<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN A PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Gillette Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0- 11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee Paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
[Gillette Logo]
World-Class Brands, Products, People Prudential Tower Building
Boston, MA 02199
NOTICE OF ANNUAL MEETING OF THE STOCKHOLDERS
The 1998 Annual Meeting of the stockholders of The Gillette Company will be held
at the John F. Kennedy Library and Museum, Columbia Point, Boston,
Massachusetts, on Thursday, April 16, 1998, at 10:00 a.m. for the following
purposes:
1. To elect four directors for terms to expire at the 2001 Annual
Meeting of the stockholders.
2. In connection with a proposed 2-for-1 stock split, in the form
of a 100% stock dividend, to vote on the approval of an
amendment to the Certificate of Incorporation to increase the
authorized $1 par value common stock from 1,160,000,000 shares
to 2,320,000,000 shares, as described in the accompanying proxy
statement.
3. To vote on the approval of the appointment of auditors for the
year 1998.
4. To transact such other business as may properly come before the
meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on February 27, 1998, as
the record date for the determination of the stockholders entitled to notice of
and to vote at the meeting. A list of such stockholders will be available at the
time and place of the meeting and, during the ten days prior to the meeting, at
the office of the Secretary of the Company at the above address.
If you would like to attend the meeting and your shares are held by a broker,
bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy issued
in your name.
WHETHER OR NOT YOU EXPECT TO ATTEND, WE URGE YOU TO SIGN AND DATE THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By order of the Board of Directors
Jill C. Richardson, Secretary
Boston, Massachusetts
March 13, 1998
<PAGE>
[Gillette Logo]
World-Class Brands, Products, People Prudential Tower Building
Boston, MA 02199
March 13, 1998
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors for the 1998 Annual Meeting of the
stockholders of the Company on April 16, 1998. The Notice of Annual Meeting,
this proxy statement and the accompanying proxy are being mailed to stockholders
on or about March 13, 1998. You can ensure that your shares are voted at the
meeting by signing and dating the enclosed proxy and returning it in the
envelope provided. Sending in a signed proxy will not affect your right to
attend the meeting and vote in person. You may revoke your proxy at any time
before it is voted by notifying the Company's Transfer Agent, BankBoston, N.A.,
c/o Boston EquiServe, P.O. Box 9374, Boston, Massachusetts 02205-9945 in
writing, or by executing a subsequent proxy, which revokes your previously
executed proxy.
The enclosed proxy will also serve as a confidential voting instruction with
respect to the Company's employees' savings plans, Employee Stock Ownership Plan
("ESOP") and Global Employee Stock Ownership Plan ("GESOP"). If voting
instructions have not been received from a participant by April 9, 1998, the
shares allocated to the participant's account(s) and ESOP and GESOP shares that
have not been allocated to participant accounts will be voted on each issue in
proportion to the shares as to which voting instructions have been returned by
other participants of each respective plan.
1. ELECTION OF DIRECTORS FOR TERMS TO EXPIRE AT THE 2001 ANNUAL MEETING OF THE
STOCKHOLDERS
At the meeting, four directors, Wilbur H. Gantz, Jorge Paulo Lemann, Richard R.
Pivirotto and Alfred M. Zeien, are to be elected to serve for terms that expire
at the 2001 Annual Meeting of the stockholders. Juan M. Steta, whose term as a
director will expire at the 1998 Annual Meeting, is not standing for reelection,
having reached the mandatory retirement age for directors. Jorge Paulo Lemann is
standing for election for the first time. Information regarding the Board's four
nominees to this class is set forth at page 2. Information regarding the
directors whose terms expire in 1999 and 2000 is set forth at pages 3 and 4.
The accompanying proxy will be voted for the election of the Board's nominees
unless contrary instructions are given. If any nominee is unable to serve, which
is not anticipated, the persons named as proxies intend to vote for the
remaining Board nominees and, unless the number of directors is reduced by the
Board of Directors, for such other person as the Board of Directors may
designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS FOR TERMS
TO EXPIRE AT THE 2001 ANNUAL MEETING OF THE STOCKHOLDERS, WHICH IS DESIGNATED AS
PROPOSAL NO. 1 ON THE ENCLOSED PROXY.
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERMS TO EXPIRE AT THE 2001 ANNUAL MEETING OF THE STOCKHOLDERS
[Photo of Wilbur H. Gantz]
WILBUR H. GANTZ Director since 1992
Mr. Gantz, 60 years of age, is Chairman of the Board and Chief
Executive Officer of PathoGenesis Corporation, a
biopharmaceutical company. He served as President of Baxter
International, Inc., a manufacturer and marketer of health
care products, from 1987 to 1992. He joined Baxter
International, Inc. in 1966 and held various management
positions prior to becoming its Chief Operating Officer in
1983. Mr. Gantz is a director of W.W. Grainger and Company;
Harris Bankcorp and Harris Trust and Savings Bank.
[Photo of Jorge Paulo Lemann]
JORGE PAULO LEMANN
Mr. Lemann, 58 years of age, is the founder and a Senior
Partner of Banco de Investimentos Garantia S.A., a Brazilian
investment bank. He is a board member and controlling
shareholder of Compania Cervejaria Brahma, Brazil's largest
brewery, Lojas Americanas S.A., a Brazilian discount
department store chain, and G.P. Investimentos, a buyout and
restructuring firm. He is a board member of Fundacao Estudar,
a provider of scholarships to needy students. Mr. Lemann is
Chairman of the Latin American Advisory Board of the New York
Stock Exchange.
[Photo of Richard R. Pivirotto]
RICHARD R. PIVIROTTO Director since 1980
Mr. Pivirotto, 67 years of age, is President of Richard R.
Pivirotto Co., Inc., a management consulting firm. He served
as President of Associated Dry Goods Corporation, a retail
department store chain, from 1972 to 1976 and as Chairman of
its Board of Directors from 1976 to February 1981. He is a
director of General American Investors Company, Inc.;
Immunomedics, Inc.; New York Life Insurance Company; The
Greenwich Bank & Trust Company; and CBS Corporation.
[Photo of Alfred M. Zeien]
ALFRED M. ZEIEN Director since 1980
Mr. Zeien, 68 years of age, is Chairman of the Board and Chief
Executive Officer. He joined the Company in 1968 and served as
Chairman of the Board of Management of Braun AG, a Gillette
subsidiary, from 1976 to 1978 and as Senior Vice President,
Technical Operations, from 1978 to 1981. He was elected Vice
Chairman of the Board in 1981. In that capacity, he served as
the Company's senior technical officer and headed the new
business development group until November 1987, when he
assumed responsibility for Gillette International and the
Diversified Companies. He was elected President and Chief
Operating Officer in January 1991 and Chairman and Chief
Executive Officer in February 1991. Mr. Zeien is a director of
BankBoston Corporation; BankBoston, N.A.; Massachusetts Mutual
Life Insurance Company; Polaroid Corporation; and Raytheon
Company.
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRE AT THE 1999 ANNUAL MEETING OF THE STOCKHOLDERS*
[Photo of Warren E. Buffett]
WARREN E. BUFFETT Director since 1989
Mr. Buffett, 67 years of age, is Chairman of the Board and
Chief Executive Officer of Berkshire Hathaway Inc., a company
engaged in a number of diverse business activities, the most
important of which is the property and casualty insurance
business. Prior to assuming those positions in 1970, he was a
general partner of Buffett Partnership, Ltd. He is a director
of The Coca-Cola Company and The Washington Post Company.
[Photo of Michael B. Gifford]
MICHAEL B. GIFFORD Director since 1993
Mr. Gifford, 62 years of age, was Managing Director and Chief
Executive of The Rank Organization plc, London, England, a
leisure and entertainment company from 1983 to 1996. He was
Finance Director of Cadbury Schweppes plc from 1978 to 1983
and Chief Executive of Cadbury Schweppes Australia from 1975
to 1978. He is a director of English China Clays plc.
