<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 (S) 240.14a-11(c) or (S) 240.14a-12
FORTUNE BRANDS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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):
-------------------------------------------------------------------------
(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:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[FORTUNE BRANDS LOGO APPEARS HERE]
300 Tower Parkway
Lincolnshire, Illinois 60069
March 14, 2000
Dear Stockholder:
The 2000 Annual Meeting of Stockholders will be held at 2:00 p.m. (Central
Daylight Time) on Tuesday, April 25, 2000 at the Hyatt Regency O'Hare, 9300
West Bryn Mawr Avenue, Rosemont, Illinois. 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 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,
Norman H. Wesley
Chairman of the Board
and Chief Executive Officer
<PAGE>
300 Tower Parkway
Lincolnshire, Illinois 60069
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 14, 2000
The Annual Meeting of Stockholders of Fortune Brands, Inc. will be held at
the Hyatt Regency O'Hare, 9300 West Bryn Mawr Avenue, Rosemont, Illinois, at
2:00 p.m. (Central Daylight Time) on Tuesday, April 25, 2000, to consider and
vote upon:
Item 1: The election of four directors for a term expiring at the 2003
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 2000 (see page 21 of the Proxy Statement);
Item 3: The approval of the Stock Plan for Non-employee Directors (see
pages 21 and 22 of the Proxy Statement);
and to transact such other business as may properly come before the meeting.
Holders of Common Stock and $2.67 Convertible Preferred Stock at the close of
business on February 25, 2000 will be entitled to vote at the Annual Meeting.
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.
This Proxy Statement also is used to solicit voting instructions for the
shares of Common Stock which are held by the trustee of our Fortune Brands
Retirement Savings Plan and Fortune Brands Hourly Employee Retirement Savings
Plan for the benefit of the plan participants. We ask each plan participant to
sign, date and return the enclosed proxy card, which will also serve as a
voting instruction card when we forward it to the trustee, or provide voting
instructions by telephone or via the Internet.
Mark A. Roche
Senior Vice President, General
Counsel
and Secretary
This proxy statement and accompanying proxy are being distributed on or about
March 14, 2000.
<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 Stock
Plan for Non-employee Directors. 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 25, 2000 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 164,066,649 shares of Common Stock and 320,661 shares of
$2.67 Convertible Preferred Stock outstanding on February 25, 2000.
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 upper 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 2000; and
. approval of the Stock Plan for Non-employee Directors.
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 keep your votes secret.
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.
What if I am a participant in the Fortune Brands Retirement Savings Plan or
the Fortune Brands Hourly Employee Retirement Savings Plan?
We are also mailing this Proxy Statement and a voting instruction card to
participants in the Fortune Brands Retirement Savings Plan and the Fortune
Brands Hourly Employee Retirement Savings Plan who participate in the Fortune
Brands Stock Fund under the plans. The trustee of the plans, as record holder
of shares of our Common Stock held in the plans, will vote whole shares
attributable to your interest in the Fortune Brands Stock Fund in accordance
with your directions given on the proxy card or by telephone or via the
Internet. If you participate in the Fortune Brands Stock Fund under the plans
and you sign and return the enclosed proxy card, we will forward it to the
trustee of the plans. The proxy card will serve to vote shares you hold of
record outside the plans as well as an instruction to the trustee to vote the
whole shares attributable to your interest in the plans in the manner you
indicate on the card.
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of 11 members and is divided into
three classes, having three-year terms that expire in successive years. The
term of office of directors in Class II expires at the 2000 Annual Meeting.
The Board of Directors proposes that the four nominees described below, all of
whom are currently serving as Class II directors, be re-elected to Class II
for a new term of three years and until their successors are duly elected and
qualified. All nominees and all current Class I 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 and Mr.
Norman H. Wesley was elected as a Class III director effective January 1,
1999.
3
<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
---- -------------------------------------- --- ----------
NOMINEES FOR DIRECTORS--CLASS II--TERM EXPIRING 2003
<C> <S> <C> <C>
[PHOTO]
Eugene R. Anderson Partner, Anderson Kill & Olick, P.C. (law firm). 72 1980
[PHOTO]
Patricia O. Ewers President, Pace University. 64 1991
[PHOTO]
John W. Johnstone, Jr. Retired since 1996; Chairman and Chief Executive 67 1989
Officer of Olin Corporation (chemical, metal and
defense-related products) prior thereto. Also a
director of Phoenix Home Life Insurance Company, Arch
Chemicals, Inc. and McDermott International Inc.
[PHOTO]
Eugene A. Renna Senior Vice President of Exxon Mobil Corporation since 55 1998
December, 1999; President and Chief Operating Officer
of Mobil Corporation from 1998 to 1999; Executive Vice
President of Mobil Corporation from 1996 to 1998;
Executive Vice President of Mobil Oil Corporation and
President of its worldwide Marketing & Refining
Division prior thereto. Also a director of Exxon Mobil
Corporation.
CLASS III DIRECTORS--TERM EXPIRING 2001
[PHOTO]
Anne M. Tatlock President and Chief Executive Officer of Fiduciary 60 1996
Trust Company International (global investment
management services) since 1999; President of Fiduciary
Trust Company International prior thereto. Also a
director of American General Corporation and Merck &
Co., Inc.
</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
---- -------------------------------------- --- ----------
CLASS III DIRECTORS--TERM EXPIRING 2001
<C> <S> <C> <C>
[PHOTO]
Norman H. Wesley Chairman and Chief Executive Officer of Fortune Brands, 50 1999
Inc. since December, 1999; President and Chief
Operating Officer of Fortune Brands, Inc. during 1999;
Chairman of the Board and Chief Executive Officer of
Fortune Brands Home & Office, Inc. (home and office
products) from 1997 to 1999; President and Chief
Executive Officer of ACCO World Corporation prior
thereto. Also a director of uBid, Inc.
