exv10wb1



 



Exhibit 10b1


[Letterhead of Fortune Brands, Inc.]



August 1, 2003


Mr. Christopher J. Klein

385 Dundee Road

Glencoe, Illinois 60022



          Re: Compensation Agreement



Dear Chris:



          This letter will evidence the agreement of Fortune Brands, Inc. (the
“Company”) to make the payments and provide the benefits described below in the
event of a termination of your employment following a change in control of the
Company. The Company considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing its best
interests and those of its stockholders. In this connection, the Company
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist and that, in the event action is
taken to bring about a change in control, uncertainty and questions may arise
among management that could result in the distraction or departure of
management personnel to the detriment of the Company and its stockholders.
Accordingly, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of senior
members of the Company’s management, including yourself, to their assigned
duties without distraction in the face of the potentially disruptive
circumstances arising from the possibility of a change in control.



          The Company must, of course, remain free to effect changes in management
and terminate employment. However, in order to induce you to join and remain
in the employ of the Company, this letter agreement sets forth




 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
2	 	 	August 1, 2003



the severance benefits which the Company agrees will be provided to you in
the event your employment with the Company is terminated subsequent to a Change
in Control (as defined below) under the circumstances described below. You
shall also be entitled to any Gross-Up Payment provided by the last section
hereof with respect to the exercise of stock options, performance awards,
limited rights and other awards under the Company’s Long-Term Incentive Plan
and any successor plans whether or not your employment is terminated. For
purposes of this Agreement, a “Change in Control” shall be deemed to have
occurred if (i) any person (as that term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as in
effect on August 1, 2003) 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 August 1, 2003) of 20% or more of the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors (“Voting Securities”) of the
Company, excluding, however, the following: (A) any acquisition directly from
the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or entity controlled by the Company, or (D) any
acquisition pursuant to a transaction that complies with clauses (A), (B) and
(C) of clause (iii) below, (ii) more than 50% of the members of the Board of
Directors of the Company shall not be Continuing Directors (which term, as used
herein, means the directors of the Company (A) who were members of the Board of
Directors of the Company on August 1, 2003 or (B) who subsequently became
directors of the Company 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 the Company’s stockholders was otherwise approved,
by a vote of a majority of the Continuing Directors then on the Board of
Directors but shall not include, in any event, any individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14(a)-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board of
Directors), (iii) the Company shall be merged or


 






 



	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
3	 	 	August 1, 2003



consolidated with, or, in any transaction or series of transactions,
substantially all of the business or assets of the Company shall be sold or
otherwise acquired by, another corporation or entity unless, as a result
thereof, (A) the stockholders of the Company immediately prior thereto shall
beneficially own, directly or indirectly, at least 60% of the combined Voting
Securities of the surviving, resulting or transferee corporation or entity
(including, without limitation, a corporation that as a result of such
transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) (“Newco”)
immediately thereafter in substantially the same proportions as their ownership
immediately prior to such corporate transaction, (B) no person beneficially
owns (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act,
and the rules and regulations promulgated thereunder (as in effect on August 1,
2003)), directly or indirectly, 20% or more of the combined Voting Securities
of Newco immediately after such corporate transaction except to the extent that
such ownership of the Company existed prior to such corporate transaction and
(C) more than 50% of the members of the Board of Directors of Newco shall be
Continuing Directors or (iv) the stockholders of the Company approve a complete
liquidation or dissolution of the Company.


          1. Termination Following Change in Control. If and only if a Change in
Control of the Company shall have occurred and if at the time of the Change in
Control you shall be an officer of the Company, you shall be entitled to the
benefits provided in Section 2 hereof upon the subsequent termination of your
employment after such Change in Control, unless such termination is as a result
of your death or by the Company for Disability or Cause or by you other than
for Good Reason, as set forth below.



          (a) Disability. Termination of employment by the Company for Disability
hereunder shall be deemed to have occurred only if, as a result of your
incapacity due to physical or mental illness, you shall have been absent from
your duties with the Company on a full-time basis for 180 consecutive days and,
within 30 days after Notice of Termination (as hereinafter defined) is given to
you by the Company, you shall not have returned to the full-time performance of
your duties.






