<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
UST INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
UST
100 WEST PUTNAM AVENUE
GREENWICH, CONNECTICUT 06830
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 27, 1997
To the Stockholders of UST:
The 1997 Annual Meeting of Stockholders of UST Inc. (the "Company") will be
held at the Cole Auditorium of the Greenwich Library, 101 West Putnam Avenue,
Greenwich, Connecticut, on Tuesday, the 6th day of May 1997, at 10:00 a.m.,
Eastern Daylight Saving Time, for the following purposes:
(1) to elect three directors for terms of three years each;
(2) to ratify and approve the selection of independent auditors of the
accounts of the Company for the year 1997;
(3) to consider and act upon a stockholder proposal, if presented by the
proponent; and
(4) to consider and act upon such other business as may properly come
before the meeting.
Stockholders of record at the close of business on March 6, 1997 will be
entitled to vote at the meeting. The approximate date of mailing of this Proxy
Statement is March 27, 1997.
DEBRA A. BAKER,
Secretary
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE> 3
UST
100 WEST PUTNAM AVENUE
GREENWICH, CONNECTICUT 06830
PROXY STATEMENT
SOLICITATION OF PROXY
The enclosed proxy is solicited by the Board of Directors (the "Board") of
UST Inc. (the "Company") for use at the Annual Meeting of Stockholders to be
held May 6, 1997, including any adjournment thereof (the "Annual Meeting").
Whether or not you plan to attend the Annual Meeting, the Board respectfully
requests the privilege of voting on your behalf and urges you to sign, date and
return the enclosed proxy. By doing so you will, unless such proxy is
subsequently revoked by you, authorize the persons named therein, or any of
them, to act on your behalf at the Annual Meeting.
Any stockholder who submits a proxy may revoke it by giving a written
notice of revocation to the Secretary or, before the proxy is voted, by
submitting a duly executed proxy bearing a later date.
ATTENDANCE AND PROCEDURES AT ANNUAL MEETING
Attendance at the Annual Meeting will be limited to stockholders of record,
beneficial owners of Company common stock ("Common Stock") entitled to vote at
the meeting having evidence of ownership, a duly appointed proxy holder with the
right to vote of an absent stockholder (one proxy holder per absent
stockholder), and invited guests of the Company. Any person claiming to be the
proxy holder of an absent stockholder must, upon request, produce written
evidence of such authorization. In addition, management will require all signs,
banners, placards, cameras and recording equipment to be left outside the
meeting room.
ACTION TO BE TAKEN AT MEETING
1. Three directors will be elected to serve for terms of three years each
and until their respective successors are elected and qualified.
2. A resolution will be offered to ratify and approve the selection of
independent auditors of the accounts of the Company for the year 1997.
3. The Company has been advised that a resolution will be offered by a
stockholder.
Your authorized proxies will vote FOR the election of the individuals
herein nominated for directors and the resolution regarding the auditors, and
AGAINST the stockholder resolution, unless you designate otherwise. A proxy
designating how it should be voted will be voted accordingly.
1
<PAGE> 4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Certificate of Incorporation provides for the election of one-third (as
near as possible) of the Board annually.
The Board, upon recommendation of the Nominating and Compensation
Committee, nominated the three directors standing for election at the Annual
Meeting for terms expiring at the Annual Meeting of Stockholders to be held in
the year 2000. Mr. Spencer R. Stuart, a director of the Company since 1977, will
retire from the Board at the expiration of his current term of office and,
accordingly, is not standing for re-election at the Annual Meeting. The Board
currently consists of nine members and, with the retirement of Mr. Stuart, shall
be reduced to eight at the Annual Meeting.
Directors are elected by a plurality of the votes cast. "Plurality" means
that the nominees who receive the largest number of votes cast "For" are elected
as directors, up to the maximum number of directors to be chosen at the Annual
Meeting. Consequently, any shares not voted "For" a particular nominee as a
result of a direction to withhold or a broker nonvote will not affect the
outcome of the vote.
Set forth in the following Table I is certain information with respect to
each person nominated by the Board and each person whose term of office as a
director will continue after the Annual Meeting, including the number of shares
of Common Stock beneficially owned by such person as of February 28, 1997.
TABLE I
<TABLE>
<CAPTION>
NAME OF NOMINEE*
OR DIRECTOR BUSINESS HISTORY
--------------------------------------- -------------------------------
<C> <S> <C>
JAMES W. CHAPIN Mr. Chapin retired on December
Chapin Picture 1, 1994 and is Of Counsel to
Age 67 the Company. He served as
Executive Vice President and
Shares beneficially owned: General Counsel from September
Outstanding shares -- 311,953 25, 1991 until the date of his
Shares subject to options -- 433,000 retirement. Mr. Chapin joined
the Company as General Counsel
Present term expires 1999 in 1975.
Director since 1994
*EDWARD H. DEHORITY, JR. Mr. DeHority is a retired
Dehority Picture certified public accountant and
Age 66 attorney. He was employed by
Ernst & Young LLP from 1958 to
Shares beneficially owned: 1988. He served as the firm's
Outstanding shares -- 2,480 National Partner in charge of
Shares subject to options -- 3,000 Client Relations from 1972 to
1978 and the managing partner
Nominated for term to expire 2000 of the Stamford, Connecticut
Present term expires 1997 office from 1978 to 1987.
Director since 1990
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME OF NOMINEE*
OR DIRECTOR BUSINESS HISTORY
--------------------------------------- -------------------------------
<C> <S> <C>
*ELAINE J. EISENMAN, PH.D. Dr. Eisenman is a Principal of
Eisenman Picture Global Leadership Associates, a
Age 48 firm specializing in executive
succession and leadership
Shares beneficially owned: development. She served as
Outstanding shares -- 100 Senior Vice
Shares subject to options -- 0 President -- Worldwide
Staffing, Development and
Nominated for term to expire 2000 Succession of American Express
Company from November 1994 to
Present term expires 1997 January 1997. She served as
Vice President and General
Director since 1996 Manager of Personnel Decisions,
Inc., a firm specializing in
management development, from
March 1990 to November 1994.
*VINCENT A. GIERER, JR. Mr. Gierer has served as
Gierer Picture Chairman of the Board and Chief
Age 49 Executive Officer since
December 1, 1993 and has served
Shares beneficially owned: as President since September
Outstanding shares -- 413,701 27, 1990. He also served as
Shares subject to options -- 635,400 Chief Operating Officer from
September 27, 1990 to November
Nominated for term to expire 2000 30, 1993. Mr. Gierer has been
employed with the Company since
Present term expires 1997 1978.
Director since 1986
P.X. KELLEY General Kelley has served as
Kelley Picture Vice Chairman of Cassidy &
Age 68 Associates, a Washington D.C.
government relations firm,
Shares beneficially owned: since January 1989. He served
Outstanding shares -- 3,500 as General, United States
Shares subject to options -- 3,000 Marine Corps from 1981 to 1987
and retired as Commandant of
Present term expires 1999 the Marine Corps in 1987. He
also served as a member of the
Director since 1992 Joint Chiefs of Staff from 1983
until his retirement in 1987.