[PHOTO]
Peter M. Wilson Chairman of Gallaher Group Plc since January, 2000; 58 1994
Chairman and Chief Executive of Gallaher Group Plc from
1997 to 1999; Chairman and Chief Executive of Gallaher
Limited (tobacco products), a former subsidiary of
Fortune Brands, Inc., from 1994 to 1999.
CLASS I DIRECTORS--TERM EXPIRING 2002
[PHOTO]
Thomas C. Hays Retired since December 1999; Chairman of the Board and 64 1981
Chief Executive Officer of Fortune Brands, Inc. prior
thereto. Also a director of Gallaher Group Plc and
ACNielsen Corporation.
[PHOTO]
Sidney Kirschner President and Chief Executive Officer of Northside 65 1991
Hospital, Inc. Also a director of Superior Uniform
Group, Inc.
[PHOTO]
Gordon R. Lohman Retired since 1999; Chairman and Chief Executive 65 1990
Officer of AMSTED Industries Incorporated (products for
the railroad, construction and building markets) from
1997 to 1999; President and Chief Executive Officer of
AMSTED Industries Incorporated prior thereto. Also a
director of AMSTED Industries Incorporated and Ameren
Corporation.
[PHOTO]
Charles H. Pistor, Jr. Retired since 1995; Vice Chair of Southern Methodist 69 1985
University prior thereto. Also a director of AMR
Corporation, Centex Corporation and Zale Corporation.
</TABLE>
5
<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 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 23 and 24.
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>
- ---------------------------------------------------------------------------------------
<C> <S>
Members Messrs. Anderson, Hays, Johnstone, Lohman and Wesley
Number of Meetings Last Year Ten
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 and Mrs. Tatlock
Number of Meetings Last Year Four
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 Year Five
Primary Functions 1. Administers our Stock Option Plan and Long-Term
Incentive Plans;
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>
6
<PAGE>
Nominating and Corporate Governance Committee
<TABLE>
- ---------------------------------------------------------------------------------------
<C> <S>
Members Messrs. Anderson, Johnstone, Lohman and Pistor
Number of Meetings Last Year Three
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 300 Tower Parkway, Lincolnshire, Illinois 60069, 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 Restated Certificate of Incorporation also
contains a procedure for stockholder nomination of directors (see page 24).
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, Hays,
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 1999 was less than $2,500 except for Mr. Anderson for whom the cost was
$6,786.
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 2,500 shares of our
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;
7
<PAGE>
(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 had the
option to continue to receive years of credit for this retirement benefit or
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
550 shares of our Common Stock each year under the Stock Plan for Non-employee
Directors. See Item 3 on pages 21 and 22 for a proposal to approve a new 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 previously
made a 200% match of gifts totaling up to $15,000 annually by the director to
an eligible charitable or educational institution. Effective January 1, 2000,
the program was amended to provide for a 100% match of gifts totaling up to
$7,500 annually. Effective January 1, 2001, the maximum match of gifts will be
reduced to $5,000 annually. Multi-year gifts pledged by non-employee directors
prior to January 1, 2000 will not be affected by these recent changes.
8
<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
$500,000 for each such director to charitable, educational or other qualified
organizations designated by the director. The contribution would be made after
the death of the director. Our obligation is funded by Company owned life
insurance policies. Mr. Wilson does not participate in this program.
Section 16(a) Beneficial Ownership Reporting Compliance
Each director and executive officer of the Company who is subject to Section
16 of the Securities Exchange Act of 1934 is required to file with the
Securities and Exchange Commission ("SEC") reports regarding their ownership
and changes in ownership of our equity securities. Reports received by the
Company indicate that all these directors and executive officers have filed
all requisite reports with the Securities and Exchange Commission on a timely
basis during or for 1999.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by the most highly
compensated executive officers during each of our past three fiscal years:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- --------------------
Awards Payouts
------------ -------
Securities
Other Annual Underlying LTIP All Other
Name and Compensation Options/SARs Payout Compensation
Principal Position Year Salary ($) Bonus ($) ($)(1) (#) ($)(2) ($)(3)
------------------ ---- ---------- --------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 1999 1,000,000 1,103,300 1,328,686 0 660,115 96,892
Chairman of the 1998 1,000,000 1,003,000 755,078 275,000 837,211 93,333
Board and Chief 1997 975,000 1,068,100 979,942 107,000 798,076 90,877
Executive Officer(4)
Norman H. Wesley ....... 1999 625,000 500,000 47,720 150,000 408,230 126,402
Chairman of the 1998 520,000 367,800 60,311 71,700 481,119 52,280
Board and Chief 1997 477,688 360,500 54,781 53,589 365,823 53,036
Executive Officer(5)
John T. Ludes .......... 1999 619,575 525,000 1,363,238 0 352,649 71,440
Vice Chairman(6) 1998 656,200 519,100 338,166 100,000 447,251 69,435
1997 625,000 524,900 439,229 56,500 368,322 54,285
Gilbert L. Klemann, II.. 1999 530,000 325,300 129,817 0 198,929 59,060
Executive Vice 1998 480,000 295,700 108,711 55,700 252,286 44,349
President--Corporate(7) 1997 435,000 272,800 85,628 38,200 208,715 36,255
Robert J. Rukeyser ..... 1999 408,400 235,800 157,853 0 176,324 33,133
Senior Vice President 1998 396,500 224,600 446,432 37,700 223,610 31,495
--Corporate Affairs(7) 1997 385,000 228,000 109,088 27,500 208,715 32,127
Craig P. Omtvedt........ 1999 375,000 250,000 70,932 75,000 103,975 58,665
Senior Vice President 1998 340,000 220,000 42,548 32,500 91,741 53,484
and Chief Accounting 1997 250,000 203,900 24,116 22,000 0 39,162
Officer
Dudley L. Bauerlein,
Jr..................... 1999 360,800 204,500 80,815 0 140,136 29,531
Senior Vice President 1998 350,300 194,800 77,784 30,700 177,739 28,681
and Chief Financial 1997 340,000 213,200 79,077 22,000 165,751 28,678
Officer(7)
</TABLE>
9
<PAGE>
- --------
(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 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>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Thomas C. Hays.............................. $1,245,309 $688,002 $935,062
Norman H. Wesley............................ 27,733 42,252 36,356
John T. Ludes............................... 1,318,697 307,208 421,266
Gilbert L. Klemann, II...................... 104,691 91,168 67,665
Robert J. Rukeyser.......................... 135,583 428,889 91,125
Craig P. Omtvedt............................ 61,797 42,548 24,116
Dudley L. Bauerlein, Jr. ................... 63,114 63,853 70,112
</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 1999 were $11,120 for each of Messrs. Hays, Wesley, Ludes,
Klemann, Rukeyser, Omtvedt and Bauerlein.