[Photo of Carol R. Goldberg]
CAROL R. GOLDBERG Director since 1990
Mrs. Goldberg, 66 years of age, is President of The Avcar
Group, Ltd., a management consulting firm. She was President
and Chief Operating Officer of The Stop & Shop Companies,
Inc., a retail store chain, from 1985 to 1989. She joined Stop
& Shop in 1959 and served in various management positions
prior to her election as Executive Vice President and Chief
Operating Officer in 1982. She served as a director of that
Company from 1972 to 1989. She serves as a director of America
Service Group, Inc.; Barry's Jewelers, Inc.; the Kennedy
Library Foundation; The Forum Corporation; and Selfcare, Inc.
[Photo of Joseph E. Mullaney]
JOSEPH E. MULLANEY Director since 1990
Mr. Mullaney, 64 years of age, is Vice Chairman of the Board.
He joined the Company in 1972 as Associate General Counsel and
was elected General Counsel in 1973, Vice President in 1975,
Senior Vice President with responsibilities for legal and
governmental affairs in 1977 and Vice Chairman in 1990. He
serves as a director of Boston Municipal Research Bureau; the
Greater Boston Legal Services Corporation; the Greater Boston
Chamber of Commerce; the New England Legal Foundation and the
World Affairs Council of Boston. He is also a member of the
Board of Trustees of the Massachusetts Taxpayers Foundation,
Inc. and a Trustee of the Public Library of the City of
Boston.
*Mr. Mullaney intends to retire as Vice Chairman of the Board
and resign as a director following the April 16, 1998 Annual
Meeting. The directors intend to reduce the total number of
directors to 11, so that there will be three directors with
terms expiring at the 1999 Annual Meeting.
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRE AT THE 2000 ANNUAL MEETING OF THE STOCKHOLDERS
[Photo of Michael C. Hawley]
MICHAEL C. HAWLEY Director since 1995
Mr. Hawley, 60 years of age, is President and Chief Operating
Officer. He joined the Company in 1961 and was named Business
Development Manager for Gillette International in the United
Kingdom in 1970. He served as General Manager of Gillette
Colombia from 1972 until 1976, when he became Group General
Manager of the Asia-Pacific Group, based in Sydney, Australia.
In 1985 he was elected a Corporate Vice President responsible
for all blade, razor and writing instrument engineering, as
well as technical support for Gillette factories worldwide. He
served as President of Oral-B Laboratories from June 1989
until his election as Executive Vice President, International
Group in November 1993. In April 1995 he was elected President
and Chief Operating Officer. Mr. Hawley is a director of
Arthur D. Little, Inc., the John Hancock Mutual Life Insurance
Company and Texaco, Inc.
[Photo of Herbert H. Jacobi]
HERBERT H. JACOBI Director since 1981
Mr. Jacobi, 63 years of age, has been Chairman of the Managing
Partners of Trinkaus & Burkhardt KGaA, a German bank, since
1981. The Bank is a member of the HSBC Group. He was a
managing partner of Berliner Handels- und Frankfurter Bank
from 1977 until 1981 and an Executive Vice President of Chase
Manhattan Bank from 1975 to 1977. Mr. Jacobi is a director of
Atlanta AG; Braun AG, a Gillette subsidiary; Midland Bank plc;
Guyerzeller Bank AG; and WILO-Salmson AG. He is also a member
of the Partnership Council of Freshfields, a U.K. law firm,
and Group General Manager of HSBC Holdings plc. He is
President of the North Rhine-Westfalia Stock Exchange in
Duesseldorf and a director of Deutsche Boerse AG in Frankfurt.
[Photo of Henry R. Kravis]
HENRY R. KRAVIS Director since 1996
Mr. Kravis, 54 years of age, is a General Partner of Kohlberg
Kravis Roberts & Co., L.P. and KKR Associates, L.P. He is a
director of Accuride Corporation; Amphenol Corporation;
Borden, Inc.; Bruno's Inc.; Evenflo & Spalding Holdings,
Corporation; IDEX Corporation; KinderCare Learning Centers;
KSL Recreation Corporation; Merit Behavioral Care Corporation;
Newsquest Capital, PLC; Owen-Illinois, Inc.; Owens-Illinois
Group, Inc.; Primedia, Inc.; Randall's Food Markets, Inc.;
Safeway Inc.; Sotheby's; Union Texas Petroleum Holdings, Inc.;
and World Color Press, Inc.
[Photo of Alexander B. Trowbridge]
ALEXANDER B. TROWBRIDGE Director since 1990 Mr. Trowbridge, 68
years of age, is President of Trowbridge Partners Inc., a
management consulting firm. He was President of the National
Association of Manufacturers, a trade organization, from 1980
through 1989. He was Vice Chairman of Allied Chemical
Corporation (now Allied-Signal Corporation) from 1976 to 1980;
President of The Conference Board, Inc. from 1970 to 1976;
President of American Management Association from 1968 to 1970;
and U.S. Secretary of Commerce from 1967 to 1968. Mr. Trowbridge
is a director of Harris Corporation; ICOS Corporation; IRI
International; New England Life Insurance Company; The Rouse
Company; The Sun Company, Inc.; E.M. Warburg Pincus Counsellors
Funds; and Waste Management Inc. He is a charter trustee of
Phillips Academy, Andover.
<PAGE>
BOARD MEETINGS
The Board of Directors held eight meetings in 1997.
COMMITTEES OF THE BOARD
The Board of Directors has the following standing committees, which are
composed entirely of directors who are not employees of the Company, except
that the Chief Executive Officer is an ex officio member of the Executive
Committee.
Audit Committee
The members are Mr. Steta (Chairman), Mr. Gifford, Mrs. Goldberg and Mr.
Kravis.
The Audit Committee recommends the appointment of the Company's independent
auditors, meets with the auditors to review their report on the financial
operations of the business, and approves the audit services and any other
services to be provided. It reviews the Company's internal audit function and
the performance and adequacy of the fund managers for the Company's benefit
plans. It also reviews compliance with the Company's statement of policy as to
the conduct of its business. Three meetings of the Committee were held in
1997.
Executive Committee
The members are Mr. Buffett (Chairman), Mrs. Goldberg, Mr. Steta, Mr.
Trowbridge and Mr. Zeien.
The Executive Committee, acting with the Finance Committee, reviews and makes
recommendations on significant capital investment proposals. It is also
available to review and make recommendations to the Board with respect to the
nature of the business, plans for future growth, senior management succession
and stockholder relations. The Committee has the added functions of reviewing
the composition and responsibilities of the Board and its committees and
recommending to the Board nominees for election as directors. It will consider
nominations by stockholders, which should be submitted in writing to the
Chairman of the Committee in care of the Secretary of the Company. Seven
meetings of the Committee were held in 1997.
Finance Committee
The members are Mr. Jacobi (Chairman), Mr. Gantz, Mr. Gifford, Mr. Kravis and
Mr. Pivirotto.
The Finance Committee reviews and makes recommendations with respect to the
Company's financial policies, including cash flow, borrowing and dividend
policy and the financial terms of acquisitions and dispositions. Acting with
the Executive Committee, it reviews and makes recommendations on significant
capital investment proposals. Eight meetings of the Committee were held in
1997.
Personnel Committee
The members are Mr. Pivirotto (Chairman), Mr. Gantz, Mr. Jacobi and Mr.
Trowbridge.
The Personnel Committee reviews and makes recommendations to the management or
Board on personnel policies and plans or practices relating to compensation.
It also administers the Company's executive incentive compensation plans and
approves the compensation of all officers and certain other senior executives.
Eight meetings of the Committee were held in 1997.
OUTSTANDING VOTING SECURITIES
On February 27, 1998, the record date for the 1998 Annual Meeting of the
stockholders, there were outstanding and entitled to vote 561,318,276 shares
of the $1 par value common stock of the Company, entitled to one vote per
share, and 153,551 shares of Series C ESOP Convertible Preferred Stock,
entitled to 40 votes per share. The holders of the Company's common and
preferred stock vote together as one class on all matters being submitted to a
vote of the stockholders at the 1998 Annual Meeting.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 27, 1998, Berkshire Hathaway Inc., located at 1440 Kiewit
Plaza, Omaha, Nebraska 68131, beneficially owned, through six insurance
subsidiaries, 48,000,000 shares, which constitute 8.6% of the outstanding
common stock of the Company and 8.5% of the votes entitled to be cast by the
holders of the outstanding voting securities of the Company. One of the six
Berkshire Hathaway Inc. subsidiaries, National Indemnity Company, 3024 Harney
Street, Omaha, Nebraska 68131, owned directly 30,000,000 of the 48,000,000
shares, or 5.3% of the outstanding common stock and 5.3% of the votes entitled
to be cast by the holders of the outstanding voting securities of the Company.