 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
4	 	 	August 1, 2003



          (b) Cause. Termination of employment by the Company for Cause shall be
deemed to have occurred only if (i) you engage in specified misconduct and (ii)
the Company complies with certain procedural requirements.




		
	 	     (A) Specified Misconduct. To be terminated for Cause, you must
either




		
	 	     (1) engage in act(s) of dishonesty constituting a felony; or




		
	 	     (2) willfully and continually fail substantially to perform
your duties as an officer of the Company.



          You cannot be terminated for Cause, however, if your act(s) or failure




		
	 	     (3) was done as a result of your bad judgment or negligence
or your good faith belief that the act(s) or failure to act was
not opposed to the interests of the Company;




		
	 	     (4) meets the applicable standard of conduct for
indemnification or reimbursement or payment of expenses under our
By-laws, laws of the state of our incorporation or directors’ and
officers’ liability insurance, as in effect at the time of the
act(s) or failure to act; or




		
	 	     (5) in the case of failure to perform duties only, results
from your incapacity due to physical or mental illness.




		
	 	     (B) Procedural Requirements. The Company may not terminate you for
Cause unless it complies with the following procedural requirements:




		
	 	     (1) Termination for Cause due to failure substantially to
perform duties. Before the Company may terminate you for
willfully and continually failing substantially to perform your
duties as an officer of the Company, the Board of Directors must
deliver a demand for substantial performance which specifically
identifies the manner in which the Board believes that you have
not substantially performed your duties and you must be given a



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
5	 	 	August 1, 2003




		
	 	reasonable time after such demand to perform your duties.




		
	 	     (2) Any termination for Cause. Before the Company may
terminate you for Cause




		
	 	     (i) the Company’s Board of Directors must hold a
meeting for the purpose of determining whether you should
be terminated for Cause;
	 
	 	     (ii) you must receive reasonable notice in advance of
the board meeting with an opportunity to be heard before
the Board;
	 
	 	     (iii) three-quarters of the entire Board of Directors
must affirmatively resolve in good faith to terminate you
for Cause; and
	 
	 	     (iv) you must receive a copy of the Board resolution
setting forth the particulars of the for Cause Termination
and a notice of termination.



          (c) Good Reason. Termination of employment by you for Good Reason shall
be deemed to have occurred only if you terminate your employment for any of the
following reasons:




		
	 	     (i) without your express written consent, the assignment to you of
any duties inconsistent with your positions, duties, responsibilities and
status with the Company at the time of a Change in Control, or a change
in your reporting responsibilities, titles or offices as in effect at the
time of a Change in Control, or any removal of you from, or any failure
to re-elect you to, any of such positions, except in connection with the
termination of your employment as a result of your death or by the
Company for Disability or Cause or by you other than for Good Reason;




		
	 	     (ii) a reduction by the Company in your base salary as in effect at
the time of a Change in Control plus all increases therein subsequent
thereto;



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
6	 	 	August 1, 2003




		
	 	     (iii) the failure of the Company substantially to maintain and to
continue your participation in the Company’s benefit plans as in effect
at the time of a Change in Control 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 your benefits under
any of such plans or deprive you of any material fringe benefit enjoyed
by you at the time of a Change in Control. For the purposes hereof such
benefit plans shall include, but not be limited to, the provisions for
incentive compensation under the Annual Executive Incentive Compensation
Plan of the Company and the Company’s Retirement Plan, Supplemental Plan
(as defined in Section 2(d)) (including the supplemental profit-sharing
and supplemental tax deferred and related Company matching award
provisions thereof), Retirement Savings Plan (as defined in Section 2(e))
(including the tax deferred and related Company matching contributions
thereof) and Long-Term Incentive Plan;




		
	 	     (iv) the target bonus awarded by the Compensation and Stock Option
Committee of the Company to you under the Annual Executive Incentive
Compensation Plan of the Company subsequent to a Change in Control is
less than such amount last awarded to you prior to a Change in Control
($175,000 if a Change in Control occurs prior to your first award under
the Annual Executive Incentive Compensation Plan of the Company);
	 