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 1999 were:
$85,772 for Mr. Hays; $51,809 for Mr. Wesley; $45,547 for Mr. Ludes;
$30,981 for Mr. Klemann; $22,013 for Mr. Rukeyser; $20,245 for Mr. Omtvedt;
and $18,411 for Mr. Bauerlein.
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 1999 as they were made to
fund the supplemental profit-sharing liabilities already disclosed in the
"All Other Compensation" column: $46,176 for Mr. Hays; $22,539 for Mr.
Wesley; $24,710 for Mr. Ludes; $14,346 for Mr. Klemann; $11,241 for Mr.
Rukeyser; $9,290 for Mr. Omtvedt; and $9,765 for Mr. Bauerlein.
The Company made additional contributions in 1999 to the trusts to fund its
obligations for supplemental retirement benefits under the Company's
Supplemental Plan to Messrs. Hays, Wesley, Ludes, Klemann, Rukeyser,
Omtvedt and Bauerlein. 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 executives identified
above in two annual installments in 1994 (the year the split-dollar
insurance program was established) and 1995, except for Mr. Wesley who did
not become covered under the program until 1999 and Mr. Omtvedt who did not
become covered under the program until 1996. Additional split-dollar life
insurance was obtained in 1998 for Messrs.
10
<PAGE>
Ludes, Klemann and Omtvedt and in 1999 for Mr. Klemann, in order to provide
for the increased death benefits attributable to their salary increases.
The premiums for the Company's share of the insurance obtained for Mr.
Omtvedt in 1997 were paid in two annual installments in 1997 and 1998, the
premiums for the Company's share of the increased insurance obtained in
1998 were paid in two annual installments in 1998 and 1999 and the premiums
for the Company's share of the insurance obtained for Mr. Wesley in 1999
and the increased insurance obtained for other executives in 1999 were paid
in two annual installments in 1999 and 2000. The amounts set forth in the
"All Other Compensation" column for 1997 for Mr. Omtvedt, for 1998 for
Messrs. Ludes, Klemann and Omtvedt and for 1999 for Messrs. Wesley, Ludes,
Klemann and Omtvedt 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 1999, $63,473 was included for Mr. Wesley, $14,773 was included
for Mr. Ludes, $16,959 was included for Mr. Klemann and $27,300 was
included for Mr. Omtvedt.
(4) Retired December 28, 1999.
(5) Elected Chairman of the Board and Chief Executive Officer effective
December 29, 1999. Mr. Wesley served as President and Chief Operating
Officer from January 1 through December 28, 1999.
(6) Retired November 30, 1999.
(7) Retired December 31, 1999.
11
<PAGE>
The following table provides information on grants of stock options made in
1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Number of Grant
Securities % of Total Exercise Date
Underlying Options Granted or Base Present
Options to Employees in Price Expiration Value
Name Granted (#)(1) Fiscal Year ($/SH) Date(2) ($)(3)
- ---- -------------- --------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 0 -- -- -- --
Norman H. Wesley........ 150,000 6.3 34.1875 11/15/09 1,319,400
John T. Ludes........... 0 -- -- -- --
Gilbert L. Klemann, II.. 0 -- -- -- --
Robert J. Rukeyser...... 0 -- -- -- --
Craig P. Omtvedt........ 75,000 3.2 34.1875 11/15/09 659,700
Dudley L. Bauerlein,
Jr..................... 0 -- -- -- --
</TABLE>
- --------
(1) All options are for shares of Common Stock of the Company. No stock
appreciation rights ("SARs") were granted during 1999. Options are
generally not exercisable until the expiration of one year from the date of
grant and the options granted on November 15, 1999 become exercisable in
three equal annual installments commencing one year after the date of
grant.
(2) The 1999 Long-Term Incentive Plan 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 weighted-average rate of return of 6.0%, the rate of a five year U.S.
Treasury Zero Coupon Bond corresponding to the expected option term; (c)
stock price volatility of 28.0% based on weekly closing stock market
quotations for the period June 1998 to May 1999; and (d) a yield of 2.7%
based on the annual dividend rate of $0.92 per share at the date of grant.
The Grant Date Present Values set forth in the table are only theoretical
values and may not accurately determine present value. The actual value, if
any, to be realized by an optionee will depend on the excess of the market
value of the Common Stock over the exercise price on the date the option is
exercised.
