-----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, OHO1Ewa3L2av4BRNAcQv+vgZwpq5SAALSHXrHkXawgLVABZW0cNAxOwVumEToKty nsAaSC7sHTkidX0SD/AKgw== 0000950135-02-001673.txt : 20020415 0000950135-02-001673.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950135-02-001673 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GILLETTE CO CENTRAL INDEX KEY: 0000041499 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 041366970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00922 FILM NUMBER: 02588039 BUSINESS ADDRESS: STREET 1: PRUDENTIAL TOWER BLDG STREET 2: SUITE 4800 CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6174217000 MAIL ADDRESS: STREET 1: PRUDENTIAL TOWER BLDG STREET 2: SUITE 4800 CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: GILLETTE SAFETY RAZOR CO DATE OF NAME CHANGE: 19660911 10-K 1 b41814gce10-k.txt THE GILLETTE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-922 THE GILLETTE COMPANY - ------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) INCORPORATED IN DELAWARE 04-1366970 --------------------------- ------------ (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
PRUDENTIAL TOWER BUILDING, BOSTON, MASSACHUSETTS 02199 - ---------------------------------------------------- ------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 617-421-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE BOSTON STOCK EXCHANGE CHICAGO STOCK EXCHANGE PACIFIC STOCK EXCHANGE
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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((sec.)229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Gillette Common Stock held by nonaffiliates as of March 25, 2002, was approximately $32,270,000,000.* The number of shares of Gillette Common Stock outstanding as of March 25, 2002, was 1,056,345,436. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the following documents have been incorporated by reference into this Form 10-K as indicated:
DOCUMENTS 10-K PARTS --------- ---------- 1. The Gillette Company 2001 Annual Report to Stockholders (the "2001 Annual Report")............................... Parts I and II 2. The Gillette Company 2002 Proxy Statement (the "2002 Proxy Statement")........................................ Part III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * For purposes of this calculation only, Gillette Common Stock held by Executive Officers or Directors of the Company has been treated as owned by affiliates. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL The Gillette Company manufactures and sells a wide variety of consumer products throughout the world. We have five principal business segments: Blades and Razors We are the world leader in blades and razors. We sell male systems under the Mach3, SensorExcel, Sensor, Atra, and Trac II brands and disposable razors under the Custom Plus and Good News brands. On October 30, 2001, we introduced the Mach3Turbo shaving system, our newest triple blade shaving system for men, which is scheduled to be available to consumers in North America in Spring 2002. Our female systems are sold under the Gillette for Women Venus, Sensor Excel for Women and Sensor for Women brands and our disposable razors under the Agility brand. Personal Care We sell shave preparations, after-shave products and deodorants and antiperspirants under the Gillette Series, Satin Care, Right Guard, Soft & Dri and Dry Idea brands. Duracell We are the world leader in alkaline batteries for consumers. Our products include the Duracell Ultra and CopperTop alkaline batteries and Duracell primary lithium, zinc air and rechargeable nickel-metal hydride batteries. Oral Care We are the world leader in manual and power toothbrushes. We offer manual toothbrushes under the Oral-B brand and power toothbrushes under the Braun and Oral-B brands. Braun We sell electric shavers under the Braun brand and hair epilators under the Silk Epil brand. These products include the number one foil electric shaver for men and the number one hair epilator for women. We also sell small household appliances under the Braun brand. Founded in 1901, we are a Delaware corporation with our registered office in Wilmington, Delaware. As of December 31, 2001, we had manufacturing operations at 34 facilities in 15 countries and distributed our products through wholesalers, retailers and agents in over 200 countries and territories. BUSINESS SEGMENTS "Operating Segments and Related Information," containing information on net sales, profit from operations, identifiable assets, capital expenditures and depreciation for each of the last three years, appears in the Company's 2001 Annual Report at pages 48 and 49 and is incorporated herein by reference. DISTRIBUTION In major geographic markets, Gillette products are sold directly to retailers and to wholesalers for resale through retail stores. Braun personal diagnostic appliances are sold to retailers and wholesalers, as well as to health care professionals. Oral care products are sold to retailers and wholesalers and directly to dental professionals for distribution to patients. In some small geographic markets, products are distributed through local distributors and sales agents. PATENTS Some of Gillette's patents and licenses in the Blade and Razor segment are of substantial value and importance when considered in the aggregate. Additionally, Gillette holds significant patents in its personal care, Duracell, Braun and oral care businesses. No single patent or license held by Gillette is material to Gillette's total business. Gillette has licensed many of its blade and razor patents to other 1 manufacturers. In all of these categories, Gillette competitors also have significant patent positions. The patents and licenses held by Gillette are of varying remaining durations. TRADEMARKS In general, Gillette's principal trademarks have been registered in the United States and throughout the world where Gillette's products are sold. Gillette products are marketed outside the United States under various trademarks, many of which are the same as those used in the United States. The trademark "Gillette" is of principal importance to Gillette. In addition, a number of other trademarks owned by Gillette and its subsidiaries have significant importance within their industries. Gillette's rights in these trademarks endure for as long as they are used or registered. COMPETITION All of Gillette's markets are highly competitive. Many of Gillette's competitors are larger and have greater resources than Gillette. The blade and razor business is marked by competition in new technology, as well as in price, marketing, advertising and promotion. Gillette's major competitors worldwide in blades and razors include Pfizer Inc., with its Schick product line, and, in North America and Europe, its Wilkinson Sword product line; and Societe Bic S.A. The personal care segment is highly competitive in terms of price, product innovation and market positioning, with frequent introductions of new brands and marketing concepts, especially for products sold through retail outlets, and with product life cycles typically shorter than in Gillette's other businesses. The Duracell segment is highly competitive in terms of product performance, innovation and price, and in marketing, advertising and promotion. Competition in the oral care segment is focused on product performance, price and professional endorsement. Competition in the electric shavers and epilators product lines is based primarily on product performance, innovation and price. EMPLOYEES At year-end, Gillette employed approximately 31,500 persons, about 72% of them outside the United States. RESEARCH AND DEVELOPMENT In 2001, research and development expenditures were $187 million, compared with $179 million in 2000 and $201 million in 1999. RAW MATERIALS The raw materials used by Gillette to manufacture its products are purchased from a number of suppliers, and substantially all such materials are readily available. OPERATIONS BY GEOGRAPHIC AREA Net sales and long-lived assets by geographic area for each of the last three years appear in the 2001 Annual Report at page 49 and are incorporated by reference. ITEM 2. DESCRIPTION OF PROPERTY Gillette owns and leases manufacturing facilities and other real estate properties in the United States and a number of foreign countries. Gillette's executive offices are located in the Prudential 2 Center, Boston, Massachusetts, where Gillette holds a long-term lease. The following table sets forth Gillette's principal facilities defined as those measuring 250,000 square feet or more:
BUSINESS SEGMENT LOCATION OWNED/LEASED ---------------- -------- ------------ Blades & Razors Boston, MA (US) Owned Isleworth, UK Owned Berlin, Germany Owned Naucalli, Mexico Owned Manaus, Brazil Owned Hemel Hempstead, UK* Leased Devens, MA (US)* Leased Personal Care Andover, MA (US) Owned Reading, UK Owned/Leased Braun Kronberg, Germany Owned/Leased Barcelona, Spain Owned/Leased Walldurn, Germany Owned/Leased Marktheidenfeld, Germany Owned Mexico City, Mexico Owned/Leased Oral Care Iowa City, IA (US) Owned Duracell Port Elizabeth, South Africa Owned Aarschot, Belgium Owned Dongguan, China Owned/Leased Lancaster, SC (US) Owned LaGrange, GA (US) Owned Heist, Belgium* Leased Bethel, CT (US) Owned Multisegment Distribution Romeoville, IL (US) Leased Centers Ontario, CA (US) Leased Devens, MA (US) Leased Toronto, Canada Leased Altfeld, Germany Owned
- --------------- * Packaging center that also serves as warehouse/distribution facility The above facilities are in good repair, meet Gillette's needs adequately and operate at reasonable levels of capacity. ITEM 3. LEGAL PROCEEDINGS Gillette is subject, from time to time, to legal proceedings and claims arising out of its business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters and taxes. Management, after review and consultation with counsel, considers that any liability from all of these legal proceedings and claims would not materially affect the consolidated financial position, results of operations or liquidity of Gillette. 3 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001. EXECUTIVE OFFICERS OF REGISTRANT Information regarding the Executive Officers of Gillette is set out below.
NAME AND CURRENT POSITION FIVE-YEAR BUSINESS HISTORY AGE ------------------------- -------------------------- --- James M. Kilts Chairman of the Board and Chief Executive Officer since 54 Chairman of the Board and January 2001 and February 2001, respectively; President Chief Executive Officer and Chief Executive Officer, Nabisco Group Holdings Corp., December 1999 - December 2000; President and Chief Executive Officer, Nabisco Holdings Corp. and Nabisco Inc., January 1998 - December 1999; Executive Vice President, Worldwide Food, Philip Morris Companies, January 1994 - March 1997 Edward F. DeGraan President and Chief Operating Officer since July 2000; 58 President and Chief Operating Officer Acting Chief Executive Officer, October 2000 - February 2001; Executive Vice President, Global Business Management, January 2000 - July 2000; Executive Vice President, Global Business Management, Gillette Grooming Products and Duracell, January 1999 - January 2000; Executive Vice President, Duracell North Atlantic Group, January 1997 - December 1998 Charles W. Cramb Senior Vice President, Finance, and Chief Financial 55 Senior Vice President and Officer since December 1999; Senior Vice President, Chief Financial Officer Finance, Chief Financial Officer and Principal Accounting Officer, July 1997 - December 1999; Vice President and Controller, July 1995 - June 1997 Edward E. Guillet Senior Vice President, Human Resources, since July 2001; 50 Senior Vice President Vice President, Corporate Human Resources, July 1997 - June 2001 Peter Klein Senior Vice President, Strategy & Business Development, 56 Senior Vice President since March 2001; Executive Vice President, Strategy, Business Development, Marketing Services and e-Business, Nabisco Holdings and Nabisco, Inc., April 1998 - December 2000; Partner and Managing Director of The Cambridge Group, November 1991 - March 1998 Kathy S. Lane Senior Vice President, Corporate Information Technology 44 Senior Vice President and and Applications, and Chief Information Officer since Chief Information Officer March 2002; General Manager, eBusiness & IT, General Electric Oil & Gas, December 2000 - March 2002; Senior Vice President and Chief Information Officer, Vendor Financial Services, General Electric Company, February 1999 - December 2000; Manager, General Electric Corporate Initiatives Group, General Electric Company, September 1998 - February 1999; Director, Technology Services, Pepsi Cola International, June 1997 - September 1998
4
NAME AND CURRENT POSITION FIVE-YEAR BUSINESS HISTORY AGE ------------------------- -------------------------- --- John F. Manfredi Senior Vice President, Corporate Affairs, since March 61 Senior Vice President 2001; Executive Vice President, Corporate Affairs, Nabisco Holdings and Nabisco, Inc., April 1995 - December 2000 Richard K. Willard Senior Vice President and General Counsel since November 53 Senior Vice President and 1999; Partner, Steptoe & Johnson LLP, 1988 - October General Counsel 1999 Claudio E. Ruben Vice President, Controller and Principal Accounting 54 Vice President, Controller and Officer since January 2001; Vice President, Investor Principal Accounting Officer Relations, June 1999 - December 2000; Vice President, Internal Auditor, February 1998 - June 1999; Vice President, Finance and Administration, International Group, October 1995 - January 1998 A. Bruce Cleverly President, Oral Care - Global Business Management, since 56 Vice President February 2001; Senior Vice President, Global Business Management - Duracell, January 1999 - January 2001; President, Oral-B Laboratories, February 1997 - December 1998 Joseph F. Dooley President, Commercial Operations North America, since 48 Vice President July 2000; Senior Vice President, General Merchandise - Commercial Operations Western Hemisphere, March 1999 - June 2000; Senior Vice President and General Manager, Duracell North America, September 1997 - February 1999 Ernst A. Haberli President, International Commercial Operations, since 53 Vice President October 2001; President, North American Tissue Operations and Technology, Fort James Corporation, January 2000 - December 2000; Director, Fort James Corporation, May 1998 - December 2000; Executive Vice President and Chief Financial Officer, Fort James Corporation, January 1997 - December 1999 Peter K. Hoffman President, Blades and Razors - Global Business 53 Vice President Management, since January 2000; Senior Vice President, Grooming - Global Business Management, January 1999 - December 1999; President, Duracell North Atlantic, Commercial Operations, January 1998 - December 1998; Senior Vice President, Business Management, Gillette North American Group, October 1995 - December 1997
5
NAME AND CURRENT POSITION FIVE-YEAR BUSINESS HISTORY AGE ------------------------- -------------------------- --- Mark M. Leckie President, Duracell - Global Business Management, since 48 Vice President April 2001; President and Chief Executive Officer, Heinz Canada, H.J. Heinz Company, October 2000 - April 2001; President, U.S. Grocery Division, Campbell Soup Company, September 1997 - June 1999 Joseph Scalzo President, Personal Care Products - Global Business 43 Vice President Management, since October 2001; Vice President, Worldwide Core Brand Development, The Coca-Cola Company, February 2000 - September 2001; Senior Vice President & Chief Marketing Officer, Minute Maid Division, The Coca-Cola Company, August 1998 - January 2000; Vice President and Managing Director, U.S. Refrigerated Products, The Coca-Cola Company, February 1997 - July 1998
The Executive Officers hold office until the first meeting of the Board of Directors following the Annual Meeting of Stockholders and until their successors are elected or appointed and qualified, unless a shorter period shall have been specified by the terms of their election or appointment, or until their earlier resignation, removal or death. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The information required by this item with respect to Gillette's common stock appears in the 2001 Annual Report on the inside back cover under the caption, "Common Stock," and is incorporated by reference, and at page 50 under the caption, "Quarterly Financial Information," and is incorporated by reference. As of March 25, 2002, the record date for the 2002 Annual Meeting, there were 46,787 Gillette stockholders of record. ITEM 6. SELECTED FINANCIAL DATA The information required by this item appears in the 2001 Annual Report at page 51 under the caption, "Historical Financial Summary," and is incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item appears in the 2001 Annual Report at pages 17 through 24 under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and is incorporated by reference. CAUTIONARY STATEMENT Certain statements that Gillette may make from time to time, including statements contained in this report, constitute "forward-looking statements" under the federal securities laws. Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will" and other words of similar meaning used in conjunction with, among other things, discussions of future operations, acquisitions and divestitures, financial performance, Gillette's strategy for growth, product development and new product launches, market position and expenditures. Forward-looking statements are based on current expectations of future events, but actual results could vary materially from Gillette's expectations and projections. Investors are cautioned not to place undue reliance on any forward-looking statements. Gillette assumes no obligation to update any forward-looking statements. Gillette cautions that historical results should not be relied upon as indications of future performance. Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Gillette include the following, some of which are described in greater detail below: - the pattern of Gillette's sales, including variations in sales volume within periods; - consumer demands and preferences including the acceptance by Gillette's customers and consumers of new products and line extensions; - the mix of products sold; - Gillette's ability to control its internal costs and the cost of raw materials; - competitive factors including the prices, promotional incentives and trade terms of Gillette's products, the response of Gillette, its customers and competitors to changes in these terms; - technological advances by Gillette and/or its competitors; - new patents granted to Gillette and/or its competitors; - changes in exchange rates in one or more of Gillette's geographic markets; - changes in accounting policies; 7 - acquisition and divestiture activities; or - the impact of general economic conditions in the United States and in other countries in which Gillette currently does business. COMPETITIVE ENVIRONMENT Gillette experiences intense competition for sales of its products in most markets. Gillette's products compete with widely advertised, well-known, branded products, as well as private label products, which typically are sold at lower prices. In most of its markets, Gillette has major competitors, some of which are larger and more diversified than Gillette. Aggressive competition within Gillette's markets to preserve, gain or regain market share can affect Gillette's results in any given period. CHANGES IN TECHNOLOGY AND NEW PRODUCT INTRODUCTIONS In most product categories in which Gillette competes, there are continuous technological changes and frequent introductions of new products and line extensions. Gillette's ability to successfully introduce new products and/or extend lines of existing products will depend on, among other things, Gillette's ability to identify changing consumer tastes and needs, develop new technology, differentiate its products and gain market acceptance of new products. Gillette cannot be certain that it will successfully achieve these goals. With respect specifically to primary alkaline batteries, category growth could be adversely affected by the following additional factors: - technological or design changes in portable electronic and other devices that use batteries as a power source; - continued improvement in the service life of primary batteries; - improvements in rechargeable battery technology; and - the development of new battery technologies. INTELLECTUAL PROPERTY Gillette relies upon patent, copyright, trademark and trade secret laws in the United States and in other countries to establish and maintain its proprietary rights in technology, products and Gillette's brands. Gillette's intellectual property rights, however, could be challenged, invalidated or circumvented. Gillette does not believe that its products infringe the intellectual property rights of others, but such claims, if they are established, can result in material liabilities or loss of business. COST SAVINGS STRATEGY Gillette has implemented a number of programs designed to reduce costs. Such programs will require, among other things, the consolidation and integration of facilities, functions, systems and procedures, all of which present significant management challenges. There can be no assurance that such actions will be accomplished as rapidly as anticipated or that the full extent of expected cost reductions will be achieved. SALES AND OPERATIONS OUTSIDE OF THE UNITED STATES Sales outside of the United States represent a substantial portion of Gillette's business. In addition, Gillette has a number of manufacturing facilities and suppliers located outside of the United States. Accordingly, the following factors could adversely affect operating results in any reporting period: - changes in political or economic conditions; - trade protection measures; - import or export licensing requirements; 8 - the overlap of different tax structures; - unexpected changes in regulatory requirements or tax laws; or - longer payment cycles in certain countries. Gillette also is exposed to foreign currency exchange rate risk to its sales, profits, and assets and liabilities denominated in currencies other than the U.S. dollar. Although Gillette uses instruments to hedge certain foreign currency risks (through foreign currency forward, swap and option contracts and non-U.S. dollar denominated financings) and is implicitly hedged through its foreign manufacturing operations, there can be no assurance that Gillette will be fully protected against foreign currency fluctuations. RETAIL ENVIRONMENT With the growing trend towards retail trade consolidation, especially in developed markets such as the United States and Europe, Gillette is increasingly dependent upon key retailers whose bargaining strength is growing. Accordingly, Gillette faces greater pressure from retail trade customers to provide more favorable trade terms. Gillette can be negatively affected by changes in the policies of its retail trade customers, such as inventory destocking, limitations on access to shelf space and other conditions. Many of Gillette's customers, particularly Gillette's high-volume retail trade customers, have engaged in accelerated efforts to reduce inventory levels and shrinkage and change inventory delivery systems. While Gillette expects the level of trade inventory of its products to decline over time, the speed and magnitude of such reductions and/or the inability of Gillette to develop satisfactory inventory delivery systems could adversely affect operating results in any reporting period. EFFECT OF TERRORIST ACTS ON OUR BUSINESS The terrorist acts of September 11, 2001, the military response, the actual and perceived threat of further terrorist acts and future possible military and political actions have created an atmosphere of economic uncertainty in the United States and in foreign markets and our results may be impacted by adverse macroeconomic effects of those events, especially if the conditions persist. Further, direct attacks or threats on or against our personnel and facilities around the world, our suppliers, customers and other elements of our supply chain and the infrastructures in which our facilities are located could significantly disrupt our business and its prospects, at least in the short term. While we have taken all prudent precautions against foreseeable threats, recent events have proven that the object of terrorist activities is inherently uncertain. Any of these occurrences may have a material adverse effect on our financial position, cash flow or profit from operations in any reporting period. ITEM 7A. DISCLOSURES CONCERNING MARKET RISK SENSITIVE INSTRUMENTS The information required by this item appears in the 2001 Annual Report at page 21 under the caption, "Market Risk," and is incorporated by reference. 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Financial Statements and Supplementary Data for The Gillette Company and Subsidiary Companies appear in the 2001 Annual Report at the pages indicated below and are incorporated by reference. (1) Independent Auditors' Report................................ Page 25 (2) Consolidated Statement of Income for the Years Ended December 31, 2001, 2000 and 1999............................ Page 26 (3) Consolidated Balance Sheet at December 31, 2001 and 2000.... Page 27 (4) Consolidated Statement of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999............................ Page 28 (5) Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999...................... Page 29 (6) Notes to Consolidated Financial Statements.................. Pages 30 through 50 (7) Computation of Per Share Earnings........................... Pages 26, 31, 32, 50, 51 (8) Quarterly Financial Information............................. Page 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by this item with respect to Gillette's Directors appears in the 2002 Proxy Statement at pages 4 through 6 and at page 7 under the captions, "Transactions with Directors and Management" and "Section 16(a) Beneficial Ownership Reporting Compliance," the texts of which are incorporated by reference. The information required for Executive Officers of Gillette appears at the end of Part I of this report at pages 4 through 6. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears in the 2002 Proxy Statement at pages 7 through 17 under the captions, "Compensation of Directors," "Executive Officers' Compensation" and "Gillette Comparative Five-Year Investment Performance," and is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item concerning the security ownership of certain beneficial owners and management appears in the 2002 Proxy Statement at pages 9 and 10 under the captions, "Stock Ownership of Directors and Executive Officers" and "Stock Ownership Table," and is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears in the 2002 Proxy Statement at pages 7 and 17 under the captions, "Transactions with Directors and Management" and "Employment Contracts, Termination of Employment and Change-in-Control Arrangements," and is incorporated by reference. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K A. FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS FINANCIAL STATEMENTS The following appear in the 2001 Annual Report at the pages indicated below and are incorporated into Part II by reference. (1) Independent Auditors' Report................................ Page 25 (2) Consolidated Statement of Income for the Years Ended December 31, 2001, 2000 and 1999............................ Page 26 (3) Consolidated Balance Sheet at December 31, 2001 and 2000.... Page 27 (4) Consolidated Statement of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999............................ Page 28 (5) Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999...................... Page 29 (6) Notes to Consolidated Financial Statements.................. Pages 30 through 50 (7) Computation of Per Share Earnings........................... Pages 26, 31, 32, 50, 51
SCHEDULES (1) Schedule II -- Valuation and Qualifying Accounts Included in the Financial Statements Under the Title "Supplemental Balance Sheet Information" Page 34
All other required schedule information is included in the Notes to Consolidated Financial Statements or is omitted because it is either not required or not applicable. EXHIBITS 3(a) Composite Certificate of Incorporation of The Gillette Company, as amended, filed as Exhibit 1.1 to The Gillette Company Registration Statement on Form 8-A on January 11, 2001, Commission File No. 1-922, incorporated by reference herein. (b) The Bylaws of The Gillette Company, as amended October 18, 2001, filed as Exhibit 3(a) to The Gillette Company Quarterly Report on Form 10-Q for the period ended September 30, 2001, Commission File No. 1-922, incorporated by reference herein. 4 Instruments Defining the Rights of Security Holders, Including Indentures (a) Specimen of form of certificate representing ownership of The Gillette Company Common Stock, $1.00 par value, effective December 10, 1996, filed as Exhibit 4(a) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (b) Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of The Gillette Company, filed as Exhibit A to Exhibit 1 to The Gillette Company Current Report on Form 8-K, dated December 30, 1985, Commission File No. 1-922, incorporated by reference herein. (c) Amendment to Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of The Gillette Company, dated December 9, 1996, filed as Exhibit 4(c) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (d) Renewed Rights Agreement, dated as of December 14, 1995, between The Gillette Company and The First National Bank of Boston, filed as Exhibit 4 to The Gillette Company Current Report on Form 8-K, dated December 18, 1995, Commission File No. 1-922, incorporated by reference herein.
11 (e) Certificate of Amendment relating to an increase in the amount of authorized shares of preferred stock and common stock, filed as Exhibit 3(i) to The Gillette Company Quarterly Report on Form 10-Q for the period ended March 31, 1998, Commission File No. 1-922, incorporated by reference herein. (f) Registration Statement filed on Form 8-A, dated January 11, 2001, revising the description of The Gillette Company's registered securities and corresponding rights, Commission File No. 1-922, incorporated by reference herein. The Company has issued long-term debt and will furnish copies of the instruments defining the rights of holders of such debt to the Commission upon request. 10 Material Contracts *(a) The Gillette Company 1971 Stock Option Plan, as amended, filed herewith. *(b) The Gillette Company Stock Equivalent Unit Plan, as amended, filed as Appendix B to the 2001 Proxy Statement, Commission File No. 1-922, incorporated by reference herein. *(c) The Gillette Company Incentive Bonus Plan, as amended, filed as Appendix D to the 2001 Proxy Statement, Commission File No. 1-922, incorporated by reference herein. *(d) The Gillette Company Executive Life Insurance Program, as amended, filed as Exhibit 10(d) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 1-922, incorporated by reference herein. *(e) The Gillette Company Deferred Compensation Plan for Outside Directors, as amended, filed herewith. *(f) Employment Agreement, dated January 19, 2001, between The Gillette Company and James M. Kilts, as amended, filed as Exhibit 10(a) to The Gillette Company Quarterly Report on Form 10-Q for the period ended September 30, 2001, Commission File No. 1-922, incorporated by reference herein. *(g) Employment Letter, dated February 27, 2001, between The Gillette Company and John F. Manfredi, filed as Exhibit 10(b) to The Gillette Company Quarterly Report on Form 10-Q for the period ended March 31, 2001, Commission File No. 1-922, incorporated by reference herein. *(h) Employment Letter, dated March 12, 2001, between The Gillette Company and Peter Klein, filed as Exhibit 10(c) to The Gillette Company Quarterly Report on Form 10-Q for the period ended March 31, 2001, Commission File No. 1-922, incorporated by reference herein. *(i) Employment Agreement, dated March 19, 2002, between The Gillette Company and Edward F. DeGraan, filed herewith. *(j) Form of Agreement Relating to Change of Control between The Gillette Company and Messrs. DeGraan, Cramb, Willard and Hoffman, filed herewith. *(k) Form of Agreement Relating to Terms of Employment between The Gillette Company and Messrs. Cramb, Willard and Hoffman, filed herewith. (l) Letter Agreement, dated July 20, 1989, between The Gillette Company and Berkshire Hathaway Inc., filed as Exhibit 4(a) to The Gillette Company Current Report on Form 8-K, dated July 20, 1989, Commission File No. 1-922, incorporated by reference herein. *(m) Description of The Gillette Company Personal Financial Planning Reimbursement Program, as amended, filed as Exhibit 10(q) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 1-922, incorporated by reference herein. *(n) The Gillette Company Estate Preservation Plan, filed as exhibit 10(l) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1997, Commission File No. 1-922, incorporated by reference herein. *(o) The Gillette Company Supplemental Retirement Plan, as amended, filed as Exhibit 10(v) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein.
12 *(p) The Gillette Company Supplemental Savings Plan, as amended, filed herewith. (q) Multiyear Credit Agreement, dated as of December 20, 1996, among The Gillette Company, Morgan Guaranty Trust Company of New York, as agent, and a syndicate of domestic and foreign banks, filed as Exhibit 10(o) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (r) $1,650,000,000 364-Day Credit Agreement, dated as of October 16, 2001, among The Gillette Company, The Chase Manhattan Bank, as agent, and a syndicate of domestic and foreign banks, filed herewith. 12 Statement regarding Computation of Ratio of Earnings to Fixed Charges, filed herewith. 13 Portions of the 2001 Annual Report to Stockholders of The Gillette Company incorporated by reference in this Form 10-K, filed herewith. 21 List of subsidiaries of The Gillette Company, filed herewith. 23 Independent Auditors' Consent, filed herewith. 24 Power of Attorney, filed herewith.