	 	     (v) the sum of your base salary and amount paid to you as incentive
compensation under the Annual Executive Incentive Compensation Plan of
the Company for the calendar year in which the Change in Control occurs
or any subsequent year is less than the sum of your base salary and the
amount awarded (whether or not fully paid) to you as incentive
compensation under the Annual Executive Incentive Compensation Plan of
the Company for the calendar year prior to the Change in Control or any
subsequent calendar year in which the sum of such amounts was greater
(your incentive compensation for this purpose shall be deemed to be
$175,000 prior to the first payment of incentive compensation to you



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
7	 	 	August 1, 2003




		
	 	under the Annual Executive Incentive Compensation Plan of the Company);
	 
	 	     (vi) the relocation of the offices at which you are employed to a
location more than 35 miles from their location at the time of a Change
in Control or the Company’s requiring you to be based anywhere other than
at such offices, except for required travel on the Company’s business to
an extent substantially consistent with your business travel obligations
at the time of a Change in Control;
	 
	 	     (vii) the failure of the Company to provide you with a number of
paid vacation days at least equal to the number of paid vacation days to
which you were entitled at the time of a Change in Control plus any
increases therein subsequent thereto;
	 
	 	     (viii) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
of subsection (d) of this Section 1 (and, if applicable, subsection (b)
of this Section 1), and for purposes of this Agreement, no such purported
termination shall be effective; or
	 
	 	     (ix) your good faith determination that due to a Change in Control
you are not able effectively to discharge your duties.



          (d) Notice of Termination. Any termination by the Company pursuant to
subsections (a) or (b) of this Section 1 or by you pursuant to subsection (c)
of this Section 1 shall be communicated by Notice of Termination to the other
party hereto. For purposes of this Agreement, a “Notice of Termination” shall
mean 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 your employment under the provision so indicated.



          (e) Termination Date. “Termination Date” shall mean (i) if employment is
terminated because of your death, the date of your death, (ii) if employment is
terminated for Disability, 30 days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such 30-day period), (iii) if employment is





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
8	 	 	August 1, 2003



terminated for Good Reason, the date specified in the Notice of
Termination, and (iv) if employment is terminated for Cause or any other
reason, the date on which a Notice of Termination is given; 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 subsection 1(e).


          2. Compensation Upon Termination.



          (a) If your employment is terminated as a result of your death or for
Disability or Cause subsequent to a Change in Control, the Company shall have
no obligation to pay any compensation to you under this Agreement, but this
Agreement shall have no effect on any other obligation the Company may have to
pay you compensation to which you may otherwise be entitled.



          (b) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, then the Company shall pay to you as
severance pay in a lump sum on the fifth day following the Termination Date the
following amounts:




		
	 	     (i) your full base salary and your accrued but unpaid vacation pay
through the Termination Date at the rate in effect at the time of a
Change in Control plus any increases therein subsequent thereto; and
	 
	 	     (ii) in lieu of any further salary payments, annual incentive
compensation awards or defined contribution plan allocations to you for
periods subsequent to the Termination Date, an amount equal to the
product of (A) the sum of (1) your annual base salary at the rate in
effect at the time of a Change in Control plus any increases therein
subsequent thereto, plus (2) the greatest of



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
9	 	 	August 1, 2003




		
	 	$175,000, the amount that was paid to you under the Annual Executive
Incentive Compensation Plan of the Company (as in effect at the time of a
Change in Control) for the year immediately preceding the year in which
the Change in Control occurs (but, for any such immediately preceding
year as to which the award has not been determined and paid at the time
of the Change in Control, not less than the amount that you would have
received if you had been paid the same amount as for the last year prior
to the Change in Control for which an award was actually paid) and the
amount paid to you under such Annual Executive Incentive Compensation
Plan for the year immediately preceding the year in which a Notice of
Termination is given, plus (3) the greater of the amount that was
allocated to your account from contributions made by the Company under
the Retirement Savings Plan (as defined in Section 2(e)) (including the
Company 401(k) matching contribution thereunder) and the supplemental
profit-sharing provisions (including the Company matching award related
to the supplemental tax deferred amounts therein) of the Supplemental
Plan (as defined in Section 2(d)), each as in effect at the time of a
Change in Control, for the year immediately preceding the year in which
the Change in Control occurs and that amount that would have been
required to be so allocated to you (assuming that you elected the maximum
employee contribution) under each such plan for the year immediately
preceding the year in which a Notice of Termination is given, multiplied
by (B) the number three.