12
<PAGE>
The following table provides information concerning exercise of stock
options, alone or in tandem with SARs, made during 1999 by each of the
following most highly compensated executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs
Shares FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#)(1) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Thomas C. Hays.......... 296,646 4,578,638 736,074/ 0 2,046,952/0
Norman H. Wesley........ 71,757 1,064,757 305,149/197,799 1,820,680/0
John T. Ludes........... 353,837 5,790,559 238,112/ 0 226,888/0
Gilbert L. Klemann, II.. 105,865 1,823,163 279,005/ 0 1,553,321/0
Robert J. Rukeyser...... 232,726 4,108,024 200,347/ 0 999,132/0
Craig P. Omtvedt........ 45,843 750,261 67,583/ 96,666 126,582/0
Dudley L. Bauerlein,
Jr..................... 80,620 1,373,530 187,043/ 0 1,039,169/0
</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 1999 to the following most highly compensated executive
officers:
Long-Term Incentive Plan--Awards in Last Fiscal Year
Performance Period 2000-2002
<TABLE>
<CAPTION>
Performance
or Other
Number of Period Estimated Future Payouts Under
Shares, Units Until Non-Stock Price-Based Plans
or Other Maturation ------------------------------------
Name Rights (#)(1) or Payout Threshold (#) Target (#) Maximum (#)
- ---- ------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Thomas C. Hays.......... 0 -- -- -- --
Norman H. Wesley........ 30,000 3 yrs. 15,000 30,000 45,000
John T. Ludes........... 0 -- -- -- --
Gilbert L. Klemann, II.. 0 -- -- -- --
Robert J. Rukeyser...... 0 -- -- -- --
Craig P. Omtvedt........ 13,000 3 yrs. 6,500 13,000 19,500
Dudley L. Bauerlein,
Jr..................... 0 -- -- -- --
</TABLE>
- --------
(1) Performance share awards were granted for the January 1, 2000-December
31, 2002 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 2000-2002.
The number of shares of Common Stock to be delivered for the performance
period 2000-2002 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 9 averaged over the five highest consecutive years. The years of
service of Messrs. Hays, Wesley, Ludes, Rukeyser, Omtvedt and Bauerlein are
35, 15, 21, 18, 10 and 28, respectively. Mr. Klemann, who joined our employ in
1991, had a special retirement arrangement which credited 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 certain 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 if
designated by the Compensation and Stock Option Committee to receive this
benefit. The seven executive officers listed in the table on page 9 are
entitled to this retirement benefit. 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 $135,000 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 $170,000. The Supplemental Plan provides
the difference between the amount paid under our tax qualified plans and the
amount that would have been paid if the $170,000 limit on compensation were
not included therein. In calculating benefits, no credit is given for service
in excess of 35 years.
14
<PAGE>
Agreements with Messrs. Hays and Wesley. Mr. Hays had 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 had become disabled or died prior to normal retirement
age of 65, or if we had terminated his employment for reasons other than
cause, or Mr. Hays terminated his employment for good reason (as defined in
the agreement), Mr. Hays' compensation at the date of his retirement would
have been deemed to have continued until his normal retirement age for
purposes of calculating this retirement benefit. The Company has entered into
a similar agreement with Mr. Wesley.
Change in Control Agreements. We had agreements with Messrs. Hays, Ludes,
Klemann, Rukeyser and Bauerlein, and we have agreements with Messrs. Wesley
and Omtvedt, 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. 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 had also entered into agreements with Messrs. Hays,
Ludes, Klemann, Rukeyser and Bauerlein, and we have agreements with Messrs.
Wesley and Omtvedt, 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 was three in the case
of Mr. Hays and two in the case of Messrs. Ludes, Klemann, Rukeyser and
Bauerlein. The multiplier is three in the case of Mr. Wesley and two in the
case of Mr. Omtvedt. The agreements for Messrs. Klemann, Rukeyser and
Bauerlein provided that their election to terminate employment as a result of
the relocation of our executive offices to Lincolnshire, Illinois constituted
a termination of employment for "good reason" and thus they are entitled to
the benefits of the severance agreements. The agreement for Mr. Ludes also
provided that as a result of his election to resign effective November 30,
1999, Mr. Ludes would continue to receive salary and benefits through his
normal retirement date of July 31, 2001.
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.
Toward that end, the program provides:
. competitive levels of salary and total compensation;
15
<PAGE>
. 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
were 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
pages 19 and 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 1999 Long-Term Incentive Plan, which as described below
consisted in 1999 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 Messrs. Hays and Wesley, who served in the capacity of Chief
Executive Officer during 1999, as well as the other executive officers for
1999.
Base Salaries
In determining salary adjustments for the Messrs. Hays and Wesley and other
executive officers the Committee sought to maintain salary levels that are
competitive with the survey group. The salary for Mr. Hays for 1999 was
maintained at the same level as 1998 which placed Mr. Hays at 18% above the
median of the survey group. Mr. Wesley received a promotional increase upon
his election to the office of President and Chief Operating Officer effective
January 1, 1999. He was elected to the office of Chief Executive Officer
effective December 29, 1999 and received a promotional increase effective
January 1, 2000. Excluding the January 1, 1999 promotional increase for Mr.
Wesley and another executive officer, the average salary increase for
executive officers during 1999 was 3.8%. The 1999 salary increases for Messrs.
Hays and Wesley and the other executive officers were below the 4.5% average
salary increase for the survey group. After giving effect to the 1999
promotional and other 1999 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 1999 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 1999, 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 Messrs. Hays,
Ludes, Wesley and Klemann were 85%, 70%, 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: 20%
to Mr. Hays, 10% to each of Messrs. Ludes and Wesley, 7.5% to Mr. Klemann and
5% 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 Mr. Hays
should be 29.8% above the target award, the payment to Mr. Wesley should be
14.3% above the target award, and the payment to executive officers generally
should be 20.2% above the target award. The total amount of the incentive
bonuses paid to eligible officers for 1999 was 52% of the total authorized
incentive fund.
Long-Term Incentives
Under the Company's 1999 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 1999, the Committee
granted incentive stock options and nonqualified stock options to executive
officers of the Company. Performance share awards were also granted for the
2000-2002 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
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
17
<PAGE>
salary. The Committee used an option pricing valuation method for purposes of
making such comparison. The grants are designed so that stock options comprise
the greatest portion of the long-term incentive grant (ranging from 68% to 77%
of the total long-term incentive grant for individual executive officers) and
performance awards comprise the remainder 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 the
Committee's outside consultants.
In November 1999 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. 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 2000-2002
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 2000-2002.
