-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VO4XAqvqibHsV8Y4+cSIZDCWXpxpag8ec7uLHrmCvLKhlhrqIGmK/CaHn+Mw/Luy ngFZFOCr9r+bdO6d7rpnFA== 0000893838-97-000127.txt : 19970814 0000893838-97-000127.hdr.sgml : 19970814 ACCESSION NUMBER: 0000893838-97-000127 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTUNE BRANDS INC CENTRAL INDEX KEY: 0000789073 STANDARD INDUSTRIAL CLASSIFICATION: CIGARETTES [2111] IRS NUMBER: 133295276 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09076 FILM NUMBER: 97658202 BUSINESS ADDRESS: STREET 1: 1700 E PUTNAM AVE CITY: OLD GREENWICH STATE: CT ZIP: 06870-0811 BUSINESS PHONE: 2036985000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BRANDS INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period Commission file number 1-9076 ended June 30, 1997 FORTUNE BRANDS, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 13-3295276 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 698-5000 ------------ AMERICAN BRANDS, INC. - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report) ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) The number of shares outstanding of the registrant's Common stock, par value $3.125 per share, at July 31, 1997 was 171,344,465 shares. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS. - ------ -------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET --------------------------------------- (In millions) June 30, December 31, 1997 1996 ------------ ------------- (Unaudited) (Restated) Assets Current assets Cash and cash equivalents $ 157.5 $ 34.9 Accounts receivable, net 867.2 892.4 Inventories Bulk whiskey 359.5 379.3 Other raw materials, supplies and work in process 275.0 266.8 Finished products 385.0 391.8 -------- -------- 1,019.5 1,037.9 Net assets of discontinued operations - 683.3 Other current assets 173.3 193.6 -------- -------- Total current assets 2,217.5 2,842.1 Property, plant and equipment, net 943.8 972.6 Intangibles resulting from business acquisitions, net 3,659.8 3,730.7 Other assets 199.4 191.9 -------- -------- Total assets $7,020.5 $7,737.3 ======== ======== See Notes to Condensed Consolidated Financial Statements. -1- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET --------------------------------------- (In millions, except per share amounts) June 30, December 31, 1997 1996 ------------- ------------ (Unaudited) (Restated) Liabilities and stockholders' equity Current liabilities Notes payable to banks $ 37.4 $ 37.1 Commercial paper - 691.2 Accounts payable 205.4 241.3 Accrued taxes 671.3 443.4 Accrued expenses and other liabilities 518.3 601.2 Current portion of long-term debt 201.5 53.9 --------- --------- Total current liabilities 1,633.9 2,068.1 Long-term debt 846.2 1,598.3 Deferred income taxes 53.9 19.3 Postretirement and other liabilities 374.6 367.4 --------- --------- Total liabilities 2,908.6 4,053.1 --------- --------- Stockholders' equity $2.67 Convertible Preferred stock - redeemable at Company's option 12.2 12.9 Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4 Paid-in capital 163.8 166.5 Foreign currency adjustments 40.5 (195.9) Retained earnings 5,206.5 5,025.4 Treasury stock, at cost (2,028.5) (2,042.1) --------- --------- Total stockholders' equity 4,111.9 3,684.2 --------- --------- Total liabilities and stockholders' equity $ 7,020.5 $ 7,737.3 ========= ========= See Notes to Condensed Consolidated Financial Statements. -2- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME for the Six Months Ended June 30, 1997 and 1996 ----------------------------------------------------- (In millions, except per share amounts) (Unaudited) 1997 1996 ---------- ---------- (Restated) Net sales $2,340.6 $2,262.8 Cost of products sold 1,237.2 1,164.8 Excise taxes on distilled spirits 185.8 202.3 Advertising, selling, general and administrative expenses 641.4 609.7 Amortization of intangibles 51.9 51.2 Restructuring charges 55.8 - Interest and related expenses 68.7 79.5 Other (income) expenses, net 2.8 0.3 -------- -------- Income from continuing operations before income taxes 97.0 155.0 Income taxes 57.7 67.2 -------- -------- Income from continuing operations 39.3 87.8 Income from discontinued operations 65.1 158.3 Extraordinary items - (10.3) -------- -------- Net income $ 104.4 $ 235.8 ======== ======== Earnings per Common share Primary Income from continuing operations $.23 $ .49 Income from discontinued operations .38 .90 Extraordinary items - (.06) ---- ----- Net income $.61 $1.33 ==== ===== Fully diluted Income from continuing operations $.23 $ .49 Income from discontinued operations .36 .87 Extraordinary items - (.06) ---- ----- Net income $.59 $1.30 ==== ===== Dividends paid per Common share $1.00 $1.00 ===== ===== Average number of Common shares outstanding Primary 171.7 176.3 ===== ===== Fully diluted 175.5 182.4 ===== ===== See Notes to Condensed Consolidated Financial Statements. -3- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME for the Three Months Ended June 30, 1997 and 1996 ----------------------------------------------------- (In millions, except per share amounts) (Unaudited) 1997 1996 ---------- ---------- (Restated) Net sales $1,235.5 $1,207.7 Cost of products sold 662.7 617.0 Excise taxes on distilled spirits 103.8 116.1 Advertising, selling, general and administrative expenses 328.4 318.6 Amortization of intangibles 25.9 27.0 Restructuring charges 55.8 - Interest and related expenses 30.8 42.7 Other (income) expenses, net 0.7 (2.6) -------- -------- Income from continuing operations before income taxes 27.4 88.9 Income taxes 23.1 32.9 -------- -------- Income from continuing operations 4.3 56.0 Income (loss) from discontinued operations (36.5) 66.0 -------- -------- Net income (loss) $ (32.2) $ 122.0 ======== ======== Earnings per Common share Primary Income from continuing operations $ .03 $.31 Income (loss) from discontinued operations (.22) .38 ----- ---- Net income (loss) $(.19) $.69 ===== ==== Fully diluted Income from continuing operations $ .03 $.31 Income (loss) from discontinued operations (.22) .37 ----- ---- Net income (loss) $(.19) $.68 ===== ==== Dividends paid per Common share $.50 $.50 ==== ==== Average number of Common shares outstanding Primary 172.0 174.9 ===== ===== Fully diluted 176.1 178.9 ===== ===== See Notes to Condensed Consolidated Financial Statements. -4- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the Six Months Ended June 30, 1997 and 1996 ----------------------------------------------------- (In millions) (Unaudited) 1997 1996 --------- --------- (Restated) Operating activities Net income $ 104.4 $ 235.8 Restructuring charges 55.8 - Income from discontinued operations (65.1) (158.3) Extraordinary items - 10.3 Depreciation and amortization 123.2 117.0 Decrease (increase) in accounts receivable 16.9 (33.5) Increase in inventories (9.3) (9.7) Decrease in accounts payable, accrued expenses and other liabilities (69.4) (91.9) (Decrease) increase in accrued taxes (20.9) 29.4 Other operating activities, net (25.4) (9.5) --------- ------- Net cash provided from continuing operating activities 110.2 89.6 --------- ------- Investing activities Additions to property, plant and equipment (74.5) (70.6) Acquisition, net of cash acquired - (695.2) Other investing activities, net 0.2 8.8 --------- ------- Net cash used by investing activities (74.3) (757.0) --------- ------- Financing activities (Decrease)increase in short-term debt, net (690.5) 919.4 Issuance of long-term debt - 403.0 Repayment of long-term debt (601.0) (353.5) Dividends to stockholders (172.5) (177.3) Cash purchases of Common stock for treasury (55.0) (282.3) Other financing activities, net 72.9 1.1 --------- ------- Net cash (used) provided by financing activities (1,446.1) 510.4 --------- ------- Effect of foreign exchange rate changes on cash (2.3) 0.8 Cash provided (used) by discontinued operations 1,535.1 (40.6) --------- ------- Net increase (decrease) in cash and cash equivalents 122.6 (196.8) Cash and cash equivalents at beginning of period 34.9 232.0 --------- ------- Cash and cash equivalents at end of period $ 157.5 $ 35.2 ========= ======= See Notes to Condensed Consolidated Financial Statements. -5- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Principles of Consolidation The condensed consolidated balance sheet as of June 30, 1997, the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1997 and 1996 and the related condensed consolidated statement of cash flows for the six-month periods ended June 30, 1997 and 1996 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results may not be indicative of results for a full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. The year-end condensed consolidated balance sheet was derived from the Company's audited financial statements, but does not include all disclosures required by generally accepted accounting principles. This Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes incorporated by reference in its 1996 Annual Report on Form 10-K. 2. Acquisition In January 1996, Cobra Golf Incorporated ("Cobra") was acquired for an aggregate cost of $712 million in cash, including fees and expenses. In connection with this acquisition, liabilities amounting to $60 million were included at the date of acquisition. The cost exceeded the fair value of net assets acquired by $657 million. Cobra's operations have been included in consolidated results from the date of acquisition. 3. Discontinued Operations On May 30, 1997, the international tobacco operations were spun off and the name of the Company was changed to Fortune Brands, Inc. As a result, the Company's stockholders owned shares in two publicly-traded companies -- Fortune Brands, Inc. ("Fortune") and Gallaher Group Plc ("Gallaher"). To allocate the overall debt burden of the Company at the time of the spin-off, Gallaher borrowed and paid to the Company an amount that will ultimately approximate $1.25 billion, after taxes. The Company used the proceeds initially to pay down short-term debt. -6- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Discontinued Operations (Continued) The condensed consolidated financial statements have been reclassified to identify international tobacco operations as discontinued operations for all periods. Summarized data for the international tobacco operations, net of allocation of interest expense based on a ratio of Gallaher's net assets to consolidated net assets of the Company, is as follows: Six Months Three Months Results of operations Ended June 30, Ended June 30, --------------------- ----------------- --------------- 1997* 1996 1997* 1996 ------- ------- ------- ------ (In millions) Net sales $2,575.0 $2,961.1 $835.2 $1,278.3 ======== ======== ====== ======== Income before taxes $186.4 $243.7 $33.7 $102.2 Spin-off expenses (67.1) - (67.1) - Income taxes (54.2) (85.4) (3.1) (36.2) ------ ------ ------ ------ Income (loss)from discontinued operations $ 65.1 $158.3 $(36.5) $ 66.0 ====== ====== ====== ====== *Includes results through May 30, 1997; five months in the six months ended June 30, 1997 and two months in the three months ended June 30, 1997. -7- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Discontinued Operations (Concluded) Net assets of discontinued December 31, operations 1996 -------------------------- ----------- (In millions) Current assets $ 2,020.4 Property, plant and equipment, net 258.4 Other assets 477.2 Current liabilities (1,933.0) Non-current liabilities (139.7) -------- $ 683.3 ======== In connection with the spin-off, the conversion rate of each share of $2.67 Convertible Preferred stock was adjusted from 4.08 shares of American Brands, Inc. Common stock to 6.205 shares of Fortune Brands Common stock. 4. Restructuring and Other Nonrecurring Charges The Company has been reviewing productivity-enhancing opportunities and, during the three months ended June 30, 1997, recorded a pre-tax charge of $89.3 million. The savings expected to be achieved from the charges recorded to date will principally be offset by costs associated with brand building, new product development and new international market development activities. The Company anticipates additional pre-tax restructuring and other nonrecurring charges during the third and fourth quarters of 1997 aggregating approximately $100 million as formal restructuring plans are approved and communicated. -8- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Restructuring and Other Nonrecurring Charges (Concluded) Charges recorded to date by business segment are as follows (in millions, except per share amounts): Nonrecurring Cost of Sales Restructuring Charges Total ------------- ------------ ----- Home Products $ 9.1 $ 8.3 $17.4 Office Products 23.4 0.1 23.5 ----- ----- ----- Home and Office Products 32.5 8.4 40.9 Distilled Spirits 23.3 25.1 48.4 ----- ----- ----- $55.8 $33.5 89.3 ===== ===== Income tax benefit 23.9 ----- Net charge $65.4 ===== Charge per Common share Primary $.38 Fully diluted $.37 Home Products includes a $17.4 million pre-tax charge related to the discontinuance of certain product lines and operations, the consolidation of facilities and the write-down of property, plant and equipment. Office Products includes a $23.5 million pre-tax charge, principally resulting from the discontinuance and rationalization of product lines and related assets, the write-down of property, plant and equipment, and lease cancellation costs, partly offset by the pre-tax gain on the sale of two non-strategic businesses. Distilled Spirits includes a $48.4 million pre-tax charge due to a change in estimate for bulk whiskey valuations which results from the integration of the worldwide distilled spirits business and costs related to leased facilities and international distribution agreements. -9- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Pro Forma Financial Information Pro forma information is presented for informational purposes only and does not purport to be indicative of the results of operations which would actually have been obtained if the transactions had occurred on January 1, 1996, or which may exist or be obtained in the future. The following sets forth certain pro forma consolidated results for the Company which have been adjusted to include a net cash payment of approximately $1.25 billion that Gallaher made to the Company and the assumption that such proceeds were used to purchase 2.5 million Common shares and repay debt as of January 1, 1996 and also to exclude the restructuring and other nonrecurring charges. The ultimate use of the proceeds may differ from that described herein. Six Months Three Months Ended June 30, Ended June 30, --------------- ------------ 1997 1996 1997 1996 ------ ------ ----- ---- (In millions, except per share amounts) Income from operations $121.8 $108.4 $76.5 $66.3 ====== ====== ===== ===== Earnings per Common share - Primary $.72 $.62 $.45 $.38 Fully diluted $.70 $.61 $.43 $.37 Previously published pro forma amounts, which reflected an assumed purchase of 10 million Common shares, have been revised to reflect an assumed purchase of 2.5 million Common shares. The impact to E.P.S. for the six months and three months ended June 30, 1996 is negligible. The impact on previously published pro forma primary and fully diluted E.P.S. for the year 1996 is a reduction of two cents to $1.30 and $1.28, respectively. -10- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Earnings Per Share Earnings per Common share are based on the weighted average number of Common shares outstanding in each period and after preferred stock dividend requirements. Fully diluted earnings per Common share assume that any convertible debentures and convertible preferred shares outstanding at the beginning of each period, or at their date of issuance, if later, were converted at those dates, with related interest, preferred stock dividend requirements and outstanding Common shares adjusted accordingly. It also assumes that outstanding Common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds exercise price, less shares which could have been purchased by the Company with related proceeds. 7. Extraordinary Items In March 1996, the Company redeemed $149.6 million of its $150 million 7-5/8% Eurodollar Convertible Debentures, Due 2001, at a redemption price of 103.8125% of the principal amount plus accrued interest and redeemed its $150 million 9-1/8% Debentures, Due 2016, at a redemption price of 104.4375% of the principal amount plus accrued interest. In connection with the redemptions, the Company recorded a charge of $10.3 million ($15.8 million pre-tax), or six cents per Common share. 8. Pending Litigation The Company and its subsidiaries are defendants in various lawsuits associated with their business and operations, and the Company is a defendant in actions based upon allegations that human ailments have resulted from tobacco use. It is not possible to predict the outcome of the pending litigation, but management believes that there are meritorious defenses to the pending actions and that the pending actions will not have a material adverse effect upon the results of operations, cash flow or financial condition of the Company. These actions are being vigorously contested. -11- FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded) 8. Pending Litigation (Concluded) On December 22, 1994, the Company sold The American Tobacco Company subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown & Williamson Tobacco Corporation and The American Tobacco Company agreed to indemnify the Company against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of The American Tobacco Company. In connection with the spin-off of Gallaher Group Plc on May 30, 1997, Gallaher Group Plc and Gallaher Limited agreed to indemnify the Company against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of Gallaher and its subsidiaries. 9. Environmental The Company is subject to laws and regulations relating to the protection of the environment. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company's subsidiaries may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations, cash flow or financial condition of the Company. -12- REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors of Fortune Brands, Inc.: We have reviewed the condensed consolidated balance sheet of Fortune Brands, Inc. and Subsidiaries as of June 30, 1997, the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1997 and 1996 and the related condensed consolidated statement of cash flows for the six-month periods ended June 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of income, cash flows and Common stockholders' equity for the year then ended (not presented herein) and in our report dated February 3, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. 1301 Avenue of the Americas COOPERS & LYBRAND L.L.P. New York, New York August 12, 1997 -13- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------ AND RESULTS OF OPERATIONS. ----------------------------------------------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES -------------------------------------- Results of Operations for the Six Months Ended June 30, 1997 as Compared to the Six Months Ended June 30, 1996 --------------------------------------------------------------------------- Net Sales Operating Income(1) ------------------ ------------------------- 1997 1996(3) 1997 1997(2) 1996(3) (Adjusted) ------ ------- ----- ------- ------ (In millions) Home Products $ 664.2 $ 656.7 $ 71.4 $ 88.8 $ 86.2 Office Products 575.5 549.0 9.6 33.1 30.2 -------- ------- ------ ------ ------ Home and Office Products 1,239.7 1,205.7 81.0 121.9 116.4 Golf Products 541.3 473.6 90.7 90.7 87.1 Distilled Spirits 559.6 583.5 34.1 82.5 74.8 -------- -------- ------ ------ ------ $2,340.6 $2,262.8 $205.8 $295.1 $278.3 ======== ======== ====== ====== ====== (1) Operating income represents net sales less all costs and expenses excluding corporate administrative expenses, interest and related expenses and other (income) expenses, net. (2) Excludes restructuring and other nonrecurring charges of $89.3 million. (3) Restated for discontinued international tobacco operations. CONSOLIDATED - ------------ Net sales rose 3% on line extensions, new products, the inclusion of Advanced Gravis (acquired September 1996) and Cobra Golf (acquired January 24, 1996) and price increases, partly offset by discontinued golf products and the inclusion of an additional month last year in distilled spirits' U.K. operations (change to calendar year-end). Operating income decreased 26% due to $89.3 million in restructuring and other nonrecurring charges in distilled spirits, office products and home products. (See note 4 in the Notes to Condensed Consolidated Financial Statements.) Operating income -14- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Continued) - ------------ excluding these charges increased 6%, principally due to higher sales and gross margins, partly offset by increased marketing and research and development expenses. Interest and related expenses decreased 14% reflecting lower average borrowings resulting principally from the Gallaher spin-off proceeds, partly offset by the effects of Common share purchases. The effective income tax rate comparisons for the six-month periods ended June 30, 1997 and 1996 were distorted by the 1997 restructuring and other nonrecurring charges. Excluding these charges, the effective income tax rates were 43.8% and 43.4%, respectively. Income from continuing operations of $39.3 million, or 23 cents per Common share, for the six months ended June 30, 1997 compared with $87.8 million, or 49 cents per share, for the same period last year. The decrease was due to $65.4 million in net restructuring and other nonrecurring charges. Excluding these charges, income from continuing operations was $104.7 million, up $16.9 million, or 19%. On May 30, 1997 the international tobacco operations of Gallaher were spun off. Income from discontinued operations, which represents the net income of the international tobacco operations, net of an allocation of interest expense, of $65.1 million, or 38 cents per share, in 1997 compared with $158.3 million, or 90 cents per share, in 1996. In addition, the 1997 amount includes $67.1 million in spin-off expenses. (See note 3 in the Notes to Condensed Consolidated Financial Statements.) The extraordinary items resulted from a charge of $10.3 million ($15.8 million pre-tax) in connection with the redemption in March 1996 of the Company's $150 million 7-5/8% Eurodollar Convertible Debentures, Due 2001 and its $150 million 9-1/8% Debentures, Due 2016. (See note 7 in the Notes to Condensed Consolidated Financial Statements.) -15- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Concluded) - ------------ Net income of $104.4 million, or 61 cents per share, for the six months ended June 30, 1997, compared with $235.8 million, or $1.33 per share, for the same period last year. In June 1997, the Company purchased 2 million Common shares. Although the Company has the authority to purchase additional shares and has not ruled out such purchases, it anticipates that it may not make further substantial purchases this year. At the July 29 meeting, the Board of Directors authorized the institution of a systematic share purchase program to cover future stock option exercises. This program is anticipated to be in the range of two million shares per year. The Company has been reviewing productivity-enhancing opportunities and, during the three months ended June 30, 1997, recorded a pre-tax charge of $89.3 million. The Company anticipates additional pre-tax restructuring and other nonrecurring charges during the third and fourth quarters of 1997 aggregating approximately $100 million as formal restructuring plans are approved and communicated. These charges will provide principally for rationalization of manufacturing, distribution and sourcing and the discontinuance of marginal product lines. In February 1997, FAS Statement No. 128, "Earnings per Share" was issued. FAS No. 128 simplifies the computation of earnings per share ("E.P.S.") and replaces primary E.P.S. with basic E.P.S. and fully diluted E.P.S. with diluted E.P.S. FAS No. 128 is effective for annual and interim financial statements issued after December 15, 1997 and earlier application is not permitted. FAS No. 128 requires the restatement of E.P.S. data for all prior periods. The Company is currently determining the impact that this statement will have on its E.P.S. amounts when adopted. See notes 8 and 9 in the Notes to Condensed Consolidated Financial Statements for discussion of pending litigation and environmental matters. -16- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Home Products - ------------- Net sales increased 1% principally on line extensions and new products, partly offset by the absence of Moen's joint venture in Taiwan (sold September 1996). All companies except Master Lock reported increased sales. Operating income decreased 17% due to a $17.4 million restructuring and other nonrecurring charge related to the discontinuance of certain product lines and operations, the consolidation of facilities and the write-down of property, plant and equipment. Operating income excluding this charge increased 3% on the sales increase and improved gross margin (principally favorable product mix at Moen), partly offset by higher volume-related selling expenses at Moen and increased research and development expenses. Operating income at Master Lock declined principally due to the January 1, 1997 15% average price reduction on core padlock products in response to a shift by mass merchants to value-price imported products, as well as lower volume and increased operating expenses. It is anticipated that this price reduction will result in a decline in Master Lock's operating income throughout 1997. Office Products - --------------- Net sales increased 5%, principally in North America on new products, the inclusion of Advanced Gravis (acquired September 1996) and higher average foreign exchange rates, partly offset by volume declines in existing product lines, the absence of office furniture operations (sold November 1996) and a slight decline in prices. Operating income decreased 68% due to a $23.5 million restructuring charge principally resulting from the discontinuance and rationalization of product lines and related assets, the write-down of property, plant and equipment, and lease cancellation costs, partly offset by the pre-tax gain on the sale of two non-strategic businesses. Operating income excluding this charge increased 10% reflecting the sales increase and improved gross margin (principally manufacturing efficiencies and stabilized raw material costs in North America), partly offset by higher operating expenses (mainly customer programs and new product and business development costs). Comparisons for the third quarter will be unfavorably impacted by the absence of the two non-strategic businesses sold which had seasonally strong results in the third quarter. -17- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Golf Products - ------------- Net sales were up 14% on new products and line extensions, volume increases in golf balls, clubs, gloves and shoes and one additional month of Cobra results in 1997 (acquired January 24, 1996), partly offset by discontinued products and lower average foreign exchange rates. Operating income increased 4% reflecting the higher sales, partly offset by a shift in product mix and increases in material costs, advertising and promotional expenditures and research and development expenses associated with the development of new products. Distilled Spirits - ----------------- Net sales decreased 4%, principally due to the inclusion of an additional month of sales in 1996 resulting from the change to a calendar year-end for the U.K. operations. Excluding the change to calendar year-end and excise taxes, sales increased 3% on price increases, higher average foreign exchange rates, new products and line extensions and a benefit from a domestic bulk sale, partly offset by lower volume in existing product lines. The net decrease in volume resulted from lower case shipments in the U.S. and U.K., partly offset by higher Jim Beam Bourbon case shipments, higher shipments in Canada and improved private label volume in the U.K. Operating income decreased 54% due to a $48.4 million restructuring and other nonrecurring charge resulting from a change in estimate for bulk whiskey valuations which results from the integration of the worldwide distilled spirits business and costs related to leased facilities and international distribution agreements. Operating income excluding this charge increased 10% on improved operating results in Australia (higher volume), North America (price increases and lower brand spending, partly offset by lower U.S. cased goods volume) and the U.K. (lower operating expenses, partly offset by lower volume). In recent years, distilled spirits consumption in many countries, including the U.S., continued its long-term decline. It is estimated that overall sales of distilled spirits in the U.S. declined by 2 to 3% in each year from 1993 to 1995. However, industry estimates indicate that U.S. distilled spirits sales increased slightly in 1996. Whether this represents a change in the long-term decline in distilled spirits consumption is uncertain. -18- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided from continuing operating activities of $110.2 million for the six months ended June 30, 1997 compared with net cash provided from continuing operating activities of $89.6 million for the same six-month period last year. Net cash used by investing activities for the six months ended June 30, 1997 was $74.3 million, as compared with net cash used of $757 million in the six-month period last year, reflecting last year's acquisition of Cobra. Net cash used by financing activities for the six months ended June 30, 1997 was $1.4 billion, as compared with net cash provided of $510.4 million in 1996, principally reflecting the repayment in 1997 of debt using the proceeds provided by Gallaher in conjunction with the spin-off of that company, the impact of the 1996 acquisition of Cobra and lower Common share purchases. At the time of the spin-off, Gallaher borrowed and paid to the Company an amount that will ultimately approximate $1.25 billion, after taxes. For the six months ended June 30, 1997, the Company's purchases of Common stock amounted to $55 million as compared to $282.3 million during last year's comparable six-month period. Total debt at June 30, 1997 was $1.1 billion, a decrease of $1.3 billion from December 31, 1996, reflecting the repayment in 1997 of debt using the proceeds provided by Gallaher in conjunction with the spin-off of that company. The ratio of total debt to total capital decreased from 39.3% at December 31, 1996 to 20.9% at June 30, 1997. On March 5, 1996, the Company redeemed its $150 million 7-5/8% Eurodollar Convertible Debentures, Due 2001, at a redemption price of 103.8125% of the principal amount plus accrued interest. On March 1, 1996, the Company redeemed its $150 million 9-1/8% Debentures, Due 2016, at a redemption price of 104.4375% of the principal amount plus accrued interest. -19- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES (Concluded) - ------------------------------- In June 1997, the Company purchased 2 million Common shares. Although the Company has the authority to purchase additional shares and has not ruled out such purchases, it anticipates that it may not make further substantial purchases this year. At the July 29 meeting, the Board of Directors authorized the institution of a systematic share purchase program to cover future stock option exercises. This program is anticipated to be in the range of two million shares per year. Management believes that the Company's internally generated funds, together with its access to global credit markets, are more than adequate to meet the Company's capital needs. -20- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Results of Operations