The capital stock of Berkshire Hathaway Inc. is beneficially owned
approximately 38.5% by Mr. Buffett and certain trusts of which he is trustee
but in which he has no economic interest and 3.0% by his wife, Susan T.
Buffett.
As of February 27, 1998, State Street Bank and Trust Company, P.O. Box 5259,
Boston, Massachusetts 02101 ("State Street") held as Trustee of The Gillette
Company Employee Stock Ownership Plan on behalf of Plan participants, 153,551
shares of Series C ESOP Convertible Preferred Stock which represent 100% of
that class and 1.1% of the votes entitled to be cast by the holders of the
Company's outstanding voting securities. State Street exercises shared voting
and dispositive power over the shares.
The following table sets forth the number of Gillette shares beneficially
owned on February 27, 1998, by (i) each director, (ii) each of the executive
officers named in the Summary Compensation Table at page 13 and (iii) all
directors and current executive officers as a group. All individuals listed in
the table have sole voting and investment power over the shares reported as
owned, except as otherwise stated.
<TABLE>
<CAPTION>
Unrestricted Stock
Title of Beneficially Owned, Option Shares Exercisable
Name Class(1) Excluding Options Within 60 days
---- -------- ----------------- --------------
<S> <C> <C> <C>
Warren E. Buffett(2)(6) Common 48,000,928 12,000
Wilbur H. Gantz(6) Common 4,328 12,000
Michael B. Gifford(6) Common 1,519 10,000
Carol R. Goldberg(3)(6) Common 3,319 12,000
Michael C. Hawley(4) Common 70,186 329,000
Series C Pfd. 21 --
Herbert H. Jacobi(6) Common 14,132 12,000
Robert G. King(4) Common 30,553 120,000
Series C Pfd. 19 --
Henry R. Kravis(5)(6) Common 25,699,599 2,000
Jacques Lagarde(4) Common 45,465 331,022
Series C Pfd. 19 --
Jorge Paulo Lemann Common 0 0
Joseph E. Mullaney(4) Common 115,982 150,000
Series C Pfd. 19 --
Richard R. Pivirotto(6) Common 4,127 12,000
Juan M. Steta(6) Common 0 12,000
Alexander B. Trowbridge(6) Common 1,928 11,600
Alfred M. Zeien(4) Common 770,143 1,206,000
Series C Pfd. 19 --
All directors and current Common 74,849,570 2,659,798
executive officers as a group(4)(7) Series C Pfd. 182 --
</TABLE>
- ------------
(1) Except as indicated in notes (2), (5) and (7) below, the total number of
shares beneficially owned in each class constitutes less than 1% of the
outstanding shares in that class.
(2) 48,000,000 of the shares are owned by insurance subsidiaries of Berkshire
Hathaway Inc., a company which Mr. Buffett may be deemed to control. Mr.
Buffett shares voting and investment power over the shares, which
represent 8.6% of the outstanding common stock, as described above.
(3) Mrs. Goldberg has no voting and investment power over 400 of the shares
reported as owned and disclaims beneficial ownership with respect to those
shares.
(4) Includes common shares held under the Company's Employees' Savings Plan as
follows: Mr. Hawley 54,913 shares; Mr. King 5,890 shares; Mr. Lagarde
13,042 shares; Mr. Mullaney 16,409 shares; Mr. Zeien 180,675 shares; and a
total of 325,823 shares held under the Employees' Savings Plan and GESOP
by all employee directors and all current executive officers as a group.
Under the Employees' Savings Plan, GESOP and ESOP, participants may direct
the voting of shares held in their accounts in accordance with the shared
voting procedure described at page 1 and share investment power with the
plans' trustees in accordance with the terms of the plans. In addition,
Mr. Mullaney shares voting and investment power over 26,348 of the common
shares reported as owned by him; Mr. King has no voting and investment
power over 8,300 of the common shares reported as owned by him and
disclaims beneficial ownership with respect to those 8,300 shares; and
certain other executive officers have no voting and investment power over
5,051 of the common shares reported as owned by the group and disclaim
beneficial ownership with respect to those 5,051 shares.
(5) 25,654,399 of the shares are owned by KKR Associates, L.P. through two
limited partnerships, KKR Partners II, L.P. and DI Associates, L.P. (the
"KKR Stockholders"). Mr. Kravis as a general partner of KKR Associates,
L.P. may be deemed to share beneficial ownership of such shares, which
represent 4.6% of the outstanding common stock. The remaining 45,200
shares are held directly by a trust for the benefit of members of Mr.
Kravis' family. Mr. Kravis disclaims beneficial ownership with respect to
all the shares.
(6) In addition to the common stock reported as owned, the directors have
converted the present value of vested pension benefits and have invested
all or a portion of their retainers and attendance fees in Deferred Stock
Units under the Deferred Compensation Plan for Outside Directors, as
described beginning on page 8 under Compensation of Directors. As of
February 27, 1998, the number of units credited to each director's account
was as follows: Mr. Buffett 3,245 units, Mr. Gantz 1,263 units, Mr.
Gifford 1,008 units, Mrs. Goldberg 3,188 units, Mr. Jacobi 3,053 units,
Mr. Kravis 753 units, Mr. Pivirotto 4,206 units, Mr. Steta 3,662 units and
Mr. Trowbridge 2,392 units.
(7) The number of common shares beneficially owned by all directors and
current executive officers as a group represents 13.7% of the outstanding
common stock.
CERTAIN TRANSACTIONS WITH DIRECTORS AND OFFICERS
Berkshire Hathaway Inc. and the Company continue to be subject to their
agreement of July 20, 1989. Management, after consultation with legal and
financial advisors, determined that the terms of the agreement, as described
below, were fair to the Company.
The agreement provides that, without the approval of the Company's Board of
Directors, until July 20, 1999, Berkshire Hathaway Inc. will not acquire
shares giving it a total of more than 14.1% of the voting power of the
Company's outstanding voting securities (other than through the exercise of
rights, warrants or convertible securities received by Berkshire Hathaway Inc.
with respect to its common stock) or become a participant in a proxy
solicitation or a member of another group within the meaning of Section 13(d)
of the Securities Exchange Act of 1934 with respect to the Company.
Berkshire Hathaway Inc. also remains subject to its agreement to use its best
efforts not to knowingly sell securities representing more than 3% of the
voting power of the Company's outstanding voting securities to any one entity
or group except in certain specified circumstances related to a change in
control of the Company, and to give the Company certain rights of first
refusal in the event of sales of the Company's voting securities by Berkshire
Hathaway Inc. If the Company does not exercise its right of first refusal,
Berkshire Hathaway Inc. has the right to have the Company register, either in
its entirety or in increments of $100,000,000 or more from time to time, one
or more public offerings of the Gillette common stock held by Berkshire
Hathaway Inc.
While Berkshire Hathaway Inc. owns at least 5% of the voting power of the
Company's securities, the Company's directors will also continue to be subject
to their agreement to use their best efforts to secure the election to the
Board by the shareholders of Mr. Buffett or such other individual reasonably
acceptable to the Company as Berkshire Hathaway Inc. might nominate.
Fees paid during 1997 to the law firm of Santamarina y Steta, of which Mr.
Steta is of counsel, are reported on page 9.
On December 31, 1996, pursuant to a merger agreement dated September 12, 1996,
Duracell International Inc. became a wholly-owned subsidiary of Gillette.
The directors and executive officers of Duracell and each of the KKR
Stockholders have executed agreements providing that they will not transfer
any Gillette common stock received in the merger, except in compliance with
the Securities Act of 1933, as amended.
The KKR Stockholders have certain demand and piggyback registration rights
pursuant to which they may, subject to certain terms and conditions, require
Gillette to register under the Securities Act of 1933 all or part of the
Gillette common stock received by the KKR Stockholders in connection with the
merger, including up to four such remaining demands to register at least
$325,000,000 in aggregate market value of such stock.