In the event the Notice of Termination is given prior to your first full year’s
allocation under the Retirement Savings Plan, the amount in (ii)(A)(3) above
shall be $12,000.


          (c) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, the Company shall maintain in full force and
effect, for your continued benefit for a three year period after the
Termination Date, all employee life, health, accident, disability, medical and
other employee welfare benefit plans, programs or arrangements in which you
were participating immediately prior to the date of the Change in Control plus
all improvements therein subsequent thereto,





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
10	 	 	August 1, 2003



provided that your continued participation is possible under the terms and
provisions of such plans, programs, and arrangements. In the event that your
participation in any such plan, program or arrangement is barred, the Company
shall arrange to provide you with benefits substantially similar to those which
you would have been entitled to receive under such plan, program or arrangement
if you had remained a participant for such additional three year period. At
the end of the period of coverage, you shall have the option to have assigned
to you at no cost and with no apportionment of prepaid premiums any assignable
insurance policy owned by the Company which relates specifically to you. In
the event a Change in Control occurs prior to your eligibility to participate
in any such plan, you shall be deemed for purposes of this paragraph to be
participating in those plans that cover Senior Vice Presidents of this Company
generally.


          (d) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, then in addition to the retirement benefits
to which you are entitled under the Fortune Brands Pension Plan (the “Qualified
Plan”), if any, the Supplemental Plan of Fortune Brands, Inc. (the
“Supplemental Plan”), and any other defined benefit pension plan maintained by
the Company or any affiliate, and any other program, practice or arrangement of
the Company or any affiliate to provide you with a defined pension benefit
after termination of employment, and any successor plans thereto (all such
plans being collectively referred to herein as the “Pension Plans”), the
Company shall pay you monthly beginning at the earliest date payments commence
under the Pension Plans 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 you would have
been entitled under the terms of each of the Pension Plans in which you
were an active participant at the date of a Change in Control (without
regard to any amendment made subsequent to a Change in Control which
adversely affects in any manner the computation of your benefits)
determined as if you were fully vested thereunder and had accumulated
three additional years of Service thereunder



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
11	 	 	August 1, 2003




		
	 	(subsequent to your Termination Date) at your rate of Compensation in
effect on the date of a Change in Control 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) to which you are
entitled under the terms of each of the Pension Plans in which you were
an active participant at the date of a Change in Control.



For purposes of clause (i), the term “Compensation” as used with reference to
any of such Pension Plans shall include amounts paid to you pursuant to
subsections (b)(ii)(A)(1) and (2) and (b)(ii)(B) of this Section 2 and such
amounts shall be deemed to represent three years of Compensation for purposes
of determining your highest consecutive five year average rate of Compensation.
The supplemental pension benefits determined under this subsection 2(d) shall
be payable by the Company to you and your contingent annuitant, if any, in the
same manner and as long as your pension benefits under the Supplemental Plan
and shall be adjusted actuarially to reflect payment in a form other than a
straight life annuity. Benefits hereunder which commence prior to age 65 shall
be reduced to reflect early commencement to the extent, if any, provided in the
Qualified Plan. All defined terms used in this subsection 2(d) shall have the
same meaning as in the Qualified Plan, unless otherwise defined herein or
otherwise required by the context.


          (e) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, the Company shall pay to you as additional
severance pay in a lump sum on the fifth day following the Termination Date an
amount, if any, equal to the nonvested portion of your account balances under
the Fortune Brands Retirement Savings Plan (the “Retirement Savings Plan”).