General Kelley also serves as a
director of AlliedSignal Inc.,
GenCorp Inc., London Insurance
Group, Saul Centers, Inc.,
Sturm, Ruger & Company, Inc.
and Wackenhut Corporation.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF NOMINEE*
OR DIRECTOR BUSINESS HISTORY
--------------------------------------- -------------------------------
<C> <S> <C>
RALPH L. ROSSI Mr. Rossi retired on July 1,
Rossi Picture 1993. He served as Vice
Age 68 Chairman from August 29, 1984
until the date of his
Shares beneficially owned: retirement. Mr. Rossi had
Outstanding shares -- 111,400 joined the Company in 1955.
Shares subject to options -- 478,000
Present term expires 1998
Director since 1973
JOHN P. WARWICK Mr. Warwick served as Chairman
Warwick Picture of the Board of Warwick, Baker
Age 71 & Fiore Inc., a New York based
advertising agency, from 1965
Shares beneficially owned: through March 20, 1991, the
Outstanding shares -- 10,140 date of his retirement. He
Shares subject to options -- 3,000 presently serves on the Board
of its successor firm, Warwick
Present term expires 1998 Baker O'Neill Inc.
Director since 1991
LOWELL P. WEICKER, JR. Mr. Weicker is a Visiting
Weicker Picture Professor at George Washington
Age 65 University and the University
of Virginia as well as a
Shares beneficially owned: Visiting Lecturer at Yale
Outstanding shares -- 530 University. He served as
Shares subject to options -- 1,500 Governor of Connecticut from
January 9, 1991 through January
Present term expires 1999 3, 1995. Mr. Weicker also
serves on the Boards of
Director since 1995 Compuware, Duty Free
International, Inc., Phoenix
Home Life Mutual Funds and
HPSC, Inc.
</TABLE>
Messrs. DeHority and Gierer and Dr. Eisenman are now directors and will
serve for the terms indicated. Your proxy, unless otherwise marked, will be
voted for the aforesaid nominees for such terms. In the event that any nominee
is not available for election at the time of the meeting or any adjournment
thereof, an event which is not anticipated, your proxy may be voted for a
substitute nominee and will be voted for the other nominees named above.
As of February 28, 1997, all directors and reporting officers as a group
beneficially owned 1,506,728 shares and had exercisable options to acquire
3,221,000 shares, which together represented 2.5% of the aggregate of the
outstanding Common Stock including options held by all such persons. No officer
or director beneficially owned more than 1% of the aggregate amount of the
outstanding Common Stock including options held by the respective person.
The Board held eight meetings during 1996.
4
<PAGE> 7
COMMITTEES OF THE BOARD
The Company has an Audit Committee, a Nominating and Compensation Committee
and a Stock Option Committee. The Audit Committee is currently comprised of the
following members, each independent of management: Edward H. DeHority,
Jr. -- Chairman, P.X. Kelley, Spencer R. Stuart and Lowell P. Weicker, Jr. The
Audit Committee, which met four times during 1996, reviews and acts upon or
reports to the Board with respect to various auditing and accounting matters,
including the selection of the Company's independent auditors, the accounting
and financial practices and controls of the Company, audit procedures and
findings, and the nature of services to be performed for the Company by, and the
fees to be paid to, the independent auditors. The Nominating and Compensation
Committee, which met six times during 1996, is currently comprised of the
following members, each independent of management: P.X. Kelley -- Chairman,
Edward H. DeHority, Jr., Spencer R. Stuart and John P. Warwick. This committee's
responsibilities are to cover nominating matters, including the recommendation
of nominees to the Board and the size and composition of the Board and its
committees, in addition to officers' compensation and management succession
matters. The Nominating and Compensation Committee considers recommendations
from stockholders for Board of Director candidates. Any recommendations should
be submitted in writing to the Secretary at the Company's office. In addition,
the Stock Option Committee, which met twice during 1996, is comprised of the
same four independent directors who serve on the Nominating and Compensation
Committee, with John P. Warwick as Chairman. This committee's responsibilities
are to administer the Company's stock option plans and review and approve stock
option grants thereunder.
COMPENSATION OF DIRECTORS
The monthly retainer for all nonemployee directors has been $5,000 since
January 1, 1993 for their services as directors, including committee
assignments. Nonemployee directors are reimbursed for reasonable expenses
incurred by them in connection with performance of their services to the Company
as members of the Board of Directors or committees. Employee directors receive
no additional compensation for their services as directors.
The Company maintains the UST Nonemployee Directors' Retirement Plan (the
"Directors' Plan"), a nonqualified, nonfunded plan that applies to nonemployee
members of the Board who are not former employees, whose service as such
includes periods beginning on or after January 1, 1988, and whose service equals
or exceeds 36 months. Under the terms of the Directors' Plan, an eligible
director will receive one-twelfth of 75% of his highest annual compensation
(excluding consulting fees) each month, beginning at age 65 (or such later date
upon which occurs his termination of service) and continuing over a period equal
to his period of service. Payments cease upon death.
In addition, the Company maintains the UST Directors' Supplemental Medical
Plan (the "Directors' Medical Plan"), a self-insured medical reimbursement plan
that applies to nonemployee members of the Board who are not former employees.
The Directors' Medical Plan provides for an additional $7,500 of annual coverage
for each participant for reasonable, medically related expenses above the
participant's basic medical plan coverage. Coverage continues upon a
participant's retirement from the Board for a period equal to the participant's
period of service on the Board.
The Company also maintains the UST Nonemployee Directors' Stock Option Plan
(the "Plan"). The Plan, which was approved by stockholders at the 1995 Annual
Meeting, provides for an annual, automatic grant of an option to purchase 1,500
shares of Common Stock on the first business day following each annual meeting,
beginning in 1995, to each member of the Board who is not then an employee of
the Company. Options will be granted with an exercise price per share equal to
the fair market value per share of Common
5
<PAGE> 8
Stock on the date the option is granted and will first become exercisable six
months after the date of grant. The option exercise period will expire ten years
after the date of grant and will not be affected by a participant's cessation of
membership on the Board.
The Company also makes available to its nonemployee directors up to $12,500
annually in tax and financial planning services. In addition, nonemployee
directors are generally covered under the Company's group life insurance,
accidental death and dismemberment and business travel accident policies.
COMPENSATION OF EXECUTIVE OFFICERS
The tables, graph and descriptive information which follow are intended to
comply with the Securities and Exchange Commission regulations for executive
compensation requirements applicable to, among other reports and filings, annual
proxy statements. This information is being furnished with respect to the
Company's Chief Executive Officer and all of its other executive officers as of
December 31, 1996 (collectively, the "Executive Officers"). Messrs. Bucchignano
and Rothenberg resigned from the Company, effective February 23, 1997.
TABLE II
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ----------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION ($)(1)
- ---------------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Vincent A. Gierer, Jr. 1996 615,000 2,106,533 125,000 9,000
Chairman of the Board, 1995 612,885 2,072,074 70,000 9,000
Chief Executive Officer 1994 560,000 1,850,046 120,000 9,000
and President
Robert E. Barrett 1996 340,000 726,522 80,000 7,500
Executive Vice President and 1995 337,500 715,069 50,000 7,500
President -- UST Enterprises 1994 275,000 650,012 80,000 7,500
Inc.