Duracell agreed to indemnify KKR and its affiliates (including Mr. Kravis)
against liability related to or arising out of any services rendered in
connection with the merger, the engagement of KKR by Duracell as an advisor on
the merger or the performance by KKR of its services (including reasonable
attorneys' fees) except for liability caused by KKR's bad faith or gross
negligence. Duracell also confirmed to the KKR Stockholders certain rights to
indemnification, including such rights with respect to their entering into or
performing their obligations under the Stockholders' Agreement pursuant to
which the KKR Stockholders agreed, among other things, to vote their Duracell
shares in favor of the merger. Gillette has agreed to honor these obligations.
The merger agreement provides for Gillette to indemnify and hold harmless each
present and former director, officer or employee of Duracell and its
subsidiaries (including Mr. Kravis) against any claims arising out of the
merger, or otherwise, and to maintain the Duracell directors' and officers'
liability insurance for six years.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries are paid an
annual Board retainer fee of $35,000 plus a fee of $1,200 for attendance at
each meeting of the Board of Directors or of its committees. Committee
Chairmen receive an additional retainer of $4,000 a year. Under the Deferred
Compensation Plan for Outside Directors one half of all annual Board retainer
fees is paid in Deferred Stock Units. The directors may defer payment of all
or any portion of the cash retainers or cash fees to a Deferred Stock Unit
account or to a cash account until after retirement or resignation from the
Board or until an earlier change in control. Each Deferred Stock Unit is
treated as equivalent to one share of the Company's common stock, and the
directors receive dividend equivalent units as dividends are paid and
appreciation, if any, in the market value of the stock. Deferred cash accounts
accrue interest equivalents. Upon the death of a director, any unpaid amounts
become payable in a lump sum.
Directors who are not employees of the Company or its subsidiaries also may be
paid for service as directors of Company subsidiaries. During 1997 Mr. Jacobi
received standard outside director fees totaling $10,129 for his services as a
director of Braun AG.
Each non-employee director receives an automatic stock option grant, effective
two business days following the date of the annual meeting of the
stockholders, to purchase 2,000 shares of the common stock of the Company at a
price equal to the fair market value on the date of grant. In 1997 the grants
were made on April 21 at a price of $78.81 per share. Options granted to non-
employee directors are designated as non-ISO's, the terms of which are generally
similar to those granted to employees, which are described at page 15.
A director who has attained age 70 cannot stand for reelection to the Board.
Effective January 1, 1997, the directors voted to eliminate the Retirement
Plan for Non-Employee Directors. Directors who had reached age 65 as of
December 31, 1996, were given a one time election to convert the present value
of vested pension benefits into Deferred Stock Units or to freeze the pension
as of December 31, 1996, with no credit for future service. The pension
benefits for directors who had not reached age 65 at December 31, 1996, were
automatically converted to Deferred Stock Units. No retirement benefit will be
given to any director who becomes a director on or after December 31, 1996.
During 1997 the Company and its Mexican subsidiaries received legal advice
from the law firm of Santamarina y Steta, of which Mr. Steta is of counsel,
and paid the firm a total of $343,208 for its services. The Company believes
that all such services were provided on terms at least as favorable to the
Company as those of comparable firms retained to provide similar legal
services to the Company. It is expected that Santamarina y Steta will continue
to provide legal services to the Company and its subsidiaries during 1998.
GILLETTE COMPARATIVE FIVE-YEAR INVESTMENT PERFORMANCE
The following chart compares the total return on $100 invested in Gillette
common stock for the five-year period from December 31, 1992 through December
31, 1997 with a similar investment in the Standard & Poor's 500 Stock Index
and with a peer group consisting of ten consumer products companies of
generally similar size. The cumulative return includes reinvestment of
dividends.
- -------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Gillette $100 $106 $135 $190 $286 $373
Peer Group $100 $ 98 $111 $161 $208 $324
S&P 500 $100 $110 $112 $153 $188 $251
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Peer Group Companies: Colgate-Palmolive Company Ralston Purina Company
Avon Products, Inc. Johnson & Johnson Rubbermaid Incorporated
The Black & Decker Corporation Pfizer Inc. Warner-Lambert Company
Bristol-Myers Squibb Company Procter & Gamble Company
- -------------------------------------------------------------------------------
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overall Objectives and Programs
The objective of the Company's executive compensation program is to provide
compensation that will attract and retain executives, to motivate each
executive toward the achievement of the Company's short and long-term
financial and other goals, as reflected in its statement of mission and values
and in its strategic business plan, and to recognize individual contributions
as well as overall business results. In order to achieve this objective, the
primary focus of the Personnel Committee has been on the competitiveness of
each of the key elements of executive compensation -- base salary, bonus and
stock option grants -- and the compensation package as a whole. In general,
the Committee also believes that total compensation should reflect the fact
that the Company's performance compares very favorably with that of the peer
group companies and with that of the broader group of companies represented in
the Standard & Poor's 500 Stock Index. Overall executive compensation is
dependent upon performance against goals assigned to each executive under the
Company's management by objectives program. These objectives are designed to
further the Company's strategic business plan and mission and values.
Objectives include quantitative factors that directly improve the Company's
short-term financial performance, as well as qualitative factors that
strengthen the Company's ability to enhance profitable growth over the long
term, such as demonstrated leadership ability, management development,
insuring compliance with law and Company policies, and anticipating and
responding to changing market and economic conditions.
Each year the Committee reviews a report prepared by independent compensation
consultants assessing the competitiveness of the Company's program for the
past year with the peer group used for compensation comparisons ("the
Compensation Peer Group") to determine whether the Company has achieved its
executive compensation program objective and to help the Committee determine
whether there is a need to make prospective adjustments in the compensation of
executive officers. The Compensation Peer Group includes most of the companies
listed on page 9, as well as a number of other companies with which the
Company competes for executive talent. Despite the substantial similarities
between the two groups, the companies included in the Compensation Peer Group
are not identical to those included in the peer group index in the Investment
Performance Graph included in this proxy statement because the Committee
believes that the group of companies with which the Company competes for
executive talent is broader than and not identical to that appropriate for
comparing investment performance.
Over the last several years the Personnel Committee has sought to relate an
increasingly greater percentage of total executive compensation directly to
the financial performance of the Company and to the part each executive played
in achieving that performance. This has resulted in a compensation package in
which a greater portion of each executive officer's compensation is contingent
upon the achievement of specific financial targets for the year. For 1997 the
bonus represented approximately 44.2% of total direct compensation (base
salary plus bonus), a proportion believed to be generally in line with that of
the Compensation Peer Group.
It has also been the Committee's objective that, in any year in which a
budgeted bonus pool is earned under the Incentive Bonus Plan and the Company's
performance compares favorably with those shown on the Investment Performance
Graph, the total direct compensation of the executive officers should be well
above the median of direct compensation paid by the Compensation Peer Group.
For the most recent period for which information is available, the total
direct compensation of the executive officers was well above the median of
direct compensation of the Compensation Peer Group.
The Personnel Committee approves the base salary of the executive officers
and, at its discretion, awards bonuses under the Incentive Bonus Plan and
grants stock options under the Stock Option Plan.
Base Salary
In determining the salary of an executive officer, a salary range is assigned
under a worldwide system of job evaluation based upon the level of
responsibility, the qualifications and experience required and the need to
provide, together with the Incentive Bonus Plan, competitive direct
compensation. Salary increases are based upon periodic reevaluations of these
factors and the performance of the executive in meeting individually assigned
objectives.
Incentive Bonus Plan
Under the Incentive Bonus Plan, the Personnel Committee establishes bonus
pools based on budgeted goals set at the outset of the year relating to profit
from operations, return on assets, and sales (weighted 70%, 15% and 15%,
respectively, for 1997) and establishes the minimum, budgeted, and maximum
Company-wide aggregate bonus pools that may be earned based upon the
achievement of those Company goals.