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. In addition, the recipients of these
performance awards will receive cash dividend equivalents at the time of
payment of the performance shares equal to the cash dividends that would have
been paid on the shares had the recipient owned the shares during the
performance period.
The performance share award grant when aggregated with the 1999 stock option
grant to the individual executive officers placed them in the range of the
60th to 76th percentile of the survey group. Mr. Hays did not receive a long-
term incentive grant. Mr. Wesley's long-term incentive grant placed him at the
68th percentile of the survey group. Although long-term incentive grants
during the last several years had been made at the 50th percentile, the
Committee noted the relocation of the Company's headquarters to Lincolnshire,
Illinois at the end of 1999 and the presence of many new members on the
management team. The Committee believes that, in order to establish an
appropriate potential reward for the significant challenges that the new
management team faces, it is desirable to set a competitive percentile target
as compared to the survey group so as to provide additional incentive pay to
the top executives to increase their efforts on behalf of the Company, its
subsidiaries and its stockholders and also to reward strong performance.
The Internal Revenue Code limits the allowable tax deduction that may be
taken by the Company for compensation paid to the Chief Executive Officers and
the 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 28, 2000
18
<PAGE>
FORTUNE BRANDS, INC. STOCK PRICE PERFORMANCE
(With Dividend Reinvestment)
[LINE GRAPH]
- -------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------
Fortune Brands 100.00 124.51 145.16 176.79 154.63 165.71
- -------------------------------------------------------------------------------
S&P 500 100.00 137.58 169.17 225.61 290.09 351.12
- -------------------------------------------------------------------------------
1999 Peer Index 100.00 125.67 148.33 171.27 163.02 158.78
- -------------------------------------------------------------------------------
Former Peer Index 100.00 132.85 158.21 202.54 200.48 215.93
- -------------------------------------------------------------------------------
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. In an effort to
enhance the Peer Group Index, the Company has expanded the list of companies
included in each business segment to create a broader index, which better
represents the market performance of the four industries in which we conduct
business. The old Peer Group, a more narrowly defined index, has been
disproportionately influenced by individual companies that represent a small
portion of our entire business. We believe the new Peer Group provides a more
balanced approach for measuring our performance. The old Peer Group, which has
been included for comparative purposes, is composed of the following publicly
traded companies in industry segments corresponding to the Company's current
four core businesses: the Distilled Spirits segment was composed of Brown-
Forman Corporation, The Seagram Company, Ltd., Allied Domecq PLC, Grand
Metropolitan PLC (through December 16, 1997 when it was merged with Guinness
PLC) and Diageo PLC, formerly known as Guinness PLC; the Home Products segment
was composed of Masco Corporation, The Black & Decker Corporation, Newell
Rubbermaid (formerly Newell Co.) and The Stanley Works; the Office Products
segment was composed of Hunt Manufacturing Co., General Binding Corporation
and Avery Dennison Corporation; and the Golf and Leisure segment was composed
of The Arnold Palmer Golf Company, formerly known as ProGroup, Inc., Brunswick
Corporation and Callaway Golf Company. The new Peer Group includes all of the
companies included in the old Peer Group (excluding The Arnold Palmer Golf
Company), as well as the following additional companies: Canadaigua Brands,
Inc. was added to the Distilled Spirits group, which has been renamed the
Spirits and Wine group; Armstrong World Industries, Inc. was added to the Home
Products segment; The Mead Corporation, Moore Corporation Ltd., The Standard
Register Company, Wallace Computer Services, Inc. and Esselte were added to
the Office Products segment; and FILA Holdings, S.P.A., Huffy Corporation, K2,
Inc. and Reebok International Ltd. were added to the Golf and Leisure segment.
The Arnold Palmer Golf Company, formerly known as ProGroup, Inc., was deleted
from both peer groups as it was no longer publicly traded after September,
1999.
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.
20
<PAGE>
ITEM 2
ELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that you elect PricewaterhouseCoopers LLP
as our independent accountants for 2000. 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 2000."
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.
ITEM 3
APPROVAL OF THE STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS
At the Annual Meeting in 1990, our stockholders approved the Company's Stock
Plan for Non-employee Directors pursuant to which shares of Common Stock of
the Company are granted annually to each director who is not an employee of
the Company or any of its subsidiaries as part of the director's fee. After
the expiration of that Plan, stockholders approved a substantially similar
Stock Plan for Non-employee Directors at the Annual Meeting in 1995. That Plan
expired last year. A new Fortune Brands, Inc. Stock Plan for Non-employee
Directors (the "Non-employee Directors Plan") is now being proposed for your
approval. The new Non-employee Directors Plan is substantially similar to our
old Plans. We are proposing that 550 shares be granted annually to each non-
employee director, which is the same amount that was granted last year under
the Plan that just ended.
Subject to your approval, the new Non-employee Directors Plan will be
effective for the years 2000 through 2004, inclusive. A non-employee director
will receive shares for any year in which such person is serving as a non-
employee director immediately following the Annual Meeting of stockholders in
that year and the shares will be delivered as soon as practicable after the
Annual Meeting. The shares awarded under the Non-employee Directors Plan will
be in addition to, and not in place of, the annual cash fee and cash fees for
service on committees.
Our Board of Directors believes that the Non-employee Directors Plan will
aid the Company in continuing to attract and retain non-employee directors of
exceptional ability by supplementing their cash fees and further aligning
their interests with the other stockholders by increasing their proprietary
interest in the Company. Many large corporations provide stock-based plans to
non-employee directors and the new Non-employee Directors Plan will continue
to keep the Company in conformity with this practice. An annual award of 550
shares is being proposed in order to permit the Company to maintain its
competitive position. The cash portion of non-employee directors' compensation
has not increased since January 1, 1996. Accordingly, we recommend that you
approve its adoption. The Non-employee Directors Plan is set forth in full in
Exhibit A, and the description of the Non-employee Directors Plan which
appears below is qualified in its entirety by reference to the full text.