John J. Bucchignano 1996 347,115 976,277 80,000 9,000
Executive Vice President 1995 275,000 960,171 55,000 9,000
and Chief Financial Officer 1994 275,000 800,015 50,000 9,000
Harry W. Peter III 1996 340,000 671,244 80,000 9,000
Executive Vice President and 1995 337,500 660,063 50,000 9,000
President -- UST International 1994 275,000 600,011 50,000 9,000
Inc.
Robert D. Rothenberg 1996 328,462 767,003 70,000 9,000
Executive Vice President 1995 280,000 645,031 100,000 9,000
and President -- United States 1994 240,577 460,008 30,000 9,000
Tobacco Company
Richard H. Verheij 1996 275,000 738,379 70,000 9,000
Executive Vice President 1995 235,000 615,026 95,000 9,000
and General Counsel 1994 193,269 440,022 70,000 9,000
</TABLE>
- ---------------
(1) Amounts represent Company matching contributions to the Employees' Savings
Plan.
6
<PAGE> 9
TABLE III
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- GRANT DATE
NUMBER OF % OF TOTAL VALUE
SECURITIES OPTIONS -----------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR $/SHARE DATE VALUE($)(2)
- ----------------------------- ------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Vincent A. Gierer, Jr. ...... 90,000 5.8 34.06 6/26/06 535,500
35,000 2.2 33.44 12/11/06 209,300
Robert E. Barrett............ 60,000 3.9 34.06 6/26/06 357,000
20,000 1.3 33.44 12/11/06 119,600
John J. Bucchignano.......... 70,000 4.5 34.06 6/26/06 416,500
10,000 0.6 33.44 12/11/06 59,800
Harry W. Peter III........... 40,000 2.6 34.06 6/26/06 238,000
40,000 2.6 33.44 12/11/06 239,200
Robert D. Rothenberg......... 60,000 3.9 34.06 6/26/06 357,000
10,000 0.6 33.44 12/11/06 59,800
Richard H. Verheij........... 60,000 3.9 34.06 6/26/06 357,000
10,000 0.6 33.44 12/11/06 59,800
</TABLE>
- ---------------
(1) Options granted in 1996 expire in ten years and generally become exercisable
ratably over a three year period following the date of grant subject to
acceleration of exercisability upon a change in control of the Company.
(2) Amounts based on the modified Black-Scholes option pricing model, using the
following material assumptions: exercise price equal to the fair market
value of the underlying stock on the date of grant, interest rate
representing the interest rate on a U.S. Treasury security with a maturity
date corresponding to that of the expected life of the option, volatility
calculated using weekly stock prices for a one year period prior to grant
date, estimated period in which option will be exercised of 6.5 years and
expected dividend yield of 4.4 percent. There is no assurance the value
realized by an optionee will be at or near the value estimated by the
modified Black-Scholes option pricing model. Should the stock price not rise
over the option price, optionees will realize no gain.
TABLE IV
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Gierer, Jr....... 273,000 5,165,656 424,000 211,400 3,721,456 320,350
Robert E. Barrett........... 10,000 46,563 270,100 139,900 1,342,050 220,638
John J. Bucchignano......... 13,000 209,625 318,800 133,200 2,147,150 185,538
Harry W. Peter III.......... -0- -0- 350,100 129,900 2,610,925 175,638
Robert D. Rothenberg........ 47,000 771,406 216,400 146,600 1,505,131 145,525
Richard H. Verheij.......... -0- -0- 181,500 156,500 850,963 195,225
</TABLE>
7
<PAGE> 10
TABLE V
PENSION TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
- ------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000................ $ 21,064 $ 42,128 $ 63,192 $ 84,256 $105,320 $126,384 $147,448
300,000............... 32,064 64,128 96,192 128,256 160,320 192,384 224,448
400,000............... 43,064 86,128 129,192 172,256 215,320 258,384 301,448
500,000............... 54,064 108,128 162,192 216,256 270,320 324,384 378,448
600,000............... 65,064 130,128 195,192 260,256 325,320 390,384 455,448
700,000............... 76,064 152,128 228,192 304,256 380,320 456,384 532,448
800,000............... 87,064 174,128 261,192 348,256 435,320 522,384 609,448
900,000............... 98,064 196,128 294,192 392,256 490,320 588,384 686,448
1,000,000............... 109,064 218,128 327,192 436,256 545,320 654,384 763,448
1,100,000............... 120,064 240,128 360,192 480,256 600,320 720,384 840,448
1,200,000............... 131,064 262,128 393,192 524,256 655,320 786,384 917,448
</TABLE>
The Pension Table sets forth information for determining the estimated
annual retirement benefits payable as a life annuity to the Executive Officers
under the Company's defined benefit plans pursuant to which benefits are
determined by final compensation and years of service (the "Retirement Plans").
Compensation for purposes of the Retirement Plans means the highest three year
average compensation (salary and 25% of bonus actually paid in the applicable
year) in the ten year period immediately preceding retirement. Table II shows
salary paid in 1994-1996 and bonus for the 1994-1996 years actually paid in
1995-1997. For 1996, the three year average compensation covered by the
Retirement Plans for each of the Executive Officers was as follows: Mr. Gierer,
$1,049,990; Mr. Barrett, $471,152; Mr. Bucchignano, $492,953; Mr. Peter,
$464,273; Mr. Rothenberg, $410,487; and Mr. Verheij, $334,830. As of December
31, 1996, the credited years of service under the Retirement Plans were
approximately as follows: Mr. Gierer, 19 years; Mr. Barrett, 6 years; Mr.
Bucchignano, 12 years; Mr. Peter, 9 years; Mr. Rothenberg, 27 years; and Mr.
Verheij, 10 years. Pension Table calculations assume retirement on December 31,
1996 and take into account offsets for social security benefits.
The Executive Officers also participate in a supplemental retirement plan
(the "Supplemental Plan"). The formula by which benefits are determined under
the Supplemental Plan is as follows: the greater of 100% of the accrued benefit
under the Retirement Plans or 40% of the executive's highest compensation
(salary plus 25% of bonus) paid during any of the three consecutive twelve month
periods within the thirty-six months immediately preceding retirement (for
retirement at age 50), increasing in constant whole percentage increments to the
greater of 110% of such accrued benefit or 50% of such compensation (for
retirement at age 60 or thereafter), less amounts payable under the Retirement
Plans. The estimated annual benefits payable as a life annuity at normal
retirement age (assuming compensation and service as of December 31, 1996) under
the Supplemental Plan for each of the Executive Officers (after taking into
account reductions for benefits under the Retirement Plans) are approximately as
follows: Mr. Gierer, $131,407; Mr. Barrett, $198,301; Mr. Bucchignano, $167,277;
Mr. Peter, $162,226; Mr. Rothenberg, $23,841; and Mr. Verheij, $144,346.