In order for a bonus pool to be earned, a minimum profit from operations goal
for the Company must be met. The actual amount of any pool is determined based
upon the level of achievement of Company goals for the year. Company goals are
translated to operating unit, staff and individual objectives and assigned to
executives under the Company's management by objectives program. For the year
1997, the plan provided for awards ranging from 5% to 75% of year-end salary
based upon the performance of each executive officer against individually
assigned objectives for the year, with the Committee having discretion to
award a higher amount under special circumstances.
At the time goals are set, a reserve equivalent to no more than 35% of the
amount of the budgeted bonus pool may be established by the Committee from
which bonuses may be awarded to eligible employees in operating units that
achieve assigned objectives even if the overall minimum profit from operations
goal for the Company is not met. In addition, the Committee may, within
certain limits, carry forward a portion of the bonus pool earned in any year
for its discretionary use in the future.
Stock Option Plan
Stock option grants are intended to provide long-term incentives for the
achievement of the Company's strategic business plan and mission and values
and to align the executive officers' interests with those of the shareholders.
The Stock Option Plan is the Company's sole long-term incentive plan for
executive officers. Under the plan, the Personnel Committee may award stock
options for terms not to exceed ten years at no less than the fair market
value of Gillette common stock on the date of grant. The size of any stock
option grant is related to the individual's level of responsibility within the
organization, and awards are made on a basis designed to be at or above the
median value of grants under similar programs of companies in the Compensation
Peer Group.
Other Benefits
In order to attract, motivate and retain employees, the Company also maintains
a competitive benefits package, participation in which is not dependent upon
performance. In general, executive officers participate on the same basis as
other employees in the Company's broad-based employee benefit plans: the
Employees' Savings Plans, the Employee Stock Ownership Plan, and the
Retirement Plans. Information on these plans is provided on pages 14 through
17.
The executive officers, along with certain other executives, participate in an
Executive Life Insurance Program and Estate Preservation Plan. Information on
these programs is included in the footnotes to the Summary Compensation Table
at page 14.
The Personnel Committee has reviewed the impact of Section 162(m) of the
Internal Revenue Code which, beginning in 1994, limits the deductibility of
certain otherwise deductible compensation in excess of $1 million paid to the
CEO and the next four most highly compensated executive officers. It is the
practice of the Committee to attempt to have all compensation treated as tax-
deductible compensation wherever, in the judgment of the Committee, to do so
would be consistent with the objectives of the compensation plan under which
the compensation is paid. Accordingly, the Stock Option and Stock Equivalent
Unit Plans fulfill the requirements for treatment as tax-deductible
compensation.
The Committee has determined that to attempt to amend the Incentive Bonus Plan
so that bonuses meet the definition of tax-deductible compensation would
require changes which would be contrary to the compensation philosophy
underlying that plan and which would seriously impede the Committee's ability
to administer the plan as designed in accordance with the judgment of the
Committee. The Incentive Bonus Plan was deliberately designed so that
individual bonuses were not to be dependent solely on objective or numerical
criteria, thus allowing the Committee the flexibility to apply its independent
judgment to reflect performance against qualitative strategic objectives.
Compensation of Chief Executive Officer
As Chairman and Chief Executive Officer, Mr. Zeien's compensation, like that
of the other executive officers of the Company, is set in accordance with the
foregoing policies.
Base Salary
Mr. Zeien's base salary represents an effort by the Personnel Committee, after
consideration of data contained in a report from the independent compensation
consultants, to place his base salary at or above the median of salaries of
chief executive officers of the companies in the Compensation Peer Group.
Incentive Bonus Plan
Mr. Zeien is responsible for the entire scope of the Company's worldwide
business. His 1997 bonus was based upon his successful leadership in managing
the business and balancing the Company's long and short-term objectives as
described below.
Significant in 1997 was the achievement of integration synergies related to
the merger with Duracell International Inc. which was completed at the end of
1996. The Company's sales grew by 4% to $10.1 billion in 1997, a record level.
Profit from operations improved 13% to $2.32 billion from the $2.05 billion
level of a year ago; net income of $1.43 billion was 16% higher than the $1.23
billion in 1996; and basic earnings per common share rose to $2.55, 15% above
the 1996 level of $2.22. All profit comparisons are before special one-time,
merger-related charges taken in the fourth quarter of 1996 which reduced
profit from operations by $413 million, net income by $283 million and basic
net income per share by $.51 in the quarter and the year. The total return on
Gillette stock in 1997 was 30%, well ahead of the Dow Jones Industrial
Average. Since 1990, the compound annual return to shareholders has been 32%,
compared with 20% for both the Dow Jones Industrial Average and the Standard
and Poor's 500. Since the end of 1990, the market value of Gillette stock has
increased by more than $50 billion.
In 1997, 74% of Gillette's sales came from the eleven product categories in
which the Company holds the world leadership position. In addition to further
geographic expansion, the accelerated pace of new product introductions
continued with more than 20 new products launched in 1997. Investment in the
three principal "growth drivers" -- research and development, capital spending
and advertising -- in combination rose 5%, slightly ahead of the Company's
sales growth rate. As an indicator of the effectiveness of this investment in
"growth drivers", a record 49% of the Company's sales came from products
introduced in the past five years.
Mr. Zeien is also responsible for insuring the Company's compliance with
applicable laws and Company policies.
Stock Option Plan
The June 1997 stock option grant to Mr. Zeien was based upon the Committee's
judgment that stock options are designed as the Company's sole long-term
incentive for executive officers and that the option granted represents an
amount believed by the Committee to be competitive in value with long-term
incentives granted other chief executive officers of the companies in the
Compensation Peer Group. An additional stock option grant made to Mr. Zeien is
described on page 13.
Incentive Payment and Award
At its meeting on February 19, 1998, the Personnel Committee recommended and
the Board approved an additional compensation package for Mr. Zeien, to
provide an incentive to him not to retire and to continue his employment as
Chairman of the Board and Chief Executive Officer of the Company, consisting
of a payment to Mr. Zeien of $500,000 if he continues in these capacities
through February 28, 1999, with any such amount being payable to Mr. Zeien
after his retirement, and made an option grant to Mr. Zeien effective February
23, 1998, of 150,000 shares at an exercise price of $107.56 per share, the
fair market value of the stock on that date, which will become exercisable as
described in footnote (1) on page 15. The additional compensation package for
Mr. Zeien was reviewed by the Company's independent compensation consultants
who have advised the Personnel Committee that both its design and level are
well within current marketplace practices in similar situations. This
additional compensation package is similar to the one-year packages approved
by the Board of Directors on February 16, 1995, February 15, 1996 and February
20, 1997, and disclosed in the March 16, 1995, March 14, 1996 and March 13,
1997, proxy statements consisting of payments of $500,000 to be made to Mr.
Zeien after his retirement and stock options on 150,000 shares, 100,000 shares
and 100,000 shares respectively.
Richard R. Pivirotto (Chairman)
Wilbur H. Gantz
Herbert H. Jacobi
Alexander B. Trowbridge
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by or paid or awarded
to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company for all services rendered in all capacities
for the periods shown.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
---------------------------------------------------------- -------------
Other # of Stock
Name and Principal Annual Options All Other
Position Year Salary Bonus Compensation(1) Granted Compensation(2)
- -------- ---- ------ ----- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Alfred M. Zeien 1997 $1,466,667 $1,950,000 -- 350,000 $737,497
Chairman and Chief 1996 1,275,000 1,700,000 -- 350,000 690,367
Executive Officer 1995 1,125,000 1,300,000 -- 350,000 176,741
Michael C. Hawley 1997 $ 683,333 $ 675,000 -- 125,000 $101,267
President & Chief 1996 606,666 535,000 -- 100,000 84,172
Operating Officer 1995 514,375 390,000 $ 3,354 120,000 59,112
Joseph E. Mullaney 1997 $ 520,000 $ 250,000 -- 50,000 $ 88,629
Vice Chairman of 1996 497,500 250,000 -- 50,000 66,218
the Board 1995 475,000 220,000 -- 50,000 60,382
Robert G. King 1997 $ 463,750 $ 260,000 -- 75,000 $ 47,025
Executive Vice President 1996 385,000 240,000 -- 60,000 42,912
1995 342,603 210,000 -- 60,000 35,362
Jacques Lagarde 1997 $ 596,667 $ 360,000 -- 75,000 $ 70,051
Executive Vice President 1996 568,333 380,000 $44,588 75,000 60,488
1995 531,313 300,000 14,274 68,000 53,171
</TABLE>
- ------------
(1) Other Annual Compensation amounts represent taxes reimbursed by the
Company relating to non-deductible relocation expenses incurred by the
named individuals.