The Non-employee Directors Plan will be administered by the Nominating and
Corporate Governance Committee (the "Committee") appointed by our Board.
Because of the automatic nature of the eligibility for and the grant of shares
under the Non-employee Directors Plan and because each eligible non-employee
director will receive the same, fixed number of shares, the Committee will not
have any discretion with respect to the amount of or the terms of any
individual grant.
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<PAGE>
The maximum number of shares that may be issued in the aggregate to non-
employee directors under the Non-employee Directors Plan is 75,000. These
shares may consist of authorized but unissued shares or shares held in our
treasury. The number of shares of Common Stock which a non-employee director
may receive per year and the aggregate number of shares which may be issued to
non-employee directors under the Non-employee Directors Plan are subject to
adjustment for stock splits, stock dividends and similar events. Although a
total of 20,000 shares were authorized to be issued under the Plan that expired
in 1995, we believe that a greater number of authorized shares is preferable to
provide for grants to additional non-employee directors who might be elected to
our Board.
The Non-employee Directors Plan permits a non-employee director to elect to
defer receipt of shares of Common Stock issued under the Plan until a specified
date or until the occurrence of a specified event in the future. During the
period that receipt of any such shares is deferred, dividends that would have
been paid with respect to such shares if receipt had not been deferred are also
deferred and will accrue interest quarterly from the dates such dividends would
have been paid at a rate equal to the average quarterly United States Treasury
bill rate and be delivered to the non-employee director on such specified date
or upon the occurrence of such specified event. Upon the occurrence of a change
in control as defined below, any shares of Common Stock which a non-employee
director has elected to defer and any accrued and unpaid dividends (and accrued
interest thereon) shall then be delivered to such non-employee director.
A change in control is defined in the Non-employee Directors 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
the Company 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 the
Company.
The definition excludes purchases or sales of stock by or from the Company or
one of our employee benefit plans or trusts.
The Board of Directors retains the right to amend or terminate the Non-
employee Directors Plan, subject to the terms of the Plan.
Under current federal income tax rules, a non-employee director will realize
taxable income, and the Company will be entitled to a tax deduction, when the
shares of Common Stock are delivered to the non-employee director in an amount
equal to the then fair market value of the shares.
The resolution (designated herein as Item 3) to approve the Stock Plan for
Non-employee Directors is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
Fortune Brands, Inc. Stock Plan for Non-employee Directors submitted to
this Annual Meeting be and it is hereby approved."
The Board of Directors recommends that you vote FOR Item 3.
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<PAGE>
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 9, and directors and executive officers of the Company
as a group on February 10, 2000. 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.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percent of
Name (a)(b)(c) Class
---- -------------------- ----------
<S> <C> <C>
Eugene R. Anderson....................... 16,331 *
Dudley L. Bauerlein, Jr.................. 232,088 *
Patricia O. Ewers........................ 8,031 *
Thomas C. Hays........................... 862,209 *
John W. Johnstone, Jr.................... 8,731 *
Sidney Kirshner.......................... 3,414 *
Gilbert L. Klemann, II................... 305,038 *
Gordon R. Lohman......................... 6,717 *
John T. Ludes............................ 280,968 *
Craig P. Omtvedt......................... 93,040 *
Charles H. Pistor, Jr.................... 4,914 *
Eugene A. Renna.......................... 1,720 *
Robert J. Rukeyser....................... 246,638 *
Anne M. Tatlock.......................... 8,249 *
Norman H. Wesley......................... 350,621 *
Peter M. Wilson.......................... 5,172 *
Directors and executive officers as a
group
(17) person............................. 1,614,520 *
</TABLE>
- --------
* Less than 1%
(a) 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 0.98% at February 10, 2000. To the best of our knowledge,
each nominee and Class I 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 1,800
shares.
(b) 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, 3,068; Gilbert L. Klemann, II, 2,949;
Craig P. Omtvedt, 1,108; Robert J. Rukeyser, 6,783; and Dudley L.
Bauerlein, Jr., 13,868. The numbers of shares attributable to employee
contributions under such Plan included in the numbers shown above are:
Thomas C. Hays, 7,908; Gilbert L. Klemann, II, 754; Craig P. Omtvedt, 958;
Robert J. Rukeyser, 899; and Dudley L. Bauerlein, Jr., 2,355. 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
23
<PAGE>
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 46,793 shares of Common Stock held on December 31, 1999 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.
(c) The numbers of shares of which the nominees and Class I and Class III
directors and Messrs. Ludes, Rukeyser, Klemann, Omtvedt and Bauerlein had
the right to acquire beneficial ownership pursuant to the exercise on or
before April 10, 2000 of options granted by the Company are as follows:
Eugene R. Anderson, 5,217; Dudley L. Bauerlein, Jr., 187,043; Patricia O.
Ewers, 5,217; Thomas C. Hays, 736,074; John W. Johnstone, Jr., 5,217;
Gilbert L. Klemann, II, 279,005; Gordon R. Lohman, 5,217; John T. Ludes,
238,112; Craig P. Omtvedt, 67,583; Robert J. Rukeyser, 200,347; Anne M.
Tatlock, 5,217; Norman H. Wesley, 305,149; and Peter M. Wilson, 2,000. The
number of shares shown in the table above includes 1,344,472 shares 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 10, 2000 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 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 10, 2000.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
What governs stockholder proposals and nominations?
Our Restated 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 Restated 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 to make a nomination. You
must give your written notice 120 days before the annual meeting, that is, by
January 2, 2001 for the 2001 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.
24
<PAGE>
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 2, 2001 for the
2001 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 2, 2001, stockholder
proposals must be received by the Company on or before November 14, 2000.