8
<PAGE> 11
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company is party to an employment agreement with Mr. Gierer (4 years)
and was party to an employment agreement with Mr. Bucchignano (3 years) which
set forth the terms and conditions of such officers' employment and termination
of employment with the Company. The stated initial terms of the agreements are
generally automatically extended, subject to expiration at age 65. In
particular, the agreements provide that such officers will be entitled to
certain severance benefits if the Company terminates their employment for any
reason other than death, disability or "cause" or if the officer terminates his
employment for "good reason," including termination following a "change in
control of the Company" (as such terms are defined in the agreements). The
benefits consist principally of the continuation over the term remaining in the
officer's employment agreement or, if greater, three years, of an annual amount
equal to the sum of the officer's base salary and the highest ICP payment made
to the officer in any of the preceding three years. In the event of a
termination based on a change in control, the ICP taken into account for this
purpose would be limited to an amount equal to 75% of base salary, the multiple
would in all cases be three and the benefits would be paid in a lump sum. The
Company would also maintain all welfare benefit plans in effect for the
officer's continued benefit or provide substantially equivalent benefits for
three years (or, if greater, the number of years remaining in the term of the
agreement). In addition, the Company would pay certain other damages resulting
from the termination. In the event that any payments made pursuant to the
agreement in connection with a change in control are subjected to the excise tax
imposed under the federal tax laws, the Company would increase each such
officers' severance payment as necessary to restore the officer to the same
after-tax position he would have had if the excise tax had not been imposed. In
addition, such agreements provide that any such officer shall resign as Director
upon his termination of employment for any reason. Based upon current salary
levels, the approximate before-tax lump-sum value of the severance payments that
would have been payable to the aforementioned executive officers if their
employment had terminated on December 31, 1996 following a change in control
would be as follows: Mr. Gierer, $3.2 million and Mr. Bucchignano, $1.8 million.
In addition, the Company is party to severance agreements with Messrs.
Barrett, Peter and Verheij and was party to a severance agreement with Mr.
Rothenberg, which set forth the benefits to be paid upon certain terminations of
employment following a change in control of the Company. Each of the agreements
has a three-year term that is generally automatically extended and, in any
event, expires no earlier than two years following a change in control. Each
agreement provides that the officer will be entitled to the severance benefits
described below if the Company terminates his employment within the two year
period following a change in control for any reason other than death, disability
or "cause" or if the officer terminates his employment for "good reason" (as
such terms are defined in the agreement). The benefits consist of a lump-sum
payment equal to three times the sum of the officer's base salary and the
highest ICP payment made to the officer in any of the preceding three years,
provided that such ICP amount does not exceed 75% of base salary. The Company
would also maintain all welfare benefit plans in effect for the officer's
continued benefit or provide substantially equivalent benefits for three years.
Based upon current salary levels, the approximate before-tax lump-sum value of
the severance payments, exclusive of any reductions attributable to any change
in control benefits payable under other of the Company's employee benefit plans
or arrangements that would have been payable to the aforementioned executive
officers if their employment had terminated on December 31, 1996 following a
change in control would be as follows: Mr. Barrett, $1.8 million; Mr. Peter,
$1.8 million; Mr. Rothenberg, $1.8 million; and Mr. Verheij, $1.6 million.
Effective February 23, 1997, Messrs. Bucchignano and Rothenberg resigned
from the Company. In connection therewith, the Company agreed to honor its
employment agreement with Mr. Bucchignano and make payments in accordance with
its terms as if his employment had been terminated by the Company
9
<PAGE> 12
without cause. The Company also agreed to make similar payments to Mr.
Rothenberg in light of the fact that the Board had authorized an employment
agreement for him.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Nominating and Compensation Committee (the "Committee") is comprised of
four independent, nonemployee directors. The role of the Committee, among other
things, is to review and approve, as appropriate, (i) the broad compensation
program of the Company with respect to its officers, including all executive
officers ("Executive Officers"), and (ii) the various components of the total
compensation of the Executive Officers. The Stock Option Committee is currently
comprised of the same four independent, nonemployee directors. Its role is
generally to administer the Company's stock option plans and review and approve
stock option grants thereunder subject, with respect to Executive Officers, to
the approval of the Committee.
COMPENSATION POLICY
The Committee believes that strong leadership combined with the continuing
development of its highly qualified management team have been key elements in
the Company's excellent financial performance over the years. In the Committee's
view, the Company's compensation programs, which provide appropriate incentives
and rewards to Executive Officers for outstanding performance, have been and
will continue to be essential to the Company's ability to attract, retain and
motivate the most highly qualified executives, thereby enhancing the ability of
the Board of Directors to meet its primary obligation to stockholders of the
Company -- maximizing stockholder value through consistent earnings growth and
profitability. The Committee also believes that meaningful participation in the
Company's success is the most effective means of compensating its Executive
Officers. Accordingly, it has been the Committee's long-standing policy to link
a substantial portion of total compensation to the Company's performance. Less
than half of total compensation is to be fixed in the form of base salary while
the remainder of total compensation (bonus and stock options) is to be variable
and dependent upon the earnings and operating results of the Company and the
market price of its common stock.
In order to ensure that the Company's compensation programs provide proper
incentives for outstanding performance, while at the same time ensuring that the
major portion of total compensation is dependent on Company performance, the
Committee has adopted an objective for the Company's compensation programs that
total compensation for the Company's officers should fall approximately at the
75th percentile of a comparator group composed of a cross section of other high
performance companies but only if warranted by Company performance. The
Committee believes that this objective is reflective of the increasing legal and
regulatory challenges which continue to confront the Company and the tobacco
industry in general and the need to attract and retain talented executives who
can direct growth in such a challenging environment. Each year, the Committee
directs an independent consultant to construct a group of comparative companies
from its database (the "Comparator Group"), which this year resulted in the
identification of fourteen companies who, like the Company, met the following
criteria as of the end of 1995: (i) one year return on equity equal to or
greater than 20%; (ii) five year return on equity equal to or greater than 20%;
and (iii) five year compound growth for earnings per share equal to or greater
than 10%. The Comparator Group for executive compensation purposes is not the
same as the peer group index used for comparing investment performance in the
graph included in this Proxy Statement except for one company.
Relevant data to be included in the independent consultant's report for any
year does not become fully available until after the close of that year.
Accordingly, the Committee uses compensation data drawn from this report only as
a guide in determining the total compensation to be provided to the Executive
Officers for
10
<PAGE> 13
the year following the year to which the report relates. Thus, for example, in
determining total 1996 compensation for Executive Officers, the Committee was
aware that, based upon the data provided in the independent consultant's 1996
report, total 1995 compensation for each of the Executive Officers generally
fell below the 75th percentile of compensation for comparable executives in the
Comparator Group. Implementation of the Committee's objective is thus subject to
review and adjustment each year in light of information set forth in the latest
consultant's report as well as changes in the Company's financial performance.
In reviewing its objective, the Committee also takes into account circumstances
which may have affected the results of the report (e.g., the shift in Comparator
Group companies from year to year due to the financial performance criteria, as
well as changes from time to time in comparable executives at the Comparator
Group companies).
The Company's compensation program has three principal components, each
described more fully below: annual base salaries; short-term incentives
consisting of annual bonuses awarded under the Company's Incentive Compensation
Plan ("ICP") which is directly linked to Company performance through earnings;
and long-term incentives consisting of the grant of stock options under the
Company's stock option plan (the "Option Plan") which reflects the Company's
performance through changes in the market price of its common stock. Both the
ICP and the Option Plan have been previously approved by stockholders.
Although the Committee's only established target level is the 75th
percentile as the goal for each officer's total compensation, in analyzing where
such total compensation falls in relation to the Comparator Group, the Committee
is cognizant of where each component of compensation falls in relation to the
same component of compensation for comparable executives in the Comparator
Group. In this connection, the Committee noted that 1995 salaries and long-term
incentive compensation for each Executive Officer fell below the 75th percentile
and 1995 short-term incentive compensation for each was above the 75th
percentile of the analogous 1995 compensation for comparable executives in the
Comparator Group.