(2) The amounts reported as All Other Compensation include the following
payments or accruals under the Company's benefit and incentive plans:
(i) Company contributions during 1997 under the Employees' Savings
Plan and Supplemental Savings Plan as follows: Mr. Zeien $73,333,
Mr. Hawley $47,542, Mr. Mullaney $38,500, Mr. King $35,188 and
Mr. Lagarde $48,833. Under the plans, the Company contributes 50
cents for each dollar up to a maximum of 10% of salary and bonus
saved by participants. In general, regular U.S. employees are
eligible to participate. Certain limitations on the amount of
benefits under tax-qualified plans such as the Employees' Savings
Plan were imposed by the Employee Retirement Income Security Act
of 1974, the Tax Equity and Fiscal Responsibility Act of 1982,
the Tax Reform Act of 1986 and the Revenue Reconciliation Act of
1993. The Company adopted the Supplemental Savings Plan, as
permitted by law, for the payment of amounts to employees who may
be affected by those limitations, so that, in general, total
benefits will continue to be calculated as before on the basis
approved by the stockholders.
(ii) Savings plan equivalents credited on 1997 Incentive Bonus Plan
deferrals of $97,500 for Mr. Zeien and $16,875 for Mr. Hawley.
Before being selected to receive a bonus, participants have the
option to defer until a future year or retirement, or until an
earlier change in control, payment of all or a portion of any
bonus that may be awarded. Savings plan equivalents represent
amounts which would have been credited as Company contributions
under the Employees' Savings Plan or Supplemental Savings Plan
had payment of the bonuses not been deferred.
(iii) The value of Series C ESOP preferred shares during 1997 allocated
under the Employee Stock Ownership Plan ("ESOP") to each of their
accounts as follows: Mr. Zeien $7,420, Mr. Hawley $7,518, Mr.
Mullaney $7,420, Mr. King $7,420 and Mr. Lagarde $7,420. The ESOP
was adopted in January 1990 as part of the Company's modified
U.S. retiree medical benefit program. Since September 30, 1990,
Series C ESOP preferred shares have been allocated quarterly to
the accounts of eligible employees, generally on the basis of an
equal amount per participant. In general, regular U.S. employees
participate in the ESOP after completing one year of service with
the Company.
(iv) Company cost for the Executive Life Insurance Program during 1997
as follows: Mr. Zeien $45,906, Mr. Hawley $21,937, Mr. Mullaney
$31,996 and Mr. Lagarde $8,112. The program provides coverage
during employment equal to four times annual salary, subject to a
$600,000 minimum and a $2,000,000 maximum, with the participant
paying the premium for coverage equal to two times salary or
$250,000, whichever is less. During retirement, a Company-paid
death benefit equal to annual salary, subject to a $150,000
minimum and a $500,000 maximum, continues in effect for the life
of the participant.
(v) Company cost for the Estate Preservation Plan during 1997 as
follows: Mr. Zeien $13,338, Mr. Hawley $7,395, Mr. Mullaney
$10,713, Mr. King $4,417 and Mr. Lagarde $5,686. The executive
officers, as well as certain other officers, may participate in
the Estate Preservation Program, under which the Company and the
executive officer will share equally the cost of life insurance
in the amount of $1,000,000 payable on the death of the survivor
of each executive and his or her spouse, with the Company
recovering its contribution at the end of a 15-year period, or if
earlier, when the survivor of the executive and the executive's
spouse dies.
(vi) The amounts described on page 13 under Incentive Payment and
Award during 1997.
<PAGE>
<TABLE>
<CAPTION>
Stock Options Granted in 1997
Individual Grants Grant Date
- ----------------------------------------------------------------------------------------------------- Value
% Of Total -------------
Options Granted Grant Date
Number of To Employees Per Share Present Value
Name Options Granted In 1997 Exercise Price(1) Expiration Date ($)(2)
- ---- --------------- -------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Alfred M. Zeien 100,000 1.90% $85.25 2/20/07 $2,807,000
250,000 4.74% 94.69 6/19/07 7,512,975
Michael C. Hawley 125,000 2.37% 94.69 6/19/07 3,756,725
Joseph E. Mullaney 50,000 0.95% 94.69 6/19/07 1,502,975
Robert G. King 15,000 0.28% 80.38 2/04/07 392,700
60,000 1.14% 94.69 6/19/07 1,803,475
Jacques Lagarde 75,000 1.42% 94.69 6/19/07 2,254,225
</TABLE>
- ------------
(1) These awards were made pursuant to the 1971 Stock Option Plan. In general,
options granted to employees on or after June 19, 1997 become exercisable
as to one third on each of the first three anniversaries of the grant and
all options generally remain exercisable for ten years from the date of
grant provided the recipient remains employed throughout that period,
although as of retirement, all options which are at least one year old
become exercisable and incentive stock options ("ISO's"), a type of option
authorized under the 1981 amendments to the Internal Revenue Code, which
were granted on or after June 19, 1997 and are not exercised within three
months after retirement are automatically converted to non-ISOs
exercisable for five years after retirement. Non-ISO options granted
before June 19, 1997, to employees and options granted or to be granted to
non-employee directors become exercisable in full one year from date of
grant, and remain exercisable for three years following retirement (2
years for options granted prior to 1994 and 3 months for ISO's granted
before June 19, 1997.) The exercise price for all options is equal to the
average of the high and low prices of Gillette shares traded on the date
the options were granted. If termination of employment occurs within one
year after change in control, as that term is described at page 17, any
options held by the optionee that were not otherwise exercisable when
employment ceased would become immediately exercisable.
(2) Options were valued using a Black-Scholes-based option pricing model,
which generates a theoretical value based upon certain factors and
assumptions. Therefore, the value which is calculated is not intended to
predict future prices of the Corporation's common stock. The actual value
of a stock option, if any, is dependent on the future price of the stock,
overall stock market conditions and continued service with the Company,
since options remain exercisable for only a limited period following
retirement, death or disability. There can be no assurance that the values
reflected in this table or any other value will be achieved. The
assumptions and calculations used were provided by independent
compensation consultants. In addition to stock value at the date of grant
and the exercise price, which are identical, and the ten-year term of each
option, the following assumptions were used to calculate the values
reflected in the table: for options with an exercise price of $80.38 stock
price volatility of 23.927% based on a one year daily stock price history,
dividend yield of 0.90% based on the most recent quarter's annualized
yield, and risk-free rate of return of 6.42% equal to the yield on a 10-
year U.S. Treasury bond with a maturity matching the option term; for
options with an exercise price of $85.25, stock price volatility of
24.123% based on a one year daily stock price history, dividend yield of
0.84% based on the most recent quarter's annualized yield, and risk-free
rate of return of 6.42% equal to the yield on a 10-year U.S. Treasury bond
with a maturity matching the option term and for options with an exercise
price of $94.69 stock price volatility of 24.42% based on a one year daily
stock price history, dividend yield of 0.91% based on the most recent
quarter's annualized yield, and risk-free rate of return of 6.49% equal to
the yield on a 10-year U.S. Treasury bond with a maturity matching the
option term.