- --------------- * Management contract or compensatory plan or arrangement. B. REPORTS ON FORM 8-K IN FOURTH QUARTER None 13 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GILLETTE COMPANY (Registrant) By CHARLES W. CRAMB ------------------------------------ Charles W. Cramb Senior Vice President and Chief Financial Officer Date: March 27, 2002 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- * JAMES M. KILTS Chairman of the Board March 27, 2002 - ----------------------------------------------------- of Directors, Chief Executive Officer James M. Kilts and Director * EDWARD F. DEGRAAN President, Chief Operating Officer March 27, 2002 - ----------------------------------------------------- and Director Edward F. DeGraan * CHARLES W. CRAMB Senior Vice President and Chief March 27, 2002 - ----------------------------------------------------- Financial Officer Charles W. Cramb * CLAUDIO E. RUBEN Vice President, Controller and March 27, 2002 - ----------------------------------------------------- Principal Accounting Officer Claudio E. Ruben * WARREN E. BUFFETT Director March 27, 2002 - ----------------------------------------------------- Warren E. Buffett * WILBUR H. GANTZ Director March 27, 2002 - ----------------------------------------------------- Wilbur H. Gantz * MICHAEL B. GIFFORD Director March 27, 2002 - ----------------------------------------------------- Michael B. Gifford * CAROL R. GOLDBERG Director March 27, 2002 - ----------------------------------------------------- Carol R. Goldberg * DENNIS F. HIGHTOWER Director March 27, 2002 - ----------------------------------------------------- Dennis F. Hightower * HERBERT H. JACOBI Director March 27, 2002 - ----------------------------------------------------- Herbert H. Jacobi * HENRY R. KRAVIS Director March 27, 2002 - ----------------------------------------------------- Henry R. Kravis * JORGE PAULO LEMANN Director March 27, 2002 - ----------------------------------------------------- Jorge Paulo Lemann * RICHARD R. PIVIROTTO Director March 27, 2002 - ----------------------------------------------------- Richard R. Pivirotto * MARJORIE M. YANG Director March 27, 2002 - ----------------------------------------------------- Marjorie M. Yang *By *CHARLES W. CRAMB --------------------------------------------------- Charles W. Cramb as Attorney-In-Fact
14 EX-10.(A) 3 b41814gcex10-a.txt 1971 STOCK OPTION PLAN Exhibit 10(a) THE GILLETTE COMPANY 1971 STOCK OPTION PLAN (WITH AMENDMENTS ADOPTED THROUGH DECEMBER 2001) 1. PURPOSE. The purpose of the 1971 Stock Option Plan (hereinafter referred to as the "Plan") is to provide a special incentive to selected key salaried employees of The Gillette Company (hereinafter referred to as the "Company") and of its subsidiaries and to the non-employee members of the Board of Directors of the Company to promote the Company's business. The Plan is designed to accomplish this purpose by offering such employees and non-employee directors a favorable opportunity to purchase shares of the common stock of the Company so that they will share in the success of the Company's business. For purposes of the Plan a subsidiary is any corporation in which the Company owns, directly or indirectly, stock possessing fifty percent or more of the total combined voting power of all classes of stock or over which the Company has effective operating control. 2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee heretofore established by the Board of Directors of the Company, no member of which shall be an employee of the Company or of any subsidiary. The Committee shall have authority, not inconsistently with the Plan, (a) to determine which of the key salaried employees of the Company and its subsidiaries shall be granted options; (b) to determine whether the options granted to any employees shall be incentive stock options within the meaning of the Internal Revenue Code or non-qualified stock options or both; provided, however, that with respect to options granted after December 31, 1986, in no event shall the fair market value of the stock (determined at the time of grant of the options) subject to incentive stock options within the meaning of the Internal Revenue Code which first became exercisable by any employee in any calendar year exceed $100,000 (and, to the extent such fair market value exceeds $100,000, the later granted options shall be treated as non-qualified stock options); (c) to determine the time or times when options shall be granted to employees and the number of shares of common stock to be subject to each such option provided, however, subject to adjustment as provided in Section 9 of the Plan, in no event shall any employee be granted options covering more than 1,250,000 shares of common stock in any calendar year; (d) with respect to options granted to employees, to determine the option price of the shares subject to each option and the method of payment of such price; (e) with respect to options granted to employees, to determine the time or times when each option becomes exercisable and the duration of the exercise period; (f) to prescribe the form or forms of the instruments evidencing any options granted under the Plan and of any other instruments required under the Plan and to change such forms from time to time; (g) to make all determinations as to the terms of any sales of common stock of the Company to employees under Section 8 of the Plan; (h) to adopt, amend and rescind rules and regulations for the administration of the Plan and the options and for its own acts and proceedings; and (i) to decide all questions and settle all controversies and disputes which may arise in connection with the Plan. All decisions, determinations and interpretations of the Committee shall be binding on all parties concerned. -2- 3. PARTICIPANTS. The participants in the Plan shall be such key salaried employees of the Company or of any of its subsidiaries, whether or not also officers or directors, as may be selected from time to time by the Committee in its discretion, subject to the provisions of Section 8 of the Plan. In addition, each non-employee director shall be a participant in the Plan. In any grant of options after the initial grant, or any sale made under Section 8 of the Plan after the initial sale, employees who were previously granted options or sold shares under the Plan may be included or excluded. 4. LIMITATIONS. No option shall be granted under the Plan and no sale shall be made under Section 8 of the Plan after April 21, 2005, but options theretofore granted may extend beyond that date. Subject to adjustment as provided in Section 9 of the Plan, the number of shares of common stock of the Company, which may be delivered under the Plan, shall not exceed 198,800,000 in the aggregate. To the extent that any option granted under the Plan shall expire or terminate unexercised or for any reason become unexercisable as to any shares subject thereto, such shares shall thereafter be available for further grants under the Plan, within the limit specified above. 5. STOCK TO BE DELIVERED. Stock to be delivered under the Plan may constitute an original issue of authorized stock or may consist of previously issued stock acquired by the Company, as shall be determined by the Committee. The Committee and the proper officers of the Company shall take any appropriate action required for such delivery. 6. TERMS AND CONDITIONS OF OPTIONS GRANTED TO EMPLOYEES. All options granted to either non-employee directors or employees shall be subject to Paragraphs (3) and (4) of Section 6(c) below. All options granted to employees under the Plan shall be subject to all the following additional terms and conditions (except as provided in Sections 7 and 8 of the Plan) and to such other terms and conditions as the Committee shall determine to be appropriate to accomplish the purposes of the Plan: (a) Option Price. The option price under each option shall be determined by the Committee and shall be not less than l00 percent of the fair market value per share at the time the option is granted. If the Committee so directs, an option may provide that if an employee Participant who was an employee participant at the time of the grant of the option and who is not an officer or director of the Company at the time of any exercise of the option, he shall not be required to make payment in cash or equivalent at that time for the shares acquired on such exercise, but may at his election pay the purchase price for such shares by making a payment in cash or equivalent of not less than five percent of such price and entering into an agreement, in a form prescribed by the Committee, providing for payment of the balance of such price, with interest at a specified rate, but not less than four percent, over a period not to exceed five years and containing such other provisions as the Committee in its discretion determines. In addition, if the Committee so directs, an option may provide for a guarantee by the Company of repayment of amounts borrowed by the Participant in order to exercise the option, provided he is not an officer or director of the Company at the time of such borrowing, or may provide that the Company may make a loan, guarantee, or otherwise provide assistance as the Committee deems appropriate to enable the Participant to exercise the option, provided that no such loan, -3- guarantee, or other assistance shall be made without approval of the Board of Directors as required by law. (b) Period of Options. The period of an option shall not exceed ten years from the date of grant. (c) Exercise of Option. (1) Each option held by a participant other than a non-employee director should be made exercisable at such time or times, whether or not in installments, as the Committee shall prescribe at the time the option is granted. In the case of an option held by a participant other than a non-employee director which is not immediately exercisable in full, the Committee may at any time accelerate the time at which all or any part of the option may be exercised. (2) Options intended to be incentive stock options, as defined in the Internal Revenue Code, shall contain and be subject to such provisions relating to the exercise and other matters as are required of incentive stock options under the applicable provisions of the Internal Revenue Code and Treasury Regulations, as from time to time in effect, and the Secretary of the Committee shall inform optionees of such provisions. (3) Payment for Delivery of Shares. Upon exercise of any option, payment in full in the form of cash or a certified bank, or cashier's check or, with the approval of the Secretary of the Committee, in whole or part Common stock of the Company at fair market value, which for this purpose shall be the closing price on the business day preceding the date of exercise, shall be made at the time of such exercise for all shares then being purchased thereunder, except in the case of an exercise to which the provisions of the second sentence of Section 6(a) above are applicable. The purchase price payable by any person, other than a non-employee director, who is not a citizen or resident of the United States of America and who is an employee of a foreign subsidiary at the time payment is due shall, if the Committee so directs, be paid to such subsidiary in the currency of the country in which such subsidiary is located, computed at such exchange rate as the Committee may direct. The amount of each such payment may, in the discretion of the Committee, be accounted for on the books of such subsidiary as a contribution to its capital by the Company. The Company shall not be obligated to deliver any shares unless and until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, nor, in the event the outstanding common stock is at the time listed upon any stock exchange, unless and until the shares to be delivered have been listed or authorized to be added to the list upon official notice of issuance upon such exchange, nor unless or until all other legal matters in connection with the issuance and delivery of shares have been approved by the Company's counsel. Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as counsel for the Company may consider necessary in order to comply with the Securities Act -4- of 1933 and may require that the Participant agree that any sale of the shares will be made only on the New York Stock Exchange or in such other manner as is permitted by the Committee and that he will notify the Company when he makes any disposition of the shares whether by sale, gift, or otherwise. The Company shall use its best efforts to effect any such compliance and listing, and the Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a shareholder only as to shares actually acquired by him under the Plan. (4)(a) Notwithstanding any other provision of this Plan, upon the occurrence of a Change of Control, as hereinafter defined, all outstanding options held by employee Participants and non-employee directors which are not yet exercisable shall become immediately exercisable and all the rights and benefits relating to such options including, but not limited to, periods during which such options may be exercised shall become fixed and not subject to change or revocation by the Company except as otherwise provided under Section 6(i). (b) Notwithstanding the provisions of Section 6(f), in the event that, within two years of a Change of Control, the employment of an employee Participant is terminated by the Company for any reason other than for Cause, or the employee Participant terminates employment for Good Reason, or the service as a director of a non-employee director is terminated, the applicable exercise period for all options, other than options granted prior to June 21, 2001 and designated as incentive stock options hereunder, then held by him shall be a period of two years from the date of termination; provided, however, that in no event shall any option be exercisable beyond ten years from its date of grant. (c) A Change of Control shall mean the occurrence of any of the following events: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this Paragraph (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of Paragraph (3) below; (2) Individuals who, as of December 16, 1999, constitute the Board of Directors (the "Board") of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual -5- becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (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) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (d) For the purposes of the Plan, unless otherwise provided under the terms of an employment agreement with the Company or any of its subsidiaries, in which case the definition contained therein shall control, an employee Participant shall be treated as terminating his employment for "Good Reason" if he does so as a direct result of: (i) the assignment to the Participant of any duties materially inconsistent in any respect with the Participant's position (including status, offices, titles and reporting -6- requirements), authority, duties or responsibilities as in effect immediately prior to the Change of Control, or any other action by the Company or its subsidiaries that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is promptly remedied by the Company and/or the subsidiary; (ii) a decrease in the Participant's compensation, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is promptly remedied by the Company and/or the subsidiary; or (iii) the Company's or the subsidiary's requiring the Participant to be based at any office or location other than (A) the office or where the Participant was based and performed services immediately prior to the Change of Control or (B) any other location less than 35 miles from such office, or the Company's or the subsidiary's requiring the Participant to travel on business to a substantially greater extent than required immediately prior to the Change of Control. (d) Nontransferability of Options. (1) Except as provided in Paragraphs (2) and (3) below, no option may be transferred by a Participant otherwise than by will or the laws of descent and distribution, and during the Participant's lifetime the option may be exercised only by him. (2) In the case of options other than (i) those options designated as incentive stock options or (ii) those options excluded from the application of this Paragraph pursuant to a Schedule to this Plan, the Committee in its sole and exclusive discretion may provide in the option agreement covering an option granted hereunder (either at the time of grant or, with the consent of the Participant, at any time thereafter) that the Participant may transfer by gift all or any part of such option to (x) his spouse, child, grandchild or other "family member" (as such term is defined for purposes of applicable securities and tax laws), to a trust having only family members as beneficiaries or to a partnership or company having only family members as partners or owners, or (y) a charitable organization described in Section 501(c)(3) of the Internal Revenue Code. Any options so transferred shall remain subject to the otherwise applicable terms of the option agreement and this Plan, and also shall be subject to such terms and conditions as the Committee may prescribe. Subsequent transfers of options shall be permitted under this Paragraph only to the extent, and subject to the rules, prescribed by the Committee. (3) A Participant may transfer all or any part of an option granted hereunder to a former spouse pursuant to the terms of a qualified domestic relations order. Any options so transferred shall remain subject to the otherwise applicable terms of the option agreement and this Plan. No subsequent transfers of options shall be permitted under this Paragraph. (e) Nontransferability of Shares. If the Committee so determines, an option granted to an employee may provide that, without prior consent of the Committee, shares acquired by -7- exercise of the option shall not be transferred, sold, pledged or otherwise disposed of within a period not to exceed one year from the date the shares are transferred to the Participant upon his exercise of the option or prior to the satisfaction of all indebtedness with respect thereto, if later. (f) Termination of Employment. The provisions of this Subsection (f) shall govern in the event of the termination of a Participant's employment with the Company and its subsidiaries. If the employment of an employee Participant terminates for any reason other than his death, he may (unless discharged for Cause as hereinafter defined) thereafter exercise his option as provided below: (i) If such termination of employment is voluntary on the part of the employee Participant, he may exercise his option only within 30 days after the date of termination of his employment (unless a longer period not in excess of three months is allowed by the Committee). (ii) If such termination of employment is involuntary on the part of the employee Participant, he may exercise his option only within three months after the date of termination of his employment. (iii) If such termination of employment is on account of the employee Participant's total and permanent disability, he may exercise (I) any option granted prior to January 1, 2002 within the period ending one year after the date of termination of his employment, and (II) any option granted after December 31, 2001 within the period ending three years after the date of termination of his employment. (iv) If such termination of employment is on account of the employee Participant's retirement (as defined below), he may exercise (I) any option granted prior to January 1, 1994, other than an option designated as an incentive stock option hereunder, within the period ending two years after his retirement date, (II) any option granted after December 31, 1993 and prior to April 17, 1997, other than an option designated an incentive stock option hereunder, within the period ending three years after his retirement date, (III) any option granted prior to April 17, 1997 and designated an incentive stock option hereunder within the period ending three months after his retirement date, (IV) any option granted after April 16, 1997 and prior to January 1, 2002 within the period ending five years after his retirement date and (V) any option granted after December 31, 2001 over the remaining option period, provided that an option described in clause (IV) or (V) which was designated at grant as an incentive stock option shall cease to qualify as an incentive stock option under the Internal Revenue Code if not exercised within three months after his retirement date. For the purposes of his Plan, an employee Participant's termination of employment is on account of "retirement" if either (A) at the time the Participant leaves the employ of the Company and its subsidiaries, the Participant qualifies for an early or normal retirement pension under the terms of a retirement plan maintained by or to which the Company or any subsidiary contributes -8- for the benefit of the Participant, (B) the Participant leaves the employ of a subsidiary that does not maintain or contribute to a retirement plan for the benefit of the Participant, and at such time the Participant would have qualified for an early or normal retirement pension under the terms of The Gillette Company Retirement Plan had the individual been a participant of that plan, or (C) solely in the case of a Company-initiated termination of employment (other than for Cause), at the time the Participant leaves the employ of the Company and its subsidiaries, the sum of Participant's attained age and years of service (each measured in full and partial years) totals at least 80. An employee Participant's "retirement date", as used in this paragraph, means the first day the Participant is no longer on the active payroll of the Company or any subsidiary following the Participant's retirement. The Committee may, in its sole discretion, terminate any such option at or any time after the date of termination of the Participant's employment (and prior to the expiration of the exercise periods specified above), if it deems such action to be in the best interests of the Company. In no event may any Participant exercise any option that was not exercisable on the date he ceased to be an employee, except (A) as to options granted prior to January 1, 2002, those options granted at least one year prior to Participant's cessation of employment on account of retirement or total and permanent disability and (B) as to options granted after December 31, 2001, if the Participant's cessation of employment is on account of retirement or total and permanent disability. In no event may any Participant exercise any option after the expiration of the option period. For the purposes of this Subsection (f), a Participant's employment shall not be considered terminated in the case of a sick leave or other bona fide leave of absence approved by the Company or a subsidiary in conformance with the applicable provisions of the Internal Revenue Code or Treasury Regulations, or in the case of a transfer to the employment of a subsidiary or to the employment of the Company. If an employee Participant is discharged for Cause, as hereinafter defined, all his options shall immediately be cancelled effective as of the date of termination of his employment. For the purposes of the Plan, unless otherwise provided under the terms of an employment agreement with the Company or any of its subsidiaries, in which case the definition contained therein shall control, a discharge for "Cause" shall have occurred where a Participant is terminated because of: (A) the Participant's continued failure to perform substantially his duties with the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for performance is delivered to Participant by an officer or a senior manager of the Company or the subsidiary which identifies the manner in which the Board or the elected officer or manager believes that Participant has not performed his duties; (B) the Participant's engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or the subsidiary; or -9- (C) the Participant's conviction of a felony or a plea of nolo contendere by Participant with respect thereto. (g) Death. In the event a Participant dies while holding options granted hereunder, (I) any option granted prior to January 1, 2002 may be exercised within a period not to exceed one year after the date of death, and (II) any option granted after December 31, 2001 may be exercised within a period not to exceed three years after the date of death, as to all or any of the shares covered by such option, by his executor or administrator of the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, and except as so exercised the option shall expire after the expiration of such period. In no event, however, may any option be exercised after the expiration of the option period. (h) Deferral Election. In accordance with such rules and procedures as the Committee may prescribe from time to time, if provided by the Committee, in its sole and exclusive discretion, in the option agreement covering an option granted hereunder, a Participant may elect to defer the delivery of the shares acquired upon the exercise of the option; provided that such election may not be made with respect to any incentive stock option or any option transferred pursuant to the provisions of Section 6(d) above. The Participant's deferral election must be made at least six months prior to the date such option is exercised or at such other time as the Committee may specify. Payment of the option exercise price must be made in the form of shares of common stock which the Participant has held for at least six months. Deferral elections will be allowed only for option exercises that occur while the Participant is an active employee of the Company and its subsidiaries or is actively serving as a non-employee director, as the case may be. Any election to defer the delivery of the stock shall be irrevocable as long as the Participant remains an employee of the Company and its subsidiaries or a non-employee director, as the case may be. Upon the exercise of an option as to which a deferral election has been made in accordance with this Subsection (h), the Company shall credit to a bookkeeping account a number of deferred stock units equal to the number of shares that otherwise would have been delivered to the Participant. During the period of deferral, the deferred stock units shall accrue dividends at the rate paid upon the Company's common stock, which dividend equivalents shall be credited in the form of additional deferred stock units. Deferred stock units shall be distributed in shares of common stock (with cash payment in lieu of any fractional share) upon the Participant's termination of employment with the Company and its subsidiaries or following the date the Participant's membership on the Board of Directors ceases, as the case may be, or if the Participant's termination is on account of retirement, at such other date or dates as may be approved by the Committee over a period extending no later than 10 years following such termination date. The Committee may, in its sole discretion, allow for the early distribution of an employee Participant's deferred stock units in the event of an immediate and heavy financial hardship or in the event of the death or disability of the Participant. Distribution on account of financial hardship shall be limited to the amount necessary to satisfy the hardship. In addition, the -10- Committee in its discretion may direct the distribution of an employee Participant's deferred stock units if it believes such action is in the best interest of the Company. Deferred stock units shall not be assigned or alienated by any Participant, and shall not be subject to attachment, garnishment, encumbrance, pledge or charge of any nature. (i) Additional Conditions of Option Awards. Unless otherwise provided pursuant to an employment agreement between an employee Participant and the Company, the following additional provisions shall govern options awarded under the Plan. (1) With respect to any option granted prior to June 21, 2001, and to any option granted on June 21, 2001 under The Gillette U.K. Approved Stock Option Plan ("2001 UK approved option"), the Committee may, in its sole discretion, cancel any such option at or any time after the date of termination of an employee Participant's employment (and prior to the expiration of the exercise periods specified above), if it deems such action to be in the best interests of the Company. (2) With respect to any option granted on or after June 21, 2001 (other than any 2001 UK approved option) ("covered option"), the following terms and conditions shall apply: (a) Unless otherwise provided pursuant to a termination settlement agreement with the Company or any of its subsidiaries, while the Participant is employed by the Company and for a period of eighteen (18) months after the termination or cessation of such employment for any reason, the Participant shall not directly or indirectly: (i) as an employee, consultant, independent contractor, officer, director, individual proprietor, investor, partner, stockholder, agent, principal, joint venturer, or in any other capacity whatsoever (other than as the holder of not more than one percent of the combined voting power of the outstanding stock of a publicly held corporation or company), be employed, work, consult, advise, assist, or engage in any activity regarding any business, product, service or other matter which: (A) is substantially similar to or competes with any business, product, service or other matter regarding which the Participant worked for the Company, or any of its subsidiaries, during the three (3) years prior to Participant's termination of employment; or (B) concerns subject matters about which Participant gained proprietary information of the Company, or any of its subsidiaries, during the three (3) year period prior to the Participant's termination of employment; (ii) either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served, directly or indirectly, by Participant while employed by the Company; or (iii) either alone or in association with others: (A) solicit or encourage any employee or independent contractor of the Company to terminate his/her -11- relationship with the Company; or (B) recruit, hire or solicit for employment or for engagement as an independent contractor, any person who is or was employed by the Company at any time during the Participant's employment with the Company; provided, that this Paragraph (iii) shall not apply to such person whose employment with the Company has been terminated for a period of six months or longer. (b) The Participant shall not disclose or use at any time any secret or confidential information or knowledge obtained or acquired by the Participant during, after, or by reason of, employment with the Company or any of its subsidiaries, as provided under applicable law and any and all agreements between the Participant and the Company or any of its subsidiaries regarding Participant's employment with the Company or the subsidiary. (c) In accordance with any and all agreements between the Participant and the Company or any of its subsidiaries regarding the Participant's employment, the Participant shall disclose promptly and transfer and assign to the Company all improvements and inventions in certain fields made or conceived by the Participant during employment with the Company or the subsidiary and within the prescribed periods thereafter. (d) To the extent permitted by law, the Participant shall not make, publish or state, or cause to be made, published or stated, any defamatory or disparaging statement, writing or communication pertaining to the character, reputation, business practices, competence or conduct of the Company, its subsidiaries, shareholders, directors, officers, employees, agents, representatives or successors. (3) The geographic scope of the provisions of Paragraph (2)(a) above shall extend to anywhere the Company or any of its subsidiaries is doing business, has done business or intends to do business. (4) If any restriction set forth in Paragraph (2)(a) above is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (5) In the event of a Change of Control, the restrictions contained in Paragraphs (2)(a)(i), (2)(a)(iii) and (2)(d) above shall cease and the Participant shall no longer be bound by the obligations thereunder. (6) If the Company reasonably determines that a Participant has materially violated any of the Participant's obligations under Paragraph (2) above, or if a Participant is terminated for Cause, then, in addition to any other remedies at law or in equity it may have, the Company shall have the following rights and remedies: -12- (a) The Company may cancel any and all covered options granted to the Participant, including grants that according to their terms are vested, effective as of the date on which such violation began (the "Violation Date"); and (b) The Company may demand the return of any gain realized by the Participant as a result of the Participant's exercise of any covered option during the period commencing one year prior to the Participant's termination of employment and continuing through the Violation Date. Upon demand, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of such exercises. At the option of the Company, such payment shall be made by returning to the Company the number of shares of common stock of the Company which the Participant received in connection with such exercise (with the Company then refunding the option price paid by the Participant), or in cash in the amount of the gain realized. If after such demand the Participant fails to return said shares or amounts, the Company shall have the right to offset said amounts against any amounts, including compensation, owed to the Participant by the Company or to commence judicial proceedings against the Participant to recover said shares or amounts. (7) The non-competition restrictions set forth in Paragraph (2)(a) supersede any non-competition restrictions of less than eighteen (18) months in duration set forth in any agreement between a Participant and the Company or any subsidiary or predecessor. 7. REPLACEMENT OPTIONS. The Company may grant options under the Plan on terms differing from those provided for in Section 6 of the Plan where such options are granted in substitution for options held by employees of other corporations who concurrently become employees of the Company or a subsidiary as the result of a merger or consolidation of the employing corporation with the Company or subsidiary, or the acquisition by the Company or a subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute options be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Notwithstanding anything contained in this Plan, the Committee shall have authority, with respect to any options granted or to be granted to employees or outstanding installment Purchase Agreements of participants other than non-employee directors under this Plan, to extend the time for payment of any and all installments, to modify the amount of any installment, to amend outstanding option certificates to provide for installment payments or to take any other action which it may, in its discretion, deem necessary, provided that: (1) interest on the unpaid balance under any outstanding Purchase Agreement at the rate of at least four percent (4%) per annum shall continue to be due and payable quarterly during the period of any deferral of payment; (2) all such installment Purchase Agreements and unexercised options, shall at all times be in accordance with the applicable provisions of Regulation G of the Board of Governors of the Federal Reserve System, as from time to time amended, and with all other applicable legal requirements; (3) no such action by the Committee shall jeopardize the status of stock options as incentive stock options under the Internal Revenue Code. -13- 8. FOREIGN EMPLOYEES. The Company may grant options under the Plan on terms differing from those provided for in Section 6 of the Plan where such options are granted to employee Participants who are not citizens or residents of the United States of America if the Committee determines that such different terms are appropriate in view of the circumstances of such Participants, provided, however, that such options shall not be inconsistent with the provisions of Section 6(a) or Section 6(b) of the Plan. In addition, if the Committee determines that options are inappropriate for any key salaried employees who are not citizens or residents of the United States of America, whether because of the tax laws of the foreign countries in which such employees are residents or for other reasons, the Board of Directors may authorize special arrangements for the sale of shares of common stock of the Company to such employees, whether by the Company, or a subsidiary, or other person. Such arrangements may, if approved by the Board of Directors, include the establishment of a trust by the foreign subsidiary, which is the employer of the key salaried employees, designated by such subsidiary, to whom the shares are to be sold. Such arrangements shall provide for a purchase price of not less than the fair market value of the stock at the date of sale and a maximum annual grant per participant of options to purchase 1,250,000 shares of common stock and may provide that the purchase price be paid over a period of not more than ten years, with or without interest, and that such employees have the right, with or without payment of a specified premium, to require the seller of the shares to repurchase such shares at the same price, subject to specified conditions. Such arrangements may also include provisions deemed appropriate as to acceleration or prepayment of the balance of the purchase price, restrictions on the transfer of the shares by the employee, representations or agreements by the employee about his investment purposes and other miscellaneous matters. 9. CHANGES IN STOCK. In the event of a stock dividend, split-up or combinations of shares, recapitalization or merger in which the Company is the surviving corporation, or other similar capital change, the number and kind of shares of stock or securities of the Company to be subject to the Plan and to options then outstanding or to be granted thereunder, the maximum number of shares or securities which may be issued or sold under the Plan, the maximum annual grant for each participant, the automatic annual grant for each non-employee director, the option price and other relevant provisions shall be appropriately adjusted by the Board of Directors of the Company, whose determination shall be binding on all persons. In the event of a consolidation or a merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of complete liquidation of the Company, all outstanding options shall thereupon terminate, provided that (i) at least twenty days prior to the effective date of any such consolidation or merger, the Board of Directors shall with respect to employee participants either (a) make all outstanding options immediately exercisable, or (b) arrange to have the surviving corporation grant replacement options to the employee Participants and (ii) in the case of option grants to non-employee directors, all outstanding options not otherwise exercisable shall become exercisable on the twentieth day prior to the effective date of the merger. 10. EMPLOYMENT RIGHTS. The adoption of the Plan does not confer upon any employee of the Company or a subsidiary any right to continued employment with the Company or a -14- subsidiary, as the case may be, nor does it interfere in any way with the right of the Company or a subsidiary to terminate the employment of any of its employees at any time. 11. AMENDMENT OF PLAN OR OPTIONS. The Board of Directors of the Company, or the Compensation Committee of the Board of Directors if and to the extent authorized, may at any time or times amend the Plan or amend any outstanding option or options or arrangements established under Section 8 of the Plan for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, provided that (except to the extent required or permitted under Section 9 of the Plan and, with respect to clauses (b) and (f) below, except to the extent required or permitted under Section 7 of the Plan) no such amendment shall, without the approval of the stockholders of the Company, (a) increase the maximum number of shares available under the Plan or the maximum annual grant per participant other than as permitted under Section 9 of the Plan, (b) reduce the minimum option price of options thereafter to be granted below the price provided for in Section 6(a) of the Plan, except that the Plan may be amended to provide that the minimum option price of non-qualified stock options thereafter to be granted to employees may be not less than 95% of the fair market value at the date of grant if the Board determines that such amendment is necessary for tax reasons to carry out the objectives of the Plan, (c) reduce the price at which shares of common stock of the Company may be sold under Section 8 of the Plan below the price provided for in said Section 8, (d) reduce the option price of outstanding options, (e) extend the time within which options may be granted, or (f) extend the period of an outstanding option beyond ten years from the date of grant; and further provided no such amendment shall adversely affect the rights of any Participant (without his consent) under any option theretofore granted or other contractual arrangements theretofore entered into or after a Change of Control deprive any Participant of any right or benefit which became operative in the event of a Change of Control. 12. TERMS AND CONDITIONS OF OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS. Effective at the close of business on the second business day after the 1992 Annual Meeting of Shareholders of the Company and on the second business day after each Annual Meeting thereafter, each non-employee director shall be automatically granted a non-incentive stock option to purchase 4,000 shares (5,000 shares for options granted after 2001) of the common stock of the Company under the generally applicable provisions of the Plan and upon the following specific terms and conditions: (a) Option Price. The option price under each option shall be the fair market value on the date of grant, which for this purpose is defined as the average between the high and the low price of the common stock as reported by the New York Stock Exchange. (b) Option Period. The period of an option shall be ten years from the date of grant. (c) Option Exercisability. Each option granted prior to 2001 shall become exercisable in full on the earlier of the first Annual Meeting following the date of grant or the first anniversary of the date of grant, except as otherwise provided under Paragraph (4) of Section 6(c) of the Plan. Each option granted after 2000 shall become exercisable ratably over a three year period (for options granted after 2001, this means 1,666 after one year, an additional 1,666 after two 15 years and the remaining 1,668 after three years) on the earlier of the Annual Meeting or the anniversary of the date of grant in each such year, except as otherwise provided under Paragraph (4) of Section 6(c) of the Plan. (d) Exercise Period. Any option, otherwise exercisable, may be exercised during the period a non-employee director remains a member of the Board of Directors and for a period of three months following the date a non-employee director ceases to be a director; provided that, in the case where the non-employee director either has attained age 65 or has served as a non-employee director for at least five years when membership on the Board of Directors ends, all of that non-employee director's options shall be exercisable for a period of two years with respect to options granted before 1994, three years for options granted after 1993 and before 2001, five years for options granted after 2000 and before 2002, and the remaining option period for options granted after 2001, each such period commencing on the date membership on the Board of Directors ceases. If a non-employee director dies while a member of the Board of Directors, or following the date membership on the Board of Directors ceases while an option remains exercisable in accordance with the preceding paragraph, then (I) for options granted before 2002, at any time or times within one year after that non-employee director's death, and (II) for options granted after 2001, at any time or times within three years after that non-employee director's death, that non-employee director's option may be exercised in accordance with the provisions of Section 6(g) of the Plan. In no event shall any option be exercised after the expiration of the option period. December 13, 2001 EX-10.(E) 4 b41814gcex10-e.txt DEFERRED COMPENSATION PLAN Exhibit 10(e) THE GILLETTE COMPANY DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS (As amended October 18, 2001) 1. PURPOSE The purpose of this Deferred Compensation Plan for Outside Directors (the "Plan") is to advance the interests of The Gillette Company (the "Company") by enhancing the ability of the Company to attract and retain Directors who are in a position to make significant contributions to the success of the Company and to reward Directors for such contributions by payment of one half of their annual Board retainer on a deferred basis. The Plan also provides a means whereby Directors may, in addition, elect deferral of the payment of the remainder of their annual Board retainer, as well as other retainers and fees which may otherwise become payable to them. 2. EFFECTIVE DATE OF PLAN The Plan shall become effective with respect to all Director retainers and meeting fees earned on and after January 1, 1997. 3. ADMINISTRATION The Plan shall be administered by the Compensation Committee of the Board of Directors (the "Committee"). The Committee shall have the authority, not inconsistent with the express provisions of the Plan, (1) to prescribe forms and procedures in connection with any election or designation with respect to the deferral of Directors' retainers and meeting fees, (2) to adopt, amend, and rescind rules and regulations for the administration of the Plan and (3) to interpret the Plan and decide any questions and settle any controversies or disputes that may arise in connection with the Plan. Such interpretations, determinations and actions of the Committee, and all other determinations and actions made or taken by the Committee under authority of any provisions of the Plan, shall be conclusive and binding on all parties. 4. DELEGATION OF AUTHORITY The Committee may delegate to designated officers of the Company its duties under the Plan subject to such conditions and limitations as the Committee may prescribe. The Secretary of the Corporation, as the designee of the Committee, shall act as the Administrator (the "Administrator") of the Plan and shall have authority to prescribe forms and procedures in connection with any election to defer compensation made under the Plan. 5. ELIGIBILITY Directors eligible to participate in the Plan ("Eligible Directors") shall be any Director of the Company who receives retainers and fees as a Director of the Company and is neither an officer nor an employee of the Company or any of its subsidiaries. -2- 6. TERMS AND CONDITIONS A. Mandatory Deferrals For each Eligible Director, fifty percent (50%) of the annual Board retainer shall be mandatorily deferred and converted into Deferred Stock Units (`DSUs'), which shall be credited semiannually in January and July to an account (a `Deferred Stock Unit Account') maintained for the Eligible Director on the books of the Company. In the event a director is taxed on the deferred retainer at the time of deferral under tax laws applicable to the director's income, the amount of the retainer deferred under this Section shall be reduced by an amount sufficient to pay the required tax. The number of DSUs (rounded to the nearest thousandth of a share) to be credited to each Eligible Director's Deferred Stock Unit Account shall be calculated by dividing the amount of the mandatorily deferred semiannual retainer by the Fair Market Value of the Company's common stock for the applicable six-month period. The Fair Market Value of the Company's common stock for the six-month period shall be based upon the average of the high and the low prices for the stock as reported by the New York Stock Exchange for the second trading day following the Company's regular release of reported earnings after the close of such six-month period unless for good reason the Administrator determines an alternate date or dates for calculating the DSUs to be credited for the applicable six-month period. B. Voluntary Deferrals Each Eligible Director may elect, in lieu of receiving current payment of all or any portion of the remainder of the semi-annual Board retainer and/or all or a portion of any other retainer and meeting fees to which such Eligible Director otherwise would be entitled, that such payment be deferred until after the Eligible Director's retirement or resignation as a Director of the Company, or in either case upon an earlier Change in Control (as that term is defined in The Gillette Company Retirement Plan) as provided below. The Eligible Director shall make such election (i) prior to December 15 of the year preceding the year in which the retainer and fees would be earned or (ii) with respect to an Eligible Director's first year or partial year of service as a Director, within thirty days following the date on which such Director first became a Director. The Eligible Director's election shall include (a) whether the deferred amounts shall be converted into DSUs and credited to a Deferred Stock Unit Account, or shall be credited to an account ("Deferred Cash Account", and together with the Deferred Stock Unit Account, "Accounts") maintained for such Eligible Director on the books of the Company, and (b) whether payment of the Eligible Director's Accounts shall be accelerated upon the occurrence of a Change in Control. A deferral election made by an Eligible Director shall remain in force for the calendar year so elected and for each year thereafter until changed or revoked prospectively by written notice to the Administrator not later than December 15 of the year preceding the year to which such change or revocation relates. A deferral election may not be changed or revoked after the beginning of the year to which it relates. While an Eligible Director's deferral election is in effect, as of the first day of January and July with respect to Board retainers, or as of the date when any other retainer is earned, the Company shall credit the amount of voluntarily deferred retainers and fees for the applicable period either (i) as DSUs to a Deferred Stock Unit Account, in the same manner as described in Paragraph 6A above based upon the average of the high and the low prices for the Company's -3- common stock as reported by the New York Stock Exchange for the applicable date above or, in the case of any month in which the Company's earnings or other material information are reported, for the second trading day following the Company's release of reported earnings in the month to which the deferred amounts relate, or (ii) to a Deferred Cash Account, in accordance with the Eligible Director's election. C. Additional Credits to Accounts (1) Interest amounts shall be credited semiannually, on June 30 and December 31, to each Eligible Director's Deferred Cash Account based upon the balances in the Eligible Director's Deferred Cash Account during that calendar year. Interest shall be credited at a rate equivalent to the average yield on 10-year U.S. Treasury Bills on the first trading day of each calendar year ("Interest Rate"). The Interest Rate shall be adjusted annually. (2) Each time a dividend is paid on the Company's common stock, the Company shall make additional credits of DSUs to each Eligible Director's Deferred Stock Unit Account. The number of DSUs to be credited shall be calculated by multiplying the dividend amount per share of the Company's common stock by the number of DSUs credited to the Eligible Director's account as of the record date for the dividend, and dividing the result by the Fair Market Value of the Company's common stock on the dividend payment date based upon the average of the high and the low prices for the Company's common stock as reported by the New York Stock Exchange for that date. D. Payment of Accounts As of the date an Eligible Director ceases to serve as a Director of the Company, the balance then credited to the Eligible Director's Deferred Stock Unit Account shall be converted to a fixed amount calculated by multiplying the number of DSUs in his or her Account by the Fair Market Value of the Company's common stock (determined based upon the average of the high and low prices of the stock as reported by the New York Stock Exchange for the 20 trading days immediately preceding the applicable date). The resulting amount shall be credited to the Eligible Director's Deferred Cash Account, which shall continue to be credited with additional amounts as prescribed in Paragraph 6C(1) above until paid in full. The entire balance of an Eligible Director's Accounts shall be paid in cash to the Eligible Director in ten approximately equal annual installments beginning in January of the year after the Eligible Director ceases to serve as a Director of the Company, unless the Eligible Director has elected, at least 12 months prior to the cessation of his or her service as a Director of the Company, to have payment of the Accounts made in a lesser number of approximately equal annual installments or in a single lump sum. Upon the death of an Eligible Director, any remaining amount then credited to the Eligible Director's Accounts shall be paid in a single lump sum to the beneficiary designated by the Eligible Director. If the designated beneficiary does not survive the Eligible Director, or if the Eligible Director does not designate a beneficiary under this paragraph, any remaining amount then credited to the Eligible Director's Accounts at the death of the Eligible Director shall be paid in a single lump sum to the estate of the Eligible Director. An Eligible Director may -4- designate or change a beneficiary at any time by completing and delivering to the Administrator a beneficiary designation form as prescribed by the Administrator. E. Change in Control Upon the occurrence of a Change in Control, notwithstanding anything contained in the Plan to the contrary, the amounts then credited to the Accounts of each Eligible Director who has previously elected to have payment of his or her Accounts accelerated hereunder shall be paid as soon as practicable following the Change in Control. For the purposes of the preceding sentence, DSUs credited to the Deferred Stock Unit Accounts subject to the payment acceleration elections of Eligible Directors shall be valued based upon the average of the high and low prices of the Company's common stock as reported by the New York Stock Exchange for the 20 trading days immediately preceding the Change in Control. 