<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Fortune Brands, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO] FOURTUNE BRANDS
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
March 12, 1999
Dear Stockholder:
The 1999 Annual Meeting of Stockholders will be held at 2:00 p.m. on Tuesday,
April 27, 1999 at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old
Greenwich, Connecticut. The sole purpose of the meeting is to consider the
business described in the following notice of meeting and proxy statement.
It is important to ensure that your shares be represented at the meeting
whether or not you personally plan to attend. You can submit your proxy by
using a toll-free telephone number or via the Internet. Instructions for using
these new services are provided on the accompanying proxy form. If you decide
to vote your shares using the enclosed proxy form, we urge you to complete,
sign, date and return it promptly, using the postage paid return envelope that
we have enclosed.
Sincerely yours,
/s/ Thomas C. Hays
--------------------------
Thomas C. Hays
Chairman of the Board
and Chief Executive Officer
<PAGE>
[LOGO] FORTUNE BRANDS, INC.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 12, 1999
The Annual Meeting of Stockholders of Fortune Brands, Inc. will be held at
the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich,
Connecticut, at 2 o'clock in the afternoon (Eastern Daylight Time) on Tuesday,
April 27, 1999, to consider and vote upon:
Item 1: The election of five directors for a term expiring at the 2002
Annual Meeting or until their successors have been elected and
qualified (see pages 3 to 20 of the Proxy Statement);
Item 2: The election of PricewaterhouseCoopers LLP as our independent
accountants for 1999 (see page 20 of the Proxy Statement);
Item 3: The approval of the 1999 Long-Term Incentive Plan (see pages 21
to 27 of the Proxy Statement);
and to transact such other business as may properly come before the
meeting.
The stock transfer books will not be closed, but holders of Common Stock and
$2.67 Convertible Preferred Stock, to be entitled to vote, must be holders of
record at the close of business on February 26, 1999. Please submit a proxy as
soon as possible so that your shares can be voted at the meeting in accordance
with your instructions. You may submit your proxy (1) by telephone, (2) via the
Internet or (3) by mail. For specific instructions, please refer to the next
page of this Proxy Statement and the instructions on the enclosed proxy form.
/s/ Louis F. Fernous, Jr
-------------------------------
Louis F. Fernous, Jr.
Vice President and
Secretary
This proxy statement and accompanying proxy are being distributed on or about
March 12, 1999.
<PAGE>
VOTING AND PROXIES
What is the purpose of the Annual Meeting?
At our Annual Meeting, stockholders will act upon the matters outlined on the
prior page and described in this Proxy Statement, including the election of
directors, election of our independent accountants and approval of the 1999
Long-Term Incentive Plan. In addition, management will respond to questions
from stockholders.
Who is entitled to vote?
Only holders of record at the close of business on February 26, 1999 of
Common Stock and of $2.67 Convertible Preferred Stock are entitled to vote.
Each holder of Common Stock is entitled to one vote per share. Each holder of
$2.67 Convertible Preferred Stock is entitled to three tenths of one vote per
share. There were 170,532,337 shares of Common Stock and 342,620 shares of
$2.67 Convertible Preferred Stock outstanding on February 26, 1999.
How do I vote?
You can vote by filling out the accompanying proxy and returning it in the
postage paid return envelope that we have enclosed for you. Also, stockholders
of record (that is, you hold your stock in your own name) can vote by telephone
or via the Internet. Voting information is provided on the enclosed form of
proxy. The Control Number, located in the lower right hand corner of the
signature side of the proxy, is designed to verify your identity, allow you to
vote your shares, and confirm that your vote has been properly recorded. If
your shares are held in the name of a bank or broker, follow the voting
instructions on the form that you receive from them. The availability of
telephone and Internet voting will depend on the bank's or broker's voting
process.
What if my shares are held by a broker or nominee?
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion as to
some of the matters to be acted upon. Thus, if you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters
and will not be counted in determining the number of shares necessary for
approval.
How will my proxy be voted?
Your proxy, when properly signed and returned to us, or processed by
telephone or via the Internet, and not revoked, will be voted in accordance
with your instructions relating to the election of directors and on Items 2 and
3. We are not aware of any other matter that may be properly presented other
than the election of directors and Items 2 and 3. If any other matter is
properly presented, the persons named in the enclosed form of proxy will have
discretion to vote in their best judgment.
What if I don't mark the boxes on my proxy?
Unless you give other instructions on your form of proxy, or unless you give
other instructions when you cast your proxy by telephone or via the Internet,
the persons named as proxies will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendation is set forth together
with the description of each Item in this Proxy Statement. In summary, the
Board recommends a vote for:
. the election of directors;
. the election of PricewaterhouseCoopers LLP as our independent
accountants for 1999; and
. approval of the 1999 Long-Term Incentive Plan.
2
<PAGE>
Can I go to the Annual Meeting if I vote by proxy?
Yes. Attending the meeting does not revoke the proxy. However, you may
revoke your proxy at any time before it is actually voted by giving written
notice to the secretary of the meeting or by delivering a later dated proxy.
Will my vote be public?
No. As a matter of policy, stockholder proxies, ballots and tabulations that
identify individual stockholders are kept secret and are only available to the
independent Inspectors of Election and certain of our employees who must
acknowledge their responsibility to comply with such policy.
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a
majority in voting power of the outstanding shares of Common Stock and $2.67
Convertible Preferred Stock entitled to vote will constitute a quorum,
permitting the meeting to conduct its business. Proxies received but marked as
abstentions and broker non-votes will be included in the calculation of the
number of shares considered to be present at the meeting.
How many votes are needed to approve an Item?
The affirmative vote of shares representing a majority in voting power of
the shares of Common Stock and $2.67 Convertible Preferred Stock, voted
together as one class, present in person or represented by proxy and entitled
to vote at the meeting, is necessary for approval of Items 2 and 3. Proxies
marked as abstentions on these matters will not be voted and will have the
effect of a negative vote. The election of directors will be by a plurality of
the votes cast. A proxy marked to withhold authority for the election of one
or more directors will not be voted with respect to the director or directors
indicated.
Item 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of 14 members and is divided into
three classes, having three-year terms that expire in successive years. The
term of office of directors in Class I expires at the 1999 Annual Meeting. The
Board of Directors proposes that the five nominees described below, all of
whom are currently serving as Class I directors, be re-elected to Class I for
a new term of three years and until their successors are duly elected and
qualified. All nominees and all current Class II and Class III directors were
elected by the stockholders, except that Mr. Eugene A. Renna was elected by
the Board of Directors as a Class II director effective July 28, 1998, Mr.
Gilbert L. Klemann, II was elected as a Class I director effective January 1,
1999 and Mr. Norman H. Wesley was elected as a Class III director effective
January 1, 1999.
Each of the nominees has consented to serve a three-year term. If any of
them should become unavailable to serve as a director (which is not now
expected), the Board may designate a substitute nominee. In that case, the
persons named as proxies will vote for the substitute nominee designated by
the Board.
There are set forth below opposite the names of the nominees and Class II
and Class III directors their present positions and offices with the Company,
their principal occupations during the past five years, directorships held
with other corporations, their ages and the year first elected as a director.
3
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<TABLE>
<CAPTION>
Present positions and offices
with the Company, principal Year first
occupations during the past five years elected
Name and other directorships Age director
---- -------------------------------------- --- ----------
<C> <S> <C> <C> <C>
NOMINEES FOR DIRECTOR--CLASS I--TERM EXPIRING 2002
Chairman of the Board and Chief 63 1981
Executive Officer of Fortune Brands,
Inc. since 1995; President and Chief
[PHOTO] Operating Officer of Fortune Brands,
Inc. prior thereto. Also a director
of Gallaher Group Plc and ACNielsen
Corporation.
Thomas C. Hays
President and Chief Executive 64 1991
Officer of Northside Hospital, Inc.
[PHOTO] Also a director of Superior Uniform
Group, Inc. and Physician's
Specialty Corp.
Sidney Kirschner
Executive Vice President-Corporate 48 1999
of Fortune Brands, Inc. since
January 1999; Executive Vice
[PHOTO] President-Strategic and Legal
Affairs of Fortune Brands, Inc. in
1998; Senior Vice President and
General Counsel of Fortune Brands,
Inc. prior thereto.
Gilbert L. Klemann, II
Chairman and Chief Executive Officer 64 1990
of AMSTED Industries Incorporated
(products for the railroad,
[PHOTO] construction and building markets)
since 1997; President and Chief
Executive Officer of AMSTED
Industries Incorporated prior
thereto. Also a director of Ameren
Corporation.
Gordon R. Lohman
Retired since 1995; Vice Chair of 68 1985
Southern Methodist University prior
[PHOTO] thereto. Also a director of AMR
Corporation, Centex Corporation and
Zale Corporation.
Charles H. Pistor, Jr.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Present positions and offices
with the Company, principal Year first
occupations during the past five years elected
Name and other directorships Age director
---- -------------------------------------- --- ----------
<C> <S> <C> <C>
[PHOTO] CLASS II DIRECTORS--TERM EXPIRING 2000
Partner, Anderson Kill & Olick, P.C. (law 71 1980
firm).
Eugene R. Anderson
[PHOTO] President, Pace University. 63 1991
Patricia O. Ewers
Retired since 1996; Chairman of Olin 66 1989
Corporation (chemical, metal and defense-
[PHOTO] related products) during 1996; Chairman and
Chief Executive Officer of Olin Corporation
from 1994 to 1995; Chairman, President and
Chief Executive Officer of Olin Corporation
prior thereto. Also a director of Phoenix
Home Life Insurance Company, Arch Chemicals,
Inc. and McDermott International Inc.
John W. Johnstone, Jr.
President and Chief Operating Officer of 54 1998
Mobil Corporation since 1998; Executive Vice
[PHOTO] President of Mobil Corporation from 1996 to
1998; President of worldwide Marketing &
Refining Division of Mobil Corporation prior
thereto. Also a director of Mobil
Corporation.
Eugene A. Renna
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Present positions and offices
with the Company, principal Year first
occupations during the past five years elected
Name and other directorships Age director
---- -------------------------------------- --- ----------
<C> <S> <C> <C>
CLASS III DIRECTORS--TERM EXPIRING 2001
Vice Chairman of Fortune Brands, Inc. since 62 1995
January 1999; President and Chief Operating
Officer of Fortune Brands, Inc. from 1995 to
1998; Group Vice President of Fortune Brands,
[PHOTO] Inc. and President and Chief Executive Officer
of Acushnet Company (golf products), a
subsidiary of Fortune Brands, Inc., prior
thereto. Also a director of New England Zenith
Fund.
John T. Ludes
President, Fiduciary Trust Company 59 1996
International (global investment management
[PHOTO] services) since 1994; Executive Vice President
and Director, Institutional Equity Department,
Fiduciary Trust Company International prior
thereto. Also a director of American General
Corporation.
Anne M.
Tatlock
General Manager--IBM Americas, International 49 1996
Business Machines Corporation ("IBM"), since
January 1, 1999; General Manager-IBM North
[PHOTO] America, IBM, from 1997 to 1998; General
Manager, Personal Software Products Division of
IBM from 1995 to 1996; Corporate Vice President
and General Manager, Marketing--U.S. of IBM
prior thereto. Also a director of Northern
Indiana Public Service Company.
John W.
Thompson
President and Chief Operating Officer of 49 1999
Fortune Brands, Inc. since January 1999;
[PHOTO] Chairman of the Board and Chief Executive
Officer of Fortune Brands Home & Office, Inc.
(home and office products) and MasterBrand
Industries, Inc. (home products), and Chairman
of ACCO World Corporation (office products),
subsidiaries of Fortune Brands, Inc., since
1997; Chairman of the Board and Chief Executive
Officer of ACCO World Corporation from 1997 to
1998; President and Chief Executive Officer of
ACCO World Corporation prior thereto. Also a
director of uBid, Inc.
Norman H.
Wesley
Chairman and Chief Executive of Gallaher Group 57 1994
Plc since 1997 and Chairman and Chief Executive
of Gallaher Limited (tobacco products), a
[PHOTO] former subsidiary of Fortune Brands, Inc.,
since 1994; Deputy Chairman of Gallaher Limited
prior thereto.
Peter M.
Wilson
</TABLE>
6
<PAGE>
Last year there were six meetings of the Board of Directors. Each director
attended at least 75% of the total of the meetings of the Board of Directors
and all meetings of committees of the Board of Directors of which the director
was a member. In addition to participation at Board and committee meetings, our
directors discharge their responsibilities throughout the year through personal
meetings and other communications, including considerable telephone contact,
with the Chairman and others regarding matters of interest and concern to the
Company.
For information with respect to the beneficial ownership of securities of the
Company by directors and executive officers, see "Certain Information Regarding
Security Holdings" on pages 27 and 28.
Committees
The Board of Directors has established an Executive Committee, an Audit
Committee, a Compensation and Stock Option Committee and a Nominating and
Corporate Governance Committee.
Executive Committee
<TABLE>
- ---------------------------------------------------------------------------------
<S> <C> <C>
Members Messrs. Anderson, Hays, Johnstone, Lohman, Ludes and
Wesley
Number of Meetings Last Five
Year
Primary Functions Has all the power of the full Board except for
specific powers which by law must be exercised by
the full Board.
Audit Committee
- ---------------------------------------------------------------------------------
Members Messrs. Anderson, Pistor, Renna, Mrs. Tatlock and
Mr. Thompson
Number of Meetings Last Four
Year
Primary Functions 1. Recommends annually a firm of independent
accountants to audit our financial statements and
the scope of the firm's audit;
2. Reviews reports and recommendations of our
independent accountants;
3. Reviews the scope of all internal audits and related
reports and recommendations; and
4. Reviews nonaudit services provided by our
independent accountants.
Compensation and Stock Option Committee
- ---------------------------------------------------------------------------------
Members Dr. Ewers and Messrs. Johnstone, Kirschner and
Lohman
Number of Meetings Last Five
Year
Primary Functions 1. Administers our Stock Option Plan and Long-Term
Incentive Plan;
2. Designates key employees who may be granted stock
options, performance awards and other stock-based
awards;
3. Designates the number of shares that may be granted
to a key employee, within specified limits;
4. Sets compensation for our officers who hold the
office of Vice President or a more senior office;
and
5. Determines the incentive compensation award for
those senior officers under the Annual Executive
Incentive Compensation Plan.