          (f) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control and a dispute exists concerning the
termination as set forth in subsection (e) of Section 1, the Company shall
continue to pay your full





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
12	 	 	August 1, 2003



base salary through the date that is finally determined to be your
Termination Date as provided in subsection (e) of Section 1.


          (g) You shall not be required to mitigate the amount of any payment
provided for in this Section 2 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 2 be reduced by
any compensation earned by you as the result of employment by another employer
after the Termination Date or by any other compensation.



          (h) In the event the Termination Date occurs within less than three years
prior to your Normal Retirement Date (as defined in the Qualified Plan), the
multiplier “three” in subsection (b)(ii)(B) of this Section 2 and the three
year period referred to in subsections (c) and (d) of this Section 2 shall be
reduced so that they shall each equal the number of whole years and fraction
thereof or fraction of a year that will elapse between the Termination Date and
Normal Retirement Date.



          (i) Any benefits to which you are entitled under any Company severance
pay program covering salaried employees shall be reduced by benefits paid under
Section 2(b)(ii). Any benefits to which you are entitled under Section 2 shall
be reduced by the amount of any payments made to you pursuant to the Severance
Agreement dated as of August 1, 2003 between you and the Company.



          (j) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, the Company shall pay to you as incentive
compensation for the period through the Termination Date:




		
	 	     (i) the unpaid portion of the amount awarded to you as
incentive compensation under the Company’s Annual Executive
Incentive Compensation Plan for the calendar year immediately
preceding the year in which the Termination Date occurs (but,
for any such immediately preceding year as to which the award
has not been determined and paid, not less than the amount
that you would have received if you had been awarded the same
amount paid to you for the most recent year



 






 







	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
13	 	 	August 1, 2003




		
	 	for which an award was actually paid) in a lump sum on the
fifth day following the Termination Date; and




		
	 	     (ii) incentive compensation under the Company’s Annual
Executive Incentive Compensation Plan (as in effect at the
time of a Change in Control) for the calendar year in which
the Termination Date occurs, in an amount equal to the amount
you would have received thereunder if you had been awarded an
amount for the year in which your Termination Date occurs
equal to the amount paid to you for the year immediately
preceding the year in which the Change in Control occurs (but,
for any such immediately preceding year as to which the award
has not been determined and paid, not less than the amount
that you would have received if you had been paid the same
amount for the year immediately preceding the year in which
the Change in Control occurs as the amount awarded to you for
the last year prior to the Change in Control for which an
award was actually paid) or, if greater, the amount awarded to
you for the year immediately preceding the year in which a
Notice of Termination is given, with such incentive
compensation amount prorated for the portion of the year
through the Termination Date and paid at the time awards
thereunder are paid under the terms of such Annual Executive
Incentive Compensation Plan as in effect immediately prior to
the Change in Control. In the event the Notice of Termination
is given prior to your first full year’s award under the
Annual Executive Incentive Compensation Plan, the incentive
compensation amount in this clause (ii) shall be $175,000,
which amount shall then be subject to proration as set forth
in the immediately preceding sentence.



The payments under this Section 2(j)(ii) shall be reduced by the amount
actually paid to you under the Annual Executive Incentive Compensation Plan for
the calendar year in which the Termination Date occurs.


          3. Successors; Binding Agreement.





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
14	 	 	August 1, 2003



          (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, by agreement in form and substance
satisfactory to you, expressly to assume and agree to perform 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. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you had given Notice of Termination for Good Reason as of the day
immediately before such succession became effective and had specified that day
in the Notice of Termination. 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 shall inure to the benefit of and be enforceable by
you and your personal or legal representatives and successors in interest under
this Agreement.



          4. Termination. This Agreement may be terminated by the Company as of a
date set forth in a notice to you given at any time at least six months prior
to a Change in Control, provided that if a Change in Control occurs within such
six month period subsequent to the delivery of the notice of termination of
this Agreement by the Company, then this Agreement shall continue in effect in
accordance with its terms notwithstanding such notice. This Agreement shall
terminate on the third anniversary of any Change in Control unless a Notice of
Termination shall have been given prior thereto and provided further that,
notwithstanding anything to the contrary in this Agreement, the provisions of
this Agreement shall also continue in effect notwithstanding such notice or
your ceasing to have at the time of a Change in Control the status as an
officer of the Company required by Section 1 hereof (whether by change of
title, termination of employment or otherwise) if the notice is given or you
cease to have such status at the instance or suggestion





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
15	 	 	August 1, 2003



of a third party following commencement of discussions with the Company
that ultimately result in a Change in Control.