7. AMENDMENT AND TERMINATION The Board of Directors may amend or terminate this Plan at any time; however no such amendment shall reduce the then existing balance in any Eligible Director's Account or extend the time during which the Director has elected to receive payments. In the event of termination of the Plan, the Company may elect to satisfy its obligations under this Plan by making an immediate lump sum payment in cash or in such other manner as it determines appropriate. 8. PRIOR PLANS This Plan is intended to replace The Gillette Company Outside Directors' Stock Ownership Plan ("ODSOP") and the Directors' Deferred Compensation Provisions, subject to the following: (1) No new contributions to Directors' ODSOP accounts shall be made after October 31, 1996; however, these accounts shall be maintained and the shares of Company common stock held in these accounts shall continue to earn dividends. (2) Eligible Directors may convert cash amounts previously deferred under the Directors' Deferred Compensation Provisions into DSUs under this Plan by making a written election before December 15, 1996. These cash deferrals shall be converted to DSUs based the average of the high and low prices of the Company's common stock as reported by the New York Stock Exchange for last trading day of the months of July through December, 1996, and shall be credited to the Eligible Director's Deferred Stock Unit Account. If such an election is not made, the Eligible Director's cash deferral balance under the Directors' Deferred Compensation Provisions as of December 31, 1996 shall be credited to a Deferred Cash Account under this Plan as of January 1, 1997. 9. SEVERABILITY If it shall ever be determined that, notwithstanding the Company's intent and purpose for establishing and maintaining this Plan, an Eligible Director is required to include all or part of any deferred amount in his or her gross income for any tax purposes prior to the time that such amount would be required to be paid under the terms of the Plan, whether by taxing authorities of -5- the United States or other sovereign nation or political subdivisions thereof, the Administrator has the discretion to cause the amount equal to the consequent tax liability to be paid to the Eligible Director from his or her Accounts. 10. ADJUSTMENT PROVISIONS In the event of a stock dividend, stock split or combination of shares, recapitalization or other changes in the Company's common stock, or other distribution to common stockholders other than regular cash dividends, after the effective date of the Plan, the number of DSUs credited to Deferred Stock Unit Accounts and other relevant provisions hereunder shall be adjusted accordingly by the Committee. 11. SOURCE OF PAYMENTS All amounts payable under the Plan shall be paid by the Company from its general assets. Notwithstanding the maintenance of records on its books as described in Paragraph 6 above, no Eligible Director shall have any right to or interest in any assets of the Company other than as an unsecured general creditor, and no separate fund shall be established in which any Eligible Director has any right or interest. The foregoing shall not prevent the Company from establishing a fund from which to satisfy its payment obligations under the Plan. 12. NO ASSIGNMENT OF INTEREST The interest of any Eligible Director under the Plan may not be assigned, alienated, encumbered or otherwise transferred, and shall not be subject to attachment, garnishment, execution or levy; and any attempted assignment, alienation, encumbrance, transfer, attachment, garnishment, execution or levy shall be void and of no force or effect. ### EX-10.(I) 5 b41814gcex10-i.txt EMPLOYMENT AGREEMENT WITH EDWARD DEGRAAN EXHIBIT 10(i) EMPLOYMENT AGREEMENT AGREEMENT, dated as of the 19th day of March, 2002 (this "Agreement"), by and between The Gillette Company, a Delaware corporation (the "Company"), and Edward F. DeGraan (the "Executive"). WHEREAS, the Company has determined that it is in its best interests and that of its stockholders to continue to employ the Executive upon terms and conditions intended to assure that the Company will have the continued dedication of the Executive without distraction relating to employment and severance terms and conditions, to encourage the Executive's full attention and dedication to the Company, to provide the Executive with compensation, benefits and severance arrangements that are competitive with those of other peer companies and to protect the interests of the Executive and Company in the event the employment of the Executive is terminated. WHEREAS, the Executive desires to continue his employment with the Company, subject to the terms and conditions of this Agreement. THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive agree as follows: SECTION 1. CERTAIN DEFINITIONS (a) "AFFILIATED COMPANY" means any company controlled by, or under common control with, the Company. (b) "CHANGE OF CONTROL" means (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this Section 1(b)(1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 1(b)(3)(A), 1(b)(3)(B) and 1(b)(3)(C); E. DEGRAAN PAGE 1 OF 18 (2) Individuals who, as of December 16, 1999, constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to December 16, 1999 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (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) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "TARGET BONUS AMOUNT" means the greater of (1) the target bonus applicable to the Executive, as defined in the Company's Incentive Bonus Plan or any comparable provision of any successor annual bonus plan for the incentive year during which the Executive's employment is terminated, or (2) the amount actually paid to the Executive pursuant to Section 13 of the Company's Incentive Bonus plan or any comparable provision of any successor annual bonus plan for the incentive year immediately preceding the year of the Executive's termination of employment. E. DEGRAAN PAGE 2 OF 18 (d) "PEER EXECUTIVE" means a full-time employee who is treated by the Company as a United States employee for employment and benefits purposes and holds a position of grade 25 and above, excluding the Chief Executive Officer. SECTION 2. TERM OF AGREEMENT The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the date hereof (the "Effective Date") and ending on April 30, 2004 (the "Employment Period"); provided, however, that unless previously terminated, the Employment Period shall be automatically extended so as to terminate two years from the end of the Employment Period, unless, no later than 90 days prior to the end of the Employment Period, either the Company or the Executive shall give notice to the other party that the Employment Period shall not be so extended. This Agreement shall automatically terminate and be replaced and superseded by the Change of Control Employment Agreement executed between the Company and the Executive (the "Change of Control Agreement") upon the Effective Date of the Change of Control Agreement as defined therein. (a) COMMITMENT TO DUTIES. During the Employment Period, and excluding any periods of vacation and medical or other leave of absence to which the Executive is entitled, the Executive agrees to faithfully and diligently perform all duties and responsibilities of his position and devote reasonable attention, skill, energy, ability and time during normal business hours to the business and affairs of the Company and, to the extent necessary, to discharge the responsibilities assigned to the Executive hereunder, and to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (1) serve on corporate, civic or charitable boards or committees, (2) deliver lectures, fulfill speaking engagements or teach at educational institutions and (3) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) CONFIDENTIALITY. During the Employment Period, the Executive shall not disclose to anyone outside the Company, nor use in other than the Company's business, any trade secret or confidential information or knowledge relating to the Company's business or acquired by reason of employment with the Company. E. DEGRAAN PAGE 3 OF 18 (c) ASSIGNMENT OF INVENTIONS AND IDEAS. In accordance with the Executive's prior employment agreement with the Company, the Executive hereby sells, assigns and transfers to the Company his entire interest in any invention or idea, patentable or not, made or conceived solely or jointly by him (1) during the Employment Period or previous period of employment with the Company, whether or not during business hours and whether or not on Company premises, or (2) within a period of one year after the Date of Termination as herinafter defined. The Executive agrees to promptly disclose such idea or invention to the Company, execute and deliver all required instruments (including a specific assignment of title to the Company), and do anything else reasonably necessary to enable the Company, at its own expense, to secure patent and other property rights in the United States and in foreign countries. (d) COMPLIANCE WITH COMPANY POLICIES. During the Employment Period, the Executive shall conform to and comply with the policies, rules and regulations of the Company. SECTION 3. TERMS AND CONDITIONS OF EMPLOYMENT The following terms and conditions shall apply to the Executive's employment: (a) POSITION AND DUTIES. The Executive shall continue to serve in his current position or such other executive position as determined by the Company's Chief Executive Officer. (b) COMPENSATION (1) BASE SALARY. The Executive shall receive an Annual Base Salary ("Annual Base Salary") of $857,000, which Annual Base Salary shall be payable in periodic installments, no less frequently than monthly. During the Employment Period, the Annual Base Salary shall be reviewed for possible increase every twelve to fifteen months, depending on position and salary range. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (2) INCENTIVE, SAVINGS AND RETIREMENT PLANS. The Executive shall be eligible to participate in all incentive, savings and retirement plans and programs generally offered to other Peer Executives of the Company, as those plans and programs may change from time to time. (3) INSURANCE AND WELFARE BENEFIT PLANS. The Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under the Company's Executive Life Insurance Plan and Estate Preservation Plan, and any other welfare benefit plans and programs generally offered to other Peer Executives of the Company (which currently include medical, dental, disability, spouse/dependent life insurance E. DEGRAAN PAGE 4 OF 18 and travel accident insurance plans and programs), as those plans and programs may exist and change from time to time. (4) EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company, in effect from time to time, for Peer Executives of the Company. (5) FRINGE BENEFITS. The Executive shall be eligible for all fringe benefits generally offered to other Peer Executives of the Company, as those benefits may change from time to time. (6) VACATION. The Executive shall be entitled to paid vacation provided generally to other Peer Executives of the Company in accordance with the plans, policies, programs and practices of the Company, as they may change from time to time. (7) EFFECT OF TERMINATION. Notwithstanding anything in this Agreement to the contrary, upon termination of employment for any reason, the Executive's employment shall cease on the Date of Termination and the Executive shall have no further right to the payments or benefits described in this Section 3, but shall look to the right to the payments and benefits described in Section 5. SECTION 4. TERMINATION OF EMPLOYMENT (a) DEATH. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. (b) DISABILITY. If the Company determines in good faith that a Disability (as defined herein) of the Executive has occurred, it may give to the Executive written notice in accordance with Section 4(e) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for at least three months as a result of incapacity due to a mental or physical impairment that is determined to entitle the Executive to receive benefits under The Gillette Company Long-Term Disability Plan or any successor long-term disability plan. (c) CAUSE. The Company may terminate the Executive's employment for Cause. "Cause" for this purpose means: (1) the Executive's continued failure to perform substantially his duties with the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental impairment), after a written demand for performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies E. DEGRAAN PAGE 5 OF 18 the manner in which the Board or the Chief Executive Officer believes that Executive has not performed his duties; (2) the Executive's engaging in illegal conduct or misconduct which is injurious to the Company; (3) the Executive's failure to comply with any restriction set forth in Section 8(c) of this Agreement; (4) the Executive's violation of a material Company policy, rule or regulation; or (5) the Executive's conviction of a felony or a plea of nolo contendere by Executive with respect thereto. (d) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" for this purpose means: (1) any substantial failure by the Company to comply with Section 3(a) or 3(b) of this Agreement, provided that the Executive has first (a) given written notice to the Company of the alleged violation of Section 3(a) or (b) within 60 days of the action or incident giving rise to the alleged violation and (b) the Company has failed to remedy the alleged violation within 30 days after the receipt of notice thereof; (2) any purported termination by the Company of the Executive's employment other than as expressly permitted by this Agreement; or (3) any failure by the Company to comply with and satisfy Section 11(c). (e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets 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, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder. E. DEGRAAN PAGE 6 OF 18 (f) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or any later date specified in the Notice of Termination, as the case may be, (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be and (4) if the Executive's employment is terminated by either party's giving of notice in accordance with Section 2 that the Employment Period under this Agreement shall not be extended, the Date of Termination shall be the last day of the Employment Period. SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION (a) TERMINATION BY THE COMPANY OR THE EXECUTIVE. If during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason or at the end of the Employment Period either the Company or the Executive elects not to renew the term of this agreement: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) to the extent not previously paid and to the extent such deferrals are not continued pursuant to a Termination Settlement Agreement, any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) The Executive shall be offered a Termination Settlement Agreement prepared by the Company which includes the following material terms and is subject to the following conditions: (a) SEVERANCE PAY - The Company shall pay the Executive the sum of (i) two years of the Executive's Annual Base Salary, and (ii) two times the Target Bonus Amount ("Severance Pay"). The Executive may elect to receive Severance Pay either as (1) a lump sum payment, (2) continuing semi-monthly payments over a period of two years, or (3) continuing semi-monthly payments over a period of less than two years, followed by a lump sum payment of the balance due within 30 days of the last semi-monthly payment. If on the Date of Termination the Executive is within five years of earliest eligibility for E. DEGRAAN PAGE 7 OF 18 retirement under The Gillette Company Retirement Plan, he may elect to receive Severance Pay as continuing payments over a period longer than two years, as set forth below. Severance Pay which is paid as continuing payments, but not Severance Pay which is paid as a lump sum, will be included in the calculation of Average Annual Compensation and will result in receipt of age and service credit, all in accordance with the terms of The Gillette Company Retirement Plan. If the Executive elects to retire and begin receiving pension payments during a period in which Severance Pay is being provided as continuing payments, he will receive a lump sum payment of the balance of any Severance Pay due under the Termination Settlement Agreement. Once pension payments begin, the Executive is eligible for only those pension payment and benefits and services available to retirees. (b) RETIREMENT - (1) VESTED RIGHT PENSION. If, on the Date of Termination or during the period during which the Executive receives Severance Pay as continuing payments, the Executive is not retirement-eligible but has five or more years of credited service, the Executive will be eligible to receive a vested rights pension under The Gillette Company Retirement Plan. (2) RETIREMENT-ELIGIBLE ON DATE OF TERMINATION. If, on the Date of Termination, the Executive is eligible for a pension under The Gillette Company Retirement Plan, the Executive may elect to retire and begin receiving pension payments at any time after the Date of Termination. (3) WITHIN FIVE YEARS OF RETIREMENT ELIGIBILITY. If, on the Date of Termination, the Executive is not retirement-eligible but is within five years of earliest eligibility for retirement, the Executive may elect to receive Severance Pay as extended continuing payments apportioned throughout the time period from the Date of Termination until the earliest date of retirement eligibility, and thereby receive age and service credit to the earliest date of retirement eligibility under The Gillette Company Retirement Plan. (C) STOCK OPTION PLAN - If the Executive is not eligible for early, normal or late retirement under the terms of The Gilllette Company Retirement Plan on the last day he receives Severance Pay, all options held by the Executive, which are not otherwise exercisable under the terms of the Stock Option Plan or a successor plan, shall become exercisable and all options held by the Executive shall remain exercisable for a period of three years thereafter provided, however, that in no event shall any option be exerciseable beyond ten years from its date of grant. If the Executive is eligible for early, normal or late retirement under the terms of The Gilllette Company Retirement Plan on the last day he receives Severance Pay, all options granted prior to 2002 E. DEGRAAN PAGE 8 OF 18 which are held by the Executive for one or more years and which are not otherwise exercisable under the terms of the Stock Option Plan or a successor plan, shall become exercisable and remain exercisable for a period of five years thereafter provided, however, that in no event shall any option be exerciseable beyond ten years from its date of grant. If the Executive is eligible for early, normal or late retirement under the terms of The Gillette Company Retirement Plan on the last day he receives Severance Pay, all options granted beginning in 2002 which are held by the Executive and which are not otherwise exercisable under the Stock Option Plan or a successor plan, shall become exercisable and remain exercisable for the remaining term of the option. (d) BENEFITS - For the period of time after the Executive's Date of Termination during which the Executive receives Severance Pay as continuing payments, but not if the Executive receives Severance pay as a lump sum, the Company shall continue to permit the Executive and/or the Executive's family, where applicable to participate in the following plans and benefits: Medical Plan Dental Plan Employees' Savings Plan Supplemental Savings Plan Executive Life Insurance Plan Spouse and Child Life Insurance Plan Flexible Spending Accounts provided, however, that, if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, any medical and other welfare benefits provided by the Company shall be secondary to those provided under such other plan during such applicable period of eligibility. Regardless of the method by which the Executive elects to receive Severance Pay, the Executive shall not be eligible after the Date of Termination for certain employee benefits, including: Additional grants under the Stock Option Plan Additional grants under the Incentive Bonus Plan The Salary Continuation Plan The Long-term Disability Plan Vacation Accruals Holiday Pay The Tuition Refund Plan (e) ESTATE PRESERVATION PLAN -- For purposes of the Estate Preservation Plan, termination of an Executive's employment with the Company shall be considered to occur on the E. DEGRAAN PAGE 9 OF 18 later of the Date of Termination or the last day on which the Executive receives Severance Pay as continuing payments, if applicable. (f) OUTPLACEMENT SERVICES - The Company shall provide the Executive with customary outplacement services for a maximum period of one year. (g) RELEASE OF ALL CLAIMS - The provision of all pay and benefits to the Executive under a Termination Settlement Agreement shall be contingent on the Executive's execution of a general release of claims against the Company and specified affiliates and plans, as well as certain related agents, parties, and entities. (h) OTHER OBLIGATIONS -- The Termination Settlement Agreement shall also require the Executive to reaffirm the obligations set forth in Section 8 herein. (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall have no further obligations to the Executive's legal representatives under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive's estate or beneficiary, as applicable: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family, estate or beneficiary, as applicable, is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; E. DEGRAAN PAGE 10 OF 18 (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. (d) CAUSE. If the Executive's employment is terminated for Cause during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. An Executive whose employment is terminated for Cause shall also be subject to forfeiture of stock options and other rights and remedies as set forth in Section 8(d) herein. (e) VOLUNTARY OTHER THAN FOR GOOD REASON. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason or termination at the end of the Employment Period because of his non-renewal of the agreement, the Company shall have no further obligations to the Executive under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; E. DEGRAAN PAGE 11 OF 18 (b) if elected by the Executive, any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. SECTION 6. NON-EXCLUSIVITY OF CERTAIN RIGHTS Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, other than the Change of Control Agreement, (a) this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, and (b) if the Executive receives severance pay and benefits under Section 5, the Executive shall not be entitled to receive severance pay or benefits under any other plan, program, policy or arrangement of the Company providing severance benefits. SECTION 7. FULL SETTLEMENT In no event shall the Executive be obligated to seek other employment or, unless otherwise expressly provided herein, take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment, except as expressly provided in Section 5(a)(2) herein. SECTION 8. OBLIGATIONS OF THE EXECUTIVE (a) RESIGNATIONS. As of Executive's Date of Termination, he shall immediately resign as an officer and director of the Company and its Affiliated Companies. The Executive agrees to execute any and all documentation of such resignations upon request by the Company, but he shall be treated for all purposes as having so resigned as of such Date of Termination, regardless of when or whether he executed any such documentation. (b) COMPANY PROPERTY. As of the Executive's Date of Termination, he shall return all equipment, files, documents, credit cards, and any other property of any sort belonging to the Company. E. DEGRAAN PAGE 12 OF 18 (c) ADDITIONAL RESTRICTIONS: NON-COMPETITION AND NON-SOLICITATION; CONFIDENTIALITY; INVENTIONS; PROHIBITED STATEMENTS. (1) During the Employment Period and for a period of two years after the Date of Termination, the Executive shall not directly or indirectly: (i) as an employee, consultant, independent contractor, officer, director, individual proprietor, investor, partner, stockholder, agent, principal, joint venturer, or in any other capacity whatsoever (other than as the holder of not more than one percent of the combined voting power of the outstanding equity of a publicly held corporation or company), be employed, work, consult, advise, assist, or engage in any activity regarding any business, product, service or other matter which: (A) is substantially similar to or competes with any business, product, service or other matter regarding which the Executive worked for the Company, or any of its subsidiaries, during the three (3) years prior to the Date of Termination; or (B) concerns subject matters about which Executive gained proprietary information of the Company, or any of its subsidiaries, during the three (3) year period prior to the Executive's termination of employment; (ii) either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served, directly or indirectly, by Executive while employed by the Company; or (iii) either alone or in association with others: (A) solicit or encourage any employee or independent contractor of the Company to terminate his/her relationship with the Company; or (B) recruit, hire or solicit for employment or for engagement as an independent contractor, any person who is or was employed by the Company at any time during the Executive's employment with the Company; provided, that this Paragraph (iii) shall not apply to such person whose employment with the Company has been terminated for a period of one year or longer. (2) After the Date of Termination as well as during the Employment Period, the Executive shall not disclose or use at any time any secret or confidential information or knowledge obtained or acquired by the Executive during, after, or by reason of, employment with the Company or any of its subsidiaries, as provided under applicable law and any and all agreements between the Executive and the Company or any of its subsidiaries regarding Executive's employment with the Company or the subsidiary. (3) After the Date of Termination as well as during the Employment Period, to the extent permitted by law, the Executive shall not make, publish or state, or cause to be made, published or stated, any defamatory or disparaging statement, writing or communication pertaining to the character, reputation, business practices, competence or conduct of the Company, its subsidiaries, shareholders, directors, officers, employees, agents, representatives or successors. E. DEGRAAN PAGE 13 OF 18 (4) The geographic scope of the provisions of Section 8(c)(1) above shall extend to anywhere the Company or any of its subsidiaries is doing business, has done business or intends to do business. (5) If any restriction set forth in Section 8(c) above is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (6) The obligations contained in this Section 8 shall continue in effect following termination of employment for any reason except that, in the event of a Change of Control, the restrictions contained in Sections 8(c)(1)(i), 8(c)(1)(iii), and 8(c)(3) above shall cease and the Executive shall no longer be bound by the obligations thereunder. (d) RIGHTS AND REMEDIES IN THE EVENT OF CERTAIN BREACHES If the Company reasonably determines that the Executive has materially violated any of the Executive's obligations under Section 8(c) above, or if a Executive is terminated for Cause, then, in addition to any other remedies at law or in equity it may have, the Company shall have the following rights and remedies: (1) The Company may immediately terminate all termination settlement pay and benefits provided to the Executive under a Termination Settlement Agreement, as described in Section 5(a)(2), if applicable, and shall have no further obligation to provide such pay and benefits to the Executive hereunder. (2) The Company may cancel any and all options previously granted to the Executive under The Gillette Company 1971 Stock Option Plan or any successor thereto, including but not limited to grants that according to their terms are vested, effective as of the date on which such violation began (the "Violation Date"); and (3) The Company may demand the return of any gain realized by the Executive as a result of the Executive's exercise of any option during the period commencing one year prior to the Executive's termination of employment and continuing through the Violation Date. Upon demand, the Executive shall pay to the Company the amount of any gain realized or payment received as a result of such exercises. At the option of the Company, such payment shall be made by returning to the Company the number of shares of common stock of the Company which the Executive received in connection with such exercise (with the Company then refunding the option price paid by the Executive), or in cash in the amount of the gain realized. If after such demand the Executive fails to return said shares or amounts, the Company shall have the right to offset said amounts against any amounts, including compensation, owed to the Executive by the Company or to commence judicial proceedings against the Executive to recover said shares or amounts. E. DEGRAAN PAGE 14 OF 18 (4) The non-competition restrictions set forth in Section 8(c)(1) supersede any non-competition restrictions of a lesser duration as set forth in any agreement between a Executive and the Company or any subsidiary or predecessor or any plan. (e) ACKNOWLEDGEMENT OF RIGHT TO TAKE OTHER ACTIONS. The Executive acknowledges that legal remedies would be inadequate to remedy the irreparable harm that would result to the Company from a breach of his obligations under Section 8(c) above, and therefore agrees that injunctive relief would be appropriate to avoid or remedy any such breach or potential breach, in addition to the specific rights and remedies set forth in Section 8(d) above, to the extent applicable. SECTION 9. DISPUTE RESOLUTION. Any dispute arising under, or relating to, this Agreement, any other agreement between the Executive and the Company or its Affiliates, the Executive's employment with the Company or the termination thereof, shall be resolved expeditiously by binding arbitration by a single arbitrator to be held in Boston, Massachusetts, in accordance with the laws of the Commonwealth of Massachusetts and the then-current Commercial Arbitration Rules of the American Arbitration Association (the "Arbitration Rules"). Either the Executive or the Company may initiate binding arbitration by written notice delivered to the other party. Within 14 days after the initiation of arbitration, the parties shall seek to identify one mutually acceptable impartial third party to serve as sole arbitrator. Any such arbitrator shall: (a) be a partner (or comparable officer) in a law firm in Boston, Massachusetts having more than 75 lawyers; (b) have been active for 20 or more years in the practice of corporate law or litigation; and (c) be active, on substantially a full-time basis, in such practice at the time the dispute is noticed. If the parties are unable or fail to agree upon the arbitrator within 14 days after the initiation of arbitration, the arbitrator shall be selected in accordance with the Arbitration Rules. All information exchanged or presented to the arbitrator in the proceedings, whether in oral, written or other form, and the results of the proceedings, shall be confidential and except as required by law shall not be disclosed to any person or entity without prior written permission from the party who offered or presented the information. For any dispute resolved by arbitration pursuant to this section, the arbitrator shall award attorneys' fees and costs, and costs associated with the arbitration proceeding, to the party determined by the arbitrator to be the prevailing party. Pending such award of attorneys' fees and costs and arbitration costs, the parties shall divide equally the administrative charges, arbitrator's fees and related expenses of the arbitration, but each party shall pay its own legal fees incurred in connection with such arbitration. The arbitrator shall issue a written decision, stating the reasons for the decision, within 30 days of the termination of the arbitration proceedings. The arbitrator shall not be empowered to modify any rights or obligations of either the Executive or the Company under this Agreement or any other agreement between the Executive and the Company or its Affiliates. The decision of the arbitrator acting within the scope of his or her authority shall be final and binding upon the E. DEGRAAN PAGE 15 OF 18 parties and may be entered, enforced and executed upon in any court having jurisdiction over the party against whom enforcement of such award is sought. Nothing contained in this section shall limit the right of the Company, at its sole option, to seek or obtain equitable or other relief or remedies from any court of competent jurisdiction for the Executive's violation of Section 8(c) of this Agreement. SECTION 10. COOPERATION/INFORMATION REQUESTS After the Executive's Date of Termination, the Executive agrees to make himself reasonably available to the Company to respond to requests by the Company for information concerning matters involving facts or events relating to the Company or its Affiliated Companies that may be in the Executive's knowledge, and to assist the Company and its Affiliated Companies as reasonably requested with respect to pending and future litigations, arbitrations, or other dispute resolutions. The Company will reimburse the Executive for his reasonable travel expenses and other costs incurred under this section. SECTION 11. SUCCESSORS (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. SECTION 12. INDEMNIFICATION The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, limited liability corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's certificate of incorporation or bylaws or resolutions of the Company's Board of Directors or, if greater, by the laws of the State E. DEGRAAN PAGE 16 OF 18 of Delaware, against all cost, expense, liability and loss (including, without limitation, attorney's fees, judgments, fines, ERISA excise taxes or other liabilities or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and not otherwise received by him from another source, such as insurance, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity and shall inure to the benefit of the Executive's heirs and legal representatives. SECTION 13. MISCELLANEOUS (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: Edward F. DeGraan 11 Olmsted Road Hingham, MA 02043 if to the Company: The Gillette Company Prudential Tower Building Boston, Massachusetts 02199 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(d) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. E. DEGRAAN PAGE 17 OF 18 (f) Except with respect to the Change of Control Agreement, the Executive and the Company acknowledge that this agreement supersedes any other agreement or plan provisions concerning the subject matter hereof. (g) This Agreement may be executed in several counterparts, each of which shall be deemed an original and said counterparts shall constitute but one and the same instrument. (h) Except as expressly set forth in this Agreement, upon the expiration of this Agreement, the respective rights and obligations of the Company and the Executive shall survive such expiration to the extent necessary to carry out the rights and obligations of the parties. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ----------------------------------------- Edward F. DeGraan THE GILLETTE COMPANY By -------------------------------------- Edward E. Guillet Senior Vice President, Human Resources E. DEGRAAN PAGE 18 OF 18 EX-10.(J) 6 b41814gcex10-j.txt FORM OF AGREEMENT RELATING TO CHANGE OF CONTROL EXHIBIT 10(j) CHANGE IN CONTROL EMPLOYMENT AGREEMENT AGREEMENT, dated as of the _____ day of ________________, ________ (this "Agreement"), by and between The Gillette Company, a Delaware corporation (the "Company"), and ______________ (the "Executive"). WHEREAS, the Company has determined that it is in its best interests and that of its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Company believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Company has entered into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment. (b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. (c) "Affiliated Company" means any company controlled by, controlling or under common control with the Company. (d) "Change of Control" means: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this Section 1(d)(1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C). (2) Individuals who, as of December 16, 1999, constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to December 16, 1999 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (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) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or -2- (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (e) "Recent Annual Bonus Percentage" means the highest actual annual bonus percentage awarded to the Executive under the Company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (and equal to sixty-five percent (65%) in the event that the Executive was not employed by the Company for one full fiscal year prior to the Effective Date). (f) "Highest Annual Bonus Percentage" means the higher of (i) the Executive's Recent Annual Bonus Percentage and (ii) sixty-five percent (65%). (g) "Highest Annual Bonus" means an amount equal to the product of (i) the Executive's Annual Base Salary at the Date of Termination and (ii) the Highest Annual Bonus Percentage. (h) "Bonus Payment Amount" means the amount actually paid to the Executive pursuant to Section 13 of the Company's Incentive Bonus Plan or any comparable provision of any successor annual bonus plan. SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of the Effective Date (the "Employment Period"). SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office or location where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office. (2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the -3- conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid at a monthly rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the Affiliated Companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased. (2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash, determined as a percentage of Annual Base Salary which shall not be less than the Recent Annual Bonus Percentage. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies. (4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under the Company's Executive Life Insurance Plan and Estate Preservation Plan, and any other welfare benefit plans, practices, policies and programs provided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, disability, employee/spouse/dependent life insurance and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the most favorable of -4- such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies. (5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, parking benefits and fitness center membership, in accordance with the most favorable plans, practices, programs and policies of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (9) EFFECT OF TERMINATION. Notwithstanding anything in this Agreement to the contrary, upon termination of employment for any reason, the Employment Period shall cease and the Executive shall have no further right to any of the payments or benefits described in Sections 2 and 3. SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of -5- its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means: (1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any Affiliated Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or (2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company. For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until 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 entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail. (c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means: (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action -6- by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive; (2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive; (3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (5) any failure by the Company to comply with and satisfy Section 10(c). For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets 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, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment -7- is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason: (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts: (A) the sum of (i) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) the product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, reduced (but not below zero), if the Date of Termination occurs in the same fiscal year as the Change of Control, by the Executive's Bonus Payment Amount, (iii) if elected by the Executive, any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), and (iv) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii), (iii) and (iv), the "Accrued Obligations"); and (B) the amount equal to the product of (i) three and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus; and (C) if elected by the Executive within 60 days following execution of this Agreement and prior to the Effective Date, in lieu of and substitution for the applicable portion of the Executive's monthly benefit otherwise payable under the final paragraph of Article IV, Section 1 or paragraph (a) of Article V, Section 3 of the Company's Retirement Plan and the final paragraph of Section 3 of Supplemental Retirement Plan (collectively, the "Retirement Plans"), an amount equal to the excess of (i) the lump sum actuarial equivalent (utilizing the interest rate and mortality table in effect for lump sum distributions under the Retirement Plan immediately prior to the Effective Date, and determined assuming benefit commencement as of the Date of Termination) of the benefit under the Retirement Plans that the Executive would receive if the Executive's employment continued for three years after the Date of Termination, assuming for this purpose that all accrued benefits are fully vested and assuming that the Executive's compensation in each of the three years is the Annual Base Salary and Highest Annual Bonus, over (ii) the lump sum actuarial equivalent (determined in the same manner as in clause (i) above) of the Executive's actual benefit (paid or payable), if any, under -8- the Retirement Plans as of the Date of Termination without regard to such three years' compensation and service; (2) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining the Executive's eligibility for retiree benefits pursuant to such welfare plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination, provided, however, that the Executive's commencement of such retiree benefits shall not be any sooner than the Executive's earliest retirement date under the Retirement Plans; (3) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and (4) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Companies (such other amounts and benefits, the "Other Benefits"). (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall have no further obligations to the Executive's legal representatives under this Agreement, except for payment of the Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the Affiliated Companies to the estates and beneficiaries of peer executives of the Company and the Affiliated Companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the Affiliated Companies and their beneficiaries. -9- (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except for payment of the Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the Affiliated Companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the Affiliated Companies and their families. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except for payment to the Executive of (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement, except for payment of the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with the Company or the Affiliated Companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may -10- reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or the Affiliated Companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG Peat Marwick or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. -11- (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall: (1) give the Company any information reasonably requested by the Company relating to such claim, (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (3) cooperate with the Company in good faith in order effectively to contest such claim, and (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the -12- Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the Affiliated Companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. -13- SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: if to the Company: The Gillette Company Prudential Tower Building Boston, Massachusetts 02199 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date: (i) this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, and (ii) if the Executive receives severance benefits under Section 5(a), the -14- Executive shall not be entitled to receive severance pay or benefits under any other plan, program, policy or arrangement of the Company providing severance benefits. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ----------------------------------------- THE GILLETTE COMPANY By --------------------------------------- Edward E. Guillet Senior Vice President - Human Resources -15- EX-10.(K) 7 b41814gcex10-k.txt FORM OF AGREEMENT RELATING TO TERMS OF EMPLOYMENT EXHIBIT 10(k) EMPLOYMENT AGREEMENT AGREEMENT, dated as of the ____ day of _______________, 2001 (this "Agreement"), by and between The Gillette Company, a Delaware corporation (the "Company"), and ((NAME)) (the "Executive"). WHEREAS, the Company has determined that it is in its best interests and that of its stockholders to continue to employ the Executive upon terms and conditions intended to assure that the Company will have the continued dedication of the Executive without distraction relating to employment and severance terms and conditions, to encourage the Executive's full attention and dedication to the Company, to provide the Executive with compensation, benefits and severance arrangements that are competitive with those of other peer companies and to protect the interests of the Executive and Company in the event the employment of the Executive is terminated. WHEREAS, the Executive desires to continue his employment with the Company, subject to the terms and conditions of this Agreement. Therefore, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive agree as follows: SECTION 1. CERTAIN DEFINITIONS (a) "AFFILIATED COMPANY " means any company controlled by, or under common control with, the Company. (b) "CHANGE OF CONTROL" means (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this Section 1(b)(1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 1(b)(3)(A), 1(b)(3)(B) and 1(b)(3)(C); [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 1 OF 18 (2) Individuals who, as of December 16, 1999, constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to December 16, 1999 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (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) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "TARGET BONUS AMOUNT" means the greater of (1) the target bonus applicable to the Executive, as defined in the Company's Incentive Bonus Plan or any comparable provision of any successor annual bonus plan for the incentive year during which the Executive's employment is terminated, or (2) the amount actually paid to the Executive pursuant to Section 13 of the Company's Incentive Bonus plan or any comparable provision of any successor annual bonus plan for the incentive year immediately preceding the year of the Executive's termination of employment. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 2 OF 18 (d) "PEER EXECUTIVE" means a full-time employee who is treated by the Company as a United States employee for employment and benefits purposes and holds a position of grade 25 and above, excluding the Chief Executive Officer. SECTION 2. TERM OF AGREEMENT The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the date hereof (the "Effective Date") and ending on December 31, 2003 (the "Employment Period"); provided, however, that commencing on December 31, 2002, and on each annual anniversary of such date (such date and each anniversary thereof being hereinafter referred to as a "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate two years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall not be so extended. This Agreement shall automatically terminate and be replaced and superseded by the Change of Control Employment Agreement executed between the Company and the Executive (the "Change of Control Agreement") upon the Effective Date of the Change of Control Agreement as defined therein. The Company reserves the right to terminate the Employment Period under this Agreement pursuant to this paragraph without terminating the Executive's employment with the Company. (a) COMMITMENT TO DUTIES. During the Employment Period, and excluding any periods of vacation and medical or other leave of absence to which the Executive is entitled, the Executive agrees to faithfully and diligently perform all duties and responsibilities of his position and devote reasonable attention, skill, energy, ability and time during normal business hours to the business and affairs of the Company and, to the extent necessary, to discharge the responsibilities assigned to the Executive hereunder, and to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (1) serve on corporate, civic or charitable boards or committees, (2) deliver lectures, fulfill speaking engagements or teach at educational institutions and (3) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) CONFIDENTIALITY. During the Employment Period, the Executive shall not disclose to anyone outside the Company, nor use in other than the Company's business, any trade secret or confidential information or knowledge relating to the Company's business or acquired by reason of employment with the Company. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 3 OF 18 (c) ASSIGNMENT OF INVENTIONS AND IDEAS. In accordance with the Executive's prior employment agreement with the Company, the Executive hereby sells, assigns and transfers to the Company his entire interest in any invention or idea, patentable or not, made or conceived solely or jointly by him (1) during the Employment Period or previous period of employment with the Company, whether or not during business hours and whether or not on Company premises, or (2) within a period of one year after the Date of Termination as hereinafter defined. The Executive agrees to promptly disclose such idea or invention to the Company, execute and deliver all required instruments (including a specific assignment of title to the Company), and do anything else reasonably necessary to enable the Company, at its own expense, to secure patent and other property rights in the United States and in foreign countries. (d) COMPLIANCE WITH COMPANY POLICIES. During the Employment Period, the Executive shall conform to and comply with the policies, rules and regulations of the Company. SECTION 3. TERMS AND CONDITIONS OF EMPLOYMENT The following terms and conditions shall apply to the Executive's employment: (a) POSITION AND DUTIES. The Executive shall continue to serve in his current position or such other executive position as determined by the Company's Chief Executive Officer. (b) COMPENSATION (1) BASE SALARY. The Executive shall receive an Annual Base Salary ("Annual Base Salary") of $________, which Annual Base Salary shall be payable in periodic installments, no less frequently than semi-monthly. During the Employment Period, the Annual Base Salary shall be reviewed for possible increase every twelve to fifteen months, depending on position and salary range. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (2) INCENTIVE, SAVINGS AND RETIREMENT PLANS. The Executive shall be eligible to participate in all incentive, savings and retirement plans and programs generally offered to other Peer Executives of the Company, as those plans and programs may change from time to time. (3) INSURANCE AND WELFARE BENEFIT PLANS. The Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under the Company's Executive Life Insurance Plan and Estate Preservation Plan, and any other welfare benefit plans and programs generally offered to other Peer Executives of the Company (which currently include medical, dental, disability, spouse/dependent life insurance and travel accident insurance plans and programs), as those plans and programs may exist and change from time to time. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 4 OF 18 (4) EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company, in effect from time to time, for Peer Executives of the Company. (5) FRINGE BENEFITS. The Executive shall be eligible for all fringe benefits generally offered to other Peer Executives of the Company, as those benefits may change from time to time. (6) VACATION. The Executive shall be entitled to paid vacation provided generally to other Peer Executives of the Company in accordance with the plans, policies, programs and practices of the Company, as they may change from time to time. (7) EFFECT OF TERMINATION. Notwithstanding anything in this Agreement to the contrary, upon termination of employment for any reason, the Executive's employment shall cease on the Date of Termination and the Executive shall have no further right to the payments or benefits described in this Section 3, but shall look to the right to the payments and benefits described in Section 5. SECTION 4. TERMINATION OF EMPLOYMENT (a) DEATH. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. (b) DISABILITY. If the Company determines in good faith that a Disability (as defined herein) of the Executive has occurred, it may give to the Executive written notice in accordance with Section 4(e) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for at least three months as a result of incapacity due to a mental or physical impairment that is determined to entitle the Executive to receive benefits under The Gillette Company Long-Term Disability Plan or any successor long-term disability plan. (c) CAUSE. The Company may terminate the Executive's employment for Cause. "Cause" for this purpose means: (1) the Executive's continued failure to perform substantially his duties with the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental impairment), after a written demand for performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer believes that Executive has not performed his duties; [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 5 OF 18 (2) the Executive's engaging in illegal conduct or misconduct which is injurious to the Company; (3) the Executive's failure to comply with any restriction set forth in Section 8(c) of this Agreement; (4) the Executive's violation of a material Company policy, rule or regulation; or (5) the Executive's conviction of a felony or a plea of nolo contendere by Executive with respect thereto. (d) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" for this purpose means: (1) any substantial failure by the Company to comply with Section 3(a) or 3(b) of this Agreement, provided that the Executive has first (a) given written notice to the Company of the alleged violation of Section 3(a) or (b) within 60 days of the action or incident giving rise to the alleged violation and (b) the Company has failed to remedy the alleged violation within 30 days after the receipt of notice thereof; (2) any purported termination by the Company of the Executive's employment other than as expressly permitted by this Agreement; or (3) any failure by the Company to comply with and satisfy Section 11(c). (e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets 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, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 6 OF 18 (f) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or any later date specified in the Notice of Termination, as the case may be, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION (a) GOOD REASON, OTHER THAN FOR CAUSE OR DISABILITY. If during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) to the extent not previously paid and to the extent such deferrals are not continued pursuant to a Termination Settlement Agreement, any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) The Executive shall be offered a Termination Settlement Agreement prepared by the Company which includes the following material terms and is subject to the following conditions: (a) SEVERANCE PAY - The Company shall pay the Executive the sum of (i) two years of the Executive's Annual Base Salary, and (ii) two times the Target Bonus Amount ("Severance Pay"). The Executive may elect to receive Severance Pay either as (1) a lump sum payment, (2) continuing semi-monthly payments over a period of two years, or (3) continuing semi-monthly payments over a period of less than two years, followed by a lump sum payment of the balance due within 30 days of the last semi-monthly payment. If on the Date of Termination the Executive is within five years of earliest eligibility for retirement under The Gillette Company Retirement Plan, he may elect to receive Severance Pay as continuing payments over a period longer than two years, as set forth below. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 7 OF 18 Severance Pay which is paid as continuing payments, but not Severance Pay which is paid as a lump sum, will be included in the calculation of Average Annual Compensation and will result in receipt of age and service credit, all in accordance with the terms of The Gillette Company Retirement Plan. If the Executive elects to retire and begin receiving pension payments during a period in which Severance Pay is being provided as continuing payments, he will receive a lump sum payment of the balance of any Severance Pay due under the Termination Settlement Agreement. Once pension payments begin, the Executive is eligible for only those pension payment and benefits and services available to retirees. (b) RETIREMENT - (1) VESTED RIGHT PENSION. If, on the Date of Termination or during the period during which the Executive receives Severance Pay as continuing payments, the Executive is not retirement-eligible but has five or more years of credited service, the Executive will be eligible to receive a vested rights pension under The Gillette Company Retirement Plan. (2) RETIREMENT-ELIGIBLE ON DATE OF TERMINATION. If, on the Date of Termination, the Executive is eligible for a pension under The Gillette Company Retirement Plan, the Executive may elect to retire and begin receiving pension payments at any time after the Date of Termination. (3) WITHIN FIVE YEARS OF RETIREMENT ELIGIBILITY. If, on the Date of Termination, the Executive is not retirement-eligible but is within five years of earliest eligibility for retirement, the Executive may elect to receive Severance Pay as extended continuing payments apportioned throughout the time period from the Date of Termination until the earliest date of retirement eligibility, and thereby receive age and service credit to the earliest date of retirement eligibility under The Gillette Company Retirement Plan. (c) STOCK OPTION PLAN - If the Executive is not eligible for early, normal or late retirement under the terms of The Gillette Company Retirement Plan on the last day he receives Severance Pay, all options held by the Executive, which are not otherwise exercisable under the terms of the Stock Option Plan or a successor plan, shall become exercisable and all options held by the Executive shall remain exercisable for a period of three years thereafter provided, however, that in no event shall any option be exercisable beyond ten years from its date of grant. If the Executive is eligible for early, normal or late retirement under the terms of The Gillette Company Retirement Plan on the last day he receives Severance Pay, all options held by the Executive for one or more years, which are not otherwise exercisable under the terms of the Stock Option Plan or a successor plan, shall become exercisable and remain exercisable for a period of five years thereafter provided, however, that in no event shall any option be exercisable beyond ten years from its date of grant. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 8 OF 18 (d) BENEFITS - For the period of time after the Executive's Date of Termination during which the Executive receives Severance Pay as continuing payments, but not if the Executive receives Severance pay as a lump sum, the Company shall continue to permit the Executive and/or the Executive's family, where applicable to participate in the following plans and benefits: Medical Plan Dental Plan Employees' Savings Plan Supplemental Savings Plan Executive Life Insurance Plan Spouse and Child Life Insurance Plan Flexible Spending Accounts provided, however, that, if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, any medical and other welfare benefits provided by the Company shall be secondary to those provided under such other plan during such applicable period of eligibility. Regardless of the method by which the Executive elects to receive Severance Pay, the Executive shall not be eligible after the Date of Termination for certain employee benefits, including: Additional grants under the Stock Option Plan Additional grants under the Incentive Bonus Plan The Salary Continuation Plan The Long-term Disability Plan Vacation Accruals Holiday Pay The Tuition Refund Plan (e) ESTATE PRESERVATION PLAN -- For purposes of the Estate Preservation Plan, termination of an Executive's employment with the Company shall be considered to occur on the later of the Date of Termination or the last day on which the Executive receives Severance Pay as continuing payments, if applicable. (f) OUTPLACEMENT SERVICES - The Company shall provide the Executive with customary outplacement services for a maximum period of one year. (g) RELEASE OF ALL CLAIMS - The provision of all pay and benefits to the Executive under a Termination Settlement Agreement shall be contingent on the Executive's execution of a general release of claims against the Company and specified affiliates and plans, as well as certain related agents, parties, and entities. (h) OTHER OBLIGATIONS -- The Termination Settlement Agreement shall also require the Executive to reaffirm the obligations set forth in Section 8 herein. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 9 OF 18 (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall have no further obligations to the Executive's legal representatives under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive's estate or beneficiary, as applicable: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family, estate or beneficiary, as applicable, is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. (d) CAUSE. If the Executive's employment is terminated for Cause during the Employment Period, the Company shall have no further obligations to the Executive under this Agreement, except as follows: [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 10 OF 18 (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid and in accordance with the terms of those plans; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. An Executive whose employment is terminated for Cause shall also be subject to forfeiture of stock options and other rights and remedies as set forth in Section 8(d) herein. (e) VOLUNTARY OTHER THAN FOR GOOD REASON. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, the Company shall have no further obligations to the Executive under this Agreement, except as follows: (1) Within 30 days after the Date of Termination, the Company shall pay the aggregate of the following amounts in a lump sum in cash to the Executive: (a) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid; (b) if elected by the Executive, any compensation previously deferred by the Executive under the Company's Supplemental Savings Plan, Incentive Bonus Plan and/or Stock Equivalent Unit Plan (together with any accrued interest or earnings thereon), to the extent not previously paid; and (c) any accrued vacation pay, to the extent not previously paid. (2) To the extent not previously paid or provided, the Company shall timely pay or provide any other amounts or benefits required to be paid or provided or that the Executive or Executive's family is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company. SECTION 6. NON-EXCLUSIVITY OF CERTAIN RIGHTS Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 11 OF 18 accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, other than the Change of Control Agreement,[AND THE AGREEMENTS DESCRIBED IN ANNEX A HERETO WHICH IS INCORPORATED BY REFERENCE HEREIN] (a) this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, and (b) if the Executive receives severance pay and benefits under Section 5, the Executive shall not be entitled to receive severance pay or benefits under any other plan, program, policy or arrangement of the Company providing severance benefits. SECTION 7. FULL SETTLEMENT In no event shall the Executive be obligated to seek other employment or, unless otherwise expressly provided herein, take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment, except as expressly provided in Section 5(a)(2) herein. SECTION 8. OBLIGATIONS OF THE EXECUTIVE (a) RESIGNATIONS. As of Executive's Date of Termination, he shall immediately resign as an officer and director of the Company and its Affiliated Companies. The Executive agrees to execute any and all documentation of such resignations upon request by the Company, but he shall be treated for all purposes as having so resigned as of such Date of Termination, regardless of when or whether he executed any such documentation. (b) COMPANY PROPERTY. As of the Executive's Date of Termination, he shall return all equipment, files, documents, credit cards, and any other property of any sort belonging to the Company. (c) ADDITIONAL RESTRICTIONS: NON-COMPETITION AND NON-SOLICITATION; CONFIDENTIALITY; INVENTIONS; PROHIBITED STATEMENTS. (1) During the Employment Period and for a period of two years after the Date of Termination, the Executive shall not directly or indirectly: (i) as an employee, consultant, independent contractor, officer, director, individual proprietor, investor, partner, stockholder, agent, principal, joint venturer, or in any other capacity whatsoever (other than as the holder of not more than one percent of the combined voting power of the outstanding equity of a publicly held corporation or company), be employed, work, consult, advise, assist, or engage in any activity regarding any business, product, service or other matter which: (A) is substantially similar to or competes with any business, product, service or other matter regarding which the Executive worked for the Company, or any of its subsidiaries, during the three (3) years prior to the Date of Termination; or (B) concerns subject matters about which Executive gained proprietary information of the Company, or any of its subsidiaries, during the three (3) year period prior to the Executive's termination of employment; [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 12 OF 18 (ii) either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served, directly or indirectly, by Executive while employed by the Company; or (iii) either alone or in association with others: (A) solicit or encourage any employee or independent contractor of the Company to terminate his/her relationship with the Company; or (B) recruit, hire or solicit for employment or for engagement as an independent contractor, any person who is or was employed by the Company at any time during the Executive's employment with the Company; provided, that this Paragraph (iii) shall not apply to such person whose employment with the Company has been terminated for a period of one year or longer. (2) After the Date of Termination as well as during the Employment Period, the Executive shall not disclose or use at any time any secret or confidential information or knowledge obtained or acquired by the Executive during, after, or by reason of, employment with the Company or any of its subsidiaries, as provided under applicable law and any and all agreements between the Executive and the Company or any of its subsidiaries regarding Executive's employment with the Company or the subsidiary. (3) After the Date of Termination as well as during the Employment Period, to the extent permitted by law, the Executive shall not make, publish or state, or cause to be made, published or stated, any defamatory or disparaging statement, writing or communication pertaining to the character, reputation, business practices, competence or conduct of the Company, its subsidiaries, shareholders, directors, officers, employees, agents, representatives or successors. (4) The geographic scope of the provisions of Section 8(c)(1) above shall extend to anywhere the Company or any of its subsidiaries is doing business, has done business or intends to do business. (5) If any restriction set forth in Section 8(c) above is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (6) The obligations contained in this Section 8 shall continue in effect following termination of employment for any reason except that, in the event of a Change of Control, the restrictions contained in Sections 8(c)(1)(i), 8(c)(1)(iii), and 8(c)(3) above shall cease and the Executive shall no longer be bound by the obligations thereunder. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 13 OF 18 (d) RIGHTS AND REMEDIES IN THE EVENT OF CERTAIN BREACHES If the Company reasonably determines that the Executive has materially violated any of the Executive's obligations under Section 8(c) above, or if a Executive is terminated for Cause, then, in addition to any other remedies at law or in equity it may have, the Company shall have the following rights and remedies: (1) The Company may immediately terminate all termination settlement pay and benefits provided to the Executive under a Termination Settlement Agreement, as described in Section 5(a)(2), if applicable, and shall have no further obligation to provide such pay and benefits to the Executive hereunder. (2) The Company may cancel any and all options previously granted to the Executive under The Gillette Company 1971 Stock Option Plan or any successor thereto, including but not limited to grants that according to their terms are vested, effective as of the date on which such violation began (the "Violation Date"); and (3) The Company may demand the return of any gain realized by the Executive as a result of the Executive's exercise of any option during the period commencing one year prior to the Executive's termination of employment and continuing through the Violation Date. Upon demand, the Executive shall pay to the Company the amount of any gain realized or payment received as a result of such exercises. At the option of the Company, such payment shall be made by returning to the Company the number of shares of common stock of the Company which the Executive received in connection with such exercise (with the Company then refunding the option price paid by the Executive), or in cash in the amount of the gain realized. If after such demand the Executive fails to return said shares or amounts, the Company shall have the right to offset said amounts against any amounts, including compensation, owed to the Executive by the Company or to commence judicial proceedings against the Executive to recover said shares or amounts. (4) The non-competition restrictions set forth in Section 8(c)(1) supersede any non-competition restrictions of a lesser duration as set forth in any agreement between a Executive and the Company or any subsidiary or predecessor or any plan. (e) ACKNOWLEDGEMENT OF RIGHT TO TAKE OTHER ACTIONS. The Executive acknowledges that legal remedies would be inadequate to remedy the irreparable harm that would result to the Company from a breach of his obligations under Section 8(c) above, and therefore agrees that injunctive relief would be appropriate to avoid or remedy any such breach or potential breach, in addition to the specific rights and remedies set forth in Section 8(d) above, to the extent applicable. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 14 OF 18 SECTION 9. DISPUTE RESOLUTION. Any dispute arising under, or relating to, this Agreement, any other agreement between the Executive and the Company or its Affiliates, the Executive's employment with the Company or the termination thereof, shall be resolved expeditiously by binding arbitration by a single arbitrator to be held in Boston, Massachusetts, in accordance with the laws of the Commonwealth of Massachusetts and the then-current Commercial Arbitration Rules of the American Arbitration Association (the "Arbitration Rules"). Either the Executive or the Company may initiate binding arbitration by written notice delivered to the other party. Within 14 days after the initiation of arbitration, the parties shall seek to identify one mutually acceptable impartial third party to serve as sole arbitrator. Any such arbitrator shall: (a) be a partner (or comparable officer) in a law firm in Boston, Massachusetts having more than 75 lawyers; (b) have been active for 20 or more years in the practice of corporate law or litigation; and (c) be active, on substantially a full-time basis, in such practice at the time the dispute is noticed. If the parties are unable or fail to agree upon the arbitrator within 14 days after the initiation of arbitration, the arbitrator shall be selected in accordance with the Arbitration Rules. All information exchanged or presented to the arbitrator in the proceedings, whether in oral, written or other form, and the results of the proceedings, shall be confidential and except as required by law shall not be disclosed to any person or entity without prior written permission from the party who offered or presented the information. For any dispute resolved by arbitration pursuant to this section, the arbitrator shall award attorneys' fees and costs, and costs associated with the arbitration proceeding, to the party determined by the arbitrator to be the prevailing party. Pending such award of attorneys' fees and costs and arbitration costs, the parties shall divide equally the administrative charges, arbitrator's fees and related expenses of the arbitration, but each party shall pay its own legal fees incurred in connection with such arbitration. The arbitrator shall issue a written decision, stating the reasons for the decision, within 30 days of the termination of the arbitration proceedings. The arbitrator shall not be empowered to modify any rights or obligations of either the Executive or the Company under this Agreement or any other agreement between the Executive and the Company or its Affiliates. The decision of the arbitrator acting within the scope of his or her authority shall be final and binding upon the parties and may be entered, enforced and executed upon in any court having jurisdiction over the party against whom enforcement of such award is sought. Nothing contained in this section shall limit the right of the Company, at its sole option, to seek or obtain equitable or other relief or remedies from any court of competent jurisdiction for the Executive's violation of Section 8(c) of this Agreement. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 15 OF 18 SECTION 10. COOPERATION/INFORMATION REQUESTS After the Executive's Date of Termination, the Executive agrees to make himself reasonably available to the Company to respond to requests by the Company for information concerning matters involving facts or events relating to the Company or its Affiliated Companies that may be in the Executive's knowledge, and to assist the Company and its Affiliated Companies as reasonably requested with respect to pending and future litigations, arbitrations, or other dispute resolutions. The Company will reimburse the Executive for his reasonable travel expenses and other costs incurred under this section. SECTION 11. SUCCESSORS (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. SECTION 12. INDEMNIFICATION The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, limited liability corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's certificate of incorporation or bylaws or resolutions of the Company's Board of Directors or, if greater, by the laws of the State of Delaware, against all cost, expense, liability and loss (including, without limitation, attorney's fees, judgments, fines, ERISA excise taxes or other liabilities or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and not otherwise received by him from another source, such as insurance, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity and shall inure to the benefit of the Executive's heirs and legal representatives. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 16 OF 18 SECTION 13. MISCELLANEOUS (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: ((NAME)) ((STREETADDRESS)) ((CITYSTATEZIP)) if to the Company: The Gillette Company Prudential Tower Building Boston, Massachusetts 02199 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(d) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) Except with respect to the Change of Control Agreement, [AND THE AGREEMENT DESCRIBED IN ANNEX A HERETO WHICH IS INCORPORATED BY REFERENCE HEREIN] the Executive and the Company acknowledge that this agreement supersedes any other agreement or plan provisions concerning the subject matter hereof. (g) This Agreement may be executed in several counterparts, each of which shall be deemed an original and said counterparts shall constitute but one and the same instrument. [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 17 OF 18 (h) Except as expressly set forth in this Agreement, upon the expiration of this Agreement, the respective rights and obligations of the Company and the Executive shall survive such expiration to the extent necessary to carry out the rights and obligations of the parties. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. -------------------- ((NAME)) THE GILLETTE COMPANY By ------------------- TITLE: [LAST NAME] - GILLETTE EMPLOYMENT AGREEMENT PAGE 18 OF 18 EX-10.(P) 8 b41814gcex10-p.txt SUPPLEMENTAL SAVINGS PLAN Exhibit 10(p) THE GILLETTE COMPANY SUPPLEMENTAL SAVINGS PLAN (as amended and restated effective January 1, 1997) --------------------------------------------------- (with amendments adopted through September 4, 2001) --------------------------------------------------- 1. Purpose. The Gillette Company Supplemental Savings Plan (the "Plan") has been adopted by The Gillette Company (the "Company") to provide additional benefits to certain employees of the Company and its Participating Subsidiaries whose benefits under The Gillette Company Employees' Savings Plan (the "Savings Plan") have been limited by the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), in order to provide that the total benefits payable under this Plan and the Savings Plan shall be approximately equal to the amount of benefits which would have accrued under the Savings Plan for such employees had such limitations imposed by the Code not been in effect. The Plan document as amended and restated herein is a continuation of The Gillette Company Supplemental Savings Plan for Contributions Prior to May 1, 1991 and The Gillette Company Supplemental Savings Plan for Contributions After April 30, 1991. The Plan is intended to constitute an "excess benefit plan" within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and an unfunded plan of deferred compensation described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and in Sections 3121(v)(2) and 3306(r)(2) of the Code. 2. Eligible Employees. Employees eligible to participate in this Plan for any calendar year shall be those employees of the Company and Participating Subsidiaries who are eligible to participate in the Savings Plan and (i) whose Annual Additions are limited for such year by reason of Section 415 of the Code, based on actual participation in the Savings Plan, or (ii) who are determined by the Committee to be management or highly compensated employees for such year and whose contributions or Compensation taken into account under the Savings Plan are limited for such year by reason of another provision of the Code, based on actual participation in the Savings Plan. 3. Participants. Participants are eligible employees who elect to participate in the Plan, at such time and in such manner prescribed by the Committee, as of the next practicable payroll period by executing and delivering to the Company a Participation and Salary Deferral Agreement, in a form prescribed by the Committee. Participation in the Plan may be discontinued by a Participant at any time, effective as of the next practicable payroll period, by executing and delivering to the Company a revocation of such Participation and Salary Deferral Agreement. -2- Such revocation shall operate prospectively and shall have no effect on prior deferrals under this Plan. An individual who has previously participated in the Plan shall be considered a Participant for the purposes of the Plan, other than Section (4)(a) and (b) below, until final distribution is made of amounts credited to the individual's accounts under the Plan. An eligible employee who was a participant in the Duracell Inc. Supplemental Cash Balance Plan on December 31, 1998 and, pursuant to section 9.2 of such plan, whose benefit under such plan was transferred to this Plan, shall be a Participant as of January 1, 1999. 4. Deferrals; Credits to Accounts. (a) If any portion of Compensation from the Company which, but for the limitations on contributions or Compensation contained in the provisions of the Code set forth in Section 4(c) below, would be contributed to the Savings Plan as Tax Deferred Savings and/or Taxed Savings for a calendar year, a Participant may defer such Compensation on a pre-tax basis until retirement or later elected date, termination of employment or hardship. These deferred amounts (hereinafter referred to as "Supplemental Savings") will be recorded in an account, entitled the "Supplemental Savings Account," maintained for each Participant on the books of the Company. A Participant shall always be fully vested in amounts credited to the Supplemental Savings Account maintained for such Participant. (b) The Company Contribution that would have been made under the Savings Plan in respect of each Participant's Compensation elected to be contributed as Tax Deferred Savings and Taxed Savings for a calendar year, which Compensation is instead deferred pursuant to Section 4(a) above, shall not be made but an equal amount (hereinafter referred to as "Supplemental Company Contributions") shall be recorded by the Company in an account on its books, entitled the "Supplemental Company Contribution Account," maintained for such Participant. Amounts credited to a Participant's Supplemental Company Contribution Account shall become vested at the same time the Participant becomes vested in his Company Contributions under the Savings Plan. (c) For the purposes of Section 4(a) above, the applicable provisions of the Code are (i) the Section 415 limitations on Annual Additions, (ii) the Section 402(g) limitation on Tax Deferred Savings, (iii) the Section 401(a)(17) limitation on Compensation, and (iv) if and to the extent determined by the Committee for a given year, the Section 401(k) and (m) limitations on contributions by and on behalf of Highly Compensated Employees. (d) As of January 1, 1999, there also shall be recorded in a Supplemental Savings Account for each Participant who was a participant in the Duracell Inc. Supplemental Cash Balance Plan on December 31, 1998 and, pursuant to section 9.2 of such plan, whose benefit under such plan was transferred to this -3- Plan, an amount equal to the "Termination Value" of such Participant's benefit under the Duracell Inc. Supplemental Cash Balance Plan. The Participant shall always be fully vested in the amount credited to the Supplemental Savings Account in accordance with this subsection. (e) Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, with respect to any Participant who terminates employment within two years of the Change of Control under circumstances entitling the Participant to separation benefits under the Company's Change of Control Severance Program for Key Executives, any of such separation benefits payable to the Participant as salary continuation shall be treated as Compensation under this Plan (and not the Savings Plan), and shall be subject to deferral as Supplemental Savings and to Supplemental Company Contributions pursuant to this Section 4. 5. Additional Credits to Accounts. (a) Each Participant, upon electing to participate in the Plan, shall designate the Investment Fund or Funds with respect to which such Participant's Supplemental Savings shall be deemed invested, either on a Participation and Salary Deferral Agreement or in such other manner prescribed by the Committee for such purpose. The election shall specify one or more of the Investment Funds available for investment under the Savings Plan at such time, and shall be in whole percentage increments of each such Investment Fund. A Participant's election shall remain in effect with respect to all future Supplemental Savings made on the Participant's behalf unless and until changed by the Participant in accordance with Section 5(b) below. If a Participant fails to make an election hereunder, all Supplemental Savings made on behalf of the Participant shall be deemed invested in the same Investment Fund or Funds in which the Participant's Tax Deferred Savings are invested under the Savings Plan until the Participant makes an election hereunder. (b) A Participant may change the Investment Fund or Funds in which future Supplemental Savings are deemed to be invested, at any time by telephonic or electronic instruction to the Recordkeeper. Such change in election shall be effective as of the close of the Business Day on which the Recordkeeper receives such instruction or, if such instruction is received after the close of a Business Day, as of the close of the next following Business Day. (c) Amounts recorded in the Supplemental Savings Account maintained for each Participant shall be credited or debited with amounts equivalent to gains or losses realized by the Investment Funds in which the Participant elects to have his Supplemental Savings Account deemed invested from time to time. -4- Amounts recorded in the Supplemental Company Contribution Account maintained for each Participant shall be credited or debited with amounts equivalent to gains or losses realized by the Gillette Company Stock Fund or, if applicable, the Investment Funds in which the Participant elects to have his Supplemental Company Contribution Account deemed invested from time to time. (d) Subject to the limitations set forth in paragraphs (i) through (iv) below, a Participant may elect at any time to have amounts credited to his Accounts under the Plan deemed transferred from any Investment Fund to any of the other Investment Funds, by designating the percentage of the Accounts deemed invested in the transferring Investment Fund to be transferred (in whole percentage increments) and the percentage of such transferred amount to be deemed invested in the receiving Investment Fund or Funds (in whole percentage increments). A separate transfer election may be made with respect to each of the Participant's Supplemental Savings Account and Supplemental Company Contribution Account (if eligible pursuant to paragraph (iii) below). The Participant shall make a transfer election by telephonic or electronic instruction to the Recordkeeper. Such transfer election shall be effective, and the applicable Investment Funds shall be valued for the purpose of implementing such election, as of the close of the Business Day on which the Recordkeeper receives such instruction or, if such instruction is received after the close of a Business Day, as of the close of the next following Business Day. For the purposes of this Section, the value of Participants' accounts deemed invested in the Gillette Company Stock Fund, for any Business Day, shall be based on the 4 p.m. closing price of the common stock of The Gillette Company as reported by the New York Stock Exchange for that Business Day. Elections by Participants under this Section 5(d) shall be limited in the following respects: (i) The minimum amount that may be deemed transferred from any Investment Fund shall be $250 or, if less, the entire balance of the Participant's Accounts deemed invested in such Investment Fund. (ii) Amounts deemed invested in a Stable Value Fund may not be transferred directly to either a Money Market Fund or a Bond Fund, but must first be transferred to either an Asset Allocation Fund, Growth and Income Fund, Growth Fund, International Fund or the Gillette Company Stock Fund and must remain in such Investment Fund for a period of at least 90 days. (iii) Elections to transfer amounts credited to Supplemental Company Contribution Accounts from the Gillette Company Stock Fund may be made only by Participants who have attained or will attain age 50 in the year in which the election is made, Participants who have become Totally -5- and Permanently Disabled, and Participants who have incurred a Termination of Employment on account of Retirement. (iv) The Committee may in its discretion limit the number of transfers which may be deemed made to or from any Investment Fund at any time. The Committee also shall have the discretionary right to suspend the availability of deemed transfers among any or all of the Investment Funds at any time without prior notice to Participants. The provisions of this Section 5(d) also shall apply to former employees for whom Accounts are maintained under the Plan on or after January 1, 1997. (e) Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, the Trustee shall have the authority to prescribe alternative investment media in which Participants' accounts under this Plan shall be deemed invested; provided, however, that (i) if Participants retain the right to designate the investment media for deemed investment of their respective accounts, then the investment media selected by the Trustee shall include at least an Equity Index Fund and a Money Market Fund, and (ii) if Participants are no longer entitled to designate the investment media for deemed investment of their respective accounts, then all accounts under this Plan shall automatically be deemed invested in the Money Market Fund pending distribution in accordance with Section 6(d) below. 6. Payments from Accounts. (a) Except as otherwise provided in this Section, no amounts shall be payable under the Plan to any Participant while he is employed by the Company or any Participating Subsidiary. While employed, a Participant may request a payment of amounts credited to the Supplemental Savings Account maintained for such Participant on the basis of an immediate and heavy financial hardship for which no other resources are available to the Participant and following the Participant's withdrawal of all amounts then available for withdrawal from the Savings Plan. Such request shall be subject to the approval of the Committee or its delegate. Unless an election is made in accordance with Section 6(b) or (c) below or unless Section 6(d) below applies, all vested amounts credited to a Participant's accounts under the Plan shall be paid in a single lump sum as soon as practicable following the termination of the Participant's employment with the Company and all Participating Subsidiaries, valued as of the close of such termination date. (b) A Participant may elect to defer payment of his accounts under the Plan to any date subsequent to the date of the Participant's termination of employment with the Company and all Participating Subsidiaries, but not later than April 1 of the calendar year following the calendar year in which the Participant attains age -6- 70-1/2, provided (i) the Participant's termination of employment is on account of retirement or total and permanent disability (such terms having the same meanings as used under the Savings Plan), (ii) the value of the Participant's vested account balance under the Plan as of the close of the date of termination is at least $25,000, and (iii) the Participant's deferral election is made at least twelve months prior to the date of such termination. Such deferred payment shall be valued as of the close of the elected payment date (or the next following business day), and shall be made in a single lump sum as soon as practicable thereafter. Pending final distribution, the Participant's accounts shall continue to be credited or debited with amounts equivalent to gains and losses realized by the Investment Funds in which the Participant's Accounts are deemed invested from time to time. (c) A Participant may elect to receive payment of his accounts under the Plan in the form of annual installments of from two to ten years commencing in the calendar year following the year of the Participant's termination of employment with the Company and all Participating Subsidiaries, provided (i) the Participant's termination of employment is on account of retirement or total and permanent disability (such terms having the same meanings as used under the Savings Plan), (ii) the value of the Participant's vested account balance under the Plan as of the close of the date of termination is at least $25,000, and (iii) the Participant's installment payment election is made at least twelve months prior to the date of such termination. Each installment payment shall be valued as of the close of the first business day in January of the year of commencement and each year thereafter, and shall be paid as soon as practicable thereafter. Pending final distribution, the remaining balance in the Participant's accounts shall continue to be credited or debited with amounts equivalent to gains and losses realized by the Investment Funds in which the Participant's Accounts are deemed invested from time to time. (d) Prior to the occurrence of a Change of Control, in accordance with rules prescribed by the Committee, a Participant making a deferral election pursuant to Section 6(b) above or an installment election pursuant to Section 6(c) above may provide for the revocation of such deferral or installment election in the event of a Change of Control and for the payment by the Company of the Participant's accounts under the Plan as soon as practicable following the Change of Control. In the event of a Change of Control, upon the termination of this Plan or the Savings Plan or the amendment to this Plan or the Savings Plan which amendment adversely affects the rights and benefits of Participants, all unvested accounts under this Plan shall vest. Notwithstanding anything contained in this Section 6 to the contrary, in the event of a Change of Control, each Participant's vested accounts shall be paid in accordance with his deferral or installment payment election in force, or if no payment election has been -7- made prior to the Change of Control, as soon as practicable following the Participant's termination of employment, unless the Participant has provided in his payment election for its revocation upon a Change of Control in which event payment of the Participant's vested accounts shall be paid as soon as practicable following the Change of Control. (e) In the event of the death of a Participant, whether or not then employed by the Company or a Participating Subsidiary, all amounts credited to the Participant's accounts under the Plan shall vest and shall be paid to the Participant's estate in a single lump sum valued as of the close of the date of death. (f) All determinations of value of Participants' accounts under the Plan shall be made in accordance with the relevant provisions of the Savings Plan, except that determinations of value of Participants' accounts deemed invested in the Gillette Company Stock Fund, for any Business Day, shall be based on the 4 p.m. closing price of the common stock of The Gillette Company as reported by the New York Stock Exchange for that Business Day. (g) All payments under the Plan shall be subject to any required withholding of Federal, state and local taxes. 7. Source of Payments. All amounts payable under the Plan shall be paid by the Company and Participating Subsidiaries from their general assets. Notwithstanding the maintenance of records on its books as described in Section 4 above, no Participant shall have any right to or interest in any assets of the Company or any Participating Subsidiary other than as an unsecured general creditor, and no separate fund shall be established in which any Participant has any right or interest. The foregoing shall not prevent the Company or any Subsidiary from establishing a fund from which to satisfy its payment obligations under the Plan. 8. Plan Amendment and Termination. The Plan may be amended or terminated by the Company at any time and in any manner prior to the happening of any event in connection with or in anticipation of a Change of Control that actually occurs, provided that no amendment or termination shall adversely affect the rights and benefits of Participants with respect to Compensation deferred or deducted pursuant to the Plan prior to such action. After the happening of any event in connection with or in anticipation of a Change of Control that actually occurs: (a) no amendment shall be made which adversely affects the rights and benefits of Participants with respect to Compensation deferred or deducted or benefits accrued pursuant to the Plan prior to such amendment; (b) the Plan may not be terminated or amended in a manner to provide less favorable prospective benefits unless all benefits under this Plan which are unvested become immediately vested; and (c) no amendment may be made with respect to any provision of the Plan which becomes operative upon a Change of Control. -8- 9. No Right of Employment. The adoption and operation of this Plan shall not create in any Participant a right of continued employment with the Company or any Subsidiary. 10. Administration. The Plan shall be administered by the Savings Plan Committee appointed by the Board of Directors of the Company (the "Committee"), which shall have the discretionary power and authority to construe and interpret the provisions of the Plan, to determine the eligibility of employees to participate in the Plan and the amount and timing of payment of any benefits due under the Plan, and to determine all other matters in carrying out the intended purposes of the Plan. In administering this Plan, including but not limited to considering appeals from the denial of claims for benefits and issuing decisions thereon, rules and procedures substantially similar to those set forth in the Savings Plan shall govern. 11. No Assignment of Interest. The interest of any Participant under the Plan may not be assigned, alienated, encumbered or otherwise transferred, and shall not be subject to attachment, garnishment, execution or levy; and any attempted assignment, alienation, encumbrance, transfer, attachment, garnishment, execution or levy shall be void and of no force or effect. 12. Construction of Terms. Except as expressly provided in this Plan to the contrary, capitalized terms referenced herein shall have the same meanings as are applied to such terms in the Savings Plan as in effect from time to time. THE GILLETTE COMPANY Date: October 28, 1996 By: /s/ Robert E. DiCenso -------------------- ------------------------------------- Robert E. DiCenso Senior Vice President - Personnel and Administration [Reflects amendments executed April 30, 1998, August 21, 1998, December 30, 1999 and July 10, 2001] EX-10.(R) 9 b41814gcex10-r.txt 364 DAY CREDIT AGREEMENT Exhibit 10(r) EXECUTION COPY $1,650,000,000 364-DAY CREDIT AGREEMENT dated as of October 16, 2001 among The Gillette Company, The Banks Listed Herein and The Chase Manhattan Bank, as Agent -------------------- J.P. Morgan Securities Inc., Arranger TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions ................................................ 1 SECTION 1.02. Accounting Terms and Determinations ........................ 10 SECTION 1.03. Types of Borrowings ........................................ 11 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend ........................................ 11 SECTION 2.02. Notice of Committed Borrowing .............................. 11 SECTION 2.03. Competitive Bid Borrowings ................................. 12 SECTION 2.04. Notice to Banks; Funding of Loans .......................... 15 SECTION 2.05. Notes ...................................................... 16 SECTION 2.06. Maturity of Loans .......................................... 17 SECTION 2.07. Interest Rates ............................................. 17 SECTION 2.08. Facility Fee ............................................... 18 SECTION 2.09. Termination or Reduction of Commitments .................... 19 SECTION 2.10. Scheduled Termination of Commitments ....................... 19 SECTION 2.11. Optional Prepayments ....................................... 19 SECTION 2.12. General Provisions as to Payments .......................... 19 SECTION 2.13. Funding Losses ............................................. 20 SECTION 2.14. Computation of Interest and Fees ........................... 20 SECTION 2.15. Judgment Currency .......................................... 20 SECTION 2.16. Foreign Subsidiary Costs ................................... 21 SECTION 2.17. Regulation D Compensation .................................. 21 SECTION 2.18. Method of Electing Interest Rates .......................... 21 SECTION 2.19. Increased Commitments; Additional Banks .................... 23 ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness .............................................. 24 SECTION 3.02. Borrowings ................................................. 25 SECTION 3.03. First Borrowing by Each Eligible Subsidiary ................ 25 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Corporate Existence and Power .............................. 26 SECTION 4.02. Corporate and Governmental Authorization; Contravention .... 26 SECTION 4.03. Binding Effect ............................................. 26 SECTION 4.04. Financial Information ...................................... 26 SECTION 4.05. No Material Adverse Change ................................. 26 SECTION 4.06. Compliance with ERISA ...................................... 27 SECTION 4.07. Litigation ................................................. 27