A copy of the Restated Certificate of Incorporation and By-law provisions is
available upon written request to Mr. Mark A. Roche, Senior Vice President,
General Counsel and Secretary, Fortune Brands, Inc., 300 Tower Parkway,
Lincolnshire, Illinois 60069. 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. Mark A. Roche, Senior Vice President,
General Counsel and Secretary, Fortune Brands, Inc., 300 Tower Parkway,
Lincolnshire, Illinois 60069. 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 $12,500. 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 29, 2000
25
<PAGE>
EXHIBIT A
FORTUNE BRANDS, INC.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose of Plan
The purpose of the Fortune Brands, Inc. Stock Plan for Non-employee Directors
(the "Plan") is to enable Fortune Brands, Inc. ("Fortune") to provide its Non-
employee Directors (as defined below) with shares of common stock of Fortune
("Common Stock") and thereby to attract and retain non-employee directors of
exceptional ability and further align their interests with those of the other
stockholders of Fortune by increasing their proprietary interests in Fortune.
2. Administration of Plan
The Plan shall be administered by the Nominating and Corporate Governance
Committee (the "Committee") of the Board of Directors of Fortune. 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.
3. Participation
All Non-employee Directors shall participate in the Plan. The term "Non-
employee Director" means a member of the Board of Directors of Fortune who is
not at the time of receipt of shares of Common Stock pursuant to the Plan a
full-time employee of Fortune or any subsidiary thereof.
4. Payment of Shares of Common Stock
(a) Subject to all the terms and conditions of the Plan, each Non-employee
Director shall receive 550 shares of Common Stock per year for services as a
Non-employee Director during such year. To be entitled to receive such shares
with respect to any year, a Non-employee Director must be serving as such
immediately following the Annual Meeting of stockholders of Fortune held during
such year. Except as otherwise provided in Section 4(b), certificates
representing such shares shall be delivered to such Non-employee Director as
soon as practicable thereafter.
(b) A Non-employee Director may elect to defer receipt of shares of Common
Stock under this Section 4. The election shall (i) be made in writing to the
Secretary of Fortune before the November 1 immediately preceding the year in
which the shares of Common Stock are to be received, (ii) specify the future
date or dates on which the shares of Common Stock are to be paid or the future
event or events upon the occurrence of which the shares are to be paid and
(iii) be irrevocable. On each future date or upon the occurrence of each future
event so specified, certificates representing the shares whose receipt has been
deferred until such date or such future event shall be delivered to the Non-
employee Director, together with an amount representing the dividends on such
shares that would have been paid prior to such future date or such future event
if receipt of such shares had not been so deferred ("unpaid dividends"),
together, in the case of cash unpaid dividends, with interest thereon, accrued
quarterly from the respective dates such dividends would have been paid, at a
rate equal to the average quarterly United States Treasury bill rate. The
obligation of Fortune to make payment of any deferred shares of Common Stock or
any unpaid dividends (and interest thereon) as provided in this Section 4(b) is
not required to be funded.
(c) An election by a Non-employee Director pursuant to Section 4(b) to defer
receipt of any shares of Common Stock shall confer no rights upon such Non-
employee Director, as a stockholder of the Company or otherwise, with respect
to such shares, but shall confer only the right to receive such shares and
unpaid dividends (and interest thereon) as and when provided in Section 4(b).
(d) Notwithstanding anything to the contrary in Section 4(b) or 4(c), in the
event a Non-employee Director has elected to defer receipt of shares of Common
Stock pursuant to Section 4(b) and in the event of such person's death prior to
receipt thereof, such shares and any unpaid dividends (and interest thereon)
provided for in Section 4(b) shall be promptly paid to the beneficiary or
beneficiaries designated by such person in writing to the Secretary of Fortune
or, if no beneficiary has been so designated, to such person's estate.
A-1
<PAGE>
(e) Notwithstanding anything to the contrary in Section 4(b) or 4(c), in the
event a Non-employee Director has elected to defer receipt of shares of Common
Stock pursuant to Section 4(b) and in the event of a Change in Control (as
defined in this Section 4(e)), such shares and any unpaid dividends (and
interest thereon) provided for in Section 4(b) shall be promptly paid to such
Non-employee Director. A "Change in Control" shall be deemed to have occurred
if (i) any person (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended ("the Exchange Act"), as in effect
on January 25, 2000) is or becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act, and the rules and regulations
promulgated thereunder, as in effect on January 25, 2000) 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: (A) 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, (B) any acquisition by Fortune, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by Fortune or
entity controlled by Fortune, or (D) any acquisition pursuant to a transaction
that complies with clauses (A), (B) and (C) of Section 4(e)(iii), (ii) more
than 50% of the members of the Board of Directors of Fortune shall not be
Continuing Directors (which term, as used herein, means the directors of
Fortune (A) who were members of the Board of Directors of Fortune on January
25, 2000 or (B) 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), (iii) 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, (A) 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, (B) 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 January
25, 2000)), 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 (C) more than 50% of the members of the Board of Directors of
Newco shall be Continuing Directors or (iv) the stockholders of Fortune
approve a complete liquidation or dissolution of Fortune.
(f) The right to receive shares of Common Stock, the receipt of which has
been deferred by a Non-employee Director pursuant to Section 4(b), shall not
be transferable by such Non-employee Director otherwise than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined in the Internal Revenue Code of 1986, as amended.
(g) The shares of Common Stock issued hereunder shall be in addition to any
other fees to which a Non-employee Director may be entitled.
5. Taxes
Any taxes that are required to be withheld upon delivery of shares of Common
Stock issued pursuant to the Plan to a Non-employee Director shall be paid to
Fortune in cash by such Non-employee Director unless deducted and withheld
from any cash fees payable by Fortune to such Non-employee
A-2
<PAGE>
Director or paid by such Non-employee Director in shares of Common Stock in an
exempt transaction under Section 16 of the Exchange Act.
6. Limitations and Conditions
(a) The total number of shares of Common Stock that may be issued to Non-
employee Directors under the Plan is 75,000. Such total number of shares may
consist, in whole or in part, of authorized but unissued shares or shares held
in Fortune's treasury. The foregoing number may be increased or decreased by
the events set forth in Section 7 below.