</TABLE>
7
<PAGE>
Nominating and Corporate Governance Committee
<TABLE>
- ---------------------------------------------------------------------------------
<S> <C> <C>
Members Messrs. Anderson, Johnstone, Lohman and Pistor
Number of Meetings Last Three
Year
Primary Functions 1. Recommends nominees for election as members of the
Board of Directors;
2. Recommends directors for membership on the Audit
Committee, Compensation and Stock Option Committee,
and Nominating and Corporate Governance Committee,
including their Chairmen;
3. Recommends directors and executive officers for
membership on other committees established by the
Board of Directors;
4. Recommends compensation arrangements for
nonmanagement directors;
5. Recommends policies and practices designed to foster
an effective corporate governance environment within
the Company; and
6. Administers our Non-Employee Director Stock Option
Plan and the Stock Plan for Non-employee Directors.
</TABLE>
Stockholders wishing to recommend persons for consideration by the
Nominating and Corporate Governance Committee as nominees for election to the
Board of Directors can do so by writing to the Secretary of Fortune Brands,
Inc. at 1700 East Putnam Avenue, Old Greenwich, Connecticut 06870, giving each
such person's name, biographical data and qualifications. Any such
recommendation should be accompanied by a written statement from the person
recommended of his consent to be named as a nominee and, if nominated and
elected, to serve as a director. The Company's Certificate of Incorporation
also contains a procedure for stockholder nomination of directors (see page
29).
Director Compensation
Cash Compensation. Each director who is not an officer or employee of
Fortune Brands, Inc. or one of our subsidiaries is paid an annual fee of
$35,000 for services as a director and an additional $15,000 for committee
service for an aggregate cash fee of $50,000. Messrs. Anderson, Johnstone and
Lohman receive an additional $15,000 for service on the Executive Committee.
The Company has agreements with Messrs. Anderson and Lohman to defer payment
of the fees to which they are entitled as directors, including any fees for
committee service. Interest on the deferred amounts is accrued quarterly based
on the average quarterly treasury bill rate.
Insurance. Directors traveling on Company business are covered by our
business travel accident insurance policy which covers our employees
generally. We also paid the cost of group life insurance coverage for
nonemployee directors. The cost for each of our current nonemployee directors
for 1998 was less than $3,000 except for Mr. Anderson for whom the cost was
$8,908.
Non-Employee Director Stock Option Plan. Each director who is not an officer
or employee of Fortune Brands, Inc. or one of our subsidiaries and is first
elected to the Board of Directors after April 30, 1997 is eligible to receive
an annual grant of a nonqualified stock option to purchase 2,000 shares of our
8
<PAGE>
Common Stock under the Non-Employee Director Stock Option Plan which has been
approved by stockholders. Under the terms of the Non-Employee Director Stock
Option Plan:
(i) the option price per share is the market value at the time of grant;
(ii) the option does not become exercisable until the holder has been a
director for at least one year after the date of grant (except in the case
of death or a change in control of Fortune Brands, Inc.) and may generally
be exercised for 10 years from the date of grant; and
(iii) if the holder ceases to be a director other than by reason of
death, disability or retirement after five or more years of service as a
director, the option shall terminate and cease to be exercisable 30 days
after cessation of service, except in the event of a change in control of
Fortune Brands, Inc.
The Non-Employee Director Stock Option Plan provides that each option has a
limited right that, in the event of a change in control of Fortune Brands,
Inc., is exercised automatically unless the Nominating and Corporate
Governance Committee, which administers the Plan, determines that the limited
right is exercisable at some other time. This limited right entitles the
holder of the option to receive cash equal to the number of shares subject to
the option multiplied by the difference between the exercise price per share
and the greater of:
(i) the highest price per share paid for shares of our Common Stock
acquired in the change in control; and
(ii) the highest market value of shares of our Common Stock during the
60-day period beginning on the date of the change in control.
The option will be canceled to the extent of the exercise of the limited
right.
Retirement Benefit for Directors Elected Prior to April 30, 1997. Each
director who was elected to the Board of Directors prior to April 30, 1997,
and is not an officer or employee of Fortune Brands, Inc. or one of our
subsidiaries, and who voluntarily retires or decides not to stand for
reelection as a director will receive an annual retirement benefit equal to
the annual director's fee in effect at the time of retirement. This amount
will be paid for the number of years equal to the years of service as a
director. This amount does not include fees for committee service or for
service on boards of directors of subsidiaries. The retirement benefit is
payable beginning in the year in which such director retires or attains age
65, whichever occurs later. In the event of the director's death after
retirement, the benefit continues to be paid to the director's beneficiary
until payments have been made for as many years as the director served on the
Board. The benefit will be paid to the director's beneficiary if the director
dies prior to retirement, and has completed at least three years of service.
The Non-Employee Director Stock Option Plan was adopted as a substitute for
this retirement program. Directors elected prior to April 30, 1997 may choose
to continue to receive years of credit for this retirement benefit, or they
may chose to receive an annual option grant under the Non-Employee Director
Stock Option Plan.
Stock Plan for Non-employee Directors. Each non-employee director receives
482 shares of our Common Stock each year under the Stock Plan for Non-employee
Directors. The Company has an agreement with Mr. Lohman to defer payment of
these shares. While receipt of the shares is deferred, dividends are also
deferred and accrue interest quarterly from the dates such dividends would
have been paid at a rate equal to the average quarterly treasury bill rate.
Matching Gifts. Directors who are not officers or employees of the Company
are covered under our matching gift program. Under this program, we will make
a 200% match of gifts totaling up to $15,000 by the director to an eligible
charitable or educational institution.
9
<PAGE>
Charitable Award Program. Each director who is not an officer or employee of
the Company is covered under our charitable award program for non-employee
directors. Under the program, we will make future contributions of up to
$500,000 for each such director to charitable, educational or other qualified
organizations designated by the director. The contribution would be made after
the death of the director. Our obligation is funded by Company owned life
insurance policies. Mr. Wilson does not participate in this program.
Section 16(a) Beneficial Ownership Reporting Compliance
Each director and executive officer of the Company who is subject to Section
16 of the Securities Exchange Act of 1934 is required to file with the
Securities and Exchange Commission reports regarding their ownership and
changes in ownership of our equity securities. Reports received by the Company
indicate that all these directors and executive officers have filed all
requisite reports with the Securities and Exchange Commission on a timely
basis during or for 1998.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by the five most
highly compensated executive officers during each of our past three fiscal
years:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------- --------------------
Awards Payouts
------------ -------
Securities
Other Annual Underlying LTIP All Other
Name and Salary Compensation Options/SARs Payout Compensation
Principal Position Year ($) Bonus ($) ($)(1) (#) ($)(2) ($)(3)
------------------ ---- --------- --------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 1998 1,000,000 1,003,000 755,078 275,000 837,211 93,333
Chairman of the Board 1997 975,000 1,068,100 979,942 107,000 798,076 90,877
and Chief Executive 1996 940,500 823,953 602,594 93,000 427,380 190,578
Officer
John T. Ludes........... 1998 656,200 519,100 338,166 100,000 447,251 69,435
President and Chief 1997 625,000 524,900 439,229 56,500 368,322 54,285
Operating Officer 1996 575,000 414,300 333,729 50,000 171,004 106,878
Gilbert L. Klemann, II.. 1998 480,000 295,700 108,711 55,700 252,286 44,349
Executive Vice 1997 435,000 272,800 85,628 38,200 208,715 36,255
President--Strategic 1996 414,400 230,000 74,308 28,100 171,004 54,755
and Legal Affairs
Robert J. Rukeyser...... 1998 396,500 224,600 446,432 37,700 223,610 31,494
Senior Vice President-- 1997 385,000 228,000 109,088 27,500 208,715 32,127
Corporate Affairs 1996 370,800 194,300 38,900 25,000 171,004 49,056
Steven C. Mendenhall.... 1998 369,500 206,900 78,347 33,500 189,223 29,704
Senior Vice President 1997 358,700 213,200 77,033 24,000 165,751 30,205
and Chief 1996 344,900 180,700 32,487 20,900 128,319 45,738
Administrative Officer
</TABLE>
- --------
(1) As approved by stockholders, the Company makes contributions to trusts
established by executives in order to fund supplemental retirement and
profit-sharing benefits under the Company's Supplemental Plan on a current
basis. The executive is taxed on the contribution when made and the
earnings on the trust, but the Company provides the executive with an
additional amount to pay the taxes. The amounts distributed to the
executive at retirement, however, are not subject to tax and therefore the
Company contributes to the trusts only the present value of the
executive's after-tax benefit instead of being required to provide the
executive's pre-tax benefit upon
10
<PAGE>
retirement. The amounts set forth in the "Other Annual Compensation" column
include the amounts paid to the executive for reimbursement of taxes as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Thomas C. Hays................................ $688,002 $935,062 $522,168
John T. Ludes................................. 307,208 421,266 294,839
Gilbert L. Klemann, II........................ 91,168 67,665 49,492
Robert J. Rukeyser............................ 428,889 91,125 38,900
Steven C. Mendenhall.......................... 64,416 63,558 32,487
</TABLE>
(2) The LTIP Payout is the value of performance share payment for the
performance period ended in the year reported.
(3) These amounts include Company contributions to the tax qualified Defined
Contribution Plan of the Company and supplemental profit-sharing amounts
under the Company's Supplemental Plan as described below.
Company contributions to the tax qualified Defined Contribution Plan of the
Company for 1998 were $11,397 for each of Messrs. Hays, Ludes, Klemann,
Rukeyser and Mendenhall.
The Supplemental Plan provides for those amounts that would have been
contributed under the Company's tax qualified Defined Contribution Plan but
for certain Internal Revenue Code limitations. Supplemental profit-sharing
amounts credited under the Company's Supplemental Plan for 1998 were:
$81,936 for Mr. Hays; $43,940 for Mr. Ludes; $25,593 for Mr. Klemann;
$20,097 for Mr. Rukeyser; and $18,307 for Mr. Mendenhall.
In order to fund the Company's obligations to provide supplemental profit-
sharing benefits under the Company's Supplemental Plan as described above,
the Company made contributions under the trust funding arrangements
approved by stockholders. The following contributions to the trusts are not
listed in the "All Other Compensation" column for 1998 as they were made to
fund the supplemental profit-sharing liabilities already disclosed in the
"All Other Compensation" column: $44,601 for Mr. Hays; $23,928 for Mr.
Ludes; $13,743 for Mr. Klemann; $11,410 for Mr. Rukeyser; and $10,325 for
Mr. Mendenhall.
The Company made additional contributions in 1998 to the trusts to fund its
obligations for supplemental retirement benefits under the Company's
Supplemental Plan to Messrs. Hays, Ludes, Klemann, Rukeyser and Mendenhall.
See the Pension Plan Table on page 14 for a description of the amount of
these supplemental retirement benefits.
The Company provides a split-dollar life insurance program for certain
executive officers. All insurance proceeds from the split-dollar life
insurance program in excess of each executive's death benefit are payable
to the Company, and the program is designed for the Company to recover at
least its aggregate premium cost. The Company elected to prepay its share
of the full premiums for the policies covering the five executives
identified above in two annual installments in 1994 (the year the split-
dollar insurance program was established) and 1995. Additional split-dollar
life insurance was obtained in 1995 for Messrs. Hays and Ludes, and in 1998
for Messrs. Ludes and Klemann, in order to provide for the increased death
benefits attributable to their salary increases. The premiums for the
Company's share of the increased insurance obtained in 1995 were paid in
two annual installments in 1995 and 1996, and the premiums for the
Company's share of the increased insurance obtained in 1998 were paid in
two annual installments in 1998 and 1999. The amounts set forth in the "All
Other Compensation" column for 1996 for Messrs. Hays and Ludes, and for
1998 for Messrs. Ludes and Klemann, include the dollar value of insurance
premiums paid by the Company for split-dollar insurance as reduced by the
projected refund to the Company on the maturity of the policy calculated on
an actuarial basis. For 1998, $14,098 was included for Mr. Ludes and $7,359
was included for Mr. Klemann. The Company paid no premiums in 1997 for
split-dollar insurance coverage for the five executives identified above
and no amounts have been included as compensation for that year in the
foregoing table in respect of the split-dollar insurance program.
11
<PAGE>
The following table provides information on grants of stock options made in
1998:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or Grant Date
Options to Employees in Base Price Expiration Present
Name Granted (#)(1) Fiscal Year ($/SH) Date(2) Value ($)(3)
- ---- -------------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 100,000 3.9 38.6875 02/23/08 789,000
175,000 6.7 34.8125 11/16/08 1,162,000
John T. Ludes........... 100,000 3.8 34.8125 11/16/08 664,000
Gilbert L. Klemann, II.. 55,700 2.1 34.8125 11/16/08 369,848
Robert J. Rukeyser...... 37,700 1.5 34.8125 11/16/08 250,328
Steven C. Mendenhall.... 33,500 1.3 34.8125 11/16/08 222,440
</TABLE>
- --------
(1) All options are for shares of Common Stock of the Company. No stock
appreciation rights ("SARs") were granted during 1998. Options are
generally not exercisable until the expiration of one year from the date of
grant and the options granted on November 16, 1998 become exercisable in
three equal annual installments commencing one year after the date of
grant.
(2) The 1990 Long-Term Incentive Plan, as amended, further provides that each
option shall have a limited right ("Limited Right") which generally is
exercised automatically on the date of change in control of the Company.
The Limited Right generally entitles the holder of the option to receive
cash equal to the number of shares subject to the option multiplied by the
difference between the exercise price per share and (i) the fair market
value of such shares at the date of exercise of the Limited Right if the
option is an incentive stock option, and (ii) if the option is a
nonqualified stock option, the greater of (a) the highest price per share
paid for the shares of Common Stock of the Company acquired in the change
in control, and (b) the highest market value of shares of Common Stock
during a specified period prior to the time of exercise. The option is
canceled to the extent of the exercise of the Limited Right.