PAGE SECTION 4.08. Taxes ...................................................... 27 SECTION 4.09. Full Disclosure ............................................ 27 ARTICLE 5 COVENANTS SECTION 5.01. Information ................................................ 28 SECTION 5.02. Maintenance of Property; Insurance ......................... 30 SECTION 5.03. Conduct of Business and Maintenance of Existence ........... 30 SECTION 5.04. Compliance with Laws ....................................... 30 SECTION 5.05. Earnings to Interest Expense Ratio ......................... 30 SECTION 5.06. Negative Pledge ............................................ 30 SECTION 5.07. Consolidations, Mergers and Sales of Assets ................ 31 SECTION 5.08. Material Subsidiary Cash Flow .............................. 31 SECTION 5.09. Use of Proceeds ............................................ 31 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default .......................................... 32 SECTION 6.02. Notice of Default .......................................... 34 ARTICLE 7 THE AGENT SECTION 7.01. Appointment and Authorization .............................. 34 SECTION 7.02. Agent and Affiliates ....................................... 34 SECTION 7.03. Action by Agent ............................................ 34 SECTION 7.04. Consultation with Experts .................................. 34 SECTION 7.05. Liability of Agent ......................................... 34 SECTION 7.06. Indemnification ............................................ 35 SECTION 7.07. Credit Decision ............................................ 35 SECTION 7.08. Successor Agent ............................................ 35 SECTION 7.09. Agent's Fee ................................................ 35 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair ... 35 SECTION 8.02. Illegality ................................................. 36 SECTION 8.03. Increased Cost and Reduced Return .......................... 36 SECTION 8.04. Taxes ...................................................... 38 SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans .. 39 ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES SECTION 9.01. Corporate Existence and Power .............................. 40 SECTION 9.02. Corporate and Governmental Authorization; Contravention .... 40 SECTION 9.03. Binding Effect ............................................. 40
ii
PAGE SECTION 9.04. Taxes ...................................................... 40 ARTICLE 10 GUARANTY SECTION 10.01. The Guaranty ............................................... 40 SECTION 10.02. Guaranty Unconditional ..................................... 41 SECTION 10.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances .................... 41 SECTION 10.04. Waiver by the Company ...................................... 42 SECTION 10.05. No Subrogation ............................................. 42 SECTION 10.06. Stay of Acceleration ....................................... 42 ARTICLE 11 MISCELLANEOUS SECTION 11.01. Notices .................................................... 42 SECTION 11.02. No Waivers ................................................. 42 SECTION 11.03. Expenses; Indemnification .................................. 43 SECTION 11.04. Sharing of Set-offs ........................................ 43 SECTION 11.05. Amendments and Waivers ..................................... 43 SECTION 11.06. Successors and Assigns ..................................... 44 SECTION 11.07. Designated Lenders ......................................... 45 SECTION 11.08. Collateral ................................................. 46 SECTION 11.09. Governing Law; Submission to Jurisdiction; Service of Process ........................................ 46 SECTION 11.10. Counterparts; Integration .................................. 47 SECTION 11.11. WAIVER OF JURY TRIAL ....................................... 47
COMMITMENT SCHEDULE EXHIBIT A - Note EXHIBIT B - Competitive Bid Quote Request EXHIBIT C - Invitation for Competitive Bid Quotes EXHIBIT D - Competitive Bid Quote EXHIBIT E - Opinion of Counsel for the Company EXHIBIT F - Opinion of Special Counsel for the Agent EXHIBIT G - Election to Participate EXHIBIT H - Election to Terminate EXHIBIT I - Opinion of Counsel for an Eligible Subsidiary EXHIBIT J - Assignment and Assumption Agreement iii EXHIBIT K - Designation Agreement iv CREDIT AGREEMENT AGREEMENT dated as of October 16, 2001 among THE GILLETTE COMPANY, the BANKS listed on the signature pages hereof and THE CHASE MANHATTAN BANK, as Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ABSOLUTE RATE AUCTION" means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Absolute Rates pursuant to Section 2.03. "ADDITIONAL BANK" has the meaning set forth in Section 2.19(b). "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent duly completed by such Bank. "AGENT" means The Chase Manhattan Bank in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Competitive Bid Loans, its Competitive Bid Lending Office. "ASSIGNEE" has the meaning set forth in Section 11.06(c). "BANK" means each bank or other financial institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 11.06(c), and their respective successors. "BANK" includes each Additional Bank which becomes a Bank pursuant to Section 2.19. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Article 8. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group and not excepted by Section 4(b) of ERISA. "BORROWER" means the Company or any Eligible Subsidiary, as the context may require, and their respective successors, and "BORROWERS" means all of the foregoing. "BORROWING" has the meaning set forth in Section 1.03. "COMMITMENT" means (i) with respect to each Bank listed on the Commitment Schedule, the amount set forth opposite the name of such Bank on the Commitment Schedule and (ii) with respect to any Assignee, the amount of the transferor Bank's Commitment assigned to it pursuant to Section 11.06(c), in each case as such amount may be changed from time to time pursuant to Section 2.09 or 11.06(c). "COMMITMENT" includes, with respect to each Additional Bank which becomes a Bank pursuant to Section 2.19, the amount of the Commitment thereby assumed by it, in each case, as such amount may be changed from time to time pursuant to Sections 2.09 and 2.19. "COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto. "COMMITTED LOAN" means a loan made by a Bank pursuant to Section 2.01; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term Committed Loan shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "COMPANY" means The Gillette Company, a Delaware corporation, and its successors. "COMPANY'S LATEST FORM 10-Q" means the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2001, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "COMPANY'S 2000 FORM 10-K" means the Company's annual report on Form 10-K for 2000, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "COMPETITIVE BID ABSOLUTE RATE" has the meaning set forth in Section 2.03. "COMPETITIVE BID ABSOLUTE RATE LOAN" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "COMPETITIVE BID LENDING OFFICE" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Competitive Bid Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Competitive Bid Lending Offices for its Competitive Bid LIBOR Loans, on the one hand, and its 2 Competitive Bid Absolute Rate Loans, on the other hand, in which case all references herein to the Competitive Bid Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "COMPETITIVE BID LIBOR LOAN" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01). "COMPETITIVE BID LOAN" means a Competitive Bid LIBOR Loan or a Competitive Bid Absolute Rate Loan. "COMPETITIVE BID MARGIN" has the meaning set forth in Section 2.03(d)(ii)C. "COMPETITIVE BID QUOTE" means an offer by a Bank, in substantially the form of Exhibit D hereto, to make a Competitive Bid Loan in accordance with Section 2.03. "COMPETITIVE BID QUOTE REQUEST" means the notice, in substantially the form of Exhibit B hereto, to be delivered by the Borrower in accordance with Section 2.03 in requesting Competitive Bid Quotes. "CONSOLIDATED ASSETS" means at any date the consolidated assets of the Company and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES" means, for any fiscal period, the sum of (i) Consolidated Net Income plus (ii) Gross Interest Expense plus (iii) to the extent deducted in determining Consolidated Net Income, provision for taxes on income, all determined on a consolidated basis for the Company and its Consolidated Subsidiaries for such fiscal period. "CONSOLIDATED NET INCOME" means, for any fiscal period, the net income (before preferred and common stock dividends) of the Company and its Consolidated Subsidiaries, determined on a consolidated basis for such fiscal period. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vi) all Debt of others Guaranteed by such Person. 3 "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions, excluding any amounts which the Borrower is entitled to set-off against its obligations under applicable law. "DESIGNATED LENDER" means, with respect to any Designating Bank, an Eligible Designee designated by it pursuant to Section 11.07(a) as a Designated Lender for purposes of this Agreement. "DESIGNATING BANK" means, with respect to each Designated Lender, the Bank that designated such Designated Lender pursuant to Section 11.07(a). "DOLLARS" and the sign "$" mean lawful money of the United States of America. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City or Boston, Massachusetts are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Company and the Agent. "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 3.01. "ELECTION TO PARTICIPATE" means an Election to Participate substantially in the form of Exhibit G hereto. "ELECTION TO TERMINATE" means an Election to Terminate substantially in the form of Exhibit H hereto. "ELIGIBLE DESIGNEE" means a special purpose corporation that (i) is organized under the laws of the United States or any state thereof, (ii) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's. 4 "ELIGIBLE SUBSIDIARY" means any Substantially-Owned Consolidated Subsidiary of the Company as to which an Election to Participate shall have been delivered to the Agent and as to which an Election to Terminate shall not have been delivered to the Agent. Each such Election to Participate and Election to Terminate shall be duly executed on behalf of such Substantially-Owned Consolidated Subsidiary and the Company in such number of copies as the Agent may request. The delivery of an Election to Terminate shall not affect any obligation of an Eligible Subsidiary theretofore incurred. The Agent shall promptly give notice to the Banks of the receipt of any Election to Participate or Election to Terminate. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Company, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Company and the Agent. "EURO-DOLLAR LOAN" means any Committed Loan in respect of which interest is to be computed on the basis of a Euro-Dollar Rate. "EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.07(b). "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.07(b) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. 5 "EXISTING CREDIT AGREEMENTS" means the 364-Day Credit Agreement and the Multi-Year Credit Agreement, each dated as of December 20, 1996, among the Company, the bank parties thereto and Morgan Guaranty Trust Company of New York, as agent, each as amended and/or restated prior to the Effective Date. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to The Chase Manhattan Bank on such day on such transactions as determined by the Agent. "FINAL MATURITY DATE" means the first anniversary of the Termination Date or, if such day is not a Euro-Dollar Business Day, the preceding Euro-Dollar Business Day. "FIXED RATE LOANS" means Euro-Dollar Loans or Competitive Bid Loans (excluding Competitive Bid LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(b)(ii)) or any combination of the foregoing. "GROSS INTEREST EXPENSE" means, for any fiscal period, the consolidated interest expense of the Company and its Consolidated Subsidiaries for such period (calculated without deducting or otherwise netting consolidated interest income of the Company and its Consolidated Subsidiaries). "GROUP OF LOANS" means at any time a group of Loans consisting of (i) all Committed Loans to any single Borrower which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans to any single Borrower having the same Interest Period at such time, provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions, by "comfort letter" or other similar undertaking of support or otherwise) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary 6 course of business. The term "Guarantee" used as a verb has a corresponding meaning. "INCREASED COMMITMENTS" has the meaning set forth in Section 2.19(a). "INDEMNITEE" has the meaning set forth in Section 11.03(b). "INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the further proviso below, end on the last Euro-Dollar Business Day of a calendar month; (2) with respect to each Competitive Bid LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the further proviso below, end on the last Euro-Dollar Business Day of a calendar month; (3) with respect to each Competitive Bid Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than fifteen days) as the Borrower may elect in accordance 7 with Section 2.03; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and provided further that: (x) any Interest Period which begins before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date; and (y) any Interest Period which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "LIBOR AUCTION" means a solicitation of Competitive Bid Quotes setting forth the Competitive Bid Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Company or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN" and "LOANS" mean and include each and every loan made by a Bank under this Agreement. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(b). "MATERIAL DEBT" means Debt (other than the Notes) of the Company and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $50,000,000. "MATERIAL FINANCIAL OBLIGATIONS" means a principal amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Company and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $50,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $50,000,000. "MATERIAL SUBSIDIARY" means any Subsidiary which either (A) is an Eligible Subsidiary or (B) has consolidated assets, together with its Subsidiaries, exceeding 5% of Consolidated Assets at the date of determination of its status hereunder. "MOODY'S" means Moody's Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency. 8 "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NOTES" means promissory notes of a Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans made to it, and "Note" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Competitive Bid Borrowing (as defined in Section 2.03(f)). "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.18. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 11.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group. "PRIME RATE" means the rate of interest publicly announced by The Chase Manhattan Bank in New York City from time to time as its Prime Rate. "QUARTERLY DATE" means the last day of March, June, September and December in each year, commencing December 31, 2001. "REFERENCE BANKS" means the principal London offices of Citibank, N.A., Bank of America, N.A. and The Chase Manhattan Bank. "REFERENCE BANK" means any one of such Reference Banks. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. 9 "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding more than 50% of the aggregate unpaid principal amount of the Loans. "REVOLVING CREDIT LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(a). "REVOLVING CREDIT PERIOD" means the period from and including the Effective Date to but excluding the Termination Date. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency. "SUBSIDIARY" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "SUBSIDIARY" means a Subsidiary of the Company. "SUBSTANTIALLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary not less than 90% of the outstanding shares of each class of capital stock or other ownership interests of which are at the time directly or indirectly owned by the Company. "TERM LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(b). "TERMINATION DATE" means October 15, 2002, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Company's independent public accountants) with the most recent audited consolidated financial statements of the 10 Company and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Company notifies the Agent that the Company wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Company that the Required Banks wish to amend Article 5 for such purpose), then the Company's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Banks. SECTION 1.03. Types of Borrowings. The term "BORROWING" denotes the aggregation of Loans of one or more Banks to be made to a single Borrower pursuant to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "EURO-DOLLAR BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "COMPETITIVE BID BORROWING" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend. (a) Revolving Credit Loans. During the Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Company or any Eligible Subsidiary pursuant to this subsection 2.01(a) from time to time in amounts such that the aggregate principal amount of Revolving Credit Loans by such Bank at any one time outstanding to all Borrowers shall not exceed the amount of its Commitment. Within the foregoing limits, a Borrower may borrow under this subsection, prepay Loans to the extent permitted by Section 2.11 and reborrow at any time during the Revolving Credit Period under this subsection 2.01(a). (b) Term Loans. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Company or any Eligible Subsidiary on the Termination Date in an aggregate principal amount to all Borrowers up to but not exceeding the amount of its Commitment. (c) Minimum Borrowing. Each Borrowing under this Section shall be in an aggregate principal amount of $15,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the Agent notice (a "NOTICE OF COMMITTED BORROWING") not later than 11:00 11 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate, and (d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Competitive Bid Borrowings. (a) The Competitive Bid Option. In addition to Committed Borrowings pursuant to Section 2.01, any Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Competitive Bid Loans to such Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Competitive Bid Quote Request. When a Borrower wishes to request offers to make Competitive Bid Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Competitive Bid Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and the Agent shall have notified to the Banks not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $15,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or a Competitive Bid Absolute Rate. 12 The Borrower may request offers to make Competitive Bid Loans for more than one Interest Period in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Company and the Agent may agree) of any other Competitive Bid Quote Request. (c) Invitation for Competitive Bid Quotes. Promptly upon receipt of a Competitive Bid Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Competitive Bid Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section. (d) Submission and Contents of Competitive Bid Quotes. (i) Each Bank may submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices referred to in or pursuant to Section 11.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and the Agent shall have notified to the Banks not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Competitive Bid Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 4, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000 (y) may not exceed the principal amount of Competitive Bid Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Competitive Bid Loans for which offers being made by such quoting Bank may be accepted, 13 (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "COMPETITIVE BID MARGIN") offered for each such Competitive Bid Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "COMPETITIVE BID ABSOLUTE RATE") offered for each such Competitive Bid Loan, and (E) the identity of the quoting Bank. A Competitive Bid Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Competitive Bid Quotes. (iii) Any Competitive Bid Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (D) arrives after the time set forth in subsection(d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Competitive Bid Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Bank with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Agent unless such subsequent Competitive Bid Quote is submitted solely to correct a manifest error in such former Competitive Bid Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request, (B) the respective principal amounts and Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Competitive Bid Loans for which offers in any single Competitive Bid Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and the Agent shall have notified to the Banks not later than the date of the 14 Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Competitive Bid Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Competitive Bid Quote in whole or in part; provided that: (i) the aggregate principal amount of each Competitive Bid Borrowing may not exceed the applicable amount set forth in the related Competitive Bid Quote Request, (ii) the principal amount of each Competitive Bid Borrowing must be $15,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 11.01. Unless the Agent determines that any applicable condition specified in Article 11.01 has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a Term Loan hereunder to a Borrower on a day on which such Borrower is to repay all or any part of an outstanding Revolving 15 Credit Loan from such Bank, such Bank shall apply the proceeds of its Term Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed by such Borrower and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by such Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank to each Borrower shall be evidenced by a single Note of such Borrower payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans to such Borrower. (b) Each Bank may, by notice to a Borrower and the Agent, request that its Loans of a particular type to such Borrower be evidenced by a separate Note of such Borrower in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to a "Note" or the "Notes" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(b) or 3.01(a), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it to each Borrower and the date and amount of each payment of principal made with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note of any Borrower, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan to such Borrower then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of any Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by each Borrower so to endorse its Notes and to attach to and make a part of any Note a continuation of any such schedule as and when required. 16 SECTION 2.06. Maturity of Loans. (a) Each Revolving Credit Loan shall mature, and the principal amount thereof shall be due and payable, on the Termination Date. (b) Each Term Loan shall mature, and the principal amount thereof shall be due and payable, on the Final Maturity Date. (c) Each Competitive Bid Loan included in any Competitive Bid Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable at maturity, quarterly in arrears on each Quarterly Date prior to maturity and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date of such conversion. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "EURO-DOLLAR MARGIN" means a rate per annum equal to (x) for Revolving Credit Loans, 0.135% and (y) for Term Loans, 0.26%. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 1% plus the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to the Interest Period for such Loan immediately before such payment was due and (ii) the sum of 1% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately 17 equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day). (d) Subject to Section 8.01(b)(ii), each Competitive Bid LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if the related Competitive Bid LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Competitive Bid Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Competitive Bid Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Competitive Bid Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Competitive Bid Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day. (e) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. Facility Fee. (a) The Company shall pay to the Agent for the account of the Banks ratably, a facility fee at the rate of 0.040% per annum. Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (b) Payments. Accrued facility fees under this Section shall be payable quarterly on each Quarterly Date, and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). 18 SECTION 2.09. Termination or Reduction of Commitments. The Company may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. Promptly after receiving a notice pursuant to this subsection, the Agent shall notify each Bank of the contents thereof. SECTION 2.10. Scheduled Termination of Commitments. The Commitments shall terminate on the Termination Date. SECTION 2.11. Optional Prepayments. (a) Subject in the case of Euro-Dollar Loans to Section 2.13, the Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay any Group of Base Rate Loans (or any Competitive Bid Borrowing bearing interest at the Base Rate pursuant to Section 8.01(b)(ii)) or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $15,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group (or Borrowing). (b) Except as provided in subsection (a) above, the Borrower may not prepay all or any portion of the principal amount of any Competitive Bid Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrowers shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Dollars in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 11.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Competitive Bid Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of 19 principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from a Borrower prior to the date on which any payment is due from such Borrower to the Banks hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that such Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If a Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(c), or if a Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.11 or 2.18, such Borrower shall reimburse each Bank on demand for any resulting loss or expense incurred by it (or by any existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. Judgment Currency. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from any Borrower hereunder or under any of the Notes in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase Dollars with such other currency at the Agent's New York office on the Domestic Business Day preceding that on which final judgment is given. The obligations of each Borrower in respect of any sum due to any Bank or the Agent hereunder or under any Note shall, notwithstanding any judgment in a currency other than Dollars, be discharged only to the extent that on the Domestic Business Day following receipt by such Bank or the Agent (as the case may be) of any sum adjudged to be so due in such other currency such Bank or the Agent (as the case may be) may in accordance with normal banking procedures purchase Dollars with such other currency; if the amount of Dollars so 20 purchased is less than the sum originally due to such Bank or the Agent, as the case may be, in Dollars, each Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Bank or the Agent, as the case may be, against such loss, and if the amount of Dollars so purchased exceeds (a) the sum originally due to any Bank or the Agent, as the case may be, and (b) any amounts shared with other Banks as a result of allocations of such excess as a disproportionate payment to such Bank under Section 11.04, such Bank or the Agent, as the case may be, agrees to remit such excess to the appropriate Borrower. SECTION 2.16. Foreign Subsidiary Costs. (a) If the cost to any Bank of making or maintaining any Loan to an Eligible Subsidiary is increased, or the amount of any sum received or receivable by any Bank (or its Applicable Lending Office) is reduced by an amount deemed by such Bank to be material, by reason of the fact that such Eligible Subsidiary is incorporated in, or conducts business in, a jurisdiction outside the United States, such Borrower shall indemnify such Bank for such increased costs or reduction within 15 days after demand by such Bank (with a copy to the Agent and the Company). A certificate of such Bank claiming compensation under this subsection (b) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. (b) Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge that will entitle such Bank to additional interest or payments pursuant to subsection (b) and will designate a different Applicable Lending Office, if, in the judgment of such Bank, such designation will avoid the need for, or reduce the amount of, such compensation and will not be otherwise disadvantageous to such Bank. SECTION 2.17. Regulation D Compensation. Each Bank may require any Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans to such Borrower, additional interest on the related Euro-Dollar Loan to such Borrower of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify such Borrower and the Agent, in which case such additional interest on the Euro-Dollar Loans to such Borrower of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice, and (y) shall notify such Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans to such Borrower of the amount then due it under this Section. SECTION 2.18. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8 and the last sentence of this subsection(a)), as follows: 21 (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Agent not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $15,000,000 or any larger multiple of $1,000,000. If no such notice is timely received prior to the end of an Interest Period, the Borrower shall be deemed to have elected that all Loans having such Interest Period be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans being converted are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section shall not constitute a "Borrowing" subject to the provisions of Section 3.02. 22 SECTION 2.19. Increased Commitments; Additional Banks. (a) Subsequent to the Effective Date (but not more than twice in any calendar year), the Company may, upon at least 30 days' notice to the Agent (which shall promptly provide a copy of such notice to the Banks), propose to increase the aggregate amount of the Commitments by an amount which (i) is a multiple of $50,000,000 and (ii) when combined with the aggregate amount by which the Commitments have theretofore been increased pursuant to this Section 2.19, does not exceed $550,000,000 (the amount of any such increase, the "INCREASED COMMITMENTS"); provided that no Default shall have occurred and be continuing. Each Bank party to this Agreement at such time shall have the right (but no obligation), for a period of 15 days following receipt of such notice, to elect by notice to the Company and the Agent to increase its Commitment by a principal amount which bears the same ratio to the Increased Commitments as its then Commitment bears to the aggregate Commitments then existing. (b) If any Bank party to this Agreement shall not elect to increase its Commitment pursuant to subsection (a) of this Section, the Company may, within 10 days of the Banks' response, designate one or more of the existing Banks or other financial institutions acceptable to the Agent and the Company (which consent of the Agent shall not be unreasonably withheld) which at the time agree to (i) in the case of any such Person that is an existing Bank, increase its Commitment and (ii) in the case of any other such Person (an "ADDITIONAL BANK"), become a party to this Agreement, provided that the Commitment of such Additional Bank is not less than $25,000,000. The sum of the increases in the Commitments of the existing Banks pursuant to this subsection (b) plus the Commitments of the Additional Banks shall not in the aggregate exceed the unsubscribed amount of the Increased Commitments. (c) An increase in the aggregate amount of the Commitments pursuant to this Section 2.19 shall become effective upon the receipt by the Agent of an agreement in form and substance satisfactory to the Agent signed by the Company, by each Additional Bank and by each other Bank whose Commitment is to be increased, setting forth the new Commitments of such Banks and setting forth the agreement of each Additional Bank to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Company with respect to the Increased Commitments and such opinions of counsel for the Company with respect to the Increased Commitments as the Agent may reasonably request. (d) Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.19 that is not a pro rata amount among all Banks, within five Domestic Business Days, in the case of any Group of Base Rate Loans then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of any Group of Euro-Dollar Loans then outstanding, the relevant Borrower shall prepay such Group in its entirety and, to the extent such Borrower elects to do so and subject to the conditions specified in Article 3, such Borrower shall reborrow Committed Loans from the Banks in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Committed Loans are held by the Banks in such proportion. 23 ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 11.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent for the account of each Bank of a duly executed Note of the Company dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of an opinion of the General Counsel of the Company (or other counsel for the Company reasonably satisfactory to the Agent), substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of all documents it may reasonably request relating to the existence of the Company, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; and (f) receipt by the Agent of evidence satisfactory to it of the payment of all principal and interest on any loans outstanding under, and of all other amounts payable under, the Existing Credit Agreements; provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied no later than October 16, 2001. The Agent shall promptly notify the Company and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks that are parties to either or both of the Existing Credit Agreements, comprising the "REQUIRED BANKS" as defined in both of the Existing Credit Agreements, and the Company agree to eliminate the requirement under Section 2.09 of the each of the Existing Credit Agreements that notice of optional termination of the commitments thereunder be given three Domestic Business Days in advance, and further agree that the commitments under each of the Existing Credit Agreements shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Company shall be obligated to pay the accrued facility fees thereunder to but excluding the date of such effectiveness. 24 SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of the Company and the Borrower (if other than the Company) contained in this Agreement (except for the representations and warranties set forth in Sections 4.05 and 4.07 as to any matter which has theretofore been disclosed in writing by the Company to the Banks) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Company and the Borrower (if other than the Company) on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. SECTION 3.03. First Borrowing by Each Eligible Subsidiary. The obligation of each Bank to make a Loan on the occasion of the first Borrowing by each Eligible Subsidiary is subject to the satisfaction of the following further conditions: (a) receipt by the Agent for the account of each Bank of a duly executed Note of such Eligible Subsidiary, dated on or before the date of such Borrowing complying with the provisions of Section 2.05; (b) receipt by the Agent of an opinion of counsel for such Eligible Subsidiary acceptable to the Agent, substantially in the form of Exhibit I hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; and (c) receipt by the Agent of all documents which it may reasonably request relating to the existence of such Eligible Subsidiary, the corporate authority for and the validity of the Election to Participate of such Eligible Subsidiary, this Agreement and the Notes of such Eligible Subsidiary, and any other matters relevant thereto, all in form and substance satisfactory to the Agent. The documents referred to in this Section 3.03 shall be delivered to the Agent by an Eligible Subsidiary no later than the date of the first Borrowing by such Eligible Subsidiary. 25 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Company of this Agreement and its Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Company and its Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Company, in each case enforceable in accordance with their respective terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 2000 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP and set forth in the Company's Annual Report to Shareholders for 2000 incorporated by reference in the Company's 2000 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of June 30, 2001 and the related unaudited consolidated statements of income and cash flows for the six months then ended, set forth in the Company's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six-month period (subject to normal year-end adjustments). SECTION 4.05. No Material Adverse Change. Since June 30, 2001, there has been no material adverse change in the business, operations or financial 26 condition of the Company and its Consolidated Subsidiaries, considered as a whole. SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, if such failure or amendment has resulted, or there is a reasonable possibility that it could result, in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. Litigation. Except as disclosed in the Company's 2000 Form 10-K and the Company's Latest Form 10-Q, there is no action, suit, investigation or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, operations or financial condition of the Company and its Consolidated Subsidiaries, taken as a whole, or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.08. Taxes. The Company has filed (or has obtained extensions of the time by which it is required to file) all United States federal income tax returns and all other material tax returns required to be filed by it and has paid all taxes shown due on the returns so filed as well as all other material taxes, assessments and governmental charges which have become due, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. SECTION 4.09. Full Disclosure. All information heretofore furnished by the Company to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Company to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Company has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Company can now reasonably foresee), the business, operations or financial condition of the Company and its Consolidated Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations under this Agreement. 27 ARTICLE 5 COVENANTS The Company agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Company will deliver to each of the Banks: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, (i) a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such quarter, (ii) the related consolidated statements of income for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter and (iii) the related consolidated statement of cash flows for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in cases (ii) and (iii) in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the principal accounting officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the principal accounting officer of the Company (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Section 5.05 on the date of such financial statements and (ii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) stating whether anything has come to their attention to cause them to believe that there existed on the date of such statements any Default and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) forthwith upon the occurrence of any Default, a certificate of the chief financial officer or the principal accounting officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; 28 (f) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Company shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might reasonably constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; or (iv) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement, if such failure or amendment has resulted, or there is a reasonable possibility that it could result, in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code, a certificate of the chief financial officer, the principal accounting officer or the treasurer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposes to take; (i) promptly upon any change in the rating by Standard & Poor's Ratings Services or Moody's Investors Service, Inc. of the Company's outstanding public senior unsecured long-term debt securities or the Company's outstanding commercial paper, a notice reporting such change and stating the date on which such change was announced by the relevant rating agency; and (j) from time to time such additional information regarding the business, operations or financial condition of the Company and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses 5.01(a), 5.01(b), 5.01(f) or 5.01(g) above shall be deemed to have been delivered on the date on which the Company provides notice to the Banks that such information has been filed with the Securities and Exchange Commission and is available at www.sec.gov. Such notice may be included in a certificate delivered pursuant to clause 5.01(c); provided that the Company shall deliver paper copies of the information referred to in clauses 5.01(a), 5.01(b), 5.01(f) or 5.01(g) to any Bank which specifically requests such delivery. 29 SECTION 5.02. Maintenance of Property; Insurance. The Company will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted; will maintain, and will cause each Subsidiary to maintain (either in the name of the Company or in such Subsidiary's own name) with financially sound and reputable insurance companies, insurance on all their property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon written request from the Agent, such information as may be reasonably requested as to the insurance carried. SECTION 5.03. Conduct of Business and Maintenance of Existence. The Company will preserve, renew and keep in full force and effect its corporate existence and its rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 5.04. Compliance with Laws. The Company will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.05. Earnings to Interest Expense Ratio. At the end of each fiscal quarter of the Company, the ratio of (x) Consolidated Earnings Before Interest and Taxes for the four fiscal quarters then ended to (y) Gross Interest Expense for the four fiscal quarters then ended will not be less than 6.50:1. SECTION 5.06. Negative Pledge. Neither the Company nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date hereof securing Debt outstanding on the date hereof in an aggregate principal amount not exceeding $25,000,000; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Company or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Company or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing 30 clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) any Lien arising pursuant to any order of attachment or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; (h) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt or Derivatives Obligations and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $25,000,000; and (j) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount at any time outstanding not to exceed 5% of Consolidated Assets. SECTION 5.07. Consolidations, Mergers and Sales of Assets. The Company will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any other Person; provided that the Company may merge with a Subsidiary if (A) the Company is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing. SECTION 5.08. Material Subsidiary Cash Flow. The Company will not, and will not permit any Material Subsidiary to, enter into any arrangement which restricts the ability of any Material Subsidiary, directly or indirectly, to make funds available to the Company, whether by way of dividend or other distribution, advance or otherwise. SECTION 5.09. Use of Proceeds. The proceeds of Loans hereunder will be used by the Borrowers for their general corporate purposes, including without limitation, any purchase, redemption, retirement or acquisition of outstanding shares of capital stock of the Company ("Stock Repurchases"). Except for permitted Stock Repurchases referred to in the immediately preceding sentence, none of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation U. 31 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) any principal of any Loan shall not be paid when due, or any interest, any fees or any other amount payable hereunder shall not be paid within five days of the due date thereof; (b) the Company shall fail to observe or perform any covenant contained in Sections 5.05 to 5.09, inclusive; (c) any Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Company by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made or deemed to have been made by any Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Company or any Subsidiary shall fail to make any payment in respect of any Material Debt or any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Company or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Company or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief 32 shall be entered against the Company or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due (including any approved extensions) an amount or amounts aggregating in excess of $50,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $50,000,000; (j) a judgment or order for the payment of money in excess of $50,000,000 shall be rendered against the Company or any Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Company; or, during any two-year period, the individuals who were serving on the board of directors of the Company at the beginning of such period or who were nominated for election or elected to such board during such period with the affirmative vote of at least two-thirds of such individuals still in office cease to constitute a majority of such board; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Company terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Company declare the Notes (together with accrued interest thereon and all accrued fees and other amounts payable by any Borrower hereunder) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to any Borrower, without any notice to any Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon and all accrued fees and other amounts payable by any Borrower hereunder) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. 33 SECTION 6.02. Notice of Default. The Agent shall give notice to the Company under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. The Chase Manhattan Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and The Chase Manhattan Bank and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with any Borrower or any Subsidiary or affiliate of any Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks (or when expressly required hereby, all the Banks) or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or 34 other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrowers) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with its role as Agent hereunder or any action taken or omitted by such indemnitees in connection therewith. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Company. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Company shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Company and the Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Loans: 35 (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the London Interbank market for such Interest Period, or (b) in the case of a Euro-Dollar Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrowers and the Banks, whereupon until the Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless a Borrower notifies the Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Competitive Bid LIBOR Borrowing, the Competitive Bid LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans to any Borrower and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and such Borrower, whereupon until such Bank notifies such Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans to such Borrower, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each such Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make 36 Committed Loans or (y) the date of the related Competitive Bid Quote, in the case of any Competitive Bid Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.17), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, on or after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency (including any determination by any such authority, central bank or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less, which shall be deemed to be a change in the interpretation and administration of such requirements), has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge, occurring on or after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such 37 Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) For the purposes of this Section 8.04, the following terms have the following meanings: "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by any Borrower or the Company pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments, but only up to the rate (if any) at which United States withholding tax would apply to such payments to such Bank at the time such Bank first becomes a party to this Agreement. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by any Borrower or the Company to or for the account of any Bank or the Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if any Borrower or the Company shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) any Borrower or the Company shall make such deductions, (iii) any Borrower or the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) any Borrower or the Company shall furnish to the Agent, at its address referred to in Section 11.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Company agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this 38 Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Company (but only so long as such Bank remains lawfully able to do so), shall provide the Company and the Agent with Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Company or the Agent with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04 (b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If any Borrower or the Company is required to pay additional amounts to or for the account of any Bank pursuant to this Section, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans to any Borrower has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or 8.04 with respect to its Euro-Dollar Loans and a Borrower shall, by at least three Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies such Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans to such Borrower which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans to such Borrower has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans to such Borrower instead. If such Bank notifies the Company that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. 