          5. 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 to the respective addresses set forth on
the first page of this Agreement, provided that all notices to the Company
shall be directed to the Secretary of the Company, 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.



          6. Miscellaneous. This Agreement constitutes the entire understanding of
the parties relating to the subject matter hereof and supersedes all prior
agreements, understandings and representations, whether oral or written,
relating to the subject matter hereof. 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 breach 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.



          7. 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.



          8. 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.



          9. 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.





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
16	 	 	August 1, 2003



          10. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 3 hereof. Without limiting the foregoing, your right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
your will or by the laws of descent or distribution, and in the event of any
attempted assignment or transfer contrary to this Section 10 the Company shall
have no liability to pay any amount so attempted to be assigned or transferred.



          11. Excise Taxes. In the event that you become entitled to payments
under Section 2 of this Agreement, or as a result of the exercise, or
acceleration of the exercisability, of stock options or performance awards, or
the exercise of limited rights or other awards under the Company’s Long-Term
Incentive Plan or any successor plan, or any other payments or benefits
received or treated as having been received by you in connection with a change
in the ownership or effective control of the Company or in the ownership of a
substantial portion of its assets within the meaning of Section 280G(b)(2)(A)
of the Internal Revenue Code of 1986, as amended (the “Code”) (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
the Company, any person whose actions result in such a change or any person
affiliated with the Company or such person) (“the Agreement Payments”), if any
of the Agreement Payments will be subject to the tax (the “Excise Tax”) imposed
by Section 4999 of the Code, the Company shall pay to you on the fifth day
following the Termination Date (or if your employment has not terminated, on
the fifth day following the receipt of the Agreement Payment) an additional
amount (the “Gross-Up Payment”) such that the net amount retained by you after
deduction of any Excise Tax on the Agreement Payments and any federal, state
and local income tax and Excise Tax upon the payment provided for by this
Section 11, shall be equal to the Agreement Payments. For purposes of
determining whether payments or benefits of the types referred to in the
preceding sentence are Agreement Payments and whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any such payments or benefits received or to be received by you shall be
treated as “parachute





 






 






	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
17	 	 	August 1, 2003



payments” within the meaning of Section 280G(b)(2) of the Code, and all
“excess parachute payments” within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by PricewaterhouseCoopers LLP and acceptable to you such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the meaning
of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax, (ii) the amount of the Agreement Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Agreement Payments or (B) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) of the Code (after applying clause (i),
above), and (iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by PricewaterhouseCoopers LLP in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence on the Termination Date, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes. The Gross-Up Payment required in respect of
Agreement Payments other than under Section 2 of this Agreement shall be
payable whether or not your employment terminates. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of your termination of employment, you shall
repay to the Company at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable to the
Excise Tax and federal and state and local income tax imposed on the Gross-Up
Payment being repaid by you if such repayment results in a reduction in Excise
Tax and/or a federal and state and local income tax deduction) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax and any interest or penalties in
respect


 






 



	 	 	 	 	 	 	 
	Mr. Christopher J. Klein	 	 	
18	 	 	August 1, 2003



thereof is determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest or
penalties payable with respect to such excess) at the time that the amount of
such excess is finally determined.


          If this letter correctly sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.




	 	 	 	 	 
	 	 	Sincerely,
	 	 	 	 	 
	 	 	FORTUNE BRANDS, INC.
	 	 	 	 	 
	 	 	
By	 	/s/ Mark A.
Roche
	 	 	 	 	

	 	 	 	 	Mark A. Roche
	 	 	 	 	Senior Vice President,
	 	 	 	 	General Counsel and Secretary



Agree to this 26th day of



August, 2003.


/s/ Christopher J.
Klein




Christopher J. Klein