(3) Grant Date Present Value is determined using the Black-Scholes option
pricing model based on the following assumptions: (a) an expected option
term of four and a half years which reflects a reduction of the actual ten
year term of an option based on historical data regarding the average
length of time an optionee holds the option before exercising; (b) a risk-
free rate of return of 4.8%, the rate of a five year U.S. Treasury Zero
Coupon Bond corresponding to the expected option term; (c) stock price
volatility of 21.0% based on weekly closing stock market quotations for the
period June 1997 to May 1998; and (d) a yield of 2.7% based on the annual
dividend rate of $0.88 per share at the date of grant. The Grant Date
Present Values set forth in the table are only theoretical values and may
not accurately determine present value. The actual value, if any, to be
realized by an optionee will depend on the excess of the market value of
the Common Stock over the exercise price on the date the option is
exercised.
12
<PAGE>
The following table provides information concerning exercise of stock
options, alone or in tandem with SARs, made during 1998 by each of the five
most highly compensated executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options/ Options/SARs
Shares SARs at FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#)(1) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ --------------------- --------------------
<S> <C> <C> <C> <C>
Thomas C. Hays.......... 176,783 2,746,287 757,720/275,000 2,947,083/-0-
John T. Ludes........... 70,405 1,050,611 491,949/100,000 2,695,097/-0-
Gilbert L. Klemann, II.. 16,088 168,642 329,170/ 55,700 1,710,148/-0-
Robert J. Rukeyser...... 25,741 540,475 395,373/ 37,700 2,570,086/-0-
Steven C. Mendenhall.... -0- -0- 181,348/ 33,500 860,690/-0-
</TABLE>
- --------
(1) SARs permit an optionee, upon exercise of such rights and surrender of the
related option or part thereof, to receive a payment equal to the excess
of the fair market value (at the time of exercise) of the shares covered
by such option or part thereof so surrendered over the option price of
such shares. Such payment may be made in Common Stock of the Company
(valued on the basis of the fair market value of Common Stock at the time
of exercise), in cash, or partly in cash and partly in Common Stock of the
Company, as the Compensation and Stock Option Committee may determine.
The following table provides information concerning long-term compensation
awards made during 1998 to the five most highly compensated executive
officers:
Long-Term Incentive Plan--Awards in Last Fiscal Year
Performance Period 1999-2001
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock
Performance Price-Based Plans
Number of Shares, or Other Period ------------------------
Units or Other Until Maturation Threshold Target Maximum
Name Rights (#)(1) or Payout (#) (#) (#)
- ---- ----------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 30,700 3 yrs. 15,350 30,700 46,050
John T. Ludes........... 17,600 3 yrs. 8,800 17,600 26,400
Gilbert L. Klemann, II.. 12,400 3 yrs. 6,200 12,400 18,600
Robert J. Rukeyser...... 8,100 3 yrs. 4,050 8,100 12,150
Steven C. Mendenhall.... 7,300 3 yrs. 3,650 7,300 10,950
</TABLE>
- --------
(1) Performance share awards were granted for the January 1, 1999-December 31,
2001 performance period. These figures represent the number of shares that
will be awarded upon attainment of the average consolidated return on
equity and cumulative increase in diluted earnings per share targets for
the performance period 1999-2001.
The number of shares of Common Stock to be delivered for the performance
period 1999-2001 is based on the level of achievement of specified operating
goals of the Company and its consolidated subsidiaries during the performance
period. The target number of shares will be earned if 100% of the targeted
average consolidated return on equity and cumulative diluted earnings per
share are achieved and an additional amount of shares will be paid if the
targeted goals are exceeded, but the maximum number of shares paid will not
exceed 150% of the target amount. The threshold amount will be earned at the
achievement of 90% of the targeted average consolidated return on equity and
cumulative diluted earnings per share. In addition, cash dividend equivalents
will be paid, but only to the extent that the performance goals are achieved.
13
<PAGE>
Retirement Plans
The following table sets forth the highest estimated annual retirement
benefits payable to persons in the specified compensation and years of service
classifications upon retirement at normal retirement date, assuming election
of an annuity for the life of the employee only, under the plans of the
Company under which executive officers of the Company would be entitled to
benefits:
Pension Plan Table
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits
for Representative Years of Credited Service
---------------------------------------------------------
Remuneration 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 75,000 $112,500 $150,000 $187,500 $ 225,000 $ 262,500
600,000 90,000 135,000 180,000 225,000 270,000 315,000
700,000 105,000 157,500 210,000 262,500 315,000 367,000
800,000 120,000 180,000 240,000 300,000 360,000 420,000
900,000 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 210,000 315,000 420,000 525,000 630,000 735,000
1,600,000 240,000 360,000 480,000 600,000 720,000 840,000
1,800,000 270,000 405,000 540,000 675,000 810,000 945,000
2,000,000 300,000 450,000 600,000 750,000 900,000 1,050,000
2,200,000 330,000 495,000 660,000 825,000 990,000 1,155,000
2,400,000 360,000 540,000 720,000 900,000 1,080.000 1,260,000
</TABLE>
The estimated retirement benefits set forth in the preceding table include
any offset for Social Security benefits. The compensation covered by the plans
that provide retirement benefits to executive officers generally includes the
categories of "Salary" and "Bonus" from the Summary Compensation Table shown
above on page 10 averaged over the five highest consecutive years. The years
of service of Messrs. Hays, Ludes, Rukeyser and Mendenhall are 34, 20, 17 and
21, respectively. Mr. Klemann, who joined our employ in 1991, has a special
retirement arrangement which credits him with service since 1976 in order to
recognize that he devoted full time to our legal affairs from 1976 through
1990 while with our outside law firm.
Supplemental Plan. Executive officers will accrue all benefits after 1995
under the Supplemental Plan rather than the Company's tax qualified Retirement
Plan. The Supplemental Plan provides that Vice Presidents and more senior
officers of Fortune Brands, Inc. will receive an annual benefit equal to 52
1/2% of average compensation during the five highest-paid consecutive years of
employment. This 52 1/2% benefit is reduced by 1 1/2% of such average
compensation for each year that the officer retires prior to age 65 unless he
has completed 35 years of service. The benefit is also reduced by benefits
under the Fortune Brands, Inc. Retirement Plan and the retirement plans of our
subsidiaries and any prior employer.
The Supplemental Plan also pays the difference between the benefits payable
under our tax qualified Retirement Plan and the amount that would be payable
under our tax qualified Retirement Plan formula in excess of the Internal
Revenue Code limit on the amount of annual benefits that may be paid from a
tax qualified Retirement Plan. The current Internal Revenue Code limit is the
lesser of $130,000 or the employee's compensation during the three highest-
paid consecutive years of employment. The Internal Revenue Code also provides
that benefits under tax qualified plans cannot be based on compensation in
excess of a certain limit, currently $160,000. The Supplemental Plan
14
<PAGE>
provides the difference between the amount paid under our tax qualified
Retirement Plan and the amount that would have been paid if the $160,000 limit
on compensation were not included therein. In calculating benefits, no credit
is given for service in excess of 35 years.
Agreement with Mr. Hays. Mr. Hays has an agreement that his average annual
compensation under the Supplemental Plan will be determined using his three
highest-paid consecutive calendar years of employment rather than five. If Mr.
Hays becomes disabled or dies prior to normal retirement age of 65, or if we
terminate his employment for reasons other than cause, or Mr. Hays terminates
his employment for good reason (as defined in the agreement), Mr. Hays'
compensation at the date of his retirement is deemed to continue until his
normal retirement age for purposes of calculating this retirement benefit.
Change in Control Agreements. We have agreements with Messrs. Hays, Ludes,
Klemann, Rukeyser and Mendenhall to provide benefits if they are terminated
following a change in control of Fortune Brands, Inc. Each agreement states
that if, subsequent to a change in control, (1) Fortune Brands terminates the
officer's employment for a reason other than disability or cause, or (2) the
officer decides to terminate his employment for good reason (as defined in the
agreement), the officer will receive:
. three years of base salary, three times the amounts for one year of
his incentive compensation award and Defined Contribution Plan
allocation (and the supplemental profit-sharing allocation under the
Supplemental Plan);
. three additional years of service and earnings credit under our
retirement plans and agreements; and
. three additional years of coverage under our life, health, accident,
disability and other employee plans.
If the special excise tax under Section 280G of the Internal Revenue Code
applies, the agreements provide that we will restore amounts lost by the
executive officer. As Messrs. Hays and Ludes are within three years of normal
retirement date of age 65, the multiplier of three is reduced to the number of
years remaining until their normal retirement dates. The Company has
established "rabbi" trusts with a bank for the purpose of paying such amounts.
The executive officer would also be entitled to retain his split-dollar life
insurance policy in order to provide his death benefit, but any insurance
proceeds after death in excess of the death benefit will be returned to the
Company. Any amounts payable under these change in control agreements are
reduced by amounts payable under the severance agreements referred to below.
Severance Agreements. We have also entered into agreements with Messrs.
Hays, Ludes, Klemann, Rukeyser and Mendenhall to provide severance benefits
without regard to a change in control if Fortune Brands, Inc. terminates their
employment for reasons other than disability or cause, or if they terminate
their employment for good reason (as defined in the agreement). The severance
agreements provide the same benefits as those described above for a
termination of employment following a change in control except that the
multiplier is two in the case of Messrs. Ludes, Klemann, Rukeyser and
Mendenhall. Although the original multiplier for Mr. Hays was three, the
multiplier is one and one-quarter at February 1, 1999 as Mr. Hays had one and
one-quarter year remaining as of that date until his normal retirement date.
Report of the Compensation and Stock Option Committee on Executive
Compensation
The Company's executive compensation program assists the Company in
attracting, motivating and retaining the executive resources that it needs in
order to maximize its return to stockholders.
15
<PAGE>
Toward that end, the program provides:
. competitive levels of salary and total compensation;
. annual incentive compensation that varies with the annual financial
performance of the Company and its various operating companies as
well as the attainment of individual goals established for each
executive; and
. long-term incentive compensation to reward long-term financial
performance.
The Company provides levels of total compensation for executive officers
that are competitive with compensation for executives with comparable
responsibilities in corporations of similar size. The competitive information
is derived from a variety of sources, principally surveys of compensation
awarded by large, publicly-held corporations with median revenues in excess of
$2 billion that participate in the surveys (the "survey group"). The surveys
are conducted by Towers Perrin, the outside consultant of the Compensation and
Stock Option Committee (the "Committee") and Management Compensation Services,
a division of Hewitt Associates. Most of the companies in the survey group are
in the S&P 500 and some are in the Peer Group index described on page 20. The
Committee relies on a broad array of companies for comparative analysis of
executive compensation because the Committee believes that the Company's
competitors for executive talent are more varied than the Peer Group.
The Company's executive compensation program consists of three basic
elements--base salaries, annual incentive bonuses and long-term incentives.
The long-term incentive plans covering the Company's executive officers are
designed to ensure that incentive compensation varies based on the
profitability of the Company and its various operating companies and on the
performance of the Company's Common Stock. In addition, these plans as well as
the annual incentive bonus program provide the flexibility to reward
executives based on their individual performance.
Committee Responsibilities
The Company's By-laws require that the salaries of Vice Presidents and more
senior officers be fixed by the Committee. The Committee also has the
authority to select corporate performance measures for each year under the
annual incentive bonus program which, if attained, will establish an incentive
compensation fund for the year as well as to determine the allocation of the
fund among the participants. In addition, the Committee grants awards under
the Company's 1990 Long-Term Incentive Plan, which as described below
generally consisted in 1998 of stock options and performance share awards. The
Committee also reviews the design of the Company's executive compensation
programs, assesses their competitiveness and effectiveness and makes
recommendations with respect to them.
Each of the elements of the program is described in the report below,
including a discussion of the specific actions taken by the Committee with
respect to the Chief Executive Officer and the other executive officers for
1998.
Base Salaries
In determining salary adjustments for the Chief Executive Officer and other
executive officers the Committee sought to maintain salary levels that are
competitive with the survey group. The salary increase for the Chief Executive
Officer for 1998 was 2.6% which placed the Chief Executive Officer at 26%
above the median of the survey group. Excluding promotional increases for
three executive officers, the average salary increase for executive officers
during 1998 was 3.3%. These salary increases for the Chief Executive Officer
and the other executive officers were below the 4.2% average salary increase
for the survey group. In addition, three executive officers received
promotional increases. After giving effect to these promotional and other
increases, the salary levels of the Company's executive officers were within
the third quartile (the fourth quartile being the highest) of the survey
group.
16
<PAGE>
Annual Incentive Bonuses
The Company's Annual Executive Incentive Compensation Plan, approved by
stockholders, covers officers holding the office of Vice President and above.
The Committee determined at the beginning of 1998 that an incentive bonus fund
for the year be established of 2.5% of adjusted net income. Adjusted net
income was defined as the Company's income from continuing operations,
determined in accordance with generally accepted accounting principles, as
reflected in the audited consolidated statement of income for 1998, but
adjusted, net of income taxes, by the Company's independent accountants to (i)
eliminate restructuring charges or credits, (ii) eliminate other nonrecurring
charges or credits, as disclosed in the audited financial statements and notes
thereto, (iii) include the results of operations for such year from businesses
classified as "discontinued operations" prior to the disposition dates, and
(iv) to the extent not adjusted pursuant to the above items, eliminate gains
or losses resulting from the sale, disposal or writedown of intangible assets,
land or buildings, charges for impaired assets, businesses, securities
resulting from the sale of businesses and the sale of financial instruments.
In order to allocate the incentive bonus fund among the executives, the
Committee established a target level for the annual bonuses which was 50% of
salary for executive officers except that the target levels for the Chief
Executive Officer, the President and Chief Operating Officer and the Executive
Vice President-Strategic and Legal Affairs were 85%, 70% and 55% of salary,
respectively. The Committee also established a maximum percentage of the
incentive bonus fund that could be awarded to an individual executive officer
as follows: 24% to the Chief Executive Officer, 12% to the President and Chief
Operating Officer, 8% to the Executive Vice President-Strategic and Legal
Affairs and 6% to each of the other executive officers. The Committee has the
authority to reduce but not to increase the incentive bonus award. Individual
bonuses are based 80% on Company financial performance and 20% on individual
performance.
The target award levels assigned to the Chief Executive Officer and the
other executive officers were based on competitive practice and the target
percentage level for executive officers was set at the median of the survey
group. Based on pre-established earnings per share growth and individual
performance criteria, the Committee determined that the payment to the Chief
Executive Officer should be 118% of the target award and the payment to
executive officers generally should be 113% of the target award. The total
amount of the incentive bonuses paid to eligible officers for 1998 was 45% of
the total authorized incentive fund.