for the Three Months Ended June 30, 1997 as Compared to the Three Months Ended June 30, 1996 --------------------------------------------------------------------------- Net Sales Operating Income(1) ------------------- --------------------------- 1997 1996(3) 1997 1997(2) 1996(3) (Adjusted) -------- ------- ------- -------- ------ (In millions) Home Products $ 335.5 $ 335.4 $ 27.0 $ 44.4 $ 43.4 Office Products 285.4 271.4 (11.6) 11.9 10.5 -------- -------- ------ ------ ------ Home and Office Products 620.9 606.8 15.4 56.3 53.9 Golf Products 305.4 263.8 61.6 61.6 52.1 Distilled Spirits 309.2 337.1 2.9 51.3 47.1 -------- -------- ------ ------ ------ $1,235.5 $1,207.7 $ 79.9 $169.2 $153.1 ======== ======== ====== ====== ====== (1) Operating income represents net sales less all costs and expenses excluding corporate administrative expenses, interest and related expenses and other (income) expenses, net. (2) Excludes restructuring and other nonrecurring charges of $89.3 million. (3) Restated for discontinued international tobacco operations. CONSOLIDATED - ------------ Net sales rose 2% on line extensions, price increases, new products and the inclusion of Advanced Gravis (acquired September 1996), partly offset by discontinued golf products and the inclusion of an additional month last year in distilled spirits' U.K. operations (change to calendar year-end). Operating income decreased 48% due to $89.3 million in restructuring and other nonrecurring charges in distilled spirits, office products and home products. Operating income excluding these charges increased 11%, principally due to higher sales and gross margins, partly offset by higher marketing expenses. -21- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Concluded) - ------------ Interest and related expenses decreased 28% primarily reflecting lower average borrowings resulting principally from the Gallaher spin-off proceeds. The effective income tax rate comparisons for the three-month periods ended June 30, 1997 and 1996 were distorted by the 1997 restructuring and other nonrecurring charges. Excluding these charges, the effective income tax rates were 40.3% and 37%, respectively. The lower effective rate for last year reflected benefits from higher reversal of tax provisions no longer required. Income from continuing operations of $4.3 million, or three cents per Common share, for the three months ended June 30, 1997 compared with $56 million, or 31 cents per share for the same period last year. On May 30, 1997 the international tobacco operations of Gallaher were spun off resulting in the loss from discontinued operations of $36.5 million, or 22 cents per share, in 1997, compared with income of $66 million, or 38 cents per share, in 1996. These amounts represent the net income of international tobacco operations, net of an allocation of interest expense. The 1997 amount includes $67.1 million in spin-off expenses. (See note 3 in the Notes to Condensed Consolidated Financial Statements.) Net loss of $32.2 million, or 19 cents per share, for the three months ended June 30, 1997 compared with income of $122 million, or 69 cents per share, for the same period last year. Home Products - ------------- Net sales were flat as line extensions and new products were offset by the absence of Moen's joint venture in Taiwan (sold September 1996), volume declines and lower average foreign exchange rates. The increased sales reported by Moen and Waterloo were offset by declines at Master Lock and Aristokraft. Operating income decreased 38% due to a $17.4 million restructuring and other nonrecurring charge, as described above in the section discussing the six months results through June 30. Operating -22- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Home Products (Concluded) - ------------- income excluding this charge increased 2% on improved gross margin (principally favorable product mix at Moen), partly offset by higher volume-related selling expenses at Moen and increased research and development expenses. Office Products - --------------- Net sales increased 5%, principally in North America on new products and the inclusion of Advanced Gravis, partly offset by the absence of office furniture operations and slight declines in prices and volumes in existing product lines. An operating loss of $11.6 million for the three months ended June 30, 1997 compared with operating income of $10.5 million for the comparable period last year due to a $23.5 million restructuring charge, as described above in the section discussing the six months results through June 30. Operating income excluding this charge increased 13% reflecting the sales increase and improved gross margin (principally manufacturing efficiencies and stabilized raw material costs in North America), partly offset by higher operating expenses (mainly customer programs and new product and business development costs). Golf Products - ------------- Net sales were up 16% reflecting new products and line extensions and volume increases in golf balls, clubs, gloves and shoes, partly offset by discontinued products and lower average foreign exchange rates. Operating income increased 18% principally reflecting the higher sales. Distilled Spirits - ----------------- Net sales decreased 8%, principally due to the inclusion of an additional month of sales in 1996, resulting from the change to a calendar year-end for the U.K. operations. Excluding the change to calendar year-end and excise taxes, sales increased 1% on price increases, higher average foreign exchange rates, benefits from a domestic bulk sale and new products and line extensions, partly offset by lower volume on existing product lines. The net decrease in volume resulted from lower case shipments in the U.S. Operating income decreased 94% due to a $48.4 million restructuring and -23- FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Distilled Spirits (Concluded) - ----------------- other nonrecurring charge as described above in the section discussing the six months results through June 30. Operating income excluding this charge increased 9% principally on improved operating results in the U.K. (lower operating expenses, partly offset by lower volumes). CAUTIONARY STATEMENT - -------------------- This Quarterly Report on Form 10-Q contains statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in general economic conditions, competitive product and pricing pressures, foreign exchange rate fluctuations, the impact of excise tax increases with respect to distilled spirits, regulatory developments, the uncertainties of litigation, as well as other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. -24- PART I - EXHIBIT A ------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES Computation of Net Income Per Common Share - Primary and Fully Diluted (Unaudited) -------------------------------------------- (In millions) Six Months Ended June 30, ---------------------- 1997 1996 --------- --------- (Restated) Income from continuing operations $ 39.3 $ 87.8 Preferred stock dividend requirements (0.6) (0.6) ------ ------ Income from continuing operations available for computing earnings per Common share - primary 38.7 87.2 Income from discontinued operations 65.1 158.3 Extraordinary items - (10.3) ------ ------ Net income for computing earnings per Common share - primary $103.8 $235.2 ====== ====== Income from continuing operations available for computing earnings per Common share - primary $ 38.7 $ 87.2 Convertible preferred stock dividend requirements 0.6 0.6 Interest and related expenses on convertible debentures - 2.0 ------ ------ Income from continuing operations available for computing earnings per Common share - fully diluted 39.3 89.8 Income from discontinued operations 65.1 158.3 Extraordinary items - (10.3) ------ ------ Net income for computing earnings per Common share - fully diluted $104.4 $237.8 ====== ====== -25- PART I - EXHIBIT A (Continued) ------------------ FORTUNE BRANDS, INC. AND SUBSIDIARIES Computation of Weighted Average Number of Common Shares Outstanding on a Fully Diluted Basis (Unaudited) -------------------------------------------------------------- (In millions, except per share amounts) Six Months Ended June 30, ---------------------- 1997 1996 --------- --------- Weighted average number of Common shares outstanding during each period - primary 171.7 176.3 Addition from assumed conversion as of the beginning of each period of the convertible preferred stock outstanding at the end of each period 1.8 1.8 Addition from assumed conversion of convertible debentures - 0.8 Other additions 2.0 3.5 ----- ----- Weighted average number of Common shares outstanding during each period on a fully diluted basis 175.5 182.4 ===== ===== (Restated) ---------- Earnings per Common share - Primary Income from continuing operations $.23 $ .49 Income from discontinued operations .38 .90 Extraordinary items - (.06) ---- ----- Net income $.61 $1.33 ==== ===== Fully diluted Income from continuing operations $.23 $ .49 Income from discontinued operations .36 .87 Extraordinary items - (.06) ---- ----- Net income $.59 $1.30 ==== ===== -26- PART I - EXHIBIT A (Continued) ------------------ FORTUNE BRANDS, INC. AND SUBSIDIARIES Computation of Net Income Per Common Share - Primary and Fully Diluted (Unaudited) -------------------------------------------- (In millions) Three Months Ended June 30, ---------------------- 1997 1996 --------- --------- (Restated) Income from continuing operations $ 4.3 $ 56.0 Preferred stock dividend requirements (0.3) (0.3) ------ ------ Income from continuing operations available for computing earnings per Common share - primary 4.0 55.7 Income (loss) from discontinued operations (36.5) 66.0 ------ ------ Net income (loss) for computing earnings per Common share - primary $(32.5) $121.7 ====== ====== Income from continuing operations available for computing earnings per Common share - primary $ 4.0 $ 55.7 Convertible preferred stock dividend requirements 0.3 0.3 Interest and related expenses on convertible debentures - 0.3 ------ ------ Income from continuing operations available for computing earnings per Common share - fully diluted 4.3 56.3 Income (loss) from discontinued operations (36.5) 66.0 ------ ------ Net income (loss)for computing earnings per Common share - fully diluted $(32.2) $122.3 ====== ====== -27- PART I - EXHIBIT A (Concluded) ------------------ FORTUNE BRANDS, INC. AND SUBSIDIARIES Computation of Weighted Average Number of Common Shares Outstanding on a Fully Diluted Basis (Unaudited) -------------------------------------------------------------- (In millions, except per share amounts) Three Months Ended June 30, ---------------------- 1997 1996 --------- -------- Weighted average number of Common shares outstanding during each period - primary 172.0 174.9 Addition from assumed conversion as of the beginning of each period of the convertible preferred stock outstanding at the end of each period 1.9 1.8 Addition from assumed conversion of convertible debentures - 0.8 Other additions 2.2 1.4 ----- ----- Weighted average number of Common shares outstanding during each period on a fully diluted basis 176.1 178.9 ===== ===== (Restated) ---------- Earnings per Common share - Primary Income from continuing operations $ .03 $.31 Income (loss) from discontinued operations (.22) .38 ----- ---- Net income (loss) $(.19) $.69 ===== ==== Fully diluted Income from continuing operations $ .03 $.31 Income (loss) from discontinued operations (.22) .37 ----- ---- Net income (loss) $(.19) $.68 ===== ==== -28- PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. - ------ ----------------- (a) Reference is made to paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and to paragraph (a) of Part II, Item 1, "Legal Proceedings", of Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997. In addition, Registrant has been named as a defendant, together with leading tobacco manufacturers, in Anderson, J. v. The American Tobacco Company, et al., Circuit Court of Knox County, Tennessee, May 23, 1997; Brammer, P. v. The American Tobacco Company, et al., United States District Court for the Southern District of Iowa, June 30, 1997; Brown v. The American Tobacco Company, et al., Superior Court of California, San Diego County, June 10, 1997; Cosentino, M.A. v. The American Tobacco Company, et al., Superior Court of New Jersey, Law Division, Middlesex County, May 21, 1997; Daley, L. v. The American Tobacco Company, et al., Circuit Court of Cook County, Illinois, July 7, 1997; Enright, J. v. The American Tobacco Company, et al., Superior Court of New Jersey, Camden County, May 28, 1997; Gieger, W. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, May 1, 1997; Lippincott v. The American Tobacco Company, et al., Superior Court of New Jersey, Law Division, Camden County, June 30, 1997; Lyons, C. v. Brown & Williamson Tobacco Company, et al., Superior Court of Georgia, Fulton County, May 27, 1997; Tepper, M. v. Philip Morris Incorporated, et al., Superior Court of New Jersey, Law Division, Bergen County, May 28, 1997; Thomas, P. v. The American Tobacco Company, et al., Circuit Court of Michigan, Wayne County, June 6, 1997; and White, H.L. v. The American Tobacco Company, et al., United States District Court, Southern District of Mississippi, Western Division, April 18, 1997. These cases are class actions on behalf of individuals allegedly addicted to cigarettes through the manipulation of nicotine levels or individuals who have allegedly suffered personal injury from the use of cigarettes. In addition, Registrant has been named as a defendant, together with leading tobacco manufacturers, in Anes, J. v. The American Tobacco Company, et al., Court of Common Pleadings for the County of Philadelphia, Pennsylvania, July 1, 1997; Cameron, R. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 30, 1997; Cavanagh, D. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, May 6, 1997; Collins, J. v. The American Tobacco Company, et al., Supreme Court of New York, Westchester County, May 16, 1997; Condon, R. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 13, 1997; Crane, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, April 4, 1997; Daley, E. v. The American Tobacco Company, et al., Court of Common Pleadings for the County of Philadelphia, Pennsylvania, July 1, 1997; DaSilva, J.C. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, April 3, 1997; El-Haddi, N. v The American Tobacco Company, et al., Court of Common Pleadings for the County of Philadelphia, Pennsylvania, May 29, 1997; Evans, B. v. Philip Morris Incorporated, et al., Circuit Court of Jasper County, Mississippi, June 10, 1997; Ferguson, F. v. The American Tobacco Company, et al., Court of Common Pleadings for the County of Philadelphia, Pennsylvania, May 29, 1997; Fink, D. v. The American Tobacco Company, et al., Supreme Court of New York, New York -29- Item 1 LEGAL PROCEEDINGS. (Continued) - ------ ----------------- County, June 6, 1997; Greco, A. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, June 27, 1997; Hansen, C. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, March 28, 1997; Hissom, G. v. The American Tobacco Company, et al., United States District Court for the Southern Division of West Virginia, June 12, 1997; Kestenbaum, D. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 23, 1997; Labriola, R. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, May 28, 1997; Larkin, R. v. The American Tobacco Company, et al., Court of Common Pleas of Pennsylvania, Allegheny County, June 27, 1997; Leibsten v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 30, 1997; Leiderman, M. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, July 2, 1997; Levinson, M. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, April 17, 1997; Lien, L. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, April 28, 1997; Litke, S. v. American Brands, Inc., et al., Supreme Court of New York, Kings County, May 7, 1997; Lombardo, S. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 6, 1997; Maisonet, B. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, May 12, 1997; Martin, G. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, June 30, 1997; McGuinness, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, June 30, 1997; McLane, J. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, May 13, 1997; Misell, D. v. The American Tobacco Company, et al., District Court of Texas, Nueces County, December 23, 1996; Mishk, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 2, 1997; Orr, R. v. The American Tobacco Company, et al., Court of Common Pleas for County of Philadelphia, Pennsylvania, May 29, 1997; Rubinobitz, L. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 28, 1997; Schwartz, I. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 19, 1997; Senzer, B. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, May 13, 1997; Shapiro, M. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, June 17, 1997; Sprung, L. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, May 13, 1997; Standish, J. v. The American Tobacco Company, Supreme Court of New York, Bronx County, July 11, 1997; Stern, G. v. Liggett Group, Inc., et al., Superior Court of the State of California, Monterey County, April 28, 1997; Walgreen, C. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 23, 1997; Willis, D. v. The American Tobacco Company, United States District Court for the Western District of Louisiana, Lake Charles Division, April 30, 1997; and Zarudsky, W. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 28, 1997. These are individual cases where the plaintiffs allege personal injury from the use of cigarettes. In addition, Registrant has been named as a defendant, together with leading tobacco manufacturers, in Birmingham v. The American Tobacco Company, et al., United States District Court of the Northern District of Alabama, May 28, 1997; Commonwealth of Puerto Rico v. Brown & Williamson Tobacco Company, et al., United States District Court, Division of Puerto -30- Item 1 LEGAL PROCEEDINGS. (Continued) - ------ ----------------- Rico, June 17, 1997; Knowles D. v. The American Tobacco Company, et al., Civil District Court of Louisiana, Parish of Orleans County, June 30, 1997; Missouri v. The American Tobacco Company, et al., Circuit Court of Missouri, St. Louis County, May 12, 1997; Nevada v. Philip Morris Incorporated, et al., Second Judicial District of Nevada, Washoe County, May 21, 1997; New Mexico v. The American Tobacco Company, et al., First Judicial District of New Mexico, Santa Fe County, May 27, 1997; South Carolina v. Brown & Williamson Tobacco Company, et al., Court of Common Pleas of South Carolina, Richland County, May 12, 1997; Tennessee (Beckom) v. The American Tobacco Company, et al., United States District Court, Eastern Division of Tennessee, May 8, 1997; University of South Alabama v. The American Tobacco Company, et al., United States District Court, Southern Division of Alabama, May 23, 1997; and Woods D. v. The American Tobacco Company, et al., Superior Court of North Carolina, Wake County, July 10, 1997. These cases have been brought by the attorneys general (or on behalf of the attorney general) of Alabama, Puerto Rico, Louisiana, Missouri, Nevada, New Mexico, South Carolina, Tennessee, Alabama and North Carolina, respectively, seeking unspecified compensatory and punitive damages and various forms of equitable relief, including restitution of the expenditures by the state for the cost of medical care provided by the state to its citizens for numerous diseases allegedly caused by cigarettes and other tobacco products. Reference is made to the description of Crozier v. The American Tobacco Company, et al., United States District Court for the Middle District of Alabama, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. On April 21, 1997, this case was voluntarily dismissed by plaintiffs. Reference is made to the description of Ramirez v. American Brands, Inc., et al., District Court of Hidalgo County, Texas, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. On April 23, 1997, this case was voluntarily dismissed by plaintiffs. Reference is made to the description of Ruiz v. The American Tobacco Company, et al., United States District Court for the District of Puerto Rico, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. On April 7, 1997, this case was voluntarily dismissed by plaintiffs. Reference is made to the description of Stern v. Liggett Group, Inc., et al., Supreme Court of the State of California, Monterey County, above. On June 30 1997, this case was voluntarily dismissed by plaintiffs. Reference is made to the description of Walls v. The American Tobacco Company, et al., District Court of Creek County, Oklahoma, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. On -31- Item 1 LEGAL PROCEEDINGS. (Continued) - ------ ----------------- June 20, 1997, plaintiff dismissed Registrant from the case by filing an amended complaint which did not include Registrant as a party. Reference is made to the description of Zito v. The American Tobacco Company, et al., Supreme Court of the State of New York, New York County, in paragraph (a) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. By stipulation and order on July 15, 1997, Registrant was dismissed from this action. It has been reported that on June 20, 1997, certain U.S. tobacco companies signed a Memorandum of Understanding (the "Memorandum") with certain state attorneys general and private attorneys maintaining various actions against the industry, whereby they would support the adoption of federal legislation (and any necessary ancillary undertakings) that would incorporate the features of a sixty-eight page "Proposed Resolution" attached to the Memorandum. The Proposed Resolution calls for legislation that would, among other things, restrict how tobacco products are manufactured, marketed and distributed in the United States. If enacted, the legislation would also resolve the attorney general health care recovery actions and class actions pending against the industry, would bar similar actions in the future, and would in certain respects limit the relief that can be obtained in lawsuits brought against the industry by individual claimants. The Proposed Resolution would also require substantial payments by participating manufacturers aggregating an estimated $368.5 billion over the first 25 years after the legislation is adopted. The legislation featured in the Proposed Resolution would not require the Registrant to pay any money or incur any obligations. There can be no assurance that the legislation called for in the Proposed Resolution will be enacted. It is also impossible to predict when the legislation may be approved, if it is. Moreover, there can be no assurance that any legislation that is enacted will embody the features described in the Proposed Resolution. Certain features of the contemplated legislation have been questioned by the President, members of Congress and others, and legislation that contains new or different terms may be enacted. In addition, any legislation that is enacted, including provisions limiting claims that can be brought against the industry or restricting the relief that can be obtained against it, may be subject to legal challenge in litigation. The Proposed Resolution itself has no legal effect on any current or future smoking and health litigation. In connection with the sale of Registrant's former subsidiary, The American Tobacco Company ("ATCO"), to Brown & Williamson Tobacco Corporation ("Brown & Williamson") on December 22, 1994, Brown & Williamson and ATCO agreed to indemnify Registrant against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of ATCO. Registrant's counsel have advised that, in their opinion, on the basis of their investigations generally with respect to suits and claims of this character, Registrant has meritorious defenses to these actions and threatened actions. The actions will be vigorously contested. -32- Item 1 LEGAL PROCEEDINGS. (Continued) - ------ ----------------- Registrant's former subsidiary, Gallaher Limited ("Gallaher"), has been named as a defendant in certain proceedings alleging smoking-related health effects as a result of plaintiffs smoking cigarettes manufactured by Gallaher. Registrant has not been named as a defendant in any such proceedings. On May 30, 1997, Registrant spun off its U.K.-based Gallaher tobacco business. In connection with such spin-off, Gallaher Group Plc and Gallaher agreed to indemnify Registrant against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of Gallaher and its subsidiaries. (b) It is not possible to predict the outcome of the pending litigation referenced in paragraph (a) above, but management believes that there are meritorious defenses to the pending actions and that the pending actions will not have a material adverse effect upon the results of operations, cash flow or financial condition of the Registrant. Reference is made to note 8, "Pending Litigation", in the Notes to Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibits. -------- 3(i)(a). Amendment to Certificate of Incorporation of Registrant. 3(i)(b). Certificate of Incorporation of Registrant as in effect on the date hereof. 3(ii)(a). Amendment to By-laws of Registrant. 3(ii)(b). By-laws of Registrant as in effect on the date hereof. 4a1. Third Supplemental Indenture dated as of May 28, 1997 between Registrant and The Chase Manhattan Bank. 10a1. Registrant's Annual Executive Incentive Compensation Plan.* 10b1. Registrant's Non-Employee Director Stock Option Plan.* 10c1. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibit 10c6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995 and Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 8, 1996, respectively.* -33- Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Continued) - ------ -------------------------------- 10c2. Schedule identifying substantially identical agreements to the Amendment to Trust Agreement constituting Exhibit 10c1 hereto in favor of Thomas C. Hays, Robert J. Rukeyser, Steven C. Mendenhall, Dudley L. Bauerlein, Jr., Charles H. McGill and Craig P. Omtvedt.* 10d1. Severance and Retirement Agreement made as of February 24, 1997, between Registrant and Thomas C. Hays.* 12. Statement re computation of ratio of earnings to fixed charges. 15. Letter from Coopers & Lybrand L.L.P. dated August 12, 1997 re unaudited financial information. 23. Consent of Counsel, Chadbourne & Parke LLP. 27. Financial Data Schedule (Article 5). * Indicates that exhibit is a management contract or compensatory plan or arrangement. In lieu of filing certain instruments with respect to long-term debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. (b) Reports on Form 8-K. ------------------- Registrant filed a Current Report on Form 8-K, dated April 23, 1997, in respect of Registrant's press release dated April 23, 1997 announcing Registrant's financial results for the three-month period ended March 31, 1997 (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated May 9, 1997, in respect of Registrant's press releases dated May 7, 1997, announcing the receipt of a favorable ruling from the Internal Revenue Service, and May 8, 1997, announcing the commencement of a consent solicitation with respect to its outstanding U.S. registered debt, and in respect of Registrant's Consent Solicitation Statement dated May 9, 1997 distributed to holders of such debt securities in connection with such solicitation, as well as certain agreements and financial and other information in connection with the previously announced spin-off of Registrant's U.K.-based Gallaher tobacco business (Items 5 and 7(c)). -34- Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded) - ------ -------------------------------- Registrant filed a Current Report on Form 8-K, dated June 9, 1997, in respect of Registrant's press releases dated May 30, 1997, announcing the change of Registrant's name to Fortune Brands, Inc. and its completion of the spin-off of Gallaher Group Plc, and June 2, 1997, announcing the commencement of trading of Registrant as Fortune Brands, Inc. on the New York Stock Exchange (Items 2, 5, 7(b) and 7(c)). Registrant filed a Current Report on Form 8-K, dated July 23, 1997, in respect of Registrant's press release dated July 23, 1997 announcing Registrant's financial results for the three-month and six-month periods ended June 30, 1997 (Items 5 and 7(c)). -35- SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. FORTUNE BRANDS, INC. ------------------- (Registrant) Date: August 12, 1997 By /s/ C. P. Omtvedt --------------- ------------------------- C. P. Omtvedt Vice President and Chief Accounting Officer -36- EXHIBIT INDEX ------------- Sequentially Exhibit Numbered Page - ------- ------------- 3(i)(a). Amendment to Certificate of Incorporation of Registrant. 3(i)(b). Certificate of Incorporation of Registrant as in effect on the date hereof. 3(ii)(a). Amendment to By-laws of Registrant. 3(ii)(b). By-laws of Registrant as in effect on the date hereof. 4a1. Third Supplemental Indenture dated as of May 28, 1997 between Registrant and The Chase Manhattan Bank. 10a1. Registrant's Annual Executive Incentive Compensation Plan.* 10b1. Registrant's Non-Employee Director Stock Option Plan.* 10c1. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibit 10c6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995 and Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 8, 1996, respectively.* 10c2. Schedule identifying substantially identical agreements to the Amendment to Trust Agreement constituting Exhibit 10c1 hereto in favor of Thomas C. Hays, Robert J. Rukeyser, Steven C. Mendenhall, Dudley L. Bauerlein, Jr., Charles H. McGill and Craig P. Omtvedt.* 10d1. Severance and Retirement Agreement made as of February 24, 1997, between Registrant and Thomas C. Hays.* 12. Statement re computation of ratio of earnings to fixed charges. 15. Letter from Coopers & Lybrand L.L.P. dated August 12, 1997 re: unaudited financial information. 