The Committee has continued to recognize that short-term incentive
compensation constitutes a significantly higher percentage of total compensation
for the Company's officers than does long-term incentive compensation. In 1994,
the Committee determined that it was appropriate to change this distribution of
incentives, and that it would attempt to do so gradually over time while
recognizing, however, that the need to conserve shares of its common stock
available for future issuance under the Option Plan might limit to some extent
the Committee's ability to achieve this objective. As one means of furthering
this goal, over the last few years, the Committee has consistently increased the
allocation to officers of the aggregate option awards made each year to all
employees and has decreased the allocation to officers of the aggregate ICP fund
made each year to all employees. Historically, one-half of the allocation under
each plan has been awarded to officers and the remaining half has been awarded
to other employees. In 1996, 72% of the total shares subject to option awards
("option shares") were granted to officers, compared with 70% in 1995.
(Conversely, 41% of ICP awards were made to officers for 1996, compared with 42%
in 1995).
For 1996, stock option awards to the Executive Officers as a group
increased by more than 20% over their awards for 1995 whereas ICP awards to the
Executive Officers as a group increased by only 5.6% over their awards for 1995.
ICP awards to the Executive Officers as a group have generally decreased over
the last few years not only as a result of efforts to shift the distribution of
incentives, but also as a result of changes in the composition of the Executive
Officer group resulting from retirements and promotions.
Set forth in the Summary Compensation Table (Table II) included in this
Proxy Statement is the compensation of Executive Officers for the years 1996,
1995 and 1994. The Committee notes that the Company's performance in each of
those years reached record levels for net earnings and primary earnings per
share ("EPS"). For 1996, 1995 and 1994, net earnings increased 8%, 11% and 11%,
respectively, and EPS increased 12%, 16% and 15%, respectively.
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<PAGE> 14
SPECIFIC COMPONENTS OF COMPENSATION PROGRAM
Salary. Base salary for the Executive Officers is the component of the
Company's compensation program that is least related to Company performance and
therefore is intended to be a lower percentage of total compensation. In keeping
with the Company's emphasis on performance-related compensation, base salaries
of the Executive Officers as a group constituted 27% of their 1996 cash
compensation and approximately 20% of their total 1996 compensation (including
the stock option component discussed below), leaving 80% of such compensation
"at risk." Base salaries of Executive Officers are generally reviewed every two
to three years and are based upon fixed percentages of the Chief Executive
Officer's ("CEO") salary depending on the level of officer. Upon promotion, an
Executive Officer's salary is adjusted accordingly, generally to an amount based
upon a specified percentage of the CEO's salary.
ICP. The ICP formula, which was approved by stockholders, provides each
year for an aggregate fund based upon fixed percentages of consolidated earnings
(before income taxes and incentive compensation), as specified in the ICP, so
long as earnings exceed a threshold percentage of stockholders' equity and cash
dividends have been declared and paid in the year. Because the ICP is based upon
the Company's profitability, payment thereunder is not guaranteed. Up to 50% of
the fund may be allocated by the ICP Committee among the Company's officers,
including all Executive Officers ("Fund A"). Nevertheless, as noted above, the
1996 allocation to Fund A was only 41% (approximately the same as 1995) with the
remaining 59% of the fund being allocated to all other employees ("Fund B"). ICP
awards to each of the Executive Officers must be approved by the Committee which
decides whether to accept or alter such recommendations. The ICP provides that
the CEO will not be permitted to receive more than 15% of Fund A and no other
Executive Officer will be permitted to receive more than 12% of Fund A. In
addition, the sum of these percentages cannot exceed 100%. These percentages
govern the maximum amounts that may be allocated to each Executive Officer and
are not subject to increase without stockholder approval. The Committee has,
however, the authority to determine that an award to an Executive Officer will
be less than the indicated maximum percentage for such Executive Officer.
In considering the specific awards to the Executive Officers, the Committee
first considers the Company's overall performance. Where applicable, the
Committee also takes into account (i) the relationship between the executive's
total cash compensation and that of the CEO and (ii) the performance of the
segment of the Company for which the executive is responsible. With respect to
any year in which the Company's net earnings equal or exceed the prior year's
results, the Committee generally awards an executive a bonus that is at least
equal to the executive's bonus for the immediately preceding year. If the
executive has been promoted to a position of greater responsibility with an
increase in salary, the bonus is generally increased commensurately. The extent
to which an Executive Officer's bonus increases or decreases is generally
designed to achieve an overall percentage change in the Executive Officer's
total cash compensation (salary and bonus) for the year which is commensurate
with the percentage changes for such year in the Company's net earnings or EPS.
However, other considerations, such as the effect of promotions and efforts to
shift the distribution of incentives on a group basis, may from time to time
override the Committee's desire for this degree of correlation between
individual cash compensation and changes in net earnings and EPS.
In 1996, the Company's net earnings were $464 million, an increase of 8%
over the prior year and the Company's EPS was $2.42, an increase of 12% over the
prior year. The Committee noted, however, that the rate of growth of net
earnings and EPS had decreased over the last two years. For 1996, the percentage
increases in total cash compensation for four Executive Officers was generally
significantly below the 8% and 12% increases in Company performance. The
percentage increases in the cash compensation of the remaining two Executive
Officers, Messrs. Rothenberg and Verheij, were significantly higher because of
increases in both elements of cash compensation in recognition of their
promotions. As a result, 1996 cash compensation for
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<PAGE> 15
Executive Officers as a group increased 6% over the prior year. This is slightly
below the increase in net earnings but is consistent with the Company's earnings
before income taxes.
The 1996 ICP fund represents 4.98% of total earnings before income taxes
and provision for incentive compensation and was distributed to approximately
1,800 employees, including all Executive Officers. Based on the Company's
performance for 1996, the aggregate ICP fund for 1996 increased by approximately
6% over the prior year. 1996 ICP awards to the Executive Officers as a group
increased 5.6% over 1995. As noted above, a major portion of this increase was
awarded to Messrs. Rothenberg and Verheij in recognition of the greater
responsibilities they had assumed in 1995 and their promotions in 1996 to
Executive Vice President. As a result, the increases in 1996 ICP awards to the
other Executive Officers, including the CEO, were nominal.
The ICP awards for 1996 made to the Executive Officers as a group
constituted 15% of the aggregate ICP fund and 37% of Fund A, in each case, the
same as 1995. In addition, the ICP awards made to the Executive Officers as a
group constituted approximately 73% of their cash compensation for 1996 and 53%
of their total compensation for 1996 (including the long-term component
discussed below), in each case, the same as 1995.
Option Plan. The long-term incentive component of executive compensation,
as noted above, is equity-based and consists of the award of stock options to
the Executive Officers (as well as many other employees of the Company) under
the Option Plan. Stock options represent compensation that is tied to the
Company's stock price for periods of up to 10 years (the period during which
such options may be exercised). Stock options are granted with an exercise price
equal to the fair market value of shares of the Company's stock on the date of
grant, and the optionee will realize value from an award only if the market
price of the Company's stock appreciates.