Long-Term Incentives
Under the Company's 1990 Long-Term Incentive Plan, the Committee can grant
to key employees of the Company and its subsidiaries a variety of long-term
incentives, including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, performance awards, dividend
equivalents and other stock-based incentives. During 1998, the Committee
granted incentive stock options and nonqualified stock options to executive
officers of the Company. Performance share awards were also granted for the
1999-2001 performance period.
The Committee intends that stock options and performance awards serve as a
significant portion of the executives' total compensation package, and thus
they are granted in consideration of present and anticipated performance, as
well as past performance. Annual and long-term incentives make up the major
portion of the total compensation of executive officers. Moreover, the stock
options and performance awards offer the executive officers significant long-
term incentives to increase their efforts on behalf of the Company and its
subsidiaries, to focus managerial efforts on enhancing stockholder value and
to align the interests of the executives with the stockholders. As indicated
above, the Committee's compensation philosophy is to have long-term incentives
that pay more for superior performance and less if performance does not
achieve that level. The Committee, in making its determinations with respect
to stock option and performance award grants to the individual senior
17
<PAGE>
executives was guided by the percentage of the individual's base salary that
the estimated value of the stock options and performance award would comprise.
The Committee sets the percentage of base salary that the long-term incentive
would represent at a level based on a comparison to the value of long-term
incentives awarded to similarly-compensated executives in the survey group as
a percentage of their base salary. The Committee used an option pricing
valuation method for purposes of making such comparison. The grants are
designed so that stock options comprise 60% of the long-term incentive grant
and performance awards comprise 40% thereof. These grants continue the
Committee's practice of providing executive officers with annual long-term
incentive grants that are at competitive levels as recommended by Towers
Perrin, the Committee's outside consultants.
In determining the level of grants for the executive officers, the Committee
considered several factors in its subjective judgment without any of these
factors being weighted greater than any other: first, that the Company and its
subsidiaries comprised a large and diverse organization with many operating
subsidiaries in four highly competitive industries doing business on a
worldwide basis; second, the complex task facing the executive officers in
managing and furthering the performance, growth and prospects of such an
organization; and third, the level of performance and results achieved by the
Company and its subsidiaries in recent years, particularly during a time when
very competitive conditions have been adversely affecting principal markets in
which many of the businesses operate, as well as the steps taken by the
executive officers to enhance stockholder value.
In November 1998 the Committee granted incentive and nonqualified stock
options. The options have an exercise price of not less than fair market value
of the stock on the date of grant. The options generally become exercisable in
three annual installments commencing one year from the date of grant, and
expire 10 years from the date of grant. Prior to the November 1998 grant,
options granted by the Committee became fully exercisable one year from the
date of grant. Benefits to an executive officer from stock options will be
realized only in the event of an increase in the market value of the Company's
Common Stock.
The Committee also granted performance share awards for the 1999-2001
performance period which are contingent upon the achievement by the Company
and its subsidiaries of specified average return on equity and cumulative
diluted earnings per share targets over the performance period 1999-2001.
Performance share awards will not be paid unless at least 90% of the targeted
consolidated return on equity and cumulative diluted earnings per share are
achieved in which event 50% of the target number of shares will be earned. The
target number of shares of the Company's Common Stock will be earned if 100%
of the targeted consolidated return on equity and cumulative diluted earnings
per share are achieved and an additional amount of shares will be paid if the
targeted goals are exceeded but the maximum number of shares paid will not
exceed 150% of the target amount. The performance share award grant when
aggregated with the November 1998 stock option grant to the Chief Executive
Officer and the other executive officers placed them on average at the 50th
percentile of the survey group. In addition, the recipients of these
performance awards will receive cash dividend equivalents at the time of
payment of the performance shares equal to the cash dividends that would have
been paid on the shares had the recipient owned the shares during the
performance period.
In February 1998 the Committee made an additional stock option grant to the
Chief Executive Officer. In determining to make this additional grant, the
Committee considered the extraordinary steps that the Company had taken during
the prior three years culminating in the spin-off of its international tobacco
operations in 1997. These efforts are viewed as highly successful and
increased shareholder value due in large part to the strength of Mr. Hays'
leadership as Chief Executive Officer during one of the most challenging and
significant periods in the Company's history. The Committee believes that the
grant is consistent with actions taken by other companies in comparable
situations and obtained the advice of Towers Perrin that the grant was
appropriate. This February 1998 grant to the Chief Executive Officer, when
aggregated with the November 1998 grant of stock options and performance
awards,
18
<PAGE>
placed the Chief Executive Officer in the third quartile of the survey group
for grants of long-term incentive awards.
The Internal Revenue Code limits the allowable tax deduction that may be
taken by the Company for compensation paid to the Chief Executive Officer and
the four other highest paid executive officers required to be named in the
Summary Compensation Table. The limit is $1 million per executive per year,
provided that compensation payable solely on account of the attainment of
performance goals is excluded from the limitation. It is the Committee's
intent to qualify as performance-based compensation to the extent practicable
the annual incentive bonus and stock options and performance awards in order
that these elements of compensation may qualify for the exclusion from the $1
million limit.
Compensation and Stock Option Committee
Gordon R. Lohman, Chairman
Patricia O. Ewers
John W. Johnstone, Jr.
Sidney Kirschner
February 22, 1999
FORTUNE BRANDS, INC. STOCK PRICE PERFORMANCE
(With Dividend Reinvestment)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period S&P 500 Peer group
(Fiscal Year Covered) Fortune Brands Index Index*
- ------------------- -------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-
12/31/93 100.0 100.0 100.0
94 119.6 101.3 101.7
95 148.9 139.4 135.8
96 173.6 171.4 160.8
97 211.4 228.5 205.8
98 184.9 293.9 203.7
</TABLE>
19
<PAGE>
Peer Group Index
The Peer Group is composed of publicly traded companies in industry segments
corresponding to the Company's current four core businesses: the Distilled
Spirits segment is composed of Brown-Forman Corporation, The Seagram Company,
Ltd., Allied Domecq PLC, Grand Metropolitan PLC (through December 16, 1997
when it ceased trading due to its merger with Guinness PLC) and Diageo PLC,
formerly known as Guinness PLC; the Home Products segment is composed of Masco
Corporation, The Black & Decker Corporation, Newell Co. and The Stanley Works;
the Office Products segment is composed of Hunt Manufacturing Co., General
Binding Corporation and Avery Dennison Corporation (Rubbermaid has been
deleted because it is no longer in the office products businesses for which it
was previously included); and the Golf and Leisure segment is composed of The
Arnold Palmer Golf Company, formerly known as ProGroup, Inc., Brunswick
Corporation and Callaway Golf Company. Salomon S.A. has been deleted as it was
no longer publicly traded after February 1998.
The weighted average total return of the entire Peer Group, for each year,
is calculated as follows: (1) the total return of each Peer Group member is
calculated by dividing the change in market value of a share of its common
stock, assuming periodic dividend reinvestment, by the cumulative value of a
share of its common stock at the beginning of the year (the total return for
Grand Metropolitan PLC has been weighted in 1997 for actual trading days); (2)
each Peer Group member's total return is then weighted within its industry
segment based on its market capitalization at the beginning of the year,
relative to the market capitalization of the entire segment, and the sum of
such weighted returns results in a weighted average total return for that
segment; and (3) each segment's weighted average total return is then weighted
based on the percentage of sales, excluding excise taxes, of that segment of
the Company for the year, as compared with total Company sales, excluding
excise taxes, and the sum of such weighted returns results in a weighted
average total return for the entire Peer Group.
The Peer Group Index reflects the weighted average total return for the
entire Peer Group calculated for the five year period from a base of 100.
The Report of the Compensation and Stock Option Committee on Executive
Compensation and the Fortune Brands, Inc. Stock Price Performance graph shall
not be deemed to be "soliciting material" or to be "filed" with the SEC or
subject to Regulation 14A or 14C of the Regulations of the SEC under the
Exchange Act, or to the liabilities of Section 18 of the Exchange Act.
Item 2
ELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that you elect PricewaterhouseCoopers LLP
as our independent accountants for 1999. In line with this recommendation, the
Board of Directors intends to introduce the following resolution at the Annual
Meeting (designated as Item 2):
"RESOLVED, that PricewaterhouseCoopers LLP be and they are hereby elected
independent accountants for the Company for the year 1999."
A member of PricewaterhouseCoopers LLP will attend the Annual Meeting to
make a statement if he desires, and to respond to appropriate questions that
may be asked by stockholders.
The Board of Directors recommends that you vote FOR Item 2.
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Item 3
APPROVAL OF THE FORTUNE BRANDS, INC.
1999 LONG-TERM INCENTIVE PLAN
The Board of Directors has adopted, subject to your approval, the Fortune
Brands, Inc. 1999 Long-Term Incentive Plan (the "New Plan"). The New Plan will
replace the Fortune Brands, Inc. 1990 Long-Term Incentive Plan (the "Old
Plan") as no awards may be granted under the Old Plan after December 31, 1999.
Purpose of Plan
Many corporations, including our competitors, are using long-term
performance and stock-based incentive compensation, as well as stock options,
to hire and retain outstanding employees. We believe that we should continue
to have the flexibility to grant various types of performance-related and
stock-based compensation as we had under the Old Plan. The New Plan will aid
Fortune Brands and our subsidiary companies in securing and retaining key
employees of outstanding ability by making it possible to offer them increased
incentives, including a proprietary interest in Fortune Brands, to join or
continue in service with us or our subsidiary companies and to increase their
efforts to enhancing stockholder value.
Summary of Terms of New Plan
The following is a summary of the most important terms of the New Plan. The
full text of the New Plan is attached to this Proxy Statement as Exhibit A.
Please refer to Exhibit A for a more complete description of the terms of the
New Plan. The New Plan is substantially similar to the Old Plan except, as
noted below, the New Plan provides limitations on the amounts of shares that
may be made subject to various types of awards.
Types of Awards
The New Plan permits the granting of the same types of awards as under the
Old Plan which are:
. Stock options . Restricted stock
. Stock appreciation rights . Other stock-based awards
. Performance awards . Dividend equivalents.
Eligible Participants
The New Plan will be administered by the Compensation and Stock Option
Committee (the "Committee") appointed by our Board of Directors and consisting
of at least three non-employee directors. The Committee has the authority to
select, from among the key employees eligible for awards, the individuals to
whom awards will be granted and the type and amount of each award. There are
approximately 650 key employees of the Company and its subsidiaries eligible
to receive awards under the Plan.
The identity of the key employees to receive awards, and the amounts of
awards, under the New Plan are not yet determinable. During 1998, however, 648
key employees were granted stock options covering 2,598,300 shares under the
Old Plan, including stock options covering 594,300 shares granted to eight
executive officers. In addition, eight executive officers were granted
performance awards covering 96,400 shares, assuming performance at target,
during 1998 under the Old Plan. For information about awards under the Old
Plan during 1998 to our Chief Executive Officer and our other four most highly
compensated executive officers, see "Executive Compensation" on pages 10 to
15. We
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have not granted stock appreciation rights since 1991 or restricted stock
since 1994, nor have we granted other stock-based awards under the Old Plan.
Maximum Number of Shares
Up to 12,000,000 shares of Common Stock may be granted under the New Plan
but no more than 2,000,000 shares may be granted to any individual. These are
the same limits as provided under the Old Plan. These amounts are subject to
adjustment for stock splits, stock dividends and other changes in the
Company's capital structure. Shares may be authorized and unissued shares or
treasury shares. Shares covered by the unexercised or undistributed portion of
any terminated, expired or forfeited award are available for further awards
under the New Plan as are shares withheld or delivered for tax withholding or
as the exercise price of a stock option. In addition, certain awards may be
payable in cash.
No awards may be made under the New Plan after December 31, 2004.
Stock Options and Stock Appreciation Rights
The Committee will set the terms of each option at the time of grant, but
the exercise may not be less than 100% of the fair market value at the time of
grant. An option will not become exercisable until the participant remains in
our employ for at least one year after grant and may be exercisable for ten
years unless an earlier expiration date is stated in the option. Payment of
the option price must be made in full upon exercise, either in cash or shares
of Common Stock held for at least a year with a market value equal to the
option price. If permitted in the option agreement, a participant may
simultaneously exercise an option and sell the shares of Common Stock acquired
pursuant to a brokerage or similar arrangement and use the proceeds from such
sale as payment of the purchase price of such shares. The closing price per
share of the Company's Common Stock on the New York Stock Exchange on March 8,
1999 was $30.
Options may be either incentive stock options or options not qualifying
under the Internal Revenue Code. To the extent that the aggregate market value
(determined at the time of grant) of shares with respect to which an incentive
stock option is exercisable for the first time by any participant during any
year exceeds $100,000, such option will be treated as a nonqualified stock
option to the extent of such excess.
An option will expire 30 days after termination of employment for reasons
other than death, disability or retirement. If employment terminates by reason
of death, disability or retirement under our retirement plan or a retirement
plan of one of our subsidiaries, the option may continue to be exercised until
the expiration date set forth in the option. In the case of a participant
whose principal employer is a subsidiary company, the participant's employment
shall be deemed to be terminated as of the date on which the principal
employer ceases to be one of our subsidiaries.
The Committee is authorized to grant stock appreciation rights in
conjunction with a stock option. Stock appreciation rights entitle recipients
to receive payments in cash, shares or a combination, of an amount
representing the appreciation in the market value of a specified number of
shares from the date of grant until the date of exercise. To the extent an
option is exercised, any stock appreciation right granted in respect of such
option is canceled. To the extent a stock appreciation right is exercised, its
related option is canceled.
The Committee may grant options which have terms different from incentive
stock options and nonqualified stock options in order to comply with foreign
tax laws. The Committee may also grant stock appreciation rights without
options to key employees in certain foreign jurisdictions.
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<PAGE>
Performance Awards
The Committee may also grant performance awards under the New Plan.
Performance criteria may be selected by the Committee from among the following
measures or any combination whether applicable to the Company or any subsidiary
or business unit:
. revenues . net income
. operating income . earnings per share
. operating company contribution. economic value added
. cash flow . return on equity or assets
. income before income taxes . total return to stockholders.