39 ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES Each Eligible Subsidiary shall be deemed by the execution and delivery of its Election to Participate to have represented and warranted as of the date thereof that: SECTION 9.01. Corporate Existence and Power. It is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as then conducted. SECTION 9.02. Corporate and Governmental Authorization; Contravention. The execution and delivery by it of its Election to Participate and its Notes, and the performance by it of this Agreement and its Notes, are within its corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of its certificate of incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or such Eligible Subsidiary or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. SECTION 9.03. Binding Effect. This Agreement constitutes a valid and binding agreement of such Eligible Subsidiary and its Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of such Eligible Subsidiary, in each case enforceable in accordance with their respective terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. SECTION 9.04. Taxes. Except as disclosed to the Banks in writing prior to the delivery of such Election to Participate, there is no income, stamp or other tax of any country, or any taxing authority thereof or therein, imposed by or in the nature of withholding or otherwise, which is imposed on any payment to be made by such Eligible Subsidiary pursuant hereto or on its Notes, or is imposed on or by virtue of the execution, delivery or enforcement of its Election to Participate, this Agreement or its Notes. ARTICLE 10 GUARANTY SECTION 10.01. The Guaranty. The Company hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by any Eligible Subsidiary pursuant to this Agreement, and the full and punctual payment of all other amounts payable by any Eligible Subsidiary under this Agreement. Upon failure by any Eligible Subsidiary to pay punctually any such 40 amount, the Company shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. SECTION 10.02. Guaranty Unconditional. The obligations of the Company hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any Eligible Subsidiary under this Agreement or any Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement or any Note; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of any Eligible Subsidiary under this Agreement or any Note; (iv) any change in the corporate existence, structure or ownership of any Eligible Subsidiary, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Eligible Subsidiary or its assets, or any resultant release or discharge of the obligations of any Eligible Subsidiary hereunder or under any Note; (v) the existence of any claim, set-off or other rights which the Company may have at any time against any Eligible Subsidiary, the Agent, any Bank or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against any Eligible Subsidiary for any reason of this Agreement or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by any Eligible Subsidiary of the principal of or interest on any Note or any other amount payable by it under this Agreement; or (vii) any other act or omission to act or delay of any kind by any Eligible Subsidiary, the Agent, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Company's obligations hereunder. SECTION 10.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. The Company's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Company and each Eligible Subsidiary under this Agreement shall have been paid in full. If at any time any payment of any principal of or interest on any Note or any other amount payable by any Eligible Subsidiary under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Eligible Subsidiary or otherwise, the Company's obligations hereunder with 41 respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. SECTION 10.04. Waiver by the Company. The Company irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Eligible Subsidiary or any other Person. SECTION 10.05. No Subrogation. If the Company makes any payment under this Article 10 in respect of any obligation of an Eligible Subsidiary, the Company shall not be subrogated to the rights of the holder of such obligation against such Eligible Subsidiary with respect to such payment. SECTION 10.06. Stay of Acceleration. In the event that acceleration of the time for payment of any amount payable by any Eligible Subsidiary under this Agreement or the Notes is stayed upon the insolvency, bankruptcy or reorganization of such Eligible Subsidiary, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company hereunder forthwith on demand by the Agent made at the request of the Required Banks. ARTICLE 11 MISCELLANEOUS SECTION 11.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of any Borrower or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof (or, in the case of an Eligible Subsidiary, its Election to Participate), (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Company. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article 2 or Article 8 shall not be effective until received. SECTION 11.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 42 SECTION 11.03. Expenses; Indemnification. (a) The Company shall pay (i) all out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent or any Bank, including (without duplication) the reasonable fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Company agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 11.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Note of any Borrower held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to the Note of such Borrower held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes of such Borrower held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes of such Borrower held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of a Borrower other than its indebtedness hereunder. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Borrower in the amount of such participation. SECTION 11.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall: (a) unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except as contemplated by Section 2.19 or for a ratable 43 decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, (iv) change the definition of Required Banks, the percentages specified in Sections 6.01 and 8.01 or this Section 11.05 or (v) change the provisions of Article 10; (b) unless signed by a Designated Bank or its Designating Bank, (i) subject such Designated Bank to any additional obligation, (ii) affect its rights hereunder (unless the rights of all the Banks hereunder are similarly affected) or (iii) change this clause 11.05(b), 11.05(c); or (c) unless signed by an Eligible Subsidiary, (w) subject such Eligible Subsidiary to any additional obligation, (x) increase the principal of or rate of interest on any outstanding Loan of such Eligible Subsidiary, (y) accelerate the stated maturity of any outstanding Loan of such Eligible Subsidiary or (z) change this proviso. SECTION 11.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrowers and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrowers and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 11.05 without the consent of the Participant. The Borrowers agree that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit J hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of 44 the Agent and (so long as at the time no Event of Default exists) the Company, which consents shall not be unreasonably withheld or delayed; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent shall be required, but the Assignee and the transferor Bank shall provide prompt notice of such assignment, together with information concerning addresses and related information with respect to the Assignee, to the Agent; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Competitive Bid Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrowers shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States or a state thereof, it shall deliver to the Company and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.18. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) If any Reference Bank transfers its Notes to an unaffiliated institution, the Agent shall, in consultation with the Company and with the consent of the Required Banks, appoint another Bank to act as a Reference Bank hereunder. SECTION 11.07. Designated Lenders. (a) Subject to the provisions of this subsection (a), any Bank may at any time designate an Eligible Designee to provide all or a portion of the Loans to be made by such Bank pursuant to this Agreement; provided that such designation shall not be effective unless the Company and the Agent consent thereto (which consents shall not be unreasonably withheld). When a Bank and its Eligible Designee shall have signed an agreement substantially in the form of Exhibit K hereto (a "DESIGNATION AGREEMENT") and the Company and the Agent shall have signed their respective consents thereto, such Eligible Designee shall become a Designated Lender for purposes of this Agreement. The Designating Bank shall thereafter have the right 45 to permit such Designated Lender to provide all or a portion of the Loans to be made by such Designating Bank pursuant to Section 2.01 or 2.03, and the making of such Loans or portion thereof shall satisfy the obligation of the Designating Bank to the same extent, and as if, such Loans or portion thereof were made by the Designating Bank. As to any Loans or portion thereof made by it, each Designated Lender shall have all the rights that a Bank making such Loans or portion thereof would have had under this Agreement and otherwise; provided that (x) its voting rights under this Agreement shall be exercised solely by its Designating Bank and (y) its Designating Bank shall remain solely responsible to the other parties hereto for the performance of such Designated Lender's obligations under this Agreement, including its obligations in respect of the Loans or portion thereof made by it. No additional Note shall be required to evidence the Loans or portion thereof made by a Designated Lender; and the Designating Bank shall be deemed to hold its Note as agent for its Designated Lender to the extent of the Loans or portion thereof funded by such Designated Lender. Each Designating Bank shall act as agent for its Designated Lender and give and receive notices and other communications on its behalf. Any payments for the account of any Designated Lender shall be paid to its Designating Bank as agent for such Designated Lender and neither the Company nor the Agent shall be responsible for any Designating Bank's application of such payments. In addition, any Designated Lender may, with notice to (but without the prior written consent of) the Company and the Agent, (i) assign all or portions of its interest in any Loans to its Designating Bank or to any financial institutions consented to by the Company and the Agent that provide liquidity and/or credit facilities to or for the account of such Designated Lender to support the funding of Loans or portions thereof made by it and (ii) disclose on a confidential basis any non-public information relating to its Loans or portions thereof to any rating agency, commercial paper dealer or provider of any guarantee, surety, credit or liquidity enhancement to such Designated Lender. (b) Each party to this Agreement agrees that it will not institute against, or join any other person in instituting against, any Designated Lender any bankruptcy, insolvency, reorganization or other similar proceeding under any federal or state bankruptcy or similar law, for one year and a day after all outstanding senior indebtedness of such Designated Lender is paid in full. The Designating Bank for each Designated Lender agrees to indemnify, save, and hold harmless each other party hereto for any loss, cost, damage and expense arising out of its inability to institute any such proceeding against such Designated Lender. This subsection (b) shall survive the termination of this Agreement. SECTION 11.08. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 11.09. Governing Law; Submission to Jurisdiction; Service of Process. This Agreement, each Election to Participate, each Election to Terminate and each Note shall be governed by and construed in accordance with the laws of the State of New York. Each Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or 46 the transactions contemplated hereby. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Each Borrower hereby appoints CT Corporation System its authorized agent to accept and acknowledge service of any and all processes which may be served in any suit, action or proceeding of the nature referred to in this Section 11.09 and consents to process being served in any such suit, action or proceeding upon CT Corporation System in any manner or by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower's address referred to in Section 11.01; and (d) agrees that such service (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to it. A copy of any summons or complaint served on an Eligible Subsidiary pursuant to the foregoing shall be sent to the Company by registered or certified mail. Each Eligible Subsidiary represents and warrants that CT Corporation System has agreed in writing to accept such appointment and that true copies of such acceptance will be furnished to the Agent prior to or concurrently with delivery of such Eligible Subsidiary's Election to Participate. Nothing in this Section 11.09 shall affect the right of any Bank to serve process in any manner permitted by law or limit the right of any Bank to bring proceedings against the Company or any Eligible Subsidiary in the courts of any jurisdiction or jurisdictions. SECTION 11.10. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 11.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 47 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE GILLETTE COMPANY By: --------------------------------- Name: Title: Address: Prudential Tower Bldg Suite 4800, Boston, MA 02199 Facsimile Number: (617) 421-7699 THE CHASE MANHATTAN BANK, as Agent By: --------------------------------- Name: Title: Address: Loan & Agency Services 1 Chase Manhattan Plaza - 8th Floor New York, New York 10081 Facsimile Number: (212) 552-5662 MANAGING AGENTS BANK OF AMERICA, N.A. By: --------------------------------- Name: Title: CITIBANK, N.A. By: --------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON By: --------------------------------- Name: Title: INTESABCI, NEW YORK BRANCH By: --------------------------------- Name: Title: FLEET NATIONAL BANK By: --------------------------------- Name: Title: BANK ONE, N.A., CHICAGO BRANCH By: --------------------------------- Name: Title: ABN AMRO BANK N.V. By: --------------------------------- Name: Title: HSBC BANK USA By: --------------------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH By: --------------------------------- Name: Title: PARTICIPANTS STATE STREET BANK & TRUST COMPANY By: --------------------------------- Name: Title: SOCIETE GENERALE By: --------------------------------- Name: Title: BANCO SANTANDER CENTRAL HISPANO, S.A., NEW YORK BRANCH By: --------------------------------- Name: Title: MELLON BANK, N.A. By: --------------------------------- Name: Title: UBS AG, STAMFORD BRANCH By: --------------------------------- Name: Title: ING BARINGS (US) CAPITAL LLC By: --------------------------------- Name: Title: THE ROYAL BANK OF SCOTLAND By: --------------------------------- Name: Title: COMMITMENT SCHEDULE
BANK COMMITMENT ADMINISTRATIVE AGENT The Chase Manhattan Bank $ 175,000,000 MANAGING AGENTS Bank of America, N.A $ 125,000,000 Citibank, N.A $ 125,000,000 Credit Suisse First Boston $ 125,000,000 IntesaBci, New York Branch $ 125,000,000 Fleet National Bank $ 125,000,000 Bank One, N.A., Chicago Branch $ 125,000,000 ABN AMRO Bank N.V $ 125,000,000 HSBC Bank USA $ 125,000,000 Deutsche Bank AG, New York Branch $ 125,000,000 PARTICIPANTS State Street Bank & Trust Company $ 50,000,000 Societe Generale $ 50,000,000 Banco Santander Central Hispano, S.A., New York $ 50,000,000 Branch Mellon Bank, N.A $ 50,000,000 UBS AG, Stamford Branch $ 50,000,000 ING Barings (US) Capital LLC $ 50,000,000 The Royal Bank of Scotland $ 50,000,000 -------------- TOTAL: $1,650,000,000 ==============
EXHIBIT A NOTE New York, New York , 200_ For value received, [name of Borrower], a [jurisdiction of incorporation] corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the 364-Day Credit Agreement dated as of October 16, 2001 among The Gillette Company, the Banks listed on the signature pages thereof and The Chase Manhattan Bank, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. The Gillette Company has, pursuant to the provisions of the Credit Agreement, unconditionally guaranteed the payment in full of the principal of and interest on this note.* - ---------- 1 To be deleted in case of Notes executed and delivered by the Company. [NAME OF BORROWER] By: --------------------------------- Title: A-2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
- -------------------------------------------------------------------------------- AMOUNT OF AMOUNT OF TYPE OF PRINCIPAL MATURITY NOTATION DATE LOAN LOAN REPAID DATE MADE BY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
A-3 EXHIBIT B Form of Competitive Bid Quote Request [Date] To: The Chase Manhattan Bank (the "Agent") From: [Name of Borrower] Re: 364-Day Credit Agreement (the "Credit Agreement") dated as of October 16, 2001 among The Gillette Company, the Banks listed on the signature pages thereof and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Competitive Bid Quotes for the following proposed Competitive Bid Borrowing(s): Date of Borrowing: ------------------------------
Principal Amount* Interest Period** Maturity Date - ----------------- ----------------- ------------- $
Such Competitive Bid Quotes should offer a Competitive Bid [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. [NAME OF BORROWER] By: --------------------------------- Title: - ---------- 1 Amount must be $15,000,000 or a larger multiple of $1,000,000. 2 Not less than one month (LIBOR Auction) or not less than 15 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. EXHIBIT C Form of Invitation for Competitive Bid Quotes To: [Name of Bank] Re: Invitation for Competitive Bid Quotes to [Name of Borrower] (the "Borrower") Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of October 16, 2001 among The Gillette Company, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Competitive Bid Quotes to the Borrower for the following proposed Competitive Bid Borrowing(s): Date of Borrowing: -----------------------
Principal Amount Interest Period Maturity Date - ---------------- --------------- ------------- $
Such Competitive Bid Quotes should offer a Competitive Bid [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. THE CHASE MANHATTAN BANK By: --------------------------------- Authorized Officer EXHIBIT D Form of Competitive Bid Quote To: The Chase Manhattan Bank, as Agent Re: Competitive Bid Quote to [Name of Borrower] (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 20__, we hereby make the following Competitive Bid Quote on the following terms: 1. Quoting Bank:______________________________________________ 2. Person to contact at Quoting Bank: ___________________________________________________________ 3. Date of Borrowing:____________________* 4. We hereby offer to make Competitive Bid Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:
COMPETITIVE INTEREST BID [ABSOLUTE PRINCIPAL AMOUNT** PERIOD*** [MARGIN]**** RATE]***** $
[Provided, that the aggregate principal amount of Competitive Bid Loans for which the above offers may be accepted shall not exceed $____________.]** __________ 1 As specified in the related Invitation. 2 Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. 3 Not less than one month or not less than 15 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. 4 Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". 5 Specify rate of interest per annum (to the nearest 1/10,000 of 1%). We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the 364-Day Credit Agreement dated as of October 16, 2001 among The Gillette Company, the Banks listed on the signature pages thereof and yourselves, as Agent, irrevocably obligates us to make the Competitive Bid Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated: By: ----------------- ------------------------------- Authorized Officer D-2 EXHIBIT E OPINION OF COUNSEL FOR THE COMPANY [Effective Date] To the Banks and the Agent Referred to Below c/o The Chase Manhattan Bank, as Agent 270 Park Avenue New York, New York 10017 Dear Sirs: I am Senior Attorney of The Gillette Company (the "Company"), and I am rendering this opinion pursuant to Section 3.01(c) of the 364-Day Credit Agreement dated as of October 16, 2001 among the Company, the banks parties thereto and The Chase Manhattan Bank, as Agent (the "Credit Agreement"). Terms defined in the Credit Agreement are used herein as therein defined. I have examined or caused to be examined by counsel retained by or on the staff of the Company, among other things, originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted or have had conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am admitted to practice in The Commonwealth of Massachusetts. No opinion is expressed herein with respect to or as to the effect of any laws other than the laws of The Commonwealth of Massachusetts, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. Upon the basis of the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Company of the Credit Agreement and the Notes issued by it are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company and known to me or, to the best of my knowledge, result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. 3. The provision in Section 11.09 of the Credit Agreement that the Credit Agreement and each Note shall be construed in accordance with and governed by the law of the State of New York is a valid choice of law provision under Massachusetts law and should be respected by a court sitting in Massachusetts. 4. If a court sitting in Massachusetts were to apply Massachusetts law as the law governing the Credit Agreement and the Notes, the Credit Agreement would constitute a valid and binding agreement of the Company and the Notes issued by it would constitute valid and binding obligations of the Company, in each case enforceable in accordance with their respective terms. 5. Except as disclosed in the Company's 2000 Form 10-K and the Company's Latest Form 10-Q, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, operations or financial condition of the Company and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or the Notes. My opinion in paragraph 4 above as to the enforceability of the Credit Agreement and the Notes issued by the Company is subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditors' rights in general, usury laws and the general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). With respect to the foregoing, I express no opinion, however, as to the enforceability of Section 11.03(b) of the Credit Agreement to the extent the rights to indemnification provided for therein are violative of any law, rule or regulation (including any federal or state securities law, rule or regulation) or public policy. To the extent that the obligations of the Company may be dependent upon such matters, I assume for purposes of this opinion that each Bank is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation; and that the Credit Agreement has been duly authorized, executed and delivered by the Banks and constitutes the legal, valid and binding obligation of the Banks, enforceable against the Banks in accordance with its terms. I do not express any opinion as to the effect of the compliance by any of the Banks with any state or federal laws or as to the regulatory status or nature of the business of any of the Banks. E-2 This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent. Very truly yours, E-3 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT [Effective Date] To the Banks and the Agent Referred to Below c/o The Chase Manhattan Bank, as Agent 270 Park Avenue New York, New York 10017 Dear Sirs: We have participated in the preparation of the 364-Day Credit Agreement (the "Credit Agreement") dated as of October 16, 2001 among The Gillette Company, a Delaware corporation (the "Company"), the Banks parties thereto (the "Banks") and The Chase Manhattan Bank, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Company of the Credit Agreement and its Notes are within the Company's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Company and each Note issued by it constitutes a valid and binding obligation of the Company, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, F-2 EXHIBIT G FORM OF ELECTION TO PARTICIPATE [Date] THE CHASE MANHATTAN BANK, as Agent for the Banks named in the 364-Day Credit Agreement dated as of October 16, 2001 among The Gillette Company, such Banks and such Agent (as amended from time to time, the "Credit Agreement") Dear Sirs: Reference is made to the Credit Agreement described above. Terms not defined herein which are defined in the Credit Agreement shall have for the purposes hereof the meaning provided therein. The undersigned, [name of Eligible Subsidiary], a [jurisdiction of incorporation] corporation, hereby elects to be an Eligible Subsidiary for purposes of the Credit Agreement, effective from the date hereof until an Election to Terminate shall have been delivered on behalf of the undersigned in accordance with the Credit Agreement. The undersigned confirms that the representations and warranties set forth in Article 9 of the Credit Agreement are true and correct as to the undersigned as of the date hereof, and the undersigned hereby agrees to perform all the obligations of an Eligible Subsidiary under, and to be bound in all respects by the terms of, the Credit Agreement, including without limitation Sections 11.09 and 11.11 thereof, as if the undersigned were a signatory party thereto. [Tax disclosure pursuant to Section 9.04, if any] The address to which all notices to the undersigned Eligible Subsidiary under the Credit Agreement should be directed is: . This instrument shall be construed in accordance with and governed by the laws of the State of New York. Very truly yours, [NAME OF ELIGIBLE SUBSIDIARY] By: --------------------------------- Title: The undersigned hereby confirms that [name of Eligible Subsidiary] is an Eligible Subsidiary for purposes of the Credit Agreement described above. THE GILLETTE COMPANY By: --------------------------------- Title: Receipt of the above Election to Participate is hereby acknowledged on and as of the date set forth above. THE CHASE MANHATTAN BANK, as Agent By: --------------------------------- Title: G-2 EXHIBIT H FORM OF ELECTION TO TERMINATE [Date] THE CHASE MANHATTAN BANK, as Agent for the Banks named in the 364-Day Credit Agreement dated as of October 16, 2001 among The Gillette Company, such Banks and such Agent (as amended from time to time, the "Credit Agreement") Dear Sirs: Reference is made to the Credit Agreement described above. Terms not defined herein which are defined in the Credit Agreement shall have for the purposes hereof the meaning provided therein. The undersigned, [name of Eligible Subsidiary], a [jurisdiction of incorporation] corporation, hereby elects to terminate its status as an Eligible Subsidiary for purposes of the Credit Agreement, effective as of the date hereof. The undersigned hereby represents and warrants that all principal and interest on all Notes of the undersigned and all other amounts payable by the undersigned pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Election to Terminate shall not affect any obligation of the undersigned under the Credit Agreement or under any Note heretofore incurred. This instrument shall be construed in accordance with and governed by the laws of the State of New York. Very truly yours, [NAME OF ELIGIBLE SUBSIDIARY] By: --------------------------------- Title: The undersigned hereby confirms that the status of [name of Eligible Subsidiary] as an Eligible Subsidiary for purposes of the Credit Agreement described above is terminated as of the date hereof. THE GILLETTE COMPANY By: --------------------------------- Title: Receipt of the above Election to Terminate is hereby acknowledged on and as of the date set forth above. THE CHASE MANHATTAN BANK, as Agent By: --------------------------------- Title: H-2 EXHIBIT I OPINION OF COUNSEL FOR THE BORROWER (BORROWINGS BY ELIGIBLE SUBSIDIARIES) [date] To the Banks and the Agent Referred to Below c/o The Chase Manhattan Bank, as Agent 270 Park Avenue New York, New York 10017 Dear Sirs: I am counsel to [name of Eligible Subsidiary, jurisdiction of incorporation] (the "Borrower") and give this opinion pursuant to Section 3.03(b) of the 364-Day Credit Agreement (as amended to the date hereof, the "Credit Agreement") dated as of October 16, 2001 among The Gillette Company (the "Company"), the banks parties thereto and The Chase Manhattan Bank, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation validly existing and in good standing under the laws of [jurisdiction of incorporation] and is a Substantially-Owned Consolidated Subsidiary of the Company. 2. The execution and delivery by the Borrower of its Election to Participate and its Notes and the performance by the Borrower of the Credit Agreement and its Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower. 3. The execution and delivery by the Borrower of its Election to Participate and its Notes and the performance by the Borrower of the Credit Agreement and its Notes do not contravene, or constitute a default under, any provision of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any of its Subsidiaries and known to me or, to the best of my knowledge, result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries.(1) 4. The Credit Agreement constitutes a valid and binding agreement of the Borrower and its Notes constitute valid and binding obligations of the Borrower, in each case enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. Very truly yours, - ---------- (1) The opinion in this paragraph may be given by Counsel for the Company. I-2 EXHIBIT J ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of_________, 200_ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), [THE GILLETTE COMPANY (the "Company") and THE CHASE MANHATTAN BANK, as Agent (the "Agent").] W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the 364-Day Credit Agreement dated as of October 16, 2001 among the Company, the Assignor and the other Banks party thereto, as Banks, and the Agent (as amended and in effect on the date hereof, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of [a portion of] its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with [a corresponding portion of] its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Company and the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.* It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Company and the Agent. This Agreement is conditioned upon the consent of the Company and the Agent pursuant to Section 11.06(c) of the Credit Agreement. The execution of this Agreement by the Company and the Agent is evidence of this consent. Pursuant to Section 11.06(c) the Borrower agrees to execute and deliver a Note [and to cause each Eligible Subsidiary to execute and deliver a Note] payable to the order of the Assignee to evidence the assignment and assumption provided for herein.]** SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Borrower, or the validity and enforceability of the obligations of any Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrowers. - ---------- 1 Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 Consent is required if the Assignee is not an affiliate of the Assignor and was not a Bank immediately prior to the assignment. Consent of the Company is not required if an Event of Default exists. J-2 SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: --------------------------------- Title: [ASSIGNEE] By: --------------------------------- Title: [THE GILLETTE COMPANY] By: --------------------------------- Title: THE CHASE MANHATTAN BANK, as Agent By: --------------------------------- Title: J-3 EXHIBIT K DESIGNATION AGREEMENT dated as of________________,_____ Reference is made to the 364-Day Credit Agreement dated as of October 16, 2001 (as amended from time to time, the "CREDIT AGREEMENT") among THE GILLETTE COMPANY, a Delaware corporation (the "COMPANY"), the Lenders party thereto, THE CHASE MANHATTAN BANK, as Agent (the "AGENT"). Terms defined in the Credit Agreement are used herein with the same meaning. _________________ (the "DESIGNATOR") and________________ (the "DESIGNEE") agree as follows: 1. The Designator designates the Designee as its Designated Lender under the Credit Agreement and the Designee accepts such designation. 2. The Designator makes no representations or warranties and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Designee (i) confirms that it is an Eligible Designee; (ii) appoints and authorizes the Designator as its administrative agent and attorney-in-fact and grants the Designator an irrevocable power of attorney to receive payments made for the benefit of the Designee under the Credit Agreement and to deliver and receive all communications and notices under the Credit Agreement, if any, that the Designee is obligated to deliver or has the right to receive thereunder; (iii) acknowledges that the Designator retains the sole right and responsibility to vote under the Credit Agreement, including, without limitation, the right to approve any amendment or waiver of any provision of the Credit Agreement, and (iv) agrees that the Designee shall be bound by all such votes, approvals, amendments and waivers and all other agreements of the Designator pursuant to or in connection with the Credit Agreement, all subject to Section 11.05(b) of the Credit Agreement. 4. The Designee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Article 4 or delivered pursuant to Article 5 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement and (ii) agrees that it will, independently and without reliance upon the Agent, the Designator or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action it may be permitted to take under the Credit Agreement. 5. Following the execution of this Designation Agreement by the Designator and the Designee and the consent hereto by the Company, it will be delivered to the Agent for its consent. This Designation Agreement shall become effective when the Agent consents hereto or on any later date specified on the signature page hereof. 6. Upon the effectiveness hereof, the Designee shall have the right to make Loans or portions thereof as a Bank pursuant to Section ? or ? of the Credit Agreement and the rights of a Bank related thereto. The making of any such Loans or portions thereof by the Designee shall satisfy the obligations of the Designator under the Credit Agreement to the same extent, and as if, such Loans or portions thereof were made by the Designator. 7. This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties have caused this Designation Agreement to be executed by their respective officers hereunto duly authorized, as of the date first above written. Effective Date:______ ,____ [NAME OF DESIGNATOR] By: --------------------------------- Name: Title: H-2 [NAME OF DESIGNEE] By: --------------------------------- Name: Title: The undersigned consent to the foregoing designation. By: --------------------------------- Name: Title: , as Administrative Agent By: --------------------------------- Name: Title: H-3 EX-12 10 b41814gcex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE GILLETTE COMPANY RATIO OF EARNINGS TO FIXED CHARGES Dollars in millions
2001 2000 1999 1998 1997 ------------ ---------- ----------- ----------- ----------- Earnings: Income from continuing operations before income taxes $ 1,342 1,288 1,912 1,656 2,065 Interest expense 145 223 136 94 78 Interest portion of rental expense 31 25 20 17 16 Amortization of capitalized interest 9 6 5 4 3 ------------ ----------- ----------- ----------- ---------- Earnings available for fixed charges $ 1,527 1,542 2,073 1,771 2,162 ============ =========== =========== =========== ========== Fixed Charges: Interest expense $ 145 223 136 94 78 Interest capitalized 11 23 13 18 10 Interest portion of rental expense 31 25 20 17 16 ------------- ----------- ----------- ----------- ----------- Total fixed charges $ 187 271 169 129 104 ============= =========== =========== =========== =========== RATIO OF EARNINGS TO FIXED CHARGES 8.2 5.7 12.3 13.7 20.8 ============= =========== =========== =========== ===========
EX-13 11 b41814gcex13.txt PORTIONS OF 2001 ANNUAL REPORT Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations The Gillette Company and Subsidiary Companies RESULTS OF OPERATIONS Net Sales Net sales in 2001 were $8.96 billion, 3% below those of 2000. Excluding the adverse effect of exchange, 3%, sales were level with those of the prior year. The level sales were attributable to favorable pricing of 1%, offset by negative volume/mix of 1%, which included the significant unfavorable impact of trade inventory reductions. Net sales in 2000 were $9.22 billion, 2% above those of 1999. Excluding the adverse effect of exchange, 5%, and the divestiture of the White Rain hair care line, 1%, sales climbed 8%. The 8% sales growth was attributable to favorable volume/mix of 6% and pricing of 2%. An analysis of sales by business segment follows.
% increase/(decrease) --------------------- Years ended December 31, 2001 2000 1999 01/00 00/99 - -------------------------- --------- --------- --------- --------- --------- (millions) Blades & Razors $3,416 $3,394 $3,143 1 8 Personal Care 877 960 1,041 (9) (8) Duracell 2,365 2,567 2,709 (8) (5) Oral Care 1,270 1,204 1,114 6 8 Braun 1,033 1,100 1,067 (6) 3 - -------------------------- ------ ------ ------ ---- --- $8,961 $9,225 $9,074 (3) 2 - -------------------------- ------ ------ ------ ---- ---
See Notes to Consolidated Financial Statements for segment data. Sales of blades and razors were 1% higher than those of the prior year. Without the adverse effect of exchange, sales grew 4%. Strong shipments of the new Gillette for Women Venus shaving system in North America and Europe offset the lower volumes that resulted from the Company's program to reduce trade inventories of blades. This trade inventory reduction will enhance the comparison of 2002 sales with those of 2001. In 2000, sales of blades and razors were 8% higher than those of the previous year, due primarily to strong sales of the Mach3 shaving system in North America, Europe and Latin America, including the successful launch of the Mach3 system in Brazil. Personal care sales were 9% below those of 2000, but would have been 5% below that year's level without the negative effect of exchange and the divestiture of White Rain hair care products in April 2000. Sales declined in shave preparations, as well as in antiperspirants/deodorants. In 2000, personal care sales decreased 8% from those of the prior year, due primarily to the divestiture of the White Rain brand. Sales of Duracell products fell 8% from those of 2000. Excluding the adverse effect of exchange, sales were 6% lower than in the prior year. The sales decline reflected the Company's efforts to reduce trade inventory levels and a change in mix, as the proportion of CopperTop battery sales increased versus those of the premium- priced Duracell Ultra brand. The new CopperTop battery, which replaced the former Copper & Black design, was introduced in the U.S. in June, backed by a comprehensive advertising and promotional campaign. In 2000, sales of Duracell products declined 5%, as a substantial increase in sales of Duracell Ultra batteries was more than offset by much lower sales of both Copper & Black and non-Duracell branded batteries. Contributing to the lower sales were increased competition faced by the Copper & Black brand in North America and the depreciation of the Euro. Oral care sales were 6% above those of 2000, reflecting gains in all geographies, but would have been 9% higher than that year's level without the impact of unfavorable exchange. Strong gains in power oral care products more than offset lower sales of manual oral care products. The new Braun Oral-B battery-powered toothbrush started its rollout in the U.S. and Europe during the year, and initial trade and consumer response was encouraging. In 2000, sales of oral care products were 8% above those of 1999. This sales growth was paced by Latin America, where economic conditions improved and the rollout of the premium CrossAction toothbrush 17 to the region's largest markets was completed. In North America, sales growth also reflected new product activity, including the third-quarter launch of the Oral-B Advantage Plus toothbrush. Sales of Braun products were 6% below those of the previous year. Excluding the impact of exchange, Braun sales were 2% lower than in the prior year, reflecting reduced product offerings within non-shaving categories. In 2000, Braun sales rose 3% from those of 1999. Sales advances were achieved across all geographies except Europe, where growth was restrained by the depreciation of the Euro. Particularly noteworthy were sales of the Braun Syncro electric shaver, which drove gains in Germany and Japan. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 12% of sales in 2001. These sales occurred primarily in the United States and were across all product segments. Gross Profit Gross profit was $5.55 billion in 2001, $5.76 billion in 2000 and $5.59 billion in 1999. As a percent of sales, gross profit was 62.0% in 2001, compared with 62.4% in 2000 and 61.6% in 1999. In 2001, the margin decline was mainly due to lower Duracell and blade and razor margins. Duracell gross profit margin declined, due to a higher proportion of lower margin CopperTop battery sales. Margin for blades and razors also decreased, reflecting the greater proportion of razor sales resulting from the launch of the new Gillette for Women Venus shaving system. Braun and oral care showed improved gross profit margin, reflecting manufacturing efficiencies and favorable product mix, while personal care showed little change in gross profit margin. In 2000, margin improvement was due to favorable sales mix and improved manufacturing efficiencies. Selling, General and Administrative Expenses Selling, general and administrative expenses amounted to 43.3% of net sales, compared with 39.8% and 38.6% in 2000 and 1999, respectively. In absolute terms, these expenses increased 6% in 2001 and 5% in 2000. In 2001, $576 million was spent on advertising, including sampling, and $1,196 million on sales promotion, for a total of $1,772 million, an increase of 1% over the 2000 spending level. This spending compares with 2000 amounts of $539 million, $1,215 million and $1,754 million, respectively. In 1999, these amounts were $513 million, $1,016 million and $1,529 million, respectively. The 7% rise in advertising spending in 2001 was in line with our objective to increase our advertising investment levels. Total direct marketing expenses in 2001 represented 19.8% of sales, compared with 19.0% and 16.8% in 2000 and 1999, respectively. In 2001, other marketing and administrative expenses were 10% above those of the prior year, due to continued substantial investment behind our merchandising activity. Other marketing and administrative expenses declined 3% in 2000, reflecting a full year of benefits from the September 1998 reorganization and realignment program. Profit from Operations Profit from operations was $1.50 billion in 2001, compared with $1.51 billion in 2000 and $2.09 billion in 1999. Before restructuring and asset impairment charges of $172 million in 2001 and $572 million in 2000, profit from operations was $1.67 billion in 2001 and $2.08 billion in 2000. Excluding the restructuring and asset impairment charges in 2001 and 2000, profit from operations in 2001 represented 18.6% of sales, compared with 22.6% in 2000 and 23.0% in 1999. Operating profits in 2001 were 20% below those of 2000, due to lower net sales, higher advertising spending and other marketing and administrative expenses. Operating profits in 2000 were virtually unchanged from those of 1999, as improved gross profit margin and cost savings from other operating expenses were offset by significant increases in marketing expenses. In 1999, the Company incurred $61 million of incremental expenses related to the reorganization and realignment program, primarily for equipment and employee relocation and training. These expenses were not included as part of the original reserve, due to the requirements of the accounting standards. In addition, a gain of $22 million on the sale of land and a building was recognized in 1999. 18 An analysis of operating profit by business segment follows. The 2001 and 2000 restructuring and asset impairment charges are included in Corporate/Other.
%increase/(decrease) ------------------ Years ended December 31, 2001 2000 1999 01/00 00/99 - -------------------------- --------- --------- --------- ------- -------- (millions) Blades & Razors $1,141 $1,272 $1,144 (10) 11 Personal Care 68 100 93 (32) 8 Duracell 217 456 608 (52) (25) Oral Care 240 226 224 6 1 Braun 98 94 60 4 56 - -------------------------- ------ ------ ------ --- --- 1,764 2,148 2,129 (18) 1 Corporate/Other (266) (636) (42) - -------------------------- ------ ------ ------ $1,498 $1,512 $2,087 - -------------------------- ------ ------ ------
See Notes to Consolidated Financial Statements for segment data. Blade and razor profits were 10% lower in 2001, due to lower gross profit margin, increased advertising support and higher administrative costs. In 2000, blade and razor profits were 11% higher than those of the year before, due primarily to the sales growth of the Mach3 shaving system in North America, Europe and Latin America. Personal care profits were 32% lower than those of the prior year, due to lower sales and increased administrative costs. In 2000, personal care profits were 8% above those of the previous year. Duracell profit from operations was 52% below that of the year before, the result of lower sales, greater advertising support and increased overhead costs. In 2000, Duracell profit from operations was 25% lower than in 1999, reflecting both lower sales and increased marketing spending. Oral care profit from operations was 6% above that of 2000, due primarily to increased sales and higher gross profit margin. Direct marketing support was level with that of the prior year, and overhead expenses were higher. In 2000, oral care profit from operations was 1% above that of the previous year, as higher sales were offset by increased marketing expenses to support new product launches. Braun profit from operations was 4% higher than in 2000, reflecting improved gross profit margin. Spending rates for marketing expenses and overheads were in line with those of the prior year. In 2000, Braun profit from operations was 56% higher than in 1999, reflecting sales growth, improved mix and lower overhead expenses. Nonoperating Charges/Income Net interest expense amounted to $141 million in 2001, $218 million in 2000 and $129 million in 1999. Net interest expense fell in 2001, because of lower interest rates and reduced borrowings. Net interest expense rose in 2000, due to increased borrowings to fund the share repurchase program and higher interest rates. A net exchange loss of $3 million in 2001, which compared with a net exchange gain of $8 million in 2000 and a loss of $35 million in 1999, was due primarily to subsidiaries in highly inflationary countries. Translation adjustments resulting from currency fluctuations of net foreign investments in non-highly inflationary countries are accumulated in a separate section of stockholders' equity, as noted on page 33. In 2001, the unfavorable translation adjustment was $93 million, compared with unfavorable translation adjustments of $249 million in 2000 and $205 million in 1999, reflecting significant exchange rate movements. Taxes and Income from Continuing Operations The effective tax rate was 32.2% in 2001, compared with rates of 36.3% in 2000 and 34.8% in 1999. The effective tax rate decreased in 2001, due primarily to the nondeductibility of certain asset impairment charges in 2000. Excluding the impact of the restructuring and asset impairment charges in both 2001 and 2000, the tax rate declined to 31% in 2001 from 32.8% in 2000. 19 Income from continuing operations was $910 million in 2001, compared with $821 million in 2000 and $1,248 million in 1999. Fully diluted net income per common share from continuing operations was $.86 in 2001, compared with $.77 and $1.13 in 2000 and 1999, respectively. Excluding the restructuring and asset impairment charges in 2001 and 2000, income from continuing operations was $1,045 million in 2001, compared with $1,251 million in 2000 and $1,248 million in 1999. Fully diluted net income per common share from continuing operations was $.99 in 2001, compared with $1.18 and $1.13 in 2000 and 1999, respectively. Financial Condition The Company's financial condition strengthened during 2001. Cash provided by operations is the Company's primary source of funds to finance operating needs and capital expenditures and to pay dividends. During 2001, the Company generated $2.09 billion in cash from operations, a 31% increase over 2000. The increase reflected improvements in working capital, principally from accounts receivable collections. The strong working capital performance allowed the Company to reduce net debt (total debt net of associated swaps, less cash and cash equivalents) by $1.13 billion during 2001. Net debt at December 31, 2001, was $3.32 billion, compared with $4.45 billion and $4.53 billion at December 31, 2000 and 1999, respectively. As a component of net debt, cash and cash equivalents increased $885 million in 2001 to $947 million and were invested primarily in highly liquid deposits and marketable securities of institutions with high credit quality. Cash from operating activities of $1.60 billion in 2000 compared with $1.43 billion in 1999. An additional source of cash in 2000 was the sale of the Stationery Products business for $528 million. The market value of outstanding Gillette equity was $35 billion at the end of 2001, compared with $38 billion at the end of 2000. The Company's book equity position was $2.14 billion at the end of 2001, compared with $1.92 billion at the end of 2000 and $3.06 billion at the end of 1999. The decrease in book equity in 2000 was due primarily to the Gillette share repurchase program. Capital spending decreased to $624 million in 2001, compared with $793 million in 2000 and $889 million in 1999. Spending in all three years reflected substantial investments in blades and razors, as well as in the Duracell segment. Share repurchase funding in 2001, net of proceeds received from the sale of put options on Company stock, amounted to $3 million, compared with $921 million in 2000 and $1,949 million in 1999. The Company's long-term credit ratings of AA- from Standard & Poor's and Aa3 from Moody's and commercial paper ratings of A1+ from Standard & Poor's and P1 from Moody's provide a high degree of flexibility in obtaining funds. To support its commercial paper program, the Company entered into a $1.65 billion, 364-day revolving bank credit agreement on October 16, 2001, that replaced the $1.4 billion revolving bank credit agreement that expired in October 2001 and the $550 million revolving bank credit agreement that was due to expire in December 2001. The Company plans to renew the credit facility in 2002 and does not foresee any problems in doing so. The revolving bank credit agreement requires an earnings-to-interest-expense ratio above 6.5X at each quarter end for the four quarters then ended. At December 31, 2001, the interest coverage ratio, at 10.3X, was well above the required ratio. The Company believes it has sufficient alternative sources of higher cost funding available to replace its commercial paper program, if necessary. At year-end 2001, there was $1.98 billion outstanding under the Company's commercial paper program, compared with $2.04 billion at the end of 2000 and $2.41 billion at the end of 1999. On September 26, 2001, the Company issued a $200 million U.S.-denominated 5.25% Euro note due December 2006. The Company subsequently repurchased $75 million of the Euro note on October 12, 2001, and on October 18, 2001, reissued a $75 million floating rate Euro note, due January 2003. The repurchase had no impact on earnings. On December 5, 2001, the Company issued a $250 million U.S.-denominated 3.75% note due December 2004. The proceeds from the debt issuances were used to reduce commercial paper borrowing. During 2000, the Company issued Euro-denominated notes for $228 million, due December 2002, and entered into a $264 million Euro-denominated debt obligation, with redemption rights in December 2001. Through its strong brands, leading market positions and improving financial condition, Gillette will continue to have capital available for growth through both internally generated funds and significant credit 20 resources. The Company has substantial unused lines of credit and access to worldwide financial markets, enabling the Company to raise funds at favorable rates. The Company has contractual obligations payable or maturing in the following years.