Aggregated Stock Option Exercises During 1997 And 1997 Year-End Stock Option
Values
<TABLE>
<CAPTION>
Total Value
Of Unexercised
Number Of Number Of Unexercised In-The-Money Stock
Shares Underlying Value Stock Options Held Options Held At
Name Options Exercised Realized(1) At Fiscal Year-End Fiscal Year-End
--- ----------------- ----------- ------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Alfred M. Zeien 76,000 $5,311,470 Exercisable 1,134,000 $67,419,330
Unexercisable 350,000 3,096,500
Michael C. Hawley 0 0 Exercisable 329,000 18,974,935
Unexercisable 125,000 768,750
Joseph E. Mullaney 48,000 3,242,810 Exercisable 230,000 14,577,600
Unexercisable 50,000 307,500
Robert G. King 36,940 2,507,858 Exercisable 137,060 7,210,265
Unexercisable 75,000 675,900
Jacques Lagarde 36,600 2,958,678 Exercisable 331,022 21,162,649
Unexercisable 75,000 461,250
</TABLE>
- ------------
(1) The amounts shown are the total values realized by the named persons on
exercises of options held for periods ranging from 5 to 9 years. The
annualized values for the options exercised, calculated by dividing the
total value realized by the number of years from the date of grant to the
date of exercise, are as follows: Mr. Zeien $1,041,617, Mr. Mullaney
$559,333, Mr. King $464,407 and Mr. Lagarde $358,231.
RETIREMENT PLAN
The following table sets forth the total annual pension benefits payable in
the form of a straight-life annuity before reduction for social security
benefits for employees who retire at or after age 65 under the Company's
Retirement Plan and Supplemental Retirement Plan.
Annual Pension
--------------------------------------------
Average Annual Compensation 25 Years or
Used as Basis for 15 Years of 20 Years of More
Computing Pension Service Service of Service
--------------------------- ----------- ----------- -------------
$ 400,000 $ 120,000 $ 160,000 $ 200,000
800,000 240,000 320,000 400,000
1,200,000 360,000 480,000 600,000
1,600,000 480,000 640,000 800,000
2,000,000 600,000 800,000 1,000,000
2,400,000 720,000 960,000 1,200,000
2,800,000 840,000 1,120,000 1,400,000
3,200,000 960,000 1,280,000 1,600,000
3,600,000 1,080,000 1,440,000 1,800,000
In general, the benefit upon retirement at or after age 65 with 25 years or
more of service is equal to 50% of the employee's average annual compensation
(salary plus bonus, if any, as reported in the Summary Compensation Table at
page 13 and the amounts described on pages 12 and 13 under Incentive Payment
and Award), during the five calendar years of highest compensation included in
the last ten calendar years of employment, minus 75% of primary social
security benefits.
Certain limitations on the amount of benefits under tax-qualified plans, such
as the Retirement Plan, were imposed by the Employee Retirement Income
Security Act of 1974, the Tax Equity and Fiscal Responsibility Act of 1982,
the Tax Reform Act of 1986 and the Revenue Reconciliation Act of 1993. The
Company adopted the Supplemental Retirement Plan, as permitted by law, for the
payment of amounts to employees who may be affected by those limitations, so
that, in general, total benefits will continue to be calculated on the basis
approved by the stockholders, as described above.
As of December 31, 1997, the persons named in the Summary Compensation Table
at page 13 had the following years of service under the Retirement Plan: Mr.
Zeien 30 years; Mr. Mullaney 26 years; Mr. Hawley 34 years; Mr. King 29 years
and Mr. Lagarde 27 years.
Change in Control and Severance Arrangements
The Board of Directors has adopted a severance pay and benefit arrangement to
become effective in the event of a change in control. In general, the
arrangement would obligate any acquirer to continue long-standing Gillette
practice regarding severance payments to terminated employees. Severance
payments to U.S. employees whose employment is terminated under certain
circumstances after a change in control would be based on seniority and
position level, subject to a minimum for certain key employees, including
certain executive officers. Severance payments to employees in foreign
countries would comply with local law and follow past Gillette practice.
The maximum amount payable under the severance pay arrangement, including any
benefit plan payments resulting from a change in control, is 2.99 times
average annual compensation for the five-year period preceding termination of
employment. For most employees, including the named persons, it is unlikely
that payments would reach the maximum. The aggregate of severance pay
excluding benefit plan payments to the persons named in the Summary
Compensation Table at page 13 on December 31, 1997, in the event of a change
in control on that date, would have been $7,670,000, or 2 times the amount of
their base salary on that date. In general, benefit plan payments resulting
from a change in control are dependent upon salary, but vary with seniority
and position level.
A change in control is defined in certain of the Company's benefit plans and,
in general, means those events by which control of the Company passes to
another person or corporation. Those events include a purchase of the
Company's stock pursuant to a tender offer, the acquisition of 20% or more of
the Company's stock by a person or group, a merger, or a sale of substantially
all of the assets of the Company. In addition, a change in control would occur
if, during any two-year period, the individuals who were serving on the Board
of Directors of the Company at the beginning of the period or who were
nominated for election or elected to the Board during the period with the
affirmative vote of at least two-thirds of such individuals still in office,
ceased to constitute a majority of the Board.
2. AMENDMENT TO ARTICLE 4 OF THE CERTIFICATE OF INCORPORATION
ADDITIONAL COMMON STOCK -- STOCK SPLIT IN THE FORM OF A 100% COMMON STOCK
DIVIDEND
The Board of Directors recommends an amendment to the Certificate of
Incorporation which would increase the authorized $1 par value common stock
from 1,160,000,000 shares to 2,320,000,000 shares. Subject to the approval of
this amendment by the stockholders, the Board has authorized the issuance to
stockholders of record on May 15, 1998, of one additional $1 par value share
of common stock as a dividend on each issued common share. The Board of
Directors believes that the stock split in the form of a 100% common stock
dividend, is in the best interests of the stockholders because it will place
the market price of the common stock in a range more attractive to investors,
particularly individuals, and may result in a broader market for the stock and
more widespread ownership of the Company.
The authorized common stock was last increased in 1995, when the stockholders
approved an amendment to the Certificate of Incorporation increasing the
authorized common stock by 580,000,000 shares to the present 1,160,000,000
shares, with the authorized preferred stock remaining at the present 5,000,000
shares. As of February 27, 1998, of the authorized preferred stock, 400,000
shares were reserved for issuance as Series A Junior Convertible Preferred
Shares in connection with the Corporation's Preferred Stock Purchase Rights
Plan; 153,551 were the Series C ESOP Convertible Preferred Shares described on
page 14; and the remaining 4,446,449 authorized preferred shares were
uncommitted. Of the authorized common stock, 435,222,411 shares were
uncommitted as shown below:
Common Stock
As of
February 27, 1998 Pro Forma
Before Amendment After Amendment
---------------- ---------------
Authorized 1,160,000,000 2,320,000,000
Issued and Outstanding (561,318,276) (1,122,636,552)
Held in Treasury (115,797,360) (231,594,720)
Reserved for issuance:
1971 Stock Option Plan (39,695,362) (79,390,724)
Duracell Shares Plan (1,553,007) (3,106,014)
Stock Option Plan for Key Employees
of Duracell International Inc. (135,096) (270,192)
Stock Purchase Plan (136,443) (272,886)
Series C ESOP Convertible Preferred Stock (6,142,045) (12,284,090)
Unissued and unreserved 435,222,411 870,444,822
=========== ===========
The number of common shares reserved for issuance upon the conversion of the
Company's convertible preferred shares and under the 1971 Stock Option Plan,
Duracell Shares Plan, Stock Option Plan for Key Employees of Duracell
International Inc. and the Stock Purchase Plan will be adjusted as appropriate
to reflect the stock split in the form of a 100% stock dividend, if the
amendment is approved. Otherwise, no specific transaction is now contemplated
which would result in the issuance of additional shares. However, it is the
Company's policy to explore on a continuing basis favorable acquisition and
financing possibilities which could at any time lead to the issuance of shares
of the Company's stock. In addition, it is desirable to have authorized stock
available for possible additional future stock dividends or stock splits or
for other corporate purposes.
Accordingly, it is proposed to amend the first paragraph of Article 4 of the
Company's Certificate of Incorporation to read as follows:
"4. The total number of shares of all classes of stock which the
corporation shall have authority to issue is Two Billion Three Hundred
Twenty-Five Million (2,325,000,000) shares, of which Five Million
(5,000,000) shares shall be shares of the class of Preferred Stock without
par value (hereinafter called "Preferred stock"), and Two Billion Three
Hundred Twenty Million (2,320,000,000) shares shall be shares of the class
of Common Stock with the par value of $1 per share (hereinafter called
"common stock")."