The Committee must select a minimum performance goal below which no payment
will be made and a maximum performance goal above which no increased payment
will be made. The Committee may adjust the performance goals to take into
account changes in law and accounting and tax rules and to make adjustments
that it decides are necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances. The Committee
designates the period over which the performance factors are measured, but the
performance period must be at least two years.
Performance awards are forfeited if the participant terminates employment
prior to the end of the performance period, unless the termination of
employment is by reason of death, disability or retirement under one of our
retirement plans.
Performance awards are payable in cash or shares of Common Stock, or a
combination of cash and shares, at the end of the performance period or on a
deferred basis, with interest or earnings equivalent, as determined by the
Committee. Up to 1,000,000 shares of Common Stock may be made subject to
performance awards. An individual participant may not be granted performance
awards for the term of the New Plan in excess of 500,000 shares or in excess of
$5,000,000.
Restricted Stock
The Committee may award shares of Common Stock which are subject to
restrictions and conditions as determined by the Committee. The restrictions
typically require a period of service after the date of grant. Shares of
restricted stock are nontransferable during the restricted period. Up to
100,000 shares of Common Stock may be awarded as restricted stock under the New
Plan.
Each recipient will receive a restricted stock award agreement detailing the
restrictions to which the shares are subject and the date or dates on which the
restrictions will lapse. Shares of restricted stock are non-transferable during
the restriction period. If a participant who has shares of restricted stock
terminates employment for any reason other than death, disability or retirement
under one of our retirement plans before the restrictions have lapsed, the
participant will forfeit all shares that are still subject to the restrictions.
Prior to the lapse of restrictions on shares of restricted stock, the
participant will have all other rights of a stockholder with respect to the
shares.
Other Stock-Based Awards
The Committee may grant other awards under the New Plan pursuant to which
shares of Common Stock (which may, but need not, be shares of restricted stock)
are or may in the future be acquired, or awards denominated in stock units,
including ones valued using measures other than market value. Up to 100,000
shares of Common Stock may be awarded as other stock-based awards under the New
Plan.
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Dividend Equivalents
The Committee may, in its discretion, provide that any performance awards,
restricted stock awards or other stock-based awards under the New Plan may earn
dividend equivalents. If any award is outstanding on a dividend record date for
Common Stock, the Committee may credit a participant with an amount equal to
the cash or stock dividends or other distributions that would have been paid on
the shares of Common Stock covered by such award had such covered shares been
issued and outstanding on such dividend record date. The Committee shall
establish the rules and procedures governing the crediting of dividend
equivalents, including the timing, form of payment and payment contingencies.
For example, the Committee may require that the performance goals for a
performance award must be satisfied prior to payment of dividend equivalents
relating to performance awards.
Change in Control
In the event of a change in control of Fortune Brands, stock options and
stock appreciation rights become immediately exercisable.
Each stock option also has a limited right ("Limited Right") which may be
exercised during the 60-day period beginning on the date of the change in
control ("Limited Right Exercise Period"). The Limited Right entitles the
holder to receive the cash equivalent of the number of shares subject to the
option multiplied by the difference between the option exercise price per share
and:
. if the option is an incentive stock option, the market value of the
shares on the exercise date of the Limited Right; or
. if the option is a nonqualified stock option, the greater of (i) the
highest price per share paid for shares of Common Stock in the change
in control and (ii) the highest market value of shares of Common
Stock during the Limited Right Exercise Period prior to the date of
exercise.
A participant whose employment is terminated on or after a change in control
may continue to exercise his option or stock appreciation right during the
Limited Right Exercise Period unless termination of employment is for "just
cause" (as defined in the New Plan). Limited Rights may be deemed to be
automatically exercised at the date of the change in control or at any other
time during the Limited Right Exercise Period as determined by the Committee.
The option is canceled if the Limited Right is exercised. The Limited Right is
canceled if the option is exercised.
Performance awards, restricted stock awards, and other stock-based awards
will be fully vested (with performance goals deemed to have been achieved at
the maximum level) at the date of change in control but the amount of benefit
will be prorated based on the length of the performance period or restriction
period through the date of the change in control.
A change in control is defined in the New Plan as:
. the acquisition by a person or group of beneficial ownership of 20%
or more of outstanding voting stock;
. a majority of our current Board of Directors (or successor directors
approved by our current directors) cease to be continuing directors;
. a merger, consolidation or sale of substantially all the assets of
Fortune Brands in a transaction in which our stockholders immediately
prior to the transaction do not own at least 60% of the voting power
of the surviving, resulting or transferee entity; or
. stockholders approve a complete liquidation or dissolution of Fortune
Brands.
The definition excludes purchases or sales of stock by or from the Company or
one of our employee benefit plans or trusts.
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<PAGE>
Amendment and Termination
The Board of Directors has the power to amend the New Plan at any time. It
does not have the power, without your approval, to:
. increase the maximum number of shares authorized for issuance
pursuant to the New Plan;
. change the class of eligible employees to other than key employees;
. reduce the basis upon which the minimum stock option price is
determined;
. extend the period within which awards under the New Plan may be
granted beyond December 31, 2004; or
. provide for a stock option exercisable more than ten years from the
date of grant, except in the event of death.
The Board of Directors may suspend or terminate the New Plan at any time. No
such suspension or termination, however, shall affect options or stock
appreciation rights then in effect. In the event of termination of the New
Plan, or in the event Fortune Brands divests a subsidiary that is a
participant's employer, performance awards, restricted stock awards and other
stock-based awards will be fully vested (with performance goals deemed to have
been achieved at the maximum level) but the amount of benefit will be prorated
based on the length of the performance period or restriction period through
the date of the termination or divestiture.
Other Terms
The New Plan provides that no award shall be transferable by a participant
other than (i) as a gift to immediate family members or to a trust or
partnership solely for their benefit to the extent provided in the award
agreement or (ii) by will or the laws of descent and distribution.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences of awards under the New Plan. This summary is not intended to be
exhaustive and does not describe state, local or foreign tax laws.
Incentive Stock Options:
An incentive stock option grant will not result in any immediate tax
consequences to Fortune Brands or to the participant. A participant will not
realize taxable income upon the exercise of an incentive stock option (except
that the alternative minimum tax may apply), provided the participant was an
employee of Fortune Brands or one of our subsidiaries at all times from the
date the option was granted to the date three months (in the case of a
disabled employee, one year) before the date the option is exercised, and we
will not be entitled to any deduction. If the participant does not dispose of
the stock acquired within one year of receiving it (and two years after such
option was granted), gain or loss realized on the subsequent disposition of
the stock will be treated as long term capital gain or loss.
If the participant disposes of the stock prior to those times, the
participant will realize ordinary income in an amount equal to the lesser of
(i) the excess of the fair market value of the stock on the date of exercise
over the option price; or (ii) if the disposition is a taxable sale or
exchange, the amount of gain realized. Any gain recognized by the participant
on the disposition in excess of the amount taxable as ordinary income will be
treated as capital gain, long or short term depending on whether the stock has
been held for more than one year. Upon such a disposition, we will generally
be entitled to a deduction in the same amount and at the same time as the
participant realizes such ordinary income.
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<PAGE>
Nonqualified Stock Options
The grant of a nonqualified stock option will not result in any immediate
tax consequence to Fortune Brands or the participant. Upon exercise of a
nonqualified stock option, the participant will realize ordinary income in an
amount equal to the market value of the stock at the time of exercise over the
option price, and we will generally be entitled to a deduction in the same
amount.
Stock Appreciation Rights
The grant of a stock appreciation right will not result in any immediate tax
consequence to Fortune Brands or to the participant. Upon the exercise of a
stock appreciation right, any cash received and the market value of any stock
received will constitute ordinary income to the participant. We will generally
be entitled to a deduction in the same amount and at the same time as the
participant realizes such income.
Restricted Stock
A participant who receives restricted stock will in most cases be subject to
tax at ordinary income rates on the market value of the restricted stock at
the time the restrictions lapse.
In the case of a sale of shares after the expiration of the restriction
period, the holding period to determine whether the participant has long-term
or short-term capital gain or loss begins upon such expiration and the tax
basis for such shares will be equal to the market value thereof on such date.
In most instances, we will be entitled to a deduction equal to the amount
treated as compensation to the participant.
Performance Awards and Other Stock-Based Awards
A participant who receives any performance award or other stock-based award
will recognize income, and we will generally be allowed a deduction, when the
award is paid. The amount of cash and the market value of the shares of Common
Stock received will be ordinary income to the participant and we will
generally be entitled to a tax deduction for the same amount.
Dividend Equivalents
Dividend equivalents generally will be taxed at ordinary income rates when
paid to the participant. In most instances they will be treated as additional
compensation that we will be able to deduct at that time.
Tax Deductibility Limitation
The Internal Revenue Code limits the allowable tax deduction that may be
taken by us for compensation paid to the Chief Executive Officer and the four
other highest paid executive officers. The limit is $1,000,000 per executive
per year, but compensation payable solely on account of the attainment of
performance goals is excluded from the limitation. Under the New Plan, stock
options, stock appreciation rights and performance awards (and related
performance-based dividend equivalents) are intended to qualify as performance
based compensation not subject to the $1,000,000 limitation. Restricted stock
and other stock-based awards that are not performance based would be subject
to the limitation.
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<PAGE>
RESOLUTION FOR ITEM 3
The resolution to approve the Fortune Brands, Inc. 1999 Long-Term Incentive
Plan is a follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
Fortune Brands, Inc. 1999 Long-Term Incentive Plan submitted to this Annual
Meeting be and it is hereby approved."
The Board of Directors recommends that you vote FOR Item 3.
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS
The following table shows the beneficial ownership of Common Stock of
Fortune Brands, Inc. by each nominee for director and other directors, each
executive officer listed on page 10, and of such persons and other executive
officers of the Company as a group (20 persons total) on February 11, 1999.
The table is based on information we received from the nominees, other
directors and executive officers, our Corporate Employee Benefits Committee,
and the Trustee of our Defined Contribution Plan. The table also lists the
ownership of more than 5% of the Common Stock of Fortune Brands, Inc. by the
person reporting such ownership.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percent of
Name (b)(c)(d) Class
---- -------------------- ----------
<S> <C> <C>
Delaware Management Holdings, Inc.(a)... 9,641,521 5.64%
Eugene R. Anderson...................... 13,781 *
Patricia O. Ewers....................... 5,481 *
Thomas C. Hays.......................... 1,064,136 *
John W. Johnstone, Jr. ................. 6,181 *
Sidney Kirshner......................... 2,864 *
Gilbert L. Klemann, II.................. 347,465 *
Gordon R. Lohman........................ 4,717 *
John T. Ludes........................... 553,192 *
Steven C. Mendenhall.................... 208,512 *
Charles H. Pistor, Jr. ................. 4,864 *
Eugene A. Renna......................... 1,170 *
Robert J. Rukeyser...................... 451,588 *
Anne M. Tatlock......................... 5,699 *
John W. Thompson........................ 5,004 *
Norman H. Wesley........................ 378,963 *
Peter M. Wilson......................... 2,622 *
Directors and executive officers as a
group (20) persons..................... 3,717,775 *
</TABLE>
- --------
* Less than 1%
(a) To the best of our knowledge, no one person was the beneficial owner of
more than 5% of the outstanding voting securities of the Company or more
than 5% of any class of voting securities of the Company at February 11,
1999, except that, based on a Schedule 13G filed with the Securities and
Exchange Commission, Delaware Management Holdings, Inc. together with
certain entities that filed that Joint Acquisition Statement on Schedule
13G, reported beneficial ownership on December 31, 1998 of 9,641,521
shares of Common Stock with sole voting power for 9,119,621 shares and
shared voting power for 521,900 shares. The address of Delaware Management
Holdings, Inc. is One Commerce Square, Philadelphia, Pennsylvania 19103.
The filing entities reported that the shares were acquired in the ordinary
course of business and were not acquired for the purpose of and do not
have the effect of changing or influencing control.
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(b) No individual director or nominee for director or executive officer
beneficially owns one percent or more of the outstanding equity securities
of the Company. The percentage ownership of the outstanding equity
securities by the nominees and other directors and all executive officers
as a group was 2.2% at February 11, 1999. To the best of our knowledge,
each nominee and Class II and Class III director and executive officer who
is not a director has sole voting and investment power with respect to
shares shown above, other than with respect to the shares listed in Note
(d) below that may be acquired upon exercise of options, and except as
follows: Mr. Hays shares voting and investment power as a co-trustee of
various family trusts with respect to 5,107 shares and with respect to
which shares he disclaims beneficial ownership and Mr. Hays has no voting
or investment power with respect to 4,000 shares held in trust for the
benefit of his wife and with respect to which shares he disclaims
beneficial ownership; Mr. Ludes has no voting or investment power with
respect to 12,691 shares held in trust for the benefit of his wife and
with respect to which shares he disclaims beneficial ownership; and Mr.
Pistor shares voting and investment power with his wife with respect to
2,300 shares.
(c) The numbers of shares attributable to Company contributions under the
Defined Contribution Plan of the Company included in the numbers shown
above are as follows: Thomas C. Hays, 2,873; Gilbert L. Klemann, II,
2,561; John T. Ludes, 3,197; Steven C. Mendenhall, 2,529; and Robert J.
Rukeyser, 6,493. The numbers of shares attributable to employee
contributions under such Plan included in the numbers shown above are:
Thomas C. Hays, 7,570; Gilbert L. Klemann, II, 642; John T. Ludes, 504;
Steven C. Mendenhall, 2,370; and Robert J. Rukeyser, 861. The Trustee of
the Defined Contribution Plan has agreed to vote the shares it holds in
the Trust in accordance with instructions received from members of the
Plan and shares as to which instructions are not received are voted by the
Trustee proportionally in the same manner as shares as to which the
Trustee has received instructions. The number shown in the table above
includes 52,708 shares of Common Stock held on December 31, 1998 by the
Trustee of the Defined Contribution Plan of the Company (including certain
of those referred to above) which number is equivalent as of that date to
the undivided proportionate beneficial interests of the directors and
executive officers of the Company in all such shares.
(d) The numbers of shares of which the nominees and Class II and Class III
directors and Messrs. Mendenhall and Rukeyser had the right to acquire
beneficial ownership pursuant to the exercise on or before April 12, 1999
of options granted by the Company are as follows: Eugene R. Anderson,
3,217; Patricia O. Ewers, 3,217; Thomas C. Hays, 857,720; John W.