2003, 2005, 2007 At December 31, 2001, 2002 2004 2006 and beyond Total - -------------------------------------------- -------- --------- ------- ------------ --------- (millions) Long-term debt, including current portion $ 420 $ 993 $625 $ - $2,038 Loans payable 2,235 - - - 2,235 Operating leases 94 139 100 131 464 - -------------------------------------------- ------ ------ ---- ---- ------ $2,749 $1,132 $725 $131 $4,737
The Company has no material contingent commitments. The Company has no material "off balance sheet" liabilities or nonconsolidated Special Purpose Entities. Market Risk The Company is subject to market risks, such as changes in currency and interest rates that arise from normal business operations. The Company regularly assesses these risks and has established business strategies to provide natural offsets, supplemented by the use of derivative financial instruments, to protect against the adverse effects of these and other market risks. To manage the impact of currency changes on foreign-denominated profits, the Company primarily uses product sourcing and pricing strategies, supplemented by purchases of foreign currency options when considered appropriate. The Company uses foreign-denominated debt and forward contracts to hedge the impact of currency changes on its net foreign investments, normally in currencies with low interest rates. The Company uses primarily floating rate debt in order to match interest costs to the impact of inflation on earnings. The Company manages its mix of fixed and floating rate debt by entering into interest rate swaps and forward rate agreements. Most of the Company's transactional exchange exposure is managed through centralized cash management. The Company hedges net residual transactional exchange exposures primarily through forward contracts. More detailed information about the strategies, policies and use of derivative financial instruments is provided in the financial instruments and risk management activities note. The Company has established clear policies, procedures and internal controls governing the use of derivative financial instruments and does not use them for trading, investment or other speculative purposes. Financial instrument positions are monitored using a value-at-risk model. Value at risk is estimated for each instrument based on historical volatility of market rates and a 95% confidence level. Based on the Company's overall evaluation of its market risk exposures from all of its financial instruments at December 31, 2001 and 2000, a near-term change in market rates would not materially affect the consolidated financial position, results of operations or cash flows of the Company. Restructuring and Asset Impairments On December 18, 2000, the Company announced a restructuring program and impaired certain intangible assets. This resulted in a fourth-quarter charge to operations of $572 million ($430 million after taxes, or $.41 in net income per common share, fully diluted). The worldwide restructuring of operations improved the Company's operating efficiency, streamlined the supply chain and further decreased costs. The program budgeted a net reduction of approximately 2,700 employees across all business functions, operating units and geographies. The charge for impaired intangible assets was $212 million to write down $157 million of acquired goodwill relating to the Thermoscan personal diagnostic appliance brand in the Braun segment and $55 million of acquired goodwill and identifiable intangible assets for certain national battery brands in the Duracell segment. The charge for the restructuring program was $360 million, and activity under the program continued throughout 2001. Specific program activities included consolidating management functions; reducing factory 21 locations, in part through outsourcing production of low-volume noncore products; streamlining the supply chain via warehouse consolidation and other actions; and downsizing and centralizing corporate functions. These actions included the planned closure of eight factories and 13 distribution centers during 2001. Pretax cash outlays for the restructuring program were estimated at approximately $235 million. Cash severance payments will extend beyond 2001, due to the severance payment deferral options available to terminated employees. At December 31, 2001, remaining cash outlays were $79 million, which will occur primarily in 2002. Pretax savings from the program were $45 million in 2001 and will be approximately $135 million in 2002. The noncash charges for the restructuring program were approximately $125 million for the write-down to disposal value of factories and distribution centers, as well as the write-off of manufacturing, distribution and office equipment assets. Revenue-generating activities continued until the affected facilities ceased operations. Buildings were sold, and equipment was disposed of through either sale or abandonment. The extent of the impairment was based on discounted cash flow analyses for the operating period up until closure and included an estimate of residual value. Under the direction of the new Chief Executive Officer, the Company adopted a new strategy in 2001 for the Personal Care segment that included establishing a separate Personal Care Global Business Management unit as part of the Company's reemphasis on the category. This change in strategy also led to the decision not to close one major factory dedicated to personal care manufacturing, resulting in a pretax reduction in the 2000 restructuring provision of approximately $33 million. Minor modifications were also made to certain other programs, including the decision not to close two small factories. In addition, the Company recorded a pretax recovery of approximately $22 million, reflecting better than anticipated results relating to the closing of certain other facilities. During the fourth quarter of 2001, the Company recorded a charge of $63 million associated with planned new actions: the withdrawal from several minor noncore businesses and the cessation of operations in one factory in the Duracell segment. The factory closure, based on a study that revealed excess worldwide capacity, will result in the reduction of 170 employees. Once the closure is completed, annual pretax savings will be approximately $5 million. In the fourth quarter of 2001, in connection with a decision to exit battery brands in certain international markets, the Company announced a noncash impairment charge relating to the write-down of goodwill, other intangibles and related long-lived assets. This resulted in a fourth-quarter 2001 pretax charge to operations of $164 million. The businesses covered represent regional battery products that do not carry the Duracell brand. The value of the impaired assets was determined based on discounted cash flow analyses for future operating periods. As a result of the three actions taken in the fourth quarter of 2001, the Company recorded a pretax charge of $172 million ($135 million after taxes, or $.13 in net income per common share, fully diluted). Additional details are provided on pages 39-41 in the Notes to Consolidated Financial Statements. CRITICAL ACCOUNTING POLICIES Restructuring The Company estimates its restructuring liability for the exit plans developed by senior management by accumulating detailed estimates of costs from each of the affected geographic locations. This includes the estimated costs of employee severance and related benefits, impairment of property and equipment, contract termination payments for leases, distributor arrangements and other contractual obligations, and any other qualifying exit costs related to the exit plan. These estimated costs are grouped by specific projects within the overall exit plan and are then monitored on a monthly basis by corporate finance personnel, as well as by finance personnel at each affected geographic location. Changes in estimates for individual locations are evaluated periodically to determine if a change in estimate is required for the overall restructuring program. Changes in estimates occurred during 2001 for the 2000 restructuring program, as discussed above under "Restructuring and Asset Impairments." The primary reason for the changes was a strategic redirection of the Company's Personal Care unit that resulted in a pretax reduction of $33 million in the 2000 reserve. In 22 addition, the Company recorded a pretax recovery of approximately $22 million, reflecting better than anticipated results in other projects within the 2000 restructuring program. Promotional Expense The Company enters into promotional arrangements, primarily with its retail customers, many of which require periodic payments based on estimated total-year purchases of Gillette products. Therefore, the Company is required to estimate these future purchases on a routine basis in order to properly account for these payments. In addition, the Company routinely commits to one-time promotional programs with customers that require the Company to estimate the ultimate cost of each promotional program and accrue that cost until paid. The Company tracks its commitments for promotional programs and, using experience gained over many years, records an accrual at the end of each period for the earned, but unpaid, costs of promotional programs. Based on this experience, all promotional accruals fairly represent future requirements. Impairment and Amortization The Company recorded impairment charges for goodwill and other long-lived assets in 2000 and 2001. These charges related to discrete product lines for which estimated discounted future operating cash flows indicated that the assets were not recoverable. The preparation of discounted future operating cash flow analyses requires significant management judgment with respect to revenue and expense growth rates, changes in working capital use and selection of an appropriate discount rate. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease the impairment charge. The Company adopted Statement of Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. As a result, compared with 2001, annual amortization expense will be $34 million lower in 2002 and in future years. Pension Expense The Company's calculation of pension expense uses discount and other rate assumptions. Pension plan expense is principally the sum of interest and service cost on the plan, less expected return on plan assets. The expected return on plan assets is calculated by applying an assumed rate of return to the fair value of plan assets. If plan assets decline, the expected return on plan assets for the next year also declines, increasing pension expense. At December 31, 2001, the fair value of plan assets decreased to $1.6 billion from $1.9 billion at December 31, 2000, chiefly due to the poor performance of the equity markets, adding approximately $45 million to 2002 pension expense. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS See pages 32 and 33 in Notes to Consolidated Financial Statements for a complete description of the effect of recent accounting pronouncements. RESPONSIBILITY FOR FINANCIAL STATEMENTS The Company is responsible for the objectivity and integrity of the accompanying consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The financial statements of necessity include the Company's estimates and judgments relating to matters not concluded by year-end. Financial information contained elsewhere in the 2001 Annual Report is consistent with that included in the financial statements. The Company maintains a system of internal accounting controls that includes careful selection and development of employees, division of duties, and written accounting and operating policies and procedures augmented by a continuing internal audit program. Although there are inherent limitations to the effectiveness of any system of accounting controls, the Company believes that its system provides reasonable, but not absolute, assurance that its assets are safeguarded from unauthorized use or disposition and that its accounting records are sufficiently reliable to permit the preparation of financial statements that conform in all material respects with accounting principles generally accepted in the United States. 23 KPMG LLP, independent auditors, are engaged by the Board of Directors to render an independent opinion regarding the fair presentation in the financial statements of the Company's financial condition and operating results. Their report appears on page 25. Their examination was made in accordance with auditing standards generally accepted in the United States and included a review of the system of internal accounting controls to the extent they considered necessary to determine the audit procedures required to support their opinion. The Audit Committee of the Board of Directors is composed solely of independent directors, as defined by the New York Stock Exchange. The Committee meets periodically and privately with the independent auditors, internal auditors and financial officers of the Company, as it deems necessary, to review the quality of the financial reporting of the Company, the internal accounting controls and the scope and results of audit examinations. The Committee also reviews compliance with the Company's policies relating to proper accounting and financial reporting systems and the independence of the independent auditors. In addition, the Committee is responsible for recommending the appointment of the Company's independent auditors by the Board of Directors. FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENT Certain statements that the Company may make from time to time, including statements contained in this report, constitute "forward-looking statements" under the federal securities laws. Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will" and other words of similar meaning used in conjunction with, among other things, discussions of future operations, acquisitions and divestitures, financial performance, the Company's strategy for growth, product development and new product launches, market position and expenditures. Forward-looking statements are based on current expectations of future events, but actual results could vary materially from the Company's expectations and projections. Investors are cautioned not to place undue reliance on any forward-looking statements. The Company assumes no obligation to update any forward-looking statements. The Company cautions that historical results should not be relied upon as indications of future performance. Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company include, but are not limited to, the following: (a) the pattern of the Company's sales, including variations in sales volume within periods; (b) the acceptance by the Company's customers and consumers of new products and line extensions; (c) the mix of products sold; (d) the Company's ability to control its internal costs and the cost of raw materials; (e) the prices of the Company's products and the response of the Company, its customers and competitors to changes in prices; (f) technological advances by the Company and/or its competitors; (g) new patents granted to the Company and/or its competitors; (h) changes in exchange rates in one or more of the Company's geographic markets; (i) changes in accounting policies; or (j) the impact of general economic conditions in the United States and in other countries in which the Company currently does business. Please refer to the Cautionary Statement contained in the Company's most recent Annual Report on Form 10-K, and under Item 5, Other Information, in the Company's most recent Quarterly Report on Form 10-Q, for a more detailed explanation of the inherent limitations in such forward-looking statements. 24 Independent Auditors' Report The Gillette Company and Subsidiary Companies [KPMG LOGO] The Stockholders and Board of Directors of The Gillette Company We have audited the accompanying consolidated balance sheet of The Gillette Company and subsidiary companies as of December 31, 2001 and 2000, and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Gillette Company and subsidiary companies as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP Boston, Massachusetts February 11, 2002 25 Consolidated Statement of Income The Gillette Company and Subsidiary Companies
Years Ended December 31, 2001 2000 1999 - ---------------------------------------------------------- ------------ ------------- ------------ (millions, except per share amounts) Net Sales $ 8,961 $ 9,225 $ 9,074 Cost of Sales 3,407 3,469 3,486 - ------------------------------------------------------------- ------- ------- ------- Gross Profit 5,554 5,756 5,588 Selling, General and Administrative Expenses 3,884 3,672 3,501 Restructuring and Asset Impairment Charges 172 572 -- - ------------------------------------------------------------- ------- ------- ------- Profit from Operations 1,498 1,512 2,087 Nonoperating Charges (Income) Interest income (4) (5) (7) Interest expense 145 223 136 Other charges - net 15 6 46 - ------------------------------------------------------------- ------- ------- ------- 156 224 175 - ------------------------------------------------------------- ------- ------- ------- Income from Continuing Operations before Income Taxes 1,342 1,288 1,912 Income Taxes 432 467 664 - ------------------------------------------------------------- ------- ------- ------- Income from Continuing Operations 910 821 1,248 Loss on Disposal of Discontinued Operations, net of tax -- (428) -- Income (Loss) from Discontinued Operations, net of tax -- (1) 12 - ------------------------------------------------------------- ------- ------- ------- Net Income $ 910 $ 392 $ 1,260 - ------------------------------------------------------------- ------- ------- ------- Net Income (Loss) per Common Share, basic Continuing Operations $ .86 $ .78 $ 1.14 Disposal of Discontinued Operations -- (.41) -- Discontinued Operations -- -- .01 - ------------------------------------------------------------- ------- ------- ------- Net Income $ .86 $ .37 $ 1.15 - ------------------------------------------------------------- ------- ------- ------- Net Income (Loss) per Common Share, assuming full dilution Continuing Operations $ .86 $ .77 $ 1.13 Disposal of Discontinued Operations -- (.40) -- Discontinued Operations -- -- .01 - ------------------------------------------------------------- ------- ------- ------- Net Income $ .86 $ .37 $ 1.14 - ------------------------------------------------------------- ------- ------- ------- Weighted average number of common shares outstanding Basic 1,055 1,054 1,089 Assuming full dilution 1,058 1,063 1,111 - ------------------------------------------------------------- ------- ------- -------
See accompanying Notes to Consolidated Financial Statements 26 Consolidated Balance Sheet The Gillette Company and Subsidiary Companies
At December 31, 2001 2000 - ----------------------------------------------------------------------- -------- -------- (millions, except per share amount) Assets Current Assets Cash and cash equivalents $ 947 $ 62 Trade receivables, less allowances: 2001 - $69; 2000 - $81 1,473 2,128 Other receivables 313 378 Inventories 1,011 1,162 Deferred income taxes 481 566 Other current assets 207 197 Net assets of discontinued operations 23 189 -------- -------- Total Current Assets 4,455 4,682 -------- -------- Property, Plant and Equipment, at cost less accumulated depreciation 3,548 3,550 Intangible Assets, less accumulated amortization 1,353 1,574 Other Assets 613 596 -------- -------- $ 9,969 $ 10,402 -------- -------- Liabilities and Stockholders' Equity Current Liabilities Loans payable $ 2,235 $ 2,195 Current portion of long-term debt 428 631 Accounts payable and accrued liabilities 1,880 2,346 Income taxes 295 299 -------- -------- Total Current Liabilities 4,838 5,471 -------- -------- Long-Term Debt 1,654 1,650 Deferred Income Taxes 459 450 Other Long-Term Liabilities 805 767 Minority Interest 42 41 Contingent Redemption Value of Common Stock Put Options 34 99 Stockholders' Equity Common stock, par value $1 per share Authorized: 2,320 shares Issued: 2001 - 1,368 shares; 2000 - 1,365 shares 1,368 1,365 Additional paid-in capital 1,094 973 Earnings reinvested in the business 6,077 5,853 Accumulated other comprehensive loss (1,437) (1,314) Treasury stock, at cost: 2001 - 312 shares; 2000 - 312 shares (4,965) (4,953) -------- -------- Total Stockholders' Equity 2,137 1,924 -------- -------- $ 9,969 $ 10,402 -------- --------
See accompanying Notes to Consolidated Financial Statements. 27 Consolidated Statement of Cash Flows The Gillette Company and Subsidiary Companies
Years Ended December 31, 2001 2000 1999 ----------- -------------- ------------- (millions) Operating Activities Income from continuing operations $ 910 $ 821 $ 1,248 Adjustments to reconcile income to net cash provided by operating activities: Provision for restructuring and asset impairment 172 572 -- Depreciation and amortization 509 535 464 Other (18) 5 (7) Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Accounts receivable 622 (100) (48) Inventories 101 149 (140) Accounts payable and accrued liabilities (191) (45) 65 Other working capital items 6 (136) 97 Other noncurrent assets and liabilities (19) (197) (252) ------- ------- ------- Net cash provided by operating activities 2,092 1,604 1,427 ------- ------- ------- Investing Activities Additions to property, plant and equipment (624) (793) (889) Disposals of property, plant and equipment 59 41 124 Sale of businesses -- 539 -- Other 1 (1) 2 ------- ------- ------- Net cash used in investing activities (564) (214) (763) ------- ------- ------- Financing Activities Purchase of treasury stock (12) (944) (2,021) Proceeds from sale of put options 9 23 72 Proceeds from exercise of stock option and purchase plans 53 36 149 Proceeds from long-term debt 525 494 1,105 Repayment of long-term debt (684) (365) -- Increase (decrease) in loans payable 56 (385) 484 Dividends paid (686) (671) (626) Settlements of debt-related derivative contracts 4 279 42 ------- ------- ------- Net cash used in financing activities (735) (1,533) (795) ------- ------- ------- Effect of Exchange Rate Changes on Cash (1) (5) (2) Net Cash Provided by Discontinued Operations 93 130 111 ------- ------- ------- Increase (Decrease) in Cash and Cash Equivalents 885 (18) (22) Cash and Cash Equivalents at Beginning of Year 62 80 102 ------- ------- ------- Cash and Cash Equivalents at End of Year $ 947 $ 62 $ 80 ------- ------- ------- Supplemental disclosure of cash paid for: Interest $ 154 $ 243 $ 126 Income taxes $ 232 $ 480 $ 457 ------- ------- -------
See accompanying Notes to Consolidated Financial Statements 28 Consolidated Statement of Stockholders' Equity The Gillette Company and Subsidiary Companies
Unearned Additional Preferred ESOP Common Paid-in (millions, except per share amounts) Stock Compensation Stock Capital ----------- -------------- -------- ------------ Balance at December 31, 1998 $ 90 $ (10) $ 1,358 $ 621 Net income -- -- -- -- Foreign currency translation -- -- -- -- Pension adjustment -- -- -- -- ------- ------- ------- ------- Other comprehensive loss -- -- -- -- ------- ------- ------- ------- Comprehensive income Dividends declared (per share $.59) -- -- -- -- Stock option and purchase plans (5.7 shares) -- -- 6 139 Conversion of Series C ESOP preferred stock (.6 shares) (5) -- -- (2) Purchase of Gillette treasury stock (46.8 shares) -- -- -- -- Proceeds from sale of put options -- -- -- 72 Contingent liability of put options -- -- -- (82) Earned ESOP compensation -- 6 -- -- ------- ------- ------- ------- Balance at December 31, 1999 85 (4) 1,364 748 ------- ------- ------- ------- Net income -- -- -- -- Foreign currency translation -- -- -- -- Pension adjustment -- -- -- -- ------- ------- ------- ------- Other comprehensive loss -- -- -- -- ------- ------- ------- ------- Comprehensive income Dividends declared (per share $.65) -- -- -- -- Stock option and purchase plans (1.8 shares) -- -- 1 34 Conversion of Series C ESOP preferred stock (11.3 shares) (85) -- -- (92) Purchase of Gillette treasury stock (24.5 shares) -- -- -- -- Proceeds from sale of put options -- -- -- 23 Contingent liability of put options -- -- -- 260 Earned ESOP compensation -- 4 -- -- ------- ------- ------- ------- Balance at December 31, 2000 -- -- 1,365 973 ------- ------- ------- ------- Net income -- -- -- -- Foreign currency translation -- -- -- -- Pension adjustment -- -- -- -- Cash flow hedges -- -- -- -- ------- ------- ------- ------- Other comprehensive loss -- -- -- -- ------- ------- ------- ------- Comprehensive income Dividends declared (per share $.65) -- -- -- -- Stock option and purchase plans (2.4 shares) -- -- 3 47 Purchase of Gillette treasury stock (0.4 shares) -- -- -- -- Proceeds from sale of put options -- -- -- 9 Contingent liability of put options -- -- -- 65 ------- ------- ------- ------- Balance at December 31, 2001 $ -- $ -- $ 1,368 $ 1,094 ------- ------- ------- -------
Other Total Earnings Treasury Comprehensive Stockholders' (millions, except per share amounts) Reinvested Stock Income Equity ------------ ------------ --------------- -------------- Balance at December 31, 1998 $ 5,529 $(2,172) $ (873) $ 4,543 Net income 1,260 -- -- 1,260 Foreign currency translation -- -- (205) (205) Pension adjustment -- -- 17 17 ------- ------- ------- ------- Other comprehensive loss -- -- (188) (188) ------- ------- ------- ------- Comprehensive income 1,072 ------- Dividends declared (per share $.59) (642) -- -- (642) Stock option and purchase plans (5.7 shares) -- -- -- 145 Conversion of Series C ESOP preferred stock (.6 shares) -- 7 -- -- Purchase of Gillette treasury stock (46.8 shares) -- (2,054) -- (2,054) Proceeds from sale of put options -- -- -- 72 Contingent liability of put options -- -- -- (82) Earned ESOP compensation -- -- -- 6 ------- ------- ------- ------- Balance at December 31, 1999 6,147 (4,219) (1,061) 3,060 ------- ------- ------- ------- Net income 392 -- -- 392 Foreign currency translation -- -- (249) (249) Pension adjustment -- -- (4) (4) ------- ------- ------- ------- Other comprehensive loss -- -- (253) (253) ------- ------- ------- ------- Comprehensive income 139 ------- Dividends declared (per share $.65) (686) -- -- (686) Stock option and purchase plans (1.8 shares) -- -- -- 35 Conversion of Series C ESOP preferred stock (11.3 shares) -- 177 -- -- Purchase of Gillette treasury stock (24.5 shares) -- (911) -- (911) Proceeds from sale of put options -- -- -- 23 Contingent liability of put options -- -- -- 260 Earned ESOP compensation -- -- -- 4 ------- ------- ------- ------- Balance at December 31, 2000 5,853 (4,953) (1,314) 1,924 ------- ------- ------- ------- Net income 910 -- -- 910 Foreign currency translation -- -- (93) (93) Pension adjustment -- -- (22) (22) Cash flow hedges -- -- (8) (8) ------- ------- ------- ------- Other comprehensive loss -- -- (123) (123) ------- ------- ------- ------- Comprehensive income 787 ------- Dividends declared (per share $.65) (686) -- -- (686) Stock option and purchase plans (2.4 shares) -- -- -- 50 Purchase of Gillette treasury stock (0.4 shares) -- (12) -- (12) Proceeds from sale of put options -- -- -- 9 Contingent liability of put options -- -- -- 65 ------- ------- ------- ------- Balance at December 31, 2001 $ 6,077 $(4,965) $(1,437) $ 2,137 ------- ------- ------- -------
See accompanying Notes to Consolidated Financial Statements. 29 Notes to Consolidated Financial Statements The Gillette Company and Subsidiary Companies NATURE OF OPERATIONS The Gillette Company is a global consumer products firm, with manufacturing operations conducted at 34 facilities in 15 countries. Products are distributed through wholesalers, retailers and agents in over 200 countries and territories. Gillette is the world leader in male grooming, a category that includes blades, razors and shaving preparations, and also in selected female grooming products, such as wet shaving products and hair epilation devices. The Company is the world's top seller of alkaline batteries and manual and power toothbrushes. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions are eliminated. The Stationery Products segment is reported as a discontinued operation, as discussed further on pages 38 and 39. Cash and Cash Equivalents Cash and cash equivalents include cash, time deposits and marketable securities that are highly liquid and have maturities of three months or less at the date of purchase. Revenue Recognition Revenue from product sales is recognized when the goods are shipped and title passes to the customer, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectibility is deemed probable. Shipping and Handling Costs Shipping and handling costs of $165 million in 2001, $152 million in 2000 and $154 million in 1999 are included in selling, general and administrative expenses. Inventories Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (FIFO) basis. Intangible Assets For the years presented in this report, goodwill is amortized on the straight-line method, generally over a period of 40 years. Other intangible assets, consisting primarily of trademarks, trade names, patents and other similar items, are amortized on the straight-line method over a period of 10 to 40 years, predominantly 40 years. Accounting for goodwill and other intangible assets is changing in 2002, as described further on pages 32 and 33. Impairment of Goodwill and Long-Lived Assets The Company continually assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. Intangible assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the goodwill, intangible asset or other long-lived asset exceeds the related estimated fair value. Estimated fair value is based on discounted future operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the 30 expected internal rate of return for the related business and does not allocate interest charges to the asset or asset group being measured. Considerable judgment is required to estimate discounted future operating cash flows. Depreciation Depreciation is computed primarily on a straight-line basis over the estimated useful lives of assets: buildings and building equipment, five to 40 years; machinery and equipment, three to 20 years. Advertising Advertising costs are expensed in the year incurred. Advertising was $576 million in 2001, compared with $539 million in 2000 and $513 million in 1999. For interim reporting purposes, advertising expenses are charged to operations as a percentage of sales, based on estimated sales and related advertising expense for the full year. Research and Development Research and development costs, included in selling, general and administrative expenses, amounted to $187 million in 2001, $179 million in 2000 and $201 million in 1999. Financial Instruments Cash and cash equivalents, trade receivables, long-term investments, accounts payable, loans payable and all derivative instruments are carried at fair value. The fair values of cash equivalents, trade receivables, accounts payable and loans payable approximate cost. The fair value of long-term investments is based on quoted market prices. The estimated fair values of derivative instruments are calculated based on market rates. These values represent the estimated amounts the Company would receive or pay to terminate agreements, taking into consideration current market rates and the current creditworthiness of the counterparties. The fair value of long-term debt, including the current portion, is estimated based on rates currently offered to the Company for debt of the same remaining maturities. Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company reinvests unremitted earnings of foreign operations and, accordingly, does not provide for Federal income taxes that could result from the remittance of such earnings. These unremitted earnings amounted to $3.0 billion and $3.5 billion at December 31, 2001 and 2000, respectively. Stock-Based Compensation The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Net Income per Common Share Basic net income per common share is calculated by dividing net income less dividends on preferred stock, net of tax benefits, by the weighted average number of common shares outstanding. The calculation of fully diluted net income per common share assumes conversion of preferred stock and stock options into common stock, and also adjusts net income for the effect of converting the preferred stock to common stock. At December 31, 2001, 2000 and 1999, 44 million, 33 million and 35 million shares of common stock issuable under stock options, respectively, were not included in the calculation of fully diluted earnings per share because their effects would have been antidilutive. There were no preferred shares outstanding in 2001. 31 Income from continuing operations and shares used to compute net income per share, basic and assuming full dilution, are reconciled below.
Years ended December 31, 2001 2000 1999 ------- -------- --------- (millions) Income from Continuing Operations $ 910 $ 821 $1,248 Less: Preferred stock dividends - 1 4 ------ ------ ------ Income from Continuing Operations, basic 910 820 1,244 Effect of dilutive securities: Convertible preferred stock - 2 5 ------ ------ ------ Income from Continuing Operations, assuming full dilution $ 910 $ 822 $1,249 ------ ------ ------ Common shares, basic 1,055 1,054 1,089 Effect of dilutive securities: Convertible preferred stock - 3 12 Stock options 3 6 10 ------ ------ ------ Common shares, assuming full dilution 1,058 1,063 1,111
Reclassification of Prior Years Prior-year financial statements have been reclassified to conform to the 2001 presentations. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In May 2000, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." This issue addresses the recognition, measurement and income statement classification for various types of sales incentives, including discounts, coupons, rebates and free products. The Company adopted the consensus in the first quarter of 2001. The adoption of EITF 00-14 resulted in the following reclassifications in the 2000 income statement: net sales were reduced by $70 million; cost of sales was increased by $51 million; and selling, general and administrative expenses were decreased by $121 million. For 1999, net sales were reduced by $80 million; cost of sales was increased by $58 million; and selling, general and administrative expenses were decreased by $138 million. The above reclassifications had no impact on profit from operations, net income or earnings per share. In January 2001, the EITF reached a consensus on Issue No. 00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers and Offers for Free Products or Services to be Delivered in the Future." This issue requires that certain volume rebates to customers be classified as a reduction of revenue. The consensus was effective for the first quarter of 2001, and its impact on the consolidated financial statements was not material. In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services." This issue addresses the income statement classification of slotting fees, cooperative advertising arrangements and buydowns. The Company adopted this consensus in the first quarter of 2002. If this standard had been adopted at December 31, 2001, including required retroactive application to prior periods, net sales would have been reduced by $877 million in 2001, $915 million in 2000 and $750 million in 1999. Selling, general and administrative expenses would have been reduced by the same amounts in each year. The above reclassifications would have had no impact on profit from operations, net income or earnings per share. In July 2001, Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," was issued. The Company adopted the provisions of SFAS 142, effective January 1, 2002. SFAS 142 requires that goodwill and other intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment, at least annually, in accordance with the new impairment testing provisions of SFAS 142. Unamortized goodwill at December 31, 2001, was $751 million. Unamortized other intangible assets with indefinite lives at December 31, 2001, was $122 million. Annual amortization expense related to 32 goodwill and other intangible assets with indefinite lives was $34 million in 2001 and $33 million in 2000 and 1999. The Company has determined that no transitional impairment losses will be recognized due to the change in accounting principle. In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company plans to adopt the provisions of SFAS 143 on January 1, 2003, and does not expect the adoption will have a material impact on its financial statements. In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued. It provides new guidance that modifies the existing guidance in SFAS 121 and in APB Opinion No. 30. Goodwill will still be evaluated for impairment under SFAS 142. The Company adopted SFAS 144 in the first quarter of 2002. Its adoption will not have a material impact on the Company's financial statements. ACCUMULATED OTHER COMPREHENSIVE LOSS An analysis of accumulated other comprehensive loss follows.
Accumulated Foreign Cash Other Currency Pension Flow Comprehensive Translation Adjustment Hedges Loss ------------- ------------ -------- -------------- (millions) Balance at December 31, 1998 $ (826) $ (47) $ -- $ (873) Change in period (79) 17 -- (62) Income tax expense (126) -- -- (126) - ------------------------------- ------- ------- ------- ------- Balance at December 31, 1999 (1,031) (30) -- (1,061) - ------------------------------- ------- ------- ------- ------- Change in period (216) (4) -- (220) Income tax expense (33) -- -- (33) - ------------------------------- ------- ------- ------- ------- Balance at December 31, 2000 (1,280) (34) -- (1,314) - ------------------------------- ------- ------- ------- ------- Change in period (48) (53) (13) (114) Income tax benefit (expense) (45) 31 5 (9) - ------------------------------- ------- ------- ------- ------- Balance at December 31, 2001 $(1,373) $ (56) $ (8) $(1,437) - ------------------------------- ------- ------- ------- -------
Net exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries, except those in highly inflationary economies, are accumulated in a separate section of stockholders' equity. Also included are the effects of exchange rate changes on intercompany balances of a long-term investment nature and transactions designated as hedges of net foreign investments. The changes in accumulated foreign currency translation adjustment in 2001 were losses of $93 million, primarily from currency devaluation in Argentina and Brazil. Losses in 2000 were $249 million, with the United Kingdom accounting for $115 million. Losses in 1999 were $205 million, with Brazil accounting for approximately half of the losses. Included in other charges in the Consolidated Statement of Income are a net exchange loss of $3 million in 2001, a net exchange gain of $8 million in 2000 and a net exchange loss of $35 million in 1999. 33 SUPPLEMENTAL BALANCE SHEET INFORMATION Receivables Reserves
Years Ended December 31, 2001 2000 1999 ------ ------ ----- (millions) Balance at beginning of year $81 $74 $79 Additions, charged to profit and loss 30 63 50 Deductions, losses charged to reserves 42 56 55 --- --- --- Balance at end of year $69 $81 $74
Inventories
At December 31, 2001 2000 --------- --------- (millions) Raw materials and supplies $ 130 $ 153 Work in process 183 194 Finished goods 698 815 ------ ------ $1,011 $1,162
Property, Plant and Equipment
At December 31, 2001 2000 -------- -------- (millions) Land $ 56 $ 62 Buildings 809 743 Machinery and equipment 5,140 5,061 ------ ------ 6,005 5,866 Less accumulated depreciation 2,457 2,316 ------ ------ $3,548 $3,550
Interest on funds used to finance construction of significant additions to tangible property and equipment is capitalized and recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. During 2001, 2000 and 1999, interest cost was capitalized in the amounts of $11 million, $23 million and $13 million, respectively. Intangible Assets
At December 31, 2001 2000 --------- ------- (millions) Goodwill ($44 million not subject to amortization) $1,170 $1,294 Other intangible assets 1,113 1,155 ------ ------ 2,283 2,449 Less accumulated amortization 930 875 ------ ------ $1,353 $1,574
34 Accounts Payable and Accrued Liabilities
At December 31, 2001 2000 --------- --------- (millions) Accounts payable $ 401 $ 402 Advertising and sales promotion 438 527 Payroll and payroll taxes 183 143 Other taxes 76 97 Dividends payable on common stock 172 171 Restructuring reserve 112 240 Miscellaneous 498 766 ------ ------ $1,880 $2,346
Other Long-Term Liabilities
At December 31, 2001 2000 --------- --------- (millions) Pensions $ 259 $ 206 Postretirement medical 283 291 Deferred compensation 182 215 Miscellaneous 81 55 ------ ------ $ 805 $ 767
DEBT Loans Payable
At December 31, 2001 2000 ------- --------- (millions) U.S. dollar Commercial Paper (2.1% and 6.6%) $1,975 $1,452 Euro Commercial Paper (5.0%) - 586 Payable to banks (2.2% and 5.4%) 260 157 ------ ------ $2,235 $2,195
35 Long-Term Debt
At December 31, 2001 2000 -------- -------- (millions) 5.25% Notes due 2006 $ 130 $ -- 5.00% Notes due 2006 308 300 5.75% Notes due 2005 213 200 3.75% Notes due 2004 252 -- 3.25% Euro notes due 2004 264 283 2.23% Euro obligation due 2003 252 374 6.25% Notes due 2003 158 150 Floating rate notes due 2003 75 -- 5.25% Euro notes due 2002 230 236 1.53% Euro obligation due 2002 199 259 5.75% Notes due 2001 -- 200 2.61% Synthetic Euro obligation due 2001 -- 277 Other, multicurrency borrowings 1 2 Current portion of long-term debt (428) (631) ------- ------- Long-term debt $ 1,654 $ 1,650
The Company's commercial paper program is supported by its revolving credit facility and other sources of liquidity. The Company has a $1.65 billion revolving bank credit agreement, which expires in October 2002, that supports up to $2.2 billion in commercial paper issuances. Under the agreement, the Company has the option to borrow at various interest rates, including the prime rate, and is required to pay a facility fee of .04% per annum. At year-end 2001 and 2000, there were no borrowings under such agreements. Other unused lines of credit amounted to $183 million at December 31, 2001. Long-term weighted average interest rates were 2.6% and 4.3% as of December 31, 2001 and 2000, respectively, after giving effect to interest rate hedging instruments. Aggregate maturities of total long-term debt, excluding market value adjustments, for the five years subsequent to December 31, 2001, are $420 million in 2002, $477 million in 2003, $516 million in 2004, $200 million in 2005 and $425 million in 2006. 36 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES The estimated fair values of the Company's financial instruments are summarized below.
At December 31, 2001 2000 ------------ --------------------------- Carrying Amount/ Carrying Fair Fair Value Amount Value ------------ ------------- ------------- (millions) Long-term investments $ 176 $ 186 $ 187 Long-term debt, including current portion (2,082) (2,281) (2,308) Derivative instruments Currency forwards hedging net investments 9 (37) (37) Interest rate swaps 49 9 18 Forward rate agreements (5) -- -- Commodity swaps (3) -- (2) Other currency forwards and swaps Assets 12 28 30 Liabilities (8) (5) (8) Equity contracts 5 7 7
Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value. The cumulative effect of adopting SFAS 133 as of January 1, 2001, was not material to the Company's consolidated financial statements. The Company is subject to market risks, such as changes in currency and interest rates that arise from normal business operations. The Company regularly assesses these risks and has established business strategies to provide natural offsets, supplemented by the use of derivative financial instruments to protect against the adverse effects of these and other market risks. The Company has established clear policies, procedures and internal controls governing the use of derivatives and does not use them for trading, investment or other speculative purposes. The Company uses derivative contracts to efficiently structure its debt in the desired currencies and mix of fixed to floating interest rates. Forward contracts effectively convert U.S. dollar commercial paper borrowings into non-U.S. dollar obligations, primarily in currencies with low interest rates. At December 31, 2001, the Company had forward contracts with fair values of $9 million recorded in assets and no direct non-U.S. dollar borrowings designated as hedges of the currency changes on the Company's foreign net investments. Currency effects of the net investment hedges are reflected as a component of foreign currency translation adjustments in accumulated other comprehensive loss and produced a $53 million aftertax gain for the year ended December 31, 2001. Interest effects of these hedges are reported in interest expense. The Company uses primarily floating rate debt in order to match interest costs to the impact of inflation on earnings. The Company manages its mix of fixed to floating rate debt by entering into interest rate swaps and forward rate agreements. At December 31, 2001, the Company had interest rate swaps with a fair value of $49 million recorded in assets designated as fair value hedges, effectively converting certain fixed rate debt into variable rate debt. The terms of the swaps match the terms of the underlying debt. The fair values of both the swaps and the debt are recorded as equal and offsetting gains and losses in interest expense. As these hedges are 100% effective, there is no current impact on earnings due to hedge ineffectiveness. At December 31, 2001, the Company had forward rate agreements with fair values of $5 million recorded in liabilities designated as cash flow hedges, effectively fixing certain variable interest payments. Aftertax net losses of $9 million ($14 million pretax) were deferred in other comprehensive loss during the year ended December 31, 2001. Remaining pretax deferred amounts of $6 million will be reclassified into interest expense over the next 15 months in the period during which the hedged variable interest payments are recognized. Ineffective amounts had no impact on earnings for the year ended December 31, 2001. 37 The Company also enters into commodity swaps to fix the price of certain forecasted purchases of raw material used in the manufacturing process. At December 31, 2001, the Company had swaps with fair values of $3 million recorded as liabilities designated as cash flow hedges. Changes in fair values are included in other comprehensive loss to the extent effective and are reclassified into cost of sales in the period during which the hedged transaction affects earnings. Total aftertax losses deferred in other comprehensive loss during the year ended December 31, 2001, including the cumulative effect of change in accounting principle upon adoption of SFAS 133, was $6 million ($9 million pretax). Remaining pretax deferred amounts of $6 million will be reclassified into earnings over the next 15 months. Ineffective amounts had no impact on earnings for the year ended December 31, 2001. Most of the Company's transactional exchange exposure is managed through centralized cash management. The Company hedges net residual transactional exchange exposures, principally intercompany balances, through forward contracts and currency swaps that are recorded at their net fair value of $4 million at December 31, 2001. Changes in fair value are recorded in nonoperating charges and offset gains and losses resulting from the underlying exposures. The Company also uses derivatives to hedge equity-linked employee compensation. The Company fixes the cost of certain employee compensation expenses linked to its stock price by entering into equity swap and option contracts. These contracts are recorded in assets at their fair value of $5 million at December 31, 2001. Changes in fair value are recorded in profit from operations and offset the changes in the value of the underlying liabilities. The equity put options associated with the share repurchase program are described separately in the Share Repurchase Program note. Several major international financial institutions are counterparties to the Company's financial instruments. It is Company practice to monitor the financial standing of the counterparties and to limit the amount of exposure with any one institution. The Company may be exposed to credit loss in the event of nonperformance by the counterparties to these contracts, but does not anticipate such nonperformance. With respect to trade receivables, concentration of credit risk is limited, due to the diverse geographic areas covered by Gillette operations. Using the best information available, including that related to recent developments, the Company has provided an allowance for doubtful accounts based on estimated bad debt loss. COMMITMENTS AND CONTINGENCIES Minimum rental commitments under noncancellable operating leases, primarily for office and warehouse facilities, are $94 million in 2002, $73 million in 2003, $66 million in 2004, $51 million in 2005, $49 million in 2006 and $131 million for years thereafter. Rental expense amounted to $121 million in 2001, $113 million in 2000 and $100 million in 1999. The Company is subject to legal proceedings and claims arising out of its businesses that cover a wide range of matters, including antitrust and trade regulation, contracts, advertising, environmental issues, product liability, patent and trademark matters and taxes. Management, after review and consultation with counsel, considers that any liability from all of these pending legal proceedings and claims would not materially affect the consolidated financial position, results of operations or liquidity of the Company. DISCONTINUED OPERATIONS On December 29, 2000, the sale of the Stationery Products business was finalized. The sale resulted in a loss of $429 million (net of a tax benefit of $102 million), or $.40 in net income per common share, fully diluted. The net loss included the book loss on the transaction, the operating loss of the segment in 2000 and other costs directly associated with the decision to divest, including postdivestiture reorganization costs. The Stationery Products segment is accounted for as a discontinued operation. Accordingly, its net assets and liabilities have been segregated from continuing operations in the accompanying consolidated balance sheet, and its operating results are segregated and reported as discontinued operations in the accompanying 38 consolidated statements of income and cash flows, and related notes. For the periods ended December 31, the results follow.
Years Ended December 31, 2001 2000 1999 ------ ---------- --------- (millions) Net sales -- $ 691 $ 743 Income (loss) before income taxes -- (8) 18 Income taxes (benefit) -- (3) 6 -- ----- ----- Income (loss) from discontinued operations -- $ (5) $ 12
The assets identified as part of the disposition of the Stationery Products business are recorded as Net Assets of Discontinued Operations; the cash flow of the business is reported as Net Cash Provided by Discontinued Operations; and the results of operations of the segment are reported as Income (Loss) from Discontinued Operations, net of tax. Net Assets of Discontinued Operations follows.
At December 31, 2001 2000 1999 ------ ---------- --------- (millions) Net current assets $ 26 $ 192 $ 509 Property, plant and equipment, less accumulated depreciation 5 6 200 Other net noncurrent assets and liabilities (8) (9) 465 ------ ------ ------ Net assets of discontinued operations $ 23 $ 189 $1,174
RESTRUCTURING AND ASSET IMPAIRMENTS On December 18, 2000, the Company announced a restructuring program and impaired certain intangible assets. In accordance with EITF Issue No. 94-3, SFAS 121 and SAB 100, the Company recorded, in the fourth quarter of 2000, a charge to operating expenses of $572 million ($430 million after taxes, or $.41 in net income per common share, fully diluted). The charge for the restructuring program was $360 million, and activity under the program continued throughout 2001. The restructuring program will significantly improve the Company's operating efficiency, streamline the supply chain and further decrease costs. Specific program activities include consolidating management functions; reducing factory locations, in part through outsourcing production of low-volume noncore products; streamlining the supply chain via warehouse consolidation and other actions; and downsizing and centralizing corporate functions. The program planned the closure of eight factories and 13 distribution centers, affecting all business segments, and a net reduction of approximately 2,700 employees across all business functions, operating units and geographies. The reduction was expected to consist of 1,430 variable manufacturing and distribution employees and 1,270 executive, professional and administrative staff. The program was announced to all employees on December 18, 2000, via the Company's internal website and bulletin boards. The severance programs being used follow the Company's long-standing severance formulas and vary on a country-by-country basis, depending on local statutory requirements and local practices. Employee reductions occurring in 2001 required pretax cash outlays of $128 million. The restructuring program included a write-down of approximately $125 million to the carrying amount of factories, as well as the write-off of manufacturing, distribution and office equipment assets. Revenue-generating activities continued until the affected facilities ceased operations. Thus, these assets were considered assets to be held and used under SFAS 121. Asset disposals were completed in 2001. Buildings were sold, and equipment was disposed of through sale or abandonment. The value of the impaired assets was determined based on discounted cash flow analyses for the operating period up until closure and included an estimate of residual value. 39 The charge for impaired intangible assets was $212 million to write down $157 million of acquired goodwill relating to the Thermoscan personal diagnostic appliance brand in the Braun segment and $55 million of acquired goodwill and identifiable intangible assets for certain national battery brands in the Duracell segment. Under the direction of the new Chief Executive Officer, the Company adopted a new strategy in 2001 for the Personal Care segment that included establishing a separate Personal Care Global Business Management unit as part of the Company's reemphasis on the category. This change in strategy also led to the decision not to close one major factory dedicated to personal care manufacturing, resulting in a pretax reduction in the 2000 reserve provision of approximately $33 million. Minor modifications were also made to certain other programs, including the decision not to close two small factories. In addition, the Company recorded a pretax recovery of approximately $22 million, reflecting better than anticipated results relating to the closing of certain other factories. Details of the activity in the 2000 restructuring program follow. The other benefits portion of employee-related expenses, shown below, includes fringe benefits, outplacement fees and special termination benefits related to pensions. 2000 Restructuring Program
Initial 2000 2001 Reclassi- Reduce Balance Provision Activity Activity fication Provision Dec. 31, 2001 ----------- ---------- ------------ ----------- ----------- -------------- (millions) Employee-related expenses Severance payments $ 146 $ -- $ (93) $ 29 $ (26) $ 56 Other benefits 67 -- (30) (10) (7) 20 Property, plant, and equipment 120 (120) -- -- -- -- Contractual obligations and other 27 -- (5) (19) -- 3 ----- ----- ----- ----- ----- ----- $ 360 $(120) $(128) $ -- $ (33) $ 79
Details of the facility closures and employee reductions for the 2000 restructuring program follow.