Long-term equity-based compensation serves the Committee's overall
compensation policy as follows: it is variable (not fixed); its value is
performance-related, based upon the market price of the Company's stock; and it
provides an additional incentive to executives to take into account the
Company's long-term goals and plans. In addition to providing incentive
compensation, stock options are a means to encourage equity ownership. Because
salary is generally fixed and changes in ICP awards will generally correlate
with changes in net earnings or EPS of the Company, stock options are the
component of overall compensation that provides the Committee with the greatest
degree of flexibility in attempting to attain its targeted compensation
objective with respect to Executive Officers.
As previously discussed, the Committee found that 1995 total compensation
of its Executive Officers was generally below the targeted 75th percentile of
1995 compensation for comparable executives in the Comparator Group and was
cognizant that the long-term incentive component of executive compensation, in
particular, was below the 75th percentile for all Executive Officers. In spite
of the Committee's efforts to increase the size of the stock option awards to
Executive Officers, long-term incentive compensation continued to represent 27%
of 1996 total compensation. The Committee believes that the value of the
Company's stock option awards tends to be a lower relative value compared to
that of the Comparator Group due to the Company's undervalued stock price as a
result of the market volatility of tobacco company stocks and higher dividend
yield. Both are essential factors in the valuation method utilized for stock
options. In addition, when comparing the value of Company long-term incentives
to that of the Comparator Group, the Committee notes that the long-term
incentive programs of other companies may include such additional plans as stock
appreciation rights, restricted stock, performance shares/units, etc., for which
different valuation methodologies are utilized.
Individual grants to the current Executive Officers for 1996 are set forth
in Table III (Option Grants in Last Fiscal Year) included in this Proxy
Statement. The Committee's practice in the grant of stock options is
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<PAGE> 16
generally based upon a subjective evaluation of performance and not subject to a
specific formula. In determining the size of regular option grants to Executive
Officers, the Stock Option Committee considers the following factors, without
assigning any particular weight to any factor: (i) the position and performance
of the executive, (ii) the grant date present value (using the modified
Black-Scholes option pricing model) of the award compared with the value of
awards to executives in the Comparator Group, (iii) attaining the Committee's
targeted goal for total compensation, and (iv) the importance of long-term
compensation, as discussed above. It does not consider the size, in the
aggregate, of all previous option grants made to an Executive Officer. In
addition to the regular option grant, a special option grant was made in 1996 to
a number of employees including each Executive Officer. As previously discussed,
officers received 72% of the total option shares granted in 1996 of which 32%
were granted to the Executive Officers. Executive Officers as a group were
granted 20% more option shares in 1996 than in 1995. In this regard, the
Committee and the Stock Option Committee determined that the size of option
grants to the Executive Officers was appropriate in order to increase the
long-term incentive component of compensation and attain the Committee's
targeted goal for total compensation.
Since long-term incentive compensation is an important component of the
Company's compensation program and is designed to encourage equity ownership in
the Company as well as to facilitate such ownership, the Company, in 1996,
established guidelines for officers' stock ownership. Under these guidelines,
officers are encouraged and expected to obtain and hold company stock (excluding
stock obtained through the Employees' Savings Plan) in an effort to align their
interests with those of the stockholders as well as to demonstrate their
long-term commitment to the future growth of the Company. The guidelines provide
that the CEO is expected to own, at a minimum, that number of shares whose
market value represents the sum of five (5) times his base salary and 30% of the
difference between the aggregate exercise price and the aggregate market value
of his exercisable stock options. For all other Executive Officers, this same
formula is applied but is based upon three (3) times base salary. Officer stock
ownership may be monitored by the Committee and such ownership may be taken into
account in the granting of stock option awards.
1996 COMPENSATION OF CHIEF EXECUTIVE OFFICER
Each component of Mr. Gierer's 1996 compensation (i.e., salary, ICP award
and stock options) was determined by the Committee and was based upon the
Committee's compensation policy as previously discussed. The CEO's performance
is reviewed annually by the Committee and is based upon such quantitative
factors as the Company's financial performance (net earnings and EPS) as well as
qualitative factors which include the implementation of the Company's strategic
business plan and the achievement of those business goals which contributed to
the Company's earnings growth and profitability and increase in shareholder
returns. The Committee makes a subjective determination in considering these
factors rather than assigning any factor a specific weight.
In reviewing Mr. Gierer's performance in 1996, the Committee noted that the
Company continued to improve its record earnings and sales growth. During 1996,
the Company committed to certain tobacco industry initiatives which are intended
to address the continuing legal and regulatory challenges which confront the
Company and the industry. Under Mr. Gierer's direction, certain management
initiatives have been achieved (which include new product introductions as well
as divestitures of non-strategic businesses) that are intended to strengthen and
reinforce the Company in order to position it for future growth.
As discussed above, Mr. Gierer's 1996 ICP award, as a result of the
significant increases in the 1996 ICP awards to two Executive Officers who were
promoted in 1996, combined with the percentage limitation imposed on his award
pursuant to the terms of the Plan, increased only 1.7% and represented 13% of
Fund A. Since Mr. Gierer did not receive a salary increase in 1996, the
percentage increase in his 1996 cash
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<PAGE> 17
compensation was 1.4% which, again, was not commensurate with the Company's
increases in net earnings nor EPS (8% and 12%, respectively). Mr. Gierer's 1996
long-term incentive compensation increased 67% as a result of the stock option
awards he received pursuant to the regular option grant (90,000 shares) and the
special option grant (35,000 shares).
While Mr. Gierer's total 1996 compensation increased approximately 11% over
1995, primarily as a result of the increase in his stock option awards in 1996,
his total compensation continues to fall significantly below the 75th percentile
of 1995 compensation of comparable executives in the Comparator Group.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE
The current tax law imposes an annual, individual limit of $1 million on
the deductibility of the Company's compensation payments to the chief executive
officer and to the four most highly compensated executive officers other than
the chief executive officer. Specified compensation is excluded for this
purpose, including performance-based compensation that has been approved by
stockholders, provided certain conditions are satisfied. The Company's policy is
generally to preserve the federal income tax deductibility of compensation paid
to the Company's executive officers, taking into account other factors that may
arise from time to time.
<TABLE>
<CAPTION>
NOMINATING AND COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
<S> <C>
P.X. Kelley, Chairman John P. Warwick, Chairman
Edward H. DeHority, Jr. Edward H. DeHority, Jr.
Spencer R. Stuart P.X. Kelley
John P. Warwick Spencer R. Stuart
</TABLE>
15
<PAGE> 18
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
AMONG UST INC., S&P TOBACCO INDEX & S&P 500 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) UST INC. S&P TOBACCO S&P 500
<S> <C> <C> <C>
12/91 100 100 100
12/92 100 100 108
12/93 90 78 118
12/94 94 85 120
12/95 118 134 165
12/96 120 141 203
</TABLE>
(1) Assumes $100 invested on 12/31/91 and held through 12/31/96. Total return
assumes reinvestment of dividends.
16
<PAGE> 19
INDEBTEDNESS OF MANAGEMENT
Since January 1, 1996, none of the Company's directors, Executive Officers,
nominees for election as directors or certain relatives or associates of such
persons has been indebted to the Company in an aggregate amount in excess of
$60,000 except as noted below in Table VI, which represents unpaid balances on
loans made pursuant to stock option exercises under the terms of the UST Inc.