Johnstone, Jr., 3,217; Gilbert L. Klemann, II, 329,170; Gordon R. Lohman,
3,217; John T. Ludes, 491,949; Steven C. Mendenhall, 181,348; Robert J.
Rukeyser, 395,373; Anne M. Tatlock, 3,217; John W. Thompson, 3,217; and
Norman H. Wesley, 353,005. The number of shares shown in the table above
includes 3,222,236 shares (including those referred to in the prior
sentence) of which the directors and executive officers as a group had the
right to acquire beneficial ownership pursuant to the exercise on or
before April 12, 1999 of options granted by the Company. Inclusion of such
shares does not constitute an admission by any nominee, director or
executive officer that he is the beneficial owner of such shares.
To the best of the Company's knowledge, directors and executive officers did
not own any shares of $2.67 Convertible Preferred Stock of Fortune Brands,
Inc. and, except as set forth in the above table, no one person was the
beneficial owner of more than 5% of the outstanding voting securities of the
Company or of more than 5% of any class of voting securities of the Company at
February 11, 1999.
28
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SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
What governs stockholder proposals and nominations?
Our Certificate of Incorporation contains procedures for stockholder
nomination of directors. Our By-laws contain procedures for other stockholder
proposals to be presented before annual stockholder meetings.
Who can make a nomination?
According to our Certificate of Incorporation, any record owner of stock
entitled to be voted generally in the election of directors may nominate one or
more persons for election as a director at a stockholders' meeting.
How do I go about making a nomination?
If you are a record owner of stock and you wish to make a nomination, you
must notify our Secretary, in writing, of your intent. You must give your
written notice 120 days before the annual meeting, that is, by January 3, 2000
for the 2000 annual meeting, and it must include:
. the names and addresses of you and any other stockholder who intends
to appear in person or by proxy to make the nomination, and of the
person or persons to be nominated;
. a description of all arrangements or understandings between you and
each nominee and any other person or persons (naming them) pursuant
to which the nomination is to be made;
. any other information regarding each of your proposed nominees that
would be included in a proxy statement; and
. the consent of each nominee to serve if elected.
Who can make a proposal?
According to the By-laws, a proposal or other business to be considered at
the annual meeting of stockholders can be made by a person who is a stockholder
of record.
How do I go about making a proposal?
If you are a record owner of stock and you wish to make a proposal, you must
notify our Secretary, in writing, of your intent. You must give your written
notice 120 days before the annual meeting, that is, by January 3, 2000 for the
2000 annual meeting, and it must include:
. a brief description of the business to be brought before the meeting,
the reasons for conducting the business and any material interest
that you or the beneficial owners, if any, on whose behalf you are
making the proposal may have in the business;
. your name and address, and the names and addresses of the beneficial
owners, if any, on whose behalf you are making the proposal, as they
appear on our books; and
. the class and number of shares of our stock that are owned
beneficially and of record by you and the beneficial owners.
The By-laws also provide that stockholders who wish to have a proposal
included in the Company's proxy statement must comply with the applicable
requirements of the Exchange Act, as well as its rules and regulations. Such
stockholders also have the benefit of the rights provided by Rule 14a-8 of the
Exchange Act. In order to be eligible under Rule 14a-8 for inclusion in the
Company's proxy statement and accompanying proxy at the next annual meeting of
stockholders currently scheduled to be held on May 3, 2000, stockholder
proposals must be received by the Company on or before November 13, 1999.
29
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A copy of the Certificate of Incorporation and By-law provisions is
available upon written request to Mr. Louis F. Fernous, Jr., Vice President
and Secretary, Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870. The person presiding at the meeting is authorized to
determine if a proposed matter is properly before the meeting or if a
nomination is properly made.
MISCELLANEOUS
A copy of the Company's annual report on Form 10-K as filed with the SEC for
its last fiscal year, including any financial statements and financial
statement schedules thereto, will be made available to stockholders without
charge upon written request to Mr. Louis F. Fernous, Jr., Vice President and
Secretary, Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870. The Company will furnish any exhibits to Form 10-K to each
stockholder requesting them upon payment of a fee of $.10 per page to cover
their cost.
The Company will bear the expense of soliciting proxies for this meeting,
including mailing costs. In addition to mailing copies of this material to
stockholders, we will request that persons who hold stock in their names or
custody, or in the names of nominees, for the benefit of others, to forward
copies of these materials to the beneficial owners of our stock, and to
request the authority to execute the proxies. In order to assure that there is
sufficient representation at the meeting, our officers and regular employees
will request the return of proxies by telephone, facsimile, or in person. In
addition, we have retained Morrow & Co., Inc., 445 Park Avenue, New York, New
York 10022, to aid in soliciting proxies for a fee, including its expenses,
estimated at $15,000. Our total expenses will depend upon the volume of shares
represented by the proxies received promptly in response to the notice of
meeting.
Stockholders who do not intend to be present at the meeting are urged to
send in their proxies without delay or vote their proxies by telephone or via
the Internet. Prompt response is helpful, and your cooperation will be
appreciated.
February 26, 1999
30
<PAGE>
EXHIBIT A
[LOGO] FORTUNE BRANDS, INC.
1999 LONG-TERM INCENTIVE PLAN
1. Purpose of Plan
The purpose of this 1999 Long-Term Incentive Plan (the "Plan") is to aid
Fortune Brands, Inc. and its Subsidiaries (the "Company") in securing and
retaining Key Employees of outstanding ability by making it possible to offer
them increased incentives, which may include a proprietary interest in the
Company, to join or continue in the service of the Company and to increase
their efforts for its welfare.
2. Definitions
As used in the Plan, the following words shall have the following meanings:
(a) "Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, an award or grant of an Option, Right,
Restricted Stock, Performance Award or Other Stock-Based Award, or any
combination of the foregoing;
(b) "Award Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable
to an Award;
(c) "Board of Directors" means the Board of Directors of Fortune;
(d) "Committee" means the Compensation and Stock Option Committee of the
Board of Directors;
(e) "Common Stock" means common stock of Fortune;
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
(g) "Fortune" means Fortune Brands, Inc.;
(h) "Incentive Stock Option" means a stock option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Internal Revenue Code;
(i) "Key Employee" means any person, including an officer or director, in
the regular full-time employment of the Company who, in the opinion of the
Committee, is or is expected to be primarily responsible for the management,
growth or protection of some part or all of the business of the Company;
(j) "Limited Right" means a right to receive cash in lieu of the exercise of
an Option or Right as set forth in Section 12(b);
(k) "Nonqualified Stock Option" means a stock option to purchase shares of
Common Stock which is intended not to qualify as an incentive stock option as
defined in Section 422 of the Internal Revenue Code;
(l) "Option" means an Incentive Stock Option, a Nonqualified Stock Option or
an option granted pursuant to Section 14(a);
(m) "Other Stock-Based Award" means an Award pursuant to Section 8;
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(n) "Participant" means a person to whom one or more Awards have been granted
that have not all been forfeited or terminated under the Plan;
(o) "Performance Period" means the period specified with respect to a
Performance Award during which specified performance criteria are to be
measured;
(p) "Performance Award" means an Award granted pursuant to Section 7;
(q) "Restricted Stock" means shares of Common Stock granted pursuant to
Section 6 or as part of a Performance Award or an Other Stock-Based Award;
(r) "Right" means a stock appreciation right to elect to receive shares of
Common Stock with a fair market value, at the time of any exercise of such
stock appreciation right, equal to the amount by which the fair market value of
all shares subject to the Option (or part thereof) in respect of which such
stock appreciation right was granted exceeds the exercise price of said Option
(or part thereof) or to receive from Fortune, in lieu of such shares, the fair
market value in cash, or to receive a combination of such shares and cash, as
provided in Section 5, and shall also mean a stock appreciation right granted
pursuant to Section 14(b); and
(s) "Subsidiary" means any corporation, other than Fortune, in an unbroken
chain of corporations or other entities beginning with Fortune if each of the
corporations, or other entities other than the last corporation or entity in
the unbroken chain owns 50% or more of the voting stock in one of the other
corporations in such chain, except that with respect to Incentive Stock
Options, "Subsidiary" means "subsidiary corporation" as defined in Section
424(f) of the Internal Revenue Code.
3. Administration of Plan
The Plan shall be administered by the Committee whose members shall be
appointed by the Board of Directors and consisting of at least three members of
the Board of Directors. The members of the Committee shall qualify to
administer the Plan for purposes of Rule 16b-3 (and any other applicable rule)
promulgated under Section 16(b) of the Exchange Act. The Committee may adopt
its own rules of procedure, and the action of a majority of the Committee,
taken at a meeting, or taken without a meeting by unanimous written consent of
the members of the Committee, shall constitute action by the Committee. The
Committee shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make changes in
such rules.
4. Awards
The Committee may from time to time make such Awards under the Plan to such
Key Employees and in such form and having such terms, conditions and
limitations as the Committee may determine. Awards may be granted singly, in
combination or in tandem. The terms, conditions and limitations of each Award
under the Plan shall be set forth in an Award Agreement, in a form approved by
the Committee, consistent, however, with the terms of the Plan.
5. Awards of Options and Rights
(a) The terms and conditions with respect to each Award of Options under the
Plan shall be consistent with the following:
(i) The Option price per share shall not be less than fair market value
at the time the Option is granted.
(ii) Exercise of the Option shall be conditioned upon the Participant
named therein having remained in the employ of the Company for at least one
year after the date of the grant of the
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Option; provided, however, that this condition shall not be applicable in
the event of the death of the Participant or as otherwise provided in
Section 12(b). The Option shall be exercisable in whole or in part from
time to time during the period beginning at the completion of the required
employment time stated in the Option and ending at the expiration of ten
years from the date of grant of the Option, unless an earlier expiration
date shall be stated in the Option or the Option shall cease to be
exercisable pursuant to Section 5(a)(iv) or because of the exercise of the
Limited Right pertaining thereto as provided in Section 12(b). To the
extent that the aggregate fair market value of shares with respect to which
Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year exceeds $100,000, such Options shall
be treated as Nonqualified Stock Options. The foregoing shall be applied by
taking Options into account in the order in which they were granted. For
purposes of the foregoing, the fair market value of any share shall be
determined at the time of the Award of the Option. In the event the
foregoing results in a portion of an Incentive Stock Option exceeding the
$100,000 limitation, only such excess shall be treated as a Nonqualified
Stock Option.
(iii) Payment in full of the Option price shall be made upon exercise of
each Option and may be made in cash, by the delivery of shares of Common
Stock with a fair market value equal to the Option price, provided the
Participant has held such shares for a period of at least one year, or by a
combination of cash and such shares that have been held by the Participant
for a period of at least one year whose fair market value together with
such cash shall equal the Option price. The Committee may also permit
Participants, either on a selective or aggregate basis, simultaneously to
exercise Options and sell the shares of Common Stock thereby acquired
pursuant to a brokerage or similar arrangement, approved in advance by the
Committee, and use the proceeds from such sale as payment of the purchase
price of such shares.
(iv) If a Participant's employment with the Company terminates other than
by reason of the Participant's death, disability or retirement under a
retirement plan of the Company, the Participant's Option shall terminate
and cease to be exercisable 30 days from the date of such termination
except as otherwise provided in Section 12(b). If a Participant's
employment with the Company terminates by reason of death, disability or
retirement under a retirement plan of the Company, the Participant's Option
shall continue to be exercisable until the expiration date stated in the
option, provided that a Nonqualified Stock Option may be exercised within
one year from the date of death even if later than such expiration date. In
the case of a Participant whose principal employer is a Subsidiary, then
such Participant's employment shall be deemed to be terminated for purposes
of this Section 5 as of the date on which such principal employer ceases to
be a Subsidiary.
(v) Each Option shall contain a Limited Right to receive cash in lieu of
shares under the circumstances set forth in Section 12(b).
(b) The Committee, at the time of grant of an Option or at any time prior to
the expiration of its term, may also grant, subject to the terms and
conditions of the Plan, Rights in respect of all or part of such Option to the
Participant who has been granted the Option, provided that at such time the
Participant is a Key Employee. No Right shall be exercisable prior to six
months from the date of grant, except as otherwise provided in Section 12(b).
(c) The holder of an Option or Right who decides to exercise the Option or
Right in whole or in part shall give notice to the Secretary of Fortune of
such exercise in writing on a form approved by the Committee. A notice
exercising a Right shall also specify the extent, if any, to which the
Participant elects to receive cash, and shall be subject to the determination
by the Committee as provided in Section 5(f). Any exercise shall be effective
as of the date specified in the notice of exercise, but not earlier than the
date the notice of exercise, together with, in the case of exercise of an
Option, payment in full of the Option price, is actually received and in the
hands of the Secretary of Fortune.
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(d) To the extent an Option is exercised in whole or in part, any Right
granted in respect of such Option (or part thereof) shall terminate and cease
to be exercisable. To the extent a Right is exercised in whole or in part, the
Option (or part thereof) in respect of which such Right was granted shall
terminate and cease to be exercisable.
(e) Subject to Sections 5(b) and 14, a Right granted with an accompanying
Option shall be exercisable only during the period in which the Option (or part
thereof) in respect of which such Right was granted is exercisable.
(f) The Committee shall have sole discretion to determine the form in which
payment will be made following exercise of a Right. All or any part of the
obligation arising out of an exercise of a Right may be settled
(i) by payment in shares of Common Stock with a fair market value equal
to the cash that would otherwise be paid,
(ii) by payment in cash, or
(iii) by payment in a combination of such shares and cash.
(g) To the extent that any Right that shall have become exercisable shall not
have been exercised or cancelled or, by reason of any termination of
employment, shall have become non-exercisable, it shall be deemed to have been
exercised automatically, without any notice of exercise, on the last day on
which its related Option is exercisable, provided that any conditions or
limitations on its exercise (other than (i) notice of exercise and (ii)
exercise or election to exercise during the period prescribed in Section 5(e))
are satisfied and the Right shall then have value. Such exercise shall be
deemed to specify that, subject to determination by the Committee as provided
in Section 5(f), the holder elects to receive cash and that such exercise of a
Right shall be effective as of the time of the exercise.