23. Consent of Counsel, Chadbourne & Parke LLP. 27. Financial Data Schedule (Article 5). * Indicates that exhibit is a management contract or compensatory plan or arrangement. EX-3.1.A 2 EXHIBIT 3(I)A EXHIBIT 3(i)a CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of AMERICAN BRANDS, INC. (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) AMERICAN BRANDS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), DOES HEREBY CERTIFY that: FIRST: The Board of Directors of the Company, at a meeting thereof duly called and held on February 25, 1997, adopted a resolution proposing an amendment to the Certificate of Incorporation of the Company as set forth in Article THIRD below, declaring said amendment to be advisable and directing that said amendment be submitted for approval of stockholders at the Company's 1997 Annual Meeting of stockholders. SECOND: Thereafter, pursuant to the By-laws of the Company, the annual meeting of stockholders of the Company was duly held on April 30, 1997, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware setting forth a summary of the proposed changes to be effected by said amendment, at which meeting the requisite number of shares as prescribed by statute and by the Certificate of Incorporation of the Company were voted in favor of said amendment. THIRD: Said amendment would amend the Certificate of Incorporation of the Company by changing Article I thereof so that, as amended, such Article shall be and read in its entirety as follows: "ARTICLE I The name of the Corporation is Fortune Brands, Inc. (the 'Company')." FOURTH: The aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. FIFTH: This Certificate of Amendment shall become effective at 1:59 p.m., Eastern Daylight Savings Time, on May 30, 1997. IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its officer thereunto duly authorized, this 29th day of May, 1997. AMERICAN BRANDS, INC. By /s/ Gilbert L. Klemann, II --------------------------- Gilbert L. Klemann, II Senior Vice President and General Counsel EX-3.1.B 3 EXHIBIT 3(I)B EXHIBIT 3(i)b Certificate of Incorporation of Fortune Brands, Inc. (As Amended) ARTICLE I The name of the Corporation is Fortune Brands, Inc. (the "Company"). ARTICLE II The address of the Company's registered office in the State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name of its registered agent at such address is United States Corporation Company. ARTICLE III The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 5-30-97 2 CERTIFICATE OF INCORPORATION ARTICLE IV 1. The total number of shares of all classes of stock that the Company shall have authority to issue is eight hundred and ten million (810,000,000) shares, of which seven hundred and fifty million (750,000,000) shares shall be Common Stock, par value $3.125 per share, and sixty million (60,000,000) shares shall be Preferred Stock, without par value. The designations and the powers, preferences and rights of the Common Stock and the Preferred Stock, and the qualifications, limitations or restrictions thereof, are as provided in or pursuant to this Article IV. 2. (a) The rights of holders of Common Stock to receive dividends or to share in the distribution of assets in the event of liquidation, dissolution or winding up of the affairs of the Company shall be subject to the preferences and other rights of the Preferred Stock as may be fixed in this Certificate of Incorporation or in the resolution or resolutions of the Board of Directors providing for the issue of such Preferred Stock. (b) The holders of Common Stock shall be entitled to one vote for each share of Common Stock held by them of record at the time for determining the holders thereof entitled to vote. 3. Authority is hereby vested in the Board of Directors to issue from time to time the Preferred Stock in one 5-10-90 CERTIFICATE OF INCORPORATION 3 or more series and to fix by the resolution of resolutions providing for the issue of shares of any such series the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such series to the full extent permitted by this Certificate of Incorporation and the law of the State of Delaware. The authority of the Board of Directors with respect to each such series shall include, but not be limited to, determination of the following: (i) The number of shares to constitute such series, and the distinctive designations thereof; (ii) The voting powers, full or limited, if any, of such series; (iii) The rate of dividends payable on shares of such series, the conditions on which and the times when such dividends are payable, the preference to, or the relations to, the payment of the dividends payable on any other class, classes or series of stock, whether cumulative or noncumulative, and, if cumulative, the dates from which dividends on shares of such series shall be cumulative; (iv) The right, if any, of the Company to redeem shares of such series and the terms and conditions of such redemption; 4 CERTIFICATE OF INCORPORATION (v) The requirement of any sinking fund or funds to be applied to the purchase or redemption of shares of such series and, if so, the amount of such fund or funds and the manner of application; (vi) The rights of shares of such series upon the liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Company; (vii) The rights, if any, of the holders of shares of such series to convert such shares into, or to exchange such shares for, shares of any other class, classes or series of stock and the price or prices or rate or rates of exchange and the adjustments at which such shares shall be convertible or exchangeable, and any other terms and conditions of such conversion or exchange; and (viii) Any other preferences and relative, participating, optional or other special rights of shares of such series, and qualifications, limitations or restrictions including, without limitation, any restriction on an increase in the number of shares of any series theretofore authorized and any qualifications, limitations or restrictions of rights or powers to which shares of any future series shall be subject; CERTIFICATE OF INCORPORATION 5 provided that the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of the $2.75 Preferred Stock and $2.67 Convertible Preferred Stock are as set forth in Sections 6 and 7 of this Article IV. 4. The number of authorized shares of any class or classes of stock of the Company may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Company that is entitled to vote, without a separate class vote of any class or classes of stock of the Company, except as may be otherwise provided in this Certificate of Incorporation or in the resolution or resolutions fixing the voting rights of any series of the Preferred Stock. 5. No holder of Common Stock or Preferred Stock, as such, shall have or be entitled to any preemptive right whatsoever. 6. The shares of Preferred Stock are hereby divided to create a first series of Preferred Stock, and it is hereby determined that such first series shall consist of 4,514,459 shares, which shall have the following designation, relative rights, preferences and limitations: 6 CERTIFICATE OF INCORPORATION (a) The distinctive designation of the first series is $2.75 Preferred Stock (hereinafter called "$2.75 Preferred"). (b) (1) Holders of shares of $2.75 Preferred shall be entitled to one-quarter of a vote per share, and, except as provided in subparagraphs (2), (3) and (4) of this paragraph (b) or by present or future law otherwise specifically provided, shall not be entitled to vote as a class. (2) If payment of six or more quarterly dividends (whether or not consecutive) payable on shares of $2.75 Preferred shall be in default, in whole or in part, the holders of shares of $2.75 Preferred (in addition to any other rights of holders of shares of any series of Preferred Stock to vote, including any right to vote with the holders of Common Stock for the election of directors) shall be entitled, until such time as all such dividends in default have been paid in full, at each annual meeting of stockholders, voting separately as a class, to elect two of the directors then being elected, who shall not be officers, employees or agents of the Company or any of its parents or subsidiaries, but not any other directors to be elected by any other series of Preferred Stock voting as a class. If, while the holders of shares of $2.75 Preferred as a class are entitled to CERTIFICATE OF INCORPORATION 7 vote for the election of two directors, any vacancy occurs among the directors elected by the holders of shares of $2.75 Preferred, the remaining director so elected by the holders of the shares of $2.75 Preferred shall be entitled to nominate for election by the Board of Directors a successor director to hold office for the unexpired term of the director whose position has become vacant. If the vacancy is not filled by nomination by the remaining director, or if there is then in office no director who has been elected by the holders of shares of $2.75 Preferred (whether or not prior to the initial election of any such director), the Company shall, as soon as possible, call (on at least 20 days' notice) a special meeting of the holders of shares of $2.75 Preferred for the purpose of filling such vacancy or vacancies in the Board of Directors. If the Company fails to call such a meeting within 30 days after a written request by any three or more holders of shares of $2.75 Preferred, then such three or more holders of shares of $2.75 Preferred may call (on at least 20 days' notice) a special meeting of the holders of shares of $2.75 Preferred and, if the vacancy or vacancies are not theretofore filled as hereinabove provided, it or they may be filled at such meeting by the holders of shares of $2.75 Preferred. 8 CERTIFICATE OF INCORPORATION (3) The affirmative vote of the holders of at least two-thirds of the shares of $2.75 Preferred, voting separately as a class, given in person or by proxy at any special or annual meeting called to take action thereon, shall be necessary to (A) permit, effect or validate any amendment of the Certificate of Incorporation of the Company, or approve any agreement of merger or consolidation which contains any provision, to (i) exclude or limit the right of the holders of shares of $2.75 Preferred to vote on any matter, except as such right (other than the right to vote as a series to elect two directors as provided in subparagraph (2) of this paragraph (b)) may be limited by voting rights given to new shares then being authorized of any existing or new series of Preferred Stock, (ii) reduce the rate or change the time for accumulation or payment of dividends on the shares of $2.75 Preferred, (iii) cancel or otherwise adversely affect dividends which have been accrued but have not been declared and set aside for payment on the shares of $2.75 Preferred, (iv) effect a conversion, exchange or reclassification of the shares of $2.75 Preferred, (v) change the designation, preferences, limitations, call provisions, sinking fund provisions or relative rights of the shares of $2.75 Preferred or (vi) change shares of CERTIFICATE OF INCORPORATION 9 $2.75 Preferred then outstanding into a different number of shares, or into the same number of shares of another class or series, or (B) authorize the Company to merge or consolidate with any other corporation or corporations unless the Company is the continuing corporation after such merger or consolidation. (4) The affirmative vote of the holders of at least two-thirds of the shares of $2.75 Preferred, voting separately as a class, given in person or by proxy at any special or annual meeting called to take action thereon, shall be necessary to permit, effect or validate the issuance (whether or not upon conversion or exchange of other securities or upon exercise of rights) of any additional series of Preferred Stock ranking prior to the $2.75 Preferred as to payment of dividends or distribution of assets on any dissolution, liquidation or winding up of the Company, or to increase rights or preferences of any outstanding class or series of junior stock (which shall mean for the purposes of this Section 6 the Common Stock and any other class or series of stock of the Company hereafter authorized over which the $2.75 Preferred has preference or priority in the payment of dividends or in the distribution of assets on any dissolu- 10 CERTIFICATE OF INCORPORATION tion, liquidation or winding up of the Company) or stock ranking on a parity with the $2.75 Preferred as to payment of dividends or distribution of assets on any dissolution, liquidation or winding up of the Company, so that such class or series ranks prior to the $2.75 Preferred as to payment of dividends or distribution of assets on any dissolution, liquidation or winding up of the Company. The affirmative vote of the holders of at least a majority of the shares of $2.75 Preferred, voting separately as a class, given in person or by proxy at any special or annual meeting called to take action thereon, shall be necessary to permit, effect or validate the issuance (whether or not upon conversion or exchange of other securities or upon exercise of rights) of any additional series of Preferred Stock ranking on a parity, or to increase rights or preferences of any outstanding class or series of junior stock so that such class or series ranks on a parity, with the $2.75 Preferred as to payment of dividends or distribution of assets on any dissolution, liquidation or winding up of the Company, unless the combined Net Income of the Company and its subsidiaries, after adjustment to include the equity in the Net Income of any corporations, companies or groups of assets to be acquired in whole or in part with the shares of such additional CERTIFICATE OF INCORPORATION 11 series, if any, for any four consecutive calendar quarters within the six consecutive calendar quarters immediately preceding the authorization of any such additional series or any increase or any increase of such rights or preferences, shall have been at least 4.75 times the aggregate annual dividend requirements on all shares of Preferred Stock of all series (other than series of Preferred Stock which are junior stock) and 3 times the aggregate annual dividend requirements on all shares of Preferred Stock of all series (including series of Preferred Stock which are junior stock) to be outstanding immediately after any issuance of shares of such additional series or any increase of such rights and preferences. For the purposes of this subparagraph (4), the Net Income of American Brands, Inc., a New Jersey corporation organized under an Agreement of Consolidation in 1904 (hereinafter called "American") and its subsidiaries, calculated as provided in this subparagraph (4), shall be deemed to be the Net Income of the Company and its subsidiaries for any relevant period or periods up to the date of issuance of the $2.75 Preferred. For the purposes of this subparagraph (4), "Net Income" of a corporation, company or group of assets for a calendar quarter means the net income (or loss) of such corporation, company or group of 12 CERTIFICATE OF INCORPORATION assets as determined in accordance with generally accepted accounting principles applicable during that quarter; provided that in determining the Net Income there shall be (i) excluded from the net income (or loss) of a corporation, company or group of assets extraordinary items and gains or losses resulting from the sale or discontinuance of a business segment of such corporation, company or group of assets, all as determined in accordance with generally accepted accounting principles, and (ii) added to such net income (or loss) an amount equal to the effect on such net income (or loss) of any charge against earnings resulting from any write-down or amortization of the excess of cost over fair value of net assets acquired, except to the extent of such charge as may be required by generally accepted accounting principles in effect on December 31, 1977. In the event that financial statements setting forth the net income of a corporation, company or group of assets to be acquired by the Company have not been prepared for three or more relevant calendar quarters in accordance with generally accepted accounting principles and (i) the independent public accountants of the Company state in writing to the Company that they would be unable to give any unqualified opinion (or an opinion qualified only as CERTIFICATE OF INCORPORATION 13 to litigation or claims or unasserted claims or matters relating to the amounts at which assets are recorded) as to the financial statements of such corporation, company or group of assets for three or more relevant calendar quarters in accordance with generally accepted accounting principals or (ii) the time estimated by the independent public accountants of the Company as the time required for the preparation of financial statements for such corporation, company or group of assets on the basis of generally accepted accounting principles and their examination of such financial statements could, in the opinion of the Board of Directors, delay the issuance of such additional series of Preferred Stock or the increase of rights or preferences of any outstanding class of junior stock, if such preparation and examination of such financial statements were a condition to such issuance or such increase, then the Net Income of such corporation, company or group of assets for each of such calendar quarters shall be deemed, if the Board of Directors of the Company shall so elect, to be 2.5% of the purchase price paid or to be paid by the Company for such corporation, company or group of assets other than the purchase price which is attributable to the purchase of a corporation, company or group of assets (i) having 14 CERTIFICATE OF INCORPORATION aggregate sales and other revenues of less than 15% of the purchase price or (ii) which is in the development stage. A corporation, company or group of assets shall be considered to be in the development stage if, in the written opinion of the chief financial officer of the Company, substantially all of the efforts (if any) devoted to such corporation, company or group of assets are for the purpose of establishing a new business and either of the following conditions exists: (A) planned principal operations have not commenced or (B) planned principal operations have commenced but there has been no significant revenue therefrom. A determination of Net Income in good faith by the Board of Directors shall be binding on the Company and the holders of the shares of $2.75 Preferred. For the purposes of this subparagraph (4), a subsidiary of the Company is a corporation or company of which more than 50% of the outstanding voting shares are, directly or indirectly, owned by or held for the Company. Nothing in this Section 6 shall be deemed to restrict or limit, except as is expressly provided in this subparagraph (4), the right of the Board of Directors of the Company to create, or authorize the Board to create, a new series of Preferred Stock having, or convertible into shares having, rights or preferences equal, CERTIFICATE OF INCORPORATION 15 prior or superior to those of the shares of $2.75 Preferred; provided that the Board of Directors of the Company shall not have the right to issue any of the shares with equal, prior or superior rights to those of the shares of $2.75 Preferred as a dividend or distribution on any shares of junior stock. (c)(1) The holders of shares of $2.75 Preferred shall be entitled to receive, out of funds legally available therefor, cumulative cash dividends of a limited and preferential nature at a rate of $2.75 per share per annum, and no more, payable quarterly on the tenth day of March, June, September and December commencing March 10, 1986, as and when declared by the Board of Directors. Dividends on each share of $2.75 Preferred shall be cumulative and shall commence to accrue from the date of the original issues of shares of this series. Accumulations of dividends shall not bear interest. (2) No dividends shall be paid or declared on any junior stock, other than a dividend payable in junior stock, nor shall any shares of junior stock be acquired for a consideration by the Company or by any subsidiary (which shall mean any corporation or entity, the majority of the voting power to elect directors of which is held directly or indirectly by the 16 CERTIFICATE OF INCORPORATION Company), unless all dividends on the $2.75 Preferred accrued for all past quarter-yearly dividend periods shall have been paid and unless, in the case of dividends on any junior stock, the full dividends on the $2.75 Preferred for the then current quarter-yearly dividend period provided in accordance with subparagraph (1) of this paragraph (c) shall have been or shall then be paid or declared. The foregoing restriction on acquisition of shares of junior stock shall be inapplicable to any payments in lieu of issuance of fractional shares thereof whether upon any merger, conversion, stock dividend or otherwise. (d) (1) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holder of each share of $2.75 Preferred then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any distribution or payments shall be made to the holders of any junior stock, an amount equal to the sum of (i) $30.50 per share plus (ii) an additional sum computed at the rate of $2.75 per share per annum, for the period from the date on which dividends on such share became cumulative to and including the date fixed for such payment, less the aggregate of divi- CERTIFICATE OF INCORPORATION 17 dends that on or before the date fixed for such payment shall have been paid or declared and set aside for payment, but computed without interest. If the assets of the Company available for distribution to its stockholders shall be insufficient to pay in full all amounts to which the holders of shares of $2.75 Preferred are entitled, the amount available for distribution to holders of shares of $2.75 Preferred shall be shared pro rata by them. (2) Notice of any payment in full pursuant to subparagraph (1) of this paragraph (d) shall be given by publication at least once in a newspaper of general circulation in the Borough of Manhattan, The City of New York, printed in the English language and customarily published on each business day, such publication to be not more than 60 days and not less than 30 days prior to the payment date. Notice of such payment shall also be given in the same manner as provided for mailing notice of redemption in subparagraph (5) of paragraph (e) as if the date for payment were the date fixed for redemption referred to in said subparagraph (5), except that such notice shall be mailed not less than 30 days prior to the date fixed for payment. Neither failure to publish or mail such notice nor defect therein or in 18 CERTIFICATE OF INCORPORATION the publication or mailing thereof shall affect the validity of the proceedings for such payment. (3) For the purposes of this paragraph (d), a consolidation or merger of the Company with any other corporation shall not constitute or be deemed to constitute a liquidation, dissolution, or winding up of the Company. (e)(i) The Company may, at its option, at any time or from time to time on or after March 10, 1989 redeem the whole or any part of the $2.75 Preferred outstanding at the time of redemption, upon notice given as hereinafter specified, by paying in cash the following redemption prices per share: If Redeemed during the 12-month Period Redemption Beginning March 10, Price per Share ------------------- --------------- 1989 ................... $31.88 1990 ................... 31.74 1991 ................... 31.60 1992 ................... 31.46 1993 ................... 31.33 1994 ................... 31.19 1995 ................... 31.05 1996 ................... 30.91 1997 ................... 30.78 1998 ................... 30.64 CERTIFICATE OF INCORPORATION 19 and thereafter at a redemption price per share of $30.50; together with an additional sum, for each share so to be redeemed, computed at the rate of $2.75 per share per annum for the period from the date on which dividends on such share became cumulative to and including the date fixed for such redemption, less the aggregate of the dividends that on or before the date fixed for such redemption shall have been paid or declared and set aside for payment, but computed without interest. Notwithstanding the foregoing, the Company may not redeem less than the whole of the $2.75 Preferred at the time outstanding pursuant to this subparagraph (1) unless all dividends on the $2.75 Preferred for all past quarter-yearly dividend periods shall have been paid or declared and set aside for payment. (2) On or before each March 10 (each such March 10 being hereinafter called a "Sinking Fund Redemption Date") so long as any shares of $2.75 Preferred shall be outstanding and to the extent that the Company shall have funds legally available for such payment, the Company shall pay to the Transfer Agent, or other redemption agent, for the $2.75 Preferred, or if there be no such agent then the Company shall set aside, in trust, as and for a 20 CERTIFICATE OF INCORPORATION sinking fund for the $2.75 Preferred, a sum (hereinafter called the "Sinking Fund Payment") sufficient in each instance to redeem at a price equal to $30.50 per share, together with an additional sum, for each share so to be redeemed, computed at the rate of $2.75 per share per annum for the period from the date on which dividends on such share became cumulative to and including the Sinking Fund Redemption Date, less the aggregate of the dividends that on or before the Sinking Fund Redemption Date shall have been paid or declared or set aside for payment, but computed without interest, 165,226 shares of $2.75 Preferred; provided, however, that the Company may, at its noncumulative option, in any year in which a Sinking Fund Payment is due, increase the Sinking Fund Payment by an amount sufficient to redeem at a price equal to $30.50 per share, together with an additional sum, for each share so to be redeemed, computed at the rate of $2.75 per share per annum for the period from the date on which dividends on such share became cumulative to and including the Sinking Fund Redemption Date, less the aggregate of the dividends that on or before the Sinking Fund Redemption Date, less the aggregate of the dividends that or before the Sinking Fund Redemption Date shall have been paid or declared and set aside for payment, but computed without interest, an additional number of shares of CERTIFICATE OF INCORPORATION 21 $2.75 Preferred not exceeding 165,226; and provided, further, that the Company shall be entitled to credit against the number of shares required to be redeemed on any Sinking Fund Redemption Date shares of $2.75 Preferred theretofore acquired by the Company in any manner whatsoever prior to the November 25 immediately preceding such Sinking Fund Redemption Date and not previously credited against any such redemption, and shares of $2.75 Preferred Stock of American acquired by American in any manner whatsoever prior to the said November 25 and not credited against any sinking fund redemption requirement applicable to the $2.75 Preferred Stock of American. (3) On the date of issuance of the $2.75 Preferred with respect to the 1986 Sinking Fund Payment Date, and on the November 25 immediately preceding each succeeding Sinking Fund Payment Date, the Company shall notify the Transfer Agent, or other redemption agent, if any, of the amount of the Sinking Fund Payment to be made on the next following Sinking Fund Redemption Date and the number of shares to be redeemed thereon and such agent, or the Company if there be no such agent, shall thereupon take action to redeem, in accordance 22 CERTIFICATE OF INCORPORATION with the notice and other provisions of this paragraph (e), the shares of $2.75 Preferred to be redeemed on such Sinking Fund Redemption Date. (4) During the continuance of any default by the Company (because it does not have funds legally available to make a Sinking Fund Payment or for other reasons) on any payment required under the provisions of this paragraph (e), no sum shall be set aside for or applied to the purchase or redemption (pursuant to any applicable sinking fund or redemption provisions or otherwise) of any shares of any class of stock ranking as to dividends or distribution upon liquidation on a parity with or junior to the $2.75 Preferred and no dividend shall be declared or paid or any other distribution ordered or made upon any class of stock ranking as to dividends junior to the $2.75 Preferred (other than a dividend payable in junior stock); provided, however, that any moneys theretofore deposited in any sinking fund with respect to any stock of the Company in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of such stock in accordance with the terms of such sinking fund whether or not at the time of such application such default is continuing under the provisions of CERTIFICATE OF INCORPORATION 23 this paragraph (e). In the event that the Company shall not have funds legally available to make any Sinking Fund Payment, the obligation to make such payment shall be carried forward and fulfilled when such funds are legally available. (5) Notice of any redemption pursuant to this paragraph (e) shall be deemed given if mailed by certified mail, return receipt requested, not less than 90 days prior to the date fixed for redemption, to each stockholder of record of shares to be redeemed at his address as it appears on the books of the Company. Neither failure to mail such notice nor defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares so to be redeemed. Any notice given by American to holders of shares of $2.75 Preferred Stock of American prior to issuance of shares of $2.75 Preferred shall constitute notice by the Company in respect of the $2.75 Preferred. (6) If only part of the $2.75 Preferred at the time outstanding is to be redeemed, the selection of the shares to be redeemed may be made pro rata, by lot or in any other equitable manner. The Board of Directors shall have the power to prescribe the manner in which the selection is to be made. 24 CERTIFICATE OF INCORPORATION (7) When any shares of $2.75 Preferred are redeemed out of capital, their redemption shall effect their retirement. When any shares of $2.75 Preferred are otherwise redeemed or reacquired, the Company shall retire such shares by resolution of the Board of Directors. In either event, the Board of Directors shall cause to be filed with the Office of the Secretary of State of Delaware an appropriate certificate which shall have the effect of restoring such shares to the status of authorized but unissued shares of Preferred Stock without series designation. (f)(1) If notice of payment in full to holders of shares of $2.75 Preferred of the amounts to which they are entitled in accordance with subparagraph (2) of paragraph (d) or notice of redemption in accordance with subparagraph (5) or paragraph (e) shall have been given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable authority promptly to give or complete such notice, and if on or before the payment date, or redemption date specified therein, the funds necessary for such payment or redemption shall have been deposited by the Company with a bank or trust company in good standing, designated in such notice, organized under the laws of the CERTIFICATE OF INCORPORATION 25 United States of America or of the State of New York, in trust for the pro rata benefit of the holders of the shares entitled to such payment or so called for redemption, as the case may be, then, notwithstanding that any certificate for shares entitled to such payment or so called for redemption, as the case may be, shall not have been surrendered for retirement, from and after the time such notice to holders of $2.75 Preferred is given, whichever is later, all such shares shall be deemed no longer to be outstanding and all rights appertaining to such shares shall forthwith terminate, except only the right of the holders thereof to receive from such bank or trust company the funds so deposited, without interest. Any interest accrued on such funds shall be paid to the Company from time to time. (2) Any funds deposited by the Company pursuant to subparagraph (1) of this paragraph (f) that have not been paid by the end of five years from such payment or redemption date shall be released and repaid to the Company forthwith, after which the holders of the shares of $2.75 Preferred entitled to such payment or of the shares of $2.75 Preferred so called for redemption, as the case may be, shall be 26 CERTIFICATE OF INCORPORATION entitled to receive payment thereof only from the Company, but subject to applicable law. (7) The shares of Preferred Stock are hereby divided to create a second series of Preferred Stock, and it is hereby determined that such second series shall consist of 5,514,459 shares, which shall have the following designation, relative rights, preferences and limitations and a stated capital at least equal to the par value of the stock into which such shares are made convertible: (a) The distinctive serial designation of the second series is $2.67 Convertible Preferred Stock (hereinafter called "$2.67 Preferred"). (b)(1) Holders of shares of $2.67 Preferred shall be entitled to three-tenths of a vote per share, and, except as provided in subparagraphs (2) and (3) of this paragraph (b) or by present or future law otherwise specifically provided, shall not be entitled to vote as a class. (2) If payment of six or more quarterly dividends (whether or not consecutive) payable on Preferred Stock of any series shall be in default, in whole or in part, the holders of shares of $2.67 Preferred (in addition to any other rights of holders of shares of any series of Preferred Stock to vote, including CERTIFICATE OF INCORPORATION 27 any right to vote with the holders of Common Stock for the election of directors) shall be entitled, until such time as all