1982 Stock Option Plan which has expired with respect to the grant of options,
and of the UST Inc. 1992 Stock Option Plan, both as previously approved by
stockholders. Unpaid balances on such loans are secured by the pledging of the
shares with the Company and by the optionee's personal installment promissory
note bearing interest at the federal rate in effect under the Internal Revenue
Code on the date the loan is made.
TABLE VI
<TABLE>
<CAPTION>
INDEBTEDNESS
LARGEST AGGREGATE AS OF
INDEBTEDNESS DURING 1996(1) FEBRUARY 28, 1997(1)
--------------------------- --------------------
<S> <C> <C>
Vincent A. Gierer, Jr................................ $ 1,701,602 $1,447,057
Chairman of the Board,
Chief Executive Officer and President
Robert E. Barrett.................................... 690,726 628,701
Executive Vice President and
President -- UST Enterprises Inc.
John J. Bucchignano.................................. 599,159 554,706
Director, Executive Vice President
and Chief Financial Officer
James W. Chapin...................................... 246,723 63,808
Director
Harry W. Peter III................................... 411,840 313,851
Executive Vice President and
President -- UST International Inc.
Robert D. Rothenberg................................. 1,581,455 1,515,483
Director, Executive Vice President and
President -- United States Tobacco Company
</TABLE>
- ---------------
(1) Interest rates on loans range from approximately 5% to approximately 9%.
PROPOSAL NO. 2
A Proposal to Ratify and Approve the Selection of Independent Auditors of
the Accounts of the Company and its Consolidated Subsidiaries for the Year 1997.
The Board has selected the firm of Ernst & Young LLP, Certified Public
Accountants, as independent auditors of the accounts of the Company and its
consolidated subsidiaries for the year 1997. Ernst & Young LLP has been serving
the Company and its subsidiaries in this capacity for many years. The Board's
selection was made upon the unanimous recommendation of its Audit Committee.
In connection with its audit of the Company's 1996 financial statements,
Ernst & Young LLP read the Company's periodic reports which were filed with the
Securities and Exchange Commission, discussed quarterly financial information
included in the Company's quarterly financial statements and met with the Audit
Committee. Ratification of the selection of the Company's independent auditors
is not required by any statute or regulation to which the Company is subject or
by the Company's By-Laws. If the stockholders do
17
<PAGE> 20
not ratify the selection of Ernst & Young LLP, the selection of independent
auditors will be reconsidered by the Board.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if so desired and
will be available to respond to appropriate questions.
The following resolution will be offered at the meeting:
"RESOLVED, that the Board of Directors' selection of Ernst &
Young LLP as independent auditors of the accounts of the Company and
its consolidated subsidiaries for the year 1997 be, and it hereby is,
ratified, confirmed and approved by the stockholders of the Company."
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE FOREGOING RESOLUTION
(Proposal No. 2). Your appointed proxies will vote your shares FOR Proposal No.
2 unless you instruct otherwise in the proxy form.
The affirmative vote of a majority of the shares of Common Stock present in
person or by proxy is required to adopt this proposal. In accordance with
Delaware law, abstentions will, while broker nonvotes will not, be treated as
present for purposes of the preceding sentence.
The following Proposal No. 3, which is printed verbatim, was submitted by a
stockholder. The name, address and shareholding of the proponent will be
furnished upon any oral or written request to the Secretary of the Company. For
the reasons set forth following the proposal, the Board recommends a vote
AGAINST Proposal No. 3.
PROPOSAL NO. 3
"UST
WHEREAS smokeless tobacco contains many dangerous chemicals; including
cancer producing chemicals such as nitrosamines, polonium 210, formaldehyde and
traces of cadmium and nickel compounds. At least 2,500 chemicals have been
identified in processed tobacco, the effects of many of these chemicals have not
been scientifically determined (American Cancer Society);
-- The average age of first use of smokeless tobacco in the U.S.A. is 10
years old. Those regularly using smokeless tobacco do so by the age of 12.
Roughly one in every five high school males use smokeless tobacco. More than
half of these started by the eighth grade (Office of the Inspector General):
-- A study of junior and senior high school students regularly using
smokeless tobacco showed that, although 85% thought use was harmful, only 55%
thought it presented a moderate to severe risk, while 25% didn't know smokeless
tobacco contains nicotine and 25% didn't believe smokeless tobacco is addictive
(National Cancer Institute);
-- The U.S. Surgeon General has noted that spit tobacco users are about six
times more likely than nonusers to get cancers of the mouth and throat;
-- Long term smokeless tobacco users begin to develop oral tissue
abnormalities within a year of beginning use. 40% to 60% of users develop grade
2 or higher lesions within 6 months of beginning use (Office of the Surgeon
General);
-- UST has held over 85% of the oral snuff market in the United States and
is the largest advertiser of smokeless tobacco;
-- We believe that UST uses a "graduation" strategy that results in new
users moving up to high nicotine brands over time as new users become dependent
on the drug nicotine;
18
<PAGE> 21
-- Many minors begin snuff use with low nicotine brands, many of which are
free-sampled. Snuff use has risen among minors since UST began what we believe
to be a "graduation" strategy. This has happened despite our Company's adoption
of a voluntary code not to advertise smokeless tobacco products to persons under
18, not to advertise in publications or programs that are primarily youth
oriented, not to use active professional athletes in advertisements and not to
send free samples in the mail unless it can be reasonable ascertained that
recipient are over age 18;
-- Such a stated commitment seems undermined by data showing increased use
of our Company's smokeless tobacco among minors;
-- A possible explanation comes from a former smokeless tobacco user, Joe
Garagiola. He noted in 1996 that smokeless tobacco ads have featured rodeos, car
racing and other "macho events" to lure users: "They target young people with
the word smokeless. Coaches, players and kids [mistakenly] equate that with
harmless;"
RESOLVED that the shareholders request that the Board create an independent
committee to study possible reasons why, despite our Company's stated efforts to
dissuade minors from using our smokeless tobacco products, their use has been
increasing. We propose this Committee be composed of outside directors who can
enlist the expertise of experts free of any UST ties. This Committee shall
report to the Board and shareholders its findings and recommendations by January
1, 1998."
COMPANY'S RESPONSE
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST THE FOREGOING
RESOLUTION (Proposal No. 3).
The proposal contains certain assertions with which the Company believes
are false and misleading. The Proponent asserts as its belief that "UST uses a
'graduation' strategy that results in new users moving up to high nicotine
brands over time as new users become dependent on the drug nicotine." The fact
is that the Company does not use a "graduation strategy" and that any such
allegations create a false and misleading impression of the Company.
The Company participated in the well-publicized April 1994 hearings of the
U.S. House of Representatives Subcommittee on Health and the Environment
concerning the possible jurisdiction of the Food and Drug Administration over
the tobacco industry. As set forth in a statement to the Subcommittee by U.S.
Tobacco Company, a subsidiary of the Company, on April 14, 1994:
"U.S. Tobacco does not employ any marketing strategy based on a
theory that consumers can be enticed to begin using low-nicotine
"starter" smokeless tobacco products, and subsequently caused to
"graduate" through advertising. . .or through nicotine dependence. .
.to products with higher levels of nicotine . . ."
". . . Furthermore, the inflammatory allegations. . .regarding a
so-called "graduation strategy" are not supported by the facts.