6. Awards of Restricted Stock
The terms and conditions with respect to each Award of Restricted Stock under
the Plan shall be consistent with the following:
(a) The provisions of Awards of Restricted Stock need not be the same with
respect to each Participant. Each Award of Restricted Stock shall be subject to
forfeiture as set forth in the Plan and may be otherwise subject to forfeiture
as set forth in the provisions of such Award. Awards of Restricted Stock for up
to 100,000 shares of Common Stock may be granted pursuant to the Plan.
(b) Each Participant receiving an Award of Restricted Stock shall be issued a
certificate in respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such Participant and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Award. The Committee may require that the certificates
evidencing such shares be held in custody by Fortune until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
(c) Shares of Restricted Stock shall be subject to the restrictions set forth
in this Section 6(c).
(i) Subject to the provisions of the Plan and the applicable Award
Agreement, during the period established by the Committee commencing on the
date of such Award (the "Restriction Period"), the Participant shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber such
shares of Restricted Stock. Within these limits, the Committee may provide
for the lapse of such restrictions in installments and may accelerate or
waive any or all of such restrictions, in whole or in part, based on
service, performance and such other factors or criteria as the Committee
may determine.
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(ii) Subject to Section 10(e) and except as provided in this Section
6(c), the Participant shall have, with respect to shares of Restricted
Stock issued to such Participant under the Plan, all of the rights of a
holder of Common Stock of Fortune, including the right to vote the shares
and the right to receive any cash dividends. Unless otherwise determined by
the Committee, cash dividends shall be automatically reinvested in
additional shares of Common Stock which shall be treated as Restricted
Stock under this Section 6 and dividends payable in Common Stock shall be
treated as additional shares of Restricted Stock subject to the same
restrictions and other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) Except to the extent otherwise provided in this Section 6(c), in
Section 12(c) or 12(d) or in the applicable Award Agreement, upon
termination of a Participant's employment with the Company for any reason
during the Restriction Period, all shares still subject to restriction
shall be forfeited by the Participant. Except to the extent otherwise
provided in the applicable Award Agreement, if the Participant's employment
shall terminate and cease by reason of disability, retirement under a
retirement plan of the Company or death, the Restriction Period with
respect to any shares of Restricted Stock then held shall expire as of the
date of such disability, retirement or death.
(iv) Upon expiration of the Restriction Period with respect to any shares
of the Restricted Stock without a prior forfeiture thereof, the holder of
such shares shall have the right to receive in exchange for the
certificates representing such shares unlegended certificates for such
shares.
7. Performance Awards
The terms and conditions with respect to each Performance Award under the
Plan shall be consistent with the following:
(a) Performance Awards may be paid in cash, shares of Common Stock (which
may, but need not, be shares of Restricted Stock pursuant to Section 6), or
any combination thereof. The Committee shall determine the nature, length and
starting date of the Performance Period for each Performance Award which shall
be at least two years (subject to Sections 12(c) and 12(d)) and shall
determine the performance objectives to be used in valuing Performance Awards
and determining the extent to which such Performance Awards have been earned.
Performance objectives may vary from Participant to Participant and between
groups of Participants and shall be based upon revenues, operating income,
operating company contribution, cash flow, income before income taxes, net
income, earnings per share, economic value added, return on equity or assets
or total return to stockholders, whether applicable to the Company or any
relevant Subsidiary or business unit, or any combination thereof, as the
Committee may deem appropriate. Performance Periods may overlap and
Participants may participate simultaneously with respect to Performance Awards
that are subject to different Performance Periods and different performance
factors and criteria. The terms of Performance Awards need not be the same
with respect to each Participant. The Committee shall determine for each
Performance Award subject to such Performance Period the range of dollar
values or number of shares of Common Stock (which may, but need not, be shares
of Restricted Stock pursuant to Section 6), or combination thereof, to be
received by the Participant at the end of the Performance Period if and to the
extent that the relevant measures of performance for such Performance Awards
are met. The factors must include a minimum performance standard below which
no payment will be made and a maximum performance level above which no
increased payment will be made. Performance Awards for up to 1,000,000 shares
of Common Stock may be granted pursuant to the Plan. No Performance Awards
having an aggregate maximum dollar value in excess of $5,000,000 or an
aggregate maximum amount of Common Stock in excess of 500,000 shares shall be
granted to any individual Participant.
(b) The Committee may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the inclusion or exclusion of
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the impact of extraordinary or unusual items, events or circumstances, provided
that no adjustment shall be made which would result in an increase in the
compensation of any Participant whose compensation is subject to the limitation
on deductibility under Section 162(m) of the Internal Revenue Code, as amended,
or any successor provision, for the applicable year. The Committee also may
adjust the performance goals and measurements applicable to Performance Awards
and thereby reduce the amount to be received by any Participant pursuant to
such Awards if and to the extent that the Committee deems it appropriate,
provided that no such reduction shall be made on or after the date of a Change
in Control (as defined in Section 12(b)(iii)).
(c) Except as otherwise provided in the applicable Award Agreement, if during
a Performance Period a Participant's employment with the Company terminates by
reason of the Participant's death, disability or retirement under a retirement
plan of the Company, such Participant shall be entitled to a payment with
respect to each outstanding Performance Award at the end of the applicable
Performance Period based on the terms of the Award. The Committee may provide
for an earlier payment in settlement of such Performance Award discounted at a
reasonable interest rate and otherwise in such amount and under such terms and
conditions as the Committee deems appropriate. Except as otherwise provided in
Section 12(c) or 12(d) or in the applicable Award Agreement, if during a
Performance Period a Participant's employment with the Company terminates other
than by reason of the Participant's death, disability or retirement under a
retirement plan of the Company, then such Participant shall not be entitled to
any payment with respect to the Performance Awards relating to such Performance
Period, unless the Committee shall otherwise determine.
(d) The earned portion of a Performance Award may be paid currently or on a
deferred basis with such interest or earnings equivalent as may be determined
by the Committee. Payment shall be made in the form of cash or whole shares of
Common Stock, either in a single payment or in annual installments, all as the
Committee shall determine.
(e) If a Participant engages in detrimental activity (as hereinafter defined)
at any time (whether before or after termination of employment), any
Performance Award that has not been paid to such Participant (or is not payable
as provided in Section 12(c) or 12(d)) prior to the date such activity has been
determined by the Committee to constitute detrimental activity shall be
forfeited and shall never become payable. For purposes of this Section 7(e),
"detrimental activity" shall mean willful, reckless or grossly negligent
activity that is determined by the Committee, on a case-by-case basis, to be
detrimental to or destructive of the business or property of Fortune or any
Subsidiary. Any such determination of the Committee shall be conclusive and
binding for the purposes of the Plan. Notwithstanding the foregoing, no
Performance Award shall be forfeited or become not payable by virtue of Section
7(e) on or after the date of a Change in Control (as defined in Section
12(b)(iii)).
8. Other Stock-Based Awards
The Committee may grant other Awards under the Plan pursuant to which shares
of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 6) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone, in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the purposes of the Plan. Such other Stock-Based Awards for up
to 100,000 shares of Common Stock may be granted pursuant to the Plan.
9. Dividend Equivalents
Any Awards (other than Awards of Options or Rights) under the Plan may, in
the discretion of the Committee, earn dividend equivalents. In respect of any
such Award which is outstanding on a dividend record date for Common Stock the
Participant may be credited with an amount equal to the cash or
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stock dividends or other distributions that would have been paid on the shares
of Common Stock covered by such Award had such covered shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents,
including the timing, form of payment and payment contingencies of such
dividend equivalents, as it deems are appropriate or necessary.
10. Limitations and Conditions
(a) The total number of shares of Common Stock that may be made subject to
Awards under the Plan is 12,000,000 shares. Such total number of shares may
consist, in whole or in part, of unissued shares or reacquired shares. Not
more than 2,000,000 shares of Common Stock may be made subject to Awards under
the Plan to any individual Participant, which limitation shall be applied in a
manner consistent with the requirements of Section 162(m) of the Internal
Revenue Code, as amended. The foregoing numbers of shares may be increased or
decreased by the events set forth in Section 12(a). In the event that the
Company makes an acquisition or is a party to a merger or consolidation and
Fortune assumes the options or other awards consistent with the purpose of
this Plan of the company acquired, merged or consolidated which are
administered pursuant to this Plan, shares of Common Stock subject to the
assumed options or other awards shall not count as part of the total number of
shares of Common Stock that may be made subject to Awards under this Plan.
(b) Any shares that have been made subject to an Award that cease to be
subject to the Award (other than by reason of exercise or payment of the Award
to the extent that it is settled in shares) shall again be available for award
and shall not be considered as having been theretofore made subject to award.
Any shares of Common Stock delivered upon exercise of an Option in payment of
all or part of the Option, or delivered or withheld in satisfaction of
withholding taxes with respect to an Award, shall be additional shares
available for award under the Plan. Any shares subject to option under an
Option (or part thereof) that is cancelled upon exercise of a Right when
settled wholly or partially in shares shall to the extent of such settlement
in shares be treated as if the Option itself were exercised and such shares
received in settlement of the Right shall no longer be available for grant.
(c) No Awards shall be made under the Plan after December 31, 2004, but the
terms of Awards granted on or before the expiration thereof may extend beyond
such expiration. At the time an Award is granted or amended or the terms or
conditions of an Award are changed, the Committee may provide for limitations
or conditions on such Award.
(d) No Award or portion thereof shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, except that
an Option and related Right may be transferred by gift to any member of the
holder's immediate family or to a trust or partnership solely for the benefit
of such immediate family members to the extent permitted in the applicable
Award Agreement. A Right shall never be transferred except to the transferee
of the related Option. During the lifetime of the Participant, an Option or
Right shall be exercisable only by the Participant unless it has been
transferred to a member of the holder's immediate family or to a trust or
partnership solely for the benefit of such immediate family members, in which
case it shall be exercisable only by such transferee. For the purpose of this
provision, a holder's "immediate family" shall mean the holder's spouse,
children and grandchildren.
(e) No person who receives an Award under the Plan which includes shares of
Common Stock or the right to acquire shares of Common Stock (which may include
shares of Restricted Stock pursuant to Section 6) shall have any rights of a
stockholder (i) as to shares under option until, after proper exercise of the
Option, such shares have been recorded on Fortune's official stockholder
records as having been issued or transferred, (ii) as to shares to be
delivered following exercise of a Right until, after proper exercise of the
Right and determination by the Committee to make payment therefor in shares,
such shares shall have been recorded on Fortune's official stockholder records
as having been issued or
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transferred, or (iii) as to shares included in Awards of Restricted Stock,
Performance Awards or Other Stock-Based Awards, until such shares shall have
been recorded on Fortune's official stockholder records as having been issued
or transferred.
(f) Fortune shall not be obligated to deliver any shares until they have
been listed (or authorized for listing upon official notice of issuance) upon
each stock exchange upon which outstanding shares of such class at the time
are listed nor until there has been compliance with such laws or regulations
as Fortune may deem applicable. Fortune shall use its best efforts to effect
such listing and compliance. No fractional shares shall be delivered.
(g) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
11. Transfers and Leaves of Absence
For purposes of the Plan: (a) a transfer of a Participant's employment
without an intervening period from Fortune to a Subsidiary or vice versa, or
from one Subsidiary to another, shall not be deemed a termination of
employment, and (b) a Key Employee who is granted in writing a leave of
absence shall be deemed to have remained in the employ of the Company during
such leave of absence.
12. Stock Adjustments, Change in Control and Divestitures
(a) In the event of any merger, consolidation, stock or other non-cash
dividend, extraordinary cash dividend, split-up, spin-off, combination or
exchange of shares, reorganization or recapitalization or change in
capitalization, or any other similar corporate event, the Committee may make
such adjustments in (i) the aggregate number of shares subject to the Plan and
the number of shares that may be made subject to Awards to any individual
Participant as set forth in Sections 7(a) and 10(a) as well as the aggregate
number of shares that may be made subject to any type of Award, (ii) the
number and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option, (iii) the number and kind of Rights granted or that
may be granted under the Plan, (iv) the number and kind of shares of
outstanding Restricted Stock, (v) the number and kind of shares of Common
Stock covered by a Performance Award or Other Stock-Based Award and (vi) the
number of outstanding dividend equivalents, as the Committee shall deem
appropriate in the circumstances. The determination by the Committee as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
(b) (i) In the event of a Change in Control (as defined in Section
12(b)(iii)), then each Option or Right held by a Participant that is not
then exercisable shall become immediately exercisable and shall remain
exercisable as provided in Section 5 notwithstanding anything to the
contrary in the first sentence of Section 5(a)(ii) or in Section 5(b). In
addition, unless the Committee otherwise determines at the time of grant or
at any time thereafter but prior to such Change in Control, each Limited
Right outstanding at the time of such Change in Control shall be deemed to
be automatically exercised as of the date of such Change in Control or as
of such other date during the 60-day period beginning on the date of such
Change in Control as the Committee may determine prior to such Change in
Control. In the event that the Limited Right is not automatically
exercised, the Participant may during the 60-day period beginning on the
date of the Change in Control (such 60-day period being herein referred to
as the "Limited Right Exercise Period"), in lieu of exercising such Option
or Right in whole or in part, exercise the Limited Right (or part thereof)
pertaining to such Option. Such Participant, whether the exercise is
pursuant to his election or automatic pursuant to the terms hereof shall be
entitled to receive in cash an amount determined by multiplying the number
of shares subject to such Option (or part thereof) by the amount by which
the exercise price of each share is exceeded by (A) if such Option is an
Incentive Stock Option, the fair market value of such shares at the date of
exercise or (B) if such Option is a
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Nonqualified Stock Option, the greater of (x) the highest purchase price per
share paid for the shares of the Company beneficially acquired in the
transaction or series of transactions resulting in the Change in Control by
the person or persons deemed to have acquired control pursuant to the Change
in Control and (y) the highest fair market value of shares of Common Stock
during the Limited Right Exercise Period prior to the time of exercise. A
Limited Right shall be exercised in whole or in part by giving written
notice of such exercise on a form approved by the Committee to the Secretary
of Fortune, except that no such written notice shall be required in the
event such Limited Right is automatically exercised pursuant to the terms
hereof. The exercise shall be effective as of the date specified in the
notice of exercise, but not earlier than the date the notice of exercise is
actually received and in the hands of the Secretary of Fortune. In the event
the last day of a Limited Right Exercise Period shall fall on a day that is
not a business day, then the last day thereof shall be deemed to be the next
following business day. To the extent an Option or a Right pertaining
thereto is exercised in whole or in part, the Limited Right in respect of
such Option shall terminate and cease to be exercisable. To the extent a
Limited Right is exercised in whole or in part, the Option (or part thereof)
to which such Limited Right pertains and the Right (or part thereof)
pertaining to such Option (or part thereof) shall terminate and cease to be
exercisable.