such dividends in default have been paid in full, at each annual meeting of stockholders, voting separately as a class with all other holders of Preferred Stock having the right to vote for directors at such meeting regardless of series, to elect two of the directors then being elected. If, while the holders of shares of Preferred Stock as a class are entitled to vote for the election of such two directors, any vacancy occurs among the directors elected by the holders of shares of Preferred Stock, the remaining director so elected by the holders of shares of Preferred Stock shall be entitled to nominate for election by the Board of Directors a successor director to hold office for the unexpired term of the director whose position has become vacant. If the vacancy is not filled by nomination by the remaining director, or if there is then in office no director who has been elected by the holders of shares of Preferred Stock (whether or not prior to the initial election of any such director), the Company shall, as soon as possible, call (on at least 20 days' notice) a special meeting of the holders of shares of Preferred Stock having the right to vote for directors at such meeting for the purpose of filling such vacancy or vacancies in 28 CERTIFICATE OF INCORPORATION the Board of Directors. If the Company fails to call such a meeting within 30 days after a written request by any three or more holders of shares of Preferred Stock, then such three or more holders of shares of Preferred Stock may call (on at least 20 days' notice) a special meeting of the holders of shares of Preferred Stock having the right to vote for directors at such meeting for such purpose and, if the vacancy or vacancies are not theretofor filled as hereinabove provided, it or they may be filled at such meeting by the holders of shares of Preferred Stock, voting separately as a class regardless of series. (3) The affirmative vote of the holders of at least two-thirds of the shares of $2.67 Preferred, voting separately as a class, given in person or by proxy at any special or annual meeting called to take action thereon, shall be necessary to permit, effect or validate any amendment of the Certificate of Incorporation of the Company, or approve any agreement of merger or consolidation which contains any provision, to (i) exclude or limit the right of the holders of $2.67 Preferred to vote on any matter, except as such right may be limited by voting rights given to new shares then being authorized of any existing or new series of Preferred Stock; (ii) reduce the rate or CERTIFICATE OF INCORPORATION 29 change the time for accumulation or payment of dividends on the shares of $2.67 Preferred; (iii) cancel or otherwise adversely affect dividends which have accrued but have not been declared on the shares of $2.67 Preferred; (iv) effect a conversion, exchange or reclassification of the shares of $2.67 Preferred; (v) change the designation, preferences, limitations, conversion rate, call provisions or relative rights of the shares of $2.67 Preferred; or (vi) change shares of $2.67 Preferred then outstanding into a different number of shares, or into the same number of shares of another class or series. Nothing herein shall be deemed to restrict or limit the right of the Board of Directors of the Company to create, or authorize the Board to create, a new series of Preferred Stock having, or convertible into shares having, rights or preferences prior or superior to those of the shares of $2.67 Preferred; provided that the Board of Directors of the Company shall not have the right to issue any shares with equal, prior or superior rights to those of the $2.67 Preferred as a dividend or distribution on any junior stock (which shall mean for the purposes of this Section 7 the Common Stock and any other class of stock of the Company hereafter authorized over which the $2.67 Preferred has preference or priority in the payment 30 CERTIFICATE OF INCORPORATION of dividends or in the distribution of assets on any dissolution, liquidation or winding up of the Company). (c)(1) The holders of shares of $2.67 Preferred shall be entitled to receive, out of funds legally available therefor, cumulative cash dividends of a limited and preferential nature at a rate of $2.67 per share per annum, and no more, payable quarterly on the tenth day of March, June, September and December commencing March 10, 1986, as and when declared by the Board of Directors. Dividends on each share of $2.67 Preferred shall be cumulative and shall commence to accrue from the date of the original issuance of shares of this series. Accumulations of dividends shall not bear interest. (2) No dividend shall be paid or declared on any junior stock, other than a dividend payable in junior stock, nor shall any shares of junior stock be acquired for a consideration by the Company or by any subsidiary (which shall mean any corporation or entity, the majority of the voting power to elect directors of which is held directly or indirectly by the Company), unless all dividends on the $2.67 Preferred accrued for all past quarter-yearly dividend periods shall have been paid and unless, in the case CERTIFICATE OF INCORPORATION 31 of dividends on any junior stock, the full dividends on the $2.67 Preferred for the then current quarter-yearly dividend period provided in accordance with subparagraph (1) of this paragraph (c) shall have been or shall then be paid or declared. The foregoing restriction on acquisition of shares of junior stock shall be inapplicable to any payments in lieu of issuance of fractional shares thereof whether upon any merger, conversion, stock dividend or otherwise. (d)(1) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holder of each share of $2.67 Preferred then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any distribution or payment shall be made to the holders of any junior stock, an amount equal to the sum of (i) $30.50 per share plus (ii) an additional sum computed at the rate of $2.67 per share per annum, for the period from the date on which dividends on such share became cumulative to and including the date fixed for such payment, less the aggregate of dividends that on or before the date fixed for such payment shall have been paid or declared and set aside for payment, but computed without interest. If 32 CERTIFICATE OF INCORPORATION the assets of the Company available for distribution to its stockholders shall be insufficient to pay in full all amounts to which the holders of $2.67 Preferred are entitled, the amount available for distribution to the holders of shares of $2.67 Preferred shall be shared pro rata by them. (2) Notice of any payment in full pursuant to subparagraph (1) of this paragraph (d) shall be given by publication at least once in a newspaper of general circulation in the Borough of Manhattan, The City of New York, printed in the English language and customarily published on each business day, such publication to be not more than 60 days and not less than 30 days prior to the payment date. Notice of such payment shall also be given in the same manner as provided for mailing notice of redemption in subparagraph (2) of paragraph (e) as if the date for payment were the date fixed for redemption referred to in said subparagraph (2), except that such notice shall be mailed not less than 30 days prior to the date fixed for payment. Neither failure to publish or mail such notice nor defect therein or in the publication or mailing thereof shall affect the validity of the proceedings for such payment. CERTIFICATE OF INCORPORATION 33 (3) For the purposes of this Paragraph (d), a consolidation or merger of the Company with any other corporation shall not constitute or be deemed to constitute a liquidation, dissolution or winding up of the Company. (e)(1) The Company may, at its option, at any time or from time to time redeem the whole or any part of the $2.67 Preferred outstanding at the time of redemption, upon notice given as hereinafter specified, by paying in cash the following redemption prices per share: If Redeemed during the 12-Month Period Redemption Price Beginning March 10 per Share ---------------------- ---------------- 1985 ................... $32.10 1986 ................... 31.70 1987 ................... 31.30 1988 ................... 30.90 and thereafter at a redemption price per share of $30.50; together with an additional sum, for each share so to be redeemed, computed at the rate of $2.67 per share per annum for the period from the date on which dividends on such share became cumulative to and including the date fixed for such redemption, less the aggregate of the dividends that on or before the date fixed for such redemption shall 34 CERTIFICATE OF INCORPORATION have been paid or declared and set aside for payment, but computed without interest. Notwithstanding the foregoing, the Company may not redeem less than the whole of the $2.67 Preferred at the time outstanding unless all dividends on the $2.67 Preferred for all past quarter-yearly dividend periods shall have been paid or declared and set aside for payment. (2) Notice of any such redemption pursuant to this paragraph (e) shall be deemed given if mailed by certified mail, return receipt requested, not less than 90 days prior to the date fixed for redemption, to each stockholder of record of shares so to be redeemed at his address as it appears on the books of the Company. Neither failure to mail such notice nor defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares so to be redeemed. (3) If only part of the $2.67 Preferred at the time outstanding is to be redeemed, the selection of the shares to be redeemed may be made pro rata, by lot or in any other equitable manner. The Board of Directors shall have the power to prescribe the manner in which the selection is to be made. CERTIFICATE OF INCORPORATION 35 (4) When any shares of $2.67 Preferred are redeemed out of capital, their redemption shall effect their retirement. When any shares of $2.67 Preferred are otherwise redeemed or reacquired, the Company shall retire such shares by resolution of the Board of Directors. In either event, the Board of Directors shall cause to be filed with the Office of the Secretary of State of Delaware an appropriate certificate which shall have the effect of restoring such shares to the status of authorized but unissued shares of Preferred Stock without series designation. (f)(1) If notice of payment in full to holders of shares of $2.67 Preferred of the amounts to which they are entitled in accordance with subparagraph (2) of paragraph (d) or notice of redemption in accordance with subparagraph (2) of paragraph (e) shall have been given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable authority promptly to give or complete such notice, and if on or before the payment date, or redemption date specified therein, the funds necessary for such payment or redemption shall have been deposited by the Company with a bank or trust company in good standing, designated in such notice, organized under the laws of the 36 CERTIFICATE OF INCORPORATION United States of America or of the State of New York, in trust for the pro rata benefit of the holders of the shares entitled to such payment or so called for redemption, as the case may be, then, notwithstanding that any certificate for shares entitled to such payment or so called for redemption, as they case may be, shall not have been surrendered for retirement, from and after the time such notice to holders of $2.67 Preferred is given, whichever is later, all such shares shall be deemed no longer to be outstanding and all rights appertaining to such shares shall forthwith terminate, except only the right of the holders thereof to receive from such bank or trust company the funds so deposited, without interest, and the right to exercise on or before but not later than the fifth day next preceding the date fixed for payment or redemption, as the case may be, any privilege of conversion that has not theretofore expired. Any interest accrued on such funds shall be paid to the Company from time to time. (2) Any funds deposited by the Company pursuant to subparagraph (1) of this paragraph (f) that shall not be required for such payment or redemption because of the exercise of any right of conversion CERTIFICATE OF INCORPORATION 37 subsequent to the date of such deposit shall be released and repaid to the Company forthwith. Any funds so deposited that have not been paid by the end of five years from such payment or redemption date shall be released and repaid to the Company forthwith, after which the holders of the shares of $2.67 Preferred entitled to such payment or of the shares of $2.67 Preferred so called for redemption, as the case may be, shall be entitled to receive payment thereof only from the Company, but subject to applicable law. (g) (1) Subject to the provisions for adjustment hereinafter set forth, each share of $2.67 Preferred shall be convertible, at the option of the holder thereof, into 1.02 (1-2/100)* of a fully paid and non-assessable share of Common Stock of the Company upon surrender to any Transfer Agent for the $2.67 Preferred, or the Company if no such Transfer Agent exists, of the certificate for the share so to be converted, together with such form of notice of election to convert as may be provided from time to time by the Company. The number of shares of Common Stock deliverable upon conversion of a share of $2.67 Preferred is hereinafter sometimes called "the conversion rate." *2.04 (2-4/100) to reflect 9-10-86 two-for-one stock split, in form of a 100% stock dividend-9/10/86 38 CERTIFICATE OF INCORPORATION (2) Any share of $2.67 Preferred called for redemption or for which payment is provided upon any liquidation, dissolution or winding up of the Company may be converted as in this paragraph (g); provided that it is converted at any time on or before but not later than the fifth day next preceding the date fixed for redemption or payment, as the case may be. No allowance or adjustment for dividends on either class of stock shall be made upon conversion, except that where conversion is made of any share of $2.67 Preferred called for redemption or for which payment is provided upon any liquidation, dissolution or winding up of the Company there shall be paid cumulative cash dividends on the $2.67 Preferred prorated from the next preceding date on which said cash dividends have been paid to the date the shares of $2.67 Preferred shall be deemed to have been converted. Shares of the $2.67 Preferred shall be deemed to have been converted as of the date of the surrender for conversion of the certificates therefor, together with the form of notice provided by the Company duly signed by the holder thereof, and the person entitled to receive shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. CERTIFICATE OF INCORPORATION 39 (3) The number of shares of Common Stock deliverable upon conversion of each share of $2.67 Preferred shall be subject to adjustment from time to time as follows: (A) In case the Company shall (i) declare a dividend or other distribution on its Common Stock in shares of its capital stock, (ii) subdivide or combine the outstanding shares of Common Stock or (iii) issue by reclassification of the change of its outstanding shares of Common Stock (including any such reclassification or changes in connection with a consolidation or merger in which the Company is the continuing corporation) any capital stock (all shares so issued to be included in the term "Common Stock" as used in this subparagraph (3)), the conversion rate in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination, reclassification or change shall be adjusted so that the holder of each share of $2.67 Preferred surrendered for conversion after such time shall be entitled to receive the number and kind of shares that he would have owned or have been entitled to receive had such share of $2.67 40 CERTIFICATE OF INCORPORATION Preferred been converted immediately prior to such time. Such adjustment shall be made successively whenever any event listed above shall occur. (B) In case the Company shall, while any shares of $2.67 Preferred remain outstanding, enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or sell or convey its property as an entirety or substantially as an entirety, and in connection with such consolidation, merger, sale or conveyance, shares of stock or other securities shall be issuable or deliverable in exchange for the Common Stock of the Company, proper provision shall be made that the holder of any share of $2.67 Preferred may thereafter convert the same into the same kind and amount of securities as may be issuable by the terms of such consolidation, merger, sale or conveyance with respect to the number of shares of Common Stock of the Company into which such share of $2.67 Preferred is convertible at the time of such consolidation, merger, sale or conveyance. CERTIFICATE OF INCORPORATION 41 (C) In case the Company shall fix a record date for the determination of stockholders entitled to receive rights or warrants to be issued to holders of its Common Stock as such entitling such holders (for a period expiring within 60 days after such record date) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock (as defined in clause (E) of this subparagraph (3)) on such record date, then in each such case the conversion rate shall be changed so that on and after such record date it shall be the product obtained by multiplying the conversion rate immediately prior to such record date by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock issuable upon exercise of such rights and warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus a number of shares of Common Stock equal to that obtained by dividing the aggregate consideration receivable on exercise of such rights or warrants by such Current Market Price. For the purposes of this 42 CERTIFICATE OF INCORPORATION clause (C), the issuance of rights or warrants (exercisable for a period expiring within 60 days after the record date with respect thereto) to purchase stock or securities convertible into shares of Common Stock shall be deemed to be the issuance of rights or warrants to purchase the maximum number of shares of Common Stock into which such stock or securities are convertible and the aggregate consideration receivable on exercise of such rights or warrants shall be deemed equal to the aggregate consideration receivable for such securities when such rights or warrants are exercised plus the minimum aggregate amount, if any, payable upon conversion of such stock or securities into Common Stock. An adjustment pursuant to this clause (C) shall be made whenever any such rights or warrants are issued, and shall be made as of the record date for the determination of stockholders entitled to receive such rights or warrants. In the event that such rights or warrants are not so issued, the conversion rate shall again be adjusted, effective as of the date on which the Board of Directors of the Company determines not to issue such rights or warrants, as if such record date had not been fixed. CERTIFICATE OF INCORPORATION 43 (D) In case the Company shall fix a record date for making a distribution (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) on its Common Stock of evidences of its indebtedness or corporate assets (excluding dividends paid in, or distributions of, cash) or subscription rights or warrants (excluding those referred to in clause (C) of this subparagraph (3)), the conversion rate shall be increased effective immediately following such record date to a new conversion rate which shall be the product obtained by multiplying the conversion rate immediately prior to such record date by a fraction of which the numerator shall be the Common Market Price per share of Common Stock (as defined in clause (E) of this subparagraph (3)) on such record date and of which the denominator shall be such Current Market Price per share of Common Stock less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or evidences or indebtedness so distributed or of such subscription rights or warrants applicable to one share of Common 44 CERTIFICATE OF INCORPORATION Stock. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the conversion rate shall again be adjusted, effective as of the date on which the Board of Directors determines not to make such distribution, as if such record date had not been fixed. (E) For the purpose of any computation under clauses (C) and (D) of this subparagraph (3), the "Current Market Price" per share of Common Stock on any record date shall be deemed to be the average of the daily closing prices for the 30 consecutive full business days commencing 45 such business days before such record date. For the purpose of this clause (E), the "Current Market Price" per share of Common Stock of American Brands, Inc., a New Jersey corporation organized under an Agreement of Consolidation in 1904 (hereinafter called "American") calculated as provided in this clause (E) for Common Stock of the Company, shall be deemed to be the "Current Market Price" per share of Common Stock of the Company for any relevant period or periods up to the date of issuance of the $2.67 Preferred. CERTIFICATE OF INCORPORATION 45 The "closing price" of the Common Stock for any day shall be the last sale price regular way on such day, or in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as officially quoted on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose or, if such bid and asked prices are not available, such other prices as may be selected by the Board of Directors for the purpose. (F) No adjustment pursuant to this subparagraph (3) shall be required unless the particular event involved would require an increase or decrease of at least 1% in the conversion rate; provided, however, that any adjustments that by reason of this clause (F) are not required to be 46 CERTIFICATE OF INCORPORATION made shall be carried forward and taken into account in any subsequent adjustment, and provided further, however, that such adjustment shall be made no later than the earlier of (i) 3 years after the date of the particular event involved, or (ii) the date as to which the aggregate adjustments not previously made would require a total increase or decrease of 1% in the conversion rate. For the purpose of this clause (F), any adjustment not required to be made with respect to the $2.67 Preferred Stock of American under the terms of conversion rate adjustment provisions applicable thereto because the particular event involved did not require an increase or decrease of at least 1% in the conversion rate and not carried forward and taken into account in any subsequent adjustment pursuant to such terms at the date of issuance of the $2.67 Preferred, shall be taken into account with respect to adjustments required to be made pursuant to this clause (F). (G) In the event that at any time as a result of an adjustment made pursuant to clause (A) of this subparagraph (3), the holder of any share of $2.67 Preferred thereafter surrendered CERTIFICATE OF INCORPORATION 47 for conversion shall become entitled to receive any shares of capital stock of the Company other than Common Stock, thereafter the number of such other shares so receivable upon conversion of any share of $2.67 Preferred shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in clauses (A) to (F) of this subparagraph (3) and the other provisions of this resolution fixing terms of the $2.67 Preferred with respect to the Common Stock, to the extent they can appropriately apply on like terms to such other shares. (H) The Company shall, simultaneously with any action that would require an adjustment pursuant to this subparagraph (3), take all necessary action to make the aggregate amount of state capital represented by the outstanding shares of $2.67 Preferred at least equal to the aggregate par value of the shares of Common Stock into which such shares of $2.67 Preferred will be convertible as the result of such adjustment. 48 CERTIFICATE OF INCORPORATION (I) Whenever any adjustment is required by this subparagraph (3), the Company shall promptly file with each Transfer Agent, if any, for the $2.67 Preferred a statement describing in reasonable detail the adjustment and the method of calculation used, and mail a copy of such statement to each holder of shares of $2.67 Preferred of record on the date as of which such adjustment was made. (4) The Company shall at all times on and after the issuance of the $2.67 Preferred keep available for delivery the full number of issued or unissued shares of Common Stock into which all outstanding shares of $2.67 Preferred are convertible. (5) No certificate for a fraction of a share shall be delivered upon the conversion, but, in lieu of any fractional share that would otherwise be required to be delivered in accordance with the foregoing provisions, the Company shall pay to the person otherwise entitled to such fractional share a sum in cash equal to such fraction multiplied by the closing price (as defined in clause (E) of subparagraph (3) of this paragraph (g)) of the Common Stock on the day prior to the day of the conversion. CERTIFICATE OF INCORPORATION 49 (6) The certificate of any independent firm of public accountants selected by the Board of Directors shall be evidence of the correctness of any adjustment made pursuant to this paragraph (g). All calculations of adjustments under this paragraph (g) shall be made to the nearest one-thousandth of a share. (7) Conversion of shares of $2.67 Preferred shall effect their retirement. Shares of $2.67 Preferred otherwise reacquired by the Company shall be retired by resolution of the Board of Directors. In either event, the Board of Directors shall cause to be filed with the Office of the Secretary of State of Delaware an appropriate certificate which shall have the effect of restoring such shares to the status of authorized but unissued shares of Preferred Stock without series designation. ARTICLE V The name and mailing address of the sole incorporator is as follows: Name Mailing Address ---- --------------- Thomas M. Ewing Chadbourne, Parke, Whiteside & Wolff 30 Rockefeller Plaza New York, New York 10112 50 CERTIFICATE OF INCORPORATION ARTICLE VI Except for any By-law that by its terms states that it may be amended or repealed only by action of the stockholders, the Board of Directors is authorized to adopt, amend or repeal the By-laws of the Company. ARTICLE VII Any action required or permitted to be taken by the stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by stockholders. ARTICLE VIII 1. Except as otherwise provided in Section 2 of this Article VIII, in addition to any affirmative vote required by law, this Certificate of Incorporation or the By-laws of the Company, the affirmative vote of at least 66 2/3% of the votes cast by the stockholders of the Company, voting together as a single class at a meeting at which a quorum is present, shall be required for (i) the adoption of any amendment to, or repeal of any provision of, this Certificate of Incorporation (other than the adoption of any amendment authorized pursuant to Section 3 of Article CERTIFICATE OF INCORPORATION 51 IV of this Certificate of Incorporation or the increase or decrease of the number of shares of any series of Preferred Stock or the elimination thereof by action of the Board of Directors as authorized by the General Corporation Law of Delaware), (ii) any merger or consolidation of the Company with or into any other corporation, (iii) any sale or lease of all or substantially all of the assets of the Company to any other corporation, person or other entity or (iv) the dissolution of the Company. Except as otherwise provided in Section 2 of this Article VIII, such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, in other provisions of this Certificate of Incorporation, by law, in any agreement with any national securities exchange or otherwise. 2. Nothing contained in Section 1 of this Article VIII shall require the approval of the stockholders of the Company to authorize (i) a merger or consolidation in which the Company is the surviving corporation if (A) the agreement of merger does not amend in any respect this Certificate of Incorporation, (B) each share of stock of the Company outstanding immediately prior to the effective date of the merger is to be an identical outstanding or treasury share of the Company after the effective 52 CERTIFICATE OF INCORPORATION date of the merger, and (C) either no shares of Common Stock of the Company and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or the treasury shares of Common Stock of the Company to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of Common Stock of the Company outstanding immediately prior to the effective date of the merger, or (ii) a merger into the Company of any other corporation if at least 90% of the outstanding shares of each class of stock of such other corporation is owned by the Company. ARTICLE IX 1. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV of this Certificate of Incorporation relating to the rights of holders of any class or series of stock to the rights of holders of any class or series of stock having a preference over the Common Stock, the number of the directors of the Company shall be fixed from time to time by or pursuant to the By-laws of the Company but shall not exceed 20. The director, other than those who may be elected by the holders of any class or series of stock having a preference CERTIFICATE OF INCORPORATION 53 over the Common Stock, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the directors in each class to hold office until their successors are elected and qualified. Each member of the Board of Directors in the first class of directors shall hold office until the Annual Meeting of stockholders in 1987, each member of the Board of Directors in the second class of stockholders in 1988 and each member of the Board of Directors in the third class of directors shall hold office until the Annual Meeting of stockholders in 1989. At each annual meeting of the stockholders of the Company, the successors to the class of directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the later of the annual meeting of stockholders held in the third year following the year of their election or the election and qualification of the successors to such class of directors. 2. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock, nominations for the election of directors may be made by the Board of Directors or by any record owner of stock of the Company authorized to be issued from time to time under Article IV of this Certificate of Incorporation and entitled to be voted generally in the election of directors 54 CERTIFICATE OF INCORPORATION ("Voting Stock"). Any such stockholder, however, may nominate one or more persons for election as director at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than (a) with respect to an election to be held at an annual meeting of stockholders, one hundred twenty (120) days in advance of such meeting, and (b) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the earlier of (i) the date on which notice of such meeting is first given to stockholders and (ii) the date on which the public announcement of such meeting is first made. Each such notice shall include: (1) the name and address of each stockholder of record who intends to appear in person or by proxy to make the nomination and of the person or persons to be nominated; (2) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (3) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the CERTIFICATE OF INCORPORATION 55 proxy rules of the Securities and Exchange Commission; and (4) the consent of each nominee to serve as a director of the Company if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 3. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV of this Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock, newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 56 CERTIFICATE OF INCORPORATION 4. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any one or more directors of the Company may be removed, only for cause, only by the affirmative vote of at least 80% of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, at any annual meeting of stockholders of the Company or at any special meeting of stockholders of the Company, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting. 5. Notwithstanding any other provision of this Certificate of Incorporation or the By-laws of the Company (and notwithstanding the fact that the lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the By-laws of the Company), the affirmative vote of at least 80% of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article IX; provided, however, that the preceding provisions of this Section 5 shall not apply to any amendment to this Article IX, and such amendment shall require only such affirmative vote as is required by law and any other provisions of this Certificate of Incorpora- CERTIFICATE OF INCORPORATION 57 tion or the By-laws of the Company, if such amendment shall have been approved by at least three-fourths of the members of the Board of Directors then in office. ARTICLE X No director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing clause shall not apply to any liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor the repeal of this Article X, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article X, shall be effective with respect to any cause of action, suit, claim or other matter that, but for this Article X, would accrue or arise prior to such amendment, repeal or adoption of an inconsistent provision. 58 CERTIFICATE OF INCORPORATION ARTICLE XI The Company reserves the right to amend, alter or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights of stockholders herein are subject to this reservation. THE UNDERSIGNED, being the sole incorporator above named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, has signed this instrument on the 30th day of September, 1985 and does thereby acknowledge that it is his act and deed and that the facts stated herein are true. THOMAS M. EWING Sole Incorporator 32 CERTIFICATE OF INCORPORATION The following endorsement appears on the Certificate of Incorporation as originally filed with the Secretary of State of the State of Delaware: "FILED Oct 1 1985 11:50 A.M. MICHAEL HARKINS SECRETARY OF STATE." AMENDMENT TO CERTIFICATE OF DESIGNATION OF SERIES JUNIOR PARTICIPATING PREFERRED STOCK of AMERICAN BRANDS, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, William J. Alley, Chairman of the Board of American Brands, Inc. a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), and Louis F. Fernous, Jr., Secretary of the Company, in accordance with the provisions of Section 151 thereof, DO HEREBY CERTIFY: 1. That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the Board of Directors on June 10, 1986 created a series of 600,000 shares of Preferred Stock designated as Series A A-2 Junior Participating Preferred Stock, of which no shares have been issued. 2. That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation and the General Corporation Law of the State of Delaware, the Board of Directors on December 13, 1987 adopted the following resolution amending the Series A Junior Participating Preferred Stock: RESOLVED that, pursuant to the authority vested in the Board of Directors of this Company in accordance with the provisions of its Certificate of Incorporation and the General Corporation Law of the State of Delaware, the designation and amount of the Series A Junior Participating Preferred Stock created by the Board of Directors on June 10, 1986 and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are hereby amended to read in their entirety as follows: SECTION 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" ("Series A Preferred Stock") and the number of shares constituting such series shall be 1,400,000. Such number A-3 of shares may be adjusted by appropriate action of the Board of Directors. SECTION 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends contemporaneously declared on the Common Stock of the Company presently of the par value of $3.125 per share ("Common Stock") and (ii) a preferential cash dividend ("Preferential Dividends"), if any, on the tenth day of March, June, September and December of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount equal to $10 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of A-4 any share or fraction of a share of Series A Preferred Stock. In the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence and other than a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Current Market Price of such share), then and in each such event the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock of the Company a distribution, in like kind, of 100 times (subject to the provisions for adjustment hereinafter set forth) such distribution paid on a share of Common Stock. The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of A-5 this paragraph are hereinafter referred to as "Participating Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Participating Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Company shall at any time after December 31, 1987 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Participating Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare each Participating Dividend at the same time it declares any cash A-6 or non-cash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Participating Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. SECTION 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: A-7 (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Company. The number of votes which a holder of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple". In the event the Company shall at any time after December 13, 1987 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. A-8 (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or set apart for payment, the holders of record of preferred stock of the Company of all series (including the Series A Preferred Stock), other than any series in respect of which the right is expressly withheld by the Certificate of Incorporation or the authorizing resolutions included in the Certificate of designation therefor, shall have the right, at the next meeting of stockholders called for the election directors, to elect two members of the Board of Directors, which directors shall be in addition to the number required by the By-laws prior to such event, to serve until the next annual meeting of the stockholders and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding A-9 shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereof. (D) Except as otherwise required by law or set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. SECTION 4. Certain Restrictions. (A) Whenever Preferential Dividends or Participating Dividends are in arrears or the Company A-10 shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Participating Dividends, whether or not declares, on shares of Series A Preferred Stock outstanding shall have been paid or set aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to, the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of A-11 any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise A-12 acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of December 13, 1987 between the Company and Morgan Shareholder Services Trust Company, a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to the Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of preferred stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. SECTION 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. The Company shall cause all such shares upon their retirement and cancella- A-13 tion to become authorized but unissued shares of preferred stock, without designation as to a series, and such shares may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors. SECTION 6. Liquidation, dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided, (A) $100 per share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (B) if greater than the amount specified in clause (i)(A) of this sentence, the amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which A-14 the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to such clause to the determination of the Participating Liquidation Amount, as such multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Company shall at any time after December 13, 1987 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the A-15 Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and Other Events. (A) In the event that holders of shares of Common Stock of the Company receive after December 13, 1987 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by the way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise ("Transaction"), then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple A-16 in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Company receive after December 13, 1987 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Current Market Price A-17 (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Current Market Price of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In event that holders of shares of Common Stock of the Company receive after December 13, 1987 in respect of their shares of Common Stock any A-18 right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Current Market Price of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted to that after such event each holder of a share of Series A Preferred Stock shall each be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the stock capital which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, A-19 first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right of warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Current Market Price (as hereinafter defined) of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Current Market Price of a share of such capital stock immediately after the distribution of such right or warrant. A-19 (D) For purposes of this Section 7, the "Current Market Price" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing prices per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Current Market Price of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after the ex-dividend date for (i) a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Current Market Price shall be appropriately adjusted by the Board of Directors of the Company to reflect the Current Market Price of such stock to take into account ex-dividend trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares are not listed or A-21 admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading A-22 Days applicable to the determination of Current Market Price thereof as aforesaid, "Current Market Price" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Current Market Price shall be described in a statement filed with the Secretary of the Company. SECTION 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. SECTION 9. Effective Time of Adjustments. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective A-23 as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. SECTION 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Certificate of Incorporation of the Company. SECTION 11. Ranking. Unless otherwise provided in the Certificate of Incorporation of the Company or a Certificate of Designation relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's preferred stock as to the payment of dividends and the distribution A-24 of assets on liquidation, dissolution or winding up and senior to the Common Stock. SECTION 12. Amendment. The provisions hereof and the Certificate of Incorporation of the Company shall not be amended in any manner which would materially affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 23rd day of December, 1987. WILLIAM J. ALLEY --------------------- William J. Alley Chairman of the Board LOUIS F. FERNOUS, JR. ---------------------- Louis F. Fernous, Jr. Secretary ATTEST: THERESA B. FEALEY ------------------------ Theresa B. Fealey Assistant Secretary EX-3.2.A 4 EXHIBIT 3(II)A EXHIBIT 3(ii)a AMERICAN BRANDS, INC. BY-LAW AMENDMENT ADOPTED ON APRIL 30, 1997 EFFECTIVE APRIL 30, 1997 Article XII was repealed in its entirety. EX-3.2.B 5 EXHIBIT 3(II)B EXHIBIT 3(ii)b -------------- BY-LAWS of FORTUNE BRANDS, INC. (As Amended) ARTICLE I Directors Section 1. The number of directors constituting the entire Board of Directors of the Company shall be fixed at twelve. The number of the directors may be altered by amendment of these By-laws, which amendment may be adopted at any regular or special meeting of the Board of Directors by the affirmative vote of at least two-thirds of all the directors then in office. Section 2. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any director of the Company may resign at any time upon written notice to the Company. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the 7-27-93 2 BY-LAWS - ------------------------------------------------------------------------------- Common Stock, newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Section 3. In order to qualify to hold office as a director of the Company, a person must hold at least one share of stock of the Company. Section 4. The directors may hold their meetings and have an office and keep the books of the Company in Old Greenwich, Connecticut, or elsewhere outside of the State of Delaware. Section 5. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee which shall have at least three members. To the extent provided in such resolution, such committee shall have and may exercise all the powers and authority of the Board, including the power to authorize the seal of the Company to be affixed to all papers that require it, except that such 10-30-90 BY-LAWS 3 - ------------------------------------------------------------------------------- committee shall not have such power and authority in reference to (1) amending the Certificate of Incorporation (except that such committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Company or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Company or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series); (2) adopting an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware; (3) recommending to the stockholders any action that requires stockholders' approval; 1-1-86 4 BY-LAWS - ------------------------------------------------------------------------------- (4) making, amending or repealing any By-law of the Company; (5) electing or appointing any director, or removing any officer or director; (6) amending or repealing any resolution theretofore adopted by the Board of Directors; (7) fixing compensation of the directors for serving on the Board of Directors or on any committee; or (8) unless the resolution shall expressly so provide, declaring a dividend, authorizing the issuance of stock or adopting a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. Actions taken at a meeting of such committee shall be reported to the Board of Directors at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall be made to the Board at either its first or second meeting following such committee meeting. 1-1-86 BY-LAWS 5 - ------------------------------------------------------------------------------- ARTICLE II Meetings of Stockholders Section l. The annual meeting of the stockholders of the Company for the election of directors, and such other business as may properly come before the meeting, shall be held at such place as may from time to time be designated by the directors, on the first Wednesday of May, at ten o'clock in the forenoon, or at such other hour as the directors may designate, or on such other day and at such hour as the directors may designate. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next business day which is not a legal holiday. Section 2. Special meetings of the stockholders, to be held at such place as may from time to time be designated by the directors, may be called only by the Chairman of the Board, the President or the Board of Directors, by resolution adopted by a majority of the entire Board, for such purposes as shall be specified in the call. Section 3. Except as otherwise provided by law, due notice of each annual meeting of the stockholders shall be given by a written or printed notice signed by the Secretary 10-30-90 6 BY-LAWS - ------------------------------------------------------------------------------- or an Assistant Secretary of the Company and mailed, postage prepaid, at least ten days prior to such meeting to each stockholder of record entitled to vote thereat appearing on the books of the Company at the address given thereon. Due notice of each special meeting shall be given also in the manner above provided. The notice shall state the object of the special meeting, and no other business shall be transacted at such meeting. Section 4. The holders of a majority in voting power of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. Except as otherwise required by law or the Certificate of Incorporation, the affirmative vote of shares representing a majority in voting power of the shares present in person or represented by proxy at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders, and except that directors shall be elected by a plurality of votes cast at an election. The stockholders present at a duly convened meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 10-30-90 BY-LAWS 7 - ------------------------------------------------------------------------------- Section 5. Each meeting of the stockholders, whether annual or special, shall be presided over by the Chairman of the Board if present, and if he is not present by the President if present. If neither officer specified in the preceding sentence is present, the meeting shall be presided over by the person designated in writing by the Chairman of the Board, or if the Chairman of the Board has made no designation, by the person designated by the President, or if the President has made no designation, by the person designated by the Board of Directors. If neither officer specified in the first sentence of this section is present, and no one designated by the Chairman of the Board or the President or the Board of Directors is present, the meeting may elect any stockholder of record who is entitled to vote for directors, or any person present holding a proxy for such a stockholder, to preside. The Secretary of the Company (or in his absence any Assistant Secretary) shall be the Secretary of any such meeting; in the absence of the Secretary and Assistant Secretaries, any person may be elected by the meeting to act as Secretary of the meeting. Section 6. Any voting proxy given by a stockholder must be in writing, executed by the stockholder, or, in lieu thereof, to the extent permitted by law, may be transmitted in a telegram, cablegram or other means of 10-30-90 8 BY-LAWS - ------------------------------------------------------------------------------- electronic transmission setting forth or submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. A copy, facsimile transmission or other reliable reproduction of a written or electronically-transmitted proxy authorized by this Section 6 may be substituted for or used in lieu of the original writing or electronic transmission to the extent permitted by law. Section 7. Any previously scheduled annual or special meeting of stockholders may, by resolution of the Board of Directors, be postponed upon public announcement made prior to the date previously scheduled for such meeting of stockholders. For purposes of this Article II, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The person presiding over any meeting of stockholders, or a majority of the voting power of the shares entitled to vote, present in person or represented by proxy, even if less than a quorum, may adjourn the meeting from time to time. No notice of the time and 10-30-90 BY-LAWS 9 - ------------------------------------------------------------------------------- place of adjourned meetings need be given except as required by law. Section 8. The directors shall appoint one or more inspectors of election and of the vote at any time prior to the date of any meeting of stockholders at which an election is to be held or a vote is to be taken. In the event any inspector so appointed is absent from such meeting or for any other reason fails to act as such at the meeting, the person presiding pursuant to these By-laws may appoint a substitute who shall have all the powers and duties of such inspector. The inspector or inspectors so appointed shall act at such meeting, make such reports thereof and take such other action as shall be provided by law and as may be directed by the person presiding over the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Section 9. The directors may, at any time prior to any annual or special meeting of the stockholders, adopt an order of business for such meeting which shall be the order of business to be followed at such meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at 10-30-90 10 BY-LAWS - ------------------------------------------------------------------------------- such meeting shall be announced at such meeting by the person presiding over such meeting. Section l0. At any meeting of stockholders a stock vote shall be taken on any resolution or other matter presented to the meeting for action if so ordered by the person presiding over the meeting or on the demand of any stockholder of record entitled to vote at the meeting or any person present holding a proxy for such a stockholder. Such order or demand for a stock vote may be made either before or after a vote has been taken on such resolution or other matter in a manner other than by stock vote and before or after the result of the vote taken otherwise than by stock vote has been announced. The result of a stock vote taken in accordance with this By-law shall supersede the result of any vote previously taken in any manner other than by stock vote. Section 11. (A) Nominations of persons for election to the Board of Directors of the Company may be made as provided in the Certificate of Incorporation. The proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (1) pursuant to the Company's notice of meeting, (2) by or at the direction of the Board of Directors or (3) by any stockholder of the Company who was a stockholder of record at the time of giving of the notice provided for 10-30-90 BY-LAWS 11 - ------------------------------------------------------------------------------- in this Section 11, who is entitled to vote thereon at the meeting and who complies with the notice procedures set forth in this Section 11. (B) For business (other than the nomination of persons for election to the Board of Directors) to be properly brought before an annual meeting by a stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the stockholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice shall be delivered, either by personal delivery or by United States mail, postage prepaid, to the Secretary not later than one hundred twenty (120) days in advance of such meeting. Such stockholder's notice shall set forth (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (a) the name and address of such stockholder, as they appear on the Company's books, and of such beneficial owner and (b) the class and number of shares of the Company which are owned beneficially and of record by such stockholder and such beneficial owner. 10-30-90 12 BY-LAWS - ------------------------------------------------------------------------------- (C) The person presiding over an annual meeting of stockholders shall have the power and duty to determine whether any business proposed by any stockholder to be brought before the meeting was made in accordance with the procedures set forth in this Section 11 and, if any proposed business is not in compliance with this Section 11, to declare that such defective proposal shall be disregarded. (D) In addition to the foregoing provisions of this Section 11, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule l4a-8 under such Act. 10-30-90 BY-LAWS 13 - ------------------------------------------------------------------------------- ARTICLE III Meetings of Directors Section 1. Regular meetings of the Board of Directors shall be held at the office of the Company in Old Greenwich, Connecticut, or at such other place as may from time to time be designated by the directors, the Chairman of the Board or the President, at ten o'clock in the forenoon on the last Tuesday of each month other than March, May, June, August and December and at three o'clock in the afternoon on the day on which the annual meeting of stockholders is held. If any such day shall be a holiday, the meeting scheduled for that day shall be held on the next business day. Special meetings may be held as determined by the Board of Directors, and may be called by the Chairman of the Board at any time and shall be called by him on the request of three directors, or, if the Chairman of the Board fails to call such meeting when so requested, the same may be called by any three directors. Section 2. No notice need be given of regular meetings of the directors, except that at least one day's notice shall be given of any place other than the office of the Company in Old Greenwich, Connecticut at which any 1-31-89 14 BY-LAWS - ------------------------------------------------------------------------------- such meeting is to be held, but such notice need not be given to any director who signs a written waiver of notice before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3. At any meeting six directors shall constitute a quorum unless otherwise provided for in these By-laws or in the Certificate of Incorporation or in any applicable statute, but in no case less than one-third of all the directors then in office. Section 4. Members of the Board of Directors or of any Committee thereof may participate in meetings of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 5. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of such committee, 1-1-86 BY-LAWS 15 - ------------------------------------------------------------------------------- as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE IV Officers Section 1. The Board of Directors shall annually choose from amongst its members a Chairman of the Board. The Board shall also annually choose a President, an Executive Vice President, one or more Senior Vice Presidents (if any), a principal financial officer, such other Vice Presidents (if any) as it shall determine, a Secretary, a Treasurer and a Controller, who need not be directors. Section 2. The Board of Directors may elect other officers and define their powers and duties. Section 3. Any two offices not inconsistent with each other may be held by the same person. Section 4. All officers elected by the Board of Directors shall hold office, subject to removal by the Board, until their successors are chosen and qualified. The affirmative vote of at least two-thirds of all of the directors 10-30-90 16 BY-LAWS - ------------------------------------------------------------------------------- then in office shall be required to remove or reduce the salary of any officer elected by the Board of Directors. Section 5. All agents and employees shall be appointed and may be removed by the Chairman of the Board, subject to the control of the Board of Directors. Section 6. Vacancies among officers of the Company shall be filled as, and to the extent that, the Board of Directors shall determine by vote of a majority of the directors present at any regular or special meeting at which not less than a majority of all the directors then in office are present. Section 7. The Chairman of the Board shall be the Chief Executive Officer of the Company and shall have general direction of its business affairs, subject, however, to the control of the Board of Directors. He shall, if present, preside at all meetings of the Board of Directors and shall perform such other duties and have such responsibilities as the Board may from time to time determine. Section 8. At the request of the Chairman of the Board, or in case of his absence or disability, the President shall perform the duties of the Chairman of the Board, subject to the control of the Board of Directors, and the President shall have such other powers and 6-15-87 BY-LAWS 17 - ------------------------------------------------------------------------------- perform such other duties as shall at any time be delegated to him by the Board Of Directors. The Executive Vice President and the Senior Vice Presidents (if any) and such other Vice Presidents as shall have been chosen shall have such powers and perform such duties as shall at any time be delegated to them by the Board of Directors. Section 9. The Secretary shall give the requisite notice of meetings of stockholders and directors and shall record the proceedings of such meetings, shall have the custody of the seal of the Company and shall affix it or cause it to be affixed to such instruments as require the seal and attest it and, besides his powers and duties prescribed by law, shall have such other powers and perform such other duties as shall at any time be required of him by the Board of Directors. Section 10. The Assistant Secretaries shall assist the Secretary in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Secretary, shall perform the duties of his office, subject to the control of the Board. Section 11. The Treasurer shall have charge of the funds and securities of the Company and shall have such 6-15-87 18 BY-LAWS - ------------------------------------------------------------------------------- powers and perform such duties as shall at any time be delegated to him by the Board of Directors. Section 12. The Assistant Treasurers shall assist the Treasurer in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Treasurer, shall perform the duties of his office subject to the control of the Board. Section 13. Any other officer, agent or employee of the Company may be required to give such security for the faithful performance of his duties as shall be determined by the Board of Directors, who shall also determine the custody of any security given. ARTICLE V Salaries Section 1. The salaries of all officers elected by the Board of Directors who hold offices of a rank of Vice President or above shall be fixed by the Compensation and Stock Option Committee. Section 2. Salaries of all other officers elected by the Board and all other agents and employees shall be fixed by or in the manner determined by the Board. 3-1-93 BY-LAWS 19 - ------------------------------------------------------------------------------- Section 3. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any directors, shall have authority to establish reasonable compensation of directors for services to the Company as directors, officers or otherwise, except that the Compensation and Stock Option Committee, by the affirmative vote of a majority of Committee members in office and irrespective of any personal interest of any Committee members or other directors, shall have authority to establish such compensation of directors who also are officers elected by the Board and hold offices of a rank of Vice President or above. ARTICLE VI Seal Section 1. The Seal of the Company shall be in such form as the Board of Directors may from time to time prescribe and it may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VII Signatures on Commercial Instruments and Contracts Section 1. All checks or bank drafts shall be signed 3-1-93 20 BY-LAWS - ------------------------------------------------------------------------------- by any two of the following named officers: Chairman of the Board, President, the principal financial officer, the principal accounting officer, any Vice President, Secretary, any Assistant Secretary, Treasurer, any Assistant Treasurer, Controller, any Assistant Controller; and in such other manner as the Board of Directors may from time to time designate. Section 2. All notes or other obligations or contracts shall be signed by the Chairman of the Board, the President, the principal financial officer, the principal accounting officer, or any Vice President and also by one of the following officers: the Secretary, an Assistant Secretary, the Treasurer, an Assistant Treasurer, the Controller, or an Assistant Controller (provided that no individual shall sign the same instrument in two capacities), or shall be signed by the Chairman of the Board, the President, the principal financial officer, the principal accounting officer, or any Vice President, with the corporate seal or a facsimile thereof affixed thereto or imprinted thereon, attested by the Secretary or an Assistant Secretary; or such notes, obligations or contracts shall be signed in such manner and by one or more of such officers or other persons on behalf of the Company as the Board of Directors may from time to time authorize or direct. When and as authorized or directed by the Board of Directors, the signatures of such officers or 6-15-87 BY-LAWS 21 - ------------------------------------------------------------------------------- other persons or any of them signing on behalf of the Company may be facsimiles. ARTICLE VIII Capital Stock Section 1. Certificates of the capital stock of the Company shall be issued for shares duly numbered and registered in the order of their issue, and shall be in the form the directors shall prescribe. Section 2. The capital stock shall be transferable on the transfer books of the Company, subject to these By-laws, by the owner in person, or by attorney or legal representative, written evidence of whose authority shall be filed with the Company. Section 3. No transfer of capital stock can be required except upon surrender and cancellation of the certificate representing the same. Section 4. The Board of Directors may at any time, in its discretion, appoint one or more transfer agents or registrars of the shares of stock of the Company and terminate the appointment of any transfer agent or registrar. The Board of Directors may also designate the Company to perform such functions alone or in conjunction with one or more other transfer agents or registrars. 10-26-93 22 BY-LAWS - ------------------------------------------------------------------------------- Section 5. (A) For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall be not more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. (B) When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 5, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this Section 5 for the adjourned meeting. ARTICLE IX Committee on Conflicts of Interests Section 1. The Board of Directors, by resolution adopted by a majority of the entire Board, shall appoint a Committee on Conflicts of Interests which shall have at 10-30-90 BY-LAWS 23 - ------------------------------------------------------------------------------- least three members. To the extent provided by resolution of the Board, such committee shall have the power to interpret, administer and apply the policies of the Company as established by the Board from time to time with respect to conflicts of interests. ARTICLE X Dividends Section 1. Dividends on the Preferred Stock and the Common Stock of the Company may be declared by the Board of Directors, at any regular or special meeting, as provided by law and the Certificate of Incorporation. ARTICLE XI Amendments Section 1. The Board of Directors shall, except as otherwise provided in these By-laws or the Certificate of Incorporation, have the power to alter, amend or repeal these By-laws at any meeting by the affirmative vote of two-thirds of the directors then in office, provided notice of the proposed alteration, amendment or repeal be given in writing to each of the directors, and provided also that 10-30-90 24 BY-LAWS - ------------------------------------------------------------------------------- no alteration, amendment or repeal of a specification in any section of these By-laws of a stated fraction of directors as the minimum number whose presence or vote is requisite for action under such section may be made without the presence or vote or both, as the case may be, of the minimum number so specified. ARTICLE XII [Repealed effective April 30, 1997.] 4-30-97 25 BY-LAWS - ------------------------------------------------------------------------------- ARTICLE XIII Indemnification Section 1. (A) Each person (an "indemnitee") who was or is made or threatened to be made a party to or was or is involved (as a witness or otherwise) in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom 5-3-94 BY-LAWS 26 - ------------------------------------------------------------------------------- he or she is the legal representative was or is a director, officer or employee of the Company or was or is serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding was or is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees and retainers therefor, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended, and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to 10-30-90 27 BY-LAWS - ------------------------------------------------------------------------------- the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 3 of this Article XIII with respect to proceedings seeking to enforce rights to indemnification, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (B) The right to indemnification conferred in this Article XIII is and shall be a contract right. The right to indemnification conferred in this Article XIII shall include the right to be paid by the Company the expenses (including attorneys' fees and retainers therefor) reasonably incurred in connection with any such proceeding in advance of its final disposition, such advances to be paid by the Company within 20 days after the receipt by the Company of a statement or statements from the indemnitee requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without 10-30-90 BY-LAWS 28 - ------------------------------------------------------------------------------- limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article XIII or otherwise. Section 2. (A) To obtain indemnification under this Article XIII, an indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the indemnitee and is reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. Upon written request by an indemnitee for indemnification pursuant to the first sentence of this Section 2(A), a determination, if required by applicable law, with respect to the indemnitee's entitlement thereto shall be made as follows: (1) if requested by the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the indemnitee for a determination by Independent Counsel, (a) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (b) if a quorum of the Board of Directors consisting of Disinterested Directors is not 10-30-90 29 BY-LAWS - ------------------------------------------------------------------------------- obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the indemnitee, or (c) by the stockholders of the Company. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the indemnitee, the Independent Counsel shall be selected by the indemnitee unless the indemnitee shall request that such selection be made by the Board of Directors, in which event the Independent Counsel shall be selected by the Board of Directors. If it is so determined that the indemnitee is entitled to indemnification, payment to the indemnitee shall be made within 10 days after such determination. (B) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that the indemnitee is entitled to indemnification under this Article XIII, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Section 3. (A) If a claim under Section 1 of this Article XIII is not paid in full by the Company within 10-30-90 BY-LAWS 30 - ------------------------------------------------------------------------------- 30 days after a written claim pursuant to Section 2(A) of this Article XIII has been received by the Company, or if an advance is not made within 20 days after a request therefor pursuant to Section 1(B) of this Article XIII has been received by the Company, the indemnitee may at any time thereafter bring suit (or, at the indemnitee's option, an arbitration proceeding before a single arbitrator pursuant to the rules of the American Arbitration Association) against the Company to recover the unpaid amount of the claim or the advance and, if successful in whole or in part, the indemnitee shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such suit or proceeding (other than a suit or proceeding brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the indemnitee has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Company to indemnify the indemnitee for the amount claimed or that such indemnification otherwise is not permitted under the General Corporation Law of the State of Delaware, but the burden of proving such defense shall be on the Company. 10-30-90 31 BY-LAWS - ------------------------------------------------------------------------------- (B) Neither the failure of the Company (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the indemnitee is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Company (including its Board of Directors, Independent Counsel or stockholders) that the indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the indemnitee has not met the applicable standard of conduct. (C) If a determination shall have been made pursuant to Section 2(A) of this Article XIII that the indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3. (D) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3 that the procedures and presumptions of this Article XIII are not valid, binding and enforceable and shall stipulate in any 10-30-90 BY-LAWS 32 - ------------------------------------------------------------------------------- such court or before any such arbitrator that the Company is bound by all the provisions of this Article XIII. Section 4. The right to indemnification and the payment of expenses incurred in connection with a proceeding in advance of its final disposition conferred in this Article XIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise. Section 5. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Company maintains any policy or policies providing such insurance, each such director, officer or employee, and each such agent to which rights to indemnification have been granted as provided in Section 6 of this Article XIII, shall be covered by such policy or policies in accordance with its or their terms to the 10-30-90 33 BY-LAWS - ------------------------------------------------------------------------------- maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 6. The Company may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Company the expenses incurred in connection with any proceeding in advance of its final disposition, to any agent of the Company to the fullest extent of the provisions of this Article XIII with respect to the indemnification and advancement of expenses of directors, officers and employees of the Company. Section 7. If any provision or provisions of this Article XIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (A) the validity, legality and enforceability of the remaining provisions of this Article XIII (including without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (B) to the fullest extent possible, the provisions of this Article XIII (including, without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable) shall be 10-30-90 BY-LAWS 34 - ------------------------------------------------------------------------------- construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 8. For purposes of this Article XIII: (A) "Disinterested Director" means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the indemnitee. (B) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (1) the Company or the indemnitee in any matter material to either such party, or (2) any other party to the matter giving rise to a claim for indemnification. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the indemnitee in an action to determine the indemnitee's rights under this Article XIII. Section 9. Any notice, request or other communication required or permitted to be given to the Company under this Article XIII shall be in writing and either 10-30-90 35 BY-LAWS - ------------------------------------------------------------------------------- delivered in person or sent by telecopy, telex, telegram or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Company and shall be effective only upon receipt by the Secretary. EX-4.A.1 6 EXHIBIT 4A1 EXHIBIT 4a1 THIRD SUPPLEMENTAL INDENTURE dated as of May 28, 1997 between AMERICAN BRANDS, INC., a Delaware corporation (hereinafter called the "Company") having its principal office at 1700 East Putnam Avenue, Old Greenwich, Connecticut 06870, and THE CHASE MANHATTAN BANK, a New York banking corporation (formerly known as Chemical Bank, as successor by merger to Manufacturers Hanover Trust Company), as trustee (hereinafter called the "Trustee") having its principal corporate trust office in the Borough of Manhattan, The City of New York. WHEREAS, the Company and the Trustee have entered into an Indenture dated as of July 15, 1988, a First Supplemental Indenture dated as of November 14, 1990 and a Second Supplemental Indenture dated as of September 1, 1991, which Indenture, as amended by such First Supplemental Indenture and such Second Supplemental Indenture (hereinafter collectively, the "Indenture"), provides for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of the Company in one or more series (hereinafter called the "Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms thereof; and WHEREAS, Section 9.02 of the Indenture provides that with the consent of the Holders (as defined in Section 1.01 thereof) of not less than a majority in principal amount of the Outstanding Securities (as defined in Section 1.01 of the Indenture) of each series affected thereby (or such greater percentage in such principal amount as may be specified with respect to the Securities of such series pursuant to Section 3.01 of the Indenture), by Act (as defined in Section 1.01 of the Indenture) of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution (as defined in Section 1.01 of the Indenture), and the Trustee may enter into an indenture or indentures supplemental thereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the Holders of Securities of such series under the Indenture, subject to certain conditions; and WHEREAS, the Company has requested the Trustee to enter into this Third Supplemental Indenture; and WHEREAS, the Company desires to (i) amend Sections 1.01, 8.01 and 8.02 of the Indenture and (ii) add a Section 8.04 to the Indenture; and WHEREAS, all things necessary to make this Third Supplemental Indenture a valid indenture supplemental to the Indenture have been done; NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises, it is hereby mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I AMENDMENT OF THE INDENTURE A. Definitions. (1) The following definition shall be added to Section 1.01 of the Indenture immediately following the definition of the term "Depositary" set forth therein: "'Distribution Agreement' means the Distribution Agreement dated as of May 8, 1997 among the Company, ATIC Group, Inc., Gallaher Group Limited and Gallaher Limited, as the same may be amended, modified or supplemented from time to time." (2) The following definition shall be added to Section 1.01 of the Indenture immediately following the definition of the term "Exchange Date" set forth therein: "'Excluded Conveyance' means any transaction described in the Distribution Agreement." B. Company May Consolidate, etc., Only on Certain Terms. Section 8.01 of the Indenture shall be deleted in its entirety and replaced with the following: "The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless (1) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest, if any, on all Securities of all series and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; provided, however, that any Person that acquires such properties and assets in an Excluded Conveyance shall not be required to assume any payment on the Securities or performance or observance of any covenants or conditions of this Indenture; (2) immediately after giving effect to such transaction, no Event of Default in respect of the Securities of any series, and no event which, after notice or lapse of time, or both, would become an Event of Default in respect of the Securities of any series, shall have happened and be continuing; provided, however, that an Excluded Conveyance shall not result in an Event of Default, or an event which, after notice or lapse of time, or both, would become an Event of Default, in respect of the Securities of any series; (3) with respect to Securities of any series that, in connection with their original issuance, were offered for sale outside the United States, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall have agreed, by an indenture supplemental hereto, to indemnify the individuals liable therefor for the amount of United States federal estate tax attributable to or paid in respect of any such Securities includable in the gross estate of an individual who is not a citizen or resident of the United States at the time of death; provided, however, that any Person that acquires such properties and assets in an Excluded Conveyance shall not be required to indemnify any individual liable therefor for the amount of United States federal estate tax attributable to or paid in respect of any such Securities includable in the gross estate of an individual who is not a citizen or resident of the United States at the time of death; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such indenture supplemental hereto comply with the Article and that all conditions precedent herein provided for relating to such transaction have been complied with." C. Successor Corporation Substituted. Section 8.02 of the Indenture shall be deleted in its entirety and replaced with the following: "Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance or transfer (other than an Excluded Conveyance) is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. In the event of any such conveyance or transfer (other than a transfer by way of lease) the predecessor company shall be discharged from all obligations and covenants under this Indenture, the Securities and any Coupons and may be liquidated and dissolved." D. Permitted Dispositions. The following Section 8.04 shall be added to the Indenture immediately following Section 8.03 thereof: "Section 8.04. Permitted Dispositions. Notwithstanding anything in this Indenture to the contrary, nothing contained in this Indenture or in any of the Securities shall be deemed to prevent, or place any restrictions or conditions on, the consummation by the Company or any of its Subsidiaries of any of the transactions described in the Distribution Agreement. Without limiting the generality of the foregoing, the Company may sell, lease, transfer or otherwise dispose of any of its property or assets in connection with the transactions described in the Distribution Agreement and the corporation or corporations or other person or persons to which such sale, lease transfer or other disposition is made shall not be required to assume any obligations under this Indenture or under the Securities." ARTICLE II MISCELLANEOUS A. Effectiveness. Notwithstanding anything contained in this Third Supplemental Indenture to the contrary, none of the provisions of Article I hereof will become effective or be of any force or effect until the Effective Date (as defined below) has occurred. B. Effective Date. For purposes of this Third Supplemental Indenture, the "Effective Date" means the date on which the later of the following events occurs: (i) this Third Supplemental Indenture has been duly executed and delivered by the parties hereto and (ii) the Distribution, as defined in the Distribution Agreement, shall have occurred or be simultaneously occurring. C. Execution of Third Supplemental Indenture. This Third Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture and, as provided in the Indenture, this Third Supplemental Indenture forms a part thereof. The Indenture, as supplemented and amended by this Third Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed. Except as herein expressly otherwise defined, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Indenture. D. Responsibility for Recitals, etc. The recitals herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representations as to the validity or sufficiency of this Third Supplemental Indenture. E. Provisions Binding on Company's Successors. All the covenants and agreements in this Third Supplemental Indenture by the Company shall bind its successors and assigns whether so expressed or not. F. Governing Law. This Third Supplemental Indenture shall be governed and construed in accordance with the laws governing the Indenture and its construction. G. Execution and Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first above written. AMERICAN BRANDS, INC. [CORPORATE SEAL] By D.L. Bauerlein, Jr. --------------------------- D.L. Bauerlein, Jr. Senior Vice President and and Chief Financial Officer Attest: Louis F. Fernous, Jr. - ---------------------------- Louis F. Fernous, Jr. Vice President and Secretary THE CHASE MANHATTAN BANK, Trustee [CORPORATE SEAL] By W.B. Dodge ------------------------- Name: W.B. Dodge Title: Vice President Attest: Wanda Eiland - ---------------------------- Name: Wanda Eiland Title: Trust Officer STATE OF CONNECTICUT ) : ss.: Old Greenwich, CT - 5/28/97 COUNTY OF FAIRFIELD ) On this 28th day of May, 1997, before me personally came D.L. BAUERLEIN, JR., to me known, who, being by me duly sworn, did depose and say that he resides at 26 Greenlea Lane, Weston, Connecticut; that he is the Senior Vice President and Chief Financial Officer of AMERICAN BRANDS, INC., one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. Dianne L. Ebner ------------------------------ Notary Public STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On this 28th day of May, 1997, before me personally came W.B. DODGE, to me known, who, being by me duly sworn, did depose and say that he resides at 3582 Kenora Place, Seaford, N.Y. 11783; that he is the Vice President of THE CHASE MANHATTAN BANK, one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. Emily Fayan ------------------------------ Notary Public EX-10.A.1 7 EXHIBIT 10A1 EXHIBIT 10a1 FORTUNE BRANDS, INC. ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN ARTICLE I GENERAL SECTION 1.1 Purpose. The purpose of this Annual Executive Incentive Compensation Plan (the "Plan") is to advance the interests of the stockholders of Fortune Brands, Inc. (the "Company") by providing performance-based incentives to senior executives of the Company. SECTION 1.2 Definitions. As used in the Plan, the following terms shall have the following meanings: (a) "Award" means, for each Participant, a specific dollar amount payable as determined by the Committee pursuant to Section 2.2 of the Plan after application of the Committee's discretion pursuant to Section 2.4(b) of the Plan; (b) "Board of Directors" means the Board of Directors of the Company; (c) "Code" means the Internal Revenue Code of 1986, as amended; (d) "Committee" means the Compensation and Stock Option Committee of the Board of Directors; (e) "Incentive Pool" means, with respect to each Performance Period, the total amount of dollars available to be paid to all Participants. This amount shall be based on an objective formula established by the Committee in accordance with Section 2.2 of the Plan using one or more of the Performance Measures. It shall be allocated among the Participants in the manner determined by the Committee in accordance with the Plan; (f) "Participants" means, with respect to each Performance Period, the group of all persons elected to the office of Vice President of the Company or any office senior thereto except any officer covered by an annual incentive compensation plan of any subsidiary of the Company. A person who during part of such Performance Period has held such office shall participate on a proportional basis reflecting the portion of the Performance Period during which he or she has held such office; (g) "Performance Measures" means performance goals and objectives, which shall be based on any of the following performance criteria, either alone or in any combination, as the Committee may determine: cash flow; cash flow from operations; earnings per Common share; earnings per Common share from continuing operations; income before income taxes; income before income taxes, depreciation and amortization; income from continuing operations; net asset turnover; net income; operating income; operating margin; return on equity; return on net assets; return on total assets; return on total capital; sales; economic value added; and total return to stockholders. For any Performance Period, Performance Measures may be determined on an absolute basis or relative to internal goals or relative to levels attained in years prior to such Performance Period or related to other companies. For any Performance Period, the Committee shall provide whether and how the Performance Measures shall be adjusted in the event of any or all of the following items: extraordinary, unusual or non-recurring items; effects of changes in applicable laws, regulations or accounting principles; effects of currency fluctuations; effects of financing activities (e.g., effect on earnings per share of issuance of convertible debt securities); realized or unrealized gains and losses on securities; expenses, charges or credits for restructuring initiatives, productivity initiatives or for impaired assets; non-cash items (e.g., amortization, depreciation or reserves); other non-operating items; writedowns of intangible assets, property, plant or equipment, investments in business units and securities resulting from the sale of business units; spending for acquisitions; and effects of any recapitalization, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-off, combination, liquidation, dissolution, sale of assets, or other similar corporate transaction or event; and (h) "Performance Period" means each consecutive twelve-month period commencing January 1 of each year. SECTION 1.3 Administration of the Plan. The Plan shall be administered by the Committee; provided, however, that (i) the number of directors on the Committee shall not be less than two and (ii) each member of the Committee shall be an "outside director" within the meaning of Section 162(m)(4) of the Code. The Committee may adopt its own rules of procedure, and the action of a majority of the Committee, taken at a meeting, or taken without a meeting by unanimous written consent of the members of the Committee, shall constitute action by the Committee. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules. ARTICLE II AWARDS SECTION 2.1 Awards. The Committee may make Awards to Participants with respect to each Performance Period, subject to the terms and conditions set forth in the Plan. SECTION 2.2 Terms of Awards. Within 90 days after the commencement of each Performance Period (or prior to such later date as permitted by, or such earlier date as required by, Section 162(m) of the Code and the regulations promulgated thereunder), the Committee shall establish in writing for such Performance Period (i) the objective formula for determining the Incentive Pool for the Performance Period (using one or more of the Performance Measures) and (ii) the allocable percentage of the total Incentive Pool to which each Participant shall be entitled, provided that the total of all such percentages for all Participants for any Performance Period shall not exceed 100 percent. The Committee shall cause each Participant to be notified in writing of (i) his or her selection as a Participant and (ii) the formula for determining the Incentive Pool for the Performance Period. SECTION 2.3 Limitations on Awards. The maximum amount of an Award to any Participant for any Performance Period shall not exceed $2.5 million. No part of the amount of any Incentive Pool for any Performance Period which is not awarded in such Performance Period may be carried forward for award in subsequent Performance Periods. SECTION 2.4 Determination of Awards. (a) The Committee shall, promptly after the date on which all necessary financial or other information for a particular Performance Period becomes available, in the manner required by Section 162(m) of the Code, certify (i) the degree to which each of the Performance Measures has been attained and (ii) with respect to each Participant, the amount of the Participant's Award, if any. (b) Notwithstanding anything in the Plan to the contrary, the Committee may, in its sole discretion reduce or eliminate, but may not increase, any Award. In exercising its discretion, the Committee may use such objective or subjective factors as it determines to be appropriate in its sole discretion. The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. No part of any potential Award for any Performance Period which is not actually awarded to a Participant because of any reduction permitted by this Section 2.4(b) or required by Section 2.3 shall be available for award to any other Participant whose actual compensation for such period is subject to Section 162(m) of the Code. (c) After the end of each Performance Period when the amount of each Participant's Award has been determined, the Committee shall cause each Participant to be provided with written notice of the amount of his or her Award, if any. Awards shall become payable in cash as promptly as practicable after the certifications described in this Section 2.4 have been made by the Committee. SECTION 2.5 Deferral of Payment of Awards. Notwithstanding Section 2.4(c), the Committee may, in its sole discretion, upon the request of a Participant, determine that the payment of an Award (or a portion thereof) to the Participant shall be deferred and when such deferred Award shall be paid and over what period of time. The Committee shall have discretion to provide for the payment of an amount equivalent to interest, at such rate or rates fixed by the Committee or based on one or more predetermined investments selected by the Committee, on any such deferred Award. ARTICLE III MISCELLANEOUS SECTION 3.1 Restriction on Transfer. The rights of a Participant with respect to amounts payable under the Plan shall not be transferable by such Participant, otherwise than by will or the laws of descent and distribution. SECTION 3.2 Tax Withholding. The Company shall have the right to deduct from all payments made under the Plan to a Participant or to a Participant's beneficiary or beneficiaries any Federal, state or local taxes required by law to be withheld with respect to such payments. SECTION 3.3 Source of Payments. The Company shall not have any obligation to establish any separate fund or trust or other segregation of assets to provide for payments under the Plan. To the extent any person acquires any rights to receive payments hereunder from the Company, such rights shall be no greater than those of an unsecured creditor. SECTION 3.4 Employment Rights and Other Benefit Programs. The provisions of the Plan shall not give any Participant any right to be retained in the employment of the Company. In the absence of any specific agreement to the contrary, the Plan shall not affect any right of the Company, or of any affiliate of the Company, to terminate, with or without cause, any Participant's employment at any time. The Plan shall not replace any contract of employment between the Company and any Participant, but shall be considered a supplement thereto. The Plan is in addition to, and not in lieu of, any other employee benefit plan or program in which any Participant may be or become eligible to participate by reason of employment with the Company. SECTION 3.5 Amendment and Termination. The Board of Directors may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part. No termination or amendment of the Plan may, without the consent of the Participant to whom an Award has been determined for a completed Performance Period but not yet paid, adversely affect the rights of such Participant in such Award, nor shall any amendment increase the amount payable to a Participant for a Performance Period if such amendment is made after the final day of the period for establishing the objective formula for determining the Incentive Pool for the Performance Period set forth in Section 2.2 of the Plan. SECTION 3.6 Governing Law. The Plan and all rights and Awards hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. SECTION 3.7 Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan, such provision shall be stricken as to such jurisdiction, and the remainder of the Plan shall remain in full force and effect. SECTION 3.8 Effective Date. The Plan shall be effective as of January 1, 1997, subject to the approval thereof by the stockholders of the Company at the 1997 annual meeting of stockholders. Such approval shall meet the requirements of Section 162(m) of the Code and the regulations thereunder. If such approval is not obtained, then the Plan shall not be effective and any formula for determining the Incentive Pool for any Performance Period, any percentage thereof to which any person otherwise may be entitled and any notice given pursuant to Section 2.2 of the Plan shall be void ab initio. EX-10.B.1 8 EXHIBIT 10B1 EXHIBIT 10b1 AMERICAN BRANDS, INC.