Smokeless tobacco products, like all tobacco products, vary in
nicotine content. Any suggestion that U.S. Tobacco's line of products
is developed based on "graduating" levels of nicotine is not true."
Furthermore, agency internal reports and memoranda unearthed from FDA's
files reflect research carried out in FDA's own laboratories which demonstrate
the scientific invalidity of any "graduation strategy" theory based on
allegations of nicotine manipulation.
The Proponent also alleges that the Company's commitment not to direct its
selling efforts towards minors "seems undermined by data showing increased use
of our Company's smokeless tobacco among
19
<PAGE> 22
minors." The fact is that data from recent government reports indicate that use
of smokeless tobacco by minors is low and decreasing.
In a report entitled Healthy People 2000 Review, 1992, the Department of
Health and Human Services ("HHS") established the goal of reducing smokeless
tobacco use by teenage males to 4 percent by the year 2000. HHS' 1995 report
entitled Healthy People 2000 Midcourse Review and 1995 Revisions reported that
"of males 12-17, smokeless tobacco use has declined from 6.6 percent in 1988 to
3.9 percent in 1993," thereby already below the stated goal for the year 2000.
Recent data confirms the downward trend continuing even considering changes
in survey methodology which HHS acknowledges increases its estimate of underage
tobacco use. For example, reported use by 12-17 age males in 1994 was 3.8
percent under the old methodology, a further decline from 3.9 percent in 1993;
while the 1994 estimate under the new methodology was 5.1 percent, the 1995
estimate using the new methodology is 4.9 percent, again a decrease.
As illustrated above, both the old and new survey methodologies report a
consistent downward trend in the use of smokeless tobacco by underage males,
with the reported usage either below (using the old methodology) or approaching
(using the new methodology) the Healthy People 2000 goal of 4 percent by the
year 2000.
In light of the fact that the use of smokeless tobacco products by minors
is decreasing, the Board believes that the Company's efforts to discourage the
sale of our products to minors are already contributing to that trend and
believes that the appointment of the proposed committee is neither necessary nor
appropriate.
The Board believes that the adoption of this proposal is neither
appropriate nor in the best interests of the Company or its stockholders and
urges stockholders to vote AGAINST it.
Your appointed proxies will vote your shares AGAINST Proposal No. 3 unless
you instruct otherwise in the proxy form.
The affirmative vote of a majority of shares of Common Stock present in
person or by proxy is required to adopt this proposal. In accordance with
Delaware law, abstentions will, while broker nonvotes will not, be treated as
present for purposes of the preceding sentence.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
common stock, to file with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange initial reports of beneficial ownership and reports
of changes in beneficial ownership of common stock of the Company. Such persons
are also required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during 1996 all Section
16(a) filing requirements applicable to such individuals were complied with
except that the Form 3 filed with respect to Mr. Robert T. D'Alessandro, Senior
Vice President and Controller of the Company, inadvertently failed to include
276 shares held in his individual retirement account; the holding of such shares
has been reflected in the Form 5 filed by Mr. D'Alessandro with respect to 1996.
INFORMATION RESPECTING PROXIES
Your shares are registered in the name and manner shown on the enclosed
form of proxy. Please sign the proxy in the same manner. It is not necessary for
you to indicate the number of shares you hold.
20
<PAGE> 23
Expenses incurred in connection with the solicitation of proxies for the
meeting will be borne by the Company. In addition to solicitation by mail,
arrangements may be made pursuant to which brokers, bank nominees and other
institutional holders of record will distribute at the Company's expense proxies
and proxy material to the appropriate beneficial owners, and assistance in the
solicitation of proxies from such holders of record will be rendered by
Georgeson & Company, Inc., Wall Street Plaza, New York, New York, for a fee of
approximately $22,000.
STOCKHOLDER PROPOSALS
If a stockholder wishes to submit a proposal for inclusion in the Proxy
Statement prepared for the 1998 Annual Meeting of Stockholders, such proposal
must be received by the Secretary at the Company's office no later than November
21, 1997.
In addition, the By-Laws provide that only such business as is properly
brought before the Annual Meeting will be conducted. For business to be properly
brought before the meeting or nominations to be properly made at the Annual
Meeting by a stockholder, notice must be received by the Secretary at least 50,
but not more than 75, days prior to the Annual Meeting and such notice must
provide certain requisite information. A copy of the By-Laws may be obtained by
writing to the Secretary.
OTHER BUSINESS
The Board knows of no other business which will come before the meeting. If
any other business shall properly come before the meeting, including any
proposal submitted by a stockholder which was omitted from this Proxy Statement
in accordance with the applicable provisions of the federal securities laws,
your authorized proxies will vote thereon in accordance with their best
judgment.
VOTING STOCK
As of March 6, 1997, the record date for the 1997 Annual Meeting, the
outstanding stock of the Company entitled to vote consisted of 183,413,536
shares of Common Stock (each entitled to one vote).
Appearance at the meeting in person or by proxy of the holders of Common
Stock entitled to cast 91,706,769 votes is required for a quorum.
By Order of the Board of Directors,
DEBRA A. BAKER
Secretary
21
<PAGE> 24
-----
U S T
-----
- -------------------------------------------------------------------------------
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Stockholders,
you can ensure your shares are represented at the Meeting by promptly
completing and returning your proxy (attached below) in the enclosed envelope.
Thank you for your attention to this important matter.
- -------------------------------------------------------------------------------
DETACH HERE
[X] Please mark
votes as in
this example.
If no direction is given, this proxy will be voted FOR proposals 1 and 2 and
AGAINST proposal 3.
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1 and 2:
- -------------------------------------------------------------------------------
1. Election of Directors.
NOMINEES: E.H. DeHority, Jr., E.J. Eisenman, V.A. Gierer, Jr.
FOR WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ] [ ]
For all nominees except vote withheld from the following:
[ ]
------------------------------------------------
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To ratify and approve
Ernst & Young LLP [ ] [ ] [ ]
as independent audi-
tors of the Company
for the year 1997.
- -------------------------------------------------------------------------------
The Board of Directors recommends a
vote AGAINST the following
stockholder proposal 3:
- ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Stockholder Proposal. [ ] [ ] [ ]
- ------------------------------------------------------------------------------
And in their discretion, upon such other
business as may properly come before the
meeting.
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as name appears hereon. If signing for trusts,
estates or corporations, capacity or title should be stated. If
shares are owned jointly, both owners must sign. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Signature: Date: Signature: Date:
-------------- --------- ---------------- -------
<PAGE> 25
UST
ANNUAL MEETING OF STOCKHOLDERS -- MAY 6, 1997
The undersigned hereby appoints DEBRA A. BAKER and RICHARD H.
VERHEIJ, or either of them, with full power of substitution, attorneys
and proxies to vote all shares of Common Stock of UST Inc. which the
P undersigned is entitled to vote at the Annual Meeting of Stockholders to
R be held at the Cole Auditorium of the Greenwich Library, 101 West Putnam
O Avenue, Greenwich, Connecticut, on Tuesday, the 6th day of May 1997, at
X 10:00 a.m., and at any and all adjournments thereof, on the matters
Y listed on the reverse side which are set forth in the accompanying Proxy
Statement.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSAL 3.
/SEE REVERSE/
/ SIDE /