(ii) Notwithstanding anything to the contrary in the first sentence of
Section 5(a)(ii) or in 5(a)(iv) or 5(b), the provisions of this Section
12(b)(ii) will be applicable in the event of a termination of a
Participant's employment on or after a Change in Control and prior to the
expiration of the Limited Right Exercise Period applicable thereto. No
Option, Right or Limited Right held by a Participant shall terminate or
cease to be exercisable as a result of his termination of employment on or
after a Change in Control and prior to the expiration of the Limited Right
Exercise Period applicable thereto, but shall be exercisable throughout the
Limited Right Exercise Period applicable thereto; provided, however, that
in no event shall any Option or Right be exercisable after ten years from
its date of grant (except in the event of death as provided in Section
5(a)(iv)). However, in the event such Option or Right or the Option to
which such Limited Right pertains has not, on the date of termination, been
held for more than six months from the date of its grant, the preceding
sentence shall apply only if such Participant has been terminated other
than for just cause (as hereinafter defined) or has voluntarily terminated
his employment because he in good faith believes that as a result of such
Change in Control he is unable effectively to discharge his duties or the
duties of the position he occupied immediately prior to such Change in
Control or because of a diminution in his aggregate compensation or in his
aggregate benefits below that in effect immediately prior to such Change in
Control. For purposes hereof termination shall be for "just cause" only if
such termination is based on fraud, misappropriation or embezzlement on the
part of the Participant which results in a final conviction of a felony.
Nothing in this Section 12(b) shall be in derogation of any rights
otherwise provided in the Plan in respect of a Participant's Options or
Rights in the event of his death, disability or retirement under a
retirement plan of the Company.
(iii) A "Change in Control" shall be deemed to have occurred if (A) any
person (as that term is used in Sections 13(d) and 14(d) of the Exchange
Act, as in effect on February 23, 1999) is or becomes the beneficial owner
(as that term is used in Section 13(d) of the Exchange Act, and the rules
and regulations promulgated thereunder, as in effect on February 23, 1999)
of 20% or more of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors ("Voting
Securities") of Fortune, excluding, however, the following: (1) any
acquisition directly from Fortune, other than an acquisition by virtue of
the exercise of a conversion privilege unless the security being so
converted was itself acquired directly from Fortune, (2) any acquisition by
Fortune, (3) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by Fortune or entity controlled by Fortune, or (4)
any acquisition pursuant to a transaction that complies with clauses (1),
(2) and (3) of Section 12(b)(iii)(C), (B) more than 50% of the members of
the Board of Directors of Fortune shall not be Continuing
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Directors (which term, as used herein, means the directors of Fortune (1)
who were members of the Board of Directors of Fortune on February 23, 1999
or (2) who subsequently became directors of Fortune and who were elected or
designated to be candidates for election as nominees of the Board of
Directors, or whose election or nomination for election by Fortune's
stockholders was otherwise approved, by a vote of a majority of the
Continuing Directors then on the Board of Directors but shall not include,
in any event, any individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14(a)-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board of Directors), (C) Fortune
shall be merged or consolidated with, or, in any transaction or series of
transactions, substantially all of the business or assets of Fortune shall
be sold or otherwise acquired by, another corporation or entity unless, as
a result thereof, (1) the stockholders of Fortune immediately prior thereto
shall beneficially own, directly or indirectly, at least 60% of the
combined Voting Securities of the surviving, resulting or transferee
corporation or entity (including, without limitation, a corporation that as
a result of such transaction owns Fortune or all or substantially all of
Fortune's assets either directly or through one or more subsidiaries)
("Newco") immediately thereafter in substantially the same proportions as
their ownership immediately prior to such corporate transaction, (2) no
person beneficially owns (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act, and the rules and regulations promulgated
thereunder (as in effect on February 23, 1999)), directly or indirectly,
20% or more, of the combined Voting Securities of Newco immediately after
such corporate transaction except to the extent that such ownership of
Fortune existed prior to such corporate transaction and (3) more than 50%
of the members of the Board of Directors of Newco shall be Continuing
Directors or (D) the stockholders of Fortune approve a complete liquidation
or dissolution of Fortune.
(c) Notwithstanding any other provision of the Plan, in the event that a
Participant's employment is terminated on or after a Change in Control (as
defined in Section 12(b)(iii)) (x) by the Company other than for just cause
(as defined in Section 12(b)(ii)) or (y) by the Participant because the
Participant in good faith believes that as a result of such Change in Control
he is unable effectively to discharge his duties or the duties of the position
he occupied immediately prior to such Change in Control or because of a
diminution in his aggregate compensation or in his aggregate benefits below
that in effect immediately prior to such Change in Control:
(i) with respect to shares of Restricted Stock then outstanding, the
Restriction Period with respect to such shares shall be deemed satisfied as
of the date such Participant's employment is so terminated, but only as to
that portion of such shares as is equivalent to the portion of the
Restriction Period applicable thereto that has been satisfied as of such
date without regard to this Section 12(c)(i); as of such date, the portion
of such shares as to which the Restriction Period is deemed satisfied
pursuant to this Section 12(c)(i) shall become nonforfeitable and all other
of such shares shall be forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and shall
be paid out on the date such Participant's employment is so terminated (A)
as if all Performance Periods or other conditions or restrictions
applicable thereto had been completed or satisfied, the maximum performance
or other objectives with respect thereto had been attained and all Awards
granted with respect thereto had been fully earned, but (B) prorated for
the portion of any relevant Performance Period or other period ending on
the date such Participant's employment is so terminated, unless prior to
the Change in Control the Committee otherwise so provides.
(d) In the case of a Participant whose principal employer is a Subsidiary,
then such Participant's employment shall be deemed to be terminated for
purposes of Sections 6 through 9 as of the date on
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<PAGE>
which such principal employer ceases to be a Subsidiary (the "Divestiture
Date") and, except to the extent otherwise determined by the Committee and set
forth in the applicable Award Agreement:
(i) with respect to shares of Restricted Stock held by such Participant,
the Restriction Period shall be deemed satisfied as of the Divestiture
Date, but only as to that portion of such shares as is equivalent to the
portion of the Restriction Period applicable thereto that has been
satisfied as of the Divestiture Date without regard to this Section
12(d)(i); as of the Divestiture Date, the portion of such shares as to
which the Restriction Period is deemed satisfied pursuant to this Section
12(d)(i) shall become nonforfeitable and all other of such shares shall be
forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and shall
be paid out on the Divestiture Date (A) as if all Performance Periods or
other conditions or restrictions applicable thereto had been completed or
satisfied, the maximum performance or other objectives with respect thereto
had been attained and all Awards granted with respect thereto had been
fully earned, but (B) prorated for the portion of the relevant Performance
Period or other period ending on the Divestiture Date, all as determined by
the Committee.
In the event of a termination of the Plan, then each Participant's
employment shall be deemed to be terminated for purposes of Sections 6 through
9 as of the date of such termination of the Plan and, except to the extent
otherwise determined by the Committee and set forth in the applicable Award
Agreement, the foregoing provisions of clauses (i) and (ii) of this Section
12(d) shall apply to such Participant's shares of Restricted Stock,
Performance Awards and Other Stock-Based Awards with the same effect as if the
date of such termination of the Plan were a Divestiture Date.
13. Amendment and Termination
(a) The Board of Directors shall have the power to amend the Plan, including
the power to change the amount of the aggregate fair market value of the
shares subject to Incentive Stock Options first exercisable in any calendar
year under Section 5 to the extent provided in Section 422, or any successor
provision, of the Internal Revenue Code. It shall not, however, except as
otherwise provided in the Plan, without approval of the stockholders of
Fortune, increase the maximum number of shares authorized for the Plan, nor
change the class of eligible employees to other than Key Employees, nor reduce
the basis upon which the minimum Option price is determined, nor extend the
period within which Awards under the Plan may be granted, nor provide for an
Option that is exercisable more than ten years from the date it is granted
except in the event of death. It shall have no power to change the terms of
any Award theretofore granted under the Plan so as to impair the rights of a
Participant without the consent of the Participant whose rights would be
affected by such change except to the extent, if any, provided in the Plan or
in the Award.
(b) The Board of Directors may suspend or terminate the Plan at any time. No
such suspension or termination shall affect Options, Rights or Limited Rights
then in effect.
14. Foreign Options and Rights
(a) The Committee may grant Awards to Key Employees who are subject to the
tax laws of nations other than the United States, which Awards may have terms
and conditions that differ from the terms thereof as provided elsewhere in the
Plan for the purpose of complying with the foreign tax laws. Awards of Options
may have terms and conditions that differ from Incentive Stock Options and
Nonqualified Stock Options for the purposes of complying with the foreign tax
laws.
(b) The Committee may grant stock appreciation rights to Key Employees
without the grant of an accompanying Option if the Key Employees are subject
at the time of grant to the laws of a jurisdiction
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<PAGE>
that prohibits them from owning Common Stock. The Rights shall permit the Key
Employees to receive, at the time of any exercise of such Rights, cash equal
to the amount by which the fair market value of all shares of Common Stock in
respect to which the Right was granted exceeds the exercise price thereof.
(c) The terms and conditions of Options and Rights granted under Sections
14(a) and 14(b) may differ from the terms and conditions which the Plan would
require to be imposed upon Incentive Stock Options, Nonqualified Stock Options
and Rights if the Committee determines that the grants are desirable to
promote the purposes of the Plan for the Key Employees identified in Sections
14(a) and 14(b); provided that the Committee may not grant such Options or
Rights that do not comply with the limitations of Section 13(a).
15. Withholding Taxes
The Company shall have the right to deduct from any cash payment made under
the Plan any federal, state or local income or other taxes required by law to
be withheld with respect to such payment. It shall be a condition to the
obligation of Fortune to deliver shares upon the exercise of an Option or
Right, upon payment of a Performance Award, upon delivery of Restricted Stock
or upon exercise, settlement or payment of any Other Stock-Based Award that
the Participant pay to the Company such amount as may be requested by the
Company for the purpose of satisfying any liability for such withholding
taxes. Any Award Agreement may provide that the Participant may elect, in
accordance with any conditions set forth in such Award Agreement, to pay any
withholding taxes in shares of Common Stock.
16. Effective Date
The Plan shall be effective on and as of April 27, 1999 upon the approval
thereof by the stockholders of Fortune.
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<PAGE>
[LOGO]
This proxy statement is printed on
recycled paper. The entire
publication is recyclable.
<PAGE>
FORTUNE BRANDS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints T.C. HAYS, G.L. KLEMANN, II and N.H. WESLEY
P proxies, with power of substitution, to vote at the Annual Meeting
(including adjournments) of stockholders of Fortune Brands, Inc., to be
R held April 27, 1999, at the Hyatt Regency Greenwich, Old Greenwich,
Connecticut at 2:00 P.M., for the election of nominees Thomas C. Hays,
O Sidney Kirschner, Gilbert L. Klemann, II, Gordon R. Lohman and Charles H.
Pistor, Jr. as Class I directors (Item 1), on Items 2 and 3 referred to on
X the reverse side and described in the Proxy Statement, and on any other
business before the meeting, with all powers the undersigned would
Y possess if personally present. A majority (or, if only one, then that one)
of the proxies or their substitutes acting at the meeting may exercise
all powers hereby conferred.
This proxy when properly executed will be voted in the manner directed
herein by the stockholder. If no contrary indication is made, the proxies
will vote FOR the election of the nominees of the Board of Directors (Item
1) and FOR Items 2 and 3.
(Continued and to be signed and dated on the other side)
PLEASE EXECUTE AND RETURN YOUR PROXY PROMPTLY
(See enclosed Proxy Statement)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
1. Call toll free 1-888-514-4649 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
or
--
2. Vote by Internet at our Internet Address: www.proxyvoting.com/fortunebrands
or
--
3. Mark, sign and date your proxy card and return it promptly in the enclosed
postage paid return envelope.
PLEASE VOTE
<PAGE>
Please mark
your vote as
indicated in [X]
this example
- ----------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1,
2 AND 3 PROPOSED BY THE COMPANY
- ----------------------------------------------------
FOR WITHHOLD
ALL FROM ALL
1. ELECTION OF DIRECTORS [ ] [ ]
2. FOR, EXCEPT Individual nominee(s) (01 Hays, 02 Kirschner,
03 Klemann, 04 Lohman and 05 Pistor)
whose name(s) is written below:
- -----------------------------------------------------------
Elect PricewaterhouseCoopers LLP independent
accountants for 1999 FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approve 1999 Long- FOR AGAINST ABSTAIN
Term Incentive Plan [ ] [ ] [ ]
Date:______________________________________, 1999
_________________________________________________
_________________________________________________
Signature(s) of Stockholder(s)
Note: Please mark, sign as name appears at left,
date and return this proxy in the enclosed postage
paid return envelope. (Executors, administrators,
trustees, custodians, etc., should indicate
capacity in which signing.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE OR INTERNET
QUICK * * * EASY * * * IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, dated and returned your proxy card.
VOTE BY TELEPHONE: You will be asked to enter a CONTROL NUMBER which is located
in the box in the lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION A: To vote as the Board of Directors recommends on All proposals: Press 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION B: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
- --------------------------------------------------------------------------------
Item 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions.
ITEM 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
ITEM 3: The instructions are the same for Item 2.
When asked, please confirm your vote by pressing 1.
VOTE BY INTERNET: THE WEB ADDRESS IS www.proxyvoting.com/fortunebrands
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY TELEPHONE OR INTERNET.
- --------------------------------------------------------------------------------
THANK YOU FOR VOTING
Call * * Toll Free * * On a Touch-Tone Telephone ---------------------------
1-888-514-4649 - ANYTIME CONTROL NUMBER
FOR TELEPHONE/INTERNET
VOTING
---------------------------
There is NO CHARGE to you for this call.