The Board of Directors would have sole discretion to issue the additional
shares of common stock from time to time for any corporate purpose, including
in reaction to any unsolicited acquisition proposal, without further action by
the stockholders. The terms of any one or more additional series of preferred
stock, including dividend rates, conversion prices, voting rights, redemption
prices, maturity dates and similar matters would also be determined solely by
the Board of Directors. Any preferred stock issued would be senior to common
stock with respect to dividends, liquidation rights and other attributes.
Holders of stock of the Company are not now and will not be entitled to
preemptive rights.
In connection with the stock split in the form of a 100% stock dividend, a
transfer of $1 for each additional share of common stock issued, or
approximately $677,115,636, will be made from the Company's additional paid-in
capital account to its common stock account as of May 15, 1998, the date on
which stockholders of record will be entitled to the additional shares, so
that the additional shares to be issued will be fully paid. The amounts so
transferred will no longer be legally available for distribution to
stockholders as dividends; however, it is estimated that the amount of surplus
which will be available for dividends after this transfer will be sufficient
for anticipated future dividends as provided under applicable law.
Following the increase of capital in the common stock account becoming
effective, certificates representing the additional shares will be distributed
by the Corporation to stockholders of record as of May 15, 1998, without any
further action by the stockholders.
The Corporation will apply for listing on the New York Stock Exchange and
other exchanges on which the Company's shares are listed of the additional
shares of common stock to be issued. As a result of the proposed stock split
in the form of a 100% stock dividend, brokerage commissions and transfer taxes
on any subsequent trades of the stock may increase.
In the opinion of tax counsel for the Company, the adoption of the proposed
amendment and the issuance of the additional shares in connection with the
stock split in the form of a 100% stock dividend will result in no gain or
loss or any other form of taxable income for United States federal income tax
purposes. The laws of jurisdictions other than the United States may impose
income taxes on the issuance of the additional shares in connection with the
stock split in the form of a 100% stock dividend, and stockholders subject to
those laws are urged to consult their tax advisors.
Recommendation of the Board of Directors
An affirmative majority of the votes entitled to be cast at the meeting is
required for approval of the proposed amendment to Article 4 of the
Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO ARTICLE 4 OF THE
CERTIFICATE OF INCORPORATION, WHICH IS DESIGNATED AS PROPOSAL 2 ON THE
ENCLOSED PROXY.
3. APPOINTMENT OF AUDITORS
On the recommendation of the Audit Committee of the Board of Directors, the
Board has appointed KPMG Peat Marwick LLP as auditors for the year 1998,
subject to approval by the stockholders. KPMG Peat Marwick LLP has audited the
books of the Company for many years.
Representatives of KPMG Peat Marwick LLP will attend the 1998 Annual Meeting
of the stockholders, where they will have the opportunity to make a statement
if they wish to do so and will be available to answer appropriate questions
from the stockholders. Should the appointment of auditors be disapproved by
the stockholders, the Board of Directors will review its selection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE APPOINTMENT
OF AUDITORS, WHICH IS DESIGNATED AS PROPOSAL NO. 3 ON THE ENCLOSED PROXY.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, solicitations may also be made by personal interview,
telegram and telephone. The Company has retained Georgeson & Company Inc., New
York, New York, to assist in the solicitation of proxies using the means
referred to above at a cost of $18,000 plus reasonable expenses. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals, and the
Company will reimburse them for their expenses in so doing. In addition,
directors, officers and other regular employees of the Company may request the
return of proxies by telephone or telegram, or in person.
VOTING OF PROXIES
Under the by-laws of the Company, as permitted by Delaware law, the required
quorum for the meeting is 33 1/3% in interest of the shares outstanding and
entitled to vote at the meeting, a plurality of the votes properly cast for
the election of directors by the stockholders attending the meeting in person
or by proxy will elect directors to office, an affirmative majority of the
votes entitled to be cast at the meeting is required for approval of proposal
2 and an affirmative majority of the votes properly cast at the meeting in
person or by proxy is required for approval of proposal 3.
When your proxy is returned properly signed, the shares represented will be
voted in accordance with your directions. Where specific choices are not
indicated, proxies will be voted for proposals 1 through 3. If a proxy or
ballot indicates that a stockholder, broker, or other nominee abstains from
voting or that shares are not to be voted on a particular proposal, the shares
will not be counted as having been voted on that proposal although such shares
will be counted as in attendance at the meeting for purposes of a quorum.
Abstentions will not be reflected in the final tally of the votes cast with
regard to whether the Election of Directors (Proposal 1) or the Appointment of
Auditors (Proposal 3) are approved under Delaware law and the by-laws of the
Company. However, abstentions and broker non-votes will have the effect of a
negative vote in determining whether the proposed amendment to Article 4 of
the Certificate of Incorporation (Proposal 2) is approved under Delaware law
and the by-laws of the Company, because that proposal requires an affirmative
majority of the votes entitled to be cast at the meeting for approval.
CONFIDENTIAL VOTING
The Board of Directors has determined that the Company's confidential voting
policy employed for the last several years will apply to the 1998 Annual
Meeting. The Company's policy requires that proxies and ballots be kept
confidential from officers, directors and employees of the Company and from
third parties. Certain outside agents, such as those serving as proxy
solicitors, who have agreed to comply with this policy, but not Company
employees, directors or officers, may be permitted access to proxies and
ballots to facilitate their participation in soliciting proxies and conducting
the meeting. The policy will not prevent Company officers, directors or other
employees or representatives from determining which stockholders have not
voted so that they can be urged to vote. The policy will not apply in the
event of a proxy contest or other solicitation based on an opposition proxy
statement.
ANNUAL REPORT
The Annual Report of the Company for the year ended December 31, 1997, is
being mailed with this proxy statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the proxy
statement for presentation at the 1999 Annual Meeting must be received by the
Company on or before November 13, 1998.
In general, stockholder proposals intended to be presented at an annual
meeting, including proposals for the nomination of directors, must be received
by the Company 60 days in advance of the meeting, or by February 12, 1999, to
be considered for the 1999 Annual Meeting. The requirements for submitting
such proposals are set forth in the Company's by-laws.
OTHER MATTERS
Except for matters described in this proxy statement, the Board of Directors
does not know of any matter that will or may be presented at the meeting. With
respect to any such proposals not now known to the Board of Directors, the
persons named as proxies intend to vote the shares they represent in
accordance with their judgment.
450-PS-97
<PAGE>
THE GILLETTE COMPANY PRUDENTIAL TOWER BUILDING
BOSTON, MA 02199
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned (a) revokes all prior proxies and appoints and authorizes Jill
C. Richardson and Robert E. DiCenso and each of them with power of substitution,
as the Proxy Committee, to vote the stock of the undersigned at the 1998 Annual
Meeting of the stockholders of The Gillette Company on April 16, 1998, and any
adjournment thereof, as specified on the reverse side of this card on proposals
1 through 3 and in their discretion on all other matters incident to the conduct
of the meeting and, if applicable, (b) directs, as indicated on the reverse, the
voting of the shares allocated to the benefit plan account(s) of the undersigned
at the 1998 Annual Meeting and at any adjournment thereof. Plan shares for which
no directions are received, and ESOP and GESOP shares which have not been
allocated to participant accounts, will be voted on each issue in proportion to
those shares allocated to participant accounts of the same plan for which voting
instructions on that issue have been received. Each trustee is authorized to
vote in its judgment or to empower the Proxy Committee to vote in accordance
with the Proxy Committee's judgment on other matters incident to the conduct of
the meeting and any adjournment thereof.
(Important - To be signed and dated on reverse side) SEE REVERSE SIDE
<PAGE>
This proxy will be voted and will be voted as specified by the stockholder, but
if no choice is specified, it will be voted FOR proposals 1 through 3.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1 through 3.
------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Election of directors for 3-year terms
W.H. Gantz, J.P. Lemann, R.R. Pivirotto, A.M. Zeien FOR AGAINST ABSTAIN
For All Nominees Withhold from all Nominees 2. Amendment to Article 4 of
the Certificate of Incorporation ---- ----- -----
---- ----
For, except withhold vote from the following nominee(s). 3. Approval of the appointment
of KPMG Peat Marwick LLP
----------------------------------- as Auditors ---- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