(b) Prior to each issuance to a Non-employee Director of shares of Common
Stock pursuant to the Plan, such Non-employee Director must make
representations satisfactory to the Committee to the effect that such shares
are to be held for investment purposes and not with a view to or for resale or
distribution except in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and must give a written undertaking to Fortune in form
and substance satisfactory to the Committee that he or she will not publicly
offer or sell or otherwise distribute such shares other than (i) in the manner
and to the extent permitted by Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act, (ii) pursuant to any other
exemption from the registration provisions of the Securities Act or (iii)
pursuant to an effective registration statement thereunder.
(c) Nothing contained herein shall be deemed to create the right in any Non-
employee Director to remain a member of the Board of Directors of Fortune, to
be nominated for reelection or to be reelected as such or, after ceasing to be
such a member, to receive any shares of Common Stock under the Plan to which
he or she is not already entitled with respect to any year.
7. Stock Adjustments
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 of Common Stock that may be issued under the
Plan as set forth in Section 6(a) and the number of shares that may be issued
to a Non-employee Director with respect to any year as set forth in Section
4(a), (ii) the kind of shares that may be issued under the Plan and (iii) the
amount and kind of payment that may be made in respect of unpaid dividends on
shares of Common Stock whose receipt has been deferred pursuant to Section
4(b), 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.
8. Amendment and Termination
(a) The Board of Directors of Fortune shall have the power to amend or
terminate the Plan at any time; provided, however, that, to be effective, any
amendment of the Plan shall comply with the requirements of the rules and
regulations promulgated under Section 16(b) of the Exchange Act to the extent
necessary so that the receipt of shares of Common Stock by a Non-employee
Director under the Plan shall be exempt from such Section 16(b); and provided,
further, that no termination of the Plan shall adversely affect the rights of
any Non-employee Director with respect to any otherwise payable shares of
Common Stock whose receipt has been deferred or with respect to unpaid
dividends (and interest thereon) pursuant to Section 4(b).
(b) Subject to any prior termination of the Plan by the Board of Directors
of Fortune, shares of Common Stock shall be issuable under the Plan only with
respect to the calendar years 2000 through 2004 inclusive.
9. Effective Date
The Plan shall be subject to and effective upon its approval by the
stockholders of Fortune.
A-3
<PAGE>
[LOGO] Printed on Recycled Paper
This proxy statement is printed on
recycled paper. The entire
publication is recyclable.
<PAGE>
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
1. Call toll-free 1-888-xxx-xxxx 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.
________________________________________________________________________________
FORTUNE BRANDS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints N.H. WESLEY. C.P. OMTVEDT and
M.A. ROCHE proxies, with full power of substitution, to vote at the
Annual Meeting (including adjournments) of stockholders of Fortune
Brands, Inc. to be held April 25, 2000 at the Hyatt Regency O'Hare,
9300 West Bryn Mawr Avenue, Rosemont, Illinois at 2.00 P.M., for the
election of nominees Eugene R. Anderson, Patricia O. Ewers, John W.
Johnstone, Jr. and Eugene A. Renna, as Class II directors (item 1), on
items 2 and 3 referred to on the reverse side and described in the
Proxy Statement, and on any other business before the meeting, with
all powers the undersigned would possess if personally present. A
majority (or, 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.
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If you participate in the Fortune Brands Stock Fund under our
retirement savings trust, your signature on the reverse side will be a
direction to the trustee to vote as instructed.
FORTUNE BRANDS, INC.
P.O. BOX 11010
NEW YORK, N.Y. 10203-0010
(Continued And To Be Signed On Other Side.)
PLEASE EXECUTE AND RETURN YOUR PROXY PROMPTLY
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VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY, 7 DAYS A WEEK
TELEPHONE INTERNET MAIL
1-800-xxx-xxxx http://xxxxxxxxxxxxxxxx
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Use any touch-tone telephone to vote Use the Internet to vote your proxy. Mark, sign and date your proxy
your proxy. Have your proxy card in Have your proxy card in hand when you card and return it in the
hand when you call. You will be access the website. You will be postage-paid envelope we have
prompted to enter your control prompted to enter your control number, provided.
number, located in the box below, and located in the box below, to create an
then follow the simple directions. electronic ballot.
Your telephone or internet vote authorizes the named If you have submitted your proxy by telephone or the
proxies to vote your shares in the same manner as if internet there is no need for you to mail back your
you marked, signed and returned the proxy card. proxy.
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Call Toll-Free To Vote * It's Fast And Convenient
CONTROL NUMBER FOR
1-800-XXX-XXXX TELEPHONE OR INTERNET VOTING
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DETACH PROXY CARD HERE IF YOU ARE NOT
VOTING BY TELEPHONE OR INTERNET
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Please Detach Here
You Must Detach This Portion of the Proxy Card
. Before Returning it in the Enclosed Envelope .
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[___]
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1, 2 AND 3 PROPOSED BY THE COMPANY:
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1. Election of Directors. FOR all nominees [X] WITHHOLD AUTHORITY to vote [X] "EXCEPTIONS [X]
listed below for all nominees listed below.
Nominees: 01 - Anderson, 02 - Ewers, 03 - Johnstone, and 04 - Renna
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that
nominee's name on the line below.)
"Exceptions ______________________________________________________________________________________________________
2. Elect PriceWaterhouseCoopers LLP independent accountants for 2000. FOR [X] AGAINST [X] ABSTAIN [X]
3. Approve Stock Plan for Non-employee Directors. FOR [X] AGAINST [X] ABSTAIN [X]
Change of Address and
or Comments Mark Here [X]
NOTE: Please 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.)
Date________________________, 2000
__________________________________
__________________________________
SIGNATURE OF SHAREHOLDER(S)
Voters MUST be indicated
Please sign, Date and Return the Proxy Promptly Using the Enclosed Envelope. (x) in Black or Blue ink. [X]
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