting program; Scotty Cameron by Titleist putters now #1
putter on the U.S. PGA Tour (1Q 97).
- Foot-Joy, #1 glove worldwide; #1 shoe worldwide by far; #1 on
PGA tour for 50 years with over 70% of PGA Tour players in
1996, 8x nearest competitor; over 50% share of women's shoe
market.
- Cobra, #1 oversized iron. Played by: Tiger Woods; Greg Norman,
the all-time money leader; Hale Irwin, 1996 Senior PGA Tour
scoring leader; Steve Jones, 1996 U.S. Open Champion; Seve
Ballesteros, 1997 European Ryder Cup captain, and Beth Daniel
and Pat Bradley of the U. S. 1996 Solheim Cup winning team.
- Pinnacle, flagship value-price golf ball brand, increased sales
9% in 1996 with the introduction of the Equalizer and Women's
<PAGE>
line extensions.
- - $4.4 billion 1996 worldwide golf equipment category (at
wholesale) expected to grow at a 4% - 6% annual rate with bursts
of 10%+ growth driven by technology-driven replacement cycles.
- Great demographics: aging population and growing disposable
income increase rounds of play.
- Golf becoming popular worldwide.
- New excitement about golf (Tiger Woods).
- Oversize clubs, graphite shafts and titanium woods are major
replacement cycles currently underway.
- - Substantial opportunities to expand category leadership with
strong product innovation and great marketing.
- Continued to gain share of every golf category in 1996.
- Leader in both wound and two piece ball constructions.
- Sustain double-digit increases in R&D.
- Titleist brand sales up 10%, driven by continued strong
acceptance of full range of Titleist Professional, Tour Balata,
HP2 and DT golf balls, and a 22% increase in unit sales of
Titleist clubs.
- Foot-Joy brand sales up 8%; re-engineered DryJoys, the #1
waterproof golf shoe; developed breakthrough leather-based
system combined with thermal responsive gels that molds
comfortably to golfer's arch; leader in fast growing leather and
synthetic combination gloves with new Weather-Grip and
Winter-Sof gloves.
- Cobra brand, a leader in technology-driven game improvement
clubs, introduced:
- Exciting line of new irons, the King Cobra II, in September
1996, with 4 features designed to make golfers hit the sweet
spot more often.
- King Cobra Ti metal woods, the only titanium woods to
incorporate the proven "no slice" performance of offset.
- - Capitalizing on the addition of the strong Cobra brand in 1996,
creating an even more powerful combination of golf brands.
- Titleist is benefiting from Cobra's in-house graphite shaft
manufacturing facility.
- International distribution of the Cobra brand is being combined
with Titleist's extensive non-U.S. distribution resources.
- New line of insert putters, the Cobra T.P.A.-i, represents the
first new product resulting from a combined R&D effort.
- Research indicates that, with Cobra's particular strength with
<PAGE>
senior and women golfers, there is an opportunity for a Cobra
brand golf ball manufactured by Titleist.
- Cobra start-up production problems for new generation of clubs
caused brand to fall short of expectations in 1996; these
problems have been addressed, and we have aggressive plans for
growth.
- - Aggressively expanding internationally:
- Superior international distribution - international sales over
$200 million (quarter of total sales), significantly larger than
any other competitor's sales.
- Direct sales operations in 6 key markets - U.K., Ireland, France,
Germany, Sweden and Canada - and a joint venture in Japan.
- Titleist golf ball share increased to 40% in Europe and has
nearly doubled in the Pacific Basin over the past 5 years.
- - For 1997, targeting a double-digit contribution increase for the
full year.
General Information
Acushnet Company
- ------------------------------------------------------------------------
Headquarters Fairhaven, Massachusetts
- ------------------------------------------------------------------------
Employees Approximately 4,700
- ------------------------------------------------------------------------
Major Facilities U.S.: Fairhaven, New Bedford and Brockton, MA;
Escondido and Carlsbad, CA.
International: Gormley, Ontario, Canada; St. Ives,
England; Aubergenville, France;
Frankfurt, Germany; Tokyo, Japan; 2 in
Chonburi, Thailand.
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