* Non-Employee Director Stock Option Plan 1. Purpose of Plan The purpose of this Non-Employee Director Stock Option Plan (the "Plan") is to enable American Brands, Inc. ("American") to attract and retain Eligible Directors (as defined below) of outstanding ability by making it possible to offer them the opportunity to acquire shares of common stock of American and thereby further align their interests with those of other stockholders of American. 2. Definitions As used in the Plan, the following words shall have the following meanings: (a) "Board of Directors" means the Board of Directors of American; (b) "Committee" means the Nominating and Corporate Governance Committee of the Board of Directors; (c) "Common Stock" means common stock of American; (d) "Eligible Director" means: (i) A person who becomes a member of the Board of Directors, after the date of adoption of this Plan by the stockholders of American and is not at the time of receipt of an Option hereunder a full-time employee of American or a Subsidiary; or (ii) Any current director of American who is not a full-time employee of American or a Subsidiary who irrevocably elects to cease to accrue benefits under American's retirement benefit plan for non-employee directors for so long as the Company maintains this Plan or a successor plan hereto; or (iii) Any current or future director of American who ceases to serve as an employee of American or a Subsidiary and to whom the Committee determines in its sole discretion to grant options. (e) "Exchange Act" means the Securities Exchange Act of 1934, as amended; (f) "Limited Right" means a right to receive cash in lieu of the exercise of an Option as set forth in Section 7(b); (g) "Option" means a stock option to purchase shares of Common Stock which is intended not to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code; (h) "Option Agreement" means an agreement between American and a Participant that sets forth the terms, conditions and limitations applicable to an Option; (i) "Participant" means a person to whom one or more Options have been granted that have not all been forfeited or terminated under the Plan; (j) "Retirement" means retirement from service as a member of the Board of Directors by an Eligible Director after five or more years of service as an Eligible Director; and (k) "Subsidiary" means any corporation other than American in an unbroken chain of corporations beginning with American if each of the corporations other than the last corporation in the unbroken chain owns 50% or more of the voting stock in one of the other corporations in such chain. * References to American Brands, Inc. or American shall mean Fortune Brands, Inc. or Fortune, as the case may be, in the event that the stockholders of American Brands, Inc. approve changing the name of American Brands, Inc. to Fortune Brands, Inc. 3. Administration of Plan The Plan shall be administered by the Committee whose members shall be appointed by the Board of Directors and consisting of at least two members of the Board of Directors. Members of the Committee shall qualify to administer the Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section 16(b) of the Exchange Act. The Committee may adopt its own rules of procedure, and the action of a majority of the Committee, taken at a meeting, or taken without a meeting by unanimous written consent of the members of the Committee, shall constitute action by the Committee. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules. 4. Granting of Options Subject to all the terms and conditions of the Plan, each Eligible Director shall be granted an Option covering 2,000 shares of Common Stock per year for services as a non-employee director during such year, such grant to be made on the date of the Annual Meeting of stockholders of American during such year. To be entitled to receive such Option with respect to any year, an Eligible Director must be serving as a director of American immediately following such Annual Meeting. Notwithstanding the foregoing, if at the scheduled time of grant, the General Counsel of American determines, in such Counsel's sole determination, that American is in possession of material, undisclosed information about American, then the annual grant of Options hereunder shall be suspended until the second day after (a) public dissemination of such information or (b) the day in such General Counsel's sole determination the information is no longer material, and the exercise price, exercisability date and term of option shall be determined by reference to such later date. Options under the Plan may be in such form and contain such terms, conditions and limitations as the Committee may determine. The terms, conditions and limitations of each Option under the Plan shall be set forth in an Option Agreement, in a form approved by the Committee, consistent, however, with the terms of the Plan. 5. Grant of Options (a) The terms and conditions with respect to each Option granted under the Plan shall be consistent with the following: (i) The Option price per share shall not be less than fair market value at the time the Option is granted. (ii) Exercise of the Option shall be conditioned upon the Participant named therein having remained as an Eligible Director of American for at least one year after the date of the grant of the Option; provided, however, that this condition shall not be applicable in the event of the death of the Participant or as otherwise provided in Section 7(b). The Option shall be exercisable in whole or in part from time to time during the period beginning at the completion of the required time stated in the Option Agreement and ending at the expiration of ten years from the date of grant of the Option, unless an earlier expiration date shall be stated in the Option or the Option shall cease to be exercisable pursuant to Section 5(a)(iv) or because of the exercise of the Limited Right pertaining thereto as provided in Section 7(b). (iii) Payment in full of the Option price shall be made upon exercise of each Option and may be made in cash, by the delivery of shares of Common Stock with a fair market value equal to the Option price, provided the Participant has held such shares for a period of at least one year, or by a combination of cash and such shares that have been held by the Participant for a period of at least one year whose fair market value together with such cash shall equal the Option price. The Committee may also permit Participants, either on a selective or aggregate basis, simultaneously to exercise Options and sell the shares of Common Stock thereby acquired pursuant to a brokerage or similar arrangement, approved in advance by the Committee, and use the proceeds from such sale as payment of the purchase price of such shares. (iv) If a Participant's status as an Eligible Director ceases other than by reason of the Participant's death, disability or Retirement, the Participant's Option shall terminate and cease to be exercisable 30 days after such cessation of service except as otherwise provided in Section 7(b). If a Participant's status as an Eligible Director terminates by reason of death, disability or Retirement, the Participant's Option shall continue to be exercisable until the expiration date stated in the Option Agreement, provided that an Option may be exercised within one year from the date of death even if later than such expiration date. (v) Each Option shall contain a Limited Right to receive cash in lieu of shares under the circumstances set forth in Section 7(b). (b) The holder of an Option who decides to exercise the Option in whole or in part shall give notice to the Secretary of American of such exercise in writing on a form approved by the Committee. Any exercise shall be effective as of the date specified in the notice of exercise, but not earlier than the date the notice of exercise, together with payment in full of the Option price, is actually received and in the hands of the Secretary of American. 6. Limitations and Conditions (a) The total number of shares of Common Stock that may be made subject to Options under the Plan is 125,000 shares. Such total number of shares may consist, in whole or in part, of unissued shares or reacquired shares. The foregoing number of shares may be increased or decreased by the events set forth in Section 7(a). In the event that American or a Subsidiary makes an acquisition or is a party to a merger or consolidation and American assumes the options or other awards consistent with the purpose of this Plan of the company acquired, merged or consolidated which are administered pursuant to this Plan, shares of Common Stock subject to the assumed options or other awards shall not count as part of the total number of shares of Common Stock that may be made subject to Options under this Plan. (b) Any shares that have been made subject to an Option that cease to be subject to the Option (other than by reason of exercise or payment of the Option) shall again be available for grant and shall not be considered as having been theretofore made subject to option. (c) No Option shall be granted under the Plan after December 31, 2001, but the terms of Options granted on or before the expiration thereof may extend beyond such expiration. At the time an Option is granted or amended or the terms or conditions of an Option are changed, the Committee may provide for limitations or conditions on such Option. (d) No Option or portion thereof shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution, except that an Option may be transferred by gift to any member of the Participant's immediate family or to a trust for the benefit of such immediate family members, if permitted in the applicable Option Agreement. During the lifetime of the Participant, an Option shall be exercisable only by the Participant unless it has been transferred to a member of the Participant's immediate family or to a trust for the benefit of such immediate family members, in which case it shall be exercisable only by such transferee. For the purpose of this provision, a Participant's "immediate family" shall mean the Participant's spouse, children and grandchildren. (e) No person who receives an Option under the Plan shall have any rights of a stockholder as to shares under option until, after proper exercise of the Option, such shares have been recorded on American's official stockholder records as having been issued or transferred. (f) American shall not be obligated to deliver any shares until they have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which outstanding shares of such class at the time are listed nor until there has been compliance with such laws or regulations as American may deem applicable. American shall use its best efforts to effect such listing and compliance. No fractional shares shall be delivered. (g) Nothing herein shall be deemed to create the right in any Eligible Director to remain a member of the Board of Directors, to be nominated for reelection or to be reelected as such or, after claiming to be such a member, to receive any Options under the Plan to which he or she is not already entitled with respect to any year. 7. Stock Adjustments, Change in Control and Divestitures (a) In the event of any merger, consolidation, stock or other non-cash dividend, extraordinary cash dividend, split-up, spin-off, combination or exchange of shares, reorganization or recapitalization or change in capitalization, or any other similar corporate event, the Committee may make such adjustments in (i) the aggregate number of shares subject to the Plan and (ii) the number and kind of shares that are subject to any Option (including any Option outstanding after cessation of director status) and the Option price per share without any change in the aggregate Option price to be paid therefor upon exercise of the Option; provided, however, no adjustment to any Option granted hereunder shall be made in the event American spins-off to its stockholders the international tobacco operations of Gallaher Limited and its subsidiaries except that adjustments may be made to any Options granted prior to such spin-off. The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. (b) (i) In the event of a Change in Control (as defined in Section 7(b)(iii)), then each Option held by a Participant that is not then exercisable shall become immediately exercisable and shall remain exercisable as provided in Section 5 notwithstanding anything to the contrary in the first sentence of Section 5(a)(ii). In addition, unless the Committee otherwise determines at the time of grant or at any time thereafter but prior to such Change in Control, each Limited Right outstanding at the time of such Change in Control shall be deemed to be automatically exercised as of the date of such Change in Control or as of such other date during the 60-day period beginning on the date of such Change in Control as the Committee may determine prior to such Change in Control. In the event that the Limited Right is not automatically exercised, the Participant may during the 60-day period beginning on the date of the Change in Control (such 60 day period being herein referred to as the "Limited Right Exercise Period"), in lieu of exercising such Option in whole or in part, exercise the Limited Right (or part thereof) pertaining to such Option. Such Participant, whether the exercise is pursuant to his election or automatic pursuant to the terms hereof, shall be entitled to receive in cash an amount determined by multiplying the number of shares subject to such Option (or part thereof) by the amount by which the exercise price of each share is exceeded by the greater of (x) the highest purchase price per share paid for the shares of American beneficially acquired in the transaction or series of transactions resulting in the Change in Control by the person or persons deemed to have acquired control pursuant to the Change in Control and (y) the highest fair market value of shares of Common Stock during the Limited Right Exercise Period prior to the time of exercise. A Limited Right shall be exercised in whole or in part by giving written notice of such exercise on a form approved by the Committee to the Secretary of American, except that no such written notice shall be required in the event such Limited Right is automatically exercised pursuant to the terms hereof. The exercise shall be effective as of the date specified in the notice of exercise, but not earlier than the date the notice of exercise is actually received and in the hands of the Secretary of American. In the event the last day of a Limited Right Exercise Period shall fall on a day that is not a business day, then the last day thereof shall be deemed to be the next following business day. To the extent an Option is exercised in whole or in part, the Limited Right in respect of such Option shall terminate and cease to be exercisable. To the extent a Limited Right is exercised in whole or in part, the Option (or part thereof) to which such Limited Right pertains shall terminate and cease to be exercisable. (ii) Notwithstanding anything to the contrary in the first sentence of Section 5(a)(ii) or in 5(a)(iv), the provisions of this Section 7(b)(ii) will be applicable in the event of a termination of a Participant's status of a member of the Board of Directors on or after a Change in Control and prior to the expiration of the Limited Right Exercise Period applicable thereto. No Option or Limited Right held by a Participant shall terminate or cease to be exercisable as a result of his termination as a member of the Board of Directors on or after a Change in Control and prior to the expiration of the Limited Right Exercise Period applicable thereto, but shall be exercisable throughout the Limited Right Exercise Period applicable thereto; provided, however, that in no event shall any Option be exercisable after ten years from its date of grant (except in the event of death as provided in Section 5(a)(iv)). (iii) A "Change in Control" shall be deemed to have occurred if (A) any person (as that term is used in Sections 13(d) and 14(d) of the Exchange Act, as in effect on January 28, 1997) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, as in effect on January 28, 1997) of stock of American entitled to cast more than 20% of the votes at the time entitled to be cast generally for the election of directors, (B) more than 50% of the members of the Board of Directors shall not be Continuing Directors (which term, as used herein, means the directors of American (x) who are members of the Board of Directors on January 28, 1997 or (y) who subsequently became directors of American and who were elected or designated to be candidates for election as nominees of the Board of Directors, or whose election or nomination for election by American's stockholders was otherwise approved, by a vote of a majority of the Continuing Directors then on the Board of Directors), (C) American shall be merged or consolidated with, or, in any transaction or series of transactions, substantially all of the business or assets of American shall be sold or otherwise acquired by, another corporation or entity and, as a result thereof, either (1) the stockholders of American immediately prior thereto shall not directly or indirectly have at least 50% or more of the combined voting power of the surviving, resulting or transferee corporation or entity immediately thereafter or (2) any person (as that term is used in Sections 13(d) and 14(d) of the Exchange Act, as in effect on January 28, 1997) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, as in effect on January 28, 1997) of more than 20% of combined voting power of the surviving, resulting or transferee corporation or entity, or (D) any change in control of American shall have occurred of a nature that would be required to be reported in response to Item 1(a) of Form 8-K promulgated under the Exchange Act as in effect on January 28, 1997, regardless of whether American is at the time of such change in control subject to the reporting requirement thereof. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred if an acquisition of stock that would otherwise constitute a Change in Control pursuant to clause (A) or (D) of the preceding sentence is made by American or a Subsidiary, by any corporation in a merger or consolidation that does not constitute a Change in Control pursuant to clause (C) of the preceding sentence or by any employee benefit plan (or related trust) sponsored or maintained by American or a Subsidiary. 8. Amendment and Termination (a) The Board of Directors shall have the power to amend the Plan. It shall not, however, except as otherwise provided in the Plan, increase the maximum number of shares authorized for the Plan, nor change the class of eligible recipients to other than Eligible Directors, nor reduce the basis upon which the minimum Option price is determined, nor extend the period within which Options under the Plan may be granted, nor provide for an Option that is exercisable more than ten years from the date it is granted except in the event of death. It shall have no power to change the terms of any Option theretofore granted under the Plan so as to impair the rights of a Participant without the consent of the Participant whose rights would be affected by such change except to the extent, if any, provided in the Plan or in the Option. (b) The Board of Directors may suspend or terminate the Plan at any time. No such suspension or termination shall affect Options or Limited Rights then in effect. 9. Foreign Options (a) The Committee may grant Options to Eligible Directors who are subject to the tax laws of nations other than the United States, which Options may have terms and conditions that differ from the terms thereof as provided elsewhere in the Plan for the purpose of complying with the foreign tax laws. (b) The terms and conditions of Options granted under Section 9(a) may differ from the terms and conditions which the Plan would require to be imposed upon Options if the Committee determines that the grants are desirable to promote the purposes of the Plan for the Eligible Directors identified in Section 9(a); provided that the Committee may not grant such Options that do not comply with the limitations of Section 8(a). 10. Withholding Taxes American shall have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of American to deliver shares upon the exercise of an Option, that the Participant pay to American such amount as may be requested by American for the purpose of satisfying any liability for such withholding taxes. Any Option Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Option Agreement, to pay any withholding taxes in shares of Common Stock. 11. Effective Date The Plan shall be subject to and effective upon its approval by the stockholders of American. EX-10.C.1 9 EXHIBIT 10C1 Exhibit 10c1 AMENDMENT TO TRUST AGREEMENT THIS AMENDMENT, made as of the 1st day of January, 1997, among GILBERT L. KLEMANN, II (the "Executive"), AMERICAN BRANDS, INC., a Delaware corporation (the "Company") and THE CHASE MANHATTAN BANK, a New York banking corporation (the "Trustee") W I T N E S S E T H : WHEREAS, the Executive, the Company and the Trustee are parties to a Trust Agreement (the "Trust Agreement") for the purpose of establishing a trust in order to provide a source of benefits under the terms of the Company's Supplemental Plan (the "Plan") for the benefit of the Executive; and WHEREAS, the parties desire to amend the Trust Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises, the parties agree that the Trust Agreement is hereby amended as follows: 1. Section 1.2 is hereby amended by changing clause (ii) thereof as follows: "(ii) the amounts of any actual withdrawals from the Fund or from the Executive's Segregated Account by the Executive as provided in Section 2.4 plus the income which would have been earned on such withdrawn amounts from the time of withdrawal to the time of the Executive's termination of employment, assuming earnings at an interest rate equal to the after-tax equivalent of the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of Qualifying Employment and the prior five months. For any Executive who terminates employment between May 1 and December 31, 1997, however, the interest rate used shall be whichever of the following results in the greater benefit: (i) 120% of the applicable monthly immediate annuity purchase rate which would be used by the Pension Benefit Guaranty Corporation for the month of termination of employment for the purpose of determining the present value of a single sum distribution on plan termination, (ii) 120% of the average of the applicable monthly annuity purchase rates which would be used by the Pension Benefit Guaranty Corporation for the month of termination of employment and the prior five months and (iii) the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of employment and the prior five months." 2. Section 4.2 is hereby amended in its entirety as follows: "The Trustee is hereby appointed as the investment manager of the Fund. In the event that the Trustee cannot serve as investment manager of the Fund, the Trustee shall then select Pacific Investment Management Company as investment manager; provided that if Pacific Investment Management Company is unwilling or unable to act as investment manager, the Trustee shall select J.P. Morgan Investment Management Inc. as investment manager. The investment manager shall invest the assets of the Fund separately as to amounts representing the Executive's supplemental retirement benefit under the Plan and amounts representing the Executive's supplemental profit-sharing benefit. Supplemental retirement benefit amounts shall be invested solely in the Vista Select Bond Fund to the extent practicable and otherwise in the Chase Manhattan Personal Trust Market Rate Account. As soon as practicable after the Executive's 60th birthday, at the direction of the Company, the investment manager shall cause one-half of the amounts held in the Vista Select Bond Fund attributable to supplemental retirement benefits, and as soon as practicable after the Executive's 63rd birthday, at the direction of the Company, the investment manager shall cause the remainder of the amounts held in the Vista Select Bond Fund attributable to supplemental retirement benefits, to be invested solely in the Chase Manhattan Personal Trust Market Rate Account, provided that supplemental retirement benefit amounts shall not be transferred from the Vista Select Bond Fund to the Chase Manhattan Personal Trust Market Rate Account after the Executive's 60th birthday or the Executive's 63rd birthday if the amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits is in a "loss position". The amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits shall be in a "loss position" on the Executive's 60th birthday if the current market value thereof at the Executive's 60th birthday is less than 95% of the actuarial present value of the Executive's supplemental retirement benefit calculated as of the end of the prior calendar year. The amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits shall be in a "loss position" on the Executive's 63rd birthday if the current market value thereof at the Executive's 63rd birthday is less than 50% of 95% of the actuarial present value of the Executive's supplemental retirement benefit calculated as of the end of the prior calendar year. The Company shall notify the Trustee promptly after the end of each calendar year of the actuarial present value of the Executive's supplemental retirement benefit. In the event that transfers cannot be made as soon as practicable after the Executive's 60th or 63rd birthday because the amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits is then in a "loss position", the amounts attributable to supplemental retirement benefits shall be transferred as soon as practicable after such Fund is no longer in such "loss position". Supplemental profit-sharing benefit amounts shall be invested in one or more of the (i) Vista Balanced Fund, (ii) Chase Manhattan Personal Trust Market Rate Account, (iii) Dodge & Cox Stock Fund, (iv) MFS Institutional Emerging Equities Fund, (v) Vanguard International Growth Portfolio or (vi) PIMCO Total Return Fund, in such portions as are elected by the Executive by written election filed with the Company and notified to the Trustee by the Company, all to the extent practicable and otherwise in the Chase Manhattan Personal Trust Market Rate Account, and all without liability of the Trustee for such election. The Executive may change such election at any time by filing a new written election with the Company, which shall promptly notify the Trustee thereof, and all without liability of the Trustee for such new election. Subject to such investment restrictions, the Trustee shall have the power and right: (a) To receive and hold all contributions made to it by the Company; (b) To participate in and use a book-entry system for the deposit and transfer of securities; (c) To sell or exchange any property held by it at public or private sale, for cash or on credit, to grant and exercise options for the purchase or exchange thereof, to exercise all conversion or subscription rights pertaining to any such property and to enter into any covenant or agreement to purchase any property in the future; (d) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by it and to consent to or oppose any such plan or any action thereunder or any contract, lease, mortgage, purchase, sale or other action by any person; (e) To deposit any property held by it with any protective, reorganization or similar committee, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof and any assessments levied with respect to any such property so deposited; (f) To extend the time of payment of any obligation held by it; (g) To hold uninvested any moneys received by it, without liability for interest thereon, until such moneys shall be invested, reinvested or disbursed; (h) To exercise all voting or other rights with respect to any property held by it and to grant proxies, discretionary or otherwise; (i) For the purposes of the Trust, to borrow money from others, including The Chase Manhattan Bank, to issue its promissory note or notes therefor, and to secure the repayment thereof by pledging any property held by it; (j) To furnish the Company and the Executive with such information as may be needed for tax or other purposes; (k) To employ suitable agents and counsel, who may be counsel to the Company or the Trustee, and to pay their reasonable expenses and compensation from the Fund to the extent not paid by the Company; (l) To cause any property held by it to be registered and held in the name of one or more nominees, with or without the addition of words indicating that such securities are held in a fiduciary capacity, and to hold securities in bearer form; (m) To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, respectively, to commence or defend suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustee shall not be required to take any such action unless it shall have been indemnified by the Company to its reasonable satisfaction against liability or expenses it might incur therefrom; (n) To organize under the laws of any state a corporation or trust for the purpose of acquiring and holding title to any property which it is authorized to acquire hereunder and to exercise with respect thereto any or all of the powers set forth herein; and (o) Generally, to do all acts, whether or not expressly authorized, that the Trustee may deem necessary or desirable for the protection of the Fund." 3. The Trust Agreement is hereby further amended to reflect the change of the Company's name so that references to "American Brands, Inc." and the "Company" shall be deemed to be references to "Fortune Brands, Inc.", subject to approval of such change of name by the Company's stockholders. IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be duly executed as of the day and year first written above. AMERICAN BRANDS, INC. Attest: By Steven C. Mendenhall ------------------------------ Steven C. Mendenhall Senior Vice President and Mark S. Lyon Chief Administrative Officer - ---------------------- THE CHASE MANHATTAN BANK Attest: By Mark J. Altschuler ------------------------------ Mark J. Altschuler Vice President Scott P. Callahan - ---------------------- I hereby consent to the foregoing AMENDMENT. Witness: Dianne J. Ebner Gilbert L. Klemann, II - ---------------------- ------------------------------ GILBERT L. KLEMANN, II STATE OF CONNECTICUT ) : ss.: Old Greenwich, CT- July 7, 1997 COUNTY OF FAIRFIELD ) Personally appeared STEVEN C. MENDENHALL, Senior Vice President and Chief Administrative Officer of AMERICAN BRANDS, INC., signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such Senior Vice President and Chief Administrative Officer and the free act and deed of said Corporation, before me. Lenora Rowser ----------------------- Notary Public STATE OF NEW YORK ) : ss.: New York, NY- July 14, 1997 COUNTY OF NEW YORK ) Personally appeared MARK J. ALTSCHULER, Vice President of THE CHASE MANHATTAN BANK, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such Vice President and the free act and deed of said Company, before me. Shavon S. Sharp ----------------------- Notary Public STATE OF CONNECTICUT ) : ss.: Old Greenwich, CT- July 7, 1997 COUNTY OF FAIRFIELD ) Personally appeared GILBERT L. KLEMANN, II, signer of the foregoing instrument, and acknowledged the same to be his free act and deed, before me. Lenora Rowser ----------------------- Notary Public EX-10.C.2 10 EXHIBIT 10C2 EXHIBIT 10c2 Schedule identifying substantially identical agreements, among American Brands, Inc. and The Chase Manhattan Bank (National Association), et al. amending the grantor trust established in favor of each of the following persons, to the Amendment to Trust Agreement constituting Exhibit 10c1 to the Quarterly Report on Form 10-Q of Fortune Brands, Inc. for the quarterly period ended June 30, 1997 ------------------------------------------------------------ Name ---- Thomas C. Hays Robert J. Rukeyser Steven C. Mendenhall Dudley L. Bauerlein, Jr. Charles H. McGill Craig P. Omtvedt EX-10.D.1 11 EXHIBIT 10D1 EXHIBIT 10d1 SEVERANCE AND RETIREMENT AGREEMENT AGREEMENT dated as of February 24, 1997 between AMERICAN BRANDS, INC., a Delaware corporation (the "Company"), and THOMAS C. HAYS (the "Executive"), W I T N E S S E T H : WHEREAS, the Company and the Executive entered into a Severance Agreement dated as of March 1, 1988, as amended (the "Severance Agreement"), in order to provide severance benefits in the event of termination of employment of the Executive under certain circumstances; and WHEREAS, the Company and the Executive entered into an agreement dated as of January 1, 1995 (the "Retirement Agreement"), in order to provide certain supplemental retirement benefits as an added inducement to the Executive to remain in the employ of the Company; and WHEREAS, the Company and the Executive desire to combine the Severance Agreement and the Retirement Agreement, as set forth herein; NOW, THEREFORE, in consideration of the premises and to further assure the retention of the Executive in the employ of the Company after the date of this Agreement, the parties hereto do hereby agree as follows: Section 1. Severance Benefits. (a) If and only if during the term of this Agreement the Executive's employment with the Company is terminated by the Company other than for Disability or Cause or by the Executive for Good Reason, the Executive shall be entitled to the severance benefits as provided in this Section 1. The Executive shall not be entitled to any benefits as provided in this Section 1 in the event his employment with the Company is terminated by the Company for Disability or Cause or by the Executive other than for Good Reason. (b) If the Executive is entitled to severance benefits, then the Company shall pay to the Executive as severance pay in a lump sum on the fifth day following the Termination Date the following amounts: (i) the unpaid portion of his full base salary through the Termination Date at the rate in effect on the date hereof plus any increases therein subsequent thereto; (ii) in lieu of any further salary payments, incentive compensation awards or defined contribution plan allocations to the Executive for periods subsequent to the Termination Date, an amount equal to the product of (A) the sum of (1) his annual base salary at the rate in effect on the date hereof plus any increases therein subsequent thereto, plus (2) the greater of the amount awarded to him under the Incentive Compensation Plans for 1987 and the amount awarded to him under the Incentive Compensation Plans for the calendar year immediately preceding the year in which the Termination Date occurs, but not less than the amount the Executive would have received if the Executive had received the same percentage of the total amount available for allotment as he received for 1987, plus (3) the greater of the amount that was allocated to the Executive's account under the Defined Contribution Plan, including the Company 401(k) matching contribution thereto, the profit-sharing provisions of the Supplemental Plan, including the Company matching award related to the supplemental tax deferred amounts therein, and any other defined contribution plan of the Company or an affiliate thereof for 1987 and the amount that would have been required to be so allocated to him for the year immediately preceding the year in which the Termination Date occurs, multiplied by (B) the lesser of the number three and the number of years (and fraction thereof) from the Termination Date to the Executive's Normal Retirement Date; and (iii) all legal fees and expenses incurred by the Executive as a result of such termination (including, but not limited to, all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). (c) If the Executive is entitled to severance benefits, the Company shall maintain in full force and effect, for the Executive's continued benefit for a three-year period (or, if shorter, the period until his Normal Retirement Date) after the Termination Date, all employee life, health, accident, disability, medical and other employee welfare benefit plans, programs or arrangements in which he was participating immediately prior to the date hereof plus all improvements therein subsequent thereto, provided that his continued participation is possible under the terms and provisions of such plans, programs and arrangements. In the event that the Executive's participation in any such plan, program or arrangement is barred, the Company shall arrange to provide him with benefits substantially similar to those which he would have been entitled to receive under such plan, program or arrangement if he had remained a participant for such additional three-year period (or, if shorter, such additional period until his Normal Retirement Date) after the Termination Date. (d) If the Executive is entitled to severance benefits, the Executive shall be entitled to the following as incentive compensation through the Termination Date: (i) the unpaid portion of the amount awarded to him as incentive compensation under the Incentive Compensation Plans for the calendar year immediately preceding the year in which the Termination Date occurs, payable at the time awards thereunder are normally paid; and (ii) incentive compensation under the Incentive Compensation Plans for the calendar year in which the Termination Date occurs, payable at the time awards thereunder are normally paid, in an amount equal to the amount the Executive would have received thereunder for such period if he had been allocated a percentage of the total amount available for allotment equal to the same percentage of the total amount available for allotment as he was allocated for 1987 or, if higher, the percentage for the calendar year immediately preceding the year in which the Termination Date occurs or in which the Termination Date occurs, whichever is higher; provided that if the Termination Date occurs in 1997, the amount that the Executive would have received for the full year 1997 if the Executive had been awarded the same percentage of the total amount available for allotment as awarded to him for 1996 shall be $823,953. The incentive compensation provided by this Section 1(d) shall be prorated for the portion of the year through the Termination Date. The payments under this Section 1(d) shall be reduced by the amount actually paid to the Executive under the Incentive Compensation Plans for the calendar year in which the Termination Date occurs. (e) If the Company shall terminate the Executive's employment other than for Disability or Cause or if the Executive shall terminate his employment for Good Reason and a dispute exists concerning the termination as set forth in Section 7(n), the Company shall continue to pay the Executive's full base salary through the date the dispute is finally resolved as provided in Section 7(n). Section 2. Retirement Benefits. Upon the retirement of the Executive, the Company shall pay to or on behalf of the Executive, monthly beginning on the date payments commence under the Supplemental Plan an amount equal to the excess of (i) over (ii) below where (i) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) to which the Executive would have been entitled under the terms of the Pension Plans (without regard to any termination or amendment made subsequent to the date hereof which adversely affects in any manner the computation of the Executive's benefits) determined as if Average Actual Earnings under the Supplemental Plan were determined based on the three consecutive Plan Years of Qualifying Employment that provide the highest aggregate of Actual Earnings, divided by three, instead of five, and where (ii) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) which the Executive is paid under the terms of the Pension Plans. Section 3. Retirement Benefits in the Event of Termination of Employment Prior to Normal Retirement Date by Reason of Death or Disability, by the Company other than for Cause or by the Executive for Good Reason. If the Executive's employment is terminated by death or disability, or if the Company shall terminate the Executive's employment other than for Cause, or if the Executive shall terminate his employment for Good Reason, then in addition to the retirement benefits to which the Executive is entitled under the Pension Plans, the Company shall pay to or on behalf of the Executive, monthly beginning at the date payments commence under the Supplemental Plan an amount equal to the excess of (i) over (ii) below where (i) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) to which the Executive would have been entitled under the terms of the Pension Plans (without regard to any termination or amendment made subsequent to the date hereof which adversely affects in any manner the computation of the Executive's benefits) determined as if (x) Average Actual Earnings under the Supplemental Plan were determined based on the three consecutive Plan Years of Qualifying Employment that provide the highest aggregate of Actual Earnings, divided by three, instead of five and (y) the Executive had accumulated an additional period of Service thereunder (subsequent to his Termination Date) to his Normal Retirement Date at his rate of Actual Earnings in effect on the date hereof plus any increases subsequent thereto, and where (ii) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) which the Executive is paid under the terms of the Pension Plans. For purposes of clause (i) there shall be considered as part of the Executive's Actual Earnings for the period from the Termination Date to his Normal Retirement Date for purposes of determining his highest consecutive calendar three-year average rate of Actual Earnings the sum of (x) the Executive's annual base salary at the rate in effect on the date hereof plus any increases subsequent thereto plus (y) the amount awarded to the Executive under the Incentive Compensation Plans for the year immediately prior to the Termination Date or, if higher, for the year in which the Termination Date occurs (whether or not paid) but not less than the amount the Executive would have received for such year if the Executive had been awarded the same percentage of the total amount available for allotment for such year as the percentage awarded to him for the last year prior to the Termination Date for which an award was actually paid; provided that if the Termination Date occurs in 1997, the amount that the Executive would have received for 1997 if the Executive had been awarded the same percentage of the total amount available for allotment as awarded to him for 1996 shall be $823,953. The supplemental pension benefits determined under Sections 2 and 3 of this Agreement shall be payable by the Company to the Executive and his contingent annuitant, if any, or as a spouse's benefit to the Executive's spouse if the Executive dies prior to commencement of benefits, in the same manner and for the same period as his pension benefits under the Supplemental Plan and shall be adjusted actuarially as set forth in the Retirement Plan to reflect payment in a form other than a straight life annuity. In the event that the Corporate Employee Benefits Committee (or successor thereto) of the Company directs that the Executive's benefits under the Supplemental Plan are to be paid as a single sum, such Committee may also direct that an actuarially equivalent single sum payment be made of the retirement benefits payable under this Agreement. In the event the Company segregates assets which are intended to be a source for payment of benefits under this Agreement and the benefits are determined to be taxable to the Executive prior to actual receipt thereof, a single sum payment shall be made to the Executive in an amount sufficient to pay such taxes and any interest and penalties notwithstanding that the Executive may not then have terminated employment, which payment for taxes shall then be used as an offset to the benefits thereafter payable pursuant to this Agreement which shall also be paid in an actuarially equivalent single sum payment promptly upon termination of employment. Actuarial equivalence of a single sum payment in cash shall be determined using 120% of the applicable monthly immediate annuity purchase interest rate which would be used by the Pension Benefit Guaranty Corporation for the purposes of determining the present value of a single sum distribution on plan termination and the mortality table used at the time under the Retirement Plan for funding purposes. Section 4. Relocation Program. The Executive shall at any time be entitled to dispose of his principal residence through the Third Party Home Purchase feature of the Company's Relocation Program. The purchase price to be paid to the Executive thereunder shall be the appraised value of the residence. If the residence is subsequently sold for less than its appraised value, the Executive shall reimburse the Company for one-half of any amount in excess of $50,000 less than its appraised value. Section 5. Notice of Termination; No Mitigation; No Derogation. (a) Any termination by the Company for Disability or Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto. (b) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Termination Date or by any other compensation. (c) Subject to Section 6, this Agreement and the obligations of the Company hereunder shall not be in derogation of any other obligations of the Company not set forth herein to pay any compensation or to pay or provide any benefit to the Executive. Section 6. Other Compensation and Benefits. Notwithstanding any other provision of this Agreement, (a) any amount otherwise payable to the Executive pursuant to the agreement dated October 27, 1987 between the Company and the Executive, as amended, shall be reduced by the amount of any payments made by the Company to the Executive under Sections 1 and 3 of this Agreement, and (b) any benefits to which the Executive is entitled under the Company's severance pay program covering salaried employees generally shall be reduced by benefits paid under Section 1(b)(ii)(A)(i) and (B) of this Agreement. Section 7. Definitions. The following words shall have the following meanings in this Agreement: (a) Actual Earnings. Actual Earnings shall have the same meaning as set forth in the Retirement Plan on the date hereof or any amendment thereto which has the effect of increasing Actual Earnings. (b) Cause. Termination of employment by the Company for Cause shall be deemed to have occurred only if (i) termination shall have been the result of (A) an act or acts of dishonesty on the Executive's part constituting a felony and intended to result directly or indirectly in substantial gain or personal enrichment to him at the expense of the Company, or (B) the Executive's willful and continued failure substantially to perform his duties and responsibilities (other than any such failure resulting from his incapacity due to physical or mental illness) after a demand for substantial performance is delivered to the Executive by the Board of Directors of the Company which specifically identifies the manner in which such Board believes that the Executive has not substantially performed his duties and the Executive is given a reasonable time after such demand substantially to perform his duties, and (ii) there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the members of the Board of Directors of the Company at a meeting thereof called and held for the purpose (after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before such Board), finding that in the good faith opinion of the Board of Directors of the Company the Executive was guilty of conduct set forth above in clause (i)(A) or (i)(B) of this paragraph and specifying the particulars thereof in detail. The Executive's employment shall in no event be considered to have been terminated by the Company for Cause if the act or failure to act upon which such termination is based (x) was done or omitted to be done (1) as a result of bad judgment or negligence on his part, or (2) without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled or (3) as a result of his good faith belief that such act or failure to act was in or was not opposed to the interests of the Company, or (y) is an act or failure to act in respect of which the Executive meets the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-laws of the Company or the laws of the state of its incorporation or the directors' or officers' liability insurance of the Company, in each case as in effect at the time of such act or failure to act. (c) Defined Contribution Plan. Defined Contribution Plan means the Defined Contribution Plan of American Brands, Inc. and Participating Operating Companies. (d) Disability. Termination of employment by the Company for Disability shall be deemed to have occurred only if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties with the Company on a full-time basis for 180 consecutive days and, within 30 days after Notice of Termination is given to the Executive by the Company, the Executive shall not have returned to the full-time performance of his duties. (e) Good Reason. Termination of employment by the Executive for Good Reason shall be deemed to have occurred only if the Executive terminates his employment for any of the following reasons: (i) without the Executive's express written consent, any material reduction in the aggregate duties, responsibilities and authority assigned to him as of the date hereof, or the assignment to him of any duties, responsibilities or authority inconsistent with the duties, responsibilities and authority assigned to him as of the date hereof, or a change in his reporting responsibilities, titles, offices or other positions as in effect on the date hereof, or any removal of the Executive from, or any failure to re-elect the Executive to, any of such positions, except in connection with the termination of his employment as a result of his death or by the Company for Disability or Cause or by the Executive other than for Good Reason; (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof plus all increases therein subsequent thereto; (iii) the failure of the Company substantially to maintain and to continue the Executive's participation in the Company's benefit plans as in effect on the date hereof and with all improvements therein subsequent thereto (other than those plans or improvements that have expired thereafter in accordance with their original terms), or the taking of any action which would materially reduce the Executive's benefits under any of such plans or deprive the Executive of any material fringe benefit enjoyed by him on the date hereof or subsequently. For the purposes hereof such benefit plans shall include, but not be limited to, the Incentive Compensation Plans, the Pension Plans, the Defined Contribution Plan and the Company's Long-Term Incentive Plan; (iv) the sum of the Executive's base salary and the amount paid to the Executive as incentive compensation under the Incentive Compensation Plans for any calendar year during the term hereof is less than 90% of the sum of the Executive's base salary and the amount paid to the Executive under the Incentive Compensation Plans for 1993 or any subsequent year during the term hereof for which the sum of such amounts was greater; provided, however, that this paragraph shall not be applicable if the cause of the reduction of the sum of the Executive's base salary and incentive compensation is a failure of the Company to meet performance goals under the Incentive Compensation Plans; (v) the relocation of the Company's principal executive offices to a location more than 35 miles from their location on the date hereof or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with his business travel obligations on the date hereof; (vi) the failure of the Company to provide the Executive during each calendar year with a number of paid vacation days at least equal to the number of paid vacation days to which he was entitled at the date hereof plus any increases therein subsequent thereto; (vii) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination, and for purposes of this Agreement, no such purported termination shall be effective; or (viii) any failure of the Company to comply with and satisfy Section 8. (f) Incentive Compensation Plans. Incentive Compensation Plans means the incentive compensation provisions of Article XII of the By-laws of the Company, the Fortune Brands, Inc. Annual Executive Incentive Compensation Plan and any other plans and arrangements of the Company and its affiliates. (g) Normal Retirement Date. Normal Retirement Date means the last day of the month in which the Executive attains age 65. (h) Notice of Termination. Notice of Termination means a notice in writing which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (i) Pension Plans. Pension Plans means the Retirement Plan, the Supplemental Plan and any other program, practice or arrangement (other than this Agreement) of the Company or any present or former affiliate thereof to provide the Executive with a defined pension benefit after termination of employment and in effect on the date hereof or hereafter adopted. (j) Qualifying Employment. Qualifying Employment has the meaning set forth in the Retirement Plan on the date hereof. (k) Relocation Program. Relocation Program means the Relocation Program for Executives of American Brands, Inc. (l) Retirement Plan. Retirement Plan means the Retirement Plan for Employees and Former Employees of American Brands, Inc. (m) Service. Service has the meaning set forth in the Retirement Plan on the date hereof. (n) Supplemental Plan. Supplemental Plan means the Supplemental Plan of American Brands, Inc. (o) Termination Date. Termination Date means (i) if employment is terminated by the Company for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30-day period), (ii) if employment is terminated for Good Reason, the date specified in the Notice of Termination, (iii) if employment is terminated by the Company for Cause, the date on which a Notice of Termination is given and (iv) if employment is terminated for any other reason, the date on which the Executive ceases to perform his duties as an officer of the Company; provided, however, that if within 30 days after any Notice of Termination is given the party receiving such notice of termination notifies the other party that a dispute exists concerning the termination, the Termination Date shall be the date on which the dispute is finally determined, either by written agreement of the parties or by a final judgment, order or decree of court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided further, however, that if the dispute is resolved in favor of the Company, the Termination Date shall not be so extended but shall be the date determined under clauses (i) through (iv) of this Section 7(o). Section 8. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, and any parent company thereof, by agreement or agreements in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement, and in the case of any such parent company expressly to guarantee and agree to cause the performance of this Agreement, in the same manner and to the same extent as the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined in the first sentence of this Agreement and any successor to all or substantially all its business or assets or which otherwise becomes bound by all the terms and provisions of this Agreement, whether by the terms hereof, by operation of law or otherwise. (b) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive and, in the event of his death, his spouse or contingent annuitant, if any, and his personal or legal representatives. Section 9. Funding. The Company may, but shall not be obligated to, set aside any funds to fulfill its obligations under Section 3 of this Agreement. Benefits under Section 3 of this Agreement may also be funded in accordance with the terms of the employee grantor trust arrangement set forth in the Trust Agreement made as of November 1, 1993 among the Executive, the Company and The Chase Manhattan Bank (National Association) or the Segregated Account referred to in such Trust Agreement. Section 10. Notice. Any notice, demand or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: American Brands, Inc. 1700 East Putnam Avenue Old Greenwich, Connecticut 06870 Attention: Secretary If to the Executive: Thomas C. Hays 2 Contentment Island Road Darien, Connecticut 06820 or to such other address as either party may designate by notice to the other and shall be deemed to have been given as of the date so personally delivered or mailed. Section 11. Miscellaneous. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. This Agreement cannot be modified or any term or condition waived in whole or in part except by a writing signed by the party against whom enforcement of the modification or waiver is sought. No waiver by either party hereto at any time of any beach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The headings in this Agreement are included for convenience of reference only and shall not in any way affect the meaning or interpretation of this Agreement. Section 12. Separability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Section 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one Agreement. Section 14. Withholding of Taxes. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. Section 15. Prior Agreements. Effective as of the date first written above, this Agreement shall replace and supersede each of the Severance Agreement and the Retirement Agreement, and each of the Severance Agreement and the Retirement Agreement shall be deemed null and void and shall have no further force or effect. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly authorized and its seal to be hereunto affixed and attested and the Executive has hereunto set his hand as of the day of 24th day of March, 1997. [Seal] AMERICAN BRANDS, INC. Attest: By Steven C. Mendenhall ------------------------------- Steven C. Mendenhall Senior Vice President and Louis F. Fernous, Jr. Chief Administrative Officer - ------------------------- Secretary Thomas C. Hays ------------------------------- Thomas C. Hays EX-12 12 EXHIBIT 12 PART II - EXHIBIT 12 -------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Note) (Dollar amounts in millions)
Six Months Ended Years Ended December 31, June 30, -------------------------------------------------------------- ------------- 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- Earnings Available: Income from continuing operations before income taxes, minority interest and extraordinary items......... $225.0 $249.9 $ 43.4 $358.9 $340.1 $100.3 Less: Excess of earnings over dividends of less than fifty percent owned companies...................... 0.2 0.1 - 0.2 0.2 0.1 Capitalized interest............... - 0.3 0.2 - 0.3 - ------ ------ ------ ------ ------ ------ 224.8 249.5 43.2 358.7 339.6 100.2 ====== ====== ====== ====== ====== ====== Fixed Charges: Interest expense (including capitalized interest) and amortization of debt discount and expenses............................. 189.6 200.5 184.6 147.1 172.6 72.0 Portion of rentals representative of an interest factor.................... 12.9 11.9 12.8 13.5 15.1 8.1 ------ ------ ------ ------ ------ ------ Total Fixed Charges................ 202.5 212.4 197.4 160.6 187.7 80.1 ------ ------ ------ ------ ------ ------ Total Earnings Available........... $427.3 $461.9 $240.6 $519.3 $527.3 $180.3 ====== ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges............ 2.11 2.17 1.22 3.23 2.81 2.25 ==== ==== ==== ==== ==== ==== (Note) The ratios of earnings to fixed charges for the years ended December 31, 1992 through 1996 have been restated to exclude results of the discontinued tobacco operations.
EX-15 13 EXHIBIT 15 PART II - EXHIBIT 15 -------------------- August 12, 1997 Securities and Exchange Commission 450 5th Street, N.W. Attention: Filing Desk, Stop 1-4 Washington, D.C. 20549-1004 Re: Fortune Brands, Inc. We are aware that our report dated August 12, 1997, on our review of interim financial information of Fortune Brands, Inc. and Subsidiaries for the six-month periods ended June 30, 1997 and 1996 included in this Form 10-Q, has been incorporated by reference into (a) the Registration Statement on Form S-8 (Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies, the Registration Statement on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8 (Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of Fortune Brands, Inc., and the prospectuses related thereto, and (b) the prospectuses related to the Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of such registration statements or prospectuses or certification by us within the meaning of Sections 7 and 11 of that Act. Very truly yours, COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York 10019 EX-23 14 EXHIBIT 23 PART II - EXHIBIT 23 -------------------- CONSENT OF COUNSEL We consent to the incorporation by reference of our opinions contained in Part II, Item 1, "Legal Proceedings", of this Quarterly Report on Form 10-Q of Fortune Brands, Inc. into (a) the Registration Statement on Form S-8 (Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies, the Registration Statement on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8 (Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of Fortune Brands, Inc., and the prospectuses related thereto, and (b) the prospectuses related to the Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc. CHADBOURNE & PARKE LLP 30 Rockefeller Plaza New York, New York 10112 August 12, 1997 EX-27 15 EXHIBIT 27
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 $ 157 0 919 52 1,019 2,218 1,847 903 7,020 $1,634 846 717 0 12 3,382 7,020 $2,341 2,341 1,237 1,237 186 6 69 97 58 39 65 0 0 $ 104 $.61 $.59
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