Plan Inception Initial 2001 Through Plan Activity Dec. 31, 2001 --------- ---------- --------------- Facility closures Factories 8 5 5 Distribution centers 13 13 13 Employee reductions 2,700 2,620 2,620
During the fourth quarter of 2001, the Company recorded a charge of $63 million associated with planned new actions: the withdrawal from several noncore businesses and the closing of one factory in the Duracell segment. The factory closure, based on a study that revealed excess worldwide capacity, will result in the reduction of 170 employees. Once the closure is completed, annual pretax savings will be approximately $5 million. The factory closure and the majority of the employee reductions were completed in January 2002. Details of the activity in the 2001 restructuring program follow. 2001 Restructuring Program
Initial 2001 Balance Provision Activity Dec. 31, 2001 ----------- ---------- -------------- (millions) Employee-related expenses Severance payments $ 3 $ -- $ 3 Property, plant, and equipment 23 (23) -- Contractual obligations and other 37 (7) 30 ---- ---- ---- $ 63 $(30) $ 33
40 In the fourth quarter of 2001, in connection with a decision to exit certain regional battery brands in international markets that do not carry the Duracell brand, the Company announced a noncash impairment charge relating to the write-down of goodwill, other intangibles and related long-lived assets. This resulted in a fourth-quarter 2001 pretax charge to operations of $164 million. The value of the impaired assets was determined based on discounted cash flow analyses for future operating periods. A summary of restructuring and asset impairment charges follows.
Years ended December 31, 2001 2000 1999 -------- ------ ------- (millions) Restructuring provision $ 63 $ 360 $ -- Asset impairments 164 212 -- Changes to 2000 restructuring program (55) -- -- ----- ----- ---- $ 172 $ 572 $ --
INCOME TAXES Income before income taxes and income tax expense are summarized below.
Years ended December 31, 2001 2000 1999 --------- --------- --------- (millions) Income from continuing operations before income taxes United States $ 533 $ 664 $1,116 Foreign 809 624 796 ------ ------ ------ Total income before income taxes $1,342 $1,288 $1,912 ------ ------ ------ Current tax expense Federal $ 107 $ 365 $ 181 Foreign 219 233 244 State 15 25 22 Deferred tax expense Federal 44 (87) 134 Foreign 43 (68) 82 State 4 (1) 1 ------ -------- ------ Total income tax expense $ 432 $ 467 $ 664
The effective tax rate decreased in 2001, due primarily to the nondeductibility of certain asset impairment charges in 2000. Excluding in both years the impact of the restructuring and asset impairment charges, the tax rate declined to 31.0% from 32.8%. The decrease was primarily attributable to the Company's tax management strategies. A reconciliation of the statutory Federal income tax rates to the Company's effective tax rate follows. 41
Years ended December 31, 2001 2000 1999 --------- --------- --------- (percent) Statutory Federal tax rate 35.0 35.0 35.0 Goodwill amortization and asset impairments 1.5 5.0 0.3 Rate differential on foreign income (2.6) (2.9) 2.0 Effect of foreign currency translation (0.2) (0.2) 0.5 State taxes (net of Federal tax benefits) 0.9 1.2 0.8 Benefit of foreign tax credits (3.3) (4.2) (3.5) Other differences 0.9 2.4 (0.3) ----- ----- ----- Effective tax rate 32.2 36.3 34.8
The components of deferred tax assets and deferred tax liabilities are shown below.
At December 31, 2001 2000 ------------------------------- ------------------------------ Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities -------------- -------------- -------------- ------------- (millions) Current Advertising and sales promotion $ 37 $ -- $ 21 $ -- Benefit plans 48 -- 60 -- Discontinued operations 41 -- 102 -- Restructuring and asset impairments 97 -- 142 -- Miscellaneous reserves and accruals 67 -- 104 -- Operating loss and credit carryforwards 2 -- 4 -- Other 189 -- 133 -- ---- ---- ---- ---- Total current 481 $ -- 566 $ -- ---- ---- ---- ---- Net current $481 $566 ---- ---- ---- ---- Noncurrent Benefit plans $136 $ -- $126 $ -- Intangibles -- 151 -- 166 Operating loss and credit carryforwards 19 -- 27 -- Property, plant and equipment -- 397 -- 356 Other -- 58 -- 74 ---- ---- ---- ---- Total noncurrent 155 606 153 596 ---- ---- ---- ---- Valuation allowance $ (8) $ (7) ---- ---- ---- ---- Net noncurrent $459 $450 ---- ---- Total Net deferred tax assets/liabilities $ 22 $116 ---- ----
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2001. The valuation allowance at December 31, 2001, related to deferred tax assets in certain foreign jurisdictions for which management believes it is more likely than not that it will not generate sufficient future taxable income in order to realize the deferred tax assets. At December 31, 2001, the Company had net operating loss carryforwards for foreign income tax purposes of $34 million, which are available to offset future taxable income, if any, through 2006. 42 PENSIONS AND OTHER RETIREE BENEFITS The Company has various retirement programs, including defined benefit, defined contribution and other plans, that cover most employees worldwide. Other retiree benefits are health care and life insurance benefits provided to eligible retired employees, principally in the United States. The components of defined benefit expense for continuing operations follow.
Pensions Other Retiree Benefits ----------------------------------- --------------------------------- Years ended December 31, 2001 2000 1999 2001 2000 1999 --------- ----------- ----------- --------- --------- ----------- (millions) Components of net benefit expense: Service cost-benefits earned $ 61 $ 64 $ 67 $ 6 $ 6 $ 6 Interest cost on benefit obligation 130 122 112 18 19 16 Estimated return on assets (166) (171) (159) (4) (4) (4) Net amortization 9 5 13 (5) (7) (7) Plan curtailments and other -- (3) (7) -- -- -- ----- ----- ----- ----- ----- ----- 34 17 26 15 14 11 Other 12 9 9 -- -- -- ----- ----- ----- ----- ----- ----- Net defined benefit expense $ 46 $ 26 $ 35 $ 15 $ 14 $ 11 ----- ----- ----- ----- ----- -----
43 The funded status of the Company's principal defined benefit and other retiree benefit plans and the amounts recognized in the balance sheet follow.
Pension Benefits Other Retiree Benefits --------------------------- ------------------------------ Years ended December 31, 2001 2000 2001 2000 ------------ ------------ ----------- ------------ (millions) Change in benefit obligation: Balance at beginning of year $ 1,961 $ 1,956 $ 259 $ 261 Benefit payments (113) (111) (21) (17) Service and interest costs 191 185 24 24 Amendments 12 26 (14) -- Actuarial (gains) losses (57) 78 135 (7) Plan curtailments (3) (33) -- -- Divestitures -- (71) -- -- Currency translation adjustment (41) (69) (3) (2) ------- ------- ------- ------- Balance at end of year $ 1,950 $ 1,961 $ 380 $ 259 ------- ------- ------- ------- Change in fair value of plan assets: Balance at beginning of year $ 1,878 $ 2,052 $ 40 $ 41 Actual return on plan assets (168) 42 (2) (1) Employer contribution 35 31 -- -- Benefit payments (92) (91) -- -- Divestitures -- (87) -- -- Currency translation adjustment (35) (69) -- -- ------- ------- ------- ------- Balance at end of year $ 1,618 $ 1,878 $ 38 $ 40 ------- ------- ------- ------- Benefit obligations in excess of plan assets $ (332) $ (83) $ (342) $ (219) Unrecognized prior service cost and transition obligation 41 44 2 18 Unrecognized net loss (gain) 399 128 57 (90) Minimum liability adjustment included in: Intangible assets (12) (6) -- -- Stockholders' equity (87) (34) -- -- ------- ------- ------- ------- Net prepaid (accrued) benefit cost $ 9 $ 49 $ (283) $ (291) ------- ------- -------- --------
The values for pension plans with accumulated benefit obligations in excess of plan assets follow.
At December 31, 2001 2000 -------- -------- (millions) Projected benefit obligation $ 550 $ 513 Accumulated benefit obligation 490 445 Fair value of plan assets 276 277
The weighted average assumptions used in determining related obligations of pension benefit plans are shown below.
At December 31, 2001 2000 1999 -------- -------- -------- (percent) Discount rate 6.8 7.0 6.8 Long-term rate of return on assets 8.6 9.1 9.1 Rate of compensation increases 4.2 4.7 4.7
44 The weighted average assumptions used in determining related obligations of other retiree benefit plans are shown below.
At December 31, 2001 2000 1999 -------- -------- -------- (percent) Discount rate 7.2 7.2 7.5 Long-term rate of return on assets 9.0 10.0 10.0
The assumed health care cost trend rate for 2002 is 12%, decreasing to 5% in 2007. A one percentage point increase in the trend rate would have increased the accumulated postretirement benefit obligation by 14%, and interest and service cost by 21%. A one percentage point decrease in the trend rate would have decreased the accumulated postretirement benefit obligation by 12%, and interest and service cost by 17%. The Employee Stock Ownership Plan (ESOP) was established to assist Gillette employees in financing retiree medical costs. ESOP accounts held by participants reduced the Company's obligations by $139 million and $189 million at December 31, 2001 and 2000, respectively. Account balances are assumed to have an annual yield of 12%. A retiree health benefits account within the Company's principal domestic pension plan also will be used to pay these costs. In addition to the defined benefit and other retiree benefit plans, the Company also sponsors defined contribution plans, primarily covering U.S. employees. The Company's expense for defined contribution plans in 2001, 2000 and 1999 totaled $34 million, $35 million and $36 million, respectively. EMPLOYEE STOCK OWNERSHIP PLAN In 1990, the Company sold to the ESOP 165,872 shares of a new issue of 8% cumulative Series C convertible preferred stock for $100 million, or $602.875 per share. On April 25, 2000, the trustee for the ESOP trust redeemed the Series C preferred stock held by the trust for common stock. The redemption was made by the trustee in order to receive the common stock dividend, which provided a higher return to holders than the preferred stock dividend. The redemption had no impact on fully diluted earnings per share and closed the gap between basic and fully diluted earnings per share. The preferred shares had a stated cost of $84 million and were redeemed for common stock held in the Company's treasury, at a cost of $174 million. Total stockholders' equity did not change as a result of the redemption. In June 2000, all shares were fully allocated to participants and the ESOP loan was fully repaid. No contributions were made during 2001. STOCK COMPENSATION PLANS AND CAPITAL STOCK At December 31, 2001, the Company had stock-based compensation plans described below that included the premerger plans of Duracell. Stock Option Plans Stock option plans authorize the granting of options on shares of the Company's common stock to selected key employees, including officers, and to nonemployee directors, at not less than the fair market value of the stock on the date of grant. Under the stock incentive plans, options to purchase a maximum of 198,800,000 shares may be granted. At December 31, 2001, 39,544,796 shares were available for future grants. Options granted under the plans may be either incentive stock options or nonqualified options. Outstanding options have seven- to 10-year terms. Options granted prior to April 17, 1997, became exercisable one year from the date of grant (except the Duracell options, which became exercisable upon the merger), provided the employee optionee is still employed or the director continues to serve. For options granted to employees after April 16, 1997, one-third of the options become vested on each of the first three anniversaries of the stock option award date. One-quarter of the options awarded to the Chief Executive Officer on his hiring date vested immediately, and the remainder vest in one-third increments annually over a three-year period. The January 19, 2001, options granted to the President/Chief Operating Officer vest one-half on the first anniversary and one-half on the 45 second anniversary of the stock option award date. The plans also permit payment for options exercised in shares of the Company's common stock (except Duracell options). The Company applies APB 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans in its results of operations. Had the Company recorded a charge for the fair value of options granted consistent with SFAS 123, the Company's net income and net income per common share would have been as follows.
Years ended December 31, 2001 2000 1999 --------- --------- ---------- (millions, except per share amounts) Net income As reported $ 910 $ 392 $ 1,260 Pro forma 792 311 1,114 Net income per common share Basic As reported $ .86 $ .37 $ 1.15 Pro forma .75 .29 1.02 Assuming full dilution As reported .86 .37 1.14 Pro forma .75 .29 1.01
The weighted average fair value of options granted was $9.44 in 2001, $10.58 in 2000 and $14.64 in 1999. The fair value of each option grant for the Company's plans is estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions.
Years ended December 31, 2001 2000 1999 ----------- ----------- ------------ Risk-free interest rates 5.4% 6.3% 6.1% Expected option lives 5.5 years 4.9 years 4.7 years Expected volatilities 33.3% 33.4% 30.4% Expected dividend yields 2.2% 2.0% 1.3%
A summary of the status of the Company's stock option plans follows.
Years ended December 31, 2001 2000 1999 ------------------------ ------------------------ ------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise (Thousands) Price (Thousands) Price (Thousands) Price ------------- ---------- ------------- ---------- ------------- ----------- Outstanding at beginning of year 58,969 $ 38.76 51,956 $ 39.79 43,659 $ 35.49 Granted 18,127 29.23 11,404 32.04 15,322 45.19 Exercised (2,488) 17.04 (2,071) 17.48 (5,745) 18.94 Cancelled (3,556) 42.31 (2,320) 47.86 (1,280) 51.52 ------ -------- ------ -------- ------ -------- Outstanding at year-end 71,052 $ 36.91 58,969 $ 38.76 51,956 $ 39.79 ------ -------- ------ -------- ------ -------- Options exercisable at year-end 42,242 35,067 26,962
46 The following table summarizes information about fixed stock options outstanding.
At December 31, 2001 - ---------------------------------------------------------------------------------------------------------- Range of Exercise Prices Outstanding Exercisable - ------------------- ------------------------------------------------------ ------------------------------- Weighted Average At Less Options Remaining Years Weighted Average Options Weighted Average Least Than (Thousands) of Contractual Life Exercise Price (Thousands) Exercise Price ------- ------ ------------- --------------------- ------------------ ------------- ----------------- $ 11 $21 7,403 2.7 $ 17.97 7,403 $ 17.97 21 35 33,161 8.4 30.11 8,800 30.62 35 48 21,500 6.8 45.85 17,114 46.05 50 60 8,988 6.5 56.22 8,925 56.26 --- ------ --- -------- ------ -------- $ 11 $60 71,052 7.1 $ 36.91 42,242 $ 40.07
Share Repurchase Program The Company has a share repurchase program in place that authorizes the purchase of up to 125 million shares in the open market or in privately negotiated transactions, depending on market conditions and other factors. From the inception of the program through December 31, 2000, the Company repurchased 94 million shares in the open market for $4,084 million. In 2001, the Company repurchased 400 thousand shares for $12 million. In 2001, the Company continued to sell equity put options as an enhancement to the share repurchase program and earned $9 million in premiums. These options provide the Company with an additional opportunity to supplement open-market purchases of its common stock if the options expire "in the money" (the option strike price is greater than the closing price for Gillette common stock on the expiration date). In addition, the premiums received are a source of funding for share purchases. The options are exercisable only on the last day of their term. The Company, at its discretion, may elect to settle by paying net cash or by purchasing the shares. The put option prices were based on the market value of the Company's stock at the date of issuance. The redemption value of the outstanding options, which represents the options' price multiplied by the number of shares under option, is presented in the accompanying consolidated balance sheet as "Contingent Redemption Value of Common Stock Put Options." At December 31, 2001, the outstanding put options had strike prices that were greater than the closing price for Gillette common stock on December 31, 2001. Those options were therefore "in the money." Although the options are not exercisable until a future date, the "in the money" obligation at December 31, 2001, was $1 million. At December 31, 2000, no "in the money" obligations existed on outstanding options. Preferred Stock Purchase Rights At December 31, 2001, the Company had 528 million preferred stock purchase rights outstanding, representing one-half right for each share of common stock outstanding. Each right may be exercised to purchase one ten-thousandth of a share of junior participating preferred stock for $225. The rights will only become exercisable, or separately transferable, on the earlier of the tenth business day after the Company announces that a person has acquired 15% or more, or the tenth business day after a tender offer commences that could result in ownership of more than 15%, of the Company's common stock. If any person acquires 15% or more of the common stock (except in an offer for all common stock that has been approved by the Board of Directors), or in the event of certain mergers or other transactions involving a 15% or more stockholder, each right not owned by that person or related parties will enable its holder to purchase, at the right's exercise price, common stock (or a combination of common stock and other assets) having double that value. In the event of certain merger or asset sale transactions with another party, similar terms would apply to the purchase of that party's common stock. The rights, which have no voting power, expire on December 14, 2005, subject to extension. Upon approval by the Board of Directors, the rights may be redeemed for $.01 each under certain conditions, which may change after any person becomes a 15% stockholder. At December 31, 2001, there were authorized 5 million shares of preferred stock without par value, of which 400 thousand Series A shares were reserved for issuance upon exercise of the rights. No shares were outstanding. 47 OPERATING SEGMENTS AND RELATED INFORMATION The following table presents certain operating segment information.
Blades & Personal Oral All Years ended December 31, Razors Care Duracell Care Braun Other Total ---------- ---------- ---------- --------- --------- --------- --------- (millions) 2001 Net sales $3,416 $ 877 $2,365 $1,270 $1,033 $ -- $ 8,961 Profit from operations 1,141 68 217 240 98 (266) 1,498 Identifiable assets 3,195 515 2,932 976 963 1,388 9,969 Capital expenditures 222 49 162 92 69 30 624 Depreciation 197 26 78 53 53 46 453 2000 Net sales $3,394 $ 960 $2,567 $1,204 $1,100 $ -- $ 9,225 Profit from operations 1,272 100 456 226 94 (636) 1,512 Identifiable assets 3,740 538 3,304 901 1,078 841 10,402 Capital expenditures 477 52 156 45 59 4 793 Depreciation 222 43 59 54 59 30 467 1999 Net sales $3,143 $1,041 $2,709 $1,114 $1,067 $ -- $ 9,074 Profit from operations 1,144 93 608 224 60 (42) 2,087 Identifiable assets 3,532 696 3,310 1,075 1,190 1,983 11,786 Capital expenditures 459 85 145 82 88 30 889 Depreciation 186 29 56 49 57 22 399
Each operating segment is individually managed and has separate financial results that are reviewed by the Company's chief operating decision-maker. Each segment contains closely related products that are unique to the particular segment. The name of the Toiletries segment has been changed to Personal Care, to better reflect the philosophy of segment management. No changes have been made to the products contained in the segment. The Blades & Razors segment consists of blades and razors. The Personal Care segment includes shave preparations, after-shaves and antiperspirants/deodorants. The Duracell segment consists of consumer batteries. Effective January 1, 2001, a new "Oral Care" segment replaced the previous "Oral-B Products" segment. Oral Care contains all manual oral care products previously included under Oral-B Products, plus Braun Oral-B power oral care products previously included in the "Braun Products" segment. The new Braun segment contains all remaining Braun products: male and female hair removal; household and hair care appliances; and personal diagnostic devices, including ear thermometers and blood pressure monitors. Prior-year amounts have been reclassified to reflect the change. Profit from operations is net sales less cost of sales and selling, general and administrative expenses, but is not affected either by nonoperating charges/income or by income taxes. Nonoperating charges/income consists principally of net interest expense and the effect of exchange. In calculating profit from operations for individual operating segments, substantial administrative expenses incurred at the operating level that are common to more than one segment are allocated on a net sales basis. Certain headquarters expenses of an operational nature also are allocated to segments. All intercompany transactions, primarily merchandise transfers, have been eliminated, and intersegment revenues are not significant. 48 The All Other column includes items not allocated to operating segments. Profit from operations includes all unallocated income/expense items, including corporate headquarters expenses, as well as the $172 million and $572 million charges for restructuring and asset impairments in 2001 and 2000, respectively. Identifiable assets includes financial instruments managed by the Corporate Treasury Department, nonqualified benefit trusts, deferred income tax assets and net assets of discontinued operations. Capital expenditures is primarily related to Research and Development initiatives. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 12% of sales in 2001. These sales occurred primarily in the United States and were across all product segments. Net sales by geographic area follow.
Years ended December 31, 2001 2000 1999 --------- --------- --------- (millions) Foreign $5,204 $5,510 $5,509 United States 3,757 3,715 3,565 ------ ------ ------ $8,961 $9,225 $9,074
Long-lived assets follow.
At December 31, 2001 2000 1999 -------- -------- --------- (millions) Germany $ 508 $ 519 $ 546 Other Foreign 1,013 1,145 1,178 ------ ------ ------ Total Foreign 1,521 1,664 1,724 United States 2,027 1,886 1,743 ------ ------ ------ $3,548 $3,550 $3,467
49 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three Months Ended -------------------------------------------------------------------- 2001 March 31 June 30 September 30 December 31 Total Year ------------- ----------- -------------- ------------- ----------- (millions, except per share amounts) Net sales $ 1,763 $ 2,118 $ 2,362 $ 2,718 $ 8,961 Gross profit 1,140 1,346 1,440 1,628 5,554 Profit from operations 319 375 473 331 1,498 Income from continuing operations before income taxes 264 336 429 313 1,342 Net income 182 232 296 200 910 Net income per common share, basic and assuming full dilution (a) .17 .22 .28 .19 .86 Dividends declared per common share -- .16 1/4 .16 1/4 .32 1/2 .65 Dividends paid per common share .16 1/4 .16 1/4 .16 1/4 .16 1/4 .65 Stock price range: High 36.38 31.98 32.08 35.31 36.38 Low 29.50 24.50 26.00 29.00 24.50 2000 Net sales $ 1,889 $ 2,222 $ 2,308 $ 2,806 $ 9,225 Gross profit 1,183 1,392 1,437 1,744 5,756 Profit from operations 442 499 575 (4) 1,512 Income from continuing operations before income taxes 389 444 524 (69) 1,288 Discontinued operations, net of tax (2) (427) -- -- (429) Net income 258 (131) 350 (85) 392 Net income per common share, basic (a) Continuing operations .24 .28 .33 (.08) .78 Discontinued operations -- (.41) -- -- (.41) Net income .24 (.13) .33 (.08) .37 Net income per common share, assuming full dilution (a) Continuing operations .24 .28 .33 (.08) .77 Discontinued operations -- (.41) -- -- (.40) Net income .24 (.13) .33 (.08) .37 Dividends declared per common share .16 1/4 -- .16 1/4 .32 1/2 .65 Dividends paid per common share .14 3/4 .16 1/4 .16 1/4 .16 1/4 .63 1/2 Stock price range: High 43.00 41.69 34.81 37.19 43.00 Low 28.19 30.88 27.19 27.13 27.13
(a) Earnings per common share are computed independently for each of the periods presented and, therefore, may not add up to the total for the year. 50 Historical Financial Summary The Gillette Company and Subsidiary Companies
Years ended December 31, 2001(a) 2000(b) 1999 1998(c) 1997 1996(d) ---------- ---------- ---------- ---------- ---------- --------- (millions, except per share amounts and employees) Summary of Operations Net Sales (e) $ 8,961 9,225 9,074 9,136 9,084 8,735 Profit from Operations (e) $ 1,498 1,512 2,087 1,776 2,168 1,514 Income before Income Taxes Continuing $ 1,342 1,288 1,912 1,656 2,065 1,403 Discontinued $ -- (531) 18 13 156 122 ------- ------- ------ ------- ------- ------- $ 1,342 757 1,930 1,669 2,221 1,525 Net Income Continuing $ 910 821 1,248 1,073 1,327 871 Discontinued $ -- (429) 12 8 100 78 ------- ------- ------ ------- ------- ------- $ 910 392 1,260 1,081 1,427 949 Weighted Average Common Shares Outstanding Basic 1,055 1,054 1,089 1,117 1,118 1,107 Assuming full dilution 1,058 1,063 1,111 1,144 1,148 1,140 Per Common Share Data Net Income per Common Share: Basic Continuing $ .86 .78 1.14 .95 1.18 .78 Discontinued $ -- (.41) .01 .01 .09 .07 ------- ------- ------ ------- ------- ------- $ .86 .37 1.15 .96 1.27 .85 Assuming Full Dilution Continuing $ .86 .77 1.13 .94 1.15 .76 Discontinued $ -- (.40) .01 .01 .09 .07 ------- ------- ------ ------- ------- ------- $ .86 .37 1.14 .95 1.24 .83 Dividends Declared per Common Share: Gillette $ .65 .65 .59 .51 .43 .36 Duracell $ .58 Stock Price, December 31 $ 33.40 36.13 41.19 47.81 50.22 38.88 Balance Sheet Data Net Property, Plant and Equipment (e) $ 3,548 3,550 3,467 3,285 2,918 2,404 Total Assets (e) $ 9,946 10,213 10,612 10,630 9,636 9,171 Long-Term Debt $ 1,654 1,650 2,931 2,256 1,476 1,490 Stockholders' Equity $ 2,137 1,924 3,060 4,543 4,841 4,471 Other Information Net Interest Expense $ 141 218 129 86 69 67 Depreciation and Amortization (e) $ 509 535 464 421 384 347 Capital Expenditures (e) $ 624 793 889 952 933 787 Employees (e) 31,500 35,200 37,600 39,800 40,500 40,400
(a) In 2001, charges for restructuring and asset impairment expenses reduced profit from operations and income before income taxes by $172 million, net income by $135 million and net income per common share, both basic and assuming full dilution, by $.13. (b) In 2000, charges for restructuring and asset impairment expenses reduced profit from operations and income before income taxes by $572 million, net income by $430 million and net income per common share, both basic and assuming full dilution, by $.41. (c) In 1998, a charge for reorganization and realignment expenses reduced profit from operations and income before income taxes by $440 million, net income by $285 million, net income per common share, basic, by $.26, and net income per common share, assuming full dilution, by $.25. (d) In 1996, charges for merger-related costs reduced profit from operations and income before income taxes by $413 million, net income by $283 million, net income per common share, basic, by $.26, and net income per common share, assuming full dilution, by $.25. (e) Represents continuing operations. 51 Corporate and Stockholder Information Stockholder Inquiries Auditors William J. Mostyn III KPMG LLP Secretary Financial Information Investor Inquiries The Gillette Company offers free of charge this Annual Christopher M. Jakubik Report, the Form 10-K Annual Report, quarterly earnings Vice President, Investor Relations reports and other announcements concerning financial results. Media Inquiries Printed copies of these materials may be requested Eric A. Kraus by writing to the Office of the Secretary, by calling toll Vice President, Corporate Communications free (877) 788-4463 from within the United States or by calling (703) 386-1171 from outside the United States. Annual Meeting Financial information also may be reviewed, down- The Annual Meeting of Stockholders will take place loaded or requested in printed form by accessing the on Thursday, May 16, 2002, at the Hotel du Pont, Investors' section of www.gillette.com. Wilmington, Delaware. The meeting will convene at 10 am. InvestLink-Direct Stock Purchase Program Corporate Headquarters InvestLink is a direct stock purchase program sponsored Prudential Tower Building and administered by EquiServe Trust Company, N.A., Boston, Massachusetts 02199 the Company's Transfer Agent. InvestLink provides (617)421-7000 an economical, convenient way to purchase your first Via Internet: www.gillette.com shares or to purchase additional shares of Gillette common stock directly from the Company Program participants Incorporated also may reinvest their cash dividends through InvestLink. State of Delaware Interested individuals may request an investor kit by writing to the Transfer Agent by calling toll-free Common Stock (877)788-4463 from within the United States, by calling Major stock exchanges, New York, Boston, Chicago, (703)386-1171 from outside the United States; or Pacific, Frankfurt by accessing the Investors' section of www.gillette.com. New York Stock Exchange Symbol: G Electronic Proxy Material Distribution The Company is pleased to offer its registered stock- At year-end stockholders numbered 47,400, living in holders and participants in its Employees' Savings Plan all 50 states and more than 50 countries abroad and ESOP the option of receiving proxy material electronically. Registered stockholders and plan participants may authorize Transfer Agent and Registrar electronic delivery or obtain more information at EquiServe Trust Company, N.A. www.econsent.com/g/. P.O. Box 43016 Beneficial stockholders should contact their Providence, Rhode Island 02940-3016 brokerage firms to determine the availability of electronic (781)575-2322 proxy material distribution. By fax: (781)828-8813 Toll-free: (888)218-2841 Hearing impaired: (800)952-9245(TTY/TDD) Via Internet: www.equiserve.com
Directors and Executive Officers DIRECTORS EXECUTIVE DIRECTORS Warren E. Buffett(3),(5) Chairman of the Board and Chairman and Chief Executive Officer, Chief Executive Officer Berkshire Hathaway, Inc. James M. Kilts Edward F. DeGraan President and President Chief Operating Officer Edward F. DeGraan Wilbur H. Gantz(2),(5) Former Chairman and Chief Executive Officer, Senior Vice Presidents PathoGenesis Corporation Charles W. Cramb Finance Michael B. Gifford(1),(4) Former Chairman of the Board, Edward E. Guillet Danka Business Systems PLC Human Resources Carol R. Goldberg(2),(3) Peter Klein President, Strategy and Business Development The Avcar Group, Ltd. Kathy S. Lane Dennis F. Hightower (2),(5) Corporate Information Technology and Applications Retired Chief Executive Officer, Europe Online Networks, S.A. John F. Manfredi Corporate Affairs Herbert H. Jacobi(2),(4) Chairman of the Supervisory Board, Richard K. Willard HSBC Trinkaus & Burkhardt KGaA Legal Vice Presidents James M. Kilts(3) A. Bruce Cleverly Chairman of the Board Global Business Management, Oral Care Henry R. Kravis(1),(3) General Partner, Joseph F. Dooley Kohlberg Kravis Roberts & Co., L.P. Commercial Operations, North America Jorge P. Lemann(1),(4) General Partner, Ernst A. Haberli GP Investimentos Commercial Operations, International Richard R. Pivirotto(2),(5) President, Peter K. Hoffman Richard R. Pivirotto Co., Inc. Global Business Management, Blades and Razors Marjorie M. Yang(1),(4) Chairman and Chief Executive Officer, Mark M. Leckie Esquel Group Global Business Management, Duracell (1)Audit Committee (2)Compensation Committee Claudio E. Ruben (3)Executive Committee Controller (4)Finance Committee (5)Nominating and Corporate Governance Committee Joseph Scalzo Global Business Management, Committee Chair Personal Care
EX-21 12 b41814gcex21.txt LIST OF SUBSIDIARIES EXHIBIT 21 THE GILLETTE COMPANY -- SUBSIDIARIES
NAME ORGANIZED UNDER LAWS OF - ---- ---------------------------- Gillette Argentina S.A. Argentina Gillette Australia Pty. Ltd. Australia NV Duracell Batteries S.A. Belgium Gillette Berlin Holding GmbH and Gillette Verwaltungs GmbH Germany Partners in: Gillette Deutschland GmbH & Co. Germany Gillette Holding GmbH Germany Its subsidiary: Gillette Beteiligungs GmbH Its subsidiary: Germany Braun GmbH Germany Its subsidiaries: Braun de Mexico y Cia. de C.V. Mexico Braun Beteiligungsverwaltungs GmbH Germany Its subsidiaries: Braun Espanola, S.A. Spain Braun Ireland Ltd. Ireland Gillette do Brasil, Inc. Delaware Its subsidiary: Gillette do Brasil Ltda. Brazil Gillette Canada Holdings, Inc. Delaware Its subsidiary: Gillette Canada Company Nova Scotia Its subsidiaries: Oral-B Laboratories Pty. Limited Australia Oral-B Laboratories International Inc. Delaware Productos Gillette Chile Limitada Chile Gillette (China) Limited China Its subsidiary: Braun (Shanghai) Co. Ltd. China Gillette de Colombia S.A. Colombia Colton Gulf Coast, Inc. Delaware Colton North Central, Inc. Delaware Gillette Czech Inc. Delaware Gillette Eastern Europe, Inc. Delaware Gillette Group Danmark A/S Denmark Gillette Group Finland Oy Finland Gillette International B.V Netherlands Its subsidiary: Grupo Gillette Espana S.L Spain Gillette Hong Kong Limited Hong Kong Gillette Foreign Sales Corporation Limited Jamaica Gillette Korea Limited Korea Groupe Gillette France S.A. France Gilfin B.V Netherlands Its subsidiary: Parkfin Limited United Kingdom Compania Giva, S.A. Delaware Compania Interamericana Gillette, S.A. Panama Gillette Egypt S.A.E Egypt Grupo Gillette Portugal, Limitada Portugal Gillette Safety Razor Company Massachusetts Its subsidiary:
NAME ORGANIZED UNDER LAWS OF - ---- ---------------------------- Gillette Group Italy S.p.A Italy Braun Gillette Japan Incorporated Delaware Gillette Management Inc. Delaware Grupo Gillette S.A. de C.V. Mexico Its subsidiary: Gillette de Mexico S.A. de C.V. Mexico Gillette Group Norge A/S Norway Gillette del Peru, Inc. and Lima Manufacturing Company Delaware Partners in: Gillette del Peru, S.C Peru Gillette (Philippines), Inc. Philippines Gillette Sanayi ve Ticaret A.S Turkey Duracell (S.E.A.) Pte. Ltd. Singapore Gillette Group South Africa (Pty.) Limited South Africa Gillette South Asia Inc. and Saratoga Investment, Inc. Delaware Their subsidiary: Gillette Group India Private Limited India Gillette Group Sverige AB Sweden Gillette Group Switzerland AG Switzerland Gillette Industries Limited United Kingdom Its subsidiaries: Gillette Group UK Limited United Kingdom Gillette U.K. Limited United Kingdom Braun (U.K.) Limited United Kingdom Gillette Petersburg Investment Inc. Delaware Its subsidiary: Petersburg Products International zao Russia Gillette Poland S.A. Poland Gillette Home Diagnostics, Inc. Delaware Its subsidiary: Thermoscan Inc. Delaware Gillette Oral Care, Inc. Delaware
All of the voting securities of each subsidiary listed above are owned by its parent company or parent partners. The percentage ownership in Gillette India Limited, Shenmei Daily Use Products Limited Company, Gillette (Shanghai) Limited, Gillette Pakistan Limited, Duracell (China) Limited and Gillette (Shanghai) Sales Company Limited is 75%, 75%, 72%, 76.8%, 90% and 80%, respectively. There are a number of additional subsidiaries in the United States and foreign countries which, considered in the aggregate, do not constitute a significant subsidiary. EX-23 13 b41814gcex23.txt CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Stockholders and Board of Directors of The Gillette Company We consent to incorporation by reference in the following registration statements of The Gillette Company and any amendments thereto (1) No. 333-59420 on Form S-8, (2) No. 333-63850 on Form S-8, (3) No. 333-55790 on Form S-8, (4) No. 333-75517 on Form S-3, (5) No. 33-9495 on Form S-8, (6) No. 2-93230 on Form S-8, (7) Nos. 33-56218 and 33-27916 on Form S-8 which incorporate by reference therein registration statements on Form S-8 Nos. 2-90276, 2-63951 and 1-50710 and No. 2-41016 on Form S-7, (8) No. 33-54974 on Form S-3, (9) No. 33-50303 on Form S-3, (10) No. 33-52465 on Form S-8, (11) No. 33-53257 on Form S-8, (12) No. 33-53258 on Form S-8, (13) No. 33-55051 on Form S-3, (14) No. 33-59125 on Form S-8, (15) No. 33-63707 on Form S-8, (16) No. 333-16735 on Form S-4, (17) No. 333-19133 on Form S-8, (18), No. 333-25533 on Form S-8 and (19) No. 333-44257 on Form S-3 of our report dated February 11, 2002, relating to the consolidated balance sheet of The Gillette Company and subsidiary companies as of December 31, 2001 and 2000, and the consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2001, which report is incorporated by reference in the December 31, 2001, Annual Report on Form 10-K of The Gillette Company. KPMG LLP Boston, Massachusetts March 25, 2002 EX-24 14 b41814gcex24.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY We, the undersigned, hereby constitute Charles W. Cramb and Richard K. Willard, or either of them, our true and lawful attorneys with full power to sign for us in our name and in the capacity indicated below, the Annual Report on Form 10-K pursuant to Section 13 of the Securities Exchange Act of 1934, filed for the Company with the Securities and Exchange Commission for the year ended December 31, 2001, and any and all amendments and supplements thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said Report and to any and all amendments and supplements to said Report. WITNESS Our Hand and Seal on the Date set forth below.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ JAMES M. KILTS Chairman of the Board of of March 14, 2002 - --------------------------------------------------- Directors, Chief Executive James M. Kilts Officer and Director /s/ EDWARD F. DEGRAAN President, Chief Operating March 14, 2002 - --------------------------------------------------- Officer and Director Edward F. DeGraan /s/ CHARLES W. CRAMB Senior Vice President and Chief March 14, 2002 - --------------------------------------------------- Financial Officer Charles W. Cramb /s/ CLAUDIO E. RUBEN Vice President, Controller and March 14, 2002 - --------------------------------------------------- Principal Accounting Officer Claudio E. Ruben /s/ WARREN E. BUFFETT Director March 14, 2002 - --------------------------------------------------- Warren E. Buffett /s/ WILBUR H. GANTZ Director March 14, 2002 - --------------------------------------------------- Wilbur H. Gantz /s/ MICHAEL B. GIFFORD Director March 14, 2002 - --------------------------------------------------- Michael B. Gifford /s/ CAROL R. GOLDBERG Director March 14, 2002 - --------------------------------------------------- Carol R. Goldberg /s/ DENNIS F. HIGHTOWER Director March 14, 2002 - --------------------------------------------------- Dennis F. Hightower /s/ HERBERT H. JACOBI Director March 14, 2002 - --------------------------------------------------- Herbert H. Jacobi /s/ HENRY R. KRAVIS Director March 14, 2002 - --------------------------------------------------- Henry R. Kravis /s/ JORGE PAULO LEMANN Director March 14, 2002 - --------------------------------------------------- Jorge Paulo Lemann /s/ RICHARD R. PIVIROTTO Director March 14, 2002 - --------------------------------------------------- Richard R. Pivirotto /s/ MARJORIE M. YANG Director March 14, 2002 - --------------------------------------------------- Marjorie M. Yang
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